The grocer code of conduct promises greater transparency and stability in the Canadian food market

Sylvain CharleboisIn an effort to tackle high food prices, the Parliamentary Committee on Agriculture in Ottawa recently sent a letter to both Loblaw and Walmart, urging both retailers to voluntarily comply with the proposed grocer’s code of conduct or risk facing legislative action.

This move signals Canada’s potential shift towards a mandatory, industry-led code overseen by the government, a significant step that promises benefits for Canadians, though its importance may not yet be widely recognized.

The remarkable consensus across political parties highlights the grocery code of conduct as a key instrument for gradually stabilizing food prices. This code seeks to furnish food companies with a safe harbour for dispute resolution through a designated secretariat, offering an alternative to the current norm where companies have no recourse but to endure unfavourable conditions.

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The code aims not to control prices but to guarantee equitable contract practices for all parties, including startups, farmers, and small family-run food processors, thus providing suppliers with essential financial stability. The industry, plagued by unilateral decisions and broken agreements by grocers, stands to gain from the equitable playing field this code promises.

The code’s introduction might seem paradoxical to staunch free-market advocates and conservatives who typically view government intervention with skepticism. Companies like Walmart and Loblaw, having achieved their market dominance through strategic decisions, are often celebrated for their success. However, the issue at hand transcends their accomplishments.

The food industry is distinct for two primary reasons:

    1. It operates on razor-thin margins across the entire supply chain, necessitating meticulous planning and coordination.
    2. The power dynamics are skewed, with suppliers needing to pay substantial fees to grocers for the privilege of doing business with them.

This situation has granted grocers considerable gatekeeping authority, allowing them to shape the market to their advantage. It doesn’t work that way in other sectors.

This dominance not only stifles competition but has also marginalized independent grocers, particularly affecting Canadians in smaller towns by limiting their access to nearby stores. The upward trend in grocery fees (payments made by suppliers to many retailers in exchange for stocking products on shelves), primarily driven by Loblaw and Walmart, exacerbates the challenges for suppliers and independent grocers alike.

It’s crucial to understand that the code’s goal is not to reduce prices – such expectations would be fanciful – but to mitigate price volatility, a pervasive issue that overshadows the more fundamental problem of food inflation. While higher prices are concerning, it’s important to recognize food inflation as a normal economic phenomenon, essential for businesses to thrive and ensure the safety of food products. Achieving a food inflation rate of 1.5 percent to 2.5 percent – a range last seen in the summer of 2021 and anticipated to return by year’s end according to Canada’s Food Price Report forecast – is ideal.

Price volatility, exacerbated by increased grocery fees and the manipulation of prices around blackout periods, remains a significant concern if the aim is to reduce price volatility. Although the code of conduct may not eliminate these practices, it is poised to significantly decrease their impact on retail food prices.

Moreover, the code of conduct promises greater transparency within the food chain. An annual report by the secretariat detailing compliant companies and highlighting those failing to adhere introduces an unprecedented level of accountability in Canada’s food industry.

While the grocer’s code of conduct may initially seem counterintuitive to some, its benefits for consumers, suppliers, and the overall market cannot be overstated. It represents a step towards a more equitable and stable food industry in Canada.

Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

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