People shop at a Loblaws store in Toronto on May 3, 2018.Nathan Denette/The Canadian Press
Vass Bednar is a contributing columnist for The Globe and Mail and the host of its Lately podcast. Denise Hearn is an author and researcher who focuses on how economic power shapes the world. They are the authors of the forthcoming book The Big Fix: How Companies Capture Markets and Harm Canadians.
Canada has what seems like a rare win in the competition space. Stakeholders are celebrating the finalization of the Grocery Code of Conduct – a milestone more than three years in the making that was threatened this year when Loblaw and Walmart indicated they wouldn’t be signing.
Now, the grocery industry has slightly better processes to resolve disputes among suppliers and retailers regarding issues that include random fees, sudden cost increases, lack of clarity on contracts, and late payments. The code includes important elements such as no unilateral contract modification, no refusals to deal, and a board with representatives from across the supply chain.
But the design of this new system is disappointingly DIY. It trusts that the industry would police itself, and being merely a code of conduct, whole swaths of it are difficult to enforce. Instead of pursuing harmonized or federal legislation with teeth, we stayed in our comfort zone and took our sweet time while consumers stretched their food budgets. We are a country that’s become too accustomed to settling for scraps.
The code has been industry-led, ostensibly allowing the sector to co-design a pact to play more fairly. And while the parties that dedicated their time and effort to this cause deserve kudos for their perseverance, these efforts may prove wanting. What the code of conduct misses, fundamentally, is the inherent power imbalances between a set of highly concentrated grocery retailers and their counterparties.
What is the grocery code of conduct, and how could it impact food prices for Canadians?
While the code “strongly endorses” written contracts, Amazon and Walmart have, for years, been using artificial intelligence to negotiate contract terms with their suppliers to gain price concessions. They use a software called Pactum AI Inc, and Walmart claims that since introducing the program in early 2021 (during the COVID-19 pandemic), it saves about 3 per cent on contracts handled through the software. The largest companies today have a range of superior technology and data that they can weaponize in negotiations to get concessions, not only on prices, but also on payment terms and contract details.
Fear of retaliation from a supplier’s biggest customer is difficult to overcome with voluntary governance. For example, Britain introduced a voluntary code in 2010, and a 2013 review stated there was “a widespread belief among the supermarkets’ suppliers that the code was not working effectively, and that it had not brought about any change in the behaviour of the supermarkets. The key reason they gave for this was fear of the consequences of complaining.”
What Canada should do instead is look toward other jurisdictions that are using public policy to actually curb corporate power. In the United States, the Packers and Stockyards Act requires transparency and fairness in the dealings of meat, livestock and poultry retailers with their suppliers, which can extend to grocery store practices, and some states have considered limiting slotting fees (these are a cost that manufacturers pay to place their products on retail shelves). The European Union has guidelines that discourage excessive slotting fees, and a directive (2019/633) on unfair trading practices in the agricultural and food supply chains.
Legislators should consider a Canadian version of the U.S. Robinson-Patman Act to combat anti-competitive price discrimination. The U.S. act, initially enacted in 1936, prevents unfair pricing and promotional practices that harm competition. Without similar legislation, larger companies can engage in predatory pricing, offering lower prices to big buyers while charging more to smaller ones, which creates barriers for small businesses. A Robinson-Patman-like law would help prevent monopolistic behaviour, promote market efficiency and foster a competitive marketplace where businesses compete on merit and quality, not just size.
Loblaw agrees to support grocery code of conduct after years of industry negotiations
We’re all hungry for a big fix – that one simple trick that will rebalance power in the economy. Instead of solving for structural power imbalances between purchasers and suppliers, we gave the sector homework and let them figure it out themselves. Tasking sectors with self-regulation risks allowing the largest private players to set market terms, once again, in their favour while promising to play nice. It’s not enough to hope for fair and ethical dealings with a handshake.
Ultimately, this new code highlights the necessity of a concrete policy framework. The government should establish that and make that framework the law. In doing so, these principles can even carry over from grocery to other sectors such as manufacturing and technology.