Food industry leaders are close to finalizing a draft of the first-ever code of conduct for the Canadian grocery business, according to internal documents submitted to government this month.
Ten lobby groups representing food producers and retailers have been in talks with a government-appointed mediator for more than a year, trying to come up with a set of new rules to govern dealings between grocers and their suppliers. Legislators and industry insiders believe a code of conduct is the best way to finally stamp out years of power imbalances and bully tactics in the sector, in which five retail chains control roughly 80 per cent of sales.
The group says it is now running consultations on a draft of those rules, with plans in the works for “the code’s pending implementation,” according to a progress report submitted to government officials this month and obtained by the Financial Post.
Some industry leaders say the negotiations have hit a major milestone, with a finalized code of conduct now in sight for the first time — a somewhat surprising development considering the meandering process had blown past two government-imposed deadlines in the past year and appeared stalled as of July.
The recent progress, however, has also caused controversy inside the negotiating team, with one of the participating lobby groups permanently pulling out of talks last week. Kathleen Sullivan, chief executive of manufacturing lobby group Food and Beverage Canada (FBC), said she walked away from the negotiating table on Nov. 18 because the draft rules, though not finalized, made clear the process is ignoring the little guys.
“It is FBC’s view that the Code of Conduct currently being developed will be insufficient to address the needs of Canada’s small and mid-sized food manufacturers,” Sullivan said in an email. “The system, as proposed, will place few limitations on specific retailer activities … without actually addressing the underlying imbalance of negotiating power.”
Fixing those lopsided power dynamics, Sullivan noted, was the whole point of the process to begin with.
In the early days of the pandemic in 2020, Walmart Inc. and Loblaw Companies Ltd. enraged their suppliers by unilaterally implementing new fees that forced food companies to help fund upgrades to the grocers’ e-commerce operations. Suppliers said the fees were a glaring example of how much power a handful of dominant grocery chains wield against food manufacturers and farmers in Canada. They complained of being forced to pay draconian penalties for short or late shipments, at a time when COVID-19 infections were causing widespread shortages and labour issues for manufacturers. And because the grocers represented such a large portion of national sales, suppliers said they couldn’t afford to push back against the fees out of fear the chains might retaliate by “de-listing” their products from shelves.
The country’s federal, provincial and territorial agriculture ministers took note, and in July 2021, ordered the industry to come up with a solution itself. If not, Quebec Agriculture Minister André Lamontagne warned, the government would do it for them.
Industry advocates are hoping that doesn’t happen, especially because government intervention would likely end up forcing global food companies and national retail chains to wade through a mess of different provincial regulations. The federal government has already determined that regulating the grocery industry is outside its jurisdiction, leaving it up to the provinces and territories to create their own set of rules.
On Friday, federal Agriculture Minister Marie-Claude Bibeau and Lamontagne, who have both been at the forefront of the code of conduct issue, said they were “disappointed” by FBC’s withdrawal from the talks.
“We have met with (FBC) to understand their concerns and will continue to ensure that the interests of SMEs are well represented in the process,” Bibeau and Lamontagne said in a joint statement issue by Lamontagne’s office.
Michael Graydon — chief executive of the manufacturing lobby Food, Health and Consumer Products of Canada, who is co-chairing the negotiating group — dismissed the concerns about small and medium manufacturers as unfounded. The draft rules give those players rights that are “100 times better than what they’ve got today,” he said.
Going forward, Graydon said that several of the remaining nine lobby groups at the negotiating table have members that represent smaller food manufacturers, so there won’t be a “void of representation.”
“We’ll continue to move forward and get this thing over the line,” he said. “I believe we have the essence of a code…. It is a phenomenal milestone.”
That marks a significant change in outlook because, this summer, industry-led negotiations appeared to be at risk of going nowhere. The lobby groups told officials in July that if they couldn’t reach a consensus by this month, government should make good on its longstanding threat to step in and write its own rules.
But documents submitted to government earlier this month suggest the lobby groups have made serious headway since the summer.
“We are pleased to announce that we have completed a draft of the code of conduct provisions,” the lobby groups wrote in a progress report for Canada’s federal, provincial and territorial agriculture ministers (a group known in the industry as the FPT).
The progress report said the negotiators engaged a handful of executives from major retailers and food brands — including Metro Inc., Sobeys’ parent Empire Co. Ltd. and dairy processor Lactalis Canada Inc. — to draft rules of engagement for dealings between grocers and suppliers. Those rules are subject to change, but it includes a ban against “punitive or vexatious acts” and guidelines on fees, penalties and and how a grocer can de-list a product.
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The negotiators are also in favour of establishing a Grocery Code Adjudication Office, similar to a model used in the United Kingdom’s grocery code of conduct, which would have funding, staff and arbitrators available to enforce the code, according to the progress report.
“The general idea is clear: a senior official with an eye on the entirety of the system, empowered and
funded to make a difference,” the report says, adding that the adjudicator will be able to hand out fines to bad actors.
Gary Sands, vice-president of the Canadian Federation of Independent Grocers and one of the code negotiators, said the “finish line is within sight” but the group still needs to reach consensus out some key sticking points.
“I’d be hesitant to say what is final and what is not,” he said.
The progress report lays out an industry consultation process on the draft rules that will run between November and January. The negotiating team is also working on a “communication and educational strategy for the code’s pending implementation,” the report said.