With food prices top-of-mind for many Canadians, a parliamentary committee recently finished studying ways to stabilize food prices — including the impact of a grocery code of conduct. The grocery industry has been working to implement a code since 2021 and finalized one in August 2023.
However, the code is not yet in force and Loblaws and Walmart Canada have yet to sign on.
Economists say the grocery code of conduct is necessary to improve business relationships in Canada’s grocery industry. But they also say it will not significantly affect consumers by lowering grocery prices.
Canada’s grocery code of conduct would create fair business relationships between grocery retailers, food manufacturers and primary producers, says Errol Cerit, executive vice president of industry, public affairs and membership development at Food, Health & Consumer Products of Canada, an industry association.
The code will clarify the obligations that these three groups have with each other, and help create trust among the businesses, he says.
The code says, for example, that all businesses in the grocery industry should act with transparency and certainty, including having clear contracts regarding fees. It says business contracts “cannot be altered unilaterally” and sets out a process for negotiating and disputing fees.
Grocery retailers charge food manufacturers fees “at every stage of their business transaction,” says a June report from the Standing Committee on Agriculture and Agri-Food. Retailers charge for shelf space and for merchandising expenses. They may charge fees if a shipment is late or contains less than the agreed-upon amount of product.
Retailers can also add other fees if products do not sell. The reasons for these fees are often unclear, and food manufacturers have been concerned about them for years, says Al Mussell, research director at the Canadian Agri-Food Policy Institute.
“The dilemma that the grocery code of conduct is intended to address is with the worry of abusive and sustainable procurement practices,” he said.
“If you have abusive practices in the system that are costly for the food manufacturers, they become less innovative, less willing to take risks, less able to work on product quality… which in turn has the effect of increasing costs,” he said.
The code also creates a dispute resolution process, which experts agree is necessary.
“Friction in supply chains adds costs to both sides,” said Jill Hobbs, a professor of agriculture and resource economics at the University of Saskatchewan. If payments are late or if companies have to hire lawyers to settle disputes, that may contribute to the final cost consumers pay.
But the code is focused on relationships between retailers, food manufacturers and producers — not consumers. “I wouldn’t say it is the key way to reduce prices for consumers,” Hobbs said.
Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University, agrees.
The code is meant to address price volatility — the sudden increase in grocery prices that results from disputes between retailers and suppliers, he says. “Price volatility is the real enemy here,” he said.
But any assumptions that the code will cause significant consumer savings is “wishful thinking,” Charlebois said.
‘Not going up as quickly’
Australia and the UK both have grocery codes of conduct. Australia’s is voluntary. The UK’s was developed by the government and imposed on industry, says Cerit.
Canada’s grocery code of conduct was developed by all parts of the grocery industry, including retailers and food suppliers. The code is “industry-created, industry-led, industry-governed,” said Cerit.
And yet, two of Canada’s largest retailers, Loblaw and Walmart Canada, have not yet responded to the parliamentary committee’s February letter urging them to agree to Canada’s grocery code of conduct.
Neither company responded to emails from Canadian Affairs requesting comment.
Either company’s refusal to sign the grocery code of conduct will “undermine” the code’s effectiveness, the committee’s letter says.
Some retailers, such as Metro, which owns Metro and Food Basics, and Empire, which owns Sobeys, told the committee they support the code.
In the letter, the committee warns the companies that if they do not agree to the code, “the committee will not hesitate to recommend that the federal and provincial governments adopt legislation to make it mandatory.”
Canadians should not expect grocery prices to drop any time soon, even if the grocery industry does adopt the code of conduct, voluntarily or otherwise.
“Certainly, food price inflation rate is slowing,” said Hobbs. “But that doesn’t mean food prices are falling. It just means they are not going up as quickly as they were a year ago.”
Ultimately, retailers determine what consumers pay for groceries, says Cerit. While some commodity prices have fallen recently, commodities are “only one input cost for a supplier in creating a product,” he said. Suppliers also need to consider costs for energy, transportation, marketing and research and development when determining how much to charge retailers for their products.
Rising labour and transportation costs make food price increases inevitable, says Charlebois. Expecting grocery prices to be the same as they were years ago is “like expecting the exact same car that you purchased, say 10 years ago, to be the exact same price today.”
