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There is a solution

Government intervention can help end ugliness in the manufacturer-retailer relationship

There is mounting evidence that food manufacturing in Canada—the largest manufacturing sector in this country—is at risk, which could result in more plant shutdowns, job losses and higher costs of goods for Canadians. One of the factors contributing to this situation is the lack of balance in the relationship between big grocery retailers and the manufacturers who make the foods we eat.

Manufacturers say the high costs of doing business in Canada are impacting their ability to compete and threaten the long-term viability of the industry. According to the recently released Food and Consumer Products of Canada (FCPC) Industry Sustainability & Competitiveness Study, the cost of placing food, beverage and consumer products on store shelves has increased 22% between 2013 and 2017. The report points to increased consolidation among grocery retailers, which has decreased manufacturers’ ability to negotiate with retailers, as one factor contributing to the problem.

There is no point blaming the retailers for this state of affairs, because there are no rules or regulations preventing them from charging hefty fees.

This was the situation in the United Kingdom when the government and the grocery industry agreed to establish the Groceries Supply Code of Practice— legislation that came into effect in 2009, which aims to regulate the relationship between major grocers and suppliers and prevent the unfair practices that had stifled competition, innovation and prosperity in the industry. A few years later an independent adjudicator was added, who is empowered to financially penalize retailers for breaking the code. Initially, there was some trepidation on both sides but in the intervening years there has been progress. The adjudicator has pointed out a number of unfair practices and put a stop to them.

It is high time Canada had a similar type of regulated body. But what we need here is a more collaborative arrangement built upon a consensus among manufacturers and retailers. This is the approach suggested by FCPC, according to its CEO Michael Graydon. He believes if all the parties got together with representatives from government, a new set of workable rules could be established based partially on the U.K. model.

Graydon says there would be a need for government involvement, similar to what there was for the banking industry when credit card fees got too high. He says the government intervened and told the banks that they either had to come up with a solution themselves or the government would impose one that they probably wouldn’t like. The banks decided to fix the problems themselves.

Unfortunately, the food industry has few existing rules and regulations that the Competition Bureau can enforce. The agency was initially established to protect businesses and consumers, not to regulate a broken industry such as grocery. The new rules will have to be established either by the industry itself or by government.

The government does not want food manufacturing to abandon Canada, so it is open to working toward a new set of rules and regulations.

It seems the next step will be to establish a collaborative body of retailers, manufacturers and government to work toward establishing these new rules to deal with retailer/manufacturer issues. It might take a couple of years, but FCPC is determined to pursue the matter.

This is an issue that can’t wait too long for a resolution. Let’s follow the U.K.’s lead.

This article appeared in Canadian Grocer’June/July issue.

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