Why all political parties agree that the grocery code of conduct is necessary

The Parliamentary Committee in Agriculture in Ottawa has embarked on a mission to address the rising food prices, extending an invitation to both Loblaw and Walmart. In a letter from the committee to both Loblaw and Walmart sent on Friday (Feb. 16), Ottawa urges both retailers to voluntarily comply with the proposed grocery code of conduct or risk facing legislative action. In other words, Canada is on the verge of adopting a government-coordinated, industry-led mandatory code – a development that heralds good news for Canadians, though many may not yet realize its significance.

Unprecedented unity among all political factions underscores the grocery code of conduct as a pivotal tool for stabilizing food prices over time. This code aims 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. Its focus is not on dictating prices but on ensuring fair contractual practices for all entities involved, including startups, farmers and small family-owned food processors, thereby offering much-needed financial predictability to suppliers. 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.

READ: Costco executive says company always looking to lower prices, mitigate increases 

The food industry is distinct for two primary reasons: Firstly, it operates on razor-thin margins across the entire supply chain, necessitating meticulous planning and coordination. Secondly, the power dynamics are skewed, with suppliers needing to pay substantial fees to grocers for the privilege of doing business with them. It doesn’t work that way in other sectors. This dynamic has bestowed upon grocers’ significant gatekeeping power, influencing the market to their advantage.

 This dominance has not only stifled 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, 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% to 2.5% – 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.

READ: Canada's inflation rate tumbled to 2.9 per cent in January 

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 may not eliminate these practices, it is poised to reduce their impact on retail food prices significantly. 

Moreover, the code 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 grocery 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.