Food industry fighting grocery retailers ‘arbitrary fees’

The latest round of fees introduced by large grocery retailers on their suppliers has attracted coverage in the news media over the past week. Canada’s premier food industry associations have announced their intention to fight arbitrary fees and call for a more equitable system.

The Canadian Federation of Agriculture, the Food and Consumer Products of Canada, Food and Beverage Canada, Canadian Horticultural Council, The Canadian Beverage Association, Dairy Processors Association of Canada and the Baking Association of Canada are banding together to fight for Canada’s food security and economic well-being.

President and CEO of the Baking Association of Canada, Paul Hetherington, stated that this is of particular relevance to Ontario, as it is home for 40 per cent of the food manufacturing in Canada. The food industry’s press release stated, “an ever more concentrated and powerful retail sector versus a food production and processing sector that is being weakened to unsustainable levels was precisely what led the UK Government in 2009 to intervene and legislate against inappropriate practices through the introduction of a ‘Groceries Supply Code of Practice’.”

“We need leadership, out of the province of Ontario, to adopt such a code,” said Hetherington with regards to the Groceries Supply Code of Practice. “The whole intent here is to level the playing field. We’ve got struggling food manufacturing sectors and that includes Bakers. I was on the phone this morning with one [bakery], they’re down by 30 per cent.”

This is occurring at a time when farmers and food and beverage processors are already facing a complex web of fees and penalties in their relationships with large grocery retailers, in addition to managing the on-going impact of Covid-19 on Canada’s food system.

Arbitrary fees and penalties imposed by large grocery retailers on Canadian farmers and food and beverage processors negatively impact Canadian consumers as it results in lower investments and product innovation. Requiring food and beverage suppliers to cover the cost of investments in retail stores will come at the expense of the farmers’ and processors’ own investments in their Canadian facilities. What’s more, it will also reduce revenues for Canadian farmers. There is no scenario under which these arbitrary fees and penalties will benefit Canadians. On the contrary, they will ultimately impact Canada’s food security, as small and mid-sized farms and food processors already struggle to continue participating in this retail environment.

Hetherington said, “the COVID pandemic means many bakeries are dealing with substantial reductions in revenue. And on top of which we now have these arbitrary fees being imposed. This brings the sustainability of the industry into question.”

This is an issue of strategic importance for Canada’s food security. The associations are  call on the federal and provincial governments to implement a code of practice in Canada to check this arbitrary conduct from large grocery retailers, review all current fees, penalties, and after sale deductions, and to protect Canada’s agri-food sectors. Governments must heed the lessons of the successful UK experience in rebalancing competitive forces in the food sector.

In the words of the U.K. Competition Commission 2008 final report on supplies of groceries: “…we found that the transfer of excessive risk and unexpected costs by grocery retailers to their suppliers through various supply chain practices if unchecked will have an adverse effect on investment and innovation in the supply chain, and ultimately on consumers.”