Ottawa—The need for a Grocery Code of Conduct is urgent to fix the imbalance between the largest grocery chains and their suppliers, says Michael Graydon, CEO of Food, Health and Consumer Products of Canada.

The concentration of power in the five chains has long stifled competition and hindered innovation, he told the Commons agriculture committee.

“The cost for a manufacturer to place and keep a product on a grocery shelf has nearly doubled over the last 15 years, while remaining relatively stable in the United States, where consolidation is not an issue.”

The cumulative impact of fees and fines from grocers to suppliers is estimated at $5 billion per year, he said. “As a direct consequence, a worrying 23 per cent of our members are considering withdrawing manufacturing capacity and/or products from product lines within the Canadian market due to these financial pressures.”

The intensive work that has gone into developing the Code reflects a united effort to address and rectify this deep-seated issue. Sobeys and Metro have represented grocery chains in the discussions in a very constructive way, he said.

“While we appreciate the government's efforts in understanding and addressing food inflation, the current focus on retailer-centric dialogues is impacting manufacturers' ability to recover and stabilize costs.”

Some grocery companies have said they “will no longer accept supplier price increases for the foreseeable future, essentially passing inflationary responsibility to suppliers in the name of maintaining retail margins. Their actions perpetuate the very imbalances the Code aims to solve.

“The burden of food inflation must be shared by retailers and suppliers alike, and government efforts, while well-intentioned, are penalizing suppliers only; hence, we believe the further need for a code.”

A Code is required to stabilize grocery prices against all categories in a typical grocery store. “Speculation by a retailer that a Code could lead to price increases is not grounded in evidence. Experiences with grocery codes in the U.K., Australia and Ireland have helped increase competition within the marketplace, stabilizing prices and ultimately lowering them,” Graydon said.

A balanced Code now is ready for implementation and has the support of a majority of stakeholders, including agriculture, suppliers, retailers, independent grocers and others across the supply chain, representing thousands of companies that believe in the promise of a more equitable way of doing business.”

Loblaws and Walmart continue to question its viability so government intervention is needed to ensure the Code’s implementation, he said. “It will only succeed if it is applied universally across all stakeholders, retailers and suppliers alike.”

Another issue for grocery suppliers is the myriad of government regulations that, while aiming to ensure quality, safety and transparency for Canadians, also contribute significantly to growing operational costs for food companies.

“These regulations require industry to navigate an ever-changing landscape of labelling, packaging and distribution changes that are often contradictory and ill-timed, particularly over the past few years, as companies manage ongoing supply chain and distribution challenges,” he said.

This news report was prepared for National Newswatch.