Is a bread cartel alive and well in Canada?
The Competition Bureau is investigating major grocery chains in search of evidence of retail bread price fixing. Loblaws, Sobeys, Metro, Walmart and other companies have acknowledged the probe.
Why is bread is being targeted by the bureau?
Demonstrating beyond a reasonable doubt that grocers are colluding to keep retail prices artificially high is almost impossible. Several attempts have been made in the past, with at best mixed results. The average grocery store carries well over 15,000 different products. And prices can be affected by an array of factors, including: commodity rates; energy and labour costs; and new food safety and packaging regulations. These and others factors can influence prices in many categories more or less simultaneously. So intentional collusion to inflate profit margins would be hard to prove.
Bread prices have historically been quite stable, with the exception of 2008 and 2009, when prices jumped almost 50 per cent for all bakery products. Unlike fruits, vegetables and even meat, bread has been immune to fluctuating prices for some time.
In fact, Canadians have access to the most affordable food basket in the world. After the United States and perhaps Singapore, Canadians spend less on food relative to their income than most countries in the world.
Nonetheless, since we’re next to the United States, where food is generally of questionable quality but amazingly cheap, our prices often get unfairly benchmarked with theirs.
And in the last month alone, food retail prices have dropped in Canada, including for bakery products.
So to suggest that food prices are inflated in Canada seems farfetched. If there is evidence that Canadian consumers pay too much for bread due to price-fixing schemes, it’s not readily apparent.
At the centre of this investigation is a much deeper problem in the food supply chain. For years, grocers have engaged in an open war with food processors, with grocers trying to position themselves as protectors of the public interest by pushing vendors to lower prices to remain competitive.
Tensions between grocers and vendors are at an all-time high. For a few years, major grocers have demanded price cuts from suppliers and it’s had a domino effect on the industry.
So it’s not surprising to learn that independent grocers, through an industry association, voiced concerns to the Competition Bureau.
But consumers have barely noticed the conflict – until now.
The Competition Bureau may be trying to tell the market that grocers are on watch for squeezing processors.
The bureau could have selected any food product, but bread’s status as a staple makes it an obvious choice. A clear majority of Canadians eat bakery products almost daily and so price is an ongoing concern. Bread was chosen to make an otherwise dreary, obscure supply-side issue more imperative to consumers. Large companies extorting each other is less of a political matter than grocers gouging consumers.
The investigation will likely not yield material results, but bread is clearly the best medium through which the bureau can send its message.
Grocers know better than to engage in a doomed strategy of quotas and illegal price-setting activities. The mere spectre of a grocery cartel would not only be bad business, it threatens the vital social contract the industry has with Canadians.
So no one may be arrested or even accused.
But this investigation could restore peace in the food industry. A vibrant food sector requires a strong food-processing sector and that’s only possible if everyone in the industry makes a decent profit.
If all food sectors, from farm to table, succeed, consumers end up with a greater variety of decently-priced, high-quality, innovative food products.
Ultimately, without sending anyone to prison, this investigation could strengthen the food sector.
And in the meantime, we will almost certainly find rebates in bakery sections as grocers rush to reassure consumers that a bread cartel in Canada is nothing more than a myth.
Sylvain Charlebois is Senior Fellow with the Atlantic Institute for Market Studies, dean of the Faculty of Management and a professor in the Faculty of Agriculture at Dalhousie University, and author of Food Safety, Risk Intelligence and Benchmarking, published by Wiley-Blackwell (2017).
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