Economic damage mounts from failure to fight anti-competitive business practices

OTTAWA—Last fall, with Canadians up in arms over grocery prices that were increasing at the fastest rate in 40 years, Ottawa’s competition watchdog set out to examine whether the high prices resulted from lack of competition in this highly concentrated retail sector—and what governments could do about it. “While the Canadian economy is generally in an inflationary period, grocery prices are increasing at an above-average rate,” the Competition Bureau said as it announced its probe of the “competitive dynamics” of the industry dominated by three large chains. (In 2022, Canada’s three largest grocers—Loblaws, Sobeys, and Metro—collectively reported more than $100-billion in sales and earned more than $3.6-billion in profits, it was noted). The only thing was, unlike with the Bureau’s criminal investigations of price-fixing and deceptive marketing, Commissioner of Competition Matthew Boswell didn’t have the power to compel financial information from grocers for a market study of this kind. Some companies co-operated, others didn’t, the Bureau said in its report last week. It added, “This did limit our ability to fully answer some questions that are top of mind for Canadians.” Such as, presumably, why the hell are prices rising so fast and why are the big chains raking in huge profits while Canadians are struggling to keep food on the table? As far as it goes, the answer was obvious in the title of the study, Canada Needs More Grocery Competition. (And the commissioner needs more data-gathering power, as Boswell pointed out.) In effect, the report says the current concentrated state of the grocery business hurts consumers and does not drive companies to lower their prices, improve product quality, or bring valuable new products to market. But the report noted that grocery chains say they make a lot of their profit on non-food items such as pharmaceuticals. Generally, the Bureau found, Canada’s grocery giants have increased their gross profit margins on food by one or two percentage points since 2017, a rise that the Bureau called modest yet meaningful. Summing up, it said: “When an industry is very competitive, businesses will not usually be able to increase their margins. The fact that Canada's largest grocers have generally been able to do so over the last five years—however modestly—is a sign that there is room for more competition in Canada’s grocery industry. Additional grocery competition would help cap grocery price inflation.” The political uproar over post-COVID food inflation and the dominance of the tech giants have provided a major boost for Boswell, a former Ontario Crown prosecutor, in his overall campaign to bring Canada’s notoriously bad competition law in line with other advanced countries. “Canadians from all corners are recognizing the important role of competition in their lives,” the Bureau stated in a recent submission for the second phase of the federal government’s planned competition policy reforms. “They want to see more open and competitive markets. They view our competition policy framework as outdated, weak, complex, slow, and out of touch. And they are not wrong.” A relic of the 1980s when policymakers felt bigger was better for the Canadian economy, our version of anti-trust policy has over the years reduced competition and allowed concentration to take place across the business sector. A 2019 study by Ray Bawania and Yelena Larkin of York University found that, largely because of lax competition policy, consolidation among Canadian businesses over the previous 20 years has been widespread and has affected more than half of Canadian industries, with an increase in profit margins as firms become more dominant players. Business concentration, in addition to undercutting services and forcing higher prices on consumers, also is widely seen to be a contributor to one of Canada’s more profound current economic problems. As Bawania and Larkin point out, many studies have tied market dominance to reduced business investment in machinery and equipment, a major factor in Canada’s declining productive capacity. It’s a troublesome, internationally recognized trend that, unless reversed, will lead to an enduring decline in Canadians’ prosperity and standard of living. Boswell’s latest examination of market concentration comes at a time of heightened tension over this issue. The grocery market study was released shortly after one of the country’s largest bread producers, Canada Bread, admitted to participating in a price-fixing scheme and agreed to pay a $50-million fine, the largest ever imposed for such an offence. The scandal emerged eight years ago when the Bureau began an investigation after being tipped off by Loblaw and Weston about the existence of the price-fixing efforts in which they were involved. In exchange for the tip, the two companies were given immunity from prosecution. But Boswell has said the investigation of the collusion, which added millions of dollars to bread revenues over 15 years, is continuing. Les Whittington is a regular columnist for The Hill Times. The Hill Times

Economic damage mounts from failure to fight anti-competitive business practices

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Economic damage mounts from failure to fight anti-competitive business practices

Competition Commissioner Matthew Boswell’s latest report says the current state of the grocery business hurts consumers and does not drive companies to lower their prices.

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