Canada has one of the most concentrated food systems in the industrialized world. Typically, when corporate concentration surpasses levels that generate "efficient" business activities, processes and products, then negative social and economic effects are produced. Beyond that level of concentration, firms are able to extract excessive profits (cf. Macdonald, 2022) and / or control entry into marketplaces, to the detriment of other firms. High levels of concentration also typically penalize suppliers, who receive lower prices for their goods relative to what they would receive in a more competitive environment. Consumers also pay more because sellers can charge higher prices for their goods in the absence of a base of competing sellers. There is some evidence that recent inflationary pressures are partly the result of tacit collusion amongst firms in highly concentrated sectors (Parramore and Skinner, 2022). There's also evidence that concentration can suppress wages. Since the 1970s, around 10% of the wage stagnation in the United States is due directly and indirectly to buyer corporate concentration (e.g. Walmart and Amazon) (Wilmers, 2018).
The difficulty for economists is determining at what level of concentration the shift from efficiency to market power occurs. Several different measures have been devised and new ones are being debated in the field related to new kinds of powers exhibited by large firms and concentrated sectors(cf. Bonanno et al., 2017), the most commonly used being the concentration ratio, which is somewhat simpler to measure than many others. It describes the percentage of market share controlled by a specified number of firms. Typically a ratio of 40%, 4 firms controlling at least 40% of a market, is considered concentrated (CR4=40).
Unfortunately, most segments of Canadian food supply chains exceed 40%. And because Canada's food system is so integrated with the US and global economies, corporate concentration elsewhere is also pertinent (see Hendrickson et al., 2020). Some examples from different parts of Canadian food supply chains follow.
The input sector comprises chemical and drug manufacturers, energy companies, equipment firms, builders and providers of feed, livestock and seeds. Some of these sub-sectors are highly concentrated, particularly urea (nitrogen) fertilizer (CR4 of 94%) , fuel (73%) (marketsharematrix.org, 2010) and seeds. Three transnational companies - Monsanto, Dupont, and Syngenta - controlled about 53% of global seed sales (including Canadian sales) (ETC Group, 2015). Since then, Monsanto has been purchased by Bayer in a move that consolidates control over seeds and pesticides. Syngenta has been rolled into a merger of two firms controlled, by the Chinese government, Sinochem and ChemChina, now the third largest seed company (Howard, 2023). The top 4 global firms controlled in 2018 66% of agrichemical sales (and now higher in 2023), the top 4 machinery firms controlled 45% of farm machinery sales, and the top 4 controlled 58% of pharmaceutical sales. There is also a related significant movement of input firms into big data (see Goal 8). Drug supply lines are readily disrupted in some categories in Canada because of the limited number of plants. Similarly, pesticide availability is compromised by global supply chain disruptions (Arnason, 2022). Successful domestic drug firms are frequently bought up by global firms and Canada is considered a minor market, so decisions are frequently not made based on Canadian requirements (cf. McQuaig, 2021). Three companies control virtually all the globe's poultry breeding stock (ETC Group, 2019). Input prices have long been increasing at higher rates than crop prices (NFU, 2005, Qualman, 2019), with fuel and fertilizer experiencing the largest shifts.The Farmers Business Network found, after examining thousands of chemical and seed invoices, that prices rise with market dominance (Pratt, 2018). All this suggests that farmers are paying more for many inputs than they would with higher levels of competition.
Farmland (Qualman et al., 2020)
Ownership of farms and farmland is certainly more dispersed than for other parts of the food system, but there are worrisome developments. The number of farmers continues to fall, and the number of farms managed by corporations, though still small, continues to rise. Some 70% of Canadian farmland is on the Prairies, a region that has seen very significant consolidation of land into large units, with fewer owners. "Over the past 30 years, farms with more than 5,000 acres have increased the amount of land they operate from 11 percent to 37 percent of the total land farmed. By contrast, those with fewer than 1,000 acres have seen their share of land decline from 32 percent to 13 percent." (Qualman et al., 2020:11). Beef feedlots are increasing in size, with more of them, but no increases in the number of feedlot operators. Thirty eight percent of the 150 or so Alberta feedlots have more than 20,000 head (Glen, 2021). These larger operations also disproportionately claim more of the total farm income of the region without necessarily being more efficient with such scale increases.
Since the 1990s, the number of food processors has fallen dramatically, but the average shipments per processor have increased over that time (AAFC, 2015), indicating significant scale increases. Most of the significant food processing sectors exceed the CR4 40 ratio, including dairy, grain and oilseed milling, sugar and confectionary, meat and fruit and vegetable processing (AAFC, 2010).
The situation in red meat is somewhat indicative of the sector trends. Packer concentration has been a problem since at least the 1920s (Rude, 2020). In 1988 there were 119 federally inspected beef packing plants in Canada, all 100% Canadian owned, with a CR4 ratio of 35% (George Morris Centre, 2004). Periods of restructuring in the 1980s, the result of beef consumption decline and US competition, contributed to the current environment, one dominated by a small number of firms and plants.
Maple Leaf Foods is still the leading hog processor in Manitoba. Olymel (controlled by La Coop Fédérée) has become Québec and Alberta’s leading pork processor with nine pork and hog processing plants in Québec, one in Red Deer, Alberta, and one in Cornwall, Ontario. Beef processing is dominated by three large plants: Cargill Foods operates in High River, Alberta, and Guelph, Ontario; Lakeside Packers in Brooks, Alberta, is operated by JBS Canada, part of a Brazil-based multinational that was reputed to be the world's largest processor of fresh beef and pork in 2014.
These 3 beef plants, owned by 2 companies, slaughter 95% of Canadian cattle. The CR4 ration in hog packing is 71% and Ontario and Quebec have 59% of the market (Rude, 2020). But since the above quote, Olymel has closed plants in Quebec as part of an "efficiencies" restructuring. Provincially regulated plants have only 5% of total slaughter capacity. The three largest broadline food distributors have 40% of sales, and the top 3 fast food chains have about 70% of fast food beef sales. With recent mergers and acquisitions, the 4 largest retailers have 80% of beef retail sales (CAPI, 2012). COVID-19 provided a reality check on the consequences of this level of concentration and the limited number of very large plants, as several were forced off line for extended periods due to high levels of infection in the workforce (Qualman et al., 2020). A class action lawsuit has been launched, but not yet authorized, in Quebec alleging that the top 4 beef packers have colluded to increase prices since 2015 (Feinstein, 2022). Despite high consumer beef prices in 2022, beef producers are not seeing tangible increases in prices they receive from packers. This reality is likely due to a combination of structural vulnerabilities in supply chains and corporate power.
Two companies, Weston Bakeries and Canada Bread, control nearly 80% of the bread-making market, creating a high barrier to entry for new competitors (Strauss, 2018). This situation, and the related degree of similarity in bread offerings from store to store, contributed to the bread price fixing scandal that remains under investigation by the Competition Bureau. Sobeys, Metro, Walmart Canada Corp, and Giant Tiger were all implicated in the scheme. It has been reported that the scheme raised prices of bagged bread products 15 times, an average of 10 cents a loaf each time, increasing the price of bread well over the rate of food inflation (Strauss, 2018).
The total number of food service operations has been relatively stable since the 1990s, but the sales per outlet have increased, suggesting a general increase in size (AAFC, 2015). Food service (cafeterias and restaurants) is a complex area, with many different types of operations. Eighty percent of commercial food service is comprised of restaurants and caterers, with 20% institutional cafeterias. Many of the institutional operations are run by 3 large companies: Sodexho, Aramark and Chartwells (Compass), but in some subsectors such as health care, there are many self-operations. In other words, the institution runs it's own cafeteria. This is important because these "self-ops" often have more flexibility to change what they do and how they do it.
Fast food restaurants have experienced massive consolidation the last few years. In addition to multinational firms such as Starbucks and McDonald's, a small number of firms control between them over 100 brands and billions in sales, such as Restaurant Brands International (Tim Horton's, Burger King, Popeyes), Yum! (KFC, Taco Bell, Pizza Hut), MTY Group (Thai Express, Country Style, Cultures, Yogen Fruz), Foodtastic (Second Cup, Milestones, PitaPit, Fionn MacCool's, Freshii) and Recipe Unlimited (Harvey's, Swiss Chalet, St. Hubert, Montana's, Kelsey's, New York Fries),
In the early 2000s, independent restaurants comprised 62% of the total number of restaurants, but only 35% of total sales. Now, with consolidation, they represent only 47% (Castaldo, 2023). The chains have less flexibility compared to the independents, but if a chain gets behind a shift in practices and instructs all its outlets to follow suit, adoption of a new approach can be significant. As an example, many restaurant chains have announced that they'll be purchasing more product from suppliers following improved animal welfare practices.
In 2009, AAFC (2009) estimated that the 4 largest food retailers (then Loblaw, Metro, Empire [Sobey's] and Safeway) held about 72% of national market share (a high degree of concentration). Since then, the mix of firms has shifted. Sobey's bought the Canadian stores of Safeway from its US parent company and Loblaw purchased Shopper's Drug Mart so it could move more food through their pharmacies and use Shopper's pharmacy supply chains to supply their food store pharmacies. Similarly, Metro has purchased Jean Coutu pharmacies. In 2016, the top three food retailers in Canada (Loblaw, Empire and Metro) had a combined sale total of $83.8 billion, in 3,190 stores. Since 1990, the number of stores has declined an average of 871 per year, but total sales have increased an average of 3.1% annually (AAFC, 2017).
Costco and Walmart have also expanded their offerings and are now the 4th and 5th largest retailers in Canada respectively, even though sales are substantially lower than the big 2 (29% Loblaw, 22% Sobeys). The CR4 ration is still around 72% of the food retail market (Arnason, 2017). The US Department of Agriculture has estimated that the top 5 Canadian retailers hold 80% of the market (Loblaw's, Sobey's, Metro, Costco and Walmart) (Finnigan, 2021). Only in Quebec do the independents still hold significant market share, with about 60% (AAFC, 2015).
Most food comes to retailers from processors and distributors, with a relatively small percentage (mostly produce) coming from farmers and farm aggregators. This level of concentration is thought to suppress processor activity because their costs putting product on retail shelves are higher than other jurisdictions, such as the US. It is also having a negative impact on independent retailers in more remote locations that are having trouble accessing sufficient supply to meet community needs because suppliers are supplying the big 5 first when faced with shortages (Finnigan, 2021). Farmers are selling wholesale, at prices substantially below retail prices, and these wholesale prices are generally suppressed by these levels of corporate concentration. This reality partly explains the appeal of direct marketing because selling wholesale generally requires high volume movement of goods (often at lower quality) to maintain farm viability.
Many recent mergers and acquisitions in the retail sector have been reviewed by the Competition Bureau, with the deals approved pending the sale of a limited number of stores in specific markets where concentration was deemed to be excessive without these selloffs.
Recent Competition Bureau investigations of Loblaw, the market leader, include accusations of anti-competitive behaviour and abuse of dominance contained in nine policies Loblaw imposed on suppliers. Loblaw frequently requested compensation when:
- “another retailer's price for one of the supplier's products was lower than or equivalent to Loblaw's price;
- it determined that another retailer's wholesale cost for a product was lower than its wholesale cost;
- it was not offered a product or format that was offered to another retailer; or
- its margin or profitability on one or more of a supplier's products fell below a specified threshold” (Competition Bureau, 2017).
The Bureau ultimately terminated its investigation in 2017, after some of these policies were withdrawn by Loblaw in 2016, presumably in response to the inquiry. The Bureau also could not find conclusive evidence of anti-competitive behaviour, which speaks in part to the challenges of making such cases, given the limitations of the Competition Act.
What is clear, however, is that the dominant retailers fine suppliers for shorting orders, which then has the secondary effect of suppliers meeting their orders for the large retailers and then shorting the small independent retailers with little market power. Although the industry has made progress on a code of conduct to regulate matters between suppliers and retailers, issues related to imbalances in market power remain contentious (Krashinksy Robertson, 2022). The code will be much weaker than improving regulatory interventions in the Competition Act.
Loblaw admitted guilt to price fixing in bread over 14 years, and implicated other retailers and bread manufacturer Canada Bread. Weston Bakeries (part of the network of companies that includes Loblaw) and Canada Bread control 80% of the break market in Canada, which facilitated their ability to raise prices (Strauss, 2018). This investigation continues with Loblaw providing evidence to the Bureau in exchange for relief from criminal charges.
Consolidation is also occurring in convenience food retail, some of it associated with gas stations and shifts in the automobile market. Aliment Couche - Tard / Circle K is expanding domestically and internationally. Parkland, which operates gas stations and On the Run convenience locations has purchased M&M Food Market to provide more offerings at gas stations that they anticipate serving the electrical vehicle market. Since charging takes time, they want to have food offerings to offer while customers wait for their cars to charge (Krashinsky Robertson, 2022). 7-11, Couche-Tard / Circle K, Parkland and Needs are the largest chains in Canada.
The rapid expansion of food e-retail may also exacerbate existing trends because the technology required (both digital and large-scale and automated warehousing and inventory management) will disfavour SMEs lacking the resources to make such investments.
Global Commodity Traders (from ETC Group, 2019)
Not to be discounted for their impact on Canada, particularly farm and consumer prices, are the global commodity traders that are involved in all aspects of globally traded commodities, from production to trade, with a focus on grains, oilseeds, meat, livestock, and sugar. The top 6 firms have sales of almost $400 billion with profound global reach.