Efficiency (concentration)

 

As presented in Getting Started, Problems, businesses do not always support the public interest. As a result, the government should intervene to curb “bad” behaviours that result in limitations to competition within an industry, while supporting and facilitating “good” business practices (Cheffins, 1989).

Strengthening the provisions of the Competition Act (part I)

Consumer boycotts/buycotts and other forms of consumer activism

Support for the co-operative sector and other aggregators of products from SMEs

Reconfiguring marketing board authorities

Encouraging corporate responsibility

 

Strengthening the provisions of the Competition Act (Part I)

For most of Canadian history, antitrust legislation has been weak, poorly enforced or compromised by an unrealistic threshold imposed by the Courts. Canada's first antitrust legislation was passed in 1889, before the first related act in the US.  It was very limited in scope and weak on the enforcement side, largely because it relied on criminal prosecution by provinces.  One view of the Act holds that the federal government was not actually serious about anti-competitive activity but wanted to appear to be taking action.  The scope, however, was expanded in 1910, with the first Combines Investigation Act.  But rooted in criminal law, there were limited prospects for conviction and that problem remained through to the 1986 revisions because the Courts had a very narrow interpretation of negative (criminal) effects from anticompetitive behaviour.  Revisions in 1919 designed to address multiple weaknesses, The Combines  and Fair Prices Act, were deemed unconstitutional in 1921 because of intrusions on provincial jurisdiction.  The approach from the 1910 legislation remained largely in effect, with a few modifications, until 1952.  Few cases were tried during that period.  Significant changes, however, were made in 1986, particularly shifting many, but not all, provisions to civil rather than criminal law (Ross, 1998). The Bureau does still instigate criminal cases under certain circumstances and provisions (Hansard, 2020).  Even with such re-orientation, the economic efficiency rationale for permitting mergers and acquisitions in the face of reduced competition has not worked (Hazledine, 1998; Shaban, 2021) and therein lies its greatest weakness as it relates to the themes of this web site. It is clear that Canada's competition regime is firmly founded in the belief that market capitalism fundamentally works and that economic efficiency (as defined by the Chicago school in the 1980s) is more important than protecting consumers from price increases, and workers from the job losses that are usually associated with creating this economic efficiency (Shaban, 2021).  The US experience of aggressive anti-merger interventions suggest that more interventionist tools do work, as corporate concentration did decline in the US during periods of such intervention.  However, they eviscerated their anti-trust regimes during the 1980s under Reagan (Steinman, 2019). Yet, Canadian legislation is weaker than US provisions (and those of the UK and other countries) in 3 key areas (Dobby, 2020; Kerr, 2021) as identified by the head of the Competition Bureau:

  • weaker rules regarding market studies, particularly limited ability to compel companies to hand over market information;
  • lower fines;
  • static financial resources to undertake investigations
  • inadequate conceptions of efficiency for better protection of consumers

The House of Commons Committee on Industry, Science and Technology, in its June 2021 report on behaviour in the grocery industry, recommended increased resources for enforcement by the Competition Bureau.

Modest alternations to existing legislation are  possible efficiency-stage strategies. Hazledine (1998) has essentially argued that a return to earlier approaches to competition policy are appropriate and that is the approach taken here. Under sections 45 (Conspiracies, Agreements or Arrangements between competitors) and sections 78/79 (Abuse of Dominant Position and Abuse of Market Power) of the Competition Act, monetary penalty maximums are relatively modest given the scale of concentration in many sectors and the size of firms. These ceilings should be substantially increased.  As the recent bread pricing fixing scandal shows, Loblaw's is not suffering unduly through their agreement to co-operate with the Competition Bureau, nor if they received the maximum fine instead, would they have, given the likely profit gains associated with the long period of price fixing (see Get Started).

Under PART VIII Matters Reviewable by Tribunal, Agreements or Arrangements that Prevent or Lessen Competition Substantially Section 90.1, an exemption for efficiency gains (90.1(4)) should not apply once a threshold for concentration has been crossed. In the food system, once 4 firms or fewer control greater than 40% of a market, there are serious debates about whether further market dominance can produce efficiency gains that outweigh negative concentration effects. (Note that in the US, the Herfindahl-Hirschman Index (HHI) is commonly used to measure concentration and a score over 1800 is frequently the threshold; however, approaches used in Europe are likely more effective, see Cavicchioli, 2018).  Consequently, consideration of this exemption should not be part of the Competition Bureau's investigation under these circumstances. Language should be added to the Act legally requiring firms to hand over market study data.

Under  Matters Reviewable by the Tribunal, a limited set of pricing distortions are considered violations.  Yet, some of today's pricing strategies, such as predatory pricing and loss leading, have been considered illegal in the past, though Canadian provisions have been weaker than US ones  (Ross, 1998).  Some of these earlier prohibitions on price manipulation should be reinstated or strengthened.  Equally problematic, the provisions under this section discourage Price Maintenance, which in the current market power environment effectively means that food manufacturers are unable to assure minimum pricing for their products.  Prohibition might make sense if food manufacturers were in a dominant position over retailers and current rules may be an artefact of other segments of the economy where manufacturers have significant authority. It is also a reversal of earlier  rules which permitted price maintenance by suppliers as a  somewhat effective measure to combat the oligopolistic power of food retailers (Steinman, 2019; see also for Canadian history, Mathewson and Winter, 1998).  Historically, it meant that the large chains could not set prices lower than smaller stores with limited market power.  Provisions in the Competition Act should be changed, at least for food, to permit price maintenance by suppliers to counter retail domination. As support for this interpretation, prior to 1951, when the practice was forbidden in Canada, some 20% of grocery store items were considered fair traded (Mathewson and Winter, 1998), not a likely conclusion today. When viewed through the analytical lenses of this web site, as opposed to traditional interpretations of consumer welfare, price maintenance is a sensible approach given the market dominance of retailers.  It would also be a stronger way to counter food retail manipulation of suppliers, something the Competition  Bureau has investigated but not taken enforcement action on. There are proposals from Sobey's and other members of the grocery industry for a grocer code of conduct based on similar codes in Britain, that would create more transparent relations on price between buyers and sellers. The FPT Committee on Agriculture has given the industry till the end of 2021 to come up with a code (CP, 2021). The British system has an adjudicator who can levy fines, up to 1% of annual revenue and this has apparently curtailed retailer dominance (Krashinsky Robertson, 2021). The Competition Bureau does not currently have the authority to impose a code of conduct, and so the House of Commons Committee on Industry, Science and Technology has recommended the federal government support the provinces in developing codes of conduct to reduce retailer power over suppliers. Although a code is a movement in the right direction, it is not as strong as giving more power to the Competition Bureau to control abuse of dominant position. The Director of the Bureau has testified that there were not currently viable tools in the Competition Act to counter imbalances in bargaining power (Hansard, 2020).  The House Committee has also proposed that "purchase" fixing be once again subject to criminal prosecution, reversing the changes of 2009 under the Harper administration.

These types of amendments to federal legislation, the only type of legislation that directly governs anti-competitive business behaviour in Canada (provincial  legislation  helps ensure consumer protection) (Cheffins, 1989), will require compliance at the provincial level. This in turn will ensure an impact on municipal policies in relation to food retailers within their communities.

These measures would set the stage for more substantial legislation changes at the Substitution and Redesign stages.

Consumer boycotts/buycotts and other forms of consumer activism

Boycotts and buycotts are long-standing successful tools of consumer mobilization (see Hawkins, 2010 for some history).  Such actions are components of food citizenship.  They frequently target large corporations whose actions and products are viewed as egregious.  Boycotts of South African wine to counter apartheid, Nestlé to counter its infant formula selling techniques in the developing world, and  Burger King to change its policy of purchasing Central American beef raised on cleared rainforest land all played a part in shifting the targeted concerns.  Current food and beverage boycotts  include Ben and Jerry's ice cream (owned by Unilever) for environmental pollution, blue fin tuna (multiple companies) for near extinction, Cadbury (multiple products) for tax avoidance, Canadian farmed salmon (multiple producers) for damage to wild fisheries, Coca Cola for human rights violations in South America, Constellation Brands (beer and wine) for taking control of water supplies in Mexico, Fortnum and Mason (foie gras) for animal rights abuses, Kellogg's for use of genetic modification, Starbucks for trying to overturn GE labelling laws, Tate and Lyle (sugar) for human rights abuses, and Wendy's for farm labour abuses.

Buycotts appear to be increasing in popularity and some speculate they will surpass boycotts in consumer engagement because they are viewed as a more positive intervention (Weber Shandwick, 2018). In recent years, they are linked to verification and labelling schemes, such as organic, fair trade, humane, and marine-friendly (see Goal 5 for more on the production side of this development). Typically, they focus on smaller enterprises and their products, or alternative business models.  Their explicit or implicit motivation is to confront the economic power of large firms.

Although governments have occasionally organized or supported boycotts/buycotts (Hawkins, 2010), such initiatives are driven primarily by non-state actors.  The state has access to other tools if it wants to favour or disfavour products (e.g., embargoes, trade sanctions, tariffs, procurement).  Their effectiveness lies largely with non-governmental organizations and their ability to put pressure on corporations through public mobililzation and media attention.  There are always questions about which tactics best align with effective outcomes and whether NGOs have a clear strategic direction for their interventions (cf. Watson, 2015). Equally significant, but not necessarily well considered, is how a boycott / buycott strategy intersects with policy / regulatory change.  Boycotts / buycotts are often undertaken to implement market - based change with the presumption that regulatory changes will be more challenging to implement.  However, as NGOs improve their skills in policy advocacy (see Get Started, Advocates for Change), the opportunities for co-ordinated initiatives may increase.  Private foundations have started to fund skills development in these areas and more of this kind of support is needed.

Support for the co-operative sector and other aggregators of products from SMEs

According to the International Cooperative Alliance, “A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise."  The Alliance claims that 1/6 of the world's population belongs to a co-op and that there are some 3 million of them worldwide. In other words, this is not a marginal economic model.

Co-operatives have long been used to obtain more control for members over their economic situation (for an historical overview of food and agricultural co-ops, see Steinman, in press). Agricultural co-operatives have taken many forms in Canada, from the giant prairie wheat pools, to small groups of farmers or eaters managing their resources co-operatively. They have, for many reasons, experienced varying degrees of success confronting corporate power. Co-operatives in the grain and dairy sectors have historically been more successful than those in meat and poultry processing (Coffin, 1987). Part of the failure of  co-operatives as presently managed results from their inability to address the root causes of corporate power.  They are established essentially to provide a countervailing force, and have had some success in early periods, but in the absence of significant state supports for a co-operative economy and a reconfiguration of the legal status of the corporation (see Redesign), the creation of individual co-ops or co-op networks faces significant challenges addressing the problems of the dominant system.  Sadly, many dominant companies have their roots in the co-operative sector, but abandoned the form, including sometimes demutualization (Steinman, in press).

Although co-ops come in many sizes, they may be most important in the Small to Medium Enterprise (SME) sector,  whether consumer, producer or multistakeholder co-op, and to eaters trying to improve the quality and quantity of their food supply.  By potentially improving the likelihood of success of small firms, they diversify economic activity, often in regions of the country disfavoured by the dominant firms in a sector.

However, co-ops face numerous hurdles, beyond those confronted by conventional business models.  Capitalization is a serious challenge and suitably sized loans often difficult to come by, especially because traditional banks are unlikely to provide suitable loans to co-ops (Steinman, in press).  Business training in the co-operative model and economy is generally weak.  Technical assistance is also limited. As food system activity becomes more complex, the management skill to help co-ops thrive in a generally hostile environment grows and it's not clear that food co-op governance has been able to keep up with the complexity. There is limited targeted support to co-operatives at the federal level, though co-ops can sometimes take advantage of general small business programs.

Provincial supports are uneven, with Quebec and NS having the most programming for co-operative development.  Rowe et al. (2017), from a review of literature on supports for effective co-op development identify 6 key areas of intervention: co-op recognition, financing, sectoral financing, preferential taxation, supportive infrastructure, and preferential procurement.  All provinces should have supports in these 6 key areas.

Regarding recognition, Quebec's Cooperative Development Policy (2003) states: “By acknowledging the central role cooperatives play in the economy and tackling the specific problems they face, the Cooperative Development Policy takes resolute aim at ensuring the harmonious development of cooperatives, marking an important step in the reaffirmation of Québec’s leading role in this key sector” (Government of Quebec, 2003).

Loan funds are very important, as low interest loans are key to viability.  Quebec and NS both have these.  Quebec's program covers start-up and expansion, capital asset acquisitions, and product and market development.  Mechanisms for generating investment capital and sharing it within the co-op sector are also essential.  Quebec legislation supports financing mechanisms within the sector. The Co-operative Investment Program (CIP) provides the opportunity for coop members and workers to invest in their co-op and claim an income tax deduction of 125% of the value. This has generated $500 million in capital since the program debuted. Spain and Italy have implemented variants on this approach.

Rowe et al. (2017) also summarize how Spain and Italy provide for favourable tax treatment for co-ops.  Such measures do not yet exist in Canada.  Regarding supportive infrastructure, the Quebec government funds regional development co-operatives assigned the task of strengthening co-ops and co-op networks.  Procurement supports exist in Spain and Italy, but are significantly undeveloped in Canada.

Rowe et al., (2017) essentially argue that we should build on existing initiatives in a few Canadian provinces and augment with key lessons from Spain and Italy in these 6 areas to properly support co-op development.

Their are also for-profit social purpose organizations serving as aggregators from small producers and processors.  Several food box schemes provide this function in some of Canada's largest cities.  100 km foods, a distributor in Ontario, has an aggregation model for sellers and buyers that has proven effective.  Several organizations across the country have developed digital platforms to link small sellers and buyers. Given their contributions, some have benefited from governmental and para-governmental grant programs and more of these kinds of initiatives should be supported through such measures.

Re-configuring marketing board authorities

Marketing boards were created in Canada ta confront the power of large agribusiness firms and to maintain a significant level of control over output and output prices by farmers (see Winson, 1992). There are  over 100 agricultural marketing boards in existence in Canada, covering many sectors of agricultural production and representing a broad range of powers over the marketing of products. The greatest power is generally associated with supply management or exclusive marketing rights, followed by single desk sellers.

Supply management and single desk selling are under attack from neo-liberal actors who consider them an affront to capitalism.  Recent trade agreements have reduced their integrity.  Such changes represent a profound misunderstanding of their potential role in demand - supply coordination.  See Goal 2, Demand - Supply Coordination for proposals to strengthen supply management.

Encouraging corporate responsibility

Much has been written about the positives and negatives of corporate social responsibility. For many firms, it represents the first step in the (usually) gradual transition to strongly sustainable business models (see Redesign).  Originally conceived as a way to meet economic performance, social justice and environmental quality objectives together, the "win-win-win" scenario (Elkington, 1994), it has evolved to focus more on creating shared value (CSV). Porter and Kramer (2011:66, 67) state that CSV “blurs the line between for-profit and nonprofit organizations”  and can be defined as "policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates”. They argue that “Companies will make real strides on the environment, for example, when they treat it as a productivity driver rather than a feel-good response to external pressure” (Porter and Kramer, 2011, p. 75).  Unfortunately, as Upward (2015:10) found in his research designing strongly sustainable business models, “organizations that claim they are attempting to increase their sustainability do not systemically apply the latest natural and social science knowledge of what constitutes sustainability”.  There is a certain tendency among firms to define sustainability in a way that doesn't unduly challenge their existing structures, products, processes and behaviours.

Canadian governments have typically encouraged CSR or CSV through voluntary measures: guidelines, templates for corporate reporting, information. advice (see for example Global Affairs Canada, 2014).  To ensure wider adoption of CSR/CSV, the federal and provincial governments should require, as part of legal financial reporting provisions, that corporations report to their shareholders on sustainability and equity compliance, using accepted international norms, such as the International Finance Corporation Performance Standards on  Environmental &Social Sustainability.

For example, under the Canada Business Corporations Act, Part XIV, Financial Disclosure, a provision similar to Article 155 but adapted for CSR/CSV could be added.  Similar amendments could be added to provincial legislation governing corporations.  This would likely result in greater shareholder scrutiny of company performance, change some investment patterns, and advance CSR/CSV.