Akeena Legall

Canada is the world’s 5th largest exporter of agriculture and agri-food products, achieving $92.8 billion in exports in 2022, with the entire sector generating 7% of GDP ($143.8 billion) and providing 1 out of every 9 jobs across the country.¹ Growing the products that keep our communities and communities around the world well fed is a cornerstone of the Canadian economy, but that position has not insulated Canadians from the rising cost of food.

One reason is that this crucial sector has taken part in the same march toward monopoly characterizing other markets across the Canadian and global economy. The recent parliamentary testimony of grocery CEOs and the boycott of Canada’s largest grocer Loblaws has shown a deep dissatisfaction by the Canadian public with the current state of competition in the retail grocery space. But the consolidation that has left Canadians with fewer options for putting food on the table has not been limited to the grocery store shelves. All along the agricultural supply chain, Canadian consumers, producers, and entrepreneurs face fewer choices and are forced to contend with domestic and global giants. While the sticker shock now familiar to Canadians is one consequence of this path, there are more subtle ways in which consolidation of the supply chain causes harm.

Rural communities have been hollowed out by the loss of small and medium farm businesses as producers exit the industry due to falling net incomes and the trend towards agriculture being conducted by large corporate entities.² These lost farms represent the agriculture of the middle—the operations that exist outside of the commoditized megafarms—which make up the social fabric of our rural spaces and have the flexibility to produce differentiated high-value products that respond to changing consumer preferences.³ These farmers are the stewards of a significant portion of Canadian land and their ability to manage the ecosystem and soil health of their operations is crucially important not only to the ongoing productivity of their business but also driving the economies of their local communities and mitigating the environmental impacts of producing food. Canada has seen how sacrificing resiliency for efficiency created serious supply chain bottlenecks during the COVID-19 pandemic. To avoid those disruptions from recurring Canada must begin to build a more diverse and dynamic food system.

But to address these issues, Canadians must first understand the nature of the problem. Tracing the current state of monopoly throughout Canada’s food system, several issues emerge:

To mitigate and reverse the harmful effects of this consolidation, Canadians must work to return fair competition to the food system. While food inflation has begun to abate in Canada, only fair and dynamic markets will promote affordability today, guard against future cost of living pressures and create a resilient and dynamic food system. To that end, several steps are available today for policymakers and regulators:

The cost of putting food on the table has been top of mind for Canadians ever since rising inflation drove grocery prices 23% higher compared to before the onset of the pandemic. These rising prices created a parallel rise in food insecurity, with over 8.6 million Canadians experiencing food insecurity as of 2023—42% more since 2019.⁴ Prices for food purchased from stores outpaced headline consumer inflation from October 2021 through February 2024,⁵ peaking in September 2022—a month that marked the fastest pace of price acceleration in 41 years at 11.4% annually.⁶ Inflation has touched every aspect of the lives of Canadians, exacerbating a cost-of-living crisis that has hit lower-income families hardest, increased social isolation,⁷ and delayed plans for retirement, buying a home, or starting a family.⁸ First Nations communities have been acutely affected by food inflation as on-reserve households were already experiencing food insecurity at a rate four times higher than non-Indigenous people in Canada prior to the onset of the pandemic.⁹

Canadians’ anger at this situation has largely been directed towards the grocery sector, leading to multiple parliamentary appearances by corporate executives and a national boycott of our leading retailer, Loblaws. That grocers are a prime target is not surprising; the three leading firms have grown their profits 50% in the past four years as the percentage of Canadians accessing food banks has risen 78.5% since 2019, with over half of those visits in 2023 coming from first-time users.¹⁰ This rise in profits has drawn attention to the concentrated nature of the grocery retail sector. The top four firms control 66% of the market (Loblaws, Sobeys, Metro, Costco) and consolidation has happened at a steady pace since 1986, with 15 significant mergers reducing the number of major competitors from eight to five.¹¹

The rising price of food also follows past breaches of trust between the public and major grocers, including the exposure of the bread price-fixing cartel and the coordinated removal of so-called “hero pay” during the pandemic.¹² But the issues with our food system are not limited to the grocery store shelves. In fact, Canada’s entire food system is deeply unbalanced. While primary producers—farmers, ranchers, growers—are largely independent and disaggregated, they are wedged between globally concentrated input suppliers and food processors, causing a host of competition problems before food even reaches the oligopolistic grocery retail markets. Canadian farmers are price-takers trapped in the middle of a U-shaped power asymmetry between the companies from which they buy inputs and the companies to whom they sell their products (see Figure 1 for an example in the beef supply chain).

Canadian producers are aware of this dynamic and have been raising the alarm for over a decade. A wave of mega-mergers that began in 2015 resulted in the Big Six agro-chemical companies becoming the Big Four (Bayer-Monsanto, BASF, Corteva, ChemChina-Syngenta).¹³ Five years prior to this increased consolidation, farmers were already drawing the connection between concentration and their bottom line, noting that a lack of competition was “the main culprit behind declining farm income”.¹⁴ As farmers face falling numbers of input suppliers, processors and retailers, their independence declines in the wake of the power of these food giants. Using Statistics Canada data from 2008, Agriculture and Agri-Food Canada showed that the majority of subsectors in food processing were above a CR4 (the percentage of market share held by the four largest companies in a market) of 40%, the threshold which commonly signals higher concentration and the potential for oligopolistic conduct.¹⁵ This issue is even more acute today; 90% of Canadian farmers surveyed in 2023 (n = 593) reported they were concerned about consolidation in their industry, with the highest perceptions of negative impact coming from the input provider stage of the supply chain: equipment dealers (66% of respondents), fertilizer manufacturers (62%), seed and chemical companies (60%), and grain companies (56%).¹⁶

How did we get here?

The situation in Canada is not unique and did not occur overnight. It is the product of a historical weakness in our nation’s approach to regulating competition, a century long shift in power away from farmers, and a global march toward high levels of consolidation in agricultural markets. Enacted in 1986, Canada’s Competition Act was written by the very businesses it was intended to police to be favorable to consolidation across the economy, matching a global shift towards a lax approach to competition only beginning to change today.

Power in the food supply chain increasingly rests with the global input providers that exercise their control through farmers’ data, intellectual property rights, bundled products and services, and financial services. This transfer of power has been facilitated by the rise of transnational corporations in agriculture that have fueled their growth through the roll up of the global food system. Half of the world’s commercial seeds are controlled by the Big Four (Bayer-Monsanto, BASF, Corteva, ChemChina-Syngenta). The top two firms own 40% of the market with Bayer at 23% and Corteva at 17%, compared to 25 years ago when the top 10 companies controlled 40% of the market. These same four firms have 62% of the global pesticide market and following the merger of ChemChina and Sinochem (owner of Syngenta) into Sinochem Holdings Corp. Ltd., nearly 25% of this market is controlled by one entity.¹⁷

The top four firms in animal pharmaceuticals control 61% of the market, livestock genetics is concentrated among 8 major players with commercial poultry genetics being most heavily concentrated among only three firms (EW Group, Hendrix Genetics, and Tyson Foods), and farm machinery is dominated by four firms led by Deere & Co. at 18% of the global market. Agricultural commodities have become so concentrated they now have their own acronym; the ABCDs, referring to the transnational giants ADM, Bunge, Cargill and Louis Dreyfus, who are responsible for 70% of the global market.¹⁸

This trend is not limited to input suppliers.¹⁹ Beyond the store shelves, Canada’s food system shows how power is exerted on the most vulnerable segments of our supply chains at the cost of producers, workers, and consumers. Charting this march of consolidation in Canada, the Appendix contains a list of significant mergers and acquisitions in agriculture and food that the Competition Bureau, Canada’s competition law enforcer, has reviewed since 2000. Out of 31 transactions (at time of writing the Bunge - Viterra grain industry combination is still pending), not a single case has been blocked by the Competition Tribunal, Canada’s competition court. When it has acted, the Competition Bureau’s strategy in addressing the rise of monopoly power in Canada’s food system has been limited to narrow remedies that often swap market share between two players without addressing the forces that have made the market so dependent on only two players.²⁰

Looking across the food system, this report examines the impact of this process across the supply chain and highlights the concerns for farmers, consumers and entrepreneurs.

Seeds and chemicals

Fertilizer accounts for about one-quarter of the cost of running an average farm and this key ingredient is controlled by four companies: Nutrien, CF Industries, Koch Fertilizer, and Yara.²¹ In June 2023, 62% of Real Agriculture survey respondents said that consolidation among fertilizer manufacturers has a negative impact—a sentiment that might stem from the sting of fertilizer costs skyrocketing 80% in 2022 while manufacturers reported record profits.²² This has not always been the case, and Canadian farmers had more choice before the Competition Bureau allowed the creation of Nutrien through the 2018 merger of Agrium and Potash Corporation of Saskatchewan. Now Canada’s leading producer of fertilizer, Nutrien controls 44% of ammonia and 46% of urea production.²³ The combined company also controls 60% of North American potash capacity, which triggered reviews by other jurisdictions’ competition authorities. The U.S. Federal Trade Commission (FTC) ordered the divestiture of a nitrogen plant and a phosphate facility and China and India required the company to divest its holdings in other international potash businesses, but these remedies did not touch Nutrien’s North American potash assets.²⁴ Even before its further consolidation, the fertilizer market showed collusive conduct, with Potash Corporation and Agrium paying $44 million and $10 million respectively in 2013 to settle a U.S. class-action lawsuit that alleged the companies colluded with competitor Mosaic to keep prices artificially high.²⁵

Canada is currently the top global producer and exporter of canola, with 43,000 farmers annually producing almost 20 million tonnes of canola worth $29 billion to our economy.²⁶ Prior to 2018, the Big Six agrochemical companies (BASF, Bayer, Dow, DuPont, Monsanto, and Syngenta) operated 35 locations across the country to compete for Canadian canola growers’ business.²⁷ After a wave of mega-mergers in 2018 in which the Big Six became the Big Four (Bayer-Monsanto, BASF, Corteva, ChemChina-Syngenta), Canadian canola growers became dependent on just two companies for critical seed varieties: either Bayer-Monsanto or BASF.²⁸ In May 2018, Bayer agreed to divest assets to BASF SE as per an agreement reached with the Competition Bureau regarding Bayer’s merger with Monsanto. Prior to the sale, BASF supplied 5% of the market and under the divestment agreement it gained Bayer’s 55% market share, leaving BASF with 60% of canola seeds.²⁹

Consolidation between firms at this initial link of the food supply chain has profound negative effects on farmer autonomy by removing choice in input providers. The mergers have also slowed progress on research into applications of biotechnology on corn, cotton, and soy, with thousands of R&D positions cut from DowDuPont following the completed merger.³⁰ These mergers narrow the range of existing and new products available to producers, ultimately lowering consumer choice at the end of the supply chain.³¹ Further constraining farmers, Bayer and BASF are integrated agro-chemical businesses that employ bundling strategies to tie proprietary seeds together with chemicals for crop protection. When these strategies are used from a dominant position in a market with limited options, farmers are left without alternatives for what to grow and how to grow it.³²

The agro-chemical companies are heavily invested in preserving and enhancing the gains from consolidation. Seed industry groups came together in 2021 to form Seeds Canada and began lobbying the federal government to grant them the power to regulate variety registration and standards, proposing a mechanism that would allow them to limit farmers’ access to royalty-free public domain varieties.³³ The Canadian Seed Growers’ Association, the institution that holds the responsibility for seed certification, refused to join the new body when it was formed, and its members are strongly in favour of the federal government continuing to allow growers to manage their industry and for the Canadian Food Inspection Agency to maintain regulatory authority.³⁴

Farm equipment suppliers and dealers

Farm operations are increasingly reliant on big data platforms that collect data through sensors monitoring everything from soil health to crop yield to how many steps a cow takes each day. The 21st century farmer receives numerous daily recommendations on how to manage and optimize their operations based on data generated from farming operations around the world. But this transformation of the modern farm has created a dependency on farm equipment manufacturers as technology providers and owners of the data generated by the farmers themselves. The major players in the North American market are John Deere & Company (who control over 53% of large tractors), CNH Industrial at 35% (parent company of Case IH and New Holland), and AGCO with 7% (owners of Fendt and Massey Ferguson brands).³⁵ These large equipment manufacturers operate in the supply chain as original equipment manufacturers (OEMs) and until recently, farmers could mix and match OEM parts with products from third-party short line manufacturers to design the most effective system for their operation. This co-existence began to wither in 2021 when John Deere introduced the X9 model, a proprietary combine that only operates with John Deere hardware, blocking interoperability and limiting farmer choice.³⁶

Agricultural OEMs further limit interoperability by tethering physical products to software authorizations to keep farmers tied to a manufacturer, often requiring the customer to use only the manufacturer’s brand of tools to get the full value of the product rather than any third-party services that could have superior features.³⁷ John Deere employs such tactics along with terms of service that create a “digital lock” preventing farmers from repairing their own equipment when it breaks down, resulting in costly delays to time-sensitive operations like planting, spraying, and harvesting, as producers wait for certified mechanics to be available to travel to their farm and complete a repair. These terms of service also place the equipment manufacturer as the owner of the data extracted from the farms and charge farmers a subscription fee to access the data from their own operations—data they generated but cannot own nor directly access from the equipment they own.

Big data provided by farmers is now central to the business models of equipment manufacturers and seed and chemical companies, as the personal data from individual farms can be aggregated into large-scale yield and weather datasets that can be re-sold and packaged into digital services.³⁸ Conduct like this is just one reason Canadian producers rank consolidation among equipment dealers as their highest concern, ahead of fertilizer manufacturers, seed and chemical companies, agricultural retailers, and grain companies.³⁹ This pressure from manufacturers has also driven consolidation in the equipment dealer market, responsible for distribution of OEM hardware.⁴⁰ Farmers note that the current market for equipment dealerships makes it difficult to get competitive quotes and a loss in service quality and availability—the hallmarks of concentrated industries that do not have to compete on product and service terms because they have captive markets.⁴¹

Though still the most diverse segment of the food system, census data indicates continued consolidation at the producer level as well. There were 189,874 Canadian farms in 2021, a loss of 1.9% from 2016 (193,492) and almost 16,000 fewer farms than the 2011 census reported (205,730).⁴² While this is the lowest rate of decline in farm numbers in the past 25 years, Canada has lost nearly 150,000 farms since 1976, nearly all of them small operations (farms under 1,600 acres). On the opposite end of the spectrum, there are approximately 6,000 more farms over 3,520 acres today than there were 50 years ago.⁴³ Canadian farms are split between large farmers who have been winning the share of gains from consolidation and struggling small farms. The production stage of the supply chain is characterized by many small firms relative to the size and scale of the firms in other stages of the food system: 90% of Canadian farms generate less than $1 million in annual revenue whereas Cargill reported $134.4 billion in revenue for 2021.⁴⁴ Other firms farmers rely on measured their revenue in the tens of billions: Bayer brought in €44 billion, Corteva had sales of $15.5 billion, JBS reported 350.7 billion reais (~$72 billion USD), and Loblaw recorded $53.1 billion.⁴⁵ While these firms operate in different stages of the food supply chain, it is important to highlight the difference in scale and resulting power imbalance between producers and the multinational companies they purchase their inputs from and sell their products to.

More than 70% of Canadian farmland is in the Prairie provinces of Alberta, Saskatchewan, and Manitoba. Farms in these provinces operating more than 10,000 acres saw average net incomes of $820k, whereas farms under 1,000 acres earned only $34,000. This means that the large farms represent 2% of all Prairie farmers but earn 15% of the net income, leaving the smaller farms representing 53% of all Prairie farms receiving only 18% of net income. The ownership of farmland itself is highly concentrated, with 50% of Canadian farmland owned by a small percentage of families (about 0.0025% or 94,000 people).⁴⁶ The growth of larger farms has been fuelled by outside investment, a well-documented phenomenon in Saskatchewan, the province containing more than 40% of Canadian farmland. Here corporate backed mega-farms with greater than 30,000 acres have begun to emerge and transform the structure of family farming to dominate agricultural production through increased use of rented land owned by multiple entities.⁴⁷ This process of farm consolidation and land concentration in a key agricultural market has resulted in local farmers exiting the industry, smaller operators less able to compete for land, and local communities negatively impacted as the local pillars of economic support erode.⁴⁸

Grains and oilseeds

Canadian field crop production largely emphasizes four commodity grains and oilseeds: wheat, corn, soybeans, and canola. This acreage is largely located in Western Canada and Ontario;⁴⁹ Saskatchewan, Alberta, and Manitoba account for 63% of farms, with Ontario representing 28%.⁵⁰ The latest census data reveals that the distribution of crops grown is highly regional: Ontario grows 65% of Canadian soybeans and 60% of the nation’s corn for both silage and grain, whereas the Western provinces only account for 11% of soybean production (with Manitoba representing 10% of that number) and 12% of corn production.

Western Canada is dominant in canola and wheat production; the three provinces contain 98% of all farms reporting growing canola and 99% of canola acreage (with 54% of the fields in Saskatchewan alone) and 65% of farms reporting growing wheat and 93% of all wheat acreage. As grain and oilseed producers have concentrated geographically, they have also trended towards fewer farms with larger operations. There are fewer farms than ever growing these commodities with soybean farms as the notable exception.

For example, the number of farms reporting growing canola peaked in 1991 at 41,823 when 7.76 million acres were being grown, acreage has now increased to 22 million acres managed by 32,645 farmers—a number that has stayed relatively static since 2001 despite acreage more than doubling in the last 20 years.⁵¹

This indicates that Canada today has fewer farmers managing much larger operations than 30 years ago when canola production was more dispersed among more players. With production heavily regionally concentrated and rail capacity a constant bottleneck due to reliance on only two rail operators,⁵² grain and oilseed farmers are vulnerable to the changes in corporate concentration of their upstream and downstream partners in their markets. The relative weakness of canola growers is set to intensify as multinational companies continue to look to consolidation as a path for growth, most recently evidenced by the pending merger of grain giants Bunge and Viterra.

Livestock production: ranching, pigs, dairy cows, and poultry

The story of livestock production in Canada over the last 45 years is an overall loss of farms with declining herd sizes except for two commodities that have seen explosive growth in the number of animals: pigs and poultry. In 1976 there were 99,128 farms raising chickens and hens with a total flock size of 87 million birds. In 2021 there were 23,547 farms raising 152 million birds, representing an increase in the national flock size by 75%.

Pig herds have increased by 9 million since 1976 to sit at near record-highs just below 15 million animals but the number of farms reporting raising pigs has hit its lowest levels—only 7,423 farms are responsible for all those pigs compared to 63,602 farms in 1976. The herd size of beef cattle has been relatively stable since 1976, hovering around 4 million. Beef farmers are the most populous of the livestock farms, with 54,517 farms operating in 2021, though 45 years ago we had three times that number of ranchers (163,863).

The scale of operations for pig farms is drastically different from beef and dairy operations. Nearly the same number of dairy farmers (11,212 farms) are responsible for raising only 980,297 cows, so pig farmers represent two-thirds of the number of dairy farmers but manage 15 times more animals.

The commodity groups that have seen their number of animals balloon are also the ones that have endured the steepest losses in the number of farms; Canada has lost 88% of our pig farms and 76% of our poultry farms.

Grain handling and processing

Canadian grain trading is currently controlled by four companies that manage almost 70% of elevator capacity in the Prairies and over half of the total port terminal capacity: Cargill, Richardson, G3, and Viterra.⁵³ Without intervention, the pending merger between Bunge and Viterra is set to further consolidate power among fewer players, with Canadian canola growers particularly vulnerable to the combined strength of the new firm. Bunge is the global leader in oilseed processing, handling most of the world’s soybeans, canola, and corn and the company already exerts control over Canadian industry after it partnered with Saudi Agricultural and Livestock Investment Company to form a new entity, G3, that manages the assets of the Canadian Wheat Board after it was dismantled in 2015. Viterra also benefitted from the deregulation of Canadian grains as it was spun up following the restructuring of two grower co-operatives, the Saskatchewan Wheat Pool and Agricore United, into a private company in 2007.⁵⁴ Viterra purchased the assets of the Australian Barley Board in 2009 and added the American grain trader Gavilon to its portfolio in 2022 to become globally dominant in wheat.⁵⁵ These two companies together hold the dominant position across the four major commodity crops that Canada produces and in Eastern Canada, Bunge and Viterra represent a share of canola crushing capacity exceeding 70%.⁵⁶

An estimate by University of Saskatchewan economists suggests that if the Bunge-Viterra transaction is allowed, it could cost farmers $770 million annually in farmgate revenues due to depression of canola prices resulting from a loss of competition in export basis, crushing facilities, and elevator markets.⁵⁷ The Competition Bureau’s report on the transaction to the Minister of Transportation concluded that it is likely to result in a substantial lessening of competition for canola purchases and have serious implications for purchasers of other grains, with canola farmers in Altona, MB and Nipawin, SK estimated to lose $15-19 million in farm revenues annually.⁵⁸ The Bureau also believes that Bunge could use its dominant position and ownership of two of the three canola crushing facilities in Eastern Ontario to harm rivals in markets cut off from receiving oils by rail.⁵⁹ If this merger is allowed to proceed, it is likely to cause further consolidation in Canadian grain handling as Cargill and Richardson will look to snap up rivals to compete with the new scale of the combined firm.⁶⁰

Beef and hog processing

The COVID-19 pandemic made plain the weaknesses stemming from concentration in Canada’s beef processing sector. Three high-volume, high-throughput meat packing plants handle nearly all the beef exported and sold in grocery stores. Cargill’s High River, AB facility and Dunlop plant in Guelph, ON, combined with JBS’ plant in Brooks, AB account for over 95% of the beef sold in Canada and the majority of the $3 billion in exports. Canada’s beef production sector counts 60,000 ranchers and feedlot operations who rely on two locations in Alberta for 70% of this processing capacity.⁶¹ Concentration in the cattle slaughter sector has historically not been this high; ranchers were serviced by 57 processing plants that competed to handle 88% of Canadian beef in 1974, which represents an increase in the CR4 from 54% to 93% by 2008.⁶² As recently as 2005, there were 19 beef packers in Canada that could facilitate the slaughter of small-scale herds (25 head a week) to commercial sizes (22,000 head a week).

Canadian ranchers have been advocating since 2010 about how downstream consolidation in meatpacking has been affecting their industry, with concerns about vertical integration and captive supply in which packers control or own on-farm livestock to distort market prices through making a significant number of buyers and sellers controlled by the same entity.⁶³ More recently, even though Cargill and JBS reported record profits as meat prices rose 10% in 2021 (twice the amount of overall food inflation), Canadian ranchers’ margins have been falling, with family farms selling their herds and exiting the industry.⁶⁴ A Beef Farmers of Ontario study done that same year showed that between 2016 and 2021 meatpackers increased their share of the retail price of beef from 51% to 59% while farmers saw their share fall 2%.⁶⁵ As a result of these phenomena, class action lawsuits were filed in both Quebec and British Columbia alleging beef processors have harmed producers and consumers by colluding to fix prices, with producers in Saskatchewan calling for a government investigation into the discrepancy between retail prices and farm gate prices—a request which the provincial government denied.⁶⁶ In the U.S., the White House published data supporting similar claims against the four dominant meatpackers in the U.S. with JBS paying a $52.5 million USD fine in February 2022 to settle litigation about conspiring to limit the American meat supply.⁶⁷

Much was written about the increases in meat prices throughout the pandemic due to plant shutdowns from worker illnesses, yet no action has been taken to address the two-plant bottleneck.⁶⁸ The High River plant came out of the pandemic with the designation as the single largest infection cause of COVID-19 in North America, with over 1,000 cases linked to the site and two worker deaths.⁶⁹ Organized labour has continued to advocate for improved working conditions and a new supply chain disruption is looming in 2024, with workers at Cargill’s Guelph plant going on strike in May and High River union members unanimously voting in favour of a strike in June. Without additional plant capacity to take up the 10,000 head of cattle that Guelph’s plant processes per week, some Eastern Ontario feedlot owners are reporting a weekly loss of half a million dollars per week as their herd sits idle.⁷⁰

Half of the processing capacity for hogs in Canada is operated by Maple Leaf Foods (40%) and Olymel (10%).⁷¹ The CR4 for hog processing sat at 71% in 2019, with much of this capacity located in Quebec and Ontario.⁷² A finer level of analysis of this market is complicated by Statistics Canada’s data collection method which aggregates beef and pork processing numbers and periodic changes to the industry classification system which has affected historical comparisons at the same level of data.⁷³

Consumer packaged goods

The diversity of manufacturers supplying grocery stores are fragmented compared to grocery retail, but the products available in stores are heavily skewed towards a small number of giant global processors that command brand recognition and loyalty. In many CPG categories in Canada, the largest 4 to 8 manufacturers account for nearly 90% of sales whereas 93% of processors have less than 50 employees and represented only 15% of total shipments in 2018.⁷⁴ Despite Food, Health and Consumer Products of Canada having a membership of over 180 businesses operating in this sector, consumers are faced with the illusion of choice when walking down the aisles of grocery stores where companies like Nestlé, PepsiCo, Unilever, Coca-Cola, Mars, Mondelēz, Danone, Kraft-Heinz, and General Mills dominate.⁷⁵ These companies are the biggest global food and beverage manufacturers, and they control thousands of brands in nearly every product category. Nestlé owns over 2,000 brands alone and generated $106 billion in sales as the world’s largest food manufacturer in 2023.⁷⁶ Unilever sells over 400 brands worldwide, Coca-Cola commands over 200 brands exclusive to beverages, and PepsiCo controls more than 100 brands spanning food and beverage.⁷⁷

The winning strategy in this sector is to build scale, distribution, and portfolio through acquisitions. Three of the largest mergers in the 21st century have been in this category: InBev combined with Anheuser-Busch for $57 billion in 2008 and in 2015 AB InBev’s takeover of SABMiller for $117 billion created the world’s largest beer company. That same year, Kraft merged with Heinz in a $100 billion deal to become the fifth largest food processor globally.⁷⁸ Before merging with Heinz, in 2012 Kraft spun out Mondelēz International which has completed 14 acquisitions since—most recently paying $2.9 billion for Clif Bar in 2022.⁷⁹ Mars is one of the largest privately held companies in the U.S. and the family-owned business has made 27 acquisitions since 2001.⁸⁰ These food giants are often the only companies able to pay the significant slotting fees that retailers charge for premium shelf space and negotiate special discounts for large supermarkets, leaving small, independent manufacturers two options: fight for scraps or hope to get acquired.⁸¹

While both CPG and grocery retailers blame one another for rising food prices, both have been able to pad their profit margins following the pandemic. In the three years from 2020 to 2022, food manufacturer profits in Canada were 43% higher than the pre-pandemic years of 2017 to 2019.⁸² This ability to extract greater profits was driven via a price-over-volume approach that was clearly communicated by CPG executives signaling their intentions to pass on price increases through earnings calls with investors.⁸³ This practice of firms with market power using inflation as a condition for rising prices while bringing down production is known as sellers’ inflation.⁸⁴

For example, PepsiCo, Coca-Cola, and Keurig Dr. Pepper together own 90% of the U.S. soda market. In the first quarter of 2023, soda sales were up 56% despite production volumes dropping 2% due to rising prices. PepsiCo’s operating profit increased 21% that same quarter and the company was able to maintain double-digit price increases every quarter for almost two years. The leaders in other segments have also reaped the benefits: Kraft-Heinz posted a profit increase of 448% in 2022-2023 (going from $225 million USD to $887 million USD), candy companies Hershey’s, Mondelēz, and Mars control 80% of U.S. chocolate candy where sales have jumped 34% while unit volumes are down 8%, and prices increased 46% and General Mills, Kellogg’s and Post Holdings who together possess 70% market share for U.S. boxed cereal saw sales up 17%, volumes drop 12%, and prices up 33%.⁸⁵

As inflation has abated, fortunately these companies appear to have reached the limit of this strategy.⁸⁶ However, after having tested the ceiling for what a consumer is willing to pay without facing any competitive discipline, the category captains of the CPG sector have learned an important lesson about their pricing power that continue to be a part of their corporate strategy without changes to the competitive environment.⁸⁷

“It’s been surprising how resilient the consumer really is.”

Kellogg’s CEO Steve Cahillane, 2022⁸⁸

If the variety of CPG brands available in a single grocery store presents the illusion of choice, Canadians aren’t much better off when choosing between grocery stores themselves. The top three grocers own a collective 32 brands: 13 for Loblaws, 11 for Empire Company Limited, and 8 for Metro Inc (see Figure 7).⁸⁹ These companies operate over 1,000 stores each spanning the spectrum from discount stores to ethnic brands to premium labels and combine for 57% of the Canadian food retail market.⁹⁰

Along with Costco and Walmart, the other two companies rounding out the top 5 grocers, these five comprise nearly 80% of the national grocery market share, a number that has increased by 20% in the last 20 years and is much more severe at the regional and local level.⁹¹

Multiple levels of government have investigated the grocery sector following the sharp increase in food prices and come to the conclusion that there is not enough competition to keep prices fair. The Federal-Provincial-Territorial Working Group on Retail Fees concluded in 2021 that “[c]oncentration in the retail sector enables retailers to use their bargaining power to levy a range of fees on suppliers to supply and market their products in store” and that this market structure prevents smaller processors and producers from accessing the market and hampers their ability to innovate.⁹² A report published in June 2023 by the House of Commons Standing Committee on Agriculture and Agri-Food recognized that the dominance of large supermarket chains limits the avenues for producers and processors to bring new products to market, recommending that the Competition Bureau’s powers be strengthened to properly investigate and police the sector.⁹³

The Bureau’s own study on grocery competition published later the same month acknowledged a lack of detailed data provided by the grocery giants but was still able to find that Canada’s largest grocers had achieved meaningful increases to their profit margins throughout the pandemic. The Bureau noted that this ability to increase margins signaled that greater competition in the grocery market could help stem price inflation.⁹⁴

How our oligopolistic grocers behaved throughout the pandemic and during the government investigations is important. Grocers were unwilling to provide data which would have allowed for analysis of the share of profit from food retail sales versus pharmaceuticals for the companies that own drug store chains (Loblaws owns Shoppers Drug Mart, Empire owns Lawtons Drugs, and Metro owns Jean Coutu).⁹⁵ Claims that supermarket profit margins were stable and profit increases were only due to greater sales volume proved untrue; food retail margins increased to 2.85% during the pandemic from an average of 1.62% between 2018 and 2020 and sales volumes fell below pre-pandemic levels by late 2022 as Canadians reduced the absolute number of groceries they purchased to deal with inflation.⁹⁶ As consumers paid more for fewer groceries, primary producers were receiving lower farmgate prices for corn, wheat, hogs, and eggs and supermarket chains were levying significant fees on grocery suppliers to discipline them for products that were in short supply while demanding mandatory investments in grocers’ businesses.⁹⁷

Considering the strain that the pandemic put on grocers’ operations, it would be reasonable to assume that the windfall profits they generated were re-invested in the business to improve their operations. Instead, pandemic profits were used to buy back shares, rewarding shareholders rather than improving resilience and efficiency. George Weston Ltd., the holding company majority owned by the Weston family that controls Loblaw Companies Ltd. and its real estate investment trust Choice Properties, allocated $836 million in 2023 to repurchase and cancel shares in addition to the $1.2 billion it spent on buybacks in 2022.⁹⁸ Metro and Empire followed suit, spending $470 million and $248 million respectively on their own share repurchases. Estimates suggest that the major grocers could have maintained the $2 per hour “hero pay” workers received during the onset of the pandemic rather than jointly cutting it short and still have a billion dollars remaining to spend on repurchasing shares.⁹⁹

While Canadians are most familiar with the retail aspect of the grocery market, the issue of control extends to the wholesale level as well. Testimony from the Canadian Federation of Independent Grocers noted back in 2010 that only two wholesalers operate in Ontario for smaller grocers to purchase from. The problem persists today: independent grocers often must purchase products from their competitors Sobeys and Loblaws who have bought up and built out wholesale infrastructure—a dependency that hampers their ability to be truly competitive and creates opportunities for retaliation.¹⁰⁰ The issue of control of a competitor’s business model also extends to the real estate on which grocery stores are built. In June of 2024, the Competition Bureau obtained two court orders to further its investigation into the use of restrictive covenants by Loblaws and Sobeys’ parent company to block competitors from establishing operations near their supermarkets.¹⁰¹ COBS Bread, a specialized grocery retailer, estimates that 70% of the locations that the major grocers operate employ these types of property controls to prevent bakeries, butchers, and produce outlets from having a presence in nearby shopping centres and strip malls.¹⁰²

Recently there have been efforts to try and rebalance the relationship between major grocers and the rest of the market, but there is reason for skepticism. Developed in partnership with the provinces and industry, the Canadian Grocery Code is a voluntary code intended to promote fair dealing between players in the grocery supply chain.

Noting the limits of this code, while the Canadian Federation of Independent Grocers suggests it will improve the ability of smaller retailers to resolve disputes with suppliers, the code is not a pathway to address the issues of concentration in the sector. As one executive put it: “the playing field will never be level; with consolidation you know the horse is out of the barn on that one”.¹⁰³

While key suppliers and grocers had signed onto the code by July of 2024, the voluntary and industry led nature of the code means it is unlikely to alter the existing imbalances of power in the sector.¹⁰⁴

Canada’s policy makers have been aware of the risks posed by concentration in the Canadian and global food system for decades. Key reports published at various levels of government and under parties of all stripes have repeatedly called for the Competition Bureau to take action against the consolidation of the industry and at a minimum study its impacts on farmers and consumers.¹⁰⁵ Despite repeated warnings, there has been little resistance to the drumbeat of agribusiness consolidation in Canada even on the rare occasion when the Competition Bureau attempts to halt it.¹⁰⁶

But there is an opportunity to turn the corner on this consolidation in the generational strengthening of Canada’s competition law with the passage of Bill C-56 in 2023 and C-59 in 2024. With a stronger and broader toolkit, the Competition Bureau has been empowered to conduct deep studies into market conduct, address a wider range of problematic conduct, and put up a stronger defense against further consolidation. Canadians have entrusted the Competition Bureau with greater power, and to reward that trust that power should be pointed towards creating a fairer and more resilient food system. The work to reverse the consequences of decades of consolidation will not occur overnight, but there are several concrete steps policymakers and regulators can take to begin to address the harms of monopoly power across the food system:

1. 01

   The Competition Bureau must use its new market study powers in partnership with Agriculture and Agri-Food Canada to investigate the competitive dynamics across agricultural markets where competition issues are most pressing for farmers – farm equipment, fertilizer, agricultural retail stores, as well as seed, chemical and grain companies.

2. 02

   Assertively enforce the expanded abuse of dominance and anti-competitive agreements provisions of the Competition Act to address instances of unfair methods of competition.

3. 03

   Using newly strengthened merger enforcement powers, increase scrutiny of mergers and acquisitions all along the agricultural supply chain and conduct retrospective analyses of past mergers.

4. 04

   Move from a voluntary to mandatory grocery code of conduct and expand its scope to include anti-competitive practices such as slotting fees, conditional kickbacks and exclusive dealing.

5. 05

   Establish a right to repair framework that addresses the use of digital locks and returns control to independent farmers, mechanics and equipment manufacturers.

6. 06

   Task Statistics Canada with improving data collection and public availability of key statistics like market share, concentration ratios, and farm share of food dollars, with the USDA’s Economic Research Service as a model and potential collaborator.