INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, May 18, 2000

• 0909

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I'm going to call the meeting to order pursuant to the committee's mandate under Standing Order 108(2), a review of the Competition Act.

From the Canadian Council of Grocery Distributors, we're very pleased to have with us this morning the president and chief executive officer, Mr. Nick Jennery, and the vice-president for the Ontario region, Mr. David Wilkes.

• 0910

I'll turn it over to you for your opening statement and after that we'll move to questions. Begin whenever you're ready.

Mr. Nick Jennery (President and Chief Executive Officer, Canadian Council of Grocery Distributors): Thank you, Madam Chairman, and good morning.

My name is Nick Jennery. I'm president and CEO of the Canadian Council of Grocery Distributors. David Wilkes, who is vice-president of trade relations, also oversees many of the joint industry initiatives that are taking place between suppliers and distributors.

The CCGD is a national trade association representing both retail and food service distributors across Canada, a distributor being a retailer and/or a wholesale grocery operation. Our members range from small niche-oriented grocers to large national food distributors who operate from Corner Brook, Newfoundland, to Victoria, British Columbia, representing an industry employing about 470,000 Canadians.

A number of questions about our industry's competitiveness have been raised during the course of the committee's hearings. Our goal today is simply to respond to the testimony and provide our views on the proposed amendments to the Competition Act. We have left with the clerk of the committee a copy of the association's paper, which summarizes our views.

First let me talk about the changing industry. Over the last five years, the Canadian grocery industry has undergone a period of significant change. The increasingly competitive marketplace, with new entries into the market, new competitors, and more channels of distribution, has caused an unprecedented amount of change, change such as a reinvestment in the business by both large and small distributors, more new stores, more frequent renovations, new technologies, new store formats, specialized merchandising, and most importantly, more attention to delivering what the consumer really wants. A look inside any new grocery store really says it all.

Why has this change taken place? It's chiefly because of the impact of large global retailers on Canadian grocery companies. The change is profound. Companies such as Wal-Mart and Costco have changed the rules of the game with new competitive clout, new technology infrastructures, new levels of capitalization, and new global procurement strategies. To compete against these companies, Canadian distributors have had to strip out inefficiencies and compete either on size or specialization or both. The consumer, as we will demonstrate, has clearly been the beneficiary and those companies that have read the trend have been successful.

As indicated on pages 2 and 3 of our paper, traditional grocery stores are not the only option for shoppers seeking grocery products. According to research conducted by NPD market research in 1990, the total share of grocery dollars that Canadians spent in grocery stores was 90%. By 1999, nine years later, this number had dropped from 90% to 81%, a share drop of 9%.

The flip side of all of this is that some of the new global retailers that compete in club stores and mass merchandise segments have seen phenomenal growth. They started with a share of approximately 1% in 1990 and their share has now grown to 9% of total grocery sales. According to research conducted by A.C. Nielsen, this shift is affecting the entire grocery store.

If we look at the 150 core categories sold in grocery stores, representing over 80% of the total volume of groceries sold, categories such as bottled water, pet food, detergent, and that type of thing, stores have lost share to the mass merchandisers and warehouse clubs in 78 of these categories, over 50% of the categories. To give some examples, the warehouse club store share of luncheon meats, popcorn, flat water, and coffee has seen nearly double-digit growth between 1997 and 1999. Similarly, mass merchandisers' share of gum and bottled water and detergent has grown remarkably in the same period.

In addition to this, there have been some large single-focus retailers, such as Petsmart, local produce markets, and the emergence of new retailers who are now marketing to consumers through the Internet. All of this continues to increase the competitiveness of the marketplace.

In the face of this intense competitive environment, how do smaller grocers and suppliers compete? Well, they compete—and they compete effectively—by changing the rules of the game, by focusing on specific market niches, such as ethnic or demographic sectors, or unique store formats or product offerings or customer service or a combination of all of the above. Grocers continue to shift their focus in response to changing consumer demand. There is less dry grocery product on the shelves. There is more emphasis on freshness, more produce, more bakery, more ready-to-eat food.

• 0915

The demand on suppliers, consequently, has also changed. For a supplier, you either have to be the number 1, 2, or 3 in the category, or at least have a unique product that the consumer wants. Anything that falls outside of those boundaries puts the supplier at risk.

What's the impact on the consumers?

Last year CCGD commissioned the A.C. Nielsen Company to undertake some research into the price of grocery products. In addition, we asked that the same grocery basket that was sampled be compared in the U.S. and in Canada. This basket was based on the consumer price index. We have left a copy of the executive summary of the paper and the study methodology with the clerk.

Between 1998 and 1999, Canadian grocery prices increased by only 1%, this during a period when overall inflation was 2.2%. In comparison, U.S. shoppers saw their grocery prices increase from a low of 2% in Atlanta to a high of 5% in Chicago. As well, the research revealed that Canadians pay less for their groceries than their American neighbours. On a basket of 39 core grocery items, Americans paid a low of $124 in Albany to a high of $144 in Chicago. During the same period, Canadian prices in comparison averaged $98. The results are indicated on page 3 of the paper we've left with the clerk.

The industry is also delivering choice to consumers. We have heard that the Canadian grocers are not delivering new and innovative products to Canadians. The facts are these: for the 48-week period ending January 1, 2000, over 18,702 new products found their way and were introduced onto Canadian grocery shelves. That's over 360 new products each and every week.

Madam Chairman, I just want to point out a typo in what we left. It indicated 15,702; the number is actually 18,702.

With new products brought to the market comes the opportunity for new suppliers. One of the truest tests of entry into the grocery marketplace is the issuance of UPC bar codes. UPC bar codes are a condition for product listing. Over the last 18 months, over 825 new-company UPC codes have been issued to suppliers conducting business in the grocery industry. It should be noted that this number is very conservative, as it does not include companies that work with food brokers or importers, or companies that sell produce, meat, or fresh flowers—all of which were significant areas of growth within our stores.

Madam Chairman, I put it to you that the Canadian grocery industry is on the move. It's competitive and delivering greater value to consumers than ever before.

Finally, I'd just like to comment on the need to amend the Competition Act to adjust to the demands of increasing globalization.

By way of introduction, CCGD does agree that there is a need to update the act and to take into account the increasing globalization we referred to earlier. As such, CCGD supports proposals aimed at informing consumers, facilitating cooperation between competition authorities, and creating new processes for dispute resolution.

The details of our position are laid out in the paper, and we'd be pleased to answer any questions on the points made in our remarks.

CCGD's concerns are focused on Bill C-402 for several reasons. Adding illustrative examples to the abuse of dominance provisions of the act that are targeted at a particular industry, as Bill C-402 does, is not appropriate. CCGD agrees with the Commissioner of Competition when he indicated during his testimony on April 13 before this committee that the Competition Act is a law of general application. It doesn't apply to a specific industry. CCGD does not support amending the act to incorporate proposed paragraphs 78(j) and (l) of Bill C-402.

CCGD also agrees that the role of the Competition Act is to protect competition and not competitors. Again, as the commissioner stated during the same testimony, the act must continue to be legislation aimed at ensuring that competition prevails in the marketplace.

Whether in the form of new store formats, the introduction of new products, new suppliers into the marketplace, or more importantly, competitive prices, the competitiveness of the Canadian grocery industry meets this test.

Adopting amendments laid out in Bill C-402 could have the exact opposite impact of what was intended. Rather than enhancing clarity and efficiencies in the Canadian grocery industry, the government could possibly put at risk both the companies and industry best practices outlined in our paper.

Once again, I'd like to thank you for the opportunity to present our views, and we'd be pleased to answer any questions from the committee.

• 0920

The Chair: Thank you very much, Mr. Jennery.

We'll start with Mr. Penson, please.

Mr. Charlie Penson (Peace River, Canadian Alliance): Thank you, Madam Chair. I'd like to welcome our guests here this morning. I've been waiting for you for a while, to see what these bad guys really look like. We've heard some stories about how competition is inhibited in the grocery business.

Mr. Jennery, I heard you say this morning there is fairly intense competition in the grocery business, especially from some of the new box stores like Costco, which are taking some market share. I'm wondering if you could tell the committee, if in your view competition has increased or decreased in the last ten years, how would you rate that?

I'd also like a comment on the vertical integration side of it. You say you represent wholesalers and retailers. There have been some comments about that being a practice that maybe is also hurtful for competition. I'd like your viewpoint on that.

The third thing is that my understanding is that the percentage of disposal income that Canadians spend on groceries has been in steady decline for some time. We have a farm ourselves, and some 30 years ago when we first started, in my understanding, Canadians spent about 18% of their disposal income on groceries and food. Now it's down to about 10% or 11%. I don't know if those numbers are quite accurate, but there's been a trend that way. I was wondering if that's your read of what you could tell us about that.

Mr. Nick Jennery: Yes, I'd be pleased to answer those questions.

In terms of competition, what we have seen in the last ten years that you refer to is there are more channels of distribution. You can buy grocery products in more outlets in more different types of retail store formats than ever before, and this is on the increase. You can buy grocery products at mass merchandisers, at convenience stores, at gas stations, over the Internet, and there continues to be erosion of the traditional grocery channel taking into account all of these other channels of distribution. So the overall sales look flat because the pie has been divided amongst more competitors.

One of the effects of this is that it has caused traditional grocery stores to take a look at their cost structure and to be more competitive. Frankly, the new competitors that have come into the marketplace, whether it's over the Internet or the basic store formats, operate at a lower cost.

Therefore, to be price competitive there's really been a tremendous effort to strip out inefficiencies, such as standardizing business practices, whether it's on technology standards, that type of thing, getting rid of inventory out of the pipeline. A number of studies are available indicating the inefficiencies that the industry has addressed over the last five years.

In terms of vertical integration, the second highest cost for a grocery store is the procurement of product, labour being the first. Given that you're looking at an industry that operates traditionally on a 1% to 2% margin, it's a $60-billion retail industry plus about half again on food service. But they only net 1% to 2% net margin. So you have to be very sharp on your operations, very sharp on your highest cost factors.

If you look at the procurement of product, that is why there is the existence of buying groups. That is why there's the existence of vertically integrated companies. There are many ways to procure product, and in fact it's done for just that, how to get the lowest possible cost. Obviously that's in proportion to the sales that any particular company does, but it continues to be a focus. There continue to be new initiatives to try to drive down that cost. In fact, manufacturers have felt that drive as well.

In terms of the percentage of dollars spent on groceries, the way to look at it... it's a little disgusting, but it's share of stomach as opposed to a share of the grocery dollar. That is, as consumers we are also moving toward a trend to more ready-to-eat products, products that you eat away from home. The food service business continues to grow, and this is driven by the consumer's demand for convenience. And ready-to-eat foods have actually come down in price, making it a much more affordable option.

• 0925

Mr. Charlie Penson: In regard to the inventory, you're saying you're working on a margin of about 1%. It's 1% to 2%. I gather from this that it has to be turned over many times during the course of a year.

Mr. Nick Jennery: Right.

Mr. Charlie Penson: It seems to me that you'd want a pretty smooth-running delivery system to be able to accomplish that.

Mr. Nick Jennery: Correct.

Mr. Charlie Penson: Is that part of the reason you need this vertical integration?

Mr. Nick Jennery: We looked at a study called the efficient consumer response, which really looked at the effectiveness of the industry. That was approximately six or seven years ago. At that time it showed that the value of inefficiencies was around 10% of total operating costs, and 40% of the opportunity lay in addressing inventory issues.

So in years gone by a grocery store would see one delivery per week. Now they see three deliveries per day. It's designed to take out the inventory, because if you have inventory you have to manage it. You have to put somebody in charge of it. You have to put a building around it. It gets damaged. There's a lot of overhead associated with that.

Mr. Charlie Penson: And inventory is expensive as well.

Mr. Nick Jennery: Correct.

Consequently you're seeing the grocery industry move a lot like the automotive industry did some years back, with a just-in-time... Now with new technologies that are being implemented we're getting very close to the point where as you buy a grocery product off the shelf and that information is captured through the checkout, that triggers a series of messages right back to the supplier, saying, okay, we now need to replenish.

So you have stores actually getting involved in computer-assisted ordering, all designed for that smooth flow, to minimize inventory. The back rooms in the stores are getting much smaller; the front parts of the stores are getting larger so that consumers have more choice of product and services.

Mr. Charlie Penson: Changes in consumer demand—wanting fresher product—could also be a part of that.

Mr. Nick Jennery: Correct. Consumers are far more demanding for freshness than ever before—freshness and highest quality. You just cannot have product that's past code date. To get it to the shelf in the fastest ways possible, that's what gets the consumer buy.

The Chair: Thank you very much, Mr. Penson.

Mr. McTeague, please.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you, Madam Chair, and good morning again, Mr. Jennery.

Mr. Nick Jennery: Good morning.

Mr. Dan McTeague: It sounds like similar arguments you made on Bill C-235 seem to ring true again. I'm wondering, during the period of time from when we dealt with Bill C-235 to the present time when we're now dealing with Bill C-402, what has changed?

Mr. Dennis J. Mills (Broadview—Greenwood, Lib.): Could you explain Bill C-235?

Mr. Dan McTeague: Bill C-235 was on predatory price. Mr. Jennery and his association presented themselves opposed to Bill C-235, which was aimed at several industries, as the Competition Act requires, as is Bill C-402.

Mr. Jennery, I'm interested. In that period of time, I think you would have to agree, a lot has changed in the grocery industry. I understand that you would represent here today companies like Sobey's, Great Atlantic & Pacific Tea Company, and of course, Loblaws.

I'm interested in your comments to the effect of what has occurred both in Canada and the United States. The United States subcommittee—a Republican-led committee, Mr. Penson—took the liberty of investigating the slotting fee issue in the United States based on the fact that five super-retailer chains were in fact controlling somewhere in the order of about 30% of the marketplace.

I'd like to ask you if you could give me an idea of just how large and what type of percentage of market share—and that is grocery market share in Ontario, in Canada—those three companies I've mentioned to you occupy relative to grocery distribution and the retailing of groceries.

Mr. Nick Jennery: A&P, Loblaws, and—

Mr. Dan McTeague: Sobey's, and, if you wish, Empire Foods.

Mr. Nick Jennery: The way to look at that is the percentage of groceries sold in all channels of distribution as opposed to the percentage they have of the total grocery segment. I don't have the actual numbers. I could provide the committee... We know the sales of those companies. We know the total size of the marketplace. I'd rather give the committee an accurate number.

Mr. Dan McTeague: Mr. Jennery, I'd appreciate that. I have the 1998 numbers, and you'll forgive me, I do not have the 1999 numbers. Some of this is prior to the mergers that have been approved between Loblaws and Provigo and of course the unapproved but proposed merger between Sobey's and Loeb.

Of the top grocery retailers in Canada, of a total of some $50 billion, Loblaws is at $17 billion, Sobey's is at $9 billion, Metro-Richelieu is at $3 billion, and Great Atlantic & Pacific is at about $2 billion.

• 0930

One would have to agree that given the strength of your retail purchasing power, certain liberties have been allowed by the retailer in the form of trade allowances. I'm referring specifically to listing fees, off-invoice allowance, everyday low price, co-op advertising, over and above the fees, warehouse allowances, and special programs.

A manufacturer was kind enough to provide me with information—knocking out his name, of course, because if I were to give that name here today, I'm sure he might not be doing business with Loblaws, and it turns out the individual is no longer doing business—with respect to auto-subsidy. Once the company was taken over by Loblaws, the individual was told he had to refund any concession they gave to the company that was acquired—in this case, Provigo—and that of course was deducted unilaterally from his invoice.

We undertook a study last summer, which I'm sure you're aware of, an aggregated result of several surveys, including the question of listing fees, which you refer to as bar codes and I refer to as SKUs. I think that's the more proper industry terminology. This generally points in the direction that suggests the two large players are now demanding much higher trade allowances than they would otherwise be capable of demanding if there were more competition.

I'd like you to tell this committee how you believe you can come here and tell us everything is perfect and white and pure as the driven snow, when in fact there are serious problems with manufacturers who can't get access to your product and independents who are going out of business because you control the warehousing as well and the wholesaling of the product.

Mr. Nick Jennery: You have a lot of questions there, so let me see if I can't cut through that.

I cannot respond to a situation involving companies I don't even know, and I respect the confidentiality with which it was given to you.

Mr. Dan McTeague: Loblaws.

Mr. Nick Jennery: Loblaws and this other supplier you're talking about. I don't think it's appropriate for me to talk about that.

But let me address the listing fees part of it. I indicated that over 18,000 new products were introduced last year. This is a record number of new products. It not only indicates opportunity for suppliers who have products consumers want, but it also reflects the desire for the retailers—

Mr. Dan McTeague: Excuse me, Mr. Jennery. Is that private label or brand label?

Mr. Nick Jennery: All new products.

Mr. Dan McTeague: Sorry. Could you tell me if that's all new products including private labels?

Mr. Nick Jennery: It's all new products including private labels.

It also talks about the opportunities for suppliers. I mentioned the changes in store formats, and if you go into any new store, you will see exactly the same changes. The dry grocery section is getting smaller, because you and I and other consumers are looking for more variety in the fresh categories, more produce, more health-related sections. There are wellness centres in stores now that were never there before. There are full-line pharmacies in there that were never there before.

The stores are not getting bigger, so part of the trend that has gone on is that the retailers have asked what consumers really want. One of the realizations that's come is that there's probably, in some categories, a fair amount of duplication as opposed to variety.

Mr. Dan McTeague: Thank you.

Mr. Nick Jennery: So what the retailers are trying to do is provide the greatest variety that consumers want. Bear in mind that consumers are asking for something different.

Mr. Dan McTeague: Is duplication, in your view, three different companies competing for the same product per SKU? Because of the question of limited...

I point out that the 1998 Canadian Grocer suggests our square footage is much smaller than that of the United States; U.S. stores are much larger, with higher average sales per labour output; and American supermarkets carry more SKUs than Canadian ones and have a high average dollar sale.

When you're talking about having more product on the shelf but not increasing the size of your average stores and at the same time being concerned about duplication, are you really referring to the fact that there is in fact a dearth of choice at your supermarkets relative to three years ago, relative to the United States?

Mr. Nick Jennery: No, absolutely not. The U.S. and Canada are very different marketplaces. You have different consumer habits; you have different buying patterns. If you take a large superstore in Ontario, chances are it will struggle to do well. If you take that same store and put it out west, it will do increasingly well. The vast majority of sales in the province of Quebec is done through small independent retailers.

These are consumer choices. They are not reflected in the U.S. marketplace. When I'm talking about duplication, I'm saying in years gone by there were 58 SKUs of decaffeinated coffee. Retailers now realize that consumers don't need that amount of choice. They would rather have the additional categories than—

• 0935

Mr. Dan McTeague: Mr. Jennery, on that question—

The Chair: Mr. McTeague, please allow Mr. Jennery to finish the answer.

Mr. Dan McTeague: It's an important point though. If he's raising the question of 58 SKUs as an example to elicit a point, Madam Chair, I'd like to ask—

The Chair: Mr. McTeague—

Mr. Dennis Mills: What are SKUs? I'm not a full-time—

Mr. Dan McTeague: Stock-keeping units.

Mr. Dennis Mills: Thank you.

Mr. Nick Jennery: Individual retailers look at the amount of grocery shelving they have. They understand their consumers extremely well. The consumer in Scarborough is very different from the consumer in Hamilton or in Ottawa. Based on previous buying patterns, they merchandise their products, what they call shelving planograms, which are very distinct in each of the stores. Consequently in the lineup of products, you're seeing much more specialization in individual stores in individual regions. I'm sure if you go around the Ottawa area, you'll see different listings of products based on different merchandising and marketing strategies.

Mr. Dan McTeague: Mr. Jennery, if there are 58 products that could sell—58 brands of coffee, to use an illustration of your example—

Mr. Nick Jennery: Decaffeinated coffee.

Mr. Dan McTeague: That's fine, decaffeinated. Let's call it instant as well. If they were selling at whatever price, and the manufacturer of the product had no trepidation with competing against 57 other members, why is it there are only two or three left in some of those same stores? You've given us an example. Are you telling me or are you telling this committee that of those examples, those individuals have simply decided to withdraw? Or could it be that you have increased their stock-keeping unit shelf fee to such a point that only those who can afford the top buck, through your planograms, can keep their product on the shelf? Does that not happen?

Mr. Nick Jennery: No. It makes no sense for a retailer to provide a barrier to a product that is in demand by consumers. There's a point of diminishing return. You carry so much variety of a particular product that in your sales or your profitability for that very expensive shelf real estate, you get to the point of diminishing return. Consumers have shown through their buying habits that they would rather have the variety of products in terms of different categories and services in the store than a more limited lineup of products.

Having said all that, there are very different store formats out there. Some specialize in a single category, some have both services and products, and some just specialize in produce. This is the differentiation we're seeing in the marketplace.

The Chair: Make this your last question, Mr. McTeague.

Mr. Dan McTeague: Yes, thank you, Madam Chair.

We've heard from a number of individuals who have come to this committee, to other members, and to me and have spoken, in fact even during the period of Bill C-235. On that very example alone, I don't think you've clearly illustrated it for all of us here. If I'm making money and there is quite a variety of competition, I as a manufacturer would withdraw the product if it were not selling, based on the choice you just spoke about. The question is—

Mr. Nick Jennery: That's not true.

Mr. Dan McTeague: You're saying they're there, but because you've changed your format, I'm concerned and we're concerned that the three or four companies that dominate 60%, 70%, 80%, or 90% in a particular area may be able to demand fees that are totally unrelated to the simple laws of economics of supply and demand. If the consumer does choose to have that instant decaffeinated coffee and the manufacturer is quite willing to keep providing that, since they're not losing money, because it's being purchased, what's hurting them is that the retailer is in fact stopping them from providing that product by making their price uncompetitive by raising their listing fees.

Mr. Nick Jennery: Let me see if I can provide some clarity here. I mentioned that over 18,000 new products were introduced to the marketplace. A lesser-known fact is that 71% of those new products fail. I don't know of any other business that tolerates a failure rate of 71% and still remains competitive in the marketplace. That's an A.C. Nielsen number. That's a well-defined definition that's also in the briefing paper we have issued to the clerk.

So you list a product and market it, warehouse it, inventory it, put it in all the stores, and then you find it doesn't sell. The manufacturer in good conscience thought it was something that would be in consumer demand. The retailer thought the information was there and the research was done to show this is something consumers want. We have all seen many, many examples of how those products don't last. Think of the whole green products issue, when the environment was so sensitive. Look at the number of products on the shelf now. Everybody wanted to buy environmentally sensitive products. They may say that, but they don't buy it.

I hope that's helpful.

The Chair: Thank you very much.

[Translation]

Mr. Dubé, do you have any questions?

• 0940

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): I have only one. Are there any members from Quebec in your Council and do you have corporate groups among your members?

[English]

The Chair: Just a second, Mr. Dubé. Can the translator say something in English to make sure they're hearing English?

[Translation]

Mr. Nick Jennery: Pardon me, Sr?

Mr. Antoine Dubé: I wanted to know if you had any members in Quebec.

[English]

Mr. Nick Jennery: Yes, I do. Companies such as Metro-Richelieu and Provigo are all members of our organization, as well as smaller companies such as Jean-Paul Beaudry and A. De La Chevrotiere.

[Translation]

Mr. Antoine Dubé: All right. Are the statistics you mentioned this morning broken down by province? It's not included in the report.

[English]

Mr. Nick Jennery: We have a breakdown of market share of grocery stores by province, yes. We can provide that to the committee, if that's what the member wants.

[Translation]

Mr. Antoine Dubé: I would appreciate it. Let's say I manage to read English, but it takes me more time. Would it be possible that that breakdown by province be then translated by the House? Thank you. That's all.

[English]

Mr. Nick Jennery: We will undertake to do that, yes.

The Chair: Thank you very much, Mr. Dubé.

I have a question before we move on to the next person. When you say new product, how do you define that? Do you mean new packaging, new labelling, new sizing? Does that count as part of the 18,000—

Mr. Nick Jennery: A new product is one that requires a separate new UPC code, so it could be a new flavour of Jello, it could be a luncheon meats and cheese offering. One of the big debates going on—

The Chair: But it could be a different size of the same product.

Mr. David Wilkes (Vice-President, Ontario Region, Canadian Council of Grocery Distributors): Excuse me.

Something like that would not require a new UPC code, which is the product identifier, so it could be marketed under the same code—the bar code on the products.

The Chair: I don't understand that, because my understanding is that the bar code also tells you what the price is.

Mr. David Wilkes: Correct.

The Chair: If you bring in a new size, it's going to have a different price, so it's going to have to have a new bar code.

Mr. David Wilkes: A new packaging style wouldn't require a new UPC code, but a new size would.

The Chair: Yes, so a new size.

Mr. David Wilkes: Right.

The Chair: So if you have the old and the new packaging, it keeps the same one.

Mr. David Wilkes: Right. So if it's new facing, or new—

The Chair: How many of these products would just be new sizes of the same product, or variations of the exact same product?

Mr. Nick Jennery: I don't know. We could probably find out that information from A.C. Nielsen. They keep an active listing of all new products. I couldn't honestly—

The Chair: I guess I'm trying to determine what's a new product and what's not. I mean, I don't really think a new package size is a new product, although it requires a new UPC code, or whatever it's called. It just concerns me that we're saying there are 18,000 of them, when really there aren't. I mean, they just decided to change the packaging size.

Mr. Nick Jennery: Madam Chair, I would say if you walked into the grocery store, you'd see the new product offerings are particularly in the health-related, nutrition-related products. There are, as I mentioned, two aisles of health products that were never there before. Organics are brand-new products. Meats and grocery products with less salt, less sugar, less fat—all of those types of things are new products. The ethnic food sections—Mexican, Taiwanese, Chinese—are much bigger sectors than ever before.

I'm sorry, I'm just scanning through the...

Equally, if you look in the produce department, before you could get maybe two or three different varieties of head lettuce and now you can get eight or ten different varieties.

There are more imported... two out of three produce products are now imported out of country, which relates to the more exotic products, different products.

• 0945

Given a little bit of time, I could probably give you some harder differentiations, if that's of help to the committee.

The Chair: You mentioned that you compare the amount you pay for a Canadian shopping basket versus the American. What's the exchange rate you're using on that?

Mr. Nick Jennery: That was done based on a U.S. currency basis, which is detailed in the methodology in the handouts there. It was all calculated in U.S. currency. You have to pick a currency in order to compare apples to apples.

The Chair: Well, yes, but you could have just had the Canadian dollar and changed it, so we know on a daily basis if that's fluctuating. I'm just trying to get an idea. Is that relevant today? Is it the same price today?

Mr. David Wilkes: The study used the exchange rate at the time.

The Chair: When was it?

Mr. David Wilkes: The study was concluded in August 1999. It was the particular exchange rate on a moving basis for the 12-month period. The answer to the question is that it would be very similar.

The Chair: Okay.

I have one other question. In the paper you provided, you show the difference in the amount of sales that are going towards memberships. Does that compare to the United States?

Mr. Nick Jennery: There's a similar trend, but there's not as great a penetration. I'd have to get back to you with the numbers on that one. There is a similar trend in that club stores have taken a lot of share. Essentially what they do is they take the highest-selling products and they list those without the full-line variety, and that's how they manage to gain market share.

The Chair: But how do you define club memberships?

Mr. Nick Jennery: Oh, we're talking about the Price Costcos, the—

The Chair: How do you differentiate that from Zehrs?

Mr. Nick Jennery: A Zehrs store would not be considered—

The Chair: If you have a mortgage at the bank at Zehrs, as an example, you get this card and then every time you buy groceries, you get points. So what's the difference? You're getting points in the grocery store for being a member.

Mr. Nick Jennery: To be very specific, the market share that we talked about in our paper relates exclusively to Price Costco.

Mr. David Wilkes: A club store is defined as one where there's a membership fee to join, whereas the program that Zehrs has is more of a loyalty program for those particular customers.

The Chair: All right.

Mr. Mills.

Mr. Dennis Mills: Thank you very much, Madam Chair.

Gentlemen, I represent and am working with close to 100 members of Parliament in this particular House, and we are working with close to 240,000 family farms in this country. There is a view and a feeling that the share of the food chain in this country is not being distributed evenly or that the share for the farmer is not appropriate for the amount of investment and the amount of work that goes into that production.

I am here today to ask for consideration and cooperation. We could sit down with your organization, the Canadian Council of Grocery Distributors, and design a plan, figure out a way that we could challenge the consumers. If they were walking down an aisle in a Loblaws or a Sobey's or wherever and they saw a particular product that had an icon or a logo on it that was linked to the Canadian family farm system, and if that product would maybe cost a little bit more but the consumer knew that the extra portion was going directly into the family farm realm, ultimately this could have two objectives or two realizations. First, we could work at sustaining the Canadian family farm system in this country. Second, we could give consumers a voluntary exercise where they could choose to participate, to decide whether or not they felt that sustaining the Canadian family farm was an important venture.

• 0950

My concern, after listening to you this morning, is that with the competitiveness and the squeeze on all the people you're dealing with, from the manufacturers to the distributors, what I'm asking for flies in the face of everything you're trying to do to keep your retailers competitive. I need to know whether or not, Mr. Jennery, you would consider taking up this challenge, on behalf of the farmers of Canada, with myself and others.

Mr. Nick Jennery: Thank you for your suggestion. At the risk of saying it's already underway, let me just explain a couple of things.

Right now there are a number of provinces—the province of Quebec and the province of Alberta are two that come to mind—that have provincial government initiatives designed to provide incentive not only to buy locally but to grow locally. The province of Quebec is one of the more aggressive in that regard. I think they're now in their second year of that, and there are statistics available about increasing share of locally grown product sold through local stores.

Mr. Dennis Mills: But we're not talking about the share of sale. We're talking about the share they actually receive at the farm gate.

Mr. Nick Jennery: A share of the sale of—

Mr. Dennis Mills: In other words, they end up receiving more rather than being squeezed and receiving less. We're not necessarily selling more. We're saying their net receipts are more.

Mr. Nick Jennery: You're talking about some sort of price regulation, then.

Mr. Dennis Mills: No, we're not talking regulation.

There is a view that is emerging from some very unscientific testing that consumers in major markets feel strongly that we should preserve the family farm system in this country. We have reason to believe that some of your membership does not share that view. We have been told outright by one of your counterparts, Mr. George Fleischmann, that he does not share that view. He has the view that we will find food at the cheapest price. It doesn't matter where we buy it, how we get it, whatever. I'm sure you're well aware of his view and the view of many of his particular membership group. I'm talking about the farmer's share increasing.

By the way, I'm not talking about a regional program; I'm talking about a national program.

Mr. Nick Jennery: Okay.

From a retailer's standpoint, they're obviously very customer-sensitive. Customers have shown the sort of sensitivities you have talked about. From a business standpoint, retailers would rather buy fresh product locally. Who wants to pay for the additional logistics of trucking it across the country or even out of the country? It does nothing for the quality of the product.

So they would rather buy locally. In fact, there are many examples where that actually happens. Even though there are corporate merchandising and procurement programs, there are stores and segments of stores that are authorized to buy locally. I think Mr. Wilkes has some examples of that.

In terms of their share of profit of the sale, which in a sense is what you are getting at, I'm a little more uncomfortable with that because that interferes with the direct business transactions between supplier and retailer.

Mr. Dennis Mills: Mr. Jennery, you're missing my point. I'm sorry.

You represent the most powerful grocery retailers in our country. When grocery retailers decide as a force that they're going to do something on a national basis, they can do it with a flick of the finger. I'm asking you if there's a possibility that I could sit down with you and some of your major retailers, at the senior level, to talk about creating and designing a plan that ultimately would see whether there's a way that we could get a better share into the family farm system in this country. We don't have the answer here today, but would you engage in that kind of dialogue?

Mr. Nick Jennery: I would bring the retailers to the table to have that discussion. I would do that.

Mr. Dennis Mills: Thank you.

Thank you, Madam Chair.

The Chair: Thank you very much, Mr. Mills.

Mr. McTeague, you had another question?

Mr. Dan McTeague: Yes, I did.

Mr. Jennery, I have taken the liberty of visiting several executive boardrooms of some of the largest and, to some extent, medium-sized manufacturers in this country. There are not one, not four, but dozens. Understandably, some did not want to have this confidential inquiry because they were concerned about the repercussions.

• 0955

They told me in person in those boardrooms that the major grocery chains have demanded a 100% increase in their listing slotting fees without justification. As an example, in 1998, it could have been $50,000 per SKU. Today, it's an average of $130,000.

Do you think there's an impediment to new products coming out, the so-called choice you referred to a little while ago? Manufacturers literally told me they can't bring new products out in Canada. Many of these are multinational companies that are doing very well in the United States and can bring new product out, but because of these listing fees and other trade allowances that have been heaped on by three companies that have a virtual oligopoly, a virtual monopoly, these manufacturers of new product are facing significant barriers. They are not able to bring a new product out unless they raise prices artificially, which has two effects: one, higher prices, and two, less choice.

Generally, in your opinion, how can this be supported? How can this be sustained, and how are consumers getting the benefit when there is less choice and ultimately higher prices?

Mr. Nick Jennery: Mr. McTeague, I would say that the statement is not true. New products are the lifeblood of our industry. Consumers demand it, and if you don't provide it, they'll go somewhere where they can find it. The growth in the categories we talked about is a clear indication that consumers want a different variety of products than they wanted several years ago.

The problem stems from when a manufacturer develops a product and says, this is a great new product; I believe in it and you ought to put it on your shelf. Sometimes the research is not well done, and sometimes it may be a nice new product but people don't buy it. The whole environmental line of products is one of the most classic examples. It looked like a great product. People were saying they're prepared to buy environmentally sensitive products, but they don't buy them.

So the retailer understands better than anybody else what their customers, who they see day in, day out, week in, week out, want. They know without a shadow of a doubt... put it this way: they're in the best position to understand what their consumers want. If there is a new product that they feel will sell, they will put it on the shelf.

The listing fees are not a barrier. Listing fees have come about because of the tremendously bad track record of new product introduction: 71% have to be pulled off the shelf. That's displacing other products in the meantime. That's loss of sales. It's a huge inefficiency.

Mr. Dan McTeague: Mr. Jennery, that's a very nice answer, but you haven't answered my question. Have listing fees by your member companies gone up in the past year, yes or no?

Mr. Nick Jennery: I can't answer that. I don't know.

Mr. Dan McTeague: You can answer everything else, but you can't answer that. The manufacturers know it's going up.

Mr. Nick Jennery: Mr. McTeague, listing fees are just one part of an overall negotiation between supplier and retailer. Each individual retailer will decide whether they're going to promote it, whether they're to going market it, whether they're going to put it in 250 stores or in one store, whether they're going to put it on the top shelf or at the back of the store, whether they're going to provide all sorts of additional support for it or not. These are individual negotiations of which listing fees are just one aspect.

Mr. Dan McTeague: Mr. Jennery—

The Chair: This is your last question.

Mr. Dan McTeague: Thank you, Madam Chair.

At the beginning I indicated to you the various trade allowances, and listing fees are the most prominent among them, because I think people readily understand those in Canada and the United States. However, in failing to answer the simple question that manufacturers have brought to my attention and to the attention of other members of Parliament, you have in effect suggested that everything seems fine in this industry.

I have a more specific question, then, if you're not going to answer or can't answer that one.

If listing fees are indeed raised to such a point that it becomes unprofitable for the manufacturer to provide the product and to stock it and put it on the shelf, how is it possible to have negotiations with people who simply can't afford to put their product and pay the freight and pay the rent, or pay up the payola?

Mr. Nick Jennery: The profitability of the manufacturer sector is far greater than the profitability of the retail sector.

I think the numbers of new product entries, new categories, new suppliers to the retailers, all indicate that there's a very real opportunity that is being capitalized right now, as we speak, for smaller suppliers, for suppliers that have clearly new products, and the debate will continue as to whether or not a new product will sell.

I can't answer it any clearer than that. You have to look at the statistics of the new products that are on the shelf, the 825 new companies, brand-new companies, that are now supplying products to grocery stores, that weren't providing products 18 months ago. These are facts.

The Chair: Thank you very much, Mr. McTeague.

• 1000

Mr. Jennery, I want to ask briefly, on page 5 of the brief you provided to us, regarding proposed paragraph 78(l), you're saying that in most trading relationships there's a variety of financial reconciliation methods. Are those not agreed on things?

Mr. David Wilkes: What we're referring to there is the deductions reference in the bill. The deductions are governed by two things. We have a set of industry guidelines that we talk about in the paper, and as well there are contracts between the individual trading partners. So, to your point, they are—

The Chair: So proposed paragraph 78(l) wouldn't affect that. If you have a contract already that says the method of payment, how payment is going to be made, you really don't have a concern with proposed paragraph 78(l).

Mr. David Wilkes: What we have a concern with, with respect to proposed paragraph 78(l), refers to a specific activity that is often undertaken to fulfil those requirements. So deductions are one of the most efficient ways of reconciling—

The Chair: If you have a contract and you set out methods of payment in that contract... You either set this out or you don't.

Mr. David Wilkes: Right.

The Chair: Otherwise I don't think you should be doing it either. If it's not set out and it's not agreed on in advance...

People have GST they have to pay or remit. There are balances they have to make, and so I think there has to be some expectation of what they can receive, what their receipts are and what their payments are. But if it's part of the contract, that's obviously a different thing.

Mr. David Wilkes: Right, I agree. Indeed that's what the guidelines we've referenced sought to add clarity to, because where you get the confusion is when there's a lack of communication, when people don't understand what the activity was, what promotion, what amount, the timing, and all those things. So that is bringing the additional clarity as well.

The Chair: Earlier, Mr. Jennery, you mentioned that the majority of stores are not getting larger, or the majority of stores are staying the same size and keeping the same shelf space. I know in my area that's not necessarily the case.

Mr. Nick Jennery: I'm looking at total square footage. There are clearly some new big stores being built. There are also some smaller stores being built. If you look at the average size—and maybe that's misleading in itself—the average size of a retail grocery store is not increasing and in fact is far smaller than in the U.S.

Having said that, there are niche stores being set up, only because some consumers... And you'll see that trend. As the population gets older, they don't want to walk around a 100,000 square foot store; they'd rather go to their produce market or the local store. Some would say, “You know what? I like the ambience of an aircraft hangar. If it means I get lower prices, I'll do it.”

So you get different store formats, but in aggregate, if you look at the overall square footage, no, it's not increasing.

The Chair: I also want to thank you for agreeing to undertake Mr. Mills' suggestion. That means a lot.

Mr. Nick Jennery: Absolutely, I can't promise the outcome, but I'll certainly enter the discussion.

The Chair: That means a lot to a lot of members in this committee, so we'd appreciate that.

Mr. Nick Jennery: Sure, absolutely.

The Chair: But we do appreciate you coming here, and we appreciate your brief. We anticipate that Mr. Dubé will be able to read it as well.

Mr. David Wilkes: We will do that immediately.

The Chair: I really do appreciate that.

Mr. David Wilkes: Not a problem. It should have been done beforehand.

The Chair: Thank you very much.

We're going to suspend for two minutes while we change witnesses.

• 1003

• 1007

The Chair: I'm going to call the meeting back to order.

We're very pleased to welcome our next witness. From Democracy Watch, we're very pleased to have with us today Duff Conacher, the coordinator.

Mr. Conacher, if you have some opening comments, then we'll move to questions.

Mr. Duff Conacher (Coordinator, Democracy Watch): Thank you very much.

The Chair: I'm sorry. I have a point of order from Madame Jennings first.

[Translation]

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Madam Chair, for some time, we have been a little bit permissive or tolerant regarding the distribution of briefs submitted by witnesses in only one of the two official languages. However, there was a time when we did refuse such papers. It used to be a rule of this committee to refuse any document that was not translated and available in both official languages.

I want to remind you that we had been very strict on that at the time of public consultations on bill C-6, currently known as the Privacy Act. Subsequently, those rules were somewhat relaxed. However, I find it unacceptable that an organization which represents retailers from the grocery industry and whose sales, according to our witness' own statement, amounts to billions of dollars, submits here today a paper written in English only and that it is distributed.

I want to point out to you that perhaps my comments should not apply to an organization such as Democracy Watch which, though Pan-Canadian, has few resources. They are a group of lawyers who fight for consumer rights. If we all agree with that restriction, I am going to propose that we come back to a strict application of the rule: any paper which is not available in both official languages shall not be distributed, period.

It should be possible to make a distinction between an organization which has few resources and one which has billions of dollars at its disposal.

• 1010

[English]

The Chair: First, Madame Jennings, we have never had a rule at this committee. For Bill C-6, we were able to give our witnesses six to eight weeks' notice in advance of the hearings.

Secondly, they do not have to provide in both official languages. The rule of the House of Commons is that they can provide in either official language. We ask large organizations to provide in both official languages if they can. If they do not, we then have it translated.

Regrettably, we only have three weeks for these hearings, and regrettably, we do have some witnesses who are given less notice than others for when they are going to appear because of rescheduling of witnesses. That does happen. Sometimes the onus is on us to try to fit people in and to try to do what we can in the timeframe we have.

The witness who was just here from the grocers has agreed to translate that for us and to get it to us as quickly as possible, which is something they do not have to do, but they are a large group and they have agreed to do that. Otherwise it would go through the normal translation process that we have available to this committee.

I will ask the clerk to reiterate with witnesses when they appear before this committee that we expect large organizations to bring it in both official languages. Mr. Dubé already raised this in his questioning with the grocers earlier on. They definitely received the message and they will probably not be appearing before this committee again without providing in both official languages.

We will reiterate that very same statement with all witnesses who are asked to appear. I will ask the clerk to make it very formal that we are anticipating that. At this committee we have often had discussions with witnesses as to why they have not been in both official languages.

[Translation]

Mr. Dubé.

Ms. Marlene Jennings: Mr. Dubé, I'm sorry, but I have not finished.

Mr. Antoine Dubé: Oh, pardon me.

Ms. Marlene Jennings: Thank you. I understand quite well that our witnesses are not compelled to provide their documents in both official languages, but really, an organization which serves members in Quebec, as was stated by the witnesses themselves, must undoubtedly be able to serve them in French. I think that even if it meant a delay of three days...

Besides, our clerk did get in touch with them three days ago to ask them whether they could be here today. With the technological et electronic means which are available now, there are translation firms who can do it. There are even computer-assisted translation programs. I know some people who use them. Normally, one can have an 8-page document translated within 12 hours. So, I feel that such an organization could afford it, even though it is not compelled to do so. Those people have no excuse.

[English]

The Chair: With all due respect, Madame Jennings, we do not have the ability to get documents translated for committee in 12 hours.

[Translation]

Ms. Marlene Jennings: I'm not talking about us here. I'm saying that there is no excuse for a quite well-heeled national organization, which represents members from across Canada and which operates in both official languages, not to be able to find a way to have its papers translated, be it within a 36 or 48-hour delay.

The Chair: All right. Mr. Dubé.

Mr. Antoine Dubé: Having checked that point with our clerk, I know that any committee can adopt rules from the moment it is created. Out of 20 committees, about 15 have adopted such a rule. Of course, we cannot compel all our witnesses to translate themselves their papers, but the question is whether we distribute their documents or not. About 15 standing committees decided not to distribute them unless they are in both official languages.

I'm not proposing the adoption of that measure by the end of June, but I think that at the beginning of the next session, next fall, this committee should consider applying such a rule, similar to what exists in other committees. Should a witness come here with a paper available in only one official language, we would not distribute it, period. Thus, it would be fair for everyone. I am asking you to understand that. Some members are bilingual, but this study from the Canadian Council of Grocery Distribution is very detailed and it dates back to 1999. Does it mean that it was not sent to the French speaking members of that organization?

• 1015

I don't want to insist further on that point, but I feel that we should think about it for the next session.

[English]

The Chair: Okay. Your point is taken. We have a witness in front of us, and I anticipate everyone's going to stay for a length of time now.

Mr. Conacher, please.

Mr. Duff Conacher: Thank you very much, Madam Chair, and members of the committee for this opportunity. I apologize that I will be presenting solely in English, and our brief is also only in English.

I am presenting only in English

[Translation]

because my French still needs a long time of practice.

[English]

My colleague, Daniel Martin Bellemare, who's done the research for our brief and report today, unfortunately has been very much caught up in a personal matter for the past couple of weeks, so he was unable to join me today. He is fully bilingual. So I do apologize. We've been trying to finish this report. He continues to receive new information and is in court with the Department of Justice over an access to information request for more information in this area.

We have put together what we have to date in this report. Actually, I did not expect that you would circulate the brief today. I thought it was the rule that it would be translated before being distributed. So I know everyone is seeing it for the first time. I will go through the research results briefly, and also our concerns and recommendations. Then I will welcome your questions.

As you can see, we've entitled the report “Revolving Doors, the Undue Influence of Corporate Lawyers on the Competition Bureau”. We have called it this because the report details how the Attorney General of Canada and the bureau commissioner have repeatedly appointed lawyers from a few corporate law firms to assist or represent the commissioner in competition law cases, instead of using government lawyers. The same lawyers, or their law firms, have also represented corporations in competition law cases being decided by the bureau, sometimes at the same time lawyers were representing the commissioner.

We detail seven cases in the report, and in case you're wondering if seven cases is a significant number, we feel it is very much so because there have only been 20 to 25 cases in the Competition Tribunal since 1986. So we're talking about one-third of the total cases, where outside lawyers have been used by the commissioner or appointed by the Attorney General of Canada.

The first case is with regard to the Imperial Oil takeover of Texaco Canada in 1989. At that time, a lawyer practising for the firm Blake Cassels & Graydon was negotiating a draft agreement for Imperial Oil with the bureau commissioner at the time, Calvin Goldman. At the same time, the same lawyer, Warren Grover, was representing Commissioner Goldman before the Competition Tribunal in a case against NutraSweet. Before the tribunal, Imperial Oil was represented by John Howard, also a lawyer from Blake Cassels & Graydon.

So you can see that at the same time, lawyers from the same firm—and in fact the same lawyer—were representing the corporate client, but also working for the commissioner.

Also in 1989, in the second case we reveal the details of, Commissioner Goldman filed an application to review the merger of Asea Brown Bovery and other companies. Westinghouse Canada, a party to that whole review, was also represented by lawyers from the law firm, Blake Cassels & Graydon.

In a situation that started in August 1987, the Attorney General of Canada appointed another lawyer from Blake Cassels & Graydon to assist Commissioner Goldman in a case involving three Quebec rendering companies. The Quebec company's case was still being considered by the tribunal when the same lawyer from Blake Cassels & Graydon, accompanied by two others, represented two Ontario rendering companies in a merger case before the Competition Tribunal.

• 1020

Moving on to the fourth case, the commissioner filed an application in November 1990 before the Competition Tribunal against Southam Inc. with regard to a previous merger. The commissioner was represented by Stanley Wong, a lawyer with Davis & Company, a Vancouver-based law firm. On March 25, 1991, the commissioner filed a case against Laidlaw Waste Systems, and Laidlaw was represented by lawyers from the same law firm, Davis & Company.

The fifth case that we feel raises serious questions about the conflict of interest rules and enforcement of those rules in competition law litigation is a case involving Loblaws and Provigo. In that case, the Attorney General of Canada, in February 1995, appointed Robert Russell, a lawyer with Borden & Elliot, to assist then-Commissioner George Addy in reviewing two mergers in the shipping container industry. Mr. Russell represented the commissioner until March 31, 1998. Then, a few months later, he was back before the bureau representing Loblaws, as their lawyer. So you can see why we've entitled the report “Revolving Doors”.

We also detail two other cases that we believe raise serious questions about bias on the part of the Commissioner of Competition in terms of the entire situation that was created. The first case involves abuse of dominance against D & B Companies of Canada before the Competition Tribunal in 1994. In that case, former Commissioner Goldman was representing one of the parties, the complainant. D & B Companies was represented by lawyers Randal Hughes and John Rook, who had both represented the commissioner before and worked for the government at various times since the mid-1980s.

Finally, our seventh case is in regard to the appointment of Yves Bériault, a lawyer with McCarthy, Tétrault, (Montreal), in 1987 by the Attorney General, to represent the commissioner before the tribunal in a case concerning the company, ADM Agri-Industries. Mr. Bériault had also represented the commissioner in 1987. The ADM case was completed in August 1988—only five months later—when Mr. Bériault was back before the commissioner, the bureau, and the Competition Tribunal as a whole, representing a client.

We are concerned about this ongoing revolving door situation because we believe that when lawyers from the private sector are representing large corporations, they certainly very strongly oppose stringent anti-trust enforcement action—especially action that may be applied to their clients. But then they are hired by the tribunal, by the commissioner, and we do not believe they can be expected to litigate cases aggressively before the tribunal, since those cases will create precedents that will negatively affect their clients.

Overall, we believe that by appointing outside lawyers routinely, as we feel has been done, to assist or represent the commissioner, the Attorney General of Canada and the commissioner are delegating the administration and enforcement of the act to a few lawyers representing some of Canada's largest corporations.

Finally, we believe these outside lawyers develop close links with the commissioner and the staff, and so learn how the commissioner develops cases in preparing to litigate. They can then use that inside information and their contacts to negotiate favourable settlements, or obtain discontinuance of an investigation, on behalf of their clients. Overall, we believe that such links discredit the Competition Bureau.

Essentially, we see this as a classic tale of letting the fox into the henhouse. We believe clear rules need to be enforced to prevent this ongoing abuse of the public interest. We agree with the commissioner's testimony, when he was before this committee last month, that he does not have the resources to administer and enforce the act properly. We agree fully, and we call on the Attorney General and the commissioner to devote the resources to maintaining a staff of government lawyers large enough to handle all competition law cases.

• 1025

Second is to strengthen conflict of interest rules for litigation in competition cases.

Third is to use outside lawyers in very special circumstances only, and if an outside lawyer is used, to ensure that even the appearance of a conflict of interest or bias does not occur in these cases where outside lawyers are used.

You will see that the report is fully footnoted, referring to all of the transcripts of the cases and news releases from the commissioner. It's very detailed, presenting all of the information, and we believe we're presenting quite a compelling case, given that seven out of 20 to 25 cases have used outside lawyers.

We're very concerned by this practice overall and we hope the committee will recommend the measures we are calling on the Attorney General to take, and that the Attorney General will undertake to solve this ongoing problem that we feel discredits the bureau, brings the administration of justice in this area into disrepute, and, additionally, harms the public interest overall.

We are submitting this report for your information as a formal petition to the Attorney General of Canada and we will be considering taking legal action if the Attorney General fails to take corrective measures.

I welcome your questions.

The Chair: Thank you very much, Mr. Conacher.

Mr. Dubé.

[Translation]

Mr. Antoine Dubé: Thank you, Mr. Conacher. Your paper is well done. The summary is brief and very well presented.

We have heard here some witnesses, some lawyers. I don't know if their arguments were sound, and I would like to know your opinion about it. They said that this is a very complex law and that, after all, there are only a few experts in the field of competition rules in Canada. It would suggest that the situation you described would not be that abnormal.

Of course, they were not talking about the same period of time. Those are objections that I heard quite recently. Could it be that such a situation is due to the complexity of the law and to the fact that just a very small number of experts can be found in that field in Canada?

[English]

Mr. Duff Conacher: I believe that is the case, not being a specialist myself, and I know from talking to my colleague, Daniel Martin Bellemare—who does know both the bureau and the act inside and out and all of the cases since 1986 inside and out—that it is a very small bar, as they say. But we don't see that as a reason, given that we are documenting a pattern over the past 14 years of systematically using outside counsel. We don't see that throughout that time—and we feel very much that this should have happened before 1993, so again we're not resting it totally on this government—the Attorney General of Canada could not have developed within government a staff of lawyers. And it is important, given the complexity of the law, to have a staff of lawyers who are there long term, who learn the ins and outs of the law entirely, and all the litigation and the precedents, to ensure that the law is enforced and that corporate lawyers, when they're appearing opposite government lawyers, are not fully expert while the government lawyers are very junior and just starting.

This problem should have been solved long ago. What we're calling for is for it finally to be solved now. The government has quite a giant surplus, as we learned yesterday, and there's no reason some of it shouldn't be dedicated to upholding very important principles of the rule of law and the public interest. The best way to do this is to ensure that there is a staff of government lawyers dedicated to protecting the public interest as opposed to allowing outside corporate lawyers to revolve in and out with very little, if any, cooling off period.

• 1030

There are ethics rules for ministers, for example, and senior public officials. They have to sit out for a year or two before they can advocate back before their department. Yet we have lawyers at the same time representing both sides in these cases—or just a few months after they leave—back before the same commission they've represented for two or three years, where they've been counsel to the commissioner. It's simply not in the public interest to continue this practice.

The Chair: Mr. Dubé.

[Translation]

Mr. Antoine Dubé: You are raising a good point. There are other quasi-judicial tribunals within the government. Did you compare the rules you're talking about with those of other courts within the overall Canadian government? If so, could you provide us some information about that? If you cannot give us that information today, maybe you could forward it to us later.

[English]

Mr. Duff Conacher: We've not systematically examined other agencies simply because of lack of resources. However, from my experience working on banking issues, we have had a bank accountability campaign since 1994, and generally, I do have concerns with the Office of the Superintendent of Financial Institutions, which also brings in many outside people from financial institutions on a temporary basis—an interchange program or a secondment. But that is the only other agency, I would say, that we have any significant knowledge of.

[Translation]

Mr. Antoine Dubé: I find that your report is interesting with regards to that overall case. I'm not a specialist in that field, but in certain civil law cases, the problem I can see relating to competition is that large enterprises—and it's deplorable—are often inclined, without exerting a monopoly, to try to hold more and more power to the detriment of small enterprises.

In my region, we only have small enterprises. Among the few people from my riding who came to my office to discuss that issue, most of them found the process too complex for them. From their standpoint, it also takes too long. So, some people rather decide not to sue or not even try to lodge an appeal. There were two cases. In one of them, the plaintiff just failed before the decision was made. I'm sure you will understand that, in his state of mind, he was not interested to carry on.

Would it be possible to consider a sort of class action for small enterprises facing similar problems? Would it be possible for them to get together in order to introduce a joint action? Thus, they could afford to wait and persist.

Second, would you favor a direct access to court, which does not exists currently?

[English]

Mr. Duff Conacher: Thank you very much for your question. I neglected to mention that we very much hope... in a timely manner, because we realize—as far as I know—that this is your last day of hearings on this matter. My colleague Daniel Bellemare will also be submitting a more technical paper. He simply hasn't had time to complete it. But we have discussed some of the issues, and we are in favour of the class action and direction action to the court, as well as other changes, which I won't go into, in part because I simply don't know them well enough and he hasn't had a chance over the past couple of weeks to brief me fully on other measures that will assist in enforcement in particular.

So I'm hoping you will receive that sooner than later, perhaps not in time for this particular report but at least to file it with the committee. We will also be filing this report and a technical submission with the Public Policy Forum, whom I'm sure you know has been contracted by the Competition Bureau to hold stakeholder and expert meetings over the summer. Their deadline was actually yesterday, but it's now been extended to the end of June—

The Chair: The first week of May until the end of June, actually.

Mr. Duff Conacher: Yes, so we're going to be making a submission there as well and submitting this report to that process that the bureau has initiated.

The Chair: Thank you.

Thank you very much, Mr. Dubé.

Madam Jennings, please.

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Ms. Marlene Jennings: First of all, Mr. Conacher, thank you very much for your presentation. Your apologies regarding making your presentation in English and the fact that your brief was in English only are really not necessary. I hope that in my comments on the point of order regarding having documents available in both languages I was clear that they were not addressed to organizations such as yours. That's one.

Secondly, I would ask you to transmit my best wishes to Maître Daniel Martin Bellemare and tell him that I look forward to reading the technical brief he will be preparing.

The issues that have been raised here of conflict of interest and issues of ethics are very serious, as you are well aware, and I do think it merits further consideration. Whether it be by this committee or by another agency, it definitely does merit further consideration.

I also appreciate the point you've raised that whether or not it be due to lack of resources that have been afforded the competition commissioner's office, that office has been unable to develop its own cadre of specialists. This is something that we do see in other fields, to build on what Monsieur Dubé was asking about. If we look in our criminal justice system, in the Attorney General's offices and so on, we do have very skilled prosecutors who are some of the top specialists, for instance, on laundering of money, on criminal organized crime activities.

So the possibility is there to attract and build up the wealth of knowledge, and I think that in order to deal with the revolving door, as you call it, we have to look seriously at this.

Do you have any recommendations besides pointing out that this is a situation that exists and has existed for at least 10 to 15 years, and that it needs to be corrected? Do you have specific recommendations, if people are in agreement that, yes, it is something that needs to be addressed, about how to go about doing that? Even if we poured in $3 million, it wouldn't be corrected immediately. Short-term, medium-term, long-term...

Mr. Duff Conacher: Our first recommendation is simply to stop systematically using outside lawyers while corrective action is taken. Essentially we feel that corrective action needs to be taken on not only the resources side but also we feel the rules, the Department of Justice's litigation guidelines, need to be strengthened to prevent, even to the standard of the appearance of, conflict of interest or bias in all cases. That is the standard in the code for public office-holders, and we very much feel that this standard should be enforced. And it's a very high standard.

The “appearance of” doesn't mean the appearance of to the parties; it means to a reasonable person. And this has been stressed in a few Criminal Code cases involving public officials recently, such as R. v. Hinchey and R. v. Cogger. In these cases the Supreme Court of Canada has stressed how important it is and how public officials should expect to be held to a much higher standard, that most individuals would consider severe in terms of the rules and the enforcement of those rules in order to ensure the integrity of the government. The Supreme Court of Canada, in R. v. Hinchey, has also expressed how important it is that the appearance of integrity in government be maintained; otherwise government cannot be a force for good in society because it will not have legitimacy.

So if we initially just stop systematically appointing outside lawyers, strengthen the rules and the resources, and then ensure that if there is some case where the technical knowledge of an outside lawyer is needed in order for the commissioner to litigate effectively, and that there be a cooling-off period for that lawyer when the lawyer ceases working with the commissioner, and also during the time period that the lawyer or law firm—if it's an entire law firm—is engaged with the commissioner, that their colleagues at the law firm not be before the commissioner and again have a cooling-off period... That may make it more difficult to get outside lawyers, but that, again, just points out how important it is to develop, as you said, the cadre of government lawyers with this expertise. To use the United States as an example, we see a very stark difference in terms of enforcement and the expertise and the resources devoted to this area.

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Ms. Marlene Jennings: Thank you.

The Chair: Thank you very much, Madame Jennings.

Mr. McTeague.

Mr. Dan McTeague: Thank you, Madam Chair.

Mr. Conacher, it's a pleasure having you here today.

Mr. Duff Conacher: Thank you.

Mr. Dan McTeague: What you have explained here is certainly not new to some of us on this side, and my regards as well to Daniel Martin Bellemare. I haven't seen Daniel in some time, although we did some work before the Régie des rentes du Québec when a number of well-heeled, well-trained pinstripes ensured that I couldn't provide any testimony about the impact of independent retailers and the current oligopoly that exists in the distribution of gas in that province as elsewhere.

You've raised a number of questions and concerns—I note the issue of resources—in questions to the commissioner and to others. We have on several occasions demonstrated that there is a dearth of resources considering the amount of energy that is being expended in areas like mergers. And I note that quite a few of the seven cases do derive from merger applications or near-merger applications.

I'm interested in your comments with respect to ensuring that there is a perception of fairness and that there is no doubt about there being no conflict of interest. It's interesting that many of the lawyers you've mentioned have in fact come before this committee. Some have suggested a clear delineation with respect to cease and desist provisions between adjudication and enforcement, but have not spoken obviously to the potential conflict of interest in being on both sides of the equation.

So I think we've really opened up the shell, perhaps even the core, of concern that many of us have. There are too few players making a number of assumptions about the Competition Act, such that it is the preserve of actually only a handful of individuals across the country.

I'd like to get your comment as to how you see we could develop a budding school of competition lawyers, short of what I've tried to do with several bills in terms of ensuring a limited, albeit first, attempt at a private right of action, at ensuring that people have some modicum, irrespective of their scale or their size as a company, of having a cease and desist provision that provides them at least some time to get some breathing space to protect themselves. Where do you see the utility of this industry committee making recommendations to the effect that we can encourage a whole new generation, a whole new crop, of competition experts, lawyers and economists, who might ultimately help in the battle to ensure that there's fairness in a system that is for now, and for people like yourself, seen as unduly biased?

Mr. Duff Conacher: I think there will always be difficulties in the private bar. Measures such as cease and desist, a class action measure that allows pooling of resources, and explicitly, although I don't believe it's barred, allowing contingency fees as well as a method—those can all encourage lawyers who are serving smaller firms to develop an expertise and provide that service to the smaller firm.

I don't think it's very difficult to initiate something before the tribunal. All you need is six petitioners, but then can you make the case? We saw that recently with the gas retailers.

Mr. Dan McTeague: Yes, of course.

Mr. Duff Conacher: And Mr. Bellemare made a submission. It was a so-called paper hearing. He made a submission on our behalf on the proposed takeover by Ultramar of a refinery. The local retailers were complaining, but it ended up they did not even make a submission, and because of lack of resources.

You always face that with the private bar. Of course, the corporations have enormous resources and they can support a corporate law firm developing the expertise by just having them on retainer for competition issues over the long term.

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Any measures that allow pooling and make it easier will help. I know from talking to Daniel that it is very difficult for someone to make a living just practising competition law, unless they're serving the large corporations.

Mr. Dan McTeague: Mr. Conacher, I made a comment with respect to an old bill before the committee, Bill C-235, which I think was the genesis of a lot of what we're doing today. I think it's fair to say that. I made the comment that the status and the state of defendant and plaintiff, given the scale of resources available, is somewhat analogous to Godzilla versus Bambi.

Do you see in any way, shape, or form the probability, the need for... This is beyond contingency fees, which is beyond the question of what we can do federally, particularly in the province of Ontario, as an example, where those are prohibited or proscribed. I'm wondering if you would see some utility in the notion not just of going to court, as they do in the United States, but also of double and triple damages, as they have in the United States, to ensure that the bar is not slavish to those who can afford to pay for them, even if there's a loss.

Mr. Duff Conacher: We generally feel that government has been abandoning regulation over the past number of years without really ever trying effective regulation.

To pick up your point in terms of penalties, we feel that in corporations in particular there has always been an incentive not to follow a regulation, whether it is weak rules or lax enforcement or very small penalties. If there's a loophole in any one of those areas, it creates an incentive for a corporation not to follow a regulation.

Having been trained by the leading specialists in law and economics at the University of Toronto when I was doing my law degree, I know very well that corporations calculate any fine and multiply it by the chance of getting caught. So if you have a $1 million fine and you have a one-in-a-thousand chance of getting caught, for the corporation it's a $1,000 fine. That's exactly how they think about it. You can call Michael Trebilcock or Ron Daniels or any other specialist in law and economics and they will tell you the same thing. That's the way corporations think: bottom line.

So increasing penalties, increasing enforcement, and strengthening rules are all needed, because if you leave any weakness in any of the areas, then it creates an incentive not to follow, to just take it as a cost of doing business and continue violating the law.

Mr. Dan McTeague: My final question deals with the reality. I would like to know if you see your organization at some point fitting into the role of the American Antitrust Institute, not only from a legal perspective but also from a much wider concern.

There is nobody in this country to my knowledge who is writing about the current state of competition in Canada, beyond the think-tanks or beyond the various esteemed professors of the economic divisions or legal divisions of our universities. We don't have a truly independent body that treats these issues case by case or in a thematic way. I'm wondering if you see your organization filling those very tall shoes in order to provide members of Parliament and other public officials an opportunity to take, on a constant basis, the pulse of the effectiveness of our competition law.

Mr. Duff Conacher: I'm not sure whether Daniel would like to be called an institute. It would be an institute of one. We have talked with other consumer groups and citizen groups generally. Other than a very few ad hoc actions by those groups, we really are the only citizen group that is examining these issues closely, and we are only doing so because Daniel has dedicated himself to this particular area of law through his study years, both his master's of law and his LL.B. It's unfortunate that he can't find colleagues across the country.

Currently we're calling it our antitrust campaign. If we can recruit a couple of others, then perhaps we'll change the name to the antitrust institute. But I'm not sure whether we'll be able to support it in the long term.

Mr. Dan McTeague: Good luck. It's been a lonely battle for a while.

Thank you, Madam Chair.

The Chair: Thank you very much, Mr. McTeague.

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Mr. Conacher, I think we all agree that perhaps the resources for the Competition Bureau need to be strengthened. But I do think I should note for the record that there is a wealth of expertise in the lawyers who work within the Competition Bureau and who actually do the investigation of these cases. But more often than not they utilize outside lawyers for the actual trial work. Am I correct? Is that your understanding as well?

Mr. Duff Conacher: It is, although I would check that out with Daniel, because he has done the research, filed the access to information request, and reviewed all of the cases since 1986. So he knows it in much more detail than I do.

The Chair: One of your suggestions was that outside lawyers should only be appointed when special circumstances warrant. I'm not saying I disagree with that, but more often than not that seems to be when the government does appoint outside lawyers. We're often criticized by a lot of special interest groups for the lack of expertise at the trial level from the lawyers within the government, which is why we go outside. Your suggestion is that we shouldn't do that. I'm just curious as to why you would take that position.

Mr. Duff Conacher: If you look at the pattern, it is a true revolving door in that there's little cooling-off period, and sometimes it's at the same time. A law firm is one entity. There's no—

The Chair: Mr. Conacher, you're aware that there are laws that govern conflict. Lawyers who are admitted to the bar in the province of Ontario are subject to conflict guidelines and professional conduct rules.

Mr. Duff Conacher: Yes, and we are considering filing some of these cases with the Law Society as complaints.

The Chair: With all due respect, I'm not sure I agree with the rationale I've heard this morning as to why those would violate that professional conduct rule, being a member of that bar myself.

However, I do think your point is valid that there are not enough resources available to the Competition Bureau. I think this committee definitely agrees with that. I think this committee also recognizes, or at least I do, that there are cases where there may be the necessity for outside counsel or outside expertise for trial work, as an example, just because of people who do that on a daily basis versus people who would only set foot in a courtroom once a year. I think we have to look at that.

I also think you raised some very valid points about the strengthening of the bureau, and we hope you'll continue to pursue the avenue that they should have more resources. This committee has recommended that in the past and will probably continue to recommend that with the expanded authority they have, the job they have, and the ability to do it as we continue to move in this global economy, they need to have more resources available to them.

We appreciate your appearing here today, and we look forward to meeting with you again.

Mr. Duff Conacher: Thank you very much. We will very much be supportive of changes to strengthen the bureau throughout the process with the public policy forum as well, as I mentioned, and we're hopeful that your report and the report of the public policy forum will be turned into legislation that will be enacted sooner than later to address many of these problems.

The Chair: Thank you very much.

The meeting is adjourned.