On March 25th, 2021, the Food, Health & Consumers Products of Canada (“FHCP”), in partnership with the grocery retailer Empire Company Ltd. (“Empire”) published a proposal for a “Grocery Supply Code of Practice for Canada” (the “Proposed Code”)1. FCPC aims to be the voice of Canada’s leading food, health, & consumer product manufacturers. The Proposed Code seeks to address recurrent issues between retailers and suppliers, namely with regard to concerns of fairness and equity in supply agreements.
As a result of complaints of unfair practices in the marketplace, the FHCP has been advocating for government intervention to regulate the relationship between retailers and suppliers throughout the last decade. Strained relationships between retailers and suppliers affect everyone in the industry, including consumers, and can impact pricing, product choice and job opportunities in Canada2. For this reason, the FHCP seeks to stabilize the relations between retailers and suppliers by setting a standard for fair and efficient handling of negotiations and commercial agreements.
The Proposed Code would be the first of its kind in Canada. While it is tailored towards the needs of the Canadian market, it was inspired by the UK Groceries Supply Code of Practice. On March 25, 2021, it was formally submitted to a working group that was formed last November by the Federal, Provincial and Territorial (FPT) Ministers of Agriculture and Agri-Food, aimed to address issues in the grocery supply industry.
Guiding Principles of the Proposed Code
The Proposed Code is rooted in five guiding principles:
- The promotion of fair dealing in all commercial relationships between retailers and suppliers;
- The promotion of mutually beneficial relationships where retailers and suppliers recognize each other’s need for commercial certainty;
- The promotion of transparency between retailers and suppliers;
- The provision of effective, equitable mechanisms for the resolution of commercial disputes; and
- The promotion of the efficiency, sustainability and competitiveness of the Canadian grocery supply chain.
Key Points in Proposed Grocery Supply Code of Practice
The Proposed Code of Practice consists of 14 provisions that relate to recurrent concerns in the food supply industry. These provisions notably address the content of supply agreements, timely payment of suppliers, marketing costs, and set limits to certain fines imposed on suppliers. More precisely, the following measures are suggested:
• Supply agreements are to be in writing and be readily accessible to the supplier. The terms of a supply agreement cannot exclude the application of the Code;
• Retailers are not to amend supply agreements retrospectively unless the agreement sets out clear and unambiguous circumstances that would allow it;
• Retailers shall pay suppliers in accordance with terms set out in the supply agreement and, in any case, within a reasonable time after invoice;
• Retailers must prepare forecasts in good faith and with due care following consultation of promotion;
• When a retailer orders at a promotion price, it must take due care to ensure that it does not over order beyond a reasonable margin. If the retailer over-orders beyond reasonable margin, it shall not fine the suppliers for failing to deliver the excess quantities.
Compliance and Enforcement
The Proposed Code also provides for the assignment of a Code Compliance Officer. Retailers would be required to designate a person to oversee compliance with the Code. The person designated by the retailer must be sufficiently independent from the retailer’s merchant teams to ensure an impartial oversight of compliance. This person would also be responsible for resolving supplier complaints under the Code. When a dispute under the Code cannot be resolved by the Code Compliance Officer, the dispute can be submitted for binding arbitration, where an arbitrator would have the ability to award an amount for compensation if reasonable to do so.
In addition, the Proposed Code suggests the introduction of a government adjudication system for the management of complaints under the Code. Under that proposal, an independent Adjudicator would be appointed with the ability to require both retailers and suppliers to provide any information required to determine whether a contravention occurred under the Code. When there is a contravention, the Adjudicator would have the ability to impose penalties, damages or costs.
The FHCP and Empire strongly encourage all other retailers and suppliers to come forward and present their perspective.