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General questions about the Code

The objective of the Federal-Provincial and Territorial Ministers of Agriculture and Food (hereinafter referred to as the FPT) was to establish a process that would lead to a Grocery Code of Conduct, enabling the agri-food industry to provide solutions that would help support all supply chain partners in the grocery industry.  As such, the entities and products covered are those normally associated with the production, processing, distribution and sale of a wide range of food and consumer packaged goods in the Canadian grocery industry that would be available to consumers in grocery stores.

One of the objectives of the consultation is to garner input on the products and entities proposed above as a final decision has not been made yet on both.  

Note we may have a more definitive description of entities at the time of consultation.

When presented with a status update in January 2023, FPT Ministers reiterated their support for the industry-led process to finalize the code, and encouraged broad consultation followed by swift implementation. Industry stakeholders involved in the development of the code are confident all elements related to the Code development will be ready by the end of 2023 . A phased implementation period will be required to allow for recruitment of members, adequate education of stakeholders, and sufficient time to incorporate the code provisions (trade rules) within their operations in early 2024.

The Grocery Code of Conduct is inclusive in its objectives by welcoming all grocery industry partners to enjoy the benefits of the Code and to play an important part in realizing its objectives.  This approach was reflected in the makeup of the Steering Committee and ancillary two working groups that developed the Code, representing the breadth of the grocery industry–ensuring the interests of all stakeholders in the grocery supply chain—small and medium size–to large multi-national companies–were addressed.   As such, it is the expectation of both governments and industry that all partners in the grocery industry will support each other through this Code and help to promote the principles that are outlined for the industry.

We expect the Code will positively impact players throughout the supply chain regardless of their size or interaction with various supply chain stakeholders. The intent of the proposed Code is for farms selling to distributors, wholesalers, or retailers to be covered by the provisions of the Code.

It is not the intention of the proposed Code to impact farmers selling directly to consumers at farmers markets and/or on farm store fronts.

Questions about Code functions and funding

It is intended that the  GCAO will be a membership-based organization incorporated under Canada’s not for profit Corporations Act. The membership in the GCAO will be voluntary. It is intended that the GCAO’s primary  and ongoing source of funding will be annual membership dues collected from members. Oversight of the GCAO will be provided by an elected Board of Directors that will represent all stakeholders in the grocery supply chain.  In addition to the elected Board, it is anticipated that a non-voting representative of the Federal / Provincial / Territorial Ministers will sit on the Board as an observer for at least the first 2 years after implementation of the Code. This will ensure that the Code is doing what it is intended to do and that as the industry evolves, the Code will reflect those changes when deemed appropriate.

The intent of the proposed Code is to report publicly on violations to the Code. The details of the content and form of the reporting are still to be determined and will conform to Canadian legislative and regulatory requirements.

Ultimately, the determination of what is “fair” and “reasonable” will depend on the specific circumstances of each situation, and may involve a case-by-case analysis of various factors by the adjudicator should a dispute arise that cannot be resolved between the parties themselves.

The steering committee is very focussed on looking at a system that will allow SMEs to access a resolution system at an acceptable and affordable cost to SMEs. If the experience in other countries prevails in Canada, the expectation is that the vast majority of disputes will be resolved prior to arbitration and very few cases will result in arbitration.

If you are selling to a buyer in the Canadian market, you are eligible to become a member of the Grocery Code Adjudication Office (GCAO) and would therefore be covered by the provisions of the Code.

It was recognized that having a Grocery Code developed for industry stakeholders, by industry stakeholders—who best understand their industry–was a much more sensible approach than having different Codes drafted by different governments in different provinces and territories. The legislative and regulatory environment/jurisdictions in Canada are very different than those in other jurisdictions.  In Canada, we have a complex system of federal, provincial, and territorial responsibilities which makes it extremely difficult to develop a uniform, nationally regulated code.  The possibility of having different Codes in each province or territory, or conversely, having some provinces with a Code and others with no Code at all, would be a costly and cumbersome scenario.

The Grocery Code of Conduct is a ‘Made in Canada’ document that has been developed with the participation of all sectors of the Canadian grocery industry.  As such, we are confident that the guidance provided in the provisions of the Code, that has been developed by a wide breadth of the industry, will be embraced, and adhered to by that same industry.  The Canadian grocery supply chain is one that is interconnected, interdependent and very much predicated on building and maintaining mutually beneficial partnerships.   Within this context, we believe all grocery supply chain stakeholders will want to demonstrate their support for the principles and responsibilities laid out in the Code, to all of their industry partners and most importantly, to Canadian consumers.

At this time, there is consensus that implementation should be achieved through industry leadership, rather than legislation or regulation. However, FPT Ministers will continue to monitor industry progress, and are open to re-evaluating this approach as needed to ensure a nationally consistent solution that avoids unintended consequences.

The two sets of provisions will work together to support improved business transactions within the grocery industry. The Code will provide negotiating principles and guidance that will increase transparency and predictability for the entire Grocery sector, while the FVDRC provides a fair and ethical trading system for the fruit and vegetable supply chain which addresses all types of fresh fruit and vegetable related disputes, including product quality or condition at destination, as well as payment issues that may occur between members internationally and domestically. The two organizations will work together to help avoid any confusion between the two sets of trading rules and/or provisions. Working together, these processes will complement each other to improve predictability for business transactions and strengthen the Canadian grocery sector.  

Companies importing and trading fresh fruit and vegetables interprovincially are required by Canadian federal regulation to hold a FVDRC membership and are bound by the bylaws and trading rules outlined there-in. The Code will support but not supersede the DRC rules unless the Code provisions sit outside the scope of the FVDRC jurisdiction.

Yes, the membership cost will be structure in a way to enable cost effective access. Membership in the GCAO is strongly encouraged for all those businesses in the scope of the Code and the membership structure will recognize the diversity of stakeholders and scales of businesses involved in the grocery supply chain.

The proposed member structure is as follows:

Category A: Primary producers selling directly to distributors, wholesalers, retailers

Category B: SME Manufacturers/Suppliers

Category C: Large Manufacturers/Suppliers

Category D: Wholesalers/Distributors

Category E: Independent Retailers

Category F: Large Retailers

The proposed fee structure is under development and will be transparent and published when known. The fees will be used to support the annual operating costs of the not-for-profit Grocery Code Adjudicator’s Office.

If a dispute cannot be resolved through mediation, the dispute will then go to a 3rd party for resolution.

The Adjudicator through the reporting mechanism would report on unfair practices. Through this same reporting mechanism, the Adjudicator would also highlight practices to avoid or mitigate unfair practices going forward.

The Code has been developed with sensitivity to the challenges faced by all small and medium size (SME) stakeholders in the industry.  Indeed, the very first objective outlined in the Code specifically recognizes the unique realities facing SMEs in the Canadian marketplace.  That is why many of the provisions of the Code have been developed with those realities in mind.  The Code will provide clear guidance with respect to negotiating principles and practices that will increase transparency, fairness, and predictability. However, the realities and challenges that exist for SME stakeholders in negotiating supply terms will continue to exist as they do in all other sectors of the economy. That is also by no means a reality unique to the Canadian economy.  The Code is designed to ensure that all parties conduct themselves in a manner that reflects the spirit and intent of the Code.  As well, it provides the means for resolving and adjudicating issues—which is a mechanism that currently does not exist for any SMEs.

The code of conduct is comprised of many integrated elements, with principle-based trade provisions working in concert with the adjudication office to deliver meaningful results. Instances where supply chain practices appear not to comply with the principles of the code would be identified through individual disputes and investigation of systemic issues on the part of the Code adjudicator. Further measures to enforce the principles could follow depending on the nature of the issue and the extent to which formal dispute resolution is required. The details involved in this process can be found here. It is important to note that the code will not see all concerns or problematic practices resolved immediately, with these instead being addressed as identified and explored through the processes referenced above, and more often resolving systemic issues as they come to light through further education and outreach.   It is also important to note that the Code will be subject to a review 18-months after implementation.   At that time, systemic issues or concerns can be addressed by industry.

The practice described above is addressed specifically in Section 3 Payments. The provisions that address the practice have been reproduced below:

Payments for Programs as Defined in an Agreement

3.4.      Charges for programs such as stocking, listing, positioning, promotions, marketing costs, unsellables and shrinkage shall be made in accordance with the agreed upon payment terms and:

  1. Provide reasonable substantiation in sufficient detail and in an effective format for verification of the deduction or invoice.
  2. Allow the other party the ability to dispute the charge within the applicable period set out in the agreement (or if the agreement is silent, then within the limitation period applicable in the relevant jurisdiction), and such dispute shall be resolved as soon as practically possible.
  3. Provide the other party with the right to go through an internal escalation dispute resolution process and provide a contact for such process.

Ad-Hoc Payments for Non-compliance with the Terms of an Agreement

3.5.      A party may charge non-compliance fees if an agreement provides that party with the right to do so and sets out the specific framework for such charge, or, if not specified in an agreement, then in order for a party to levy a charge it must first:

  1. Provide the other party with Reasonable Notice prior to taking steps to execute the non-compliance charge.
  2. Provide reasonable substantiation in sufficient detail and in an effective format for the deduction or invoice.
  3. Allow the other party the ability to dispute the charge within the applicable period set out in the agreement (or if the agreement is silent, then within the limitation period applicable in the relevant jurisdiction), and such dispute shall be resolved as soon as practically possible.
  4. Where a Supplier challenges a proposed charge, the Retailer shall not deduct the disputed sum from the Supplier’s trading account or otherwise from money owed to the Supplier for goods supplied until the challenge is resolved, unless the Retailer demonstrates, acting reasonably, that the challenge is vexatious or wholly without merit.

e.         Provide the other party with the right to go through an internal escalation dispute resolution process and provide a contact for such process.

Terms for late delivery penalties should be stipulated in the agreement between parties, in which case those terms will prevail. If terms for late delivery penalties are not stipulated in the agreement between parties, penalties cannot be charged.

We anticipate this to be covered under the section on Good Faith Forecasting, Ordering and Allocation of Supply.

The intent of this section of the proposed Code was that it does not apply to the type or content of the product.

Education and training sessions for all stakeholders is viewed as a critical element in ensuring the success of the Grocery Code.  Education and training support through the GCAO will be available for all stakeholders.  Templates for agreements will also be provided that can be a useful tool in strengthening commercial relationships.  Educational and training materials will also be developed on an ongoing basis to address systemic issues or concerns that arise in the future.

It is recognized that it is essential that all parties to the Code—small, medium, and large—identify and empower an individual who is responsible for ensuring adherence to the Code and responding to any questions or issues raised by any supply chain partners.  This will help facilitate a more expeditious response to any concerns raised by a supply chain partner and reflects an important objective of the Code, that issues be resolved whenever possible, in a timely manner by mutual discussion and consent, as opposed to triggering direct intervention by the GCAO in a dispute resolution process.  

Questions about the Code’s impact on small and medium enterprises

The first objective outlined in the Code specifically references addressing the “unique realities facing small and medium-sized enterprises and the realities of the Canadian marketplace.” That is why many of the provisions of the Code have been developed with those realities in mind.  The Code will provide clear guidance with respect to negotiating principles and practices that will increase transparency, fairness, and predictability. However, the realities and challenges that exist for SME stakeholders in negotiating supply terms will continue to exist as they do in all other sectors of the economy. That is also by no means a reality unique to the Canadian economy.  The Code is designed to ensure that all parties conduct themselves in a manner that reflects the spirit and intent of the Code.  As well, it provides the means for resolving and adjudicating issues—which is a mechanism that currently does not exist for any SMEs.

Taken together in its entirety, the Code is designed to help SMEs. As presented in the consultation document, the Code is more than the provisions. A key component of the Code is the Office of the Adjudicator and the role it plays in education, and the powers it has to investigate and enforce the Code that translate the provisions into meaningful outcomes. For example, the section on fair dealing is extremely significant for SMEs, as long as it is supported with some degree of accountability and enforcement under the voluntary framework.

It is important to note that all of the tools, processes and measures found in the proposed Code are new measures that do not exist today.

A few specific provisions that are helpful to SMEs, include:

Sections 3.4 (Payments for Programs as Defined in an Agreement) 3.5 (Ad-hoc payments for non-compliance with the Terms of an Agreement) and 3.6: These put parameters around practices that currently lack any such boundaries, leaving SMEs currently very exposed to unpredictable and potentially unsubstantiated fees and fines.

– Section 4.2 (Tying of Third-Party Goods or Services): This ensures private labels can’t exert market power imbalances to the degree that they compel use of third parties that aren’t otherwise competitive or reasonable in their pricing.

– The entire section on good faith forecasting, in particular provision 4.4. where it states that a supplier is under no obligation to accept an order (which at the present time can lead to fines when demand is greater than available supply) and 4.5 which asks retailers to work with suppliers in mitigating the financial implications for suppliers when a retailer orders materially less than planned forecasts. The section on good faith forecasting is also expected to have a positive impact on the distortions in the supply chain that affect small and medium size retailers more acutely when demand for product is greater than supply.

– Section 4.8 related to de-listing which requires the retailer to provide reasonable notice and reasons for the decision, the opportunity for the other party to discuss the reasons for the decision with a representative empowered to make a decision on the matter, and to work in good faith with the other party to manage depletion, supply, and related issues fairly.

– Section 5.1 related to establishing direct communication lines between parties and to representatives empowered to make decisions on relevant matters, for all issues pertaining to the Code and its administration. This includes points of contact for informal discussions, dispute resolution, and overall communication.

As noted previously, while the following are not Code provisions, these additional elements of the Code as pointed out in the consultation document are important for SMEs, as they provide for

– Training to help SMEs know what to look for in the negotiation of a supply agreement;

– The adjudicator’s broader investigative powers to identify systemic and/or individual breaches that don’t come through dispute resolution (given ongoing concerns around confidentiality); and

– A platform to drive compliance:

2.2.1. Training & Education

Training and education of members would include the provision of education materials, preventive measures/tools and coaching/consultation to help members cooperatively resolve a problem. This role is critically important as it could reduce both the probability of problematic behaviours and the risk of escalation should a dispute arise between two members. It would include the following measures:

  • Preventive measures: Education, training and information dissemination through webinars and presentations, newsletters, position papers, guidance documents, templates and direct engagement with individual members by the GCAO staff. Preventive measures would make extensive use of position or interpretive material to showcase which behaviours are considered compliant under the Code, and which behaviours are considered non-compliant.
  • Coaching and consultation measures: Members could seek advice and consultation with GCAO staff to identify any potential challenges and help them cooperatively resolve a problem.

2.2.2. Reporting & Accountability

This would include the publication of an annual report which would provide key metrics to track progress on behaviours covered by the Code in order to illustrate the difference (if any) the Code has made in the supplier – retailer relationship in Canada and promote enhanced compliance with

the Code provisions. The annual report would also report on how the organization is tracking relative to its strategic objectives and provide financial information to members.

2.2.4. Review of Issues and Ensuring Compliance through Various Tools

Where credible evidence of a breach of the Code is provided, the GCAO would conduct its own research on the alleged breach which could lead to corrective measures, such as sanctions. Sanctions would be imposed as a last resort only.

Farmers are a critical stakeholder in the Code, but it’s important to recognize that only those transactions involving a producer selling directly to grocery retailers, wholesalers and distributors would fall under the code’s purview. Sales between farmers and grain companies, primary or further processors, or other entities outside the direct grocery supply chain would not be protected by the Code’s trade provisions nor its adjudication/enforcement mechanisms.

Yes – please see provision 1.3 under section 1. “Fair and Ethical Dealing & No Punitive/Vexatious Acts, section 2. “Commercial Agreements”, and provision 3.5 under section 3. “Payments”. A copy of the provisions can be found by clicking here.

One of the key pillars of the Code is that of the principle of Fair and Ethical dealing.   In the spirit and intent of that principle, no parties to the Code shall undertake any punitive or retaliatory acts as a result of any party exercising their rights provided for under the Code.  In areas where systemic issues have been identified by the GCAO, remedial steps can be taken to provide anonymity.  But in situations that may be unique to a particular company, anonymity cannot be guaranteed.  However, with the emphasis on clear written agreements, it is expected that any issues that arise can and will be settled within the spirit and intent of the Code.  It is also worth noting that in other jurisdictions where grocery Codes have been implemented, almost all disputes are resolved within the resolution framework of their Code without intervention by the Code Adjudicator.

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Interim Board informs FPT ministers of commitment of all major grocers to support the Grocery Code of Conduct

The Grocery Sector Code of Conduct Interim Board of Directors is pleased to inform the FPT Agriculture and Agri-food Ministers that we have the commitment of all the major grocers to support the Grocery Code of Conduct. This includes all the national grocers and the many regional and local independent grocers from coast to coast. In addition, we have the commitment of all key suppliers, large and small, in the country’s food supply chain.

 

While there is still much work to be done, including the development of the processes required to ensure an efficient and effective implementation, the establishment of an operating office, the hiring of an adjudicator, industry education, and much more, we are delighted to report that all stakeholders have expressed their desire and their commitment to assist and support the implementation of a voluntary industry-led Code in Canada. The commitment of the major grocers underscores the importance of a fully inclusive, voluntary Code developed and managed by stakeholders across the entire grocery supply chain.

 

Read the Interim Board’s full message here.

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Interim Board of the Office of the Grocery Sector Code of Conduct Welcomes Loblaw’s Announcement of Support

Toronto, ON, May 16, 2024 – The Interim Board of the Office of the Grocery Sector Code of Conduct (OGSCC) for the Grocery Code of Conduct welcomes today’s announcement from Loblaw Companies Limited that it has officially committed to participating in the Grocery Code of Conduct.

On behalf of the OGSCC Interim Board, the Chair,  Michael Graydon, stated that:. “We welcome the news that Loblaw has agreed to participate in the Grocery Code of Conduct. Within a very complex food system, the vision for the Code has always been based on a fully inclusive, voluntary Code, developed by the grocery industry and managed by its stakeholders across the supply chain. Today’s announcement by Loblaw brings us one step closer to the implementation of the Code as we continue to work with all industry partners to ensure we have maximum participation.

The series of discussions held between Loblaw and the Code Industry Working Group provided an opportunity to embed additional clarity around some of the Code’s provisions ensuring the Code is applied as intended, supporting simplicity, and fostering a clear understanding of its application. Ultimately, this will lead to better collaboration between all parties involved in the grocery supply chain.

The Code’s development, initiated by the Federal-Provincial and Territorial Ministers of Agriculture, has been a collaborative effort involving retailers, distributors, manufacturers/suppliers and primary producers. This collaborative approach ensures that the Code supports small stakeholders and the industry, recognizing the complexities of the Canadian grocery market.

For more information, please contact the Interim Board of the OGSCC through its website at: https://canadacode.org/contact/

or

Anthony Fuchs,
Food, Health & Consumer Products of Canada
anthony.fuchs@fhcp.ca

Michelle Wasylyshen
Retail Council of Canada
mwasylyshen@retailcouncil.org

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