Canada’s efforts to combat rising food prices through stricter merger laws may not yield the desired results and could potentially increase the cost of doing business in the country, according to legal experts and economists.
The move to amend the Competition Act by removing the efficiencies defense provision has been proposed by Prime Minister Justin Trudeau as a response to soaring food prices, which have surged by 25% since the onset of the COVID-19 pandemic in 2020. However, legal experts argue that these changes may not effectively address food inflation and could raise business costs without benefiting consumers.
While these amendments align Canadian laws with those of other developed nations, they primarily target future mergers among grocery retailers and do not address the existing dominance of a few major players in the sector.
Critics, including Omar Wakil, a partner at law firm Torys LLP specializing in competition law, argue that these proposed amendments may lead to increased costs for businesses, ultimately passed on to consumers. For instance, allowing the regulator to conduct market studies on anti-competitive practices could result in significant expenses.
Canada’s top five grocers control approximately 80% of the market, with the top three generating substantial profits. These large grocery chains have defended themselves against accusations of price gouging, placing blame on vendors for passing input costs on to them.
Economists also highlight that global factors, including disruptions caused by the pandemic and the conflict in Ukraine, are primarily responsible for food inflation, similar to trends seen in other countries.
Critics argue that the government’s proposals may lead to unintended consequences, including higher regulatory costs and taxes that could discourage foreign investment in Canada.
Antitrust lawyers note that the efficiencies defense clause has rarely been used in recent mergers and acquisitions, especially in consumer-facing retail businesses.
Despite these criticisms, the Canadian government continues to emphasize its efforts to improve competition and stabilize food prices through both short-term and long-term measures.