Digitized by tine Internet Arciiive in 2010 witii funding from Tine Law Foundation of Ontario & tine Ontario Council of University Libraries http://www.archive.org/details/reportofroydiscoOOonta Publications ' -2 / REPORT OF THE ROYAL COMMISSION OF INQUIRY INTO DISCOUNTING AND ALLOWANCES IN THE FOOD INDUSTRY IN ONTARIO SEPTEMBER, 1980 His Honour Judge W.W. Leach ^'^^'^TTC^vr I^L^v.^^.! ..ir'ii^-L Commissioner Rodney Hull, Q.C. Counsel _ \ ^ V .-=2k copies of the report are available from The Ontario Government Bookstore, 880 Bay Street, Toronto, Ontario. ISBN 0-7743-5436-4 Ontario Jge W. W. Leach Royal Commission of Inquiry into 416/598-0179 180 Dundas Street West mmissioner Toronto, Ontario Discounting and Allowances IVI5G 1Z8 dney Hull, Q.C. unsel in the Food Industry bert W. Weist in Ontario jistrar and gal Research iistant vid F. Ross search Consultant September, 1980, To His Honour, The Lieutenant - Governor of The Province of Ontario May It Please Your Honour: On the 7th day of February, 1979, I was duly appointed to inquire into discounting and allowances in the food industry in Ontario. I have carried out the duties as specified in the Order-In-Council , and submit herewith my Report. Judge W.W. Leach, Commissioner O.C. 2537/78 Copy of an Order-In-Council approved by His Honour the Administrator of the Government of the Province of Ontario, dated the 23rd day of August, A.D. 1978. Upon the recommendation of the Honourable the Minister of Agriculture and Food, the Committee of Council advise that the marketing of food and grocery food products, from producers or importers through to retail sale to the consumer in Ontario is an activity of importance and concern to the public of Ontario; The Committee further advise that pursuant to the provisions of The Public Inquiries Act, 1971, Statutes of Ontario, 1971, Chapter 49, a commission be issued appointing His Honour James Frederick William Ross District Court Judge, Thunder Bay, a Commissioner under the designation "Inquiry into Discounting and Allowances in the Food Industry in Ontario" to inquire into and make recommendations respecting, (a) discounts, allowances, rebates or other forms of payment offered by or exacted from persons engaged in the marketing of food or grocery food products and paid or allowed directly or indirectly to purchasers thereof other than discounts, allowances, rebates or other forms of payment paid or allowed directly to the consumer; and (b) the effect, if any, of the practices referred to in clause (a) on price spreads or on the level of prices, (i) paid for food or grocery food products by Ontario consumers, and (ii) paid to the farmer in Ontario for agricultural food items produced in Ontario, and to make such recommendations generally with respect thereto as, in the opinion of the Commissioner, would be applicable to Ontario and of benefit to the people of Ontario. And the Committee further advise that for the purpose of this inquiry, (a) "food" means meat, eggs, poultry, dairy products, grains, fruit, fruit products, vegetables, vegetable products, maple products or honey products produced for human consumption; (b) "grocery food product" means a manufac- tured article for human consumption derived in whole or in part from food; VI , (c) "marketing" means marketing as defined in The Farm Products Marketing Act. And the Committee further advise that all Government ministries, boards, commissions, agencies and committees shall assist the Commissioner to the fullest extent in order that he may carry out his duties and functions and that he shall have the authority to engage such counsel, research, and other staff and technical advisors as he considers proper. Certified "R.A. FARRELL" Deputy Clerk, Executive Council vii O.C. 404/79 Copy of an Order-In-Council approved by Her Honour the Lieutenant Governor, dated the 7th day of February, A.D. 1979. The Committee of Council have had under consideration the report of the Honourable the Minister of Agriculture and Food, wherein he states that, WHEREAS Your Honour, by Order-In-Counc i 1 numbered O.C. 2537/78 dated the 23rd day of August, 1978, authorized the issuance of a commission appointing His Honour James Frederick William Ross, District Court Judge, Thunder Bay, a Commissioner under the designation "Inquiry into Discounting and Allowances in the Food Industry in Ontario" to inquire into and make recommendations respecting the matters therein set forth; AND WHEREAS, the said Commissioner has found himself unable, through ill health, to continue; The Honourable the Minister of Agriculture and Food therefore recommends that the said Order-In-Counc i 1 be amended by striking out "His Honour James Frederick William Ross, District Court Judge, Thunder Bay" in the twelfth and thirteenth lines and inserting in lieu thereof, "His Honour Wilfred Wesley Leach, County Court Judge, Judicial District of Haldimand." Vlll , The Committee of Council concur in the recommendation of the Honourable Minister of Agriculture and Food and advise that the same be acted on. Certif ied "R.A. FARRELL" Deputy Clerk, Executive Council IX SUMMARY OF REPORT ISSUES The Commission, by its terms of reference, is charged with a two-fold responsibility, namely, to inquire into and make recommendations respecting, (a) discounts, allowances, rebates or other forms of payment offered by or exacted from persons engaged in the marketing of food or grocery food products. Rebates or other forms of payment made directly to the consumer are excluded. (b) The effect of these, if any, on the price spread or on the level of prices, (i) paid by the Ontario consumer, and (ii) paid to the farmers of Ontario for agricultural food items produced in Ontario. SUMMARY OF CONCLUSIONS The following is a summary of the major conclusions of the Inquiry. All of the conclusions reached in individual chapters are collected in the final chapter of the Report. 1. The system of discounts, allowances and rebates is highly developed in the food industry in Ontario. 2. There is much confusion and misunderstanding among some farmers, some processors and some retailers concerning the operation of the rebate system. 3. It does not appear that the Ontario farmer or farm prices are adversely affected by the rebate system. 4. It appears that there is no significant difference in the level of rebates granted by small or large processor/manufacturers. In other words, the rebate system is not a resolution of market power that favours either large or small processor/- manuf acturers. 5. It appears that there is no significant difference in the level of rebates received by small or large retailers. In other words, the rebate system is not a resolution of market power that favours either large or small retailers. 6. It does not appear that the Ontario consumer or consumer prices are adversely affected by the rebate system. 7. The conclusions of many reliable studies indicate that, based on his disposable income, the consumer in Ontario purchases quality foods at prices that are among the lowest in the world. XI RECOMMENDATIONS 1. That no further inquiries be conducted into discounting practices in the food industry, unless persuasive and substantial evidence is adduced that such an inquiry is required. Inquiries add to the cost of food to the consumer and increase his tax bill. 2. That the sale of wine be permitted by both large and small retailers. 3. That the Legislature consider the establishment of a forum, outside government, to mediate problems between the various levels in the food industry, and to clear up the confusion about rebating practices. For details, see Chapter 18, Overview of the Food Industry. Xll TABLE OF CONTENTS CHAPTER TITLE PAGE Letter of Transmittal iii Orders-in-Council v Summary of Report x Table of Contents xiii Preface 1 Acknowledgements 4 1 Introduction 7 2 The Ontario Food Chain 15 3 Effect of Rebates on Farmers 54 4 Imports and Rebates 97 5 Processor/Manufacturers and Rebates 106 6 Milk Processors and Rebates 140 7 Buying Groups and Rebates 170 8 Wholesalers and Rebates 180 9 Large Retailers, Consumers and Rebates ... 192 10 Small Retailers and Rebates 229 11 Name Brands, House Brands and Rebates .... 261 12 Cost Justification of Rebates 269 13 Concentration and Rebates 278 14 Loss Leader Selling 360 15 Listing and De-Listing 377 16 Rebates and the Law 394 17 Findings of Other Inquiries and Studies .. 463 18 Overview of the Food Industry 475 19 Compendium of Conclusions 487 Xlll APPENDIX TITLE PAGE 1 List of Witnesses 511 2 List of Exhibits 520 3 Ontario Buying Groups 543 4 Processor/Manufacturer Questionnaire 548 5 Retailer Questionnaire 551 6 Sample of Manufacturer's Volume Rebate Schedule 554 7 Sample of Retailer's Co-Operative Advertising Program 556 8 Sample of Retailer's Product Information Sheet and Warranty 560 9 Existing and Proposed Legislation 562 10 Bibliography 584 XIV INDEX OF TABLE AND FIGURES Chapter 2 - The Ontario Food Chain Figure 2-A - The Ontario Food Chain 18 Figure 2-B - Rebate Flows Through the Food Chain 27 Figure 2-C - Breakdown of Expenditure by Rebate Group '55 Table 2-A - Frequency of Use of Rebate Types 47 Table 2-B - Average Size of Rebate Payments 48 Table 2-C - Rebate Level By Product Group 50 Chapter 3 - Effect of Rebates on Farmers Figure 3-A - Ontario Farm Cash Receipts, 1977 57 Table 3-A - Ontario Farm Cash Receipts, 1977 58 Figure 3-B - Breakdown of Ontario Farm Cash Receipts Not Subject to Marketing Board Regulation, 1977 71 Chapter 4 - Imports and Rebates Table 4-A - Ontario's Agricultural and Food Imports by Commodity Group, 1978 100 Table 4-B - Sources of Ontario's Agricultural and Food Imports by Geographic Origin, 1978 ..