The Food Industry and the System

MR. KARN:

Mr. Minister, Reverend Sir, distinguished guests, ladies and gentlemen: In few countries of the modern world does the average citizen have access to such a wide variety of food products, of such rigidly controlled high quality, and in such ample quantity, as we do in Canada and the U.S.A.

From primary production through processing, packaging, distribution, to home preparation, giant strides have been made in improving the efficiency of each stage, hopefully protecting the consumer, maximizing the nutritional value at minimum cost and minimizing the demands of that last step--home preparation.

In the short space of one or two generations, this industry has become highly sophisticated, well organized, and managed by professionals at all levels. Children of today and some of us older folk might not recognize the compliment intended by the epitaph engraved in a New Brunswick cemetery: "John Brown, 1852-1914, 'Born a man--Died a grocer' ".

The path to modernization is not always smooth. It was disturbing some years ago to observe the resistance which occurred in some South American cities, where Nelson Rockefeller introduced his Mini-Max supermarkets, only to have them bombed and burned on the eve of one of his tours. Improvements in efficiency, particularly when inspired by foreign owners, are not always welcomed in certain countries.

Leading the way in food product retailing in Canada, with over $2 billion per annum volume through 380 stores today, is the mammoth Canadian-owned Dominion Stores Limited. Although Argus Corporation, with a controlling interest, does keep a watchful eye on the bottom line, credit for guiding the 25,000 employees in this well-managed enterprise goes to our guest of honour, President Thomas G. Bolton.

Mr. Bolton joined Dominion's accounting staff in 1936, forty-one years ago, and has been with the company since that time, with the exception of four years' service in the Royal Canadian Air Force, where he rose to Flight Lieutenant.

After moving through management positions from Hamilton to Halifax, he returned to head office twenty years ago. Experience as manager of research, then director of strategic planning, and vice-president, corporate development, led to his election as president and a director in 1973.

Ladies and gentlemen--no commercial activity is more competitive than Canada's food business and no one has broader experience in this field than our guest of honour today. It is a pleasure to introduce Mr. Thomas G. Bolton, president of Dominion Stores Limited, to speak on "The Food Industry and the System".

MR. BOLTON:

Mr. Chairman, ladies and gentlemen: The Empire Club has a reputation as a forum for diverse opinions and positions. You breed and encourage controversy but your objective is enlightenment and truth and perhaps even harmony. Looking over a list of your guests for this or any other year is a fascinating, and I must say a humbling, experience. Politicians, labour leaders, philosophers, businessmen, bishops, authors--surely there can't be much that hasn't been said from this head table at one time or another. But I want you to know I remain undaunted.

My theme today is industry and the system, and how the system can work. I want to talk about how I think Canadians can keep the country going without disruptive or radical changes, without abandoning the institutions and the methods which have made us what we are, which have given us so many good things in our lives.

In other words, I am for co-operation and recognition of common interests by politicians, consumers, labour, industry. I am for listening to each other.

It doesn't sound like a revolutionary objective, does it? But let me tell you about a little experience I had just over a year ago.

Every winter in Ottawa the federal government organizes an Agricultural Outlook Conference. It brings together farm organization representatives, people from the various government departments concerned with food and farm matters, economists, international experts on agriculture. When they asked me to be a keynote speaker and give a supermarket man's view, I was pleased. As far as I know, I was the first person from the food industry, other than farmers, to be asked to participate.

I used the opportunity for two purposes--first to urge that the government establish a coherent national policy on food to replace the jumble of conflicting or unco-ordinated programs that existed, and still exist; and second, to suggest that now they had let me in the door, they should open the conference up in future years to others from the food industry, and to include the consumer. I thought I made a good case for the wisdom of including people who perhaps could help make programs work and achieve their objectives, people who know and live with the wants, needs, moods and attitudes of the consumer as well as the consumer herself.

But this winter the circle closed again. The annual conference has come and gone, and I looked in vain for the name of a keynote spokesman for the food processing or distribution industries. I will continue to hope that the door will be reopened.

Yet there are a lot of things we know, that we'd be happy to tell them, not in a spirit of criticism or complaint, but with the aim of helping governments and farm organizations do a better job for the people we're all trying to serve, the consumers: those people who buy and who vote and pay taxes and who have a right to the benefits of some co-operation and understanding from the leaders of our institutions and our enterprises.

To help establish the food industry's credentials, I would like just to draw to your attention the record of the past year. We all know that the federal government set as its target for 1976 an 8% ceiling on the rate of inflation. Justifiably, considerable pride was taken in the fact that the actual rate of inflation, based on the consumer price index, was 7.5%.

Actually the Anti-Inflation Program had relatively little effect on the price of food. Farm gate prices were specifically exempted from the Anti-Inflation Program. They account for 40% of total retail value of food and are the base on which the remaining 60% is built. The excellent price performance of the food industry made it possible for the government to claim success for the Anti-Inflation Program. Now leave food out of the consumer price index figures and you will find that for the twelve months ended December 1976 the cost of living, excluding food, rose 9.4%--or slightly more than the government's maximum target. In other words, the food industry made an enormous contribution in the fight against inflation.

Since I haven't noticed any significant decline in the complaints and criticisms about food prices, we assume that our achievement has, so far, gone unrecognized--at least up to today.

On average the food price index for 1976 was only 7.2% higher than that for 1975. The index for food consumed at home was even more impressive, an average increase of only 1.5 % for the year over the figures for 1975. For December alone, the index was actually 2.3 % lower in 1976 than it was in December 1975. In the light of increased incomes and higher costs of other goods, food has been quite a bargain. In fact, beef retail prices now, in 1977, are relatively the same as 1970 and Canadians continue to spend only about 14% of their disposable income on food.

There are three main segments in the industry--primary production and farming, manufacturing and processing, and distribution. Let me take a moment to capsulize their contributions to the control and reduction in food costs.

- primary production and farming, after three successive years of well deserved increases in farm income, recorded a slight decline in 1976.

- manufacturing and processing maintained earnings: no increase, no decline.

- distributors have recorded a substantial decrease in earnings for 1976.

The industries responsible for food for home consumption operate, as I have said, in great measure without Anti-Inflation Board controls. They have proven their continuing ability to act as their own control mechanism. It has been the major element in the economy to meet the inflation objective while almost all others have exceeded the mark of 8%. Perhaps the retail food industry would be a good place for government to start the decontrol process.

Let me look into the future, for a few minutes, and tell you some of the things I see as being either likely to happen or as being desirable. Being likely and desirable are not the same thing, of course, because one of the first likely developments I have to mention to you is that prices will increase. I am sorry to have to report this but I think that in the light of what I told you earlier about the restraint practised last year, it is inevitable that there should be some upward pressure.

In fact, at Dominion, we have received, since the first of January, notifications of cost increases from grocery manufacturers and processors at a much greater rate than in 1976. There seems to be little chance that the food industry can do as well this year as it did last to keep price increases under control.

There is some good news, however. We do not expect any large increases in the price of beef this year. Chicken prices will not go up until about June and there is a question about whether they will rise even then. Turkey production recently has been in excess of demand so that the shopper can expect to continue to get a good buy on turkeys. Prices appear to be stable for frozen vegetables; market conditions for canned corn, canned peas and canned tomatoes are such that there should be some bargains there in the next few months.

Pork prices, however, will likely be going up much later in the year. Coffee prices are at an all-time high and it is difficult to say just when they will be dropping, although homemade coffee at a nickel a cup is still an inexpensive beverage.

As for eggs, the less said the better. I am convinced that in the past year we could have sold more eggs to the benefit of Canadian consumers at lower prices and, had the Egg Marketing System of Canada been run a little differently, the producers would have done at least as well as they, in fact, did. But, the normal laws of economics or even good sense don't seem to apply in the egg industry, at least beyond the chicken, and the result is that everybody pays more and the farmer produces less.

I am not arbitrarily against Marketing Boards--in fact I see a very important role for them in giving producers a reasonable degree of confidence in their business operation. We are better off with them than without them, but they require major modification. Efficient farmers must get a fair and adequate return for their labours. However, in some fields, it seems we assure the farmers of more income if we force them to produce less and thereby keep prices high for consumers.

When we look into the future there are some things that are interesting and attractive and some things that frankly I find a little unappetizing. We all read recently about the people south of the border who have developed a way to make bread containing wood fibre. The decision of our government not to permit it to be sold in Canada is one example of government intervention that I am prepared to support. I am not thrilled either by the prospect of milk being produced without the involvement of the cow. The technology exists to do that after a fashion but, as far as I am concerned, it will have to wait for another generation of supermarket management.

In the near future all consumer-related industries face some interesting challenges arising from changes in age distribution of the population.

We are going to have more people in the 25 to 44 age group, resulting in a greater labour force in relation to the population. The 65 and over group will, likewise, grow substantially.

Working women now represent 37% of the work force and will move closer to 50% in the next decade. This means pressure for extended hour shopping, more convenience foods and more of a leisure approach to shopping.

We also can foresee a baby boom in the period after 1980, with all that implies--in a business sense of course.

I think I reflect the view not only of my own company but of our major competitors as well when I say that you can anticipate not a large number of additional stores but a considerably larger average size of supermarket in the future.

A lot of shoppers have said to me that they don't care what we do to change our stores as long as we speed up the service at the check-out counter. All I can say is that we recognize this as a major problem and we are experimenting with every conceivable new approach, new arrangement, and new technology.

We are very interested, for example, in the so-called electronic check-out system which we think would save both time and money. Whether we will be able to take full advantage of it is something that we haven't as yet determined and it is one of those things about which members of the public themselves have some reservations.

At the beginning of my remarks I talked about some of the things I felt government might be able to learn from people in the private sector. I think perhaps they might take a look at our achievements in developing our productivity.

In some industries the productivity of Canadians is not keeping pace with that of our international industrial competitors. However, in the supermarket industry, in my company and in some others, we are really doing extremely well by international standards. We measure productivity in a variety of ways, but primarily in sales per square foot. My company has one of the highest figures in North America, and certainly the highest in Canada.

Operating efficiently and productively is a result of investment and of co-operative effort by management and employees, something that has evolved in my company and that makes us very proud. I think that perhaps Canadian industry generally could learn something from our experience. I think that perhaps the governments of this country could learn something from it too.

A year ago the business community in Canada was in turmoil over the combined effect of the still new Anti-Inflation Program and the Prime Minister's speculation about the demise of the market economy, the essence of our economic system. We have lived with the Anti-Inflation Program for more than a year now and I think we who help to operate the market system have proven that it has surprising strength and resilience and a capacity to contribute to making such a program work. Our Prime Minister gives the impression of having mellowed a little and of looking more kindly on the private sector as a participant in our national economic life. Face-to-face communication hasn't been effective enough or extensive enough, but some messages are getting through.

Business and labour have not made much headway with each other yet, but both have been making noises in recent months about the desirability of consultation and co-operation with government. If each can co-operate with government, then they can co-operate more effectively with each other if they put their minds to it.

The recent Partnership for Prosperity Conference in Ontario is a positive example of dialogue. I hope in my home province that these will continue, and I'm sure when the horn-blowing of first exposures passes, constructive contributions will result.

More important than the frequency or the format of whatever consultations we might have is the need for mutual respect and consideration. People in government are often hostile and suspicious in their attitude to business. The public, including business people, is often skeptical about the standards of ethics and integrity in public life. Perhaps we tend not to see the value of the roles of other people.

You hear people condemn the Prime Minister in one breath, brush off the leader of the opposition in another and possibly not even refer to the leader of the third party, yet one of these men is in charge of our affairs right now and one will be in charge after the next election. There is no point in concluding that none of the three will do.

Last year at my company's annual meeting, after I had delivered myself of some suggestions for the government or perhaps they were complaints and criticisms--I was asked by a shareholder what I would do if I were Prime Minister. That's not an easy one to field when it comes at you unexpectedly, and I don't suppose I answered very satisfactorily. I've thought about it a lot since, though. One thing I would do would be to start listening to some of the people I knew didn't basically see eye to eye with me. And another would be to explain my own views without being emotional, shocking or antagonistic. Then I'd hope there might be some adjustments, some concessions, some changes of position from both sides. It's possible. That's the kind of thing that would prove the system works and would keep the country whole.

Thank you.

The appreciation of the audience was expressed by Mr. Willis L. Blair, Honorary Secretary of The Empire Club of Canada.