Canada Bread agrees to $50M fine for role in bread price-fixing scandal

Canada Bread has agreed to pay at least $50 million for its role in fixing the price of bread for years.

The company made the revelation in an Ontario court on Wednesday, acknowledging that under a previous management regime, it colluded with its competitors in Canada's bakery industry to work in unison to raise the wholesale prices they charge to grocery chains, pushing up prices for consumers in the process.

The company whichmakes dozens of brands of baked goods, including Dempster's, Stonemill, Vachon and others has been owned by Mexican food giant Grupo Bimbo since 2014, but prior to that, it was majority controlled by Maple Leaf Foods.

According to an agreed upon statement of facts, an executive at Canada Bread, who was also an officer at Maple Leaf Foods at the time, "had discussions about prices" for bread products with one of more senior executives atWeston Foods (Canada) Inc., a subsidiary at the time of George Weston Ltd., which also controls the Loblaws grocery chain.

The documents filed at the Superior Court of Justice in Toronto lay out what happened. They showthat the executives discussed raising prices in June 2007, and subsequently agreed to do so by between six and seven cents per loaf in October of that year. After more discussions in September, they agreed to raise prices by twice that 12 to 14 cents starting the next month.

The pattern was repeated a few years later, with discussions in November 2010, leading to an agreement to raise prices by seven cents per loaf starting in January or March of 2011. A subsequent meeting in January led to an agreement to increase the price hike to 14 cents per loafinstead, starting in February.

The bread price-fixing scandal first came to light in 2015, when Canada's Competition Bureau launched an investigationafter receiving information from Loblawand Weston about the existence of the scheme they were involved in. The two companies were granted immunity from prosecutionby the bureau for co-operating in the matter.

The Bureau subsequently executed search warrants against numerous companies, including Weston, Loblaw, Metro Inc.,Sobeys Inc., Walmart Canada, Giant Tiger Stores Ltd., Overwaitea Food Group and Canada Bread.

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By the bureau's math, various players in the industry worked together to bake an extra $1.50 into the retail price of bread over at least 16 years.

Grupo Bimbo bought Canada Bread in 2014, and said it "only learned about the price-fixing arrangements after the Competition Bureau executed a search warrantagainst Canada Bread on Oct.31, 2017."

At the time of the sale, "Grupo Bimbo was not told that Canada Bread had participatedwith Weston in the making of arrangements to increase the wholesale price of [bread], and the due diligence otherwise completed by Grupo Bimbo did not reveal that Canada Bread and Weston participated in such arrangements," the documents read.

The company has pleaded guilty to four counts under Section 45 of Canada's Competition Act, each of which come with a maximum penalty of $10 million or$25 million. But the Director of Public Prosecutions, which handles cases when the Bureau finds evidence of a potential criminal offence, has agreed to recommend a 30 per cent "leniency reduction" for the company's co-operation. That will bring the total bill down to $50 million.

Investigation ongoing

In the court documents, Canada Bread says its "liability resolved with the entering into of this plea" but notes that the Competition Bureau's investigation into other companies is ongoing.

In a news statement, the bureau noted that the $50-million fine is the highest price-fixing fine imposed by a Canadian court to date, and it's also the first time any sort of monetary penalty has emerged from the bureau's eight-year investigation.

"Fixing the price of bread a food staple of Canadian households was a serious criminal offence," commissioner Matthew Boswell said."Our continuing investigation remains a top priority. We are doing everything in our power to pursue those who engage in price-fixing."

In an interview with CBC News, Boswell defended the amount of time the Bureau has spent investigating the issue.

"We seized more electronic records and electronic information than on any other case in the Bureau's history," he said. "I'm incredibly proud of our team of investigators and the prosecutors involved in in today's guilty plea for getting us to this milestone, but come tomorrow, we'll put our nose down again and continue working on the the rest of the investigation."

Boswell noted that the fines that Grupo Bimbo agreed to are the maximum allowable under current legislation, but those laws are set to change in a way that could make any future penalties even greater.

"As of this Friday, actually, there will no longer be a maximum fine per offence, which will make the legal and financial risks to companies much more significant going forward," he said.

So far no other charges have been laid by the Competition Bureau in its almost eight-year probe, buttwo class-action lawsuits,one in Ontarioandone in Quebec, have been certified in court, each seeking financial compensation from various companiesinvolved.

Although it was granted immunity in the case by the Bureau, Loblawalso offered its customers $25 gift cards when the story first came to light.

Although the $50 million will go into government coffers not to rebates for customers who were footing the bill all along the deal isnotablebecause it is the first time companies besidesLoblawand Weston haveadmitted to being involved in the scheme since the story first broke years ago, said Jennifer Quaid, a law professor at the University of Ottawa.

"This is a significant fine, this is a second player," she said in an interview. "There are two players who acknowledge that they participated, so now there is no longer any question that at least two players got together to fix prices now you really do have a conspiracy."

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In a statement to CBC News, Grupo Bimbo said it "is considering all legal options against those responsible for the conduct addressed in court today."

"Under new ownership, Canada Bread is committed to being a responsible partner to our valued customers and making bread an accessible and reliable food source for Canadians. We are pleased to have resolved this matter, and we look forward to building upon our investments in Canada," Canada Bread's vice-president Alice Lee said in a statement, adding that the company employs 4,400 people in Canada.

For its part,Maple Leaf Foods said it had no prior knowledge of the fine that Grupo Bimbo agreed to,prior to being contacted by CBC News on Wednesday.

"It is completely unknown to us why Canada Bread or its owner would have entered into this plea agreement," the company said. "We are not aware of any wrongdoing by Canada Bread or its senior leadership during the time that we were a shareholder."

"We are not aware of and have never engaged in inappropriate or anticompetitive activity, and we will defend ourselves vigorously against any allegation to the contrary."

WATCH |Shoppers react to $50M fine for fixing bread price:

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On the streets of Toronto, grocery shoppers shared their thoughts with CBC News about the record-setting $50 million fine for one of the companies involved in a years-long scheme to artificially push up the price of bread.

Retail consultant Bruce Winder said in an interview with CBC News on Wednesday that given the change of ownership, it's not surprising to see Grupo Bimbo blaming the previous regime and trying to recoup some costs and reputational damage by pursuing legal action.

"One can argue that Maple Leafsold them an asset without disclosing a material risk to that asset," he said. "It's sort of like buying a car and ... everything looks great on this car [but] you take it home and a few weeks later the engine falls apart."