The federal government’s threats against Canada’s big grocers is a “dog and pony show” to appease voters, says Concordia University economist Moshe Lander.
Voter pressure is on to lower food prices and the Liberals are slipping in the polls, so the government wants to look like it’s doing something, Mr. Lander told The Epoch Times.
“The government is probably realizing there’s nothing they can do, but to try and satisfy the voter, they’re going to make a show of this,” he said.
Industry Minister François-Philippe Champagne met with executives from Loblaws, Metro, Empire, Walmart, and Costco on Sept. 18, and later called on major food producers to similarly come to Ottawa for talks.
The Liberal government is threatening sanctions against grocers and producers if they don’t stabilize prices, and such sanctions may include taxation.
Mr. Lander says a grocers’ tax would be a mistake, and so would telling grocers how to conduct their businesses. He and Matias Margulis, a food and public policy professor at the University of British Columbia, discussed with The Epoch Times the complex factors behind food prices and what the likely results of this food-price inquisition will be.
Profiteering?
“This is a really dangerous situation right now, to start telling companies how to conduct their business,” Mr. Lander said. “Remember that these are companies that have shareholders that they have to answer to, and so they can’t go around pricing groceries as acts of charity.”
While grocers have been accused of price-gouging and profiteering, Mr. Lander explained what’s behind their record profits.
He gave the hypothetical example of a grocer who buys a product for $1 from a supplier, then sells it for $2. That’s an “extreme” markup, he said, “but just so you'll see my point.” So if the the supplier starts selling the product for $2, the grocer will mark it up to $4.
“[As a grocer,] I haven’t done a single thing differently. I take whatever my cost is and I double it, turning it out the door. But my profits have gone up, and the reason it’s gone up is because the supplier has increased the prices on me,” he said.
In June, the House of Commons agriculture committee recommended a windfall profits tax if a forthcoming report by the Competition Bureau found grocers were profiteering. That report found major grocers’ profit margins increased “by a modest yet meaningful amount over the last five years.”
Margins generally increased by one or two percentage points since 2017, the report said, adding that this translates to about an extra $1–$2 on each $100 Canadians spend on groceries.
“The Canadian grocery industry is a low-margin business. Grocers make relatively little on each item, but make their profits in volume,” the report said. “That means that even small changes in margins can be meaningful.”
The Bank of Canada said in a June report that grocers and other retailers are not guilty of price inflation. It said retail price spikes are largely due to “global freight and energy” cost increases as well as industrial inputs like chemicals, plastics, lumber, and metals, along with costs associated with labour and commercial services such as trucking.
Potential Consequences of a Grocers’ Tax
Imposing sanctions, such as a grocers’ tax, on this low-margin industry could backfire, Mr. Lander said.“This is a ‘be careful what you wish for’ moment for Canadians,” he said. “If you start imposing windfall taxes on profits, it’s highly likely that grocery stores are going to respond by removing items from shelves.”
Certain products will no longer be profitable to carry when the margin is cut by taxes, he said. “If you’re telling me that I can’t raise my price 10 percent anymore, I can only raise it 3 percent, well, you know what, I’m not putting that product on the shelf anymore. It’s not profitable,” he said, sharing the perspective of grocers.
“Canadians would find that they all of a sudden have less variety, less innovation, fewer options.”
University of British Columbia’s Mr. Margulis said Canada’s grocery industry is already “quite a tough market to come into.”
Lack of Competition
Lack of competition in the industry has been much discussed by the government and media in deliberations over what’s driving up food prices. It’s hard for any new grocers to step up in Canada for many reasons, Mr. Margulis said.For example, Canada has a relatively sparse population for such a large land mass. Trucking food to communities across the country is expensive. Interprovincial trade barriers and other obstacles also exist, he said.
Mr. Lander said a lack of competition plagues other parts of the supply chain as well, including food suppliers and transport. He suggests giving the federal Competition Bureau more power, as its funding has been cut and its recommendations have increasingly been ignored for the past couple decades.
Both Mr. Lander and Mr. Margulis spoke of controls already in place on Canada’s food industry.
“We have a certain number of food commodities that are supply-managed, including dairy, chickens, turkey, eggs,” Mr. Margulis said. They are managed at the provincial level, including production quotas and pricing.
Mr. Lander said controlling commodities drives down competition and drives up prices.
“In Canada, we proudly support Quebec dairy farmers as an organized entity, which means that they don’t have to compete with each other,” he said by way of example. “We’re very proud of this in Canada, but we don’t realize the real damage that we’re doing.”
Mr. Margulis said there are Canada-specific issues behind the rise in food costs, but it is also an international issue. While year-over-year food price inflation was just below 7 percent in Canada in August, after hovering around 10 percent in February, it is much higher in other places, Mr. Margulis said. In the United Kingdom, for example, it was around 13 percent in August.
What Grocers Will Likely Say
While grocers reportedly expressed an interest in working with the government during the meeting on Sept. 19, no specific promises were made.Mr. Margulis says he hopes greater clarity will come of the talks regarding grocers’ pricing, as greater transparency is needed.
Mr. Lander says he thinks the most grocers will do is promise to hold prices stable for some months. And they'll do that, he said, because they’ve already signed months-long contracts with suppliers and they know their pricing and that they can do it.
“The government is fully aware of that. It’s not like the grocers are pulling one over,” he said. But both sides need to act this out for their public image, he said.
“The government will be able to pat themselves on the back and say, ‘See, we did something.’ And the grocers will say, ‘See, we’re not the bullies you think we are.’”
