The federal government needs bigger sticks to tame food inflation

Inflation has fallen rapidly in Canada over the past year, but you’d never know if you visited your local grocery store.

In May, year-on-year consumer price inflation dropped to 3.4 percent, from 4.4 percent in April. That is less than half of last June’s peak inflation (8.1%). However, grocery prices are still rising at a dizzying rate. Inflation in groceries amounted to 9.0 percent in May, hardly changed compared to April.

Grocery prices are now growing almost three times faster than other prices. Even eating out isn’t too hard on the wallet. Restaurant prices rose 6.75 percent in the year to May, despite the many cost challenges facing the hospitality industry.

Meanwhile, the cost of most inputs purchased by food retailers have slowed rapidly – ​​and in some cases plummeted. Crop prices fell by 22 percent last year. Energy costs fell by a third. Imports of meat and dairy increased by only 4.5 percent (half the pace of the last groceries), and imports of fruit and vegetables by only 1.2 percent.

Moderate the costs of producing and selling groceries. Yet food prices are still rising. What gives?

The obvious culprits are Canada’s giant supermarket chains: Weston, Empire and Metro, which together control about two-thirds of the national market. Their profits have risen dramatically after the pandemic (industry-wide profits more than doubled), and have remained abnormally high even as supply chains normalized and consumers stopped hoarding toilet paper.

Supermarket CEOs attribute the higher costs to their own inputs and purchases and claim they simply pass those costs on to consumers. But elementary school math tells you that if cost and price grow by the same amount, profit won’t change. Even if nominal profits kept pace with higher prices, margins wouldn’t change – they’ve grown significantly nonetheless.

Extensive research proves that supermarkets are not innocent middlemen in food inflation: they have actively profited from it. The Star’s Marco Chown Oved was one of the first to document the rise in supermarket profits since COVID.

Now two separate government inquiries in the past month have provided further evidence that supermarkets profit from inflation: a House of Commons inquiry Agriculture Committeeand one of the competition desk.

The Commons committee found that food retail profits have grown, then cited conflicting views on whether those profits were justified or not. It eventually passed on the responsibility to the Competition Bureau, saying that if the bureau determined profits were too high, the government should consider an excess profit tax (to redistribute to struggling shoppers).

For its part, the Competition Bureau confirmed that the grocery industry has become much more concentrated (through mergers and acquisitions) over the past generation, and the resulting lack of competition contributes to high prices. It also confirmed that profit margins have increased measurably post-pandemic, driving higher returns for all major chains.

The desk made four recommendations to promote competition, but was limited by its limited power under existing law to prevent concentration (by blocking mergers or breaking up large companies). One proposal could make a difference: a ban on ‘property controls’, whereby one chain prevents competitors from opening new stores in vacant buildings.

But the agency’s other recommendations boil down to wishful thinking: The government should “encourage” more innovation and newcomers to the food retail industry, and make it easier for consumers to compare unit prices. Those vague proposals won’t do anything for consumers who are shocked and pay $200 for every cart of groceries.

The government needs to pull out some bigger sticks if it wants to curb food inflation in a meaningful way. Now that the Competition Bureau has confirmed that supermarket profits have indeed risen, the Agriculture Commission should activate its recommendation for an excess profit tax, as NDP leader Jagmeet Singh has suggested. The resulting revenue would allow Ottawa to extend the temporary “grocery discount” credit it rolled out last week.

And the federal competition law (currently a closer look) should be strengthened to give the agency more room to block mergers and break up companies that exercise undue market power. Price caps for energy, leasing costs for private individuals and even for some basic foodstuffs (similar to measures in France and the UK.) might also help.

Canadians’ justified anger over food prices flares up with every trip to the grocery store. There is clear political room for the government to be more ambitious in tackling food inflation. But doing so requires a bold willingness to stand up to the corporate power that has made this cost-of-living crisis so much worse.

Jim Stanford, director of the Center for Future Work in Vancouver, is a freelance contributing columnist for the Star. Follow him on Twitter: @jimbostanford

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