It’s time for Ottawa to investigate food prices – Writer’s Bloc

It’s time for Ottawa to investigate food prices – Writer’s Bloc

In the wake of the Hockey Canada scandal, few noticed that last week Ottawa decided to investigate food prices and alleged abuse by major grocery chains.

The Parliamentary Standing Committee on Agriculture and committee members will examine the issue in the coming weeks.

First of all, we must welcome Ottawa’s decision. Although Canada currently has the third-lowest food inflation rate among the G7 countries, behind Japan and France, Canada’s food inflation rate has exceeded headline inflation for 13 consecutive months. Every trip to the grocery store becomes more financially painful, almost every day.

But investigating only retail would be short-sighted, and the committee seems to recognize that. The scope of the investigation will be the entire chain, because Canadians deserve the government to look into the state of the entire food industry. Food distribution is complex and involves several companies at the same time, from farm to table. Many accuse grocers like Metro, Loblaws and Sobeys of abusing the system and unfairly inflating prices. But based on publicly available data, that’s a long way off.

A very simple assessment comparing the profit margins of the three major retailers over the last five years of Loblaws, Sobeys and Metro shows that their financial results are quite modest. Thus, at the end of their respective fiscal years in 2021, the profit margins of these retailers were 3.7% for Loblaws, 2.7% for Empire-Sobeys and 4.5% for Metro.

The returns for the last five events were more or less the same. Yields were typically below or at the same level as the food inflation rate for most of the five years. That is, the performance of these chains was flat compared to the increase in the cost of living. And 2022, so far, doesn’t look that different.

Of course, the accusations of recent months fuel claims of record profits. Certainly, a two or three percent profit today does not look like a two or three percent profit five years ago. The numbers are higher. Simple math. Revenues are higher, but so are costs. Although the amounts increase, the percentages remain the same.

However, the perception remains. Almost 80% of Canadians say there is abuse in the system, and they’re not entirely wrong to have those doubts.

The industry has been disappointed in recent years, especially with the “bread cartel” story. The current accusations, although they have no basis in fact, are entirely meritorious.

Because the scope of Ottawa’s investigation will include the entire chain, from production to retail, as well as wages, this will not be easy. Expectations remain very low for the commission to clear anything up.

The food industry is full of family businesses and companies that carefully guard their competitive data. Some companies buy and sell products without ever seeing or touching the food. Access to this data will be difficult.

But the commission needs to go beyond the rhetoric of food cravings. If there is abuse, it can be further up the chain.

Some of the price inflation is objectively explained by certain macroeconomic factors, such as supply chain disruptions due to the pandemic, labor shortages in the sector and the invasion of Ukraine.

But some of the price increases we see at the grocery store are hard to explain, especially in the meat counter, dairy section, and fish and seafood section. There are also price increases in the bakery aisle these days.

In short, in the investigation the Parliamentary Committee must stick to simple and virtuous logic, without falling into the imaginary and the superlative. Overselling a product doesn’t have to be a scam if consumers have a choice and the company doesn’t try to control market conditions.

Rising costs aren’t the only factor contributing to rising prices, either. Fluctuations in price and demand are also important elements in food distribution. Competition and markets will affect the price. It’s something the committee needs to look into as well.

Sorting out the differences between some abusive behavior and some acceptable business practices will not be easy for the Commission. But it’s worth the exercise so more Canadians understand how our food supply chain works.

Sylvain Charlebois is the CEO of the Agri-Food Analytics Laboratory and Professor of Food Distribution and Policy at Dalhousie University.

This article was written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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