Ottawa will investigate food prices. It’s about time.
By Sylvain Charelbois
With the hype caused by the scandal at Hockey Canada, few noticed last week that Ottawa decided to investigate food prices and the alleged abuse by large grocery chains. This was decided by the Parliamentary Standing Committee on Agriculture, and the members of the Committee will examine the problem in the coming weeks.
We must first must welcome Ottawa’s decision. Even though Canada currently has the third lowest food inflation rate among the G7 countries, after Japan and France, the rate of food inflation in Canada has exceeded general inflation for 13 consecutive months now. Every trip to the grocery store gets more financially painful, almost daily.
But to solely investigate retail would be shortsighted, and the committee seems to recognize that. The scope of the study will be the entire chain as Canadians deserve having the government study the state of the whole food industry. Food distribution is complex and involves several companies at once, from farm to table. Many accuse grocers such as Metro, Loblaws, and Sobeys of abusing the system, and inflating prices unjustifiably. But based on publicly available data, this is far from the case.
A very simple evaluation, comparing the profit margins of the three major retailers, Loblaws, Sobeys and Metro for the last five years, shows us that their financial results are rather modest. Thus, at the end of their respective fiscal years in 2021, profit margins for these retailers were 3.7% for Loblaws, 2.7% for Empire-Sobeys and 4.5% for Metro. Returns were about the same for the last 5 financial years. Yields were usually below or at the same level as the rate of food inflation for most of the five years. In other words, the performance of these chains was flat, when compared to the increase in the cost of living. And the year 2022, so far, doesn’t seem all that different.
Of course, the accusations of the last few months are buoyed by the claim of “record profits.” Certainly, a 2% or 3% monetary gain today does not look like a 2% or 3% gain of five years ago. Numbers are greater. Simple math. Incomes are higher, but so are costs. Although the amounts increase, the percentages remain the same.
Despite this, perceptions persist. Almost 80% of Canadians claim that there is abuse in the system and they are not entirely wrong to have these doubts. The industry has disappointed in recent years, especially with the “bread cartel” story. The current accusations, although without any real basis, are fully deserved.
Since the scope of Ottawa’s investigation will include the entire chain, from production to retail, as well as wages, this won’t be easy. Expectations remain realistically low for the committee to uncover anything at all. The food industry is filled with family businesses and companies which guard competitive data with extreme caution. Some companies buy and sell products without ever seeing or touching food. Getting to that data will be challenging.
But the committee needs to go beyond the grocer-gouging rhetoric. If there is abuse, it may be upstream in the chain. Part of the inflation of prices is objectively explained by certain macroeconomic factors, such as the shaky supply chains due to the pandemic, the labour shortages in the sector, and the invasion of Ukraine. But some portions of the price increases we see at the grocery store are hard to explain, especially at the meat counter, in the dairy section, and in the fish and seafood section. There are also price hikes in the bakery aisle these days.
In short, during the investigation, the Parliamentary Committee must maintain a sober and virtuous logic, without falling into the imaginary and the superlative. Selling a product at an exorbitant price does not necessarily constitute a scam if consumers have a choice and companies do not attempt to control market conditions. Rising costs are not the only factor contributing to price increases, either. Fluctuations in price and demand are also important elements in food distribution. Competition and markets will influence price. This is something the Committee also needs to look at.
Individualizing the differences between certain abusive behaviours and acceptable business practices will not be easy for the Committee. But it is worth the exercise, so that more Canadians can understand how our food supply chains work.
Dr. Sylvain Charlebois/Professor/Professeur Titulaire
Senior Director/Directeur Principal
AGRI-FOOD ANALYTICS LAB/LABORATOIRE DE SCIENCES ANALYTIQUES EN AGROALIMENTAIRE
CO-HOST, The Food Professor Podcast