2023-09-20 08:00:00
Facts
Let’s get past the exaggerations and the “ways of speaking” — the grocery basket is more expensive than ever and food banks are facing record demand, sure, but from there to portraying the entire Canadian population as having it is difficult to feed yourself, there is still a margin.
In any case, the bottom line is rather: significantly higher inflation in the food sector (7.8% last July, but note that it was already down compared to the 10-11% of fall 2022) that general inflation (3.3% in July) is it the fault of Canada’s five big grocers (Loblaw, Sobeys, Metro, Costco and Walmart)? Did they take advantage of the pandemic to excessively increase their prices?
In fact, it is not as clear as what the Trudeau government suggests. Several studies and indicators strongly suggest that most of the price increases have occurred upstream of retailers — fuel costing farmers and transporters more, labor issues, etc.
And Statistics Canada report published last year on the causes of food inflation pointed out for 2020 the disruptions that COVID caused in supply chains, in particular by forcing closures of food factories, which introduced a form of scarcity .
The year 2021, the document continues, was also marked by very bad weather in several farming regions of the world, particularly in Western Canada. And the Russian invasion of Ukraine in 2022 also had repercussions on the price of the grocery basket because most Western countries, including Canada, hit Russia with economic sanctions.
However, as Ukraine (devastated by war) and Russia are large exporters of cereals, and as Russia is one of the world’s largest producers of fertilizers, this has further driven the price of foodstuffs upwards.
For example, the price of potash has exceeded US$1,000 per tonne at the start of summer 2022, more than five times more than the previous year. It has fallen significantly since then, to around $350/t at the latest news, but it is still well above its pre-war levels.
The Statistics Canada document makes no mention of the profit margins of food retailers as sources of inflation. And the latest edition of Canada’s Food Price Reportfrom the universities of Dalhousie, Guelph, Saskatchewan and British Columbia, provided a similar portrait of the situation for the year 2022.
Lack of competition?
That said, it is not impossible that the few players present in the Canadian food market might have pushed prices up, to a certain extent. After all, while the “Big Five” grocers shared 60% of the sector’s sales in 2003, they now monopolize it not less than 80%according to a federal-provincial working group.
But everything indicates that it doesn’t make a big difference. The Competition Bureau of Canada (CCB) published this summer a rapport which specifically addressed this issuehaving had access to confidential industry data – although collaboration was not easy on everyone’s part, complained the BCC.
From this data, the Bureau calculated that between 2017 and 2022, the profit margins of major grocers increased by 1 to 2 percent. As this sector has always been characterized by low margins, a small increase can make a big difference on the annual balance sheet of these companies. Hence the record profits recorded by Loblaws and company.
But the fact remains that this 1 to 2% additional margin is very, very below the total inflation in the price of food between 2017 and 2022, which wasenviron 20 %according to Statistics Canada.
Another sign that grocery store margins do not make a big difference: since 2019, the price of food has increased faster in wholesale and industrial markets than at retailers, according to calculations posted on Twitter by Dalhousie University economist Sylvain Charlebois. He sees this as a sign that it is on the input side, and not the margins, that the main sources of food inflation are found.
But the fact remains, underlined the BCC: the fact that grocers have increased their margins gradually over years instead of trying to attract customers by lowering prices (or maintaining them) suggests that competition does not perhaps not working ideally in this sector of the economy.
It should be mentioned here that this idea that lack of competition is a serious problem in food retailing is not unanimous. Earlier this year, before the Standing Committee on Agriculture and Agri-Foodeconomist DT Cochrane warned that the suppliers of large Canadian chains are often themselves multinationals, and that it is sometimes better to be a large company yourself when negotiating with another giant.
But the deficient competition in food in Canada has been decried by many voices, often experts, in recent years. So maybe there’s something there — although, let’s repeat, everything indicates that this represents only a small part of the increase in the grocery basket.
Verdict
Not really. It is possible that a lack of competition between the five major food chains operating in Canada, which represent 80% of sales in the sector, has pushed prices up a little. But the Competition Bureau estimates that their profit margins have not increased by more than 1 or 2% in five years. We should therefore not expect the Trudeau government’s initiative to lead to miracles.
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