The atmosphere is constructive between grocery store CEO's and Ottawa: Sylvain Charlebois
Experts say cutting the carbon tax, diversifying food sources and reducing domestic trade barriers are among the policy options that could help bring down grocery costs in Canada – but they caution that shoppers shouldn’t expect relief at the cash register any time soon.
OTTAWA AND GROCERS
Ottawa and the grocery industry are currently considering how to stabilize the cost of food.
On Thursday, the federal government tabled the “Affordable Housing and Groceries Act,” which includes provisions to maintain competition in the grocery sector, including giving more power to the Competition Bureau to investigate price fixing and would remove the efficiencies defence on mergers.
This week, top executives at Canada’s major grocers met with Industry Minister François-Philippe Champagne and Finance Minister Chrystia Freeland to discuss ways to reign in food prices. The meeting came after Prime Minister Justin Trudeau asked the major grocers to come with a plan to stabilize prices by Oct. 9.
With food inflation persistently higher than the headline rate, Mike von Massow, food economist and associate professor at the University of Guelph, said he believes the meeting was more a signal to voters that the government is doing something.
Von Massow also begrudged the vague commitments surrounding price stability.
“To me, that lack of clarity was puzzling, and really made me think a little bit that it wasn't a true initiative to reduce prices,” he told BNN Bloomberg.ca in phone interview.
FOOD INFLATION SLOWING
Von Massow also pointed to Canada’s latest inflation data, which shows grocery prices were down 0.4 per cent in August on a monthly basis.
“We're calling the fire department once the fire has almost been put out,” he said. “Now, there's still risk out there and there's still probably merit in discussing what we can do, but I would say to a degree, we're a little bit late to the party.”
Additionally, von Massow argues there’s not much to be done on food prices in the short term, in part because a lot of factors driving up our grocery bills are out of our hands, such as the war in Ukraine and extreme weather events, for example.
When it comes to long-term options, Von Massow suggested that Canada should consider diversifying where it gets its food from, to mitigate the issues that arise from weather and geopolitics.
“There is some value in having a discussion like we had earlier this week in Ottawa, but including the entire supply chain, including processors, including producers to say: ‘Are there things that we can do to plan, to moderate, some of the extreme swings we see in production?’”
Von Massow pointed to the lettuce shortage from March, which resulted from flooding in California hurting Canada’s lettuce supply, causing prices to skyrocket. If Canada had been less reliant on California for its lettuce and instead sourced it from several locales, Canadian shoppers would not have been as impacted, he argued.
TRIMMING THE CARBON TAX
Stuart Smyth, associate professor of agricultural economics at the University of Saskatchewan, suggested cutting the federal carbon tax, particularly for food processors and transporters, would offer some immediate relief at the grocery store.
“Governments have many policy options at their disposal to ease food prices, but so far, governments haven’t been willing to utilize any of the policy options that exist,” he said in an email to BNNBloomberg.ca.
For von Massow, removing the carbon tax would cut prices, but not at the level needed to reign in inflation, noting that Canadians who benefit from the tax would be hurt.
In 2019, the Parliamentary Budget Office found 80 per cent of Canadians would receive more back in carbon tax rebates than what the tax costs them at the pump. Carbon tax rebates vary by province, but individuals in Ontario get $488 annually, paid in quarterly settlements.
“If we got rid of the carbon tax, for many Canadians, it would actually increase their costs, because they get more money back than they pay in carbon tax, and would probably not be offset by decreases in food prices,” von Massow said.
INTERPROVINCIAL TRADE BARRIERS
Smyth suggests cutting interprovincial trade barriers, which control internal trade between provinces, would also help to cut down prices.
“The easiest and most beneficial thing governments can do is remove regulatory barriers that are contributing to the rising cost of food,” he said.
For von Massow, cutting down these barriers would help, but as more of a long-term option.
“Finding ways to reduce those barriers to product movement within the country would be a positive thing, would have long term benefits and we might see some small impacts in the short run,” he said.
“Product wouldn't immediately start to flow, you have to build relationships, you have to build infrastructure,” he continued. “I think that's more of a longer term thing, but a very important and positive thing to do.”
Limiting how much food Canada exports and instead keeping more food domestically has been floated as an option to lower prices, but Von Massow argued that could lead to issues for a nation that relies so heavily on other nations for its food.
“We have to remember that we also import a lot of our food, particularly in the winter and it's not beyond the realm of possibility that the countries retaliate and limit exports to Canada,” he said.
“That doesn't do anybody any good.”
Price controls are also an option to slow down costs, though Ian Lee, associate professor at Sprott School in Carleton University, argued it would be a bad idea, in part because companies would have to cut costs somehow to keep their margins – meaning layoffs would be likely.
“Ordinary, middle-class people being laid off because of these decisions by the privileged elites,” he said in an interview with BNN Bloomberg.
Price controls have been instituted in France and Hungary as a means to reduce prices, and in Canada in the 1970s by former prime minister Pierre Trudeau, though Lee suggests it won’t work long term.
“I think it’s going to be a complete failure,” he said of the price cap idea. “I lived through wage and price controls through Pierre Elliott Trudeau in the 1970s. It was called six and five and what we’re now talking about is disguised, defacto, back door price controls.”
The “six and five” anti-inflation program capped the wage growth for federal public sector workers at six and five per cent over two years.
Overall, Lee said he believes the federal government should not interfere at all.
“The government should be hands off completely. It does not possess the knowledge, the capacity at the top to start supervising strategy,” he said.