Toothless Measures

In late July, polling firm Maru found that consumers were overwhelmingly convinced that grocery prices were going to keep rising in the next six months. A plurality of 39 percent blamed high prices on grocer price gouging, while roughly a third, 28 percent, blamed suppliers.

On Thursday, Trudeau emerged from the retreat to go on the offensive, introducing what reads as a hastily assembled suite of measures and promises of more to come. Whatever the quality of the plan, the government obviously recognizes that people want immediate relief.

The emerging Liberal plan includes some immediate tinkering around the edges. First is eliminating the federal goods and services tax (GST) from the construction of purpose-built rental housing — which may boost supply, but is a giveaway to rich developers and does little to guarantee that rents will become affordable. Next is extending the repayment period of the pandemic measure Canada Emergency Business Account, which may help some small businesses, but won’t make day-to-day life easier. Finally, there’s a push to “stabilize” grocery prices.

Trudeau announced his government has threatened grocery CEOs with a request to come to Ottawa for “a meeting.” There, they will have to explain themselves and present strategies to lower food prices for Canadians. Failing proactive steps from them, Trudeau warned of the possibility of imposing undefined affordability measures.

Trudeau says that if they fail to act, there will be consequences. But if past is prologue, there is a better-than-even chance that these “consequences” are exactly what they sound like — the empty threats of a feeble principal to misbehaved students, the effects of which will be marginal and will fail to bring down prices.

Grocer margins are up, and that contributes to food price inflation. That’s not the only cause of higher prices — supply-chain constraints, crop failures, and the war in Ukraine are the central causes of rising pressure on costs. But the structural and long-term problem of high and rising food costs is inextricably bound up with the country’s grocery oligopoly.

Whatever else is true about food costs and the episodic factors affecting them, the concentration of wealth, power, and market share in the hands of a few firms will lead to higher prices. Temporary measures, such as tax policies or even prize freezes, which Trudeau mentioned as an option on Thursday, are welcome. People can’t afford food and they can’t afford it now. People need to eat. They need immediate relief measures.

Dismantle the Oligopolies

While Canadian food insecurity and hunger have spiked in recent years, grocers are making high, even record, profits. It’s obscene. Trudeau didn’t specify what sort of tax measures he could bring down on grocers, though marginal or windfall taxes are two options. There is a risk, however, that the cost of measures will be passed on to consumers directly or indirectly, driving prices even higher. But temporary measures, while they may help, aren’t long-term solutions.

Lowering prices, and keeping them affordable, requires that Canada dismantle the oligopoly — Loblaws, Sobeys, Metro, Walmart — that controls food access and sets prices. Earlier this summer, the Competition Bureau of Canada confirmed what any half-informed observer could have told you: the grocery cartel has been enjoying fatter profit margins due to elevated prices and market consolidation. But this is a trend that predates the onset of pandemic-induced inflation.

Grocers aren’t going to voluntarily make food affordable, at least not for the long term. They may be inclined to play ball for now as the government has them in its crosshairs and is desperate to regain the favor of the electorate. But temporary measures and grocer cooperation will only last until the heat dies down, at which point the grocery mafia will return to bleeding consumers dry. That’s what they exist to do. As their defenders are so quick to point out, they’re not charities. They’re businesses.

In its Thursday blitz, the government also announced plans to direct the Competition Bureau to tighten rules on anticompetitive mergers and collect data from grocers as necessary to conduct market studies. But while market studies may provide valuable data, it will likely confirm what we already know — oligopolies are expensive for consumers. And blocking future mergers does nothing to reverse the deleterious effects of current market concentration. We need bigger and better ideas.

To bring down prices and keep them affordable, Canada ought to dismantle the grocery oligopoly, forcing food giants to relinquish market share and spin-off horizontal and vertical properties — no more controlling multiple clone chain stores and no more controlling large sections of the supply chain.

Nationalize the Supermarkets

Grocers alone, as retailers, are getting all the attention, but suppliers are part of the problem. Industry groups are saying that if the government is going to limit price increases from grocers, it’ll have to limit increases from suppliers, too. Well, all the merrier!

As the Toronto Star reports, Anthony Fuchs, vice president of Food, Health & Consumer Products of Canada, said, “Today’s announcement, which proposed a broad approach to a nuanced issue, may lead to unintended consequences that could hinder capital investment in Canada’s food manufacturing sector and reduce competition.” These groups are issuing veiled and not-so-veiled threats — “nice food supply there, would be a shame if something happened to it” — which shows how nervous they are that there’s talk of holding them to account.

Beyond breaking the oligopoly itself, the government ought to consider national supplier and retailer options to reduce prices and secure the food-chain supply. If the private market can’t deliver essential public goods at affordable, stable prices, then perhaps the state can. This approach would directly inject competition into the food market, leading to price reductions, especially since a state-owned enterprise would prioritize public welfare over maximizing profits and shareholder returns.

Food prices in Canada will remain high until the government enforces structural changes to dismantle the grocer oligopoly and introduce competition into the market. Ideally, this would include a state-based, public-interest retailer and, if necessary, supplier. Food is not a luxury. And the government shouldn’t treat it as one or let anyone else do so while people struggle to feed themselves.