Groundwork: Many ideas but few obvious solutions to fixing food prices

Groundwork: Many ideas but few obvious solutions to fixing food prices

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In what may have been something of a Freudian slip, a friend of mine accidentally used the term “sur-priced” to describe his feelings about a recent trip to the supermarket.

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We both laughed at the error, knowing exactly where it came from.

However, as stunned as reactions have been to food prices of late, it is no surprise to hear that inflation-averse grocery shoppers have been ramping up their coupon-clipping, diet-changing and volume-buying behaviour to try to compensate.

A frequent workaround noted by our Groundwork readers is an increased diligence around checking store flyers and websites for the best deals. Those with more technological skill are trying phone alerts for sales, or have been looking for apps that direct users to cheap eats.

Several of those struggling to afford healthy foods said they have switched to frozen fruits and vegetables, turned to less expensive cuts of meat or stopped buying meat altogether. Some within this group predicted garden stores could be busier than ever this spring.

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Many of you have also told us you are giving more of your business to discount grocers — those like H&W Produce, which operates six stores in Edmonton.

Ironically, some of the supply chain disruptions that have plagued the bigger grocers have actually been helpful to H&W, said co-owner David Harrison.

He said suppliers know to call him with deals, for example, if a load of berries is delayed getting to port, or a truck’s refrigeration system falters for an hour or so, or any similar reason that might cause the original buyer to reject the shipment.

“It took us years and years to get enough stores to move the volume that we need to move in order to get these deals. … In our industry, it’s very difficult because it is a perishable commodity, so you have to be able to move it quick.”

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Last week’s Groundwork column looked at the scale of the recent food price hikes, and explored the role of various factors that may or may not be contributing to the trend.

For this column, we are diving into some potential mitigation strategies.

These can obviously occur at the consumer level, as I have just described.

But readers have also proposed a number of broader, government-level policy changes that are worthy of discussion. As you might expect, some are more feasible and have more side effects than others.

Customers at the Italian Centre Shop as inflation and supply chain issues causing overall higher costs for food in Edmonton, April 1, 2022.. Ed Kaiser/Postmedia grocery
Customers at the Italian Centre Shop as inflation and supply chain issues causing overall higher costs for food in Edmonton, April 1, 2022.. Ed Kaiser/Postmedia grocery Photo by Ed Kaiser /20095477C

Regulate food prices

I’ll start with the most controversial proposal, which was raised by a surprising number of Groundwork participants.

Presumably, price regulation could be done in a number of ways, including hard price or profit caps on certain staples, from beef to bread to broccoli.

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However, all the economists I spoke with suggest this kind of market intervention can provoke unintended and undesirable consequences, especially since food producers and retailers already tend to operate with thin profits (though profits have seemed less thin of late).

“So if you cap prices, the effect will be to either shrink margins for the wholesalers and retailers … potentially leading them to eventually scale back their operations or, if they are really on edge, shut down completely,” University of Calgary economist Trevor Tombe said.

That said, Tombe noted Canada has a mechanism to manage prices for a small number of products, though it works to “manage prices up.”

This is the controversial supply management system for dairy, eggs and poultry. Essentially, those industries limit production to specific quotas, and in exchange participating farmers receive artificially inflated, though stable prices.

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Dismantling or easing supply management is worth considering because it may well lead to lower costs for consumers, but this option has long been considered political dynamite in Canada.

All things considered, the economists suggested the best solution might just be to wait it out, since the market tends to take care of excess on its own.

Encourage more competition

Compared with other countries, Canada’s grocery business is dominated by a small handful of major players, and questions have lingered around how consistently competitive they actually are with each other. Readers may want to bone up on allegations of price fixing for bread, and more recently, for beef.

As well, a particular facet of this limited market is that price relief is often tied to volume buying — you only get the deal if you purchase four lemons instead of one — which is not especially useful for small households and leads to more waste.

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“You are held hostage because you have no competition,” said Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University. “Promotional strategies in Canada need work. In terms of tooling the consumer to manage inflation, the culture is abysmal.”

That said, it isn’t obvious what the right policy levers are to achieve more competition. Perhaps the government could offer tax credits or other incentives for smaller retailers to expand. Or harsher deterrents for collusion. Or regulations to limit the size of larger companies.

(Those companies might argue their large size allows them economies of scale to enable better deals for consumers).

Further to this is the ongoing tension between big grocers and suppliers, many of whom have complained for years about being bullied with high list fees, fines and other costs just to keep their products on supermarket shelves.

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The lack of competition has given the power advantage to retailers, Charlebois said, but the rising costs of food production of late may start to provoke more serious pushback.

As such, momentum has been building for Canada to create a “Grocery Code of Conduct,” which proponents say would improve fairness and transparency in supplier-retailer business dealings. In theory, more transparency could lead to lower consumer prices, or at least help to stabilize them.

Man walks out of grocery store wearing mask
Shoppers leave an Edmonton grocery store (Real’s No Frills, 3425 118 Ave.), on Wednesday Feb. 9, 2022. Photo by David Bloom /Postmedia

Ramp up domestic food production

For supporters, the idea here is pretty simple. More domestically produced food should benefit consumers through lower transport costs, and by avoiding international supply disruptions like the war in Ukraine.

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Figuring out how to pull it off, and quickly, is far less simple.

Should Canada incentivize more greenhouses? Can we encourage the expansion of farmland? Heck, maybe climate change could even contribute, if longer and warmer growing seasons develop in some parts of the country.

The economists I spoke with were somewhat divided. Charlebois felt Canada should be looking at more domestic production, not just to help consumers, but also to improve Canada’s food security and boost its export sales.

But Kelleen Wiseman, director of the master’s of food and resource economics program at UBC, noted that despite recent headaches, international supply chains have remained resilient for a wide variety of foods. As such, she said, there is no compelling reason for Canada to produce more of its own, which would be expensive.

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“We’re talking about comparative advantage. If Mexico can do it for less cost, but also less in terms of carbon and environmental strain, then that’s the way it should happen.”

Help low-income earners

The last proposal I’ll discuss is likely the quickest and most feasible intervention.

Since most Canadians have the ability to absorb higher food costs — at least for awhile —  it makes sense to focus on the households that are struggling to cope, Tombe said.

“The problem is not so much food prices but low incomes.”

Relief could be offered by bumping up payments to people on AISH or social assistance, or through a new type of transfer or tax credit for those below a certain income threshold.

“These kinds of programs are easy and cheap to administer and we leave it to individuals to decide how best to allocate those funds,” Tombe said. “When we are talking about affordability, that’s where the policy conversation should go, not interfering with the food markets overall.”

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