This article originally appeared in the Ottawa Citizen.
By Aaron Wudrick, September 21, 2023
The soaring price of groceries has left Canadians feeling frustrated and financially stretched. There can be few more anxiety-inducing problems than worrying about whether you can afford to feed your family; or having to choose between groceries and other basic necessities such as heating and medications.Most agree that rising grocery prices, and rising prices generally, are caused by a confluence of factors including the pandemic, the war in Ukraine, and loose fiscal and monetary policy, which have in turn fuelled the highest levels of inflation in decades.However, rather than acknowledging these underlying causes of higher grocery bills, the Trudeau government and its NDP partners point the finger squarely at an all-too-convenient scapegoat: greedy grocery store CEOs, who have allegedly conspired to gouge consumers.
Last year, the Competition Bureau conducted a market study calling for more competition in the grocery sector. While this is generally sound advice, the bureau struggled to identify any significant government-imposed obstacles to competition, other than the use of property controls (i.e.: zoning), which make it harder for new stores to open. The bulk of the bureau’s study amounted to little more than calls for the government to simulate additional competition by offering subsidies and other interventions.
At this point, we need to remind ourselves that consumers benefit in a competitive market where prices tend to decrease as businesses vie for market share. Policymakers should encourage competition on the basis that it benefits consumers.
In the case of grocery stores, the sudden clamour for more competition has arisen because prices have suddenly surged. The leading explanation, first peddled by NDP leader Jagmeet Singh, and now by the Liberals, is that grocery CEOs woke up one morning and decided to raise prices en masse. While this is theoretically possible, it raises the obvious question: if a small number of chains have the awesome power to simply raise prices at will, why did they only start doing it recently?
Unless there is concrete evidence of collusion among grocery stores (as there was in the case of the 2018 bread price-fixing scandal) this is less a genuine explanation than cheap political grandstanding.
For the Trudeau government, that grandstanding serves as a useful distraction from an uncomfortable reality: The absence of more players in the grocery market is due to the fact it’s a tough business to be in. Notwithstanding headlines about “record profits,” the unglamorous reality is that grocery retailers operate on razor-thin profit margins, with more competitors than protected sectors such as airlines or telecommunications. Grocery stores themselves argue that their most profitable lines of business aren’t from groceries: Loblaws, for example, claims its Shoppers Drug Mart subsidiary is its true cash-cow, making handsome profits from sales of non-food items like cosmetics and over-the-counter medications.
If a lack of competition is not the explanation for recent price hikes, what might be? Policymakers at all levels need to look in the mirror, because government policy plays a major role in exacerbating this problem. Provincially, minimum-wage hikes in recent years have contributed to significantly higher labour costs. Federally, profligate government spending has forced the Bank of Canada to raise interest rates, which affect not just residential housing costs but also commercial rents. Higher payroll taxes shrink business margins. And federal carbon taxes, whose proceeds are rebated primarily to consumers, not businesses, raise costs all along grocery supply chains.
In governments’ pursuit of other policy objectives — higher salaries, a more generous social safety net, controlling inflation and fighting climate change — the trade-off has been higher costs for businesses, which are passed down to consumers. After all, CEOs are an easy bunch to vilify.
In spite of this, there is a glimmer of hope. The Trudeau government recently announced that it was eliminating GST on the construction of new rental housing. This is the closest it has come to acknowledging that taxation impacts costs. it should apply the same logic to other areas that have seen price increases, including groceries.
Governments are right to be seized with affordability. But the first step in addressing has to be acknowledging their own contribution to the problem.
Aaron Wudrick is the domestic policy director at the Macdonald-Laurier Institute.