Canadians question grocers as food costs keep climbing

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This article was published 27/05/2023 (835 days ago), so information in it may no longer be current.

A recent survey shows Canadians are increasingly suspicious that the dramatic spike in their grocery bills can’t be justified by increased supply-chain costs related to the pandemic and other disruptions.

Of the 35 per cent of Canadians who followed the recent parliamentary committee hearings in which grocery chain leaders were grilled about food inflation, just under 33 per cent of those surveyed believed what those executives had to say. “Generally, Canadians were not overly convinced by grocers,” says the report published by the Agri-Food Analytics Lab, which is based at Dalhousie University.

Thirty per cent of survey respondents said “price gouging” is the main reason grocery bills have increased so much. Some have even referred to the phenomenon as “greedflation.”

Grocery chains refute those allegations, but it’s a matter of record that Canada’s top three grocers recently posted their best profits in years and that those profits have been rising at a pace well above the rate of inflation.

It’s a similar story in the U.S., where researchers with the University of Massachusetts Amherst dug into the correlations between prices hikes and surging corporate profits.

In their study released earlier this month, authors Isabella Weber and Evan Wasner use the more nuanced term of “sellers’ inflation” to describe what’s been taking place in the marketplace. But their results lend credence to consumer concerns.

By examining the corporate financials and listening to what senior executives told their shareholders and analysts in quarterly meetings, they found that in concentrated marketplaces, the largest companies protect their margins and grow their profits in periods of volatility or supply shocks by raising prices — because they can.

Cartel you say? Not really. This is responding the same way to the same triggers, rather than outright collusion.

In a competitive marketplace, companies compete for market share by lowering prices. However, in a concentrated marketplace where the largest players don’t need to compete, the last thing they want to do is start a race to the bottom by dropping their prices. That damages investor confidence.

“Besides a formal cartel and norms of price leadership, there can be implicit agreements that co-ordinate price hikes,” the paper says. “Sector-wide cost increases can generate such an implicit agreement: since all firms want to protect their profit margins and know that the other firms pursue the same goal, they can increase prices, relying on other firms following suit.

“If firms deviate from this price hike strategy, the threat of share sell-offs by financial investors can enforce compliance with such implicit agreements.”

These authors note that the pandemic and the related fallout by way of supply shocks set the stage for companies to ratchet up prices. This was after a long period of relative stability during which cost reductions were the main strategy for maintaining margins. For example, globalization allowed companies to source cheaper supplies and transportation logistics evolved to “just-in-time” deliveries to squeeze costs from the networks.

All the hype around supply chain bottlenecks and cost shocks during the pandemic created a backdrop of legitimacy. However, rather than inflation driving up prices, these authors suggest price increases beyond cost recovery played a role in driving up inflation.

“We are living in times of overlapping emergencies. The pandemic is not over, climate change is a reality and geopolitical tensions are mounting,” they write. “It is likely that there will be more shocks to come. If shocks hit systemically significant upstream sectors, they can initiate price increases which provide an impulse for further price hikes and ultimately inflation.”

When it comes to food items, there is little risk that consumers will simply stop buying, regardless of price. They will, at best, modify what they buy, but everyone needs to eat.

When the Agri-Food Analytics survey asked respondents what governments can do to help deal with food inflation, 44 per cent favoured some form of regulated prices on grocery store staples. A third of respondents believed more marketplace competition is the answer.

Canada’s Competition Bureau is currently studying the food industry. Its report is expected in June.

Laura Rance is vice-president of content for Glacier FarmMedia. She can be reached at lrance@farmmedia.com