July 24th, 2023
Competition Bureau Report Highlights Lack of Competition in Grocery Industry
This week, Statistics Canada’s Consumer Price Index examination shows that inflation is finally starting to decelerate, with costs rising 2.8 percent, among the slowest growth in over a year-and-a-half, and near where target inflation generally should be. Many goods, including transportation and telecommunications costs, have slowed significantly. However, it likely doesn’t feel like prices are coming down if you’ve recently left the grocery store checkout. This is because, unlike other areas of the economy, food costs remain persistently high at a 9.1 percent year-over-year increase.
Many of the food items that have increased by a significant amount are staples. The cost of meat has risen 6.9 percent year-over-year, bakery products have risen by 12.9 percent, dairy products by 7.4 percent, and fresh fruit has risen by 10.4 percent year-over-year, with the price of grapes in particular rising an astonishing 30 percent month-over-month from May to June. When the costs for the most important food items required for nutrition continue to rise without a sign of slowdown, slowing inflation in other areas of the economy doesn’t make survival feel any more affordable.
What do we do to start curbing the costs of food in Canada? Obviously, there are factors that we can’t control, such as Russia’s recent cancelling of the Black Sea grain deal that may have lasting impacts on the price of bread and bakery products, but there are things that we can do to curb food inflation.
At the end of June, the Competition Bureau of Canada released its much-anticipated Retail Grocery Market Study, which examined the state of competition (or more precisely, the lack thereof) in the grocery industry, with the on-the-nose title Canada Needs More Grocery Competition. In the report, the Competition Bureau states “In recent years, industry concentration has increased, and it has become more difficult than ever for businesses to enter, expand, and compete effectively. Furthermore, the price Canadians pay for groceries has been rising fast. Factors such as higher input costs, Russia's invasion of Ukraine, and supply chain disruptions have contributed to recent increases in the price of food. But we have also seen a longer-term trend that pre-dates those events, of Canada’s largest grocers increasing the amount they make on food sales.”
The Competition Bureau has put forward four very clear recommendations that they believe will bring more competition to grocers and bring prices down. This includes: developing a Grocery Innovation Strategy that encourages new players in the market to develop different strategies for getting food to consumers, such as online shopping; federal, provincial, and territorial support for independent and international grocers to enter the market to drive competition and lower prices; having the provinces and territories introduce harmonized unit pricing requirements that would force grocers to show the cost of a product based on the standard package size, so shoppers can make an informed decision about the products they buy and the costs per size; and further asking the provinces to limit or ban property controls in the grocery industry that make it difficult, if not impossible, for new competitors from entering the market.
While the Competition Bureau’s work on this vital issue is welcome, it was focused primarily on grocery chains and the lack of viable competition that is holding affordable food back from consumers. Canada needs to develop a National Food Strategy that addresses the costs and accessibility of nutritious food. As part of this strategy, it’s imperative that the federal government connect farmers with local food hubs and develop networks to increase the amount of food that is sold in local and regional markets. This could cut costs significantly for farmers and producers to get their products to market and sell locally to people who would be more than happy to buy affordable, locally produced food. It would allow farmers and producers to cut large grocery chains out of their financial equation, getting their products directly to consumers.
Also, while the Competition Bureau has recommended harmonizing sales prices, it may also be worth considering combating the practice of multiple purchase discounts (or volume rebates). Instead of applying a discount to an individual product, this initiative tends to pressure consumers to buy the same item several times simply to benefit from a discount on the retail price. This practice can lead to more food waste and disadvantages those who live on a fixed income.
If food inflation continues to persist, it might be time to try broader solutions that allow Canadians to bypass grocery chains as much as possible.