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Home Business Interest rate hikes have yet to bring down food prices. Here are the tools governments could try

Interest rate hikes have yet to bring down food prices. Here are the tools governments could try

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Your grocery bill is much higher than it used to be.

Overall inflation fell to 5.9% in January, but food prices were up 10.4% from last year, according to Statistics Canada’s latest inflation figures. This number is up slightly from his 10.1% in December.

“Since the beginning of the COVID-19 pandemic, many factors have impacted food supply, including supply chain disruptions, labor shortages, changing consumer buying patterns, adverse weather conditions in some growing regions, tariffs and rising input costs. has affected the prices of goods stores. Wages,” In its November 2022 report, StatsCan said of food price increases:.

The report adds that Russia’s aggression against Ukraine has also played a role, due to the importance of both countries in food production.

The problem has proven serious enough to persuade a congressional committee to launch an investigation into rising food prices and how the government is dealing with it. But experts tell CBC News that governments don’t have many good options for lowering food prices.

chase the grocery store

StatsCan has pointed to various factors leading to higher food prices, but NDP leader Jagmeet Singh blames the private sector. Singh called the price rise “great flation.”

Singh called for a new tax on grocery chain profits to address the issue. He said the proceeds from that tax could be used to help people struggling with their bills.

“Fifteen highly profitable industries, including the food sector, are driving inflation in Canada,” Singh said. As stated in the December 2022 news release.

“Prime Minister Justin Trudeau needs to introduce a windfall tax to make these big grocery chains pay for what they owe.”

Canadian grocery giant Loblaw earlier this week reported a fourth-quarter profit of $529 million, beating analyst expectations.

Meat prices displayed in grocery stores in Surrey, British Columbia in January 2023. A House committee is investigating food price inflation to address rising prices. (Justin Boleyn/CBC)

In testimony before the House Agriculture and Agri-Food Committee (the committee that studies food price inflation), Jodat Hussein, Loblaw’s senior vice president of retail finance, said most of the company’s profits came from high profit margins on food. He said the company’s food suppliers had raised prices, which Loblaw had to pass on to customers.

Hussein told the commission in testimony in December 2022 that “it depends on what the supplier charges when setting the retail price.”

“Fundamentally, food prices are rising because the cost of what grocers buy from their suppliers has gone up.”

Hussein said the company’s profits come from other areas in which Loblaw operates, such as pharmaceuticals.

Mike von Matthau, a food economist at the University of Guelph, said the committee’s questioning of grocery executives amounted to “political drama.”

“I think there is little evidence that grocers are making excessive profits right now,” he said. .”

Von Massow said the increase in non-food sales and food sales was partly due to less eating out.

But Valerie Tarasque, a professor of nutrition at the University of Toronto, said the committee does an important job by questioning officials. He said there should be more government investigations into whether

“I think it’s a very real issue, and I think there needs to be more… There’s a lot of mystery in terms of how big food retailers operate,” she said. said.

“As we continue to experience unprecedented levels of food price inflation month after month, the question arises as to why it is happening and what is needed to control it.”

Governments may introduce price controls on certain foods to combat food inflation. This move will effectively limit how expensive those items can be.

Von Massou said such policies could lead to empty store shelves.

“If you say in your business… you have two products, one of which is price controlled and the other can get a normal profit, watch them focus It’s a product you’re likely to return,” he said.

Mike von Massau, a food economist at the University of Guelph, says many of the government’s options for lowering food prices have shortcomings. (Yoon Hanna/The Canadian Press)

Rick Barrichello, professor of food resource economics at the University of British Columbia, agrees that price freezes are not a good solution.

“You can’t really solve the problem of how to put more products on the shelves. In fact, it makes the problem worse,” he said.

Another option is to impose export controls on Canadian-produced food, banning it from leaving the country and driving down domestic prices.

Von Massaud said such an approach could be more trouble than it’s worth given Canada’s international reputation as a reliable trading partner. He said it could damage his reputation.

Another option is for the federal government to introduce food subsidies. The government is currently doing this in Northern Canada. Nutrition North Canada Program.

But Barrichello said food subsidies could be a cost the government can’t afford right now.

“It has to be paid for by the government,” he said. “It’s a problem because government budgets are relatively limited.”

supply management issues

The federal government can also dismantle or change Canada’s supply management system. This system allows the Canadian dairy, poultry, and egg industries to limit the supply of these foods, set minimum prices, and protect these sectors from foreign competition.

Critics of supply management say it artificially drives up food prices. Its proponents say Canada’s agriculture needs to be financially supported.

Tarasuk said it’s important to note that, unlike other products on grocery store shelves, prices for supply-controlled items are now at least partially under federal control. said.

“I think it’s worth looking at what influence the federal government has there,” Tarrasque said.

“When we see the prices of commodities like milk going up, it is very concerning from a nutritional point of view.”

But von Massaud said eliminating supply controls would be a long and complicated issue and was unlikely to bring prices down significantly. He cited research he and his colleagues had done on the issue.

“[It’s] It’s always worth discussing supply management, but there’s no switch you can click to change it,” he said.

“I think people will be surprised at how small the benefit is from removing it.”

Tarasuk and von Massow agree that the government’s best short-term option is to provide targeted financial support to those most affected by food inflation, such as the poor and those on fixed incomes. Did.

“There are a lot of working poor, people on aid, people on fixed pensions who are struggling and are no longer eating out,” said von Massaud.

“There may be good reason to say that instead of offering a universal subsidy to all, we are offering some direct payments to those who need it most.”

long term solution

Governments may have to admit that there is little they can do in the short term to deal with rising food prices.

But Barrichello said the federal government could take steps to improve the resilience and productivity of Canada’s food production and supply chains, which could lower prices in the long run. , said these efforts could include easing border restrictions on commodities and farm workers, investing in research and innovation to improve food processing and supply chains, and promoting competition in the food industry. said.

“Even if the government were to start working more aggressively on this now, there would probably be no clear benefit to inflation for five years or more,” Barrichello said.

“So these are things we can and should do in the long term, but there is very little we can do in the short term.”

Von Massaud said there are other issues that governments can address to bring down food prices in the long run.

“Perhaps the best long-term course is to take more concrete action on climate change,” said von Massaud.

“That’s a big part of what’s driving these extreme weather events and what’s driving some of these price increases.”

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