Recently the leaders of the five largest companies selling food and beverage in Canada were summoned to Ottawa by our federal politicians. The purpose of the meeting was to find opportunities to make food more affordable for Canadians. My first reaction was this is a photo op. But full disclosure. I did work for one of these companies in the past, so I decided to focus on some numbers and then come to a fact-based conclusion.

 

My second reaction was we should be celebrating our Canadian food and beverage industry. We have just been through a challenging time and the entire value chain worked so hard to get food to stores and to Canadians. The system is not perfect and there is always work to be done. However, we need leaders in Ottawa and others to celebrate and promote a robust, sustainable food production and processing industry. Not focus on pitting one member of the value chain against another.

 

Food is a global discussion

 

It is true food inflation in Canada has increased and Canadian consumers are experiencing higher grocery bills every week at the store. Hopefully the peak was reached in the summer of 2023, and we will begin to see the year-over-year increases subside. According to Statistics Canada, food purchased from stores was up 6.9 per cent in August, 2023 from the previous year, which is a drop from the July number of 8.5 per cent.

 

To jump to the conclusion this is a Canadian issue is a major mistake. The first place our leaders should look is how we measure up against other nations. Food inflation has been a challenge everywhere due to supply chain issues, geo-political crises and a challenging climate to produce food. To compare Canadian food inflation, we were able to explore the monthly food inflation in a number of countries.

 

	Oct 22	Nov 22	Dec 22	Jan 23	Feb 23	Mar 23	Apr 23	May 23	Jun 23	Jul 23	Aug 23
Canada	10.1	10.3	10.1	10.4	9.7	8.9	8.3	8.3	8.3	7.8	6.8
United States	11.0	10.6	10.4	10.1	9.5	8.5	7.7	6.7	5.7	4.9	4.3
United Kingdom	16.7	16.7	17.0	17.0	18.5	19.8	19.5	18.9	17.5	15.0	13.5
France	13.2	13.3	13.1	14.4	16.1	17.2	15.9	15.0	14.3	13.2	11.6
Germany	20.3	21.0	20.4	20.2	21.8	22.3	17.2	14.9	13.7	11.0	9.0
Mexico	14.5	12.4	12.7	12.8	12.3	11.0	10.0	9.1	7.7	7.3	6.8
Japan	6.4	7.5	7.9	7.8	8.1	8.3	9.2	9.6	9.8	10.1	10.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: https://thedocs.worldbank.org/en/doc/40ebbf38f5a6b68bfc11e5273e1405d4-0090012022/related/Food-Security-Update-XCIII-Oct-12-2023.pdf

 

It is apparent food inflation is an issue in almost every country in the world. Overall, Canada has followed a similar trend to our major trading partners. The United States has been able to reduce its food inflation faster than other countries but to understand why, take a look at currency.

 

Over the past two years the U.S. dollar has gained considerable strength against the Canadian dollar. Retailers and others in the Canadian food and beverage value chain must buy products or ingredients from U.S.-based companies.

 

When compared to other countries, it does not appear retailers selling food and beverage in Canada are treating consumers differently than other countries.

 

Lower food prices require work throughout the value chain

 

Another obvious clue our leaders do not understand the food and beverage industry is that they focus only on retailers. Yes, they are the largest and easiest targets, but it doesn’t make it right. Retailer gross margin is one indicator of the profit they are making, relative to the prices they are paying. The following chart illustrated retailer margin as reported in their respective financial statements:

 

 

	2019	2020	2021	2022
Loblaw companies	29.8	29.4	30.9	30.6
Empire (Sobeys)	N/A	24.9	25.5	25.4
Metro	N/A	N/A	20.0	20.0

 

Source: www.loblaw.ca, www.empireco.ca, www.corpometro.ca

 

It is true retail margins increased in 2021. Canadians were home most of the year due to the pandemic and bought more food online. They did not compare prices as much and shopped fewer stores to reduce their time outside their home. They also bought a different mix as food service was reduced significantly. The difference in margins from one retailer to another is based on mix. For example, Loblaw would include Joe Fresh clothing and more pharmacy margins with Shoppers Drug Mart.

 

Food inflation is one number that requires a huge amount of data to calculate. If our leaders were serious about reducing food inflation, they should find the categories with the biggest increases and focus there. According to Statistics Canada the largest changes in year-over-year prices were in breakfast cereals, pasta, edible fats and oils, sugar and confectionary and beef. A true analysis would focus on these categories to understand what is driving up prices in these parts of the store.

 

	June 2023	July 2023	August 2023
Food purchased from stores	9.1	8.5	6.9
Fresh or frozen beef	9.4	8.8	11.9
Fresh or frozen pork	2.3	2.2	-0.9
Fresh or frozen poultry	8.1	13.7	8.9
Fresh or frozen fish	4.8	2.0	3.1
Milk	6.5	6.2	6.0
Eggs	8.9	3.3	3.6
Bread rolls and buns	11.6	8.1	5.9
Breakfast cereal	14.8	14.6	10.3
Pasta	8.3	17.1	12.8
Fresh Fruit	10.4	4.1	-0.2
Fresh vegetables	8.2	9.2	8.7
Coffee and tea	7.3	5.8	9.0
Sugar and confectionary	9.3	8.0	10.9
Edible fats & oils	19.4	15.5	13.1

 

Source: https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810000403&pickMembers%5B0%5D=1.2&cubeTimeFrame.startMonth=06&cubeTimeFrame.startYear=2023&referencePeriods=20230601%2C20230601

 

It was also interesting to note only food retailers were being called to the meeting. Our food industry in Canada is split between food retail and food service. No doubt food service was impacted during the pandemic but according to Farm Credit Canada, the split between retail and food service is now back to pre-pandemic levels. In Canada, we are close to a 60-40 split with retail making up the larger portion. If our leaders in Ottawa were serious about food inflation, they probably should have included some food service operators. According to Statistics Canada the inflation in food service was the following:

 

	June	July	August
Food sold in grocery stores	9.1	8.5	6.1
Food purchased from table service restaurants	6.1	5.8	6.0
Food purchased from fast food restaurants and take out	7.3	6.5	6.2

Source: Statistics Canada

 

A more thorough analysis would also include the cost of operating in Canada relative to our major trading partners. Regulatory costs, taxes, carbon taxes and other expenses need to be compared by category to really understand the issue in depth.

 

 

Photo op or legitimate concern?

 

Photo op.

 

Relative to our major trading partners, our food inflation issue was no worse and in many cases consumers here are better off. The United States has improved faster however part of Canada’s challenge could be currency.

 

Our leaders should focus on true change.

 

Prices are not just a retailer issue. By forcing retailers to ‘come to the table’ the suppliers will be forced into change. Retailer’s bottom lines are big dollars but low percentages. They will not reduce their bottom line so lower prices will come out of suppliers or with reduced costs in the retailer’s business. I know where my bet is.

 

Our leaders should explore Canadian content in categories. This will increase volume and provide more opportunities for Canadian businesses and Canadian workers.

 

Consolidation in Canada is an issue, especially when compared to markets such as the United States. This needs to be addressed and it will take time. We should be finding incentives for Canadian-based retailers to start. Enticing an international retailer to come to Canada will just make it more difficult for suppliers. We need Canadian-based solutions, not international discounters.

 

It would be refreshing to see a value chain-focused approach with the facts applied. We should celebrate the people who produce and distribute food with focus on change to improve the system. Photo ops are a waste of time.