People shop in the produce area at a Loblaws store in Toronto on May 3, 2018.Nathan Denette/The Canadian Press
Vass Bednar is the founder of Regs to Riches, a senior fellow at CIGI, and the executive director of McMaster University’s master of public policy in digital society program.
Price controls aren’t popular for businesses, but earlier this year the country’s largest grocer voluntarily froze prices on one of its private-label brands. For three months, Loblaw locked in the prices of more than 1,500 grocery items in its in-house No Name line. While there was some backlash to the announcement, with competitors claiming that a price freeze for some grocery products between November to February is an industry practice, it was still a useful intervention that drove price-conscious consumers to Loblaw-owned stores.
But with families trying to get a handle on their grocery spending, we shouldn’t rely on one company using its relative market power to pause price hikes – price controls are more effective when they are mandatory across an entire sector.
We need to make better efforts to control grocery price hikes. The government should create a temporary price ceiling on a selection of core grocery goods – including items for babies and pets – and compel compliance from major grocers, perhaps through their private-label products.
The novel decision by Loblaw to freeze prices was evocative of France’s temporary “anti-inflation” basket, which was a selection of food items determined by the retailer with the lowest possible price. But the businesses didn’t do this out of random benevolence. The prospect of formal government regulation had motivated voluntary price freezes from a range of stores.
In turn, the inspiration for France’s intervention came from Greece. Last year, its conservative government passed a law requiring stores to have at least one product in 31 food categories at a lowered price. This amounted to about 50 basic goods that included olive oil, baby formula and pet foods. It was a temporary emergency measure that was intended to both contain price hikes by companies and scale back future increases. The Greek government then went even further – paying food bills for millions of citizens as it covered about 10 per cent of food expenses for six months by taxing the surplus profits of the country’s two oil refiners.
In an effort to address how impractical grocery budgeting has become, the Canadian government introduced a form of targeted inflation relief on the demand side through the new Grocery Rebate for consumers, which was issued in early July. But nothing tangible has been done to target the supply side and change corporate behaviour. Market power is pricing power.
The latest inflation report suggests that bank rate hikes aren’t affecting food prices in Canada, which have already soared by 18 per cent over the past two years. This inflationary period is especially pronounced for those with lower and fixed incomes: Food banks are at a breaking point. While the rate of inflation will slow, it is not anticipated that food prices will drop – ever. The Bank of Canada recently acknowledged corporate pricing behaviour, observing that what it has “seen through this period of high inflation is companies increasing prices much more frequently – and by more.”
While the swiftness of the targeted cash payment from the government is laudable, it is also time-bound and targeted. Worst of all, it doesn’t address the structural problem of a concentrated grocery sector – if anything, it acts as a public subsidy for private profit-making. More Canadians would benefit from more affordable groceries – or at least prices that they can predict and plan for. What many people need is some guarantee of price stability.
Price controls aren’t a new idea. Pierre Trudeau introduced the Anti-Inflation Act in 1975, which imposed price controls for three years. In 1971, the 90-day “Nixon shock” froze wages and prices. But the latter has been cited as a catalyst for stagflation – why should this time be any different? For one, the landscape is more consolidated and second, the intervention is for a subset of goods, not an entire marketplace.
We have a familiar instance of price control, and that is rent control and moderated annual rent increases. In the past, we have even turned to rationing when we understood that the market would not solve for scarcity.
Canada is dancing around mechanisms to tame corporate power and finally reviewing an outdated and toothless Competition Act. But Canadian families need some stability now. These grocery companies have returned enormous value for their shareholders. It’s time to return some of that value to everyday people by crafting public policy that helps keep money in people’s pockets.