Thank you, Mr. Chair.
I want to first thank the committee for this opportunity today and to express our hope that this study will properly examine the root causes of inflation, its global context and its many contributing factors.
One problem with Canada's lack of modern experience with inflation is that some commentators are rushing to judgment when we would be best served by looking at the problem in all its complexities. When it comes to food price inflation, the issue needs to be understood from the ground up, both figuratively and literally.
The reason that prices have risen sharply on grocery shelves is straightforward: The manufacturers, processors and wholesalers of food have been raising rates repeatedly and almost across the board. Vendors’ own costs are soaring, primarily because prices from farmers, growers and importers have been increasing at unprecedented rates. Farmers in turn have faced massive cost increases for fertilizer, diesel fuel and feed, among others things.
We are experiencing a unique confluence of events—war, extreme weather, and soaring fuel prices—piling on top of supply chain disruptions and in some cases labour shortages. Some of these factors affect all Canadian industries, but others are quite specific to or more concentrated in food production and distribution than elsewhere.
The single biggest identifiable villain is Putin’s invasion, striking at the grain and fertilizer exports of two of the world’s largest producers—Ukraine and Russia—and driving up global prices for these commodities. Grain is critical for staples like bread, pasta, cereals and oils and for the majority of products in the core aisles of grocery stores. Of course, grain also serves as feed for most animals raised for meat or for producing eggs and dairy.
Drought and heat have hammered the fruit- and vegetable-producing regions on which Canada most relies, especially in California but also in the Canadian west. That impacts not only the fresh produce section but also canned, frozen and preserved vegetables and fruits, sauces, juices and anything in which these are ingredients.
You already know the story of dairy and eggs and how the supply management boards have identified rising fuel, feed and fertilizer costs as the basis for unprecedented price increases. I could also speak to the spiking cost of packaging and shipping, and the decline in the value of the Canadian dollar, which is of increasing importance.
This committee is to be commended for looking at some of these root causes, including the recent study on the impact of the Ukrainian invasion and further work on issues related to climate change, but there are those, in both politics and media, who have deliberately sought to link inflation in the public mind to grocers’ earnings, so let’s briefly touch on that.
Grocery is a high-volume, low-margin industry, the profits from which need to be looked at in percentage terms, not nominal dollars. Inevitably, in an inflationary environment and with a growing population, the dollars are going to increase over time, but it's the percentages that matter. Viewed in that light, grocery earnings of 2%, 3% and 4% are stable and within historic norms. They're also significantly lower than in most Canadian industries when compared with big food-processing companies, which typically earn profit percentages in the mid to high teens, and they're lower lower than the Canadian net farm income average of 5.4%.
On the grocer side, such profit growth as there has been mainly derives from pharma, health and beauty, not from food, and certainly not from food staples, in which profitability is flat. There are some folks for whom any level of profit is suspect ideologically, and I don’t suppose I'm going to dissuade them. I would suggest that anyone interested in investment and employment, or who will receive the Canada pension plan, or who has an RRSP, workplace pension or education savings plan, should be keenly interested that there be at least some profit from business activity and reject as absurd the notion that profits in the 2% to 5% range are in any way out of the ordinary.
Let's avoid the rush to judgment, look at the whole picture and factor that into any policies and commentary.
Thank you.