Agriculture Committee on March 20th, 2023

[John Barlow, Conservative, Foothills, AB]

Thanks, Mr. Boxall.

Mr. Terrazzano, I appreciate your comments as well, and maybe it's the same question to you. You were talking about the impact on trucking and farmers, and those types of things. When that carbon tax is tripled—$150,000 of carbon tax for an average 5,000-acre farm—I know you can't definitely say what the impact would be, but how are your members going to manage those additional costs? Are they going to have to pass that on to customers?

[Franco Terrazzano]

That's a great question. It's tough to say just how much pain that's really going to cause.

Look, everyone knows that farmers aren't just pools of cash who can continue to pay higher tax after higher tax after higher tax. Really, only two things can happen: either at least some of the costs make their way to the till and hurt families who are struggling to afford the jug of milk or the ground beef; or supply goes down. What happens when we reduce Canadian supply? Prices, of course, go up. Even if we leave the farmers aside for a quick second, we're also seeing the increased costs of delivering those goods to the store—the carbon tax going up, and a second carbon tax coming in. All of this is being layered on top of each other. It's hurting Canadian businesses, but it's also hurting Canadian families.

[John Barlow, Conservative, Foothills, AB]

What impact is the increase in the carbon tax and transportation, fertilizer, inputs, having on groceries specifically? Has the CTF done anything in terms of that? Maybe Ian could answer this question as well.

If the carbon tax goes to that $150,000, or is tripled, do we have an idea of what the impact will be on grocery prices?

[Franco Terrazzano]

Well, I think the best analysis that has been done is by the government's own independent budget watchdog, the PBO. It looks at all of the costs from the carbon tax compared to the rebates. This year alone, the carbon tax will cost the average family between $402 to $847, even after the rebates. That's an annual cost, and it will continue to go up and up through 2030.

[John Barlow, Conservative, Foothills, AB]

I have an interesting bill here that's actually not from one of my constituents, but somebody else in Alberta, and they're sending me their gas co-op bill. Their natural gas was about $2.39 per gigajoule, and the federal carbon surcharge was $2.63 per gigajoule, so actually they're paying more in the carbon tax than they are for the actual fuel. Is this a common story you're hearing from some of your members?

[Franco Terrazzano]

We hear from so many people, especially during the cold winter months, that it's very difficult to swallow that type of bill, because we're talking about the necessities in life. We're talking about people having to pay more to fuel up their car to go to work or to keep their homes warm during the cold winter months. What's so damaging about the carbon tax is that we are punishing people for the necessities in life.

[John Barlow, Conservative, Foothills, AB]

Thank you very much.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Barlow. We're at 10 seconds.

Now we have Ms. Taylor Roy for up to six minutes, please.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you very much, Mr. Chair, and thank you to the witnesses for being here today.

I found it very interesting, Professor Lee, to hear you talk about evidence-based research. As one of the facts you used, you said that there could be no “greedflation”, or there could be no excess profits, because Canada's food inflation is below the OECD average, yet our other two witnesses are arguing that it is in fact the Canadian price on pollution that is causing this food inflation.

I'm interested to hear, from an evidence-based perspective, how those two things reconcile. How is it that our food inflation is less, with our price on pollution taken into consideration, than the OECD average, yet the price on pollution is being blamed for the increase in food prices?

[Dr. Ian Lee]

They're two different issues. The OECD average, of course, is the average of the different countries, and we are below the average, because there are countries above the average. I specifically cited France, the U.K. and Germany, which are significantly higher. Their cost structure is even higher than Canada's. I haven't looked that deeply. I've certainly looked at European countries, and especially Germany and the U.K. They have a higher—

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

I understand that, Professor Lee, but you use that very fact to say there could be no excess profits in Canada because we're below the OECD average. I don't know how it can be argued one way and the other.

I want to go back to some evidence-based research.

I was looking, Mr. Terrazzano, at the increase in the price of a litre of gasoline between 2021 and 2022. In fact from May 2021 to May 2022 it went up about 61.2 cents on average across Canada. During that same period, the price on pollution increased by 2.2 cents per litre. That left about 59 cents of increase in the average cost of gasoline across Canada. It seems to me that's less than 3% of the total price increase, so why is it that you are saying the entire problem lies with the carbon price on pollution?

[Franco Terrazzano]

Oh, it's not the entire problem. We also saw the Bank of Canada print hundreds of billions of dollars right out of thin air, so it's not the only problem.

I mean, look, the whole point of the carbon tax, the whole—

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

No, I don't.... Excuse me, but I'm asking a specific question—

[The Chair, Liberal, Kody Blois]

Excuse me here, Ms. Taylor Roy.

Mr. Terrazzano, it is the member's time. I will certainly allow her to ask a question. There is some natural jostling back and forth, but if the member would like to go down a different line of questioning after you've had an adequate chance to respond, I have to let her do that. We will try to make sure we institute that accordingly.

Ms. Taylor Roy, I'm going to turn it back to you.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

In fact, when you look at the charts, what made up the increase was crude oil prices and wholesale margins on refining. It wasn't the Bank of Canada printing money. It wasn't the price on pollution.

How do you explain that?

[Franco Terrazzano]

The whole point of the carbon tax, with respect to the member, is to increase the price of gasoline. Quite frankly, I think the government must be patting itself on the back every time it drives by a Shell station and sees high gas prices—

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Excuse me, Mr. Terrazzano, but you're not answering the question, once again. I asked you about the 59-cent increase in the average price of gasoline over that period. While 2.2% was due to the price on pollution, 59 cents was due to the increase in crude oil prices and wholesale margins, so why aren't you focusing on that issue when you're talking about the increase in prices?

[Franco Terrazzano]

Well, with respect to the member, I think members of Parliament should control what they can control, and the number one thing that you can control is how much tax you take away from struggling families, many of whom are worried about both the price of ground beef and a jug of milk and how they're going to fuel up their car on the way to work, and—

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you. It's not my position, but thank you very much. It's a minimal amount of the increase there, but that's interesting to note.

I also want to go back to you, Professor Lee, about the emphasis that's being put on the profit margin. I don't see consumers going to grocery stores and talking about profit margins. I see them talking about actual prices, and when shareholders and executives are getting compensated, they're getting compensated in dollars that are coming from the absolute profits that are being made by these grocery stores, these chains, not by the profit margin.

Just so you understand, I have a background in finance and business, so I understand the evidence-based research, but why is it that you feel that creating shareholder value and focusing only on shareholder value and not on the other stakeholders—like the customers or the people who work in the stores—is a valid way to operate a business?

[Dr. Ian Lee]

Well, actually, I don't. For 35 years I've taught what Michael Porter believes and Joseph Schumpeter believed, which is that firms do not exist to make profit. They do not exist to maximize shareholder wealth. I've been teaching this in every course for 35 years. Firms exist to create a product or a service that we consumers want to buy, and if they are successful at value creation for the consumer, then, yes, their profits will go up and their market share will go up, but that is an outcome of successful value creation.

No, I do not celebrate shareholder-value maximization. I've been a critic of it for a third of a century. The purpose of a firm is to create products or services that you and I wish to buy and then to try to differentiate its products, through innovation, to do that, and to create a better mousetrap or a better iPhone.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Yes, okay. Thank you very much, Professor Lee.

[The Chair, Liberal, Kody Blois]

Thank you, Ms. Taylor Roy.

Unfortunately, we're at time. Thank you, Professor Lee.

Mr. Perron, you now have the floor for six minutes.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Thank you, Mr. Chair.

I'd also like to thank the witnesses for being here.

Mr. Terrazzano, I got the gist of your speech about carbon pricing. Countries obviously need to strike a balance between imposing measures to reduce pollution and, as you explained it so well, not bringing up the inflation rate by imposing a tax when there's no other alternative.

The committee has considered Bill C‑234, and it's currently on third reading in the House. If it passes, the farming community will have access to more exemptions for things like drying grain and heating certain buildings.

Do you feel the bill will address some of the issues?

[Franco Terrazzano]

I'm very supportive, yes. Thank you.

I mentioned a Parliamentary Budget Officer report that noted that the carbon tax on propane and natural gas will cost farmers about $1 billion through 2030. I think that it is a very good step in the right direction to help provide some relief at a very important time.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

The challenge is striking a balance. Action must be taken to reduce greenhouse gas emissions. If we do nothing to protect the climate, in a few decades global warming will be even worse. At that point, the inflation rate could go up again.

Do you feel it's possible for a government to take steps like those in Bill C‑234, which lessen the carbon tax impact on certain sectors and keep it in others? It would send a message in those sectors for which there are alternative solutions.