Thank you.
On behalf of the Retail Council of Canada and its members, I want to thank the committee for the opportunity to provide a grocery industry perspective to your study on inflation. I also want to express our hope that this study will properly examine the root causes of inflation, its global context and its many constituent parts.
Here in Canada, we have little contemporary experience with inflation, which has been at historic lows for over 30 years. One problem with this lack of modern experience is that some commentators are rushing to judgment or seeking to play the blame game for their own purposes, when we would be far better served by looking at the problem in all of its complexities. When it comes to food price inflation specifically, the issue needs to be understood, both figuratively and literally, from the ground up.
The reason that prices have risen sharply on grocery shelves is a straightforward one. Vendors—the manufacturers, processors and wholesalers of food—have been raising rates repeatedly and almost across the board. That's overwhelmingly the biggest driver of higher prices on the shelf. That's not to castigate the vendors; it's simply a statement of fact.
Why are these vendors' prices rising so rapidly? It's because vendors' own costs are soaring, primarily because prices from farmers, growers and importers have been increasing at unprecedented rates. The farmers themselves have been hit hard, facing massive cost increases for fertilizer, fuel and feed, among many others.
What we have experienced—or what we are experiencing still to some degree—is a unique confluence of events: war, extreme weather events and soaring fuel prices, all piling on top of the supply chain disruptions and labour shortages that arose during the pandemic.
The single biggest identifiable villain is Vladimir Putin's invasion, which has struck at the grain and fertilizer exports of two of the world's biggest producers, and that has had effects on the price of fuel. Ukraine and Russia are the most affected, of course, but this has driven up the global price for these commodities.
Grain is critical, not only for bread and staples such as pasta, cereals and cooking oils, but also as the base for the majority of products in the core aisles of grocery stores. Also, very importantly, grain serves as feed for most animals raised for meat or for producing eggs and dairy.
Simultaneously, scorching weather and drought have hammered the fruit- and vegetable-producing regions on which Canada most relies, especially in California but also in the Canadian and American west more generally. That impacts not only the fresh produce section but also canned, frozen and preserved vegetables and fruits, sauces, juices and anything else in which these are ingredients. Drought and extreme heat also impact the availability of pasture land on which to graze animals.
Dairy is supply-managed, so the wholesale price is set here in Canada. It rose by 10.9% cumulatively in 2022. Again, the government-established Canadian Dairy Commission has responded to rising costs at farm level for feed, fuel and fertilizer, which are then passed on first to processors and then to grocers.
I could also speak to the rising cost of packaging, shipping, the role of the declining Canadian dollar, which is becoming more significant, and the severe labour market shortage both here and abroad.
Dire though this confluence of events is, there are some signs that the pace of inflation could abate, with August likely having been the high point.
Grain is finally getting out of Ukraine, and fertilizer and grain out of Russia, under a United Nations-brokered deal, though there's still a major backlog to be cleared. Fuel costs, though still high, have receded by close to 30% since their peak a year ago. Cooling temperatures this fall could provide some relief to parched vegetable-, fruit- and grain-growing regions.
There's still uncertainty as to when exactly prices will stabilize and, of course, there are some big geopolitical and climatic risks. What's critical, both for industry and government, is to look at the whole picture, not just the surface, and to factor that into any policy approaches and commentary.
Thank you.
