Interest rate hikes have yet to bring down food prices. Here are the tools governments could try

Your grocery bill is much higher than it used to be.

The latest inflation numbers from Statistics Canada show that while overall inflation fell to 5.9 per cent in January, food prices are up 10.4 per cent compared to last year. That number is up slightly from December's 10.1 per cent.

"Since the onset of the COVID-19 pandemic, many factors have impacted prices at the grocery store, such as supply chain disruptions, labour shortages, changes in consumer purchasing patterns, poor weather in some growing regions, tariffs, higher input costs and higher wages," StatsCan said in a Nov. 2022 report about the rising cost of food. 

The report adds that Russia's invasion of Ukraine has also played a part because of the importance of both countries in food production.

The issue has proven serious enough to convince a parliamentary committee to launch a study of higher food prices and how government might address them. But experts tell CBC News governments don't have many good options to bring food prices down — although they could offer relief for the poor and hungry.

Going after the grocers

While StatsCan has pointed to a wide range of factors leading to higher food prices, NDP Leader Jagmeet Singh has blamed privately-owned corporations. Singh has labelled the rising prices "greedflation."

Singh has called for a new tax on grocery chain profits to address the issue. He said revenue from that tax could be used to help those struggling with their bills.

"Fifteen super-profitable industries — including the grocery sector — are driving inflation in Canada," Singh said in a Dec. 2022 news release.

"Prime Minister Justin Trudeau should implement a windfall tax to make these big grocery chains pay what they owe."

Canadian grocery giant Loblaw reported $529 million in fourth quarter profits earlier this week, beating analysts' expectations.

In testimony before the House of Commons agriculture and agrifood committee — the committee studying food price inflation — Jodat Hussein, Loblaw's senior vice-president of retail finance, said most of the company's profits are not coming from high margins on food. He said the company's food suppliers increased their prices, which Loblaw then had to pass on to customers.

"We are dependent on what suppliers charge us when we set our retail prices," Hussein told the committee in his December 2022 testimony.

"Fundamentally, grocery prices are up because the cost of what grocers buy from suppliers have gone up."

Hussein said the company's profits were coming from other areas Loblaw does business in, such as pharmaceuticals.

Mike Von Massow, a food economist at the University of Guelph, said the committee's questioning of grocery executives amounted to "political theatre."

"I think there's almost no evidence that the grocers are taking excessive margins right now," he said. "It's easy to blame the grocers because that's where we're feeling the pinch."

Von Massow said sales of non-food items and a higher volume of grocery sales — driven in part by people eating out less — largely account for the higher profits.

But Valerie Tarasuk, a professor in the University of Toronto's department of nutritional science, said the committee is doing important work by questioning the executives. She said there should be more government studies of how the Canadian grocery industry sets its prices.

"I think there needs to be more because I think it's a very real question ... There's a lot of mystery in terms of how big food retailers operate," she said.

"As we continue, month after month after month, to see these unprecedented levels of food price inflation, it begs the question of how come that's happening, and what does it take to get it under control?"

The government could introduce price controls on certain food products to address food inflation. The move would effectively place a limit on how expensive those items could get.

Von Massow said such a policy could lead to empty store shelves.

"So if you say to a business ... that there are two products that you can sell, one of which is price-controlled, the other one which you can make your normal margin on, you're going to see them focus on the product that is that is more likely to give them a return," he said.

Rick Barichello, a professor in the University of British Columbia's food and resource economics program, agreed that price freezes aren't a good solution.

"They don't really solve the problem of how do you get more supply on the shelves. In fact, they make that worse," he said.

Another option is to place export controls on the food Canada produces, barring it from leaving the country and possibly pushing down domestic prices.

Von Massow said such an approach could be more trouble than it's worth, given Canada's international reputation as a reliable trading partner. Export bans could damage that reputation, he said.

Yet another option is for the federal government to bring in food subsidies. The government currently does this in Canada's North through its Nutrition North Canada programs.

But Barichello said a subsidy on food products could be an expense government can't afford right now. 

"It has to be paid for by the government," he said. "With government budgets being relatively constrained, then that's a problem."

The supply management question

The federal government could also dismantle or change Canada's supply management system. The system allows the Canadian dairy, poultry and egg industries to limit supply of those foodstuffs, sets minimum prices and provides those sectors with protection from foreign competition.

Critics of supply management have said it artificially inflates food prices. Its supporters say it's necessary to financially support Canadian agriculture.

Tarasuk said it's important to note that, unlike other products on grocery store shelves, the prices of supply managed items are at least partially under the federal government's control right now.

"I think it's worth the federal government thinking through what kind of leverage it has there," Tarasuk said.

"Because to see the price of commodities like milk rising in the way that it has, from a nutrition perspective, that's very concerning."

But Von Massow said abolishing supply management would be a long and complicated affair — and would be unlikely to bring down prices significantly. He cited research he and colleagues have done on the subject.

"[It's] always worth having a conversation about supply management, but there's not a switch we can click and change that," he said.

"I think people would be surprised at how how small the the benefit of getting rid of it might be."

Tarasuk and Von Massow agreed that governments' best short-term option would be to provide targeted financial support to those affected most by food inflation, such as the poor and those on fixed incomes.

"There are a lot of people who are the working poor, people who are on assistance, people who are on fixed pensions who are struggling and already aren't eating out and already are buying as cheaply as they can," Von Massow said.

"Perhaps there would be some justification to say rather than providing a universal subsidy for everybody, we provide some some direct payments to those people who need it the most."

Long-term solutions

Governments may have to concede that there's little they can do over the short term to address rising food prices.

But Barichello said the federal government can take steps to improve the resiliency and productivity of Canadian food production and supply chains, which could lower prices over the long run. He said those efforts could include loosening border restrictions for goods and farm workers, investing in research and innovation to improve food processing and supply chains and promoting more competition in the food industry.

"Even if governments started being more active on this now, you wouldn't get any clear benefits on inflation for probably five years or more," Barichello said.

"So those are long-run things that we can be doing, and should be doing, but in the short run there's very little we can do."

Von Massow said there's another issue the government could address to bring down food prices in the longer term.

"Perhaps the best thing for us to do in the long run is to take more concrete action on climate change," Von Massow said.

"That's a big part of what's driving these extreme weather events and what's driving some of these price increases."