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Competition Bureau's food price study lacks power to compel grocers, expert warns

Not only does a study on food prices from the Competition Bureau lack investigative power, it may be working off an overstated premise, says a UBC-based food and commodity expert.
Food prices are up 10.3 % annually to September, 2022, across Canada.

One of British Columbia’s leading experts in food costs says a Competition Bureau study into grocery store prices announced Monday is unlikely to bear much fruit since it lacks enforcement powers.

James Vercammen, a food and resources economist at the University of B.C., further suggests rising grocery store prices are more a function of supply chain factors, rather than price gouging by grocers, which will be the focus of the study.

“My take on it is that the inflationary factors are basically working through the supply chain, right from the farm level, to the food manufacturers, to trucking, warehousing, containers, packaging; everything is kind of working itself through, and retailers are taking the blame for it, because it's easy to pick on the last person who sets the price,” says Vercammen.

The Competition Bureau will examine the extent of higher grocery prices being a result of competitive dynamics.

“In this study, we will focus on competition in the grocery sector and why prices are so high right now. Some people say it is because inflation has made it more expensive for grocers to buy the products that they sell. Others say that grocers are charging higher prices because they do not face enough competition,” stated the bureau, an independent federal law enforcement agency.

Vercammen’s primary area of study is commodity prices and he says higher raw commodity prices are not the biggest inflationary causes. Furthermore, entrenched expectations of inflation are also causing soaring prices.

“Once you become convinced that inflation is permanent, then you demand that your price gets higher, and when everyone does it at once you get these surges,” said Vercammen.

The bureau’s market study is not an investigation into any specific allegation of wrongdoing and does not have formal powers to compel information from retailers — something that Vercammen says will limit the study’s outcome even if there was price fixing or competition factors.

Vercammen said given the evidence before him that shows grocers have not been the key source of food price inflation, he wonders to what extent political and public discourse has put pressure on the bureau to conduct the study.

Vercammen noted Canada’s bread price fixing scandal still looms over the public dialogue on grocery store prices. A class-action lawsuit against big retailers was reportedly approved last January and the bureau has not yet closed its investigation.

But, said Vercammen, today’s food prices don’t appear to be a function of “greedflation.”

He notes big grocers’ profit margins rose to around 3.7 per cent during the early-stage pandemic whereas the 10-year average is about 2.5 per cent. And, those margins have been declining in 2022. Vercammen suggests anecdotally that people were simply buying more grocery store food in 2020 and 2021 as they avoided restaurants.

“The grocers did well in the pandemic, across the board, and this sort of plays out in the data. But I don't see now that it's continuing; it seems, if anything, to be slowing down,” said Vercammen.

Another indication grocery store price gouging may not be the culprit in Canada is that food inflation is a global phenomenon.

Canada’s Consumer Price Index for food was 10.3 per cent annualized to September 2022 and Vercammen says Western states are seeing similar numbers.

Vercammen is part of the annual Canada’s Food Price Report, from Dalhousie University, University of Guelph, University of Saskatchewan and the University of British Columbia.

Last year the group of experts predicted food prices would rise five to seven per cent in 2022.

With inflation worse than expected, Vercammen and his team are not predicting a dramatic abatement in rising costs, but rather a slow grind downward.

“Inflation is not going to be as bad as what we're currently seeing. I believe we're peaking, but it's certainly not going to go down to the, you know, three to four per cent level; we're probably going to be hovering in that five, six, seven per cent level for 2023.

“It’s going to take a while, unless we have a big recession and interest rates plummet. It can get weird really quick, so that’s hard for us to predict,” said Vercammen.

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