Higher Food Prices, But Who Gets the Money

The head of a big supermarket chain in England had a warning for consumers last week:

"The era of cheap food is coming to an end, the boss of Tesco warned yesterday.
Philip Clarke, chief executive of Britain’s biggest supermarket chain, said rising global demand meant the low prices could not continue for much longer."

It doesn't feel like it when you lug groceries away from the checkout at the supermarket, but North Americans in particular as well as Europeans, pay a much smaller percentage of their income on food than most in the world.  Climate change, production of biofuels,  a quickly growing middle class  in China and India, are all pushing food prices up.  But there was one more interesting bit of information in the above story (I'll include it at the end):

"Clarke spoke as a new poll indicated that consumers would be prepared to pay more for their groceries if they thought it would benefit British farmers."

And I suspect that's precisely what won't happen.  Yes consumers will pay more, but there are a lot of pockets to fill between the supermarket checkout and the farm gate, and farmers just don't have the economic clout to demand their fair share no matter what consumers might hope for.

We've received some much needed insight into Canada's food retailing behemoths over the last two weeks. Both Sobeys and now Loblaws (Atlantic Superstores) went on their own shopping sprees, spending billions to buy up competitors and bulk up for the continuing food fight with Walmart.   So Canada's big chains have a lot of new loans to pay back, so guess who will grab those extra dollars we'll all be paying.

And this week  Moody's (the bond rating people) have given us some indication of how well the supermarket chains are doing (pretty well).  I'll include some of the stories below.


http://www.dailymail.co.uk/news/article-2372857/The-end-cheap-food-Tesco-boss-Philip-Clarke-warns-rising-global-demand-spell-end-low-prices.html

The end of cheap food? Tesco boss warns rising global demand will spell the end of low prices

• by James Tozer
• July 21, 2013

• No more bargain buys during your weekly show, supermarket boss warns
• Due to rising global demand, food prices will rise, say Tesco's Philip Clarke

Not so super: Philip Clarke, CEO of Tesco, warns that the days of bargain buys are over

The era of cheap food is coming to an end, the boss of Tesco warned yesterday.
Philip Clarke, chief executive of Britain’s biggest supermarket chain, said rising global demand meant the low prices could not continue for much longer.
He spoke as a new poll indicated that consumers would be prepared to pay more for their groceries if they thought it would benefit British farmers.
Tesco’s reputation was badly damaged by the horsemeat scandal at the start of the year and Mr Clarke has promised to rebuild customers’ trust.
But it faced accusations of profiteering yesterday after raising the price of its basic bottled water by 40 per cent as the country sweltered in the heat.
Food price inflation was 2.7 per cent last month, up from 2.4 per cent in May.
Mr Clarke is the second supermarket boss, after Waitrose’s Mark Price, to back experts’ warnings that rock-bottom prices would eventually lead to quality being sacrificed.
Last month a UN report predicted world food prices could rise by as much as 40 per cent over the next decade, driven by the demands of a growing middle class in China and India.
‘There was a time when we could go to South Africa to buy fruit and be the only retailer there,’ Mr Clarke said, adding: ‘Not any more.’
And he pledged to fulfil a promise to the National Farmers’ Union, made after January’s scandal, to give British producers a better deal.
But he admitted the discovery of horsemeat in beef products had damaged customer trust. ‘Tesco was big and Tesco was bad,’ he said.

Oh no, Tesco: The chief executive of Britain¿s biggest supermarket chain, said rising global demand meant the low prices could not continue for much longer

His comments came as a poll to mark National Countryside Week, which starts today, suggested a majority of British consumers would pay more for food if farmers benefited rather than supermarket shareholders.
The poll, by YouGov for The Prince’s Countryside Fund, also indicated that more than 80 per cent of consumers think it is important to buy British.
Donald Curry, a trustee of the fund, said: ‘The public are prepared support British farmers, even if that means paying more for food – provided extra money goes directly to the producer.’




 http://www.theglobeandmail.com/commentary/what-sent-shoppers-and-loblaw-down-the-aisle-wal-mart/article13316865/#dashboard/follows/

What sent Shoppers and Loblaw down the aisle? Wal-Mart

SYLVAIN CHARLEBOIS

Make no mistake: Loblaw’s $12.4-billion purchase of Shoppers Drug Mart makes sense for everyone, including Canadian consumers. The country’s leading grocer now has an edge over its biggest menace, Wal-Mart.
Not only will Loblaw now be able to sell many products with higher margins – such as pharmaceutical products – the merger will create many co-branding opportunities, such as private labels and loyalty programs.
The addition of downtown stores across small-town Canada will give Loblaw a key real-estate edge in managing socio-demographic shifts as suburbia continues to push the borders of our cities outward.Some experts have gone so far as to claim that this deal will be transformational for Canadian food retailing. It is indeed significant – the biggest industry transaction our country has ever seen – but is it transformational? Not quite.
Wal-Mart’s purchase of Woolco in 1994 remains the most transformational transaction in Canada’s food retailing industry. Everything happening in food distribution today continues to be affected by it. Most Canadians didn’t realize it then, but Wal-Mart’s entrance into the Canadian market would change everything: the way we shop; what we buy; and, most importantly, how we buy and value food.
Ever since Wal-Mart entered the Canadian market, it never hid its ambition of becoming Canada’s top food retailer, as it has in the United States. Many believe it is just a matter of time. In fact, Wal-Mart added close to $700-million to its food sales this year alone. Loblaw’s latest response suggests that it’s not eager to let go of the top position and that it views Wal-Mart as a serious threat.
Wal-Mart’s purchase of Woolco generated a few copycats, including Target’s recent purchase of Zellers. As Target’s first destination outside the United States (with almost 200 stores by 2020), Canada is considered fertile ground for future growth. Sobeys, desperate to penetrate the Canadian food market and Loblaw’s closest rival in food retailing, agreed to become Target’s key food distributor for a limited time. The strategy seems to be paying off as Target predicts to top $300-million in food sales in 2013. Given a very stagnant market, these sales are coming at the expense of its competition. But after last month’s $5.8-billion purchase of Safeway’s Canadian grocery stores, Sobeys might not prop up Target’s effort for long, as it has other plans for future growth in a very condensed, mature marketplace.
In Quebec, meanwhile, Metro saw in Safeway the deal that got away. Metro, which was part of the United Grocers buying group with Safeway, will likely see its purchasing power diminish for several products, reducing its bottom line significantly in the near term. With Loblaw’s purchase of Shoppers, many are now speculating that Metro will hunt down Jean Coutu, the large Quebec-based pharmacy chain. Jean Coutu himself stated that the company was not for sale, but that was before the Loblaw-Shoppers announcement. Equally affected by the acquisition, both Metro and Jean Coutu may be ready to talk.
Whether or not the Loblaw-Shoppers tie-up will work is difficult to tell at this point. Loblaw Cos. Ltd. has a poor track-record of streamlining processes quickly. The Shoppers purchase will likely add more pressure and could create opportunities for the competition. The market is evolving quickly, and while convenience and accessibility are imperatives in food retailing, price is still paramount. Wal-Mart understood decades ago that logistics are critical if you want to offer competitive prices to consumers. That will be Loblaw’s main challenge.
Ever since Wal-Mart’s big deal in 1994, food retailers have been looking at the Canadian market very differently. More consolidation is expected. Metro may consider B.C.-based Overwaitea Food as its consolation prize, but that is highly doubtful. Certainly, after the Quebec government’s hostile reaction to Lowe’s attempt to purchase Rona last year, it is highly doubtful anyone would want to touch Metro.
Both Sobeys and Loblaw have made their moves. Metro could be next. But let’s not kid ourselves: Wal-Mart is still calling the shots.
Sylvain Charlebois is professor in food distribution and policy at the University of Guelph’s College of Management and Economics.




http://www.cbc.ca/news/business/story/2013/07/23/business-canadian-grocers.html 

Moody's likes the outlook for Canadian supermarkets

• July 23, 2013

Canadian supermarkets are doing better than their U.S. and European counterparts in maintaining profit margins and credit quality, according to a Moody's analysis released Tuesday.
The credit rating agency does not usually look at the big three Canadian grocers — Loblaw Companies Ltd., Empire's Sobeys and Metro Inc. – but was asked for its opinion in the wake of Loblaw’s $12.4-billion merger with Shoppers Drug Mart and Sobey’s $5.8-billion acquisition of Canada Safeway.
"Our main finding is that although the Canadians are smaller and less diverse, they have good margins and superior credit metrics," Moody’s said.
It had a generally beneficial view of the Loblaw's takeover, saying the company’s debt load will rise following the Shoppers deal, but should come down within two years. Loblaw will pay for Shoppers in cash and stock.
Moody's called the merger "complementary" and predicted Loblaw will see sales grow, especially in health and wellness products, following the acquisition.
The three Canadian supermarket chains compare well with European stores, which are seeing margins flatten and earnings shrink, despite being larger and offering a more diverse range of products.
Comparable European supermarkets — Tesco PLC, Carrefour S.A., Koninklijke Ahold N.V. and Delhaize Group – are exposed to non-food products, such as clothing and consumer electronics, which has left them vulnerable to the economic downturn, Moody’s said.
The European grocers lag behind their American and Canadian counterparts in terms of same-store sales growth, it added.

America in the middle

U.S. supermarkets are seeing stronger same-store growth, but are in a more competitive market, with flatter margins.
Moody’s estimates Metro leads the Canadian grocers with a profit margin of nine per cent of earnings before certain Items. That compares to 7.5 per cent at Sobeys and 7.0 per cent at Loblaw.
It says the expansion of Wal-Mart and Target into Quebec could squeeze Metro's profit margins but believes all three chains can weather the competition.
"We think the Canadian supermarkets' margins are somewhat protected to the downside by ongoing cost reduction measures, tight inventory management, improving store offerings and an increased focus on loyalty programs."
"We expect the impact of rising competition to be manageable for the Canadians and that their aggregate margins will be better than those of the Europeans in the medium term."

Let's Slam Canadian Dairy Farmers-Again

Two stories today that on the surface look like they're talking about the same thing: heavy criticism of government subsidies for farmers.  I think the reports tell very different stories, the yin and yang of public policy on agriculture, and I think Canadians come off looking pretty good, despite the intention of the journalist.

This is from the Globe and Mail story (i'll include both at the end):

"Over that period, subsidies in Canada have ranged between more than $8-billion (U.S.) to slightly less than $6-billion. Government support totalled $6.9-billion in 2011.
The main beneficiaries of government support are Canadian dairy, poultry and egg producers, who set their own prices and are protected from most foreign competition by prohibitively high tariffs. There are also numerous “risk management” programs aimed at shielding farmers from such setbacks as disease, bad weather and high feed costs."

Here's the thing. We know that National Post, and Globe and Mail commentators take every opportunity to slam supply management. There are numerous examples and responses to this in this blog (there's a search box at the bottom).  They wrongly use information from the OECD that was developed for trade analysis, but shouldn't be applied to the real world.   The OECD measures the difference between the lower "world price" and the Canadian domestic price (anywhere from 10 to 30% depending on the product), and calls that difference a Canadian government subsidy.  It could also be seen as consumers paying a fair price (and these farmers don't "set their own prices", they're based on cost of production analysis from the most efficient producers managed by commissions with consumer representatives).  Canadian consumers pay once for dairy products and poultry at the supermarket checkout, that's it,  while U.S. and European consumers pay at the checkout, and again as taxpayers when governments send subsidy checks to dairy and poultry farmers there.

Yes high tariffs are used to keep cheaper imports out, but these tariffs are and will be adjusted as Canada negotiates new trade deals. (if a deal with Europe is finalized  Canadians will definitely see more cheeses and other dairy products) The OECD analysis would be like looking at the difference in the cost of automobiles in Canada versus those made in China and viewing the government policy which limits Chinese cars sold here as a subsidy for the auto sector. No one does that, but it's just fine when it comes to farmers making a reasonable living.  

Another plus with the Canadian system, Canada isn't exporting subsidized dairy and poultry to other countries, like the Americans. This has completely disrupted domestic production in Central and South America, and the Caribbean. 

So I would say if these "abstract, only on paper" subsidies make up the bulk of Canadian farm subsidies, then Canada is doing pretty well. Yes there are cheaper dairy and poultry products out there, but put "dirty dairying" into Google and discover the added costs of producing cheap dairy products for export in New Zealand.

And when reading the Monbiot piece on European farm subsidies below, please note that the National Farmers Union in England is the main farmer organization there, and not associated with the NFU here in Canada, in fact their policy positions are very different.


http://www.theglobeandmail.com/report-on-business/rob-commentary/taxpayers-oblivious-to-the-cost-of-farm-subsidies/article13055078/#dashboard/follows/

Taxpayers oblivious to the cost of farm subsidies

AGRICULTURE

• by BARRIE McKENNA
• July 8, 2013

Ideological consistency is a rare commodity in politics.
Consider the federal Conservatives. They preach government austerity, then hand out $50,000-plus bonuses to deputy ministers. They talk about openness but practise secrecy. And they tout Senate reform while tolerating entitlement.
It also turns out the Conservatives haven’t been particularly fiscally conservative when it comes to doling out farm subsidies.

There is a “statistically significant positive relationship” between Conservative power and subsidies to farmers dating back three decades in Canada, according to a new paper by University of Guelph economist John Cranfield and graduate students Tor Tolhurst and Shuang Li.The study – Are Governments of the Right Leviathan for Agriculture? – is slated to be presented next month at the Agricultural and Applied Economics Association annual meeting in Washington, D.C.
The researchers tracked the number of Conservative-held seats and annual subsidies to farmers from 1986 to 2010, using figures on direct and indirect government support compiled by the Organization for Economic Co-operation and Development. They also controlled for such factors as farm prices, trade deals and the government’s fiscal position.
Over that period, subsidies in Canada have ranged between more than $8-billion (U.S.) to slightly less than $6-billion. Government support totalled $6.9-billion in 2011.
The main beneficiaries of government support are Canadian dairy, poultry and egg producers, who set their own prices and are protected from most foreign competition by prohibitively high tariffs. There are also numerous “risk management” programs aimed at shielding farmers from such setbacks as disease, bad weather and high feed costs.
Canada isn’t a particularly big spender compared with most other developed countries. Subsidies and indirect transfers accounted for 14 per cent of gross farm receipts in 2011, compared with the 19-per-cent average among OECD countries. Government support makes up more than half of what farmers pocket in at least four countries – Japan, South Korea, Norway and Switzerland.
The politics of farm subsidies have long puzzled economists. Agriculture accounts for an ever-shrinking share of economic output in most developed countries. But subsidies continue to flow at very high levels.
In Canada, for example, agriculture accounts for less than 2 per cent of gross domestic product and roughly 9 per cent of exports.
The number of farmers also continues to dwindle. There were 12,529 dairy farms in 2012, a fraction of the more than 100,000 that existed when the supply management system was established in the early 1970s. Every year, another roughly 200 farms disappear as the industry consolidates in fewer hands.
The Guelph researchers suggest one explanation for the paradox of a shrinking farm population and enduring political clout. Farmers are socially conservative, but fiscally liberal when it comes to their own interests.
“At the margin, transfers gain more votes than they lose,” the authors conclude, making the political calculation a no-brainer.
Another paper being presented at the Agricultural and Applied Economics Association meeting comes to a similar conclusion, examining why members of the U.S. Congress consistently back protectionist agricultural policies.
Duke University economist Marc Bellemare and political scientist Nicholas Carnes investigated agriculture-related votes from 1999 to 2009 to determine what factors drive the behaviour of politicians.
“The one explanation that almost always explains support for agricultural protection is the electoral pressure a legislator faces, i.e., the proportion of her constituents who are farm owners or farm managers,” the authors concluded.
In the end, the study determined that pressure at the polls is more important than lobbying and other influences. The result is that farmers wield out-sized influence, even in relatively small numbers.
In Canada, for example, there are only 13 ridings with more than 300 dairy farms – ridings with an average of 80,000 registered voters.
And yet the government remains firmly committed to supply management. In 2005, all 308 MPs in the House of Commons voted to back the protective regime in future trade negotiations.
Prof. Bellemare and Prof. Carnes point out that farmers are politically powerful because the vast majority of other voters are oblivious to what protecting farmers actually costs them.
Canadians and Americans alike are largely unaware of what their own governments spend on farmers, and what it costs them at the grocery store.
If they knew, the political love affair with farmers might fade.




http://www.guardian.co.uk/environment/georgemonbiot/2013/jul/08/national-farmers-union-public

The National Farmers' Union secures so much public cash yet gives nothing back

The NFU's grip on agricultural policy helps enrich millionaire landowners while destroying biodiversity, polluting water and wiping out pollinators

'Last month the National Farmers’ Union and its counterparts in other European countries succeeded in demolishing attempts to green the Common Agricultural Policy.' Photograph: Scott Barbour/Getty Images

Is there any organisation as selfish, grasping and antisocial as the National Farmers' Union? Is there any organisation, except the banks, that secures so much public money for its members while offering so little in return?
Here are some of the positions the NFU has taken over the past few months:
It demanded the abolition of the Agricultural Wages Board. Farm workers are often extremely vulnerable, with low pay, long hours, dangerous working conditions and few opportunities for collective bargaining. The board offered them some defence against the worst forms of exploitation. The NFU, many of whose members receive hundreds of thousands of pounds of taxpayers' money every year, has lobbied long and hard for the board to be abolished. With the help of its friends in this government it has won, and the AWB will go in October.
At the same time, it fought to ensure that there would be no cap on the amount of taxpayers' money a single farmer could receive. The European Commission had proposed a cap of €300,000 a year. But even this is not enough for the multi-millionaires scooping up public funds. The more land you own or rent, the more money you receive: some of these people take millions a year from taxpayers. The union boasts of how hard it fought to ensure that subsidies remain uncapped. With the help of the landed mafia – otherwise known as the government of the United Kingdom – its wish was granted.
The National Farmers' Union has lamented the fact that young people trying to make a start in farming will receive more public funds. The EU has decided that governments will have to shift 2% of the money they currently dole out to those who own or rent farmland into a scheme for "new entrant young farmers". The NFU lists this as one of the oppressive measures representing a "bad deal" for farmers.
Nothing could better reinforce the suspicion, which I have often heard voiced by small farmers, that the NFU defends the interests of big, rich incumbents over small, struggling and hopeful farmers. Perhaps this is unsurprising, in view of who runs it. The president, Peter Kendall, is an arable baron who, with his brother, owns a 620-hectare farm in Bedfordshire, and rents land on four neighbouring farms.
The vice-president, Meurig Raymond, has a 1,300 hectare farm on prime land in Pembrokeshire, also owned with his brother. Given that farmers in this country receive an average of £197 a hectare in direct payments (and often a good deal more in public subsidies of other kinds), this suggests that he might take at least £250,000 a year from the taxpayer. How dare these people lament a transfer of 2% of this money to young people trying to break into farming?
Under the initial headline (since changed) of "NFU will continue fight on road safety rules", this week it issued a press release showing how it has "worked hard" to exempt tractors and trailers from an annual road safety test. Remember that, next time someone is killed because a tractor's brakes fail.
But this is only the start of it. Last month the National Farmers' Union and its counterparts in other European countries succeeded in demolishing attempts to green the Common Agricultural Policy: the scheme through which more than €50bn a year of our money is handed to landowners.
The stated purpose of the negotiations that came to an end last month – and which will determine farm policy for the next seven years – was to make farming more compatible with protecting wildlife, water supplies, soil and carbon stocks. After being comprehensively gutted through lobbying by farmers' organisations, the new Common Agricultural Policy is even worse than the last one.
The landowners' lobbyists demanded something for nothing – and, by and large, they got it. We will continue, in this age of austerity, to slosh vast sums of public money into the arms of millionaires. In return they will continue to trash the living planet.
The NFU demanded there should be no transfer of funds from the almost unconditional payments (Pillar 1 of the Common Agricultural Policy) that they receive for owning or renting land into Pillar 2. Pillar 2 agri-environment payments are supposed to be conditional on changes in the way that farmers treat the land and its wildlife.
The NFU insisted on "automatic entitlement" to money for protecting the environment, whether or not they are actually protecting the environment. It demanded that farmers should be allowed to opt out of any schemes for improving their destructive practices. It fought against the proposal (called ecological focus areas) to devote some land on every farm to wildlife. It also announced that it would "seek to limit any penalties arising from a failure to implement the greening requirements as much as possible". In other words, the NFU pressed for as few restrictions on how its members collect taxpayers' money as it could get – and then to be able to break those restrictions with impunity. For the most part, it won.
The ecological focus areas originally envisaged were cut from 10% of farmland to 5%. Worse still, the rules have been watered down so far that they are now almost meaningless. The new regulations allow these areas – supposedly set aside for wildlife – to be intensively farmed.
While governments can transfer some money from Pillar 1 to Pillar 2, the measure remains voluntary. Already the NFU has been lobbying the Westminster government not to do it (so far the government has been holding out, but I wonder whether this will last).
Overall, the amount of money for Pillar 2 has been cut, and environmental schemes will now be seriously short of funds: a remarkable outcome when so much free money continues to be given to farmers.
Enforcement of the conditions attached to Pillar 1 payments will be so weak that farmers will have to break the rules for several years in a row to lose any money, and even then the most that can be docked – however destructive they have been – is 37.5% of what we're paying them.
The condition that farmers must abide by the birds directive if they want this money has been dropped. Now they can kill protected species without jeopardising their payments. Just as outrageously, they have no need to comply with either the water or the pesticides directives to qualify for public money. Nor do they need to protect carbon-rich soils to receive Pillar 1 payments.
True to form, having obtained almost all the destructive, regressive, lucrative measures it demanded, the NFU then complained bitterly about the outcome of the negotiations. This seems to be the tactic: whatever you get, always demand more. While income support for the very poor has been cut, the millionaire landowners keep raking in public money. Yet they also keep whinging. With the possible exception of the financial sector, nowhere will you encounter such a nest of ungrateful parasites.
Even some of the measures that have survived are both questionable and useless without enforcement. Some of the "greening" policies can actually do more harm than good.
For example, in the Peak District, grouse estates often receive agri-environment money because they maintain heather moorland. (Heather colonises deforested land and depleted soils, but for some reason we fetishise it in this country.) In many cases they get the money to carry on doing what they were doing anyway – maintaining habitats that maximise the populations of red grouse (while minimising the populations of many other species). The "green" payments are free money, which some of these estates use to employ extra gamekeepers, who then kill the hen harriers and other wild animals. A great outcome for the natural world.
In both Wales and the Lake District I've heard how keeping sheep in unsuitable places – slopes subject to high levels of erosion, where grazing is extremely damaging to water retention and wildlife – is sustained only as a result of the extra money the farmers there receive from Pillar 2 payments. Another splendid result for nature.
In fact, the less suitable for farming an area is, the more money you receive for farming there. Under the new rules, you can now receive an extra payment of €450 a hectare for keeping livestock (which mostly means sheep) on mountains. Goodbye watersheds, goodbye soil, goodbye wildlife.
And, in many places, enforcement is almost a dead letter. Farmers are paid extra if they promise to keep their sheep out of the woods. But the sheep are still in the woods, wiping out the ground flora, ensuring that nothing survives except the old trees, which are dying without being replaced. Grouse moors are paid to burn the heather less frequently. But some of them burn just as often as before and still get their money.
Even the current pathetic level of enforcement is too much for the welfare kings. Peter Kendall, president of the NFU, has pledged: "I will also continue to fight for more proportionate penalties and risk-based inspections across the CAP." Which is the code lobbyists now use for as little monitoring and enforcement as they can get away with.
When I spoke to the NFU about these issues, its spokesperson told me:

"We're not behind a campaign for destruction of the greening of the Common Agricultural Policy. We want a fair deal for English and Welsh farmers … We're looking to make some of the agreements more practical and simple to administer. We were always concerned at the level of ecological focus areas. We sought to have them reduced. But we also recognise that there should be smaller areas of land which are better managed, rather than whole fields set aside … What we were asking for is English farmers to be treated fairly."

All over Europe, essential public services are being cut. All over Europe, the poor are being hammered by the loss of the benefits they need to sustain even the most basic quality of life. But the millionaire landowners continue to reel it in, while still destroying biodiversity, polluting water courses, squandering irrigation water, wiping out pollinators, killing birds of prey and accelerating climate change. Are there not better ways of spending public money?
www.monbiot.com