Who Pays if Food Prices Fall

While accusations of price gouging and calls for price caps on the cost of food are generally ridiculed here in Canada, both ideas received a boost following Kamala Harris’s recent convention speech to U.S. Democrats. “To combat high grocery costs, VP Harris to call for first-ever federal ban on corporate price-gouging” said the Democrat’s news release. Republicans of course call the plan “communist”. Former President Trump ridiculed the plan as “SOVIET Style Price Controls.” In Canada Kevin Hopkins of R-Street calls controls “a grand illusion” and points to what happened in Venezuela where he claims price controls lead to wide-spread food shortages. The fallback for “serious” economists and commentators in both countries is that the grocery business operates with such small margins (1 to 2% compared to 7 or 8% in other industries) that surely there can't be any price gouging. Even so the stock market (where profits not margins matter) love the food retailers. The hard truth is that during the supply-chain crises in 2021 and 2022 retail prices rose faster than wholesale costs and the supermarket chains have been banking record profits. All the while food insecurity amongst Canadians, and food bank use, are also at record levels. Politicians in both the United States and Canada know it’s a defining issue that touches every voter. It’s very hard to know in the last few months of a consequential and very close election campaign in the U.S. whether Harris’s promise to ban corporate price gouging will lead to anything. What we do know is that the current Biden government has been much more serious about challenging the market power of large corporations than Canada’s Liberals. The U.S. Justice Department antitrust case brought against Google is one example. And what’s called the Federal Trade Commission led by the very capable Lina Khan is investigating the market power of Apple and Amazon. Here’s Khan’s take on corporate behaviour that demands investigation: “We focus on how companies are behaving. Are they behaving in ways that suggest they can harm their customers, harm their suppliers, harm their workers and get away with it. And that’s how the “too big to care” approach is really what ends up signalling that it has monopoly power.” That just sounded so much like what we’ve been witnessing from Loblaws over the last few years. Unlike Sobeys Loblaws stopped paying the pandemic bonus to its workers as soon as it could. It resisted joining the effort to develop a “grocery code of conduct” until it had no choice. Loblaws is responding to its critics. The Federal government has been trying to attract international discount grocers here to offer some competition but they’ve refused saying they can’t see any way to fight the market power of the established big 5 retailers. Loblaws has taken up this challenge just announcing plans to build 3 ultra-discount grocery stores in Ontario. The No Name stores will help consumers pay less by limiting the number of products being sold, featuring mostly house brands, in a bare bones store layout. That’s a plus for consumers, but at what cost to suppliers like farmers. Vass Bednar is the author of a forthcoming book called The Big Fix: How Companies Capture Markets and Harm Canadians. She’s written in the Globe and Mail that private label products like No Name, President’s Choice, Kirkland Signature at Costco, Compliments at Sobeys and so on have huge advantages. They’re developed from all of the customer data that’s collected. They aren’t weighed down by the extra “slotting fees and additional costs” other suppliers have to pay. She writes: “… companies don’t work as hard to steal market share from each other. Instead, they have started to steal market share from independent suppliers through the creep of private-label brands.” The best example I heard of the risk to suppliers came from a CBC report by the excellent journalist Angela MacIvor. Her story was on Loblaw’s Atlantic Superstores combining with Superstores in other provinces as a rebranding exercise. She was persistent in asking how this would lead to cheaper prices for consumers. The answer from senior Vice President Jonathan Carroll says it makes negotiating with suppliers easier.  “Our retail family got a little bit bigger. And it's exciting to see that, you know, if we're buying a palette deal, we can get a better price on that palette deal and give that price back to our consumers.” So cheaper products will not come from cutting into Loblaws’ record profits but demanding cheaper prices from suppliers. And who along that supply chain will take the hit? Who knows. Nice work if you can get it.