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Home » Economy » Economist debunks supermarkets’ claim they’re not profiting
from food inflation

Analysis
Posted inEconomy
CA


ECONOMIST DEBUNKS SUPERMARKETS’ CLAIM THEY’RE NOT PROFITING FROM FOOD INFLATION

by Karl Nerenberg December 12, 2022December 12, 2022


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Canada’s major supermarket chains dominate the industry and are raking in
billions more in profits when compared to before the pandemic.

A Loblaws supermarket in Ottawa, ON. Credit: Ken Lund / Wikimedia Commons

Last week, spokespeople for the giant Canadian grocery retailers told a House of
Commons committee looking into food inflation their record corporate profits are
not responsible for the current spike in food prices.

More industry executives will bring the same message to the committee this
week. 

The industry folks present what appear to be credible arguments. They focus on
issues out of their control, such as supply chain disruptions and large jumps in
energy costs.

READ MORE: Giant grocery chains refuse blame for high food prices

A number of economists disagree, however. They say food retailers are being
disingenuous and careless with their facts and figures.

Jim Stanford, Director of the Centre for Future Work, is among those economists.

In a piece published by the Progressive Economics Forum Stanford shows that
grocery store profit margins on food products have “increased notably since the
pandemic.”

He notes that the grocery spokespeople use careful language when they assert
their profit margins haven’t changed much over the last year. 

That statement is technically true, but it hides more than it reveals.

Stanford explains that the big bump in grocery retailers’ profit margins
happened not this past year but earlier in the pandemic, “amidst the panic,
toilet paper hoarding, and other unique circumstances of the lockdowns.”

“Margins jumped,” Stanford says, “and have stayed high relative to historical
norms — even after economic re-opening and ‘normalization’.”

RELATED: Canadian workers are not to blame for inflation

The average grocery store profit margin since the lockdowns began more than two
years ago is now three quarters higher than in the period from 2018 to the first
three months of 2020. 

And when you look at actual profit numbers, not percentages, you see that total
profits in food retail have more than doubled since before COVID – from $2.4
billion in 2019 to a whopping $5.2 billion over the last twelve months.

Now, it is true that increases in sales volumes almost inevitably drive
increases in corporate revenues. If such were the case for food sales in Canada,
it might be a plausible explanation for the food retail corporations’ huge
increases in profits. 

However, Stanford points out, the opposite is the actual case. The volume of
grocery sales has not increased; it has declined of late.

“There was an enormous temporary spike in sales during the lockdowns (panic
buying), mostly reversed by mid-2020. Then, more recently, the quantity of sales
has steadily shrunk.”

The fact that Canadians can once again eat out in restaurants is one reason for
the decline. Food price inflation, which has caused consumers to reduce their
purchases, is another.

Stanford explains what is going on this way:

“The volume of sales in supermarkets is now lower than it was before the
pandemic hit – which is unusual given population growth since then. So, the
margin of profits, and the mass of profits, and the rate of profits have all
increased – but all generated from a smaller volume of actual physical
business.”

Those facts and figures, argues Stanford, are “definitely proof that the
industry is profiting unusually from the current conjuncture of supply chain
disruptions, inflation, and consumer desperation.”

If what industry representatives told the House committee were true – namely
that price increases are entirely the result of a spike in transport, fertilizer
and other upstream costs – “there should have been a reduction in profits” for
the retail giants.

Profits have gone up, way up, not down, however. The question is: Why?


DOMINATION OF FOOD RETAIL BY A TINY HANDFUL OF FIRMS

Canada’s food retail industry is dominated by a tiny number of firms, which
constitutes what economists call an oligopoly. 

When a single firm controls the entirety of an industry, we have a monopoly. In
Canada a number of provinces used to have monopolies for telephone service. Many
provinces still have publicly owned monopolies for the supply of electricity. 

Oligopolies are similar to monopolies, except in the case of oligopolies a
handful rather than a single firm dominates an industry. 

Both monopolies and oligopolies have the effect of eliminating or limiting
competition. And both put the consumer in a relatively weak bargaining position
vis-à-vis the sellers of products or services. 

The powerful oligopoly that controls Canada’s food retail industry is one reason
retailers’ profits have gone up, despite their declining sales volumes.

Stanford identifies another root cause for these unusual increased profits:
Greed.

“The combination of greed (more politely termed ‘profit maximization’), along
with supply chain disruptions and consumer desperation during and after the
pandemic, along with oligopolistic pricing power, clearly explains much of the
pattern of recent inflation in Canada,” Stanford explained.

The economist does add, charitably, that the food retail industry is not the
most flagrant Canadian case of profiteering on inflation. That distinction
belongs, he says, to the energy sector.

Still, Stanford tells us:

 “Supermarkets have clearly profited from the post-pandemic inflation, and
richly deserve the critical attention they are receiving. The hard numbers
clearly contradict the 

claim that supermarket profit margins are stable and no extra profits have been
earned.”

The MPs on the House of Commons committee currently looking into food inflation
owe it to themselves and to Canadians to take a good hard look at what Jim
Stanford has laid out so cogently.


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KARL NERENBERG

Karl Nerenberg joined rabble in 2011 to cover Canadian politics. He has worked
as a journalist and filmmaker for many decades, including two and a half decades
at CBC/Radio-Canada. Among his career highlights... More by Karl Nerenberg




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