The Decibel - Why your groceries cost so much

Episode Date: December 7, 2022

Canadians have already seen the cost of groceries grow by over 10 per cent this year, and costs are expected to keep rising. A bag of the humble romaine lettuce can cost as much as $13. Now, experts are projecting that food costs for the average Canadian family will go up by $1,000 in 2023.This week, the Committee of Agriculture held a hearing with representatives from major grocery retailers to discuss why prices are so high right now. Food reporter Ann Hui breaks down what we learned about the confluence of factors that are making grocery bills so hefty.Questions? Comments? Ideas? E-mail us at [e-mail]

So Anne, you're their food reporter. Are you hearing from people about how much they're paying these days? Oh yeah. I frequently have been getting emails from readers. Many of them are just venting about the prices that they're seeing in grocery stores, including the price of lettuce. We all know inflation has been bad, but food inflation has been really bad. In September, the cost of food was up 10.3% since last fall, according to Statistics Canada. And unfortunately, it's only expected to get worse. I think the events over the past year and a half are really forcing us to have to kind of reckon with this system and whether changes might need to be made. Today, The Globe's national food reporter, Anne Huey, is going to break down why food inflation has gotten so bad and what grocers and the government are doing about it.

I'm Maina Karaman-Wolmes, and this is The Decibel from The Globe and Mail. And it's great to see you again. Thanks so much for doing this. It's nice to be here. So I know that pretty much all categories of food are seeing higher prices these days, but I want to start off by asking you specifically about lettuce, because I've been seeing how much we're paying for lettuce. And it seems like a lot of people are talking about the price of lettuce these days. How much has the cost of like romaine lettuce changed recently? It seems quite dramatically. I was actually searching on my grocery store website. I do my groceries online, I think, as many people do. And I was seeing a

three-pack of romaine going for, I think, $13. So I think for most people that's going to come as quite a shock. I think many of us are used to it being around half that. And is it fair to say that lettuce and the cost of lettuce is like representative of what's happening in terms of overall food inflation here? I think it's an interesting example for sure, because lettuce and the story behind lettuce kind of tells both the stories of the temporary kind of spikes that can happen in the short term with food prices and specific products. But it also tells the story of some of the more systemic kind of issues that are

happening with all food products and that are pushing food prices up across the board. So, Anne, let's actually get into the reasons behind this then. So let's just start at the beginning when we're talking about lettuce here again. Where is the lettuce that Canadians eat? Where is it generally grown? So a significant portion of our, not just lettuce, all of our vegetables, all of our fruits and vegetables, in fact, are being imported. With vegetables, something like 75% of our fresh vegetables in Canada are imported. More than half of that is coming from the United States. So California basically is where most of our romaine is going to be coming from. So what's caused this really dramatic increase that we're seeing

at this moment in time with lettuce is that California has had some really challenging weather over the last year. They suffered a series of droughts over the last number of months. That has been followed through much of the region with issues of bacterial contamination. And so what they've seen is something like 75% of their normal crop unusable this year. And so that leaves us with much less lettuce to go around. But slowly up over a long period of time. That affects lettuce, yes, but really all of the foods that we buy at a grocery store. When we're talking about drought and it sounds like climate changing patterns here, is this fair to, I guess, draw the connection to some of these changes that we're going to really start to see very dramatically in the next few years with climate change?

Exactly. So these are the kinds of systemic issues that I'm referring to. You know, climate events, severe weather events that we're seeing, yes, they cause these kind of temporary blips, and then typically will kind of even out over time. But the issue that we're seeing is more and more of these severe weather events happening and less time in between. So on top of the climate change and the weather events, there have been some other major hits to our food system over the last number of years. Obviously, the pandemic and all of the subsequent supply chain issues that we've seen as a result of it. On top of that, we've also seen major complications as a result of Russia's invasion of Ukraine.

Okay, so it's good. We've got this context now of these bigger issues that are causing some of these price increases. But let's go back to this example of lettuce and actually walk through the process here. So with lettuce, where do these cost increase actually start? So it is at every step of the production cycle. So I'm using now figures from Statistics Canada, and these are from March 2022. So this would be right kind of at the outset of the invasion in Ukraine. Some of the numbers, some of the figures have leveled out since, but I'm just using these ones because I have them. Right from the start, when you're seeding, when you're planting your vegetables, everything from the pesticides and chemicals and fertilizer costs, you know, those were at that point somewhere around 34%

increase from the year before. So Russia, Belarus, that region produces a lot of the ingredients needed to make fertilizer, which obviously is a major component to producing food. And so in the immediate months following the war, the beginning of the war, we saw prices of fertilizer really skyrocket, you know, exponentially. And so that obviously is going to have a major effect on the cost of producing food. You're going to be paying more for the fuel for any machinery or, you know, trucks or tractors that you're using as part of that process, something like 28% increase there. And then the increase for the labor, that was about 8%. And then we moved to the stage where they're actually harvesting the lettuce.

They're processing, they're packaging, they're getting it ready to send off, you know. And these are costs that I think you and I wouldn't necessarily think about when we're at the grocery store. And then the last one is transportation, is taking that lettuce either from the farm to the processing plant or from the processing plant to the retailers. Transportation costs all across the board were up. Yeah, yeah. When you break it down like that, you can actually see how all of these little things, even maybe if they're not super significant on their own, you add those up, that becomes quite significant. So once the lettuce is ready to be shipped, it's grown, it's ready to be shipped, food importers then have to place their orders.

So what's happening with costs at that stage of the process, Anne, when Canadian importers are trying to get this lettuce into Canada. So we've seen the value of the dollar drop pretty significantly in recent months. And so that's had a really big impact on the buying power of importers. And so when the value of our dollar goes down, that makes it more expensive for us to buy that food that we're bringing in. We'll be right back. All right, so Anne, you've sketched out a complex global structure for food production here, all sorts of factors that are actually affecting the price of food, running from climate change to the war in Ukraine to the value of the Canadian dollar. This feels obviously like a big problem. Is there anything that the government can be

doing to solve it or at least help this problem? It's clear that politicians and retailers are hearing the fact that this matters to people. And I think that they've really been scrambling to try to respond to that concern. You know, this is not a problem that Canada is alone in facing. You know, the United States is also facing food inflation rates in the double digits. Britain, it's something like 16% increases each month as well. And so, you know, in Ottawa, we've heard a lot from the federal conservatives where they're really trying to put the blame of food inflation on the federal liberals. At the same time, we've seen the federal NDP party really trying to pose this as a problem of, quote, greedflation. Can you just define that for me? What is greedflation? Greedflation is a term that has become popularized, I think, particularly in this last year.

But it's this idea that the inflation that we're seeing, whether in food or, you know, across the board, is the result of corporate greed. And is there a merit to that idea of greedflation? Like when we look at the earnings of Loblaws, Metro, these public companies, are they making a lot more money off these increased grocery prices? So that is a challenging question to answer. There was a study recently in the last year out of Dalhousie University titled Greedflation, where the researchers try to figure out whether or not grocery retailers, the Loblaws, the Metro,

the Sobeys of the world are, you know, making massive profits off of higher prices. That study was not able to find evidence of abuse. They found that with the three major retailers, that their profit margins over the last several years has remained flat. There is now a review happening with the Committee of Agriculture in Ottawa at House of Commons, where they are also trying to investigate this issue of alleged greedflation. Mm-hmm. And I guess people are kind of suspicious about this, right? Because I'm thinking about what happened with bread a while back. In 2017, the Competition Bureau investigated allegations of a conspiracy by several companies in the food industry because they were fixing bread prices between the early 2000s and 2015.

So there's an issue of public trust here. And this actually came up at the hearing that you mentioned a few times, including by committee member Alistair McGregor. Just, you know, Canadians' perception of your sector, you know, I think you would agree with me, is not very good right now. I think the pressure is on your industry to either be proactive, or find parliamentarians will take that reign and

be proactive for you. I want to hear from you. What is your company in particular going to do from this point forward proactively to try and restore that trust that has been broken by all of the events I've just mentioned. Grocery executives, the question was put to them over and over around public trust, whether they feel that grocery retailers have abused the public trust, whether they feel that they've earned consumers' trust. CEOs of these companies didn't show up, though, even though they were asked to. Why didn't they appear? There was a little bit of confusion around who exactly was invited to the committee. Now, the MP who had actually called the motion that led to this review, he had initially requested specifically for the CEOs of Loblaw, of Metro, and Sobeys to appear at this meeting, it seemed after the fact and at the end of this meeting that the invitations had in fact gone out to the companies in general. And so those companies had chose to send these senior officials instead. The decision that was made at the end of the meeting

was that they're going to send out the invitations again, but this time specifically request the CEOs to appear. Okay. Is there more that grocery retailers could actually be doing though to help with these rising costs of food? That is a question that was posed over and over over again. And what we heard from Loblaw and Sobeys was that they feel that their options are very limited. I'm Jodat Hussain, Senior Vice President of Retail Finance at Loblaw. We negotiate the best supplier costs because that allows our stores to have the best prices. Through these negotiations, we pushed back about half a billion dollars of added costs this year. They said over and over again that the prices that they're paying to their suppliers are going up. And so those costs have to be passed on to the consumers. It is important

to point out that courses operate at very low profit margins, less than four cents for every dollar we sell. This is dramatically less than other Canadian sectors, including the suppliers of the products we sell. So when the costs we pay go up, generally our prices to customers have to go up too. What we heard the exec say yesterday was that, you know, no, no, we're pushing back whenever we can, you know, we're on the side of consumers. We want to keep prices low as well, because this is a competitive industry. So last question here, Anne. Back in August, experts were predicting that food inflation was peaking. It was around 9% then. And of course, it has increased since

August to over 10% now. When should people actually expect to get some relief from this? It doesn't seem like food prices will be dropping significantly anytime soon. We had a report out earlier this week, Canada's food price report, which is an annual one that tries to predict food costs over the coming year. And that report predicted another increase of between five and 7% over 2023. So that for the average family of four would result in an additional about $1,000 per year, just for the price of the same groceries that they paid in

2022. But they do predict that the second half of the year, things might level off, that we might start to see a little bit of relief. Now, it's important to say that when we're talking about relief, we're not talking about prices necessarily dropping. We're just talking about prices not necessarily increasing in as severe and sustained of a way as we have over the past year. And so we're going to continue paying a lot more for food then in the coming months, it sounds like. That's correct. And thank you so much for taking the time to speak with me today. Thanks for having me, Mainika. That's it for today. I'm Mainika Raman-Wilms. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show,

Kasia Mihailovic is our senior producer, and Angela Pichenza is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.