Yahoo Finance Matthew Lau: If MPs really wanted lower food prices, they would end supply management
For a while now, members of Parliament from all parties have been banging on about the grocery stores. Corporate greed and “excess” profits, they tell us, are to blame for current high food prices, as if grocery stores (or any business) trying to increase profits is a new phenomenon. They seem to believe we would all be better off if the entire food sector were run by non-profits, or better yet, the government. Can they really think so? As a rule, wherever prices are too high — whether in the grocery store or anywhere else — government is the reason.
The first thing to understand about prices is that some prices should be high. Market prices, set by supply and demand, signal the relative scarcity of goods and services. High prices ration demand and encourage supply. A problem only arises when prices are artificially distorted upward — as is the case today for many food items. Government overspending has artificially ramped up demand across the economy while government taxation and regulation have artificially depressed supply.
How does the government depress food supply? Consider the agricultural sector’s balance sheets. According to the latest Statistics Canada figures, farm assets include $46.3 billion in current assets (cash, bonds, accounts receivable, and inventory), $43.8 billion in quota, $12.6 billion in breeding livestock, $62.3 billion in machinery, and the rest in farm real estate and other long-term assets. Note that “quota” — the artificial monopoly value of government-issued pieces of paper that restrict agricultural output in Canada — is almost equal in value to the total cash, bonds, accounts receivable and inventory on farm balance sheets.
And the loss to consumers is much higher than $43.8 billion. That only represents the higher price consumers must pay for farm products. What it omits is the many billions of dollars more in lost “consumer surplus” because fewer food items are available for sale as a result of this government-enforced scarcity. See, for example, the video that went viral a month ago of an Ontario farmer destroying 30,000 litres of milk as required by federal authorities because of his “excess production.” Note that this $43.8 billion-plus price-gouging of Canadians is supported by all the same federal politicians who attack grocery stores over high prices. The House of Commons periodically votes unanimously in support of our government-run food cartels when our international competitors complain about them.
As if the existing supply management regime and other oppressive regulatory policies were not harm enough to consumers, further regulatory oppression is threatened that would heighten uncertainty, discourage investment, reduce production and raise prices throughout the agriculture and food sector. According to a report commissioned by Fertilizer Canada, the federal government’s plan to reduce greenhouse gas emissions from fertilizer use by 30 per cent from 2020 levels by 2030, will result in lost production of canola, corn, and spring wheat of $38.0 billion over the next seven years and more than $10 billion annually beginning in 2030.
Compare these many billions of dollars in governmental price-gouging and food destruction to the supposed “excess profits” of, say, Loblaw. Its financial statements show net income to common shareholders of $1.9 billion in 2022. In fact, the entire company’s value — which includes not only its food sales business but also a pharmacy and a bank — is $38.8 billion, or $5.0 billion less than the reported value of Canada’s farm quota. And for those who complain of obscene profit margins squeezed by rapacious grocery executives exploiting inflation, Loblaw’s net income last year was 3.4 per cent of revenue — a low margin reflecting the competitiveness of the market it operates in.
Yet the food-destroying politicians carry on castigating the food-supplying grocery stores, a campaign that will surely drive food prices higher. Fending off political attacks is now a cost of doing business: public relations, finance and corporate strategy teams have to be mobilized, and corporate executives’ time wasted trying to explain basic economics to parliamentary committees. And by sending the message that earning profits will subject companies to absurd political attacks, politicians discourage investment in the grocery business, thus reducing both competition and supply.
The government is now trying to help industry finalize a “Grocery Code of Conduct,” which the federal agriculture minister suggested will be imposed on companies if they do not “voluntarily” comply. That is preposterous. A much better idea would be to create a new Members of Parliament Code of Conduct. Its first rule should be: stop behaving like unaccountable fools.
Matthew Lau is a Toronto writer.
