Sharing the Food Profit Wealth: Grocery Chains Need To Be Reined In

I’m definitely not living right.  It would seem there is rain everywhere, but here.  My crops continue to burn up.  The rain will come someday.  One thing I’ve learned.  Eventually you wake up and its here.  It’s not Monday or Tuesday, it’s someday and the rain will fall.

It can’t come fast enough but its pretty clear much of my crop is beyond recovery.  Who would have ever thought 1988 would return.  Enough said.

That is the luck of the draw. You can’t be involved in production agriculture and not expect bad years.   The law of averages will definitely catch up with you.  How it will play out with Ontario basis levels is yet to be seen.  Weather into August should make that even more intriguing come fall.

It may turn out there is a lot less corn and beans than there current basis levels warrant.  With our loonie popping into the 95/96-cent range over the last few weeks basis surely has been a dirty word.  However, there is a much greater truth, which wafts above all that.  Simply put in Ontario and the rest of Canada there are too few buyers controlling too many agricultural resources.

I see this in the grain market every time I write a commodity commentary.  I’ve touched on it before.  However the greater injustice goes far beyond that.  Canada’s food retailers are too few.  In fact if you put them in a seven seat SUV that would suit them fine.

My economist cousins call it ologopolistic competition.  In short, that means competition among very few firms.  When it comes to food retailing, it’d too small a club in Canada.  Canadian farmers through the inherent weakness of their own agricultural economics make these folks rich.

They go by several different names like Fortinos, Loeb, Valu-mart and Foodland.  There are regional variations but the big players are Loblaws, Metro and Sobeys.  At the end of the day when Canadian consumers go to get something to eat, these very few players determine what’s good for them.

It’s easy to vilify them from a farm perspective.  However, they create a lot of employment and do get everybody fed. I’ve said it many times before however, that the system doesn’t work.  In my mind consumers still pay too much for food and farmers definitely aren’t rewarded for their labour.

It is what it is, but there is a wide gulf between equity at both levels.  For instance during the worst moments of BSE crisis there was no relationship between the farm gate price of beef and the cuts sold in the grocery stores.  Why?  Well, you can make up any old excuse you want.  Simply put, the very few players in the market held prices high and got supernormal profits while beef farmers’ hemorrhaged money.  Some of that has to do with being a price taker versus a price setter, but at the end of the day it was ethically wrong.  Consumers at the time were like sheep to the slaughter.

The livestock farmers feel it most directly.  The closer you can get to the consumers’ dollar the better and sometimes easier it is.  Some beef producers have the opportunity for direct sales to the consumer.  Pork producers and even some feather producers can do the same thing.  So when they see some of the prices being charged for some of the cuts, it’s surely grating.

From my perspective grocery store owners try to carry local produce.  However, as you get away from rural food stores, that clearly doesn’t matter.  Cheap, cheap, cheap are the only criteria.  At the same time farm income is always the problem.  Farmers typically look to government for a policy to stabilize income.  It would seem our grocery store chains are almost bereft of any responsibility.

That was clearly exposed in the winter of 2006 in Eastern Ontario.  Food terminals were tractor blockaded by farmers in an attempt to get government to move on agricultural safety nets.  It was one of the first tangible links I’d ever seen of farmers holding grocery store companies accountable for their profits from farmer labour.  The grocery store execs were completely flummoxed.

An argument can be made corn producers are getting closer to the consumer’s dollar through ethanol.  However, when you are selling corn in a market like Ontario with very few ethanol buyers and turning around and mixing it with gasoline produced by the oil companies something doesn’t seem quite right.  In effect farmers are selling from one oligopoly to another.  With corn being corn, it would seem the best way of getting closer to that consumer’s wallet.

How should farmers work to change this?  Well, there is the federal competition act, which could be enhanced.  There also has been the idea of a food tax bandied about for years. (Destined for farmer’s pockets)  Federal agriculture minister Chuck Strahl might argue his new agricultural safety net creates a policy environment where farmers can thrive in spite of the inequity with the grocery store.

Who knows?  The important thing to realize is this great Canadian food/agriculture paradigm is heavily waited in favour of the big grocery chains.  They dominate the whole system and act as if it should stay that way.  Chuck Strahl and the federal Conservatives think they have it right with their recent announcement of a new safety net.  I’ll give them credit.  However, it’ll never be right until the grocery lobby in this country shares the wealth more equitably than its shared now.