Trudeau threatens a ‘grocery tax’ on food retailers to mitigate rising grocery prices

While at the Liberal caucus retreat in London, Ontario, Prime Minister Justin Trudeau demanded grocers devise a plan to stabilize prices by Thanksgiving. Otherwise, tax measures may be on the way for retailers.

Trudeau threatens a ‘grocery tax’ on food retailers to mitigate rising grocery prices
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Prime Minister Justin Trudeau has threatened to tax Canadian grocers in a bid to lower grocery costs for families nationwide.

"Large grocery chains are making record profits," he claimed Thursday. "Those profits should not be made on the backs of people struggling to feed their families."

While at the Liberal caucus retreat in London, Ontario, Trudeau demanded that grocers devise a plan to stabilize prices by Thanksgiving. Otherwise, tax measures may be on the way for Loblaw, Metro, Empire, Walmart and Costco.

Industry Minister Francois-Philippe Champagne said the feds would also engage with other actors in the food industry.

"We're going to start with the five largest grocers in Canada, representing about 80% of the market, and we're going to be in solution mode with obvious deadlines and very clear outcomes for Canadians," he said.

"We're going to bring them to Ottawa, talk to them about meaningful action, and if they fail, there'll be consequences."

Trudeau did not rule anything out on what those consequences could be, "including tax measures." 

The call for relief comes as grocery prices rose 8.5% in July — nearly three times the overall inflation rate.

However, the Canadian Taxpayers Federation (CTF) believes another tax will not improve affordability when Canadians go to checkouts across the country.

"The last thing Canadians need is a grocery tax," said Franco Terrazzano, CTF Federal Director. "Instead of hammering Canadians with a grocery tax, Trudeau should scrap his carbon tax, making food prices more expensive."

"Another tax won't make groceries more affordable, it'll make them more expensive," he said.

Canada's Food Price Report 2023 predicted a 5% to 7% food price increase in 2023 following 10% increases last year, with vegetables, dairy and meat becoming more expensive.

The average family of four is expected to spend up to $16,288.41 annually on food this year — up an additional $1,065.60 from 2022.

As of July, inflation has overtaken the Canada Food Guide, according to Health Canada. Since last updating the Food Guide in 2019, prices for the most recommended foods have sharply risen.

"Not only are some nutritious foods more difficult to find, but they can also be more expensive," said the report Evaluation Of The Office Of Nutrition Policy And Promotion.

A kilogram of cabbage rose 12% from $2.71 to $3.03 a head, while half a kilo of spaghetti rose a fifth from $2.92 to $3.51. The consumer costs for other notable food items like margarine, chicken and grapes rose between 11% to 34%.

Trudeau has repeatedly accused major grocers of 'profiteering' amid high inflation, earning pushback from industry executives.

Loblaw, Metro and Empire denied these allegations before a parliamentary committee studying food inflation earlier this year.

On June 12, Parliament proposed an excess profits tax on grocers upon hearing the testimony of economists and large-scale retailers at the Commons Agriculture Committee.

Grocers testifying at the committee denied profiteering on food inflation, while the economists had varied opinions, reported Blacklock's Reporter.

"Despite the range of inflationary pressures, some large firms in certain sectors have reported record earnings, leading some to question whether firms may be contributing to inflation by driving up prices," said a committee report, Grocery Affordability: Examining Rising Food Costs In Canada

However, the Bank of Canada found that retailers passed on increases from their suppliers dollar-for-dollar, providing no indication they increased their margins. 

Last year, the Agriculture Committee attributed food inflation to global phenomena — war in Ukraine, spiking feed, fuel and fertilizer costs, supply chain interruptions and climate events.

Canada's leading food research institute, the Agri-Food Analytics Lab at Dalhousie University, concurred with the central bank on grocer profits. They called grocery "greedflation" a 'myth' and "failed to see any evidence of profiteering on all accounts."

Nevertheless, the committee recommended a windfall profits tax to counter food inflation but did not outline its scope.

According to the Budget Office report, Cost Estimates Of An Excess Profits Tax, the federal NDP proposed a 30% tax worth $7.9 billion annually in their 2021 election platform.

However, Walmart Canada CEO Gonzalo Gebara testified on March 27 that their profit margin on groceries declined last year but did not detail figures, reported Blacklock's Reporter.

"I want to state clearly Walmart Canada is not attempting to profit from these inflationary conditions," said Gebara. "Walmart Canada's gross profit rate from its food business declined last year."

Other grocers like Loblaw Companies reported three to four percent annual food profit margins — unchanged from pre-pandemic levels.

On Thursday, the Retail Council of Canada said rising food prices had nothing to do with grocer profits. They attribute the costliness of food to extra costs passed on from food manufacturers and producers.

"We are not going to participate in discussions that repeatedly fail to look below the surface as to the true cause of rising grocery prices," they said.

Anthony Fuchs, spokesman for the Food, Health & Consumer Products of Canada, representing food producers, condemned the timing of the announcement and the threat of tax measures.

"We believe that using taxation as a punitive measure on retailers, especially at this time, is not only ill-advised but might have a detrimental ripple effect on the whole food supply chain, including food producers," he said.

"[The] announcement, which proposed a broad approach to a nuanced issue, may lead to unintended consequences."

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