Globe reporter Heather Scoffield was on-line today to discuss her article last week The rising price of a cheaper grocery bill.
Ms. Scoffield writes in her article: "The portion of disposable income that Canadians spend on food has slowly eroded over the past decade. In 1997, Canadians put 12.5 per cent of their spending money towards food. Today, it's about 9.25 per cent . . . But a smaller and smaller portion of that is going to farmers. They are reporting the worst three years in recent history in terms of farm income."
Ms. Scoffield covered fiscal and monetary policy for the Globe and Mail's Ottawa Bureau before becoming the newspaper's economics reporter in Toronto last year.
She has written extensively about how public policy affects business and the economy.
Editor's Note: The same rules will apply to this live discussion as normally apply to the "reader comment" feature. Globeandmail.com editors will read and approve each comment/question. Not all comments/questions can be answered in the time available. Comments/questions will be checked for content only. Spelling and grammar errors will not be corrected. Comments/questions that include personal attacks, false or unsubstantiated allegations, vulgar language or libelous statements will be rejected. Preference will be given to those who ask questions under their full name, rather than pseudonyms.
Michael Snider, globeandmail.com: Hello everyone, and hi Heather, thanks very much for joining us today. Last week you wrote about Food Freedom Day, the day when the average Canadian has made enough money to cover the cost of food and non-alcoholic drinks for an entire year. While that sounds great for consumers, I gather the occasion holds less allure to farmers and retailers. I'm wondering if there's a breaking point somewhere down the road, when cheap food actually prices farmers out of the market.
Heather Scoffield: That's already happening. Stories about farmers abandoning their businesses, or having no one to pass them on to after they die, abound. Farm output has been growing in Canada, but the number of farms have been dwindling. It's all about economies of scale now. More and more, it seems the only farms that can stay afloat are the really large enterprises -- unless, of course, a small farmer finds some type of niche or value-added product that can keep him or her in business. Farmers say they've just experienced the worst three years in recent history, and next year isn't looking much better. It's not all because of cheap groceries, however. It also has to do with rising costs of energy.
Patrick Cummins from St. Stephen Canada writes: Why not remove all subsidies, dismantle all supply management monopolies, tax subsidized imports (at say 3x subsidy) and let the market take care of itself.
Heather Scoffield:Taxing subsidized imports is not really letting the market take care of itself. It's putting up a protectionist barrier that the trade lawyers and the World Trade Organization would have a heyday with. Plus, there are so many subsidies embedded in the global food trade that it would be next to impossible to nail down how much of the sticker price is a subsidy. And there's the broader problem of global prices that Canadian exporters have to face. Those global prices are lower than they normally would be without the massive agricultural subsidies offered mainly in Europe and the United States. An unsubsidized Canadian farmer would likely find it difficult to compete.
That being said, there are some countries -- notably New Zealand -- that have abandoned subsidies and left the farmers to figure it out on their own. In Canada, I doubt such an idea would fly. While the new Tory government does want to make the Canadian Wheat Board a voluntary endeavour (it's mandatory for now), it has made it clear than any major reduction in farm subsidies is not on the agenda for now.
Colin Ellard from LaHave Canada writes: A box of cornflakes = $3.50. 11 cents to the farmer. 3.5 cents to the grocery store. Can you outline for us where the rest of the money goes? It seems that somebody's doing well. Also, can you comment on the impact of organics on the food business? It seems to be an area of strong growth in Canada (judging by changes in grocery store offerings in the last few years).
Heather Scoffield: It's been next to impossible to track down an exact break-down of who gets what part of that $3.50, but you have to think of what goes into a box of corn flakes: there's the cost of the box, the other ingredients besides corn, the plastic lining, processing, shipping and marketing. A recent report by Liberal MP Wayne Easter finds that the middle-people in the food chain are quite profitable.
As for organics, some figures I saw recently suggest it is a very small part of our total food consumption right now, but it is growing very quickly. Some farmers who are struggling with the low returns they receive for conventional crops are switching to organics in an effort to salvage their businesses.
Wendy Moss from Regina Canada writes: Even in a province like Saskatchewan that is presumably tied to its agricultural industry, I encounter negative attitudes towards farmers. The most predominant typically involves people stating they're tired of farmers in fancy trucks complaining about what they make. Having grown up on the farm, I know that the 'new truck' is a myth except for a VERY few. Most employees would shut cities down and hold strikes in the street if their wages were cut in half. However if you look at grain prices, this has in fact happened to western Canadian farmers. Why is there so much animosity and negativity towards people who feed us and the myth of the rich farmer?
Heather Scoffield: I detect a certain amount of cynicism from the public about farmers constantly complaining their in the midst of a crisis. However, I don't hear many rich-farmer comments around here. There seems to be some general sympathy with farmers and the amount of work and dedication it takes to produce a solid, safe supply of food for Canada.
Mike Hall from Grenfel Ontario Canada writes: Hi Heather. I'm a farmer, so I'm writing from that perspective. As far as grocery retailers go, I think their comments on ' razor-thin margins' are misleading. I know from my connection with a dairy goat cheese processor how Loblaws, for instance, charges significant fees for shelf space while at the same time requiring the supplier to maintain a consistent wholesale price for several years. They also require the processor to provide discounts to allow Loblaws to offer specials on the product. They may also charge to feature the products in flyers. In addition, a conglomerate like that owned by the Weston family can derive profit all along the chain -- Loblaws might make 5 cents on a loaf of bread but the bakery (Weston) they own also makes a profit in the middle. Westons also own Neilson Dairy, thus allowing them to resell their own product in Loblaws. From a farmer's perspective, all this simply illustrates the massive corporate power amassed again farmers who are trying to make a profit selling the raw product. Is that a fair statement?
Heather Scoffield: There's a key point to make about the proverbial box of corn flakes that I used as an example in my story. The 11 cents that goes to the farmer is revenue, not profit. The profit is zero, in many cases. The 3.5 cents for the retailer is profit. Generally, retailers say they have about a one per cent profit margin. Judging from my interviews with agricultural economists, I think it's true that the retailing and food processing businesses are concentrated, and becoming moreso as they prepare for the arrival of Wal-Mart's fresh food business later this year. Farmers, too, are consolidating and becoming larger, but their market power does not equal that of the processing and retailing industries.
Robert Komlosi from Montreal Canada writes: I found your article to be very interesting. It supports my thoughts about the poor farmers. I also believe this to be true regarding the price of Beef and what a cattle rancher makes. Do you have any information regarding the beef industry and how much goes to the rancher.
Heather Scoffield:I have a couple of facts about beef from the Canadian Federation of Agriculture. They estimate that, in 2003, a rancher received $1.83 for a top quality steak that cost $14.00 at the store. Of course, the beef market has been skewed in the past couple of years by mad-cow disease, which drove down the price ranchers received for their beef, despite stable prices at the retail end.
One other fact about beef: consumer prices for beef are up 40.8 per cent since 1992, according to Statistics Canada.
Larry Perlman from Toronto Canada writes: Hi Heather: If this is considered a 'problem', then it certainly is a problem most Canadians would like to have. I live in nortwest Toronto, where the competition among grocery retailers is so fierce that it makes me wonder whether anyone is making money in the industry (I am within 10 minutes drive of at least a dozen major grocers). Since they tend to make money, I for one wouldn't change a thing from this end. Isn't the real problem that there are far too many farmers in Canada? Subsidies and trade protection tends to keep more of them on the land! Would it not make more sense to simply match any subsidies that the US or EU give to their farmers (to prevent the destruction of the Canadian corn business for example) and encourage more farmers to get out of a losing business?
Heather Scoffield: Definitely, the competition and low food prices are a consumer's dream. As for the farmers, it's true that government subsidies do help them get by. As a country, I think we have to ask ourselves a cultural question, rather than an economic one: do we want to keep farming communities alive through government subsidies? If subsidies were cut, many farmers would indeed move off the land, giving way to more consolidation in the farming business. But is this the way we want rural communities to develop?
J L from Halifax Canada writes: I am interested in understanding if this decline is consistent across the country. Having recently moved from Toronto to Halifax I have noticed a significant increase in my grocery bill. Staples such as milk, fruits and vegetables are much more expensive in Nova Scotia, which has resulted in me directed a higher proportion of spending towards food. Is this decline attributable to one region within Canada or is it country wide?
Heather Scoffield: There's no doubt that location changes food prices a great deal. We have all heard about the exorbitant prices that people in the Far North have to pay. Competition at the various stages of the food chain as well as distance for deliveries seem to make a big difference.
Bryan Vroom from Guelph Canada writes: Can it be said that while less money is reaching Canadian farmers in terms of food expenditures more money is reaching developing countries building their agricultural infrastructure and raising standards of living? It seems to me that pain at home caused by increased international competition in food markets is worth it when seen from a global perspective. Can you comment?
Heather Scoffield: A couple of points. The key figure for my story was the percentage of disposable income spent on food. That percentage is declining slowly. As Canadians make more money, they spend their extra cash on other things, not food. I don't know whether more of Canadians' money is reaching developing countries. At global trade talks, poor countries complain constantly that they are shut out of global food markets because they can't afford to match the subsidies of Europe and the United States. That being said, some emerging markets are making huge strides in the food export business -- notably Brazil and China.
Christian Lander from Bloomington United States writes: The current state of farm economics is created a de-stablising model for the entire world. We see third world nations shifting their production from sustainable crops to feed the local population to growing profit food stuffs like shrimp and other western luxury foods. As a result we are seeing local and foreign farmers being exploited by large agribusiness. Is it viable to think the Canadian government will follow the model put forth by the French government which gives massive subsidies to French farmers (and huge food bills to the French population) and easier access to fresh food markets for the citizens?
Heather Scoffield: I doubt we will see a major hike in farm subsidies in Canada. Our participation in global trade talks pretty much precludes that option. Rather, Canada is arguing just to keep the subsidies and supply management systems already in place. Subsidies in Canada are much lower now than in the early 1990s, and much lower than in Europe. A recent report from the Organization for Economic Co-operation and Development pegged government support for farming in Canada at 21 per cent of net farm income in 2004, compared to 33 per cent in the European Union. The average for the OECD countries was 30 per cent.
round fourDeb Lethbridge from Toronto Canada writes: I agree that our food prices are low. We seem to pay higher prices because of the processing and because grocery stores do not just sell food any more. Has anyone looked in their grocery cart lately? how much of what you are purchasing is food? How much are paper, cleaning and wrapping products? (These add to the bill and they are not food). How many items of clothing or furniture or plants have you purchased? (again, not food).
Heather Scoffield: I spoke to Alfons Weersink, a professor of agricultural economics at the University of Guelph, about this. He said generally, Canadian consumers have indeed been buying much more processed and pre-packaged food, as well as going out to eat fast food or to restaurants. Overall, the price of all the food we eat has kept pace with total inflation in Canada -- meaning that prices have generally been flat over the past 14 years. And so, yes, if your grocery bills seem to be rising, it's probably because you're buying non-grocery items from the grocery store, or because you've changed your eating habits and are now buying more processed and packaged foods.
Dan Baril from Oakville Canada writes: Hi Heather, isn't the declining percentage of food spend purchase not also a function of rising income? For the most part we don't eat more just because we earn more (although that's debatable :-) But seriously, even considering inflation I would have expected the percentage to be lower given that incomes rise and we don't necessarily eat more. Also, I may have missed it, but do you include food-out in your percentages? Meaning a proper expression of our food spend should also account for restaurant food in which case there may in fact not be a percentage drop, but rather a shift, and considering the higher prices in restaurants than at home, maybe even an increase in the percentage of food relative to income?
Heather Scoffield: It's true that there is a limit to how much we can eat. But tastes can also change with rising income. A richer person can afford to buy high-quality food, exotic ingredients, or more processed food &ndasg; all of which cost more than conventional groceries.
Many of the numbers in my story were crunched by the Canadian Federation of Agriculture using Statistics Canada's data on food and on farm product prices.
If you're inclined to ponder statistics, here's another set of numbers to consider: Statscan's consumer price index (a measure of inflation) gives a weight to each item in a basket of goods according to how much Canadians spend on that item every year. In 2001, the CPI assumeed that 11.72 of all spending by consumers was on food from stores, and 5.12 per cent was spent on food from restaurants. In 1992, food from stores had a 12.57 per cent weight, while food from restaurants had a 5.42 per cent weight.
So it all depends on how measure these things.
Heather Scoffield:Thanks for all your questions. The world of food economics is a bewildering one full of complex statistics that are hard to decipher, but I think it's clear that Canadians have access to a cheap and reliable market of good food.
But at what cost to the Canadian farming community?
Europeans, especially the French, have decided that the farming community is worth protecting, even if it means high subsidies and trade-distorting practices. Other countries have decided to let the farmers fend for themselves. Canada has taken a middle track that will probably mean a constant struggle between farmers and governments about where the right level of support lies.
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