When it comes to food prices, the Canadian government has its hands tied

The rhetoric around inflation and rising food prices has become a focal point for politiciansespecially for those who oppose the current government.

Even experts and non-profit organizations are pressure the government to take specific action on food prices. This begs the question: should governments take action to reduce food prices? And more important – can they or they?

That’s not to say that food inflation doesn’t matter. He has clear impacts on food security in North America and globally. While some say there is not much to dothe government can take certain measures.

Limit food prices

The most obvious action the government could take is to regulate food prices using ceiling prices. This is virtually unheard of in North America, but happened elsewheremore recently in Malaysia where the government announced price control measures for major commodities.

Although it may seem like a good idea at first, price caps eventually take money out of the system. If this money is not replaced (i.e. thanks to government grants), the products cease to be produced or move to other more profitable markets. Currently, the Canadian government cannot afford these kinds of subsidies because of the debt accumulated as a result of COVID-19 relief.

Dairy cattle on a farm in Surrey, British Columbia In Canada, certain products, such as dairy and poultry, are subject to national production controls that ensure farmers are paid fairly.

Some products, such as dairy and poultry, are subject to national production controls. Farm gate prices are set on the basis of a production cost model, which means that farmers get back the amount of money it costs to produce their products. If grocery store prices were capped, retailers and processors would make less money and fewer dairy products would hit store shelves.

Price caps are not practical for foodstuffs. They are unlikely to achieve great results and end up hitting farmers, processors and retailers the hardest. In the long term, they end up reducing access to products and stifling innovation and investment in research.

Limit food exports

In some countries, governments have chosen to limit exports – meaning that goods must be sold domestically – as a means of reducing food prices. Argentina did it recently after wheat prices rose following Russia’s invasion of Ukraine. While this is good for domestic consumers, it imposes a burden on farmers who could shut down production in favor of selling unregulated produce.

Export taxes can also be used instead of export controls. While these stabilize domestic prices, they end up hurting domestic producerswhich get lower prices, and importing countries, which face higher prices.

Canada, as major food exporter, cannot afford to let its reputation as a trusted exporter be compromised. Moreover, limiting or taxing exports would have little impact on domestic prices, but would have negative impacts on Canadian producers and export customers.

Shipping containers loaded onto a freighter
A container ship is loaded at the PSA Halifax terminal. Canada is a major food exporter.

For food importing countries, like india, the reduction in import duties may also contribute to lower domestic prices. Import duties are often used to protect domestic producers. In most cases, Canada does not apply high tariffs on food products, with the exception of supply-managed products, so this approach is not widely applicable.

Some US states are consider removing food taxes. In Canada, most food products sold at retail are not taxed, so this is not an option, although a similar tax is used in Alberta to reduce transportation cost. A criticism of this approach is that it benefits those who spend the most, rather than those who need it most.

What can governments really do?

Another option could be to tackle the root causes of inflation. However, many of these factors, such as drought and extreme weather eventsthe war in Ukraine and supply chain disruptions — are beyond the control of the Canadian government.

There have been CEO talks and political parties on implementing a grocery store code of conduct to regulate how large grocery companies interact with their suppliers. While a code could benefit grocers and their suppliers, it’s unclear whether it would actually reduce food prices for consumers.

A tractor plowing wheat in a field
Workers plow wheat in western Ukraine in March. Ukraine and Russia account for a third of global wheat and barley exports, leaving millions of people in North Africa, the Middle East and parts of Asia facing food shortages.
(AP Photo/Nariman El-Mofty)

Although governments can’t do much about food prices, policymakers can still provide broader economic relief. People with the lowest incomes feel the pinch of inflation more than others — they are pressured not only by rising food prices, but by rising rent and Fuel prices.

Income support for those on the lowest incomes would help reduce the burden of the rising cost of living. Broader tax relief could also ease pressure on the middle class, but tax relief is less effective for low-income people who pay little tax. Targeted programs, such as school food programs announced in the 2022 federal budgetcould also increase access to food for vulnerable populations.

Politicians who criticize the incumbent government for rising food prices should be challenged to come up with real proposals that would set them apart. It’s not an easy fix and we shouldn’t pretend it is.