Besides the countless human tragedies brought by the war between Russia and Ukraine, the conflict has also led to strained supply chains and significantly rising costs of energy. Although some countries in Europe are more affected than others, food prices have significantly increased across the old continent due to exploding energy costs and rising inflation. And the rise in food prices is not specific to Europe. Prices for food have increased around the world, leaving many more millions of people on the brink of malnutrition and starvation.
What is interesting is that in Canada, where food prices also rose significantly, a new term was coined: greedflation. According to Wikipedia, it means price-gouging by corporations during an inflationary period, especially when the underlying cost of production hasn’t risen accordingly. A closer look revealed that the cost of food is at a 41-year high. Still, the Canadian grocery store giant Loblaw reported that its first-quarter profit was up nearly 40%, and net earnings up 17%. Similarly, other grocery giants like Metro and Empire have seen significant increases in profits and net earnings. After consumers voiced their discontent, the situation turned political. Charlie Angus, a member of the parliament of Timmins-James Bay stated: “So they [the grocery chains] were bragging to their investors that they were making record profits, yet they were telling people at the grocery store, [the cost of food] has jumped so much, it’s because of inflation.” Angus called it “greedflation”. As a consequence, a motion in Canada’s Standing Committee on Agriculture and Agri-Food was passed to investigate if major grocers overcharged their customers. The chief executives of Canada’s major food retailers will have to appear before a parliamentary standing committee to justify the pricing of their products.
And in Europe? The International Monetary Fund (IMF) issued a stark warning to European leaders earlier this month that the toxic mix of high inflation and flagging grown must be addressed. It would be essential for authorities to tighten macroeconomic policies to bring down inflation. While some of the inflation can be explained through exchange rate changes, increases in manufacturing costs and increasing energy prices, almost 50% of the rising inflation is still unexplained, as the IMF graphic shows.
Source: IMF
Can the “unexplained” part of the inflation in Europe be explained by “greedflation”? According to the website “Social Europe”, the situation in Europe is no different from that in Canada. And some European governments have applied windfall tax to companies with extraordinary profits. Ursula von der Leyen, president of the European Commission, stated in a recent state of the union speech that in these times “it is wrong to benefit from extraordinary record profits by exploiting the war to the detriment of consumers”. But is it that easy? Are food retailers to blame for part of the enormous price hikes of food? A study by the Agri-Food Analytics Lab of Dalhousie University of Canada has looked into this. “We looked at financial reports from major grocers in both Canada and the United States. If ‘greedflation’ exists, the available data suggests grocers are not responsible.”, said Sylvain Charlebois, Samantha Taylor, Stacey Taylor and Janet Music. Their report shows negative gross margins for 2021 for four Canadian retailers. Interestingly, the three retailers that reported significant profits and net earnings growth, Loblaw, Metro and Empire, are not mentioned in the study. It is notable that the downloadable version of the report from Dalhouse University does not state who funded the research.
In summary, we do see a significant part of “unexplained” inflation in Europe and it cannot be excluded that this is in part due to price increases above normal production cost levels. But the jury is still out, both, in Canada and in Europe.
