Food inflation on the way.
From farm to fork, not all carbon taxes created equal
COVID has had an impact on our food industry but, over time, resilience will prevail.
However, the government’s pre-holiday announcement to increase the carbon tax to $170 per tonne by 2030 will have a long-term effect, and the consumer will probably pay the price.
Climate change is a real problem and concerns us greatly. Everyone agrees that we need to act quickly, and the carbon tax seems to provide a simple and fair solution. The Trudeau government is clearly committed to the tax now.
This tax, which is more of a policy and not a tax per se, is essentially aimed at penalizing polluters. A good idea, in principle, but such an approach is short-sighted in many ways.
For some farmers, $170 per tonne is a game changer. By 2030, a typical 5,000-acre farm would have to shell out a significant sum of over $150,000 in new tax, based on some estimates, without any compensation. That is enough to compromise any farm’s ability to make a profit.
Furthermore, the impact of a $170 tax on the competitiveness of the sector will depend greatly on what happens at Canada’s borders and beyond. Given the competitiveness of national and international food markets, such a tax imposed in Canada but not in other major exporting and importing countries will undoubtedly penalize our farmers.
Producers cannot increase prices even if production costs increase on the farm. This is quite simply price-taking economics. Unlike the processing and distribution sectors, this economic reality afflicts production specifically.
ADVANTAGE FOR IMPORTERS
The government is considering imposing a border control tax on food products from elsewhere, but nothing is confirmed. In other words, by taxing our domestic production, importers will have a significant competitive advantage. Protecting our farmers is imperative.
Of course, with the arrival of the Biden-Harris administration in the White House, things could get easier internationally. Like the Canadian government, President-elect Joe Biden intends to ratify the Paris Agreement, which encourages states to achieve carbon neutrality by 2050. To this end, American producers may also have to pay a tax.
Producers are among the best environmental stewards in the world. They earn their living mainly by having access to abundant natural resources. Environmental recklessness is just not an option. But incentives to make big changes are lacking. For example, there is no economical substitute for propane to dry out grain at harvest. We need to develop new technologies to offer environmental options to producers.
As for consumers, there are significant risks, as well. Farmers keep claiming that food prices will rise, in part because of the carbon tax, which will hit $50 per tonne by next year. This argument, though, doesn’t really hold water. Quebec and British Columbia have had this tax since 2007 and 2008, respectively, and food prices have not increased faster than elsewhere. In addition, consumers receive credits as compensation.
FOOD INFLATION
It remains unclear how consumers are compensated for higher food prices spawned by fees paid by the food industry. With a tax of $170 a tonne, the idea that it could have an impact on retail prices is much less farfetched. Further research is required, but it is certainly possible that our food inflation rate will increase significantly by 2030.
As presented, our carbon tax policy is not just about penalizing polluters in the food industry, from farm to fork. It mostly inhibits farms and forks.
Some consumers will be willing to pay the right price for food to help save the planet, so the effects of a carbon tax will not be much of an issue. But for many others, who struggle to make ends meet, their budgetary reality will be an obstacle even as credit is provided. The federal government is clearly not considering how the carbon tax could potentially put many Canadian families in a state of food insecurity by 2030.