Could become a much more significant driver of food inflation than climate change itself
On April 1, the carbon tax will be set at $65 per metric tonne. We are slowly marching towards a carbon tax of $170 per metric tonne by 2030, more than double what it is today.
Yet, so far, not one study has looked at how the carbon tax will impact food affordability in Canada. Not one.
Ottawa is currently considering Bill C-234, which would offer farmers a desperately needed carbon-tax exemption for grain drying and barn heating. If no election is called, the bill remains on track to pass both the House and the Senate and become law by summer.
This would be welcome news for farmers who are subjected to price-taking economics. Taxing farmers more can only cost them more. Ottawa has now invested heavily in programs to help farmers adopt greener soil and energy management practices, but realizing any financial benefits from these changes will take time. And farmers need help now.
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But for the rest of the food supply chain, the economic impact of the carbon tax remains a mystery. The federal carbon tax currently impacts Ontario, Manitoba, the Yukon, Alberta, Saskatchewan, and Nunavut. Starting July 1, 2023, the list of provinces under the federal carbon pricing scheme will grow to include Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador. This will only leave British Columbia, Quebec, and the Northwest Territories, which have their own federally approved provincial carbon pricing.
According to a report from the Canadian Federation of Independent Business (CFIB), more than $8 billion will be collected from small businesses through the carbon tax by the end of fiscal 2023, but as little as $35 million will be given back as credit in the form of programs.
Many small businesses, especially family businesses, are in the food industry. In other words, much of the funding is disappearing into Ottawa’s big black public funding box, and few understand what the funds collected through the carbon tax are being used for.
Again, according to a recent survey from the CFIB, 56 per cent of businesses will have no choice but to raise prices due to pressures created by the carbon tax. While some may argue that businesses need to get with the times and reduce their reliance on fossil fuels, the funds are just not coming quickly enough to support small businesses.
In essence, Ottawa needs to help businesses which are part of our agri-food ecosystem. Bill C-234 is just a start. Food processors, artisan shops, and restaurant owners need more and better support, or else, by 2030, the carbon tax will potentially become a much more significant driver of food inflation than climate change itself. That’s right, the policy to penalize polluters could hurt citizens more than climate change, the very thing we are all trying to mitigate.
The ‘stick’ approach exemplified by the carbon tax could be complimented by a ‘carrot’ approach, such as tax credits, a reduction in other taxes or even new grant programs with minimal red tape, which could help businesses reduce their carbon footprint.
Ottawa should be applauded for doing something about climate change. Whether we agree with the carbon tax or not, at least the government is doing something about the climate change problem. But when looking at supply chain economics and as the carbon tax increase over time, our trust in food affordability hangs in the balance. We need to assess and forecast how the carbon tax will burden our food suppliers over time and evaluate how we can support food companies in their journey to a greener future while remaining profitable.
Many families severely impacted by food inflation are quick to criticize grocers for higher food prices. Many, however, don’t realize how our current fiscal regime is making it more difficult for many companies to keep food affordable. Without careful consideration, many families already suffering will be impacted even more by some of these environmental policies.
At the very least, we need to know how significant the impact will be.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.
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