January 11: Brace Yourself for Higher Food Prices

Article by Sylvain Charlebois featured in the Montreal Gazette

GUELPH, Ont. — Last year, Canadian consumers experienced only modest increases in food prices. In fact, not only did food prices in general barely go up, but prices for fruit and vegetables decreased by more than 8 per cent. Unfortunately, this year will be a different story. Several forecasts predict food prices will go up anywhere from 1.5 per cent to 3.5 per cent, probably exceeding our national inflation rate.

That means that many consumers will have to rethink how they will spend their hard-earned discretionary income. Meat- and poultry-lovers will be especially hard-hit, as prices for meats will probably increase by more than 4.5 per cent.

With this rise in food prices, spending in other sectors is bound to decrease. A family may need to pass on that trip to Cancun or that new oversized television set.

While Mother Nature is always partially to blame for food-price hikes, the new normal in the agriculture business is fluctuating food prices influenced by knee-jerk, hedging-like schemes perpetrated by an array of stakeholders in the industry.

The drought across North America in 2012 had a relatively strong impact on food production and, in turn, will affect food prices in 2013. The drought, the most extreme of its kind in recent history, saw commodity prices increasing at a rate well above normal expectations. This was especially the case for corn and soybean crops in the Midwest, the area hit hardest by the drought. Many cattle producers liquidated their herds to hedge against higher feed prices. With less supply on the market, by the time we reach barbecue season this spring, Canadians will probably pay more for their favourite cut of steak.

The situation with grains is not great either. Primarily due to the lack of buffer inventory in many countries to mitigate against unpredictable climate patterns, the coming year will almost certainly see climate change have a bigger effect on food prices. Without extra grain inventory, droughts, floods or other weather shocks will make markets more volatile and may, in turn, have a negative effect on the wallets of Canadians.

That said, Canadians will get some welcome help from an increasingly competitive food-distribution landscape. Major players in food retailing have been adjusting to Walmart’s aggressive strategy in the Canadian market. The U.S.-based giant has opened many new supercentres in recent months, and most large Canadian retailers, particularly Loblaws, have felt the pain. Target’s imminent arrival in the Canadian market will create the perfect storm of competition for food retailers looking to retain their market share. Keeping food prices lower is a quick way to fend off competition.

Metro and Sobeys in particular will probably experience a harsh assault in Eastern Canada courtesy of Walmart and Target. The result may be more consolidation in the food-retailing industry, and it wouldn’t be surprising if Canada loses one major food retailer over the next year or two. But at least in the near term, food prices at the local grocery store will be lower for Canadian shoppers.

The strong Canadian dollar will also help Canadian consumers looking for good deals in grocery stores. Canada is a large (more than $20-billion-a-year) importer of foods from the United States, so every cent gained by the loonie against the greenback has a significant impact on our buying power. When we factor in the perilous state of the U.S. economy and the relative stability of our own economy, the value of the Canadian dollar against its U.S. counterpart is very likely to go up.

It is worth noting that energy won’t be much of a factor, unlike in previous years. As the U.S. government hones its efforts on energy sovereignty, the cost of food processing and distribution will remain relatively stable for a while.

Despite these positive signs, though, the higher cost of meat and poultry could prove a hardship for some families.

There is something that consumers can do at home right now to help extend their food budgets: become better food-waste managers. Studies have shown that Canadian households waste about 38 per cent of the food they purchase in stores and restaurants.

By adopting better shopping practices and using leftovers in creative ways, consumers could save more than 10 per cent in food costs — more than enough to offset anticipated food-price increases over the next two to three years.

Becoming a better food-waste manager would be a worthy New Year’s resolution.