Surprise! Food prices are on their way up

By Sylvain Charlebois
Professor
Dalhousie University

Prices will go up by as much as five per cent this year, or almost $700 more for groceries for the year for an average Canadian family

What was purely an academic supposition a few months ago is now actually happening. Along with higher interest rates, inflation is likely to become one of this year’s biggest business stories. And food prices won’t be immune.

Many agricultural commodity prices have skyrocketed over last year. Corn is up 84 per cent, soybeans are up 72 per cent, sugar is up 59 per cent, wheat is up 19 per cent and coffee is up 13 per cent.

And nothing suggests prices will drop anytime soon.

Once grains are affected, livestock sectors producing well-loved products like chicken, pork and beef will likely be impacted as well.

China is buying everything. And with the world economy out of sync, Asia’s influence has grown significantly in recent months. China’s economy grew by more than 18 per cent last quarter, while the U.S. is still recovering from the COVID-19 pandemic. This global economic unevenness will probably be felt for a while.

Meanwhile, investors are looking for higher yields for their portfolios, which makes commodities more attractive if one doesn’t have the stomach for investing in cryptocurrencies like bitcoin.

Some may experience déjà vu. Analysts suggest we may be experiencing an agricultural commodity supercycle like we witnessed in 2008, but without oil being involved. Last time, a barrel of oil was worth more than US$140. The food-for-fuel debate was at its height.

A commodity supercycle is a sustained spell of abnormally strong demand growth for commodities. That makes it more difficult for businesses to cope with. In some periods in 2007 and 2008, food inflation in Canada reached seven to eight per cent.

Those are massive numbers, considering that the inflation rate since then has largely been a non-story. But supply chains have been under tremendous pressure since the start of the pandemic and economic pressures from Asia are making market conditions much tighter.

Many food manufacturers have already signalled that processing costs have gone up. They’ve been warning the markets for weeks.

What may happen to retail prices is always challenging to predict.

Just last week, food retail giant Metro stated that it doesn’t expect food prices to increase by more than 2.5 per cent by the end of the year. But given the current macroeconomic environment, that’s highly unlikely. Prices will go up by as much as five per cent this year, as predicted by Canada’s Food Price Report many months ago. This represents almost $700 more for groceries for the year for an average Canadian family.

Some grocers say prices should remain stable for a while since they don’t want to spook consumers and generate more food inflation anxiety. But that’s just food price politics and the blame game is well underway. Nobody wants to be blamed for higher food prices at the grocery store.

But what’s happening is beyond any company’s reach in the food business. The supercycle boogie man is now among us.

The Canadian dollar has been surprisingly strong against the American greenback over the last several months. This kept the price of many imported foods, like produce, at low levels during the winter months. As our own agriculture kicks in and we see more locally-grown produce returning to the grocery shelves, Canadians should see prices stabilize over the spring and summer.

But growing everything locally won’t fix the problem. Everyone around the world is affected by this.

Things may get particularly complicated at the meat counter, with chicken and pork prices going up. And beef price hikes could happen as early as this fall.

COVID-19 didn’t help but it’s not the only factor contributing to what resembles supercycle conditions. Every decade or so, we go through something like this, so carbon tax opponents should also not jump to conclusions.

The problem is that Canadians must also cope with another economic double-whammy: higher housing costs and a weaker job market.

The good news is that our inflation rate will go up, which is exactly what we need to see interest rates go up. That’s the main reason real estate prices are out of reach for a greater number of people. Higher interest rates will calm things down for a while.

This may not be the kind of supercycle we’ve experienced before but it certainly will make things complicated for the rest of the year.

Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.