Origins of the increase in food prices explored

Inflation is a fact of life, but if you have been in a grocery store lately, you may have gotten the impression that it is hitting the food sector a bit harder than is typical.

And you’d be correct.

It started when the COVID-19 pandemic arrived in Canada. Added requirements to sanitize facilities and provide personal protective equipment caused costs to rise at every link in the food supply chain; on the farm, at processing, in logistics, and finally at the grocery store. 

Then there were outbreaks at various processing facilities, particularly meat packing plants. Cool and moist environments are perfect places for the virus to flourish. Those shutdowns slowed down production, which put a strain on supply while demand remained steady or was increasing. 

Canada’s Food Price Report 2021, published last December by the Arrell Food Institute at the University of Guelph, Dalhousie University, the University of Saskatchewan and the University of British Columbia, forecasted an increase to food prices between three and five per cent, and, while at the higher end, we continue to trend in that range. 

However, this isn’t entirely because of the impact of the pandemic. 

In March, a 400-metre container ship got stuck in the Suez Canal, blocking traffic in one of the world’s busiest trade routes. This alone led to shipping prices increasing by three times this year.

Then Mother Nature joined in. Droughts have had a particularly nasty impact on food pricing in 2021. Dry conditions in Brazil caused a 17 per cent increase in the price of coffee since the beginning of the year. 

Closer to home, the Canadian Prairies and northwestern Ontario were hit hard with a drought this past summer that devastated livestock and grain crops. The ripple effect of this cannot be underestimated. 

When the price of grain goes up, so too does the price of animal feed. When the price of animal feed rises, so too does the price for steaks, bacon, ground beef, pork chops, chicken breasts, eggs and other products in the meat section or butcher shop.

High grain prices also impact what we pay for items like pasta and bread. 

Finally, there is the standard supply-and-demand impact. China is the top consumer of meat products in the world, and right now its demand for meat is spiking. 

This puts a strain on global meat supplies, and as the supply-and-demand theory goes, as demand increases and supply dwindles, prices will rise. 

It isn’t a rosy picture, and it is easy to feel powerless when looking at these international, geopolitical, and weather-related influences for what goes into producing safe and reliable food and getting it to market. But there are strategies that farmers and primary producers in Ontario can employ to prepare for the increasing rate of rapid change.

First, the impacts of climate change are a double-edged sword as they result in smaller yields, but prices for those yields are skyrocketing. At the same time, the changing climate is also shifting the profile of the kind of crops that can be grown while opening new avenues for diversification. 

These twin challenges, resiliency and diversification, can only truly be addressed by embracing cutting-edge science, research and development that is necessary to ensure Ontario remains a global agriculture leader. 

Through the Ontario Agri-Food Innovation Alliance, researchers at the University of Guelph are leading the way in ensuring that Ontario is exploring new technologies that directly support primary producers across all commodities. Examples include better protecting fruit trees from extreme environmental changes and developing methods for propagating plants from a limited tissue sample that will help turn conservation into commercialization. 

As the agri-food sector looks for ways to improve processes, streamline methods and implement new technologies, the University of Guelph is proud to help drive these improvements. 

Further, precision agriculture based on real-time information technology can help Ontario’s agri-food sector best manage resources and improve production. Primary producers can leverage the power of data to increase productivity and develop new products. 

Farms across Ontario are already collecting data on all aspects of their operations and then sharing that information with other producers, processors and retailers.

For example, at our research facilities in Elora, which are part of the Ontario Agri-Food Innovation Alliance, more than 300 monitors are collecting data on the movement and behavior of dairy cattle while 1.8 million soil data points are collected per day to inform our soil health crop research. 

As consumers demand more information on their food, the type and quality of what is produced becomes increasingly important. Data collection will lead to increased productivity and efficiency and more evidence-based decisions.

Investments in branding and marketing of value-added products can have a valuable impact for farmers and producers. Our agricultural output exceeds domestic needs, and our sector is among the most safeguarded and regulated in the world. 

There is a major opportunity for Ontario to advertise our agri-food products to new markets with an emphasis on quality, food safety and sustainability. While these measures do represent an up-front cost, these marketing and branding investments will pay dividends over the long term, helping toward the realization of higher demand and new revenue streams.

Food prices have always and will always rise with inflation. The agri-food sector in Ontario can begin to prepare for the future of farming and take a leading role. 

Simon Somogyi holds the Arrell Chair in the Business of Food and is a Professor in the Gordon S. Lang School of Business and Economics at the University of Guelph. His research into food pricing in Canada is partially funded by the Ontario Agri-Food Innovation Alliance.