I was recently part of a conversation, amongst a few women, about a sale on butter and how everyone had stocked up on the yellow bars for baking. These conversation topics have become increasing common amongst Canadians as the price of basic staples are eating up a larger share of disposable income.
High food costs have become a part of the new normal here in Canada. Food prices are up almost 25% since 2020, which far outpaces wage growth, or the overall price index. The issue has been getting a lot of political and media attention, with politicians and consumer groups taking aim at grocery retailers. The social media organized consumer boycott against Loblaws -the largest grocery retailer in Canada by market share- began in May and has been extended indefinitely. But are retailers responsible for the hike in prices or is it a general increase in the cost of food production?
If you’ve spoken to a farmer lately, you know the answer. Of course, most Canadians live in cities, far removed from the people who actually grow and produce the food they eat, so awareness of what is happening further up the supply chain is low.
But the reality on the ground is that the cost of agricultural products is up by far more than what consumers are seeing at the grocery stores. According to Statistics Canada Raw Material Price index, the cost of crops and animal products are up 38% and 49% respectively, since 2020. And this is directly tied to the cost of production. Energy and fertilizers are two of the biggest input costs for farmers in Canada- and these prices have soared by 34% and 48% respectively, during the same time period. Interest payments are another major component of the average farm costs, and these are up 66% over the same period.
As with the overall CPI, the growth rate of inflation seems to be slowing, but it is still growing and off a very high base. Certain geopolitical risks that drove up prices for fertilizers and energy on the global markets remain in play. And other key costs, including labour and interest expenses- are subject to the same inflationary pressures being felt economy-wide. According to the US Department of Agriculture (USDA), the high farm production costs will not be easing in 2024.
The Bottom Line: While the pace of inflation may be slowing, we are now working off a base that is unaffordable for many Canadians. Until the cost of production falls- including energy and fertilizers- food price inflation is not going away.
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