Food prices soared in Canada last year compared to the general inflation rate, but a food industry analyst says companies will have a difficult time raising prices in a recession.
Kevin Grier of the George Morris Centre in Geulph, Ont., also said last year’s price increases were not because food companies were reaping excessive profits at consumers’ expense.
Statistics Canada reported Jan. 23 that food prices increased 7.3 percent during 2008, driven largely by double digit increases in grain-based products, fruit and vegetables.
In comparison, the Consumer Price Index showed no increase over the 12 months when food was excluded.
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A January food industry analysis prepared by Grier said prices charged by food manufacturers to wholesalers and retailers increased 4.6 percent to the end of November, mainly reflecting higher grain and oilseed prices that food manufacturers had to pay during the first half of the year.
He said manufacturers still have not been able to pass on all the higher input costs from higher commodity prices last year, and they may have missed their opportunity.
“Economic challenges (in 2009) will result in a more difficult pricing environment,” Grier wrote.
“Grocers are always sensitive to their price image and this will heighten in 2009. Manufacturers will not have big increases in commodity prices to use as arguments for pricing increases.”
He said both food manufacturers and retailers probably face tighter margins in 2009.
Grier’s analysis was that one of the key reasons for a sharp increase in the food price index in 2008 was the erratic and rapid decline in the value of the Canadian dollar compared to American currency.
When the Canadian dollar was at par or above, the price of imported fruit and vegetables dropped.
However, prices soared in the last months of the year as the dollar sank almost 30 percent from its $1.10 peak, which is when U.S. producers become key suppliers.
“The assertion, therefore, is that while the price of food purchased from stores in Canada did increase dramatically in November (and December), it was due more to exchange rate changes and changes in costs as opposed to margin increases at retail,” Grier said.
At a Jan. 23 news conference, federal agriculture minister Gerry Ritz said higher food prices do not mean higher incomes for farmers. Canadian consumers still pay among the lowest prices for food in the world compared to income.
Labour, transportation and handling costs account for some increases.
“When you break it all down, the actual price at the farmgate hasn’t changed,” he said.
“If anything, it’s gone down.”
Ritz said he does not believe any part of the food chain is enjoying great profit increases from higher food prices. Costs are mainly the reason.
As well, he cautioned consumers not to overstate the amount of the increase.
“Canadians, when they look at their own bottom line, they still have to realize that they’re probably spending a lot less on their foodstuffs per capita than they are in other places in the world,” he said.
“That doesn’t help you when your food bill is going up, but certainly you have to realize that other places around the world are in far worse shape than us.”
