Food prices are heating up globally as soaring energy costs, wonky weather and an ethanol boom all combine to push grocery bills higher.
Canadian food prices are 3.1 per cent higher than a year ago, Statistics Canada said Wednesday, well ahead of last year's rate of 2.4 per cent. Higher prices for meat and dairy are the main culprits, but the pickup in prices spills into everything from bread and applies to ice cream, eggs, jam and juice.
The reasons vary with each product, but one factor behind higher prices may be an ethanol boom south of the border, with Canadian chicken and dairy farmers saying they're seeing higher feed prices.
“Corn and wheat prices are putting upward pressure on food in general,” said Ron Morency, acting chief of Statscan's consumer price division. “We see that right now in our meat prices.”
The Bank of Canada acknowledged higher food prices last week, particularly for fruits and vegetables.
But food inflation is a hot topic everywhere these days. U.S. food prices rose again last month, fuelled by the biggest increases in poultry and dairy prices since 2004. Food inflation is also cooking across Europe and Asia, a trend that's likely to continue as global demand soars.
“It's not going to let up any time soon,” said Adrienne Warren, senior economist at Bank of Nova Scotia. “Short term, it might be weather-related. But longer term, it's growing demand for food in emerging economies, with growing middle classes and purchasing power, and the global demand for ethanol and biodiesel.”
This month, the Organization for Economic Co-operation and Development said higher demand for biofuels is causing “fundamental changes” to agricultural markets that could drive up prices.
They see “structural changes” under way that could well keep prices for many agricultural products higher over the coming decade.
“We haven't seen anything on this scale before,” Martin von Lampe, an agricultural economist in Paris at the Organization for Economic Co-operation and Development, told Bloomberg News.
Net food importing countries, as well as the urban poor, will likely be hardest hit, the OECD predicts.
Corn prices have eased in recent months and it may be that now energy – rather than ethanol – is putting the real heat on food.
Oil prices are now trading at an 11-month high, and those higher energy costs are putting the squeeze on many farmers.
In Canada, the situation won't be as dire, for several reasons.
First of all, food's not the biggest component of Canada's consumer price index. It accounts for about 17 per cent of the CPI, while shelter makes up 27 per cent.
Secondly, a Canadian dollar at a 30-year high should limit the cost of food imports.
And thirdly, raw materials aren't a big part of food costs. Ms. Warren of Scotiabank figures only about 20 per cent of the value of most food products are actually based on the farm price.
“The basic food cost is a fairly small share of the final retail price of most food goods, and a falling share over time. Advertising, transportation, labour and packaging make up a much bigger component,” Ms. Warren said.
For example, Canadian farmers got about 6.5 cents from a box of corn flakes that retailed at $3.57, a 2005 study by Canada's National Farmers Union found, with the rest going to other parties.
The retail price of a 675-gram box of corn flakes is now $3.94. A year ago, it was just $3.75.
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