Steep transportation costs, still-high prices of commodities, export restrictions and a crimp in crop yields have snuffed out the “era of cheap food.”
Consumers paid 4.8 per cent more for food in November compared to a year earlier, marking the fastest increase since July, 2009, Statistics Canada said Tuesday. Store-bought food jumped 5.7 per cent and restaurant prices 3 per cent.
Canadians have had years of access to cheaper food, and on average devoted far less of their household budgets to groceries than people in other countries. But groceries are now eating up a greater share of those budgets amid price hikes for staples such as milk, bread and eggs.
And it’s not a one-month phenomenon, given that food inflation has persisted throughout the year, and price increases are broadly based, from beef and baked goods to coffee, pasta and potatoes. That does not bode well as incomes stagnate, and may help explain why consumer spending has been lacklustre this year.
“It’s a fundamental shift – after years and years of food declining as a share of household budgets, it looks as if the tide has turned,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.
Mr. Porter does not believe the pressure on food prices will ease as some raw commodities prices continue to rise, just as a weaker Canadian dollar makes imports more expensive.
Some food producers are also dealing with higher prices. General Mills Inc. , maker of Cheerios cereal and Betty Crocker mixes, reported lower-than-expected second-quarter profit Tuesday as ingredient costs rose. It forecast inflation costs will be 10 per cent to 11 per cent in its fiscal year ended in May and has hiked its prices to offset that pressure.
Normally, consumers could simply substitute a cheaper food item for another. In this case though, “when so many staples are rising this quickly, in some ways it’s more serious than other kinds of inflation because you don’t have much choice in the matter,” said Mr. Porter. “In some ways, it acts as a tax on people, and robs them of spending power in other areas. It’s very tough to economize on your overall food bill.”
Canadians, on average, devote about 10 per cent of their household budgets to food, a share that has ebbed from three decades ago when it was about a quarter, according to Sylvain Charlebois, associate dean and professor of food distribution and policies at the University of Guelph.
He, too, expects it will now eat up a larger share.
“The era of cheap food has ended,” he said. “What we’ve seen over the last few years is the start of a new era, where consumers will be compelled to invest in their nutrition.”
Much of the recent increase in prices stems from a lag effect, he added. Increases in raw-material prices typically take six to nine months to show up at the consumer price level. Thus, hot commodity prices from the spring may be playing a role in November’s price increases.
Food and gasoline costs may be the most visible signs of inflation for Canadians – but other costs are escalating too, from financial services to tuition and airfares. Overall inflation stayed at 2.9 per cent last month. For the year, it’s on track to post its biggest annual gain in 20 years.
Basic food items are running much hotter than they were a year ago. Egg prices rose 12.3 per cent from a year ago, their fastest pace since 1981. Potato prices are 20.3 per cent higher, a jump industry experts peg to lower yields after a wet spring in the Maritimes, Ontario and Manitoba.
Global shifts are also showing up. Restrictions on exports in a range of countries – from Argentina’s soybeans to Vietnam’s rice and Russia’s wheat – are driving world food prices higher, and that’s also contributing to higher prices in Canada, said Ryan Cardwell, associate professor in agricultural economics at the University of Manitoba.