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Eat up: Cereal killers pose little threat to food prices

The rising cost of cereal may weigh on consumers' minds, but in reality the recent price gains are about as scary as Count Chocula.

Of course, the fears are about cereal as a commodity category – one that spans grains such as wheat, barley and corn – instead of sugary treats such as General Mills' chocolate-marshmallow breakfast, but nevertheless there's little need to worry about having to change your eating habits any time soon.

In a report this month, Desjardins senior economist Joëlle Noreau looks at how rising prices for cereals trickle down to consumers, and finds that while prices for both food and cereals are rising in general, they won't be surprising consumers' wallets any time soon.

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"We tend to cry wolf quickly, when there may be no reason to do so," Ms. Noreau writes.

The outlook for cereal prices became a scary news story in recent years as farmers encountered several periods of drought-like conditions and a boom in commodity demand.

But peering back over the past several decades, Ms. Noreau and the Desjardins team found that while corn prices approached $7 (U.S.) per bushel around 2010, the commodity was actually worth more in the early 1980s when annual inflation rates were taken into account.

What's more, a 2008 Statistics Canada study points out that the cost of the raw commodity is rarely a large factor in the price of the end product bought by consumers.

Cereal products are "insulated at the checkout counter," the StatsCan report says, not just by the less-volatile prices of other food products, but because the commodity itself usually accounts for less than one-tenth of the checkout price.

The StatsCan study ran a simulation that increased grain prices by 10 per cent and found that overall consumer food prices rose only 0.26 per cent as a result. Between half and three-quarters of the checkout price came from the cost of retail and wholesale services that get the food to the consumer, the study found.

That's why Ms. Noreau is confident that consumers shouldn't fear if they see prices for cereal rise again. Price gains in this category simply aren't as scary as gains in oil prices.

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As the price of West Texas Intermediate oil rose 286 per cent between 1990 and 2012, the price at the pump rose 118 per cent in Quebec, where Desjardins is based.

At the same time, the prices of corn and wheat rose by 160 per cent and 77 per cent, respectively, but the total food price index only rose about 65 per cent.

In other words, no matter how dire crop-growing conditions may seem, you can still count on affording Count Chocula.

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