Food inflation is set to heat up in Canada as volatile weather and geopolitical risks drive grocery costs higher.
Food prices are expected to rise between 1.5 per cent and 3.5 per cent next year – hardly runaway inflation, but a pick-up from this year's pace of just 1 per cent, predicts a University of Guelph paper to be released Thursday.
Higher prices for frequently purchased items, like eggs and meat, are bound to put pressure on pocketbooks. Food accounts for about 14 per cent of Canadian household budgets, according to Statistics Canada, with lower-income households spending a greater share of their budget on food than higher-income families.
"This year, we saw the national inflation rate exceed food inflation. Next year, it's actually going to be the opposite – we'll likely see food prices exceed the national rate," said Sylvain Charlebois, lead author of the report and a researcher in food distribution and policy.
The university's past predictions on the direction of overall food prices were accurate for both 2011 and 2012.
Several trends will buffet prices. Geopolitical risks, such as political instability and protectionism, along with more extreme weather, will place upward pressure on food prices, especially grain, driving increases in meat and eggs.
On the flip side, Wal-Mart Canada's expansion next year and Target's foray into Canada will put competitive pressure on all grocers to keep prices in check. And the sustained strength of the Canadian dollar will put a lid on import prices, and thus have a dampening effect on prices.
The coming year will be another record one for food bank usage, the paper says, particularly if the expected spike in prices for pork, eggs and bread materializes. The full impact of this summer's crippling U.S. drought won't come until early 2013, and will drive the costs of proteins higher, Mr. Charlebois said.
The paper forecasts meat prices will jump between 4.5 per cent and 6.5 per cent next year (sparked by higher feed costs), egg prices will climb by up to 5 per cent, while prices for grains, fruits and vegetables will rise between 1 per cent and 3 per cent. Still, extreme swings in both climate and geopolitical developments are making food price predictions far more challenging than in decades past, he said.
Canadian households spent an average of $7,443 on food, according to Statscan's most recent data. Three-quarters of that is spent on food from stores and the rest is on restaurant meals. The wealthier the household, the less they tend to spend on food as a percentage of total expenditures.
The university expects prices will increase steadily in the coming years. One way of mitigating higher costs is to cut waste, he said, as Canadian households typically waste 38 per cent of products from stores.
"By applying better food management practices at home, consumers could offset food price increases over the next two years." Mr. Charlebois said.