• Mike von Massow

Food Prices - Long and Short Term Views

We are hearing a lot about food price inflation and the Statistics Canada food price index for August affirms that prices in August were up 2.7% year over year. This is significant and is likely to continue. The fact that overall inflation (4.1% in August relative to August 2020) is outpacing food price inflation suggests that there will more pressure overall on our pocketbooks going forward. Some of these food price increases look like they may be around for a while (and perhaps increase more), but others may be more transient with relief coming.

Restaurant meals are more expensive with a 3.2% year over year increase. This is hardly surprising and we have anticipated price increases since the pandemic hit. Restaurants are having trouble getting staff and are having to raise wages which will be reflected in prices. Capacity is down, food prices are up, COVID associated costs for restaurants - these and other reasons will put pressure on restaurants to raise prices and keep them up. There may actually be more upward price pressure as patio season ends restaurants only have reduced capacity indoor space to serve customers. I would expect this upward trend in restaurants to continue and be persistent. These prices are not coming down soon.

Fruit and vegetable prices are variable. This is hardly a surprise at this time of year. In the case of things like apples (up 6.8%) we are only just seeing new crop apples come to the market and as we get to full harvest these prices will come down with lots of domestic options. Imported fruits like bananas and oranges are up less. These prices are likely up due to the difficulty in getting shipping capacity and in delays at many ports. These costs are passed on to consumers. My expectation is that these issues are transient relative to COVID and that capacity and shipping times will return to more favourable levels reducing the price pressure on these imported products. This will also take the pressure off products that require imported components (things like packaging and some ingredients).

Fruit and vegetable prices should see some relief in the fall as the seasonal harvest occurs. This is normal. There are some ominous signs for the price of fresh fruit and vegetables over the winter. Drought and excessive use have compromised water levels in many rivers and reservoirs in the US Southwest from which we import the vast majority of the fresh produce we get for much of the winter season. We can expect these products to be more expensive this year and likely for some time going forward. Water levels do not return to normal quickly. These climate impacts are likely to become more common and more acute and I would anticipate longer term increases in the costs of fresh produce in the winter as supplies from traditional areas become more expensive. This is not going away. It is worth remembering that flash frozen Canadian fruits and vegetables can provide excellent nutrition and are unlikely to see the same spike in prices over the winter.

Meat prices are also up. While there are currently many cries for government intervention in food price increases, these are not unique to Canada and it is not clear there is much the government can do to moderate the increases without direct subsidization. The shorter term price increases are largely due to COVID expenses. Some commentators have highlighted that supply managed commodities have seen significant prices increases (chicken 8.4%, eggs 7.9%, and dairy 3.8%). The regulated marketing may well allow for increased costs to be passed on to consumers more quickly but it is worth highlighting that all of these products are also up in the unregulated market of the US. There is clearly something going on from a cost perspective in these market. In some cases the cost increases are permanent (higher wages in processing, new safety standards) but once again shipping capacity and lower cost for things like packaging will likely abate somewhat and see reduced price pressure on these products.

That is not to say that some meat prices won't see significant increases. Western Canada (and the US too) is experiencing a significant drought this year. There is a lack of water for cattle and a real shortage of feed, both now with grass and for the winter with hay and grain crops. We are seeing significant liquidations happening in many beef herds. This means we will see a longer term rise in beef prices. If fewer cows are around to have calves next spring (when most but not all beef calves are born) supply will be lower which increases costs. It takes some time to rebuild the herd and rebuilding leads to a more acute shortage as calves are kept on the farm to breed rather than being sold. During the last dought in the early 2010's we saw beef prices increase about 25% and stay high for a couple of years. If there is another climate change driven drought next year or soon thereafter these supply effects will be compounded and price increases will be higher and longer lasting. Stay tuned.

There is food price inflation and, while some relief in some areas will be coming, there is actually a strong likelihood that food price increases over the next 6-12 months will be higher than what we have seen to date. This has implications for all of us but is particularly of concern for the food insecure. Housing is also increasing so budgets will be squeezed for those that are food insecure from multiple directions.

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Recommended citation format: von Massow, Michael. "Food Prices - Long and Short Term Views". Food Focus Guelph (117), Department of Food, Agricultural and Resource Economics, University of Guelph, Sept 16, 2021.