It is becoming cheaper to buy food in Canada. Prices are dropping in every province except Alberta.
While consumers might be delighted to see food prices decline, August numbers are pointing to a significant challenge for the food industry. Making money in the food business is not what it used to be.
Statistics Canada’s data for August could indicate the start of significant ongoing deflation in food aisles across the country. Most observers knew it was just a matter of time.
This could result in more profit-eroding promotions and a tempered outlook for the rest of 2016. If prolonged, this could put a significant strain on the entire industry.
The drop in food prices is not happening just in Canada. The U.S. is on track to see the longest stretch of falling food prices in more than 50 years.
In some parts of the U.S., beef prices have dropped by more than 40 per cent since last year. Egg prices have dropped an average of 40 per cent. Dairy and bakery products have dropped by more than 15 per cent in many regions.
Coupled with high food inventories is a surprisingly sluggish demand from export markets such as China. A relatively strong U.S. dollar is discouraging countries from buying abroad.
Europe is also dealing with deflationary headwinds, and many countries have seen food prices drop. Many believed Brexit in the U.K. would lift food prices higher and make the pound weaker, but it didn’t.
The Canadian dollar, on the other hand, has held steady over the past few months, which is also keeping prices for fruits and vegetables lower in Canadian stores.
Commodity prices in most cases are half of what they were in 2012. Corn, soybeans, oats, beef and pork are but a few examples of products that have decreased in price. As North American agriculture is performing well, high yields tend to keep prices lower.
Western Feedlots, one of the largest operators in the country, announced recently that it was shutting down its operations in Alberta, a sign of things to come for the cattle industry.
Processors are benefiting from lower input costs, but are hard hit by demanding grocers who want to pay less for products and are looking to remain competitive. Some processors can mitigate these undesirable requests coming from down the food chain, but the smaller outfits might not survive.
For grocers, lower prices will likely keep the rumour mill at bay about potential mergers, acquisitions or new entrants. In the U.S., given how different the architecture of the industry is, it could lead to more consolidation.
Canadians should continue to save for some time in grocery stores, but not with all products. At the meat counter, for example, poultry is at odds with other meat products. Chicken prices increased, while beef and pork prices are dropping.
With prices regulated at the farm gate and high tariffs on imports, the supply-managed poultry sector is almost immune to what is happening. Poultry will obviously remain a popular source of protein for most meat-eating Canadians, but it will be interesting to see if some conversations occur about the choice in meat products.
Supermarket sales remain robust, with an increase of 1.6 per cent since last year. Yet gains by traditional grocers are likely due to creative and novel ways of adding value to food products.
We now have a much more aggressive promotional environment, and consumers will likely take advantage of it.
What is unfortunate, though, is that it could bring our society back a few decades to when food was inexpensive, undervalued, inconsequential and, frankly, uninteresting. The past few years have been interesting for foodies and for the entire Canadian food economy. Food providers have upped the ante and have made an effort to connect with consumers.
We should hope that lower food prices will not compromise a vastly improved Canadian food marketplace. Indeed, we will have access to lower-priced foods, but let’s not marginalize the importance of food in our daily lives.
Sylvain Charlebois is dean of management and professor in food distribution and policy at Dalhousie University in Halifax.
