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Food Inflation Rears its Ugly Head Again

There has been a lot of talk recently about the expected hike in food prices for 2017. Canada’s Food Price Report, published by researchers at Dalhousie University in Halifax, says the average Canadian family may need to spend as much as $420 more for food next year. This comes after a protracted period of concern over deflation.

The latest report finds that food prices could increase between three per cent and five per cent — with meat, vegetables, fish and other seafood projected to jump by as much as four to six per cent.

The primary reason for the projected increase is the decline in the Canadian dollar- which could fall as low as 70 cents US in 2017-and the associated increase in costs for those buying in American dollars. Other factors could include weather disruptions and energy-related costs.

The report also pointed to the effect a Trump presidency may have on the agricultural sector if millions of illegal workers are expelled from the U.S. While perhaps a concern at this juncture because of the uncertainty surrounding what Trump will actually do, the probability is that when industry stands to lose such ground, Trump will back off.

The biggest concern for the traditional supermarket industry is the trade down effect this will have, propelling the discount sector even further from its current share of around 40 per cent. This will dampen the performance of an already challenged supermarket industry. The consequences of this could be far reaching, especially in the West, considering the current difficulties that Sobeys is having with the Safeway acquisition.

Grocers would be wise to pre purchase as many American dollars as possible before the real decline sets in-there is very little else they can do to hedge against increased costs.

 

 

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