Canadians not immune to food price hikes: experts

With the United Nations reporting record global food price increases in February, what can Canadian consumers expect at their grocery store?

But increases won't be as high as in 2008

A recent UN report said global food prices rose in February. Prices are expected to rise for Canadians, too, but not as much as they did in 2008. ((Jeff Barnard/Associated Press))

With the United Nations reporting  record increases in global food prices in February, many Canadians are wondering whether these price hikes will affect them at the grocery store checkout.

George Weston Ltd., one of the country's largest bakeries, announced a planned five per cent increase in prices set to take effect April 1. It cited rising global prices of wheat, oil and sugar as the justification for the hikes.

Krishen Rangasamy, an economist for CIBC World Markets, thinks Canadians should not be surprised by the Weston announcement.

"There's a limit [to how long] those guys can put off raising prices," he said. "Their margins are going to be squeezed, and prices are going up, and that's going to hit consumers.

"It's true competition is fierce, but there comes a time when you have to raise prices or you're out of business."

He is quick to note that although this increase was based on what is going on in the global markets, Canadians are not likely to experience price hikes on the same scale as in 2008, when record-high oil prices caused a spike in food prices.

"We do not see oil prices going back to the 2008 levels," he said. "Oil prices will be restrained, so that could help a bit in preventing prices reaching astronomic levels."

Sylvain Charlebois, associate dean at the College of Management and Economics at the University of Guelph, does not share Rangasamy's optimism.

"Over the long term, the impact will be significant," he said.

Charlebois expects prices to increase by five to seven per cent over the next year.

"At the beginning of the year, the global picture was quite different," he said. "We were expecting price hikes, but the ceiling was set at five per cent; now, we're looking at seven per cent, which is significant."

Prices take time to adjust

According to Statistics Canada's consumer price index, overall food prices rose nearly two per cent between January 2010 and January 2011. Certain individual staples have also seen increases during that time period, but the numbers pale in comparison to the price hikes Canadians saw between 2008 and 2009.

For example, between January 2008 and 2009, the price of bread rose by 12 per cent compared to only a five per cent increase between January 2010 and 2011.

Charlebois cautioned, however, that commodity price increases won't be reflected in statistical data until six to 12 months from now.

Rangasamy maintains that Canada's current price hikes are lower than those in other countries, owing to our strong dollar.

"We have to remember that the share of imports in Canadian consumption is over 90 per cent for fruit and nearly 50 per cent for vegetables," he said. "The strong dollar on these U.S. imports helps to keep prices down for those items."

Charlebois agrees that the strong Canadian dollar will benefit consumers. What's more, Canada does not have to deal with the same kind of "food insecurity" as do countries such as Tunisia and Egypt, where skyrocketing food prices were partly responsible for bringing people out in massive numbers to protest in the streets.

"Here in Canada, you won't see riots," Charlebois said. "But the situation is worrisome. When you look at the pace, we're slowly reaching 2008 levels for soy beans, corn; it's across the board."

Lower-income families lose out

Rangasamy believes a wait-and-see approach is necessary when analyzing food prices.

"Inflation has been in positive territory for a long time; prices are going up, and that will hit consumers, but there is no basis for an all-out crisis," he said.

The counter-argument, according to Charlebois, is that although the numbers might seem small, they are significant for lower-income families.

"Five to seven per cent for consumers with limited means is significant," he said. "Bread is going up significantly, and it's a cheap calorie. You're penalizing lower-income consumers.

"We're talking about food, which is an inelastic demand: people need to eat. That affects every single consumer out there."