Canadians trimming food budgets in face of higher prices, RBC says

Canadian families are planning to cut back on the amount they spend at the grocery store in the face of rising food prices, a new report from one of Canada's largest banks said Thursday.

The RBC Canadian Consumer Outlook Index showed Canadians' are displeased with rising food prices at the grocery store.

As much as 91 per cent of respondents to the survey said they have taken notice of rising food prices and are being more budget oriented as a result.

Currently, the average Canadian family spends $411 a month on groceries. Ontario holds the lowest average spending at $379 per month, while Quebec spends the highest amount in Canada, an average of $448 per month.

'When food prices rise, consumers trade down '—U of T professor Jim Fisher

One third of Canadians say the rising costs of groceries will affect their monthly budget.

Forty three per cent of Canadians surveyed said rising food prices was causing them to cut back on other expenses. For example, about 15 per cent say they are using their vehicles less.

Higher grocery prices are causing 41 per cent of shoppers to stop and think before grabbing those impulse purchases.

"In light of concerns over escalating food prices, more Canadians are looking for cost-saving strategies they can use on their next trip to the grocery store," says Jason Round, the head of the Royal Bank unit that put out the report.

Statistics Canada data shows food prices rose 2.4 per cent in 2012. That's after rising 3.8 per cent in 2011 and 1.4 per cent in 2010.

Consumer choices

Those rising prices is causing grocery buyers to become savvy shoppers, comparing prices at different stores, the report suggests.

Straying from your regular brand of choice is another way shoppers can save, says Jim Fisher, an associate Dean at the University of Toronto and a specialist in food industry management.

"My observation has been that when food prices rise, consumers trade down a bit to keep their overall monthly bill about the same," he said. "They could trade down from organic to normal, from premium milk to regular.  This is at least one reason why [the inflation rate] when it comes to food is misleading. People have enough choice that they don’t really need to spend more on food."

Canadian families are not the only ones currently being affected by changing food prices. Processors and retailers also have to adjust.

"On the other side, it is hard on the processors and retailers who make their margin on the higher priced product," Fisher says. "But, the best cure for high prices is high prices — you can bet that farmers will be planting grains on their front lawns and as supply rises, prices will settle and will then eventually take consumer prices down."

"It is a very efficient competitive market out there," Fisher says. 

Canadian prices lower

Indeed, Canada does not necessarily get the short end of the stick when it comes to food pricing, Mustafa Koc from Ryerson University's Studies in Food Security program says.

"In comparison to other industrialized countries, food prices are still quite low in Canada," Koc says. On average about 14 per cent of household budget in Canada is spent on food. "But this average may not reflect the situation of families with lower income, those living in smaller towns, and in the North," Koc says.

Those who are living more rural life styles or are placed in the lower income bracket may face other negative repercussions. "Naturally they have to make decision to lower their food costs. This usually means looking for more carbohydrates, sugar and fat-laden foods that may keep them stuffed but likely to cause long term debilitating diet related diseases, such as diabetes, cardiovascular diseases, arthritis," says Koc.

The drought across much of the U.S. last year may start to show up in food costs, as the RBC report says U.S. prices could increase by as much as three to four per cent this year. Generally, raw food commodity prices take around six months to see a change at the retail level.