Food prices to grow three to four per cent in 2013

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A drought-damaged ear of corn in a field in Westfield, Ind. More than half of U.S. counties have been classified by the federal government as natural disaster areas mostly because of the drought.

Food prices may grow by as much as four per cent next year, economists predict, as drought conditions in the U.S. are expected to inflate the cost of everything from pork to cereal.

RBC economist Paul Ferley says the increases will be similar to those seen in 2011, when demand from emerging economies like China and India pushed food prices higher.

“Growth there is slowing, so we would have expected a bit of moderation in commodity and food prices, but because of the drought it looks like we’ll be getting another wave,” said Ferley.

He predicts that food costs will go up by 2.5 to 3.5 per cent in 2012 and three to four per cent in 2013.

Extreme drought conditions in several U.S. Midwest states are causing corn and soybean crops to wither, and analysts say the effects will ripple through the food chain.

Because corn is used to feed livestock in the U.S., the rising cost of beef and pork will be most noticeable on grocery store shelves, said Patricia Mohr, a commodity markets specialist at Scotiabank. Poultry may also be affected.

“This will trickle through the cost of production for food, and eventually will have an impact at the grocery store,” said Mohr.

“It’s hard to say exactly when this will show up.”

Some types of grain have been affected by the drought, which may inflate the price of baked goods and pasta, said Mohr.

Fructose and corn syrup, which are used in many kinds of processed food, may become more pricey, as well as items made from canola like margarine and salad dressing.

Many Canadian food producers are either already feeling the pinch or planning for the future.

Tim Hortons raised the price of certain baked goods and lunch items last week, citing higher operating costs and pricier ingredients. The coffee and doughnut chain said the price of a muffin is five cents higher, while sandwiches have gone up by about 10 cents. The price of coffee has not changed.

And Maple Leaf Foods president and CEO Michael McCain warned last week that the food processor will have to jack up its prices.

Because Maple Leaf buys ingredients in advance, consumers likely won’t see higher prices for its products until the end of this year, McCain said.

“We don’t know exactly what the extent or the timing is of any price increases attached to this because the story of this year’s crop conditions is still not fully told,” said McCain.

“As this unfolds into the fall we’ll have a much better picture.”

Analysts also noted last week that food producers from bakery giant George Weston to pop and juice maker Cott Corp. could face higher costs on their key ingredients like flour and sugar.

But they also said that grocery stores, facing an increasingly competitive market, may be hesitant to pass the costs onto consumers.

“Competitive pressures could temper the ability of retailers to pass through these cost increases,” said Ferley.

National grocery chains Loblaw, Metro, and Sobeys parent Empire Co. Ltd. have faced fierce competition, particularly in Ontario, from each other and retailers like Shoppers Drug Mart and Walmart who are increasing their food offerings.

Tim Hortons and grocery store chain Metro Inc. will report their earnings on Thursday.

Organizations: RBC, Tim Hortons, Scotiabank Maple Leaf Foods George Weston Cott Loblaw Sobeys Empire Co. Ltd. Shoppers Drug Mart Walmart Metro Inc.

Geographic location: U.S., China, India Maple Leaf Ontario

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Recent comments

  • M
    August 07, 2012 - 11:32

    You can't keep increasing minimum wage and not expect the cost of food and other retail products to increase. Government has increased Minimum Wage by almost 100% in 6 years. Did anybody think business would eat that increased cost??? Of course they have to increase cost of products to offset this legislated expense increase. And who feels it.....our seniors who have no way to significantly increase their incomes. Nice job Fed of Labour. BTW, here they come again looking for another increase in wages and to force businesses to have two staff on at night for some perceived safety threat. They crap on Harper for his 'Tough on crime' stance saying that crime is decreasing in the country (which it is) and then site the same thing as the reason for increased staff requirements. Get ready for more increases in food cost that have nothing to do with uncontrolled items like weather and crop success. It will legislated poverty for our seniors and low income citizens. Beware the NDP and their supporting groups. Time for the local Tories to push back on this nonsense.

    • a business man
      August 08, 2012 - 06:45

      well said. I support LOWERING the minimum wage so that companies can make more money and charge less for consumers. In other words, lets take from the unskilled uneducated minimum wage retail workers and redistribute to everyone else. That said, I do most of my shopping in the USA when there on business, so I essentially cut out the Canadian retail sector whenever possible.

  • Addie
    August 07, 2012 - 11:28

    I don't know why we don't just turn to agriculture here in Newfoundland. The fishery may be gone but we have lots of land that can easily be turned to farming. yes, our growing season is shorter but if Lester's can do it for a few months, why can't the rest of the province? A little help is better than none.

    • Jeb
      August 07, 2012 - 12:16

      First you need people who know and want to farm. That's something we don't have a lot of.

  • Jack
    August 07, 2012 - 08:39

    Just more fear mongering courtesy of the McCain's.

  • roy
    August 07, 2012 - 07:58

    More good news for people on fixed income, roughly 3 to 4 percent increase in cost for food this year and another 4 next year and our concerned Govt saying no to any increase to pensioners. The board of trade our govts advisers and close friends must be tickled pink. But wait until their members will be forced to have two clerks in their stores, then they will howl. Looks like Mr Marshalls only meetings about wage increases and pensions are with the Board of trade, not the association representing pensioners a caring govt in action. The union presidents are as bad or worse, they could care less about pensioner who paid their dues for years and are now thrown to the wolves. It turns my stomach to see the likes of Carol Furlong and Payne on tv where union greed is the moto.