Household finances

Price of food in Canada could jump 7 per cent in 2011: economist

The Canadian Press

Grocery store owner Gilles Robin works on his fruits vegetable display on Nov. 28 2006 in the Breakeyville, Que. (JACQUES BOISSINOT/JACQUES BOISSINOT/THE CANADIAN PRESS)

Get ready to fork over a little more cash before you pick up your dinner fork.

Canadians will be paying between 5 and 7 per cent more for groceries on average by the end of the year, economists say.

A family that spends about $400 a month on groceries could end up paying up to $340 extra in a year.

Bad crops around the world, oil trading for more than $100 (U.S.) a barrel and the economic recovery are driving prices higher.

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Food companies are raising prices due to the soaring costs of key commodity ingredients like wheat, corn, sugar and vegetable oil, which have gone up as much as 50 to 100 per cent over the last year at a near-record rate.

With the United Nations blaming higher crude oil prices for pushing global food prices to an all time high, Canadians have been spared so far because of cutthroat grocery store competition and the high loonie making the cost of imported goods cheaper.

The president and CEO of Sobeys, Canada's second-largest grocer, said the company hasn't been confronted with many increases yet, but he expects more manufacturers to increase their own prices.

"There's enough early indications to suggest the market is prepared to move up in a responsible way to reflect justified cost increases as manufacturers bring them forward," president and chief executive officer Bill McEwan said in a conference call on Tuesday afternoon.

It's just a matter of time until higher commodity prices trickle down to Canadian grocery shelves and Canadians have to reach further into their wallets, says Douglas Porter, deputy chief economist at BMO Nesbitt Burns.

"Based on what I've seen in the past, it takes about nine to 12 months for an increase in raw food material prices to get fully passed on and to fully work their way down to the grocery shelves, so I think by the end of this year we'll be looking at much more rapid food price inflation," Mr. Porter says.

With no global economic crisis on the horizon to pull prices back down again, the higher prices could linger longer than they did when they hit record highs in 2008, he says.

Statistics Canada says general food prices rose 2.1 per cent in the 12 months leading up to January - about the same as the general inflation rate. But Canadians paid 10.7 per cent more for sugar and confectionery goods, and sugar is an ingredient in many processed foods.

Some food manufacturers are already moving forward with plans to charge grocery stores more.

Bakery company George Weston Ltd. (TSX:WN) said last week that it would charge 5 per cent more for its products as of April 1, and could increase prices even more by the end of the year if costs continue to rise.

Meat and baked goods maker Maple Leaf Foods (TSX:MFI) says it will raise its fresh bakery prices by 20 cents per unit at the end of March as it battles rising prices for the flour used in its bread and the pork, beef, and chicken used in its deli meats and hot dogs.

It already raised prices in its frozen bakery business at the end of last year, but expects further hikes in the second half of this year.

Last month, Tim Hortons (TSX:THI) said it may have to charge customers more for their morning java jolt due to the rising cost of coffee - which is about twice where it was in June last year. It already raised prices on coffee and baked goods by three per cent at its American locations.

National grocery chains Loblaw (TSX:L), Metro (TSX:MRU.A), and Sobeys parent Empire Co. Ltd. (TSX:EMP.A) have faced fierce competition, particularly in Ontario, from each other and from such retailers as Zellers and Shoppers Drug Mart (TSX:SC), which are increasing their food offerings. U.S. retail king Wal-Mart also plans a major expansion of 40 new grocery stores in Canada this year.

That means grocers are holding off as long as possible to pass on manufacturer price increases to consumers, says John Scott, the president and CEO of the Canadian Federation of Independent Grocers.

"Nobody is going to raise their prices a nickel unless they absolutely have to," he says, explaining retailers will try to cut costs to keep up with competitors, but may offer fewer discounts.

"Instead of passing the full price on to the consumer, you'll see a reduction in the number of promotions like the coupons and that kind of thing that people have got to see last year. We had a lot of that in 2010, we'll probably have less of it in 2011."

Maureen Fitzhenry, a spokeswoman for the Canadian Wheat Board, says the price of wheat has nearly doubled in the last few months, but the cost of wheat itself only makes up for about 15 cents of the price of a loaf of bread. The rest comes from processing, packaging, preservatives, overhead, transport costs and other factors.

She says higher fuel expenses are more likely to affect consumers than the higher price of wheat.

The cost of a litre of gasoline is up nearly 20 per cent from where it was last year, while the cost of diesel, used by heavy trucks to transport goods across the country, is up nearly 30 per cent from a year ago.

"Fuel costs impact those millers and bakers. They have to run their equipment and their mills and their bakeries. They use fuel to do that. They have to transport their products all around the countryside … so oil has a huge impact on that as well," she says.



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