Canada Markets

Food prices have always been one of the hot-button media subjects which grabs headlines and creates conversation among consumers. In 2015, it was the combination of drought in California and the falling Canadian dollar which saw a move below 70 cents against the U.S. dollar which led to headlines of $10 cauliflower which stirred public sentiment.

In December 2015, the University of Guelph's Food Institute released its annual Food Price Report 2016 which forecast the pain in food prices to continue through the upcoming year, up 2% to 4% for overall food expenditures, with the sharpest rises expected in meats (2.5% to 4.5% higher) and fruits and nuts (2.5% to 4.5%). With the release of the report, Global News followed with the headline "Canadian grocery prices will continue to skyrocket next year".

The pain experienced by Canadian shoppers carried on into the summer months, with CBC news releasing a headline "High food prices driving some shoppers away from fruits, vegetables study says", released June 6. A survey conducted by Guelph's Food Institute along with Dalhousie University points to changes in shopper behavior, which suggested that roughly 25% of respondents ate less fruits and vegetables in the previous 12 months. There were also other changes in shopper behavior, including buying more frozen products rather than fresh, reading flyers and using coupons, and having a shopping strategy prior to entering the store.

A recent Dalhousie University study also gained a great deal of Canadian press, which highlighted concerns that nearly one-quarter of Canadians are concerned about the fluctuating food prices seen across the country and how to pay for groceries. As well, 53% responded that shopping behavior had changed in the previous 12 months, which included searching for sales and alternative products. The survey findings could easily lead to a much wider discussion of the overall nutritional intake across the country.

Has our market turned the corner? While the October Consumer Price Index was up 1.5% on a year-over-year basis in October, up from 1.3% in September, the food price index showed its first year-over-year drop seen since January 2000 with a drop of .7%. Some of the largest year-over-year drops were seen in fresh fruit (7.4%), fresh meat (5.2%) and fresh vegetables (3.6%). One positive is seen in a 2.1% year-over-year drop in food purchased from stores, as growing inventories and food price wars between retailers have led to savings for consumers. Bucking the trend is food prices in restaurants, up 2.6% from October 2015.

While this may be viewed as favorable news, one month's data does not make a trend. While one media source reported in October that the U.S. may, or perhaps already has realized its longest period of falling prices seen in 50 years, Canada, on the other hand, may see food prices slower to react. Concerns that lie ahead include:

-- the potential for an interest rate hike in the U.S., now indicated will take place with 100% certainty according to analysts, may weigh further on the Canadian currency, making imports more expensive;

-- concerns of trade issues between Canada and the U.S. given President Trump's dislike for the NAFTA agreement;

-- concerns have already been expressed that a mass deportation of illegal immigrants from the southern States could lead to increased costs on Canadian food imports;

-- lower retail prices could lead to further grocery consolidation which could lead to less competition.

In other words, food price volatility could be the new normal.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

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