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Although the latest data from Statistics Canada shows that monthly increases in food prices may be slowing down, the cost of groceries in Canada remains high. From vegetables to fresh and frozen beef, many are feeling the financial strain of food inflation.
To combat the high prices, many have started to rely on budgeting and coupon apps. A recent survey by Dalhousie University’s Agri-Food Analytics Lab in Halifax has revealed that 15.5 per cent of respondents have even started growing their own food in the last year.
Out of approximately 5,000 Canadians involved in the survey, 45.5 per cent said they are prioritizing cost over nutrition when buying groceries.
This may be detrimental in the long run if healthy foods continue to rise in cost. But who is to blame for high grocery prices? Unfortunately, no one person or thing is responsible for driving up food costs in Canada. Below, I’ll outline some of the key factors that have contributed to rising grocery prices in recent months.
1. Climate change and extreme weather conditions
Devastating wildfires continue to rage across Canada, destroying forests and farmland, even leaving burn scars that are visible from space. Aside from interfering with farming cycles, these wildfires have also caused logistical problems with transporting food, as vehicles have had to reroute their trucks or put deliveries on hold until a safe path opens.
A severe drought in 2021 also led to a sharp drop in the production of domestic wheat, canola, and barley in the Prairies, all of which are key ingredients in many everyday foods.
Aside from these extreme weather events, the effects of climate change as a whole are expected to continue affecting Canadian farms and agricultural production.
The country’s agricultural regions are expected to see drier summers and wetter winter and spring seasons in the coming years, according to Agriculture Canada.
This could lead to farms receiving too much water in the planting season and too little water in the growing season, which could lead to reduced crop output.
2. Global supply chain disruptions
The COVID-19 pandemic caused supply chain disruptions across the globe, many of which affected Canada’s ability to quickly and reliably import food from other countries.
This led to increased costs for farmers, food production facilities, transportation companies, and grocers, which may have resulted in higher grocery costs for consumers over recent years.
3. The war in Ukraine
Ukraine is often regarded as the “breadbasket” of Europe because it is one of the continent’s largest producers of grain and corn. Although Canada produces a large amount of its own grain, recent droughts and wildfires have reduced domestic production, causing a greater reliance on foreign agriculture.
The ongoing war in Ukraine has limited the country’s ability to safely farm, produce, and export agricultural products. As of May, 90 per cent of agricultural businesses in Ukraine lost revenue and 12 per cent reported lands contaminated with mines, according to the UN Food and Agriculture Organization. In 2022, the amount of land planted with grain fell to 11.6 million hectares (28.6 million acres) from 16 million hectares (about 40 million acres) in 2021.
4. High gas and electricity prices
Energy costs continue to rise across Canada, with Alberta seeing a 122 per cent increase in electricity prices in August, compared to the same time last year. Additionally, prices for both gasoline and diesel fuel also remain high across Canada.
In an interview with CTVNews.ca in August, Michael Manjuris, professor and chair of global management studies at Toronto Metropolitan University, blamed rising gas prices on poor weather and a lack of crude oil supply.
Farms, food manufacturers, grocers and transport companies all rely on fuel and electricity to maintain their operations. Farmers and transportation companies must fuel their equipment and trucks, just as warehouses and grocers need electricity to keep food safe and in climate-controlled units.
In order to keep up with production, companies are having to pay higher energy costs, resulting in price increases across the board.
5. Decline in Canadian versus U.S. dollar value
Every year, Canada importsbillions of dollars worth of food from the U.S., according to data from Trading Economics. Unfortunately, the value of the Canadian dollar compared to the U.S. dollar has remained low, and $1 is currently only worth 73 cents U.S. at the time of writing – a 12 per cent decrease from 83 cents U.S., the exchange rate recorded inJune 2021.
This means that Canadian dollars have reduced purchasing power for U.S. imports, and it is more expensive for Canadian companies to import food from American suppliers. Unfortunately, these expenses are often passed on to consumers.
6. Grocery store pricing
Earlier this year, the presidents and CEOs of major grocery chains were grilled by members of Parliament over inflated grocery prices. The heads of Loblaw Companies, Metro and Empire Company Limited appeared in front of a parliamentary committee in March amid calls from federal politicians for more transparency around what is leading to record-high profits.
At the time, grocery leaders insisted that food inflation was not caused by price gouging. Additionally, experts such as Michelle Waslylyshen of the Retail Council of Canada have stated that grocery prices “are largely dependent on what suppliers ask them to pay for their products.”
However, a sizable number of Canadians have said they believe grocery stores are responsible for high food costs. This is according to the Dalhousie University Agri-Food Analytics Lab study referenced above.
Based on the survey, between 30 to 33 per cent of respondents in provinces such as British Columbia, Alberta, Ontario, New Brunswick and Manitoba said price gouging was the main issue behind grocery price hikes.
Ultimately, it doesn’t appear as though there is enough evidence to conclude that grocers are directly engaging in price-gauging practices. Despite this, major grocers are continuing to work with the federal government to tackle food inflation. The CEOs of Canada’s five largest grocery chains recently agreed to work with the government to stabilize prices, although the process could take months, according to Industry Minister François-Philippe Champagne.
Where do Canadians go from here?
From extreme weather to labour shortages, global conflicts, and inflation, Canada’s food industry continues to face pressure. Additionally, the 2023 Canada Food Price Report produced by four Canadian universities has predicted that food prices will go up by five to seven per cent this year, compared to the year before.
Even though inflation is down, grocery costs still remain high. Continue reading to discover some of the reasons why.
Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers on his Wealth Awesome website.
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