Can food distribution's renaissance help Canadian food processing?

The UN’s Food and Agriculture Organization (FAO) released its report on world food prices, bearing some good news for families with lower incomes.

World food prices are continuing their decline, thus giving some breathing room for the poor. This means we are not likely to see riots anytime soon as we did during the food crisis, back in 2008 and 2011, when agricultural commodity prices were skyrocketing.

In the UK, for example, food inflation is at its lowest level in decades. What seems counterintuitive, though, is that food prices in Canada have gone up significantly in the last 12 months, almost 4%, bucking world market trends.

But before Canadians start calling foul, there are some good reasons for this increase, nonetheless, if we point out the discrepancies between FAO numbers and the unique factors contributing to Canada’s food pricing climate.

In June, Statistics Canada reported that food prices moved up 3.8% from last year. Proteins have been pushing prices upwards, with beef and pork leading the charge. For both commodities, inventories have been built up again and so some products have shown signs that prices have peaked.

Bacon prices, for example, have started to decline. FAO numbers would not be able to capture this reality since a developed economy like ours would necessarily eat more meat than the average country.

Another unique aspect of our Canadian food market which is not reflected in FAO numbers is the effect of our oil-driven petro-dollar.

Our buying power of imported food products has declined over the last year, significantly. As a result, pasta and lettuce are up more than 10%, and 22%, respectively, and other commodities, including fresh fruits and vegetables, cookies, and crackers, are all up from last year.

The California drought certainly did not help either, especially given that we import many fresh products from the Sunny State.

In response to the drought, our more savvy Canadian food importers have changed their procurement strategies and have successfully found products elsewhere around the world. As a result, food inflation for many currency-sensitive categories has dropped in recent months.

Nonetheless, food prices in Canada have gone up anywhere between 6% to 8% over the last two years, and many Canadian families have had to bear the burden of paying more for food. Food banks are certainly being impacted as a result and that trend will likely continue for a while.

Consumers with fewer means may feel gouged as a result of inconsistent messages about world food prices. What may add insult to injury is looking at our food retailers’ balance sheets. Loblaw, Sobeys and Metro are all generating more-than-decent returns to their shareholders these days.

Indeed, the food retailing sector is in much better shape than just a few years ago, but it is hardly because the sector is taking advantage of vulnerable food consumers. In fact, we have seen an incredible influx of new projects in recent years that has enhanced the overall robustness of our food retail sector.

Over the past few years, grocers and independents have invested well over 4$b in capital investments. Grocers have better distribution systems than ever before which are equipped to compete against non-traditional food retailers like Wal-Mart, Costco, and yes, Amazon. Consumers have only a superficial appreciation for these improvements since logistical systems are hidden business levers.

The industry is actually a better cost manager now. Yes, retail price points have gone up, but so too did the sector’s capacity to manage costs.

But if we stick to what Canadians can actually observe, food retailers now offer more variety in nicer, more spacious stores. Urban food deserts are slowly disappearing due to the fact that fresh foods are readily available in convenient stores now, convenient stores!

In larger outlets, consumers can enjoy labyrinths of voluptuous smells and appetizing counters to support an approach that favours heath, ethnicity and culinary curiosity. It has been exciting to watch. Most importantly, and to their credit, grocers are deliberately trying, more than ever, to confine their procurement strategies so consumers can buy locally-grown products.

It is a deliberate attempt to cater to an increasingly fragmented market place, and food retailers are adapting quickly.

As we witness the renaissance of a food distribution sector in our country, the real tragedy remains the dreadful and unfortunate collapse of our food processing sector. Canada has lost over 150 manufacturing plants since 2008, a sad story which we do not talk about often enough.

This leaves Canadian farmers with limited markets, and little value added opportunities. Crop diversity and the quality of life in rural communities have also suffered as a result. This is something FAO reports should recognize. Something ought to be done to build our processing capacity in Canada so consumers can become more immune to macroeconomic influences.

Perhaps, food distributors themselves may someday come to our domestic food processing sector's rescue. Who knows?