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07/13/2022

Canadian food suppliers signal more price hikes coming this fall

In letters to the country's grocers, food manufacturers have indicated that prices will rise in September thanks, in part, to mounting inflationary pressures
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Canadian food suppliers are once again issuing notices to grocery retailers informing them of upcoming price hikes.

The letters signal more price increases will hit grocery stores this fall in a year that has already seen nearly double digit increases in food costs.

In some cases, the higher prices are due to the Canadian Dairy Commission's approval of a second milk price increase this year. Farm gate milk prices are set to go up about two cents per litre, or 2.5%, on Sept. 1.

Yet dairy processing companies appear to be tacking on their own increases as well, the so-called piggybacking of price hikes industry observers warned would happen.

Lactalis Canada, for example, said in a letter to customers it must implement an average national market increase of 5% this September, a rate it said takes into account the CDC pricing increase as well as "significant inflationary costs" the company is facing.

Arla Foods Canada issued a similar notice, saying price increases on its products coming this September reflect higher milk ingredient costs and the "inflationary impacts across freight and packaging."

Saputo also said it would implement price increases in the 5% range, depending on the category.

"Producers have faced increased production costs as well as rising feed, energy and fertilizer costs, which have had a significant impact on this year's farm gate milk price adjustment," Saputo said in a letter to its retail customers.

"In addition to these regulated increases, there have been unprecedented and sustained inflationary pressures affecting manufacturing, energy, labour and distribution costs throughout the entirety of the supply chain."

The price increases shared with grocers underscore how regulated dairy price hikes are compounded by additional price increases throughout the supply chain, said Gary Sands, senior vice-president of public policy with the Canadian Federation of Independent Grocers.

"The timing of the increases almost seems like they are piggybacking on top of the regulated increases," he said. "The net effect is to further exacerbate the issue and concerns around affordability."

Those concerns are especially acute in rural and remote communities where transportation and fuel surcharges are higher, Sands said.

"The increase in price for these essential products is of particular concern in those communities," he added.

The price of food purchased at stores rose 9.7% in May compared with a year ago as the cost of nearly everything in the grocery cart climbed higher, Statistics Canada said last month.

Sylvain Charlebois, Dalhousie University professor of food distribution and policy, said the pace of food price increases could rise to 10% before starting to slow.

"We're expecting food inflation to peak between now and the end of September," he said. "It may actually go north of 10% before things start to calm down."

The U.S. Bureau of Labor Statistics said Wednesday the inflation rate for food consumed at home in that country hit 10.4% in June, the largest 12-month increase since 1981.

Charlebois said Statistics Canada is expected to post similar food inflation figures when it reports the consumer price index for June next week.

Surging prices will put pressure on grocers to promote their private-label options, he said.

"Consumers are trading sideways or trading down on anything and everything right now and switching to discount stores," Charlebois said. "They're really more sensitive about the cost of living."

Meanwhile, the letters sent by suppliers to retailers outlining the reasoning behind the cost increases is part of an effort to avoid taking the blame for higher food inflation, said Charlebois.

"Inflation is impacting every single Canadian out there, but it's also impacting the political economy of food and how the food industry is being perceived."

Lactalis said in its letter to customers that it is "very cognizant of the impact of inflation on consumers."

"As we are all aware, this cycle of inflation is in large part being driven by the latest phase in the evolution of the pandemic and by the global geopolitical situation sparked by Russia's invasion of Ukraine and the ongoing conflict," the company said.

A spokesman for an industry group representing food manufacturers said the vast majority are experiencing higher to significantly higher cost increases and all are projecting costs to continue rising throughout 2022.

"Business is not back to normal and suppliers are being pressured to seek cost recovery due to a perfect storm of external factors," said Anthony Fuchs, vice-president of communications for Food, Health and Consumer Products of Canada.

Extreme weather disasters, the impact of Omicron variants, blockades, and significant labour shortages have all put pressure on costs, he said.

In addition, the cost of commonly used raw materials such as wheat, grains and oilseeds has increased up to 80% over the past year, Fuchs said.

The cost for plastic packaging components has increased by more than 40% and paper pulp, a key ingredient in cardboard packaging and boxes, has increased 15% to 50%, he said.