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09/01/2021

Sticker shock hitting consumers at grocery as drought takes toll on crops

Prices on meat, flour, cereal, and some produce have increased since spring and additional increases are expected this fall
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Canadians have started to pay more for groceries as severe drought drives up prices for agricultural commodities, and experts say more price hikes are likely this fall.

At The Bon Ton Meat Market in Calgary, owner Greg Keller said the spike in retail beef prices over the last two months has been "unbelievable."

"Some items have increased 10% to 15%, some items have increased 20%," Keller said. "I've never seen such volatile markets, and I've been doing this a long time."

According to Statistics Canada, the price of round steak increased from $17.97 per kg in March of this year to $19.05 per kg in July. Prime rib roast jumped from $36.66 per kg to $41.39.

"When we saw prices start to climb, we started buying a lot of inventory," Keller said. "And thank God I did that . . . because this is shocking to me."

The price of flour, cereal, and some produce items has also crept up since spring, and more increases are expected this fall.

A number of factors are behind the recent sticker shock, including global population growth driving long-term demand for food, as well as a weaker Canadian dollar and the return of restaurant dining as COVID-19 public health restrictions are lifted.

This year, however, grocery prices are also being affected by the extreme heat and drought plaguing Canadian farmers and ranchers.

Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University, said he anticipated a yearly overall food price increase of 5% on average—meaning Canadian families could spend close to $700 more on groceries in 2021 than they did the year before.

"It's likely the highest jump in food prices in recent history, in dollars (unadjusted for inflation)," Charlebois said. "And I think the worst is yet to come."

Growing conditions have been so poor in Western Canada that Statistics Canada now projects this fall's wheat harvest will be 35% below last year's levels.

Canadian canola production is expected to fall 24.3% this year to its lowest level in a decade, at 14.7 million tonnes. Barley production is expected to decrease 27% year-over-year and oat production is expected to fall 32.9%, according to Statistics Canada.

Tom Steve, general manager of the Alberta Wheat Commission, said drought has also been a problem in other major crop-producing countries—including the U.S. and Russia—this year.

"With a substantially smaller crop, it's going to put a lot of upward strain on prices and sheer availability," Steve said. "This drought will definitely have an impact on the consumer."

Already, canola is trading at near-double normal levels, at $20 per bushel. Canadian spring wheat is hovering around $11 per bushel, where normally "farmers would be happy with $7," Steve said.

"It's basic supply and demand," he said. "The processors are going to have no choice but to pass these prices on to consumers."

The spike in the cost of feed grains is one reason consumers are seeing higher beef prices, said Brian Perillat, manager and senior analyst with Canfax, the market analysis arm of industry group the Canadian Cattlemen's Association.

"In the last year or two we've seen barley prices double. They've gone up from $4 a bushel to over $9,'' Perillat said. "That's a major input to beef production."

Perillat added when it comes to meat prices, the full impact of this year's drought hasn't been realized yet. There are estimates that up to 20% of the Canadian cattle herd could be liquidated as ranchers who can't afford to feed their animals are forced to cull their herds.

"We anticipate (cattle) supplies are going to go down over the next couple years," Perillat said. "And that means prices are going to go up."

Charlebois pointed out that farmers who manage to make it through this year's harvest with a salvageable crop will benefit from the high commodity prices. But prices mean little to those whose fields are scorched and dry, he said.

"If you're a farmer and you have something to sell, you'll make good money. But you need something to sell," Charlebois said.

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