From the Editor: Up, Up and Away

In the past few months, have you noticed an increase in your grocery
bill? Despite soaring costs for raw materials such as grains, a recent
article in the Globe and Mail entitled “Against the Grain” claims that
food inflation isn’t being felt in Canada – yet.

In the past few months, have you noticed an increase in your grocery bill? Despite soaring costs for raw materials such as grains, a recent article in the Globe and Mail entitled “Against the Grain” claims that food inflation isn’t being felt in Canada – yet.

Rapid increases in food prices have caused inflation to spike in many countries around the globe (according to the article, increases in food prices of four per cent, six per cent and 21 per cent in the U.S., Europe and China, respectively have occurred in the last year), sparking violent protests in many developing countries.

So why hasn’t Canada felt the same effect? The article says that Canada has experienced something unusual, a deflation in food costs. Upon closer examination, this isn’t really true and certainly won’t last. And it doesn’t bode well for supply-managed commodities should we lose out at the WTO. 

It’s true that some grocery items, particularly produce, are cheaper, but this is due to our strong dollar in comparison to the U.S., where much of our grocery store produce originates.

There’s no doubt that food commodity prices are soaring – a Bank of Canada commodity index says they’ve actually risen more than 50 per cent in the past year – but retailers in Canada aren’t passing this along to consumers right now, in part due to strong competition from the new Wal-Mart “Supercentres.”

The article says that retailer duelling doesn’t tell the whole story. Of course, retailers cannot continue to eat profits. “Price controls imposed by marketing boards,” the article says, are playing a role at keeping costs down on dairy and poultry for now, and food prices may “be kept low because the country is producing so much of its own food – possibly too much.”

The article indicates that stable or falling pork and beef prices are due to an overcapacity of these products in Canada. What it completely missed was the reason for this.

Pork and beef are in an overcapacity right now because unlike supply-managed commodities, they have evolved in such a way that they were highly dependent on U.S. markets. With a faltering U.S. dollar and the BSE crisis, beef and pork now don’t have the market they enjoyed several years ago. It’s gotten so bad that the Government of Canada is paying pork producers to cull their breeding herds. It’s a perilous situation when a commodity in one country is so dependent on the economy of another to remain viable.

Overcapacity of red meat could have a significant impact on poultry meat products. Overcapacity causes a decrease in retail prices and, if prices decrease considerably, to compete, the price of poultry will have to respond accordingly if it is to remain Canada’s number 1 protein.

Canada’s strong dollar has already made over-quota tariffs ineffective and if supply management loses out in the sensitive/special products category at the WTO negotiations in the coming months, increased access to our market will cause us to find ourselves in similar peril to beef and pork.