Back to Higher food prices coming, retailer says Higher food prices coming, retailer says
January 28, 2011
Among the discount supermarkets, No Frills, Food Basics and Price Chopper, the food price war is in high gear
Some of this week’s flyers feature fresh pineapple, grape tomatoes and whole grain bread for as little as $1.
Others are touting brand name orange juice, cheese and pasta sauce at a third of their regular price or less.
Sparked by Wal-Mart’s continuing expansion into grocery – 40 more stores are coming this year – this kind of retail competition, along with a higher Canadian dollar, has so far spared Canadian consumers the kind of food price inflation that threatens to erupt in violence in other parts of the world.
But Canadians can expect to see more food price increases in supermarkets soon, the country’s third-largest food retailer predicted this week.
“We do expect some cost increases to be processed through the system starting in February,” Eric La Flèche, president and chief executive officer of Metro Inc., told analysts on a conference call on Wednesday.
“In certain categories we’re expecting some pretty significant increases, La Flèche added, citing pasta and bread.
The increases will occur across the food industry, he predicted. Metro operates what used to be the Dominion store chain in Ontario, as well as stores under the Metro name in Quebec.
Starbucks Corp. and Kraft Canada have already announced some price increases on coffee.
Other multinational food processors and restaurant operators, from General Mills to McDonald’s Corp., have warned price increases are coming as their costs rise.
Grains, oilseeds and sugar are all higher, in some cases near levels last seen during the food crises in 2008, according to the Food and Agriculture Organization of the United Nations.
The FAO’s overall Food Price Index for December surpassed its peak in June 2008, the agency said this month, citing its closely-watched measure of international food prices.
The basket of food basics reached nearly 215 points last month, up 25 per cent since a year ago, as demand rose in China while Russia’s grain crop suffered its worst drought in half a century.
The impact on Canada, so far, has been modest by global standards.
The food price index in Canada is up a mere 1.7 per cent over last year, Statistics Canada said this week.
That’s a fraction of the pace in countries like India, where food prices are up 15 per cent, and China, where they’re up 9 per cent, and where food accounts for a much larger share of consumer spending
In Canada, food accounts for just 17 per cent of all items in the index, behind shelter and transportation, but ahead of recreation, clothing and alcohol.
In comparison, in India, food accounts for nearly half (47 per cent) the overall consumer price index. In China, it’s more than a third (34 per cent.)
“As consumers, we haven’t really seen it yet,” said Kevin Grier, an analyst with the George Morris Centre, a food policy think tank, in Guelph.
“Competition in grocery is starting to peak a bit. You’ve got Wal-Mart going into Quebec. Target coming into Canada. And because of that we’re not seeing the price increases as much as we’d expect,” Grier said.
U.S.-based Target, a discount department store that also sells groceries, plans to open up to 150 stores in Canada by 2014.
A higher Canadian dollar has also helped, making imported fruit and vegetables cheaper for supermarkets, Grier said.
In other parts of the world, such as Tunisia and Egypt, rising food prices have already been partly blamed for violent protests.
The chairman of Nestle, the world’s largest food group, warned this week that higher food prices could become permanent.
Saying the financial crisis of 2008 provided a brief respite, Peter Brabeck said one of the long-term problems is growing competition for agriculture land from biofuels.
The wholesale price of corn is now $6.60 U.S. a bushel, after trading between $3.50 and $4 for most of last year.
But while global leaders fret over the impact of food price inflation on the world’s fragile economic recovery, Canadians remain relatively insulated.
Indeed, the country stands to benefit as a supplier of major commodities to the rest of the world.
Shares of Saskatchewan-based fertilizer giant Potash Corp. hit a 28-month high on Thursday after reporting higher quarterly sales and profit, doubling its dividend and announcing a plan to split its stock.
“With global food demand as the powerful engine, we believe we have moved into the next stage of growth for our business,” said president and chief executive officer Bill Doyle.
Within its stores, Metro says food prices fell 1 per cent in the latest quarter as a stronger loonie helped keep some costs down.
Shoppers loaded up on specials and lower-priced private label brands, particularly in its discount chain, Food Basics, the company said.
“The consumer remains cautious,” La Flèche said. “As retailers we’re feeling that because we’re giving them a lot of promotions. They have opportunities to cherry pick.
“With high unemployment, high debt levels, people are trying to save every which way they can.”
Despite consumers’ sentiment and the added competition from new entrants, food industry analysts believe Canada’s supermarket operators will be able to pass some cost increases on to customers.
“Two-thirds of the grocery market in Canada is controlled by three companies and they have a very strong position in each of their respective areas, which gives them some pricing power,” said Donald Marleau, an analyst with Standard & Poor’s Canada.