For the first time in years, food prices dropped in nearly every province in August, according to Statistics Canada. One expert says it could be the start of “significant ongoing deflation in food aisles across the country.”
Sylvain Charlebois, dean of the faculty of management at Dalhousie University in Halifax, says that while shoppers may be “delighted” to see cheaper meat and produce, the numbers released in August suggest “a significant challenge for the food industry moving forward.”
Although the latest consumer price index data shows that, year over year, food prices were up 1.1 per cent in August, the food index dropped by 0.6 per cent from July.
“We’ve seen prices of much more volatile products decrease significantly, including fruits and vegetables,” Charlebois tells CTVNews.ca. “I think we’ve gotten over that cauliflower crisis for good.”
Early this year, some Canadians were paying as much as $8 for a head of cauliflower as produce prices increased. The latest data shows modest decreases in average prices of many staple food items from July to August, including:
- $16.53 for a kilogram of stewing beef (-$0.39)
- $2.99 for 675 grams of bread (-$0.03)
- $2.22 for a kilogram of carrots (-$0.24)
Those specific price drops may not seem that significant, but Charlebois says he and other observers expect a continued decline in food prices across Canada, likely for the next six months or so.
Prices of food items purchased in stores recorded their smallest year-over-year gain since June 2010 and the fresh fruit index posted its first decline since December 2013. The price of meat also decreased in August by 0.6 per cent, after increasing in July.
Charlebois attributes the phenomenon to excess inventories for many food products and “a more competitive food distribution landscape.”
He also notes that the Canadian dollar has held steady over the last few months, which is also keeping the prices of fruits and vegetables lower.
Not all food products are now cheaper, however. Charlebois says that the price of chicken has increased while beef and pork prices are dropping. That’s because poultry prices are regulated at farm gate (meaning that the price is set when the chicken is sold at the farm) and there are high tariffs on imports.
Charlebois says he was surprised to see that food prices dropped in every province except Alberta. He’s not sure why, but suspects that retailers are “playing defence” in the economically troubled province, where unemployment rates and operational costs are rising, while the government plans to raise the minimum wage to $15 per hour.
While most Canadians will be happy to see lower grocery bills, the drop in prices is “troublesome” for the food industry, Charlebois says.
“It does create significant headwinds for the industry because you want to grow your top line, you want to grow your revenues and you want to make sure that you are profitable, but if prices are dropping…then the proverbial pie will shrink and you may actually see some players disappear.”
He says that’s not likely going to happen at the retail level, but some smaller players in the food processing and supply chain may find it difficult to operate.
Charlebois says that Canada seems to be catching up to the United States, where the drop in food prices has been even more significant. Our neighbours are on track to see the longest stretch of falling prices in more than 50 years.
Europe is also seeing deflationary food prices, despite fears that Britain’s decision to leave the European Union would actually increase food costs, Charlebois says.
