Iran war expected to impact cost of farming operations, groceries

The rising price of oil is a cause for concern as farmers and grocery store owners brace for increased costs. CTV News Edmonton's Amanda Anderson reports.

With the price of oil skyrocketing amid the U.S.-Israeli attacks on Iran, some are bracing for the potential impacts on the agriculture sector.

On Monday, oil was ringing in around US$120 a barrel, the highest it’s been since 2022. The price of a barrel whipped back down to US$90 by the afternoon.

“When it comes to food prices, we’re in trouble,” said Sylvain Charlebois, director of the agri-food analytics lab at Dalhousie University. “With surges, you tend to really see a huge difference with the food inflation rate. We saw that in 2008 with the financial crisis, food inflation skyrocketed basically three to six months after oil prices.”

Charlebois said the cost of fertilizer is likely to go up as a result of the war in Iran as Canada gets much of its nitrate and sulfur from the Strait of Hormuz.

“Energy costs are affecting pretty much all verticals within the food industry,” he said. “Most importantly, I would say that livestock, dairy, and grains are particularly hit by that.”

He said food inflation is expected to remain at six or seven per cent over the next three months if oil prices persist at the same level. But every 25 per cent more in oil equates to about $150 to $200 more a family of four would spend at the grocery store.

Alberta farmer Kevin Bender said he’s trying to be optimistic.

“We’ve seen our grain prices rise a little bit in recent weeks here, so that helps offset the rising input costs,” Bender told CTV News Edmonton. “But farm margins have gotten tighter the last year or two.”

The cost of diesel isn’t likely to make a significant impact on Bender’s bottom line, but fertilizer – which he says makes up about a third of his input costs – is the big concern.

“Nitrogen is the major component, and when we see an increase in our urea cost, that really impacts our bottom line,” said Bender.

Meanwhile, Brent Williams, a supply chain consultant, said energy is one of the largest inputs for any food or grocery supply chain.

“All of those along the way have transportation, they have logistics, they have warehousing, and all of that supply chain takes energy,” said Williams. “The impact from energy to grocery prices, a lot of it is an input from the manufacturing and delivering of those prices to us.”

He said the gradual increase of cost pressures could be seen at the grocery checkout within the month, but the longevity will depend on how long the war plays out.

The United Conservative Party government said it is looking into initiating its fuel tax relief, but with the price of oil fluctuating, it’s unlikely to be implemented any time soon.

The fuel tax relief program adjusts rates for gasoline and diesel quarterly, based on the average price of a barrel.

When prices reach or exceed $90, the fuel fax is suspended. A partial tax of 4.5 cents per litre is applied when prices are $85 to $89.99 and nine cents per litre when prices are $80 to $84.99. The fuel tax is reinstated whenever prices fall below $80.

Alberta’s finance minister Nate Horner said they are in the middle of a “monitoring period.”

“If oil were to average, say, $110 for the last five days, it could trigger the lowest level of relief,” said the minister at the legislature Monday. “Unlikely, but not impossible.”

He said the program is in place to give Albertans at the pump some relief when gas prices are high.

With files from The Associated Press, CTV News Edmonton’s Nicole Lampa and Amanda Anderson