There is no need for Canadian shoppers to fret about rising food prices created by drought conditions in the U.S. Midwest says a prominent academic.
Economists such as RBC’s Paul Ferley have predicted that Canada’s food prices will rise by between 2.5 and 3.5 per cent in 2012 and by as much as four per cent next year because of the drought’s impact on U.S. corn and soybean crops.
Corn in particular has a significant impact on grocery prices, not only because of its use in animal feed but because it is a source of the high fructose corn syrup widely used in processed foods.
But Dr. Sylvain Charlebois, associate dean at the University of Guelph’s College of Management and Economics, says that while “farmgate” could contribute to price increases for meat, he predicts it will have minimal impact on other food categories like fruit and vegetables and dairy.
“The effects of the U.S. drought will be somewhat isolated to perhaps animal protein, but when it comes to fruit and vegetables, a category in which we’ve seen major swings in the past few years, it won’t be affected,” says Charlesbois.
Even concerns about rising meat costs are being mitigated, for now, by the fact that livestock producers, anticipating higher-than-usual feed costs, have began selling animals earlier – creating a drop in prices for some meats.
At the same time, Canadian fruit and vegetable prices shouldn’t be adversely impacted because their growing regions haven’t been negatively impacted by the drought, says Charlesbois.
Processed foods will be only marginally impacted, he says, because corn represents a mere fraction of their total production.
The strong Canadian dollar means that consumers’ purchasing power is increased, while heightened competition in the grocery sector–particularly with the impending arrival of Target and the continued rollout of Walmart’s grocery stores– will help keep grocery prices competitive, says Charlesbois.
Finally, it’s important for Canadian consumers to remember that they have access to one of the world’s cheapest grocery baskets after the U.S. and Singapore, says Charlesbois.