On the rise: food prices slated for an increase in 2021

2020 was not the year anyone expected it would be. In a fitting end, 2020 brought a yearly report predicting food prices in 2021, which reveals that trips to the supermarket are about to become more expensive.

From baked goods to meat and produce, the 11th edition of Canada’s Food Price Report forecasts an average price increase of three to five per cent for the goods that stock our refrigerators, freezers, and cupboards.

The numbers

In previous years, Dalhousie University and the University of Guelph spearheaded Canada’s Food Price Report, but for the first time, the University of British Columbia and the University of Saskatchewan joined the collaboration.

James Vercammen, UBC professor of faculty of land and food systems was the project lead for the university. Dalhousie and Guelph performed the analysis, while UBC and USask are currently on “observer status,” but this year, they’ll have a permanent role.

As a whole, grocery prices will increase between three to five per cent in 2021. Individually, bakery products will increase by three and a half per cent to five and a half per cent, dairy between one per cent to three per cent, seafood by one and a half per cent to three and a half per cent, fruits by two per cent to four per cent. The highest increases are seen in meat and vegetables, each by four and a half per cent to six and a half per cent.

The annual food expenditure for the average Canadian family of four is predicted to be about $13,907 in 2021, which is an increase of $695 from 2020. The average Canadian adult can expect to pay about $160 more annually for groceries. It’s worth noting these increases only reflect money spent on groceries and not food services, such as restaurants.

Canada’s Food Price Report uses predictive analytics models applying machine learning to determine future pricing, and fast food prices are combined with variables like unemployment and exchange and interest rates. Vercammen says the models are good at projecting future pricing, but they don’t explain the “why” behind it.

In a year already plagued by so many challenges, it seems like Canadians will also be opening their wallets more.

The “why”

The report breaks down potential variables that affect food pricing into three categories: macro, sectoral, and domestic. The degree to which one variable can affect price ranges from “likely” to “very likely,” while its subsequent impact ranges from “moderate to “very significant”. It’s important to know some of these variables will cause food prices to increase in 2021, while others will cause decreases, and the effects of others aren’t yet known.

Vercammen says in a given year, food prices increase naturally and don’t raise alarm bells. But due to the pandemic affecting the economy, the loss of jobs and incomes, and the reliance on government aid, the extra $695 a year is a stark change for most families.

Food prices typically rise two to four per cent in a typical year, but this year they’re jumping three to five per cent. A big part of that is caused by inflation.

“So the main thing to recognize is that, first of all, all prices go up in most countries — that’s just the general rate of inflation,” says Vercammen. “What we need to worry about is the extent that food prices are rising faster than the general prices.”

The report predicts the ongoing COVID-19 pandemic will undoubtedly affect the food chain and pricing in 2021, but without additional data, to what extent isn’t clear.

Last year saw “record and worsening heat, ice loss, wildfires, floods and droughts”, and so the report cites the impact of climate change on food prices being “very likely”, and with a “very significant” impact in 2021. Its impact on driving food prices up or down could go either way, similar to geopolitical risks.

Currencies and trade will also have an impact, as a weak Canadian dollar affects importers’ buying power, which means imported items will likely cost more. Meanwhile, food retail and distribution and policy and regulations are also “very likely” to have moderate to significant effects on pricing.

COVID-19

From farmers’ fields to grocery store shelves, COVID-19 has crept into every aspect of Canada’s food chain.

The early stages of the pandemic saw panic buying and hoarding behaviour. Although short-lived, Canadians emptied shelves of non-perishable foods and even toilet paper. It’s a behaviour Vercammen hopes won’t be repeated.

“COVID-19 has resulted in increased income insecurity as many Canadians found themselves either unemployed or underemployed. Income insecurity is a key factor in food insecurity,” according to the report.

Consumers didn’t just feel the squeeze, food producers and distributors did as well. Meat processing plants across the country operated below normal capacity and efficiency. The work requires manual labour and working in close quarters, so the virus spread rapidly.

In worst cases, several plants shut down, resulting in a backlog of animals on farms. COVID-19 outbreaks also cropped up in agricultural farms, and the food chain was temporarily impacted by foreign workers’ inability to enter Canada due to travel restrictions.

To meet increased consumer demand, stores scrambled to hire more employees and wait times for pickup slots were often several days. Because of COVID-19 and the shift in food retail demands, the report cites “the importance of frontline grocery workers who are also some of the lowest paid workers in Canada,” coming to the forefront.

Before the pandemic, 62 per cent of food budgets were spent on food retail (grocers), and 38 per cent on food service. This totalled $7.7 billion versus $5.3 billion respectively per month. However, in May 2020, the month before restaurants began re-opening, this ratio dramatically shifted to 91 and 9 per cent, with food retail generating $7.8 billion in sales versus $891 million in foodservice in May 2020.

“When I go back and look at the Stats Canada monthly data….from last March, we really had a pretty amazing last nine months where there [were] no big price spikes,” says Vercammen.

Learning to Adapt

Much like 2020, adaptability for consumers, producers and distributors will be paramount in 2021.

In the pandemic’s early days, Canadian food habits changed almost immediately. Once thriving restaurants suddenly had massive surpluses of food but fewer customers to sell it to, so much of it was donated to food banks. They’ve often had to adjust capacity, offer only take out and pickup options, or shut down entirely.

“Takeout…is quite helpful for restaurants, but it’s certainly not going to pay all the bills,” says Vercammen. “So I think they’re just kind of using it as a ‘can we hang in here long enough until we get things back to normal,’ rather than sort of throwing in the towel now.”

“For every restaurant that closes, we know there’s a story there,” he adds.

Consumers’ grocery store experiences have also changed, going digital. Whether an elderly individual is worried about crowded stores or a family with an infant at home, many people have opted for curbside pickup or delivery options for how they grocery shop.

“I think when these people realized the ease of that…they’re continuing to do that, and probably will continue,” says Vercammen.

Bryan Yu, chief economist at Central 1 Credit Union, says the $695 a year increase will impact low-income families the most, due to a greater percentage of their income being spent on food. Adding the increase will lead to people shifting their diets and normal purchasing habits in favour of cheaper alternatives.

“There’s always shifting in consumption of goods. If your apples are more expensive, you’ll buy something else, right? That’s how households adapt to changing price dynamics,” says Yu.

Because many of the population is working from home, more people are eating at home. A University of Guelph study examined Canadians’ eating habits during the pandemic. Results showed 60 per cent of respondents reported making more meals from scratch, 70 percent spent more time cooking, and 50 per cent involved their children more in meal preparation.

Many consumers have shopped locally during the pandemic to support small businesses and because locally sourced food isn’t as susceptible to supply chain issues or climate change crises abroad. The report cites a recent study that suggests four in five Canadians are willing to pay extra for “locally grown” produce.

“The real story I think about our food supply since last March is the amazing resilience of our food supply,” Vercammen says.

Saving at the Supermarket

The additional $695 that Canadians will fork out is based on existing eating habits, says Vercammen, but simple changes like cooking more at home, consuming less processed food, and forgoing food delivery can help alleviate some of these costs. But between busy schedules or lack of a vehicle, Vercammen says changes like cooking from scratch is more easily said than done.

“I think just a small amount everyday can actually go a long way towards trying to reduce that cost,” he says. “With planning and careful thought, you can actually change your eating habits.”

Canadians can start going shopping with a grocery list. Swap out meat for cheaper protein alternatives like legumes. Buy produce that’s in season, and consider buying frozen produce. Purchase items that are on sale and tailor meals towards those products, and buy in bulk.

Shoppers can also purchase less desirable but cheaper cuts of meat, or buy a whole chicken that will provide enough meat for multiple meals, and then use the bones to make a broth. Yu suggests, “making food go a little further as well in terms of minimizing waste.”

What’s Next?

Vercammen and Yu believe the trend of food price increases will continue, but caution that prices increase naturally every year and are driven by a multitude of factors, some of which are difficult to predict.

“Food insecurity levels are likely to increase across the country in 2021,” and that “due to specific regional market conditions, we are expecting British Columbia to experience higher than average price increases,” according to the report.

Climate change remains the most ominous threat to the global food chain. Produce is often at the mercy of unpredictable weather, which leaves Canada in a vulnerable position due to its chaotic climate, but also our importing of fruits and vegetables from around the globe.

Drought, rain shortfalls, depleted rainwater and crop failures are potential meteorological crises that food prices would be affected by. Vercammen says technology and our ability to innovate, combined with the use of GMOs, creative land use, or price incentives, could turn the tide.

The report predicts the plant-based protein trend will continue, partially due to the greater adoption of Canada’s Food Guide, but also to help mitigate the demand on the industrial meat industry and its environmental effects.

“We’re not stuck yet, but at some point, we start to run out of degrees of freedom,” Vercammen says.

While restaurants in B.C. must close by 11:00 pm, Quebec is under curfew, and Ontario remains in lockdown, the report says demand for food services is expected to decrease in 2021.

However, in order to stay afloat, the partnering between restaurants and food delivery services and utilization of meal kit services is expected to grow, which could cause a price increase for consumers.

Vercammen does caution about possible disruptions down the road due to Canada being in the grasp of a second wave and food chain turmoil in California – a state that supplies much of Canada’s produce. But, he admires the strength of the food industry despite continuous and unprecedented hurdles.

“We should also stop and give thanks to the people who worked throughout the whole supply chain, right from the growers, to the processors, to the food manufacturers, trucking industry and retailers, because through the COVID, they’ve done amazing at keeping out store shelves well stocked and prices reasonable,” he says.