April 16, 2008
Economic Snapshot - April 16, 2008
Canadian food prices may heat up soon
In its monthly report, Statistics Canada attributed this moderate increase in overall food prices to lower prices for fresh fruit (-14.5%) and vegetables (-16.9%), partly due to the the effects of the strong Canadian dollar.
Unfortunately, the rest of the world is not sharing Canada’s tame food-price inflation. In the United States, food prices increased by 4% in 2007, a 17-year high. According to a recent article by CNN.com food prices are rising significantly across the world.
Thirty-seven countries, most of them extremely poor, are facing food crises and 20 of them have imposed food-price controls. At the same time, the United Nations World Food Program reports it is facing a $500-million shortfall in the funding necessary to feed 89 million needy people.
Three factors appear to be contributing to higher food prices:
(1) Fertilizers, mechanical cultivation and transport to market all cost more, thanks to higher energy prices.
(2) Prices are rising for corn, sugar and soya beans, thanks to the shift to biofuels, particularly ethanol. Farmers, in turn, are turning away from less-profitable crops.
(3) Grain costs are rising, too, brought on by increasing demand for beef and pork in rapidly developing countries such as China and India.
Looking ahead, it is worth noting that pasta prices in Canada were up by 25% year over year in February, despite the stronger exchange rate. This suggests that once the Canadian dollar stabilizes or moves lower versus the U.S. dollar as many expect it will do, food-price inflation in Canada is likely to take on a more international flavour.
Food Price Inflation - Canada vs United States
*"Year over year" is each month versus the same month of the previous year.
Data sources: Statistics Canada and U.S. Bureau of Labor Statistics (Department of Labor). Chart: Reed Construction Data - CanaData.
