Price wars are being predicted for food in 2012, thanks mainly to imminent arrival of the latest big box store to hit Canada. But in a strange twist, that could actually end up working in local food producers’ favour.
According to the new 2012 Food Price Index report from economics professors Sylvain Charlebois and Francis Tapon at the University of Guelph, next year’s overall price increase in food should be about two per cent. Input costs such as fuel, fertilizer and crop protection products have levelled out for farmers, putting less pressure on grocery prices which have risen as much as 11 per cent for some commodities this year.
However, the two per cent forecast depends significantly on a couple of things, starting with the weather.
Unpredictable heat, cold and rainfall continue to influence farming in ways never experienced in modern-era agriculture. Charlebois doesn’t know if, or whether, we’re experiencing short-term or long-term climate change. He just knows that when he looks into the future of food prices these days, he gives a nod to Mother Nature.
“It’s the first thing we mention in our report,” he says. “If the weather cooperates, our predictions will be fine. But how can we know what Mother Nature will do?”
Generally, bad weather means less production and higher consumer prices.
But equally as unpredictable is the global economic situation. Europe is a chronic mess. The U.S. recovery is sluggish and faltering. Even China is experiencing a slowdown as consumers everywhere tighten their belts.
Still, though — and this has always been agriculture’s ace in the hole — people have to eat. And they have to shop somewhere to buy food.
Lately, consumers had more interest in buying local food. Yet they also have a drive to buy food as cheaply as possible, a long-standing trait of Canadian food shoppers.
The latter is well-understood by retailers, and it’s sparked massive grocery competition in this country based mainly on price.
The economists predict turf battles will only intensify when the Target chain moves into Canada.
Target competes head to head with Walmart, which has said it wants to capture as much as four per cent more of the food retail market this year. That’s huge. The economists say that will turn the current price battles into an epic war.
For his part, Charlebois says price pressure on farmers will continue as the war catches fire. Grocers will need to take profits from somewhere, and if consumers won’t pay at the finished-product end, farmers and processors could take a hit.
Yet even though all this, there’s good news for fans of local food and farmers alike.
Target has supply arrangements with Sobey’s, which Charlebois describes as being among the most receptive of the grocery chains to local preferences.
So even though a price war is likely, more opportunities could exist to put local food in front of grocery store shoppers year round. Imagine…a price war based on local food. It’s a long shot, because local food is not likely the kind retailers would discount.
But given the ultra-competitive nature of the market, who knows?
Local food opportunities will depend not just on availability, but also on price. Research influences both factors.
Through agriculture and food research programs such as those at the University of Guelph, sponsored by the Ontario Ministry of Agriculture, Food and Rural Affairs, faculty members come up with new technologies, techniques and varieties to help farmers be as efficient as possible.
Because if costs are going up, so must profit. And in an era of small margins and major price wars, research is needed to help profitability grow.