Agflation
Agflation = “agriculture” + “inflation” = food price inflation. Coined sometime in the late 2000's, agflation can be described as rising food prices caused by a variety of factors including rising fuel costs, poor harvests, tight international supplies, and growing demand due to more people and alternative fuels.
Is Canadian Business Insulated from Rising Food Prices?
There has been lots of press over rapidly-rising food prices in the United States, China, Europe and elsewhere. According to a June 12, 2008 report by Statistics Canada called Food Prices: A Boon for Producers, a Buffer for Consumers”, consumer food prices rose 5.9% in the U.S., 7.1% in Europe and 22% in China while Canada’s increase rose only 1.2%. The abstract of the report reads: “Canada stands to profit from the surge in food prices. Producers already have seen food exports hit a record high early in 2008. While consumers pay more for bread and cereals, this has been offset by stable or lower prices for other foodstuffs.”
Is this positive or negative for small businesses like small retailers, independent grocers, bakeries, restaurateurs, independent brewers, and smaller food producers?
A CBCNews.ca article warns Canadian consumers and business that the picture is not all rosy. This excellent news report called Brace Yourself, Canada, for Higher Grocery Bills analyzes why the Canadian grocery bill is generally lower right now: A higher Canadian dollar has allowed fresh fruit and vegetables imported from the U.S. to be sold at lower prices. Marketing boards in Canada regulate the prices of items like eggs, milk, poultry and pork. This has off-set higher prices for items produced with wheat and other grain commodities. Also, large retailers like Wal-Mart have caused price wars which help consumers but lowers profit margins for Canadian chains. Consumers, then, have benefited and this benefit may have resulted in positive sales at retailers' cash registers. However, the article notes that higher food bills are coming because of: “A continuing increase in the cost of baked goods; a looming end to the bargains created by our rising dollar; rapidly rising farm costs; growing demand for basic food commodities around the world; rising food transportation costs and perhaps an end to below-average margins at the grocery chains.”
A Vancouver Sun article by Bruce Constantineau on April 26, 2008 called “Food Price ‘Crisis’ Denied by Grocers” details how retailers are asking suppliers for efficiencies in keeping their costs down. The Canadian Federation of Independent Grocers believes that while there will be food price increases, they will be manageable for Canadian retailers and consumers. The article also mentions “the global trend to buy more food from local sources should also help keep prices down over the long term”.
According to a CBCNews.ca article from The Associated Press on May 7, 2008 called “Soaring Food Costs Prompt Restaurants to Make Over Menus”, restaurant owners are “swapping expensive ingredients for cheaper fare and adding new dishes that won't break their bottom line”.
A similar article appeared on May 5, 2008 on CBCNews.ca called “Higher Beer Prices on Tap as Summer Approaches”. Independent Canadian breweries are experiencing the effects of higher malt, barley and hops costs as well as higher gasoline prices. This translates into a product that costs more to produce and get to market; ultimately these higher costs will result in lower profit margins for breweries or higher prices for consumers.
For more information on agflation, check out Reuters’ Agflation website. There are links to articles, graphics, and a map of countries with recent food-related turbulence.
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