WESTERN PRODUCER — Canadian consumers have dramatically changed their grocery-buying patterns in the past year as food prices and housing inflation squeeze their budgets.
As a result, demand and product changes in the food supply chain will affect farm commodities.
Grocery store sales are down in Canada, even with product value inflation, which means less demand for farm products.
Food inflation had stabilized by the end of 2023, says Carman Allison, vice-president of thought leadership with Neilson IQ. In December, the rate of consumer product inflation in Canada was 3.1 percent, while in other places in the world food prices continued to rise 6.1 percent.
“We like to complain about the fact that our prices are high and they are, versus the environment we live in. But we’re in a pretty good situation since grocery prices are rising at a much faster rate around other parts of the world,” said Allison.
However, people don’t really care about what’s going on around the world when they are feeling increases in their spending, he added.
The pressure on consumers comes from compounded increases in costs over the past few years.
Someone who spent $100 on groceries before the pandemic will now have to spend $122 to get the same amount of food, Allison said at the recent Dairy Farmers of Ontario annual meeting.
American consumers are paying even more, spending $131 for products that previously cost $100.
In the grocery store, meat is now down to about two percent inflation. Produce prices, which grew quickly during drought and supply chain issues in 2022, decreased one percent in December. Dairy product prices at retail continue to grow at about five percent.
Commodity prices were down about 13.7 percent by the end of 2023 from their 2022 high, said Michael Graydon, executive director of Food, Health and Consumer Products of Canada (FHCPC).
“They are still very high and still incredibly volatile.”
Many factors continue to keep commodity prices volatile.
Even considering inflation, grocery sales are down one percent in Canada, said Allison. Add in Canada’s rapid population growth of three percent, and per-person sales are down about four percent.
Alberta is seeing higher sales growth than other parts of the country, but if their population increase is taken into consideration, real growth per person is down.
Decreasing grocery sales are the result of consumers emphasizing essentials in their shopping.
“We want to make sure that we’re realizing that a lot of consumers are making some tough choices here,” said Allison.
“Thirty-two percent of us have said, ‘you know what, I’m going to put together my shopping list and I’m just going to buy what I need.’ I know a lot of people, that’s their primary focus right now as a savings strategy.”
He said about 80 percent of consumers have focused more on buying only essentials in the past three months.
It’s much harder to sort out grocery sales numbers these days as dollar and discount stores take more of the food sales share, especially in a down economy.
Allison said they don’t get numbers from dollar stores.
To cut back on food purchases, some Canadians are eating more leftovers and others are simply eating up to 20 percent less food.
He said consumers are also less loyal to certain types of food and certain brands.
The Canadian Dairy Commission paused a proposed 1.71 percent increase in the price of milk at the farmgate in October.
“There’s been a lot of discussion about the variability of costs for production and how to balance the needs of producers and keep milk prices reasonable for consumers,” said retiring Dairy Farmers of Ontario chair Murray Sherk.
“We must also remember that consumers and their buying behaviour determine our market.”
Canadians have become avid buyers of food on sale, driven by necessity but also by the many deals available in stores.
Half of grocery sales involve some sort of promotion with the product, says Allison. In the U.S. it’s about 27 percent.
“Canadians are addicted to promotions. That’s just the way we shop,” he said.
Private label products are also selling well because they cost about 25 percent less than premium brand products.
Grocery retailers might be feeling the ire of politicians and consumers in Canada, but processors also feel the squeeze as retailers agree to federal government requests to control food prices.
They can only do that by reducing their profits or pressing others in the supply chain to hold prices.
That’s challenging when inflation is hitting farm and product manufacturers, said Graydon, whose group represents processors of consumer goods, including food.
He said food manufacturers are struggling to find the capital they need to continue to grow as banks conservatively hoard cash in case there are widespread defaults on mortgages as business and residential mortgages renew at much higher rates.
That puts a damper on the ability of Canadian operations to compete or create new markets for agriculture products.
Half of the packaged foods on Canadian grocery store shelves are made outside of the country, said Graydon. Other companies are preparing to leave Canada as the business environment becomes uncompetitive.
Members of the FHCPC process about 60 percent of the agriculture production in Canada, said Graydon, so losing more processing could affect demand for farm production.
