Friday, 4 March 2011

Reading the Food Price Tea Leaves

As of early March the 4th,  if you put food prices and Loblaws into a search engine and asked for news, there was nothing. But you know you heard something, somewhere. Try George Weston Ltd. instead. 

Weston is a large food processor, baking products mostly,  and the majority owner of Loblaws which owns the Superstores in the Maritimes.  Weston is very straightforward. The price of wheat, oil, and sugar has been on the rise for months, and it has to pass these added costs on. Prices for baked goods will go up by 5% in April.   Weston would be a wholesale supplier to Loblaws-Superstore,  Sobeys and the rest, and it will be up to these big food retailers to determine how much of this increase to pass on to consumers.

In an earlier post I had said that the big retailers would squeeze their suppliers to maintain the bottom line rather than ask consumers to pay more. I was wrong.  There are just too many climate catastrophes in important agricultural producing areas like Russia, Australia, Western Canada, now China. Throw in hedge fund speculators (who view food commodities as nothing different from copper or oil), rising demand for Western-style food in Asia, and food prices had to go up. Douglas Porter, the deputy chief economist at BMO Nesbitt Burns told the Globe and Mail that Canadian food prices could go up by 5 to 7% this year. That compares with less than a 2% rise last year.

The big food retailers themselves are cautiously warning consumers that higher prices are coming, but in a fiercely competitive marketplace, each will wait for the other to blink first. Having a big baking giant like George Weston deliver the news first will give the retailers some public relations cover.

There's some excellent reporting on the many factors behind world food prices going up here:

What does this mean for Maritime farmers? There isn't large production here of the commodities that have been quickly rising: milling wheat, oilseed,  and certainly not sugar, coffee, or rice.  Livestock prices are slowly increasing, but so is the cost of feedgrains. There is a general upward momentum to commodity prices, but that means fertilizer, fuel, and farm chemicals costs will also be on the rise, so it's hard to pin down the net benefit to farmers right now.

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