Food prices in Canada are up but directly linking this trend to higher grain prices is an over-simplification according to a new report by the George Morris Centre.
The independent agriculture think tank, based in Guelph, Ont., says drawing a straight line between the four per cent increase in food prices over last year and higher grain prices ignores the complex nature of the agrifood sector.
Al Mussel, a senior research associate with George Morris, says agriculture and food are subject to all the same cost structures as other industries.
Other costs have played a larger role in higher prices than the cost of raw farm products, since many grain-based products contain small amounts of raw materials, he says.
“By the time you’re getting bread at your local store or restaurant there’s significantly more invested in terms of energy, trucking, refrigeration and packaging than the raw material,” he explains. “You can have a fairly significant increase in grain prices that doesn’t add significantly to the total cost of the product.”
The classic examples are a loaf of bread with just a few cents of wheat in it, or a bottle of beer that contains a couple cents worth of barley.
The study also notes that in many cases food companies are competing on price, so it can be difficult to pass these higher costs directly on to consumers.
Mussel also points out that the hog sector is a perfect example of how a lay person might assume higher grain prices contribute to higher food prices.
“The natural assumption is that if corn prices are up 20 per cent and hogs eat corn, hog prices should be up 20 per cent,” Mussel says. “Of course we know the exact opposite has actually occurred.”
In fact farmers are forced to eat the higher cost until enough of them exit the business to increase hog prices. That means higher prices may eventually be traced to higher grain prices, but there hasn’t been enough time for these market signals to work their way through the production system.