Market Intelligence Update from Canada Beef: Retail sector wrestles with food inflation 

Retail food prices are forecasted to increase three to five per cent overall for 2021.

As the economic tsunami of 2020 recedes and businesses navigate the choppy waters of supply chain bottlenecks and labour difficulties, the forecast for the Canadian beef industry is for smoother sailing. However, several factors ranging from widespread drought to capital flight in food processing are driving up food prices in the retail sector.   

Food inflation supports retail sales  

Supermarket and other grocery sales have remained higher than 2019 levels for the last 18 months. Grocers were still realizing year-over-year sales increases in January and February 2021. More recently, that pace has slowed. In the second quarter of 2021, supermarket and grocery sales were down on average 1.6 per cent from 2020, but still up on average 12.2 per cent over 2019 levels.

Food inflation is supporting retail sales. Canadian retail food forecasts predict a three to five per cent increase in the overall food price for 2021. The inflation will be felt differently across the country. Alberta, Manitoba, Ontario and Saskatchewan may see below-average food price increases. British Columbia and the Maritimes, however, may see above-average food price increases. The most significant increases were predicted for meat at 4.5 to 6.5 per cent, bakery at 3.5 to 5.5 per cent, and vegetables at 4.5 to 6.5 per cent. These goods are susceptible to the impacts from La Nina drought experienced this year, and the increasing national dependence on imported products that are at the mercy of rising fuel and transportation costs.  

The capital flight of the food manufacturing sector from Canada is also a factor in rising food prices. Both family-owned operations and large multinationals are having trouble justifying their businesses here, even when they use Canadian inputs in their products. Lack of investment in the Canadian food processing sector means that retailers increasingly rely on imports, contributing to higher prices at grocery. Transport costs, climate change mitigation costs and packaging levies make goods more expensive. Large companies can pass these costs to suppliers, and they trickle down through the supply chain to producers. Smaller companies must pass on the increased business costs to the consumer.  

Monthly year-over-year food price comparisons are misleading this year given the volatility of the current economic environment. In August 2021, the Food Price Index (FPI) was up 2.7 per cent from August 2020. January through August 2021, the FPI was up just 1.4 per cent from the same period in 2020. It’s key here to note that the FPI has consistently outpaced the Canadian Price Index (CPI) for the last 20 years. That means that food prices at grocery are not a reliable indicator of the extent of overall national inflation. The sky is not yet falling, just reflecting the transitory effects of Canada’s choppy economic waters.  

Meat prices rise 

The retail beef price started its seasonal decline, down one per cent from July 2021 to CDN$21.85/kg in August 2021. The retail price of the prime rib roast, which seasonally declined five per cent from July to August 2021, was the primary driver of that decline. Retail beef is still more expensive than usual, however, with prices up eight per cent compared to August 2020 and up 14 per cent compared to August 2019. Rising prices are being driven by higher demand at retail, especially for higher-priced middle meats.  

In August 2021, all major cuts were higher in price compared to August 2020, except for ground beef. The largest increase was for sirloin steak (13 per cent), followed by boneless blade roast (11 per cent), prime rib roast (nine per cent), stewing beef (five per cent), and round steak (five per cent). Both blade roasts and round roasts found counter-seasonal support throughout the summer. Ground beef, while up two per cent from July to August 2021, was down one per cent in August 2021 compared to August 2020.  

Year over year, prices for meat products in the CPI rose at the fastest pace in August (+6.9 per cent) since June 2020 (+8.1 per cent). Notably, this was driven by the price of poultry and pork. Producers are facing higher input costs, supply chain issues and growing demand from restaurants for shareable products such as wings that struggled for demand last summer.  

Rising retail chicken and pork prices are becoming more favourable to beef, although beef is not yet on the pricing level as it was pre-pandemic. In August 2021, the retail chicken price was up seven per cent from August 2020. January through August 2021, the relative price ratio of beef to chicken averaged 2.72, compared to 2.82 in the same period in 2020. In 2019, that average was closer to 2.56.   

January through August 2021, the relative price ratio of beef to pork was an average 1.53, compared to 1.56 in the same period in 2020. In 2019, that average was closer to 1.45. The retail pork price was up nine per cent in August 2021 from a year earlier, hitting the second-highest price on record since 1979. Only November 2015 saw higher pork prices in the last 42 years.   

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