Last January, analysts predicted higher global food prices in 2013 because of the previous summer’s severe droughts in the United States and Russia. CIBC forecasted that food inflation in Canada would peak at around 4% in 2013. Thankfully, they were all proven wrong. Food prices have held steady as a rebound in food production helped balance supply and demand.
Around the World
Analysts expected global food prices to climb by as much as 15% in 2013, but prices have gone in the exact opposite direction. According to the United Nations Food and Agriculture Organization (FAO), global food prices declined 4% between December 2012 and October 2013. On a year-to-date basis, prices are down 1.2%. Most of this decrease is due to a drop in the cereal price index that includes maize, rice and wheat. Prices have also slipped for meat and vegetable oil.
Here at Home
In Canada, food prices have been relatively tame in 2013. In the first nine months of the year, food inflation from grocery stores was a tepid 1.2%, down from 2.4% in 2012 and 4.2% in 2011. On a year-over-year basis, food inflation has moderated for beef, chicken, eggs and coffee. Bread prices continue to climb, but at a much slower pace. Fruit prices are up in 2013, as are fresh vegetable prices which actually declined in 2012.
BMO Capital Markets expects food inflation in Canada will remain modest over the next two years, climbing just 1.7% in 2014 and 2.0% in 2015. Hopefully, the analysts are right this time.
What's on the Menu?
For operators, this modest food inflation has kept menu prices in check. In CRFA’s Restaurant Outlook Survey for the third quarter of 2013, two-thirds of respondents said they would keep prices about the same over the next six months – the greatest share since CRFA began collecting data in Q2 of 2011. Despite improved economic growth, consumers are showing some resistance to higher menu prices.
A Steadier Ride Ahead?
With food prices forecast to post modest growth over the next two years, restaurateurs can plan for a more stable increase in their food costs. However, it’s important to remember that analysts don’t always get it right and predictions are just predictions. Still, an end to the volatility of the past few years is a prediction one can look forward to coming true.
By Chris Elliot, Restaurants Canada Senior Economist
June 2, 2014