Canadians have started to pay more for groceries as severe drought drives up prices for agricultural commodities, and experts say more price hikes are coming this fall.

Canadians have started to pay more for groceries as severe drought drives up prices for agricultural commodities, and experts say more price hikes are coming this fall.

Across the country, over one in five businesses plan to hike their prices in the next three months, according to new figures from Statistics Canada.

That’s an increase to 21.7 per cent during this current quarter of the year from 19.9 per cent in the second quarter — with the wholesale trade, manufacturing, food and accommodation sectors bearing the brunt of those increases.

According to Statistics Canada, the price of round steak increased from $17.97 per kg in March of this year to $19.05 per kg in July. Prime rib roast jumped from $36.66 per kg to $41.39.

The price of flour, cereal and some produce items has also crept up since spring, and more increases are on the way.

A number of factors are behind the recent sticker shock, including global population growth driving long-term demand for food, as well as a weaker Canadian dollar and the return of restaurant dining as COVID-19 public health restrictions are lifted.

This year, however, grocery prices are also being affected by the extreme heat and drought plaguing Canadian farmers and ranchers.

It also comes at a time when the average family of four is already paying about $1,000 more for its food since January of last year.

"But let’s be honest," said Sylvain Charlebois, Canada’s leading food management and supply chain expert, in an interview this week.

"All of those businesses that aren’t admitting to increasing their prices are certainly not telling the truth — at least not completely. Every single one of them is likely having to increase their prices by at least a certain amount. And unfortunately, most of it is beyond their personal control."

"It’s likely the highest jump in food prices in recent history, in dollars (unadjusted for inflation)," Charlebois said. "And I think the worst is yet to come."

Inflation has slowly increased since the beginning of 2021, with the occasional dip over the summer months. In July, however, it reached the fastest increase in at least a decade when the rate of inflation went up 3.7 per cent.

"It can be explained in several different ways," said Charlebois. "However, it all boils down to climate change affecting commodity levels; labour affecting just about everything on all levels of the supply chain; and a logistical mess with transport and whatnot created quite a bit by COVID-19. And that increases input prices, which causes inflation for all other prices."

Throughout the pandemic, those rising input prices have put high pressure on many businesses, causing them to make difficult decisions.

Statistics Canada’s survey on conditions in August revealed nearly 40 per cent of overall businesses expect rising costs of inputs such as capital, energy, raw materials and labour to have been a significant hindrance. Those figures are much more dire in manufacturing, accommodation, food and agriculture industries — with up to 60 per cent businesses expecting much higher costs.

It’s also affecting profitability and survival. More than a quarter of overall businesses expect revenues to decline over the next three months, and 53.9 per cent say they can only continue operating at the current level of revenue and expenditures for around 12 months before considering closure or bankruptcy.

Growing conditions have been so poor in Western Canada that Statistics Canada now projects this fall’s wheat harvest will be 35 per cent below last year’s levels.

Canadian canola production is expected to fall 24.3 per cent this year to its lowest level in a decade, at 14.7 million tonnes. Barley production is expected to decrease 27 per cent year-over-year and oat production is expected to fall 32.9 per cent, according to Statistics Canada.

Ruth Bonneville / Winnipeg Free Press</p><p>The price of flour, cereal and some produce items has crept up since spring, and more increases are on the way. Grocery prices are being affected by the extreme heat and drought plaguing Canadian farmers and ranchers. </p>

Ruth Bonneville / Winnipeg Free Press

The price of flour, cereal and some produce items has crept up since spring, and more increases are on the way. Grocery prices are being affected by the extreme heat and drought plaguing Canadian farmers and ranchers.

Tom Steve, general manager of the Alberta Wheat Commission, said drought has also been a problem in other major crop-producing countries — including the U.S. and Russia — this year.

"With a substantially smaller crop, it’s going to put a lot of upward strain on prices and sheer availability," Steve said. "This drought will definitely have an impact on the consumer."

Already, canola is trading at near-double normal levels, at $20 per bushel. Canadian spring wheat is hovering around $11 per bushel, where normally "farmers would be happy with $7," Steve said.

"It’s basic supply and demand," he said. "The processors are going to have no choice but to pass these prices on to consumers."

The spike in the cost of feed grains is one reason consumers are seeing higher beef prices, said Brian Perillat, manager and senior analyst with Canfax, the market analysis arm of industry group the Canadian Cattlemen’s Association.

"In the last year or two we’ve seen barley prices double. They’ve gone up from $4 a bushel to over $9," Perillat said. "That’s a major input to beef production."

Perillat added when it comes to meat prices, the full impact of this year’s drought hasn’t been realized yet. There are estimates that up to 20 per cent of the Canadian cattle herd could be liquidated as ranchers who can’t afford to feed their animals are forced to cull their herds.

"We anticipate (cattle) supplies are going to go down over the next couple years," Perillat said. "And that means prices are going to go up."

Charlebois pointed out that farmers who manage to make it through this year’s harvest with a salvageable crop will benefit from the high commodity prices. But prices mean little to those whose fields are scorched and dry, he said.

"If you’re a farmer and you have something to sell, you’ll make good money. But you need something to sell," Charlebois said.

Colin Fast, director of policy at the Winnipeg Chamber of Commerce, said Manitoba businesses are not left unscathed.

"It doesn’t come as a surprise to hear these numbers," said Fast. "Everyone is having trouble with the input prices, but also other factors like labour retention and supply chains, inventory and operating costs are just so unstable, too."

The data agrees. Recruiting skilled employees is expected to be an issue for at least 30 per cent of businesses, with labour shortages to be seen across the board at the same level.

"I don’t want to say we’re not in the recovery stages yet, because in Manitoba, we’re certainly getting there," Fast said. "But right now, there’s lots of nervousness with pandemic rules still in place and a potential pool of customers is still very low. So, that definitely translates to higher prices as a means to break even."

Jonathan Alward, Prairies director for the Canadian Federation of Independent Business, said smaller shops are facing the widest and most unbearable concerns.

Numbers from the CFIB business barometer in August suggest capacity utilization has increased only marginally, with the most notable limitations on growth being related to labour shortages. It’s the highest level of concern for labour reported by the CFIB’s membership since 2009.

"There’s certainly a problem," said Alward. "Most businesses I’ve ever spoken to would much rather do anything than increase their prices because of the sheer threat of driving customers away. But, the fact is, it’s just something they’ve had to contend with because they have no other option."

— with files from The Canadian Press

temur.durrani@freepress.mb.ca

Twitter: @temurdur