This spring, food inflation will fall below two percent: report

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Food inflation fell below two per cent in the spring and will remain around one per cent to two per cent for the rest of 2024, a new food and drink industry report predicts.

Farm Credit Canada, an agricultural lending firm, expects food price growth to stabilize at pre-pandemic levels after 2024 as upward pressure on prices eases.

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The outlook for food and beverage manufacturers this year is more positive than last year, the FCC said, although some sectors still face headwinds from high interest rates and tight household budgets.

“However, population growth and stabilizing – in some cases, declining – revenue costs provide optimism for improved margins for 2024.”

The organization's annual food and beverage report provides forecasts for consumer spending as well as specific food items such as sugar and flour.

Canada's annual inflation rate was 2.8 percent in February, and food prices were one of the main factors driving it down. Food inflation was 2.4 percent in the month, down from 3.4 percent in January, as the cost of many goods fell year-on-year.

However, a slowdown in inflation does not mean that overall prices will fall. In its latest release, Statistics Canada noted that food prices rose 21.6 percent between February 2021 and February 2024.

As they struggle with higher prices not just for food, but for housing and other everyday expenses, Canadians have tried to cut back on food and beverage spending, the FCC said. They shopped more on sale, gravitated toward cheaper brands, bought more canned and frozen foods, shopped more at discount retailers, and simply bought less food.

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“Many consumers report that the impact of higher interest rates is just beginning to affect their spending,” the FCC said.

As buyers became more price-sensitive, the FCC said processors responded by changing package sizes and substituting cheaper inputs.

Canadians have also cut back on alcohol, the report said. He predicts a decrease in sales and production of alcohol this year.

The report said some food products, such as flour, are expected to fall in price this year after sharp increases in the past two years. This will lead to a decrease in the selling prices of bakery products and flatbread products until the end of the year.

Not so for sugar and cocoa. The sugar and confectionery sector faces “significant headwinds” due to global production problems, the FCC said. Cocoa prices hit a 46-year high in 2023 and are on the way.

Manufacturers in this sector will face pressure on their margins, the FCC said, as companies will be forced to accept some of these price increases due to tightening consumer budgets.

“However, demand should remain relatively strong, as research has shown that consumers are more inclined to offer fewer and cheaper discounts during tough economic times,” the report said.

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The report offers a relatively positive outlook for food and beverage manufacturers.

Many materials that have increased costs at the production level, such as fuel, transportation and packaging costs, have seen prices rise slowly or even fall.

Therefore, food and beverage sales are projected to decline 1.4 percent in 2024, but gross margins are expected to improve, the FCC said.

“While this may seem counterintuitive, the reasons for the assumption are simple. Much of the sales growth over the past three years has been driven by inflation as manufacturers seek to pass on rising input costs to protect margins,” the report said.

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