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Canada Inflation: Moving in the right direction?

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In this Sustainability Leaders episode, Alma Cortés Selva is joined by Doug Porter, Chief Economist and Managing Director, BMO Economics, and Dr. Jose Nuno-Ledesma, Assistant Professor of Food Industry Economics and Management at the University of Guelph, to discuss Canada’s food inflation from both a domestic and international standpoint.

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Doug Porter:

In the last 12 months alone, there actually are a few prices that have come down a wee bit, but again,

it's really tough to find things that have come down in price and just to circle to a few bananas,

tomatoes, and some pork products like bacon have actually come down in the last year, but that's rare.

Most things have continued to rise even in the last 12 months.

Michael Torrance:           

Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer at BMO. On this

show, we will talk with leading sustainability practitioners from the corporate, investor, academic and

NGO communities to explore how this rapidly evolving field of sustainability is impacting global

investment, business practices, and our world.

Speaker 3:                          

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates

or subsidiaries.

Alma Cortés Selva:          

Welcome back to another episode of Sustainability Leaders. I am Alma Cortes Selva, Senior Advisor at

BMO Climate Institute. In today's episode, we will be talking about factors that have led to food inflation

in Canada, both domestic as well as international factors. I am joined today by Doug Porter, Chief

Economist at BMO Financial Group, and Jose Nuno-Ledesma, Assistant Professor of Food Industry

Economics and Management at University of Guelph. Thank you guys. Welcome to the show, Doug,

Jose, and if you don't mind introducing yourself and your field of research.

Doug Porter:                     

Okay, I'll start off very briefly. Thank you, Alma. It's a pleasure to join you. I'm Doug Porter. As

mentioned, I'm Chief Economist with the Bank of Montreal. I've been with the bank for a little bit more

than 30 years. inflation has become the number one economic story in the last couple of years, and a big

part of that inflation has been food inflation, so just by a matter of course, it's become necessary for me

to become somewhat of an expert insofar as I can become an expert in the subject matter.

Dr. Jose Nuno-Ledesma:              

Great. Yeah, thank you. First, I want to thank Alma and Doug for the invitation. It is a pleasure to be here

and I'm looking forward to the discussion. Since January 2020, I'm an Assistant Professor of Food

Industry Economics and Management in the Department of Food Agricultural and Resource Economics

at the University of Guelph in Ontario, Canada. My research focuses on pricing and labor relations in the

broader context of agriculture economics, and specifically issues on retail pricing and contractual

relations in the agrifood supply chain, food policy, labor economics,

Alma Cortés Selva:          

Wow, that's very impressive backgrounds. Doug, do you mind getting us started with an overview? How

much did inflation increase in 2023 and if inflation is cooling down, why are prices of food still so high?

Doug Porter:                     

So very big picture is we actually have seen inflation come down a lot from the worst. So the highest it

reach was back in the summer of 22 when inflation got a little bit above 8%. We're now in recent

months bobbing around the 3% zone and first of all, I want to start off with a positive piece of news and

that is that never in the postwar period have we seen inflation come down that much that quickly

without a recession causing that kind of decline in inflation. We've seen very similar numbers in the US

as well, and so I think that's the good news, is that we really did get inflation down to more manageable

levels. The less than good news though is we're not quite there yet. Of course the central banks target

2% inflation, so we've got a little bit of ways to go and I think food will actually help a bit in that cause.



Food inflation has definitely been one of the big drivers.

To answer your question, why are food prices still so high? And I think really that is one of the issues that's keeping inflation expectations so high, is that even if some prices have started to moderate and they're not rising as quickly, the level shift has just been enormous. And if we look at the bigger picture, grocery prices have gone up by almost 25% in the last three years. So even if they flattened out in recent months, even the last six months or so, that level shift is what everybody sees every time they go to the grocery store, is that big change from just three years ago.

Alma Cortés Selva:

What portion of the typical household in Canada is allocated to food expenses and then let's say for an

average family, that 25% that you were talking about, how much would that be in Canadian dollars?

Doug Porter:

Yeah, and there's different ways to measure the portion. Some people include restaurant meals, do you

include bars? Do you include cafeterias? One simple way to look at is just what's the weight of food and  

beverages and restaurant meals in the Canadian consumer price basket and it's  just a little bit less than

17%. I think that's actually fairly accurate. If we look at different measures and surveys of how much

different income levels spend on food, it comes to around that same sort of figure in the zone of 15 or

16% or so. I will point out that that's not all groceries. That does include restaurants. Again, a quick way

to break down how that splits, within the CPI basket 11% is spent at grocery stores and about half of

that or about five and a half percent is spent at restaurants. That actually has not changed that much in

the last few years because we've seen broad inflation, but overall, the share of food in the consumer

price basket has definitely risen.

What's interesting is there is actually not as big of a difference between income groups as you might expect. It definitely affects lower income folks a little bit more. So the latest estimate by Stats Canada was in 2021. The lowest income quintile spent about 17% of their total income on food, whereas higher income quintiles spent about 14%.  So the food inflation really has affected everyone.

Alma Cortés Selva:          

Has all the food categories seen increases or decreases or we've seen some that are decreasing, some

categories that have not gone down, for example?

Doug Porter:                     

Knowing this question ahead of time, I actually surveyed some of the folks in my department, what do

you actually find is the most shocking when you go into the grocery store and

it's funny, everyone has a slightly different answer. Not everyone has necessarily the same answer.

Definitely some of the items that have gone up the most and really haven't seen much of a come down

at all are some of the classic things you can think, well, first of all, any kind of vegetable oil and

margarine, those kinds of things have really gone up a lot. Beef prices, bread, pasta, chicken, butter,

they have all gone up a lot. If we think of typical food prices going up between 25% over the past three

years, those kinds of items have gone up a lot more.

There are some things, of course that have gone a little bit less over the past

year just to pick a few, cheese, seafood and fish actually haven't gone up quite as much as other,

vegetables actually haven't gone up quite as much as average, but you're really hard-pressed to find

anything that hasn't gone up a lot bananas, tomatoes, and some pork products like bacon have actually

come down in the last year, but that's rare. Most things have continued to rise even in the last 12


Alma Cortés Selva:          

Now turning to you Jose and then looking at your research and then the factors that have led to above-

target inflation, like Doug was saying. Are these international factors, domestic factors? What's causing

the above-target inflation?

Dr. Jose Nuno-Ledesma:


I think some of the factors that we identified as the most important ones are geopolitical tensions.

The conflict in Ukraine caused a significant disruptions in the supply and increased prices of key

commodities like sunflower oil, wheat, fertilizers, even energy prices were stirred up by the conflict. This

contributed to inflation not just in Canada but globally.  

Covid-19 policies, the health emergency and the policies that were implemented in North America to try

and stop the spread of the virus cause widespread delays and other disruptions in supply chains and

increased labor and transportation costs, just to mention a few of the factors related to that pandemic

era. Energy prices had already risen in 2021 due to economic recovery and a reduced oil production by

some of the OPEC nations, but they further peaked following the Ukrainian and Russian conflict onset.

[inaudible 00:11:12] reduced market competition in the grocery sector in Canada is often advanced as a

cause of high food prices in Canada.       

And disease also can be an issue. African swine fever, for example, and avian influenza have caused

problems around the world. Around 70% of what Canadians consume is produced within the country. To

give you an analog, in the United States, the number is around 90%, but over 50% of what Canadians

produce is exported.

Canada is a net exporter of beef, pork, wheat and oil seeds, but also imports significant quantities of fresh food products, and this contributes to cyclicality in prices and the potential for price inflation.

To give you an example of how that can be a threat to food prices in Canada, California in October and

November 2022 suffered important disruptions in lettuce production and this area provides, as I

mentioned, more than 90% of the lettuce to all of North America, including Canada obviously. In 2022

California growers experienced devastating production losses due to an outbreak of impatiens necrotic

spot virus. This is a viral disease that affects vegetables and this challenge is likely to continue. There is

no known treatment for the virus, so if an outbreak of this particular disease were to occur again in the

future, we will see increased prices of this particular leafy green here in Canada.

Alma Cortés Selva:          

Jose, then you mentioned a very important chunk of Canada. Food is imported and then extreme

weather events are affecting internationally. Have there been weather events that also have cost

reduction in the production of food and vegetables in Canada?

Dr. Jose Nuno-Ledesma:              

Yes. I can mention an example. There were droughts in Western Canada back in 2015 and also 2021.

That decreased crop yields and compromised feed production for cattle and other animals that are

raised this way. These have direct impacts on Canadian prices. The impacts in the beef sector, for

example, can be longer term and a shortage of feed for example, often leads to cow herd reductions,

which affects the supply of feeder animals for several years ahead.

As an academic, I would like to mention also that there is an interesting and growing literature

investigating the relationship between abnormal and extreme weather effects and food prices. There is

a very interesting paper published in 2022 in the American Journal of Agricultural Economics, which is

the leading journal in the field. They find that in China, tropical storms lead to food prices increasing by

2.3% and the effect lasts more than one month. Colleagues at the Central Bank of Mexico have a

working paper that I consider is very interesting as well. Miriam Juarez and colleagues show that

temperature shocks significantly increase vegetable prices in Mexico and the sensitivity of vegetable

prices temperature shocks have an important implications for markets that rely heavily on local

production to meet their local demand, but I personally will venture to say that these also has

implications for markets far away from Mexico that may rely on imports from areas affected by these

climate events.

Alma Cortés Selva:          

I'm going to venture probably avocados are imported to Canada. Then probably the price shock also

affects Canadian markets. I'm going to guess just for an example, since it's a well-known produce from


Dr. Jose Nuno-Ledesma: Yes.

Alma Cortés Selva:          

You mentioned weather events and then a lot of geopolitical shocks, but then you also discuss some

other factors in your research, which was the grocery competition at the retail level. How does grocery

competition or the lack of it in Canada contribute to inflation?

Dr. Jose Nuno-Ledesma:              

Yes, that's a very good question. Grocery competition is everywhere in the news right now since the last

couple of years, The Canadian grocery industry is concentrated, I think it's fair to say with most

consumers, patronizing stores owned or operated by five companies, represent around 76% of the

domestic market for food retail, The US market by comparison, I think is less concentrated. There are

estimates, depending on where you look at, that say that the top five retailers represent around 50% of

the market.

In June 2023 report titled Canada Needs More Grocery Competition by Competition Bureau Canada, which is the nation's main consumer protection watchdog. They reported that on the reduced competition in the sector and its role in escalating food inflation. The Bureau noted that in the last five years, gross profit margins, which is the gap between revenue and costs of retailers, have grown modestly yet significantly. This uptick in margin means that grocers can rise prices beyond increases in their expenses, and this implies that there is some market power on the part of retailers. The Bureau then concluded that Canada needs more grocery competition. I think this is a great opportunity for researchers, also for policymakers and the private sector to investigate how important marketing concentration is in determining food price inflation in Canada. There seems to be a relation, but I think it needs to be quantified. this is a call to action to colleague researchers everywhere to investigate its issue in Canada.

Alma Cortés Selva:          

Doug, Jose mentioned grocery competition, weather events, Ukraine-Russian war. Are there other

factors that you think are contributing to higher food prices in Canada?

Doug Porter:                     

Well, first of all, I'm going to start off just by responding to something Jose said. So one little-known fact

is that grocery prices in Canada, if we look back to the start of the pandemic, have gone up by about

23%. Do you know how much they've gone up in the US in that same period of time? 25%. Do you know

how much they've gone up in Europe and Britain in that same period of time? About 25%. So this is very

common around the world. this is not to say that more competition in the grocery sector isn't welcome.


It is certainly, but my own view is this talk about greed inflation and how it's all grocery competition,

that is just to me, a red herring. It may have been a small issue, but everybody in the world, even Japan,

saw serious grocery price inflation and that country has seen no inflation for 30 years, so this is

something much bigger.

We talked about a lot of the main factors. I would also point to the run-up in energy prices. Energy

prices do play a pretty big role in food prices. It takes a lot of energy to produce food. It takes a lot to

package food and to transport food, and so energy actually, and by the way, food can act is a little bit of

a competition for energy through ethanol. So the two over time actually are fairly tightly related. Just in

terms of the competition, I would say we have to look a little bit further upstream than just the grocers.

We have to look at the producers as well. Quite frankly, a lot of big global multinationals, and I don't

want to name names, but they were bragging in the last couple of years about how they were able to

pass on food price increases because the consumer was sitting on a lot of income.

They weren't that interested in price comparisons coming out of the pandemic. They just wanted to be

able to buy again in a normal way, and they were willing to pay up and frankly, inflation psychology took

over a little bit in the last couple of years. And I will be frank, I think a lot of food producers took this

opportunity and pushed through some pretty big price increases on top of what was fairly legitimate

underlying food inflation as well. So I do think there's much more to this than grocery competition or

just the conflict in Ukraine.         

One other little fact I will point out is in the year before the war in Ukraine broke out, Canadian food

inflation was 7.4%. So we already had a very serious food inflation issue on our hands even before the

war in Ukraine, which made a bad situation much worse,

Alma Cortés Selva:          

Switching a little bit, the gears towards 2024 and then forecast. This is a question for both of you.

What's expected for 2024? We're already almost in the end of the first trimester. Do you think that the

food prices are expected to be lower than 2023, and then what are the risks that worry you the most?

Doug Porter:

So for my part, I wouldn't say lower. I think food inflation will be lighter than it has been, but that

doesn't mean food prices are coming down. It just means they're likely to rise less quickly, much less

quickly, I think than the last couple of years. There's a couple early warning signals that we have or

leading indicators. One is what are food manufacturers charging? So again, further in the upstream.

Those prices have actually come down in the last year in Canada. Another good leading indicator for

Canada is actually US food inflation. It tends to lead Canada by about three months or so, and what

we've seen in recent months is US food and grocery price inflation has almost gone away. Prices

actually, food prices fell a little bit in February and they're only barely above a year ago. So I'm actually

somewhat optimistic that we're going to see much milder food inflation in Canada this year.        

In terms of what concerns me, there's a couple of things I would point to. I am worried about the possibility for energy prices to spike. We've seen oil prices creeping up a little bit, and again, energy prices do play a big role in food prices, and Jose touched on this before. I'm concerned about the possibility of drought in key growing regions this year. If we get a serious drought in North America, or Russia, or Ukraine, or Australia, any one of those areas, it could be a serious issue for food inflation, and I am concerned about the weather situations. That's the kind of thing that could lead to a backing up on at least in green prices.

Alma Cortés Selva:          


Dr. Jose Nuno-Ledesma

I think it is always a risky exercise to try and predict the future. However, there are reasons to be hopeful. I remain optimistic. The slow but steady deceleration in food price inflation, we are beginning to see offers a glimmer of hope. However, vigilance is key, right?

We must be proactive in our strategies as policymakers, grounded in robust data and research to ensure that we are prepared for uncertainties on the climate side, production side, transportation,

With respect to what are my concerns, I try to take into consideration what is the impact on lower income households. The proportion of income allocated to food tends to decrease as household income increases, and in Canada, those with the lowest income spent, close to 20%, a little bit less, I think we can quibble of their income on food. And this means that with lowest income, most significantly, those who earn less are more likely to feel the burden of increased food costs. I think that we have to keep this population in mind going forward.

Alma Cortés Selva:          

Any final thoughts?

Doug Porter:                     

I would say just to wrap up, from a food price perspective, for about 18 months, anything that could have gone wrong went wrong. And the good news is, is some of those things have stopped going wrong. it doesn't mean food prices are going to fall, some will, but I think overall what we're looking at is more moderate inflation in food. .

Dr. Jose Nuno-Ledesma:              

I agree. I would like to add that this is an opportunity for us to learn. Look back at the recent inflationary episode, an episode that we are apparently, it seems we're now coming out of and try to learn from the academic point of view, explore innovative solutions, make policy recommendations that can enhance competition, for example, in the grocery sector, which is always welcome, improve the resiliency of our supply chains and foster a more sustainable agricultural sector. All of that will go hand in hand with better prices for consumers and a higher economic welfare for everybody in the economy. I agree with Doug. There's reasons to be hopeful.

Alma Cortés Selva:          

With that hopeful message then, thank you so much for joining us for this episode and explaining the causes of food inflation in Canada. We'll see you in the next episode.

Michael Torranc...:         

Thanks for listening to Sustainability Leaders. This podcast is presented by BMO. You can find our show on Apple Podcasts, Spotify, or your favorite podcast player. Press the follow button if you want to get notified when new episodes are published. We value your input, so please leave a rating, review, and any feedback that you might have or visit us at Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, thanks for listening and have a great week.

Speaker 6:                          

For BMO disclosures, please visit disclaimer.


Alma Cortés Selva Senior Advisor, Climate Modelling, BMO Climate Institute


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