Created on 3/8/2023 3:27:39 PM
Written by Michael Graydon, CEO of Food, Health & Consumer Products of Canada
Published on March 8, 2023
As the House of Commons continues hearings on food price inflation this week, Canadians should be hopeful that the worst has passed but also realistic about the timeline to see prices reflect improving trends.
According to the most recent data, inflation has begun to slow - falling from 6.3% in December 2022 to 5.9% in January 2023. That’s great news, but the hard truth is that price relief will not materialize overnight.
Consider cardboard - an important input for transportation and packaging. Spikes in demand during the COVID-19 pandemic pushed cardboard box prices up by a remarkable 55%. Demand cooled in 2022, with box shipments falling by 8.4% in the fourth quarter. Expanded production over the next several years will further increase supply as demand normalizes - which should decrease costs.
There’s a big “but.” Suppliers desperate to keep up with unpredictable demand during COVID ordered cardboard at peak prices. They will need to use that supply before current lower prices improve their overall costs. Similar analyses could be applied to the cost of transportation, where rampant inflation and critical shortages of container space and truck drivers appear to be easing.
Unfortunately, 85% of Canada’s food, health, and consumer product manufacturers expect inflation to persist for the near future (FHCP internal data). 90% report that costs are still increasing faster than sales. Some expect these conditions to require changes in the price they charge to retailers, and some retailers will pass those costs on to consumers. Each company's and retailer’s costs and ability to absorb increases varies, and the situation remains complex.
As has been the case throughout the years-long perfect storm of supply chain disruptions driving food price inflation, collaboration across the supply chain remains the best way to make sure Canadian families can access the products they need at prices they can afford.
Farmers, suppliers, retailers, and government alike must remember that finger-pointing only distracts from the necessary work of strengthening Canada’s essential manufacturing and supply chains, which is long overdue. Regulations that don’t foster competitiveness, disincentives for investment in capital improvements, persistent labour shortages, and imbalances between suppliers and large grocers are among the factors that, over decades, weakened Canada’s business environment and throttled the supply chain’s health and resilience.
Solutions are within reach. Responsible leaders across agriculture, manufacturing, and retail have come together to develop a practical code of conduct that has the potential to resolve inefficiencies and friction between suppliers and large retail chains. The draft code is expected to be released for consultation in the coming months. When implemented, the code will improve transparency and predictability and will ultimately increase value, innovation, and choice for Canadians.
The COVID pandemic revealed just how much the details of essential supply chains matter in every Canadian’s life. Correcting constraints in the food, health, and consumer products supply chain is not a silver bullet to solve inflation, but it will help significantly.