Consumer Demand Stays Strong During Rising Grocery Prices.
By Emily Croft
The cost of living has been increasing and many Canadians are concerned about the rising cost of groceries. Consumers may become more selective to save money, leading to concerns about the impact on meat demand and what it might mean for profits on pork and other livestock farms.
In September 2022, Statistics Canada stated that the yearly price increase for food purchased in stores was the greatest it had been since 1981.
These increases have also affected the retail price of meat products. In December 2021, beef had the greatest yearly change in price of all meat products, followed by pork and then chicken.
“Food purchased in stores saw lower inflation than all Consumer Price Index (CPI) items until November 2021. Since then, overall food purchased in stores have seen higher inflation than the CPI,” explains Connie Osborne, a spokesperson for OMAFRA.
“While retail meat prices have been more variable than other food items since COVID-19 began, in Ontario we have generally seen lower year-over-year inflation compared to other food since April 2022.”
This variation can be attributed to many issues impacting global supply chains and food production.
“Food price changes around the world can be attributed to several factors, including supply disruptions due to COVID-19, increasing global demand for food, poor weather in many countries, tight food and grain stocks worldwide, reduced livestock inventory due to long periods of low returns and higher energy and input costs for retailers, wholesalers and farmers. Additionally, the Bank of Canada has increased interest rates, which also impacts the cost of food,” says Osborne.
As consumers look to reduce their grocery costs, will demand for meat products change? And what will it mean for livestock producers?
Changes to consumer buying habits
With all prices increasing, the change in meat price may not feel as significant to consumers. Other factors, like COVID-19, have also contributed to changes in habits and priorities of the general public that increase their likelihood to continue purchasing meat products.
“Remember that coming out of the pandemic, we now have a consumer that’s learned how to cook,” says Brenna Grant, executive director of CanFax, which carries out beef industry market analysis and research.
“They’ve shown strong resilience and demand for red meat. Consumers are putting it on the centre of their plate, and they are willing to continue doing that as long as they have options.
“Beef demand at retail spiked in 2020. A lot of the food supply chain had to switch from service to retail and consumers found out how far their dollar could go with protein like beef,” explains Grant.
“Demand dropped off slightly in 2021, as beef led food price inflation. As other commodities caught up, we expect beef demand was back up in 2022.
“When consumers are making those choices at the counter, they will continue purchasing meat as long as price relationships remain within the typical range. When price relationships are outside of historical bounds, then you have incentive to switch to substitutes and other alternative proteins.”
Kevin Grier, market analyst and economic researcher, agrees that meat demand has remained strong but may be impacted by inflation.
“2022 was a very good year for meat demand in Canada and the U.S. even though prices were high. Overall, demand for meat has been very good the past five or six years,” says Grier.
“I expect though, given how high inflation has been, eventually it will have a negative effect on meat demand but so far so good.
“Demand is influenced by income. Our net income will be less because of inflation, and our purchasing power will be less.”
Although demand for meat remains steady across the various industries, consumers may choose different cuts of meat to make their dollar go further.
“While we don’t currently have data in terms of cuts purchased at retail, lower priced items are receiving more merchandising attention,” says Grier.
“Based on observations of merchandising tactics, it appears we are eating more of less expensive items like ground beef, chicken legs, even pork shoulder. The other thing going on is that Canadians are much more focused on feature items and less on regular priced items.”
Grant shares that consumers might look for cuts that have seen less price increases than high value cuts.
“We’ve been seeing higher prices at retail for high value middle meats like steaks, ribs, and loins. This has consumers looking more closely at cuts that haven’t had as high of price increases like stew beef, rounds and roasts,” says Grant.
Impact on the farm
At the same time as retail food costs have been rising, management costs have been rising on-farm as well.
As food inflation can impact meat demand, producers may be concerned for what that means for their profits.
“Overall, Ontario livestock production costs, as measured by Statistics Canada’s Farm Input Price Index, rose 33 per cent since February 2020, and 20 per cent over the last year,” says OMAFRA’s Osborne.
With production costs rising, any decreases in live animal prices or demand would harm meat producers who aren’t covered by supply management. Livestock prices have remained strong in recent years, and many farmers depend on the continuation of that trend.
“Feed cattle and market hog prices rose about 21 per cent since February 2020 and 17 per cent over the last year. Chicken prices rose roughly 36 per cent since February 2020 and 17 per cent over the last year,” says Osborne.
Grier explains that the effect of food inflation on livestock prices will be indirect.
“The market doesn’t care about production costs. The price of pork and beef is based on supply and demand. Right now, hog producers are in a loss position but they had a pretty good year in 2022.
“That’s not because the market was paying for high costs but because pork was in high demand domestically and globally and supplies were reduced.”
“Indirectly, the market does care about production costs because if the market is not supplying profits, producers will cut production and prices will increase.
“Alternatively, if markets are delivering high prices, producers will deliver more and the prices will begin to go down.”
Grier also explains that these fluctuations of supply and demand and their impact on livestock prices may take several years to catch up depending on the industry.
Chicken prices will catch up fastest, whereas cattle prices may take six months to a year to reflect the current market.
When looking at protecting profits through market fluctuations, CanFax’s Grant says it’s important for pork and other livestock producers to focus on cost control.
“They are facing inflation on costs in all aspects and that’s been what’s putting margins at risk this year.
“Look at what’s in your control and influence. It’s challenging to control costs in inflationary price environments like we are in right now.
“If you are watching that and controlling it now, that sets you up for the future.” BP