Higher diesel prices to add 0.6 percentage points to food inflation, expert says

Rising diesel prices are expected to add about 0.6 percentage points to retail food inflation in Canada within the next four to eight weeks, a food expert says.

Dr. Sylvain Charlebois of Dalhousie University's Agri-Food Analytics Lab said the impact on grocery store shelves will be quick.

"We look at about 50 different factors impacting food prices, and the one factor that really impacts food retail pretty quickly is diesel prices," Charlebois told 650 CKOM's The Evan Bray Show.

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"It's immediate. It's quick."

He said the correlation between diesel prices and food retail prices is 0.89, with a perfect correlation being 1.0.

Charlebois said trucking companies are already applying surcharges, which will impact grocers' distribution. Food service companies like Sysco and Gordon Food Service are also looking into surcharges for their clients.

He was not worried about former U.S. president Donald Trump's recent threats about restricting diesel exports.

"No, I don't think so," Charlebois said. "First of all, the midterms are really creating noise. The White House is making a lot of noise to reassure President Trump's base."

He said diesel prices are "out of whack" but contracts are already set, meaning companies are spending more, not making more.

Farmers in fuel cost crisis

In the United States, record-high diesel prices are putting a severe financial squeeze on farmers, with effects likely to reach consumers.

The national average for diesel recently climbed above $6.51 a gallon, breaking a record set earlier in September, according to AAA data cited by NPR.

John Boyd Jr., a farmer in Virginia and president of the National Black Farmers Association, told NPR he recently spent about $1,000 filling his tractor. He said diesel is costing him about $7 a gallon, nearly double the price from a year ago.

"This is a national farm crisis for farmers," Boyd said. "I'm having to come up with money that's really not in the budget."

He said he shifts money from other farm expenses to cover fuel, and with corn selling for about $5 a bushel, there is little room to absorb the extra cost while still paying to harvest.

KTLA consumer reporter David Lazarus said farmers are contending with other rising costs like fertilizer.

"Farmers are now paying way more to grow a crop than they're making to bring it to market," Lazarus said, citing an economist.

NPR reported the diesel price surge is part of a global fuel crunch that intensified after the United States and Israel attacked Iran in February, disrupting oil shipments.

"And those higher costs for consumers are inevitably going to result in higher supermarket prices," Lazarus said.

Charlebois said Canadian consumers are becoming more strategic shoppers, making more frequent but shorter trips to grocery stores. The average Canadian now visits a grocery store 5.2 times a month, a roughly 20 per cent increase in visits.

"Consumers are more strategic. In other words, they're showing up with more information," he said.

He also commented on the opening of a new Costco in Regina, saying the "Costco effect" is significant and leads other retailers to readjust prices to keep traffic, benefiting all shoppers.

On trade, Charlebois said uncertainty is a major driver of food price pressure. He expressed concern that Mexico has focused on securing a trade deal with the U.S. while Canada gets caught up in "noise" about issues like potash.

"My question to Ottawa is: If there's a bilateral deal between Mexico and the U.S., what's our plan?" he said.

He dismissed Trump's recent rhetoric about buying potash from Belarus as "lots of noise, no substance," but said it raised a question about the competitiveness of Canada's potash industry.

"My question to Nutrien and Mosaic is: Are you willing to set competitive prices for our farmers over the next five to 10 years?" Charlebois said.

With files from 650 CKOM and The Daily Star