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Food prices to climb in 2016 as low loonie pushes import costs up

Canada imports 80 per cent of its fruits and vegetables, a category that is both sensitive to swings in the currency and has few easy substitutes.

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Get ready to pay more at the grocery checkout counter.

Food prices are set to outpace overall inflation and rise by as much as 4 per cent in 2016 as the low Canadian dollar drives up the price of imported fruits and vegetables, according to the Food Institute at the University of Guelph's forecast.

The jump of about $345 in the average household's annual food bill to $8,600 follows a similar increase in 2015, when the plunge in oil prices drove down the Canadian currency to less than 75 U.S. cents.

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However, the El Nino weather system should bring rain and bigger harvests to California and other parts of the United States that grow much of Canada's fruits, nuts and vegetables, said Sylvain Charlebois, a Guelph professor and co-author of the report. The bigger crops should cap the rise in prices for the food category at 2 per cent to 4.5 per cent, after the region's drought sent crop prices up by more than 9 per cent in 2015.

Canada imports 80 per cent of its fruits and vegetables, a category that is both sensitive to swings in the currency and has few easy substitutes.

The lower dollar is also expected to boost prices for Canadian-raised pork and beef. That's because domestic processors will have to compete with strong U.S. demand for Canadian cows and pigs, which are a bargain when priced in U.S. dollars. Prof. Charlebois said the end to U.S. rules that required imported meat be labelled and handled separately is expected to drive up Canadian exports of pork and beef.

For 2016, shoppers can expect to pay as much as 4.5 per cent more for meat, after a 5-per-cent increase in 2015, a year in which beef prices set records. As beef and pork prices have soared, some consumers have begun turning to alternatives – horse, bison and ostrich meat, Prof. Charlebois said.

Canada's overall inflation rate is about 1 per cent this year, a figure that is not expected to rise dramatically in 2016, held back by cheap energy prices and weak economic activity.

In recent years, retailers have been forced to absorb price increases amid fierce competition. But with the disappearance of Target, and moves by Loblaw and Sobeys to buy other retailers, consumers are more likely to bear the cost of price hikes immediately. "The retail landscape is much less competitive than it was a few years ago," Prof. Charlebois said.

"Even though Target was considered as mediocre food retailer at best, it gave a shock to the system, and that's why we saw Loblaw acquiring Shoppers Drug Mart and Sobeys acquiring Safeway."

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The report also predicted sales at fast-food eateries will exceed those of full-service restaurants for the first time. The report cited the move by McDonald's and others to offer more natural, antibiotic-free meat and, eventually, cage-free eggs. These moves appeal to consumers who are increasingly concerned about animal welfare, the report said.

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