Trump tax policy among factors making Canadian researchers cautious on bakery and snack prices

By Douglas Yu contact

- Last updated on GMT

Bakery and cereal prices in Canada are set to decrease by 1% to 3% by the end of 2017. ©iStock/NatchaS
Bakery and cereal prices in Canada are set to decrease by 1% to 3% by the end of 2017. ©iStock/NatchaS

Related tags: Tax

Bakery and cereal retail prices  in Canada will decrease 1% to 3% by the end of 2017, according to a revised forecast from Dalhousie University.

But Trump's tax reform might drive some of the multinational food companies to withdraw certain brands from Canada, and eventually spike in the prices, it says.

The University's intiral report​, published in December 2016, suggested bakery and cereal prices would be flat or would increase by 2%. However, due to ongoing deflationary pressures earlier this year, researchers have modified its initial forecast for the mid-year update. They now antipcate Canadian bakery and cereal prices will decline 1% to 3%.

“We looked mostly at popular brands of bread products for our analysis,”​ main author of the report, Sylvain Charlebois, said.

“There won’t be a big change in prices of bakery and snacks in Canada,”​ he said. “We don’t think input cost will increase in processing, so there won’t be any cost passed on to consumers any time soon.”

“Bakery prices have been stable for many years because commodity prices and input costs are more predictable now.”​ Charlebois added. “There is a strong correlation between energy cost and commodity prices, especially when it comes to wheat and grains.”

Competitiveness in the snack aisle

Charlebois said the bakery and snack category is highly competitive as there are more and more products being offered to consumers.

Canada Food Prices
Source: Dalhousie University

More snacking options come with convenience because Millennials tend to eat on the go, he said, so the increasing varieties could keep product prices low for a while.

The industry is also dealing with so many companies trying to increase their market shares, and those companies will set their wholesale prices based on what they think the market can bear, Charlebois added.

“A classic dilemma is between doing private label and supporting their own brands,”​ he said. “Private label requires a different strategy when it comes to cost management; while producing branded products, manufacturers have to give a serious look at their own merchandizing strategy.”

Trump factor

Despite the current competitiveness in the Canadian snack market, researchers hinted Trump’s tax reform plans might influence multinationals’ decisions to withdraw certain brands from Canada.

While the US is waiting for the Trump administration to lay out its specific tax policies, House Speaker Paul Ryan recently said at the National Association of Manufacturers 2017 Manufacturing Summit​:​ “Real tax reform means slashing our corporate tax rate as low as possible.”

“Our corporate tax rate – for the rest of American companies – is 35%... companies in Canada pay just 15%... How can we compete like that?”​ Ryan said.

Charlebois said Trump’s tax reform is certainly a significant factor to consider when it comes to forecasting bakery and snack prices in Canada.

“More food manufacturing could transfer to the US as a result of lower taxes, but nothing has happened yet,”​ he said.

Multinationals withdrawing brands from Canada

Researchers also speculate that the exiting of brands may be caused by more consolidation in food processing and higher listing fees as“multinationals are becoming more strategic about how they support their portfolio of brands around the world​.”

“US-based Hormel Foods decided to discontinue the distribution of Skippy peanut butter. Mondelēz's Dad’s chocolate chip cookies were discontinue a few days prior,”​ researchers wrote in the report.

“This trend is likely to continue and could impact the level of competitiveness in the middle of the store. In other words, savings could prove more difficult in that section of the store in the future.”

Additionally, Canadian grocers are increasingly keen in promoting their own private labels, which will add more pressure on food manufacturers, Charlebois said.

Related topics: Bread, Snacks, Cereal & Cereal Bars, Markets

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