FCC economists identify five “crystal” charts to watch in 2022

Like fortune tellers with crystal balls, Farm Credit Canada’s (FCC) economics team has been studying their “crystal” charts to forecast what’s in store for Canada’s agriculture and food industry in 2022.

“Sometimes the best indicators of what will happen in the future can be found in the recent past,” said J.P. Gervais, FCC’s chief economist. “But with a slower-than-expected recovery from the pandemic and multiple challenges that have rocked industry supply chains in 2021, this year’s forecast for Canada’s agriculture and food industry has been a real challenge.”

Despite the uncertainty, Gervais suggests industry producers and processors keep an eye on five key trends: Canada’s inflation and interest rates, ongoing supply chain challenges, labour shortages, supply-demand imbalances and strength in meat demand. Understanding these trends will help business owners and operators mitigate risks and take advantage of opportunities throughout 2022 and beyond.

Inflation and interest rates

Inflation is expected to be above the Bank of Canada’s target rate for most of 2022, which also should drive interest rate increases in an effort by the central bank to keep a lid on inflation.

"Persistent supply chain disruptions and global demand will continue to prompt higher prices on virtually everything – two trends that began well before 2021,” Gervais said. “Supply shortages may continue for some key commodities, and overall price increases on oil, gas and global agriculture commodity supplies are not expected to weaken before mid-year.”

Supply chain and labour force challenges

Throughout the pandemic, supply chain disruptions caused by shortages and backlogs in global transport networks created inflationary pressures. Average month-over-month global transportation costs for dry goods increased 7.3 per cent in 2020 and more than doubled in 2021 with an average increase of 15.3 per cent.

“Looking ahead in 2022, we see strong demand for raw agriculture commodities and other manufacturing inputs. Coupled with shipping container and transportation labour shortages, we’re forecasting a continuing trend toward higher transportation costs,” Gervais said. “It’s highly predictable the higher cost will be passed onto consumers and reflected in the price we pay for food and beverages in the grocery store.”

At the same time, chronic labour force shortages in the food processing sector — made worse by the pandemic — could also contribute to higher food costs.