carbon tax

How much will the carbon tax and climate change affect food prices?

Inflation has dominated the news and the industry for the last few years, as consumers have seen food prices consistently rise. While we did experience some temporary relief from inflation in February, how much impact will climate change and Canada’s carbon tax impact the industry? Will these factors force restaurateurs to raise their menu prices once again and can consumers continue to pay higher prices at their favourite restaurants?

Climate change

The environment plays an important role in food costs, according to experts, and as temperatures rise consistently, so will food costs. Predicting that extreme weather due to climate change will cause food prices to increase less than one per cent by 2035, it may not seem like it’s having a big impact. However, these rises are expected to continue consistently, increasing the global cost of food by 2.2 to 4.3 per cent annually by 2060.

Being called “climateflation,” the idea that food costs will continue to increase as the planet gets hotter means that the hottest regions will likely be affected the most. Looking back to 2022, Europe’s heat wave cut food supplies, increasing food costs and overall inflation, and the rest of the world could be looking at some similar situations as climate change continues to develop.

Carbon tax

Canada’s federal government impending carbon tax has some politicians claiming that this tax will affect fuel for farmers, and shipping and delivery costs that will be passed onto the consumer, but The Bank of Canada has estimated that the tax will only increase inflation by 0.15 per cent overall.

Some operators have tried to take a proactive approach, based on the assumption that the carbon tax will increase their expenses. Recently, a restaurant in Toronto sparked controversy by implementing a two per cent “carbon fee” designed as an environmental investment to offset the carbon footprint associated with dining in the restaurant. However, this step was met with criticism from consumers and the restaurant has now offered an opt-out option for this fee. Initially, without prior communication about the fee or an opt-out feature, the step was perceived as a lack of transparency. Restaurateurs looking to add fees to try and recoup costs run the risk of consumer backlash as interest rates and inflation continue to plague customers.

Studies show that 80.3 per cent of Canadians believe that we will see further hikes in food costs, and that 38.3 per cent of Canadians are planning to dine out less, with 12.2 per cent not at all this year. While restaurants do everything they can to remain competitive, leverage loyalty, and add value, this year may continue to challenge operators with inflation and elevated costs.