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Vapers, smokers take a hit as N.L. budget focuses on prevention

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If you took up vaping to avoid the taxes on cigarettes, your luck just ran out.

A 20% tax on vaping products was a key feature of the Newfoundland and Labrador budget September 29, which aimed to focus as much as possible on community health and prevention.

Vaping has so far escaped the province’s sin tax net, even though research suggests the practice can present significant health risks, especially for teens and young adults.

The province also added an extra 10 cents in taxes per gram of loose tobacco and five cents per cigarette.

The budget also allocated $1.7 million for school initiatives, awareness campaigns and cessation programs to help reduce tobacco use and vaping.


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Milk prices on the rise: Study

Retail milk prices are up almost across the country since last summer, thanks to production cost increases introduced in February, according to a new report from Field Agent.

The Fluid Milk Report tracks prices on 2% milk in markets across the country. On average, the price for four litres of 2% milk went up 3.1% since last June when the study was last published, and increased in 17 of 19 markets.

The main reason for the 3.1% increase was a 1.93% increase in the farm gate price that took effect on Feb. 1, said Jeff Doucette, general manager for Field Agent Canada.

The farm gate price is determined by the Canadian Dairy Commission, using a formula that takes into account production cost increases at the farm level, while still ensuring farmers make a profit. The farm gate increase was the “trigger” for a shelf price increase, said Doucette.

“It seems like processors and retailers have taken the opportunity to increase margins in this notoriously low margin business when they set the new price after Feb. 1,” said Doucette. “They added the farm gate increase plus a profit increase for the processors and/or retailers.”

In 14 markets Field Agency surveyed, the shelf price increase was greater than that taken by the farmers. “In Calgary, the average cost of four litres of 2% milk has gone up by 8.3% since June, more than four times the farm gate increase.”

The least expensive milk in Canada was at several Costco stores in Ontario where four litres of 2% sold for $4.45 (about $1.11/litre).

The most expensive milk was in Mac’s stores in Western Canada (B.C., Alberta, Saskatchewan and Manitoba) where two litres of 2% went for $5.29 ($2.65/litre).

The city with the cheapest milk is Sudbury it costs, on average, $1.13/litre and the city with the most expensive milk is Charlottetown with an average price of $1.74/litre.

The main reason for the widely different prices is the trade barriers between provinces and quota systems set by the provinces, said Doucette.

In smaller provinces, smaller farms and processing plants mean higher costs of production that are passed along to the consumer. “Compare this to Ontario which has bigger farms, more efficient processing and a larger population resulting in the lowest milk prices.”

To bring down costs in more expensive provinces it would take a national farm gate price, “squeezing out inefficient smaller farms,” said Doucette. Milk could be processed in more efficient plants in Ontario and Quebec and be shipped anywhere in the country. “[T]he system today forces moms to pay a high price for milk to prop up the dairy farming industries in each province.”


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Food prices forecast to rise 2% to 4% in 2020: Report

Fresh Food Display_Lg_032619Food bills are going to take a bigger bite out of Canadians’ household budgets in 2020. Food prices are expected to increase 2% to 4%, according to the 10th annual edition of Canada’s Food Price Report—a collaborative effort by Dalhousie University and University of Guelph. It predicts that annual food costs for the average Canadian family will rise by $487 from 2019 figures, with the annual tally on food spend reaching $12,667 for the year.

“For grocers, it’s not necessarily bad news to see food prices go up by 4%—the problem is that you may spook some consumers,” Sylvain Charlebois, a professor of food distribution and policy at Dalhousie University told Canadian Grocer. “The sweet spot for food inflation is anywhere between 2% to 2.5% and we’re going to exceed that in 2020 by far.”

Canada’s Food Price Report uses a predictive analytics model that applies machine learning to support decisions about future food prices. In 2019, it was predicted that Canadian families would spend up to $12,157 on food. Based on the 2019 inflation rate to date, they are likely to spend $12,180, missing the report’s target by just $23.

In 2020, meat will see the highest increases (4% to 6%), while restaurants, seafood and vegetables will all see increases of 2% to 4%. This is followed by fruits (1.5% to 3.5%), dairy (1% to 3%), and bakery (0% to 2%).

The jump in the price of meat is due in large part to Chinese demand for imported beef and pork. China recently reopened its market to imports of Canadian pork and beef after a four-month ban, as the Asian country continues to battle African swine fever. China has lost millions of pigs to the disease and needs to import large amounts of pork—driving up the price of pork and meat in general.

“[Meat] is already costing more for processors and grocers and so increases will be passed on to consumers in the New Year,” says Charlebois.

Expected Headlines in 2020

The report also looks at three big stories that will continue to make headlines next year:

1-Single-use plastic packaging: The report states that consumers are placing pressure on retailers, restaurants, distributors and manufacturers to reduce and ultimately avoid the use of disposable plastics used for food products. However, they’re less inclined to pay more for greener alternatives. “[Greener packaging] will incur more costs and this is something consumers will have to get educated about,” says Charlebois.

2-Climate change and carbon tax: In 2020, climate change will have a big impact on food systems and drive up food prices. The report states the government needs to address emissions levels, as they are above the targeted 30% reduction levels beyond year 2030, far from the Paris Agreement goals of 2016. On the issue of the carbon tax, the report notes while some Canadians believe the tax increases the cost of food for consumers, industry is absorbing most of the costs.

3-Retailing AI: The use of artificial intelligence in retail is on the rise. For example, Sobeys is piloting a technology-enhanced cart called Smart Cart.

The cart’s technology scans and weighs products when customers place them in the cart. It displays a running tally of purchases while the customer shops, and then allows them to pay on the spot. Sobeys says it plans to evolve the cart to include additional features using artificial intelligence and machine learning technology. “We are expecting more movement in the area of AI coming from grocers,” says Charlebois.

Originally published at Canadian Grocer. 


Energy prices spike after Saudi oil attack

Global energy prices spiked Monday by a percentage unseen since the 1991 Gulf War after a weekend attack on key oil facilities in Saudi Arabia caused the worst disruption to world supplies on record, further fuelling heightened tensions between Iran and the U.S.

American officials released satellite images of the damage at the heart of the kingdom’s crucial Abqaiq oil processing plant and a key oil field, alleging the pattern of destruction suggested Saturday’s attack came from either Iraq or Iran – rather than Yemen, as claimed by Iranian-backed Houthi rebels there. A Saudi military spokesman later made the same accusation, alleging “Iranian weapons” had been used in the assault.

Iran rejected the allegations, with a government spokesman saying now there was “absolutely no chance” of a hoped-for meeting between Iranian President Hassan Rouhani and President Donald Trump at the U.N. General Assembly next week.

For his part, Trump sent mixed signals, saying his “locked and loaded” government waited for Saudi confirmation of Iran being behind the attack while later tweeting that the U.S. didn’t need Mideast oil, “but will help our Allies!”

The tensions have led to fears that action on any side could rapidly escalate a confrontation that’s been raging just below the surface in the wider Persian Gulf in recent months. There already have been mysterious attacks on oil tankers that Washington blames on Tehran, at least one suspected Israeli strike on Shiite forces in Iraq, and the downing of a U.S. military surveillance drone by Iran.

Those tensions have increased ever since Trump pulled the U.S. out of Iran’s 2015 agreement with world powers that curtailed its nuclear activities and the U.S. re-imposed sanctions on the country that sent its economy into freefall.

Benchmark Brent crude gained nearly 20% in the first moments of trading Monday before settling down to over 10% higher as trading continued. A barrel of Brent traded up $6.45 to $66.67.

That spike represented the biggest percentage value jump in Brent crude since the run-up to the 1991 Gulf War that saw a U.S.-led coalition expel Iraqi dictator Saddam Hussein’s forces from Kuwait.

U.S. benchmark West Texas crude was up around 10%. U.S. gasoline and heating oil similarly were up.

The attack halted production of 5.7 million barrels of crude a day, more than half of Saudi Arabia’s global daily exports and more than 5% of the world’s daily crude oil production. Most of that output goes to Asia.

At 5.7 million barrels of crude oil a day, the Saudi disruption would be the greatest on record for world markets, according to figures from the Paris-based International Energy Agency. It just edges out the 5.6 million-barrels-a-day disruption around the time of Iran’s 1979 Islamic Revolution, according to the IEA.

Though the world’s overall energy demands in the past were smaller, the Saudi outage has sparked concern among analysts of prices pushing to $80 a barrel and beyond. Publicly traded airlines, whose major costs include jet fuel, suffered globally. That could in turn push up prices on everything from travel to a gallon of gas at the pump.

Saudi Arabia has pledged that its stockpiles would keep global markets supplied as it rushes to repair damage at the Abqaiq facility and its Khurais oil field. However, Saudi Aramco has not responded publicly to questions about its facilities.

Yemen’s Houthi rebels, who have been targeted by a Saudi-led coalition since March 2015 in a vicious war in the Arab world’s poorest country, maintain they launched 10 drones that caused the extensive damage. They reiterated that Saudi oil sites remained in their crosshairs, warning foreign workers to stay away.

U.S. officials say that the damage done to the north-facing parts of the facilities suggest the attack instead came across the Persian Gulf from Iraq or Iran. American officials have yet to offer substantial evidence to support their claims, though Iran in the past has relied on hard-to-attribute attacks or proxy forces to launch assaults against its enemies.

At a news conference Monday, Saudi military spokesman Col. Turki al-Maliki said the kingdom’s initial investigations showed “the terrorist attack did not come from Yemen as claimed by the Houthi militia.”

“This terrorist attack is a large-scale cowardly act, and as I said, targets the global economy and not just the kingdom,” al-Malki said. “All the indications and operational evidence, and the weapons that were used in the terrorist attack, whether in Buqayq or Khurais, indicate with initial evidence that these weapons are Iranian weapons.”

Al-Maliki offered no immediate evidence to support his allegations, which came after Trump said the U.S. awaited word from Saudi Arabia about who it suspected launched the attacks.

Iraqi Premier Adel Abdel-Mahdi said he received a call Monday from U.S. Secretary of State Mike Pompeo, who confirmed that the attack didn’t come from Iraq. The State Department did not immediately acknowledge what was discussed. Iraq is home to Iranian-backed Shiite militias who aided it in its fight against the Islamic State group.

Iranian Foreign Ministry spokesman Abbas Mousavi again denied the U.S. claims Monday, telling journalists the accusation was “condemned, unacceptable and categorically baseless.” Government spokesman Ali Rabiei meanwhile said a Trump-Rouhani meeting in New York as of now wouldn’t happen.

“Currently we don’t see any sign from the Americans which has honesty in it, and if the current state continues there will be absolutely no chance of a meeting between the two presidents,” Rabiei said.

Russia’s Foreign Ministry, while expressing “grave concern” about the attack, warned against putting the blame on Iran, saying that plans of military retaliation against Iran are unacceptable.

U.S. satellite photos released overnight Monday appeared to show the attack on Abqaiq, the world’s largest oil processing facility, may have struck the most sensitive part of the facility, its stabilization area. The Washington-based Center for Strategic and International Studies has said the area includes “storage tanks and processing and compressor trains – which greatly increases the likelihood of a strike successfully disrupting or destroying its operations.”

Stabilization means processing so-called sour crude oil into sweet crude. That allows it to be transported onto transshipment points on the Persian Gulf and the Red Sea, or to refineries for local production.

Fernando Ferreira, the director of geopolitical risk at the Washington-based Rapidan Energy Group, said rebuilding that infrastructure “will take many months.”

Saudi Aramco did not respond to questions from The Associated Press regarding damage at Abqaiq and the satellite images.

Meanwhile, the attacks are expected to affect gas prices here in Canada, with consumers bracing for a slight jump at the pumps.


Producers still cautious despite higher Q2 expectations on stronger oil prices

Higher oil prices are expected to boost cash flow for the large Canadian crude producers as they roll out second-quarter results beginning next week, but analysts say the extra money is unlikely to be added to growth budgets.

Canadian oil prices steadied in comparison with U.S. benchmarks in the three months ended June 30 following two quarters of volatility blamed on the failure of pipeline capacity to match growing oilsands output and Alberta’s decision to impose production limits starting in January.

“Despite the increase in the commodity prices and constructive outlook for the second half of 2019, with expected inventory drawdowns to further support crude, producers remain cautious and are unlikely to increase spending imminently,” said analyst Nick Lupick of AltaCorp Capital.

“Looking to attract investors back into the Canadian explorer and producer space, management teams are focusing on free cash flow generation and returning value to shareholders during this uncertain commodity environment.”

At an energy conference in Calgary last week, a panel of representatives of major oil companies said they are more focused on dividend increases and share buybacks than spending to drill wells given ongoing market access problems and low share prices.

“In this market –  and I think everybody appreciates just how discounted the entire Canadian market is – clearly buying back shares is a great use of our cash,” said Mark Little, chief executive of Suncor Energy Inc.

Suncor’s share price has tumbled 22% over the past year while the S&P/TSX capped energy index is down more than 31%.

“Really, it’s about a balanced approach, not getting too aggressive on the growth side until you have more market access,” said Steve Laut, executive vice-chairman of Canadian Natural Resources Ltd.

The second-quarter earnings parade starts July 24 with Suncor Energy Inc., followed by Cenovus and Husky Energy Inc. the next day.

RBC Dominion Securities calculates that U.S. benchmark West Texas Intermediate crude prices averaged US$59.84 per barrel in the second quarter, up nine% from the first quarter.

Canadian prices rose more dramatically, with Edmonton Par light oil up 11% and Western Canadian Select bitumen-blend heavy oil up 16%.

Upgraded Syncrude synthetic oilsands crude traded at near-par with WTI during the quarter, RBC reported.

“With free cash flow taking centre stage amongst energy investors, MEG Energy (Corp.) and Cenovus (Energy Inc.) are both standouts, in part given robust WCS prices in the quarter,” said RBC analyst Greg Pardy in a report.

“MEG may generate more operating cash flow in the second-quarter ($209 million) than it did in all of 2018.”

Natural gas producers, however, are expected to see more dismal results as Alberta spot gas prices averaged 60% less in the second quarter than in the first, according to analyst Michael Harvey, who covers mid-sized energy producers for RBC.

Average cash flows for his group are expected to fall by about 19% due to lower prices for natural gas and liquids produced with gas, he said, with oil-weighted intermediate producers down eight% and gas-weighted companies down 30%.

 


B.C. gasoline prices rose with land costs but full differentials unexplained: report

Filling Gas Tank_Sm_070218Gasoline prices in British Columbia have risen in line with land costs and credit card processing fees but that doesn’t fully explain why they’re so much higher than in other parts of Western Canada, a new report says.

The report by Deetkten Group was posted online last week by the B.C. Utilities Commission, which is overseeing a public inquiry into sky-high gas prices in the province.

The consultant’s report says Vancouver’s gasoline retail margins, which are the difference between the wholesale price for fuel and the retail price less tax, “highly” correlates with local land values.

It also says credit card processing fees are applied as a percentage of a total transaction, meaning the fees will be higher in jurisdictions like Vancouver where prices at the pump are already high.

“Rising land costs and credit card processing fees may account for nearly the entire differential observed between Vancouver and comparable areas, at least up to the end of 2018,” the report says.

But even after those factors are taken into account for this year, 1.4 cents per litre in the retail margins remains unexplained.

The report also can’t fully explain why wholesale gas prices are much higher in B.C. cities compared with other jurisdictions.

The consultants compared wholesale prices in Vancouver and Kamloops with Edmonton and Seattle, which are also sources of supply for B.C.

Transportation and regulatory costs may account for higher wholesale gas prices in B.C., but even estimating those costs at their highest potential doesn’t explain the difference, it says.

“Even the highest estimates of transport and regulatory costs combined do not sufficiently account for the differential in wholesale prices between the Vancouver market and the Edmonton and Seattle markets, particularly in 2019,” the report says.

A differential of about five cents per litre between Vancouver and Edmonton this year is unaccounted for in the report.

Unlike gasoline prices, diesel prices have remained largely consistent with historical trends when compared with other parts of Western Canada.

“This may be in part due to different demand dynamics in the diesel market,” it says.

Premier John Horgan ordered the inquiry in mid-May as the price of a litre of regular gasoline climbed above $1.70.

In commissioning the probe, he said that gas and diesel price increases were “alarming, increasingly out of line with the rest of Canada, and people in B.C. deserve answers.”

Four days of oral submissions are in the process this week and the three-member panel can question industry representatives, including gas and diesel suppliers.


Vancouver expected to headline long Canadian summer of high gasoline prices

Gasoline prices are expected to remain just below record highs all across Canada this summer except in Vancouver, where a perfect storm of factors will likely ensure motorists continue to set new all-time records at the pumps.

Fuel market analysts say average retail prices in Canada are within a penny or two of their year-ago levels, which were some of the highest on record for many markets.

“Vancouver certainly is (at historic highs) but the other major markets we’re looking at, such as Calgary, Toronto, Halifax, Montreal, they’re not exceeding historical levels, they’re basically at historic levels,” said Michael Ervin, senior vice-president at the Kent Group Ltd.

The average price of gasoline in major Canadian markets last week was about $1.34 per litre, but it varied from around $1.23 in Calgary and Winnipeg to the high of $1.70 or more in Vancouver.

Gasoline prices rise every spring due to factors including the higher cost of making summer gasoline — which requires an extra four or five cents per litre for additives to prevent evaporation — and supply interruptions as refineries shut down for routine maintenance, the analysts said.

Prices have also risen in part due to the federal carbon tax on fuel that was applied to Saskatchewan, Ontario, New Brunswick and Manitoba on April 1.


Dollarama watching prices as it looks to grow foot traffic

UnknownDollarama Inc. is closely monitoring prices in its stores as it looks to boost foot traffic and generate growth in an increasingly competitive retail environment.

The company is focusing its lower-priced items to generate that traffic after putting too much emphasis on higher priced items up to $4, said CEO Neil Rossy on a conference call Thursday.

“I think you know quite honestly, that we did lose sight of it, on making sure we had all the traffic drivers needed to balance our higher price points.”

“When you take a business from a pure $1 store, and you evolve over the years to multi-price points, while being very successful in doing so, you’ll learn things,” he said.

The company is also constantly assessing prices on merchandise, with item prices assessed at least every three weeks during restocking, said Rossy.

He said the rebalance of price levels and items would help drive sales going forward.

“We have to refocus on traffic generating and unit sales, because at the end of the day, in bricks and mortar, that’s the bread and butter.”

The attention on prices come as the retail sector is in a very competitive retail environment with rising operating costs, noted RBC Dominion Securities analyst Irene Nattel.

She said the company delivered “solid” results despite the challenges.

Canaccord Genuity analyst Derek Dley, however, downgraded his rating on the company from buy to hold and lowered his price target after the company released lower than expected growth expectations for fiscal 2020.

The company said it expected same-store sales growth of 2.5% to 3.5% for the year, which is below its historical average same-stores sales growth target of 4% to 5%.

“In our view, the next few quarters are likely to represent a ‘show-me-story’ to many investors and as a result we are comfortable moving to the sidelines for the time being, as we await a more positive pricing environment and same-store sales acceleration.”

Sales for the fourth quarter totalled $1.06 billion, up from $938.1 million, while comparable store sales grew 2.6%.

Analysts on average had expected a profit of 55 cents per share and revenue of $1.07 billion, according to Thomson Reuters Eikon.

In its outlook for the coming year, Dollarama said it expected to add 60 to 70 new stores as part of its goal of having 1,700 stores by 2027.

The company also launched its online store in January, where it has about a thousand items for sale in bulk only.

Rossy said it would take some time for the online sales to have an overall impact, but that it would fill a customer need.

“Small businesses will find it more interesting to buy their stationary there, or what have you, and people having parties or conferences or whatever it is, will use it because it’s a practical way to get the best price.”