From the Editor’s Desk: December 2005

As we put the finishing touches on this edition, we’re
contemplating what the next two weeks will bring for the Canadian pizza
industry. By the time many of you read this, the Canadian Dairy
Commission will have announced their pricing structure for 2006.

Pizza Katrina

As we put the finishing touches on this edition, we’re contemplating what the next two weeks will bring for the Canadian pizza industry. By the time many of you read this, the Canadian Dairy Commission will have announced their pricing structure for 2006.

In the days leading up to this annual announcement, many of us speculated what exactly it would hold. The predominant mood was one of “expect another price increase.” Even sources inside the CDC forewarned us that the pizza industry would be less than happy with the commission.

Canadian pizzaiolos have the right to be “less than happy.” Since the introduction of the 1995 North America Free Trade Agreement, there has not been a level playing field between fresh pizza makers and frozen pizza makers. As we have mentioned many times, in 1995, the disparity was hardly an issue. The concept was to provide Canadian frozen pizza manufacturers with an advantage over American imports.

However, the landscape has changed dramatically since that time. Business models, marketing strategies and corporate interests have emerged as Canada’s economy matured under NAFTA. And when the CDC can look to the phenomenal growth in the frozen market, and its $17 billion interest, why should the voices of the smaller $4 billion fresh market be heard? It’s the classic David and Goliath … only this time waged on the frozen tundra of the Great White North.

Last year, the CDC delivered a massive 11.7 per cent hike. They argued that the impact of bovine spongiform encephalopathy, more commonly known as mad cow disease, on the dairy and beef industries warranted such a significant hike. But to suggest that the resumption of cattle trade with the U.S. will lead to a decrease in the price of industrial milk fails to recognize an emerging trend among some of the largest cheese producing companies.

As you will see in this month’s edition, Kraft has already made the move to increase consumer prices, citing the impact of rising energy, packaging and petroleum costs. The impact of these costs forced Kraft to re-estimate its 2005 earnings. A number of other companies, even those benefiting from the lucrative Class 5A NAFTA license, are also raising prices on their frozen pizza products to compensate for similar increased costs.

The dairy farmers and milk processors will also lay claim to dramatic increases in fuel and transportation costs, all of which arose from the devastating hurricane season in the Gulf of Mexico. No doubt, they will seek to maintain the 11.7 per cent BSE-based hike of 2005, and offset these new costs in 2006.

We’re calling this economic recipe “pizza Katrina.”

However you want to serve it, the looming reality is 2006 will be a challenging year for all foodservice outlets. The same argument over energy costs used by Kraft and their competitors to raise consumer prices will be the justification for this year’s anticipated increase by the CDC for industrial milk.

Following the CDC’s announcement – expected in the second week of December – Canadian Pizza will post to our website (www.canadianpizza-mag.com) our analysis and comments from across the industry. We’d like to suggest pizzaiolos take the time to voice their concerns, but last year the CDC took their phones off the hook.•