Record-high diesel prices are putting additional pressure on Canadian farm profitability and transportation costs, with consumers potentially facing higher grocery bills later this year, according to a new report from Farm Credit Canada (FCC).
The FCC Economics report examines how elevated diesel prices are affecting Canada's agricultural supply chain, from farm production and livestock operations to transportation, food processing and retail.
Using an assumed 80% increase in diesel prices from pre-Iran war levels, FCC estimates Saskatchewan grain producers could see crop margins reduced by $14 to $21/acre, depending on soil zone. That scenario compares diesel at $1.18/litre before the war with $2.13 this autumn. For a 5,000-acre farm, the additional fuel expense would range from $68,000 to $106,000.
In Ontario, FCC estimated that an equivalent increase in diesel prices, from $1.28 to $2.30, could reduce corn and soybean margins by $16 to $30/acre, depending on crop and tillage system. The estimates represent an upper-end scenario, as some producers may have purchased fuel earlier in the season at lower prices, it added.
Those additional expenses come as many producers are already struggling with tight margins.
Transportation costs are another major concern. Fuel surcharges imposed by trucking companies have climbed sharply since February and now represent nearly 45% of base freight costs, increasing expenses for moving grain, livestock, farm inputs and food products.
However, FCC noted that most regulated western Canadian grain rail freight rates are unlikely to see significant diesel-related increases during the current crop year. The regulatory index governing railway revenue increased just 0.7% for 2026-27, although sustained high fuel prices could affect rates in 2027-28.
Despite rising costs throughout the supply chain, higher diesel prices have not yet translated into faster food inflation. Canadian food inflation slowed to 2.2% in September from 7.3% in January. FCC explained that existing inventories and fixed-price transportation contracts can delay the impact of higher energy costs on retail prices.
However, with the Canadian dollar offering limited protection against rising import costs, FCC expects higher diesel prices to begin showing up in grocery prices by year-end.
The full FCC report is available here:
https://www.fcc-fac.ca/en/knowledge/economics/record-diesel-prices-canada-agrifood
