Increased sales growth for Canada’s food and beverage sector: FCC report
By Farm Credit Canada
GeneralRegina, Sask., Sept. 26, 2023 – Sales for Canada’s food and beverage sector are forecast to surpass $164 billion, exceeding initial projections by 3.2 per cent, according to the 2023 Food and Beverage Report Mid-Year Update from Farm Credit Canada. While positive news, a number of considerations continue to weigh on the sector.
Both food and beverage manufacturers saw a strong increase in nominal sales in the first half of 2023, with an increase of 8.4 per cent for food manufacturing and 7.3 per cent for beverage manufacturing. Grain and oilseed milling and bakery and tortilla products led in growth with increases of more than 15 per cent year-over-year. However, the growth rate in the sector is more modest when accounting for inflation.
“Many of our food and beverage sectors have experienced double-digit sales growth, but much of that growth comes from increased selling prices due to inflation,” said J.P. Gervais, FCC’s chief economist, in detailing the mid-year report. “We expect slower growth in the second half of the year as consumers are careful with their grocery budgets.”
A decline in consumer spending caused by inflation is putting pressure on food and beverage margins, which have been compressed since 2019. For the beverage industry, gross margins are nearly 50 per cent lower. In the food sector, margins are on average 11 per cent below the pre-pandemic level.
Meanwhile, food and beverage manufacturers continue to face labour shortages and strong wage growth.
“In the last two years, average weekly wages have grown by 4.6 per cent per year for food manufacturers, compared to 0.8 per cent per year between 2015 and 2019,” Gervais explained. “This accelerated growth remains an issue for employers, but we anticipate growth to slow as job vacancy rates for food wholesalers, food manufacturers and food services operations decline in the short-term. Availability of labour over the long term remains an issue to monitor for food and beverage manufacturers.”
For the first time earlier this year, spending on food services, adjusted for inflation, returned to pre-pandemic levels, exceeding $17 billion in sales in the second quarter of 2023. While a positive sign for food-service operations, sales continue to be below the pre-pandemic trend.
“With an economic slowdown, we anticipate discretionary spending will struggle to grow further,” Gervais said. “The same can be said for our exports. Exports are still strong in 2023, but any global slowdown will impact Canada’s export sales opportunities. Overall, the trends to watch are the slowing of global economic growth, food service demand and softening labour markets.”
The FCC Food and Beverage Report Mid-Year Update features insights and analysis on grain and oilseed milling; dairy, meat, sugar, confectionery, bakery and tortilla products; seafood preparation; fruit, vegetable and specialty foods; and soft drinks, breweries, wineries and distilleries.
By sharing agriculture economic knowledge and forecasts, FCC provides solid insights and expertise to help those in the business of agriculture and food achieve their goals. For more economic insights and analysis, visit FCC Economics at fcc.ca/Economics.
FCC is Canada’s leading agriculture and food lender, dedicated to the industry that feeds the world. FCC employees are committed to the long-standing success of those who produce and process Canadian food by providing flexible financing, AgExpert business-management software, information and knowledge. FCC provides a complement of expertise and services designed to support the complex and evolving needs of food businesses. As a financial Crown corporation, FCC is a stable partner that reinvests profits back into the industry and communities it serves. For more information, visit fcc.ca.
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