Canada’s food and beverage manufacturing sector saw strong sales growth in 2022, but rising expenses meant tighter margins.
In its latest Food and Beverage Report on Tuesday, Farm Credit Canada (FCC) said domestic food and beverage manufacturing sales increased 10.6% to $156 billion in 2022, with gains predominately coming from higher export values and strength in the grain and oilseed milling industry. However, increased prices for raw materials, labour shortages, and supply chain disruptions all combined to help squeeze profit margins, it said.
In fact, gross margins as a percent of sales fell to their lowest level in over 20 years in 2022, said FCC chief economist JP Gervais.
“It is difficult for food and beverage manufacturers to pass on those increased labour and material costs,” he said in a release.
According to Gervais, consumers cut back on discretionary spending last year as they faced higher inflation, depleted savings and higher costs of servicing debt. Shifts in consumer spending resulted in a decline in the market share of domestic-made foods, reverting to the consumption mix of domestic vs foreign foods observed prior to the pandemic. An increasingly diverse Canadian population was also looking to put different kinds of food on their tables, the report said.
Still, the report said global demand for Canadian-produced food is growing rapidly. Promising innovations and technology in food manufacturing can position Canada favourably to expand its reach into new, growing and profitable food industries. There is also opportunity to grow the sector by meeting the consumer demand for affordable, convenient, and sustainably produced foods, the FCC report said.
FCC is forecasting gross margins for the domestic food and beverage manufacturing sales sector to improve slightly in 2023.
“We all know money doesn’t have the same buying power it once did, and consumers are being careful with their grocery budgets,” Gervais said. “Despite inflationary pressures, we continue to see Canada’s food and beverage sector adapt and innovate to meet the changing market demands.
“The sector remains healthy and has a positive long-term outlook.”