Despite a sluggish Canadian economy, the outlook for the nation’s food manufacturing industry is bright thanks to increasing exports to the United States and other foreign markets. The sector’s pre-tax profits should reach a record $4.3 billion this year, according to The Conference Board of Canada’s latest Canadian Industrial Outlook: Canada’s Food Manufacturing Industry report.
While the majority of the manufacturing sector has struggled to take advantage of weaker exchange rates, cheaper oil prices, and the strengthening of the US economy, food producers have seen sales continue to grow. Although rising competition could weigh on margins, profits are expected to remain healthy over the next few years.
The stronger US economy, which accounted for more than 70 per cent of Canada’s food exports in 2015, is the key driver behind the positive export outlook and will remain so for a number of years to come. Demand from developing countries will also support rising sales, as such markets generally have higher population growth rates and greater potential for increases in per capita food consumption than developed countries. Going forward, food exports are forecast to expand by an average of 2.6 per cent per year between 2016 and 2020, and account for a rising share of industry sales.
Food manufacturers are also benefitting from renewed interest in natural ingredients and nutritious products among Canadian consumers. Between 2011 and 2015, the number of new food and drink SKUs launched containing the terms superfood, superfruit or supergrain has more than tripled. In particular, demand for chia seeds has increased 70 per cent, while sales of teff and quinoa has grown by 31 and 27 per cent, respectively.
Dampening the outlook for Canada’s food manufacturing industry, however, is the fact that consumer spending is stretched thin. Many shoppers are more price-conscious at grocery stores these days, keeping an eye out for affordable food options and items on sale. Growth in domestic consumer spending on food and alcoholic beverages is expected to slow to a mere 0.5 per cent this year, or half the average growth rate of the past five years.
After declines in four of the previous five years, Canadian food manufacturers should see their margins improve to 4.4 per cent in 2016. Beyond 2016, however, industry costs will likely increase, which may well result in a dip in profit margins.
