Canada’s food manufacturing industry to see record profits in 2016

Ottawa – Despite a sluggish Canadian economy, the outlook for Canada’s food manufacturing industry is sunny thanks to the increasing global appetite for Canadian products from the U.S. and other foreign markets. The industry’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.

“While the majority of the manufacturing sector has struggled to take advantage of the weaker exchange rate, cheaper oil prices, and the strengthening of the U.S. economy, the food manufacturing sector has seen sales continue to grow,” said Michael Burt, Director, Industrial Trends. “Although rising competition could weigh on industry margins, profits will remain healthy over the next few years.”

HIGHLIGHTS

• – Canada’s food manufacturing industry pre-tax profits should reach a record $4.3 billion this year.
• – Despite the slow growth in the Canadian economy, the outlook for Canada’s food manufacturing industry is sunny thanks to continued growth in the U.S. and other foreign markets.
• – Canadian consumers are stretched thin and are becoming more cautious with spending decisions.

The stronger U.S. economy is a key driver behind the industry’s positive export outlook over the coming years. The U.S. represents the largest export destination for Canada’s food products, accounting for more than 70 per cent of the industry’s exports in 2015. Rising food demand from developing countries will also support the industry’s exports. Developing countries generally have higher population growth rates and greater potential for increases in per capita food consumption than developed countries. Going forward, industry exports are forecast to grow 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 benefiting from Canadians’ renewed interest in natural ingredients and nutritious foods. Between 2011 and 2015, the number of new food and drink products launched containing the terms superfood, superfruit or supergrain has more than tripled. In particular, demand for chia seeds has increased 70 per cent, while demand for 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 Canadian consumer spending is stretched thin. Many consumers are being more price conscious at grocery stores, keeping an eye out for affordable food options and items on sale. Growth in 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 previous five years.

After declines in four of the previous five years, Canadian food manufacturers will see their margins improve to 4.4 per cent in 2016. Beyond 2016, however, industry costs will increase, which will result in a dip in profit margins.