Manufacturing sales to slightly decline, margins improve this year, according to FCC Food & Beverage Report

A change in consumer spending habits, lower commodity prices, and inflation all factor into Farm Credit Canada’s outlook for Food & Beverage manufacturers.

 In their annual Food & Beverage Report, FCC is forecasting a slight drop of 1.4 percent in manufacturing sales this year to $162.6-million.

Desmond Sobool, Director of Economics and Deputy Chief Economist with FCC, says the forecast is not a surprise, considering strong sales during the pandemic years and high inflation.

“We’re seeing inflation come down so that’s actually moderating sales,” he said. “Sales will be lower than last year but still higher than historical, so that’s good news for the (Food and Beverage) sector even though it’s a little bit of moderation but the trend is still upward.”

The report covers 8 different sectors: grain & oilseed milling, sugar & confectionery products, fruit, vegetable preserving & specialty food, dairy product, meat product, seafood preparation, bakery & tortilla products, and beverage manufacturing.

Sobool says the results for each sector are quite variable for different reasons — grain & oilseed milling for example projected to decline 11.3 percent in sales, but volumes to increase marginally at 1.1 percent. Global commodity prices were high through the pandemic and at the start of Russia’s war with Ukraine before coming down, but Sobool says prices are still higher than average.

“Even with that though, margins will still be improving for that sector,” he said of the grain & oilseed milling sector.

FCC’s gross revenue margin index is expected to improve slightly this year by 1.5 percent compared to the previous year and Sobool says it will vary across the 8 sectors.

From a consumer perspective, the report indicates grocery price inflation has slowed from its peak period of late 2022 into early 2023. But Sobool says spending habits have changed because of high grocery prices back then.

“In this past year, consumers have actually spent less on food and beverages than they have over the last decade and this is because they’re having to make those tough choices, so we’ve seen consumers shift to no name goods, shopping more at No Frills grocery stores…because prices are still elevated so with inflation coming down, our forecast is inflation should come down about 2 percent by summer through the end of the year, which is a great news story for consumers.”

The wildcard in all of this, Sobool says, is the U.S. economy and the resilience its shown.

“80 percent of our exports go to the U.S. and so we’ve heard, and we know, that their economy is doing really, really well, so if it continues to perform well and maybe outperform what economists are projecting, that could actually cause a little bit of a bump for our exports as well, which would maybe bring that sales growth up a bit this year.”

You can find the full report on the Farm Credit Canada website.

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