Challenges in the trade and economic environment, largely due to tariffs from the U.S. and China, have affected Canada's Food and Beverage sector.
Farm Credit Canada released its mid-year update on the food and beverage industry and say while the first half of the year had a sales increase of 0.8 per cent, its not expected to hold and projects sales will decline to 0.3 per cent in the second half. Sales growth for 2025 is expected to be just 0.2 per cent, down from FCC's April projection of 0.6 per cent, and should it hold, it'll be the lowest level of growth since 2005.
Most of the growth has been from price increases but Senior Economist Amanda Norris says declining volumes of goods sold is causing slower-than-expected growth.
"A lot of this has to do with trade disruption. This sector is very dependent on trade, especially with the US, but also on other countries. And we've seen tariffs on those Canadian exports to both the US as well as China, so that's really pressuring sales lower overall for the sector." said Norris.
While most goods from Canada are compliant under the Canada-United States-Mexico trade agreement, FCC says Canadian businesses must provide thorough documentation to ensure compliance, "adding complexity to the trade landscape" and "as a result, overall food exports to the U.S. are down in 2025."
The grain and oilseed milling sub-sector has been affected the most with manufacturing sales at $8.7 billion in the first six months of this year, down 10.6 per cent year-over-year. Norris said it stems from China's tariffs on Canadian canola products.
Bakery and tortilla products were also down year-over-year by 4.7 per cent while the remaining food sub-sectors saw increases between 1.9 and 14.3 per cent. The beverage sub-sectors were modest with soft drinks down 1.6 per cent year-over-year during the first half while distilleries were up 6.1 per cent.
Food and beverage exports were off to a good start at the beginning of the year, in line with the 5-year maximum for exports, before dropping by the spring towards the 5-year minimum.
Norris says profit margins followed a similar trend.
"Margins at the beginning of this year were on solid ground. We expected stronger margins in 2025, but that slower sales growth has really impacted margins. And having that slower sales growth, those input costs have also been high for the first part of this year, whether that's inputs that have been imported from the US that have been impacted by Canada's retaliatory tariff. For example, think of cans for packaging or other types of packaging materials, or food inputs in general that were on that list that Canada has now taken off. So those input prices have been slower to come down.
"We do expect into 2026 some of those input costs, such as grain and oil seed prices, to start to subside a little bit, but costs still remain high, which is pressuring margins. And without that strong sales growth, we forecast a 0.2% decline in margins for 2025."
FCC projects margins in 2026 to rise 3.1 per cent but Norris says that depends on how the CUSMA review goes and when tariffs would be removed.
There is some good news as Norris points out the job vacancy rate for the food and beverage sector fell to 2.8 per cent in the second quarter of this year, compared to the second quarter of 2022 when it was 6.6 per cent.
She said the rate reduction is "positive for trying to recruit workers. That being said, there's still a long-term systemic labour challenge within food and beverage manufacturing that's still there, but in the short term, it's becoming a little bit easier to find workers on average across the sector."
The other positive was household spending on food and non-alcoholic beverages per capita was on the rise in the first two quarters of 2025.
The mid-year report is a snapshot of the sector with a more detailed version coming out early next year.
The report is available below.
