Farm Credit Canada (FCC) says the Food and Beverage sector was resilient in the first half of 2026, but noted some subsectors didn't do well compared to others.
In a mid-year update of its annual Food and Beverage Report, FCC notes food manufacturing sales increased four per cent compared to the first half of 2025, while beverage manufacturing sales were down three per cent year-over-year.
The sales increase in food manufacturing was driven by higher prices rather than volumes.
The grain and oilseeds sub-sector experienced the largest growth in sales of 28 per cent.
Craig Johnston, Vice-President and Chief Economist at FCC, attributed the increase for grain and oilseeds to price appreciation, logistical constraints due to conflicts including Russia and Ukraine, and ending stocks at high levels at the end of 2025.
"Whether or not we can expect that same level of growth to continue into the second half of 2026, I think is another question, but it was a very bright spot for sure in the first half of 2026, in part pressured by a pressured consumer." Johnston said of the sub-sector.
Fruit and vegetable processing and animal food manufacturing both had seven per cent higher sales in the first six months, while dairy sales increased four per cent and meat sales rose two per cent.
Sugar and confectionery sales were down eight per cent, and bakeries and other food manufacturing were both down one per cent over the same time frame.
On the beverage side, the distilleries sub-sector had the largest decline in sales of 12 per cent.
The breweries sub-sector was also down in the first half by seven per cent, but the wineries sub-sector was the opposite, increasing sales by 13 per cent.
Johnston said the decrease for distilleries was building over several years due to budgetary concerns from consumers as the focus shifts to staple food items as well as the current U.S. ban of Canadian alcohol imports, in response to retaliatory measures from Canada.
Both the trade dispute and ongoing conflicts cause a ripple effect on multiple aspects of the sector, including labour and raw material costs.
FCC forecast labour & input costs to cool down by 3.7 per cent at the start of 2026 but changed to an increase of 1.9 per cent following the latest tariff measures and the aforementioned conflicts.
"This has really changed from a story of resilience, which the sector has really exhibited in the first half of this year, to really a story of risk management," he said. "Really a story about trying to protect margins, trying to diversify as much as possible, trying to continue to invest in productivity. Moving through 2026, that'll just position you best into 2027 to weather some of these external shocks, more or less."
The trade measures also affect the sector's profitability but FCC believes food & beverage manufacturers are showing resilience based on trends.
In 2024, the sector's gross margin index was up 1.9 per cent, then down 2.1 per cent in 2025. FCC is forecasting margins will be up 2.1 per cent for 2026 then down 0.9 per cent for 2027.
Johnston says this speaks to how volatile things are as a result of previously mentioned factors.
FCC states the average impact on profits could be more pronounced if the tariffs persist through to next year.
Looking at Canada's counter-tariffs as an example, FCC said if they are in place for a full-year it could result in "$260 million to $500 million in potential tariff costs."
However, FCC added "the federal government's $7.5 billion support package and existing business support programs could help offset some of these pressures and firms may also change suppliers, renegotiate prices, use inventories, seek tariffs remission or pass part of the increase to their customers."
