Sales for Canada’s food and beverage sector are forecast to surpass $164 billion, exceeding initial projections by 3.2 per cent, the 2023 Food and Beverage Report Mid-Year Update from Farm Credit Canada (FCC) released on Sept. 26 said.
The report noted food and beverage manufacturers saw a strong increase in nominal sales in the first half of 2023, with an increase of 8.4 per cent for food manufacturing and 7.3 per cent for beverage manufacturing. Grain and oilseed milling, and bakery and tortilla products led in growth with increases of more than 15 per cent year-over-year, but the growth rate in the sector is more modest when accounting for inflation.
“Many of our food and beverage sectors have experienced double–digit sales growth, but much of that growth comes from increased selling prices due to inflation,” J.P. Gervais, FCC’s chief economist said in a release about the report. “We expect slower growth in the second half of the year as consumers are careful with their grocery budgets.”
A decline in consumer spending caused by inflation is putting pressure on food and beverage margins, which have been compressed since 2019, the report said. For the beverage industry, gross margins are nearly 50 per cent lower. In the food sector, margins are on average 11 per cent below the pre-pandemic level.
However, for the first time earlier this year, spending on food services, adjusted for inflation, returned to pre-pandemic levels, exceeding $17 billion in sales in the second quarter of 2023, the report said. While a positive sign for food service operations, sales continue to be below the pre-pandemic trend.
“With an economic slowdown, we anticipate discretionary spending will struggle to grow further,” Gervais said. “The same can be said for our exports. Exports are still strong in 2023, but any global slowdown will impact Canada’s export sales opportunities.”
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