The annual Farm Credit Canada Food Report, which reviews the previous year’s industry performance, concluded that the food manufacturing sales sector held up well in 2021, rebounding significantly from 2020, and paints an optimistic picture for 2022.
Noting that several external factors impacted Canadian food industries greatly in 2021, including inflation, continued COVID-19 restrictions, supply chain constraints, and more, the report found that food manufacturers’ performance nevertheless proved to be strong in 2021.
Industry gross margins bounced back
Gross margins as a percentage of sales in food manufacturing increased in 2021 year-over-year but remain below historical levels and below 2019 figures.
The report notes that while manufacturers have struggled to fully pass on higher labour and material costs for almost a decade, margins improved slightly in 2021. At the individual industry level, results widely differ, which we dive into in the report.
Record YOY growth
Food manufacturing sales increased 14.8 per cent year-over-year to more than $125 billion in 2021, representing the strongest year-over-year growth in recorded history (starting in 1992).
Notably, restaurant sales grew by 23.6 per cent in 2021 compared with 2020 after what had been a 37 per cent decline in 2020. Fast-food sales grew by over 15 per cent, according to Statistics Canada data cited in the report.
“Consumers appeared to unleash strong disposable incomes and accumulated savings during the pandemic in 2021,” said J.P. Gervais, FCC’s chief economist. “This resulted in increased foodservice volumes that more than offset volume declines at grocery stores.”
Sector to outperform the overall economy
Bulding upon that record year, food manufacturing sales are projected to increase 7.4 per cent in 2022, driven by:
- Historically strong disposable income and accumulated savings in 2021
- Food prices remaining elevated
- Robust export markets with food exports representing an estimated 36.8 per cent of overall sales
Consumption of Canadian manufactured food climbed
The total share of domestically manufactured food consumed in Canada increased an estimated 1.9 per cent after declining for two straight years. The combination of “buy local” approaches by many, consumer desire to support small businesses, and domestic investments boosted Canadian sales.
“The strong growth we’ve seen in Canada’s food sector is largely a reflection of innovation, resiliency and the ability to quickly adapt to the changing economic environment,” Gervais said. “This has enabled most food manufacturers to overcome significant challenges posed by the pandemic, such as higher input costs, amplified labour shortages and shifting consumer consumption trends.
Sales within the dairy manufacturing industry, for example, almost entirely occur within Canada. Under 10 per cent of the value of dairy manufacturing sales are exported, and under 10 per cent of Canadian consumption is of imported products.
On the other end of the spectrum, seafood is more of a global industry, with over 90 per cent of the sales value exported, and the percentage of imported product consumed also over 90 per cent.
Overall, there’s a lot of two-way trade in the Canadian food industry. For example, nearly 50 per cent of sales in fruit, vegetable and specialty food manufacturing is exported while an equivalent share of domestic consumption is imported.
Ultimately, the Farm Credit Canada report concludes that economic conditions are evolving rapidly. The labour market continues to be a challenge, and inflationary pressures continue to climb. Meanwhile, the Russian invasion of Ukraine and related agricultural impacts and economic sanctions also pose a risk to global economic growth, creating food shortages in many countries that depend on commodities from this region, potentially causing a food crisis for millions.
However, stronger disposable income and higher savings in 2021 will support 2022 domestic food consumption growth, although inflation is diminishing many households’ purchasing power. Margin growth will depend on several factors, the biggest being the COVID pandemic’s evolution and how businesses adapt to interest rates increases and input costs.
“Inflation is beginning to diminish the purchasing power of many households and the growth in 2022 will depend on several other factors, such as the evolution of the pandemic and how businesses adapt to interest rate increases and elevated input costs,” Gervais said. “But if the past is any indication of the future, Canada’s food processors will continue to take advantage of the many opportunities that exist amid the many challenges.”