FCC Outlook: Canada’s food processing sector

FCC
March 06, 2019
By FCC
Canada’s food processing sectors continue to expand, yet the profitability outlook for each is uneven in 2019. Production challenges, trade uncertainty and higher input costs generally dampen this outlook, while expansion in export markets, strong household disposable income and a lower Canadian dollar will support revenues of food manufacturers.

Fruit and vegetable processing - Profit margins for fruit and vegetable processors improved slightly in 2018 as revenues increased faster than the cost of raw products. Margins are likely to remain positive in 2019 despite climbing operating costs, including labour and energy.

A tight labour market will continue to push wages higher and lead to continued robust consumer demand. Strengthening demand can support processors’ profits, but only if the upward pressures on wages that give rise to that demand don’t raise labour costs enough to offset its positive impact. Higher interest rates are likely to also pressure households’ budgets in 2019 and may deflate consumption of high-quality or expensive foods.

Potato processing - Strong demand for both fresh potatoes and french fries supported potato processing margins in 2018. Margins in 2019 are expected to soften due a higher average price for raw potatoes. Hot and dry conditions reduced 2018 yields, while a wet harvest resulted in an estimated unharvested 15,000 acres. Higher energy and labour costs will only exacerbate last year’s difficult crop by pinching margins further in 2019. 

To read FCC's full outlook on Canada’s food processing sector, CLICK HERE.

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