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Food manufacturing profits continue to grow

Despite the rising cost of agricultural products and a slowdown in production growth, profits in Canada’s food manufacturing industry are expected to grow steadily over the next four years, according to the Conference Board’s Canadian Industrial Outlook: Canada’s Food Manufacturing Industry – Summer 2008. “Higher prices for wheat, corn and rice are increasing material costs for food manufacturers,” said Michael Burt, Associate Director, Industrial Outlook. “But manufacturers have been able to pass some of their costs on to consumers, which is maintaining the industry’s profit growth.” Although the industry is passing some cost increases onto consumers, its pricing power is being limited by the growing influence of large food retailers. Wal-Mart’s expansion into food retailing has prompted Canadian retailers to place additional pressure on manufacturers to contain costs.  The slowdown in the Canadian economy is expected to limit growth in consumer demand over the short-term, as some consumers respond by shifting to lower-priced food products. Changing diets is a longer-term trend shaping the industry, one which is helping certain industry segments. Fruit and vegetable processors and seafood processors, in particular, are benefitting from this trend that sees some consumers prepared to pay a premium for foods that are healthier and taste better. The recent listeria outbreak is not expected to affect the forecast. Although consumers may respond by altering their spending habits, any changes will result in a shift in market shares within the industry. 

Following two years of significant profit increases, profit growth will moderate starting in 2008. Profits will surpass $3.1 billion in 2008 and steadily increase over the next four years.