by PATRICIA GROTENHUIS
Increased profits during a recession are uncommon, but Canada’s food manufacturing industry accomplished the feat in 2009.
A report written by Kevin Grier, senior market analyst at the George Morris Centre, states food manufacturers saw profits increase by 13 per cent over 2008, but cautions the good times are likely already over.
“Looking ahead to 2010, food manufacturers are going to face challenges on the commodity front, as well as on the finished goods side,” said Grier’s report.
Contrary to popular belief, Grier’s report states, the food industry is not recession-proof. However, it is less vulnerable to economic downturns than the manufacturing industry as a whole. People must continue to buy food regardless of the economy; however in tough times they will stop buying the extras they may have enjoyed for years, and will look for less expensive alternatives.
Those 2009 profit increases were due in part to the recession causing overall manufacturing cost decreases and reduced raw material costs. Grier says Statistics Canada reports indicate that during the past decade manufacturing in general enjoyed annual margins of seven per cent, while the food industry was experiencing margins of five per cent.
Grier cites manufacturing margins dropping to six per cent through 2009 while food industry margins rose to seven per cent as reported by Statistics Canada.
He writes that is in spite of a Statistics Canada report shows food industry wages increased on average by two per cent while manufacturing as a whole saw no change in wages.
Now that the recession effect is easing, manufacturing costs will again be going up for the food industry. In addition, other factors will impact on the profits of the food industry during 2010.
Commodity costs are starting to climb again, and retailers are expected to be more reluctant to absorb increased costs. Wal-Mart is expected to expand, which will further intensify the pricing competition according to Grier.
Food price increases are expected North America wide. Grier’s report cited two articles in the Wall Street Journal. On Feb. 26, the newspaper’s analysts predicted that if food manufacturers passing on their costs, food prices will increase by 2.5-4 per cent.
That might not be happening. On March 5 the newspaper said manufacturers are offering more coupons and promotions to draw consumers back from less expensive private label products. BF
