Report on food manufacturing provokes debate

Tuesday, March 10, 2009

© AgMedia Inc.

by TREENA HEIN

Most sectors are having a tough time surviving – let alone thriving – in this economic climate, but food manufacturing (which does not include agriculture or retail sales), isn’t one of them.

That conclusion comes from the results of a new study by the Conference Board of Canada called Canadian Industrial Outlook: Canada’s Food Manufacturing Industry – Winter 2009.

The study found that total food consumption is not expected to drop significantly due to the recession.

It forecasts food manufacturing profits this year will come close to the record highs recorded in 2008. Profits are only expected to fall from their peak of $4.6 billion in 2008 to $4.3 billion this year and will remain close to that level throughout the next four years.

“No matter what happens, people need to buy food, so we don’t expect a significant decline in food product sales,” says Valerie Poulin, an economist with the Conference Board.

Kevin Grier, Senior Market Analyst at the George Morris Centre (an agricultural think tank based in Guelph), however, says the food manufacturing sector will be significantly affected by this recession. 

“This one is different [than previous recessions],” he says. “Consumers have reduced their expenditures and are being much more cautious about discretionary spending.” This means retailers will pressure processors to lower costs, he says.

Poulin says the Board anticipates profits will go down somewhat, because people are buying fewer name brands and more private labels. “The margins are lower for these products (private labels), with pretty much the same cost.”

Consumers may stop buying some products altogether, if they’re not a basic necessity, she adds. This includes items such as energy drinks and expensive snacks.

Grier says the recession will also limit the prices farmers can get for their commodities. “There’s a downward pressure on demand,” he says, “and that means there’s a reduced ability for the market to achieve higher prices for producers.”

Al Mussell, a Senior Research Associate at The George Morris Centre, says farmers here will also continue to be affected by the recession in terms of exports.

The economic slowdown in the United States has meant lay-offs in places like China, where many products sold in the United States originate. “The projected demands for food in key export markets like India and China are not as high as they were,” he says. “The lay-offs in these countries are affecting their middle classes and reducing demand for higher quality food products.”

Mussell says this recession will also affect farmers in terms of borrowing money and covering operating costs. “Credit is harder to come by,” he says. “Banks are being very cautious.” BF