Canada’s food manufacturing sector overcame a strong Canadian dollar, soaring prices for grain and labour and a softening economy to post record profits last year, according to the Conference Board of Canada.
The Ottawa think-tank and business research organization said in a recent report that the industry recorded $3.36 billion in profits in 2007, 36 percent higher than in 2006.
It predicted a new record will be set each year for the next five years as profits exceed $4 billion by 2012. The previous record profit of close to $3 billion was recorded in 1999.
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The board said future profitability will be driven by increased production, more sales to emerging world markets and higher prices.
The conference board said the soaring value of the Canadian dollar in 2007 reduced the value of Canadian food exports that are sold in American dollars. However, the stronger dollar also reduces the cost of imported ingredients used in food manufacture so the currency fluctuation impact was largely neutralized.
Record grain prices are a different matter. The report attributed it mainly to the demand for grain as a biofuel feedstock.
Board economist Valérie Poulin said manufacturers have little choice but to pass those rising input costs on to consumers.
“Rising costs continue to put pressure on food manufacturers,” she said in a statement issued by the conference board. “Higher prices for products used to make ethanol, such as corn and sugar, are driving up material costs for manufacturers so consumers should expect higher food prices.”
According to the board projection, prices for manufactured food products increased 3.6 percent last year, almost double the general inflation rate. However, it projects price increases during the next five years at between 1.7 and one percent.
“We are expecting that grain prices will more or less stabilize after the spike this past year so that would lead to a flattening out of price increases,” the board’s media relations official Brent Dowdall said Feb. 22.
The report said the meat processing sector, Canada’s largest food manufacturing sector, is looking at an increase in production of almost six percent this year, fueled by growing demand for meat protein from domestic and offshore consumer populations with increasing disposable incomes.
Although the analysis did not raise the issue, the current collapse of cattle and hog prices will lower processor input costs, likely boosting their 2008 profit margins.
The board predicts that food manufacturing sector profit margins will be in the four percent range for the next five years.
