A leading Ottawa-based industry research and analysis think-tank predicts food manufacturers will make $1.8 billion in profits this year, and increases of 33 percent over the next four years.
The Conference Board of Canada says the food manufacturing sector remains stalled because of stagnant domestic market growth and a more valuable Canadian dollar that makes exports less competitive.
Still, a food industry outlook published by the conference board two weeks ago foresees profit growth in most sectors.
Revenues will grow by an average 3.6 percent annually over the next five years but cost increases also will be modest, said the analysis. This will lead to a steady improvement in profits.
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“After declining by more than 20 percent in 2005, dollar profits will rise by 2.6 percent to $1.8 billion in 2006. By 2010, profits are expected to reach $2.4 billion.”
The board also predicts that while the country’s food trade surplus will fall below $4 billion this year because a higher Canadian dollar makes imports less expensive, the trade surplus will grow to a record $6 billion by 2010.
Despite these positive predictions, the board sees the food manufacturing sector as troubled.
It reports unexceptional growth in revenues compared to other manufacturers, a stagnant domestic market, export prospects dampened by the strong Canadian dollar and an average output per employee that is 21 percent below the manufacturing sector average.
However, the higher Canadian currency has made imported equipment and machinery less expensive.
In 2005, there was a 12 percent increase in investment.
Still, compared to other manufacturing sectors, food industry investment lags by at least 30 percent.
The report described the Canadian food industry as a sector that has seen increased corporate concentration in the past few years. Three dairy companies process 70 percent of the milk produced in Canada, and the percentage of livestock killed in the country’s four largest plants increased from 66 percent to 91 percent during the past decade.
That manufacturing concentration is in part a reaction to the fact 90 percent of food retailing is concentrated in four supermarket chains, it said.
Food manufacturing is a sector that since the North American Free Trade Agreement took effect in 1994, has become increasingly dependent on exports to the United States. Exports now account for close to 30 percent of industry revenue and almost 70 percent of that goes to the U.S. market.
