Canada’s food manufacturing sector is largely recession-proof and will record healthy profits and little employment loss this year, the Conference Board of Canada says.
Food production will also remain stable, the private sector economic research organization concluded in a report published March 4.
The Canadian food industry outlook is remarkably optimistic as overall company profits, sales and share prices plunge and unemployment soars in the unfolding recession triggered by an economic meltdown in the United States.
“Food is one of the main recession-proof items,” the report said.
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“Food is also one of the most overlooked components of the economy. Farm production is still a significant contributor to Canada’s output and exports while food processing is the largest component of Canada’s manufacturing sector in terms of jobs.”
The conference board projects that overall industry revenues in 2009 will increase by almost $800 million to $80.2 billion while profits will fall more than $300 million from 2008’s record high to $4.3 billion.
Still, the profit margin will represent 5.4 percent of revenues, high by farm sector standards.
The board projects that employment in the food manufacturing sector will fall by just 9,000 this year in a manufacturing sector that is shedding tens of thousands of jobs a month. It predicts the overall unemployment rate will approach eight percent with hundreds of thousands of job losses, but the food sector will contribute little to that.
The board said there are a number of reasons why the food industry is expected to ride out the recession.
People still need to eat, whatever the economic conditions. Grocery store shoppers will react to growing joblessness and income decline by moving to lower-cost generic products from higher-priced brand name products.
“With the exception of full-service restaurants, the performance of most food-related businesses is largely independent of economic conditions,” the report said.
It noted that food manufacturers export only 28 percent of production compared to more than 50 percent for the overall manufacturing sector. As well, its exports are much less reliant on an American economy that is sharply declining.
For Canadian food manufacturers, there is both good and bad news in that analysis.
The sharp decline in the value of the Canadian dollar compared to the U.S. dollar makes Canadian exports to the U.S. more competitive than a year ago when the currencies were near par. As a result, more exports would mean more profit.
“(But) this benefit will be limited as the industry is not particularly export intensive,” the report said.
It projected that the rebound in industry sales and employment will begin next year, and the losses this year will be fully recouped by 2012.
Industry profits will remain below 2008 levels over the next four years but the conference board is still projecting more than $21.6 billion in industry profits to 2013.
It said food manufacturers’ profits soared more than 23 percent to $4.6 billion in 2008, more than double the $1.9 billion in profits recorded in 2005.
