Higher agricultural commodity prices were a key factor in shrinking food manufacturing sector profits last year, according to a Conference Board of Canada report published last week.
Despite a sharp increase in revenues to $84.3 billion, the industry saw costs increase at a faster pace in 2011 and before-taxes profits fall 0.8 percent to $4.46 billion.
This year will be a repeat with cost increases exceeding revenue growth and industry profits falling to $4.41 billion.
The conference board, an Ottawa-based economic research organization, predicts industry profits will rebound beginning next and could nudge above $5 billion by year 2016.
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Strong farmgate prices and rising oil prices are major ingredients in the industry outlook.
“Prices for key industry ingredients such as wheat, corn and animal products have all experienced large increases over the past year,” said the report. “The price of crude oil is also up 12 percent from where it was last year, which is affecting the delivered price for agricultural commodities and the industry’s transportation and energy costs.”
Over the next decade, the conference board projects that poultry prices will increase 50 percent with beef and pork likely to see increases between 20 percent and 30 percent. Wheat is projected to have only modest price growth of 10 percent by the end of the decade.
Beyond the bottom line, the report also noted that the food industry is changing to respond to evolving consumer demands.
Food manufacturing companies and food retailers are spending money to improve their environmental performance and image.
As an example, Coca-Cola has invested millions of dollars in three biotechnology companies developing plastic bottles made from plant-based materials rather than fossil fuel.
The report also said the food industry is increasingly recognizing the consumer demand for healthier food.
