Food Manufacturers Thrive In Recession

Food manufacturers are pulling through the economic recession with minimal damage because both domestic and export demand for their products remains strong, the Conference Board of Canada says.

“Consumers have substituted lower-cost and store-brand foods, which usually mean lower margins for food manufacturers,” says a report released by the board. “Fortunately, exports of manufactured food products are holding up well, partly because Canada has been successful in penetrating new markets, such as China and Mexico. Also, the drop in commodity and oil prices has pushed down input costs.”

The industry does face several challenges, the report continues. “Many of the underlying factors that drove prices higher in 2007 and 2008 are still present, and once the global recession is over, commodity prices are likely to rise again.” As well the loonie is likely to remain at par with the U. S. dollar, which will impair sales in the United States. That will add further impetus to diversification of food exports.

Among the other factors the industry must contend with are unfavourable weather conditions in Brazil and India that have driven the price of sugar higher, resulting in increased costs and smaller margins, the report observed. Trade restrictions on food imports, such as the bans on Canadian pork by Venezuela, China, and Russia in response to H1N1, limit the opportunities for export growth.

At the same time, “consumer tastes are constantly changing. Companies that can take advantage of increasing interest

in healthful and convenience foods will benefit,” it said. “Canada’s ethnic mix is changing, creating new demand for niche products.” However, if Canadian producers are too slow to change their product mix, imports of food products could surge.

On the plus side, food companies “have been able to attract consumers to new higher value-added products with higher margins by providing increased convenience or food with greater health benefits,” the report adds.

While there are some major players in the business such as McCain Foods and Maple Leaf Foods, “about half the companies are small with fewer than 10 employees,” the report states. “Small companies are mainly concentrated in the animal feed, seafood, and bakeries segments, while the larger firms are mainly producers of meat products, processed fruits and vegetables, and grain and oilseed products.

“Larger firms are more common in segments with higher capital requirements, where there are returns to scale, or where branded consumer products are more common,” it said. “Concentration in the industry has been rising in response to the high degree of concentration among food retailers.”

In terms of sales, the other top food companies are Saputo Inc., PepsiCo, Agropur Cooperative, Parmalat Canada, Olymel, Cott Corp, SunOpta and Connors Brothers.

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