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Food manufacturing a bright spot in Canadian economy

packed frozen food in a freezer in a supermarket

Canada’s manufacturing sector has been faced with a number of challenges over the past 10 years: A super-cycle in commodity prices, which caused fluctuations in the value of the Canadian dollar and hurt our competitiveness. Slowing labour productivity and aging infrastructure has resulted in tough decisions on plant investment. All of this is occurring at a time when foreign competition is emerging.

Despite these challenges, food and beverage manufacturing continues to shine in this difficult economic environment.

In between the commodity booms, the world economy went through a financial crisis that has hampered world growth and created volatility in currency values. Interest rates have also declined and remained near historic lows.

In the midst of this volatile economic environment, Canada’s manufacturing sector slowed. Economic activity reached a low in mid-2009. It has rebounded somewhat, but the gross domestic product (GDP) in overall manufacturing remains 10 per cent below the 2004 level.

The economic weight of Canada’s food and beverage manufacturing sector has followed a different path: It has weathered the macro challenges significantly better, with GDP being nearly 23 per cent higher in 2016 compared to January 2004 levels.

Based on growth through May, the food and beverage manufacturing sector is expected to grow 2.6 per cent in 2016 while manufacturing is only expected to expand 0.5 per cent in 2016. According to the Bank of Canada, Canada’s overall economy is expected to grow 1.3 per cent in 2016, more than one per cent slower than the food and beverage manufacturing sector.

The growing importance of food manufacturing can also be seen in a breakdown of manufacturing employment numbers.

Between 2004 and 2016, average monthly manufacturing employment has decreased 22 per cent, partly because of mechanization, but also due to the decline in economic activity. In comparison, the decline in employment has only been seven per cent in the food and beverage manufacturing sector.

Consequently, employment in food and beverage manufacturing as a per cent of total manufacturing has increased from 14 per cent in 2004 to 17 per cent in 2015. The food and beverage manufacturing sector is a bigger employer than the auto manufacturing sector and any other sector of manufacturing.

These positive trendlines for food manufacturers and exporters are expected to continue into the future.

The value of Canada’s food and beverage manufactured exports continues to increase, having grown an average of 4.5 per cent per year from 2004 to 2015, while total manufacturing exports increased an average of 1.5 per cent per year.

Canada’s food and beverage manufacturing sector continues to shine. And that’s despite global disturbances that put a dent in overall Canadian economic performance. Growing food demand abroad and evolving food preferences at home will bring many opportunities for Canadian manufacturing to grow more in the future. And the entire agri-food supply chain will benefit.

Craig Klemmer is a senior agricultural economist with Farm Credit Canada, specializing in monitoring and analyzing the economic environment and industry risk analysis.

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