E 2023 Food Beverage Report

FCC FOOD AND BEVERAGE REPORT 2023
P u b l i s h e d o n M a rc h 2 8 , 2 0 2 3
FA R M C R ED I T C A N A DA
Contents
1 Summary
6 Grain and oilseed milling
9 Sugar and confectionery products
12 Fruit and vegetable preserving and
specialty food
15 Dairy products
18 Meat products
21 Seafood preparation
24 Bakery and tortilla products
27 Soft drinks and alcoholic beverages
– D –
SUMMARY
Inflationary pressures hit the Canadian economy in 2022, and the food sector was not immune to the effects. Factors
behind food inflation abound. A 2021 drought reduced overall crop production in North America, while the war in
Ukraine impacted grain movement, causing commodity prices to rise. Consumers started the year by spending their
built-up savings from the previous two years. The labour market tightened as businesses looked to boost production
to meet growing consumer demand, causing unemployment to reach record lows and increasing wages. The Bank of
Canada, in response to inflation, repeatedly raised its benchmark interest rate, applying further pressure on business
borrowing costs.
Pressures on manufacturing profitability contributed to higher food prices
These higher costs pressured food and beverage manufacturing margins. Gross margins as a percent of sales fell to
their lowest level in over 20 years in 2022 (Figure 1). Manufacturers have always struggled to pass on higher costs,
yet this supply chain feature took a stranglehold in 2022. FCC Economics is forecasting gross margins to improve
slightly in 2023. It’s important to note that at the industry level, the results differ widely.
Figure 1: Gross margins declined to record lows in 2022; small gain projected in 2023
Gross margin percent index (2019 = 100)
102
100.9
100.0 100.2
100
98 97.2
96
94
92
90 89.2 89.6
88
86
84
82
2018 2019 2020 2021 2022 2023f
Source: FCC Economics, Statistics Canada

– 1 –
Despite efforts to keep costs and selling prices down, margin pressures forced an increase in prices of 10.2%
(Table 1). All factors considered, retail food prices increased 8.9% year-over-year (YoY), the fastest rate since 1981.
Table 1: Most economic indicators were unsustainably high in 2022
Economic indicators (monthly or quarterly YoY% YoY%

2022 2021
averages) change change
Food manufacturing price index

122.3 10.2 111.0 8.6
(Jan 2020 = 100)
Beverage manufacturing price index (Jan

110.3 9.1 101.1 0.8
2020 = 100)
All-item CPI (2002 = 100) 151.2 6.8 141.6 3.4
Food CPI (2002 = 100) 171.5 8.9 157.5 2.5
Total employment all industries 17,180,645 6.2 16,176,723 5.7
Food and beverage manufacturing
299,994 1.7 294,937 5.0
employment
Weekly employee earnings all industries ($) 1,165 3.2 1,129 3.1
Weekly employee earnings food

1,042 10.6 942 -4.1
manufacturing ($)
Disposable income ($ millions) 1,519,008 5.2 1,444,568 4.1

Saving rate (%) 6.0 -5.0 11.0 -3.3
Source: Statistics Canada (employment numbers exclude self-employment)
Manufacturing domestic and export sales meet some headwinds
While food and beverage manufacturing sales measured in dollars increased 10.6% YoY in 2022 (Table 2), sales
volume rose modestly (under 1%). At the retail level, food service sales in dollars grew just under 27%, while food
and beverage retail store sales increased by 2%. And while export dollars grew at a healthy pace of just under 14%
YoY, volume declined over 3% to below 2020 levels. Food import volume grew over 5%, with total dollars increasing
18% YoY, indicating a weakening food trade balance.

– 2 –
Table 2: Growth in manufacturing sales and exports hid limited gains in volume domestically
and in export markets
All figures in millions $ 2022 YoY% change 2021 YoY% change
Food and beverage manufacturing sales 156,224 10.6 141,262 14.5
Food and beverage exports 54,255 13.9 47,626 16.7
Food and beverage imports 44,920 18.2 38,003 3.5
Food trade balance 9,336 -3.0 9,624 135.5
Food and beverage retail store sales 145,744 1.8 143,144 0.2
Foodservice sales 82,928 26.6 65,493 18.2
Total estimated food retail sales 228,672 9.6 208,637 5.2
Source: Statistics Canada
As the year progressed, higher food prices and declining savings led consumers to cut back on discretionary
spending. This meant fewer purchases of premium-priced foods, including smaller-batch and locally made foods
for which manufacturers couldn’t lower costs and control prices. Consumption of Canadian-made food in 2022
(measured in dollars relative to total consumption) reverted to the trend observed before the pandemic. A larger
percentage of food dollars spent in Canada was allocated toward imported foods (Figure 3). Several economic and
demographic factors dictated consumer food purchases. As the Canadian population becomes more diversified, food
purchases are also diversifying, which could be an opportunity for domestic food manufacturers. FCC Economics
estimates that had Canadian manufacturers been able to meet the same level of domestic demand as in 2021, total
sales would have been over $2.3 billion higher in 2022.

– 3 –
Figure 2: Canadians consumed more imported manufactured food in 2022
Change in the market share of domestic

manufactured food and beverage
Percent
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
2016 2017 2018 2019 2020 2021 2022
This decline in domestic sales has predominantly impacted smaller businesses. In 2021 as the pandemic surged,
consumers supported local small businesses – 2022 erased most of the gains they had made. The Canadian
small-business market share in food manufacturing was 8.5% in 2021, but by the end of 2022, that is estimated to
have slipped further. Breweries and distilleries are the only industries with consistent small business market share
growth in recent years.
Sales growth projected to slow in 2023
Sales growth decelerated in Q4 2022, with several categories reporting sales declines YoY in December. This
deterioration in growth is injecting uncertainty into our projections. FCC Economics forecasts food manufacturing
sales to increase 2.2% YoY in 2023 to $160B. Any rebound in the deceleration observed at the end of 2022 could lift
these projections. We expect the larger industries covered in this report – like grain and oilseed milling and meat
product manufacturing – to outperform, while animal food, plant-based protein products, seasonings/dressings and
snack products (not covered) to record declines.

– 4 –
Figure 3: Food and beverage manufacturing sales projected to increase 2.2% in 2023
Annual manufacturing forecast, millions $

YoY % change
180,000
10.6 2.2
160,000
14.5
140,000
3.3 2.9
3.7
120,000
100,000
80,000
60,000
40,000
20,000
0
2018 2019 2020 2021 2022 2023f
Source: FCC Economics, Barchart, Statistics Canada, Moody’s Analytics
Economic conditions have evolved in early 2023, and the food manufacturing sector is expected to evolve from
predominant supply obstacles and disruptions to demand challenges caused by lower consumer purchasing power.
Weaker demand, lingering supply and labour challenges, and tighter financial conditions have directly impacted
retailer and service establishments, with 863 restaurants closing between June and November 2022. We don’t
expect short-term relief in labour challenges or interest rates, and international tensions in Asia and Eastern Europe
remain an obstacle for trade.
We shouldn’t lose sight of existing opportunities, however. Consumer demand for affordable, convenient and
sustainably produced foods remains strong. Meeting sustainability demands while keeping consumer costs low and
affordable will go a long way toward growing the sector.

– 5 –
GRAIN AND OILSEED MILLING
Stronger crop yields and domestic population growth are key drivers.
FCC Economics projects sales from the grains and oilseeds milling industry to increase 4.6% in 2023 (Figure A.1).
Figure A.1: Grain and oilseed milling sales expected to increase 4.6% in 2023

YoY % change
25,000
4.6
25.1
20,000
38.9
15,000
10.4 6.4
-2.2
10,000
5,000
0
2018 2019 2020 2021 2022 2023f
Source: FCC Economics, Barchart, Statistics Canada, Moody’s Analytics
Sales growth is projected to be strongest in the first half of the year, increasing 15%. As 2023 unfolds, that growth
will likely subside and dip below zero in Q4 from lower prices. Because industry prices are correlated to commodity
prices, YoY higher crop yields in 2022 pressured some crop prices lower, leading to decreased costs for the industry.
This is expected to eventually lead to lower selling prices. The USDA has wheat and oilseed global supply increasing
in 2023.
Volume growth may depend on continued export growth to the U.S. and China – but that’s uncertain. The lower
exchange rate in 2022 made Canadian products more attractive in a high-cost U.S. environment, making it easier
for businesses to successfully increase prices. Chinese imports of Canadian grain and oilseed products increased
a whopping 117% YoY since August after China lifted a ban on Canadian canola and started to ease their domestic
pandemic policies. Representing 15% of all Canadian sales, the growth rate will unlikely continue. Weaker economic
growth globally could also lower export opportunities. Instead, volume growth will likely be tied to Canadian factors
such as population growth and retail prices.
Gross margins are expected to strengthen in 2023 after seeing some growth in 2022 (Figure A.2). Much like sales,
margin growth is expected to be greatest in the first half of the year. Crop prices have fallen more than manufacturing
selling prices, leading to strong margins expected to erode as 2023 progresses.

– 6 –
Figure A.2: Gross margins projected to strengthen in 2023 amid downside risks
Index of gross margin % of revenue (2019 = 100)
110
108.6
108
106
104.5
103.6
104
101.7
102
100.0 100.4
100
98
96
94
2018 2019 2020 2021 2022 2023f
How we got here: Record prices drove sales growth in 2022
Sales increased 25% in 2022 (Table A.1). Gains were largely a result of record prices, which increased 23%. The war
in Ukraine and the 2021 North American drought pressured grain and oilseed prices higher. Strong demand allowed
businesses to pass on higher costs to customers, and higher foodservice volumes drove the remaining balance of
higher sales.
Table A.1: Grain and oilseed product sales continued their strong growth in 2022
Grain and oilseed milling [3112]

2022 YoY % change 2021 YoY % change
quick facts
Sales ($ millions) 20,507 25.1 16,397 38.9
Exports ($ millions) 13,140 26.5 10,385 26.2
Imports ($ millions) 5,789 28.9 4,492 1.8
Trade balance ($ millions) 7,350 24.7 5,893 54.4
Weekly earnings including OT ($) 1,192 1.5 1,175 -23.0
Business counts (December) 296 2.5 287 3.1
Selling prices (index, Jan 2020 = 100) 169 23.3 137 31.8

– 7 –
Retail grocery volumes declined in 2022 as more people ate at restaurants compared to the pandemic-impacted
2021, and higher grocery prices shrunk consumer purchases. According to data from Nielsen IQ, grain and oilseed
product prices at grocery stores inflated 13% in 2022 YoY. Margarine led inflation of food items at over 32%, with
sales values increasing 25% while volumes declined 6%. Flour was one of the only categories with positive volume
growth, rising 3%. Edible oil prices rose 21% as volumes declined 5%.
Industry wages were above average, yet employee weekly earning growth in 2022 was below the average of food
manufacturing overall (rising only 1.5% YoY). That compares favourably with 2020, when sector employee earnings
rose nearly 20% as businesses increased wages during the pandemic.
Bottom line
• With strong demand for flour and edible oils from downstream food and beverage manufacturers, retail and foodservice,
the grains and oilseeds milling industry is poised for growth.
• Consumer interest in convenience and sustainability (for example, sourcing more local grains and oilseeds) drove the success
of this year’s domestic consumption.
• Healthy grain and oilseed products continue gaining traction at home and abroad, and Canada’s manufacturing capacity
is positioned to expand.

– 8 –
SUGAR AND CONFECTIONERY PRODUCTS
Sales and margin growth forecasted to be weak in 2023
FCC Economics projects sales from the sugar and confectionery product industry to decline 1.3% in 2023.
(Figure B.1).
Figure B.1: Sugar and confection product sales expected to decline in 2023

YoY % change
6,000
15.5 -1.3
5,000 15.2
7.2
-4.2 -7.1
4,000
3,000
2,000
1,000
0
2018 2019 2020 2021 2022 2023f
Source: FCC Economics, Statistics Canada, Barchart, Moody’s Analytics
Sales growth momentum has significantly eased towards the end of 2022 after rising 25% in Q2 and 10% in Q3. As
2023 progresses, we expect volume growth to be low to negative. Export volume growth is expected to substantially
slow on lower U.S. demand, creating headwinds for 2023 sales. We’re projecting lower sugar prices as the global
balance between supply and demand of raw sugar moves into a surplus, driven by strong Brazilian production.
Gross margins are also forecasted to weaken slightly in 2023 (Figure B.2). Raw material costs rose 29% in 2022,
given the lower exchange rate that made imported sugar more expensive. Other commodities, such as butter, cocoa
and packaging materials, also recorded price increases. We expect input price inflation to subside in 2023, but costs
will still outweigh possible increases in selling prices. There is an opportunity for margin improvement as the year
progresses if the value of the Canadian dollar rises.

– 9 –
Figure B.2: Gross margins in sugar and confection are forecasted to decline in 2023
120
108.0
100.0
100 93.8
80
64.9 67.8
61.7
60
40
20
0
2018 2019 2020 2021 2022 2023f
How we got here: A normal year of holiday selling
Sales increased over 15% YoY in 2022 to $5.2 billion (Table B.1). Fuelled by an 8% price increase, a rebound in
volumes driven by foodservice and strong holiday demand, 2022 was the second consecutive year with sales growth
above 15%. Chocolate ranked in the top 10% of total grocery volume growth among all food and beverage
categories.
Table B.1: Higher volumes boosted sales in 2022
Sugar and confectionery product manufacturing [3113]

quick facts
Sales ($ millions) 5,234 15.5 4,533 15.2
Trade balance ($ millions) 198 -12.0 225 -5.8
Weekly earnings including OT ($) 1,104 14.0 968 -2.2
Business counts 581 7.4 541 -1.5

– 10 –
Healthy choices remain a key trend in Canada, but according to Mondelez, 78% of people believe “it’s more
important than ever to have moments of indulgence in the day.” In 2022, Canadians took that to heart, fully
celebrating all traditional holidays for the first time in three years.
According to data from Nielsen IQ, grocery sales of sugar and confectionery products increased 6% in 2022 YoY,
outperforming total food sales by 5%. Volumes declined 1% overall, but we did see gains in several categories,
including gum (11%), frozen juice pops (6%), drink mixes (4%) and candy/chocolate (2%). More expensive products,
like maple syrup (-9%) and sugar substitutes (-20%), saw the steepest volume declines. Refined sugar volumes
declined under 1%, with price inflation of 10%.
Anti-dumping duties on imported sugar from the U.S. and the EU contribute to a tight domestic supply of sugar
available for processors. Imports of confectionery products from the U.S. grew 11% YoY in 2022. Manufactured
sugar imports grew by 22% YoY, led by Guatemala and El Salvador. Chocolate exports grew 14% YoY. Import growth
outpaced export growth for total sugar and confectionery products for the second year.
Bottom line
• Sugar and sugary production consumption has been declining per capita. However, indulgence will continue, and a growing
domestic population will provide growth opportunities.
• The number of confectionery imports from the U.S. proves there are ample opportunities to meet robust demand
for indulgence.
• Growth can also exist in the international markets as global disposable incomes rise.

– 11 –
FRUIT AND VEGETABLE PRESERVING AND SPECIALTY FOOD
Sales growth expected to be strong in 2023; margin pressure to continue
FCC Economics projects fruit and vegetable preserving and specialty food industry sales to increase 5.8% in 2023
(Figure C.1). This industry includes canned and frozen fruits/vegetables, baby food, french fries, soups, juice and
specialty foods like frozen dinners/pizzas.
Figure C.1: Fruit, vegetable and specialty food sales expected to increase 5.8% in 2023

YoY % change
120,000
5.8
10,000 11.3
8.3 -0.8
15.1 0.2
8,000
6,000
4,000
2,000
0
2018 2019 2020 2021 2022 2023f
Growth is expected to be strongest in the first half of 2023, growing around 8% YoY and building off strong sales in
the second half of 2022. With consumer purchasing power tightening, sales of canned and preserved products have
improved. Product innovation focused on healthy options will drive strong frozen foods sales. The Canadian exit of
some imported Nestlé products could create opportunities for domestic manufacturers. With the cost of shipping
frozen foods rising dramatically since the pandemic, we expect domestic sales to increase as more businesses look
for local manufacturers with lower transportation costs.
While gross margins are forecasted to deteriorate further in 2023 (Figure C.2), we expect to see margin growth
in the second half of the year. More frozen and specialty foods are in the market now than ever, and this increased
competition has come with weaker margins. We expect margins to improve as penetrating pricing strategies on new
products lessen and capital investments increase productivity. A caveat: the industry’s broad scope and continuous
innovation make it difficult to compare profitability over time.

– 12 –
Figure C.2: Margins have steadily declined as the industry expands into higher volume categories
120
100.0 100.0 98.0
100 90.7 87.7
83.1
80
60
40
20
0
2018 2019 2020 2021 2022 2023f
How we got here: Shift from fresh to preserved
In 2021, customers preferred fresh produce and homemade meals because of pandemic apprehension and higher
disposable incomes. Delivered home meal kit sales were strong, providing competition to this industry. In 2022, food
inflation pushed consumers towards preserved foods and away from more expensive fresh foods. Sales increased
11% YoY in 2022 after declining 1% in 2021 (Table C.1). Price inflation was the biggest reason for the increase, rising
just under 10% for the year.
Table C.1: Sales rebounded in 2022 after a weaker 2021
Fruit and vegetable preserving and specialty food

manufacturing [3114] quick facts
Sales ($ millions) 9,667 11.3 8,682 -0.8
Imports ($ millions) 5,561 16.5 4,773 -3.9
Trade balance ($ millions) -166 -60.2 -418 -56.5
Weekly earnings including OT ($) 1,132 13.9 993 3.2
Business counts 620 6.3 583 1.4

– 13 –
According to grocery data from Nielsen IQ, preserved fruit and vegetable products (canned, bottled, frozen, etc.) and
frozen specialty food (frozen dinners, entrees, etc.) volumes declined. But they declined less than total food, and
fresh food volumes fell. Volume growth improved within the industry as the year progressed, mostly from cheaper
products with lower margins.
Margins were negatively impacted by consumers shifting to lower value-add products along with higher material
and labour costs. Industry wages increased under 14% YoY, 4 percentage points more than the food
manufacturing average.
Bottom line
• A focus on promoting convenience, nutritional enhancements and affordability will continue to attract consumers –
an important consideration as households’ savings dissipates and consumer spending slows.
• With the market share of domestic Canadian manufacturers declining over 4% YoY in 2022, now representing less than
44% of total sales, opportunities exist to replace imported product market share.

– 14 –
DAIRY PRODUCTS
Value-added dairy products driving growth
FCC Economics projects dairy product industry sales to increase 8.0% in 2023 (Figure D.1).
Figure D.1: Dairy product sales expected to increase 8% in 2023

YoY % change
21,000
8.0
18,000 7.7
8.6 1.5
4.2
15,000 -3.9
12,000
9,000
6,000
3,000
0
2018 2019 2020 2021 2022 2023f
Sales growth is expected to be the strongest in the first half of the year, largely the result of higher manufacturing
prices amid inelastic demand. Retail demand for value-added dairy products like cheese, butter and enhanced milk
remains strong, and restaurant demand is growing. We expect volume growth to be in the low-single digits overall,
dragged down by the low growth of fluid milk volumes.
Gross margins are projected to decline slightly in 2023 (Figure D.2). Margins on high-volume dairy products like
cheese and butter are expected to be strong, and if those volumes increase, it could lead to higher industry margins.
Manufacturers have been able to pass through higher butter costs to consumers, given that prices of substitutes like
margarine have also recorded strong inflation. Retail butter prices rose 8.6% in 2022 compared to margarine inflation
of 29.9%.

– 15 –
Figure D.2: Dairy manufacturing margins fell slightly in 2022

104
103.2
103
102
101.2
101
100.0
100
99 98.7
98.5 98.3
98
97
96
95
2018 2019 2020 2021 2022 2023f
How we got here: A double-dip milk cost increase in 2022
Industry sales grew just under 8% in 2022 YoY (Table D.1), with higher prices leading the growth, stemming from
two increases in butter support prices mandated by the Canadian Dairy Commission. Demand is strong for products
like creamers, products for lactose intolerant consumers, infant formula, ice cream and cheese; these will likely drive
growth in 2023. Infant formula was in the top 5% of best-performing grocery volume growth categories in 2022.
Canadian retail dairy prices rose 8.6% in 2022, compared to 12.0% in the U.S. and compared to the United National
global estimation of 19.6%. Consumer prices rose faster than manufacturer selling prices for the fourth consecutive
year, as retailers increased prices faster than the products’ cost had risen. We expect retail dairy inflation to moderate
in 2023 but remain above the five-year average of 1.3%.

– 16 –
Table D.1: Higher prices and foodservice volumes drove sales growth in 2022
Dairy product manufacturing [3115] quick facts 2022 YoY % change 2021 YoY % change
Sales ($ millions) 17,384 7.7 16,141 1.5
Exports ($ millions) 1,153 28.6 896 1.1
Trade balance ($ millions) -338 3.7 -326 40.2
Weekly earnings including OT ($) 1,134 5.7 1,073 -5.6
Business counts 573 7.5 533 -1.1
While sales grew in 2022, many items reported volume declines, according to data from Nielsen IQ. Grocery fluid
milk volumes fell 3% in 2022 but were offset by higher value-added volumes in foodservice. Dairy alternatives like
oat milk also had volumes fall 3%. The price of oat is down over 40% YoY which could make oat-made dairy
alternatives more competitively priced than dairy. Although alternative dairy products are expanding and have taken
up more shelf space in stores, traditional milk is holding its own with innovative products like ultrafiltered, lactose-
free and high-protein varieties. These products offer the dairy industry a growth opportunity.
Gross margin as a percent of sales decreased modestly in 2022 on higher labour and raw fluid milk costs. The labour
market was difficult in 2022, but sector-wide efficiencies allowed gross output per employee to rise over 14% YoY.
Wages grew by over 5%, below the food manufacturing industry average. The total number of dairy manufacturers
grew by 40 YoY, with increases across all business sizes.
Bottom line
• Monitoring trends in consumption preferences will be key to success.
• Evolving demand from foodservice channels for value-add dairy products shows potential.
• Keep an eye on growth in alternative beverages and consider strategies to maintain market share.
• Increasing input costs and inflation will pressure gross margins in the year ahead.

– 17 –
MEAT PRODUCTS
Sales growth to come from both strong export demand and domestic population growth
FCC Economics projects sales from meat product manufacturers to increase 2.5% in 2023 (Figure E.1).
Figure E.1: Meat product sales are expected to increase 2.5% in 2023

YoY % change
45,000
9.4 2.5
40,000
15.8
35,000
1.4 3.5
4.7
30,000
25,000
20,000
15,000
10,000
5,000
0
2018 2019 2020 2021 2022 2023f
Meat products export growth is expected to rebound in 2023 after a weaker 2022, amid risks that demand weakens.
Pork exports to China are expected to be limited, given their herd rebuild, while a weaker global economy could
dampen the outlook for export growth.
The outlook for domestic meat consumption is also uncertain. Inflation will likely encourage consumers to choose
cheaper cuts of meat and other protein sources. According to the Organization for Economic Co-operation and
Development’s (OECD) 2022 outlook, Canadian per capita beef consumption is forecasted to decline 1% in 2023
compared to global consumption projected to be flat. Domestic per capita pork consumption is forecasted to be flat
and to rise 2% YoY globally. Canada’s per capita chicken consumption is forecasted to rise 1% and be flat globally.
Canada’s meat sector volume growth will have to come from population growth. We expect manufacturing price
inflation in 2023 to remain roughly in line with 2022.
Margins are forecasted to decline in 2023, continuing the weakness in Q4 2022 (Figure E.2). Higher prices for live
animals are the leading cause of expected margin erosion. Consumers eating cheaper cuts of meat also negatively
impact margins, as higher value cuts are sold at generally higher margins.

– 18 –
Figure E.2: Margins increased for a second straight year in 2022, led by beef
104
103.1
103
102 101.8
101.1
100.9
101
100.0
100
99.2
99
98
97
2018 2019 2020 2021 2022 2023f
How we got here: Rebound in restaurant sales
Meat product manufacturing sales increased over 9% YoY in 2022 (Table E.1), largely due to stronger domestic
sales (up 12%), led by foodservice growth. Prices were stable compared to many other industries, rising 1.8% YoY.
Canadian retailer prices rose 8.1% in 2022. The discrepancy was largely the result of delayed price increases after
manufacturing prices rose 12% in 2021. Nonetheless, Canadian consumer meat prices rose less than in the U.S.
and abroad. According to the UN, global meat prices rose 10.4% YoY in 2022.
Table E.1: Sales growth driven by increased domestic consumption
Meat product manufacturing [3116] quick facts 2022 YoY % change 2021 YoY % change
Sales ($ millions) 38,986 9.4 35,645 15.8
Trade balance ($ millions) 6,188 -4.2 6,462 21.1
Weekly earnings including OT ($) 1,016 6.8 951 -5.7
Business counts 984 -1.4 998 -1.8

– 19 –
Domestic sales picked up as export growth slowed. China, which represented 5% of all Canadian beef exports in
2021, banned the import of Canadian beef in late 2021, resulting in those exports falling towards zero in 2022. Overall
pork export values declined 6% YoY in 2022, again led by China, where Canadian exports declined 48% YoY.
Increases in the U.S. and Mexico partially offset that decline.
The story was mixed for domestic grocery volumes. According to Nielsen IQ data, pork was a bright spot, with
volume sales growing over 1% YoY. But meat product grocery volumes declined 3% in 2022, with beef and veal
volumes declining over 4%. Higher chicken retail inflation (due to the impact of Avian Influenza disrupting supply)
generated a decline in chicken volume sales smaller than beef.
2022 meat manufacturing industry profitability was mixed. Margins were healthy across all three major proteins but
experienced notable weakness at the tail end of the year. Raw chicken prices rose 11% YoY in 2022 after rising 13%
YoY in 2021. Cattle prices rose 16% YoY after rising 9% YoY in 2021, while hog prices rose 7% YoY after rising 29%
YoY in 2021. Canadian manufacturers managed higher costs and prevented retail prices from climbing even more
than observed at retail.
Bottom line
• The past few years have entailed a balancing act for meat manufacturing. Canadians still have strong preferences for meat
amid a desire to diversify their food basket and alternatives that have emerged.
• L abour challenges in the industry led to higher wages and strengthened benefits packages to attract new employees, with
industry employee earnings growing over 7% YoY.
• The number of meat manufacturing businesses declined by 14%, with the reduction of small and independent manufacturers.
• The year ahead looks bright if a significant slowdown of the Canadian and global economies can be avoided: inflation is
expected to subside, and meat sales look robust, driven by foodservice, convenience meat products and exports.

– 20 –
SEAFOOD PREPARATION
Despite a challenging year, demand remains strong

FCC Economics projects seafood product preparation and packaging industry sales to increase 9.8% YoY in 2023 but
remain 5% below the 2021 level.
Figure F.1: Seafood product industry sales are expected to increase just under 10%

YoY % change
7,000 24.5
9.8
6,000 15.7 -13.7
-10.0
-8.3
5,000
4,000
3,000
2,000
1,000
0
2018 2019 2020 2021 2022 2023f
Sales growth is expected to be weak in the first half of the year before picking up in the summer. We expect sales
growth primarily driven by depleting historically strong inventories, higher lobster/crab exports to the U.S. and China,
and strong salmon demand from the U.S. and UK. The inventory-to-sales ratio averaged 171% in 2022, the highest
ever. We expect to see improved domestic retail demand for seafood in 2023 after a difficult 2022 amid elevated
food inflation.
Supply is difficult to forecast as marine conservation policies are evolving and undergoing reviews. Policy decisions
can have a material impact on sales, creating uncertainty in the forecasts. Yet we expect selling volumes to increase
in 2023 due to robust global demand.
This strong demand is expected to improve gross margins in 2023 (Figure F.2). Our tracked index of raw fish,
crustaceans and shellfish prices is projected to decline. We expect manufactured seafood export prices to remain
relatively strong in 2023 due to a weaker loonie, helping margins. Labour costs as a percent of sales are also
expected to decline slightly.

– 21 –
Figure F.2: Seafood product margins declined in 2022, expected to improve in 2023
120
109.7
103.2 101.1
100.0
100
89.0 90.6
80
60
40
20
0
2018 2019 2020 2021 2022 2023f
How we got here: Lower production numbers led to export declines
Seafood product preparation and packaging sales declined nearly 14% in 2022 (Table F.1) due to weaker exports.
Salmon, lobster and crab export volumes declined YoY, and the closure of a salmon manufacturing plant in Surrey
directly impacted sales. On the east coast, many operators were hit hard by Hurricane Fiona.
Table F.1: Lower exports resulted in a year-over-year sales decline
Seafood product preparation and packaging [3117]

quick facts
Sales ($ millions) 5,605 -13.7 6,497 24.5
Exports ($ millions) 5,534 -10.2 6,161 41.6
Trade balance ($ millions) 1,239 -51.9 2,575 135.6
Weekly earnings including OT ($) 1,073 5.8 1,014 12.2
Business counts 546 -1.3 553 -4.5
Selling prices (index, Jan 2020 = 100) 103 8.0 95 -1.8

– 22 –
The U.S. increased imports of seafood products by 1% in 2022, while imports of Canadian products fell 9%. One of
the largest discrepancies was in salmon, where the U.S. increased its quantity of imported salmon (both fresh and
prepared/frozen) by 3%, but Canadian salmon imports declined 13%. The U.S. imported more from Chile, Norway
and Denmark due to lower Canadian supplies. Lower crustacean imports from the U.S. resulted from weaker
demand, with total imports declining 19% and imports of Canadian crustaceans falling 12%.
Lower domestic grocery sales also didn’t help. According to data from Nielsen IQ, grocery volumes of seafood
declined 11% YoY. The higher price point of seafood relative to other proteins during this period of elevated inflation
hindered sales. Sushi was the only category to see positive volume growth, while fresh seafood recorded a volume
decline of 19%. Canned salmon and tuna volume declined 4%, while frozen seafood volume fell 9%.
Bottom line
• Foodservice demand and export markets are paramount to Canada’s seafood industry success.
• These two channels provide significant sales opportunities that can drive volume, especially for premium products like
salmon, lobster and crab.
• Production headwinds exist, but the global demand for sustainable seafood produced in Canada is very robust.

– 23 –
BAKERY AND TORTILLA PRODUCTS
Baked goods expected to be food and beverage sector leader for growth in 2023
FCC projects sales from bakery and tortilla product manufacturers to increase 5.4% in 2023.
Figure G.1: Bakery and tortilla sales are expected to increase 5% in 2023
YoY % change
18,000 5.4
14.9
16,000
11.8
14,000 13.2 -0.9
12,000 4.3
10,000
8,000
6,000
4,000
2,000
0
2018 2019 2020 2021 2022 2023f
Elevated consumer inflation seems to have had little impact on bakery sales. Industry sales are expected to be the
strongest in Q2 as cost increases withheld during the retailer holiday cost blackout period between November and
January start getting rolled out. We expect increases in input costs and pressures to increase selling prices to
stabilize in the year’s second half.
Gross margins as a share of sales are forecasted to decline slightly in 2023 after seeing a sizeable decrease in
2022 (Figure G.2). We expect to see margin improvements later in the year as material costs have stabilized or come
down modestly.

– 24 –
Figure G.2: Margins are forecasted to decline slightly in 2023
102
100.0
100 99.2
98
96 95.3
96 93.3
94
90.2 90.0
92
90
86
84
2018 2019 2020 2021 2022 2023f
How we got here: Higher commodity prices fuelled by export demand
Bakery and tortilla manufacturing sales increased 18% YoY to $16.3 billion in 2022 (Table G.1). Cookie and cracker
sales increased 31% YoY, bread and bakery product sales increased 16%, while dough and pasta sales declined 8%.
Cookie and cracker sales growth accelerated as the year progressed, eclipsing 40% YoY in Q4.
Table G.1: Bakery and tortilla sales were fuelled by price inflation in 2022
Bakeries and tortilla manufacturing [3118] quick facts 2022 YoY % change 2021 YoY % change
Sales ($ millions) 15,945 14.9 13,876 11.8
Trade balance ($ millions) 3,362 33.2 2,524 21.6
Weekly earnings including OT ($) 890 12.6 790 0.8
Business counts 3,380 8.3 3,120 3.8

– 25 –
The foodservice industry is an important market for baked goods, and 2022 only reinforced this industry feature.
Restaurant sales increased 41% in 2022, and fast-food sales 14%. Baked goods had some of the highest consumer
inflation in 2022, which did not detract from growing sales volumes as their relatively low price per calorie made
them attractive. According to data from Nielsen IQ, grocery store bakery departments were the only departments
with positive volume growth in 2022.
Cookies and crackers, baked desserts and certain bread products all saw volume increases for the year – a win
considering the consumer shift towards restaurants and the effects of high food inflation. Additive products such as
croutons, breadcrumbs and pizza dough recorded the biggest volume declines in 2022. Pizza dough sales were quite
strong in 2020-21 as consumers ate more at home, so the small decrease is a positive surprise.
Industry margins came under pressure despite strong consumer demand. Margins deteriorated because of
significantly higher raw material costs (up 35% YoY) and labour costs (up 18% YoY). Bakeries saw some of the
strongest wage growth across food industries, with weekly employee earnings rising over 13%. This growth resulted
from higher overtime costs as hours worked per employee increased. The significance of the cost increases made it
difficult to pass them to retail in a single step, forcing bakeries to absorb some of the higher costs.
Bottom line
• A foodservice rebound and bakers providing convenient staples are setting the stage for a solid performance in 2023.
• The opportunity to provide healthy and locally produced goods allows for differentiation.
• Finding ways to alleviate labour challenges should boost productivity and drive growth.

– 26 –
SOFT DRINKS AND ALCOHOLIC BEVERAGES
Despite a difficult year, a rebound appears unlikely

FCC Economics projects beverage manufacturing industry sales to decline 2.3% in 2023 (Figure H.1).
Figure H.1: Beverage manufacturing sales are expected to decline 2.3% in 2023
YoY % change
16,000 11.3 -1.1 -2.3

14,000 4.4 3.0
2.8
12,000
10,000
8,000
6,000
4,000
2,000
0
2018 2019 2020 2021 2022 2023f
Soft drinks are forecasted to lead the growth, growing 8% YoY. Distillery sales are forecasted to decline 6% YoY,
wineries 5% YoY and brewery sales are projected to decline nearly 12% YoY. The federal excise tax increase in 2023
will likely lead to lower volume sales. On top of these federal adjustments, manufacturer and wholesaler inventories
remain historically elevated, with the beverage wholesaler inventory-to-sales ratio 10% higher than at the end of 2019.
We’re forecasting margins to increase in 2023 (Figure H.2), thanks to sales of soft drinks and non-alcoholic beverages.
Alcoholic beverage manufacturing margins are expected to be relatively flat YoY as it’s difficult to pass on higher costs
in the highly competitive industry. We’re forecasting 2023 to be challenging for brewers, which could lead to some
consolidation. We see some competitive upside for wineries as the loonie erased all its 2022 gains against the Euro.

– 27 –
Figure H.2: Margins fell in 2022, led by alcoholic beverages
120
104.6
97.0 100.0 98.0
100
80
61.1
60
43.5
40
20
0
2018 2019 2020 2021 2022 2023f
How we got there: High costs among stiff competition
Beverage manufacturing sales declined 1% YoY in 2022 to $14.4 billion (Table H.1). Soft drink sales increased
13% YoY while alcoholic beverage sales declined. A small YoY rise in winery sales of under 1% could only partially
offset distillery sales decreasing 12% YoY and brewery sales declining 3% YoY (14% YoY in Q4). Since 2019, alcohol
consumption as a percent of total household consumption has declined 2%, while cannabis consumption has
increased 23%. This trend is expected to be much stronger in the 15-24 age demographic.
Carbonated water volumes also declined, as the category saw less promotional activity, and some consumers cut it
out of their budgets. On the other hand, low- and non-alcoholic versions of traditional alcoholic beverages have been
growing in popularity, with grocery sales rising 9% YoY in 2022. According to grocery data from Nielsen IQ, caffeine
beverages continued to grow at a torrid pace, with energy drink volumes increasing 15% YoY. And although
traditional pop beverage volumes declined, gains from restaurant volume sales outweighed those declines.
Overall, the buy-local trend sustained the industry through the pandemic, and consumers strongly supported local
breweries, distilleries and wineries. The impetus to buy local has faded, as evidenced by struggles among small
beverage producers.

– 28 –
Table H.1: Sales declined 1% in 2022, the result of weaker alcoholic beverage demand
Beverage manufacturing [3121] quick facts 2022 YoY % change 2021 YoY % change
Sales ($ millions) 14,402 -1.1 14,555 11.3
Trade balance ($ millions) -5,384 14.2 -4,713 3.8
Weekly earnings including OT ($) 954 8.0 883 -1.2
Business counts 2,766 3.8 2,665 5.4
Brewers face fierce domestic competition
Breweries with sales under $20 million are estimated to have had negative net income for the past six years, making
cashflow management a critical driver of performance. Over those six years, we have seen significant cutbacks on
advertising, while raw materials have taken a larger percentage of sales. Breweries comprised 44% of all beverage
manufacturers and grew 3% in 2022. The number of Canadian breweries has increased over 155% since 2015.
Small Canadian distilleries up against larger international corporations
Distilleries also had a difficult year, although the industry lacks the same degree of domestic competition as beer.
Major international companies have increased their investment in this industry recently, resulting in imports rising
44% since 2020. Distilleries with $20 million or under in sales have posted negative net income for eight consecutive
years. Advertising is more than double the expense line for distilleries as it is for breweries, making up as much as
10% of sales. There were 351 distilleries in Canada in 2022, an 8% increase YoY and over 270% since 2015.

– 29 –
The summer didn’t live up to the hype for wineries
Winery gross margins are estimated to have increased in 2022, although volume growth was weaker than estimated.
The highly anticipated first summer after the pandemic came and went without living up to the hype for many B.C.
wineries. There were 326 wineries in Canada, up 4% YoY and 22% since 2015.
Bottom line
• The alcoholic beverage industry faced challenges in 2022 that will not fade in 2023.
• Younger Canadians aren’t drinking as much as older generations have. However, there are opportunities in the
$10-billion industry to displace international suppliers with high-quality products.
• The beer industry is heavily concentrated, but there is strong demand for craft beer.
• In all three, innovative new products that differentiate businesses can lead to growth.

– 30 –
PARTNER WITH THE ONLY LENDER 100% INVESTED IN CANADIAN FOOD
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business owner looking for $10,000 or a publicly traded company needing $200 million, we can help. With a growing
portfolio and a Canada-wide network of financing and industry experts, we have the experience and knowledge to
help you take the next step on your path to success.
If your business is looking to grow or expand, let’s talk and help you find new opportunities through our networks and
financing expertise.
Who we finance
Abattoirs Commercial Specialty Food and Food processors Frozen foods,

and meat bakeries foods beverage and blending and
processors equipment manufacturers milling
Grain and Packaging Seafood Wholesale Wineries and

oilseed and distilleries
processing distribution
Work with us
Find out if FCC financing is right for you. Contact your local FCC team to see how we can help.
fcc.ca
1-800-387-3232
DREAM. GROW. THRIVE.

– 31 –
DREAM. GROW. THRIVE.
653803 20230314 AO
For more agriculture and food economics insights, visit fcc.ca/Economics

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FCC FOOD AND BEVERAGE REPORT 2023

Pressures on manufacturing profitability contributed to higher food prices

Gross margin percent index (2019 = 100)

Source: FCC Economics, Statistics Canada

FCC FOOD AND BEVERAGE REPORT 2023

Table 1: Most economic indicators were unsustainably high in 2022

Economic indicators (monthly or quarterly YoY% YoY%

Food manufacturing price index

Beverage manufacturing price index (Jan

Weekly employee earnings food

Disposable income ($ millions) 1,519,008 5.2 1,444,568 4.1

Source: Statistics Canada (employment numbers exclude self-employment)

Manufacturing domestic and export sales meet some headwinds

FCC FOOD AND BEVERAGE REPORT 2023

All figures in millions $ 2022 YoY% change 2021 YoY% change

Food and beverage manufacturing sales 156,224 10.6 141,262 14.5

Food and beverage exports 54,255 13.9 47,626 16.7

Food and beverage imports 44,920 18.2 38,003 3.5

Food trade balance 9,336 -3.0 9,624 135.5

Foodservice sales 82,928 26.6 65,493 18.2

Total estimated food retail sales 228,672 9.6 208,637 5.2

Source: Statistics Canada

FCC FOOD AND BEVERAGE REPORT 2023

Change in the market share of domestic

2016 2017 2018 2019 2020 2021 2022

Source: FCC Economics, Statistics Canada

Sales growth projected to slow in 2023

FCC FOOD AND BEVERAGE REPORT 2023

Annual manufacturing forecast, millions $

Source: FCC Economics, Barchart, Statistics Canada, Moody’s Analytics

FCC FOOD AND BEVERAGE REPORT 2023

Annual manufacturing forecast, millions $

Source: FCC Economics, Barchart, Statistics Canada, Moody’s Analytics

FCC FOOD AND BEVERAGE REPORT 2023

Index of gross margin % of revenue (2019 = 100)

Source: FCC Economics, Statistics Canada

How we got here: Record prices drove sales growth in 2022

Grain and oilseed milling [3112]

Sales ($ millions) 20,507 25.1 16,397 38.9

Exports ($ millions) 13,140 26.5 10,385 26.2

Imports ($ millions) 5,789 28.9 4,492 1.8

Trade balance ($ millions) 7,350 24.7 5,893 54.4

Weekly earnings including OT ($) 1,192 1.5 1,175 -23.0

Business counts (December) 296 2.5 287 3.1

Source: Statistics Canada

FCC FOOD AND BEVERAGE REPORT 2023

FCC FOOD AND BEVERAGE REPORT 2023

Sales and margin growth forecasted to be weak in 2023

Annual manufacturing forecast, millions $

Source: FCC Economics, Statistics Canada, Barchart, Moody’s Analytics

FCC FOOD AND BEVERAGE REPORT 2023

Index of gross margin % of revenue (2019 = 100)

Source: FCC Economics, Statistics Canada

How we got here: A normal year of holiday selling

Table B.1: Higher volumes boosted sales in 2022

Sugar and confectionery product manufacturing [3113]

Sales ($ millions) 5,234 15.5 4,533 15.2

Exports ($ millions) 4,093 15.2 3,553 3.9

Imports ($ millions) 3,894 17.0 3,327 4.7

Trade balance ($ millions) 198 -12.0 225 -5.8

Weekly earnings including OT ($) 1,104 14.0 968 -2.2

Business counts 581 7.4 541 -1.5

Source: Statistics Canada

• Monitoring trends in consumption preferences will be key to success.