Sales of Canadian food manufacturers have declined "fairly dramatically" in the first two quarters of this year, according to a recently released financial review of the food industry.
Published last week by the George Morris Centre, which provides consultancy services to the agricultural and food sectors, the report found that the decline in real sales volumes stemmed from a combination of higher food manufacturing pricing and an overall reduction in total sales.
The information, which was drawn from the Statistics Canada quarterly 'Financial Statistics for Enterprises' report, is designed to assess the performance of food manufacturer profitability in the face of rapid grain price increases.
Overall, the report identified that pricing levels in the food industry are four percent higher in 2007 than in 2006, but noted that food manufacturers have been unable to push along pricing increases for most of 2007. In fact, prices actually declined in August.
The main driver behind higher pricing levels in the latter half of 2006 and the flat overall food price trend in 2007 was the meat industry. Meat, which is the largest food industry sector, comprises a material portion of the total food industry sales base, said the report, adding that meat pricing has been declining from the spring through the summer.
In the bakery industry, product pricing has been fairly steady. Dairy product prices have been on a slow, steady increase over the last two years.
Fruit and vegetable prices have been steady for most of 2007, after jumping sharply late last year. Sugar prices have been on the decline for most of 2006 and 2007.
With regard to the individual food manufacturing sectors, the report also found that sugar and confectionary sales declined the most at 16 percent, while fruit and vegetable processing declined 11 percent. Dairy declined 7 percent while meat declined 1 percent.
According to the report, real sales declines in the food industry are being reflected in plant capacity utilization rates.
"The food industry tends to have lower plant utilization rates than the manufacturing sector in general. This is likely due to the seasonal nature of much of the industry," it said.
"It is also likely due to the need for extra capacity in a sector that manufactures a largely perishable product. Perishable production needs to be more flexible regarding capacity. Nevertheless, (…) the capacity utilization rate of the food industry is trending very low relative to 'normal levels' of over 80 percent."
Despite falling sales, the Canadian food and drink manufacturing sector saw a general increase in profits over the period. Second quarter profits were up were up 18 percent over the first quarter this year and 18 percent over the second quarter last year.
Food operating margins were found to fluctuate by between five and six percent over the past eight years. So far, 2007 is turning out to be a very strong year with regard to margins, said the report. In the first to quarters of 2007, margins have averaged six percent.
The report also notes that despite the dramatic appreciation of the Canadian dollar, the export/import balance in the food sector is not changing dramatically.
"Preliminary data show that Canada's food trade surplus expanded this year through July, compared to last year. In other words, Canadian food manufacturers are not losing domestic or export share to international competitors, yet."