2022 FCC Food Report: Exploring grain and oilseed milling
This information is shared from the 2022 FCC Food Report — highlighting the opportunities and challenges for Canadian food manufacturers by industry. To get the bigger picture — read the full report.
Record prices and stronger foodservice demand in North America boosted sales and profitability after declines in 2020. High input costs and supply-chain bottlenecks put pressure on output and prevented a good year from being great.
Sales increased 48.9% in 2021 (Table A.1). Gains were largely a result of record prices and higher exports, but we did see a return of some foodservice volumes that helped offset a decline in grocery sales. Demand for flour and other baking products increased at the onset of the pandemic but declined double digits in 2021. Selling price gains were largely in vegetable fats and oils, increasing 37.9%. As an input in many other foods, fats and oil demand is largely inelastic and cost increases can be more easily passed on. These products are also in high demand as healthy and sustainable food consumption grows. Breakfast cereal manufacturing selling prices inflated 5.3%, bringing down the total industry inflation slightly.
A large percent of sales remained in Canada in 2021 despite the increase in the value of exports. Of all grain and oilseed products sold in Canada, just under 55% was Canadian manufactured. This is the first time since 2013 that Canadian buyers purchased more domestic products than imported.
The industry added over 250 jobs in 2021, an increase of 3.1%. Businesses recorded an increase in productivity in 2021, partially driven by investment, and partially in response to a tight labour market.
Table A.1: A larger percent of sales stayed in Canada in 2021
Gross margin as a percent of sales increased off 2020 lows but remains below historical levels. FCC Economics’ gross margin index was 93.2 in 2021, up from 85.1 in 2020 and slightly above the 2016-2019 pre-COVID average, but below the 2013 base year and below 2019 (Figure A.1). Q3 and Q4 margins where the strongest of the year as businesses passed on cost increases. Overall, for the year, materials as a percent of sales were flat compared to 2020. Margin gains were also a function of lower over-time costs and lower COVID wage supplements relative to 2020. Total labour costs remain elevated.
Figure A.1: Goss margins improved in 2021
FCC Economics projects sales to increase 8.0% in 2022. Strong prices and the expectation that food services fully re-open will support sales. The 2022 crop is anticipated to record yields returning to normal after the drought ravaged production in Western Canada in 2021. As the year goes on, sales growth could subside and dip below zero if prices weaken; however, export volumes should remain robust as global demand for healthy grains and oils show no signs of slowing. Swings in the Canadian dollar can drastically impact these projections, with exports representing 65.4% of total sales in 2021.
Figure A.2: Grain and oilseed milling sales expected to increase 8.0% in 2022
Grocery sales of products using grains and oilseeds decreased 7.1% in 2021 YoY (Table A.2). This was below the total grocery food increase of 0.3% as consumers cut back on baking related purchases and bought fewer cheap-bulk foods like rice. Above-average inflation also hurt volumes. Oil products and margarine sales where flat, but volumes were down over 12%. Breakfast cereals continued its pre-pandemic sales decline after rising in 2020 (although sales under-performed versus total industry last year as well).
Pasta products were the big winner in 2021 with sales increasing 7%. Secondary baking products like baking powder, baking soda and yeast saw sales drop over 16%. Flour tonnage declined almost 20% after rising over 30% in 2020. As people started to work more from the office, interest in bread-making and other home products dissipated, a trend expected to continue.
Table A.2: Grain and oilseed sales at the grocery store underperformed food sales growth
With outputs like flour and edible oils being ingredients required by downstream food and beverage manufacturers, retail and foodservice, the industry is poised for growth in demand. Interest in sourcing a higher portion of local grains and oilseeds driven by convenience and sustainability trends, explains the success of this year’s domestic consumption. Healthy grain and oilseed products are continuing to gain traction here at home and abroad. Canada’s processing capacity is positioned to expand.