2022 FCC Food Report: Exploring meat products
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.
2021 meat manufacturing industry profitability was mixed. Costs increased dramatically, but through the year, processors could pass higher expenses to retailers. As restrictions eased in Q3, demand rebounded, helped by a high consumer savings rate, making it easier for processors to increase prices. Evolving purchasing behaviours, including attention paid to animal protein consumption and the rise of non-meat protein options, represent headwinds in the domestic market. Foodservice closures reduced sales, while employee cases of COVID-19 led to high absenteeism at plants, slower line speeds and ultimately supply issues. A tight labour market also contributed to the struggle to find qualified employees and led businesses to increase wages.
Exports rose 14.7% as sales to growing markets like Mexico, Philippines, South Korea, Vietnam and Indonesia. This led the way and helped offset steep declines of pork exports to China and Hong Kong. China has made headway in growing their hog herd after a tough spell with ASF (African Swine Fever) which hurt Canadian pork businesses. Overall, higher prices and strong global meat demand helped sales increase 14.7% in 2021 YoY (Table E.1).
Table E.1: Exports and higher prices growth propelled sales growth in 2021
Source: Statistics Canada, FCC Economics
Gross margin as a percent of sales increased to 2019 levels in 2021 after declining in 2020. Margins improved as the year progressed. Q3 and Q4 were relatively strong quarters but impacted by raw material inflation and employee absenteeism. Labour costs declined for the year but remain elevated versus 2019 and don’t tell the whole story. Employment fell below 2018 levels in this tight labour market, with reports of culling animals. This impacted volumes and forced businesses to find additional margin dollars through price increases. Beef and pork margins started the new year a bit weaker but remain comparatively healthy. We expect them to lower, and there’s a risk of weakness due to ongoing labour shortages and wage pressures.
Figure E.1: Margins bounced back but are historically low
Sources: Statistics Canada, FCC Economics
FCC Economics projects sales to increase 10.4% in 2022. Strong global and domestic demand for meat, alongside high prices, will support increased sales. Domestic consumption of red meat declined in 2021, which is expected to reverse in 2022 with the re-opening of foodservices. Inflation can impact volumes and the types of cuts purchased, but we expect prices to stabilize, and outlying demand to remain robust. Sales growth will likely diminish as the year goes on, impacted by smaller cattle herd and lower pork exports to China.
Figure E.2: Meat product sales are expected to increase 10.4% in 2022
Sources: Statistics Canada, Barchart, Moody’s Analytics, FCC Economics
Grocery store meat sales declined 1.0% in 2021, underperforming the total grocery increase of 0.3% (Table E.2). Meat inflation was 5.8%, reaching over 10% in beef and pork in Q4 as higher livestock prices, supply-chain disruptions and labour challenges contributed to increased consumer prices. Volumes declined 6.8% YoY.
Convenience meat products were 2021’s big winners. Jerky sales increased 9.1%, lunchmeat sales grew 4.0% and bacon was up 2.9%. Like other meat categories, volumes were impacted by higher prices, although not enough to cause a sales decline. Lunchmeat volumes started to pick up steam in Q4 when many people started to return to school and work – a trend likely to continue in 2022. Meat alternatives like tofu and plant-based meat products outperformed traditional meat sales growth; however, growth slowed from 31.6% in 2020 to 7.7% in 2021. Tonnage in meat alternatives also fell, declining 2.1% over 2020.
Table E.2: Convenience inspired foods like jerky, lunchmeat and bacon outperformed all meats in 2021
It’s been a balancing act for meat manufacturing. Processors rallied to source, retain labour and capitalize on strong demand in global and domestic markets. The year ahead looks bright as inflation subsides and meat sales look robust driven by foodservice, convenience meat products and exports.