Bakery and tortilla products: 2026 FCC Food and Beverage Report

The following information is from the 2026 FCC Food and Beverage Report, which highlights the opportunities and challenges for Canadian food manufacturers by sector. To get the big picture, read the full report.

Lower ingredient costs support margins as trade uncertainty weighs on sales

The bakery and tortilla manufacturing sector includes establishments producing baked goods, cookies, crackers and pasta. Canada has over 3,700 manufacturers, most of them small, with fewer than 100 employees. Larger firms hold strong market share and brand recognition, while smaller operators specialize in niche offerings. Key downstream markets include wholesalers, distributors, foodservice, retail and international buyers.

Bakery and tortilla product sales: 2026 forecast

The bakery and tortilla manufacturing sector faced a challenging year in 2025 as total sales declined 5.8%, driven primarily by a sharp 7.3% reduction in volumes (that is, sales adjusted for price) (Figure 8.1). A modest 1.6% increase in selling prices was insufficient to offset broad-based volume weakness. Bread manufacturing, which accounts for 67% of industry sales, experienced one of the steepest contractions with sales falling 7.5%, while cookie, cracker and pasta manufacturing declined 2.1%.

Looking ahead to 2026, another year of declines are anticipated in both sales and volumes. Given the competitive environment, lower raw material costs from grains are forecast to lower manufacturing selling prices and overall sales are expected to decline about 5.4%.

One driver of the 2025 contraction was a sudden and unprecedented shift in export performance. For the first time in the available data (that is, since 2002), export values for bakery and tortilla product manufacturing fell, declining 0.8% after a decade of average annual growth of 13.3% (Figure 8.2). With exports now surpassing domestic sales in importance, the sector’s heavy reliance on the U.S. market leaves it particularly vulnerable to global market changes

Figure 8.1: Bakery and tortilla product sales fall in 2025

Total sales and volumes (in $, billions) are on the vertical axis and shown by the height of each bar. The number above each bar is the year-over-year growth as a percent. Volumes are sales deflated by a price index (January 2020=100).

Sources: FCC Economics, Statistics Canada

The U.S. makes up 97% of Canadian bakery exports and accounts for 50% of total sales. For the 52-week period ending August 10, 2025, Circana Omnimarket reported a 3.4% decline in U.S. unit sales for bread. This reflects the shift in consumer buying patterns happening both in the U.S. and Canada as consumers move away from traditional packaged bread and look for healthier options in smaller package sizes.

Renewed export momentum will be crucial for the sector’s rebound, as the domestic market is unlikely to generate meaningful upside as population growth slows. At the same time, consumers are shifting away from the sector’s largest sales category, which will require manufacturers to rethink their product lines and be innovative to boost volumes.

Figure 8.2: Exports decline after 22 years of growth

Source: Statistics Canada

Ingredient insights: Flour

For bakery processors, wheat remains the foundational input behind their largest and most essential ingredient cost: flour. However, not all flours are created equal and different wheat varieties are used for different purposes. For example, durum is primarily used in pasta, hard red spring in bread, and soft red winter in cookies, crackers and cakes.

Flour prices historically experience less extreme fluctuations than wheat, but the two trend together over time. According to Cereals Canada, roughly 90% of wheat milled in Canada flows into further processing, with the remaining 10% going directly to retail channels, underscoring how closely the price of wheat shapes the cost base for bakeries.

In 2025, wheat markets softened again as ample global grain supplies supported by favourable growing conditions pushed commodity prices down. The Raw Materials Price Index for wheat fell 5.6% in 2025 compared to 2024. We forecast the first quarter of 2026 to be 5.7% lower than 2025 and the second quarter on par with 2025. The prices of products from the flour milling industry shown through the Industrial Product Price Index fell 2.5% in 2025 and are expected to fall 1.9% in the first quarter and increase 0.9% in the second quarter of 2026 (Figure 8.3).

Figure 8.3: Wheat and flour prices expected to soften again in first half of 2026

Sources: FCC Economics and Statistics Canada

Grain milling companies are already benefiting from lower input costs for wheat, and these savings are expected to work through the supply chain over the course of 2026. For bakery manufacturers, this should translate into gradually declining prices for flour and flour-based products, providing some cost relief after several years of elevated price pressure. Early indicators show lower wheat prices heading into the 2026-27 crop year, although this downtrend will depend on how the growing season progresses.

Bakery and tortilla product margins: 2026 forecast

Gross margins for bakery manufacturers are set to improve in 2026, a welcome reversal after the sector posted a double-digit decline in 2025 (Figure 8.4). The driver of the increase is a 6.9% decline in the cost of goods sold, which is enough to offset the 5.4% expected decline in sales, providing a small lift to margins.

Figure 8.4: Margins see small boost in 2026 after difficult year

Sources: FCC Economics, Statistics Canada

Lower ingredient costs will help with the decline in cost of goods sold, with flour, sugar and cocoa expected to see some relief. Dairy products and margarine and cooking oils, on the other hand, are likely to see a small uptick, although they make up a relatively smaller share of costs compared to flour.

However, the bigger factor to monitor is labour. Bakery manufacturing is one of the most labour-intensive industries in the food processing space. The sector consistently posts the highest share of expenses dedicated to labour amongst the other food processing sub-sectors, with the most recent available data putting this at 18.9%, well above the food processing average of 10.6%. This reflects the sector’s continued reliance on manual processes, with bakers making up one-quarter of the workforce.

Automation offers some opportunity to ease labour pressures, particularly in repetitive tasks such as dough portioning, packaging and applying toppings or finishing touches. However, it’s important for businesses to scale new technologies to the size of their business. In addition, adoption is likely to remain uneven, with larger processors better positioned to invest than smaller, more artisanal businesses.

In 2025, the industry saw an 13.0% increase in total wage costs, pressuring margins. We do expect labour costs to continue to rise in 2026 as hourly wages move up again, but the pace of headcount growth is expected to slow. When combined with softer ingredient prices, this creates room for margins to inch higher after a difficult year.

Other trends to monitor in 2026

• Rising fibre demand could reshape product development in 2026. A growing “fibre craze” on social media is boosting interest in ingredients that can deliver high-fibre products, and bakery manufacturing is well-positioned to meet this demand. Ingredients like wheat germ can help the industry meet consumer expectations for functional, high-fibre baked goods.

• Trade dynamics could continue to shift in 2026, reshaping domestic supply. While the sector is in a strong trade surplus position, imports in 2025 increased faster than exports, reducing net exports by 3.7%, the first contraction since 2011.

• Quick-service restaurants remain a resilient and expanding downstream market for breads, buns and wraps, cementing themselves as the largest share of foodservice following the pandemic.

Canada’s changing flour mix

Canadian millers produce a range of flour types from different wheat classes, each serving distinct end-use needs in bakery processing. While total flour production increased almost 16% between 2000 and 2025, some types increased faster and some slower, shifting the composition of that output. Flour of spring wheat now accounts for a larger share of production than it did 25 years ago, while soft wheat and durum flours have gradually lost ground (Figure 8.5). These changes reflect evolving market demand and prices, as bakeries adjust formulations to suit consumer preferences.

The growing dominance of spring wheat flours is unsurprising. Canada Western Red Spring (CWRS) wheat is the most widely grown wheat class in the country and is prized for its exceptional milling and bakery quality. Its high protein content and strong gluten properties make it ideal for bread production. That matters because bread remains the main product in households’ bakery spending. According to the most recent Survey of Household Spending, Canadian households spent on average $340 on bread, rolls and buns, far more than the $194 spent on cookies and crackers or the $53 spent on pasta annually.

With CWRS accounting for the bulk of wheat production in Canada, aggregate commodity prices mirror movements in this class. However, bakeries relying heavily on soft wheat for cakes and cookies or durum for pasta can experience different costs. Heading into 2026, all wheat varieties show signs of price relief, though the extent will differ. The relief is likely most pronounced for durum but less so for soft red winter, which is good news for pasta manufacturers.

Figure 8.5: Hard spring wheat pushes out soft spring wheat and durum wheat flours over the long term

Source: Statistics Canada

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