The food, beverage and agribusiness (FBA) industry was among the most impacted during the COVID-19 pandemic. Despite restrictions easing, and the industry returning to a degree of normalcy, businesses operating in the space are now faced with new challenges, including significant supply chain disruptions caused by shortages of labour and key materials, as well as heightened geo-political tensions. Ultimately, these pressures affect bottom lines of businesses and consumer shopping patterns. This bulletin outlines in greater detail some of the issues that businesses in the FBA industry are navigating.
LABOUR SHORTAGES
Canada's workforce is currently experiencing a historical low for its unemployment to job
vacancy ratio: 1.4 unemployed people per job vacancy. A survey
conducted by Statistics Canada on business conditions reveals that
across the five primary sectors driving total job vacancies, the
ratio of new hires to vacancies has been trending downward in the
past five years. Another survey indicates that recruiting skilled
employees was expected to be an obstacle over the next two months
for approximately 47.4% of manufacturing businesses generally, and
46.3% of businesses in the accommodation and food services
sector.
More specifically in Ontario, labour supply continues to be the
primary issue facing the food and beverage processing sector, which
is the province's largest manufacturing industry based on
employment and accounts for 27.5% of the FBA industry's revenue
in Canada. As an example, Food and Beverage Ontario, an
organization dedicated to advancing the interests of Ontario's
food and beverage processors, reports that approximately 54% of its
members have discontinued products or services due to continuing
labour shortages, and the industry is projected to face a decrease
of 20% of the current workforce by 2024. Currently, it takes a food
and beverage processor an average of seven months to identify and
hire a skilled tradesperson.
SHORTAGE OF RAW MATERIALS AND INCREASED INPUT COSTS
In addition to labour, businesses in the FBA industry are
currently navigating supply chain deficiencies caused initially by
COVID-19 and subsequently exacerbated by geo-political
tensions.
As key exporters of some of the world's most important
commodities, the ongoing situation with Russia and Ukraine has
significantly disrupted the global supply chain. In addition to
increasing prices of natural gas and crude oil, the conflict has
had a unique impact on the FBA industry in Eastern Canada. Farmers in the region heavily rely on the
import of crop fertilizers such as nitrogen, phosphorus and potash
from Russia, for which they now must pay an extra 35% in tariffs.
Additionally, escalating tensions between China and Taiwan have
halted the supply of semiconductor chips, which in some cases are
vital to the manufacturing processes used in the FBA industry.
Moreover, given the ongoing COVID-19 lockdowns in China, additional
shortages have extended to the supply of other key materials used
in the FBA industry.
CHANGING CONSUMER PREFERENCES
The factors discussed above have ultimately resulted in rising
prices for goods, particularly in the FBA industry. Although
inflation has decreased from its 39-year high of 8.1% in June,
consumers have since responded by altering their buying behaviour.
Items such as meat, poultry, eggs and dairy have become less
popular due to rising costs.
The Bank of Canada has attempted to combat the rise in inflation
with higher interest rates, the most recent hike bringing the rate
to 3.25%. Interestingly, while consumers are spending more at grocery stores
than pre-pandemic levels, the number of items they are purchasing
is decreasing.
Consequently, businesses in the FBA industry not only need to
develop business solutions to their supply chain hardships, but
they must also respond to changing customer demands with further
research and development of novel products.
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