REGINA, Sask. — Farm Credit Canada says food manufacturers showed resilience in the first half of 2026, but new trade barriers and global conflicts are raising costs across the sector. FCC chief economist Craig Johnston says businesses will need to protect margins, diversify markets and invest in productivity as volatility continues into 2027.
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Craig Reed — Welcome to Trade Dispute Impact: on the Prairies. I'm Craig Reed. In Ottawa yesterday, the government introduced a new bill in the House of Commons called Bill C40 Strengthening Canada's Defence Sector. It would make the Defense Investment Agency a Crown corporation, saying in a release that it would give the DIA greater commercial flexibility and more autonomous approvals, allowing it to work better with industry and deliver better value for money and maximize Canada's generational defense investments to strengthen our industrial base, supply chains and sovereign capabilities.
And Harvard Media's Ryan Young spoke with Farm Credit Canada vice president and chief economist Craig Johnston on the trade disputes, impact on food and beverage prices.
Ryan Young — FCC's midyear update on its annual Food and Beverage report notes sales on the food manufacturing side was up 4 per cent when compared to the first half of 2025, while sales on the beverage side were down 3 per cent over the same time frame.
The grain and oilseeds subsector experienced the largest growth in sales, among others, at 28 per cent.
Fruit and vegetable processing, animal food manufacturing, dairy and meat also had higher sales. FCC says the increase in food sales was driven by higher prices rather than volumes.
The distillery subsector had the biggest decrease at 12 per cent, while breweries was down 7 per cent. But wineries bucked the trend by having a 13 per cent increase in sales.
FCC notes the differences matter as subsectors with weaker sales going into the second half of 2026 are also among those facing the new U.S. trade restrictions. The trade dispute, as well as conflicts between the U.S. and Iran and Russia and Ukraine, also caused a ripple effect on driving up labour and raw material costs for the sector. Craig Johnston is a vice president and chief economist at FCC. He says labour and input costs were forecast to cool by 3.7 per cent at the start of 2026, but that changed to an increase of 1.9 per cent following the latest tariff measures and the ongoing conflicts.
Craig Johnston — This has really changed from a story of resilience, which the sector has really exhibited in the first half of this year, to really a story of risk management, really a story about trying to protect margins, trying to diversify as much as possible, trying to continue to invest in productivity moving through 2026, that will just position you best into 2027 to whether some of these external shocks more or less.
Ryan Young — He also talked about how the trade barriers from the U.S. and Canada are impacting revenues and costs for the sector, and Canada's efforts to mitigate those impacts.
Craig Johnston — Sure. I mean, look, when we look at the impact in terms of market access for our products, what we shipped to the United States, we've estimated about $3.7 billion in terms of value is exposed to these 50 per cent tariffs or bans, bans on some categories, including distilleries like I mentioned. So that's a significant impact. I mean, the ability to diversify to alternative foreign destinations, or whether or not there are domestic avenues to pursue within Canada as well, for those products, will determine the impact on those sectors that are affected. But that's a significant number.
When we look at the countermeasures, I mean, we're talking about a significant amount of products that are food and beverage products that we import into Canada now exposed to potential import tariffs as well as products that aren't necessarily food and beverage products, but they're products that are used in the supply chain of those products. You can think of containers, packaging, for example, and that can be a sizable impact as well.
Now, the important part, though, is that we have to remember that there is also support provided with those countermeasures. We've got the $7.5 billion support measures that the Government of Canada has announced. And we also have these things called surtax submission remissions. So essentially a business that is facing potential tariffs on the imports of its products from the United States can file in certain instances, exemptions to pay those tariffs, if they can prove that there's no viable alternatives internationally or domestically for those products to. So the government of Canada is cognizant of these impacts that these countermeasures can have on the industry.
Ryan Young — The trade measures also affect the sector's Profitability. But FCC believes food and beverage manufacturers are showing resilience based on trends. In 2024, the sector's gross margin index was up 1.9 per cent, then down 2.1 per cent in 2025. FCC is forecasting margins will be up 2.1 per cent for 2026, then down 0.9 per cent for 2027. Johnston says this speaks to how volatile things are as a result of previously mentioned factors. So what's the outlook moving forward? He had this to say.
Craig Johnston — So again our outlook for this year we're seeing an increase in cost pressure again associated with the tariffs, continued cost pressures associated with the energy shock, the fertilizer prices that eventually get passed through to some degree through the supply chain of the food and beverage sector, and that will ultimately erode to some degree the margins through 2026 and into 2027.
With that said, I think the data that we're seeing again for the first half of this year so far in 2026 is showing us a resilient sector. We're seeing some declines and some substitutions away from discretionary purchases, potentially, for example, distillery or breweries, towards more stable items in that kind of core food category. But I think really ultimately what we see is that resilience of the sector to continue to increase sales growth.
We're seeing continued growth in per capita food and non-alcoholic beverage spending, too. From the consumer side.
So we're optimistic for for the rest of 2026 and into 2027. But as I say, we're really leaning on the fact that margin protection, doing what you can to diversify and investing in productivity enhancing initiatives that make sense for your business are ultimately going to drive how you fare into 2027.
Ryan Young — You can read the full report on Farm Credit Canada's website.
Craig Reed — That's Harvard Media's Ryan Young and his conversation with Farm Credit Canada vice president and chief economist Craig Johnston. I'm Craig Reid. Have a great day and thank you for listening to Trade Dispute Impact: on the Prairies.
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