Key Takeaways
- Canadian food and beverage manufacturing sales reached $88.1 billion in H1 2026, up 4% year over year.
- The sales increase was largely driven by higher prices, while real sales volumes remained flat.
- U.S. trade restrictions, Canadian counter-tariffs, energy costs and freight volatility are adding pressure to manufacturers.
Food Manufacturing Sales Rise While Volumes Remain Flat
The overall 4% increase in food manufacturing sales masks significant differences between subsectors.
Grain and oilseed milling recorded the strongest growth, with sales increasing 28% year over year. Fruit and vegetable processing and animal food manufacturing each recorded 7% growth.
Dairy sales increased 4%, while meat sales rose 2%.
At the same time, some segments experienced declines. Sugar and confectionery manufacturing fell 8%, while bakeries and other food manufacturing each declined by about 1%.
Beverage manufacturing also faced weaker results, with sales down 3%. Brewery sales declined 7% and distillery sales fell 12%, while winery sales increased 13%.
Trade Measures Add New Pressure
FCC Economics says the outlook for the second half of 2026 has become more challenging as new trade restrictions affect both revenues and production costs.
Canadian food and beverage manufacturers face new U.S. trade restrictions, while Canadian counter-tariffs are affecting the cost of some imported goods and inputs.
FCC says a 50% U.S. tariff creates a substantial price disadvantage for affected Canadian producers. New Section 338 tariffs also apply to covered goods regardless of their CUSMA origin status.
Alcohol is among the sectors facing significant exposure. Canadian distillery exports to the United States were nearly $1 billion in 2025, representing 46% of the industry's gross revenue. Distillery sales were already down 12% during the first half of 2026.
Canadian Manufacturers Also Depend on U.S. Inputs
Trade exposure is not limited to exports.
FCC estimates that Canada imported approximately $1.1 billion of U.S. agricultural and food products covered by Canadian countermeasures in 2025.
Several of these products are used as ingredients or inputs in food manufacturing. They include albumins, malt extracts, concentrated milk products, whey and other protein substances.
For example, FCC reports that the United States accounted for 91% of Canadian imports of albumins and derivatives covered by the measures. The U.S. share was 84% for malt extracts and food preparations and 73% for whey and milk derivatives.
This creates another potential cost channel for Canadian manufacturers because companies may need to find alternative suppliers, renegotiate prices or adjust their production strategies.
Energy and Freight Costs Add to the Challenge
Trade measures are not the only source of pressure.
FCC Economics says the U.S.-Iran conflict has disrupted energy flows and shipping through the Persian Gulf, contributing to volatility in crude oil, fuel and freight costs.
For Canadian food and beverage manufacturers, these effects can reach businesses indirectly through transportation, agricultural production, packaging, imported ingredients and distribution.
FCC's current estimates show that energy, freight and raw material costs account for much of the increase in its cost outlook.
The year-over-year cost forecast moved from a 3.7% decline in the pre-war forecast to a 0.5% increase in the pre-tariff forecast and 1.9% in the current forecast.
Tariffs Could Increase Costs Further
FCC estimates that if the latest trade measures remained in place for a full year, the base-case assumptions could result in between $260 million and $500 million in potential tariff costs.
However, the report also notes that the federal government's $7.5 billion support package and existing business support programs could offset some of the pressure.
Manufacturers may also respond by changing suppliers, renegotiating prices, using existing inventories, seeking tariff remission or passing some additional costs to customers.
What Could Happen to Industry Margins?
Despite the challenging environment, FCC Economics forecasts that the food and beverage manufacturing sector's gross margin index will improve modestly in 2026.
The index increased 1.9% in 2024, declined 1.2% in 2025 and is forecast to rise 2.1% in 2026 before easing 0.9% in 2027.
FCC says these estimates reflect multiple factors, including energy, transportation and input costs, as well as trade measures affecting production costs and export opportunities.
The direct effect of the latest trade measures is expected to be limited during 2026 because most of them took effect only in September. The impact could become more visible in 2027 if the measures remain in place for a full year.
Some Food Sectors Face Greater Exposure
The effect of trade restrictions will not be identical across the industry.
FCC identifies subsectors such as distilleries as particularly exposed because of their dependence on affected export markets. Businesses that rely heavily on tariffed imported inputs could also face additional pressure.
The ability of manufacturers to find alternative suppliers, redirect exports and adjust prices will influence how much the trade measures ultimately affect individual businesses.
Diversification Becomes More Important
FCC says diversification could become increasingly important as manufacturers deal with tighter margins and changing trade conditions.
The organization points to manufacturers’ ability to diversify markets and find alternative suppliers as central to protecting margins.
Canada's Food Manufacturing Sector Faces a Changing Outlook
The first half of 2026 showed resilience across Canada's food and beverage manufacturing industry, with sales reaching $88.1 billion.
However, the headline growth figure does not tell the entire story. Higher prices accounted for much of the increase, while real sales volumes remained flat.
At the same time, trade restrictions, counter-tariffs, energy costs and freight volatility are creating additional uncertainty.
FCC Economics' outlook suggests that manufacturers may face greater pressure if current trade measures continue into 2027. Supplier diversification, market expansion and careful cost management could therefore become increasingly important as companies navigate the changing business environment.