Canada's food and beverage manufacturers increased sales in the first half of 2026, but tariffs, trade disruption and volatile energy and freight costs are putting pressure on margins, according to a mid-year update from Farm Credit Canada Economics.
The sector recorded $88.1 billion in manufacturing sales during the first six months of the year, a four per cent increase from the same period in 2025. However, after adjusting for prices, real sales were unchanged, suggesting the increase was driven largely by higher prices rather than increased sales volumes.
Sales growth masks weaker volumes
FCC Economics said the industry is moving from a period of resilience toward greater risk management as manufacturers contend with new U.S. trade restrictions, Canadian counter-tariffs and renewed volatility in energy and freight costs.
"The first half of 2026 shows the sector remains resilient, but the headline sales number does not tell the whole story. For manufacturers, the key issue is not just whether sales are growing, but what is driving that growth," said Craig Johnston, vice-president and chief economist at FCC. "When gains are tied more to prices than volumes, it can signal that companies are still operating in a cautious demand environment while also managing higher and less predictable costs."
Performance varied considerably among food and beverage manufacturing segments. Grain and oilseed milling, fruit and vegetable processing and animal food manufacturing recorded some of the strongest gains, while sugar and confectionery manufacturing, breweries and distilleries reported declines.
The operating environment has also become more difficult, with energy and freight volatility and higher input costs adding uncertainty to production expenses. U.S. trade restrictions and Canadian counter-tariffs are also affecting the outlook for export opportunities and margins.
Margin recovery remains fragile
FCC Economics expects margins to improve modestly in 2026 following a difficult year, but says the recovery could remain fragile as trade and cost pressures build later in the year. The organization's estimates indicate the direct impact of new trade measures will be limited in 2026 because most of the measures take effect only in September.
For manufacturers, the combination of relatively flat real sales and rising costs means the sector's financial performance will depend on how companies manage expenses and respond to changing trade conditions.
"As margins remain tight, diversification will become an increasingly important long-term strategy for food and beverage manufacturers," Johnston said. "Reducing interprovincial trade barriers and expanding internationally can help open broader market opportunities. Helping the food and beverage manufacturing sector to achieve 3 per cent growth over the next decade could contribute an additional $40 billion to Canadian GDP over the next decade, while supporting 217,000 new jobs, $16 billion in wages and benefits and $1.3 billion in tax revenues."
The mid-year update follows FCC Economics' annual food and beverage report and examines changes in sales, costs and margins across Canada's food and beverage manufacturing sector.
The report comes as manufacturers contend with an increasingly uncertain trade environment while also managing changes in input, energy and transportation costs. FCC Economics said its analysis is intended to provide forecasts and economic information to businesses in the agriculture and food sectors.