Food and beverage industry facing a new reality

The food and beverage industry started off on a positive note with experts predicting a solid recovery in 2025. By mid year however, a new reality had set in. Rising food costs, escalating trade tensions with the US, and supply chain disruptions – among other compelling factors – led to a more conservative forecast in the latter part of 2025.

FCC (Farm Credit Canada) senior economist Amanda Norris addressed this shift in sentiment, noting the optimism that opened 2025 “has faded under the weight of tariffs, trade uncertainty, and rising costs.”

Circana revised its industry projections midway in 2025 to reflect slower industry growth than anticipated, largely due to rising costs and lack of consumer confidence. It now anticipates sales growth in 2026 to drop from its original estimate of three to five per cent to two to four per cent.

Canada’s Food Price Report 2026 notes that the food manufacturing industry saw a number of restructuring and downsizing events (including Kraft-Heinz and Dr. Pepper Kellogg), laying off thousands of workers. In addition, the volume of food sold in Canada has reduced, and production costs have risen, leading to a 1.9 per cent decrease in food manufacturing growth.

The same report highlights some additional factors that will come into play in 2026 for the industry, including the Buy Canadian movement leading to demand for domestically grown and produced products; interest rate cuts that could potentially provide access to more affordable loans; and mandated caps on temporary foreign workers and temporary residents.

The cost factor

Affordability has become the most prevalent concern for the industry and the consumers it serves.

Escalating food prices are a key driver behind the more muted market growth. The Food Price Report forecasts that overall food prices will increase by four to six per cent, meaning the average family of four is expected to spend up to $994.63 more over the previous year. Over the past five years alone, food prices have risen 27 per cent.

This food inflation is leading lower-income consumers, in particular, to switch to value-driven brands or to bypass certain purchases. While prices increased across most categories, meat, particularly beef, showed the largest increase, with beef prices up 23 per cent from the five-year average (prices are expected to stabilize moving forward through beef import partnerships). However, chicken prices are set to rise substantially in 2026 due to high demand.

What consumers want

Consumers are becoming more discerning and demanding when making their buying decisions. According to Nourish Food Marketing’s 2026 Trend Report, they are turning away from artificial perfection to a more authentic experience. They are increasingly skeptical about ultra-processed foods marketed as healthy and seeking simpler ingredients.

Plant-based meat alternatives for example are increasingly viewed as overly engineered products that sacrifice real food for technological novelty, notes Jo-Ann McArthur, president, Nourish Food Marketing. The dairy milk category is another telling example, with sales growing 4.6 per cent in dollar terms after years of decline, while plant-based alternatives fell 3.5 per cent.

Consumers are also turning to food and beverages for their health and nutritional needs. Supplement-enhanced beverages, foods, and snacks are on the rise to address multiple needs such as digestive health, energy, and immune care, among others. Nutrient balance from natural food sources is becoming top of mind, such as legumes that deliver protein and fibre, as well as micronutrients, versus faux meats.

Consumers are also demanding transparency and traceability from food processors and manufacturers. The FCC says that they are scrutinizing labels more to avoid being misled about product origins, and in some cases, expanding their search to concerns over environmental footprint and ethical sourcing.

Buy Canadian movement

The move to support local businesses and protect jobs is not unusual in any country. In general, consumers are willing to pay more for domestic products versus a comparable imported product if they have the available funds to make that choice.

However, the past year saw an unprecedented move to buy Canadian products due to tariffs, and the trade tensions with the US escalated. Food Processing Skills Canada (FPSC) has found that 76 per cent of Canadians are motivated to avoid US products, with 43 per cent making significant changes to their grocery habits this year. The movement is about more than Canada’s need to reduce reliance on a single trade partner; it has also become a matter of national pride.

An FCC article on the ‘Anything but American’ food movement in Canada notes that the shift in consumer behaviour is reshaping Canada’s food supply chain. Despite the fact that the US remains the country’s largest trade partner, imports are declining, as consumers turn to other countries and domestic suppliers.

However, there are limitations in Canada’s food system due to climate, geography, and production capacity issues. Also, affordability can come into play for lower-income consumers. As the FCC article says, “the gap between stated preferences and actual purchases is shaped by income, access, and necessity” – factors which will impact production decisions.

Investment experiencing a downturn

FCC senior economist Amanda Norris reports that foreign direct investment (FDI) in the industry has taken a downturn following a lengthy growth streak. Businesses are now holding back on investment, leading to project delays and cancellations.

Between 2017 and 2024, FDI into the industry experienced 130 per cent growth – more than three times the pace of the broader manufacturing sector – according to FCC. The past year painted a different picture, with new entrants to food manufacturing falling 14.9 per cent in the first half of 2025. FCC believes it will take another year for growth in capital investment to return to previous levels.

Although food and beverage manufacturers are somewhat shielded from the US tariffs compared to other manufacturing sectors, they are still facing rising input costs and disrupted trade flows.

A shifting job scene

Labour shortages have long been a major pain point for the industry, but there may be some relief in the months ahead.

According to FCC, the job vacancy rate in food and beverage manufacturing fell to 2.8 per cent in Q2 2025, the lowest for any second quarter since 2015. This represents a stark contrast to Q2 2022, when the job vacancy rate reached 6.6 per cent.

It adds that the unemployment rate for the sector also began to climb over the summer, reaching 9.4 per cent in August 2025 (the highest in over four years). Also, the average offered hourly wage declined in Q2 2025 after three consecutive quarters of growth.

These numbers indicate a more accessible labour market for manufacturers, and a potential softening of wage pressures, making it less challenging to staff operations.

However, TFWP reforms could lead to labour shortages, particularly in the agricultural sector, which in turn could drive increased costs for businesses and consumers.

Looking forward

While the road forward will continue to have its economic and geopolitical challenges, there are some positive signs that will sustain the industry moving forward. Canada’s Food Price Report projects that inflation is likely to further decrease by around two per cent. Another positive sign is the recent tariff rollbacks on more than 200 agricultural and food products.

It also expects that the One Canadian Economy Act, passed in July, will stimulate trade between provinces, reduce costs, encourage labour mobility, and strengthen domestic competition.

Despite these signs, food and beverage manufacturers are navigating a more complex operating environment defined by regulatory change, trade uncertainty, evolving health expectations, and ongoing affordability pressures.

A heavier regulatory load

Several new regulations came into effect on January 1, 2026, increasing both compliance requirements and cost pressures for manufacturers.

Front-of-package labelling rules now require prominent disclosure for products high in fat, sodium, or sugars. While designed to improve transparency and support public health outcomes, the regulations are expected to influence purchasing decisions and accelerate reformulation efforts across multiple categories.

The Canadian Grocery Code of Conduct also took effect at the start of the year, introducing new standards for retailer–supplier relationships. While intended to improve fairness and supply chain stability over time, the near-term impact will likely include increased administrative complexity and contract renegotiations.

In Ontario, the new Blue Box program represents a significant shift, as food and beverage producers are now fully responsible for the financing, funding, and operation of recycling systems. The change is expected to result in material cost increases and added administrative burdens, particularly for small and mid-sized producers.

Trade and investment uncertainty

Trade risk is returning to the forefront as the Canada-United States-Mexico Agreement (CUSMA/ USMCA) enters its mandatory joint review in 2026. The agreement allows any participating country to withdraw with six months’ notice, creating uncertainty for businesses that rely on integrated North American supply chains. Even without a withdrawal, the review process itself could influence sourcing strategies, pricing, and capital investment decisions.

Health and wellness reshape demand

Health and wellness trends continue to reshape consumer demand in 2026. Consumers are increasingly favouring simpler, more wholesome plant-based proteins over highly processed alternatives. At the same time, alcohol consumption is declining among younger adults, driving growth in functional and non-alcoholic beverages with lower sugar content, added electrolytes, and protein-enhanced formulations.

Affordability remains the key constraint

Despite these shifts, food affordability remains the industry’s most persistent challenge. Rising input costs and ongoing inflation continue to influence consumer behaviour, reinforcing demand for value-driven products and limiting pricing flexibility. Success in the year ahead will depend on manufacturers’ ability to balance cost management, regulatory compliance, and innovation while responding to increasingly selective and cost-conscious consumers.

At Fuller Landau, we have wide knowledge in the food and beverage industry, including retail, wholesale, distribution, and food processing. If you have any questions or need further information, please reach out to the Food and Beverage group at Fuller Landau.