The food and beverage industry, the third-largest manufacturing subsector in the U.S., should see a gradual strengthening of demand as the economic climate continues to improve, although industry profitability remains highly vulnerable to swings in commodity prices, says a new report issued by BMO Harris Bank.
"Consumer spending on food and beverage products in 2013 will likely remain somewhat subdued," Erica Kuhlmann, managing director and head, food and consumer group, BMO Harris Bank said in a prepared statement. "However, we anticipate a brighter outlook in 2014 and beyond, in line with our outlook for the broader economy."
"Longer-term demand growth is all but guaranteed, but the industry will likely continue to grapple with elevated commodity prices," said Aaron Goertzen, economist, BMO Capital Markets. "Due to the competitive nature of the industry, selling prices have not risen commensurately and this has taken a toll on profit margins. That said, there is scope for input prices to ease in 2013 after being driven up by particularly adverse crop conditions in 2012."
Goertzen also noted the importance of the industry focusing on capital investments, M&A activity and efficient distribution networks to help improve productivity growth.
To access the report, go to https://resourcecenter.bmoharris.com/content/food-thought?free.