Manufacturers face headwinds going into 2023.Ottawa--Food and beverage processors are coping with challenges but should remain profitable through the rest of 2022 with annual sales growth in the nine per cent range, says Farm Credit Canada in its mid-year report on the sector.Sales growth was stronger at the start of the year but is expected to keep moderating during the second half “as inflation eases, global economic growth moderates and Canadian consumers pay attention to the price of food and their own limited savings compared to a year ago,” said J.P. Gervais, FCC's Chief Economist.With consumers focused on purchasing lower-margin basics in the face of higher retail prices and input costs remaining elevated relative to selling prices, manufacturing gross margins have been under pressure. FCC Economics' gross margin index in food manufacturing fell nearly 10 per cent during the first half of 2022. “With commodity prices declining, we anticipate margins will start to improve, although projections of weaker economic growth over the next 12 months will continue to be a headwind.“Food and beverage manufacturers are reckoning with high costs and shifting consumer food patterns, but profitability is projected to improve in the months ahead,” he said. Consumers are focused on purchasing lower-priced foods to cope with higher retail prices while processors are coping with higher input costs.“We anticipate margins will start to improve as commodity prices decline. Overall, the trends to watch are the decline of global economic growth, job vacancies in the food and beverage sectors, and domestic food consumption growth as inflation slows and consumers return to normal shopping habits.”Beef should make a comeback while demand for chicken and pork continues to be strong, he said. “Consumers have cut back on beef consumption domestically since the start of the pandemic, but that is offset by strong beef exports. We are seeing positive trends in red meat and expect sales to rise in 2023.”Seafood, breweries and wineries are forecasted to see sales slip in the second half of 2022 as consumers adjust their purchases to meet their incomes.“Understanding these economic trends is critical for processors to navigate the headwinds we are experiencing,” Gervais said. “For those figuring out how to best withstand a slowdown, it may be time to review performance to make possible adjustments in financial planning and or relationships with suppliers. This will help manufacturers set budgets, monitor and control costs, and decide pricing strategies.”Since the start of the year, inflation and interest rates have risen faster than initially expected and global economic growth forecasts have weakened, Gervais said. Sales volumes declined for dairy, seafood and all alcohol manufacturing industries in the first six months of 2022 as consumers cut their spending and those sectors will see sales slip for the rest of the year. Seafood sales have been weaker due to lower exports to the U.S. and Japan.Other industries with healthy volume trends include sugar/confection, fruit/vegetable preserving, specialty foods, soft drinks and bakeries. Sales of these industries are forecasted to finish the year strong.The OECD forecasts global GDP growth to be 3 per cent this year this year and 2.8 per cent in 2023. The U.S. has had two consecutive quarters of negative GDP growth and over the next few quarters, growth is expected to be moderate as recession fears persist. China's GDP is expected to grow well below its historical growth rate.Job vacancies continue to plague many industries, including food manufacturing, and the June job data showed more job vacancies than unemployed people, forcing businesses to increase compensation to attract talent. Food manufacturing employee weekly earnings are up on average 11.5 per cent in the first six months compared to a year ago, while manufacturing selling prices are up 9.9 per cent pressuring margins.