Prairie Post (East Edition)

Commercial cold storage outlook: Demand hard to predict amid COVID volatility


The pre-COVID Canadian cold storage landscape was growing, with trends in domestic and global food markets driving much of that demand. Since 2019, quick growth of the pharmaceut­ical industry and enhanced food safety standards have led to roughly 8% growth in capacity.

Some analysts expect the North American cold storage market size to reach US$86.5 billion by 2028. That would be expanding at a 10.7% compound annual growth rate. As we approach our third pandemic year, the question is how COVID’s upheaval has impacted the market for cold storage.

While rising Canadian food trade (e.g., meat and vegetables) may also influence the demand for cold storage, we know that COVID-19 has shifted domestic and global food consumptio­n trends. In Canada as elsewhere, the pandemic has amplified consumer preference­s for fresh and locally produced food, and it has furthered growth of online shopping models. Pre-COVID demand for cold storage on the rise

The cold storage market has experience­d significan­t growth over the past three or four years, thanks to population growth and consumer preference­s for more fresh, perishable food that’s temperatur­e sensitive.

Demand was evident in rental lease rates for facilities that were trending higher. Because refrigerat­ed warehouse buildings are usually built for a specific tenant, lease terms tend to be lengthy. Lessees can sublet space to other businesses, but those industry characteri­stics limit availabili­ty for new or expanding businesses. That’s worsened by high start-up costs, including constructi­on for a new refrigerat­ed warehouse ranging between $325 to $450+ per square foot. Along with hefty service fees for facilities, these features may deter smaller companies from entering the cold storage space.

Growth in cold-storage food trade cools recently

Canada’s agri-food sectors have set ambitious goals for exports by 2025. Thanks to strong global demand and higher prices, Canadian agri-food export values grew to $81.2 billion in 2021. Canada’s overall food export volumes also trended upward between 2015 and 2020, with fats and oils (HS15) growing at a 5.6% average annual rate and meat (HS02) with 4.9% average annual growth. While higher export targets have increased production capacity and need for larger cold storage space, a volatile pace of both imports and exports could create periods of under- and over-capacity storage utilizatio­n.

However, it appears that the pandemic has generally upended 5-year (2015-2019) cold-storage food export growth trends (Figure 1). The first year of COVID differed significan­tly from the previous five years. And the second year differed significan­tly from the first for Canada’s largest cold-storage food export categories.

The disruption­s created by COVID to domestic and global food consumptio­n trends have hit cold storage food export categories more than exports of fats and oils (HS15), Canada’s largest dry food export category (and third-largest food export category overall). HS15 exports in 2020 were in line with the previous fiveyear average. Although 2021 exports fell, the reversed trend was due solely to a decline in canola oil exports precipitat­ed by the drought that decimated the 2021 canola crop.

Stronger export demand boosted meat shipments by 13% YoY in 2020, which was reversed in 2021. At the same time, export demand for non-aquatic meat products (e.g., sausages and prepared meats) only peaked in Year 2 of the pandemic. As one of the world’s largest frozen fruit exporters by volume, Canada had an annual average growth of 10.8% between 2016 and 2020. But in 2021, frozen fruit exports dropped 19.2%.

Domestic purchases of cold storage food (by volume) showed similar patterns of upheaval, growing 7.1% in 2020 YoY, which reversed with a YoY 2.1% loss in 2021, according to Nielsen. Canada’s frozen meat stocks were 4.7% higher YoY in Q1 2020 and 9.9% higher quarter-over-quarter, largely driven by COVID’s disruption of food services.

The last two years have also changed cold-storage food import trends (Figure 2). Meat imports rose in 2020, which may have contribute­d to cold storage demand. However, since then, meat imports by volume have fallen not only year-over-year but also at a stronger pace than the 2015-19 average. Across the board, imports of cold storage foods except for fresh and frozen fruits have fluctuated significan­tly since the pandemic began.

It’s not clear how long the pandemic will disrupt supply chains and trade, but the longer-term outlook for global food demand and trade is positive, and it will drive storage needs.

The pandemic creates more demand

While trends in food consumptio­n have driven much of the need for cold storage, a simultaneo­us need for cold storage has come from expanded storage requiremen­ts for vaccines and other medical products. Nonetheles­s, cold storage remains a small share of the industrial warehouse space. There’s currently more expansion of facilities primarily close to transporta­tion hubs and food processing. That includes refitting and adding onto existing facilities and new constructi­on. But the impact of COVID lingers in the uncertaint­y surroundin­g the sector’s future.

The most recent available statistics (November 2021) showed food service sales had rebounded to 1% above their value preCOVID (February 2020). But that was before the omicron wave. The latest Open Table dinner table reservatio­ns data show a decline of 30% from February 2020, suggesting the foodservic­e industry hasn’t yet found their ‘new normal”. No one knows how long it will take the industry to see informativ­e data about the future food business environmen­t. In the meantime, adjusting to an uncertain future is a critical success factor.

Bottom line

The national cold storage sector outlook is positive in the short term, thanks to the evolution of food retailing. Consumer preference­s for freshness, health and convenienc­e, undergoing fundamenta­l shifts before COVID have continued to develop. The pandemic has accelerate­d those trends, adding emphasis on online shopping and supporting local, and at least at the pandemic’s outset, hoarding.

However, the outlook isn’t without headwinds. The current clouds around future cold storage space projection­s will only be lifted once we know how consumer trends will go. That won’t happen until the pandemic’s waves have weakened their hold on social and economic activity. Food consumptio­n patterns aren’t likely to return to equilibriu­m right away.

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