Food manufacturing capacity utilization has reached its lowest level in nearly five years, with plants using 83.6% of their capacity in the second quarter of 2026, down from 85.1% a year earlier, according to the Federal Reserve’s capacity utilization series for food manufacturing.
The decline is largely due to the industry adding capacity faster than output, resulting in most of the new empty space coming from the supply side.
Among plants running below full capability, 54.8% cited too few orders as the primary reason, while labor ranked fifth at 8.6%. Additionally, another 17.3% said it wasn’t profitable to run at full capacity, 17.3% cited seasonal operations, and 16.5% reported a lack of materials.
The monthly capacity utilization series inched down to 82.9% in August, a level not seen since October 2021.
Although this five-year low is not terribly alarming, as food manufacturing is still above its 1972 to 2025 average of 82.2%, the trend is concerning.
The capacity index for food manufacturing rose 2.4% between the second quarter of 2025 and the second quarter of 2026, while output rose only 0.6%.
As capacity utilization falls, fixed overhead is spread across fewer units, raising unit costs and potentially leading to unprofitable orders being rejected.
A more effective approach is to calculate contribution margin per available line-hour, which addresses both the effects of lower volume and unabsorbed overhead.
For instance, consider a line that is idle 40 hours a week, and a co-packing run would fill 20 of them at $2,000 an hour in revenue against $1,400 in variable cost. That puts $12,000 of contribution on the table, which is a significant opportunity that should not be overlooked due to absorbed costing allocating overhead at $700 an hour, making the order appear unprofitable.
