Institute calls for agri-food industry to work together to reverse troubling trade trend

by SUSAN MANN

Canada’s trade deficit for further processed food products climbed by almost $6 billion during the past nine years and the Canadian Agri-Food Policy Institute says the country must find a way to reverse that trend.

In a report issued Tuesday, the Institute notes food and beverage processing is the country’s largest manufacturing sector based on employment and GDP and “an essential channel for Canadian agricultural products.” Food processing companies are succeeding but the sector has been facing challenges, including record deficits in further processing where the trade deficit jumped to $6.8 billion in 2013 from about $1 billion in 2004. Examples of further processed products are wine, pizza, beer and meat pies.

The Agri-Food Policy Institute is an Ottawa-based think tank that provides insight, evidence and balance on agriculture and agri-food matters. The report is the third phase of the Institute’s research on the state and prospects of Canada’s food manufacturing sector. It began this research in late 2012. The first phase looked at the changes and pressures facing the sector while the second phase was an exploration of inspiring practices and a broadening of thinking about opportunities. The third report, called Taking the Sector from Trade Deficits to Competitive Resurgence, offers ways to tackle the trade deficit.

• Report identifies shopping trends, market opportunities

David McInnes, Institute president, says one of the challenges to reversing the trade deficit and increasing the industry’s profile is few people currently think of food manufacturing as an engine of economic growth in the Canadian economy.

Daniel Vielfaure, CEO of vegetable processor Bonduelle America, headquartered in Montreal, says the industry must be more vocal in telling people it’s the number one industry in Canada and in most of the provinces. The industry is starting to be better at speaking with one voice to provincial and federal governments through the Food Processing Industry Roundtable, which is establishing a clear agenda, setting clear objectives and sharing food industry data. “I think this is what we really need to do.”

The food processing industry is a big industry made up of a lot of small, medium and large companies unlike the automobile or aerospace industries, which are made up of a few companies so it is much easier for them to speak with one voice, he adds.

Bonduelle’s parent company is based in France, has worldwide sales of $3 billion annually and is the largest vegetable processor in the world, Vielfaure says. The North American section of the company has annual sales of $600 million. In North America, there are seven Canadian plants (three in Ontario and four in Quebec) and four in the United States.

McInnes says Canadian and worldwide consumers are increasingly interested in what they’re eating, and farmers and processors must work on thinking differently on how they can “take advantage of the opportunities in this global marketplace. We think producers and processors have a lot in common to help chart a more successful future.”

Across the country 143 food processing plants closed from 2006 to 2014. Ontario was the hardest hit with more than half of those 143 plant closures happening here. From 2006 to 2014, more than 23,000 jobs were lost and 72 per cent of them were in the further processing sector in Ontario, the report says. Ninety per cent of the closures were part of multinational enterprises.

The trade balance is a surrogate measure for competitiveness, the report says. Trade balance compares the values of exports against those of imports. The report adds that interestingly, Canada has a positive trade balance in food overall, including commodities, but is running a large deficit in further processed products. The deficit exists even though the global demand for both primary and further processed food is rising at “an incredible pace,” the report says, noting Canada’s primary and further processing sectors have some strong performers, such as canola oil, canola meal and frozen potatoes. It also notes the primary processing sector’s trade surpluses are driven by just four commodities – canola oil, pork, edible offal and malt.

McInnes says there is a concern about this narrow number of products contributing to the primary processing sector’s trade surplus. “It’s starting to raise questions about” whether the country has the right food manufacturing strategy overall, he adds.

If the processing industry isn’t fulfilling its full potential, “we potentially lose that channel to market for producers,” he says.  

Despite adverse conditions during the past decade, Canada remains a stable and attractive jurisdiction for its food sector, the report says. Still, processors are squeezed from all sides, including by consumers expecting low prices, retailers demanding cost reductions and the rising costs of ingredients and non-food components, the report says. About 65 per cent of food manufacturers’ costs are ingredients and supplies. The rising energy costs in Ontario were also cited as a concern for processors.

Vielfaure says his company in Ontario has three vegetable freezing facilities and one canning plant. The company experienced a 28 per cent energy cost increase over the past two years. “We are very high energy consumers when we freeze or can vegetables,” he says, adding they really operate the plants from mid-June to mid-December running 24 hours a day, seven days a week.

And because of the compressed time period in which they must complete their work, they can’t schedule the plants’ activities to take place during lower cost energy periods in the day. “We are hit totally by the increase that we’re experiencing,” he says.

Energy cost increases is therefore one example of a situation that should be modified for food processors so that “we will not be hurt through these things,” he notes.

 The simple conclusion of the Institute’s research is “we need to recognize the importance of Canada’s largest manufacturing sector and its critical connection to production agriculture.” It notes processors transform 40 per cent of Canada’s raw agricultural products into the foods consumers eat while in Ontario that percentage is much higher at 65 per cent.

Steve Peters, executive director of the Alliance of Ontario Food Processors, says the Institute’s report is similar to what the Alliance has been saying about the important economic impact of the food processing industry in Ontario. “And through our New Engine report we’ve identified the opportunities” for the sector.

“The underlying factor is we need all levels of governments – federal, provincial and municipal” working together with farmers and processors to find ways to better work with the retail sector and foodservices sectors, he says.

The food processing industry is a huge economic driver in Ontario “and has the potential to be so much more,” Peters says. “We need everyone to sit down together to develop a coordinated strategy going forward.”

The Institute says the need to reverse the growing trade deficit trend is important because Canada needs to be a vigorous competitor in adding value to food ingredients. The processing sector must also continue offering this market opportunity to farmers and it must attract new investments.

Ron Bonnett, president of the Canadian Federation of Agriculture and an Ontario farmer, says the growing trade deficit in the further processing sector is a concern “particularly if Canada wants to position itself as being an exporter of food products. If we can do the processing here it creates a lot of value-added (production) and also creates a stable market for Canadian primary producers.”

The entire supply chain from farmers to processors, retailers and consumers must work together to reverse the trade deficit. “Traditionally we haven’t had as good a linkage between producers and processors as we could have,” he notes, adding the value chain needs to look at what consumers are requesting and “making sure that the whole supply chain works together to supply what they want.”

Processors must have the confidence that they have a supply of the products they need but “at the same time farmers need to make sure they have a processor that’s going to be there for the long term,” he says. BF

Report identifies shopping trends, market opportunities

by SUSAN MANN

For food shoppers price is often still king but consumers are considering other factors like nutritional value as part of their purchasing decisions, according to a report by the Canadian Agri-Food Policy Institute.

When it comes to food, companies and supply chains face rising societal expectations about health, ethics, sustainability and provenance, according to the Institute’s report on the rising trade deficit in the further processed food sector released this week.

One of the goals the Institute proposes to help the sector achieve resurgence is to foster high-performing food processing companies. Part of that includes ways to help create mutually beneficial outcomes for supply-managed ingredients. An example is dairy farmers having introduced competitive milk pricing directed at manufacturers using certain dairy products, such as cheese.

The Institute also proposes a "Canadian" brand that farmers and processors would both be involved in developing and promoting.

Processors can also explore underutilized e-commerce opportunities. The report notes, for example, that more than 190 million Chinese consumers regularly shop online and one expert says that number could reach 350 million in the near future.

Displacing imports on ethnic grocers’ shelves is another way to help the sector. In the Greater Toronto Area alone, the market share of ethnic growers climbed to more than nine per cent in 2014 from just two per cent in 2006.

Another avenue processors could look at is developing lower-cost models to supply the under serviced food bank users market. The report notes that figures from Food Banks Canada show that 1.7 million Canadian rely on food banks making 14 million visits each year. The full economic value of the need for food banks could equal two per cent of the entire food market, the report says.

A further suggestion to help revive the sector would be for some processors to work with farmers to efficiently use off-grade raw materials that haven’t made the grade due to imperfections. Given the right conditions, this can become a viable-value added business opportunity, the report says. BF

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