A case for gearing up Canada's agri-food sector
With thriving businesses of every size – from family farms and mom-and-pop operations to endless fields of canola and sophisticated operations that make packaged foods – Canada’s agri-food industry is alive and well.
Yet there are some challenges that are holding the sector back.
By Marjo Johne
In this country of natural abundance, more than 205,000 farms coast to coast produce a wide var-iety of crops and meat for domestic and international markets. Downstream from the country’s farms, an estimated 6,000 food and beverage manufacturers transform raw ingredients into commercial food products, making up the largest manufacturing sector in the country and, with about 290,000 employees, providing the highest number of jobs in manufacturing.
“Our agricultural industry is healthy and growing, and food manufacturing has been surprisingly solid,” says Dr. David Sparling, professor and chair of agri-food innovation and regulation at Western University’s Ivey Business School in London, Ontario. “I think we’re in a pretty good position.”
The numbers support Sparling’s observations. In 2011 – the most recent year for which statistics are available – total farm sales in Canada grew to $48.2-billion, up $2.3-billion from the previous year. In food and beverage manufacturing, the value of shipments in 2011 totalled $93-billion, about $3-billion more than in 2010.
Food export levels are also increasing, from about $35.5-billion in 2010 to more than $40-billion in 2011. At the same time, overall trade balance in agri-food products continues to grow in Canada’s favour, from $7.4-billion in 2010 to $9.2-billion in 2011.
This upward trend is welcome news, but it also begs the question: is it good enough? Should Canada be doing more to tap into the full potential of its agri-food assets, which include a wealth of arable land and fresh water, infrastructure, research expertise, and depth of experience?
By all indications, there’ll be no shortage of markets for Canada’s agri-food products, at least in the foreseeable future. Projections by researchers at the University of Minnesota see global food demand doubling by 2050, while the United Nations’ Food and Agriculture Organization predicts a 70 per cent increase. Demand for agricultural commod-ities, such as grains and oilseeds, that have applications in energy and other industrial projects is also expected to grow over the next decades.
For Canada’s agri-food industry, this all translates to even greater business opportunities, and a more urgent imperative to address the challenges the sector faces today.
Jim Thorne, president and CEO of Toronto-based Marsan Foods Limited, a manufacturer of frozen entrees, soups and other products, cites rising business costs as among the most significant of these challenges.
“The cost of input for us is extremely high, higher than what our competitors in the U.S. would pay. Our energy costs are also relatively high,” he says.
Rising input costs are also a problem for the country’s farmers. Sparling, who has co-authored a new report on farm income and investment, says farms are paying more today than they did five years ago for items such as seeds, fuel, fertilizer, livestock and livestock feed, and machinery.
To mitigate their high input costs, farmers and food manufacturers need to expand their operations and achieve economies of scale, says Sparling. He and the report’s co-author, Nicoleta Uzea, make a convincing case for this argument, stating that “operating income increases with size – on average the smallest farms lost $4,871 in 2011, compared to the largest farms that earned $610,638 in the same year.”
Sparling says that Canada’s farming industry has already started scaling up, and with notable results. While there were almost 4,000 fewer farms in 2011 than in 2010, the number of large operations has gone up significantly. In fact, between 2005 and 2011, the number of farms with sales of $1-million to just under $2.5-million more than doubled. In the highest revenue class, with $2.5-million or more in sales, the number of farms increased by 90 per cent.
These million-dollar farms produced more than half of farm sales in Canada in 2011 – for the first time in the country’s agriculture history, says Sparling.
While bigger can be better for Canada’s agri-food companies, realizing the full benefits of scale requires more efficient operations, says Thorne. Unlike the agriculture sector, which has been investing more and more money each year into sophisticated machinery and other business assets, the country’s food manufacturers have fallen behind when it comes to upgrading their manufacturing technology and innovations.
“We need to modernize the technology footprint of the Canadian food manufacturing industry,” says Thorne. “We need a program – or a number of programs – that would help support investments in innovation and technology.”
Justine Hendricks, vice president of light manufacturing, resources and extractive industries at Export Development Canada, agrees that investing in machines and infrastructure can streamline processes in food manufacturing, boost output and enhance price competitiveness. Without these investments, Canadian food manufacturers will continue to lose out to manufacturers in countries that boast state-of-the-art operations, exacerbating a processed foods trade deficit that has ballooned from about $1-billion in 2004 to $6.3-billion in 2011.
Hendricks says the country’s food manufacturers also have an opportunity to leverage Canada’s reputation for food safety.
“We’ve seen inquiries from companies in Asia, for example, that are interested in particular food products because of the packaging,” she says. “They know that once it leaves Canada, the integrity of the product is intact because of the quality and safety of the packaging.”
Jack Greydanus, co-owner of The Enniskillen Pepper Co. Ltd. and Greyda Plains Poultry Ltd. in Petrolia, near Sarnia, Ontario, says a significant threat to Canada’s agri-food industry may actually come from its biggest export customer: the United States. Initiatives to get more local food into the U.S. food system, as well as more aggressive campaigns to entice farmers and food manufacturers to set up shop south of the border, could slowly erode Canada’s agri-food industry.
Still, Greydanus remains optimistic. With the current global trend towards obesity, he foresees greater consumer demand for healthy, high-quality food. And Canadian agri-food producers are ready to meet that demand.
“We’ve got the capacity and we’ve got great products,” he says.
“I think the opportunities are there.”
Agriculture and agri-food GDP has grown
annually since 1997, despite a global economic downturn that saw many other sectors stagnate and falter.
The food and beverage manufacturing industry is the largest manufacturing industry in Canada in terms of value of production, with shipments worth $92.9-billion – it accounts for
of total manufacturing shipments and for 2% of the national GDP.
Exports of manufactured food and beverage products were worth
in 2012 (an increase of 5.6% from 2011) and reached 185 countries.
of food and beverage shipments were exported – with the largest share of exports going to the United States.
Source: Agriculture and Agri-Foods Canada
Cultivating a food and beverage cluster in the Greater Toronto Area
A strong urban core plus good connections to nearby rural agricultural and food production sites have placed the greater toronto area (GTA) among the three largest food and beverage clusters in north america, together with Chicago and Los Angeles.
Currently, 75 per cent of agricultural production in the rural area surrounding toronto is processed locally and there is potential for significant growth for the sector.
To develop this cluster, Food & Consumer Products Canada is leading efforts with the Toronto region board of trade, industry and other stakeholders. Priorities include the regulatory environment, the labour pool and infrastructure.
Efforts such as building capacity for food production in the GTA and across the country are envisioned to contribute to Canada’s economic growth and food security.
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