Five years ago, the spotlight was shining bright on a report from the federal government’s Advisory Council on Economic Growth. Few federal reports get much attention, but this report, named after council chair Dominic Barton, generated headlines as it predicted that a new era of value-adding would not only transform the country’s ag and food sector, but drive the country’s economic prosperity overall.
Since then, the headlines have vanished. The spotlight has been turned off.
“Achieving greatness means that everyone has to roll up their sleeves and do the hard work,” says a disappointed Kathleen Sullivan, CEO of Food and Beverage Canada (FBC).
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Like a growing chorus of industry watchers across the country, Sullivan says the hard work didn’t happen.
The council set out some excellent goals, she says, but it didn’t follow that up with a plan for achieving them.
In a nutshell, the report said “this country could become an increasingly significant source of high-quality food to feed the world’s growing middle class, while ensuring accessibility to affordable, nutritious and healthy food at home.”
It set lofty targets like increasing Canada’s share of global food exports to eight per cent from 5.7 per cent by 2027 and doubling its global market share in agri-food products to 5.6 per cent by the same time. The federal budget of 2017 set a target of $75 billion in agri-food exports by 2025, a figure that was bumped to $85 billion by the national Agri-Food Economic Strategy Table.
And there has been progress. Since those heady days, there have been many more reports and recommendations on how to fix the current system and move forward written by the Senate and House of Commons as well as by think tanks like the Canadian Agri-Food Policy Institute. And while the early days of the pandemic did make the food system wobble, it recovered somewhat, despite some perennial problems like labour shortages that were severely exacerbated.
But there are serious long-term hurdles too, including finding a way to build business on value adding.
“Profitability is a cornerstone of everything,” says CFA president and Prince Edward Island potato producer Mary Robinson, who adds “We have to ask, do I have enough people to come to work, can I get my product to market, is the government going to help me out or get in the way?”
Not only that, but Canada’s farmers are also at a competitive disadvantage because, instead of being compensated for the public environmental, health and social goods they provide, farmers must pay for them out of their own pockets.
It matters, Robinson says, because equitable treatment would see farmers build a foundation that would lift the competitiveness of the entire food chain.
Setting the stage
Value-added agriculture was defined in a 2019 Senate report about growing the country’s sector as “the production techniques and processes that add economic value to a raw agricultural product.” It also included a more wide-ranging definition from the U.S. that encompassed product differentiation, marketing, and generating energy on the farm from wind, solar or methane.
Canada’s agri-food system is already an economic engine. The federal government says that, in 2018, it generated $143 billion, accounted for 7.4 per cent of Canada’s gross domestic product (GDP) and provided one in eight jobs.
Food and beverage is the country’s largest manufacturing industry, accounting for 17 per cent of all manufacturing GDP and 18 per cent of all employment in that sector.
In primary agriculture, 2018 hit an all-time high of $60 billion in farm market receipts, with an average annual growth of 4.2 per cent. The largest eight per cent of farms accounted for half of those receipts.
The country’s food and beverage processing sector buys about 40 per cent of Canada’s agricultural output and sells 70 per cent of its production into Canadian retail and food-service markets. More than 90 per cent of these companies employ fewer than 100 people.
“The appetite for Canadian products is significant — to take advantage of that, we need to invest more in innovation, developing new products, packaging and marketing approaches and more efficient means of production so we can feed the world,” says Senator Rob Black, who was on the committee that produced the report Made in Canada: Growing Canada’s Value-Added Food Sector, which was adopted in early 2020.
Persistent problems
So why hasn’t Canada done better in adding value to commodities and fueling the nation’s economy? Total agri-food and seafood exports according to Statistics Canada were $61 billion in 2020, up from $55.5 billion in 2019, and we remain the world’s fifth-largest agri-food exporter — a place that we’ve held since 2012.
We are also number 11 in the world in processed food exports, but exports have only inched up incrementally, increasing by less than one per cent per year for the last decade. That puts the country a long way from the target of $85 billion in three years.
International trade drives the nation’s agri-food industry. The Canadian Agri-Food Trade Alliance says that 90 per cent of the nation’s farmers depend on exports, as does 40 per cent of its food processing sector.
Chronic labour shortages
One of the biggest barriers to progress, which was present long before the pandemic, is not having a large enough labour force. That’s top of the list for Senator Black and also for Food and Beverage Canada’s Sullivan and Canadian Federation of Agriculture (CFA) president Mary Robinson.
“I don’t know anyone in this industry who isn’t dealing with labour issues,” says Robinson. “People cannot make investments in their businesses to grow them because they don’t have the people to do the work.”
Research by the Canadian Agricultural Human Resource Council says that by 2029 there will be a 123,000-person shortfall in the ag labour force, translating to billions in lost revenue.
In primary agriculture alone, CAHRC estimated that revenue losses due to the lack of labour totalled $2.9 billion in 2019 — and that the impact will double every 10 years.
“This is a massive issue that seems to be going mostly unaddressed — to the point where now, we’re having structural problems,” says Sullivan. “We need to identify actions on many different fronts — it can’t be fixed with a program here and a program there.”
Among the actions she cites are attracting employees domestically, addressing problems with foreign labour, ensuring employees get the skills they need, increasing the use of automation and technology to relieve the pressure, and having broadband services everywhere.
There have been government attempts to fix at least parts of the issue. The Agri-Food Pilot was introduced by the federal government in May 2020 and was supposed to alleviate shortages in year-round sectors like meat processing. The idea was to provide temporary foreign workers with a path to permanent residency, and it set a target of 2,750 migrant participants per year for three years. But applications got bogged down in the bureaucracy at the Department of Immigration, and, as of August, 2021, only 343 applications had been completed.
CAHRC, along with the Canadian Federation of Agriculture and Food and Beverage Canada teamed up in the fall of 2021 to develop a strategy to try and finally make good on many of the recommendations that have been put forward.
Red-tape woes
Robinson believes governments must do a better job of looking at regulations across all departments and agencies with an agricultural lens and a specific focus on how they may affect the competitiveness of the sector.
“We need to have a strong regulatory framework, but it needs to be outcome-based and flexible to enable innovation and competitiveness,” she says.
Sullivan says that, while the food and beverage industry supports environmentally friendly policies like the current government commitment to ban single-use plastics, there’s nothing planned out in terms of alternative packaging.
“We want to help achieve policy goals, but government has to enable the industry to get there,” she says, adding that big new environmental policy initiatives don’t have the co-ordination that should be in place, especially between and among federal and provincial jurisdictions.
Losing global competitiveness
Nadia Theodore, senior vice-president for global government and industry relations with Maple Leaf Foods, cites Canada’s regulatory regime as one of the reasons the company recently bought a plant in Indianapolis, rather than locating it in Canada.
In her submission to the House of Commons Standing Committee on Agriculture and Agri-Food in February 2021, she said that Canada is recognized by trading partners as having the highest standards in safe, quality, environmentally responsibly produced food. But she also said that a lot of regulations are outdated and focus too much on prescribing processes, rather than looking for positive outcomes. She said this approach not only stifles innovation, it also creates mistrust between the industry and regulators and prevents Canada from living up to its potential for both health and safety and global competitiveness.
The pickup of automation and robotics, digital technology, artificial intelligence and other advances in the food and beverage industry is lower than other countries and even lower than other manufacturing sectors in Canada.
“Access to capital is one big challenge,” Sullivan says. “When you think that we have 7,000 companies, the vast majority of which have 50 to 100 employees, and some operate seasonally, the return on investment just doesn’t make it feasible.”
Another challenge she says is that Canada doesn’t have a food processing equipment manufacturing sector. Essentially, all processing machinery is designed elsewhere and has to be imported.
“We saw this magnified during COVID-19 — if you import equipment from Italy, they’ll want you to get it serviced by their technicians,” she says, adding that there are also problems with getting foreign equipment approved by the Canadian Food Inspection Agency because of discrepancies in approaches to food safety.
She also notes that implementing more automation would reduce the need for labour but would increase the demand for skilled labour to service the equipment.
Not all doom and gloom
In early 2018, the federal government introduced five “Superclusters” to spur innovation across several sectors. A total of $153 million was invested in one called the Protein Industries Supercluster which is aimed at increasing the value of crops like wheat, canola and pulses by using innovative plant genomics, novel approaches to processing and digital technology.
The idea is to encourage collaboration among businesses and universities as well as to get industry to provide matching investments to boost innovation and supply global markets that are hungry for protein alternatives for both human food and livestock feed.
In its 2021 annual report, Protein Industries Canada — the non-profit organization that is carrying out the initiative — said that $352 million had been invested in 22 projects over two years. The goal is for Canada to capture 10 per cent of the projected $250 billion global plant-based market by 2035.
There are also agri-food tech accelerators like Bioenterprise, which, for the last few years, has been building a national presence from its base in Guelph, Ontario.
Another promising initiative is the Canadian Food Innovation Network, an organization aimed at boosting innovation by “stimulating connections, collaborations and investment” in the country’s food production system.
As of November 2021, it had 500 members comprised of researchers, food manufacturers, grocers and other organizations involved in the food supply chain. It has launched two programs. One is cost-shared at 50 per cent and provides $1 million to $4 million to business collaborations that undertake innovative projects. The other is aimed earlier in the process — making $20,000 to $200,000 available to researchers and small- or medium-sized food manufacturers who want to bring innovations to market.
Also in November, the federal, provincial and territorial agriculture ministers issued the “Guelph Statement,” which committed the parties to five priorities, one of which was “building sector capacity and growth through realizing the potential of value-added agri-food and agri-products.”
Processing capacity
The COVID-19 pandemic shone a light on Canada’s processing capacity problems, particularly in meat production. Only three federally regulated plants owned by two companies are responsible for processing 85 per cent of domestically consumed beef.
When the pandemic struck the Cargill plant in High River, nearly half of its 2,000 employees tested positive. Three deaths were connected to the outbreak, which at the time was the largest workplace infection in North America.
The plant normally processes about 4,500 head of cattle a day, so when it shut down for two weeks in April 2020, it caused a huge backlog.
In his report to the House of Commons agricultural committee, Rob Lipsett, president of the Beef Farmers of Ontario, said some beef farmers had to wait anywhere from four months to a year to have their cattle processed. Lipsett quoted an estimate from Canfax, the Canadian Cattleman’s Association’s information service, that shortages in processing capacity meant $129 million in lost revenue in 2020 for eastern Canadian farmers.
The federal government announced the $77.5 million Emergency Processing Fund in May 2020 to help Canadian food processors with costs associated with keeping workers safe from COVID-19 and to upgrade their facilities.
In Ontario, $14.2 million has been provided to meat processors to increase their capacity under the federal-provincial Canadian Agricultural Partnership. The initiative was delivered in two intakes, the second of which was announced on November 12, 2021. The program generated so much demand the first time around that the Ontario Ministry of Agriculture, Food and Rural Affairs’ website warned applicants that it would close on December 22, and once the intake was fully subscribed, applications would no longer be reviewed, and the ones who didn’t make the cut would be notified.
In other words, there’s a lot of recognition across the country, as well as some serious political will to help Canada grow its value-adding sector.
Whether Canada uses its own model or takes lessons from elsewhere, many of the industry representatives interviewed for this story feel that the time is right — especially in a hungry world that’s demanding high-quality, sustainably produced food — to get serious about achieving the goals set by Barton back in 2017.
Maybe it’s the mindset
Dr. Simon Somogyi thinks that to understand value adding in agriculture, you must go way beyond food processing.
Somogyi holds the business chair at the Arrell Food Institute and is a professor in the Gordon S. Lang School of Business and Economics at the University of Guelph, and he says the ag industry needs to focus on the consumer, not the processor.
In other words, value adding is what happens when the consumer sees a reason to pay more. It doesn’t have to involve technology or new processing methods. Instead, it can be like branding and selling Angus beef burgers.
“We need to focus on the consumer,” Somogyi says, adding that there is a perfect opportunity in southwestern Ontario to build a tofu plant and export a value-added product made from identity preserved soybeans, which are already in demand and sold in large quantities to the Asian market.
Somogyi is from Australia, and cites his experiences in that country as well as in New Zealand and the U.K. where farmers don’t have business risk management programs.
“The way to reduce your risk of a bad season or low prices is to either collaborate through co-operatives or add value to your product and take that extra money in the chain as a way to diversify your business operation,” he says.
The incentive to add value to products is high in these countries because it allows farmers to make money and helps them be less dependent on the vagaries of world prices.
“Having business risk management programs can lead to a little bit of complacency in the value-added space,” Somogyi says.
He believes that our system is very influenced by the U.S. and thinks that Canada is a cheap alternative for U.S. production.
“I think it’s a mindset issue, and about working with others — we need to do things differently,” Somogyi says, adding that farming everywhere is a 24/7 job in which people don’t have a lot of time to explore value-added opportunities.
In Canada, he believes, industry associations focus more on commodities,and not so much on bringing together people from up and down the supply chain, unlike other countries.
“Meat and Livestock Australia, for example, has farmers, processors and retailers who pay fees that can then be used as leverage for government programs,” he says. This association also funds things like market representation tours, trade missions and skills development. As a result of its makeup, it also has a lot of power to influence government decisions.
Somogyi also says that relationships among producers, processors, the retail industry, the government and universities are a lot closer in Australia.
Says Somogyi: “We love in Canada to come up with our own solutions — but it’s so much easier and quicker to copy them and learn from other places.”
Grocery gouging
Compared to many other countries, Canada’s food processors and farmers also start every day at an economic disadvantage, because their domestic market forces them to sell to the country’s small handful of powerful grocery retailers.
Just five companies control 80 per cent of Canada’s market share of groceries, and several of those were squeezing suppliers with seemingly arbitrary fees and penalties assessed during the pandemic. That’s on top of the higher listing and product placement fees that Canada’s value adders get charged.
As a result, in July 2021, Canada’s ministers of agriculture directed the industry to come up with a code of conduct to bring more fairness to the relationship with suppliers and to set a deadline of the end of the year. Similar codes are already in place in Australia and the United Kingdom.
Michael Medline, CEO of Empire Company Limited, which owns Sobeys, Safeway and FreshCo, has championed the idea, and several groups, including the CFA and the FCB are working on a proposal. But many in the industry, including the Canadian Federation of Independent Grocers, remain skeptical the code will be achieved within the time frame.
