It’s been called “recession proof” and is Canada’s strongest manufacturing segment in terms of production value and number of employees. Yet Canada’s food and beverage manufacturing sector faces challenges that have resulted in declining employment and slower growth. Proponents say we can do better.
By Susanne Martin
With almost 300,000 employees, the country’s food and beverage manufacturers transform raw ingredients into commercial food products – buying over 35 per cent of what Canadian farmers and ranchers produce and support hundreds of thousands of indirect jobs, for instance in retail, food service, marketing and packaging.
Last but not least, the sector creates food security for Canadians, says Derek Nighbor, senior vice president of Food & Consumer Products of Canada (FCPC), who adds that the potential for increased levels of food production is considerable. “If you look at the arable land, the fresh water and the skills of our workforce, we should be a major exporter. We should be a food superpower.”
Yet we aren’t – so what’s the missing link?
A recent industry study commissioned by Canadian Manufacturers & Exporters and FCPC offers insight. The 2014 Management Issues Survey revealed a number of challenges food and beverage manufacturers face, including a fluctuating dollar, rising input costs, an outdated regulatory system, retail consolidation and changing consumer preferences. Survey respondents also felt that governments were restricting their ability to grow.
“We see this as a call to action for all levels of government to better understand the industry and think about policy that supports growth,” says Nighbor, adding there is a role for government to implement measures that keep taxes and regulatory compliance costs low and open new markets. He also notes that improved policy could help create reliable and cost-effective infrastructure and support innovation.
At the federal level, Nighbor says barriers include labelling regulations and approval times for new foods. “It can take three to four years to get a product approved in Canada versus a shorter period in the U.S. or other countries – that doesn’t send the right signal to the investment community,” he explains, adding that while recent positive action from the government has led to an improved regulatory system, there is still much room for improvement.
Findings of a recent study by the Canadian Agri-Food Policy Institute (CAPI) confirm the challenges identified by food and beverage manufacturers. In addition, they point to the importance of scale and market access, says David McInnes, CAPI’s president and CEO.
“Access to markets can be a big part of achieving appropriate scale,” McInnes explains. “But the issue is how Canadian companies can define a differentiation advantage as a platform to achieve suitable scale in the right markets.”
And while an enabling economic environment – such as trade agreements, a competitive corporate tax structure and tax credits for innovation – has a positive influence, the study also notes that people and talent are instrumental to a company’s success. Considerations include a highly effective CEO with an absolute clarity of vision of what a company wants to achieve, and what McInnes calls the “pursuit of differentiation.”
“Being innovative goes beyond new products or processes – it’s a way to assert your competitiveness on every level, from the sourcing of quality ingredients to locking in strategic partnerships,” he explains. “This drive to differentiate is at the heart of the winning formula.”
At Ozery’s Pita Break, innovation is a constant process, says Alon Ozery, who, together with his brother Guy, owns and operates the Ontario bakery that has risen from a small family business to a commercial bakery that now supplies retailers across North America.
“There is a lot of movement in food manufacturing that is often the result of consumer perception,” he says. “The flavour of the month could be anything from fibre or fat, to certain berries – we see a lot of demand for new products.”
Ozery’s Pita Break has been able to respond to changing market demands, demonstrating a nimbleness that has facilitated its considerable growth, says Ozery. It also helps that his business pays close attention to shifting consumer preferences.
For example, growing demand for “better-for-you” op- tions are setting off chain reactions with retailers asking manufacturers to step up production of certain products.
Yet, sometimes despite a timely response, challenges can still arise when producers are unable to secure sufficient supplies of in-demand ingredients, as a current shortage of some organic ingredients illustrates, says Ozery.
He has also noticed a gap between what’s happening in the market and how quickly regulators react.
“There needs to be a system for responding to consumers’ appetites not only for new products but also for information on how they’re produced, and what is or isn’t in them,” Ozery explains, adding that co-ordination between trade partners – such as Canada and the U.S. – can also help level the playing field.
Nighbor predicts that domestic growth will primarily happen in niche markets – for instance ethnic foods and the health and wellness space – while bigger expansion opportunities lie in international markets.
Doing business beyond Canada’s borders has become familiar territory for Bill Thomas of Thomas’ Utopia Brand, a tomato-processing company in Ontario that sells products under the Utopia label and private labels. In 2011, Thomas’ Utopia expanded its market reach into China.
What Chinese consumers are looking for is safe food, Thomas explains, and Canada’s image of having a clean environment and high safety standards has helped build a customer base in a country struggling with internal food quality concerns.
Gaining access to new markets is important for the company’s strategy. “When you’re operating in a country of 35 million and you’re catering to a niche market, your customer base is limited,” says Thomas.
Being able to adapt has always been important for the family business that was established in 1933. Since Canada’s area for growing processing tomatoes is small in comparison to California or Europe, volumes are lower and production costs are higher. When working in a consolidated retail market where pricing is highly competitive, Thomas says a company either had to be extremely efficient or look for something that sets it apart.
“That ‘something’ can give you a better margin and allow you to grow your business,” notes Thomas. With that in mind, Thomas’ Utopia started an organic line 15 years ago that helped secure a market niche in Canada and certain areas in the U.S.
Yet Thomas still advocates for setting his company’s “sights a little wider.” As part of its growth strategy, the firm is currently establishing a presence on the African continent, specifically in Nigeria.
While the opportunity is clear, identifying reliable partners and accessing funding are among the hurdles.
“If you’re talking to Canadian banks about funding for exports to Africa, they’re pretty much closing the door before you finish your sentence,” Thomas says, adding that this often leaves companies to find private investors or government funding.
“There are government programs that recognize that to grow industry and the economy, we need to look at how we sit on the world stage,” he adds.
Nighbor agrees, “We are a smaller country with higher costs. To compete on the global scale, we need appropriate support from governments.” He also cautions, however, that while Canada’s less responsive regulatory framework is seen as a barrier to innovation, it is to the manufacturers’ advantage to retain the country’s reputation for having one of the world’s safest food systems.
McInnes welcomes a growing awareness about the importance of the sector, which he notes surpasses both Canada’s mighty aerospace and auto industries in terms of GDP contributions and jobs. This makes the need even more compelling to address Canada’s processed foods trade deficit, which has ballooned from about $1-billion in 2004 to $6.8-billion in 2014.
“Increasing exports, adding value to our agricultural ingredients and meeting consumer food expectations requires an integrated approach. There is a role for companies and their supply chains on one side and government and others that enable success on the other,” he says. “We need to maximize these connections to become a global powerhouse for manufactured food.”
Making the connection to enhanced productivity
What will it take to fully realize Canada’s food production potential?
A recent study by the Canadian Agri-Food Policy Institute looked at the strengths and barriers of the country’s food and beverage manufacturing sector with a view to improve its chances for success. One recommendation coming from the findings was that companies forge stronger connections within their supply chains as well as with governments and other enabling organizations. The question is how to do it efficiently.
Technology may provide an answer. Kal Ghadban and Chris Halkai, partners at Ottawa-based business analytics and Enterprise Resource Planning company BNuvola, say today’s software can help forge bonds and expand market intelligence.
They say their sophisticated solutions powered by Qlik and SAP software applications can utilize data to improve outcomes all along the way, from farm to table, says Ghadban, by creating feedback loops that let manufacturers and farmers know what’s happening in the market.
“Technology can be a powerful tool for connecting food producers with manufacturers, retailers and other partners,” says Halkai, adding that creating a community can also boost the potential for all involved.
Food for thought.