Domestic food industry ‘broken’, report says

Forget Canada’s image as a country feeding the world; it’s tumbling down the ranks of agri-food exporters.

Forget Canada’s image as a country feeding the world; it’s tumbling down the ranks of agri-food exporters.

This was the sobering message delivered Thursday by Ted Johnston, president and CEO of the Alberta Food Processors Association.

Speaking at the Canadian Association of Farm Advisors provincial conference in Red Deer, Johnston described how Canada was the No. 3 exporter of manufactured foods just seven years ago. Now it’s slipped to seventh, and two years ago was as low as ninth — trailing the likes of Thailand, Malaysia and Indonesia.

Johnston referred to a report issued by the Canadian Agri-Food Policy Institute last week.

“Essentially, it said it (the domestic food industry) is broken. The system is not working and we are headed to disaster.”

The institute — which is a non-partisan think tank — noted that food product imports into Canada have increased more than 50 per cent since 2000. And while exports of agricultural commodities have kept Canada in a surplus position when it comes to overall agri-food trade, the country has fallen behind Brazil and been nearly overtaken by China and Argentina.

The problems affecting Canada’s agri-processing industry are manifold, said Johnston.

The rising loonie has exposed a productivity gap between Canadian processors and their counterparts in the United States and elsewhere. He cited a study by the George Morris Centre that calculated productivity here at 40 per cent less than in the U.S.

“The Americans don’t even come close to what’s going on in Europe,” added Johnston, noting that the Netherlands exported $54 billion worth of value-added food products last year, as compared with $89 billion in the case of much bigger Canada.

Canadian processors have been hurt by the recession and resulting tight credit markets. They invest far less in new equipment and facilities than do the Americans, he said.

“That means you’re living off your depreciation.”

The cost of selling into the United States — Canada’s biggest food customer — is growing with more stringent inspection, record-keeping and country of origin labelling requirements, said Johnston.

Meanwhile, there have been 24 significant plant closures in Canada during the past two years, with a loss of more than 7,000 jobs.

“I think that number’s getting close to 10,000 now.”

Some of the plants closing are branches of American companies, he continued.

“They don’t have to have a plant here. They can ship it here under NAFTA.”

Another issue for Canadian processors is the concentration of buyers. On the retail side there are only a handful of major grocers, and in the case of the food services industry, Gordon Food Service and Sysco Corp. — both American companies — dominate.

“You can’t even get Alberta products into the prisons and the hospitals,” said Johnston.

Looming on the horizon is perhaps the greatest threat to domestic food-processors — the growing probability of a free trade agreement with the European Union.

“We’re going to open up our doors to the most sophisticated food manufacturers in the world, who eat the Americans’ lunch, even though they pay higher wages and benefits,” warned Johnston.

“They’re automated, they’re modern, they’re sophisticated, they think it through, they’ve got a system that works.

“That one is really, really scary.”

Farmers have a big stake in the health of Canada’s food-processing industry. That’s because it’s the biggest buyer of domestic agricultural products — although its share slipped from 53 per cent two years ago to 51 per cent last year, said Johnston.

“Every time a plant closes in Canada, that’s a customer gone for Canadian agricultural outputs.”

Food processing currently contributes $90 billion to the Canadian economy (down from $93 billion two years ago) and generates 300,000 direct and nearly one million direct and indirect jobs.

The Canadian Agri-Food Policy Institute did suggest corrective measures in its report. And Johnston pointed out that Canada has the natural attributes to become one of the best food producers in the world.

“We have the third largest arable land mass — we’ll soon be second because the Chinese are destroying theirs at such a huge rate — and we have 22 per cent of the world’s fresh water.”

hrichards@bprda.wpengine.com

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