Canada sinks deeper into value-added food processing deficit

Canada’s food processing sector faces a growing multibillion-dollar trade deficit and a serious decline in its ability to compete, says a new study published by the Canadian Agri-Food Policy Institute.

Author Doug Hedley, a former senior Agriculture Canada official, described a value-adding industry with serious problems of competitiveness, investment and a growing gap between the value of processed food imports and exports.

“Canada’s net trade in value-added processed food has deteriorated from a deficit of about $1 billion in 2004 to $6.3 billion in 2011,” he wrote.

CAPI president David McInnes said in a Nov. 19 interview that the analysis is bad news for the entire food sector.

“The trend line of a growing trade deficit is disturbing,” he said. “This is a very important issue for primary producers who sell to these plants and to retailers.”

The numbers mean processed food products now on grocery store shelves are increasingly imports.

In recent years, there has been increasing evidence of what analysts call the “hollowing out” of Canada’s food processing industry, particularly in Ontario where plants have been closing, jobs are being shed and farmers are losing a domestic market for their produce.

Food and Consumer Products of Canada (FPCP) said last week the report flags a significant industry problem.

It is the largest Canadian manufacturing sector, with 300,000 employees, but has been recording trade deficits for two decades. As well, the gap between the value of exports and imports has increased sharply in recent years.

The FPCP used the report to renew a call for more government support, including tax breaks, labour market credits and reduced regulation.

In his report, Hedley did not pinpoint the causes of declining industry competitiveness. It is a combination of a reduced value of exports and an increase in the value of imports.

He raised some possibilities and suggested they be explored:

  • the growing trade gap roughly coincides with the increased value of the Canadian dollar in recent years, which has made Canadian production less competitive with American production. The United States is the main buyer of Canadian product and the main source of imports
  • Canada’s access to American and Mexican markets under the 1994 North American Free Trade Agreement has been challenged by other free trade agreements signed by the Americans
  • integration of the North American economy has meant that most large food processing and manufacturing firms are based in the U.S. with Canada relegated to a branch plant status
  • there has been a decline in the value of capital investment in the Canadian food processing industry. “This implies a net disinvestment in the manufacturing sector for food and beverages over the last nine years,” said the report.

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