Bold action needed to revive food processing sector

Excitement rippled through Western Canada’s agricultural industry in recent years as pulse processing plants were announced and construction proceeded.

But when it comes to high-value product manufacturing using pulse protein, such as veggie burgers, the investment has been mostly in the United States.

This could be a further example of how Canada’s business, regulatory and investment climate limits what should be agriculture’s role as a major driver of the nation’s economy.

When Canada’s largest food company, Maple Leaf, decided to jump into the plant protein burger market, it first bought Massachusetts-based Lightlife Foods, a company with a successful history in making soy-based hotdogs, and then Field Roast Grain Meat, a Seattle-based company that makes veggie sausages and roasts.

Maple Leaf placed these acquisitions in a wholly owned independent subsidiary called Greanleaf Foods, headquartered in Chicago, and then announced it would spend US$310 million to build a plant protein product manufacturing plant in Shelbyville, Indiana.

American-owned competitors such as Beyond Meat and Impossible Burger also manufacture their products in the U.S.

The Shelbyville plant, said to be the largest of its type in North America, is expected to generate 460 jobs producing 60 million pounds of plant-based burgers, hot dogs, sausages and other products.

It is good that a Canadian company is taking such a large foothold in a fast-growing new segment of the North American food market.

Maple Leaf and its subsidiary have vast experience in the food business and a long-held position on grocery store shelves. That should give them a competitive advantage against start-ups such as Beyond Meat, which come more from a Silicon Valley business environment. The start-ups might capture the headlines but they don’t have the long food market presence that Lightlife Foods, Field Roast Grain Meat and Maple Leaf have.

However, it is disappointing that Maple Leaf’s plant was not built in Canada.

The Shelbyville plant received several run-of-the-mill government incentives such as conditional tax credits and grants for training and infrastructure development, but similar incentives would likely be available in Canada.

Likely the decision to locate in the U.S. was based on a desire to be close to the largest base of potential consumers, the overall more favourable business climate and also to avoid any potential issues in cross-border trade.

These are problematic issues for Canada’s food processors generally, according to a report released in April by the sector’s trade organization, Food and Consumer Products of Canada.

While food and consumer product processing companies are the largest manufacturing employer in Canada with more than 300,000 jobs, the overall employment level in the sector has declined in recent years. Gross sales in the sector grew slower than the general economy between 2013 and 2017. Net profit margins for food manufacturers were among the lowest in the Canadian manufacturing sector in 2017.

Costs of raw ingredients and transportation grew faster than prices manufacturers were able to charge, the report said.

Few new food products are developed in Canada, it added.

And it is notable that at Maple Leaf’s new U.S. plant protein plant, 30 percent of space will be devoted to new product development.

Food and Consumer Products of Canada and the Canadian Chamber of Commerce each note that business here faces a “high burden of complex, unpredictable government regulation.”

These shortcomings, and others such as labour shortages and inadequate transportation infrastructure, must be fixed if Canada’s agriculture and food sector is to fulfill the rightful recognition it received recently by various levels of government.

In February 2017, the federal finance minister’s Advisory Council on Economic Growth identified Canada’s agri-food sector as having great growth potential. It set targets for 2025 that would position Canada as a global leader in high-value markets and reclaim previous lost domestic opportunities.

Protein Industries Canada, the federally backed research and innovation supercluster, is one step toward reaching those goals.

And last week, the Saskatchewan government set out a growth agenda for all parts of its economy. In agriculture, the goals include expanding provincial crop production to 45 million tonnes in 2030 from 35 million in 2017 and to increase value-added agriculture revenue to $10 billion from $5 billion in the same period.

It specifically mentioned expanding the canola crushing industry to process 75 percent of production from the current level of 40 to 45 percent and expanding pulse processing to cover half of the province’s pulse crop production.

It appears that governments are finally waking up to the sleeping but immense potential of Canada’s agri-food sector.

But to succeed, the sector must have much more than existing support dressed up for a new audience.

It needs government to have the courage to take bold action in regulations, infrastructure, trade support, and labour markets.

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