Think of it as a bargaining bazaar.
A foreign company suggests it might invest in a new food processing plant and Canada is one of the possible sites. Within days, Canadian politicians and bureaucrats are compiling a list of incentives they can offer to bring the investment, and the jobs,
to their back yards.
The government incentives, once mainly offered in the form of subsidies, now come
in different, more subtle forms, but they can be worth millions of dollars.
The investor listens to the offers from the suitors and decides, taking
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the best deal available.
In the deficit-cutting 1990s, direct subsidies no longer are in vogue but most companies still look to governments for help when deciding where and when to invest.
In this special report, Ottawa-based national correspondent Barry Wilson looks at the
government help available to corporations and the role government plays in the expansion of the Canadian food value-adding industry.
There were smiles all around in mid-July when Heinz Bakery Products, owned by the American food giant H. J. Heinz, announced a new $8 million sweet goods centre for the eastern Ontario city of Trenton.
Canada’s agriculture minister Lyle Vanclief, from the neighboring riding, called it an “exciting and important announcement.”
HBP president Anthony Pietramala said it was an investment based in large part on location, efficiency and the fact that Trenton already housed a cold storage plant Heinz has been using.
Behind the smiles and congratulations had been three weeks of tense negotiations as Heinz officials shuttled between Canada and New Jersey, looking for the best deal they could get from government before deciding where to invest.
It already knew the Canadians were eager and armed with inducements.
When Vanclief first received wind of the Heinz interest just weeks after being appointed agriculture minister, he called Pietramala.
“I told him that I had instructed the department to shake every bush in the government that they possibly can to demonstrate to them why they should stay in Canada.”
The government tree yielded a range of goodies.
For its $8 million investment, the company received government aid likely worth a million dollars or more over the next few years.
Wages will be subsidized for six months if the company hires employment insurance recipients who will be trained at government expense to Heinz specifications. If Heinz took full advantage of the program, it could cost Ottawa $300,000.
Local governments promised to keep red tape to a minimum, a local economic development commission agreed to help in the hiring process, Ottawa offered some matching research dollars to help the company develop products and the Ontario government threw into the package its 12-week wage subsidy for young workers.
It was enough to win the investment and jobs for Trenton, although Heinz was not really adding to overall employment numbers. The plant will replace plants being closed in Toronto, Mississauga, Ont. and Buffalo, N.Y. with a net job loss of 100.
None of these incentive programs were created for the Heinz project. These, and many more programs, are available to any corporate investor.
Welcome to the 1990s version of corporate welfare – governments using more creative means to attract business.
Gone are the days of high-profile direct corporate subsidies, but government help remains a part of most corporate investment decisions. Across the country, hundreds of millions of dollars are available to lure business investment.
Help comes in many guises, from direct government investment to loan guarantees, interest-free loans, wage subsidies, training grants, tax holidays and corporate-friendly regulators.
As Canadian governments try to encourage expansion of the food processing industry through foreign investment, it is spreading the word that governments are in the business of helping business.
“The federal and provincial governments are demonstrating leadership in reducing companies’ costs and promoting technical innovation,” says an Agriculture Canada summary of the pitch made last autumn when a high-powered Japanese business delegation visited Canada, looking for investment opportunities.
“Provincial governments offer tax incentives for research and development,” the Japanese were told.
“The federal and provincial governments have used public funds to establish research institutions and facilities dedicated to product development. These institutions and facilities are widely available for use by private companies. This arrangement lowers initial costs for companies investing in computerization and technical innovation.”
This is a part of Canada’s industrial strategy that regularly draws political fire from the Reform party, which argues against business subsidies.
Opposition MPs take particular aim at government regional development subsidies and grants aimed at luring business into high-unemployment areas.
“Reform has been very critical of these regional development programs, especially when they are used to funnel tax dollars to corporations which will be in direct competition with private sector investment,” said B.C. Reform MP and agriculture spokesperson Jay Hill.
But for businesses with money to invest, a review of available government help is a prerequisite.
There is a wealth of possibilities.
When the corporation 3230970 Canada Inc. wanted to build a pasta plant in a Montreal suburb and last year promised 121 jobs in an economically depressed area, federal and Quebec governments offered close to $3 million in loans.
When a group of eastern Ontario farmers decided to build an oilseed processing plant nearby, they found help from the Ontario government’s Grow Ontario fund, derived in part from federal rural adaptation funds.
When the French-based research company Groupe Limagrain was looking for a North American site for a canola research headquarters in 1994, the Saskatchewan government helped lure them to Saskatoon with a $6 million investment from its Saskatchewan Opportunities Corporation. The pro-vince threw in a $1.1 million building for good measure.
In many areas of Canada, relief from municipal property taxes becomes part of the incentives package.
For a corporation planning an investment, the major considerations usually are access to markets, supplies and labor rather than government help, say government officials. But when the competition between sites is relatively equal, government incentives can tip the balance.
As the Heinz deal was being negotiated, company executives would listen to Canada’s offers and then head south to give the New Jersey competition a chance to respond.
“I’m told they used the corporate jet very effectively,” said Vanclief.
