The sudden rise of the Canadian dollar has up-ended the economics of processing food in Canada and importing it from the United States, says George Morris Centre analyst Kevin Grier.
It has left food processors in the position of needing to either achieve world-class processing efficiency with large operations or offer specialized products with excellent service and support that giant U.S. competitors won’t offer.
“Doing the same thing as the U.S. but smaller is not a winning strategy,” Grier said in a webinar for analysts and industry players.
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“You can be big and go global. You can be nimble-innovative. And you can be … a bit of all of that.”
Canadian food companies found themselves facing both cost and revenue shocks when the loonie surged from 70 cents to parity with the U.S. dollar in the late-2000s.
In 10 years, Canadian food processing wages changed from $1 less per hour than wages in the U.S. to $3 more per hour. At the same time, prices for goods exported to the U.S. dropped as the relative value of the American currency fell.
That cost-price squeeze forced Canadian food processing plants to close and either move to the U.S. or be replaced by other providers in the U.S.
Grier said the dollar isn’t likely to fall back to pre-2006 levels any time soon, so Canadian food processors need to figure out a way to survive with the new economic situation.
Becoming globally competitive in costs is one approach that holds promise, he said. Maple Leaf Foods is doing that, and already has operations that are world-class, such as the Brandon hog slaughter plant and the expanded and improved meat plant in Winnipeg.
Another approach is to produce specialized products for markets that are too small for the giant American food processing companies. They often aren’t willing to run special lines of product for local markets, don’t like dealing with different labelling requirements and don’t want to alter the formulas of their products to meet local tastes.
Those are areas smaller Canadian firms are aggressively servicing.
“This is how they’re surviving and thriving in this global marketplace in this environment of a par dollar,” said Grier.
