Wednesday, February 8, 2012

Canada needs bigger food companies

Guelph – Canada’s food-processing companies need to get bigger to become better competitors in the North American and export markets, according to a joint report by the George Morris Centre and the Ontario government’s Institute for Competitiveness and Prosperity.

Canadian companies need the larger scale to afford things such as leading technology, research and development, says the report.

Meat, vegetable and fruit processing companies employ 296,000 workers and have sales of $89 blllion a year, making them the main customers for Canadian farmers, the report says.

It’s not only the processing companies, but also some Canadian farms that need to become larger to be more competitive, the report says.

It says this is not a matter of small vs. large farms, but recognition that some large farms are necessary to help food processors to become more competitive.

It says there are some government policies standing in the way, including supply management for the dairy and poultry sectors.

In fact, I recall when Tyson Foods, one of the largest poultry-processing companies in the world, took a stab at competing with a plant It bought in Quebec, but sold out a few years later. I guess it would have cost too much to buy enough market share to justify one of its large, efficient processing plants.

On the other hand, Maple Leaf Foods Inc. has had enough market share, but not enough courage or foresight to invest in one, big, efficient slaughter plant. That leaves the Canadian chicken industry dangerously exposed to increasing competition when tariffs decline, as they surely eventually will through trade agreements.

I have often challenged president and CEO Michael McCain to either invest in an efficient-scale plant or sell out of the poultry sector.

The report says Canada should continue to seek trade agreements that will open more markets so processing companies can achieve the sales volume they require to run larger-scale plants. Of course, free trade deals cut both ways, bringing aggressive, highly-efficient food processors eager to sell to Canadians.

They authors blame the small scale of Canadian plants for the productivity gap between Canadian and U.S. workers in the sector.

They found that:
·         Canadian food processing facilities have half the number of employees and less than half the sales revenue of U.S. facilities with major differences found in all sectors of the food processing industry
·         Larger facilities are more productive – value added per employee for establishments at the 75th percentile is twice the level for the median establishment
·         Investment in machinery and equipment in Canadian food processing facilities trails the U.S.; for every dollar invested per worker in the U.S., Canadian facilities invest only 62 cents.  

In Canada, the largest quarter of facilities generate about twice the value added per worker as the average sized facility.

“This is the result of spreading costs over larger volume, having more sophisticated management practices, and investing in more up-to-date machinery and technology,” the report says.

A copy of the complete report is posted on the website for the George Morris Centre - .

What the report says is hardly surprising and bears similarities to the warnings given to Canadian farmers about a decade ago when they were told that it would be the largest and smallest farms that would fare better than the mid-sized ones.

The big ones adopt new technologies, line up sales to the large companies and press ahead. The smallest hunt for niche markets, such as organic retailers and farmers' markets.