Global Challenges

KPMG LLP recently released the results of its 2008 Competitive Alternatives study, an independent analysis of major cost factors affecting business site selection. These cost factors are cross-referenced with 17 different vertical industries over a 10-year planning horizon, and one of those industries is agri-food.

The six-month research program for the study, the seventh in a series dating back to 1994, covered more than 100 cities in Australia, Canada, France, Germany, Italy, Japan, Mexico, the Netherlands, the United Kingdom and the United States. This edition measured 27 significant cost components including labour, taxes, real estate and utilities. This year marked the first time the study compared an emerging industrialized country, Mexico, with the control group of mature industrialized countries. Mexico clearly separated itself from the competition with a 20 per cent overall cost advantage (though shrinking to an 8.4 per cent cost advantage in the agri-food category). Everyone likes to know how Canada fared, and the answer is well. Despite a 17.4-per-cent appreciation of our dollar relative to the U.S., Canada has been able to maintain a second-place ranking in the overall survey and third place in the agri-food industry.

At the industry level, the study creates a model business with representative plant, equipment, workforce, energy requirements and other annual operating costs. Then it projects this model onto different countries and cities to plug in the actual local costs.

Bearing in mind that Mexico ranked number 1 for costs across all industry categories, the agri-food results had some interesting twists compared to other industries studied. One was the strong showing of Australia, a rising competitor in general for business costs but particularly strong in the agri-food category with a second-place finish. Australia emerged with a 1.6 per cent cost advantage over third-place Canada. The study provides detailed charts that identify Australia’s major advantages vis-à-vis Canada as transportation costs and lower non-income taxes.

Another surprise is the strong fourth-place showing by France. On one hand, France is the most competitive European country in the study, with an overall fifth-place ranking. However, France managed to narrowly edge out the U.S. in agri-food business costs despite the euro’s strength against the U.S. dollar. France’s main cost advantages in agri-food were lower salaries and wages, and lower-cost benefits beyond statutory benefits.

In this picture, we shouldn’t forget Canada’s remarkably persistent competitiveness. Canada’s main advantages in agri-food lie in a low income tax rate, as well as relatively low costs for utilities and statutory benefits.

A fascinating aspect of the study is the cost comparison of 102 international cities by industry. The lowest-cost agri-food cities were Reynosa and Aguascalientes in Mexico. In Canada, Sherbrooke, Que. and Ontario’s Waterloo region ranked in the top 20 cities. Other top 20 cities included Adelaide and Melbourne in Australia, and a wide range of centres across the American south and southeast.

To download a copy of the 2008 Competitive Alternatives study please visit www.competitivealternatives.com