A look at new report ‘The state of Canadian food manufacturing: Horizon 2030’

The state of Canadian food manufacturing: Horizon 2030

Canadian food and beverage manufacturing plays a key role in supporting farmers, and the rest of the food supply chain. As the second largest manufacturing sector, Food & Beverage Manufacturing is important to the Canadian economy. In fact, food manufacturing contributed $26.5 billion to Canadian GDP in 2020. Just ten manufacturing sectors, including food manufacturing, contribute 80 per cent of manufacturing’s total contribution to Canadian GDP. Despite the last decade seeing few new food plants open and significant closures, food manufacturing was the second largest manufacturing sector in Canada after transportation equipment in 2020. Food manufacturing also still managed to grow its GDP contribution from 13.18 per cent in 2010 to 13.47 per cent in 2020.

Despite lacking investment, thin margins, additional grocers’ fees, and aging facilities over the past decade, food and beverage manufacturing remains Canada’s second strongest manufacturing industry. The food and beverage manufacturing sector in Canada is resilient. For Canada to become a global force in innovation and food processing, however, the industry needs to be broadly recognized through better, and more supportive policy. Further, as seen through the pandemic, domestic manufacturing is critical to Canadian security – food security included.

A new report by Dalhousie University uses 24 variables to examine the Canadian food and beverage manufacturing industry and the context in which it operates. Data is collected to examine the state of the industry in 2010 and 2020, and to forecast where the industry will be in 2030 should it continue the current trajectory. All data is from publicly available sources.

Firstly, labour and greenfield investments are significant market concerns. Canada has had a small number of large companies operating federally, but that number has been shrinking over the past ten years with approximately 20 new federal facilities opening in the recent decade compared to approximately 4,000 in the US. Manufacturing is also experiencing a labour shortage, but there are concerns that the shortage is due to working conditions and wages which are unattractive and unable to retain workers. Wages, in constant dollars, have increased by 16 per cent over the past decade, two per cent above inflation of goods and services at 14 per cent. Hourly food manufacturing wages remain below the average for the goods producing industries of $30.36. Food manufacturers may be pressured to increase wages to retain skilled workers and attract new workers. Women and underrepresented minorities also present an opportunity which has not yet been fully realized by the sector. Alongside labour challenges and aging infrastructure, a lack of greenfield investments is stunting both innovation in food manufacturing and the upgrades of old facilities and old technology.

Secondly, grocers’ fees and increasing input prices are eroding thin margins. Fees by grocers are not a new practice, but they are an increasingly used practice since mid-2020 to structure supplier-grocer relationships. The price of food products at factory gate has been steadily increasing but might be eroded by measures such as grocer’s fees. Factory gate prices rose by 27 per cent, compared to prices at farm gate which rose by 25 per cent over the same time period. Machinery and equipment prices have increased by 36.1 per cent over the past decade, and will continue to do so. Home renovations and regional lockdowns in 2020 have impacted construction and put upward price pressure on the construction of new facilities, which may be a deterrent or at least a consideration for companies wishing to expand or build their businesses in Canada. On a positive note, as new players such as Google and Amazon enter the transportation market, advances in transportation in the future may benefit food manufacturers and reduce costs.

Finally, technology and environmental concerns will be important over the next decade. Investments are required to support the digitization of food manufacturing and have been on the horizon for some time, but a majority of Canadian food manufacturers have not implemented the transition to Industry 4.0. In terms of food waste, in 2010, consumers were thought to be the main cause of food waste, but this has been found to be untrue. Numbers from 2020 indicate that food processing and manufacturing account for some 37 per cent of food waste. This needs to change. Food waste, where not rescued, ends up in the land fill and produces emissions equal to putting an additional 12 million cars on the road in Canada each year.

Regrettably, federal government support for food and beverage manufacturers experiencing these challenges, at least direct monetary support, has historically been limited. It is possible that federal support is lacking because a majority of support comes from provincial governments. It may also be a matter of food and beverage manufacturing’s strong performance in contributions to GDP making it appear unsympathetic to government support. The pandemic’s spotlight on the food supply chain has resulted in more federal government support than ever before.

Into the next decade, government should consider intervention and policies to support the industry and Canadian food security. While financial support may not be realistic at this point, policy is an important tool for governments. When it comes to grocers’ fees, suppliers have been long calling for a Code of Conduct between grocers and suppliers, and the new draft Code from Sobeys and FHCPC provides a basis for a government code.

Regardless of whether a government Code of Conduct is the right step forward or not, there are some serious questions to consider not only about the relationship between industry and the federal government, but also between suppliers and Canada’s large grocers. Partnerships are needed if the industry is to continue to provide food security to Canadians, and if Canada is to address some of its biggest challenges in the next years, including climate change.

Amy Hill Amy.hill@dal.ca

Dr. Sylvain Charlebois/Professor/Senior Director/AGRI-FOOD ANALYTICS LAB/LABORATOIRE DE SCIENCES ANALYTIQUES EN AGROALIMENTAIRE at Dalhousie University Sylvain.charlebois@dal.ca