By Sylvain Charlebois
Halifax, N.S. – The bloodbath in foreign-owned, large-scale food manufacturing in Canada continues. In the past few days, we’ve learned that two plants, employing almost 600 highly-paid workers, are closing: Dr. Oetker in Grand Falls, and Campbell’s in Toronto. Estimates suggest that Canada has lost over 30,000 similar positions in food manufacturing in a decade. This is not new.
Both cases have common denominators: both plants were ancient, outdated, and in dire need of a retrofit. However, the companies opted instead to consolidate assets and have products manufactured at more modern facilities. In other words, they never intended to reinvest to modernize the existing plants. The use of better automation and robotics could have helped, but instead the facilities were left to rot and die a natural death. Announcements were made as news came and went. Ontario and other provinces have countless aging plants, owned by foreign companies, and in need of a significant influx of capital to remain in compliance with modern-day standards of food safety and product advancement. So do not be surprised to see more of these types of closures as we are now paying for years of foreign control in this sector. Brands are now worth more than the human capital working in their facilities across the country. It’s not personal, it’s just business.
National brands, often seen as symbols of out-of-touch food corporations, are becoming an endangered species. Every week now, national brands, historically more expensive than private label food products, are marked down. Price points are much cheaper due to more attractive prices on store-owned labels. As well, many consumers, starting with Millenials, are moving away from major brands. More and more people are looking for organic, multicultural foods — hardly concepts mega-enterprises have been associated with, at least until recently. The pace of this demographic shift is spectacular. We are seeing more consolidation in food processing around the world because consumers in the Western world are looking for something different, natural, and local. Many of the brands we all know do not resonate with people looking for these so-called value-based brands.
This pressure is leading to seismic shifts in the sector. Overseas, we learned recently that Keurig Green Mountain, the maker of coffee pod machines, is planning to purchase the Dr Pepper Snapple Group in a massive $18.7 billion transaction. The portfolio of the new company will include products varying from coffee to soft drinks. This deal is really about competitiveness at retail and allowing major brands to remain competitive. Brand equity, which has ruled grocery aisles for decades, is slowly becoming an afterthought. Margins must be better managed and merchandising strategies will need to be reinvented. Consequently, becoming bigger and more resourceful is key.
Most Canadians do not appreciate that the food processing sector is the second largest manufacturing industry in Canada, in terms of value of production, with shipments worth $112.4 billion last year and employing over 250,000 people. This represents 2% of our overall economy. It is a massive sector which has flown under the proverbial radar for decades. This is why “Food & Beverage Canada” was just created by the sector, so processors can have a voice. Without a vibrant manufacturing sector, Canada’s agri-food sector cannot prosper.
Growing commodities is helpful for rural economies and small to medium-sized businesses. As Canadians, it is what we know best. But given how our world is changing, this is no longer enough. Food manufacturing has a multiplier effect on growth. which cannot be emphasized enough. For years, we have been reliant on foreign brands to offer job opportunities in small communities.
Most of these brands, however, are American. The Canadian brand has never been fully exploited in the food value-added sector, a missed opportunity indeed. The needle is slowly moving in our country, recognizing that food processing needs to find its mojo. The Agri-Food Innovation Centre at the University of Saskatchewan opened this year, to support the sector’s will to diversify and launch new businesses. Many incubator and accelerator programs in Toronto, Montreal, Halifax and elsewhere have been launched to create ag-tech companies, which focus on providing more value-added products to the market, both domestically and abroad. Quebec now has a new market access program to support companies looking for new markets. It is no longer just about spreading money to different sectors across the agri-food continuum. Scalability and generating significant economic activity throughout the country are becoming priorities for most stakeholders in both government and industry.
Becoming a world-class agri-food giant involves building an ample food processing sector. We also need to provide the sector with ways to mitigate against higher wages, restrictive trade rules and fluctuating currencies. Looks like someone is finally getting the message.
Sylvain Charlebois is professor in Food Distribution and Policy and dean of the Faculty of Management, Dalhousie University