Canada’s Food Fortune

Canada is riding the wave of a commodity boom, including oil and gas, metals, potash—and food.  The boom is transforming formerly have-not provinces like Saskatchewan, Newfoundland, and Labrador into ‘have’ provinces.  Bright prospects are fuelling a culture of hope and enterprise, and plans for rapid growth. These provinces are shedding their old fortress-like mentality of protecting a shrinking population and economic base.  Canada’s food sector—often viewed as an economic “have not”—is similarly transforming. As a result, we can expect to see a corporate attitudinal shift from defensiveness to confidence as companies willingly seek out global opportunities.

As our recent report, The Sky’s the Limit: the Viability of Canada’s Food Economy, points out, this is an opportune time for Canada. One of a handful of major net exporters of food, the future promises to create even more customers for Canadian exports, as newly industrializing countries are demanding more calories and better quality food.  Between now and 2050, the world will have 2 billion more mouths to feed, many of them living in the massive industrializing economies of China and India.  These newly prosperous peoples have the money to pay for the food they want—and they are already demanding more processed commodities, especially proteins.  Processed dairy and meat products are likely to show the greatest increases in demand—and offer the greatest potential rewards to companies that go international.

Canada is among the world’s most sophisticated agricultural producers and food processors.  In agriculture, Canada maintains a clear competitive advantage in almost 80 different food products.  Recent increases in domestic agricultural land values are a sign that the market sees food commodity prices remaining high and that Canada will profit from increasing international demand.

The improved outlook for food is relatively recent, driven by international demand. These rapid changes have caught much of the Canadian primary and processing industry off guard, and therefore some of it is still focused on the slow-growing domestic market.  These parts of the industry, especially the supply managed sectors, are not well positioned to benefit from future growth in food demand since growth is mainly coming from outside of the domestic markets where they focus. The Canadian market is mature, slow-growing, and highly contested across a range of food products.

Canada’s food market will become even more competitive and diverse as major U.S. retailers, notably Walmart and Target, continue to grow their food sales.  Other factors include the high value of the Canadian dollar, which makes it cheaper to import foods for Canadian consumers, and the demand from Canada’s burgeoning immigrant population for imported foods from their birth countries. 

The industry’s inward focus is no accident. Canada’s policies have encouraged it.  Historically high tariff and non-tariff barriers in manufacturing have enabled large chunks of the food manufacturing sector to operate on a fairly small scale. As a result, much of the manufacturing sector is focused on small production runs for the Canadian market.  The result is high costs of production when compared to larger scale U.S. plants.

The Canadian industry’s saving grace is the closeness to either sources of raw supply (like millers) or end markets (like soft drinks).  But many will find it difficult to compete with highly efficient U.S. plants in the future as tariffs are reduced and markets become more interconnected.

The strategic solution is for Canadian companies to innovate for new markets and capture more of the rapidly growing international market.  In some areas, it is already happening.  For instance, canola exports have increased hugely since 1990 as this Canadian creation has gained in international popularity. Similarly, the value of Canada’s exports of peas and lentils to India has grown 500 per cent since 2006. 

When Canadian companies innovate, they are successful. In the Sky’s the Limit, we highlight exemplary cases of innovative Canadian companies who have assured their own viability through sound business strategy and tactics.  For instance, Saputo Inc. has not followed other primary dairy producers by focusing only on the domestic market – it has aggressively expanded internationally through product innovation and off-shore production.  Similarly, Quebec-based Couche-Tard has become a continental leader in convenience food retailing through a strategy of continental acquisitions.  Sunterra Farm Enterprises Ltd. is a leading producer in high-end pork products and has grown by aggressively exporting to numerous global markets.

The sky is, indeed, the limit.  Canadian companies that orientate themselves toward rapidly growing markets, are likely to see success.  Much of the industry agrees – the Canadian Agri-food Trade Alliance, an association of agriculture and food processing interests, has come out strongly in favour of Canada’s involvement in the Trans-Pacific Partnership (TPP). Policymakers, both public and corporate, need to grasp the new realities of the global food economy so that they put in place the right strategies for Canadian firms to gain international market share of a growing market in food, and enable Canada to become a world leader in highly profitable food exports.

This piece is the first part of an OpenCanada-Conference Board collaboration in advance of the Conference Board’s upcoming 2nd Canadian Food Summit: From Challenges to Solutions.