The following is courtesy of of the In this first entry of a two part series exclusive to FCC, Professor Sparling reports on two recent studies he led on food manufacturing in Canada. Designed to expand awareness and understanding of the industry, the studies were completed in partnership with the Canadian Agri-Food Policy Institute ().*
The performance of Canada’s food manufacturing industry
Canada’s food manufacturing sectors showed resilience through the 2008 recession, even as other manufacturing sectors were struggling. This occurred despite a number of challenges, some, like a rising Canadian dollar and higher energy costs, affected all manufacturing, while others were specific to food: increased concentration and competition among retailers and higher prices for farm products. It should come as no surprise that food manufacturing is less prone to recessionary pressure than other sectors – we all need to eat. While this helped to buffer the food industry through a very difficult period, there are signs of pressure across a number of indicators.
However, questions remain about whether that resilience will be enough to sustain momentum in an increasingly challenging global food industry. We need industry strategies and government policies to address Canada’s growing trade deficit in processed food products.
Food manufacturing performance outstrips other manufacturers
Between 2004 and 2011 (the most recent data available for the analysis), among Canada’s top five manufacturing industries, only food showed real growth in output relative to 2004 levels. It was also the largest manufacturing employer in Canada over this same period, creating 3,500 new jobs between 2004 and 2011.
Revenue, gross margin and net income all increased at a pace that suggests the industry as a whole is managing expenses and seeing more revenue, at levels that exceeded the 14% general inflation over the period. Real investment in equipment more than doubled (using 2007 dollars) between 2001 and 2012.
A breakdown of the overall industry shows that dairy and grains and oilseeds were among those sub-sectors with the highest gains in employment. Regionally, Quebec showed signs of strength with a 31% increase in food manufacturing revenue and an overall increase in employment over the period.
Challenges in food manufacturing remain
With trade essential to the long-term health and viability of the Canadian food manufacturing industry, Canada’s food trade balance continues to decline. A strengthening dollar has allowed for more competitive imports, which increased dramatically during the period under study, and since. Input costs also continue to rise, while at the same time retail consolidation and competition has made it difficult to pass on higher prices to customers.
These pressures showed up in the data. While the industry saw overall employment gains, some sub-sectors saw none – and meat/poultry and seafood showed a decline. Further, the employment gains were in non-manufacturing jobs. Labour costs were reduced with greater automation, but the industry faces a major challenge finding skilled workers to run the more sophisticated production equipment needed to enhance productivity.
Challenges in food manufacturing also had a direct bearing on upstream suppliers: in real terms, the industry spent $4.5 billion less on materials in 2011 than in 2004.
We urge attention and support for the industry
The food manufacturing industry in Canada is clearly resilient – but whether it’s positioned for sustained growth is a different question. This study underscores the need for attention and support for an industry that is a significant contributor to Canadian jobs and GDP. It’s true that consumers always need to eat even during times of recession, but they can choose not to purchase products from Canadian manufacturers. We need to think about how to make choosing Canadian products easy – with innovative, high quality products and competitive prices. Trade must be a priority.
We suggest two policy implications arise from the results:
1. Develop trade agreements and policy/regulatory environments that support exports
2. Assist the industry through programs encouraging investment in new technologies and more efficient processes to help companies be cost competitive.
Our first report “The Performance of Canada’s Food Manufacturing Industry” as outlined in this post, details the ways in which the industry continued to grow through a major challenge. In Part 2 of the series, I’ll provide an overview of the second report “The changing face of food manufacturing in Canada: An analysis of plant closings, openings and investments” which looks at how the industry is restructuring to compete globally.
David Sparling, Ivey Business School
* The two reports are available . The Performance study was based on four-digit and six-digit North American Industry Codes (NAIC) data from the Statistics Canada CANSIM database for the years 2004-2011. The event study of plant openings, closings and investments (2006-2014) used data collected from secondary information sources and a series of interviews with selected industry stakeholders.