Industry Performance and Activity in Canadian Food Manufacturing: Part 2 with David Sparling

The following is courtesy of David Sparling of the Ivey Business School. In this second 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 (CAPI).*                   

I recently outlined how the Canadian food manufacturing withstood the test of the recession, a higher Canadian dollar and increasing competition. I’m going to expand on that here looking at how those pressures are changing the industry with a brief description of our research into plant closings, openings and investments.

The changing face of food manufacturing in Canada: An analysis of plant closings, openings and investments

Closing any type of manufacturing plant is always big news in Canada. We have recent reminders in the Heinz and Kellogg plant closures in Ontario of the job losses that trigger devastating impacts for individuals and communities alike.

Between 2006 and 2014 in Canada’s food manufacturing industry:

·         143 plants closed with 23,807 jobs lost

·         Ontario saw the largest net loss of plants

·         Closings and job losses tended to occur mainly in secondary processing

·         Animal protein (36% of closures) and dairy (12%, including eggs and honey) were the hardest hit sectors

·         In terms of larger firms, U.S. Multi-National Enterprises (MNEs) had substantially more closings than openings and investments

Closings peaked at the height of the recession in 2007 and 2008, with a similar timing for the largest job losses. Ontario bore the brunt of those closings with 52% of the national total in job losses over this period. The reasons we were able to discern for closures pointed to a lack of competitiveness and the need to consolidate production into larger, more modern plants.  We saw evidence of companies recognizing the need for automation, new technologies, systems and processing methods in order to be competitive in the global market.

90% of closings were in multi-plant companies which were overwhelmingly reorganizing to increase competitiveness, closing generally uncompetitive plants and consolidating production to increase scale. The largest firms accounted for the major portion of closings: Canadian and foreign owned MNEs were 63% of the identified closings. And large firms are important; although they only account for 16% of firms in Canada they generate 83% of revenue.

Foreign MNEs were more likely than Canadian MNEs to consolidate or restructure, whereas Canadian MNEs were more likely to make changes to existing facilities either through consolidations or investments. Another difference emerged in the concentration of plant closings: Canadian MNE closures and job losses were distributed across Canada, unlike foreign MNEs whose closures occurred mainly in Ontario.

What does a restructured industry look like?

The industry has experienced a dramatic transition, with food companies also opening plants and investing to upgrade facilities and invigorate innovation, productivity and efficiency. In this same period,

·         63 new plants opened

·         67 companies announced major investments

·         Non-MNEs had the largest number of openings and investments

Small and medium sized firms make up 84% of establishment numbers but only 17% of industry sales. But they’re often leading overall industry innovation as the source of almost half of all plant events over this period.

Canadian companies, with vested interests in remaining open in Canada, tended to be more positive in terms of both investments and openings than their foreign counterparts. Quebec saw the greatest transition, particularly with more events from Canadian MNEs. In all years except 2007 and 2010, openings and investments outnumbered plant closures with the majority of these in Quebec.

What lies ahead?

The industry is changing but could benefit from a number of improvements to create a supportive environment. These include:

·         Supporting and facilitating trade

·         Incentives to locate in Canada

·         Reducing barriers to competitiveness (e.g., input costs, regulations, etc.)

·         Strategies for developing human resources

·         Municipal governments that address opportunities in a rapidly and coordinated approach

The industry has persevered, but in this economic climate, growth beyond mere perseverance is what is needed. In the next post, I’ll answer some questions about what that might look like.

David Sparling, Ivey Business School

* The two reports are available here. 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.