December 6: The not-so-bright future of Canada’s food-processing industry

Article written by Sylvain Charlebois, Associate Dean, CME.

With the strength of the Canada dollar, the rise of input costs and demanding food distributors, the food-processing sector in this country is being squeezed on all sides, and it may get worse.

Stephen Harper’s government planned to repeal standardized container size regulations for various foods this fall, with a phase-in period, seeking to harmonize container sizes between the U.S. and Canada.

Yes, food product containers are different here, and Canadian-based food processors are heavily invested in the current system; the government, however, recently appeared to show restraint, and plans to have more formal consultations on the issue. This is good news, as it will give time for Canadians to fully appreciate what’s at stake.

First, a little history. It all started in 2011 as a federal budget one-liner. Finance Minister Jim Flaherty’s federal budget document contained a single sentence, mentioning its aim to change the rules on container sizes; and why not?

Current policies were implemented some time ago by the metric-friendly government of Pierre Trudeau, while the U.S. maintained its imperial system. In the 1980s, Brian Mulroney’s government attempted, in vain, to address container size discrepancies between the U.S. and Canada. As a result, over the years it has become a minor trade barrier issue, and the Harper government stated its intention last year to rectify the situation with the Canadian Food Inspection Agency, the federal body responsible for monitoring containers coming from the U.S.

Despite its minor status, the harmonization of container sizes is not a trivial matter.

The Canadian food-processing sector is far different than that of America. First, the cost to produce food products is much higher in Canada, due to supply management. For example, input and labour costs for dairy and poultry are much more expensive here. The recent surge of the Canadian dollar has only made matters worse.

Our regulatory systems are very different as well. Canadian exporters to the U.S. face numerous regulatory and border challenges when entering the market, while U.S. products enter the Canadian market with little delay. Many U.S. processing methods and standards are also very different from Canada’s. Unless a major harmonization push accompanies these new policies, few Canadian plants can meet current U.S. rules.

Nonetheless, the regulatory changes affecting container sizes may be just the push the industry needs.

Many Canadian processors have outdated equipment, rendering the sector inflexible and unable to swiftly react to equally rapid changes in the marketplace. Indeed, some of the food recalls we have seen in recent months may have been caused by archaic industrial practices and undercapitalization of infrastructure.

The elimination of these regulations will force food processors to finally update their equipment, or to leave the industry altogether. All told, this effort toward harmonization may very well help the food processing sector.

That said, Canadians should recognize that U.S.-based processors are significantly advanced, and an array of regulations and standard discrepancies should be addressed before looking at the issue of container sizes. Food processors in Canada are not afraid of a little competition; however, they are seriously concerned about prejudicial competition.

Moving forward, this is an issue that Canadians should care about.

The public discourse around food sovereignty of late has been mainly about farming. Achieving food sovereignty requires more than just growing our own food, though. It is about synchronizing our supplies with demand, building communities in both rural and urban Canada, and fostering efficient relationships across food value chains. Food processing has the ability to leverage all these things.

Connecting domestic supplies of agricultural commodities in an increasingly heterogeneous market of food products requires robust distribution systems, and the cornerstone to any reliable food distribution systems is processing.

For the sake of food sovereignty and our agricultural economic prosperity, the future of food processing in our country should matter to all Canadians. Growing food is important, but to build our capacity to add value to what we grow, for us and for the rest of the world, is imperative.

Harmonizing container sizes between the U.S. and Canada is an interesting proposition, but many more pressing issues, long overdue for debate, deserve our attention at the moment.