Researchers with the Rural Development Institute, which is affiliated with Brandon University, recently set out to answer a seemingly simple question: how big might the Manitoba food processing and beverage industry be in 2020?
The answer they came up with suggests a better question might have been — how small? After crunching the numbers and consulting with industry, they have seen the future — and it is bleak. [Related story]
At least, it’s bleak for two out of the big three players. But whether that goes for the overall provincial production and processing economy depends on your perspective. Pork and potatoes, along with canola, account for 55 per cent of the province’s food and beverage processing revenue. And while the canola processing sector appears to be ticking along just fine, the same can’t be said for the other two.
Unless “effective action” is taken involving collaboration between government and industry and a new strategic plan, the RDI report said the province’s existing pork processing plants could see sales decline by 16 per cent or $260 million annually from the 2011 level of $1.6 billion.
As for potatoes, “low yields, in combination with a relatively high Canadian dollar, may precipitate reduced sales by 63 per cent to $150 million, and a resulting reduction of approximately $270 million per year in annual sales in 2020. There would also be an expected loss in the agricultural industry, jobs, local economy, and re-investment,” the report says.
It doesn’t take a business degree to see the implications of a 63 per cent drop in sales on the viability of those aging processing plants or on potato producers who have made significant investments in irrigation, tile drainage, storage and high-priced land.
On a brighter note, growth and development in other food processing sectors holds the looming shrinkage in pork and potatoes processing to a $100-million net decline for the province. That’s not bad, considering those two sectors could see declines of more than a half billion dollars in the next few years.
As this report points out, those processors that make up the other 45 per cent of the province’s food and beverage processing are much smaller, more diverse, and less export dependent. The group as a whole exports 20 per cent of its production leaving the remaining 80 per cent of sales going into the Manitoba market.
Interestingly, this group also employs more people — 6,800 versus 5,250 employed by the big three.
“The outlook for ‘Other Existing Companies’ in most sectors is stable growth towards 2020, largely based on population increase, and changes in demographics and eating habits,” the RDI says.
The RDI report also cited growth opportunities through expansion of buy-local campaigns and processing of raw commodities into bulk ingredients for sale to processors closer to population centres.
As for fixing what’s broke with the big players, the pork sector’s structural problems run much deeper than the shortage of pigs and under utilized plant capacity cited in the report.
Processors also can’t find enough people to work in their plants. The pig production chain has suffered from negative margins due to currency appreciation, disease, high feed prices and animal welfare and trade issues for so long, investors have lost confidence. Producers remain at an impasse with the province over environmental policy and their need for financial support. In short, this value chain is so broken, it needs a rewrite, not a fix.
The potato industry faces a different problem — a fundamental shift in demand for french fries, which is calling into question the competitiveness of peripheral production areas in North America such as Manitoba.
We suggest however, that interpreting this scenario as a need for more research into improving potato yields and better production economics (read lower contract prices) is like chasing a falling star.
The french fry business is likely to see continued declines, as many nutritionists would argue it should. The search for solutions needs to be on processed food alternatives that make potatoes more nutritionally valuable, or for other specialty crops that can be profitable for growers under local production conditions.
The RDI report seems to underscore the folly of pinning the province’s future on mega-production and processing. Big pork and big potato processors came to Manitoba for one reason — cheap raw product and relatively low operating costs. If “effective action” means improving their competitiveness by driving those costs even lower, it won’t solve any problems, just delay the inevitable.
Strategic planning for the future of food processing in this province must focus on the needs of all players going forward, not get sidetracked by the problems facing a few big operators.