By J.P. Gervais, Chief Agricultural Economist, Farm Credit Canada
As citizens of one of the world’s leading agri-food producing nations, all Canadians share a stake in this important sector. Here are five key forces influencing our food growers and manufacturers:
While the U.S.’s size and proximity will always make it our most important market, Canada is reaching other key markets. That trend should continue, considering the new free trade agreement with the European Union and ongoing discussions with South Korea and Japan, as well as at the Trans-Pacific Partnership table.
Perhaps the most significant opportunity is the income growth and expansion of the middle class in emerging markets. It’s estimated that at the current rate of expansion, the global middle class population will reach 3.3 billion in 2020, up from 1.8 billion in 2009. That presents a real opportunity for food-exporting countries like Canada.
The trade deficit
Recent trade flows with the U.S. haven’t been great. In food and beverage trade, we went from a surplus of roughly $2-billion in 2000 to a deficit of about $1-billion last year. The strong Canadian dollar in recent years was one factor, but there is more to consider.
Growing to a scale to produce at the lowest possible cost is tougher to do for Canadian food manufacturers than their U.S. counterparts. Over the years, Canadian food processors have invested significantly in product development – with good success. More recently, we’ve seen a greater focus on developing technology that will make our companies more competitive in the marketplace.
Canada’s changing demographic makeup promises to have a major impact on domestic food demand. Our population is aging fast – and older Canadians have different dietary requirements. Immigration is another key factor. By 2030, new immigrants will make up nearly 80 per cent of Canada’s population growth. Food demand will change to reflect that reality. Other social and environmental factors will also come into play. Preferences for healthy eating, concerns about food safety, and consumers’ own personal values are key considerations.
The changing supply chain
One key difference in agriculture today compared to years ago is the supply chain. Recently, we’ve seen a shift to a “pull model,” where consumers express what they want and retailers relay these preferences – all the way to the producer. It involves new levels of communication and coordination, and agri-food businesses will need to lead the charge.
Not only will Canada’s changing demographic profile affect food choices in the future, it will also affect the operating environment for food manufacturers. An aging population means Canada’s workforce will shrink, and businesses will need to compete harder than ever to attract and retain workers. On the other hand, given immigration trends, targeted recruiting efforts in ethnic communities may be an option to fill some of those gaps.
This is also where the discussion on process improvement comes in. Can businesses ramp up capital investments to mechanize? Given the premium on human capital, what other options exist to improve the bottom line? Finding answers won’t be easy, but it’s critical that we ask the questions.
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