Canadian Food Companies Must Innovate for Export
The Canadian food industry is a complacent lot, focused on the massive US market and lagging behind in innovation. That’s the conclusion of the Conference Board of Canada’s (CBoC) most recent study Competing for the Bronze: Innovation Performance in the Canadian Food Industry. In this post, I’ll discuss the implications for Canadian food exports to China in light of the country’s explosive urbanization and growing demand for imported food products.
Most Canadian firms, in spite of strides made in recent years, do not put a high priority on innovation. Private research spending is much lower than other sectors of the economy and public spending in primary agriculture R & D has actually declined over the last two decades while private spending has failed to take up the slack.
Needless to say, those businesses that face competition are more innovative but supply managed segments of the industry are effectively sheltered from competition at home and from abroad. Moreover, the small, geographically dispersed, and complexly regulated Canadian market often makes it difficult for firms to achieve the economies of scale needed for innovation. The demands of large retailers also affect manufacturer behaviour.
The consequence, says CBoC, is Canada’s shrinking presence in the global food market, dropping a full percentage point from 4.2% in 2000 to 3.2% in 2010 (but recovering somewhat in 2011). Meanwhile, China’s global share almost doubled to 6.3% during that period and the US increased its food and beverage exports from 11.1% to 12.2%. Even tiny New Zealand has a 2.5% share.
Spoiled by proximity to the US, apart from raw agricultural commodity exporters, Canadian food processors rarely look to large emerging markets such as China for expansion and they’re even less inclined to innovate their products to suit foreign consumer tastes.
Ronald Doering, a past president of the Canadian Food Inspection Agency, wrote on www.foodincanada.com a couple years ago: “Because Canadians can’t eat much more food, growth in the food industry depends almost entirely on producing value-added products for export. If the Canadian food industry continues to miss the opportunities in China, they will have nobody to blame but themselves”.
Since then, Canadian manufacturers have upped their game in China, prodded by Foreign Affairs that this year designated food exports to China a top trade priority. Besides traditional exports like wheat, yellow peas, and canola, Canadian companies are increasingly targeting the upper middle class market for top quality beef and pork, lobster, raw and smoked salmon, sea cucumber, honey and berries, maple syrup, and even greenhouse vegetables. Overall Canadian exports to China grew a healthy 27% last year but the agri-food and seafood sectors performed sluggishly, rising only 3.9% to just over $3 billion. In terms of top Canadian food export destinations, China is fourth behind the US, Japan, and Europe.
As for innovation for the Chinese market, the substitution of mung beans with Canadian yellow peas is a case in point. Mung beans are used to make vermicelli noodles but since Canada doesn’t grow mung beans, Canadian researchers were able to develop a process to extract and use yellow pea starch to make the noodles. Using a flour mill, pasta presses, cooking extruders and other food processing equipment, Winnipeg-based Canadian International Grains Institute (CIGI) researchers “fractionate” field crops into their component parts to make them more food-ready. Mr Earl Geddes, executive director of CIGI told the press recently: “Our objective is to sell more Canadian field crops at higher prices. The more people use our technologies, the greater demand for Canadian crops”.
Canadian agri-food exports going forward hinges increasingly on the shift from commodities to high-quality, healthy and nutritiously enriched food ingredients and finished products. Justine Hendricks, vice-president for Resources at Export Development Canada commented: “Millions of citizens in emerging markets including Brazil, China, and India are entering the middle class each year. As they do, they want higher-quality foods too”.