Food processing could be the next Alberta advantage

Despite hundreds of millions of investment, agri-food processing 
in Alberta is just ‘muddling along,’ says entrepreneur

One year after a call to build Alberta’s agri-food processing sector, not much has changed.

“Everything has stalled,” said Jerry Bouma, co-founder of Toma & Bouma Management Consultants. “We have a new government and the formation of a new ministry. Any time you have a restructuring — both politically and bureaucratically — it takes awhile for entities like that to get their legs under them.”

Last May, Bouma presented a Food Research Project Framework at the Conference on Food and Innovation in Calgary that highlighted the potential of agri-food processing if a “very targeted, strategic approach” was adopted.

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But that hasn’t happened.

While the fledgling NDP government supports agri-food sector growth “in principle,” he said, but right now, it’s low on the priority list.

“They don’t have a strong rural base or understanding of agri-food issues,” said Bouma. “And, probably more importantly, they’ve had so many other things they’ve had to deal with that I don’t think this has become much of a priority.

“They understand there’s an opportunity, but beyond that, I haven’t seen any evidence of growth.”

That growth has been “slow,” said Joe Makowecki, president of Heritage Frozen Foods, which produces 500 million Cheemo perogies a year and is a major purchaser of Alberta potatoes, flour, and canola oil.

“I’ve been in this a long time, and I’ve heard a lot of governments over the past couple of decades,” said Makowecki. “We get starts and stops and ad hoc initiatives. We’re muddling along and hoping that something good will happen. But at the end of the day, (government) needs to think about the industry as investors and create a competitive climate that’s going to ensure that food processing continues to grow.”

Narrow margins

Alberta’s agri-food processors have been reasonably successful in growing the domestic food processing industry, said Makowecki.

“But I think we could be so much better if we began to be much more serious and strategic about it,” he added.

In a business with very narrow margins, success “really boils down to some very simple numbers.”

“We take all our competitive input costs, shake them in a bag, and then ask, ‘Are we making money at the end of the day?’” said Makowecki. “In food processing, we always have to look at our costs. Alberta has some strengths, but it has some weaknesses, and the strengths have to outweigh those weaknesses in terms of their competitive costs.”

Food processors only make between three and eight per cent net profit, he said, and because Alberta is “a long ways away from markets, all our costs have to be more competitive than other areas that are closer to markets. It’s that simple.”

“Logistics have to be excellent in Alberta, and the costs have to be excellent,” he said.

“If you change any of the numbers — electricity, water, labour, logistics — that goes right down to the bottom line and makes you less competitive. In food processing, every dollar counts.”

Big potential

But agriculture could be a “big engine” of economic growth, said Bouma.

“Agriculture and food is a major industry, a significant economic contributor, and by far the largest land user,” he said. “And it has the opportunity to be an even greater contributor to economic growth.”

Across the livestock value chain, for example, the beef and pork industries account for around 95,000 jobs, he said.

“If the beef industry was able to achieve relatively modest growth and get back to two million cows, that would generate another 60,000 jobs, so we’d go up to 156,000. That’s a big number,” said Bouma. “If you applied that same template to the entire food-processing sector, we’re talking significant growth — probably a total of 100,000 jobs to the economy.

“That would really address a lot of the employment concerns that are surfacing.”

With the energy sector in another downturn, people are realizing that agriculture and food “presents considerable opportunity,” he said.

“I’m a real believer that Alberta could be a preferred supplier in some key growth markets, like the Pacific Rim. But that takes hard, focused work. We really need to be trying to be very focused in terms of what that strategy is going to be, rather than a generalist approach.”

Industry-led approach

Both government and the entire agri-food processing sector need to recognize that “the approaches we’ve taken haven’t been terribly successful,” said Bouma.

“If you look at what’s happened over the last 20 years, there’s been hundreds of millions of dollars put into programs and incentives to try to get people to modernize, upgrade their equipment, do market research, or develop their products, but it hasn’t really materially changed the ratio of value-added to farm gate production,” he said.

“The amount of food and beverage shipments that are coming out of our sector relative to the value of farm gate receipts had a ratio of 1:1 in 1995 and is still 1:1 here 20 years later.

“We haven’t moved the needle at all. That would suggest what we’re doing isn’t working and that we have to look at it differently and approach it differently.”

Makowecki agrees.

“We really don’t have a co-ordinated strategy that we’re moving forward to,” said Makowecki.

“If we’re going to build a larger industry and a more competitive industry, we have to move in the same direction.”

But that creates “discomfort,” Bouma added.

“That’s going to take some courage and some leadership and some political will to make it happen.”

And those changes will have to happen on both a provincial and federal level, said Makowecki.

“The fundamental thing we need to do is have a government say, ‘This is a strategic industry that we want to put resources into.’ They have to make that statement,” he said.

“Without that, we’re just sort of molecules bumping into each other.”

About the author

Reporter

Jennifer Blair

Jennifer Blair is a Red Deer-based reporter with a post-secondary education in professional writing and nearly 10 years of experience in corporate communications, policy development, and journalism. She's spent half of her career telling stories about an industry she loves for an audience she admires--the farmers who work every day to build a better agriculture industry in Alberta.

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