The world must produce more food in the next 40 years than it has in the total of its previous 10,000 years, according to the Food and Agriculture Organization – the oldest specialized agency of the United Nations. Global population growth will continue to place pressure on food production and the future will require an ever-expanding level of resources, land, water, and infrastructure to feed the world.
“The world must produce more food in the next 40 years than it has in the total of its previous 10,000 years.”
Global Trends Affecting Food Production
The underpinning of the demand for food comes from the broad expansion of the middle class and the urbanization of emerging markets. The corresponding increase in consumer spending is based on the desire for healthy, nutrient-dense food products – specifically, protein. While the middle class is an ambiguous group, its social classification translates to its ability to afford housing, healthcare, and education, and it has a reasonable expectation for a comfortable retirement after a lifetime of job security and capital accumulation. It also demonstrates through its purchasing patterns the human desire for continual improvement in lifestyle. It is this quest for quality of life that drives consumer spending habits and sustains economic growth and prosperity.
“One-third of the future global economy will come from the middle class, and this sector will be the largest ever, marking its size and purchasing power as a historical first.”
At the end of 2016, the global middle class was estimated at 3.2 billion with an average of 160 million people expected to be added each consecutive year. Growth in spending in the Asia Pacific region alone is expected to reach $32.9 trillion dollars by 2030, according to the East Asia Bureau of Economic Research. This rapid expansion translates to an estimated $29 trillion more in daily spending by the year 2030 for a total spend of approximately $64 trillion. In short, one-third of the future global economy will come from the middle class, and this sector will be the largest ever, marking its size and purchasing power as a historical first. It is therefore understandable that the issue of competitiveness is central to food security and has rightly gained prominence on government agendas.
To balance our current understanding that global food production needs to increase rapidly, we must reference the controversial population growth theory posited by English economist and demographer, Thomas Malthus. Malthus believed that without limits on human population, the world’s food supply could not keep pace. He then went further to assert that limits to population growth be determined, and firmly set, for the betterment of humankind. Since Malthus, scientific breakthroughs like pasteurization, the ability to fix nitrogen, and advancements in genetics have changed the way we produce, process, and store food. Today, we thankfully continue to look to science and innovation to improve food quality and production.
Canada’s Place in the Global Food Production Market
Canada has long been an attractive investment for food production and processing despite its constraint of having a small domestic economy. We have the primary inputs to create a thriving agricultural sector, including vast amounts of arable land, an abundance of fresh water, and access to farming necessities like fertilizer and seeds. To further complement this foundation of primary inputs, we boast a strong network of R&D facilities, academic institutions, technology developers and intellectual property (IP), and infrastructure partners who work together to create a nationwide agri-food value chain. We are culturally diverse, socially progressive, and we are early adopters of technology.
“Canada is home to the least densely populated arable land mass in the world. This fact alone is critical when considering the imbalance between population growth and arable land required to meet the growing demand for food.”
Furthermore, Canada is home to the least densely populated arable land mass in the world. This fact alone is critical when considering the imbalance between population growth and arable land required to meet the growing demand for food. We also have a variety of renewable energy choices. Considering these competitive advantages in conjunction with a stable political environment and a robust food safety management system, we must look beyond our asset base to understand why Canada is losing global market share.
Manufacturing productivity gains demand investment and innovation which is central to our ability to effectively compete. This is why industry has been calling on government in recent years to reform its outdated and overlapping regulatory framework, and to target capital investment where it will provide the most economic value.
1. Diminishing Private Gross Capital Spending
In a report by Deloitte, Canada weighed in at 10.8% of private gross capital spending as a share of GDP (2017). This indicator measures the overall investment in physical assets within an economy such as plants, machinery, and equipment. Canada ranks second lowest among peer nations in the same year and much lower than countries like South Korea (21.9%) and Australia (15.2%). The report goes on to point out that while marginal gains in investment were achieved, those gains have been curtailed by the pandemic and are nowhere close to the investment required to increase manufacturing capacity and productivity.
2. Increased Debt and Loss of Market Share
Small and medium-size enterprises (SMEs) are the lifeblood of rural Canada, and they have taken on increasing levels of debt since the pandemic. According to Statistics Canada’s Financial Flow and Balance Sheet Accounts, private corporate debt and loan growth has exceeded asset growth. As a result, Canadian businesses are losing global market share and are vulnerable to risk. Businesses are even less optimistic and have become more risk-averse.
According to the United Nations Comtrade database, Canada’s pre-pandemic export of goods to the US fell from 19% in 2000 to 12.7% in 2017. Given Canada’s diminishing performance which was exacerbated by COVID-19, we need to bolster our competitiveness to overcome increasing global protectionism and corresponding trade policies.
3. Trade Barriers and Taxes
Canada ranks second only to the US in investment attractiveness as measured by the global consultant firm Kearney’s Foreign Direct Investment Confidence Index. We have trade agreements with more than 50 countries and our coastlines and ports are strategic gateways to the North American market. However, although these agreements are in place, significant barriers continue in terms of interprovincial trade barriers, access to competitively priced inputs for further manufacturing, and the predictable movement of finished goods to export markets. These barriers and irritants prohibit our national ability to compete.
Canada is suffocating under a complex and burdensome tax regime, and dramatic cost increases in land, equipment, and labour, have forced many SMEs to defer capital investment or incur the expense and risk to develop new products. Canada also needs an overhaul of its outdated and overlapping regulatory environment that is too often seen as an administrative burden more than effectively promoting food safety.
“For SMEs, trade barriers are particularly problematic due to economies of scale and cost the Canadian economy $50 billion to $130 billion in lost economic activity each year.”
Interprovincial trade barriers have again come under fire as an opportunity to enhance our domestic business competition and are generally understood to fall under these categories: Natural (geographic distances), Prohibitive (laws that unintentionally deter trade between jurisdictions), Technical (differences in regulations), and Regulatory or Administrative (differences in permits and licensing for example). For SMEs, trade barriers are particularly problematic due to economies of scale and cost the Canadian economy $50 billion to $130 billion in lost economic activity each year. In 2019, the International Monetary Fund released a study which reported that if these barriers to trade were addressed, Canada’s GDP could grow by as much as 4%.
How to Increase the Competitiveness of Canadian Food Production
The journey of Canadian food exports is long and multi-staged. The flow of goods requires an agile and predictable supply chain consisting of various modes of transportation and efficient hand-offs to overcome our rugged geography and seasonality. Our national supply chain infrastructure needs to be modernized and digitized, and physical capacity needs to be increased to achieve the most critical requirement for competition within supply networks: predictability.
In addition to structural and technological advancements, now is the time to look beyond the Investing in Canada Plan and adopt a rolling multi-year agenda insulated from any political election process. This multi-year agenda should take into consideration the review and overhaul of the Maximum Revenue Entitlement, including service level agreements and an effective dispute resolution process for our national railways.
Learning from A Peer: Australia’s National Strategy to Improve Infrastructure
It is also worthwhile to look to other jurisdictions that have made the most of their trade opportunities and long-term growth. Australia, the world’s largest island nation, is one example of a country executing a strategic plan to ensure transportation, logistics facilities, and transfer points are maximized. With a land area of 7.741 million square kilometres and more than 41,000 kilometres of rail track, the distance between food production and consumers is extensive. Like Canada, it is one of the least densely populated countries in the world with less than 3.4 people per square kilometre. Most of Australia’s population lives along the coastline and its economy is dependent on mining. Therefore, it made sense to standardize and synchronize its railways and multi-modal convergence points.
“Australia, the world’s largest island nation, is one example of a country executing a strategic plan to ensure transportation, logistics facilities, and transfer points are maximized.”
The first railways in Australia were built with private investment, which led to three major railway gauges with varying geographic applications. In the early 1960s, efforts began to standardize the rail gauge under the federal government’s One Nation project. This effort, combined with easier regulations governing road freight traffic, resulted in a compelling network of road and rail infrastructure. In 2021, Australia announced a rolling 10-year, $110 billion infrastructure investment roadmap designed to maximize its infrastructure capabilities and help it become even more competitive. Today, thanks to the foresight and cooperation of the private sector and government, Australia can leverage its close proximity to the massive demand of the Asia Pacific market and compete more effectively.
If Canada is to remain strategically positioned to become a world-leading food production powerhouse, we must act now to further the recommendations set out in the Barton Report to unlock private sector growth and act to fulfill the recommendations outlined in Canada’s Economic Strategy Tables. The Canadian agri-food sector represents so much economic potential that the industry increased its self-determined goal of $75 billion in exports to $85 billion, further demonstrating Canada’s opportunity to grow its GDP. With so much room to improve, it is helpful to think of Canada’s current food production capacity as the floor, rather than the ceiling.