Thank you, Mr. Chair.
I appreciate the invitation to speak to you.
Your topics of innovation, competitiveness, and trade are very important to Maple Leaf. In fact, the viability of our business really lives in that interconnectedness between those topics every day.
I want to share a perspective, and it's rooted in perhaps three credentials, three facts, about our business recently.
The first is that in the past six years, Maple Leaf has invested more than $1.5 billion in capital upgrades for productivity and competitiveness gap closure in food processing in Canada. This is more investment than any other in our space, and it gives us a front-row seat to the challenges of the business case for investing in Canada.
In doing so, in fact, we bet the farm: we bet the equivalent of our market capitalization, which at the time was certainly more risk than most would take.
Second, though we're now looking at an additional $1 billion of investment in similar projects with similar objectives, unfortunately our board is struggling with this choice simply because the return on the Canadian investment can't offset the risk to the required capital. In this case it might be closer to 20% to 25% of our latest market capitalization. Of course, very few manufacturing companies in Canada are stepping up to that degree.
The third fact is that we have been involved in the government's agri-food economic strategy table, the food processing industry round table, and many other groups. In each of these groups we've achieved insight as to what other industry participants believe and what they're feeling in their businesses, and we are clearly in alignment with them. Our overarching observation is that productivity investments in this country, the ones that make a difference to our competitiveness, are really just a business case with a numerator, a denominator, and a risk profile. They are alternative uses to capital that our board has to weigh.
Let me be clear what they are not, in our experience.
They are not a function of corporate taxes, at least not until recently. Of course, there have been some changes south of the border on corporate taxes, but the evidence shows that perhaps not even now is that really an inhibiting factor.
They are not a willingness to take a well-calculated risk. As I mentioned, we are a good example of betting significant amounts of our market capitalization.
They're not a function of R and D spending or insights. In fact, we know precisely where the technology is around the world and we know how to apply it.
As well, they're not a talent issue. As my colleague said, we have great people with the skills to execute projects.
Our business case challenges continue to be rooted in the core fundamentals of that numerator and the denominator, i.e., the return on investment, as follows.
The first challenge is one of living in a sub-scale country. I say that while obviously recognizing that investments like this are scale equations. The latest technology in our industry is super-expensive capital, requiring large global-scale operations and market share to justify, and that's simply more challenging in a country of only 35 million people. Adding to this has been a Canadian history of an economic policy that often seeks to limit scale or perhaps equalize scale, other than in our primary resource sectors, where products are more easily exportable as commodities.
Second, construction costs are at least 25% higher in Canada. This is a hard reality. It's demonstrated repeatedly. Excess construction costs undermine the denominator relative to a similar investment in the United States in a material way. There are numerous drivers of this, and we could call on many operators of large-scale food operations on both sides of the border to corroborate this. We also work with U.S. construction and engineering firms that can explain why this is the case.
Third, the Canadian operating environment impairs performance of manufacturers of consumer packaged goods. This is a result of the cumulative effect of many factors, none of which moves the needle on its own, but all of which together make a clear difference. They include an uncompetitive regulatory environment with a gap that is widening recently; the effect of uncompetitive labour laws in some provinces, and not just minimum wage competitiveness; energy costs that are not in line with those in key U.S. jurisdictions; environmental requirements, which add relative cost; and a personal tax environment that makes it more challenging to attract top talent. Adding to this unfavourable environment is the investor anxiety around NAFTA at the moment.
Fourth, we note that U.S. jurisdictions are generally more willing to open their subsidy and tax wallets for large capital projects. While programs to attract investments certainly exist in Canada, our direct and rather frustrating experience is that the bias of federal and provincial governments is strongly in favour of foreign companies and disruptive innovation instead of scale plants—unless, of course, it's an auto plant—and applied technologies that are the first order of business for most manufacturing companies trying to close the competitiveness and productivity gap that I noted.
The program landscape is fragmented, confusing, and in our experience ill suited to mitigating the costs and risks that deter advanced food plant manufacturing investment in Canada.
In conclusion, I realize I may be disappointing the committee by challenging the assumption of your study that there's a direct line from innovation enabled by government strategies and programs and more aggressive corporate R and D to export growth for Canada's agrifood industry. From Maple Leaf's perspective as a long-established Canadian food manufacturing company, having a clear plan to address the drivers of the business case for investment would have more value than focusing on the elements that are at best incidental, such as, as I mentioned, corporate tax rates, innovation spending, or talent and skills acquisition.
For the Canadian food industry, solving this issue is vital to defending our home market share, let alone restoring our global market share, especially if the Canadian dollar returns to strength.
Thank you, and I welcome your questions.