Mr. Chair, members of the committee, thank you for the invitation to appear.
Today I will make my presentation in French.
The Conseil de la transformation alimentaire du Québec, or CTAQ, is the principal body of companies in the food processing sector in Quebec. Its mission is to support entrepreneurs in reaching their full potential to ensure the sustainability of the food industry in Quebec and Canada. CTAQ is a federation of 14 sector associations. It brings together more than 550 member companies that account for 80% of the business volume of a $33 billion industry in Quebec alone.
The food processing sector is facing a number of challenges, including labour shortages, low margins and lack of capital, as well as lagging productivity and innovation, to name a few.
As far as the workforce is concerned, the pandemic has aggravated an already difficult situation. Workers who have tested positive or have symptoms must self-isolate for 14 days. Many employees are no longer available or must stay home to protect their children or parents. The generous CERB program, replaced by employment insurance since September, has encouraged many workers to stay home. It is estimated that 8% to 10% of positions are vacant, or 6,000 to 7,000 positions in Quebec alone.
This crisis has brought to the forefront the issues related to the productivity of food companies. Indeed, automation and digitization are preferred tools to increase productivity and fill labour shortages. Since 2013, food manufacturers' margins have decreased. In 2018, they stood at 7.9% in Canada and 5.7% in Quebec. The ability to invest in productivity and innovation is therefore more difficult. The pandemic has accelerated the deterioration of margins.
Also, in the process of making the shift to industry 4.0, the food processing industry is at 2.7. SMEs must quickly adopt management software packages in order to be able to support the shift towards industry 4.0, the Internet of Things, the connection between equipment and data accumulation, in addition to developing business intelligence and marketing their products online. We must help agri-food SMEs accelerate this shift.
Businesses need programs and financial support for economic recovery. The emergency processing fund, or EPF, has made it possible to reimburse equipment expenses, but has not made it possible to reimburse salaries or additional expenses caused by health regulations, whether it be increased absenteeism, hourly wage premiums or the addition of shifts to respect more physical distance.
Businesses are asking the federal government to increase its offer of quasi-equity financial products or unsecured loans to avoid an increase in the debt ratios associated with their projects. In this recovery period, liquidity remains the crux of the matter. Risk appetite and access to conventional financing will be a challenge for businesses in the coming months. The food industry is asking for a component to be set aside for it in the $70 billion to $100 billion economic stimulus package for 2021. The Barton report positioned the agri-food industry as one of the five pillars of the Canadian economy and society, and a player in creating prosperity for all Canadians.
With respect to temporary foreign workers, businesses have begun to apply for those expected to arrive in April 2021. The industry wants to make sure that all measures are in place to facilitate the arrival of temporary foreign workers, who are essential to maintain supply chains. To facilitate access to foreign labour, the industry is asking that the 10% threshold be raised to 20% in terms of the number of workers per business.
Lastly, as you know, the food retail market in Canada is highly concentrated. In fact, five major banners control over 80% of the grocery market. The major players are consolidating their businesses by acquiring various banners and diversifying their services. These distributors need to renew themselves to attract and keep customers. Each strategy developed by one of them leads its competitor to develop a more persuasive one, creating a spiral that translates into increasingly restrictive, demanding and costly measures for suppliers.
According to a recent report by the Centre for Interuniversity Research and Analysis on Organizations, or CIRANO, in Quebec, market consolidation, asymmetric bargaining power and pressure on margins, combined with the pandemic context, will have a significant impact on food producers and suppliers.
Also, with gross profit margins estimated at 5.7% in Quebec and 7.9% in Canada, it is clear that an increase in the fees charged by certain distributors-retailers is undermining access to the mass distribution market. It will also have a negative impact on the competitiveness of suppliers, who must continually innovate to adapt to changes in food behaviours as well as new environmental and technological standards.
However, supermarkets and other grocery stores show the opposite trend. Despite a slight decline in gross margins in 2012 and 2014, they have been rising steadily since 2014. In the period up to 2018, gross margins for distributors-retailers increased 2.5 percentage points in Quebec and 2.9 percentage points in Canada. As for mass distribution, the CIRANO study stresses the need to ensure that a healthy relationship is maintained in the supply chains between the players in mass distribution, namely, distributors-retailers, and their suppliers, to mitigate the negative effects of asymmetric power that continues to grow in favour of distributors-retailers.
In this sense, a code of good conduct is becoming more and more important. Such a code, which several processor associations and Sobeys, in particular, are calling for, would help to rebalance competitive forces. It would ensure that Canada's share of product purchases, both in-store and online, is maintained.
It also recommends the adoption and development of alternative modes of distribution that would include short channels and emerging online sales platforms. In our view, concerted action towards establishing such mechanisms is required to ensure the sustainability of the agri-food sector in Canada.
Thank you for your attention.