Good evening, everyone.
Thank you very much for inviting me to speak before the Standing Committee on Agriculture and Agri-Food. I'm pleased to provide an overview of the Ontario food-processing and beverage-manufacturing sector.
I'd like to begin by expressing gratitude and acknowledging that we're on the traditional lands of the Anishinabe and specifically the traditional territory of the Mississaugas of the Credit First Nation.
We're in a unique time, with the COVID-19 pandemic. Nothing has shown how crucial the food supply system is more than the pandemic. Our food processors will be an integral part of our province's economic recovery from this outbreak.
I'd like to begin by highlighting some of the things we have in our food and beverage sector that make us part of the entire food sector.
The agri-food sector in Ontario supports more than 860,000 jobs and contributes more than [Technical difficulty—Editor] to the province's economy. In 2019, we had more than 4,400 food- and beverage-processing establishments in the province, the most in the country. [Technical difficulty—Editor] employs approximately 106,000 people. Many of the largest employers are international players. More than a quarter of the establishments in Ontario are in rural communities, as well. Among those establishments with employees in Ontario, the vast majority are considered either micro or small, with fewer than 100 employees.
Ontario is an ideal location for food and beverage processors. Our competitive advantages include quick and convenient access to major North American markets. There's a huge U.S. and Canadian population within a single day's drive of most processing plants in Ontario, including Chicago, St. Louis, Philadelphia, New York, Washington and Montreal. We have access to superior end-to-end supply chain solutions, including processing, packaging, specialized storage and transportation, in addition to 3.6 million hectares of cropland growing over 230 agricultural commodities. We have low corporate tax rates; we have a highly skilled, multicultural workforce.
We have capitalized on these assets to become one of the largest food- and beverage-manufacturing jurisdictions in North America, with annual manufacturing sales of more than $47 billion. The majority of Ontario’s agri-food products are value-added products, for example meat products and edible preparations like soups and sausages.
Our agri-food sector will be a critical contributor to the federal government’s goal of achieving $75 billion in exports by 2025. It's a strategic sector for us and an essential service that has the potential to take advantage of the opportunities in the growing local, national and global markets.
However, our sector faces a number of immediate challenges, including structural ones, as it struggles to remain competitive and innovative in this uncertain global environment.
Aging plants, outdated technology and inefficient equipment are limiting productivity growth and reducing our competitiveness. Some food and beverage manufacturers have plants that are 75 or 100 years old. Our capital investment in Ontario significantly lags that of other, competing jurisdictions, such as the United States, Germany and the Netherlands.
To match the level of annual capital of other countries, Ontario food and beverage manufacturers would have to increase their annual investment substantially. It's estimated that more than half of Canadian food-processing businesses are foreign-owned. While foreign direct investment is great and has increased, Ontario competes with head offices in other jurisdictions that make the investment decisions. As countries recover from COVID, there may be pressure for international companies to bring that money back and repatriate their investments to their home countries.
The majority of Ontario’s food and beverage manufacturers are small and medium-sized businesses and are not capturing the economies of scale that their much larger international competitors are achieving. Processors are also facing competitiveness from increasing input costs, such as those for energy, labour and raw materials, while being at the same time pressured by retailers to provide finished products and at lower cost, as the previous speaker alluded to. Of note, we are now seeing food processors asked to absorb additional fees to cover in-store upgrades and the shift to e-commerce.
Prior to COVID, industry reports indicated that 85% of food manufacturers struggled with labour shortages. This drives up the costs and also impacts upon their ability to operate at full capacity. COVID highlighted how reliant the agri-food sector is on labour and how vulnerable it is to labour disruptions.
Ontario typically brings in 20,000 temporary foreign workers to work in a lot of different areas, such as planting, growing and harvesting. Approximately 600 of these temporary foreign workers work directly in food and beverage processing. Disruptions early on in the pandemic generated real concerns for us that some of these crops would be affected by lack of labour.
We need to learn from the lessons of 2020 to ensure that workers can come to Canada next year without delay and do so safely. Outbreaks among employees at meat-processing plants, for example, caused temporary shutdowns, and measures had to be taken to slow the spread, resulting in reduced capacity. While less dependent on temporary foreign workers, the nature of the work of meat processing is made more prevalent through COVID when we have a serious spread.
Labour disruptions from the virus emphasize how dependent the sector is on labour. Other jurisdictions have made more advancements in automation, have reportedly struggled less and have had fewer production delays. The extended closure of even one large processor would have been a threat to the food security of Canadians and also to the income of our farmers.
In general, COVID-19 has put incredible strain on the food and beverage manufacturers, and it has exacerbated existing issues that I've already mentioned, such as aging infrastructure and lagging investment. Due to the pandemic and the rapidly changing market conditions that accompany it, some businesses are currently operating below capacity and/or have struggled to pivot towards retail, away from the struggling food services industry. Only time will tell if this is a temporary or permanent change.
The domestic supply chain has always been a priority. COVID-19 has revealed vulnerabilities and has exacerbated weaknesses that will not easily be resolved post-pandemic.
For example, when an entrepreneur fails in the U.S., the old adage there is to “try, try again” and celebrate the effort, whereas when an entrepreneur fails in Canada, it's not a mark of experience but solely one of failure. We need to enhance our risk tolerance for entrepreneurs and our acceptance of those.
To achieve the goal of increasing Canadian agri-food exports from $55 billion to $75 billion, as per the Barton report, requires major transformation in the sector. The industry needs to be aligned with future market needs, to scale up where possible, and to ensure its continued viability and success through improvements in competitiveness and productivity.
The same issue—