Thank you and good evening, committee members. Thank you for the opportunity to speak to you this evening.
My name is James Donaldson. I'm CEO of BC Food and Beverage, which is an industry association supporting the food and beverage industry in B.C. I'm also vice-chair of Food and Beverage Canada, which is a national industry association formed by Canada's provincial food and beverage associations. It represents over a thousand food and beverage manufacturers.
There are almost 8,000 food and beverage manufacturing establishments in Canada, the majority of which are small and medium-sized businesses that employ 300,000 people. Despite the small average size of businesses in the industry, it's also our country's largest manufacturing sector, in addition to being an essential service. Processors are the largest purchasers of Canadian agricultural products. As a result, these sectors are intertwined in terms of their long-term success.
Inflation is something that every Canadian has had to deal with in all aspects of their life. Obviously, food price inflation is no exception. Escalating food prices are highly visible as groceries are purchased at least once per week in Canada.
The other challenge is that food is essential. Some of the drivers of this are beyond our control, such as the war in Ukraine, droughts that have impacted many crops in North America, the pandemic and global supply chain disruptions. That makes it imperative for Canada to focus on these issues that are within its control to ensure a stable and competitive industry.
In recent months, there's been a lot of talk in the media about grocery retail business practices, which is an issue I'll touch on in a moment. However, the causes of food inflation are a lot broader than that. There are labour challenges, transportation costs, ingredient costs, packaging material costs, pallet costs, the cost of feed, and the cost of manure and fertilizer. There's been a rise throughout the supply chain.
In exploring solutions to these challenges, we need to start to look at the entire food system, which is especially critical in a country with such a large land mass and a small population. A food system is like an ecosystem: It works seamlessly when it's in balance. Right now, it's out of balance, and that is putting our industry at risk.
Processors have unique challenges versus other components of the supply chain. While rising costs have impacted everyone, including retailers and food service distributors, other stakeholders in the supply chain have the ability to pass those costs on to their customers—but not our industry. Processors have had to absorb increases in ingredient costs of up to 40% and in freight costs of up to 400%, particularly in B.C. during the flood crisis. They skyrocketed due to the imbalance between the companies providing the food and Canada's largest retailers.
It's difficult, and at times impossible, to pass those costs on through pricing, due to blackout periods and flat out rejections by some retailers. This situation, along with the excessive fees and fines administered by retailers, which cannot be passed on, and the inability to even negotiate with retailers are all impacting our industry's ability to compete. Essentially, Canada's processors are getting squeezed from both sides, and it's not sustainable. Small to mid-sized processors, which comprise most of the industry, don't have the resources and cash flow to withstand these challenges on a continuous basis.
We've heard some of the past testimony from retailers, who cited that processor margins are stable and used examples such as Pepsi, Procter & Gamble and Kraft. Those are not typical examples, as they are not reflective of the majority of industry in Canada.
We've also seen them try to shift focus from their record profits to their low margin percentages. Sadly, I can tell you that of the processors we have spoken to, even those with the good fortune of experiencing top-line growth have struggled with eroding margins. The average processor does not have the luxury of rejecting price increases from their suppliers or charging them fees and levies with no backup or prior notice.
I just wanted to point out that this is not a high-margin industry to begin with.
I'd like to make the following recommendations for your consideration.
First is the need to focus on industry competitiveness, capacity and resiliency. A lot of important work has already been done in recent years, such as the agri-food economic strategy table and the supply chain task force. We ask that this important work be revisited and implemented to move us to a more competitive position locally and globally.
Second, work with industry to resolve its labour challenges. Continue to support industry labour initiatives such as the national workforce strategy for agriculture and food and beverage manufacturing and the Achieving Our Workforce Destination program. Create a clearer and faster track to permanent residency for foreign workers.
Third, support further investment and funding for technology and automation for food and beverage manufacturers. According to the Canadian Agri-Food Policy Institute, food and beverage manufacturers are underinvested in advanced manufacturing relative to other manufacturing sectors and relative to other countries. We're falling behind. Investment in automation and technology modernization is critical for our industry to control costs, to mitigate labour risk and to scale and grow.
Most of the innovation and technology grants provided by government are not applicable to food and beverage companies. We need to revisit a broader definition of “innovation” to allow our industry better access to grant funding and dedicated funding programs for the food and beverage sector.
Thank you.