acknowledgements - ridgetownsarnia-lambton economic partnership county of middlesex appreciation and...

Acknowledgements

The report “Food Industry Growth Trends in the Southwest Region” was made possible through the very generous support of many individuals and groups that contributed their time and expertise to this study. The funding partners and project management committee are to be thanked for their generous financial contributions to the study and the guidance they provided throughout. This group includes:

Community Futures Development Corporation of Chatham-Kent Food Industry Competitiveness Branch – Ontario Ministry of Agriculture and Food Essex Community Futures Development Corporation Community Futures Development Corporation of Middlesex County Community Futures Development Corporation of Sarnia-Lambton Windsor-Essex County Economic Development Commission Chatham-Kent Economic Development Services Sarnia-Lambton Economic Partnership County of Middlesex

Appreciation and thanks are extended to the many businesses that participated in the surveys. Their candidness contributed greatly to the quality of information collected. Recognition is also extended to industry stakeholders who provided their perspectives on industry issues and Carolyn Lucio for her talents at word processing. Finally, appreciation is extended to any others who assisted with this project in some way.

Ridgetown College, University of Guelph i

Table of Contents Executive Summary.....................................................................................................................iv 1.0 Study Overview.................................................................................................................1 1.1 Introduction...........................................................................................................1 1.2 Strategic Changes in Food Processing ..................................................................2 1.3 Objectives..............................................................................................................3 1.4 Methodology .........................................................................................................3 1.5 Study Team...........................................................................................................4 2.0 Trends in Food Processing................................................................................................5 2.1 Changing World Markets......................................................................................5 2.2 Buyer-Seller Reorganization and Consolidation..................................................7 2.3 Evolving Corporate Strategy.................................................................................9

2.4 Food Processing and the U.S. Rural Community ...............................................10 2.5 Consumer Trends ................................................................................................11 2.6 Vegetable Processing Trends..............................................................................13 2.7 Frozen Food Trends ............................................................................................14 2.8 Organic Food Trends ..........................................................................................15

2.9 Summary.............................................................................................................15 3.0 Food Industry Statistics...................................................................................................16 3.1 Ontario Food Processing Statistics .....................................................................16 3.2 Regional Food Processing Statistics ...................................................................20 3.3 Productivity.........................................................................................................24 3.3.1 Productivity Per Establishment ...........................................................................25 3.4 Labour Profile of the Region ..............................................................................25 3.5 Summary.............................................................................................................27 4.0 Processor Survey Results ................................................................................................28 4.1 Survey Summary.................................................................................................28

4.1.1 Business Characteristics Summary.....................................................................28 4.1.2 Product Characteristics Summary.......................................................................29 4.1.3 Labour Characteristics Summary........................................................................31 4.1.4 Business Situation Summary ..............................................................................31 4.1.5 Future Plans Summary........................................................................................33 4.2 Sector Analysis ...................................................................................................34 4.2.1 Labour Characteristics By Sector .......................................................................34 4.2.2 Business Situation By Sector ..............................................................................35 4.2.3 Future Plans By Sector ........................................................................................36 4.3 Summary.............................................................................................................38

5.0 Summary.........................................................................................................................39

5.1 Study Overview...................................................................................................39 5.2 Food Processing Statistics...................................................................................39 5.3 Processor Survey Results and Discussion...........................................................40

Table of Contents (cont’d)

Ridgetown College, University of Guelph ii

6.0 Food Processing Recommendations ...............................................................................47 6.1 The Strategy - Retention and Expansion ............................................................47 6.2 Overall Recommendations ..................................................................................48 6.2.1 Recommendations By Production Sub-Sector ....................................................48 6.2.2 Recommendations By Processor Size.................................................................52 6.2.3 Recommendations By County ............................................................................54 6.3 Government Actions Required............................................................................56

List of Appendices Appendix 1 Ontario Food Processing Statistics .....................................................................59 Appendix 2 Survey Responses and Analysis By Size of Company .......................................67 Appendix 3 Middlesex County Analysis ................................................................................90 Appendix 4 Sarnia-Lambton Analysis....................................................................................96 Appendix 5 Chatham-Kent Analysis ....................................................................................102 Appendix 6 Windsor-Essex Analysis ...................................................................................108 Appendix 7 Information Sources and References ................................................................114

List of Tables Table 2.1 Leading Mergers and Acquisitions, 1999 – 2001 .................................................8 Table 3.1 Ontario Food Processing Statistics, 2002 and 2003............................................17 Table 3.2 Ontario Food Manufacturing Statistics, 2001 .....................................................18 Table 3.3 Ontario Food Manufacturing Statistics, 1999 .....................................................18 Table 3.4 Ontario Food Manufacturing Statistics, 1992, 1996, 1999.................................19 Table 3.5 All Manufacturing Industry Statistics, 1992, 1996, 1999 ...................................22 Table 3.6 All Manufacturing Industry Statistics at The County Level, 1999 .....................22 Table 3.7 Food Manufacturing Statistics for the Four County Region, 1992, 1996, 1999.....................................................................................23 Table 3.8 Food Manufacturing Statistics, 1999 ..................................................................24 Table 3.9 Food Manufacturing Statistics per Establishment, 1999 ....................................25 Table 3.10 Distribution of Population By Highest Level of Schooling ................................26 Table 3.11 Distribution of Population By Age Category......................................................26 Table 4.1 Business Characteristics......................................................................................29 Table 4.2 Product Characteristics .......................................................................................30 Table 4.3 Labour Characteristics ........................................................................................31 Table 4.4 Business Situation...............................................................................................32 Table 4.5 Future Plans.........................................................................................................33 Table 4.6 Sector Representation .........................................................................................34 Table 4.7 Labour Characteristics By Sector .......................................................................35 Table 4.8 Business Situation By Sector ..............................................................................35 Table 4.9 Future Plans By Sector ........................................................................................36

Table of Contents (cont’d)

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List of Figures Figure 2.1 Income Versus Food Expenditures in The U.S.....................................................5 Figure 2.2 Foreign Investment in Canada and Canadian Investment Abroad........................7 Figure 2.3 Return on Equity in The Food Industry..............................................................11 Figure 3.1 Total Capital and Repair Expenditures in Food and Beverage Manufacturing, Ontario ...........................................................................17 Figure 3.2 Number of Establishments By Industry Group By County, 2002 ......................20 Figure 3.3 The Region as a % of Ontario By Employment Range, 2002 ............................21 Figure 4.1 Levels of Investment Per Participant By Sector During Last 5 Years................37 Figure 4.2 Levels of Investment Per Participant By Sector in Next 5 Years .......................37

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EXECUTIVE SUMMARY

This study was undertaken in order to identify investment needs, growth trends and future opportunities in the food sector for the southwestern region of Ontario (i.e. Windsor-Essex, Chatham-Kent, Sarnia-Lambton, and Middlesex County). Some of Ontario’s most unique and specialized food processing firms are located within the region. Operations range from fruit and vegetable canning to meat fabrication, and from corn milling to wine making. Products originating from this region supply both local and global markets. The food companies operating in this region of the province tend to be either small to mid-sized privately owned enterprises (SMEs), or subsidiaries of multinational enterprises (MNEs) that operate plants in many parts of the world and own major global brands. Despite the robust and specialized nature of the agri- food system in this region of Ontario, it is important to recognize that Essex, Chatham-Kent, Lambton and Middlesex are not immune to the trends transforming the food industry globally. The tight margins in food processing have prompted many companies to strive for new alliances and partnerships in order to achieve greater economies of scale. From a regional development perspective, it is useful to identify and understand both the opportunities and challenges faced by processors operating in this part of the province. Some of the highlights of the study are listed below. 1. Food Processing Statistics

According to Statistics Canada, the area under investigation contained a total of 289 businesses in food, beverage and tobacco manufacturing in 2002. Principal manufacturing statistics (source: Annual Survey of Manufactures) for the four county region in 1999 were: total shipments - $2.9 billion; number of production employees - 6,259. The majority of businesses were in the bakeries and tortilla group (28%), followed by the beverage (17%) and meat product groups (12%). These 289 firms represent about 8% of the total food manufacturers in the province. With regard to individual counties, Middlesex has the largest number of food businesses in terms of number of production employees per establishment (77), followed closely by Chatham-Kent (73).

2. Processor Survey Results (i) Processor Business Characteristics - The survey results indicated that

companies within the study region tended to be well established firms (i.e. had been in their current locations for an average of 36.2 years) and relatively large by Ontario standards (i.e. the average square footage for the firms surveyed was 99,754). Many of the firms are privately owned (88%), operate multiple sites throughout the province (i.e. the average number of sites per company was 3), and have strategic alliances with other firms (67%). However, of the firms surveyed,

Executive Summary (cont’d)

Ridgetown College, University of Guelph v

only 19% had a written succession plan, and it was noted with concern that only 40% had a written business plan and that 43% did not conduct market surveys to determine customer needs.

(ii) Product Characteristics - The results here are worrisome because they indicate that 52% of the respondents have mature products, while 36% of businesses say their main product represents more than 80% of total business sales. In addition, many of the fruit and vegetable processing firms in Essex and Chatham-Kent rely heavily on canning technology for their core products.

(iii) Customer Dependence - Given the high level of concentration in the grocery

retail and food service industries (i.e. the top three Canadian grocery retailers have 65% of the market share), it was expected that companies would have a limited range of customers, and that a significant proportion of their total sales will be to two or three key accounts. This was confirmed by the study, which found that 26% of survey participants reported that their main customer represented more than 80% of total sales.

(iv) Labour Characteristics - Perhaps the most important finding was that 78% of

the firms indicated their workforce would remain the same or increase in the future. (note: this question had a low response rate). When the workforce was divided into the three groups, unskilled, skilled and professional, 78% of the unskilled jobs did not require high school completion. The age of the workforce was of concern. More than 50% of the labour force accounted for in the survey was over 40 years of age.

(v) Processor Business Situation - Respondents indicated that the main advantages

for operating in the region were proximity to the domestic market and access to farm-produced raw materials. The study group indicated that disadvantages were government regulations and taxes, which are normal business concerns regardless of location. Respondents reported that they felt overburdened by regulations and the time it took to understand how these would affect business. Recently introduced government regulations such as nutritional labeling and nutrient management were commonly cited examples.

Many of the companies have significant infrastructure needs that will need to be addressed in the future. Of these, the top three were municipal water, road maintenance, and waste water/solid disposal.

(vi) Heavy Reliance on the U.S. Marketplace - Food processors in the region rely

heavily on the U.S. market. 55% of the firms surveyed stated that their operations had sales outside of Canada. 50% of the exporting firms stated that these sales represented more than 20% of total sales, and 41% reported that all export sales were to the U.S.


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(vii) Future Situation - It is difficult for some companies to access capital, and several small companies indicated that they had had to obtain personal lines of credit in order to finance their businesses (i.e. 41% of respondents indicated that operating capital is difficult to secure). Despite these constraints, 29% of respondents indicated that they plan on spending more than $1 millio n on capital upgrades in the next five years. Many of the larger firms had significant investment plans (e.g. 60% of Windsor-Essex respondents expected to invest more than $1 million each). Most of this capital investment would be going to the areas of automation and quality enhancement (e.g. scanning technology).

3. The Strategy - Retention and Expansion

The appropriate food processing strategy for the region is one of retention and expansion, rather than a focus on attracting new firms to the area. However, there may be a few niches where new firms could be attracted to the region, such as in the area of food grade soybean manufacturing and vegetable processing. At the present time and at least for the short term, there are three factors beyond the control of government that have affected the attractiveness of southwestern Ontario as a target for new investment in the food processing industry. These three factors are the Canada/U.S. exchange rate, border issues, and the constancy of the power supply.

4. Overall Recommendations A) Recommendations by Production Sub-Sector

(i) Grain Corn - The pitfall regarding grain corn is that Ontario is corn-deficit (i.e.

uses more than it produces) and has been in this deficit position since at least 1996. There are presently twelve different industrial users of corn in Ontario (e.g. Commercial Alcohols in Chatham, and Casco in London) and several in neighbouring U.S. states. Therefore, the probability is low for attracting food grade corn millers to the area.

(ii) Soybeans - The major hurdle with regard to soybeans is not supply, but rather the

availability of plant capacity that meets human food safety standards. There are no plants in Ontario which refine soybeans into flour, concentrates, or other soy protein extracts. Domestically, soyfoods represent one of the fastest growing food markets in North America (i.e. the U.S. market in 2002 was worth $US3 billion). Over the last two years, the U.S. soyfood market has increased by 28.6% and 29.6% respectively. The world per capita soy protein consumption is 2.36 g/day, while the U.S. level is only 0.32 g/day. In summary, it would appear that there is great potential for food grade soybean processing in the region.

(iii) Greenhouse Vegetables - With respect to greenhouse vegetable processing, the

growth of the current industry has been driven by the fresh commodity markets of U.S. grocery retailers. However, there may be opportunities for small processors


Ridgetown College, University of Guelph vii

to experiment with grade-out fresh product for specialized processing applications.

(iv) Processing Vegetables - This is an investment area that has been identified as

having growth potential. It fits in well with the North American trend, wherein consumers want wholesome, convenient, and healthy food. Vegetable processing also complements the region’s resources in terms of soil, climate, and human capital.

(v) Meat Products - It appears there are only limited opportunities for large, full-

scale meat processing operations to locate within the region. Much of the livestock industry (i.e. cattle and pigs) has moved away from the region, and thus any plant located in the southwest would have to transport animals from the Huron/Perth area.

However, these comments do not apply to specialty meats (i.e. sausage, smoked pork chops, and other high value products). In high traffic tourist areas, it is anticipated that many marketing opportunities will be available to local producers.

(vi) Sugar Beets - There is a great deal of interest in sugar beet production within the region. However, U.S. sugar policy subsidizes the sugar beet processing industry heavily in that country, and an Ontario-based plant would not be viable unless it received similar support.

(vii) Bio-Products - The potential market for bio -based products (i.e. plastic, lubricants, fibre products, etc.) is significant; however, the cost is currently an impediment to the market. It is likely that the conversion from conventional to renewable materials will be slow.

B) Recommendations by Processor Size

(i) Small Firms with Sales Less than $250,000 - No particular sub-sector is experiencing more rapid growth over another. An economic development officer could assist with the following specific needs: business plan development; product packaging; advertising; and market development.

(ii) Medium-Sized Firms with Sales between $250,000 and $5 Million - As with the small firms, no one sub-sector has been identified as performing better than the rest, although there may be some opportunities for organic vegetable processing by these firms. The main challenges found with regard to this group of firms were inter-generational transfer issues and business plan development. Firms this size typically lack the resources for major investments in research and development.

(iii) Large Firms with Sales Greater than $5 Million - It should be noted that for firms of this size, little growth is expected in the local market due to market


Ridgetown College, University of Guelph viii

saturation. Larger food processing companies will be export- focused, while the multinational subsidiaries will focus on gaining/maintaining product mandates from the parent company. These firms require assistance with consumer research and marketing plans.

C) Recommendations by County

(i) Sarnia-Lambton

• Stimulate value-added fresh vegetable marketing (i.e. sweet corn, potatoes, beans,

and onions) and agri-tourism (i.e. organized farm markets) in the Grand Bend area. Other products to consider include barbecue meats, fresh fruit and baked goods.

• Focus all efforts on trying to attract a food grade soybean processor to the area.

(ii) Middlesex • Capitalize on the London urban market by promoting agri-tourism and assisting some

operations in developing value-added farm products attractive to urban consumers (e.g. specialty meats). The London urban market may be sufficiently large to support some organic crop production and processing.

• Encourage food-use soybean production and vegetable production on land capable of

growing these higher-valued crops.

(iii) Chatham-Kent

• Further develop value-added farm marketing in the Blenheim area to take advantage of the wide variety of fruit available there.

• Clearly, significant attention should be directed towards vegetable processing.

Working with existing plants to reduce costs and meet infrastructure requirements will go a long way towards contributing to their profitability and increasing the likelihood that they will stay in the area.

(iv) Windsor-Essex

• An expansion of agri-tourism and value-added farm marketing is recommended. For

example, farms and food companies located along the wine route should offer some of the unique farm products grown in the area (e.g. fruits, vegetables, baked goods, salsa). The City of Windsor is home to many ethnic groups that prefer foods different from traditional Canadian foodstuffs. These market segments should be fully explored.

• Encourage/promote vegetable processing in the area. Many different vegetable crops

higher in value than corn, soybeans, and wheat can be grown in the area.


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5. Government Actions Required

Specifically, the actions identified for government consideration are as follows: (i) Centre for Agri-Food Innovation - Local governments should establish a centre

of excellence that would specialize in supporting small and medium-sized businesses in developing value-added products. Specialists working in this centre would provide assistance on how and where to obtain funding, and also offer business development training.

(ii) Benchmark Infrastructure Costs Relative to Other Jurisdictions - Given the

current business environment in the food processing sector (i.e. consolidation) it is important to ensure that the infrastructure costs associated with doing business in the region are at least in line with those in other jurisdictions, if not more favourable.

(iii) Assist Employers in the Development of a Long-Term Workforce Plan -

Many of the companies in the region have not thought through the implications of an aging labour force and the potential for lost productivity when faced with high retirement numbers. Training courses (e.g. meat cutting, food safety, skilled trades) should be offered at local colleges, as well as co-op education programs in high schools.

(iv) Provide Business and Marketing Expertise - There is an urgent need to

encourage privately owned firms to undertake more deliberate succession planning. Municipal governments could consider peer-conducted seminars as an initiative to encourage more formal planning for orderly management and ownership succession. Training is also required in the areas of financial management, business plan development and marketing strategy.

(v) Capital Availability - Many of the firms stated that it was difficult to obtain

funding for capital improvements. Any capital grant program or tax system incentive that encourages investment in new technology would be beneficial to the industry. Programs should be available to firms of all sizes and increased caps or limits on borrowing should be explored.

(vi) Nurture Innovative Producer/Processor Alignments - Here local governments

should play a role in exploring and nurturing innovative producer alignments, such as new generation co-ops, joint ventures, and other forms of vertical integration.

(vii) Technology Investment - While the overall competitiveness of the region is a

function of many factors (i.e. local wage rates, proximity to major markets, distance to raw materials, etc.), technology is a key driver. Local governments should support new technologies such as co-generation and innovative packaging.

Food Industry Growth Trends in Ontario’s Southwest Region

Ridgetown College, University of Guelph 1

1.0 STUDY OVERVIEW 1.1 Introduction

This study was undertaken to identify investment needs and growth trends in the food sector for the southwestern region of Ontario: Windsor-Essex, Chatham-Kent, Sarnia-Lambton, and Middlesex County. Within the region are some of Ontario’s most unique and specialized food processing firms. Operations range from fruit and vegetable canning to meat fabrication and from corn milling to wine making. Products originating from this region supply both local and foreign markets around the world. Despite the robust and specialized nature of the agri- food system in this region of Ontario, it has undergone significant rationalization consistent with other parts of North America. Food industry firms have merged or exited certain sectors. Challenges faced by the food sector in this region include obtaining competitive returns on operating assets for seasonal products (e.g. tomato canning), labour rate and supply competition with the automotive industry especially for skilled trades, adapting to changes in government regulations regarding environmental and food safety standards, maintaining competitive cost structures with other parts of the world, and maintaining access to foreign markets in view of foreign government trade policies. The rationalization drive, leading to consolidation and integration within the food processing industry, is the result of many factors. Primary ones are the need to achieve larger economies of scale in order to lower unit costs, the need to respond to changing consumer preferences, and the need for enhanced food safety and product security. The tight margins in food processing have prompted many companies to form new alliances and partnerships to achieve greater economies of scale. These alignments lower business risk, contribute to reduced costs, and allow companies to specialize within the food system. Consumers want products that are safe and meet their needs for convenience, nutrition, taste, and price. As an illustration of the concentration occurring within the global food industry, five firms now account for nearly 25% of the sales of the top 100 food companies in the world (i.e. valued at $US165 billion in 2002) 1. These five large food processors are: Nestlé S.A., Kraft Foods Inc., ConAgra Inc., Pepisco Inc., and Unilever PLC. Two of these firms have subsidiary plants located in the southwestern region of Ontario. This global industry restructuring is occurring at all levels of the food supply chain including grocery retail and food service merchandising firms. In Canada, the top 3 food retailers (i.e. Loblaws, Sobeys, and Metro-Richlieu) have about 60 - 65% market share, which is an even more concentrated position than in the U.S., where the top five firms have about 45% market share nationally. In the U.S. because of the dominance of certain grocery retailers in certain regions, the level of concentration on a regional basis is higher than the national average. With respect to food service, one U.S.-based food service provider (i.e. Sysco Corporation) now controls 13% of the estimated $US200 billion North American

1 http://www.preparedfood.com/special_reports/top100.pdf



food service business and is forecasting that its revenue will double to $US50 billion in the next five years. The food processors that operate in the southwestern region of the province generally are one of two kinds. They are either small to mid-sized privately owned enterprises (SMEs), or they are subsidiaries of multinational enterprises (MNEs) that operate plants in many parts of the world and own major global brands. From a public policy perspective, these two kinds of firms need to be considered differently. In the short term, the SMEs do not have many other options as far as where to locate whereas the MNEs can reallocate production to their plants in southwestern Ontario or to other North American plants.

1.2 Strategic Changes in Food Processing

MNEs constantly review their North American production options and only those plants that retain a strategic competitive advantage remain company-owned. Many MNEs have pursued outsourcing strategies where they will contract with SMEs to provide products they require. From a regional development perspective, it is important to identify and understand both opportunities and challenges faced by processors operating in this part of the province and to recognize how changes in sourcing strategies are influencing investment and ownership.

Essex, Chatham-Kent, Lambton and Middlesex have participated in the trends transforming the global food industry. Some examples are now given below: • There have been MNE plant closures, such as the Hunt-Wesson plant in Tilbury

and the Campbell Soup Company Ltd. plant in Chatham, in the early 1990s. Both of these closures occurred shortly after the Canada-U.S. Free Trade Agreement was signed and were responses to the elimination of tariff protection for Canadian tomato processing. Total Ontario tomato processing did not decline overall.

• There has been consolidation, such as the relocation of production of canned pasta

and baked beans from the former Nestlé plant in Wallaceburg, to the H. J. Heinz Company of Canada Ltd. plant in Leamington. This kind of consolidation appears to have been driven by the need to obtain greater efficiency, operating higher speed production lines with lower unit costs.

• There have also been divestitures, such as the decision by Pillsbury Green Giant

to close its London, Ontario plant and sell its Tecumseh, Ontario plant to Family Tradition Foods Inc. in 1994. This decision was part of a wave of strategic divestitures in the North American frozen vegetable processing industry in which consumer branded multinationals retained their brands but sold their processing assets to privately owned companies. Many of these privately owned companies were engaged as long-term co-packers (i.e. producing products on behalf of another company). Further evidence of this trend by MNEs to divest seasonal processing assets to SMEs is provided by the 2002 decision of H. J. Heinz Company of Canada Ltd. to sell its Omstead Foods division in Wheatley to



Snowcrest Packers in B.C.. Omstead Foods processes both frozen vegetables and Lake Erie fish.

• There has been new investment in the form of acquisitions, with Lassonde Juices,

a Quebec-based company, acquiring the former Mar-Brite Cooperative plant in Ruthven, Ontario in 1996 and Carrière Foods’ acquisition of Strathroy Foods Ltd.’s frozen vegetable processing plant in Strathroy. These two investments indicate that there is opportunity to utilize the excellent growing conditions of southwestern Ontario to secure a supply of materials for fruit and vegetable processing.

1.3 Objectives

The overall objective of this study was to identify food industry opportunities and challenges so that existing firms can be retained or expanded. This information is also needed to attract new capital investment to the region. The project gave balanced emphasis to both SMEs and MNE branch plants, recognizing both are important parts of the food industry in southwestern Ontario. This project has four key objectives or questions to investigate and they are: 1. What are the current food processing market trends that are occurring globally, in

North America, in Ontario, and in Southwestern Ontario?

2. Benchmark food processing in the region in terms of how important is the industry in the four county study area. In particular, how many jobs are created, what are the gross sales from this sector, and how many firms are located in the area?

3. To determine factors that influence the decision of a food processing firm to stay

or expand in this location. What are key issues and challenges faced by the food processing sector operating in this region of Ontario?

4. Outline food processing opportunities specific to the identified study area.

Provide suggestions and ideas on how the region might work with and support the existing food processors. Also, there is a need to know if there are any specific food processing investment opportunities at both the county and regional level.

1.4 Methodology

The main data sources for this project were Statistics Canada and information collected through surveying food processors in the region. A survey questionnaire was developed and the questions asked ranged from general descriptive information pertaining to the location, number of employees, and types of products manufactured to identification of advantages and disadvantages which can affect the future of these companies. The survey was administered to 68 businesses throughout the four county region (i.e. Windsor-Essex,



Chatham-Kent, Sarnia-Lambton, Middlesex) with 88% completed by conducting personal interviews and the rest completed over the telephone. Typically, either owner/managers or senior level company executives completed interviews. These individuals gave a considerable amount of their time for the interviews and were very forthcoming and candid with their responses. The opportunity to meet face-to-face provided an opportunity to see the businesses first-hand and to gain insights into their operations. Once the surveys were completed the data was analyzed at the regional level and then sorted by municipality, size of company and sector. This provided an in-depth analysis of which food manufacturing segments were growing and what companies needed to achieve in order to remain viable. The Statistics Canada data was used to benchmark the food processing sector relative to manufacturing for the entire province and the four county region. Key information used in the analysis included: number of establishments, number of production workers, wages paid to workers, shipments and amount of value-added. Some productivity calculations were also done to measure the output and profitability from food processing relative to manufacturing in general.

1.5 Study Team

The study team was comprised of individuals from the Economics and Research Group at Ridgetown College, University of Guelph. Specifically, Ken McEwan co-ordinated the project, Lynn Marchand assumed responsibility for the survey portion of the project and Randy Duffy undertook the statistical interpretation of Statistics Canada data. James Farrar, of Jayeff Partners, was responsible for completing several survey interviews and providing perspective with respect to industry issues.



2.0 TRENDS IN FOOD PROCESSING

The purpose of this section is to provide information on food industry issues and trends occurring around the world.

2.1 Changing World Markets

Consumer markets for food products in North America, Europe and Japan are considered mature. This means that they are experiencing slow growth in sales with intense competition for market share. In these mature markets, income growth has outpaced increases in food expenditures, leading to continuous reductions in the share of income spent on food. Today in North America, consumers spend just 10% of their income on food compared to almost 18% in 1960. Further, an increasing share of what consumers spend on food goes to marketing services added after the product leaves the farm. In 2000, over 80% of the U.S. food dollar went toward value-added services and materials including transportation, processing, distribution, labour and packaging. By contrast, less than 20% related to the value of the raw product from the farmgate. See Figure 2.1 for the depiction of income versus food expenditures. Figure 2.1. Income Versus Food Expenditures in The U.S.

Source: USDA, Economic Research Service2 Techniques being used by manufacturers seeking to increase sales, profits, and market share in mature markets are: rationalization of processing assets to achieve greater economies of scale; investment in new technologies to reduce labour costs and enhance quality; expanding exports to develop new markets; and developing new value-added products that respond to consumer needs for convenience or specific quality attributes. An example of a new technology that has been introduced in the southwestern region is

2 http://www.ers.usda.gov/Briefing/DPIFoodAndExpenditures/Data/table8.htm

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1965 1970 1975 1980 1985 1990 1995 2000 2005

Income

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the greatly expanded use of automated colour sorting equipment for vegetable processing, replacing line workers that formerly sorted at much lower speeds by hand. An example of new value-added products is the movement of ketchup from traditional glass bottles to more convenient plastic packaging and its green coloration to attract interest to the category by younger consumers. In other parts of the world, emerging markets such as India and China are expected to have income growth and consumers are anticipated to spend a large share of the increased income on better quality food. Rapid income growth in emerging markets is likely to cause the demand for food and agricultural products to exceed the capacity of the domestic economy, thus stimulating agri-trade. Also, increasing income not only leads to a demand for more food, but also changes the diet. Growth in disposable income typically causes a shift in consumers’ diet to include more meat protein and processed food products. A large share of the diet of low- income households around the world consists of tubers and basic grains such as limited processed rice, wheat, and corn. As incomes rise, these households often substitute meats for tubers and grains. Interestingly, at very high- income levels, consumers substitute horticultural products for meats. These emerging markets are particularly important to Canada and the United States. Canada exports almost half its farm production, either directly as primary products or indirectly as value-added processed products. In the U.S., agricultural exports account for 20% to 30% of total farm income and normally offer significant support to a positive overall trade balance. The United States is the world’s largest importer and exporter of processed food and U.S. companies are continuing to expand operations overseas. The top 5 destinations for U.S. processed food exports are: Japan, Canada, Mexico, South Korea, and Hong Kong. U.S. food manufacturers continue to expand foreign investment abroad. In 1998, U.S. foreign direct investment in food manufacturing abroad totaled $US33.9 billion and sales were $US49.8 billion. Typically, U.S. companies prefer to invest in joint ventures with existing firms rather than start from scratch in foreign markets. Investment by other countries in Canadian food, beverage and tobacco manufacturing has been increasing over time. Foreign direct investment in Canada’s food and beverage industry amounted to approximately $37 billion in 2002. This is shown in Figure 2.2. Canadian food companies are also investing in other countries and investment abroad was $9 billion in 2002.



Figure 2.2. Foreign Investment in Canada and Canadian Investment Abroad

Source: Statistics Canada

2.2 Buyer-Seller Reorganization and Consolidation

Increasingly, there is greater interdependency between consumer, retailer, distributor, processor, producer, and input supplier. Although historically these markets functioned separately, economies of scale, government policy, and industrialized techniques (e.g. production contracts) have all contributed significantly to restructuring the relationships between and among these markets. The additional international dimension associated with globalization injects extra energy and risk into these individual markets. A change, such as regulation, production and information technology, or consumer demographic trends, in one industry component has a rippling effect throughout the food value chain. Today, food manufacturers generally ship to distribution centres owned by the large grocery retailers and food service providers. Along with this industrial process comes the irrefutable and seemingly irreversible trend of supply chain consolidation. In the U.S., it is now very common to have a few firms control significant portions of various agricultural markets. For example, four firms control over 78% of the pasta processing done in the U.S.. Further, market share for the top 20 food processing firms in the U.S. has risen from 36% of industry sales in 1987 to 51% in 1997. In addition, supermarket chains have been consolidating to improve operating efficiencies and economies of scale in the face of increasing competition from mass merchandisers and club stores.

05,000

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Foreign Direct Investment in Canada Canadian Direct Investment Abroad



Commonly cited reasons by companies for mergers and acquisitions, horizontal or vertical, include: (i) To maintain bargaining power with other stages of the supply chain undergoing

consolidation, (ii) To ensure a market outlet in an increasingly consolidated downstream segment,

(iii) To ensure a consistent, high-quality source of raw materials,

(iv) To capture efficiency gains and lower procurement costs; and

(v) To improve their ability to compete with alternative formats, such as

nontraditional retailers (e.g. Wal-Mart and Costco) and the food-away- from-home sector.

In Table 2.1 are some of the leading U.S. mergers and acquisitions between 1999 and 2001. Worth noting is the value of some of the acquisitions (e.g. Unilever’s acquisition of Best Foods - $US20.3 billion).

Table 2.1. Leading Mergers and Acquisitions, 1999 - 2001 Transaction

Value - $US

(billions) Unilever’s acquisition of Best Foods Philip Morris acquisition of Nabisco holdings General Mills acquisition of Pillsbury

Kellogg’s acquisition of Keebler Food Company Tyson’s acquisition of IBP Unilever’s acquisition of Slim Fast Foods

Smithfield’s acquisition of hog-producer Carroll Foods

20.3 14.9 10.4

4.0 3.2 2.3

0.5 Source: Economic Research Service/USDA, U.S. Food Marketing System, 20023

Food processors are now using both price and non-price strategies to gain consumer acceptance and retail space. Over 80% of U.S. grocery products are nationally or regionally branded. Advertising is typically used to differentiate food product brands and create brand loyalty. This technique is now being applied to the traditionally undifferentiated products such as red meats, poultry, fish and some dairy products. In 1999, branded food processors spent almost $US7.3 billion in direct consumer media advertising.

3 Harris, J.M., Kaufman, P., Martinez, S., and Price, C., AThe U.S. Food Marketing System, 2002", Economic Research Service, U.S. Department of Agriculture. p 7.



There has also been a trend towards fewer new food product introductions in the U.S.. In 2000 new product introductions totaled 9,145 down 46% from the peak level of introductions in 1995. Possible explanations for this decline in new products are: (i) Consolidation may have limited new food product introductions since redundancy

may result when parallel product lines merge; and (ii) Some food product categories may be reaching saturation and new products may

create consumer confusion.

At the food retail level significant change has been occurring as well. At the present time, through the use of scanning systems at supermarket checkout counters, there has been a great wealth of information gained on real-time product movement. This information has allowed retailers to improve their logistics for ordering and delivery, to better match supply with demand, and reduce spoilage. As the gatherer and owner of the information, the grocery retailers have gained leverage over their suppliers. By correlating purchase behaviour with customer loyalty cards, grocery retailers can gain valuable market insight into which consumers (i.e. family size, age, income level, neighbourhood) are buying what products. At the same time, most grocery retailers have invested heavily in their own private label store brands and sought to use them for positive differentiation from competitors. The most celebrated case of private label branding is the President’s Choice brand, pioneered by George Weston Ltd.. Frequently, grocery retailers carry only one or two national brands and their own store brands in any given category. There is usually a price spread between the national brand and the private label brand. The rise of the warehouse club stores has been important in keeping the grocery retailers from raising the prices of national brands to levels that deter purchasing in favour of the private label brand. Although Sam’s Club in the U.S. has its own private label brand, Costco has generally chosen a merchandising strategy that relies only on nationally branded products.

2.3 Evolving Corporate Strategy

Many North American food companies have worked hard at changing their corporate strategy to adopt one of three types. These three strategies are: (i) A low-cost strategy, (ii) A differentiation strategy; and

(iii) A focus strategy.

A low cost strategy occurs when a company in an industry makes decisions to gain a competitive advantage by producing output at the lowest cost per unit among rivals. Low-cost strategies can be employed through attaining economies of scale, developing new technologies, outsourcing tasks, integrating market segments, or developing strategic



alliances. A low-cost strategy provides barriers to entry because firms employing such a strategy can price their products or services below those of competitors. A differentiation strategy is one in which a producer incorporates features into goods or services that cause buyers to prefer that firm’s product/service over those of others. Because differentiation adds costs to products and services, it is essential that a differentiation strategy produce an output for which a premium can be charged in excess of added costs. In addition, successful differentiation strategies must create value for buyers that are not easily copied by rivals. Failure to do so results in a firm developing a market only to find that others can easily enter the market and gain an advantage without having to incur market development costs. Successful differentiation allows firms to command premium prices, increase unit sales, and/or build brand loyalty. A focus (or niche) strategy contains elements of either low-cost or differentiation strategy, but it is tailored to a narrow market in which buyers have unique characteristics or requirements. A focus strategy entails doing a better job of serving buyers in a target niche market than rivals. Knowledge of niche markets and the ability to provide exacting products or services serve as barriers to entry. Most global food companies have gravitated toward one of two production structures. The first type is undifferentiated commodity products. Only low-cost manufacturers will survive in this sector. Technological change will continue to decrease real commodity prices. The second category of firms produces differentiated, identity-preserved products that focus on certain product attributes and consumer demands. The ability to negotiate contracts, manage risk, and use information technology are the necessary ingredients to survive with this approach.

2.4 Food Processing and the U.S. Rural Community

Employment in the food processing industry declined 5.4% during 1972-92, even as employment in the U.S. economy grew 43%. The loss of food processing jobs fell more heavily on urban than rural workers and on high-skilled than low-skilled workers. This is the reverse of the U.S. economy as a whole. Processed food trade shifted from exports using more high-skilled workers per unit than imports in 1972 to exports using fewer high-skilled workers per unit than imports in 1992. While U.S. food processing employment fell between 1972 and 1992, employment related to meat exports more than tripled. In 1972, the skill requirements for meat production for trade were already more skewed toward low-skilled labor than was food processing in general. With the shift of meat production from urban to rural areas during 1972-92, rural areas become the primary host of this shift in skills. Research in the U.S. has shown that national prosperity in the 1990's did not extend to many of its rural areas. Over the decade, poverty remained high in many rural counties and roughly a quarter lost population over the decade. Counties largely dependent on farming have been much more likely to lose population than other counties. A central factor in this depopulation is the declining employment opportunities available in



agriculture. However, the primary factors found to contribute to population loss at the county level were: • Distance to large population cities,

• Historically low population density, and

• Lack of popular amenities such as educational institutions and full-range health

care facilities.

With the trend towards fewer and larger farms, many rural communities have frequently targeted food processing and other forms of value-added as a good source of income and employment growth. Increasingly, analysts feel a key element for rural growth is adding value to farm products through food processing to enhance farm income and provide rural jobs. From an economics perspective this seems to make sense. When a comparison is done using return on equity between production agriculture and food companies including processing, distribution, marketing, and retailing, the food companies averaged almost 16 percent while the farm return on equity averaged about 0 percent. Figure 2.3 below illustrates these two different rates of return since 1980. This graph clearly encourages producers and processors to become more interested in capturing some of the revenues, margins, and related profits that are available between the farm gate and consumers with value-added investments. Figure 2.3. Return on Equity in The Food Industry

Source: Coltrain, Barton, Boland 4

2.5 Consumer Trends

Given the heavy reliance of Canadian food manufacturers on the U.S. marketplace, recent consumer trends in the U.S. are now described. One of the key sources of growth for the

4 Coltrain, D, D. Barton, M. Boland. 2000. Value Added: Opportunities and Strategies. Arthur Capper Cooperative Center, Kansas State University. p 8.



U.S. food industry is the recent population increases of immigrant groups and the shift to segmented marketing of agriculture-based products. The historic production goal-oriented food system implicitly assumed that all consumers wanted the same choices and that they were willing to pay a premium for a wider variety of food items. In recent decades, the increase in U.S. population due to Latino and Asian immigrants, the increasingly time-constrained lives of all consumers, and years of a declining share of consumers’ disposable income spent on food, has effectively challenged these assumptions of consumer homogeneity and willingness-to-pay. Also, the increasing mobility of the labour force is an additional reason heightened emphasis on variety or increased food choice is occurring. A break-down of the U.S. population by ethnic group for the years 2000 and projected to 20105 are as follows: (i) Year 2000, total population 276 million - white: 74%; black: 12%; hispanic: 10%;

and other 4%; (ii) Projected 2010, total population 300 million - white: 67%; black: 13%; hispanic:

14%; and other 6%. Notice that on a percentage basis, the white population decreases while the hispanic and other categories increase. Specific characteristics surrounding the hispanic market are as follows:

• The U.S. is the 5th largest hispanic country in the world. • Hispanic purchasing power in 2001 was estimated to be over US$200

billion.

• Hispanic families spend more per family on food, baby and personal care products than their Anglo counterparts.

Other recent changes in consumers and the food they consume include: greater use of organic products, the introduction of genetically modified crops, the irradiation of foods, and the move to healthier lifestyles incorporating functional foods. It is now known that in the U.S., 53% of every food dollar is spent away from home and that 10% of all food consumed is eaten in a vehicle. Additional U.S. consumer statistics5 are as follows: • Workforce participation by women is expected to increase from 58% in 1990 to

61% in 2010. • Food service is expected to grow from US$645 billion in 1995 to US$822 billion

in 2010. 5 Richard Kochersperger, Food Marketing Group, Presentation to the Ontario Processing Vegetable Growers Conference, London, ON, January, 2002.



• “Home cooked” no longer means “from scratch”; 60% eat at home 5 to 7 times a week; 44% of weekday meals are prepared in 30 minutes or less; 69% want a way out of the “recipe rut”.

• There is an increasing gap between top and bottom income earners. The bottom

income earners represent 70% of the population and purchase from discount retailers like Wal-Mart, Kmart, Dollar Stores, etc. The top 30% of the population purchases from upscale retailers like Kroger’s, Wegmans, Randalls, and etc.

• Children are becoming increasingly important as consumers. In 1999, children

aged 2-14 directly influenced US$288 billion and indirectly influenced another US$600 billion of their parents’ spending.

• The aging baby boomer (i.e. normally those aged 41-51) are increasingly

concerned with their health and wellness. They are a prime market for specialty products.

• On average the U.S. population is getting older. In 1975 the average age was 27.6

but in 2010 it is projected to be 37.2. In the U.K., a review of the food industry there echoes the same trends. For example, people want convenience in their food products but they also want to be assured of the safety of the food. They want their food prepared in an environmentally sustainable manner with “greater fairness throughout the food chain.” Meeting all of these needs and keeping prices down at the same time are priority. Recent food related events (e.g. foot and mouth) in the U.K. have perhaps accelerated consumers’ push for traceability and safety of food products around the world. In summary, the major U.S. consumer trends with respect to food are: increased spending on food away from the home; the need for convenience; and the concern over nutritional value. Similar trends are expected to be occurring in the Canadian marketplace.

2.6 Vegetable Processing Trends

The total value of U.S. vegetable production in 2001 was estimated to be worth US$14 billion, with the majority of these products being sold in the fresh market. In general, the U.S. acreage for the fresh vegetable market has been increasing while the acreage devoted to processed vegetables continues to decline. Consumers are looking for “processed products” that have the taste and nutritional characteristics of fresh vegetables. Fresh-cut, pre-packaged salads now account for about 8 percent of the sales from supermarket produce departments.

The Ontario vegetable processing industry has managed to overcome two very difficult market challenges that occurred in the 1980's. The first adversity was the erosion in dema nd for the products, particularly canned peas, beans, and corn. The second was the Canada-US Free Trade Agreement. It appears that consumer demand for canned product



has stabilized or improved and the frozen market is robust. With regard to the Free Trade Agreement, the industry has moved from being relatively protected by steep tariffs to being totally tariff free in 1998. This development had the potential to cause a severe downsizing of the industry. Instead of downsizing, however, the industry has been able to maintain production and keep or gain market share. It should be noted that the decline in the value of the Canadian dollar has probably contributed to the industry’s ability to compete. China has become a formidable competitor in processed horticultural products. China is an exporter of tomato paste and apple concentrate. Should China be able to continue to increase its production of these commodities, owing to its labour cost advantages, it could pose an increasing challenge to the long-term viability of certain horticultural crop production and related processing in Ontario. In the case of processed tomato products, higher quality tomato products such as sauces need to be made from either fresh tomatoes or from less concentrated, higher particulate diced tomatoes, in order to provide both the flavour and mouth feel that consumers want. Because of the higher shipping costs associated with these less concentrated products, Ontario has a distinct advantage over China in supplying the North American market with premium quality tomato products. At the low end of the market, in the highly concentrated tomato paste commodity, Ontario may face increasingly stiff competition not only from California but also from China.

2.7 Frozen Food Trends

The following statistics summarize recent trends found within the U.S. frozen food industry.

(i) Retail

• Total retail sales of frozen foods in the U.S. reached more than $US26.6 billion in 2001 which is 6.1% higher than in 2000. The frozen meat/seafood category had the largest % increase at 13%.

(ii) Consumers

• 94% of shoppers purchase frozen food sometimes with 30% always buying frozen food. The average American eats a frozen meal option six times per month. Consumers make approximately 2 trips to the supermarket per week.

(iii) Products

• Complete easy to prepare dinners in a single packet currently represent a $US1.2 billion market and this is expected to grow steadily over the next few years. With increasing populations of Hispanics and Asians, demand is expected to grow for ethnic frozen foods.

It appears there may be opportunities for growth in frozen food products.



2.8 Organic Food Trends

In the U.S., there is an ever-widening array of organic agricultural and food products available. In the year 2000, consumers spent $US7.8 billion on organic food. According to industry estimates, organic sales have been increasing 20% per year since 1990. The main purchasing venues are conventional supermarkets - 49%, health and natural products stores - 48%, and direct-to-consumer - 3%. The top 3 food types purchased are fresh fruits and vegetables - US$2.2 billion; non-dairy beverages - US$1.0 billion; and breads and grains - US$0.75 billion. Most economic studies investigating profitability suggest that price premiums are key to giving organic farming systems comparable or higher whole-farm profits than conventional chemical- intensive systems. Price premiums for organic produce in the Boston wholesale market during 2000 - 2001 were: organic broccoli - 30% higher than conventional; and organic carrots - 25% higher than conventional. Current organic acreage estimates are: 2% of the apple, grape, lettuce and carrot crops; 33% of all herbs; 1% of corn, soybean, and wheat crops; and 1% of dry peas and tomato crops. The typical organic shopper is described as young, female, higher income, and somewhat knowledgeable about alternative agriculture. Some interesting market facts about organic processed foods are now given:

• Frozen organic fruit and vegetable sales as a share of total U.S. frozen fruit and

vegetable sales - 1.34%. • Canned organic vegetables as a share of the total U.S. canned vegetables - 0.34%. • Packed groceries account for 15% of total organic sales.

• Sales of four frozen organic vegetables increased by 58% between 1991 and 1996

(i.e. corn, broccoli, peas, and green beans). • During the first half of 2000, more than 800 new organic processed products were

introduced.

Although organic food products currently represent a relatively small portion of total food purchases, growth of these products is likely to continue.

2.9 Summary

In conclusion, consumer markets in North America, Europe and Japan are experiencing slow growth while emerging markets such as India and China are expected to expand with consumers purchasing better quality foods. In North America there has been tremendous consolidation within the food supply chain and some recent U.S. mergers have been valued at over US$20 billion. The major U.S. consumer trends with respect to food are: increased spending on food away from home; the need for convenience; and concern over nutritional value. The Ontario vegetable processing industry has overcome the adversity of falling product demand and the Canada-U.S. Free Trade Agreement.



3.0 FOOD INDUSTRY STATISTICS

This section describes the food manufacturing industry for Ontario, the four county region as a whole, and at the individual county level for Essex, Chatham-Kent, Lambton, and Middlesex. Most of the data used is from the years 1992, 1996 and 1999. The 1999 data is the most recent year much of the information is available, however, some 2001 and 2002 data is presented at both the provincial and county level.

Most of the data is sourced from Statistics Canada and is from the Annual Survey of Manufactures (ASM). It is important to note that this is a survey of manufacturing firms and does not reflect all manufacturing establishments in the province. Firms included in the survey are those with annual sales greater than $30,000. It is expected that a large percentage of the province’s manufacturing employees are accounted for since firms with less than $30,000 in sales would have few, if any, employees. Although not all manufacturing establishments are included, the ASM does provide a good representation of the importance of food manufacturing within Ontario and the four county region.

Due to concerns over individual firm confidentiality, some statistics are not available or publishable. As well, some data reported may not be complete because of sampling technique (e.g. not all establishments are included in the Annual Survey of Manufactures). This results in only certain sectors within the food manufacturing industries having data that can be published. Much of the beverage and tobacco product manufacturing statistics are not publishable.

1992 and 1996 have been backcasted to NAICS (i.e. North American Industrial Classification System) from SIC (Standard Industrial Classification) for Ontario data. However at the county level, SIC data was used for 1992 and 1996 while NAICS data was used for 1999. The data is not precisely comparable but is still useful when describing general industry trends. As the reader will see, more detailed information is available at a provincial level than at the census division or county level.

3.1 Ontario Food Processing Statistics The Ontario food processing industry reported total shipments in 2002 at $31.6 billion as shown in Table 3.1. The two largest sectors in terms of shipments, beverage and tobacco manufacturing and meat product manufacturing, contributed $6.5 billion and $5.4 billion respectively to this total. The food, beverage and tobacco sector was the fourth largest manufacturing industry in Ontario in 2002 in terms of GDP at 12.2%. Ontario’s agri-food trade has grown significantly over the past few years. Exports have grown by 280% from $2.2 billion in 1988 to $8.35 billion in 2002. The two main countries Ontario exports to are the U.S. (i.e. with $1.77 billion worth of exports in the first 3 months of 2003) and Asia (i.e. with $110 million worth of exports during January to March 2003; Note: Japan is excluded from these figures). Imports have grown by 214% from $3.97 billion in 1988 to $12.48 billion in 2002. The U.S. is the main country Ontario imports from, with nearly $2 billion in imports reported for January to March 2003. European



Union imports for the same time period were $254 million. More detailed information is provided in Appendix 1.

Table 3.1. Ontario Food Processing Statistics, 2002 and 2003 Amount and Time Period (i) Total Shipments $31.6 billion in 2002 (ii) 2 Largest Sectors Beverage/tobacco $6.5 billion in 2002 Meat products $5.4 billion in 2002 (iii) % GDP Food, Beverage, Tobacco Mfg 4th largest industry 12.2% in 2002 (iv) Agri-food Trade Has Grown Exports $8.35 billion in 2002 Imports $12.48 billion in 2002 (v) Top 2 Countries Ontario Exports To 1) U.S. $1.77 billion Jan-Mar ‘03 2) Asia (excl. Japan) $110 million Jan-Mar ‘03 (vi) Top 2 Countries Ontario Imports From 1) U.S. $1.98 billion Jan-Mar ‘03 2) E.U. $254 million Jan-Mar ‘03

Source: Statistics Canada, International Trade Division Growth in the Ontario food processing industry can be attributed to the investment that has been occurring in the sector over time. The following graph depicts total capital and repair expenditures for money spent on the construction and repair of facilities, machinery and equipment. It is important to note that this new investment in the industry has recently amounted to approximately $1 billion on an annual basis.

Figure 3.1. Total Capital and Repair Expenditures in Food and Beverage Manufacturing, Ontario


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The food, beverage and tobacco manufacturing industry is comprised of several sectors. Table 3.2 highlights that of the food manufacturing firms, the bakeries and tortilla manufacturing sector represents the largest number of firms. The meat products manufacturing sector reported the largest number of production workers, the highest cost of materials, and the largest value of shipments. The beverage and tobacco manufacturing sector reported the highest total value-added. A complete breakdown for all food manufacturing sectors is included in Appendix 1.

Table 3.2. Ontario Food Manufacturing Statistics, 2001 Industry

# Firms

# Production Workers

Cost of Materials

Total Shipments

Total Value Added

All Food Mfg 1,735 65,531 $15.0 billion $27.0 billion $9.9 billion Meat Products 264 18,368 4.1 billion 6.0 billion 1.6 billion Bakeries/Tortilla 647 13,809 1.2 billion 2.9 billion 1.5 billion

Beverage/Tobacco 205 6,959 1.8 billion 5.6 billion 3.4 billion Source: Statistics Canada, Annual Survey of Manufactures Note: Administrative/salaried employees are not included in the numbers quoted for production workers. Beverage/tobacco numbers are not included in all food manufacturing statistics.

To put Ontario food processing into perspective, a comparison between food manufacturing and all manufacturing is done. Some of the key 1999 benchmarks are provided in Table 3.3. This data shows that provincial food manufacturing represents 10% of all manufacturing establishments, 9% of all manufacturing employees and 7.7% of total salaries and wages (i.e. includes production and administrative workers). Food manufacturing in the province represents 9.3% of total shipments and 9.6% of total value-added. The gross margin valued at just over $8 billion, is an estimate of profitability. This is ca lculated as total shipments (sales) less total materials, total salaries and wages and fuel and electricity costs. The gross margin for food manufacturing in 1999 was 10.6% of the total Ontario manufacturing margin. Table 3.3. Ontario Food Manufacturing Statistics, 1999 1999 Ontario Food

Manufacturing % of All Ontario

Manufacturing # of Establishments 1,167 10.0% Total # of Employees 82,361 9.0% Total salaries & wages ($’000) $3,016,750 7.7% Total shipments ($’000) $28,735,276 9.3% Total value added ($’000) $11,293,726 9.6%

Margin ($’000) $8,229,593 10.6% Source: Statistics Canada, Annual Survey of Manufactures Note: Beverage and Tobacco Manufacturing statistics are not included. Total number of employees equals both production and salaried empl oyees. There is a large discrepancy in the number of establishments in Table 3.3 compared to Table 3.2. It is unclear why this difference exists (i.e. 1,735 vs 1,167), but these numbers have been reported by Statistics Canada. Table 3.4 displays several key Ontario food manufacturing statistics for the years of 1992, 1996 and 1999. Historical data from the Annual Survey of Manufactures publication shows that Ontario had 1,167 food manufacturing businesses report data in



1999. The 1,167 businesses reported is up 27% from 1992 (note: the number of establishments for 1992 and 1996 is based on the Standard Industrial Classification (SIC) system while the figure for 1999 is based on the North American Industrial Classification System (NAICS)).

Table 3.4. Ontario Food Manufacturing Statistics, 1992, 1996, 1999

Source: Statistics Canada, Annual Survey of Manufactures Note: Number of establishments for 1992 and 1996 is based on Standard Industrial Classification (SIC) system. All other variables for 1992 and 1996 and all data for 1999 based on North American Industrial Classification System (NAICS). Note: Beverage and Tobacco Manufacturing statistics are not included.

Other key points to learn from the table are as follows: • There were 61,915 production employees employed by the 1,167 businesses in

1999. This is a 9.2% increase from 1992. This figure represented 8.4% of all manufacturing production employees in Ontario. The average number of employees per establishment was 53.1.

• Production employees were paid $1,943,426,000 in wages in 1999. This is a

14.2% increase from 1992. This averages to $1,665,318 per establishment. • Total shipments amounted to $28,735,276,000. This is up 37.9% from 1992. This

averages to $24,623,201 per establishment and $348,894 per employee. • $11,293,726,000 in total value-added was reported for 1999. This is an increase

of 38.2% from 1992. It represents 39.3% of total shipments. The average is $9,677,572 per establishment and $137,125 per employee.

• An estimate of profitability in the food manufacturing industries is total shipments

(sales) less total materials, total salaries and wages and fuel and electricity costs. This leaves a margin value that can be used to cover other expenses and debt servicing. This results in a margin of $8,229,593,000 for 1999. This averages to $7,051,922 per establishment and $99,921 per worker. It also represents 28.6% of total shipments. Total materials cost represents 59.7%, total salaries and wages represents 10.5% and fuel and electricity cost represents 1.2% of the value of total shipments.

Variable 1992 1996 1999 % Change % of All Mfg.1992-1999 1999

Establ. (Number) 919 954 1,167 27.0% 10.0%Production empl. (Number) 56,697 59,757 61,915 9.2% 8.4%Production Wages ($'000) 1,701,699 1,838,682 1,943,426 14.2% 6.8%Total shipments ($'000) 20,838,696 24,982,225 28,735,276 37.9% 9.3%Total value added ($'000) 8,169,652 8,790,880 11,293,726 38.2% 9.6%Margin ($'000) 5,554,707 5,967,268 8,229,593 48.2% 10.6%



3.2 Regional Food Processing Statistics It is important to consider the number and size of establishments involved in food processing in Ontario and within the study region. According to Canadian Business Patterns, 2002, the region has 289 establishments or 7.9% of Ontario food processing firms. Figure 3.2 below shows the number of establishments by industry group for each county in the region. Middlesex County (note: this includes the City of London) has the highest total number of establishments within the region (i.e. 118) and the highest number of firms in both the meat product manufacturing and bakeries and tortilla manufacturing sectors. Essex County (note: this includes Windsor) had the largest number of fruit and vegetable preserving companies as would be expected. Essex County had a total of 92 establishments, Chatham-Kent had 46 and Lambton County had 33. Figure 3.2. Number of Establishments By Industry Group By County, 2002

Source: Statistics Canada, Canadian Business Patterns, 2002 Figure 3.3 shows the distribution of firms within the region for various employee ranges as a percentage of all Ontario food manufacturing firms with the same number of employees. For example, the 1 - 4 category shows that the region has approximately 8.5% of all food manufacturing firms in Ontario that have between 1 and 4 employees. The category for 500 or more employees shows that the region has 13% of all Ontario food manufacturing firms with this number of employees. This disproportionately higher share of large employers may indicate a greater vulnerability, with respect to employment loss, to decisions by any of these large employers to scale back, close, or otherwise divest.

0

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Chatham-Kent 4 1 2 8 7 6 4 8 2 4 0

Essex 2 2 4 12 7 4 6 29 4 22 0

Lambton 5 0 1 2 5 5 0 10 2 3 0

Middlesex 6 6 5 5 11 21 0 35 8 19 2

Animal Food

Grain & Oilseed Milling

Sugar & Confect.

Fruit & Veg.

Dairy Products

Meat Products

Seafood Products

Bakeries & Tortilla

Other Beverage Tobacco



Figure 3.3. The Region as a % of Ontario By Employment Range, 2002

Source: Statistics Canada, Canadian Business Patterns, 2002 Note: Indeterm. means indeterminate. Establishments in this category do not maintain an employee payroll, but may have a workforce which consists of contracted workers, family members, or business owners. However, the Business Register does not have this information available, and has therefore assigned the establishments to an “Indeterminate” category. A significant number of the businesses accounted for in the region have few employees with 71% of the firms having less than 20 employees. For the province, 68% of all Ontario food manufacturing businesses have less than 20 employees. In Lambton County all of the firms had less than 20 employees. Further details regarding the number of establishments and employees can be found in Appendix 1. Table 3.5 shows statistics for all manufacturing industries in the region. This data is from the Annual Survey of Manufactures publication (Statis tics Canada). Highlights from this table show that in 1999 there were 1,067 businesses participating in the survey. These businesses employed 83,565 production employees. There was $42,623,833,000 in total shipments and $13,209,973,000 in total value-added from these establishments. Compared to 1992, the number of firms is down 6.2%, while production employees are up 29.4%. Total shipments have increased 68.2% and total value-added is up 65.4%. The margin, as previously defined (i.e. page 17), was $8,456,775,000 for 1999 (or 19.8% of total shipments). This is an increase of 71.7% from 1999.

0%

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4%

6%

8%

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14%

1-4 5-9 10-19 20-49 50-99 100-199 200-499 500 + Indeterm.

Employment Range

Reg

ion

as %

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ario



All manufacturing industries as a % of the Ontario total shows that the region has 9.2% of the firms in the province. These firms have 11.4% of the production employees. The region produces 13.8% of the province’s shipments and 11.3% of the total value-added. Table 3.5. All Manufacturing Industry Statistics, 1992, 1996, 1999.

Source: Statistics Canada, Annual Survey of Manufactures

A comparison of all manufacturing industries in each of the four counties for the region is shown in Table 3.6. The bulk of the manufacturing businesses are in Essex (i.e. 445) and Middlesex (i.e. 380) along with the production employees (i.e. Essex – 44,740, Middlesex – 21,254). Total shipments are distributed among the four counties as follows: Essex 51.8%, Lambton 19.8%, Middlesex 16.4% and Chatham-Kent 12.1%. Total value-added is distributed as: Essex 52.1%, Middlesex 23.7%, Lambton 13.9% and Chatham-Kent 10.3%. Notice, the average wage paid to production workers was $45,746 (i.e. $3,822,752,000 / 83,565).

Table 3.6. All Manufacturing Industry Statistics at The County Level, 1999

Source: Statistics Canada, Annual Survey of Manufactures

Table 3.7 depicts several important food manufacturing statistics for the four county region. These are discussed in greater detail below.

Variable 1992 1996 1999 % Change % of Ont. Mfg.1

1992-1999 1999Establ. (Number) 1,137 1,219 1,067 -6.2% 9.2%Production empl. (Number) 64,601 67,388 83,565 29.4% 11.4%Wages ($'000) 2,362,513 2,931,536 3,822,752 61.8% 13.5%Total shipments ($'000) 25,339,332 34,275,928 42,623,833 68.2% 13.8%Total value added ($'000) 7,988,919 10,784,468 13,209,973 65.4% 11.3%Margin ($'000) 4,923,976 6,953,114 8,456,775 71.7% 10.9%1 Region All Manufacturing as % of Ontario All Manufacturing

Variable Essex Chatham- Lambton Middlesex RegionKent Total

Establ. (Number) 445 133 109 380 1,067Production empl. (Number) 44,740 11,573 5,998 21,254 83,565Wages ($'000) 2,197,830 508,158 325,659 791,105 3,822,752Total shipments ($'000) 22,074,423 5,153,723 8,421,760 6,973,927 42,623,833Total value added ($'000) 6,886,755 1,358,844 1,835,146 3,129,228 13,209,973Margin ($'000) 4,217,419 738,943 1,236,988 2,263,425 8,456,775



Table 3.7. Food Manufacturing Statistics for the Four County Region, 1992, 1996, 1999

Source: Statistics Canada, Annual Survey of Manufactures Note: Beverage and Tobacco Manufacturing statistics are not included.

• The number of food manufacturing firms increased from 1992 to 1999 from 96

establishments to 105 representing a 9.4% increase. This is opposite to what happened in all manufacturing as shown previously in Table 3.5. Recall that the region was identified as having 289 food processing establishments in 2002 (source: Canadian Business Patterns) compared to 105 here. The Canadian Business Patterns includes all businesses in their data while the Annual Survey of Manufactures surveys a sample of firms who are incorporated and have greater than $30,000 in sales.

• There were 6,259 production employees employed by the 105 businesses in 1999.

This is an 11.1% decrease from 1992. This figure represented 7.5% of all manufacturing production employees in the region and 10.1% of the Ontario total for food manufacturing workers. The average number of employees per establishment was 59.6.

• Production employees in food manufacturing were paid $233,817,000 in wages in

1999. This is a 10.4% increase from 1992. This averages to $2,226,829 per establishment. The average production employee received $37,357 annually or $17.73 per hour. This is $8,389 less than the average wage paid in all manufacturing as discussed in Table 3.6.

• Total shipments amounted to $2,909,885,000. This is up 16% from 1992. This

averages to $27,713,190 per establishment and $394,240 per employee.

• $1,184,868,000 in total value-added was reported for 1999. This is an increase of 10.5% from 1992. It represents 40.7% of total shipments. The average is $11,284,457 per establishment and $160,529 per employee.

• The margin was $868,293,000 for 1999. This averages to $8,269,457 per

establishment and $117,639 per worker.

Variable 1992 1996 1999 % Change % of Reg.1

% of Ont Food2

1992-1999 Mfg. 1999 Mfg. 1999Establ. (Number) 96 98 105 9.4% 9.8% 9.0%Production empl. (Number) 7,038 6,298 6,259 -11.1% 7.5% 10.1%Wages ($'000) 211,774 208,921 233,817 10.4% 6.1% 12.0%Total shipments ($'000) 2,508,762 2,964,535 2,909,885 16.0% 6.8% 10.1%Total value added ($'000) 1,072,143 1,182,643 1,184,868 10.5% 9.0% 10.5%Margin ($'000) 785,977 903,916 868,293 10.5% 10.3% 10.6%1 Region Food Manufacturing as % of Region All Manufacturing2 Region Food Manufacturing as % of Ontario Food Manufacturing



Table 3.8 displays the food manufacturing statistics at a county level for 1999.

Table 3.8. Food Manufacturing Statistics, 1999


Some of the key observations are as follows:

• Establishments: Middlesex 39%, Essex 34%, Chatham-Kent 14%, and Lambton

12%. • Production employees: Middlesex 51%, Essex 30%, Chatham-Kent 17%, and

Lambton 2%.

• Total shipments: Middlesex 48%, Essex 41%, Chatham-Kent 10%, and Lambton 2%.

• Total value-added: Middlesex 57%, Essex 34%, Chatham-Kent 9%, and Lambton

1%.

• Margin: Middlesex 59%, Essex 34%, Chatham-Kent 7%, and Lambton 0.4%.

When looking at the food manufacturing industries in the region and their share of all manufacturing in the region, 9.8% of all manufacturing establishments are food manufacturers. Also, food processing in the region employs 7.5% of total manufacturing employees and produces 6.8% of total shipments and 9.0% of total value-added.

Food manufacturing industries in the region comprise 9.0% of all Ontario food manufacturing establishments. They employ 10.1% of the total production workers while producing 10.1% of total shipments and 10.5% of total value-added in the province.

3.3 Productivity

Productivity can be used to compare the food manufacturing industries for the region with businesses in all manufacturing for the region as well as with food manufacturing industries in Ontario. This comparison provides an indication as to whether food manufacturing in the region has any specific advantages.

Variable Essex Chatham- Lambton Middlesex Region Region % of Region1 Ontario % of Ontario2

Kent Food Mfg All Mfg All Mfg Food Mfg Food MfgEstabl. (Number) 36 15 13 41 105 1,067 9.8% 1,167 9.0%Production empl. (Number) 1,885 1,095 102 3,177 6,259 83,565 7.5% 61,915 10.1%Wages ($'000) 73,100 36,593 3,322 120,802 233,817 3,822,752 6.1% 1,943,426 12.0%Total shipments ($'000) 1,186,752 285,894 45,765 1,391,474 2,909,885 42,623,833 6.8% 28,735,276 10.1%Total value added ($'000) 404,911 101,531 7,436 670,990 1,184,868 13,209,973 9.0% 11,293,726 10.5%Margin ($'000) 295,696 58,563 3,370 510,664 868,293 8,456,775 10.3% 8,229,593 10.6%1 Region Food Manufacturing as % of Region All Manufacturing2 Region Food Manufacturing as % of Ontario Food Manufacturing



For the purposes of this section, productivity will be defined on a per establishment basis. Appendix 1 investigates productivity on a per production employee and per person hour paid basis.

3.3.1 Productivity Per Establishment

From Table 3.9, it can be seen that the region tends to have smaller sized food manufacturing establishments than the all manufacturing category for the region. Food manufacturing businesses have 23.9% fewer production employees, 30.6% fewer total shipments and 8.9% less total value-added. However, the food manufacturing businesses have 4.3% more margin than the average manufacturing business in the region.

Table 3.9. Food Manufacturing Statistics per Establishment, 1999


When compared with all food manufacturing businesses in Ontario, the region has 12.4% more production employees, 12.5% higher total shipments and 16.6% higher total value-added. When looking at individual counties, Middlesex has the largest food businesses in terms of number of production employees (i.e. 77.49) followed closely by Chatham-Kent (i.e. 73). The highest average total shipments per establishment is Middlesex (i.e. $33.9 million) followed by Essex (i.e. $33.0 million). Average total value-added is highest in Middlesex (i.e $16.4 million) followed by Essex (i.e. $11.2 million).

3.4 Labour Profile of the Region

Labour is very important to most food industry companies in the study region. Many concerns have been expressed in the analysis (i.e. processor survey discussed in Section 4) ranging from the desire to find “good” people (i.e. generally defined as motivated and reliable), to concern regarding the age of the workforce, the ability to find skilled labour, and the cost of labour. Some of these issues will be addressed in the following discussion. Table 3.10 shows the distribution of the general population 20 years of age and older by highest level of schooling for Ontario and the study region. There is an indication that the education level of the general population is lower in Chatham-Kent, Essex and Lambton compared to the Ontario average. In fact, one third of the population in Chatham-Kent has not completed high school. This is important information because it validates findings from the processor survey interviews (i.e. found in Section 4). Most businesses in the region indicated it was not too difficult to find unskilled labour.

Variable Essex Chatham- Lambton Middlesex Region Region vs. Region1 Ontario vs. Ontario2

Kent Food Mfg All Mfg All Mfg Food Mfg Food MfgProduction empl. (Number) 52.36 73.00 7.85 77.49 59.61 78.32 -23.9% 53.05 12.4%Wages ($'000) 2,030.56 2,439.53 255.54 2,946.39 2,226.83 3,582.71 -37.8% 1,665.32 33.7%Total shipments ($'000) 32,965.33 19,059.60 3,520.38 33,938.39 27,713.19 39,947.36 -30.6% 24,623.20 12.5%Total value added ($'000) 11,247.53 6,768.73 572.00 16,365.61 11,284.46 12,380.48 -8.9% 9,677.57 16.6%Margin ($'000) 8,213.78 3,904.20 259.23 12,455.22 8,269.46 7,925.75 4.3% 7,051.92 17.3%1 Region Food Manufacturing vs. Region All Manufacturing

2 Region Food Manufacturing vs. Ontario Food Manufacturing



Chatham-Kent has the lowest percentage of people who have completed a minimum of College or University and Middlesex County has the highest percentage.

Table 3.10. Distribution of Population By Highest Level of Schooling

Ontario Chatham-

KentEssex

CountyLambton County

Middlesex County

% With Less Than Grade 9 8.7% 11.2% 9.8% 7.3% 6.6%% Without High School Certificate 16.9% 22.5% 17.5% 19.2% 16.8%% With High School Certificate 14.2% 17.0% 16.9% 17.0% 14.6%

% With Trade Certificate 10.2% 11.8% 11.1% 14.5% 10.7%% College Without Diploma 6.6% 6.6% 7.4% 7.9% 6.9%

% With College Diploma 17.1% 17.6% 15.1% 19.8% 19.4%% University Without Degree 7.1% 4.1% 7.0% 4.2% 6.7%% With Bachelor Degree or Higher 19.2% 9.3% 15.2% 10.1% 18.2%

Less Than High School Completed 25.7% 33.7% 27.3% 26.4% 23.5%

College or University Completed or Higher 36.2% 26.9% 30.2% 29.9% 37.6%Source: Statistics Canada, Census 2001 Notes: Chatham-Kent includes Chatham; Essex County includes Windsor; Lambton County includes Sarnia; Middlesex County includes London.

Some respondents in the processor survey indicated that they have an aging workforce. The following table shows that 29% of Ontario’s population is 50 years of age or greater. This actually approaches one -third of the population in Chatham-Kent and Lambton County. Essex County had the lowest percentage of the population in this age category at 28.3% of the population. Several of the companies interviewed in Essex County were considered large and a significant number of them indicated that they had an aging workforce. It is likely, given this information, that the younger workforce is drawn toward other industries that may offer year-round employment or a better compensation package.

Table 3.11. Distribution of Population By Age Category

Ontario Chatham-Kent

Essex County

Lambton County

Middlesex County

Less than 20 yrs 26.3% 27.4% 26.9% 26.6% 26.4%20 - 29 yrs 12.7% 11.3% 13.7% 10.8% 13.8%

30 - 39 yrs 15.9% 13.8% 15.8% 12.6% 15.2%40 - 49 yrs 16.0% 15.8% 15.2% 16.2% 15.7%

50 to 59 yrs 11.9% 12.1% 11.5% 13.2% 11.7%60 yrs or greater 17.1% 19.6% 16.8% 20.6% 17.0%Source: Statistics Canada, Census 2001 Notes: Chatham-Kent includes Chatham; Essex County includes Windsor; Lambton County includes Sarnia; Middlesex County includes London.

In summary, Chatham-Kent and Lambton County possess a population that is lower educated and slightly older relative to Ontario and Essex and Middlesex.



3.5 Summary

In summary, there are some highlights and trends that should be pointed out from this section and they are now presented: • The evidence indicates that the number of food manufacturing firms in the region

has increased from 96 in 1992 to 105 in 1999 (source: Annual Survey of Manufactures). This trend has occurred for the provincial food manufacturing as well. This is based on the Annual Survey of Manufactures which records data from incorporated firms with greater than $30,000 in sales. Canadian Business Patterns statistics indicate there was a total of 289 food businesses in 2002 in the region.

• The region’s food manufacturing represented 9.8% of the establishments, 7.5% of

the production employees, 6.8% of total shipments and 9% of total value-added for all manufacturing in the region in 1999. Production employees in food manufacturing firms were paid $8,389 less than all manufacturing employees.

• When the region’s food manufacturing is compared to all Ontario food

manufacturing, the region represented 9.0% of the establishments, 10.1% of the production employees, 10.1% of total shipments and 10.5% of total value-added.

• On average, food manufacturing businesses in the region, tend to be smaller in

size than the average manufacturing business in the region. Food businesses have fewer average employees (60 vs 78), lower total shipments ($28 million vs $40 million), lower total value-added ($11 million vs $12 million) but higher margin ($8.3 million vs $7.9 million) per establishment. However, when compared to all food businesses in Ontario, the region’s businesses have a higher number of production employees (60 vs 53) as well as total shipments ($28 million vs $25 milliion) and total value-added ($11 million vs $10 million). Among the four counties, Middlesex has the highest average shipments ($34 million) and number of production employees (77) per establishment.

• With respect to labour, there are areas within the region (i.e. Chatham-Kent and

Lambton County) that have a population that is less educated and slightly older relative to Essex, Middlesex and the Ontario population as a whole.

Thus in conclusion, the region has about 289 food manufacturing firms or 8-10% of all Ontario food manufacturing firms depending on data source. Regional firms have higher food manufacturing productivity and higher value-added when compared to provincial averages. There are some areas of the region that have a population that is slightly older and less educated than the Ontario average.



4.0 PROCESSOR SURVEY RESULTS

A significant part of this study is the results from the personal interviews with food industry businesses in the southwest region of Ontario. Companies were interviewed using a survey instrument in order to gain a first-hand perspective of the challenges that are facing these businesses as well as opportunities that may exist for government to better assist the growth and expansion of the industry in the region.

A list of contacts for each municipality in the region was provided by the Steering Committee. The goal was to interview twenty businesses in each municipality with 80% of the interviews conducted in face-to- face meetings. The interviews were conducted with either the owner/manager or a senior level executive member. The data provided by individual survey participants is confidential and only group averages have been disclosed. A summary of the results obtained from these interviews has been divided into two sections as follows: 1) an overall summary for the region that provides a snapshot of the entire group of businesses interviewed; and 2) a sectoral analysis is completed. An analysis by size of company is provided at the end of Appendix 2 and an analysis by county is provided in Appendices 3 through 6. The terms “companies” and “businesses” will be used interchangeably throughout the following discussion.

4.1 Survey Summary

The food industry across the southwest region of Ontario is comprised of several types and sizes of companies. A summary of the information gleaned in the interviews is provided below. Disclosure of response rates and answers to all questions in the survey are provided in Appendix 2.

4.1.1 Business Characteristics Summary Table 4.1 below provides information related to the business characteristics of the survey participants. A large portion of the group was comprised of producers and primary manufacturers who buy or use inputs from the farm. Most of the participating businesses were privately owned. Many of these businesses have been in operation for several years and have been in their current location, on average, for 36 years. Only a small number of businesses had a written succession plan and less than one-half had a written business plan. The average size of the production facilities accounted for in the survey was approximately 100,000 square feet although sizes varied considerably from one business to another as verified by the standard deviation value. Many of the participants had strategic alliances (i.e. 67%) with other industry players but 43% did not conduct market surveys to determine customer needs.



Table 4.1. Business Characteristics Results Std Dev N (i) Supply Chain Segment

(Top 2 responses) 40% Primary manufacturers 28% Producers

67

(ii) Private Ownership 88% privately owned 57 (iii) Years in Location 36.2 Avg 31.2 67 (iv) Number of Locations in Ontario 3 Avg 3.0 26 (v) Have Written Succession Plan 19% 57 (vi) Have Written Business Plan 40% 60 (vii) Square Footage of Facility 99,754 sq. ft. Avg 205,891.0 54 (viii) Have Strategic Alliances 67% 61 (ix) Conduct Market Surveys 57% 35

Std Dev = Standard Deviation; N=Number in Sample

These results indicate that companies in the region tend to be well established and are large in terms of size of facility. It is important to understand how the size of facilities in the region compares with other regions. A food industry study prepared for the Toronto area (WCM Consulting Inc., August 2002) indicated that more than 75% of the food processing companies in that region were 20,000 square feet or less. The results from this survey indicate that only 57% of the businesses surveyed in this region were 20,000 square feet or less. However, 20% of the businesses interviewed did have processing facilities that are in excess of 100,000 square feet. It is a concern that few of the participants (i.e. 19%) have a succession plan in place that would facilitate an orderly transition to the next generation of management. It is also a concern that there are many food industry businesses that do not have written business plans (i.e. only 40% have a written business plan) that outline their goals and future direction for their business and provide a means for measuring performance. In summary, these companies are well established in the area, many operate large facilities and only a few of them have in place the business tools necessary to pass on the business to another individual or group in the future.

4.1.2 Product Characteristics Summary Table 4.2 displays information related to the product characteristics of these companies. All sectors were interviewed, however, the largest sector segment represented was fruits and vegetables. The majority of respondents (i.e. 52%) indicated their main product was in the mature stage of the product life cycle. More than one-third of the participants indicated that their main product represented more than 80% of their total sales. A number of respondents indicated that they export products. Of those that do, 50% reported that their exports represent more than 20% of their total company sales. Further, slightly less than one-half of those that export indicated that all of their exports were to the U.S..



Most companies have several customers yet one-quarter indicated that their main customer represented more than 80% of their total sales. Most of the products produced by the companies surveyed are not shipped over long distances to their market. Only a few participants indicated that a large portion of their company sales is shipped to locations more than 300 miles away. Nearly one-third of respondents indicated they spend more than $5 million annually on raw ingredients. There was a considerable amount of private labeling within this group of businesses and approximately one-third indicated that they were engaging in co-packing opportunities. Co-packing refers to an arrangement in which one company processes a product to the specifications of another company which then takes responsibility for marketing the product. An MNE firm might for example, buy product from an SME, for a specific size of canned whole peel tomatoes. The product would be labeled with the brand identification of the MNE and marketed by the MNE to its customers.

Table 4.2. Product Characteristics Results N (i) Sector Segment

(Top Response) 34% Fruits/vegetables 68

(ii) Product Maturity 52% of main products are mature 50

(iii) Main Product as % of Sales 36% of businesses say their main product represents more than 80% of total sales

61

(iv) Exports as a % of Total Sales 50% reported that more than 20% of total sales are exported

34

(v) % of Sales to U.S. 41% report all export sales are to the U.S. 34

(vi) Importance of Main Customer 26% of participants report that their main customer represents more than 80% of total sales

64

(vii) % of Sales Traveling More Than 300 Miles

11% of respondents indicate more than 80% of sales travel more than 300 miles

58

(viii) Raw Ingredient Purchases 30% spend more than $5 million annually 47

(ix) Private Labeling Co-packing

52% have private labels 37% co-pack for other businesses

33 38

N=Number in sample

The results above are startling in that one-half of the respondents had products that are considered mature and many of these products represented a large portion of company sales. As innovation occurs in the sectors in which these companies compete, they will face intense competition for a declining market share or they will be required to make major capital investments in order to adopt the innovative technologies of their competitors. In summary, many companies in the region rely heavily on mature products and access to the U.S. market is important. The reliance on mature products is not necessarily negative if the companies have low costs of production and are well positioned to compete in these segments.



4.1.3 Labour Characteristics Summary Table 4.3 below depicts results regarding labour employed in the businesses that participated in the survey. The average number of full- time employees working in this group of businesses was 67, seasonal was 88 and the average number of foreign workers was 34. Approximately three-quarters of the respondents indicated their workforce would remain the same or increase in the future. The age of the workforce was a concern for some companies. The age distribution of the participants shows that more than one-half of the labour force was 40 years of age or older.

Table 4.3. Labour Characteristics Results Std Dev N (i) Number of Employees

(Average number of employees in each category)

Full time 67 Avg Part-time 12 Avg Seasonal 88 Avg Foreign Workers 34 Avg Casual 13 Avg

134.3 20.0 238.7 35.3 15.5

59 14 29 21 28

(ii) Age Distribution Less than 30 years old 30 to 39 40 to 49 50 years of age or greater

21% 26% 32% 20%

37

Std Dev = Standard Deviation; N=Number in sample

The labour analysis shows that a large percentage of the labour accounted for in the survey results will be approaching retirement in the near future. Companies in the industry will need to address how they will replace these workers, how many will need to be replaced and what it will take to attract and keep new employees.

4.1.4 Business Situation Summary Table 4.4 displays general business information pertaining to the businesses surveyed. Each business was asked to indicate the main advantages and disadvantages that existed in their particular location. The top 2 reported advantages include proximity to the domestic market and access to raw materials. Other important advantages included proximity to the U.S. and infrastructure (i.e. roads, natural gas, hydro, water, etc.). Disadvantages included government regulations and taxes. Respondents indicated that they felt overburdened by the number of government regulations they were faced with and there were several new ones (i.e. nutrient management, food safety - nutritional labeling, etc.) recently introduced. They reported that it takes considerable time for them to understand the regulations, the implications for their business, and the potential cost for their business to comply. Other disadvantages worth mentioning include access to skilled labour particularly in areas where there is competition with other industries for labour (i.e. auto industry in Windsor-Essex) and proximity to the domestic market. Many participants indicated proximity to domestic market as an advantage yet for some it was considered to be a disadvantage. This depended on where a company was located relative to their market and their competitors. Several companies indicated there were infrastructure needs they would like addressed in the next few years. These needs included access to municipal water, road maintenance and waste water/solids treatment



systems. In addition, consistency in the supply of hydro was reported by several businesses as being very important. They indicated that power outages were very disruptive to their businesses. The businesses were asked to indicate their main utility expenses. The top two were hydro and natural gas. The average cost of each of these on an annual basis was $726,208 for hydro and $256,110 for natural gas. As a result, food companies are very sensitive to rate swings. Many companies also indicated a cost associated with solid waste disposal which averaged $41,790. Another business related item of concern was exchange rate sensitivity. The rise of the Canadian dollar during the spring was difficult for several participants. Nearly one-half indicated that $0.70 was a critical level for affecting the competitiveness of their business. In the case of MNEs, the appreciation in the value of the Canadian dollar vis-à-vis the U.S. dollar does not necessarily have an immediate impact on planning. Annual budgets are prepared in advance with an estimated rate of exchange and used as the basis for executing the plan. When budgeting is done for the coming year, the attractiveness of producing in Ontario plants, as compared to U.S. plants, may be diminished.

Table 4.4. Business Situation Results Std Dev N

(i) Advantages (Top 2 Responses)

20% Proximity to domestic market 18% Access to raw materials

153

(ii) Disadvantages (Top 2 Responses)

19% Government regulations 10% Taxes

125

(iii) Future Infrastructure Needs (Top 3 Responses)

1) Municipal water 2) Road maintenance 3) Waste water/solids system

6 6 5

(iv) Current Expenses Hydro Natural Gas Solid Waste Disposal

$726,208 Avg $256,110 Avg $41,790 Avg

$757,073

$2,064,795 $66,577

25 38 47

(v) Exchange Rate Sensitivity 47% indicate $0.70 is critical level 32

Std Dev = Standard Deviation; N = Number in sample

The results show that being close to their market and raw materials are key for the survey participants. There is always concern regarding the amount of government influence and taxes and this is the case here. Infrastructure needs are a critical component to the daily operation of businesses and keeping expenses, such as utilities, competitive will contribute to the profitability of these companies. In summary, being close to their market and raw materials are two important advantages for these businesses. It will be important to address infrastructure requirements in the future as these represent key costs to these companies.



4.1.5 Future Plans Summary Table 4.5 depicts results regarding sales and future plans for the survey participants. The size of businesses that participated varied and 21% reported annual sales in excess of $25 million for fiscal 2002. 22% reported sales less than $250,000. Close to 30% of the respondents plan to invest more than $1 million in the next 5 years in capital upgrades. Most participants plan to increase their sales in the next 5 years and one-half plan to increase the size of their facility in the next few years. Some issues that may affect sales or investment intentions include the exchange rate, availability of capital and consolidation in the industry. Some companies have found that the recent rise of the Canadian dollar has had a negative impact on their business even to the extent of lost business. Capital is difficult for some companies to access. Several small companies indicated they had to obtain personal lines of credit in order to finance their business while some large companies reported that they had to compete with other company locations for head office investment allocation. In addition, trade issues were also reported by several companies as an issue to monitor. Trade issues reflect the need to be able to access both U.S. and foreign markets (i.e. open borders).

Table 4.5. Future Plans N (i) Existing Sales 22% are less than $250,000 63 21% are greater than $25 million (ii) Investment in Capital Upgrades in Next 5 Years 29% to invest more than $1 million 51 (iii) Increase Sales in Next 5 Years 83% plan to increase sales 56 (iv) Increase Size of Facility in Future 49% plan to increase size of their facility 62 (v) Issues

(Top 3 Responses) 1) Exchange rate 2) Access to capital 3) Consolidation

10 9 6

N=Number in sample

The results indicate that there seems to be considerable optimism in the food industry in the region as most participants expect their sales to increase in the next few years and several are even planning to increase the size of their facilities. In conclusion, for this section the results indicate that food industry companies in the southwest region are well established, operating in relatively large facilities and their product lines tend to rely on mature products. There is considerable optimism for the future in terms of sales as most companies expect to see their sales increase and there is likely to be significant amounts of capital invested. Central to this growth and investment is being located close to the domestic market, access to the U.S. marketplace and having an adequate infrastructure system in place to meet the needs of the industry.



4.2 Sector Analysis

The food industry is comprised of several sub-sectors. Each business that participated in the survey was asked to identify which sector the company best fit in. The following table provides a breakdown of the companies surveyed and shows the variety of companies interviewed. The “other” category includes farms that may add value to their products but they consider themselves to be primarily production-oriented.

Table 4.6. Sector Representation

Sector Sector

Grains/Oilseeds 10.3% Meat Products 13.2% Fruits/Vegetables 33.8% Sugar/Confectionary 8.8% Dairy Products 4.4% Animal Food 1.5% Bakeries 10.3% Beverages (i.e. wine) 4.4% Seafood/Fisheries 2.9% Other 10.3%

n=68

Results are only provided for those sectors that have significant representation in Table 4.6 to avoid confidentiality concerns. These sectors include grains/oilseeds, fruits/vegetables, bakeries and meat products. There were a variety of types of businesses surveyed. The grains/oilseeds and meat product companies tended to be processors while the fruits/vegetables companies were more of a split between producers and processors. The bakeries were comprised primarily of processors and retailers.

4.2.1 Labour Characteristics By Sector Vacancies for unskilled labour tended to be filled fairly easily with most respondents able to fill a vacancy within 1 month. This is shown in Table 4.7. The bakeries indicated that they were able to fill any type of vacancy within 1 month whether it was for unskilled, skilled or professional labour. It took slightly longer for processors in the meat products category to fill vacancies for unskilled labour with only 63% indicating these vacancies were filled in less than 1 month. Unskilled labour within these 4 sectors was often trained on the job alongside another employee. Each business was asked to identify skills that they were currently seeking. The grains/oilseeds and fruits/vegetables sectors reported they were looking for skilled trades (i.e. line mechanics, millwrights, etc.), quality control specialists, warehousing experts, etc.. The meat products companies reported that they preferred employees to have an agricultural background. The cost of labour varied considerably between sectors ranging from $7.84/hour for bakeries to $10.81/hour for grains/oilseeds.



Table 4.7. Labour Characteristics By Sector Grains/Oilseeds Fruits/Vegetables Bakeries Meat Products

(i) Time to Fill Unskilled Labour Vacancy

- % Less than 1 month 83% (n=6) 84% (n=19) 100% (n=6) 63% (n=8)

(ii) Skills Needed Trades (i.e. line mechanic)

Quality control, ware-housing, millwrights, line mechanics, sales

Not currently seeking particular skills

Dedication, agricultural background

(iii) Average Starting Wage For Unskilled Labour

$10.81/hr (n=7) $9.82/hr (n=15) $7.84/hr (n=5) $9.75/hr (n=6)

N = Number in sample It is surprising that businesses in the bakeries sector seem to have no difficulty attracting labour given that the average starting wage is lower. This is, however, likely a sector that utilizes many students and other part-time employees.

4.2.2 Business Situation By Sector

The survey asked participants to indicate the competitive advantages and disadvantages that exist in their location. These are shown in Table 4.8. There were similarities between the 4 sectors in that they believed the main advantages were proximity to market and access to raw materials. There were some differences between the sectors when disadvantages were listed. For example, the grains/oilseeds, fruits/vegetables and meat products sectors listed government regulations, and increased costs for things such as taxes, insurance and energy as disadvantages. Bakeries, on the other hand, also reported government regulations and taxes but labour costs were cited as an advantage. This makes sense given that the survey results above showed the average wage for unskilled labour in bakeries to be only $7.84/hr. This is approximately $2 to $3 less per hour than the average for the other sectors. Future infrastructure needs reflected the desire for municipal water, consistency in hydro supply, wastewater and solids treatment, and road maintenance.

Table 4.8. Business Situation By Sector

Grains/Oilseeds Fruits/Vegetables Bakeries Meat Products


1) Access raw materials Access raw materials Proximity domestic market Proximity domestic market

2) Proximity domestic market Proximity US market Labour costs Access raw materials


1) Increased costs Government regulations Government regulations Government regulations

2) Taxes Proximity domestic market Taxes Access raw materials

(iii) Infrastructure Needs (Top 2 Responses)

1) Road maintenance Waste treatment Access quality water Municipal water

2) Hydro supply Municipal water Road maintenance Waste treatment



In summary, the production sectors showed many similarities in terms of advantages and disadvantages with respect to location. In particular, proximity to markets and access to raw materials were the top 2 advantages given for locating in this region.

4.2.3 Future Plans By Sector The companies in these sectors represented a variety of sales categories from small to large. Only the grains/oilseeds did not have any participants that would be considered small (i.e. less than $250,000 in sales). It is important to note that more than 80% of respondents in each sector reported that they plan to increase their sales during the next 5 years. This is shown in Table 4.9.

Table 4.9. Future Plans By Sector

Grains/Oilseeds Fruits/Vegetables Bakeries Meat Products

(i) Annual Sales % Less than $250,000 0% (n=7) 19% (n=21) 17% (n=6) 22% (n=9) % $5 million or greater 71% 48% 17% 33% (ii) % Plan to Increase Sales in Next 5 Years

100% (n=6) 81% (n=21) 83% (n=6) 87% (n=8)

N = Number in sample

Investment in these sectors over the last 5 years has varied depending on the sector. The bakeries have tended to invest less as shown in the graph below. Part of this can be explained by the fact that there were only 5 bakery product companies that responded to the question. None of them invested more than $500,000 over the 5 years. It is interesting to note that the grains/oilseeds had only 6 respondents and the distribution is quite different than the bakeries. One half of these respondents invested more than $500,000 each in the last 5 years. Considerable activity, however, occurred in the fruits/vegetables sector where 42% of those businesses, or 8 respondents, invested more than $500,000 each in the past 5 years.



Figure 4.1. Levels of Investment Per Participant By Sector During Last 5 Years

Investment in the fruits/vegetables sector is projected to continue in the next 5 years as shown in the following graph. One half of these respondents, or 9 companies, plan to invest more than $500,000 each in capital upgrades. There is also likely to be some substantial investment by a small number of companies in the meat products and grains/oilseeds sectors as well. There are, however, some uncertainties that surround this potential investment. These include the ability to access capital, the Canada/U.S. exchange rate, and border/trade issues with respect to market access and keeping the border open.

Figure 4.2. Levels of Investment Per Participant By Sector in Next 5 Years

0%

20%

40%

60%

80%

100%

Grains/Oils (n=6) Fruits/Veg (=19) Bakeries (n=5) Meat Prod (n=9)

Sector

% o

f S

urv

ey R

esp

on

ses

<$25,000 $25,000-$500,000 >$500,000

0%

20%

40%

60%

80%

100%

Grains/Oils (n=7) Fruits/Veg (n=18) Bakeries (n=6) Meat Prod (n=7)

Sector

% o

f S

urv

ey R

esp

on

ses

<$25,000 $25,000-$500,000 >$500,000



In summary, there were many similarities reported across sectors in the region. Most participants viewed access to raw materials and proximity to domestic and U.S. markets as being the main advantages to their location. Disadvantages that were reported include government regulations and increased costs of taxes, energy and insurance. The bakeries sector reported the lowest average starting wage for unskilled labour yet this sector had no difficulty filling vacancies and was not currently seeking any particular skills. There is likely to be considerable growth and investment in the industry in the future, especially in the fruits/vegetables and grains/oilseeds sectors.

4.3 Summary

The results show that there are many similarities in companies that exist across the region and across sectors. The survey results indicate that the southwest region of Ontario has abundant raw materials and a strong domestic market for food industry businesses. Proximity to the U.S. gives the region an advantage over other areas. The food industry in the region tends to be comprised of a well-established group of companies and many of these companies rely on mature products to meet their sales targets. These businesses vary considerably in terms of number of employees and total sales. Most companies believe their sales will increase in the future and there will be significant investment by some in capital upgrades. This is most likely to occur in Windsor-Essex and Middlesex County. The fruits/vegetables sector will benefit from this investment in particular.

There are some concerns that were reported that could affect the future of these businesses. Primarily, government regulations have been cited as being burdensome in terms of time required to analyse them as well as the cost to comply. The ability to access capital and increasing taxes and utility costs are issues of concern to many businesses in the industry. The ability to provide a cost-competitive environment for these companies is likely to be a key determinant to the future profitability of these companies.



5.0 SUMMARY 5.1 Study Overview

This study was undertaken in order to identify investment needs, growth trends and future opportunities in the food sector for the southwestern region of Ontario (i.e.Windsor-Essex, Chatham-Kent, Sarnia-Lambton, and Middlesex County). Some of Ontario’s most unique and specialized food processing firms are located within the region. Operations range from fruit and vegetable canning to meat fabrication and from corn milling to wine making. Products originating from this region supply both local and global markets. The food companies operating in this region of the province tend to be either small to mid-sized privately-owned enterprises (SMEs), or subsidiaries of multinatio nal enterprises (MNEs) that operate plants in many parts of the world and own major global brands. Despite the robust and specialized nature of the agri- food system in this region of Ontario, it is important to recognize that Essex, Chatham-Kent, Lambton and Middlesex are not immune to the trends transforming the food industry globally. The tight margins in food processing have prompted many companies to strive for new alliances and partnerships in order to achieve greater economies of scale. From a regional development perspective, it is important to identify and understand both the opportunities and challenges faced by processors operating in this part of the province. A survey was undertaken which had participation from 68 food processing firms throughout the four county region (i.e. Windsor-Essex, Chatham-Kent, Sarnia-Lambton, and Middlesex). 88% were completed by conducting personal interviews and the rest were completed over the telephone. Typically, interviews were completed by either owner/managers or senior level company executives.

5.2 Food Processing Statistics (i) General Characteristics • According to Statistics Canada, the study area had a total of 289 businesses in

food, beverage and tobacco manufacturing in 2002. The number of food manufacturing firms in the province and in the region has increased between 1992 and 1999 by 27% and 9.4% respectively. Principal manufacturing statistics (source: Annual Survey of Manufactures) for the four county region in 1999 were: total shipments $2.9 billion and number of production employees 6,259 (based on 105 participating establishments who have greater than $30,000 in sales).

• The largest number of businesses were in the bakeries and tortilla group (i.e.

28%), followed by the beverage (i.e. 17%), and meat product groups (i.e.12%). These 289 firms represent about 8% of the total food manufacturers in the province.



• When business establishments were depicted by employment range, it was found that 71% of the firms in the region employ less than 20 people (i.e. provincial average for food manufacturers is 68%). The region has 13% of all Ontario food manufacturing firms that have 500 or more employees.

(ii) Regional Importance

• Using the Survey of Manufactures to compare to all Ontario food manufacturing, the region represented 9.0% of establishments, 10.1% of the production employees (i.e 6,259), 10.1% of total shipments (i.e. $2.9 billion), and 10.5% of total value-added (i.e. $1.2 billion).

• When compared to all food businesses in Ontario on a per establishment basis, the

region has 12.4% more production employees, 12.5% higher total shipments, and 16.6% higher total value-added.

• When looking at individual counties, Middlesex has the largest food business in

terms of number of production employees (i.e. 77) followed closely by Chatham-Kent (i.e. 73). The highest average total shipments per establishment is Middlesex at $33.9 million followed by Essex at $33.0 million. With respect to highest average total value-added, Middlesex was first with $16.4 million and Essex was second at $11.2 million.

(iii) Regional Food Processing Productivity • Total value-added per establishment in the region was $11.3 million which

exceeds the provincial average for food manufacturing of $9.7 million, however it was slightly less than all manufacturing for the region which was $12.4 million.

• In 1999, regional wages paid to food processing workers (i.e. $37,357 per worker)

were less than those paid to all manufacturing workers (i.e. $45,746 per worker). 5.3 Processor Survey Results and Discussion

(i) Processor Business Characteristics - The survey results indicated that

companies within the study region tended to be well established (i.e. the average firm had been in its current location for 36.2 years) and relatively large by Ontario standards (i.e. the average square footage for the firms surveyed was 99,754). This large space per firm is a potential competitive advantage for businesses that require temperature controlled bulk storage for either raw materials or finished products (e.g. seasonal businesses that have a heavy inventory immediately following harvest). Many of the firms are privately owned (i.e. 88%), operate multiple sites throughout the province (i.e average number of sites per company was 3), and have strategic alliances with other firms (i.e. 67%). However, of the firms

Key Message: Few have succession plans, business plans or do market surveys



surveyed only 19% had a written succession plan and it was of concern to learn that only 40% had a written business plan.

Another business characteristic that raises a red flag was that 43% of firms did not conduct market surveys to determine customer needs. Of those companies that did conduct market surveys, only 50% were done on an annual basis. Therefore, clearly assistance with market development would be constructive, especially for many of the small firms that tend to be solely production oriented. Lastly, an additional business characteristic that deserves discussion is the impact of new industry alignments. As stated in Section 2, industry alignments are much more integrated with many firms now using strategic alliances and production contracts to manufacture basic products. Increasingly, the large MNEs view themselves as brand managers and marketing specialists as opposed to manufacturers of products. This is important to some of the subsidiaries of MNEs in the region because they are viewed as manufacturers of products and are not part of the overall parent company’s corporate strategy. Thus, there is constant corporate pressure for some plants within the region to be sold. Depending on one’s perspective this can be viewed as an opportunity or a threat. The opportunity arises because the new owners may re- invest in the manufacturing component of the firm. The threat occurs because there are, realistically, few buyers interested in purchasing a processing plant.

(ii) Product Characteristics - The results here are concerning because they

indicated that 52% of the respondents have products that are mature and 36% of businesses say their main product represents more than 80% of total business sales. In addition, many of the fruit and vegetable processing firms in Essex and Chatham-Kent rely heavily on canning technology for their core products. While canning technology has many advantages in terms of handling efficiency and food safety, and while there have been innovations in can construction, it is essentially an old technology that does not offer all the consumer advantages of more recent innovations. Plastic containers, for example, can be microwaved and resealed, thus offering consumers a level of convenience not possible with the can. Much of the fruit and vegetable processing cluster in the southwest region of Ontario is closely tied to the can as the dominant packaging technology. To illustrate this vulnerability one proces sor stated that their split between canned and frozen product was 60:40. Should there be a significant movement away from the can to other aseptic package types, the vulnerability of firms in this region due to their mature market position would be high. Regardless of firm size both MNE branch plants and SMEs will be faced with major capital investment decisions in alternative technologies.

Key Message: Heavy reliance on “can” technology



Another issue surrounding product characteristics is that of low plant efficiency caused by the seasonal nature of fruits and vegetables. However, anecdotal evidence collected when doing the survey suggests this may not be as significant an issue as sometimes perceived. While the processing window for most horticulture crops is narrow (e.g. tomatoes - 8 weeks), most processors pack the product and then re-process in the off-season. For example, tomatoes are frequently stored in bulk forms as paste, crushed, or aseptic diced and then re-processed in consumer formats throughout the year. Also, most vegetable processors have diversified into packing other products in the off-season. An example of this given by one processor was canning dry edible beans (i.e. kidney, red, and white beans) throughout the year.

(iii) Customer Dependence - Given the high level of concentration in the

grocery retail and food service industries (i.e. top 3 Canadian grocery retailers have 65% market share), it is expected that companies will have a limited range of customers and will have a significant proportion of their total sales with two or three key accounts. This was confirmed by the study which found that 26% of survey participants reported that their main customer represented more than 80% of total sales.

Still, this lack of customer diversification represents a major risk to the future of firms in southwestern Ontario. Should one or more of the key customers experience financial difficulty, the size of receivables could be sufficiently large enough to inflict financial hardship on the individual processor which in turn could cause a domino effect on other industry partners. Should one or more of the customers be acquired, bringing further consolidation, there would be further rationalization of private label sourcing, with fewer overall suppliers. If such an acquisition or expansion by a major U.S.-based retailer like Wal-Mart led to more of a north-south distribution pattern rather than the present east-west one, it could lead to many more imported U.S. products on Canadian grocery shelves. Because of the high costs of accessing grocery supermarket shelves with branded products, and the tendency of the major chains to reduce the number of their brands in each category to the top one or two national brands, most SMEs rely on private label and co-packing business for market access.

The number of companies in the survey doing private labels is 52% and co-packing is 37%. Some MNE branch plants also do private labels but most, as a matter of strategic philosophy, do not pack private label so as not to jeopardize the unique image of their company owned brands.

Key Message: Most have only 2 or 3 customers



(iv) Labour Characteristics - Perhaps the most important finding here was that 78% of the firms indicated their workforce would remain the same or increase in the future (note: this question had a low response rate). When the workforce was divided into the three groups of unskilled, skilled and professional, 78% of the unskilled jobs did not require high school completion. Given this result, it was not surprising to learn that 74% of respondents did not budget any money for training unskilled labour. The majority of these businesses provided no formal training other than on-the-job training beside another employee. The results were only slightly better for skilled and professional labour.

The age of the workforce is a concern for some companies. The age distribution of the participants showed that more than 50% of the labour force is more than 40 years of age. As older members of company workforces retire over the next ten years, there will be increasing shortages of skilled trades because the current population increase in Canada as a whole is now below the replacement rate, even allowing for immigration. Because of the looming shortage of workers in five to ten years time, local municipal governments can begin working now with companies on long term workforce planning. The failure to address the supply of sufficient skilled workers could be a major contributing factor to plant closing decisions in the future, especially by MNEs. Plants of the future are likely to be more highly automated, with fewer manual labour positions, resulting in a change in the mix of worker skill sets that will be required. The skills to program and operate automated production lines and maintain sophisticated equipment will become more essential.

In addition, companies need to consider alternative ways of attracting new workers, as competition for skilled workers becomes more intense, and for retaining workers that might otherwise be eligible for retirement. Companies that are not forward looking with respect to their people requirements are likely to fall into complacency, lulled by the fact that unskilled labour is relatively easy to obtain (i.e. 86% of respondents indicated it takes less than 1 month to fill a vacancy when it does occur).

Another aspect of the labour force is the requirement for seasonal workers for plants that operate at peak capacity during fruit and vegetable harvest. Increasingly, processing plants are relying on migrant workers sourced through the Foreign Agricultural Resource Management Services (i.e. Chatham-Kent and Essex receive close to 25% of the off-shore seasonal workers coming into the province for employment on farms and processing plants - over 3,200 workers in 2001). There are plants where this source of workers has become critical to operating (i.e. often migrants work the less desirable night shift and have become very competent at sorting and packing over time). However, as the Mexican and Carribean economies improve there will be better jobs available there and this is

Key Message: Aging workforce and need for training



expected to reduce the flow of migrant workers to Canada. In addition, many Mexican workers have a choice about where they work because they must first pass through the U.S. and the vast array of job opportunities available there before arriving in Ontario. Steps by local government to make migrant workers as welcome and acclimatized as possible will be increasingly important in order to ensure that southwestern Ontario remains a location of choice.

Worth noting here is that while some fruit and vegetable processors have been hiring off-shore workers for years, others have recently taken a different labour strategy. These firms would prefer to hire only local, Canadian workers and deal with the high turnover rate caused primarily by the low wages paid (e.g. one firm indicated a turnover rate of 300%). These firms were finding the social cost of handling off-shore workers (i.e. housing, recreational activities and etc.) was exceeding the cost of hiring only Canadians. Interestingly, one firm indicated they now generate over 2,000 wage slips on an annual basis and have employees originating from 49 different countries prior to their immigration to Canada.

(v) Processor Business Situation - The main advantages indicated by

respondents for locating in the region were proximity to the domestic market and access to farm-produced raw materials. This is not surprising given that this region produces a disproportionately high amount of field and horticulture crops. Examples of this are: tomatoes - Essex and Chatham-Kent have 84% of the provincial acreage; peppers - Essex and Chatham-Kent have 44% of the provincial total; corn – the 4 county region has 27% of the provincial total; and soybeans - the region represents 43% of the provincial total.

The disadvantages indicated by the study group were government regulations (i.e. nutritional labeling, nutrient management, and etc.) and taxes that are normal business concerns. While these were the two main disadvantages indicated by the survey group, there were others who stated food safety was a competitive advantage. By having high food safety standards this allowed them to be the supplier of choice to many of the larger U.S. food companies. Many of the companies have significant infrastructure needs that will need to be addressed in the future and the top three were: municipal water, road maintenance, and waste water/solid disposal. The average amount spent on hydro, natural gas, and solid waste disposal was respectively, $726,208, $256,110, and $41,790.

Key Message: Nutrient management and nutritional labeling are normal business concerns



(vi) Heavy Re liance on the U.S. Marketplace - Food processors in the region are heavily reliant on the U.S. market. 55% of the firms surveyed stated their location had sales outside of Canada. 50% of the firms having exports stated that these sales represented more tha n 20% of total sales and 41% reported that all export sales were to the U.S.. Recall that the 1999 Statistics Canada data showed that total shipments from the region were $2.9 billion. Therefore, a conservative estimate of the value of shipments from the region to the U.S. could be in the range of at least a couple of hundred million dollars.

This volume of sales also illustrates why the region is so sensitive to exchange rate changes. When questions were asked about the exchange rate, 47% of respondents indicated that an exchange rate greater than $C0.70 had a critical impact on their ability to compete in the U.S. market.

(vii) Future Situation - Capital is difficult for some companies to access and

several small companies indicated they had to obtain personal lines of credit in order to finance their business (i.e. 41% of respondents indicated that operating capital is difficult to secure). However, this may be a function of the food processing industry which is generally perceived as having a high risk/return ratio because of high capital costs, low liquidation values, and modest returns. Many of the larger firms reported that they had to compete with other company locations for head office investment allocation. Despite these constraints, 29% of respondents indicated that they plan on spending more than $1 million on capital upgrades in the next 5 years. Further, it should be noted that there was a wide range of investment intentions depending on company size with smaller firms being the most cautious (i.e. all small company respondents planned on investing less than $100,000 in the next 5 years). However, many of the larger firms had significant investment plans (i.e. Windsor-Essex had 60% of respondents expecting to invest more than $500,000). Most of this capital investment was going to the areas of automation and quality enhancement (e.g. scanning technology). It should be noted that these investments do not occur unless the companies see potential opportunities for profitable production and processing.

Another indication of the future situation of the food processing sector in the region are sales expectations for the next 2 to 5 years. Most companies are optimistic because 83% of respondents plan on increasing sales in the next 5 years. In fact 30% of respondents hope to have sales increases of over 20%. This is important because 59% of survey respondents had sales greater than $1 million and over 20% of survey participants had sales greater than $25 million. These statistics are further supported by the comments received when completing the survey. Most officials with larger firms indicated that it

Key Message: The U.S. represents hundreds of millions of dollars in sales

Key Message: Most processors optimistic



was cheaper to expand on-site rather than start with a “greenfield” (i.e. new site). The only exception to this comment was if the firm was going to rely solely on the U.S. marketplace, then relocating to the U.S. would make better business sense given recent border issues.

In summary, food processors in the southwest region tend to be well-established firms. There are a wide variety of sizes and types of food manufacturing companies that exist. Processors believe availability of raw materials and a strong domestic market are advantages that exist in this region. Most companies expect that their sales will increase in the next 5 years and there will be significant investment in capital upgrades. Much of this will occur in Windsor-Essex and Middlesex and within the fruits/vegetables sector in particular. Major challenges faced by these firms include compliance with government regulations regarding food labeling and nutrient management. The availability of capital as well as increasing taxes and utility costs are also concerns to the processors.



6.0 Food Processing Recommendations 6.1 The Strategy - Retention and Expansion

The appropriate food processing strategy for the region is one of retention and expansion rather than focusing on attracting new firms to the area. However, there may be a few niches in the region to which new firms could be attracted. These are discussed later, in the sub-sector analysis. At the present time, and at least for the short term, there are three factors beyond the control of government that have affected the attractiveness of southwestern Ontario as a target for new investment in the food processing industry. These three factors are discussed below.

(i) Canada/U.S. Exchange Rate - In the past year, the Canadian dollar has

appreciated in value by over 15% against the U.S. dollar. (The Bank of Canada monthly average for September 2002 was 1.5758 and for June 2003 it was 1.3523). This increase, as well as the speed with which it occurred, mostly over the first six months of 2003, has made it difficult for Ontario-based firms to adjust to the new competitive environment in North America. The impact of this appreciation was clearly not the same for all firms in the survey. Firms that purchase inputs denominated in U.S. dollars (such as certain energy contracts and commodity inputs) reported lower input costs, as did those buying machinery from the U.S.. However, firms exporting to the U.S. faced tighter product margins due to the reduction in revenue when U.S. dollar selling prices were converted to Canadian dollars.

(ii) Border Issues - The abrupt closure of the U.S. border to exports of

Canadian beef in May 2003 highlighted the vulnerability of Canada-U.S. food product trade to non-tariff barriers. While the direct impact of this closure was not dramatic for food processing firms in southwestern Ontario, the closure was a poignant reminder of the consequences when access to a sector of the U.S. market is denied without any warning. Further, the impact of September 11, 2001 and the heightened security surrounding shipments to the U.S. has caused many firms to re-evaluate the historical model in which a Canadian subsidiary has serviced the U.S. market. There is an increasing risk that product shipments will be either slowed down or turned around at the border.

(iii) Constant Power Supply - The power outage that occurred in mid-August

2003 in the Great Lakes area of North America caused a disruption to business activity. In Ontario, because of the longer lead-times required to restart nuclear generating stations shut down in the emergency, the return to full power took longer than in adjacent U.S. states.

Key Message: Retention and expansion of existing firms



In summary, given the current business environment (i.e. rising exchange rate, border issues, and power concerns) the authors conclude that the most appropriate strategy for economic development of the sector in southwestern Ontario is to focus on retention of existing firms and fostering their continuing expansion. There are specific niches in which new firms may be attracted to the region, as described in the production sub-sector analysis below.

6.2 Overall Recommendations

The next section contains a discussion on investment opportunities identified for the region for some of the major production sub-sectors. Comments are also provided by size of company and at the county level.

6.2.1 Recommendations by Production Sub-Sector

Products that are certified local are unlikely to develop significant market share on a

North American basis because of the integration of Canadian and U.S. markets, whereby American products are available year-round. Further, these value chains are vulnerable to new producers or technologies that may move into the area and lower the price.

(i) Grain Corn

The problem with grain corn is that Ontario is corn-deficit (i.e. uses more than it produces) and has been in this deficit position since at least 1996. There are presently twelve different industrial users of corn in Ontario (e.g. Commercial Alcohols in Chatham and Casco in London) and several in neighbouring U.S. states. Therefore, for corn the probability is low that food grade millers will be attracted to the area. However, despite being corn deficit, the region does have a strong selling feature, in that the highest Ontario corn price becomes the U.S. price plus transportation. Industrial users prefer this to the constant price swings arising due to local supply and demand conditions. Still, given the current climate, finding a food grade processor willing to expand in or locate to Ontario would seem difficult.

(ii) Soybeans

Presently, the Ontario soybean industry is driven by the demand for soy oil rather than soybean meal or food grade soy processing. Ontario imports 45% - 50% of the soybean meal required by the livestock industry. The two industrial crushers located in Ontario are ADM (Archer Daniels Midland) in Windsor and CanAmera in Hamilton.

The major hurdle with regard to soybeans is not supply, but rather the availability of plant capacity that meets human food safety standards. There are no plants in Ontario which refine soybeans into flour,

Key Message: Great potential for food grade soybean processing

Key Message: Difficult to attract food grade corn processor



concentrates, or other soy protein extracts. Domestically, soyfoods represent one of the fastest-growing food markets in North America (the U.S. market in 2002 was worth $US3 billion). Over the last two years, the U.S. soyfood market has increased by 28.6% and 29.6% respectively. A breakdown of the U.S. soyfood market by sector is as follows ($US millions): Tofu - $240; Meat Alternatives - $475; Soy Milk - $495; Meal Replacements - $740; Energy Bars - $555; and Other $265. The world per capita soy protein consumption is 2.36 g/day, while the U.S. level is only 0.32 g/day. In summary, it would appear that there is great potential for food grade soybean processing in the region.

Another area of growth potential for soybeans is the sale of food-grade

soybeans to Asia (Japan and Malaysia, for example), with Japan representing a consistent premium value market. The estimated future growth for food grade soybean exports to Asia is 2.5% per annum from 2003 to 2020 (driven by growth in population and per capita wealth, as mentioned in Section 2). There are several reasons why Ontario has a competitive advantage over U.S. food grade soybean exports. These include: superior food grade soybeans – higher protein, similar to domestically produced Japanese soybeans; reliable identity preservation systems – reliable delivery of non-GMO soybeans; concentrated production; and integrated value chain – breeders, farmers, grain purchasers. It is expected that biodiesel will also represent a significant market opportunity due to the recent tax exemptions at both the federal ($0.04/l diesel tax) and provincial ($0.143/l diesel tax) levels. The government also intends to mandate ultra-low sulphur diesel fuel.

(iii) Greenhouse Vegetables

With respect to greenhouse vegetable processing, the growth of the current industry has been driven by the fresh commodity markets of U.S. grocery retailers. Greenhouse tomatoes from southwestern Ontario are considered to be of high value, and superior to field tomatoes. There may be an opportunity for local greenhouse growers to develop a brand that promotes locally grown, high-quality hydroponic produce. Ohio hydroponic vegetable producers, for example, use the concept of branding local hydroponic produce. Some analysts feel that Canada will become a more important player in the U.S. tomato market than Mexico. The greenhouse vegetable industry might have opportunities to supply more product to the growing food service sector. Consistency of supply might become important to Quick Service Restaurant franchises, for example. In addition, the move toward convenience with regard to at-home meal preparation might open more opportunities for providing fresh-

Key Message: Possible growth in fresh-cut salad items; specialized processing



cut options, to make salad preparation easier. Because of the limitations of current technology in preserving fresh-cut tomatoes and cucumbers, cross-merchandising with other fresh-cut salad offerings might provide the best short-term strategy for alignment with this segment of the market. Neither the particular genetics currently in use nor the economies of greenhouse vegetable production lend themselves to conventional processing, such as whole peel tomatoes or pickled cucumbers. There may be opportunities for small processors to experiment with grade-out fresh product for specialized processing applications.

(iv) Processing Vegetables

This is an investment area that has been identified as having growth potential. It fits in well with the North American trend, wherein consumers want wholesome, convenient, and healthy food. Vegetable processing also complements the region’s resources in terms of soil, climate, and human capital. Critical success factors here will include the ability to achieve low costs of production and maintain a favourable exchange rate. However, with the trend towards irrigation, high quality product and consistent yields are being achieved, making this region an excellent location for the processing of vegetables. Looking at specific market opportunities by processing crop, the following comments can be made (these comments have been compiled from various industry sources):

(a) Tomatoes - the industry has been expanding by about 500,000 to 600,000

tons per year. The Ontario tomato industry is able to achieve field yields comparable to those of California (note: California processes 45% of the world’s supply of processed tomato products, i.e. 11 million tons). Specific products that have been growing in market share are salsa and various tomato sauces. This industry is expected to continue expanding in southern Ontario.

(b) Peas and Sweet Corn - many of the major processors in the region have

made significant capital investments in order to expand this portion of the business (e.g. one firm purchased a new freezing tunnel). Therefore, there should be expanded opportunities in relation to these crops.

(c) Beans - the growth of this crop is unlikely in Essex County (it is simply

too hot), but there are possible opportunities for expansion in Middlesex County.

(d) Cucumbers - this industry is being revitalized (much like the tomato

industry) with a move to large fields and mechanical harvesting rather

Key Message: Opportunities for expanded vegetable processing



than small fields and hand-picking. Contract acreage, especially in Essex County, has been expanding.

(e) Carrots - there is an opportunity for expanded acreage because carrots can

be used in many different ways (e.g. diced, frozen, or part of a vegetable mix).

(f) Peppers - this crop has been experiencing some growth, driven primarily

by the demand from one local processor. (g) Asparagus and Garlic - Ontario offers no competitive advantage for

growing these crops. Many of the major asparagus processors have established themselves in Peru, while China dominates the world garlic market.

As indicated above, there are likely to be opportunities for processing vegetables in the region.

Increases in the cost of petroleum energy over the next ten years, which may increase the distribution cost of landing competitors’ products in the Great Lakes basin, may further enhance the attractiveness of the Ontario region as a supply centre for eastern North America.

(v) Meat Products

It appears there are, at best, only limited opportunities for large, full-scale meat processing operations to locate within the region. While it was noted in Section 2 that Asian markets are expected to begin demanding more meat products over time, the competition for the markets is intense (i.e. competition from the U.S. and EU). Much of the livestock industry (e.g. cattle and pigs) has moved away from the region, and thus any plant establishing itself in the southwest would have to transport animals from the Huron/Perth area. A modern, world-scale hog processing plant now slaughters over 4 million pigs annually, and any new entrant would face stiff competition from existing multinational processors. Likewise, beef processing is large scale, and any new facilities brought into the region would find it tough to compete against the fully integrated plants located in western Canada. In addition, poultry production has a supply management system which tries to match production with demand. It is doubtful that any additional processing capacity will be built, unless production is expanded, which is unlikely because of regulated marketing. Thus, livestock processing has not been identified as a growth area for the region.

However, these comments do not apply to specialty meats (i.e. sausage, smoked pork chops, and other high value products). In high traffic tourist

Key Message: More specialty meats in tourist areas



areas and locations with ethnic populations, it is anticipated that many marketing opportunities will be available to specialty meat processors.

(vi) Sugar Beets

It should be noted that there is a great deal of interest in sugar beet

production within the region, and it would seem logical to establish a sugar beet processing plant in the area. Unfortunately, U.S. sugar policy supports an industry that is not cost competitive unless heavily subsidized. Given this situation, an Ontario -based plant would not be viable unless it received similar levels of support.

(vii) Bio-Products

An area touted as having significant growth potential is the bio-economy and possible new agri- food products. The potential market is huge, estimated at $2,630 billion, with biochemicals (e.g. resins, plastic, soaps, lubricants, etc.) and biomass fibers (i.e. fibre products such as straw boards) being the two main industrial market clusters (87%). However, the cost of bio -based products is the key impediment to market acceptance. For example, the conventional cost of making plastic is estimated to be US$0.50/lb, while the plant-derived cost is US$2.00/lb. Therefore, it is expected that the conversion from hydrocarbons to renewable raw materials will be slow. Further, despite the large market size the producer benefit is modest, since most of the value added occurs in the processing and packaging. The Canadian Federal Inspection Agency has ruled out using food crops to make nutraceuticals and pharmaceuticals.

6.2.2 Recommendations by Processor Size

It is critical to recognize the importance of different sizes of companies and the role they play in economic development. For example, small companies may not employ many people, but they tend to buy local products and materials. On the other hand, large companies employ many people but may source products globally. A balanced approach, one that encourages and supports both MNEs and SMEs, will benefit the entire economy.

(i) Small Firms with Sales Less than $250,000

Clearly, the investment strategy here should be value-added niche marketing. Firms of this size frequently lack the capital and human resources they need to invest in the new technology that is required to enter the export market. No particular sub-sector is experiencing more rapid growth over another. Success here tends to relate more to the entrepreneur and his or her ability to achieve greater market penetration

Key Message: Sugar beet processing plant not viable

Key Message: Limited opportunity for nutraceuticals

Key Message: Small firms need training i.e. business plan; product packaging; market development



and develop product loyalty. In the process of conducting the survey, the authors encountered many examples of companies that had built their reputation to the level where customers would routinely drive over an hour to purchase their goods. Typical operations fitting this description include those selling items such as maple syrup, blueberries, specialized game meat (e.g. buffalo), baked goods (e.g. pies, cookies, etc.), meat pies, popcorn, agri-tourism, pick-your-own, and organic products (e.g. eggs, bread etc.).

An economic development officer could assist with the following specific needs: business plan development; product packaging; advertising; and market development.

(ii) Medium-Sized Firms with Sales between $250,000 and $5 Million

As with the small firms, no one sub-sector has been identified as performing better than the rest. These firms often find themselves in the awkward position of being too small to supply retail chain stores, but too big to be solely a specialty supplier. During the survey, firms of this size frequently complained of being “pushed out” of the retail chain stores. Examples of firms meeting this description are sausage makers; poultry suppliers; bakeries; and specialty wine makers. Many of these operations were once small firms that have grown over time by building on their reputations. One processor visited while conducting the survey had built a reputation for being the best meat supplier in the area, and was often asked to supply meat to many of the Detroit Red Wing hockey players. There may be some opportunities for organic vegetable processing (e.g. frozen, canned vegetables) by medium-sized firms in the southwest region.

The main challenges found with regard to this group of firms were related to inter-generational transfer issues and business plan development. Firms this size typically lack the resources for major investments in research and development. One role for local economic development officials might be assisting with succession planning, including finding buyers when the current owner(s) decide to sell and retire.

(iii) Large Firms with Sales Greater than $5 Million

It should be noted that for firms of this size, little growth is expected in the local market due to market saturation. Larger food processing companies will be export-focused, while the multinational subsidiaries will focus on gaining/maintaining product mandates from the parent company.

Key Message: Medium-sized companies need help with training i.e. succession plan; assist with transfer of ownership; R&D



On a regional basis, vegetable processing has been identified as being one of the best investment opportunities with growth potential. The region is capable of growing a wide variety of high quality produce and is competitive with most U.S. locations, especially since irrigation is becoming increasingly popular. It should be noted that firms of this size do not consider only Middlesex or Chatham-Kent as their main product supply areas. Instead they tend to think regionally, by looking at the amount of land capable of growing the crops they want and the strength of the competition for the use of that land. One processor visited during the course of the survey grew over 22,000 acres of vegetables (i.e. sweet corn, carrots, green peas, and beans) in the region under study, but had chosen to set up shop in one of the region’s larger cities in order to attract sufficient local labour. There may be specific crop opportunities local producers are not taking advantage of. For example, one processor was importing carrots from Israel and Belgium for further processing.

However, the major challenge for firms of this size is their limited focus on conducting consumer research and developing innovative marketing plans. The high cost and lack of management time were cited as inhibiting factors. As stated in Section 2, consumers are increasingly demanding food safety, convenience, and nutritious food products. An example of a product concept that could be further developed by firms in the southwestern region is combining vegetables and meat protein (e.g. chicken or pork) to provide a complete meal solution. Combining these products would meet consumer needs for convenience and nutrition. Introducing meat-based products into a vegetable facility does have significant regulatory implications and costs, however. A detailed cost-benefit analysis of market opportunities would need to be undertaken before any firms could commit to such diversification.

6.2.3 Recommendations by County

(i) Sarnia-Lambton

• Value-added fresh vegetable marketing (e.g. sweet corn, potatoes, beans, and onions) and agri-tourism (e.g. organized fa rm markets) should be encouraged in the Grand Bend area. Other products worthy of exploration are barbecue meats, fresh fruit and baked goods.

• All efforts should be focused on trying to attract a food grade soybean processor

to the area. Given the abundance of the crop grown in the county (278,950 acres in 2002 - the largest in the province) and the proximity to U.S. markets, this investment opportunity would add tremendous value to the county. Also, the industrial use of soybeans and corn should be strongly encouraged.

Key Message: Large firms require assistance with consumer research and marketing plans



• The main barriers identified in this area are access to skilled labour (such as agricultural background, machinery know-how) and the exchange rate.

(ii) Middlesex

• The urban London market should be capitalized upon by promoting agri-tourism

and assisting some operations to develop value-added farm products that are attractive to urban consumers (e.g. specialty meats). The urban London market may be sufficiently large to support some organic crop production and processing. Opportunities for supplying food (e.g. specialty meats, ice cream, etc.) at entertainment venues, such as sporting events, should be explored.

• Food use soybean production should be encouraged (i.e. 175,150 acres grown in

2002), as well as vegetable production on land capable of growing these higher valued crops.

• The main barriers in this area have been identified as availability of capital,

availability of raw materials and infrastructure.

(iii) Chatham-Kent • Value-added farm marketing should be further developed in the Blenheim area in

order to take advantage of the wide variety of fruit available there. This area could be promoted as an ideal spot for pick-your-own and the complete farm experience (e.g. wagon rides, corn mazes, etc.).


The production of vegetables is a good match with the county’s natural soil types and human resource capabilities. Efforts should be directed towards ensuring that existing plants are profitable and tha t plants that want to expand have access to the necessary infrastructure (i.e. roads, water, hydro, and waste disposal) at competitive prices.

• The main barriers in this area have been identified as availability of capital, taxes,

and the exchange rate.

(iv) Windsor-Essex • An expansion of agri-tourism and value-added farm marketing is recommended.

For example, farms and food companies located along the wine route could offer some of the unique farm products grown in the area (e.g. fruits, vegetables, baked goods, salsa). The City of Windsor is home to many ethnic groups that prefer foods different from traditional Canadian foodstuffs. These market segments should be explored fully.



• Vegetable processing should be encouraged and promoted in the area. Many different vegetable crops that are higher in value than corn, soybeans and wheat can be grown in the region. Significant volumes of vegetables are currently imported into the county from around the world (e.g. carrots from Israel), which may present opportunities for local growers.

• The main barriers in this area have been identified as waste treatment, availability

of capital and the exchange rate

In conclusion, there are definite growth opportunities for food processing in the region. The sub-sectors identified as having the most potential are vegetable processing in the Essex/Chatham-Kent/Middlesex area and food grade soybean processing for Lambton. There continue to be considerable opportunities for small value-added niche firms producing products such as pies and specialty meats in the Grand Bend, London, Blenheim, and Leamington/Kingsville areas. Firms must capitalize on, and cater to, the seasonal tourism and/or migrant worker populations existing in each of these areas. Still, the appropriate strategy for the region remains the retention and expansion of existing facilities, rather than focusing on attracting new firms to the area.

6.3 Government Actions Required

Specifically, the actions identified for government consideration are as follows: (i) Centre for Agri-Food Innovation

In order to support small and medium-sized businesses in the development of value-added products, government should establish a centre of excellence. The centre would make use of business assessment tools and staff specialists to support rural business development, as well as provide assistance on how and where to obtain funding. An innovation centre located within the region would specialize in commodities specific to the area, and help develop businesses that add value to agricultural products. Some examples of innovative products that could be manufactured in the region include soyfood products (e.g. cereals, nutritional enhancements, dairy alternatives, meat alternatives, etc.), specialty meats, etc.

(ii) Benchmark Infrastructure Costs Relative to Other Jurisdictions

Given the current business environment in the food processing sector (i.e. one of consolidation), it is important to ensure that the infrastructure costs associated with doing business in the regio n are at least in line with those in other jurisdictions, if not more favourable. There is a definite need to demonstrate that this region is a value-effective part of North America; that is, that the benefits of locating to the region outweigh any additio nal costs. Specifically, the costs that need to be benchmarked are hydro, water, natural gas, waste disposal, siting costs, taxes, and local wage rates.

Key message: Cost competitive within North America

Key message: Establish centre for agri-food innovation



(iii) Assist Employers in the Development of a Long -Term Workforce Plan

Many of the companies in the region have not thought through the implications of an aging labour force and the potential for lost productivity when faced with high retirement numbers. Local government can be instrumental in ensuring that companies put the looming labour shortage on their radar screens and begin a multi- faceted program that will address it. Such a program could include more consideration for training workers in the skills that will be required in the future. It could involve more co-operative education work experiences, beginning as early as the senior grades of high school, in order to introduce young people to the food processing industry. An alliance should be developed with local colleges (St. Clair, for example) to offer courses such as meat cutting, food safety and technology and skilled trades.

(iv) Provide Business and Marketing Expertise

There is an urgent need to encourage privately owned firms to undertake more deliberate succession planning. Peer-conducted seminars are one initiative that municipal government could consider to encourage more formal planning for orderly management and ownership succession. A privately owned food business might find itself in a serious crisis if, by reason of illness or injury, the owner is unable to continue in his/her current role. A number of seminars have been sponsored for farmers by OMAF to address succession planning issues, and a similar approach could be taken for food industry owners. Making use of industry peers who have retired and transferred their businesses to the next generation or a new group of non- family owners might be the most effective way of generating interest and delivering the message.

(v) Capital Availability

Many of the firms stated that it was difficult to obtain funding to make capital improvements. Any capital grant program or tax system incentive that encourages investment in new technology would be beneficial to the industry. Concern was expressed that the grants approved under Ontario government programs have benefited larger companies more than smaller ones. Consideration needs to be given to ways of extending the benefits of grant programs to smaller companies.

Key message: Training, e.g. meat cutting, food safety, skilled trades; co-op education

Key message: Provide training i.e. succession plan, business plan, marketing strategy, financial management

Key message: Need grants, tax incentives, increased caps/limits on borrowing; greater access



(vi) Nurture Innovative Producer/Processor Alignments

One of the strong advantages of southwestern Ontario is the excellent quality and supply of farm-produced outputs, which serve as critical raw materials for food processing. While Ontario does not have a strong track record of successful acquisition of processors by producer groups (for example, West Perth Packers, located in Mitchell, went into receivership in August 2003), growth and expansion that add value will require more integration between the two. As MNEs follow the trend towards divesting seasonal processing assets, there may be opportunities for local ownership, including management, to acquire certain plants and co-pack on a long-term basis for the MNE brands. This trend may not necessarily continue indefinitely, if MNEs come to the conclusion that operating company-owned plants is critical to ensuring adequate supply. At the present time, owing to an abundance of supply, the long-term trend still appears to favour divesting these assets under the right circumstances. The role for local government here is to explore and nurture innovative producer alignments, such as new generation co-ops, joint ventures, and other forms of vertical integration.

(vii) Technology Investment

While the overall competitiveness of the region is a function of many factors (such as local wage rates, proximity to major markets, distance to raw materials, etc.), technology is a key driver. Some examples of technologies that should be supported by local governments are the following: (a) co-generation, which would allow the by-product of steam to be used efficiently in the manufacturing process. These kinds of efficiency gains should be encouraged; and (b) major new investments in packaging technology (e.g. use of plastics rather than the can).

In summary, the primary strategy should be the retention and expansion of existing food businesses in the region. Other potential opportunities identified include food grade soybean processing, fresh-cut vegetables, specialty meats and expanded vegetable processing. There may also be opportunities for expanded industrial uses for soybeans and corn.

Key message: Support new generation co-ops, joint ventures, vertical integration

Key message: Provide incentives for co-generation, innovative packaging



APPENDIX 1 ONTARIO FOOD PROCESSING STATISTICS


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A1.0 Ontario Food Processing Statistics This section contains additional data for the food manufacturing industry for Ontario, Essex, Chatham-Kent, Lambton, Middlesex and the four county region as a whole. All of the data is sourced from Statistics Canada. However, due to concerns over individual firm confidentiality, some statistics are not available or publishable. As well, some data reported may not be complete because of sampling technique (e.g. not all establishments are included in the Annual Survey of Manufactures). This results in only certain sectors within the food manufacturing industries having data publishable. More detailed information is available at a provincial level than at the census division or county level. The principal manufacturing statistics are from the Annual Survey of Manufactures. This survey is based on a sample of firms rather than the entire population. Some data is missing from the report. However, the data that is reported gives a good picture of the value and importance of the food manufacturing industries. In 2002, Ontario food processing companies had $31.6 billion in total shipments as displayed in Table A1.1. The largest sector in 2002 was beverage and tobacco with $6.5 billion in shipments or 20.6% of the total. This was followed by meat products with $5.4 billion and 17.1%. The next largest groups were dairy products (10.4%), other (10.2%) and fruit and vegetables (10.0%).

Table A1.1 Food Processing Value of Shipments ($’000), Ontario, 2001-2002

Industry 2001 % of 2001 2002 % of 2002

% Chg 2001-02

Animal Food 1,847,004 5.9 1,937,573 6.1 4.9 Bakeries & Tortilla 2,410,396 7.7 2,559,018 8.1 6.2 Beverage & Tobacco 6,352,291 20.2 6,525,247 20.6 2.7 Dairy Products 3,329,154 10.6 3,286,727 10.4 (1.3) Fruit & Vegetables 3,615,104 11.5 3,166,509 10.0 (12.4) Grain & Oilseed Milling 2,827,408 9.0 2,991,020 9.5 5.8 Meat Products 5,912,913 18.8 5,393,867 17.1 (8.8) Sugar & Confectionery 2,477,644 7.9 2,511,985 7.9 1.4 Other 2,749,003 8.7 3,233,452 10.2 17.6 Total 31,520,917 100.0 31,605,398 100.0 0.3


This $31.6 billion in total shipments was similar to 2001 levels. The two largest sectors in 2001 were beverage and tobacco at $6.4 billion in shipments and 20.2% of the total followed by meat products at $5.9 billion and 18.8%. Table A1.2 shows that on a percentage basis of all manufacturing GDP (gross domestic product) in the province, the category of food, beverage and tobacco represented 12.2%. The sector ranked 4th behind other manufacturing (25.2%), transportation equipment (23.1%) and primary metal and fabricated metal (14.3%).


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Table A1.2 GDP By Manufacturing Industries, Ontario, 2002 Industry ($1997 millions) (%)

Other Manufacturing 21,156 25.2 Transportation Equipment 19,356 23.1 Primary Metal and Fabricated Metal Products 12,021 14.3

Food, Beverage, & Tobacco 10,270 12.2 Electrical and Electronic Products 8,294 9.9 Chemical and Chemical Products 7,472 8.9 Machinery 5,282 6.3


Table A1.3 shows Ontario’s agri-food exports and imports from 1988 to 2002. Exports have increased from $2.2 billion in 1988 to $8.35 billion in 2002, a 280% increase. This $8.35 billion represents approximately 26% of total Ontario shipments in 2002. Total imports have increased from $3.97 billion in 1988 to $12.48 billion in 2002, a 214% increase. On a % basis, Ontario’s exports have increased at a faster pace than imports. However, Ontario’s trade balance (i.e. exports minus imports) has gone from -$1.77 billion in 1988 to -$4.13 billion in 2002.

Table A1.3 Ontario Agri-Food Trade, 1988 to 2002

Year Exports Imports Trade Balance

(Cdn $ billions) Exports-Imports 1988

2.20 3.97 (1.77) 1989 2.11 4.24 (2.13) 1990 2.50 4.58 (2.08) 1991 2.53 4.70 (2.17) 1992 3.16 5.25 (2.09) 1993 3.73 6.02 (2.29) 1994 4.24 6.84 (2.60) 1995 4.80 7.23 (2.43) 1996 5.38 7.72 (2.34) 1997 5.74 8.85 (3.11) 1998 6.22 9.77 (3.55) 1999 6.59 10.00 (3.41) 2000 6.79 10.58 (3.79) 2001 7.91 11.66 (3.75) 2002 8.35 12.48 (4.13)


Ontario’s agri-food trade by month for 2002 and 2003 is shown in Table A1.4. The data is incomplete but shows that for 2003, exports are up 5% while imports have increased slightly (by 2%) when compared to the same time period in 2002.


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Table A1.4. Ontario Agri-Food Trade By Month (Cdn $ Millions) Exports Imports

Month 2002 2003 % Change 2002 2003 % Change January 637.1 682.1 7.1 935.2 939.8 0.5 February 591.1 649.6 9.9 881.7 863.9 (2.0) March 708.3 781.6 10.3 947.4 966.8 2.0 April 671.9 770.5 14.7 919.8 988.8 7.5 May 739.7 717.4 (3.0) 996.3 1022.1 2.6 June 699.7 642.5 (8.2) 954.7 964.6 1.0 July 697.0 974.1 August 669.0 968.4 September 718.4 1012.2 October 814.4 1117.3 November 741.5 1061.9 December 688.5 924.3 Jan-Jun Totals 4,047.9 4,243.8 4.8% 5,635.2 5746.1 2.0% Jan-Dec Totals 8,376.7 11,693.3

Source: Industry Canada NAICS 111, 112, 311, 3121

Table A1.5 shows that Ontario exports to several different countries but also imports from many of the same countries. Again, the data is incomplete and only for the period January through March 2003 but it gives an idea of who Ontario’s trading partners are. The majority of exports (83.6%) and imports (67%) are with the United States. Notice Ontario has a negative trade balance (i.e. $216 million) with the United States for the time period depicted. The next highest exports go to Asia (excluding Japan) at 5.2% and the European Union at 4.3%. The next highest imports come from the European Union at 8.6% followed by Latin America (excluding Mexico) at 7.8%.


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Table A1.5. Ontario Agri-Food Trade By Region, January Through March 2003 (Cdn $’000) Region Exports Imports Balance

United States 1,766,520 1,982,824 (216,304) Mexico 10,476 112,643 (102,167) Latin America (excl. Mexico) 9,725 229,517 (219,792)

Caribbean 8,876 14,882 (6,006) EU 90,062 254,529 (164,467) Other West Europe 2,529 8,286 (5,757) Eastern Europe 16,979 13,314 3,666 Middle East 9,150 19,087 (9,937)

Africa 3,981 38,533 (34,552) Japan 72,977 5,972 67,006 Asia (excl. Japan) 109,581 175,663 (66,082) Oceania 12,011 104,385 (92,375) Total 2,112,867 2,959,635 (846,768)

Source: Statistics Canada International Trade Division

Table A1.6 shows detailed principal manufacturing statistics for different sectors within the Ontario food, beverage and tobacco industries for 2001. Bakeries and tortilla manufacturing has the most establishments with 647 (37.3%). Meat products have the most production workers with 18,368 (28.0%), the largest cost of materials and supplies (i.e. $4.1 billion or 27.4%) and the highest value of manufacturing shipments $5.7 billion (23.2%). Beverage and tobacco product manufacturing has the highest total value-added at $3.5 billion (35.0%).

Table A1.6. Principal Manufacturing Statistics By Food, Beverage and Tobacco Industries, Ontario, 2001

Industry # of Firms

# of Production Workers

Cost of Materials & Supplies

($million)

Total Shipments

($million)

Total Value Added

($million)

Food Mfg 1,735 65,531 14,992 27,011 9,848 Animal Food Mfg. 176 2,893 1,156 1,921 621 Grain & Oilseed Milling 60 3,571 1,748 3,406 1,239 Sugar & Confectionery Product Mfg. 65 5,779 976 2,199 1,120 Fruit & Veg. Preserv/Specialty Food 143 8,897 1,872 3,746 1,373 Dairy Products Mfg. 139 5,298 2,730 4,434 1,362 Meat Product Mfg. 264 18,368 4,102 6,050 1,579 Seafood Prod. Preparation-Packaging 37 639 64 134 66 Bakeries & Tortilla Mfg. 647 13,809 1,197 2,906 1,523 Other Food Mfg. 204 6,277 1,149 2,216 963 Beverage & Tobacco Product Mfg. 205 6,959 1,834 5,587 3,450 Source: Statistics Canada, Annual Survey of Manufactures


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Table A1.7 shows that Ontario had 3,652 businesses in the food, beverage and tobacco manufacturing sector in 2002. This is different from the 1,940 establishments identified in Table A1.6 (food manufacturing plus beverage and tobacco manufacturing). Recall that Table A1.6 uses data from the Annual Survey of Manufactures which surveys a sample of incorporated firms with sales greater than $30,000. Table A1.7 reflects all food businesses regardless of size. The largest number of businesses was in the bakeries and tortilla group (35%) followed by the beverage (12.2%) and meat product groups (11.8%). While the bakeries and tortilla group has the largest number of businesses, this does not necessarily mean that it is the largest sector in terms of employees or value of shipments.

Table A1.7. Establishment Counts By Industry Groups, Ontario and By County, 2002

Industry Group Chatham-Kent

Essex Lambton Middlesex Region Total

Ontario Region % of ON

311 – Food Manufacturing

3111 - Animal Food Manufacturing 4 2 5 6 17 242 7.0 3112 - Grain and Oilseed Milling 1 2 0 6 9 89 10.1

3113 - Sugar and Confectionery Product Manufacturing 2 4 1 5 12 145 8.3

3114 - Fruit and Vegetable Preserving and Specialty Food Manufacturing

8 12 2 5 27 249 10.8

3115 - Dairy Product Manufacturing 7 7 5 11 30 324 9.3 3116 - Meat Product Manufacturing 6 4 5 21 36 433 8.3

3117 - Seafood Product Preparation and Packaging

4 6 0 0 10 74 13.5

3118 - Bakeries and Tortilla Manufacturing 8 29 10 35 82 1,278 6.4

3119 - Other Food Manufacturing 2 4 2 8 16 354 4.5 311 - Total Food Manufacturing 42 70 30 97 239 3,188 7.5 3121 – Beverage Manufacturing 4 22 3 19 48 445 10.8 3122 - Tobacco Manufacturing 0 0 0 2 2 19 10.5

Total Food, Beverage and Tobacco Manufacturing 46 92 33 118 289 3,652 7.9

Source: Statistics Canada, Canadian Business Patterns, 2002

Table A1.8 shows the number of establishments by employment range. Not all establishments can be categorized by employment range as some businesses do not maintain an employee payroll but may have a workforce that consists of contracted workers, family members or business owners. These businesses are classified as “indeterminate”. The largest number of food manufacturing businesses in Ontario employ 1-4 employees (37.9% of the 2,350 businesses that were categorized). Businesses employing 5-9 workers represent 16.9% of the total. Businesses that employ less than 20 people comprise 68.1% of the total food, beverage and tobacco firms reported in 2002. Businesses with 100 or more employees are only 9.7% of the total.


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Table A1.8. Food, Beverage and Tobacco Manufacturing Establishments By Employment Range, Ontario and By County, 2002

Total (A) Indeterminate1 (B)

Subtotal (A - B) 1-4 5-9 10-19 20-49 50-99 100-199 200-499 500 +

Chatham -Kent 46 16 30 10 7 3 4 1 3 2 0 Essex 92 21 71 30 9 12 9 6 1 1 3 Lambton 33 17 16 5 5 6 0 0 0 0 0 Middlesex 118 37 81 32 13 10 11 7 4 3 1 Region Total 289 91 198 77 34 31 24 14 8 6 4 Ontario 3,652 1,302 2,350 891 397 312 320 203 125 72 30 % of ON by Employment Range

100.0 37.9 16.9 13.3 13.6 8.6 5.3 3.1 1.3

Source: Statistics Canada, Canadian Business Patterns, 2002 1The establishments in the “Indeterminate” category do not maintain an employee payroll, but may have a workforce which consists of contracted workers, family members or business owners. However, the Business Register does not have this information available, and has therefore assigned the establishments to an “Indeterminate” category.

A1.1 Productivity Measures

Productivity Per Production Employee

On average, food manufacturing for the region, tends to have lower productivity in terms of total shipments per production employee than all manufacturing in the four county area. From Table A1.9, the region has 18.3% lower wages and 8.9% lower total shipments. However, food businesses do average 19.8% higher total value-added per production employee and 37.1% higher margin. This means that even though total shipments are lower, higher total value-added is achieved in these operations. When compared with all food manufacturing businesses in Ontario, the region has 19.0% higher production wages. The region averages 0.2% higher total shipments, 3.8% higher total value-added and 4.4% higher margin. When looking at individual counties, Essex has the highest productivity per production employee with total shipments worth $629,580 and value-added at $214,810. Next in total shipments was Lambton County at $448,680. However, in terms of value-added Middlesex County was second with a value of $211,200.

Table A1.9. Food Manufacturing Statistics Per Production Employee, 1999


Variable Essex Chatham- Lambton Middlesex Region Region vs. Region1 Ontario vs. Ontario2

Kent Food Mfg All Mfg All Mfg Food Mfg Food MfgWages ($'000) 38.78 33.42 32.57 38.02 37.36 45.75 -18.3% 31.39 19.0%Total shipments ($'000) 629.58 261.09 448.68 437.98 464.91 510.07 -8.9% 464.11 0.2%Total value added ($'000) 214.81 92.72 72.90 211.20 189.31 158.08 19.8% 182.41 3.8%Margin ($'000) 156.87 53.48 33.04 160.74 138.73 101.20 37.1% 132.92 4.4%1 Region Food Manufacturing vs. Region All Manufacturing



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Productivity Per Person Hour Paid (Production Employees)

The region, on average, tends to have lower costs and lower shipments but higher value-added per production employee person hour paid when compared to all manufacturing for the region. From Table A.10, food manufacturing businesses have 16.7% lower wages, 7% lower total shipments but 22.2% higher total value-added and 39.8% higher margin. The region’s average production employee received $17.73 per hour compared to $21.29 for all manufacturing. When compared with all food manufacturing businesses in Ontario, the region has higher manufacturing costs (i.e. wages - 15.5%, materials - 12.5%). However, when looking at total shipments, the region has lower averages (i.e. 2.8% for total shipments) but slightly higher total value-added (i.e. 0.7%) and margin (i.e. 1.2%).

A1.10. Food Manufacturing Statistics Per Person Hour Paid, 1999


When looking at individual counties, Essex has the highest productivity per person hour paid at $281.62 in total shipments followed by Middlesex (i.e. $214.47) and Lambton (i.e.$213.86). Total value-added shows the highest figure in Middlesex (i.e. $103.42) followed by Essex (i.e. $96.09). Production wages are highest in Middlesex at $18.62 followed by Essex at $17.35.

Variable Essex Chatham- Lambton Middlesex Region Region vs. Region1

Ontario vs. Ontario2

Kent Food Mfg All Mfg All Mfg Food Mfg Food MfgWages ($/hour) 17.35 16.13 15.52 18.62 17.73 21.29 -16.7% 15.36 15.5%Total shipments ($/hour) 281.62 126.00 213.86 214.47 220.70 237.36 -7.0% 227.11 -2.8%Total value added ($/hour) 96.09 44.75 34.75 103.42 89.86 73.56 22.2% 89.26 0.7%Margin ($/hour) 70.17 25.81 15.75 78.71 65.85 47.09 39.8% 65.04 1.2%1 Region Food Manufacturing vs. Region All Manufacturing



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APPENDIX 2 SURVEY RESPONSES AND ANALYSIS BY SIZE OF COMPANY


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Survey - Food Industry Growth Trends in Southwestern Ontario The purpose of this survey is to identify within the food industry sector those areas which can assist in the retention and expansion of companies, market trends and opportunities that may exist and what is needed to attract companies to the area. All information that is collected will be kept strictly confidential and only group results will be presented. Background Information Company Name Contact Name Address of Company Town/City County Postal Code Telephone Fax Email Website address Ownership (check one) Private 88% Public 12% (n=57) Location of Head Office (if different from above)

The following questions refer to your company location(s) within Middlesex, Lambton, Essex and Chatham-Kent. A1. What segment of the food supply chain best describes your company? Please check one

only. 28% Producer 7% Manufacturer/processor

40% Primary (buys/uses inputs from farm) 3% Tertiary (Re-manufacturing buying inputs that are already processed)

3% Distributor/wholesaler 9% Retailer 9% Other (please specify) Respondents indicated more than one category

(n=67) A2. How many years has this company been in operation in this location? years Average 36.2 yrs A3. How many other locations, if any, does the company have:

a) in Ontario Avg 2.9 (n=26) b) in rest of Canada Avg 8 (n=8)

c) outside Canada Avg 17 (n=6)

Survey responses are highlighted. Response rates are shown as “n=”.


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A4. Please identify your 2 main products (in terms of sales) below and check (T) which stage they are at within their product life cycle:

Stage of Product Life Cycle

Product Introduction Growth Maturity Decline

1. (n=50) 2% 44% 52% 2%

2. (n=43) 5% 44% 46% 5%

A.5 How much does your main product represent in terms of total company gross sales?

3% < 20% 21% 41% to 60% 29% 81% to 99% 18% 20% to 40% 21% 61% to 80% 7% 100%

(n=61) A6. What segment of the food supply chain best describes your main customer? (Please

check one only) 2% Manufacturer/processor

6% Primary (buys/uses inputs from farm) 8% Tertiary (Re-manufacturing buying inputs that are already processed)

11% Distributor/wholesaler 19% Retailer 30% Consumer 8% Hotel/Restaurant/Institution (foodservice) 17% Other (please specify) Participants checked more than one category (n=64)

A7. What % of total sales does your main customer, as described in A6 above, purchase?

14% Less than 20% 9% 41% to 60% 20% 81% to 99% 20% 20% to 40% 30% 61% to 80% 6% 100%

(n=64) A8. Does your business have a written succession plan in place?

Yes 19% No 81% (n=57) A9. At what level does the Canada/U.S. exchange rate become critical to your company?

Check one only. 6% $0.60 44% $0.80 3% $1.00 47% $0.70 0% $0.90

(n=32) A10. What is the square footage of your production facility? square feet Avg 99,754 sq ft (n=54)


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A11. What are the top 3 challenges you currently face in operating your business? 1. i.e. labour (finding and keeping skilled labour); exchange rate; promotion/marketing

2. i.e. increased costs (hydro, natural gas, insurance); consolidation in industry

3. i.e. production issues; keeping up with government regulations

A12. What sector within the food industry does your company best fit? Please check one.

10% Grains/oilseeds 10% Bakeries 9% Sugar/confectionary 34% Fruits/vegetables 3% Seafood/fisheries 2% Animal food 4% Dairy products 13% Meat products 4% Beverages (i.e. wine) 10% Other (please specify) Consists of primary producers (n= 68)

A13. Name the three major processing activities that occur in your production facility (e.g. canning, freezing, fabrication of meat, etc.). 1. i.e. cleaning, grading

2. i.e. evaporation, pasteurization, chilling, baking

3. i.e. packing, canning, freezing

A14. a) Does your company have a written business plan? Yes 40% No 60%

(n=60) b) If yes, how often is it updated? 6% every 6 months or less 23% every 2 years 0% Not updated 71% every year 0% more than 2 years (n=19)

A15. a) Does your business conduct market surveys to determine customer needs? Yes 57% No 43% (n=35)

b) If yes, how frequently? 29% Less than 6 months 0% 9 to 12 months 14% 2 to 5 years 21% 6 to 9 months 36% 1 to 2 years 0% more than 5 years

(n=14)

c) Has it changed your product mix? Yes 86% No 14% (n=14) d) How much money did your company spend on new product innovation in the last 3 years? (i.e. research and development, business plan, marketing, etc.) 14% None 24% $5,000 to $24,999 10% $50,000 to $100,000 14% Less than $5,000 7% $25,000 to $49,999 31% Greater than $100,000

(n=29)


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A16. a) Does your business have strategic alliances (i.e mutually beneficial relationships) with other industry partners?

Yes 67% No 33% (n=61)

b) If yes, please indicate who your strategic alliances are with below (or what types of companies are involved).

1. i.e. suppliers of products, services, inputs

2. i.e. customers

c) Are there particular alliances that you would like to see your company involved with?

Yes 64% No 36% (n=31)

d) If yes, what particular types of companies would you like to align with? 1. i.e. suppliers of products, services, inputs 2. i.e. customers

Skills B1. a) Please indicate the minimum education level required for each employee group

below.

< High school

High

school

College diploma

University

Post-

graduate Unskilled Labour (n=54) 78% 22% 0% 0% 0% Skilled Labour (n=43) 9% 49% 40% 2% 0% Professional Labour (n=24) 4% 21% 42% 33% 0%

b) Does your company have an apprentice program? Yes 26% No 74% (n=50)

c) If yes, for which trade? (Numbers denote the number of responses received for each)

0 Plumbing 2 Mechanic 7 Millwright 3 Other 2 Electrical 0 Other

d) Please check off the employee skills your company is currently seeking. (Numbers denote the number of responses received for each)

2 Millwright 6 Quality Control 0 Plumber 2 Sales/Marketing 3 Warehous ing 2 Financial 3 Line Mechanic 1 Computer/Information Technology


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11 Other Skills i.e. electrical technician, engineer, refrigeration experience Other Also meat cutter, agricultural background, motivation, work ethics

B2. a) How is training currently done within your company for each employee group? (Numbers denote the number of responses received for each)

Unskilled Labour

Skilled Labour

Professional

Labour i) No training done 2 3 1 ii) Trained by another employee while on the job 47 26 7 iii) Company pays for courses (night and/or day courses)

5 26 17

iv) Company pays for outside consultant to be brought in

6 13 9

v) Other In-house training 3 3 3

b) Please indicate the average length of training courses typically taken by each of the employee groups. (Numbers denote the number of responses received for each)

Unskilled Labour

Skilled Labour

Professional

Labour i) Less than 1 day in length 16 9 2 ii) One day in length 5 13 6 iii) Greater than 1 day in length 5 21 15

c) How much money does the company set aside per employee for training each year?

None

< $500

$500 to

$900

$1,000 to $2,999

$3,000 to $5,000

> $5,000

Unskilled Labour (n=39) 74% 23% 0% 3% 0% 0% Skilled Labour (n=36) 50% 17% 14% 17% 3% 0% Professional Labour (n=28) 43% 11% 25% 14% 7% 0%

B3. What is the average number of employees for each of the following categories that your

company would have on staff during the year? Averages are provided below.

a) # of Full-time (30 hours or more per week year-round) 67 (n=59) b) # of Permanent Part-time (less than 30 hours/week year-round) 12 (n=29) c) # of Seasonal (works full-time for no more than 12 weeks per year) 88 (n=28) d) # of Foreign workers 34 (n=14) e) # of Casual (random, short-term hirings i.e. summer students) 13 (n=21)


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B4. a) How long, on average, does it take to fill vacancies in each of the following employee groups?

< 1 month

1 to 2 months

2 to 4 months

> 4 months

Unskilled Labour (n=51) 86% 12% 2% 0%

Skilled Labour (n=39) 36% 41% 10% 13%

Professional Labour (n=22) 23% 41% 23% 14%

b) How many vacancies currently exist in your company’s location for each of the following employee groups?

No vacancies

1 to 3

3 to 5

5 to 10

> 10

Unskilled Labour (n=50) 88% 4% 2% 0% 6%

Skilled Labour (n=43) 72% 23% 5% 0% 0%

Professional Labour (n=32) 78% 22% 0% 0% 0%

B5. Please indicate below the age distribution of your year-round work force currently (as a

% of this total group). The average distribution is shown. (n=37) Less than 25 yrs old

14

%

35 to 39

14

%

50 to 54

14

%

25 to 29

7

%

40 to 44

23

%

55 yrs and greater

6

%

30 to 34

12

%

45 to 49

9

%

B6. a) Do you have othe r concerns regarding labour? Yes 67% No 33% (n=51)

b) If yes, please indicate your specific concerns below. 1. i.e. turnover and retention; some jobs are very physically demanding

2. i.e. aging workforce; difficulty with union; hard to attract seasonal workers

B7. How many total year-round employees were at this location 5 years ago? Avg 73

(n=20) B8. a) How many total year-round employees are expected to be at this location:

5 years from now? Avg 68 (n=15) 10 years from now? Avg 58 (n=4)

b) If a change in these employee numbers is expected in the future, what is the main reason for this? For those companies that expect employee numbers to increase in the future the main reason reported is expansion or growth of the business. Those companies that expect to reduce employee numbers will do so as a result of automation or retirement.

B9. How many seasonal employees were at this location 5 years ago? Avg 18 (n=7)


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B10. a) How many seasonal employees are expected to be working at this location: 5 years from now? Avg 16 (n=6) 10 years from now? Avg 14 (n=4)

b) If a change in seasonal employee numbers is expected in the future, what is the main reason for this? Only businesses indicating an increase in seasonal employees provided reasons for increases. The main reason reported was increased production.

B11. a) What is the current starting wage and estimated wage for employees after 2 years at

this location for the following employee groups: Averages for responses received are shown below.

Starting Wage

Estimated Wage After 2 Years

Unskilled Labour

$ 9.72 /hour (n=54)

$10.91 /hour (n=36)

Skilled Labour

$ 15.52 /hour (n=36)

$15.18* /hour (n=21)

Professional Labour

$33,704 /year (n=11)

$36,250 /year (n=5)

*A different number of respondents reported the wage after 2 years resulting in a lower wage than the starting wage. b) How much do benefits account for as a % of total skilled labour expenses? 9% 0% to 5% 19% 11% to 15% 31% Greater than 20% 9% 5% to 10% 31% 16% to 20%

(n=32) B12. a) Is any part of your labour force unionized? Yes 19% No 81% (n=37)

b) If yes, please explain which part of the labour force and which union.

Employee Group

Union 1.

i.e. UFCW, Steelworkers, CAW

2.


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Municipal Information C1. a) What does your company feel the competitive advantages and disadvantages are to

this location? (Please rank the top 3 advantages and top 3 disadvantages in the following table that apply to your company with 1 being the most important. Please do this for three years ago and currently.)

(Numbers denote the number of responses received for each)

Advantages

Disadvantages

Rank Top 3 Only

Rank Top 3 Only

3 Yrs Ago

Now

3 Yrs Ago

Now

4

5

i) Access to skilled labour

3

11

2

6

ii) Availability of migrant workers

0

0

1

1

iii) Literacy of local people

0

0

3

3

iv) Labour costs

5

7

5

7

v) Work productivity of local people

7

8

7

15

vi) Infrastructure (i.e. roads, gas, hydro, water, etc.)

4

5

20

31

vii) Proximity to domestic market

4

10

16

25

viii) Proximity to U.S.

1

2

2

2

ix) Government regulations - municipal, provincial, etc

17

24

15

27

x) Access to raw materials

4

10

1

4

xi) Availability of capital

4

7

1

2

xii) Taxes

8

13

6

13

xiii) Quality of life

2

2

0

0

xiv) Availability of industrial park

1

1

9

11

xv) Other (please specify) *

7

23

1

1

xvi) Other (please specify)

1

2

* Other Advantages reported include: climate/soil and no competition for company * Other Disadvantages reported include: increasing costs for utilities and insurance; consolidation in the industry; consistency in power supply

b) If the locational advantages identified above have changed from 3 years ago compared to now, what is the main reason for this? Some companies indicated that industries that have grown in the area in the last few years are causing more competition for labour now.


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c) If the locational disadvantages identified above have changed from 3 years ago compared to now, what is the main reason for this? Some of the answers include the following: interest rates are better now; more government regulations than 3 years ago; tax increase due to re-classification; municipality is working more closely with business

d)If you selected quality of life in question C1a above as either an advantage or disadvantage, specifically what are you referring to? Answers include the following: believe health is better in rural area; ease of lifestyle; don’t have to commute into a city to work; no smog; inability to attract new business and doctors

C2. What do you think the municipal, provincial and/or federal governments should be

doing with respect to the following to better assist your business? Please check (T) those that apply to your company. (Numbers denote the number of responses received for each)

Municipal

Provincial

Federal

i) New facilities support

7

13

10

ii) Training support (i.e. job creation, increasing skills)

4

16

10

iii) Attracting labour

7

6

5

iv) Bank guarantees for working capital

2

10

11

v) Bank guarantees for long term capital

2

10

10

vi) Availability of land

2

0

0

vii) Roads

9

1

0

viii) Gas

3

3

2

ix) Water

8

3

2

x) Waste disposal 11

10

4

xi) Sewers

10

1

0

xii) Investment incentives (e.g. land)

3

9

8

xiii) General business climate

13

12

14

xiv) Other (please specify)*

10

21

17

*Other includes the following types of responses: government should not over-regulate; assist with promotion i.e. local signage; limit severances in rural areas; wastewater review across industry


77

C3. a) Are there particular infrastructure needs that your company will need addressed in the next 5 to 10 years (i.e. roads, gas, water)? Yes 48% No 52% (n=58)

b) If yes, please indicate what they are in order of importance with 1 being the most important.

1. i.e. access to municipal water and natural gas

2. i.e. road maintenance; consistency of power supply

3. i.e. waste water and solids system availability C4. a) Are there programs, policies or incentives being offered in other regions that you

believe would be beneficial to your company or this area? Yes 22% No 78% (n=41)

b) If yes, what are they and where are they found? Some comments provided by participants include the following: Quebec provides better support than that received in Ontario; should be able to use pesticides that are allowed for use in the U.S.; need money for compliance with nutrient management regulations; Food Aid program should be started again for some commodities; Economic Development offices should maintain/build relationships with area businesses

C5. a) If the company is likely to move to a new location within the next 2 years, where will

that be? There were no participants that indicated they will be moving out of the region. However, two will change buildings within their same area.

b) What are the 3 main reasons for leaving this location?

1. to accommodate growth and consumer demand for product

2.

3.

Investment D1. Please indicate the following with respect to your location:

a) Company sales for fiscal year 2002 from your location. 14% Less than $100,000 19% $1,000,000 to $4,999,999 8% $100,000 to $249,999 19% $5,000,000 to $25 million 11% $250,000 to $499,999 21% Greater than $25 million 8% $500,000 to $999,999

(n=63)


78

b) With respect to these sales, in the next year and next 5 years does your company location plan to:

Increase Sales by %

Decrease Sales by %

Maintain

Sales < 2

2 - 5

6 - 10

11 - 20

>20

< 2

2 - 5

6 - 10

11 - 20

>20

Close/Move

Next year (n=58)

17% 10% 31% 12% 9% 15% 2% 2% 0% 2% 0% 0%

Next 5 years (n=56)

11% 7% 21% 11% 14% 30% 0% 0% 0% 0% 2% 4%

D2. a) In 2002, did your location have sales outside of Canada? Yes 55% No 45%

(n=64)

b) If yes, what % of the total sales from your location were outside Canada? 50% Less than 20% 9% 41% to 60% 6% 81% to 99% 29% 20% to 40% 6% 61% to 80% 0% 100%

(n=34)

c) If your location has sales outside Canada, what is the main product exported? This was very company specific.

d) Which one country do most exports go to? Countries that participants export to include the U.S., Mexico, Pacific Rim, Germany, Mediterranean, and Caribbean.

e) If you have export sales, what % of the export sales from your location are to the U.S.? 12% Less than 20% 9% 41% to 60% 18% 81% to 99% 12% 20% to 40% 9% 61% to 80% 41% 100% (n=34) f) With respect to exports, what does your location plan to do in the next year and next 5 years?

Increase Export Sales by %

Decrease Export Sales by %

Start

Export-ing

< 2

2 - 5

6 - 10

11 - 20

>20

< 2

2 - 5

6 - 10

11 - 20

>20

Stop

Export -ing

Next year (n=22)

14% 9% 32% 14% 9% 9% 4% 0% 4% 4% 0% 0%

Next 5 years (n=22)

14% 9% 23% 0% 32% 18% 4% 0% 0% 0% 0% 0%


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D3. a) Do you currently import raw materials/inputs? Yes 41% No 59% (n=63)

b) If yes, what is the main raw product imported? This was very company specific.

c) What country do you primarily import from? The participants primarily import from the U.S. and Mexico.

d) What % of raw materials/inputs do you currently import (as a % of total input purchases)? 79% Less than 20% 0% 41% to 60% 0% 81% to 99% 12% 20% to 40% 4% 61% to 80% 4% 100% (n=24)

e) With respect to imports, what does your location plan to do in the next year and next 5 years?

Increase Imports by %

Decrease Imports by %

Start

Import-ing

< 2

2 - 5

6 - 10

11 - 20

>20

< 2

2 - 5

6 - 10

11 – 20

>20

Stop

Import-ing

Next year (n=9)

0% 33% 33% 11% 0% 11% 0% 11% 0% 0% 0% 0%

Next 5 years (n=9)

0% 22% 33% 0% 22% 11% 0% 0% 11% 0% 0% 0%

D4. Please check (T) the amount of capital invested for each of the following below:

< $25,000

$25,000 - $99,999

$100,000 - $249,999

$250,000 - $499,999

$500,000 -

$1 mil

> $1 mil i) Capital invested in facility in fiscal 2002 (no equipment) n=48

48% 23% 17% 4% 2% 6%

ii) Capital invested in equipment in fiscal 2002 n=47

32% 28% 17% 6% 11% 6%

iii) Capital upgrades in last 5 years n=55

25% 7% 22% 13% 7% 25%

iv) Capital upgrades to be made in next year n=53

38% 19% 13% 9% 7% 13%

v) Capital upgrades to be made in next 5 years. n=51

22% 14% 24% 10% 2% 29%

D5. a) What % of your facility’s products (in terms of sales) travel more than 300 miles?

40% Less than 20% 24% 41% to 60% 9% 81% to 99% 7% 20% to 40% 19% 61% to 80% 2% 100%

(n=58)


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b) What percentage of your total cost structure is distribution-related? 4% Less than 1% 31% 3% to 5% 20% 10% to 20% 16% 1% to 3% 29% 5% to 10% 0% Greater than 20% (n=45)

D6. Frequently operating credit is difficult to secure for many companies. Is this the case for your company? Yes 41% No 59% (n=59) D7. How long has it been since your company expanded or moved?

a) For expansion: Avg 1 Months (n=2) Avg 5.8 Years (n=31) b) For move: (n=0) Months Avg 12.7 Years (n=4)

D8. If there are specific problems with the facility i.e. structural, size, etc. that will need to be

addressed in the next 5 to 10 years please list them below.

1. i.e. general maintenance (wiring, roof, air circulation

2. i.e. increase in size to accommodate expansion; waste disposal system D9. What are the drivers behind your next investment project?

1. i.e. increase market share; government regulations; profitability; expansion

2. i.e. quality control issues; customer demands; automation D10. What are the uncertainties that your company faces with respect to future investment?

1. i.e. exchange rate; consolidation on retail side; cost of utilities

2. i.e. access to capital; retirement pending; trade/border issues with U.S. Future Indicators Most of the following are very company specific. E1. a) What new markets will your company seek out in the next year? n/a

b) In the next 2 to 5 years? n/a

c) In 5 years or more? n/a E2. a) What type of new products will your company explore in the next year? n/a


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c) In more than 5 years? n/a E3. a) What new technologies will your company adopt in the next year? n/a


c) In 5 years or more? n/a E4. What technologies or trends can be found in other parts of the world that you feel could be

investigated for possible application in Ontario? Please indicate below the trend and location. Responses included access to pesticides used in U.S.; training/technologies/education from Europe (i.e.packaging).

Additional Information F1. Who are your main competitors? (please also indicate where they are located)

a) Domestically Very company specific

b) Internationally Very company specific

F2. Is this facility owned by the company or rented? 95% Owned 5% Rented (n=57)

F3. With respect to the size of your current facility, in the next five to ten years what is likely

to happen? 49% Expand or increase facility size in the present location 46% Stay the same size 2% Decrease in size 3% Close or c lose current location and move to another location (n=62)


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F4. At which level(s) is your company inspected: (Numbers denote the number of responses received for each) 40 Federally 23 Provincially 6 Municipally

F5. Does your company have the following:

a) It’s own brand(s)? Yes 87% No 13% (n=60)

b) If yes, please provide example: c) Labeling? (i.e. showing nutritional information, manufacture date, ingredients, etc.) Yes 82% No 18% (n=45)

d) Private label(s)? Yes 52% No 48% (n=33)

F6. a) Do you co-pack for other businesses? Yes 37% No 63% (n=38)

b) If yes, where are they located?

c) Do other businesses co-pack for you? Yes 37% No 63% (n=35) d) If yes, where are they located?

e) Do you feel there are co-packing opportunities? Yes 37% No 63% (n=32) f) If yes, what are they?

F7. a) What are the annual sewage related costs incurred by your facility?

$ 365,869 Avg Min $300 Max $1.2 million (n=13)

b) Are the current sewage facilities of a sufficient size to accommodate future expansion or growth? Yes 73% No 27% (n=22)

F8. a) Do you have solid waste to dispose of? Yes 87% No 13% (n=47)

b) If yes, who is the contractor? (Please provide name) i.e. Rothsay, Erie Environmental, Darling, also some solid waste is taken back and spread in farm field c) What is the approximate annual cost of solid waste disposal? $41,790 Avg Min $800 Max $250,000 (n=15) d) Using 2002 as the reference year, will your solid waste increase in amount, decrease or remain the same in the next 5 to 10 years? Remain the same 37% Increase in amount: 19% up to 2% 9% 2% to 5% 13% 6% to 10% 0% 11% to 20% 12% >20% Decrease in amount: 9% up to 2% 0% 2% to 5% 0% 6% to 10% 0% 11% to 20% 0% >20%

(n=32)


83

F9. Please list the utilities (i.e. hydro, water, gas) that are used at your facility in order of total cost beginning with the utility which costs the most and the approximate annual cost for each.

1. Natural Gas $18,155,200 total (n=25) $726,208 Avg

2. Hydro $9,732,190 total (n=38) $256,110 Avg

F10. a) What is the approximate total annual amount of all raw ingredients purchased and all packing materials purchased?

<

$10,000

10,000 - 24,999

25,000 - 49,999

50,000 - 99,000

100,000-249,999

250,000-499,999

500,000-1 million

1 - 5

million

>$5

million Ingredients (n=47)

8% 6% 6% 4% 9% 2% 8% 25% 30%

Packaging (n=54)

18% 15% 7% 9% 15% 4% 2% 17% 13%

b) What is the name of your largest annual raw ingredient purchase? Company specific c) What is the name of your largest annual purchase of packaging material? Company specific

F11. What is your company’s vision for the future?

a) Short-term (less than 2 years) Most responses to this were very company specific but there tended to be a focus on meeting customer demands, producing quality products and growing the business.

b) Long-term (2 to 5 years) Many of the responses were again company specific but for a number of businesses they indicated plans for expansion of their businesses, new products, alliances and, for some, access to or growth in the U.S. market. F12. What is your vision for the future of the food industry? Responses varied widely. Some believe that further consolidation will occur in the industry. Others believe that people want to go back to a more natural way of life and the products in the future will reflect this i.e. healthful products. Others commented that the push for convenience, portion-packed food will continue. There will be a strong focus on food safety.

Thank you for your participation in the survey.


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For multinational subsidiaries only. 1. What is the mandate(s) of your company?

n/a 2. Currently, at what percentage capacity is this location operating? 76% Avg (n=4) 3. How are your sales at this location currently compared to 5 years ago?

Same 11% Higher 78% Lower 11% (n=9) 4. Is any outsourcing done (i.e. small runs done by other specialized companies)?

Yes 33% No 67% (n=9)

5. Is your company (globally) currently expanding or contracting? Yes 100% No 0% (n=7) If yes, by how much? n/a % of total current company sales


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A2.0 Analysis By Size of Company This section provides a summary based on the size of companies as determined by total sales in fiscal 2002. For the purpose of the analysis companies were considered “small” if they had sales of less than $250,000, “medium” if they had sales between $250,000 and $4,999,999 and “large” if they had $5 million or more in sales. Of the 63 that responded to this question 22% were identified as small, 38% were medium and 40% were large.

There were several differences that existed between the size categories that can best be described as a continuum with the small companies at one end, the large companies at the other end and the medium size companies in between. The following discussion will primarily focus on the small and large companies.

A2.1 Business Characteristics By Size of Company

The companies classified as small were mainly producers. These businesses tended not to have a written business plan or succession plan and less than one-half of them had strategic alliances with other industry players as shown in Table A2.1. The average number of years the small companies had been in their current location was 24.6 years. The large group was comprised mainly of processors. The average number of years the large companies had been in their current location was 45.6 years. The majority of these companies did have a written business plan and strategic alliances. It is interesting to note that none of the medium-sized companies had a written succession plan.

Table A2.1. Business Characteristics By Company Size Small Medium Large

(i) Years in location - Average 24.6 (n=14) 38.7 (n=24) 45.6 (n=25) (ii) Have written business plan 11% (n=9) 14% (n=21) 64% (n=25)

(iii) Have written succession plan 14% (n=14) 0% (n=21) 40% (n=20) (iv) Have strategic alliances 44% (n=9) 77% (n=22) 68% (n=25)

N = Number in sample A2.2 Labour Characteristics By Size of Company

Labour needs varied considerably between the large and small companies as shown in Table A2.2. In the small businesses often the owner was the only employee, however, additional labour needs could be supplemented by a few part-time or seasonal employees. These employees usually require little education or skills as the owner often trains them on the job. None of the small companies budgeted money for training purposes. In the large companies a variety of education and skills were required. Almost one -half of these respondents indicated that skilled labour in large businesses required a college diploma or higher as the minimum level of education. These companies also varied in the numbers of employees (i.e. from very few to several hundred) and they had different types of employees (i.e. full-time, part-time, seasonal, etc.). Some of these large companies set aside money for training each year. Eleven large companies indicated they currently have vacancies. Most of the vacant positions were in the skilled and professional labour groups


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as it takes a short length of time for these companies to fill their unskilled labour needs. More than 80% of those that indicated the length of time it takes to fill an unskilled labour position said it was less than one month. As the skill level increases, so does the length of time to fill a vacancy. Several large companies also expressed concern regarding an aging workforce. In fact, the age distribution shown in Table A2.2 indicates that 52% of the labour for these companies was 40 years of age or older. These companies are unsure how they can replace a large part of their labour within the next few years. One option many were considering was automation. The results for the medium-sized companies are similar with 50% reporting the average age was 40 years of age or older. Differences in average starting wages between the small and large companies were reported. The average for unskilled labour in small companies was $9.28/hr and for large companies it was $11.68/hr. The medium-sized companies reported an average starting wage for unskilled labour of $7.94/hr, lower than both the small and large companies.

Table A2.2. Labour Characteristics By Company Size Small Medium Large

(i) Average Number of:

- Full-time Employees 1 (n=7) 7 (n=23) 150 (n=25)

- Seasonal Employees 7 (n=6) 13 (n=7) 179 (n=13)

- Foreign Workers NA 14 (n=5) 56 (n=7)

(ii) Minimum education level

- Unskilled Labour - Less Than High School Completed 100% (n=7) 86% (n=22) 59% (n=22)

(iii) No Money Budgeted for Training

- Unskilled Labour 100% (n=4) 75% (n=12) 67% (n=21)

- Skilled Labour 100% (n=2) 37% (n=8) 50% (n=22)

(iv) Age Distribution

Less than 30 years old NA 29% (n=17) 15% (n=16)

30 to 39 21% 33%

40 to 49 24% 42%

50 years of age or greater 26% 10%

(v) Average Starting Wage

- Unskilled Labour $9.28/hr (n=8) $7.94/hr (n=20) $11.68/hr (n=23)

- Skilled Labour NA $12.14/hr (n=13) $18.60/hr (n=20) N = Number in sample; NA – not sufficient data to report

In summary, there were many differences between small and large businesses with respect to labour. Small businesses tended to be operated by the owner with few or no additional employees, no money budgeted for training, and the average starting wage was lower relative to the large businesses.

A2.3 Business Situation By Size of Company

Survey participants were asked to identify the competitive advantages and disadvantages that existed for them in their locations. This is shown in Table A2.3. There were some similarities between all sizes of companies. They all believed being close to their markets


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was beneficial. Government regulations were a common disadvantage. Some companies, both large and small, indicated that there were a number of regulations that seemed to be coming out at once (i.e. nutrient management, nutritional labeling, etc.) and it was difficult to keep up with them and they were unsure what the costs would be for them to comply. Others stressed the idea of a level playing field and stated that while they were required to meet certain standards within their industry other countries were allowed to export product to Canada that was not subjected to the same criteria. Small companies found it more difficult to access raw materials. Some cited weather as a reason while others said it was difficult to get particular materials that they required due to their size. Large companies indicated it was difficult at times to access skilled labour. Part of this might have been due to competition from other industries or the seasonality of some of the businesses. Future infrastructure needs were similar across all sizes of companies (i.e. municipal water, natural gas, waste treatment).

Table A2.3. Business Situation By Size of Company Small Medium Large


1) 2)

Proximity to domestic market Infrastructure

Proximity to domestic market Access raw materials

Proximity to U.S. market Access raw materials


1) 2)

Government regulations Access to raw materials

Government regulations Taxes

Government regulations Access to skilled labour

(iii) Infrastructure needs (Top 2 Responses)

1) 2)

Municipal water Natural gas

Municipal water Natural gas

Waste treatment Municipal water

In summary, companies find it beneficial to be located close to their market and raw materials regardless of size.

A2.4 Future Plans By Size of Company

Investment in these companies during the past 5 years has varied, as one would expect, depending on the size of the company as shown in the following graph. The large companies were often able to invest more heavily in order to upgrade and expand their businesses as required. Several of the small companies in particular noted that it was difficult for them to access financing and they have often had to finance their business through personal loans or lines of credit or through other enterprises (i.e. a farm). The following graph shows the distribution of responses within each company size category. For example, more than 60% of the responses from the small companies that participated invested less than $25,000 each during the last 5 years. On the other hand, approximately 80% of the responses from the large companies indicated that these companies had each invested more than $500,000 during the last 5 years.


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Figure A2.1. Levels of Investment Per Participant By Company Size During the Last 5 Years

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The future for most companies in the survey is very optimistic. The majority of all respondents plan to increase their sales in the next 5 years. The level of investment the participants plan to undertake will, of course, be different depending on the size of the company as shown in Figure A2.2 below. The large companies plan an aggressive course with 68% of them planning to invest more than $500,000 each over the next 5 years. This is important as it represents 15 companies that plan to invest heavily in the food industry. Most of the small companies plan to be cautious and 3 plan to invest between $25,000 and $500,000 each. This is a wide range for the small company category and further investigation revealed that there is no investment greater than $100,000 planned by these companies. Figure A2.2. Levels of Investment Per Participant By Company Size During the Next 5 Years

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With respect to the future, small companies indicated that they plan to focus on value-added products and niche markets that they have been developing or plan to develop. The medium-sized companies feel caught in between the small and large companies. They are sufficiently large that they have considerable sales however they are being shut out of chain stores because they are not “large enough” to supply the chain stores which are trending toward one or two national brands and private label products. The survey participants in this category reported that they plan to focus on innovative packaging ideas and unique products. Many of the large companies are concerned about consolidation that is occurring and the impact it may have on their company. Some of this group of participants indicated that they plan to increase efficiency within their processing facility; others are planning to focus on convenience products or particular niche markets. In summary, there are some differences that exist between various sizes of companies. Small companies tend to not have some business tools such as written business plans or succession plans that the large companies often have. Advantages and disadvantages relating to the location of businesses were similar regardless of size. Proximity to the domestic market and the U.S. were key advantages. It is likely that the large companies will invest heavily in capital upgrades in the future.


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APPENDIX 3 MIDDLESEX COUNTY ANALYSIS


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A3.0 Middlesex County Analysis A3.1 Statistical Review

The following graph depicts the number of food manufacturing establishments and number of production employees between 1992 and 1999. The number of establishments grew by 24% over this time period while the number of employees in 1999 was down 3.5% from 1992. The number of production employees per establishment was 99.8 in 1992 and fell to 77.5 in 1999. This number was calculated by dividing the number of establishments by the number of production employees. The total value of shipments or sales from this region grew from $1.06 billion in 1992 to $1.39 billion in 1999.

Figure A3.1. Food Manufacturing Statistics Over Time

Source: Statistics Canada, special request A3.2 Business Characteristics

The following table shows that one-half of the businesses that participated in the food survey in Middlesex County were primary manufacturers followed by retailers who represented 18% of the participants. Many of these firms (i.e. 80%) reported that they were private companies. The survey asked each business to indicate how long they had been in their current location. The average length of time reported was 34 years.

Table A3.1. Business Characteristics Results N (i) Supply Chain Segment (Top 2 Responses) 50% primary manufacturers 16 18% retailers (ii) Private Ownership 80% privately owned 15 (iii) Average Number of Years in Current Location 34 years Avg 18


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A3.3 Product Characteristics Table A3.2 below shows product characteristics for survey participants in Middlesex County. Each firm was asked to indicate which sector of the food industry their company best fit. The sector that received the highest number of responses was grains and oilseeds with nearly one-quarter of the participants indicating they were in this sector. Each business was asked to indicate what stage of the product life cycle their main product (i.e. defined in terms of total sales) was at. 75% reported that their main product was considered mature and the remaining 25% of participants believed their main product was in the growth stage. Many of the businesses in this area indicated that they export product outside of Canada (i.e. 65%). Of those that export, one-half of the respondents indicated that their exports represent more than 20% of their total sales.

Table A3.2. Product Characteristics Results N (i) Sector Segment (Top Response) 24% grains/oilseeds 17 (ii) Main Product – Stage of Product Life Cycle 75% of main products are mature 12 25% of main products are in growth stage (iii) % That Export 65% export product 17 (iv) Exports as % of Total Sales 50% have export sales that are more than

20% of total sales 10


A3.4 Labour Characteristics

The following table displays results regarding labour employed by the survey participants in Middlesex County. Each business was asked to report the number of employees that worked in the business during the year for different categories (i.e. full-time, seasonal, etc.). The number of employees for each category varied between businesses and not all businesses had each type of labour. The average number of full- time employees reported by the respondents was 92, for seasonal labour the average was 7, and part-time employees averaged 12 across the responding businesses. Each business was also asked to indicate the age distribution of their year-round work force. A small number of companies provided this information. The highlight is that 40% of the labour accounted for by this small group of companies was less than 30 years old. It is possible that the ability to draw on a large population base (i.e. London) has contributed to the large percentage of young people working in these companies. It is important to note that some survey participants were located in London. The survey asked participating businesses to report the average starting wage for unskilled labour. The average reported by the respondents was $10.57 per hour.


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Table A3.3. Labour Characteristics Results N (i) Average Number Employees Full-time 92 Avg 16

Seasonal 7 Avg 5

Part-time 12 Avg 10

(ii) Age Distribution 7

Less than 30 years old 40%

30 to 39 26%

40 to 49 13%

50 years of age or greater 21%

(iii) Average Wage For Unskilled Labour $10.57/hr Avg 11 N = Number in sample

A3.5 Business Situation

Each survey participant in Middlesex County was asked to indicate the main advantages and disadvantages that exist for them in their current location. Table A3.4 below provides insight into the responses. The main advantages reported include proximity to the domestic market and the U.S.. Being close to their customers is an important factor. For some companies their customers are within the county or region while others have customers in the U.S.. As noted above, 65% of the participants export product and being close to the U.S. will certainly be an advantage. Other advantages that were reported include infrastructure (i.e. roads, natural gas, hydro, water) and access to raw materials. The two main disadvantages reported by this group of companies include infrastructure and government regulations. It is interesting to note that infrastructure scored as an advantage for some and a disadvantage for others. This depends on the quality and level of municipal services provided at each business location. Reference to government regulations reflects concerns about the number of new regulations being introduced (i.e. nutrient management, nutritional labeling, etc.), the resulting time it takes to understand them and the cost it may take to comply. Other disadvantages worth mentioning include labour costs and taxes. Some businesses expressed concern regarding recent changes to the classificatio n of their business for tax purposes (i.e. from agricultural to commercial). Each participant was asked to identify infrastructure needs that their company would like addressed in the next 5 to 10 years. Six companies reported things they would like to see occur. The top 2 responses included access to municipal water and consistency in hydro supply. Other items included waste/sewer disposal and availability of natural gas.


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Table A3.4. Business Situation Results N

(i) Advantages (Top 2 Responses) 22% Proximity to domestic market 37 19% Proximity to U.S. (ii) Disadvantages (Top 2 Responses) 21% Infrastructure 38 18% Government regulations (iii) Future Infrastructure Needs 1) Municipal water 6 (Top 2 Responses) 2) Consistent hydro supply

N = Number in sample A3.6 Future Plans

The survey asked each business to identify their level of sales for fiscal 2002. There were a wide variety of sizes included in the group as indicated in Table A3.5 below. 24% had sales less than $250,000 and were considered small whereas 41% had sales of $5 million or greater. These companies were considered large. Of the total group, 83% expect that their sales will increase during the next 5 years and several are planning to invest in capital upgrades. In fact, 29% of the participants plan to invest $500,000 or more during the next 5 years. There may be some factors, however, which could limit this investment. The top 3 concerns regarding future investment include the availability of capital, consolidation and availability of raw materials. Availability of capital is an issue for companies both large and small. Large companies indicated they sometimes have to compete with other company locations for head office allocation of investment funds. Several small companies reported that the owner had to use a personal line of credit or obtain a personal loan to finance the growth of their business.

Table A3.5. Future Plans Results N (i) Existing Sales 17 % Less than $250,000 24% % $5 million or greater 41% (ii) % to Increase Sales in Next 5 Years 81% 16 (iii) Investment in Next 5 Years 17

% Less than $25,000 24% % $500,000 or greater 29%

(iv) Issues (Top 3 Responses) 1) Availability of capital

2) Consolidation in industry

3) Availability of raw materials



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A3.7 Summary

One half of the survey participants in Middlesex County were primary manufacturers. When asked what sector of the food industry each business best belonged 24% indicated the grains and oilseeds sector. Three quarters of the respondents indicated their main products were mature. 65% of the respondents indicated that they export product and of those that do export, one-half said their exports represented more than 20% of their total sales. The labour force depicted in the results shows 40% of the labour being less than 30 years of age. This may be a result of being able to draw on a large population found within London or due to the fact that few companies provided this information. The key advantages of being located in Middlesex County identified by the participants are proximity to the domestic market and the U.S.. 41% of the companies interviewed in this region had $5 million or more in sales in fiscal 2002 and 81% of all respondents plan to increase sales in the next 5 years. There is likely to be some significant investment in the industry as 29% of the respondents indicated they plan to spend $500,000 or more in capital upgrades in the next 5 years.

A3.8 Recommendations for M iddlesex County

• The urban London market should be capitalized upon by promoting agri-tourism and assisting some operations to develop value-added farm products that are attractive to urban consumers (e.g. specialty meats). The urban London market may be sufficiently large to support some organic crop production and processing. Opportunities for supplying food (e.g. specialty meats, ice cream, etc.) at entertainment venues, such as sporting events, should be explored.

• Food use soybean production should be encouraged (i.e. 175,150 acres grown in

2002), as well as vegetable production on land capable of growing these higher valued crops.

• The main barriers in this area have been identified as availability of capital,

availability of raw materials and infrastructure.


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APPENDIX 4 SARNIA-LAMBTON ANALYSIS


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A4.0 Sarnia-Lambton Analysis A4.1 Statistical Review

The graph below shows the number of food manufacturing establishments and number of production employees from 1992 to 1999 in Sarnia-Lambton. The number of establishments has increased during this time by 44% while the number of production employees has decreased by 28.7%. The average number of production employees per establishment decreased from 15.9 in 1992 to 7.8 in 1999. This number was calculated by dividing the number of establishments by the number of production employees. Total sales from these companies increased from $41.5 million in 1992 to $45.8 million in 1999.

Figure A.4.1. Food Manufacturing Statistics Over Time


Survey participants in Sarnia -Lambton were asked to identify which segment of the supply chain they believed their company best fit. Table A4.1 shows that more than one-half indicated they were producers and most indicated that they add value to their products on their farm. The next largest group of participants was primary manufacturers who buy or use inputs from the farm. Most of the participants in Sarnia-Lambton (i.e. 91%) reported that they were privately owned businesses. Each survey participant was asked how long the business had been in the current location. The average reported by the group was 37 years.

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Table A4.1. Business Characteristics Results N

(i) Supply Chain Segment (Top 2 Res ponses) 58% producers 12 17% primary manufacturers (ii) Private Ownership 91% privately owned 11 (iii) Average Number Years in Current Location 37 years Avg 11

N = Number in sample A4.3 Product Characteristics

Table A4.2 below shows product characteristics of the Sarnia-Lambton participants. Each firm was asked to identify which sector of the food industry they best fit. One-half indicated the fruits and vegetables sector. One half of the main products accounted for in the survey were in the mature stage of the product life cycle and one-third were in the growth stage. 44% of the respondents indicated they export product and of those that export, 75% reported that their exports represented more than 20% of their total company sales.

Table A4.2. Product Characteristics Results N (i) Sector Segment (Top Response) 50% fruits/vegetables 12 (ii) Main Product – Stage of Product Life Cycle 50% of main products are mature 6 33% of main products are in growth stage (iii) % That Export 44% export product 9 (iv) Exports as % of Total Sales 75% report that exports represent more

than 20% of total sales 4

N = Number in sample A4.4 Labour Characteristics

Table A4.3 located below shows particular labour characteristics of the survey participants in Sarnia-Lambton. Each business was asked to report the number of employees that worked for them by category (i.e. full-time, seasonal, etc.). The number of employees varied between businesses and not all participants had each category of worker. The average number of full- time employees reported was 5, for those that had seasonal employees, the average was 13 and part-time workers averaged 5. Each firm was also asked to provide information regarding the age of their year-round employees. Interestingly, the results in the table below show that 70% of the labour accounted for was 40 years of age or older. This information is not surprising given that an earlier section indicated that Lambton County has a slightly older population, still some caution must be exercised as these results are from a small group of businesses. It is important to consider, however, that some of these firms are family businesses and there was concern voiced by some about who will take over the business when the owner wishes to retire.


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The participants were asked to report the average starting wage for unskilled labour. The average reported by the respondents in Sarnia -Lambton was $7.49 per hour.

Table A4.3. Labour Characteristics Results N (i) Average Number Employees Full-time 5 Avg 9 Seasonal 13 Avg 4 Part-time 5 Avg 5 (ii) Age Distribution 7 Less than 30 years old 15% 30 to 39 15% 40 to 49 44% 50 years of age or greater 26% (iii) Average Wage For Unskilled Labour $7.49/hr Avg 7

N = Number in sample A4.5 Business Situation

Each survey participant in Sarnia-Lambton was asked to indicate the main advantages and disadvantages they believe exist in their current location. The results are displayed in Table A4.4. The top 2 advantages reported by this group were proximity to the domestic market and the U.S.. Being located so close to the U.S. provides market opportunities for some companies as indicated above. Other advantages reported include infrastructure (i.e. roads, natural gas, hydro, water) and access to raw materials. The 2 main disadvantages reported include government regulations and access to skilled labour. With respect to government regulations some concern was expressed regarding the number of new regulations that food businesses are faced with (i.e. nutrient management, nutritional labeling, etc.) and the time it takes to understand them. The cost to comply with new regulations was also a concern. Access to skilled labour reflects the desire by some businesses to access individuals with an agricultural background and knowledge of machinery. One other disadvantage reported by small businesses in particular was availability of capital. These respondents indicated it was difficult for them to obtain small business loans and they have had to seek personal loans in the past to finance their business. Six companies indicated there were infrastructure needs they would like addressed in the next 5 to 10 years. The top 2 responses were road maintenance and availability of natural gas.

Table A4.4. Business Situation Results N (i) Advantages (Top 2 Responses) 20% proximity to domestic market 25 16% proximity to U.S. (ii) Disadvantages (Top 2 Responses) 18% government regulations 17 18% access to skilled labour (iii) Future Infrastructure Needs 1) Road maintenance 6 (Top 2 Responses) 2) Natural gas



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A4.6 Future Plans

The survey asked participating businesses to indicate the sales from their location for fiscal 2002. Table A4.5 below shows that 40% of the respondents had less than $250,000 in sales and are considered small. Those that had $5 million or more in sales represented 10% of the group of Sarnia-Lambton businesses. 78% of respondents plan to increase their sales in the next 5 years, however, investment in the food industry by this group is likely to be minimal. 43% of the respondents indicated they plan to invest less than $25,000 over the next 5 years in capital upgrades. Part of this is due to several companies being small in terms of sales. There were some concerns that were expressed by the participants regarding future investment in the industry. The top concern was movement of the exchange rate. The increase in the Canad ian dollar and the speed with which it moved during the spring of 2003 was a concern expressed by some participants. They indicated that future investment could depend on what level the dollar stabilized at.

Table A4.5. Future Plans Results N (i) Existing Sales 10 % Less than $250,000 40% % $5 million or greater 10% (ii) % to Increase Sales in Next 5 Years 78% 9 (iii) Investment in Next 5 Years 7 % Less than $25,000 43% % $500,000 or greater 14%

(iv) Issues (Top Response) 1) Exchange rate N = Number in sample

A4.7 Summary

Slightly more than one-half (i.e. 58%) of the food businesses interviewed in Sarnia-Lambton consider themselves to be producers. Many of them add value to their products on the farm. One-half of the respondents indicated their business best fit in the fruits and vegetables sector of the food industry. 44% of the respondents reported that they export product and of those that do export, 75% indicated that exports represent more than 20% of the ir total company sales. Labour statistics obtained from some of the participants indicated that 70% of the labour accounted for is 40 years of age or older. This group of businesses believe that being close to the domestic market and the U.S. are the main advantages of locating in this area. Many of the companies surveyed were small with 40% indicating their total sales in fiscal 2002 were less than $250,000 and there is little capital investment planned by the participants for the next 5 years.


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A4.8 Recommendations for Sarnia-Lambton • Value-added fresh vegetable marketing (e.g. sweet corn, potatoes, beans, and

onions) and agri-tourism (e.g. organized farm markets) should be encouraged in the Grand Bend area. Other products worthy of exploration are barbecue meats, fresh fruit and baked goods.

• All efforts should be focused on trying to attract a food grade soybean processor

to the area. Given the abundance of the crop grown in the county (278,950 acres in 2002 - the largest in the province) and the proximity to U.S. markets, this investment opportunity would add tremendous value to the county. Also, the industrial use of soybeans and corn should be strongly encouraged.

• The main barriers identified in this area are access to skilled labour (such as

agr icultural background, machinery know-how) and the exchange rate.


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APPENDIX 5 CHATHAM-KENT ANALYSIS


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A5.0 Chatham-Kent Analysis

A5.1 Statistical Review

The following graph shows the number of establishments and production employees over time for Chatha m-Kent. The number of establishments has decreased by 21% from 1992 to 1999 and production employees by 17.8%. When considering the number of employees per establishment the average has increased slightly from 70.1 in 1992 to 73 in 1999. This was calculated by dividing the number of establishments by the number of production employees. Food manufacturing businesses in Chatham-Kent reported total shipments (i.e. sales) in 1992 of $275.6 million and this increased to $285.9 million in 1999. Figure A5.1. Food Manufacturing Statistics Over Time


Each participant was asked to identify which segment of the supply chain they believed their business best fit. 40% of the Chatham-Kent group reported that they are producers, many of whom add value to their products on the farm, followed closely by primary manufacturers representing 35% of the group as shown in the table below. Most of the participants in this area (i.e. 89% of the participants) indicated that they are privately owned companies. The survey instrument asked each firm how long they had been in their current location. The average reported by the group was 32 years.

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Table A5.1. Business Characteristics Results N

(i) Supply Chain Segment (Top 2 Responses) 40% producers 20 35% primary manufacturers (ii) Private Ownership 89% privately owned 19 (iii) Average Number Years in Current Location 32 years Avg 20

N = Number in sample A5.3 Product Characteristics

Table A5.2 below depicts information relating to the product characteristics of the survey participants in Chatham-Kent. The survey asked each participant to indicate which sector of the food industry they best fit. The top response was the fruits and vegetables sector with 48% of participants reporting this. One-half of the main products recorded in the survey are in the mature stage of the product life cycle and another 44% are in the growth stage. One-half of the respondents in Chatham-Kent reported that they export product and of those that export, 20% reported that exports represent more than 20% of their total company sales.

Table A5.2. Product Characteristics Results N

(i) Sector Segment (Top Response) 48% fruits/vegetables 21 (ii) Main Product – Stage of Product Life Cycle 50% of main products are mature 16 44% of main products are in growth stage (iii) % That Export 50% export product 20 (iv) Exports as % of Total Sales 20% report that greater than 20% of total

sales are exported 10


The following table shows results relating to labour employed by the survey participants in Chatham-Kent. Each participant was asked to report the number of employees by category (i.e. full-time, seasonal, foreign workers, etc.). It is important to note that not all businesses had each category of labour and the number of employees within each business varied greatly. The average number of full-time employees accounted for in the survey for this area was 40, the average number of seasonal employees was 34, and foreign workers averaged 28. Each business was asked to provide information regarding the age of their year-round workforce. The age distribution provided by the participants indicates that 56% of the labour accounted for in the survey was 40 years of age or older. This is not surprising given that an earlier section reported that Chatham-Kent has a slightly older population. Survey participants were asked to report the average hourly wage for unskilled workers. The average reported by the respondents was $8.87 per hour.


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Table A5.3. Labour Characteristics Results N

(i) Average Number Employees Full-time 40 Avg 19 Seasonal 34 Avg 11 Foreign Workers 28 Avg 7 (ii) Age Distribution 16 Less than 30 years old 19% 30 to 39 24% 40 to 49 32% 50 years of age or greater 24% (iii) Average Wage For Unskilled Labour $8.87/hr Avg 18


The survey asked participants to identify the main advantages and disadvantages that exist for them in their current location. The top 2 advantages reported by Chatham-Kent participants were proximity to the domestic market and access to raw materials as shown in Table A5.4. Being close to their market and having access to abundant raw materials are important considerations for these companies being located in this area. Other advantages include infrastructure (i.e. roads, natural gas, water, hydro) and proximity to the U.S.. The 2 main disadvantages reported by the group were government regulations and taxes. There was concern expressed by some about the number of new government regulations that were coming out (i.e. nutritional labeling, nutrient management, etc.), the time it takes to understand how it will affect each business and the cost to comply. One other noteworthy disadvantage reported by the group was the work productivity of local people. Some concern was expressed regarding the motivation and work ethics of local people and the effect that had on work productivity. Each participant was asked to identify future infrastructure needs they would like to see addressed in the next few years. Of the 7 that believed there were issues, the top 2 needs were availability of municipal water and consistency in hydro supply. It is important to realize that the survey interviews took place prior to the power outage that occurred in August 2003 yet the supply of hydro was already viewed as a concern.

Table A5.4. Business Situation Results N (i) Advantages (Top 2 Responses) 22% proximity to domestic market 46 20% access to raw materials (ii) Disadvantages (Top 2 Responses) 21% government regulations 38 16% taxes (iii) Future Infrastructure Needs 1) Municipal water 7 (Top 2 Responses) 2) Consistent hydro supply



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A5.6 Future Plans

The survey participants were asked to provide information regarding sales from their location for fiscal 2002. Of those that responded, 17% reported sales of less than $250,000 and these companies are considered to be small. This is shown in Table A5.5. 33% of the group reported they had sales of $5 million or more and they are considered large. This group of businesses is quite optimistic about the future of the industry and their business in particular, as 88% indicated that they plan to see their sales increase in the next 5 years. With respect to investment in the industry, 18% plan to invest less than $25,000 each during the next 5 years. This is minimal investment. There is, however, another 18% that plan to invest $500,000 each or more. The majority of the participants in this group plan to invest between $25,000 and $500,000 each over the next 5 years. Some issues of concern that may limit this investment include availability of capital, movement of the exchange rate and retirement plans. Availability of capital was a concern for both large and small companies. Large companies indicated they have to compete with other company locations for head office investment allocation while small companies reported that obtaining small business loans is difficult. There were two firms that indicated they plan to retire in the foreseeable future and there is less incentive to invest in their businesses if they will be sold or closed.

Table A5.5. Future Plans Results N (i) Existing Sales 18 % Less than $250,000 17% % $5 million or greater 33% (ii) % to Increase Sales in Next 5 Years 88% 17 (iii) Investment in Next 5 Years 17 % Less than $25,000 18%

% $500,000 or greater 18% (iv) Issues (Top 3 Responses) 1) Availability of capital 2) Exchange rate 3) Retirement

N = Number in sample A5.7 Summary

Of the group of food businesses interviewed in Chatham-Kent 40% consider themselves to be producers, many of whom add value to food products on the farm. 48% reported that their company best fit in the fruits and vegetables sector of the food industry. One-half of the respondents indicated that they export product but for this group the exports represented only a small portion of their total sales. The survey results indicated that 56% of the labour force accounted for was 40 years of age or older. This is not surprising given that Chatham-Kent has a slightly old er population. The survey participants indicated that proximity to the domestic market and access to raw materials are the main advantages for locating in the area. One-half of the respondents were considered medium in size as they had total sales in fiscal 2002 between $250,000 and $5 million. 88% of all


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respondents plan to increase their sales in the next 5 years and 18% plan to invest $500,000 each or more in capital upgrades during the same time frame.

A5.8 Recommendations for Chatham-Kent

• Value-added farm marketing should be further developed in the Blenheim area in order to take advantage of the wide variety of fruit available there. This area could be promoted as an ideal spot for pick-your-own and the complete farm experience (e.g. wagon rides, corn mazes, etc.).


The production of vegetables is a good match with the county’s natural soil types and human resource capabilities. Efforts should be directed towards ensur ing that existing plants are profitable and that plants that want to expand have access to the necessary infrastructure (i.e. roads, water, hydro, and waste disposal) at competitive prices.

• The main barriers in this area have been identified as availability of capital, taxes,

and the exchange rate.


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APPENDIX 6 WINDSOR-ESSEX ANALYSIS


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A6.0 Windsor-Essex Analysis A6.1 Statistical Review

The graph below depicts the number of food manufacturing establishments and production employees in Windsor-Essex between 1992 and 1999. The number of production employees has decreased by 17% from 1992 to 1999. These firms are utilizing fewer employees over time. The number of production employees per establishment decreased from 64.8 in 1992 to 52.4 in 1999. This number was calculated by dividing the number of establishments by the number of production employees. The total shipments from this group of companies grew from $1.1 billion in 1992 to nearly $1.2 billion in 1999.

Figure A6.1. Food Manufacturing Statistics Over Time


The group of businesses surveyed in the Windsor-Essex area was made up mostly of primary manufacturers and producers as shown in Table A6.1. 92% of the businesses indicated that they were privately owned. Each business was asked how long they had been in their current location. The average length of time reported was 43 years.

Table A6.1. Business Characteristics Results N (i) Supply Chain Segment (Top 2 Responses) 59% primary manufacturers 17 12% producers (ii) Private Ownership 92% privately owned 12 (iii) Average Number Years in Current Location 43 years Avg 17


28

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A6.3 Product Characteristics

Table A6.2 below shows product characteristics for the businesses that participated in the survey in Windsor-Essex. When asked what sector of the food industry each business best fit, 41% indicated the fruits and vegetables sector. Two-thirds of participants in the Windsor-Essex area indicated that they believe their main products are in the growth stage of the product life cycle. The remaining one -third reported that their main products are in the mature stage. 59% of the participants reported that they export product. Of those that export, 70% indicated that export sales represent more than 20% of their total company sales.

Table A6.2. Product Characteristics Results N (i) Sector Segment (Top Response) 41% fruits/vegetables 17 (ii) Main Product – Stage of Product Life Cycle 67% of main products are in growth stage 15 33% of main products are mature (iii) % That Export 59% 17 (iv) Exports as % of Total Sales 70% reported that more than 20% of total

sales are exported 10


Table A6.3 shows survey results relating to labour. Each participant was asked to report the number of employees that would typically work for the company during the year by category (i.e. full- time, seasonal, foreign workers, etc.). The numbers varied considerably from business to business and not all businesses had each category of worker. The average reported for full-time labour responses was 111 employees, the seasonal worker average was 252 and the average for foreign workers was 45. Some companies indicated the y have an aging workforce. Each participant was asked to provide the distribution of their year-round workforce. The results show that 40% of the labour was 40 years of age or older. It is difficult to conclude that this is representative of the group of participants for this area given that only 8 firms provided this information. There were some firms that expressed concern regarding their aging workforce but they did not provide the age distribution. It is possible that with the additional age information, the 40 years and older percentage might be higher. Each participant was asked to indicate the average hourly starting wage for unskilled workers. Although this wage varied from business to business, the average reported was $11.27 per hour.


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Table A6.3. Labour Characteristics Results N

(i) Average Number Employees Full-time 111 Avg 15 Seasonal 252 Avg 8 Foreign Workers 45 Avg 4 (ii) Age Distribution 8 Less than 30 years old 18% 30 to 39 42% 40 to 49 35% 50 years of age or greater 5% (iii) Average Wage For Unskilled Labour $11.27/hr Avg 15


The survey asked each participant to indicate the main advantages and disadvantages they believe exist in their current location. The top 2 advantages reported, as shown in the following table, were access to raw materials and proximity to the U.S.. These advantages seem logical given the abundant raw materials (i.e. vegetables, fruit, meat, etc.) that exist in the area as well as being so close to the U.S. market. Recall that 59% of the respondents export product. The third advantage listed was proximity to the domestic market. The top 2 disadvantages reported were government regulations and proximity to domestic market. It is interesting to note that proximity to domestic market was a disadvantage for some businesses and an advantage for others. This will depend on where a company considers its’ domestic market to be, where competitors are located in relation to the market and so on. Government regulations reflect concern by some regarding the introduction of new regulations (i.e. nutritional labeling, etc.), the time it takes to understand them as well as the cost to the businesses to comply. One other disadvantage that was reported by several participants was access to skilled labour. Part of this reflects competition for labour that exists in the area with other industries, particularly the automotive industry in Windsor. Participant s were asked if there were infrastructure needs they would like to see addressed in the next few years. Of the 8 that had concerns, most of the focus was on availability and quality of municipal water and road maintenance.

Table A6.4. Business Situation Results N (i) Advantages (Top 2 Responses) 25% access to raw materials 40 20% proximity to U.S.

(ii) Disadvantages (Top 2 Responses) 18% government regulations 34 15% proximity to domestic market (iii) Future Infrastructure Needs 1) Municipal water 8 (Top 2 Responses) 2) Road maintenance



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A6.6 Future Plans

Survey participants were asked about sales from their location for fiscal 2002. 12% of the respondents reported they had less than $250,000 in sales. This is shown in Table A6.5. On the other hand, 65% of respondents indicated they had sales of $5 million or greater. This region had a number of companies that had a significant volume of sales. The future of the food companies in Windsor-Essex appears optimistic as 86% of the group of respondents indicated they expect their sales to increase in the next 5 years. To support this there will be significant investment in the industry. In fact, 60% of the respondents indicated they plan to invest $500,000 or more in capital upgrades in the next 5 years. Some issues were brought to light that may impact on this future investment. These issues include waste treatment, movement of the exchange rate and availability of capital. Waste treatment reflects concern by some participants about the impact of the nutrient management regulations on their businesses. Availability of capital is a concern particularly for those firms that are more seasonal in nature.

Table A6.5. Future Plans Results N (i) Existing Sales 17 % Less than $250,000 12% % $5 million or greater 65% (ii) % to Increase Sales in Next 5 Years 86% 14 (iii) Investment in Next 5 Years 10 % Less than $25,000 10% % $500,000 or greater 60% (iv) Issues (Top 3 Responses) 1) Waste treatment

2) Exchange rate

3) Availability of capital N = Number in sample

A6.7 Summary

Of the food businesses surveyed in the Windsor-Essex area 59% indicated they were primary manufacturers who buy or use inputs from the farm. 41% reported that their business best fit in the fruits and vegetables sector of the food industry. 59% of the respondents indicated that they export product and of those that do export, 70% reported that their exports represent more than 20% of their total company sales. This group of businesses indicated that access to raw materials and proximity to the U.S. were advantages of being located in this area. Many of the companies interviewed can be considered large. In fact, 65% reported they had total sales from their location for fiscal 2002 of $5 million or greater. 86% of the respondents expect their sales to increase in the next 5 years and 60% of the respondents plan to invest $500,000 or more in capital upgrades in this time frame.


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A6.8 Recommendations for Windsor-Essex • An expansion of agri-tourism and value-added farm marketing is recommended.

For example, farms and food companies located along the wine route could offer some of the unique farm products grown in the area (e.g. fruits, vegetables, baked goods, salsa). The City of Windsor is home to many ethnic groups that prefer foods different from traditional Canadian foodstuffs. These market segments should be explored fully.

• Vegetable processing should be encouraged and promoted in the area. Many

different vegetable crops that are higher in value than corn, soybeans and wheat can be grown in the region. Significant volumes of vegetables are currently imported into the county from around the world (e.g. carrots from Israel), which may present opportunities for local growers.

• The main barriers in this area have been identified as waste treatment, availability

of capital and the exchange rate


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APPENDIX 7 INFORMATION SOURCES AND REFERENCES


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2001 Food & Consumer Products Industry Profile - ACreating Growth Beyond Expectations@, Canadian Council of Grocery Distributors. 2000 ARIO Food Program Review. Food Research Program (2000 - 2004) 2003 U.S. Food and Agribusiness Outlook, Rabobank International and Sparks Companies Inc.. American Frozen Food Institute, www.affi.com Benchmarking For Success 2002, Deloitte & Touche, 2002. California League of Food Processors, www.clfp.com Canadian Business Patterns, http://80tdr.uoguelph.ca.cerebus.lib.uoguelph.ca/DATA/FINANCE/CBP/cbp.html Coltrain, D, D. Barton, M. Boland. 2000. Value Added: Opportunities and Strategies. Arthur Capper Cooperative Center, Kansas State University. Employed Labour Force by Industry, Ontario and Canada, Annual Averages, 2002 (>000s) http://www.gov.on.ca/OMAFRA/english/stats/food/labforce02.html Food and drink: Food industry overview, Industry trends, UK, April 2, 2003 http://www.prospects.ac.uk/ Food in Canada magazine. May 2002. Ready for the future. Francoise Pitt. Rogers Publishing, Toronto, Ontario. pp 26-29 Food Industry Outlook - A Study of Food Industry Growth Trends in Toronto, WCM Consulting Inc., August 2002. GDP by Manufacturing Industries, Ontario, 2001 http://www.gov.on.ca/OMAFRA/english/stats/food/allmanufacturing.html Harris, J.M., Kaufman, P., Martinez, S., and Price, C., AThe U.S. Food Marketing System, 2002", Economic Research Service, U.S. Department of Agriculture. Jelen, Pavel. Introduction to Food Processing. Reston Publishing Company, Inc. Reston, Virginia. 1985. McGranahan, D.A. and Beale, C.L., AUnderstanding Rural Population Loss@, Rural America, Vol. 17, Issue 4, Winter 2002. Morrison, R.M., AConsumer-Driven Agriculture@, Economic Research Service, U.S. Department of Agriculture, May 2002.


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OMAF statistics - Food Processing Value of Shipments, Ontario 2002 http://www.gov.on.ca/OMAFRA/english/stats/food/foodprocessing2002.html OMAF website, Food Industry Division - Strategic Plan Core Strategies and Goals, http://www.gov.on.ca/OMAFRA/english/food/fid_strat_plan/strat_plan2.htm Ontario Agri- food Trade http://www.gov.on.ca/OMAFRA/english/stats/trade/agrifoodtrade.html Ontario Agri- food Trade by Region, January through December 2002 (Cdn$=000) http://www.gov.on.ca/OMAFRA/english/stats/trade/region02.html Ontario Agri- food Trade by Commodity Group, January through December 2002 (Cdn $=000) http://www.gov.on.ca/OMAFRA/english/stats/trade/commod02.html Open to the World, video, OMAFRA. Penner, Gregory, Soy 20/20 Project Annual Report, June 2003. Prepared Foods.com. February 2001 Issue. Global Food Industry Trends http://www.preparedfood.com/archives/2001/2001_20201global.htm Prepared Foods.com. The Leading 100 Food and Beverage Companies Report. http://www.preparedfood.com/special_reports/top100.pdf Richard Kochersperger, Food Marketing Group, Presentation to the Ontario Processing Vegetable Growers Conference, London, ON, January, 2002, [email protected]. Statistics Canada website: Manufacturing shipments, 2002 www.statcan.ca/english/Pgdb/manuf11.htm Statistics Canada website: CANSIM Tables USDA website: http://www.ers.usda.gov/Briefing/DPIFoodAndExpenditures/Data/table8.htm Vegetable Growers’ News, www.vegetablegrowersnews.com Personal Interviews: Fred Brandenberg, Industry and Government Relations Manager, Ontario Soybean Growers’ Marketing Board. John Mumford, General Manager, Ontario Processing Vegetable Growers.

acknowledgements - ridgetownsarnia-lambton economic partnership county of middlesex appreciation and...

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