Top 5 agri-food industry challenges
Every year, there are more floods, droughts and storms in Canada. These phenomena harm agricultural land, which, in turn, disrupts food production. The impacts, however, go far beyond that.
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The 2021 drought devastated half the mustard seed crops in Canada, which is one of the top three producers along with Ukraine and Russia. The political climate in Ukraine has also revealed how dependent we are on Ukrainian food sources while there have been risks of flour, pasta and sunflower oil shortages. With ongoing natural disaster and geopolitical instability, the agri-food system itself has been destabilized.
As a result, the agri-food sector is facing an onslaught of disruptions that jeopardize companies’ ability to stay competitive. In order to anticipate market shifts, it’s crucial to understand the industry’s top five challenges:
- Labour and raw material shortages
- The agri-food sustainability paradigm
- Technology and competitiveness
- Free-trade and regulatory pressures
- The growing global market
The UN’s Sustainable Development Goals (SDG) include promoting more efficient use of global resources so that increased consumption and production do not destroy the environment. These efforts are further justified by the food price inflation caused by land degradation and the conflict in Ukraine. Inflationary pressures affect the entire supply chain and the costs of fertilizers and transport.
The watchword for the agri-food industry is adaptation. Facing inflationary pressures, growing global demand, and labour and agricultural land shortages, the industry needs to be able to remain competitive while reestablishing a balance between supply and demand. This set of factors explains why the new paradigm is sustainability.
Addressing human and material resource shortages
The agri-food industry was particularly affected by the pandemic as travel restrictions complicated the arrival of temporary foreign workers, the advent of telework was favoured over necessary manual labour in the manufacturing sector, and emergency assistance benefits decreased the appeal of employment.
With the sector struggling to hire locally and the uncertain availability of foreign workers, there has been a lack of immediate solutions. Increased salaries risks causing an increase in food prices, while finding food on the shelves isn’t a guarantee, with 28,000 positions vacant in the food processing sector according to Food and Beverage Canada.
The shortage and increased costs of raw materials can also drive up food prices. The climate crisis and urban pressures are causing a deterioration in agricultural land, especially in cases of drought, such as those in California that forced one of the biggest fruit producers, Driscoll’s, to relocate production. The price of agricultural land has soared 900% in the last 25 years while farm incomes have remained the same. According to the Union des producteurs agricoles, 400 hectares of agricultural land are lost annually due to urban projects like the third link tramway between Québec City and Lévis.
This means that agricultural land capital is decreasing and their status is becoming less stable. While there may be plans to optimize how this land is used, there remains a shortage in food engineering expertise. According to Université Laval, agri-food engineers are at full employment in Québec. We nonetheless need their expertise to develop the technology solutions that will make the sector sustainable. Sustainable development and information technology and software needs are nonetheless affecting all sectors and the Ordre des ingénieurs du Québec (OIQ) is struggling to attract enough people to the profession to keep up with its growth.
According to the Agri-Food Table, Canada is struggling to automate and digitize amidst growing competition. Shortages in engineers and agricultural land are driving up costs and making the Canadian agri-food industry less competitive. To remain competitive in the agri-food sector through automation and digitization, the industry needs a workforce with the right skills.
The agri-food sustainability paradigm
Some major trends can be observed among consumers and in the industry: the importance of high-quality products and appreciation of agricultural products. Sustainable supply leads (44%) among the sustainable objectives expressed by organizations, companies and governments, following by GHGs (16%) and land use (16%). Among the population, 82% of people in Québec are buying more local products.
Concretely, the movement includes initiatives to reduce GHGs and environmental footprints. For example, Canada invested $3.9 million in developing technology to reduce pesticide use and loss of crops. This comes in addition to the Pesticides Act that aims to support companies in their pesticide use.
Sustainability and transparency are key to design and optimize the food supply chain. For this reason, all levels of the supply chain are moving toward a circular economy. Transparency means more awareness around consumer health, which translates to more innovative approaches to product traceability.
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Technology and competitiveness
When considering the shortage and increased costs of raw materials, the labour shortage, and the push for sustainability in the supply chain, the leading solution is integrating innovative technology. The government, companies and other economic players are investing in developing technological innovations. Agriculture and Agri-Food Canada (AAFC) and Environment and Climate Change Canada (ECCC) announced an investment of up to $3.9 million to upgrade technology that helps reduce pesticide use and crop losses.
Companies are starting the technology adoption process. This process includes a 4.0 audit of the company’s core operations to identify opportunities to automate and optimize performance with digitization.
Digital innovation offers an ever-growing range of added-value opportunities to stay competitive in the agri-food industry. These opportunities directly address the industry’s largest issues at every step of the supply chain according to the World Economic Forum. Implementing food detection technology that uses hyperspectral imaging makes it possible to trace products more efficiently, which improves consumer health, corporate transparency and the costs related to transporting goods and product recalls.
Other technologies like e-commerce and the Internet of things (IoT) target the imbalance between food supply and demand caused by the pandemic, the political climate and economic growth. Innovations of this type not only reduce Scope 1, 2 and 3 emissions, but contribute to creating added-value jobs in the industry. When part of the burden of production is delegated to technology, the workforce is able to develop additional skills that collectively build the resilience of Canada’s agri-food supply.
Free-trade and regulatory pressures
Canada aims to become an agri-food industry leader. To achieve this goal, the government is implementing measures to ensure exemplary working conditions in the sector and see that the supply chain reflects consumer values, especially in regard to sustainability and transparency. Companies must also adapt to various commercial agreements and government regulations.
To limit pollution from billions of plastic objects in the ocean and the ingestion of microplastics, 6 single-use plastic products will be banned in Canada in 2023, with other products to follow. As a result, some 1.3 million tons of plastic will be eliminated from landfills and 42,000 jobs will be created in Canada by 2030. Companies themselves are playing a role with compostable, recyclable, edible and plantable packaging and a carbon label to fight greenwashing. Eliminating single-use plastic is also part of the 2030 Emissions Reduction Plan, which is allocating a $1 billion investment to sustainable agriculture.
In addition, the 2022 budget allocates a number of investments totalling $156 million to the TFWP. The measures aim to improve the health, safety and quality of life of temporary foreign workers by increasing the capacity for shorter employer request processing times.
Canada’s various commercial agreements with foreign countries facilitate access to growing markets. The Comprehensive Economic and Trade Agreement (CETA) gives Canadian companies access to 450 million consumers across Europe. Canada has also improved its access to the Asia-Pacific market and its nearly 500 million consumers with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Nonetheless, free trade increases competition: The Canada-United States-Mexico Agreement (CUSMA) foresees a $607 million increase in American dairy and poultry exports to Canada, which would represent 2.69% of total Canadian manufacturers’ dairy and poultry sales in 2019 according to Farm Credit Canada (FCC).
Commercial agreements provide excellent opportunities to access growing markets, even if this access is not guaranteed. Companies are still tasked with validating the equivalences of certifications, quotas and import permits. Restrictions on GMOs and the composition of products are also variables that make access to markets in free-trade zones more complex.
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The growing global agri-food market
By 2050, agricultural demand will be 50% higher than it was in 2013 according to the Agri-Food Economic Strategy Table. Recovery from the impacts of the pandemic has caused lingering inflationary pressures. Droughts and other extreme weather events also play a role in the supply-demand imbalance. Due to these combined factors, Canada’s agricultural and agri-food sector must grow to stay competitive.
In 2021, the whole agriculture and agri-food system:
- employed 2.1 million people
- provided 1 in 9 jobs in Canada
- generated $134.9 billion (6.8%) of Canada’s GDP
According to AAC, in 2021, food and beverage processors generated $33.2 billion in GDP (1.7%) and created 303,100 jobs. Agri-food is also the country’s biggest manufacturing sector, accounting for 17.8% of the GDP from manufacturing activities.
Canada certainly benefits from many advantages that support the growth objectives of agri-food businesses. Nonetheless, the industry faces a number of obstacles for staying competitive amidst increasingly open markets. Despite its wealth of land and water resources, the industry is lagging behind in its digitization and automation efforts compared to other countries. Companies are seeking expertise to sustainably develop the sector and qualified labour to carry out this transformation. Market changes call for greater efforts to respond to these issues and become a leader in sustainability.
The biggest challenge faced by Canada’s agri-food value chain is adaptation. There are many factors exerting pressure to invest financial and human resources in automation and digitization. There are also a large number of factors that hinder sustainable development. The industry’s change process therefore requires major planning, accompanied by a broad range of expertise.
The transformational process leverages cross-functional and multidisciplinary expertise. Although demanding, leveraging many different kinds of expertise throughout the transformation instead of siloing them is part of providing high value-added consulting services.
Download the agri-food industry outlook to identify the different industry shortages.