When it comes to Alberta’s agri-foods sector, is bigger really better?
Sizing up the competition
by Robin Schroffel
If there’s one thing that stands out about Alberta’s agri-foods industry, it’s that nobody stands out. While there are plenty of big companies selling into the Alberta market (Cargill, Olymel, Maple Leaf Foods, Lucerne, Agropur and McCain, to name a few), only one – meat processor XL Foods – is actually headquartered in the province. That’s a bit unusual in Alberta, where in other sectors of the economy, big companies tend to dominate – particularly in the oil patch, where multibillion-dollar giants like Suncor Energy, Enbridge, Husky Energy and Cenovus Energy tower above their peers. In Alberta Venture’s Venture 100, which ranks the 100 highest-grossing companies by revenue each year, not one agri-foods company made the cut in 2011.
It’s not as though Alberta lacks the raw agricultural inputs needed to help scale the agri-foods industry up in a big way. Yet only 10 per cent of the province’s 578 processors are classified as large by Alberta Agriculture and Rural Development, and just a fraction of those are Albertan-owned. The vast majority of homegrown companies are small: a 2007 PriceWaterhouseCoopers study showed that half had fewer than 10 employees, and many show no sign of scaling up anytime soon. But despite the predominance of cottage operations, Alberta’s agri-foods industry is no small thing. In 2010, food, feed and beverage manufacturing was the largest manufacturing sector in Alberta, employing 22,900 people. It was the third-largest such sector in the country, after Ontario and Quebec.
In 2003, the province forecast some unprecedented gains in the sector in its Agricultural Growth Strategy, which aimed to grow the value-added industry from $8.8 billion in 2003 to $20 billion in 2010. The target was a lofty one, especially when faced with challenges like the rising Canadian dollar and animal disease, and while the industry didn’t come close to meeting it there was growth all the same. Preliminary numbers for 2011 show food and beverage manufacturing sales at a record high of $12.2 billion, up from $11.5 billion in 2010.
– John Connolly, executive director, Agriculture and Feed Council of Alberta
So where are all the big Albertan agri-foods companies? The answer, generally speaking, is that they’re inside other organizations. With few exceptions, Albertan processors seem to reach a certain size before getting swallowed up by bigger fish. A good example is Lilydale, an Edmonton-based poultry packer that was purchased by Ontario’s Sofina Foods in 2010 in a deal worth $130 million. In 2009, things at least stayed in the province: XL Foods purchased Lakeside Farms Industries Inc., adding the Brooks cattle processor to its holdings.
Consolidation is nothing new for the industry, says Gordon Cove, president and CEO of the Alberta Livestock and Meat Agency, a government agency set up to support the meat industry in the province. “This is something that’s been going on for many, many years now, not only on the processing side but on the retail side,” he says. Cove doesn’t necessarily see takeovers as a bad thing, either. “Lilydale consolidated and came up with a partner that gave it a broader distribution and strengthened its supply chain.”
John Connolly, the executive director of the Agriculture and Food Council of Alberta, says one of the major challenges faced by agri-foods enterprises is that Alberta simply doesn’t have enough consumers. With most of Canada’s population concentrated in the East and transportation costs to that part of the country being relatively high, he can see why companies choose to ship raw product East and have the value-added production occur closer to the marketplace. But, he says, that’s changing. “If you look at the demographics, [value-added production in Alberta] may be making more sense. Where is the population growing? Alberta, Saskatchewan and B.C.”
A lack of available capital has also been a stumbling block for the province’s agri-foods companies and their quest for growth. Bruce Johnson, the CEO of Edmonton’s Baby Gourmet, says it can be tough to raise cash, particularly in a province where the oil and gas sector tends to suck up all the available investment capital. “There’s just a shortage of venture capital,” Johnson says. Connolly agrees. “They call it ‘the desert’ because a lot of the companies are small, develop a product and it would do well in the marketplace, but they can’t find the money to commercialize it.”
Raising capital isn’t the only financial barrier to the growth of agri-foods firms, he adds. “The high Canadian dollar is killing manufacturing in Canada, whether it’s in Ontario or the West.” When emerging markets such as Brazil, India and China are producing similar products to those made here, the price point makes it difficult for Canadian companies to stay afloat, let alone thrive.
But Alberta’s export numbers for 2010 prove that despite these challenges, the province’s agri-foods products are still in demand abroad. In 2010, $2.5 billion in food and beverage products was exported internationally. According to Alberta Agriculture and Rural Development’s Lynn Stegman, about 40 processing companies in the province are responsible for the majority of those exports, and most deal in meat. Fifty-six per cent of food manufacturing in 2010 was meat products, which accounted for 60 per cent of exports that same year.
Exports represent an important opportunity for Alberta to grow its agri-foods sector, and Cove thinks meat exports will be at the forefront. With the global population rising and the international demand for meat growing alongside it, Alberta is in an enviable position. “We’re an exporter,” Cove says. “We cannot consume it all ourselves.” Focusing exports on those areas of the world experiencing major population growth, particularly Asia, is expected to drive future expansion of Alberta’s meat industry.
Meat products may predominate the agri-foods business in the province, but Albertan companies produce everything from staples like bread, dairy and margarine to specialty items such as perogies, baby food and elk velvet capsules. It’s easy to see the potential, but food marketing specialist Karen Hope cautions that a great product is only one ingredient in a recipe for success.
Hope’s company, The Marketing Edge, helps prepare agri-foods companies for the challenges involved with scaling up. Hope started out as the managing partner of Calgary barbecue sauce company Cattle Boyz, which in its first year in business had its product on the shelves at Costco. She believes that a stronger focus on sales and marketing is what is needed to send many Albertan companies to the next level. “You can have the best product in the world, but if you don’t have the right people behind it, it’ll go nowhere,” she says.
The right person is what attracted Bruce Johnson to Baby Gourmet. He first saw founder and president Jennifer Broe present to a group of venture capitalists three years ago, and he joined the company as CEO a few months later. “She was at the farmers market doing about $30,000 a month in sales, but she was smart enough to realize that she needed to be in grocery. She also knew that she didn’t know what she didn’t know.” The company’s product went on Walmart’s shelves in 2011, and today Baby Gourmet is sold at major chains like Sobeys and Loblaws nationwide.
Success stories like Cattle Boyz and Baby Gourmet illustrate the possibilities for Alberta’s agri-foods sector. The numbers seem to indicate that sunnier days are still to come for Alberta-made value-added products: in 2010, value-added exports rose 7.6 per cent from the previous year, and food and beverage manufacturing was up six per cent. Cove says preliminary stats for meat look hopeful, as well. “I’m optimistic that it’s slowly starting to grow,” he says.
And Hope isn’t convinced that a company has to be a behemoth to enjoy success. She sees huge opportunities for the small and medium-sized companies that dominate Alberta’s agri-foods scene. The growing demand for niche foods like organic and game meats leaves a gap that can’t be filled by the major players, which are unable to react as quickly as smaller companies. When gluten-free foods first came onto the public’s radar, it meant huge things for Edmonton’s Kinnikinnick Foods – its specialty products are now carried in 850 stores across Canada and are moving into the U.S., Barbados, Puerto Rico and Hong Kong. According to Cove, similar opportunities exist for sheep and bison producers in Alberta, as Canada only covers 50 per cent of its demand for sheep products. Meanwhile, the European market is hungry for more Canadian bison.
Stegman acknowledges the importance of big companies, which produce mostly staple foods, but says it’s the rest of the pack that make Alberta’s agri-foods industry exciting. “Those small to medium companies are a little more flexible,” she says. “They’re the specialty products that make your grocery cart a lot more fun and allow us to enjoy many different kinds of food.”
And for the little guys, the move toward buying local is making business more viable than ever. Customers increasingly want local products, which the grocery business is recognizing, meaning that to some degree, supermarket shelves are making way for Alberta-made items. It’s something that would never have happened even 10 years ago, Hope says. “There’s a little bit of an open door right now.”
What exactly are agri-foods, anyway?
In this industry report, we’ve used the term “agri-foods” to refer to items that have been somehow processed or manufactured, to which value has been added. But Lynn Stegman of Alberta Agriculture and Rural Development says the phrase is often used as an umbrella term covering both processed and primary agricultural and food products. It would then include things like basic crops and livestock along with manufactured goods and biofuels.
Primary products (agriculture)
Basic crops and livestock produced from the natural resources of the Earth
Examples: cattle, unprocessed grains such as wheat and barley, legumes such as chickpeas and lentils
Value-added products (food and beverage manufacturing)
Primary agricultural products that have been manufactured to increase their value
Examples: meat, prepared mustard, pet food, beer, spun yarn
Fuels in which energy is derived from a biological carbon source, including vegetable oils, animal fats and crops
Examples: methane from biomass, ethanol, biodiesel