Reducing corporate concentration
Hanging over all efforts to improve infrastructure of the middle is the high levels of corporate concentration in the Canadian food system. See Goal 3 Reducing Corporate Concentration for strategies addressing this barrier.
The purchasing power of public institutions is an oft-cited strategy for supporting development of a sector. The challenge is to take an integrated approach that addresses the need for supporting multiple dimensions of the transition to a better food system. See Goal 3, Food in Public Institutions.
Regulatory change for greater scale neutrality
Almost all surveys of food SMEs identify food safety rules as obstacles, as many are designed for larger firms trading internationally. This is typically not the circumstance of SMEs giving attention to local markets. See Goal 4 Scale-appropriate food safety.
Labour force development
Managing the middle is complex in the current environment and it's not obvious that the good intentions alone of middle actors will result in successful gap filling. Building infrastructure of the middle and regional resilience also requires a different set of skills to manage firm and system processes (Bristow and Healy, 2014). Newly announced programs such as Ontario's job skills program for building provincial food system resilience may not be recognizing this. See also Goal 8 Labour Force Development.
New food infrastructure programs
The Investing in Canada Plan does not have significant involvement from AAFC. Most of the food focus is on export markets. The Local Food Infrastructure Fund is currently insignificant for building infrastructure of the middle as the bulk of the funding has gone to emergency food organizations. In theory it could do so, but what is needed is a focused food infrastructure program designed around identification of critical needs from assessments of missing middle infrastructure. Thus, there are three components to a new program:
- financing missing middle assessments that build upon existing work and cover more regions of the country (how to undertake these assessments has been well elaborated by Ken Meter of the Crossroads Resource Center in the US)
- capital funding for critical hard infrastructure
- operating funding to build social capital and supply chain relationships
Some provincial funds have served some of this function, for example, the BC government provided $1 million for a community abattoir, part of flood rebuilding (Szeto, 2022). A related problem is having enough inspectors to assure on-site inspection (CBC, 2020), speaking to the need for integrated hard infrastructure and human resource strategies.
Building food clusters of the middle is essential and many assessments once conducted will reveal this as one of the priority actions. As Porter (1998:8) identified “ .... clusters are geographic concentrations of interconnected companies and institutions in a particular field”, including inputs, specialized services, research and development, product development expertise.
Two particularly critical cluster initiatives to support are food hubs/aggregators and business incubators.
Supporting food hubs and aggregators, including co-ops
Aggregators are critical actors for infrastructure of the middle, at least in the short to medium term. According to Day-Farnsworth and Morales (2011) they help "(1) to diversify the number of product offerings; and (2) to achieve large volumes of a single product. Distributors and/or groups of small and midsize growers aggregate product to compete with large growers in local and regional retail and institutional markets. In many instances, aggregation for wholesale markets is employed to increase volume and diversify product offerings".
Certain funding agencies have recognized the importance of aggregators. The Greenbelt Fund, with money from the Ontario government, has supported a number of aggregators, including 100 km foods, the Ottawa Food Hub, Procyk Farms, Artisan Farms Direct, the Ontario Agri-food Venture Centre, and several feasibility studies for other hubs. It also supports capital investments and strategic partnership development. Although primarily focused on export markets and high tech, the BC Economic Development Plan at least names food hubs with shared services as important for investment.
But grants are a problem (see Instruments). We're long past the point where funders can just wait to see who applies. Now, funding staff must go out and identify the key cornerstone organizations, or key problems, and get them to submit projects, with heavy intervention from funding staff. Ontario's new Growth Plan does not recognize this reality. This obviously requires more expertise from grant staff, and explains in part the necessity of food system assessments.
Producer, processor and distributor co-ops are often the only viable strategy for taking over SME facilities that are going out of business because typically private firms are unwilling to take a chance on a private sector approach that has failed. Often the workers are interested in creating a worker co-op, or a community multistakeholder co-op because of the significance of the enterprise for the region. The key challenges are typically development of a robust business plan for the takeover and transition, capitalization, participant training, and identifying skilled managers. As discussed elsewhere on this site, the co-op sector is poorly supported in Canada (see Goal 1, Food retail co-ops).
Business incubators for mid-scale
The purpose of a business incubator is to help reduce core operating costs for a nascent business for a number of years to allow it to accumulate the experience, customers and resources to scale up and out operations in a measured transition. Typically, incubators provide facilities, training, mentoring and technical assistance, and shared services. Although such food incubators exist, and many are structured as non-profits, most are not designed within a sustainability framework, so they focus on traditional capitalist conceptions of food innovation (and sometimes include sustainable firms), rather than expressly helping to build firms that support the transition to sustainable systems. The Food Processing Development Centre and Agrivalue Processing Business Incubator in Leduc, AB is a typical conventional model. A few are built around the idea of expanding the local food economy, such as Ontario's Northumberland Co. Agri-food Venture Centre or Syzl in the Greater Toronto Area. Others focus on groups historically marginalized by the food system (cf. the food incubators supported by the Canadian Black Chamber of Commerce).
As with so many other areas, coverage is spotty with many dispersed mandates, resulting in a highly uneven landscape of supports for sustainable food entrepreneurs. Funders are usually delivering programs by application, which then contributes to the uneven coverage.
New financing instruments
Many conventional financing instruments and institutions are effectively unavailable to SMEs. Common problems are: a) insufficient security for a loan; b) insufficient returns for private investors; c) too much administration for an institution accustomed to larger projects. There are two general approaches to this problem: 1) creating new financing instruments, or 2) modifying existing instruments to make them more compatible with SME realities. Although there are important non-profit, co-operative, patient capital organizations supporting food SMEs (cf. Fair Finance Fund), they are reliant on community minded investors and their scale of operation is relatively modest. SME processing receives relatively little of the alternative financing compared to the production and consumption ends of the spectrum (Stephens, 2021).
Community Economic Development Investment Funds (CEDIFs) are an example of the first category, creating new instruments. Designed to address capital problems for SMEs and create community investment vehicles, CEDIFs cannot be charitable, non-taxable or non-profit. Investors receive tax credits. Nova Scotia is the provincial leader, with many loans used for food system investments including farming, food, seafood and beverage processing, food stores, and food service. About two-thirds of all enterprises applying are funded.
The model can accommodate corporate or co-operative forms, can be pure investment vehicles, or have social purposes. The cost of the tax credit is no more than 10% of new tax revenue generated across all levels of government. In a 2019 examination of most of the active businesses and co-operatives that have been funded by CEDIFs in Nova Scotia, analysts found $118 Million in GDP value-added per year, 1,200 jobs and $52 Million in payroll dollars primarily in rural Nova Scotia (see Best et al., 2020). Clients sourced 2/3 of their goods/services from NS. It is clear from assessments that the model fills a financial gap for SMEs (Stephens et al., 2019). However, the model may not work for more capital-intensive SME requirements because funds are generally small.
A key NS player is Farmworks Investment Co-op. Farmworks' lending practices include: no principle or interest payments for the first 3 months, and no security taken. The Co-op provides mentoring and sometimes promotional services. About 50% of their firms are farms and 50% retail and food service. Funds from loan repayments become available for the next loan.
NB and PEI also started CEDIFs in 2016. Each province should set up the legal structure and processes for CEDIFs. Governments need to also make changes to securities rules (see for example, the NS Securities Commission). The instruments, however, would need to be targeted rather than blind since at this stage there is a great need to solve specific infrastructure problems. This approach works with the establishment of DSC instruments (see Goal 2) to identify regional priorities.
The second strategy is to gradually enhance offerings within existing financing programs for food infrastructure projects that focus on sustainability, health and justice. For example, the National Research Council Canada’s Industrial Research Assistance Program devotes about 8% of current funding for agriculture and food SMEs and NRC also has a program that focuses on aquatics and crop development. These could be enhanced by making the capital costs of small businesses seeking to commercialize their innovations eligible for the program.
A second possible modification would be to use Canadian Agricultural Partnership (CAP) funding for enhanced processing capacity (currently used in Ontario) but to refocus it on creating critical infrastructure of the middle. For example, in meat processing, Ontario has two cost-share funding streams, one a Meat processors capacity improvement initiative, the other a Provincially licensed abattoir initiative. Both are really designed to increase capacity of existing operations, including efficiency, food safety, animal welfare and biosecurity. However, financing is on a reimbursement basis, is only 60% cost shared, and is of no help to startups.
The existing programs could be retained, but with a specific stream for startups in priority under-served regions of the province. And it appears only Ontario uses these funding options under CAP so most provinces would need to use this option.