Substitution (middle)

Scaling down plant sizes in some sectors and providing more geographically appropriate distribution of facilities

FPT directives to crown corporations to favour infrastructure of the middle firms

Scaling down plant sizes in some sectors and providing more geographically appropriate distribution of facilities

The degree of concentration and scale in some food sectors makes it very difficult for infrastructure of the middle firms to be viable.  As discussed earlier in this section and in other parts of this site (cf. Goal 3), it is not necessarily cost efficiencies that favour large firms, but rather their market power distorted by weak competition laws, political influence, price externalities and coercive economic relations.

Scaling down would have to be done primarily through plant licensing. A license identifies the parameters of a plant's activity and how they are conducted. At a federal level, the Safe Food for Canadians regulations (or legislation replacing it at the later stages of transition given the weaknesses of the Act) would be modified to curtail the size and speed of operations in the interests of animal welfare, food safety, environmental harm reduction, and worker safety.  Current regulations already provide direction on some of these issues and they would need to be expanded.  Similarly, provincial and sometimes municipal licensing provisions would have to be modified to support federal rule changes.

With regard to meat processing, one of the particularly problematic sectors, Kathleen Gibson and Abra Brynne in BC have probably done the most work to create a more diverse slaughter and cut and wrap meat sector by creating a graduated licensing system. This is also part of scaling down. Part of the rationale for such a licensing system is establishing more geographically diverse slaughter and reducing the need to transport animals long distances, with its documented reductions in animal welfare and animal product quality (cf. Caffrey et al., 2017; Stojkov and Fraser, 2018).  For more on these themes, see Goal 4 Scale appropriate food safety systems.

In meat packing, there have been numerous failures of traditional and social enterprises attempting to take over, re-invigorate or start up mid-scale operations in underserved regions. The failures are largely tied to these aforementioned unfavourable macro conditions including concentration, market power and incumbency which limit the ability of new entrants to establish themselves (Rude, 2000). Many of these macro conditions are mitigated by supply management, but the red meat sector has resisted holding votes on such an option, though from time to time there is discussion in the sectors about doing so.

As discussed under sustainable diet, we will need less not more slaughter capacity overall as meat production is reduced. Orderly scaling down of plant size or capacity (slower line speeds, more spaced workers, fewer shifts) with targeted regional development of smaller operations to reduce travel and improve access is a more viable scenario and deals with the full capacity imperative. Targeted regions would be those with minimal to no slaughter within 400 km of supply which is an industry guideline.  Clearly, typical slaughter numbers / plant size will have to be part of the planning.  For example, a medium size beef slaughter plant is thought to handle 100 to 1000 head/week.

Another important consideration is whether there are enough workers in a region. This will be a key issue given existing shortages of abattoir workers, although the question of scale and region and how that affects worker availability has not been well explored (see Goal 8 Labour Force Development).

Building new facilities in targeted regions will require both investors and government support. Are investors willing to provide about $40 million for a completely new facility? It appears this is more likely  than investing in a larger one which costs more and would only be viable in a province like Saskatchewan if it was exporting to other provinces.  At a 1000 head / day the start up costs would be over $200 million, and bring the plant into competition with existing well established and larger operations. This is not what is required. But smaller plants sometimes skimp on capital expenditures which is where governments come in. For example, small plants are less like to invest in spray chilling which can reduce drying out and shrink by over 1%, a significant amount financially over a year (Briere, K. 2022). It's clear though that smaller plants can not compete with large ones based on conventional cost efficiency, although reduced capacity in large plants makes cost comparisons more equitable (Rude, 2020). Rude argues that value-based products make these plants more viable with fits with this scenario short term. Their advantage must come with flexibility, serving multiple types of circumstances, especially important in more remote locations.

FPT directives to crown corporations to favour infrastructure of the middle firms

Building on the limited targeted procurement requirements at the Efficiency stage, FPT governments should require food and beverage crown corporations to favour SME food and beverage enterprises over large firms. At this stage, Canada is reducing its commitment to the international trade agreements (see Goal 10) and infrastructure of the middle is growing, meaning the supply side is better positioned to meet increased demand. There are many FPT crown corporations, but a minority are directly involved in supporting the food and beverage sectors, so this does not require exceptional growth to meet new demand.

However, these changes will be challenging to implement because of past practice. The Liquor Control Board of Ontario (LCBO) provides an example. The LCBO essentially has a monopoly on wine and liquor sales in the province, acting as both retailer (sharing that function now with some grocery stores, grandfathered wine shops, and sales from estate winery on-farm shops), and wholesaler to food service and grocery stores. It purports to be the world's largest wine retailer and much of its purchasing is international wine. It generates significant revenue for the provincial government and has from time to time as a result been an object of privatization discussions.  Unfortunately, its main pricing strategy, designed to bring consumers $15 wine from around the world, is a significant barrier for many domestic SME wineries, who then have to sell to the LCBO at $3 a bottle to meet that consumer price target (because of markups and taxes). As a result, many market directly to local restaurants and rely on estate shop sales to tourists. Some sell their lower-quality wines to the LCBO. So, a state monopoly that in theory could exist to support SME suppliers frequently does not. In many ways, this also obviates long-time provincial government investments in developing the grape sector and support for a quality assurance system (Vintner's Quality Assurance, VQA). It has more successfully in many ways supported the craft beer sector, given that many SMEs can not get listed in the Beer Store, owned by the big 3 international breweries (ImBev, Anheuser Molson Coors and Sapporo-Sleemans) so sell instead through the LCBO.

BC, in contrast, applied local content rules to wine makers as early as the 1960s.  Ontario only followed once VQA systems were put in place, implemented on a voluntary basis by wineries that chose to participate in the programme (Migone, 2022). Related to this, attempts to improve the sustainability of the grape sector have been spotty.  But the LCBO (and the VQA system) could be in a strong position to encourage sustainability given it's organizational status.

Much of the more recent support for the wine sector has gone to facilitating export, more so Ontario than BC, though export success is at least partly built on improving domestic production and quality which was more the original focus (Migone, 2022).  It is clear that small operations have trouble competing with large international firms (Migone, 2022).  But Canadian policies of various kinds have run afoul of international trade rules, resulting in changes to comply with agreements.  But again, at this stage that becomes less of an issue as we withdraw from the trade agreements.

It's also important to note here that although free trade economists decry interprovincial trade barriers (and the Canadian Free Trade Agreement, previously the Agreement on Internal Trade, AIT), in the case of food and beverage sector development, those barriers are largely appropriate. A regional production and distribution system can not, by definition, be national in scale.