Canada's food industry an innovation laggard

OTTAWA, Dec. 19, 2012 /CNW/ - The Canadian food industry has become an innovation laggard, and does not appear to be very concerned about it, according to a Conference Board of Canada report for its Centre for Food in Canada, Competing for the Bronze: Innovation Performance in the Canadian Food Industry. This is leading to Canada losing ground in global food and drink export markets.

"When it comes to innovation, the Canadian food industry is content to compete for a bronze medal. Canada's food processors are not increasing—in fact, they are barely maintaining— global market share in the face of competition from established and new players," said Daniel Munro, Principal Research Associate.

Most Canadian firms in the food industry don't think innovation is a priority. The Conference Board's Centre for Food in Canada Industry Survey asked firms what will determine their business success over the next five years; one-third of respondents said that process (33.5 per cent) or product (33.2 per cent) innovation would be very or extremely important. And just one-quarter of respondents said that input innovation would be very or extremely important.

Research intensity in food manufacturing as a share of gross domestic product is lower (0.72 per cent) than that of the business sector (1.38 per cent) and much weaker than manufacturing generally (4.55 per cent). Public spending in research and development (R&D) in the primary agriculture subsector actually declined—from 1.61 to 1.1 per cent over the past two decades—and private R&D spending is not making up the gap.

This combination of low investment in research and a low priority placed on innovation is contributing Canada's shrinking global presence. Between 2000 and 2010, Canada's share of global food and drink exports dropped from 4.2 per cent to 3.2 per cent, before recovering in 2011, when the share rose to 3.9 per cent.

In the meantime, Brazil's share nearly tripled and China's share almost doubled - both now have 6.3 per cent of global food exports apiece. And developed countries are also gaining ground: in the past decade, the United States increased its share of global food and drink exports from 11.1 per cent to 12.2 per cent, and New Zealand's share rose from 1.7 to 2.5 per cent.

Turning Canada's underperforming industry into a leading global innovator will take concerted effort. The Conference Board study recommends eight actions for business and government:

• Food businesses should seize domestic and international market share by innovating to create new products for emerging and fast growing markets.
• Small and medium enterprises should innovate for niche markets to increase their profits— innovation is as much a survival strategy as a growth strategy.
• Large retailers should increase their use of customer data collected from loyalty programs to ensure that their product innovations meet consumers' demands.
• Retailers and suppliers should strengthen their working relationships to clarify retailers' expectations on product volumes, shelf fees, and food quality and safety to cut product innovation development wastage.
• Governments should promote more competition and export market access. As food businesses that face higher competition have better innovation track records and outperform others, more innovation could be stimulated by transitioning sheltered subsectors to fair but competitive environments.
• Governments should implement proposed changes to the Food and Drugs Act in a timely fashion to accelerate innovation in healthy food and food safety, and consider further changes to reduce regulatory barriers to food innovation while ensuring health and safety.
• Government funding for food research and innovation should be better aligned with innovators' financial needs. Currently, many firms with genuine financial need are failing to access public R&D funds for innovation. Savings could be redirected towards maintaining or improving R&D support for the primary agriculture sub-sector where innovation returns on public R&D spending have historically been strong.
• Incent more food innovation with social value. Governments should adjust regulation and use financial incentives to support and stimulate healthier and more environmentally sustainable food innovation.

The report is one of 20 being prepared by the Conference Board's Centre for Food in Canada. The principal goal of the Centre is to engage stakeholders from business, government, academia, associations, and communities in creating a Canadian Food Strategy —one that will meet the country's need for a coordinated, long-term strategy on industry prosperity, healthy and safe food, consumer security, and environmental sustainability. View video commentary about the Canadian Food Strategy.

Link to publication: http://www.conferenceboard.ca/e-library/abstract.aspx?did=5255

SOURCE: Conference Board of Canada