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How the value-added food sector can be more competitive in global markets

Wheels of cheese on shelves

The following are remarks made by Dr. Simon Somogyi to Canada’s Senate Standing Committee on Agriculture and Forestry on March 21st, 2019 regarding the potential for the value added food sector. Watch the video.

This is the first time I have appeared before this committee and as a migrant having lived in Canada for less than 5 years, it is an honour and a privilege to be invited to speak about our country’s future in food and agriculture.

My background is in understanding food consumers and the activities of individual firms in the supply chain that delivers food to consumers. I have conducted research on food consumer behaviour and supply chains in numerous countries around the world, particularly in Asia, and my discussion today will focus on opportunities for Canadian value-added food product in that part of the world, particularly China.

I will be discussing two points. One, focussed on “on-farm” value adding and secondly, branding and market development in China.

Firstly, much of the value-adding in the Canadian food sector, at least in terms of value and volume, is occurring in our large cities and by multinational producers and by companies we generally refer to as food processors. This sector of the food supply chain is important, but we need to incentivize value adding further up the food supply chain particularly at the farm level and in sectors that have major export opportunities. Once such sector is dairy.

There is a dairy boom occurring in middle class markets in China, particularly with products such as infant formula, yoghurt and fresh milk. Due to our supply managed sectors or regulations within marketing boards it is difficult or impossible to competitively supply these products. But, in my opinion, there are ways to do so.

One such example would be the following recommendation: the creation of a Special Class of Milk under the Canadian Dairy Commission, Special Milk Classes Permit Program. Currently this program bases prices for non-confectionary dairy products on USA average milk prices; however, a new class of milk could be created, accessible only by primary producers or farmer groups who work as a cooperative or in some type of collaborative effort, allowing them to access out of quota volumes and prices equivalent to competing countries such as Australia or New Zealand. This would be used for the production of value-added goods, solely for export. This would assist primary producers to invest in on-farm value adding infrastructure and activities and they could be given special access to schemes such as the Canadian Agricultural Partnership AgriMarketing programs for the sale and marketing initiatives of their products. This would also help diversify their operations from purely production into processing, branding, and marketing, thus providing opportunities for growth and economic development in the rural and regional communities in which they reside.

Similar to the Fisheries Act Fleet Separation Policy, where downstream supply chain members such as processors and shippers cannot operate harvesting operations, a policy such as this could be adopted in the dairy farming sector emulating what most of the large dairy processing companies in Australia and New Zealand that compete in Asian markets operate as or have in the past. While there are already dairy cooperatives and alliances in Canada, there is no reason why this cannot be done on a smaller scale, for primary producers who wish to create and market value- added dairy products for niche Asian markets.

Secondly, The Barton Report has challenged us to increase food exports to $85 billion by 2025 and this lofty goal is unlikely to be attained by producing more products for the markets which we have traditionally served. Canada is an emerging and growing player in markets such as China where a booming middle-class consumer segment is driving demand for high-quality value-added food products. The Barton Report has also highlighted the concept that Canada can be a global leader in safe, nutritious, and sustainable food. Creating and marketing safe, nutritious and sustainable food is important, but we need to focus on other product attributes to be successful in China. My consumer research in China has shown that the most important factors that wealthy, middle-class consumers consider when purchasing food products are: high quality, value for money, prestigious and then to a slightly lesser degree: safe, nutritious, trusted and authentic.  Canada’s reputation for clean, safe, healthy and green is a good first step, but we must do more. To succeed in that market we must over-deliver on quality and value for money and offer prestige. Being a safe, trusted, nutritious producer is important but not a differentiator as our competitors such as Australia, New Zealand, and areas of the EU zone, are already doing this.

So how do we get our products on the plates and in the pantries and refrigerators of Asian consumers and convey our brand image? Currently, our food producers travel to market and undertake trade missions and shows. An alternative option for Canada is to create a “diagou” network. The average Canadian has probably not heard of the term “daigou” but it is a household name in countries such as Australia and New Zealand. “Daigou” is Mandarin for “personal shopper” and Daigous are Chinese nationals that live in countries as such as Australia and New Zealand and promote, purchase and ship high-value food products to Chinese residents. Through their use of Chinese social media, they heavily influence Chinese consumers’ purchases and more importantly, Chinese consumers’ perceptions of food brands.  A recommendation is for Global Affairs Canada to develop and create connections with Daigou networks, bring key Daigou influencers to Canada to showcase our food products, and importantly, assist in the creation of logistics and shipping systems to get Daigou purchases into the homes of Chinese consumers as rapidly as possible.

Thank you.

 

Dr Simon Somogyi, PhD

Arrell Chair in the Business of Food,

School of Hospitality, Food & Tourism Management

College of Business & Economics

University of Guelph, Ontario