Read this feature article that examines the scope and the health of the food processing sector in Toronto.

By Steven Biggs

Contributing Editor, Country Guide Magazine

Spring 2008

HOGTOWN. THE NAME STICKS. Many Canadians attribute it to Bay Street’s financial district, home of bulls and bears. Or they link it to the city’s knack for hogging the national spotlight. Few think of it as what it really is, a proud name that reflects how much this city owes to its food industry.

Better known for its bazaar of ethnic restaurants, Toronto is also a buzzing hive of food processors. In fact, it’s the second-largest food processing centre in North America, trailing only Chicago.

Toronto itself is home to 400 food processors, and when the surrounding region is included, this number jumps to 1,600. It’s big, and it’s got impact. Making a wide array of products from baked goods and processed meats to food supplements, sauces and condiments, plus a world of specialty ethnic foods, this cluster of businesses also supports other entire industries, including packaging, warehousing, and distribution operations.

What made Toronto — the financial capital of Canada — a food processing hub? Historically, location, trade policies, and ample labour combined to shape Toronto into Hogtown. Centrally placed within Canada and North America, with good transportation, it was often chosen as a Canadian base by subsidiaries of foreign firms.

Those same factors are still driving food processors today. Toronto now sits within an affluent and cosmopolitan regional market of six million people, and within a one-day drive of 150 million consumers. Along with this, it is a North American hub for trucking, rail, and air transport.

But… in an era of global trade and branching transportation networks, Toronto knows it needs to make some smart choices so its location still matters.

What makes Hogtown a hub?

Chocolate, bread, muffin mix, crackers, gum, confectionaries, canned soup, meats, cheese, and countless specialty foods: This is only a taste of the goods produced in the city. Yet Michael Wolfson, food and beverage sector specialist with the City of Toronto, believes that the city gave birth to this hub by accident, not through any co-ordinated plan.

Planned or not, Toronto is a major decision-making centre in Canada’s food processing industry. Half of Canada’s top-ranked food and beverage manufacturers are headquartered in the city, including Campbell Company of Canada, Cadbury Schweppes, Cargill Foods, Fiera Foods Company, Kraft Canada Inc., Maple Leaf Foods Inc., Nestlé Canada Inc., Unilever Canada Limited, Weston Bakeries Limited, Wrigley Canada. It’s the who’s who of the processed food world.

Plus, half of the food processing jobs in the province of Ontario are in Toronto, miles away from any farm. The food processing industry is the city’s second largest employer, employing over 30,000 people — 12 per cent of the industrial workforce — with annual sales of over $17 billion.

Where’s the hub going? Up, based on 60 per cent growth over the past 10 years, compounding from a steady annual average growth rate of four to five per cent, although growth is even faster in the sub-sector of smaller specialty food processors, which is leaping ahead at double the average rate.

Now, there are looming limits to the industry’s growth, and to its market for farm crops and livestock.

Lots of consumers, but are they workers?

“The food processing industry is a high-tech industry,” says Jane Graham, executive director of Alliance of Ontario Food Processors (AOFP). Skilled workers are the foundation of any high-tech industry using automated equipment and processes.

The problem is, there aren’t enough skilled workers for Ontario food processors. A study by her organization found that the food processing industry isn’t even on the radar screen among high school students as a career opportunity, despite being the region’s second-largest employer. In response, her organization is studying post-secondary level training specifically for the sector, coupled with an awareness campaign for students.

To help address the shortage of qualified labour, the City of Toronto has partnered with the Toronto District School Board to organize specialized language training for workers in the industry. This training will go beyond food-industry jargon to cover basic English-language skills, something critical but often missing in an industry with a very high proportion of employees who are new to Canada. Coupled with a city initiative to help employers develop good human resources policies and practices, the hope is that there will be less employee turnover, partly based on opportunities for employees to move upwards within a company.

Being located in Toronto could become more attractive if expertise in recruiting, hiring, orientation, and training can give companies a competitive edge.

Location also means cost

“Companies do like Toronto, all things being equal,” Toronto’s Wolfson says. However, things aren’t always equal — things like the cost of land and taxes.

Here too, however, Toronto is developing new strategies, with a government that is aware — even if it’s citizens aren’t — the food processing is vital to the region. A renewal pilot project in the city this year saw the construction of new food processing facilities. In a bid to foster more industry and to increase tax revenue, newly constructed plants are being taxed based on the pre-construction value of the land.

Over time the taxes are increased until, after 10 years, the company pays tax on the full value of the land and the plant. Based on the successful pilot, the program will be rolled out across the whole city later this year. Wolfson thinks it’s a win-win deal: The city’s tax base grows, and companies have a 10-year window of lower taxes to focus on important issues like innovation.

Toronto goes courting

Is Toronto a good partner? According to Wolfson, it’s trying to get better. A recent push to improve cross-divisional communication within the bureaucracy has brought about a concierge service: Wolfson’s department partners with food companies setting up plants in the city, helping pilot the myriad applications through possible red tape and communication breakdowns.

Toronto isn’t only courting existing food processors, it’s going after aspiring entrepreneurs too. Together with the Toronto Food Business Incubator (TFBI), a non-profit organization that provides training and startup facilities for food entrepreneurs, the city runs workshops to help would-be food entrepreneurs get started, providing insight into the industry, regulatory requirements, and contact information.

The city also has its own sort of dating service for the food industry. The city’s food and beverage team arranges for out-of-country food buyers to visit the city, co-ordinating meetings at which processors can showcase their products.

Does location really matter?

Is location relevant now that there is free trade? Will the food processing sector face the decline seen in some other manufacturing sectors in Canada? Wolfson downplays the idea that free trade will harm the sector. On the contrary, he sees it as favourable to Canadian food processors. As a former broker in the food industry, his experience is that Canadian companies are well-regarded in the United States as being more innovative, co-operative, flexible, and accommodating. He cites the example of the Loblaws President’s Choice line of products being made in Canada by innovative food processing companies — then being exported to the United States by Loblaws. Many U.S. retailers sell the entire line-up of innovative, well-packaged products.

Traffic congestion is a problem for any location. It isn’t specific to Toronto alone. It affects the whole of the Golden Horseshoe region stretching from Niagara Falls to Oshawa. And it’s not just road capacity: Border delays, too, can slow shipments. While Toronto’s status has its roots in a favourable location, better worldwide transportation means that this problem cannot be ignored.

Slow traffic especially hurts food processors promising just-in-time shipments. One small thing that Wolfson has been able to do is facilitate changes at the border: Agriculture and Agri-food Canada has responded to requests for more border capacity, allowing more trucks to clear the border.

The secrets of their success

A key stumbling block is what Wolfson calls the “Colonel Sanders mentality,” referring to the secrecy surrounding the recipe for its Kentucky fried chicken. Especially among small and medium-sized processors, it’s an industry leery of sharing a successful formula, so nobody works together. Even though these small and medium-sized processors comprise two-thirds of the food processing companies in the city and are often among the fastest growing, there is no effective association for them and they have no voice in government. Wolfson contrasts this with the automotive industry, which is highly effective at lobbying and getting publicity.

“If you’re not getting involved, don’t complain.” That is the advice of entrepreneur ShaSha Navazesh, founder of ShaSha Bread Co. bakery and the Artisan Bakers’ Quality Alliance, a group representing artisan bakers. The problem as he sees it is that there are associations for many foods such as eggs and chickens at the farm level — but no overarching association for small food processors. He blames it on what he calls a “scarcity mentality.” People retreat in times of scarcity — but then in times of plenty still behave as if there’s not enough to go around.

The food industry falls under the auspices of the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA). What concerns Wolfson is that this ministry is, by nature, rurally focused, not mandated to focus on urban areas such as Toronto. While some primary processing occurs in rural areas, much of the value-added, or secondary processing occurs in a municipal setting. Wolfson wonders if the proposed International Food Processing and Innovation Centre (see sidebar) would already be approved and funded were it not in the heart of urban Toronto.

Married to Toronto

Navazesh and his bakery are situated in Toronto for one main reason: the labour pool. It supplies him with suitable employees for both management and production positions. But he believes this urban setting comes with a heavy cost once taxes, expenses, and land prices are taken into account. Wolfson acknowledges the costs are real, but notes that companies often realize the suburbs are not a utopia, and that at some point suburban taxes will rise. Last year, he points out, four processors returned to Toronto from the suburbs.

Is there jurisdictional competitiveness? Sure. ShaSha Navazesh has been courted by Canadian and American mayors trying to lure his bakery to their cities. He likes having his company in his city of residence — but says it’s expensive, and when business growth allows him to pay people enough that they would commute to a suburban plant, he’ll consider moving. It’s business.

Farmers in the Toronto family

“The food processors in Ontario buy 70 per cent of (provincial) farm production — so we are the biggest customer for farmers,” says AOFP’s Graham. That’s a lot of food.

Wolfson sees processing undergoing a paradigm shift. Instead of the traditional model of farmers growing commodities so processors can transform them into a product that they think consumers want, consumers will increasingly drive what processors manufacture. For farmers, this will create opportunities if they’re focused on being in tune with consumer trends.

Wolfson recounts the tale of a vegetable grower who felt that by educating ethnic communities about his product, he would sell more. To Wolfson, this is backwards: Why not simply grow what people want instead of trying to change well-formed cultural preferences?

If such challenges and opportunities are tackled, how large can Toronto’s food processing grow? Graham is confident more growth is possible — much more growth. “We can become,” she says, “an epicentre for food processing in North America.”