‘At the mercy of rising costs’: B.C. food manufacturer study highlights challenges

A recent study taking a look at British Columbia’s food production and processing industry has highlighted major issues that companies are facing.

The state of the industry report, put together by BC Food and Beverage, said for manufacturers to gain any growth over the past five years has been achieved through business expansion and adding new products.

Any revenue growth through price increases with grocery retailers has been “challenging, if not impossible,” the report said.

Cost increases have largely been driven by increases in labour costs (driven by cost-of-living hikes), and raw input and material costs.

“These cost increases, paired with an inability to increase prices, have eroded gross margins, making operating profitably very challenging, particularly for small to medium-sized businesses,” the study said.

“Small to medium-sized manufacturers have seen greater decreases in profitability over the last five years than larger manufacturers.”

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Small and medium-sized businesses make up 90 per cent of the industry, according to BC Food and Beverage’s CEO James Donaldson.

Global News spoke with a local small business manufacturer Goodly Foods.

Goodly Foods is a company dedicated to reducing food waste and increasing food security in B.C.

They take locally-grown produce and process it into food products such as soup and sauces.

Goodly Foods makes soups for almost all health authorities in the province.

“Small food processors are the backbone of the food industry in B.C. We have about 10 people employed and it is critical we keep them employed here in (Vancouver),” Aart Schuurmam Hess said, Goodly Foods’ CEO.

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“We produce products that are used locally, we use locally ingredients and most small food processors are working with local farmers.”

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Schuurmam Hess said it can be difficult for smaller companies as renting space is extremely costly, especially in Vancouver.

“It has been a struggle and a challenge. Real estate comes at a premium as we all know. For us it is important to find space for the future that we can allow ourselves to grow,” he said.

Financial data from Statistics Canada shows although end retailers are achieving modest profit margins (about 4.3 percent for retailers), small-to-medium-sized food manufacturers are achieving profit margins of -9.3 percent on average.

“The challenges that those small businesses, like a lot of consumers, they don’t have a lot of buying power,” Donaldson said.

“They’re really at the mercy of all those rising costs, whether it’s packaging, whether it’s labour, whether it’s distribution costs, whether it’s retail fees. They don’t have the negotiating leverage to be able to kind of keep prices low.”

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More calls to increase B.C. food production

Donaldson most of the industry, especially smaller businesses, are barely making profit with razor-thin margins. Many have considered moving their companies to places like Alberta.

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“We’ve got provinces like Alberta that are being really aggressive in trying to attract small businesses that they see as high potential,” Donaldson said.

“If these companies think they can make more money and be competitive in Alberta than in B.C., a lot of them won’t have a choice. (Some) have decided to close their business because they’re not even having enough money to pay themselves.”

A survey was conducted as part of the study of 47 B.C. companies ask about key issues in the industry.

About 95 per cent of companies said increased pressure on margins from retailers has been a challenge, with 80 per cent calling it a major issue.

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Rising costs are a challenge for 96 per cent of respondents.

Cost of labour is a problem for 85 per cent of companies, rounded out by cost to acquire or rent facilities/ buildings (63 per cent) and cost to acquire land (55 per cent).

The study said the top solution suggested by companies focused on financial assistance, either to invest into businesses or to decrease costs.

It suggests the B.C. government could help the food manufacturing industry much like it did with the film and forestry sectors.

A failure to address these issues could lead to increased food insecurity in B.C.

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Five recommendations are made in the report to address these key challenges:

  1. Support the development of a strategy for the B.C. food and beverage industry.
  2. Provide affordable access to commercial and industrial space for manufacturers, which include creating an inventory of ALR land that could be converted into manufacturing areas.
  3. Facilitate additional investments in infrastructure and manufacturing technology.
  4. Support initiatives and programs that enable the industry to attract, retain and upskill workers.
  5. Provide support to address imbalances between the retail and manufacturing industries.

However, when Global News asked the B.C. Minister of Agriculture and Food Pam Alexis her thoughts on the key concerns. She said the processing sector is “thriving”

“We certainly have a lot of food processors on agricultural land. I think we have about 800 that are functioning and, actually, the food processing sector is thriving and is contributing $13 billion to our economy every year,” she said.

“But, we are always looking for increased productivity and it would certainly help with the food security issues British Columbia is facing.”

When it comes to repurposing ALR land for possible manufacturing facilities, Alexis did say the government is in the process of doing a land inventory check that should be finished by spring next year.

Alexis said the government recognizes it can be challenging for smaller businesses.

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“We have provided $20 million in the last year for companies to scale up so they can be more efficient and produce more products,” she said.

“We had a terrific number of folks that applied for grants that were successful.”

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