Value-added revolution needed? Changes in ag markets might make it inevitable

By Tim Kalinowski

Calls for more value-added processing for Canadian agriculture are not new, but perhaps are taking on an increasing importance as international markets remain volatile for agricultural commodities.

The Senate Standing Committee on Agriculture and Forestry outlined this problem in its recent “Made in Canada: Growing Canada’s value-added food sector” report, but Martin Ebel, economic development officer for Lethbridge County, says the southern Alberta region is particularly well-poised to take advantage of the opportunities.

“As with many rural districts in the area, Lethbridge County has a long tradition of successful agriculture,” he says. “Initially, there was more shipping of the raw product out of the area, and over time there has been more and more value-added processing added.

“I think now not only in this region, but Canada as a whole is kind of looking at how we can get more value, more money, more sustainability into agriculture by adding more value in doing the processing here in Canada and not overseas.”

Value-added can be very constrained in its definition or it can very broad. It simply means adding processing capacity locally to take raw products from the field and create consumer goods which are ready for sale. That could be a small-scale honey operation bottling its own product and selling in the local farmers market, or it can mean something like a Lantic Sugar in Taber or McCain’s in Letbridge County which take locally sourced ag products and create higher order consumer products on an industrial scale.

“People very correctly mention the potato processing in the area when they talk about value-added,” confirms Ebel. “That is very well established. But a lot of people aren’t aware of just how much dairy processing there is in the area. Lethbridge County has three cheese factories, including the largest in Alberta— which is the Agropur facility near Diamond City. We are shipping out massive amounts of cheese across Canada that essentially goes as far as Ontario in the east.

“That is an example of scaleable, value-added agriculture,” he states. “The Agropur plant is large, and it employs about 100 people. This is industrial cheese production. “The other two we have, Crystal Springs Cheese and Latin Food Specialities Inc., are smaller, family-run operations that are making speciality cheeses. There you are taking the raw commodity, milk, and adding value by making speciality cheeses and yogurts.

“So you have everything from the very large value-added processor down to the smaller operations that are family-sized and everything in between,” he concludes. “That’s a misconception people have— that value-added always has to be these enormous factories and so forth. That is certainly out there, but there is a lot more out there than that.”

At the farm level, Ebel says in his experience most producers who engage in value-added processing often do so out of economic necessity.

“I think with smaller producers there is advantages and disadvantages,” says Ebel. “I think smaller producers have come under more pressure where market prices for certain commodities dropped. They don’t have the buffer or size cushion which helps them weather that storm, and tend to embrace value-added a bit more for that reason. I would also say smaller producers might be a little more nimble, and can fit into niche markets a bit better.

“Some our smaller producers in Lethbridge County are producing a higher quality crop,” he adds, “and they are selling it into places where that higher quality is wanted, and consumers are willing to pay a premium for that.”

Finding these niches often requires a nimbleness and creativity, says Ebel, that larger scale processors are just unable to match.

“You do see smaller operations testing the market in certain areas, and finding out what works, what doesn’t, and responding to consumer taste,” he says. “That’s important. You can make a top quality product, but if nobody wants it, it’s going to sit on the store shelves. You have to be producing at primary level, but also in terms of your value-add— it has to be something people actually want to consume.”

But certain challenges persist for creating more value-added opportunities in southern Alberta, says Ebel. The Senate report references issues like difficulty of transport to bring these items to market, inter-provincial trade barriers, international market pressures and a chronic shortage of labour. Ebel says he has noted all these active barriers in Lethbridge County as well, but what may even be a greater challenge for most local value-added food processors is the prevailing economy of scale.

“Most consumers don’t have too much money left at the end of the month,” he says. “People are price-conscious for a reason. But there are several ways to look at it: One is more and more local stores are carrying local products.

“Take Costco, for example,” he says. “I can get lettuce grown in Lethbridge County under the ‘Inspired Greens’ brand. I can buy that at Costco here in Lethbridge. It’s there, and when you compare it to what is being trucked up from California and Arizona, it is actually price-competitive. So in terms of quality and in terms of price, I am not really that much worse off going with what is growing here locally. I think you see that price gap start to narrow over time.”

Red Hat Co-op in the Medicine Hat area is another example of a local greenhouse consortium and food processing company, he says, which has been able to scale up its operations effectively to meet the western Canadian demand for certain veggies like peppers and cucumbers.

“Your local small producers are focused on the high end because they are limited in scale, and they are maybe limited in their expansion capacity, and probably their prices are always going to be a bit more expensive,” he says. “But if they can find that sweet spot, and find that local customer base, they might be able to have a nice little niche going.

“Larger ones like Red Hat Co-op in that Medicine Hat area, Cypress County and so forth; because they were able to scale up— they can now be price-competitive and we are not trucking in from California or Arizona— we are getting those products right here in southern Alberta.”

But its not always about scale, states Ebel— many consumers are making different dietary choices today than in previous generations, and many are now willing to pay a premium for high-quality or socially-conscious local food. That’s where smaller-scale, value-added processors enter into the equation and really shine, he says.

“Some our smaller producers in Lethbridge County are producing a higher-quality crop,” he states, “and they are selling it into places where that higher-quality is wanted, and consumers are willing to pay a premium for that. If you are just looking at price alone, it is probably easiest to go to your Wal-Marts. But if you want really delicious, tasty, locally-produced mustard— I know in the county where you can go find it, and there is just no comparison.”

Ebel says one further point for consideration in this value-added discussion may be one of the most important. Many of the best local value-added processors, he says, have the cropping and production side of their operations figured out by now, but what remains are persistent challenges in marketing their products. Ebel theorizes governments might have a greater role to play in that.

“We have had conversations with value-added producers on the smaller scale, and they were asking if there is a role the county or provincial government can play to help with marketing and promotion?” says Ebel. “It’s a fine line to walk. We are not there to advertise for individual companies, and yet to raise the awareness of what’s out there; that’s definitely something we’d like to do. We also want to help these producers make connections with potential markets or customers that might really benefit from their products.

“On a more regional scale,” he adds, “the creation of ‘Canada’s Premier Food Corridor;’ that’s trying to do the promotion and awareness-raising. That’s five municipalities, (Choose Lethbridge, the Town of Coaldale, Lethbridge County, Town of Taber and the MD of Taber), right now working together to try to promote not only the businesses in those municipalities, but to market the region in general as a top quality agri-food production area.

“Hopefully those benefits will come over time to every agri-food producer in southern Alberta.”

But it’s not just governments which have a role to play as cheerleaders for local food products, says Ebel. Everyone in the region should be “banging the drum” for local ag and locally produced value-added agri-food products, he says, and be willing to put their money where their mouth is.

“I think over time we will see more of a consumer willingness to add a few percentages to the grocery bill, but you are buying local and you are buying a higher quality. But, I admit, that remains to be seen.”