Ottawa—Whether Canada aims for $75 billion or $85 billion in agrifood exports by 2025, a growing processing or value-added sector is vital to achieving the goal, says a new report from the Canadian Agri-Food Policy Institute (CAPI). Given the domestic and international challenges processors face, “bold new steps and ways of thinking are required,” the report says. “This is particularly the case given recent challenges the sector faces on the trade front from domestic cost pressures and as a result of changing consumer demands.” CAPI launched a close examination of the competitiveness of the processing sector in 2012 because of “an alarmingly large and increasing trade deficit in further processed high value. “While there is still a trade deficit in certain categories of further processed products, there has been a slight improvement,” the report said. What needs to be better understood are “what factors have contributed to this and what the sector can learn for future growth opportunities.” Canada's economic competitiveness has deteriorated falling from 9th in the world in 2012 to 14th by 2019, according to the World Economic Forum. “Given the importance of trade for the agrifood sector, this raises concerns about the pressures it faces, its overall health and the measures needed to ensure it will remain competitive in the future,” the report said. Compounding that decline is how the global environment and its underlying assumptions have changed in the last 10 years. “There has been a dramatic rise in protectionism, a decline in rules-based trade, and a global economic sluggishness that are threatening future growth prospects.” This raises concerns about the ability of Canadian processing sector to increase its exports to achieve either the $75 billion agrifood export goal by 2025 set in the 2017 Barton Report or the 2018 Strategy Table report's goal of $85 billion. Adding to the concerns about the sector's future growth are the ongoing impediments of “regulatory barriers, labour shortages, tax impediments, and insufficient investments in machinery and equipment, advanced technologies and infrastructure.” It has also been hindered by “a slowdown in inward foreign direct investment (FDI), particularly from the U.S., and a continuation of the mergers and acquisitions that have led to increased concentration and changing players in the Canadian scene.” As well some major companies have left Eastern Canada, such as Kellogg, Hershey and Heinz while Western Canada has seen the arrival of some new processors. The newcomers are responding “to opportunities arising from changing consumer demands both at home and abroad.” The report says the European, Pacific and CUSMA trade deals “hold some promise for the future. But Canada must now overcome the emerging headwinds that risk dampening its export prospects. Diversifying trade and adding more value here at home are solutions that could help address these headwinds, but these will require new strategies and approaches and innovative solutions.” Like other Canadian manufacturing industries, capital spending in the food processing sector “has been sluggish since 2009. Major factors that may have curtailed this investment include trade and business uncertainty, tax and regulatory burdens and high electricity and transportation costs and labour shortages that have dampened profitability and the investment environment.” While there has been an uptick in spending on new plants and machinery and equipment, Food and Consumer Products of Canada is concerned about the long-term sustainability of the processing sector, the report said. Statistics Canada found processors lag in advanced technology investment compared to the overall manufacturing sector and many companies “didn't think advanced technology was necessary or applicable,” the report said. “A change in mindset along with investments in new technologies and skilled employees who will be able to make use of them will be necessary to enhance the competitiveness of processors.” Much of the research and development spending in the sector has been by large companies. Most processors are small and tend to invest less in advanced technologies. However, the productivity increases in processing are “higher than in other manufacturing industries. This provides some glimmer of optimism for the future competitiveness of the sector.” Alex Binkley is a freelance journalist and writes for domestic and international publications about agriculture, food and transportation issues. He's also the author of two science fiction novels with more in the works.