Economic Resilience for Local Food

Eastern Ontario Local Food Conference

Steve Duff OMAFRA Chief Economist

Overview

• How does a shifting global trade environment affect our local food systems?

• How does a local food system create economic value both for its consumers and its producers?

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Overview

• Ontario’s Agri-food sector

• Agricultural Trade Policy

• Local Food Consumption Example

• Economic Resilience of Local Food

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Ontario’s Agri-food Sector

DISTRIBUTION

RETAIL $39.5 billiona , 179,684a jobs

INT’L AGRI-FOOD EXPORTS $12.5 billiona

FARM $12.5 billion sales

81,800a jobs

INTERNATIONAL AGRI-FOOD IMPORTS

$23.4a billion

FOOD MANUFACTURING INDUSTRY

Over $36.9 billionb, and over 95,457a jobs Almost 3,000 establishments

Total jobs – 781,639a, 11% of provincial employment

Source: OMAFRA statistics 2013; a OMAFRA statistics 2014; b Food manufacturing revenue as at 2012

FOOD SERVICE $21.0 billion, 373,298a jobs

ONTARIO AGRICULTURE AND FOOD AT A GLANCE

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Source: Statistics Canada, OMAFRA website, OMAFRA calculations

Ontario Food Consumption

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Source: Statistics Canada, OMAFRA website, OMAFRA calculations

Food at Home & Away from Home

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• In 2015, Ontario production at 71% of vegetable demand down from 72% in 2000

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Ontario Vegetable Production vs Demand

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• In 2015, Ontario production at 12% of fruit demand down from 25% in 2000

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Ontario Fruit Production vs Demand

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Integrated North American Food Market

• Since World War II - steady increase in % of imported foods due to rising incomes, population, changing demographics

• Now about 40 percent

• Top imported foods to incl fruits and nuts, beverages and spirits, vegetables, and pasta and other grain preparations.

• Fully integrated North America and world food market

• Global trade has led to specialization which has helped to keep food prices low, but has also increased complexity in the food sector.

• Growing complexity has led to a rise in efforts by companies, and governments to design and implement food traceability initiatives.

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Integrated North American Food Market

• Ontario’s vast scale and geographic and climatic diversity, and its immense reserves of fresh water, provide a wealth of natural resources to support food production.

• Combination of our cold climate and a relatively small population means that the potential for domestic growth is somewhat limited

• Companies seeking to expand significantly are putting a large focus on growing their businesses through exports.

• We can create the conditions that support growth while contributing to safe and healthy food, sustaining our environment, and providing greater access to food in Ontario, Canada and around the globe.

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Integrated North American Food Market

• Exports are not the only way to create opportunity.

• Another strategy is to tailor products to specific markets or in some cases market niches.

• Strong opportunity to displace imports in many specific markets but to do so in large volumes requires cost competitiveness

• It is not always about the lowest cost and largest scale. .

• Sometimes it is about innovating to explore specific market niches.

• Tailoring to niche strategies are often easier for smaller firms to pursue.

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Integrated North American Food Market

• Food sector in Ontario is in a unique position today.

• Some aspects of food are highly integrated, involving complex relationships and supply chains around the world.

• Other aspects of the sector are intensely rooted in local communities.

• We have the opportunity today to create the conditions that will support growth in both these aspects of Ontario’s food sector

• The two together can provide a strong provincial and local economic engine, contribute to safe and healthy food choices and sustain our environment.

Agri-food Trade Policy

Trade in agriculture and food • What is it?

– commodities trading – foods goods, beverages, alcohol – Equipment, technology

• How does it fit into the current trends?

– growing & more diverse Canadian population – local foods / 100 mile diet – healthy living – food sovereignty

• The prevailing issues: market integration, mature economies

and comparative advantage

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Agricultural trade: Canada / Ontario • Canada is the sixth largest agri-food exporter after the European

Union, the US, Brazil, China and Australia • Also world’s sixth largest agri- food importer

• Ontario's agri-food export interests tend to be distinct from western commodity focus: – 84% of Ontario agri-food exports are intermediate or consumer-ready

products – pasta, bakeries/tortilla manufacturing, grain and oilseed milling and meat product manufacturing, and beverages

• About 74% of Ontario exports are destined for the US market – Mexico, EU are other key markets

• About 53% of Canadian agri-food exports to US • The vitality of trade activity in the region in perspective: two-way

trade crossing the Ambassador Bridge between Michigan and Ontario equals all US exports to Japan

• one truck crosses the Canada/US border every 2.5 seconds 16

Agricultural Trade Policy • Trade in agri-food was large and generally unimpeded prior to

World War I • Since World War II agriculture has been a main “sticking point”

in trade negotiations • Bulk of issues arose from process of North America feeding

Europe for many years • Uruguay Round Agreement on Agriculture of 1994 sought to

bring agriculture into General Agreement on Tariffs and Trade (GATT) which was formed in 1947 to cover trade in all other products because: – As world economies and populations grew they needed more trade – Ag policies inflict costs on domestic economies and trade partners – A given level of producer support is more costly to achieve with

tariff than with producer subsidy

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Canada’s FTA Coverage*

*Note: FTA coverage does not include WTO Agreements.

Countries with Completed Free Trade Agreements

Countries with Free Trade Agreements Being Negotiated

Countries with Free Trade Agreements in Exploratory Discussions

All other countries without Free Trade Agreements with Canada

• WTO set the stage for further liberalization of trade but didn’t provide a good base for free trade

• Many countries leaning toward bi-lateral or multi-lateral free trade agreements

• Focus on free trade and worry about domestic subsidies afterwards

Local Food Consumption Example

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Hastings County at a GlancePercent of

Item Hastings Province province

Population, 2015Total .……………………………............................... 138,305 13,792,052 1.0%0 to 19………………………………….……………… 28,600 3,038,549 0.9%20 to 64…………………………..……………………… 80,985 8,542,351 0.9%65 and over…………………..………………………… 28,720 2,211,152 1.3%

'Population growth 2011-2015Total .……………………………............................... 0.0% 4.0%0 to 19………………………………….……………… -6.6% -2.1%20 to 64…………………………..……………………… -2.1% 3.3%65 and over…………………..………………………… 14.8% 17.2%

Family Income, 2011 National Household SurveyEconomic families (number)…………………………… 39,615 3,528,375 1.1%Economic families average income($)……………… 76,690 100,152 76.6%Couple-only (number)………………………………… 17,435 1,197,250 1.5%Couple-only average income ($)……………… 70,994 89,678 79.2%Couple w ith children (number)……………………… 15,475 1,689,175 0.9%Couple w ith children average income($)…………… 94,434 121,285 77.9%Lone-parent (number)………………………… 5,505 520,715 1.1%Lone-parent average income ($)…………………… 46,341 58,622 79.1%

Source: Statistics Canada, OMAFRA website, OMAFRA calculations

Hastings County Profile

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Hastings County Food Expenditure

• Average Ontario rural household spends $8,962 per year on food 71% from stores and 29% from restaurants

• Hastings county has 39,615 households with an average income of

$76,690

• Households in Hastings County thus spend roughly 12% of their income on food - provincial average is 8%.

• This higher % means that many Hastings county residents are likely to look at their food purchases, sources and budgets different than the average Ontarian

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Local Food Demand vs Production

• Like the province itself, no one county or community in Ontario is truly self-sufficient in balancing food demand and production

• In most rural communities while food is a much larger portion of incomes, food is also something with much greater visibility and understanding.

• Inherently food production is intensely rooted in local rural communities.

• The ability of a community, and its food producers to understand the local balance of food demand and production and the income situation of its residents is vital to maintaining an economically resilient local food system

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Provincial Yield

Hastings County

Production

Produce Fresh (kg/cap) Total (kg/cap) Fresh (kg) Total (kg) Yield (kg/ha) Fresh (ha) Total (ha) Total (ha) Consumption (kg) Area (ha)Apples 11.00 19.76 1,520,802 2,732,630 21,466 70.85 127 31 380,200 18Beans green & wax 0.92 1.94 126,964 268,312 6,333 20.05 42 6 31,741 5Corn 3.48 7.61 481,025 1,052,224 11,451 42.01 92 120 120,256 11Strawberries 3.59 4.27 496,515 590,839 5,604 88.60 105 17 124,129 22Tomatoes 8.55 30.84 1,182,784 4,264,773 72,687 16.27 59 13 295,696 4

TOTAL: 237.77 425.66 187.00 59.44hectares hectares hectares hectares

Annual consumption per capita

Consumption for population

Fresh produce only for a 3 month summer:

How much area for the population?

Source: Statistics Canada, OMAFRA website, OMAFRA calculations

Estimated Hastings County Food Demand vs Production

Economic Resilience of Local Food

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Local Food Value Proposition

• How a person/family/community defines what foods are or are not local, depends on the nature and context of that person/family/community.

• No agreed-upon definition of local.

• Local food does however resonate with three major ideas: • Close relationship with those who grow food; • More likely to be grown and distributed in a sustainable and

ecologically-sound way; and • Helps support local businesses

• To foster economic resilience, a fourth point needs to be considered

which requires there to be a value proposition to the farmer – presumably in the form of larger returns

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Local Food Value Proposition

• Every product needs a value proposition

• Value proposition is how a product is distinguished from all others in its domain so that target customers consciously select it as a superior option.

• Well-defined and effectively articulated value propositions can transform ordinary products into extraordinary experiences.

• A strong value proposition is an attempt to achieve customer loyalty by setting appropriate expectations about a product and ensuring these are consistently confirmed at high levels.

• Setting appropriate expectations is extremely complex

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Local Food Value Proposition

Hastings County example: In summer, local stores offer California strawberries, at the same time that Hastings county produces close to the required number of hectares to supply the community

• Consumers: taste, freshness, convenience, assurance of safer

production methods or price?

• Farmer: increased production, reduced costs, reduced waste, higher price

• Are these value propositions enough for the farmer to ensure a reasonable profit and for the consumer to choose local over California?

• An economically resilient local food system balances these questions.

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Economically Resilient Local Food

• A local food system balances these questions by first recognizing that the answers lie at the individual farm and consumer level.

• Farmers need to: • Know their costs in order to appropriately price their products • Develop a sound value proposition to articulate to consumers

• Consumers need to:

• Understand what value propositions matter most to them: price, quality, other attributes

• Understand what attributes the product offers • Recognize seemingly similar products may be different due to value

propositions that are not physical in nature – e.g local food

• Balancing these questions enables each party to maximize its own value proposition and adjust their decisions if their value propositions are not adequately met

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Summary

• Ontario is part of an integrated North American food system • Growing incomes and population has increased the need for

imports • In many respects all food produced in Ontario is local • Like the province itself, no one county or community in Ontario is

truly self-sufficient in balancing food demand and production • In most rural communities while food is a much larger portion of

incomes, food is also something with much greater visibility and understanding.

• The ability of a community, and its food producers to understand the local balance of food demand and production and the income situation of its residents is vital to maintaining an economically resilient local food system

• In doing so local farmers and consumers balance a series of value propositions that are beneficial to both parties