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Industry Snapshot series

Industry lags competitors in technology spending.

by Scott Bury

Food processing is an important part of the Canadian economy, and a sector that's poised to make Canada an even more important player on the world stage.

Growth has been strong since the end of the last recession in the early 1990s. Production, employment and shipments have all increased. Total production in 2000, was more than $17 billion, about 12 percent of manufacturing GDP and about 2.0 percent of total GDP.

But productivity gains have lagged behind the U.S. and other competing countries. Canada has gained market share in the U.S., but much of that is due to a falling
exchange rate.

While many firms have moved forward, as a whole the Canadian industry lags behind U.S. and European food processors in the use of advanced manufacturing technologies. To reach its potential, Agriculture and Agri-Food Canada, the federal department responsible for this sector, says that the food industry needs to foster an R&D culture.

The Food and Consumer Products Manufacturers Association of Canada defines
processed food with three criteria: it must be packaged (unlike fresh produce or meat); it must be replenished frequently (daily, weekly, monthly) as opposed to durable products like appliances or textiles, and it must be sold through the retail or food-service channels.

Under this definition, "processed foods" include anything in bottles or cans, boxes, or sealed plastic packages: everything from soft drinks to taco shells to "Memories of Manila" sauces.

The integration of worldwide markets will force Canadian producers to change the way they operate, and to accept international standards and regulations. Recent well-publicized problems such as the spread of hoof and mouth disease or "mad cow disease" highlight the dangers of increasing worldwide transport and trade in food products.

But no matter how you feel about increased trade in raw and processed food, the amount of trade worldwide is growing steadily. This growth is helping drive efforts like free trade discussions. These talks will likely lead to consistent standards and regulations across nations and jurisdictions, which lowers costs of compliance for producers and gives better access to wider markets.

Free trade will also open Canada up to more competition. Imports of processed food products grew from 10 percent of domestic consumption in 1988 to 16 percent by 1996. Since then, reports Agri-Food Canada, our balance of trade in the food and beverage sector improved from a deficit of $1.19 billion in 1990 to a surplus of $0.9 billion in 2000. Canadian food processors, like auto parts manufacturers, will soon be playing on the world stage if they aren't already.

Canadian companies have done well in international markets over the past decade. Since the restructuring that took place in the early 1990s, Canadian firms have increased their share of worldwide exports of processed foods from nine to more than 16 percent. The share of processed food exports (as opposed to raw exports such as wheat) grew from 32 to 44 percent between 1988 and 1996. The value of processed food product exports was more than $12 billion in 2000 a huge increase from $3.9 billion in 1990.

The Food and Consumer Products Manufacturers of Canada reports that total shipments of processed food products grew from $53.9 billion to $62.2 billion, or about 15 percent, between 1996 and 1999. The food processing sector grew by 5.5 percent in 1998. The population is growing by about one percent per year, and the FCPMC reports that consumption of consumer packaged goods (mostly food and beverages, but also non-durable goods such as toothpaste) has been stable for the past 10 years.

Growth in production, productivity per worker, investment, profits and most other indicators for food processing has lagged not only against the food processing industry in the U.S., but also against other Canadian manufacturing industries.

Adoption of advanced manufacturing

But when it comes to modernization, with some key exceptions, food processors have been slow to adopt advanced manufacturing technologies (AMTs).

Accounting and consulting firm Deloitte & Touch found that Canadian food processors lag dramatically behind U.S. companies in return on equity, profits on sales and most other financial measures ‹ and, significantly, in investment in equipment, technology and R&D. In the early 1990s, U.S. food processors invested in equipment by four times as much as Canadian firms. "By spending more, U.S. food processors can ensure they have the latest and most efficient production equipment and technology available," states the study, "Benchmarking for success: 2000 financial performance and trends for the North American food processing industry." The study also found that managers in U.S. firms are more than three times as likely (79 percent) as
Canadians (25 percent) to agree with the statement that U.S. firms invest more than Canadian firms and as a result are more profitable.

Hélène Simard, partner with the firm and its National Leader of Consumer Business, as well as a co-author of the report, says this is a major problem in the Canadian industry. "If Canadian food processors don't do anything about it, we will end up losing our market share, our head offices, R&D facilities and innovation to the U.S. firms who do innovate."

A 1999 report by Statistics Canada done for Agriculture and Agri-Food Canada confirms that the food processing industry lags the U.S. in adoption of advanced manufacturing technologies.

StatsCan categorized nine "functional areas" for advanced manufacturing in the food processing industry:

• Processing: transforming ingredients into food products, such as thermal or non-thermal preservation, separation, concentration and water removal, and adding ingredients;
• Process control: technologies such as automated sensor systems, machine vision, automated statistical process control, bar coding, PLCs and computerized systems to tie them together;
• Quality control: automated testing, simulation, and automation in the testing laboratory;
• Inventory and distribution: materials handling, bar-coding, RF-based automated storage and retrieval systems and other technologies seen in inventory and distribution in a range of industries;
• Management and information systems and communications: local-area and wide-area networks (LANs and WANs), enterprise-wide systems, supply-chain management (SCM) and enterprise resource planning (ERP) systems and even the
Internet are captured here;
• Materials preparation and handling: machinery and systems that moved raw materials and product within the processing facility, including automated guided vehicles, robots, conveyor systems as well as electronic sensors that locate mechanical problems;
• Pre-processing: technologies that enhance the quality of raw and semi-processes products, such as removing bran before milling wheat or micro component separation, as well as systems to automate the assessment of the quality of ingredients, such as electronic or ultrasonic grading for non-invasive measurement of carcass fat, near infrared analysis to measure moisture, fat and protein, colour assessment or sorting, electromechanical defect sorting, and rapid testing techniques to identify pesticide residue, contamination and spoilage;
• Packaging: automated packaging equipment, but also technologies and advanced materials that preserve food products ;
• Design and engineering: CAD, CAE and CAM to design and implement advanced
technologies in the food processing plant.

While 88 percent of establishments use at least one advanced manufacturing technology identified in Stats Can's survey, much fewer use more than one and only half use more than five advanced technologies. "This is an older industry," says co-author David Sabourin. "We also asked managers to compare their operations to those of their competitors in other countries, and they tended to feel they were no worse off than were their counterparts outside Canada."

The report's other co-author, John Baldwin, says that the main reason for adopting new technologies, techniques or processes in the food industry is enhancing quality and safety of the product. "Enhancing productivity is important, but it's a secondary reason after safety and quality," says Baldwin.

The study also found a correlation between implementation of AMTs and success, growth and productivity.

Few areas show advances in technology as obviously as food processing. We see innovation every day in our supermarkets and convenience stores.

The technology used most frequently, according to Statistics Canada's study, is communications and computer technology ‹ for monitoring and control of manufacturing processes, as in most manufacturing sectors. Outside of that, in food processing, innovation tends to fall into a few categories: product development; processing of foods; and packaging.

Product development

Development of new food products often requires the development of an automated process. Food processors have been enthusiastic users of advanced materials handling technology for years. The dairy industry, for instance, has used advanced technology not only for milking cattle, but also for processing milk, pasteurizing and packaging the product.

But the development of new packages and manufacturing processes has also allowed the development of new food products. Freeze-drying some decades ago eventually brought flash-frozen berries and seafood to distant markets. New technologies also allow foods to retain freshness and other characteristics much longer.

Techniques and processes that separate food into components and extract essential elements also allow producers to develop new kinds of foods. The expanding and very profitable "nutraceutical" field is one example.

Nutraceuticals are foods that are consumed primarily for their health benefits maintaining good health or preventing disease. This is one of the fastest-growing sectors of the processed food industry, and is very profitable.

But the most important driver or development in food processing is shifting consumer desires. Canadians today are always looking for fresher, more natural and tastier products, says the FCPMC. At the same time, we also demand products that are easy and convenient to prepare. Meal kits and meal replacements have been gaining in popularity, and the FCPMC predicts they will continue to do so.

These two demands fresher and easier to prepare would seem to be contradictory, but advances in food processes and packaging have resulted in new products and technologies that do both.

Non-thermal processing extends the shelf life and freshness of foods without degrading its freshness. High-pressure processing is one new technology which is being applied to shrimp and other seafood: by immersing the product in a specially-developed fluid, the processor is able to increase pressure to the point that any bacteria and spores are killed or inactivated, without increasing the temperature to the point that the seafood is cooked. Thus, the food is safe for transport and sale, has a longer shelf life and retains its essential flavour characteristics which is the reason that people buy it in the first place.

Radio-frequency drying and heating is another innovation in food processing that could result in a number of new consumer products. Rather than using radiation or even microwaves to heat food, a B.C.-based company called HeatWave Technologies (http://www.heatwave.com/) has developed a system that uses radio frequency (RF) waves. The advantage of radio waves is that they use far less energy than microwaves or other forms of heat, and they penetrate the food better, explains Terry Maurice, President and CEO of the Guelph Food Technology Centre, a non-profit organization that helps develop new food processes. "The system instantly heats the whole product, so that the centre is treated as much as the outside and bacteria are reduced or eliminated throughout, without starting to cook the outside."

Packaging

Food processors have been upgrading their packaging equipment for decades. Packaging changes are caused by four variables: advances in processing technology, advances in products, changes in consumer tastes and shifts in distribution patterns.

The move to plastic packaging has meant considerable energy savings for processors, and it has allowed for greater diversity in handling systems and processing systems.

As science creates new and composite materials, they're sometimes adopted in food processing. For instance, BioEnvelop Technologies of Laval, Quebec is working on "biomembranes"; an alternative to plastic wrap, these can be sprayed onto foods to extend their shelf life, but which are safe to eat.

We've already discussed the problems associated with not investing in advanced technologies, but the industry is also facing pressures from the forces of consolidation."The Canadian food processing industry is now very branch-plant oriented," says Terry Maurice of the Guelph Food Technology Centre. "A lot of R&D has been downsized here, and consolidated in the United States."

The Canadian food processing industry has a lot going for it, not the least of which are abundant resources and raw materials, an educated workforce and proximity to the largest consumer market in the world. As world trade in food increases, Canada stands to gain immensely from increased exports.

Scott Bury is a frequent contributor of technology-related articles, and the author of our six-part Industry Snapshot series. You can reach him at s-bury@home.com.

© All materials in this report are copyright protected and the property of CLB Media Inc., the publishers of Advanced Manufacturing magazine.