Food for Thought – Trading on Healthy Foods Expands Growth in Food Industry

Food for Thought – Trading on Healthy Foods Expands Growth in Food Industry

Health-conscious consumers in North America, Europe and elsewhere are eating and snacking on more organic and nutritious foods. Here’s what three Canadian food innovators are doing in the global marketplace.

Canada has always been a major agriculture and food exporting nation, today ranking fourth in the world with sales abroad of more than $35 billion a year.

But more and more of that food is being manufactured, not just grown here, making food production today the single largest industry in Canada, worth nearly $90 billion a year and employing more than one-quarter of a million workers.

Some of the fastest growth in the industry is in health-oriented foods, such as those that are certified organic or loaded with essential nutrients like Omega-3 fatty acids, and in other specialty or cultural foods being produced by what at last count were nearly 700 Canadian firms.

Those innovative firms run the gamut from the traditional, such as the 107-year-old Group Biscuits Leclerc whose snacks are now sold in 20 countries, to much younger food producers, such as HoneyBar Products International, whose organic and other bars grace grocery shelves throughout the United States and Canada, including those of retail giants Walmart and Safeway. In a class by itself is Manitoba Harvest, the largest vertically integrated hemp food manufacturer in the world.

“Consumers are becoming more knowledgeable and demanding more nutrition in their snacks,” says Wayne Spalding, owner and president of HoneyBar. “I do think if Walmart and Safeway are buying them, there’s a reason for that and it’s that the trend towards healthy food products is continuing.”

However, the market is becoming increasingly competitive. As such, food manufacturers need products that stand out from those of their competitors, says Spalding, who purchased HoneyBar in 1995 when its bars were still produced by hand and only sold locally.

“The big reason behind our success is our honey bars are clean,” Spalding says. “What I mean is we don’t put in additives. Most of our competitors put in things other than honey. What we have is nuts, seeds, dried fruit and honey, which is our only binder and sweetener. It’s also a natural preservative.” Today the Ottawa-based snack food producer sells millions of bars a year, mostly in the U.S. and Canada, and is looking to further automate its operations to keep up with the rising demand.

Eyeing Asian and British snacking

HoneyBar also exports some products to Hong Kong, and Spalding is looking into expanding in the broader Chinese market, where demand among its large population for an increasingly varied and healthy diet is rising with incomes.

The company is also eyeing the U.K. market where its products are already BRC (British Retail Consortium) certified, a globally recognized stamp of approval for food safety.

But even with the highest safety ratings, as well as having some of its bars also certified as organic and kosher, HoneyBar, like other Canadian exporters, faces an additional competitive challenge – the strong Canadian dollar.

“The strong dollar affects us dramatically,” Spalding says, explaining that while most of HoneyBar’s costs are in Canadian dollars, most of its sales are in U.S. dollars.

If long-term projections that the U.S. dollar could weaken further are accurate, HoneyBar’s revenues would be squeezed even more, he notes.

From default risk to hemp resistance

While there’s no shortage of challenges in the global food market, Spalding credits EDC with eliminating a big one –non-payment by a foreign buyer. “They do credit insurance for us, and that’s been a blessing,” he says.

Winnipeg-based Manitoba Harvest Hemp Foods & Oils, meanwhile, has faced and overcome challenges that few other Canadian health food producers have – the law.

The challenges began early for the hemp food producer’s founders who, prior to launching the company in 1998, first had to campaign, alongside farmers and academics, to have hemp crops legalized in Canada.

The next major challenge came from the U.S., which was crucial to its export growth. Manitoba Harvest joined other hemp product makers in a legal battle against a U.S. Drug Enforcement Administration campaign in 2001 to make hemp foods illegal, which led to a temporary ban there on its products.

“The three-year ban and court battle was a major hurdle that slowed, but did not deter, Manitoba Harvest’s growth,” the firm notes in an outline of its history.

Today, Manitoba Harvest’s plant is USDA-certified organic – and the U.S. is its largest market.

Dealing with the dollar

However, as with HoneyBar and many other exporters, the rise in the value of the Canadian dollar is another challenge for Manitoba Harvest, especially with exports accounting for two-thirds of its sales.

“Currency and other export issues will always be there; we just focus on efficiency within our operations to weather out any fluctuations,” says CEO and co-founder Mike Fata.

Despite the high Canadian dollar, Manitoba Harvest has seen its sales increase by 50 per cent in each of the past five years, placing it among Canada’s fastest growing firms.

As with many other innovative niche-market food producers, Fata says the keys to Manitoba Harvest’s success are rising consumer demand and the quality of its products, which are produced fresh and in-house in its kosher and organic-certified facility.

“Manitoba Harvest’s success has come largely from our passion for nutrition and quality,” Fata says. “Consumers have responded by demanding nutrient-dense, simple and delicious foods like Hemp Hearts raw-shelled hemp seeds.”

According to the Organic Consumers Association, Manitoba Harvest offers “the freshest and highest quality staple hemp food products in the world,” including “certified organic hemp protein powder, hemp seed flour, hemp seed oil and hemp butter, made from herbicide- and pesticide-free, non-genetically modified ‘original source’ hemp seeds.”

This kind of recognition has been a big plus to the company. So has the expert guidance and “peace of mind” insurance that EDC provides, adds Fata, “while we pursue opportunities and sales outside of the country.”

“Without EDC, our business strategy and expansion could be more limited,” he says. “Knowing EDC is there to help and offer insight and guidance when needed makes all the difference.”

Food Benefits Pay Healthy Dividends

The highest growth in demand today is for food products that offer extra health benefits. Agriculture Canada spokesperson Patrick Girard notes that the growth in the market for health foods is being driven in part by demographics.

“The rapidly aging population, and the rising prevalence of chronic illnesses such as digestive problems, diabetes and cardiovascular diseases, have strengthened consumer demand for health and wellness foods and beverages,” Girard says. “As a result we are seeing more companies enter into this growing market segment.”

The latest Statistics Canada survey shows the number of firms in the so-called “functional foods and natural health products industry” increasing by 19 per cent a year and their exports by 14 per cent.

And Canadian Grocer’s latest annual survey of Eating Patterns in Canada found that “the baby boomer generation is shifting to healthy eating,” with two-thirds now saying “nutrition is as important as taste when planning a meal.”

“The recognition of Canada’s organic standards by both the U.S. and EU is a game-changer for our farmers and food manufacturers.”

Organic food sales double

Sales of organic foods in Canada alone have more than doubled, to $2.6 billion over the past half decade, and that demand has continued to outstrip supply.

Industry reports also show that production of organic products is increasing throughout the world, particularly in industrialized economies. Canada is ranked third in the world, behind the U.S. and Argentina, in the growth of organic farming.

“Changing consumer and societal demands are influencing changes throughout the whole agriculture and agri-food system,” the latest federal agri-food industry review says.

Consumers are demanding more variety, more convenience, more environmentally friendly and healthier food choices, as well as assurances of quality and safety, it says. Increasing numbers are also demanding food that meets cultural or religious values, such as halal or kosher products.

Farmers, as well as food manufacturers, are responding to those demands, by diversifying production, producing niche products such as organics, adopting environmentally friendly production methods and producing non-traditional products.

Today, Canada has a major leg up in the global market because it is the only country to have its organic food standards and laws recognized by both the U.S. and, just last year, the European Union. Together these markets account for 96 per cent of the $59 billion-a-year market. That’s up from roughly $1 billion in 1990.

The recognition of Canada’s organic standards by the U.S. and then later by Europe was viewed by Matthew Holmes, Executive Director of the Canada Organic Trade Association, as an “absolute game-changer for Canadian farmers and food manufacturers” who export close to $400 million a year worth of organic products.

Nonetheless, the Agri-Canada review warns that finding new export opportunities remains critical to the continued growth of Canada’s food industry sectors.

While the Canadian food industry remains globally competitive, it faces uncertainties, including volatile commodity and foreign exchange markets, and increasing competition from producers in rapidly expanding emerging markets, such as Brazil and China.

Organic foods are grown without use of pesticides and fertilizer and are minimally processed without artificial ingredients, preservatives or irradiation.

Hemp food, much of it organic, is made from hemp seeds, which can be eaten raw, ground into a meal, sprouted, made into a milk, prepared as tea and used in baking. The hemp plant is in the same Cannabis plant family as marijuana, but has different properties.

Leclerc: Creating the Cookie of the Future

Leclerc: Creating the Cookie of the Future

Group Biscuits Leclerc recently expanded its presence in the U.S. health food market with the purchase of Go Pure, a relatively small U.S. organic snack bar producer. And this year it opened its Innovation, Research and Development Centre, located in St-Augustin-de-Desmaures (near Quebec City) to focus on research for more nutritious snacks – what it calls the “cookie of the future.”

This is just the latest development in this 107-year-old company that keeps reinventing itself. A decade ago, Leclerc went beyond just exporting to the U.S. market to investing there – setting up production plants in Pennsylvania and Tennessee, plus a sales office in Boston. Its Canadian operations are in Quebec and Ontario.

Denis Leclerc, CEO of the company, which was founded by his great-grandfather François in 1905, says that having EDC’s guidance and credit insurance was really important when the Quebec snack food maker first entered the U.S. market.

Different states, different tastes

The U.S., in reality, is not one but several regional markets, says Leclerc, each with different tastes and different ways of doing business. After a decade of successful operations there, the firm knows the U.S. “markets,” and the markets there know Group Leclerc. They continue to use EDC’s accounts receivable insurance to mitigate the risks of non-payment by diverse foreign customers, whether those customers are in different American states or overseas.

The company’s products, which are sold both under its own brand and under private labels, are in some 20 countries and in every major retail chain in the U.S. and Canada. Leclerc is now looking at making an acquisition in the U.K., a market it has been selling into for 12 years.

Having production facilities in the U.S. is helping Leclerc deal with the strong Canadian dollar, shifting more of its costs into U.S. dollars. But, going back 10 years, the Canadian dollar was trading at historic lows of less than 70 cents U.S. “Everyone at the time was saying it was foolish moving into the U.S.,” he recalls, convinced even then that their U.S. investments would pay off. Clearly they have.

Despite the recent economic troubles in the U.S., the appetite for snacking hasn’t declined there. Leclerc still sees lots of opportunities for expansion in its major market. “While everybody else is going to China right now,” he says. “for us, the strategy is to expand into markets we’re already performing well in, such as the U.S. and U.K. I can see Leclerc having five plants around the U.S. in the near future.”

One challenge Leclerc did not escape is rising commodity prices, especially for oil, which has sent its transportation costs soaring.

“That’s a major challenge in managing costs,” Leclerc says. “The feeling we have, and it fits a lot with the way of managing our business, is you are going to see a lot more smaller operations that are better located geographically, being able to distribute products at a decent price.”

Volatile prices for commodities used in making snack foods, such as cocoa, sugar, grains and so on, are also a challenge for the family firm. But it’s one that the firm has been dealing with successfully for generations. Leclerc adds that he often relies on the experience of his father Jean-Robert, who is still active as company president at age 75.

“We’re an old business,” he adds, recalling sitting around the family home as a child and listening to his father and his grandfather, Donat Leclerc, discuss the outlook for prices.
While the firm is expanding its presence in the healthy snack food market, it’s not abandoning what Leclerc refers to as its “indulgence” line of traditionally rich and tasty cookies, snack bars and crackers.

One reason, he says, is that health foods, such as those that are organic, still tend to be more expensive; when the economy weakens and income growth slows, demand for those products, especially among working families, could weaken too.

Categories Agri-food

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