A worker carries an air filter during wheat harvest on the Stephen and Brian Vandervalk farm near Fort MacLeod, Alberta, September 26, 2011. Wheat is the most important cereal in the world and along with rice and maize accounts for about 73% of world cereal production. Canada is the world's third largest exporter, producing annually an average of over 24 million tonnes. The world's population will reach seven billion on 31 October 2011, according to projections by the United Nations. While more people are living longer and healthier lives, says the U.N., widening gaps between rich and poor mean more people than ever are vulnerable to food and water shortages. Picture taken September 26, 2011. REUTERS/Todd Korol (CANADA - Tags: AGRICULTURE FOOD BUSINESS COMMODITIES)TODD KOROL/Reuters
Still dazed by oil's price collapse in 2014, Alberta's economy is gradually finding its feet. All eyes have been fixed on the drama playing out in the oil patch, but all the while other sectors have been quietly developing new products and markets.
The biggest surprise has been Alberta's burgeoning food sector. In an ironic twist that many didn't see coming a decade ago, the province has returned to its original roots in agriculture – but this time it's producing consumer food products for the 21st century and finding lucrative markets around the world. It's not just for wheat, canola and cattle. It is for niche products such as organic honey, high-protein bison, award-winning gin, unprocessed cereal products and high-value greenhouse vegetables.
In fact, in terms of dollar value, food products have overtaken refined petroleum products as the largest manufacturing sector in Alberta. In June of this year, the total value of refined petroleum slumped to $971-million (seasonally adjusted), well below the glory-days high of more than $2-billion in May 2014. On the other hand, food manufacturing has grown steadily in value to more than $1.2-billion.
The chart below shows how refined petroleum has lost ground – and food has gained – in relative terms over the last five years. With the value of production in June 2011 set equal to 100, food manufacturing now has an index value of 122, while refined petroleum manufacturing has dipped to only 64.
Admittedly, the decline in refined petroleum products has been entirely due to low prices for products such as gasoline, jet fuel and diesel. The volume of production has remained constant, and if prices were to rebound, so would the value of refined manufacturing.
Alberta's food manufacturing, on the other hand, has grown both in value and volume terms. New products and markets have lifted food to become the province's most valuable manufacturing segment. Three factors that have provided the spark.
The first is changing consumer preferences in food and culinary experiences. This is not restricted to Alberta: Food consumers all over the world are demanding better quality, less processing and more transparency in nutritional content. The closer to the consumer a product is farmed and produced, the better. That's a trend that gives Alberta (and indeed much of rural Canada) a competitive advantage.
Previously, Alberta's smaller population and geographical distance from major markets made mass food processing uneconomic. The enormous factories in Toronto or Chicago could churn out packaged cookies, boxes of colourful cereal and cans of cooked vegetables at a price point unimaginable for a small, niche producer. That's why small pasta manufacturers on the Prairies, for example, could never compete.
Now, the tables have turned and the advantage favours the small guys. Sales of mass-produced, highly processed foods have flat-lined. Consumers are willing to pay a premium for niche products grown and produced close to home. High-end restaurants go out of their way to promote their locally sourced meat, cheese and vegetables. Back in the 1980s, Calgary restaurants would never have boasted about the cheese from Sylvan Lake (about 90 minutes northwest). But today they do – and they can command a price premium for it.
The second factor is growing markets abroad for niche Canadian food products. Tourism from China is increasing – a major Chinese airline just started non-stop flights from Beijing to Calgary. It still has a lot of growth potential, but Alberta food producers can capitalize on Chinese interest in all things Canadian. (In a recent conversation, a shop-owner in Hinton, Alta., who sells specialty foods and gifts reported that a busload of Chinese tourists stopped in the other day and "bought everything in the entire store.")
The third factor is government support. As much as the market libertarians don't like to admit it, there are some sectors that need a boost from the public coffers to get off the ground. The Food Processing Development Centre in Leduc – funded by Alberta Agriculture and Forestry – has helped small, niche players in the industry test recipes and develop marketing experience.
Organic honey is never going to replace a barrel of West Texas Intermediate for supremacy in Alberta. But thousands of new food producers–small and niche as they may be–can provide better balance and diversity in the province's economy.
Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.