Food For Thought

Heather C. Devine, Lawyer, Fasken Martineau DuMoulin LLP and Director, The Empire Club of Canada; Kathryn Bradley, Grade 12 History and Economics Student, North Toronto Collegiate Institute; Grant Kerr, Associate Minister, St. Paul’s United Church, Brampton; Brian Gibson, Senior Vice-President, Active Equities, Ontario Teachers’ Pension Plan Board; The Hon. Margaret Norrie McCain, Former Lieutenant-Governor for the Province of New Brunswick; Doug Morris, President, Morris Glass Inc. and Director, The Empire Club of Canada; Don Taylor, Assistant Deputy Minister, Ministry of Agriculture and Food, Province of Ontario; and Charles S. Coffey, Executive Vice-President, Government and Community Affairs, RBC Financial Group and Director, The Empire Club of Canada.

Introduction by John Koopman

The history of mankind is the history of the lack of food. For the vast majority of mankind’s half-billion odd years on this planet, most of his time was spent scrounging hungrily for his next meal.

In April 1915 Senator Everett Colby addressed this club, reporting on his recent visit to Vimy Ridge. He spoke of the heroic efforts of the thousands of our Canadian soldiers who died on that ridge, but the focus of his address was the growing food crisis on the continent. He exhorted Canadians to strictly ration their food consumption or we would see starving people in France.

As late as February 1946, just after the end of the Second Great War, The Hon. James Gardiner, the Dominion Minister of Agriculture, addressed this club and his concern again was the shortage of food in the world. He said: “The great wars of the past have been caused by men finding themselves unable to feed their families.” Forms of government have been responsible for taking the final act, but all the great migrations have been from thickly populated areas to less densely populated areas, and usually eventually brought war.”

Happily, within a decade of the Honourable Minister’s speech, the green revolution had relegated the Malthusian mathematics to history’s scrap heap of discarded theory.

Subsequent decades of Empire Club speeches are bereft of talk of shortages but focus rather on the price of food. Many of you will know the old English ditty:

Oranges and lemons

Say the bells of St. Clements. When will you pay me?

Say the bells of Old Bailey. When I grow rich,

Say the bells of Shoreditch.

Typical of speeches of this era is Beryl Plumptre’s address to this club when she was the Chairman of the Canadian Food Prices Review Board. She acknowledges the copious supply of food in Canada but bewails its high price. Like King Canute of old, the government of the day believed the tide of rising food costs could be rolled back by the Food Prices Review Board.

Yet by the eighth decade of the last century even price ceased to be a major political issue. In Canada the President of Dominion Stores, at the time the country’s largest grocer, told this club that the average Canadian family spent less than 14 per cent of its disposable income on food. That percentage has probably declined since.

In contemporary Canada, neither the supply nor the price of food are burning political issues. We now face the next frontier, an issue our forefathers would have thought quite luxurious: food safety.

Food safety is now front-page news whether it is as local as our recent hepatitis scare or as distant as Africa where the Zambian government is preventing critical American food from being distributed to the hungry because the corn is genetically modified.

Mr. McCain is the scion of a Florenceville New Brunswick family that you might have heard of. He is an MBA graduate from the Ivey School in London, and former President of McCain Citrus and McCain USA. Currently Mr. McCain is the President and Chief Executive Officer of Maple Leaf Foods, which is Canada’s largest food-processing company. Who better to talk to this club about food safety than Michael McCain?

Ladies and gentlemen please join me in welcoming Mr. Michael McCain to the podium of The Empire Club of Canada.

Michael McCain

George Bernard Shaw once said that the most sincere love of all is the love of food.

I would certainly say that was true for myself with caveats–I can’t cook, except for a plate of pancakes I might whip up for my kids on a weekend, and my taste buds are not that well refined. So my love of food is in fact a passion for the food industry–an industry that fuels the human condition each and every day.

I’ve grown up in this business. I got my start in potatoes and over the years moved to citrus products and value-added frozen foods, followed more recently by pork and poultry processing, pasta and bread. I guess you could say I’m a meat and carbohydrates kind of guy!

I’m here today to talk to you about the Canadian agribusiness industry, some of the challenges we face and, most importantly, the opportunities that are within our reach.

But first, I am reminded of what Ray Kroc, Founder of McDonald’s Restaurants, said once: It requires a certain kind of mind to see beauty in a hamburger bun. Yet, is it any more unusual to find grace in the texture and softly curved silhouette of a bun than to reflect lovingly on the arrangement of textures and colours in a butterfly’s wing?

Obviously beauty is in the eye of the beholder. My challenge here today is to elevate that which is terribly interesting and of the utmost urgency to me and others in our industry to levels that you may find intriguing.

Agriculture and food processing don’t necessarily always elicit this type of curiosity, but I will give it a shot. l would like to establish the following propositions for you all to consider:

• That agriculture is fundamental to the Canadian

economy;

That Canadian agribusiness is globally competitive; we have advantages and we should use them to fuel growth; and,

That consumers care about food safety today more than anything and Canada is doing a good job; if we could figure out how to do a great job in this field, we could be world leaders taking advantage of this growth.

Canada’s Leading Industry

Generally speaking, the scope and scale of Canadian agribusiness and the enormous impact it has on our economy is not well known. In fact, agribusiness in total is critically important; indeed it is an economic power-house.

The agriculture and agri-food industry is the third-largest employer in the country and contributes 8.3 per cent of the annual Gross Domestic Product. It accounts for approximately 6.1 per cent of total exports and is a growing contributor to Canada’s positive trade balance. Canada’s agri-food industry has increased its exports by 115 per cent over the last decade, with one half of all Canadian farm sales resulting from trade we do outside our borders.

More importantly, we have a broad base of economic and structural competitive advantages over other large global agri-food countries that can be the source of even greater future opportunity.

We know that global demand for food is increasing. We also know that the world’s capacity to meet this demand is shrinking. Canada is uniquely positioned to respond to

this challenge, take a global leadership role and reap the benefits of that leadership well into the future.

We are blessed with abundant land to grow crops and raise livestock. Our latitude offers cold winters to kill bacteria. Our geography isolates us from many diseases, while providing ready access to international ports. We also share a very long border with one of the largest consumer markets in the world. We have excellent research facilities and a highly skilled work force. And we have a strong, centralized regulatory system for food production that is one of the best in the world. Simply put, Canada is a great place to produce safe, wholesome food for the world, and we’re very good at it.

All of this adds up to a tremendous value proposition. How do we pull together to leverage our strengths, develop strong public-private partnerships and build a unified position and identity for Canadian food products worldwide? How do we turn this opportunity into reality, and what will be our key competitive advantage?

Consumers Want Confidence

To answer this, it is imperative to understand the emerging attitudes of consumers. In the world of Maple Leaf Foods, our marketers are constantly in touch with consumer insights and feedback on how they feel about food and food products, through ongoing research vehicles. Here is what they are telling us.

First, consumers today constantly want new things. They want solutions to meal problems, they want convenience, and they want to add just enough time and energy to the process so they still feel the validation of having done something good for their family. Marketers now have a term for meals eaten on the go–dashboard dining–and for good reason. More and more of our meals are eaten on the go, and the number is rising.

Since 1990 the number of breakfasts consumed away from the home has increased 75 per cent. Canadians now enjoy “desk-fast” in lieu of “break-fast.” Fifty per cent of all restaurant meals are now take-out or drive-through. Anyone who does the regular QEW or 401 commute or has children in sports will know what I mean.

While roasting a chicken was second nature to our grandmothers, many modern consumers are intimidated by the challenge or just plain don’t have the time or interest. Cooking skills may soon become an art form lost to the professionals. Here’s an interesting statistic. Eighteen per cent of consumers now consider a store-cooked chicken served at home as a home-cooked meal!

Second, consumers want food to add to their well-being or the well-being of their family. They want nutritional performance in the form of lower fat, better balance or foods with other benefits–functional foods that help to lower cholesterol or protect against heart disease and possibly even cancer.

Third, food products have to taste great and provide reasonable value. Time and again, consumers have demonstrated they will not sacrifice the taste experience for other attributes.

Finally, and this is relatively new, consumers want confidence. This is particularly so in the case of meat, where fully 78 per cent of consumers consider safety as a key factor when making a purchase decision.

We want more information. What is in our food? Where does it come from? How is it grown? Is it fresh? We want to know that rules which safeguard our food supply are not only in place but are being enforced–a new and interesting sub-text in an age when institutional credibility may be at a low. And we are a skeptical lot. Sixty-four per cent of consumers express little trust in nutritional claims and feel nutrition information is confusing. We now want hard evidence that our food is safe and nutritious. Just like corporate governance it is not so much the system that has failed but a small number of high-profile incidents that have created widespread concern.

This is a pretty tall order for the food industry! While there are many, many features we must deliver on from convenience to nutrition to innovation to value, today’s crisis of confidence does not just span corporate governance. It exists in our food supply as well.

A recent international study involving 34 countries found that despite advances in food processing not one country had a majority of respondents, who felt their food was safer today than 10 years ago.

Canadians who only five years ago had a natural and unwavering trust in their food sources, today share this concern. Despite international recognition of the calibre of our food production system as one of the tightest in the world, and the fact that Canada has not experienced the challenges seen in other parts of the world, a recent survey found 74 per cent of Canadians are concerned about the safety of their food.

In the world of marketing, consumer perception equals reality and events of the past several years have given consumers ample ammunition to shake their confidence:

The escalation of various food-borne pathogens such as Listeria monocytogenes;

The increase of serious water contamination incidents lowering our national confidence level;

The emergence of BSE in Britain in the 1980s developed from giving. contaminated feed to healthy cattle. In more recent years, we have seen BSE spread across Europe and even into Asia with the Japanese recently reporting their fourth confirmed case;

The occurrence last year of foot and mouth disease spreading like wildfire across the British countryside, decimating herds and costing the British economy an estimated $20 billion.

Similar events in this country could result in denied access to international markets for years at a stretch and a loss of confidence of this magnitude would be very hard to recover from. Ultimately the repercussions have the potential to make the effects of the softwood lumber trade barriers look pale by comparison.

Canada is Well-Positioned

Sound ominous? Possibly so, but indeed our country is well-positioned to turn what might be seen as a challenge for the industry into what could become our most significant edge in meeting the demands of a growth sector. Why? Because we are already well ahead of the pack!

Canada has a highly regulated environment for food production and an international reputation as a producer of clean, safe and wholesome food. Around the world these attributes are almost synonymous with being Canadian.

In fact, our real challenge is to take a good thing and make it a lot better and to continue to raise the bar to establish true and sustainable competitive advantage. Canada’s food industry can deliver on this promise in all respects. As a differentiator, both domestically and in the ever-so-important markets we export into, raising the bar on food safety will give us a calling card above and beyond what other countries can match.

As Canada’s leading food processor and a global exporter of food products for more than 75 years, Maple Leaf Foods is leading by example on this journey. We have worked with the Canadian government to be leaders in the regulatory structure of the Hazard Analysis and Critical Control Points system of approvals (or HACCP for short). We are supportive of proposed regulations that will raise and align food-processing standards across all provinces, with Ontario leading the way by setting higher standards and enforcing them.

In our new product efforts, we have tried to reflect consumers’ desire for higher levels of confidence in our various marketplace initiatives. For example, we have introduced hot dogs made with 100-percent meat and no

fillers or by-products, and bread with 100-per-cent whole grain flours and added fibre.

Most significantly, Maple Leaf Prime Chicken–Canada’s leading brand–was converted a year ago to Maple Leaf Prime Naturally. The birds are now fed exclusively Maple Leaf Nutri-Prime feed, a special blend of nutrition that is a 100-percent vegetable grain formulation containing no animal by-products or animal fats. This sounds simple, but was very difficult to execute and was introduced over the very loud objections of many in the industry, defying a traditional practice of animal nutrition. While there is absolutely nothing technically wrong with this tradition, consumers wanted something more. They wanted more confidence and they got it.

This is the product you had for lunch today. As I said earlier, consumers have also told us they will never sacrifice taste. This product actually tastes better than regular chicken and is 25-per-cent leaner. I hope you liked it. We are launching a similar proposition with Maple Leaf Medallion Naturally fresh pork, bacon and ham. Our industry has come a long way from the all-too-often over-cooked pork chops of our childhood–and we’re only just beginning.

Underpinning all of this is our foundation of food-safety assurance. Last month, we took this to the next level by expressing this commitment in a new positioning statement for all Maple Leaf brand products–Maple Leaf “We Take Care.”

This over-arching position for the Maple Leaf brand “We Take Care” says in clear terms that while we will deliver on the unique attributes of each of our products such as taste, nutrition, convenience and value, we will underpin these with our commitment to continuous improvement in the area of food-safety assurance. At Maple Leaf, this means building a culture of food safety in all aspects of our businesses, reinforcing this with investment in research, people and training, and assuming the highest operating standard of care that technology and vigilance will allow.

A Better Food-Supply Chain

Several years ago we at Maple Leaf began executing our central business strategy in protein, which we termed vertical co-ordination. This strategy was born out of our customers’ demands internationally for food safety assurance and what is referred to as traceability, one of the holy grails of a food-supply chain.

This is the ability to trace a piece of meat, or any other food product you buy in a grocery store, all the way back to the farm operation that produced the animal-tracking every link along the chain.

I was introduced to this goal by Japanese buyers who referred to it as “story pork” or the desire to be able to trace the entire story of meat production from farm gate to consumer’s plate–all for food safety and control reasons. They want to know about the farm the animal was raised on, what it ate, the genetic history and how it was raised. They want to be able to trace back to this history in the event of a breach and they want to make sure we take minute care along every link in the chain.

This is one of the central elements of our very complex vertical co-ordination business model that manages food production with business partners all along the supply chain from origin genetics and animal nutrition through to the final customer purchase.

Keep in mind that global consumption in animal proteins and particularly pork is growing rapidly. The demand growth alone for pork consumption in China over the next decade is expected to exceed the current size of the entire U.S. market. In 2001, Canada became the single-largest exporter of pork products to the world. We have the climate, the grain and the available land that make us ideally suited. We deliver to the most discriminating global markets what is recognized as the highest-quality products worldwide.

The Japanese, for example, value Canadian pork over every other source in the world. They pay a premium for it and one of the key drivers is again food safety.

Our vertical co-ordination business model supports our ability to provide the marketplace with at least partial traceability, in addition to innovative livestock feed and genetics to expand the horizons of a global market for Canadian meat, and please note this is natural selection genetics, not genetic engineering.

In pursuit of full-scale traceability, Maple Leaf is funding DNA identification technologies which allow DNA testing to trace meat right back to the farm of origin and through every link in the chain. This involves developing a panel of possibly 300 genes to use as the animal’s unique identity, like a fingerprint that carries right through to the final meat product in a Tokyo or Toronto store. We believe we are within 24 months of making this a reality. Currently, no country in the world has capabilities and regulatory systems in place to provide full traceability of food products.

Broadening the testing to include all livestock in Canada and other species would require a commitment from government under the form of a public-private partnership. This level of traceability would be revolutionary and truly distinguish Canadian meat products in the global market. It would be a point of difference in food safety that could set us apart and make a mandatory declaration of “Country of Origin,” something we would aspire to, not be afraid of. The returns to Canada in jobs, in exports and in new asset investments would be formidable.

Another area where we are using technology to protect food safety and the environment is in the area of hog nutrient management. Large hog farms operate under the most intense regulations and public scrutiny. We are using global positioning satellite systems (the same technology used in today’s luxury cars) to monitor the spread of manure from our hog production sites. This allows us to scientifically apply just the right quantity and chemistry of nutrients, turning what some may have mistakenly perceived as a waste product into a valuable soil nutrient package. GPS gives us real-time information to monitor application and absorption at the optimal level. The benefit to the farmer, the producer and the environment is significant.

On the farms, we are electronically monitoring hog production. We have l I barns in Manitoba where we are using remote sensing technology to monitor feed distribution, water consumption and quality, and barn temperature. All of this real-time information is gathered into a database and put up on a Web site where producers can access information about their operations and make adjustments to ensure an optimal environment for the animals.

Government and Industry Have a Role Together

I don’t mean to convey that we can fully realize the potential of our agribusiness sector without some significant global challenges.

While we hear a lot about free trade and the importance of a global economy, a protectionist mentality is on the rise with trade barriers and subsidies significantly impacting our industry and ultimately Canadian consumers–from farm to fork, so to speak.

For example, last year Japan instituted “country of origin” labelling for meat products, which means that all products that originated in other countries must clearly state their origin. The U.S. has passed similar legislation. In both cases, the motivation is trade barrier, not consumer protection, as their governments mistakenly feel that identification of domestic product will impair imports.

The pending U.S. farm bill will subsidize American farmers to the tune of US$170 billion over the next 10 years. While the impact of these subsidies on the Canadian agricultural sector is very significant, it is arguably even more devastating in developing countries where the majority of people rely on the price of grain for their livelihood.

The EU and U.S. agricultural subsidies massively undermine the developing world. Canada has chosen not to compete with these unfair trade subsidies, a fact that puts a significant burden on Canadian producers because they have proven they can compete with anyone in the world–except with Washington or Brussels.

That said, we need to view these challenges as market realities and not let them stop us from moving forward. We need to leverage our excellent reputation, make our point of difference in quality and food safety more pronounced, and position food “Made In Canada” as something akin to “German Automobiles” or “New Zealand Lamb” worthy of even more price premiums. And we need not one, but all our industry players to join together to successfully build Canada’s reputation in this area.

I believe the federal government’s Agricultural Policy Framework, with its focus on food safety, innovation and the environment, is a strong step in the right direction. It is revolutionary in recognizing agriculture and food as one industry and indicates progressive thinking that will serve the industry well.

It recognizes the need for sustainable development, innovation and building a consistent Canadian brand that will define our products worldwide.

To establish sophisticated capabilities such as traceability will require public-private partnerships to ensure we lead the way globally and that all Canadian industry players can benefit. To build a “Made in Canada” brand based on delivering the gold standard in food safety assurance will require the government to take a leadership role by supporting critical research, investing in food-safety innovations and enforcing high standards across the industry.

It will require all industry players to join hands and commit to the highest standards, consistency of national-brand strategy and a willingness to stake our reputation on our ability to deliver and back up the brand with action.

At Maple Leaf, we will do our part to take care of consumer demands for safe and nutritious food, both here and around the world. We intend to fill the void of confidence that consumers are longing for. And we’ll always do it with a passion for this business.

I kind of like the notion that working together we can make “Product of Canada” on food labels around the world something that is worth just a little bit more–something we can all be proud of.

The appreciation of the meeting was expressed by Charles S. Coffey, Executive Vice-President, Government and Community Affairs, RBC Financial Group and Director, The Empire Club of Canada.

Ann Curran, Director, Corporate Development International and President, The Empire Club of Canada, Michael F Kergin, Canadian Ambassador to the United States and Allan E. Gotlie b, Chairman, Sotheby’s Canada and Former Canadian Ambassador to the United States.