Why processing beans, peas and lentils could solve Canada’s ‘commodity conundrum’

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Durum wheat is as good a place as any to try to wrap your head around one of the more stubborn problems in Canadian food production. Millions of acres are devoted to growing the crop. Local producers then mill and ship it around the world, making the country a major player in the global export market.

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What happens next is the problem.

“It’s being processed somewhere else and we buy it back in pasta,” Agriculture Minister Marie-Claude Bibeau said.

That pasta represents a missed opportunity for the Canadian economy. That wheat that sells relatively cheaply on the commodities market ends up in another country, where companies create jobs and pay taxes to turn it into consumer goods that can then be sold at a healthy markup.

“We can definitely do more as a whole industry,” Bibeau said in a recent interview about increasing Canada’s food processing capacity. “This is something I’m struggling with.”

It’s not a new struggle. Canada’s ability to grow crops in abundance has long outmatched its ability to process those crops into higher-value consumer goods, but that could be about to change, due in large part to beans, peas and lentils.

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Those crops — known as pulses, all grown in massive quantities in Western Canada — are some of the main players behind the plant-based protein craze. The market for those products — Beyond Meat Inc. burgers and the like, protein supplements, and dairy and egg substitutes — is projected to hit $250 billion in the next 15 years, according to a report by Ernst and Young.

Federal cabinet ministers, industry advocates and food processors all believe that growth in plant-based products represents a rare and fleeting chance to finally build the Canadian food-processing sector into a global powerhouse. If it does, some estimates suggest homegrown processors could capture 10 per cent of that $250-billion market. Currently, they have just 3.3 per cent.

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“We have a once-in-a-generation opportunity,” International Trade Minister Mary Ng told the Financial Post in an interview last month.

Earning more money isn’t the only advantage. The pandemic has exposed the problems of being dependent on other countries to produce your food. In times of crisis, unexpected surges in demand and logistical complications can shoot through the global supply chain, and some trading partners can get a bit touchy about sharing.

We have a once-in-a-generation opportunity

International Trade Minister Mary Ng

Exporting processed, packaged goods — such as canola oil — is also considered less risky than exporting commodities, since bulk shipments can face intense, sometimes political, scrutiny at foreign ports for food-safety problems and pests.

For example, China in 2019 started rejecting canola seeds from Canada after alleging that inspectors detected pests in samples from a Canadian shipment — a move that many interpreted as retaliation for Canada’s arrest of Huawei Technologies Co Ltd. executive Meng Wanzhou.

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Bibeau said the risk of such “non-tariff barriers” is higher for raw commodities than it would be for, say, a Canadian company that processes the crop into “a bottle of oil.”

The opportunity to boost Canadian processing isn’t just in making veggie burgers. Most in the industry believe that Canada’s wealth of pulse crops make it uniquely suited to extract proteins from the crop and then process them into concentrated protein ingredients for plant-based products. Those ingredients are required in lower volumes than raw commodities, but fetch higher prices.

The rising need for plant protein could spell the end of Canada’s “commodity conundrum,” said Murad Al-Katib, chief executive of Saskatchewan pulse processor AGT Food and Ingredients Inc.

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“Instead of selling yellow peas to China, we’re going to sell pea protein concentrates,” he said. “We’re seeing the barriers breaking down and the vision changing.”

But ramping up the production of such ingredients depends on a major wave of private-sector investment, infrastructure development and regulatory reform to pave the way for state-of-the-art facilities that specialize in isolating and extracting protein from pulses.

Several of those projects are already underway, including a $600-million project built by France-based food processing giant Roquette Frères SA in Portage la Prairie, Man.

Still, more plants need to be built. The Roquette plant is expected to process 125,000 metric tonnes of peas per year when it reaches full capacity next year. Canada will need to process an additional six or seven million metric tonnes to have a shot at capturing that 10 per cent of the plant-based market in the next decade or so, according to Protein Industries Canada (PIC), one of the five federally funded superclusters designed to spur innovation and investment in emerging sectors.

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“This is not trivial stuff,” said Bill Greuel, PIC’s chief executive. “I hope I’m giving you a sense of the scope and the scale of what’s at stake here for Canada.”

The concern for Greuel and others is that Canadian investors and legislators won’t act fast enough, thereby allowing another country to take up the opportunity instead. Currently, Canadian ingredient manufacturers’ share of the plant-based market is only in the low single digits, he said.

There is a race on right now to build out the ingredient-processing capacity, because once it’s built, it’s built

Bill Greuel

“There is a race on right now to build out the ingredient-processing capacity, because once it’s built, it’s built,” he said.

A lot needs to change if Canada is going to compete in that race. First, Greuel said, the talent pool for food sciences and engineering needs to grow. The federal and provincial governments also need to offer better incentives to attract foreign multinationals to build here.

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Investors need to step up, too. PIC has provided government funding to roughly 22 projects since its inception in 2018, including an investment in Merit Functional Foods Corp., which recently built a new pea and canola protein processing facility in Manitoba. But many domestic startups that have developed new production techniques can’t round up enough capital to build a plant.

“They’re long on intellectual property and short on assets,” Greuel said. “The VC community or the capital community is not really interested in them, because it’s a longer hold, it’s risky because they don’t have assets to borrow against and they’re not cash positive.”

But he said one of the most urgent needs in the chase to ramp up plant-protein processing is changing Canada’s “archaic” regulations on plant-based protein.

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The current system hasn’t kept up with changes and innovation in the industry, and what’s left is a confusing mix of rules that often contradict one another.

For example, Greuel said plant-based chicken nuggets have to be fortified to a protein level higher than that expected of real chicken, while oat milk is not allowed to be fortified to the same standard as standard milk.

“I could go off for about an hour on this one,” he said, adding that regulations are so out of step with the United States that some Canadian producers have stopped supplying their products domestically to focus entirely on the American market.

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“If we don’t think about modernizing our regulatory system in Canada to support the growth and development of plant-based foods, we’ll never be competitive on a global scale,” Greuel said.

Maple Leaf Foods Inc. — a Mississauga, Ont.-based packaged meats processor that has made major investments in plant-based alternatives — recently cited regulatory issues as one of the reasons it decided to build a US$310-million production facility in Indiana for its plant-based wing, Greenleaf Foods.

Chief executive Michael McCain said the decision was “not because we prefer Indiana over a Canadian jurisdiction, but because 95 per cent of our business is in the United States.”

Greenleaf makes plant-based products for consumers through its Lightlife and Field Roast brands, and they are heavier than powdered plant protein ingredients, so it makes more sense to both buy the ingredients from agricultural areas and make the products closer to the consumer to cut down on shipping costs — one of the business’s main expenses.

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McCain said there are common hurdles in the way of both prospective ingredient and consumer goods manufacturers that are looking to set up a new operation in Canada.

“It’s certainly no secret that the U.S. regional jurisdictions are much more aggressive in attracting investments per capita in the United States than in Canada,” he said. “U.S. governments roll out the red carpet to attract investment. They usually do it in the form of infrastructure support and that’s usually not competitive in Canada.”

Processors in Canada supply some ingredients to Greenleaf, though McCain said the Canadian ingredient manufacturing sector is not currently a major player in the global market.

But that, he added, could change.

“There are very significant investments being made.”

Financial Post

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