There is a “Missing Middle” in Canada’s ag and food sector — a kind of bottleneck caused by how the country’s mid-sized ventures are getting swallowed up by the few large corporations that supply most of the food that Canadians buy.
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As problems go, this one might seem unimportant or maybe even irrelevant, but for today’s farmers — and especially for farmers looking to grow and diversify their businesses — this hollowing out has very real consequences.
That’s because the infrastructure and the support services that would facilitate startups and innovative business strategies like value adding and vertical integration are increasingly missing from our regional food systems.
Want to flex your business smarts? Want to grow your farm without growing your land base? More and more often, Canada lacks the environment for vertical integration, value adding or diversification. The essential services — the people we used to call “middlemen” — have moved in-house with the large corporations.
Importantly, the investment needed to support small and medium-sized food ventures has tightened too.
Expansion-minded farmers aren’t the only ones to feel the potential consequences of this trend. As we’ve seen this decade, today’s complex, long-distance supply chains are vulnerable to disruptions like pandemics, wars, trade disputes, weather-related disasters… or even a simple computer glitch like the CrowdStrike update that created havoc in July.
In fact, the list of vulnerabilities keeps growing. Today’s supply chains get accused of everything from exploiting low-paid workers to pumping out greenhouse gases, resulting in the threat of more regulation and higher production costs at every step.
“Our hollowed out regional food systems in Canada are now being seen as hugely problematic,” sums up Sandra Mark, founding executive director of the Small Scale Food Processor Association (SSFPA).
“The missing middle contributes to food insecurity for all Canadians,” Mark says, “as well as making it very challenging for local and regional food producers to reach the market.”
As a result, rural communities have lost small, independent businesses along with many of the jobs and economic activity that growing farm businesses can create.
Consolidation has also driven up costs for consumers for everything from transportation to a loaf of bread.
Country Guide readers might think the pandemic sparked so many headlines about supply chain issues that they’d still be hot-button issues. Often, though, they aren’t. When Penny Fox, general manager of Community Futures for the St. Paul-Smoky Lake region of Alberta, walked into her local Co-op grocery store in June, she found many food shelves were bare. A “supply chain/computer issue” had already closed down all the Co-op’s cardlock gas stations, and stores across northeast Alberta were unable to bring in food and other grocery items from the Federated Co-operative warehouse in Edmonton.
“People don’t get it until they walk into the store and there’s no food there,” says Fox. “They’re still surprised when there are empty shelves. Why?”
The opportunity
How do we fix the missing middle?
In part, the missing middle is a result of a trend well known to farmers. As independent business owners retire with no one to carry on operations, they get gobbled up by larger companies.
Even some popular farm programs get a share of the blame, such as export-oriented agri-food policies and a regulatory environment that favours large-scale processors.
In farm country, though, the biggest impediment is money. Investment in Canada’s food system is chronically low.
More research is showing how hard it is for small food producers and processors to get money to grow their businesses, even when the demand and potential markets are there. Part of the problem is, most people simply don’t understand how the food system works.
Now, however, there’s growing support for a strategy called re-regionalizing our food systems, with its focus on supporting farmers and small and medium-sized businesses.
Mark, for instance, has focused on the concept of building co-operative, localized value chains. SSFPA is working on a comprehensive resource library and a business plan platform for food entrepreneurs that will help potential investors better understand their business and place within in the industry.
But there’s another huge issue, and there’s a drive underway to create an early-stage fund so investors can help grow the food system.
“If they put their money into the fund, they have the assurance that the due diligence will be done for them,” Mark says.
There is potential for farmers to be in on both ends as creators of new ag and food businesses and also as investors, says Kent Mullinix at B.C.’s Kwantlen Polytechnic University.
“We have to create the economic environment for this post-production sector to emerge,” Mullinix says. “In doing so we will create new business opportunities for farmers and local food businesses, and allow substantial economic benefits to be captured and multiplied.
Unequal impacts
For women food entrepreneurs, it’s even more difficult.
Make no mistake, there are a lot of women entrepreneurs across the country. About two-thirds of the Canadian food businesses in the SSFPA are owned by women.
Even so, research by multiple universities and a new SSFPA survey show women business owners still have a tougher time getting financing.
“Every woman who is trying to get a business going in the food sector is running into the missing iddle,” says Mark. “So often a woman would have a good product, and a big retailer would want the product in all their stores, but she would have to give up because she couldn’t possibly grow fast enough to make that happen. We see founders quitting at the point when they should be ready to grow, because they couldn’t get money to grow.”
Statistics Canada data shows that although small and medium-sized enterprises (SMEs) generally have the same capital needs, and request similar levels of funding, women entrepreneurs generally receive 58 cents on the dollar compared to men entrepreneurs. WEKH (Women Entrepreneurship Knowledge Hub) also found that in Canada, women business founders receive only four percent of venture capital, and Mark says the figure for the food industry is likely even lower.
In response to the shortfall, SSFPA turned to the federal government’s Women’s Enterprise Strategy for support putting together a program called Venture-Capital Ready (VCR).
“The aim was to give women the tools that they need to understand the investment process, and to understand how they had to strengthen their business and their financial and personal confidence, so they would be in better shape to go forward and seek investment,” says Mark.
Initial expectations for the VCR were conservative, Mark says. They anticipated they might recruit 25 women from across Canada into the program, but as of late July 2024 the number is more than 200.
“The demand for this information and support is strong. Most of these women entrepreneurs need a lot of support to prepare to face even an interested investor,” Mark adds. “The program includes specialized training resources including the InvestorQ&A program and awareness training for investors as well through our investment partners SVX and Movement 51.”
Many of the women applying for the VCR don’t end up in front of potential investors because they aren’t ready. The strength of the program is that it has developed an extensive database of resources from all around the country that women can access online to find help and training for whatever stage in their business journey they are at.
Questions for women
One of the biggest issues for women is that investment sources ask women different questions than men.
“There are unconscious biases that the women are forced to deal with that men are not,” says Dr. Ellen Farrell who works with SSFPA to deliver the InvestorQ&A training as part of the VCR program.
That unconscious bias usually means women are asked questions that put them on the defensive rather than providing an opportunity for them to shine. As an example, investors may ask a woman questions about their family and community involvement because they may see her as someone engaged in a side hustle or only looking to earn pin money, not really as a serious business prospect.
By contrast, investors ask men more aspirational questions specific to their business, such as where it is going, target markets and their launch strategy. In other words, men, unlike women, get prompted to trot out their business acumen and growth plan.
Learning investors’ language
Through her InvestorQ&A program, Farrell is training these women to speak the language that investors want to hear.
“We help them build competence,” she says. “They have to be the rock stars in the room and talk about their vision and their growth.”
It’s training that many women find useful, says Farrell, even if they aren’t necessarily seeking investment.
“Women who are in the food business or on farms already demonstrate immense leadership because of what they do,” Farrell says. “Mastering the Q&A is going to help any woman be a leader — a real partner on the farm or in their business.”
“We encourage processors to find their product from somebody close at hand,” she says.
Why venture capital?
While it’s true that venture capital isn’t a fit for every type of business, it’s increasingly being used as a tool by many that have the potential for or are experiencing rapid growth. It’s a dangerous stage because it’s often when businesses have a hard time accessing money through conventional financing.
Sandra Mark, founding executive director of the Small Scale Food Processors Association (SSFPA), says many of the small businesses she sees have had to go it alone.
Venture capital can be a good fit for such businesses because it injects the kind of investment that allows them to grow, she says.
Adds Dr. Ellen Farrell, “With a bank loan, you have to start paying it back a month after you get it, but with investment capital, investors become a minority partner.”
Investors have a vested interest in seeing business owners succeed and often offer advice and expertise to assist the business to grow rapidly, which also contributes to the strengthening of local economies.
“Together you develop a promising growth company that later on you will be able to sell,” Farrell says. “Some people just want to have it as their baby, and that’s totally fine but it doesn’t work for venture capital. Venture capital is about growing fast and there’s lots of venture capital for the people with the ability to do that.”
What are venture capital investors looking for?
Imagine you have a business that produces an agri-food product and it’s growing fast. Along comes a major retailer that wants to carry your product but you don’t have the money to scale up the operation to meet the demand.
Enter venture capital. It’s a good solution for this type of business scenario, where an investor (VC) injects capital into the business for a stake in the company. But it’s a very competitive process. It’s even harder for women food entrepreneurs, who aren’t perceived in the same way as men when they approach investors with their business pitch.
So, what are investors looking for? What do you need to know walking in to pitch your business idea and go through the Q&A session with potential VCs to help focus the conversation in a way so they will choose to invest in your business?
Position yourself as a leader
“You are not there to ask, you are there to tell,” says Dr Ellen Farrell, who offers a program, InvestorQ&A, that trains women entrepreneurs how to talk to venture capitalists with an aim to securing investment. “It’s not about the product, it is about the leader and the company.”
Don’t get discouraged
“You will be one of the lucky ones if the first VC or two that you run into really likes what you’re doing,” Farrell says. “It’s easy to lose confidence when things don’t work for you right away. But this is a big stakes game, so you have to understand how hard that’s going to be.”
Really know your customer
It’s not enough to simply spout demographic data. In today’s world, you have to really know your customers. “Show VCs that you understand how end-users buy, what they do, how they live their lives, and why your product is important to them,” Farrell says.
Stick to your time limit
“If they give you five minutes, you can’t go seven minutes,” Farrell says. “You have to pick out all the essence that’s the most important and make sure you convey that in the time you have to deliver your pitch. Then the Q & A will begin.”
Have a clear vision
“If you can’t see what the end point is and where you want to go, how can you build a plan to get there?” Farrell says.
Create value
Says Farrell: “Focus on the value that you’re creating; why is what you’re doing 10 times better than what somebody else is doing?”
The bioregional approach
Research underway at B.C.’s Kwantlen Polytechnic University is looking at the concept of bioregionalization to link the agriculture and food systems at a scale large enough to create a viable system. Early numbers are impressive.
The idea is to do a better job of matching the foods needed by restaurants, institutions and other large food buyers in a region with the kinds of food that can be produced there.
“A bioregional food system would operate within the environmental capacity of the bioregion,” says Dr. Kent Mullinix, director of the Institute for Sustainable Food Systems at Kwantlen, who is heading up the research. “It results in a region that is big enough to support all the components of a viable, robust food system.”
Bioregional models are designed to calculate the extent to which a region could feed itself and the economic outcomes if it does, and Mullinix’s research is modelling two theoretical bioregional food systems: one for southwest British Columbia and one for the Okanagan region.
Results in both regions show a higher level of food self-reliance and some impressive economic benefits for farmers and the communities in the region.
Currently the Food Self Reliance level of the Okanagan region is at about 40 per cent, but the model showed that adopting a bioregional food system would increase it to 69 per cent.
But it’s the economic benefits that are the most surprising. The Okanagan model showed that food production, employment, economic output, GDP and household income would all increase significantly, as would the tax revenue generated.
The money adds up, Mullinix says. “But it’s a question of who gets it and where does it go. When the dollars stay and circulate in our communities, it increases all of these regional economic benefits.”
The challenge is huge, and can’t be underestimated. “All of the positive outcomes that we identify are only achievable if there is the infrastructure for the food system, i.e. all the aggregation facilities, processing, packaging, freezing and canning. None of that exists.”