Science, Technology, and Competitiveness in Alberta's Agriculture and Food Sector

This project addresses several issues related to efficiency, productivity, and competitiveness in Alberta's agriculture and food sector, in both its primary agricultural sector and its secondary processing industry related to food and beverages. A major underlying theme of this work is that the competitiveness and economic sustainability of Alberta's agriculture and food sector is considerably driven by long run trends in productivity. Two emerging trends in Alberta's agriculture and food sector are initially documented: the increasing role of specialty crop production and the rising importance of value added production. Productivity trends and competitiveness issues are examined for Alberta's primary agricultural production sector. Index numbers for agricultural output, aggregate input, and (total factor) productivity were constructed, using Tornqvist-Theil indexing procedures, for both Alberta and the Prairies for the period 1948 to 1994. Alberta's annual output growth rate of 2.43 percent and its productivity growth rate in agriculture of 1.9 percent over this time period closely mirror output and productivity performance for the entire Prairies. Since 1978, however, both output growth and productivity performance in Alberta has been somewhat slower than in the prairie region as a whole. The foregoing aggregate productivity trends in primary agriculture mask considerably different trends for the crops sector in Alberta versus the livestock sector. Both crop output growth and crop productivity growth have been consistently stronger than output and productivity growth in the livestock sector. Productivity, for example, has grown annually at 2.75 percent in the crop sector but only at 0.81 percent per year in the livestock industry in Alberta. Alberta's lagging agricultural productivity performance since 1980, albeit with some modest recovery in the 1990s, is largely attributable to negative productivity growth in the livestock sector. Historical productivity performance in the crops and livestock sectors in Alberta roughly parallels experience in nearby American states. A simple econometric model was constructed to explore the relationship between total factor productivity (TFP) in primary agriculture and proxies for expenditures on research and development (R&D). Lagged R&D expenditures are found to be a statistically significant influence on productivity, lending empirical credence to the widely held belief that expenditures on R&D are vital to productivity growth in agriculture. The Alberta food and beverage industry is one of the largest manufacturing industries in the province, and it has been greatly influenced by the implementation of recent trade agreements, as well as rapidly changing global business environments, changing consumer preferences, and rising living standards. Therefore, the performance of the industry is critical to Alberta's economy. In the thirty-two year period of 1961-1993, the Alberta food and beverage industry has experienced fundamental structural changes toward greater scale economies featured by higher levels of concentration and larger facilities. The number of plants has been reduced by 40%. On the other hand, the industry's total value added rose 2.6 times. As a result, the average value added per establishment has been growing at an annual compound rate of 4.67%, so that the 1993 level is 4 times the level in 1961. Despite this gain, the average scale of production is larger at the national level, and the difference between the two tends to be wider in the last ten years of the study. The competitiveness assessment of the food and beverage industry shows the overall Canadian sector performed better in terms of profitability and market share. Total factor productivity, measured by the index number approach, has been used to assess the performance of the food and beverage industry in both Alberta and Canada in this report. Although both output and inputs grow faster in Alberta than in Canada, Alberta's TFP growth in the processing sector has been sluggish, if not negative. In the period of 1961-1974, TFP climbed marginally at annual rates of 0.33% for Alberta and 0.35% for Canada. But in the period of 1974-1993, with annual decreasing rates of 1.52% and 1.15% respectively, the food and beverage industries in both Alberta and Canada suffered from a loss of productivity, with the Canadian sector in a relatively better position. Factors which affect the growth of TFP include: lagging research and development, excessive cost of inputs, and sluggish market demand. In comparison to the food processing industry overall, Alberta's slaughtering and meat processing industry shows much more promising performance. Overall it is in the strongest position among all Alberta food and beverage industries, and it is also more competitive than its Canadian counterpart. The red meat industry in Alberta, especially the beef packing subsector, has benefited from structural change in the industry, the exploitation of economies of scale, and increases in labour productivity. Finally, it is important to note the beneficial impacts that productivity improvement in primary agriculture has on the processing sector, and vice versa. Gains in productivity in primary production may be transferred to the processing sector in the form of cheaper inputs. Conversely, efficiency gains in the processing sector result in an increased derived demand for the products of primary agriculture. Policies which encourage productivity growth in either sector can increase the competitiveness of both sectors. Further, policies which stimulate increased expenditure on research and development lie at the heart of productivity enhancement in both primary agriculture and the food processing sector.