Is our food industry strategic?

Takeover interest in Regina-based agribusiness giant Viterra Inc. is a reminder that, notwithstanding a temporary lull in merger and acquisition activity during the financial crises, most industries are restructuring on a global basis, including the food industry.

And as we witnessed in decades past, when industries such as consumer goods, manufacturing and mining restructured, companies that chose not to lead and acquire ultimately became targets.

So the players in Canada’s food industry — from fertilizer to fork — need to decide if they will be buyers or sellers. And government needs to decide what role it should play to ensure a level playing field and/or protect any so-called strategic assets.

During the past decade, Canadian companies were predominantly sellers. In fact, relative to the size of Canada’s economy, Canada was the largest net seller (value of sales less value of acquisitions) of corporate assets in the world. Canada was a net seller in every major industry except financial services, which is protected by foreign ownership rules.

While each company was sold at a premium over trading values, these premiums pale in comparison to the value created by the acquirers. Skilled acquirers such as Xstrata, Kraft, Thomson, Manulife and Cisco have restructured their respective industries and created far more value than all the acquisition premiums they paid combined.

Yet Canadian directors are still afraid to say “no” to a good offer. They either lack the superior plan that would justify saying “no,” or feel obligated to cater to the short-term interests of their current shareholders over the long-term interests of their corporation. What about government’s role? Our governments continue to invite foreign investment, and so they should. Inbound foreign investment that results in more capital projects, increased R&D, improved productivity and job creation is good for the economy, stimulates innovation, lowers the costs of our goods and makes Canada more competitive.

However, the sale of the controlling interest of a company achieves none of this in and of itself. Whether foreign investment creates value or simply moves ownership control and headquarters abroad is a distinction worth making.

The playing field is not level. The parties reported to be interested in Viterra hale from Japan, the U.S. and Switzerland, all of which have tougher defences than Canada has. It is noteworthy that suitor Glencore PLC had merger talks with French grain trader Groupe Louis Dreyfus last year but was turned away. So while Canada should be open to foreign investment that adds value to the economy, should Canada be the easiest place in the world from which to wrestle away corporate control?

It’s difficult to tell which industries are considered strategic in Canada: clearly not resources, where industry leaders were sold off without protest; yet Prime Minister Stephen Harper has signalled that RIM is a strategic asset, while it has less than 2 per cent of the market capitalization of its major competitor.

The continuing protection of the financial services industry would suggest it is regarded as strategic. Given what we witnessed in the global financial crisis, most would agree that Canada has been well served by keeping the major banks in Canadian hands, and Canadian banks and Canadian bankers are playing important international roles.

Should the food industry be considered strategic? Indeed, it is an indication of Canada’s good fortune that the question even needs to be asked — most countries in the world would scream “YES!” A well-regulated and well-functioning food industry domestically is clearly vital. Canada also has a lead role to play in the development of the food industry globally.

The Viterra suitors seem to think the industry may be considered strategic, as they have reached out to Canadian partners to “Canadianize” the deal, not wanting a repeat of the Potash Corp. decision.

Indeed, this may be the only major industry remaining in which Canadian companies can emerge as leaders in global restructuring. Let’s not squander the opportunity. Ken Smith is associate dean at the University of Guelph.