Our People Problem

In last month’s Navigator, the Editor’s Notebook section provided an extensive discussion of plant worker shortages, referring to them as “a complex and stubborn dilemma.”

The discussion was largely based on research done by Food Processing Skills Canada. In this column, I will take that discussion in a different direction.

Plant worker shortages are certainly a well-known problem in Atlantic Canada. The shortages are widespread throughout the industry, but particularly acute in the lobster sector, where landings have increased as the supply of plant workers has decreased. It is a costly problem.

Probably the biggest cost doesn’t even appear in the industry’s books, because it is represented by lost revenue opportunities. Not so long ago, Canada imported a large share of Maine’s lobster catch for processing into meat products. As landings increased on both sides of the border and the labour supply in Atlantic Canada diminished, we were not able to accommodate some of the increasing Maine catch. That led Maine to develop its own processing sector and create a marketing program for “Maine” lobster to compete with products from Canada.

Because people are in short supply, we also produce less labour-intensive products, which typically sell for lower prices than more highly-processed products. For example, lobster processors are producing more “popsicle” packs of whole frozen lobsters, instead of extracted meat products, even though the “popsicle” packs are not what many customers would like to have.

Similarly, we are selling more unprocessed or semi-processed products of other species, as well. That means we get less revenue for our production than we could get otherwise.

In addition to losing revenue, the diminishing labour supply often results in higher product costs, reducing profitability. Fish plants’ production systems require a certain number of workers, distributed over several different task groups.

To operate efficiently, the throughput rate at each step of the process should be the same. If that is not the case, one step or another has either a backlog of raw materials waiting to be processed (and deteriorating in quality) or a group of people waiting for something to do. Either way, product costs per output pound are higher than they could be. These days, because of the decreasing number of people, plants are having more problems achieving a balanced flow.

In any production system, one stage of the process is essentially the limiting factor that sets the pace for the whole system. The other process stages are then set up to have the same rate of throughput. But if someone working at the pace-setting stage doesn’t show up for work, it reduces the overall production for the shift, without reducing costs in proportion.

Again, that means product costs are higher than they would otherwise be.

 

However, there is a further dimension to the problem that makes it even worse. Productivity is measured as the ratio of output obtained to the input utilized to get it. An assessment done a few years ago by Agriculture and Agri-Food Canada (AAFC) indicated that the value added per hour worked in Canada’s fish processing sector was less than half that in food production overall.

AAFC’s analysis indicates that our industry has a very serious productivity problem.

Our productivity problem reflects a number of things.

First, part of it is the low value we get for our products compared to the value we could get, if we did things differently.

Second, we have a very labour-intensive industry that uses relatively little technology to help our people produce more per hour. One way to look at it is that we use too many people relative to the value they produce.

Third, the industry is highly seasonal, so we need a lot of people for short operating periods and lay them off when they are not needed. That means we don’t utilize the people we do have very well.

Productivity depends significantly on training people in the skills they need to be productive. But investment in training does not provide a lot of benefit when people are employed for only a short time. Furthermore, productivity increases as people utilize their skills repeatedly.

When skills are used for short seasons, they don’t get to utilize their skills enough to increase their productivity. Finally, our work force is aging and it is well-known that productivity typically decreases with age, because energy levels are not the same. In other industries, they address this issue by bringing in new technology to increase output per person.

It’s also worth pointing out that, for some time, our labour-intensive processing sector has had to compete with labour-intensive processing activities in developing countries that pay much lower wages.

A decade ago, the principal competition was China, which imported raw materials, processed them and re-exported them, often back to the same countries that provided the raw materials. Today, China has become relatively expensive, so processing has been moving to other countries that pay even lower wages, such as Vietnam.

It is a competition we have little chance of winning, even though wages in our industry are low relative to those paid by other industries in Canada. And the competition prevents us from offering better wages.

So, we have a multi-faceted people problem that has major detrimental effects on our industry’s competitiveness in international markets and economic viability. What can we do to solve it?

Essentially, we can treat the symptoms or the disease. Because the problem is already serious, we probably need to do both — treat the symptoms in the short term and the disease over the longer term.

Two of the most commonly promoted solutions are use of temporary foreign workers (TFWs) and automation, both of which are in active use. However, these are only partial solutions that address the symptoms of the underlying disease and aren’t especially effective in that. The rules around using TFWs are very restrictive, so many plants want more but can’t get them.

Automation is an option, but it is not readily available for many of the tasks done in plants, requiring research and development to design new technologies — something we do at the Canadian Centre for Fisheries Innovation (CCFI).

If it is available, the investment is often difficult to justify based on a short operating season with a high peak in landings. Humans cost less and are more flexible in both their skills and their numbers. To fill their needs, a lot of plants have been looking at recruiting workers from groups that have not traditionally been part of the industry’s labour pool.

In short, the options currently available are not meeting the need. And the need is going to become even greater as wave after wave of aging baby boomers continue to move into retirement. The problem is bad today, but it is going to get worse. We need to address the disease.

Our current industry operating patterns were largely created after we obtained the 200-mile limit in 1977.

Because of the opportunities that presented, we built an industry with a large capacity, using a labour-intensive business model. At the same time, baby boomers were coming of age and needing jobs, so the opportunities the industry provided filled a big social need. But, as more and more baby boomers came into the workforce, we had more people than jobs and government and industry collaborated to rotate people through short-term employment, to spread income opportunities over larger numbers of people.

Unfortunately, it later became apparent that our fish resources were not as abundant as had initially been thought, so we had to start cutting quotas and eventually impose a series of moratoriums on fishing groundfish, the main species of commercial importance at the time. Reduced catches meant reduced work. Spreading the available work around to support as many people as possible became a major focus for government and industry.

That thinking continues to be a big part of the industry today — even though the situation today is very different. Essentially, one of the major assumptions on which our industry has been built is no longer valid.

Peter Drucker is widely recognized as one of the greatest thinkers about business and management issues. He once said, “The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.” And Albert Einstein, one of the greatest thinkers the world has ever known said, “We cannot solve our problems with the same thinking we used when we created them.” These bits of wisdom are worth bearing in mind as we think about our people problem.

It has already been recognized that we need to change the way the industry works.

In 2014, a commission appointed by the Government of Nova Scotia and chaired by Ray Ivany, then President of Acadia University, issued a report entitled, Now or Never. The commission had been given the task of assessing Nova Scotia’s economy and making recommendations for building the economy of the future.

In the report, one of the observations was that, “it will not be possible to turn around our economic outlook as a province unless we significantly improve productivity and competitiveness in our traditional rural industry sectors (which include fishing and fish processing). For many years the highest public policy priority for these sectors has been simply to maintain jobs in rural communities. But today we find that many business operators are insufficiently profitable to support the investments in product quality, plant productivity, worker training and market expansion that are needed to maintain and grow market share. In some sectors it is increasingly difficult to find local workers to take low-wage seasonal jobs many employers offer. As a result, young people are leaving rural communities, other countries are outcompeting us in the marketplace and the province is not realizing the full value of our asset base. These business models need to be revised if the province and our rural communities are to escape the current pattern of weak economic growth and population decline.”

Well said.

These words may have been written about Nova Scotia, but they apply equally well to the rest of Atlantic Canada and, especially, to fishing and fish processing. Other studies have had similar findings.

In effect, the report says that policies intended to maintain jobs in rural communities have had the opposite effect, because they have led to people leaving rural communities. The policies may have worked for a while but they are no longer working — and have not been working for a while — so it is time to change our thinking.

The Ivany Report, as it has been called, points out the problems that have led to a diminishing workforce, which is just a symptom. The emphasis on seasonal employment to spread work to as many people as possible has debilitated companies and provided low, seasonal incomes. Young people are leaving rural communities for better opportunities elsewhere.

There is no particular magic to solving the labour supply problem. It comes down to offering young people more stable employment with better incomes. That is what they are leaving rural communities in Atlantic Canada to find elsewhere. In the process, they find they also have better access to education for their children and to healthcare for themselves and their families.

It is worth pointing out that all industries and all employers are facing the same issue of a diminishing workforce, as the baby boom generation moves into retirement. All must compete for people in a decreasing pool.

Those who are able to offer a better deal will be more successful than those who are not. The fish processing sector is not well positioned in that competition and we are seeing the results unfold year after year, as more boomers move into retirement.

Each year, the situation gets a bit worse, but it is a slow process.

One year, likely not that far away, we will reach a tipping point, where it will become obvious we have a full-blown crisis. The lack of labour will make it very difficult for many fish plants to continue to operate and it will cause a lot of spin-off problems. It is not unrealistic to say that the future of the industry is at stake. We could lose it simply from lack of interest by people in working in it.

I was recently looking at a chart prepared by the Organization for Economic Cooperation and Development (OECD), described by Economist magazine as “a club of mostly rich countries.” The chart compared average wages, measured in U.S. dollars, in 35 countries, not all of which would be described as rich.

Essentially, the 35 countries fell into three groupings — low income, up to about U.S.$27,000, middle income, from about U.S.$35,000 to U.S.$53,000 and high income, over U.S.$60,000.

The country on the list with the lowest average income was Mexico, with U.S.$15,300. The highest was Luxembourg, a small country in Europe, with U.S.$63,000. Canada ranked 12th, in the middle income group, with an average of U.S.$47,600.

Various recent studies have found that people working in Canada’s fishing and fish processing sectors earn substantially less than the Canadian average, an indicator of why young people have been leaving rural communities dependent on the fishery in search of better incomes. Quite simply, they have found better opportunities elsewhere.

I thought the list was particularly interesting, because it includes several significant players in global markets for fish products.

Chile has substantial aquaculture and capture fishing sectors that contribute a lot to its economy. Much of its output flows into North American markets. It ranked 27th in the list, with an average income of U.S.$25,900, slightly higher than Portugal, another significant fishing nation, at U.S.$25,400. Spain has long been known as a fishing nation, including extensive fishing activities in international waters. It ranked 20th in terms of average income, with U.S.$38,500.

Norway is well-known to be a very prosperous country that has large oil and gas, capture fishing and aquaculture sectors to drive its economy. But its fish processing sector is very weak, with the vast majority of its fish harvests being sent to other, lower-wage countries for processing. It ranked 7th in the list, with an average income of U.S.$51,200, just below its neighbour, Denmark, which also has significant fishing and fish processing sectors (but not much aquaculture or much oil) and an average income of U.S.$51,500.

At the top end of the scale, the United States was one of the four high-income countries, ranking fourth, with U.S.$60,600. It has the largest and most diversified economy in the world that includes a large and diversified fishery that makes it the world’s fourth biggest fishing nation. The largest part of its catch comes from Alaska, however, and the fish are mostly sent to other, lower-wage countries for processing, often for import back into the U.S.

Ranking ahead of the U.S., in third place, was Iceland, a small northern country almost totally dependent on its capture fishing and fish processing sectors focused on groundfish and pelagic species, which had an average income of U.S.$61,800. As this shows, it is possible to create a lot of value from fish and to provide good incomes to the people who work at catching and processing them.

We don’t achieve the same results in Canada, because we have different objectives. Essentially, our industry is not organized in a way to provide the employment, incomes and lifestyles young people want. It also isn’t organized in a way that provides adequate returns on investment. Although a lot of money has been invested in the industry, it has been spread out too thinly in too many places to allow fish plants to compete with their international rivals. For the industry to have a future beyond the baby boom generation, these things have to change. Both government and industry have to play a role in making the change happen.

As The Ivany Report pointed out, the problem is known and the solutions can be readily identified. What has been lacking is the will to implement them. It is easy to do nothing and just let the train-wreck happen in slow motion.

There are many people who will resist any change. But it is time we got past the old thinking that led to the present operating patterns in the industry and started building an industry that can survive and prosper well into the future. If we continue to do the same old things in the same old way, we will not like the outcome.

 

Robert Verge

Managing Director of the Canadian Centre for Fisheries Innovation — Newfoundland

No Replies to "Our People Problem"

    Leave a reply

    Your email address will not be published.

    *