Big Fish from Little Ponds: Can Canada's Regional Companies Succeed in the Global Economy?

Head Table Guests

William G. Whittaker, QC, Partner, Lette Whittaker and Honorary Director, The Empire Club of Canada; Adam Lank, Grade 11 Student, North Toronto Collegiate Institute; Grant Kerr, Associate Minister, St. Paul's United Church, Brampton; Murray Lloyd, Owner, Murray Lloyd's Chaps; Courtney Pratt, CEO, Toronto Hydro; Major The Hon. Joseph H. Potts, OStJ, CD, Retired Judge, Superior Court of Justice Ontario and Past President, The Empire Club of Canada; The Hon. Frank McKenna, PC, QC, Counsel, McInnes Cooper & Robertson and Former Premier of New Brunswick; Sharon Rudy, Vice-President, Spencer Stuart and Director, The Empire Club of Canada; Matthew Oland, Senior Category Business Development Manager, Colgate Palmolive; Mark Palmer, President/Owner, Palmer & Company; Libby Burnham, Lawyer, Morrison Brown Sosnovitch LLP; and Trevor Goodgoll, President, Goodgoll Curtis Inc.

Introduction by Bill Laidlaw

As an historian I am well aware of the history of Canada and the important role that all of its regions play in the economic growth of our great nation. I am aware that at the time of Confederation our East Coast was envisioned to be equal, or greater to, the east coast ports of Boston and New York. Certainly in those early years our Canadian east coast ports were the rivals of their U.S. counterparts. Halifax was the New York City of Canada.

Times as you know have changed and it appears that our economic drivers now lie in the golden horseshoe region of Ontario, Calgary, Vancouver and the Montreal region. The Maritime region is still holding its own, but times have clearly changed.

Having worked for a foreign multinational that looked to the Maritimes as a place of interest, I know the pros and cons of investment there and how much the Maritimes appreciates national and international investment.

Today we have as our guest Derek Oland. Here is an entrepreneur who has made a success of operating and growing several businesses from a Maritime base and he is here to tell us how it is done. He is also the brewer of one of the finest beers in North America with a brand recognition second to none. As a matter of fact on my various educational excursions to the academic haunts of New England I am amazed at how many loyal followers you have down there. The moose is everywhere!

I was also impressed with Derek in what 1 believe was his last visit to Toronto when he described on television a bottle of Moosehead. He then poured it and sampled it. As a viewer I was absolutely enthralled at his style and I had to have a Moosehead. I continue today as a great purchaser of your brew, as do many of my friends.

Now a little bit about our speaker Derek Oland, the Chairman and CEO of Moosehead Breweries Limited. He is the fifth-generation Oland to lead the family business, which began back in 1867 with his great, great grandmother Susannah Oland who began brewing her famous brown October ale in her Dartmouth backyard.

Over the past 40 years, Derek has dedicated himself to establishing Moosehead as a leading brewery in Canada and has successfully led the company into a new era of prosperity.

Derek has also taken a leadership role in Canada's brewing industry. He is currently serving his second term as Chairman of the Brewers Association of Canada.

In his capacity as Chairman, he has been a strong advocate for the responsible use of alcoholic beverages and has helped guide the brewing industry to a position that respects and protects the rights of both non-users and moderate consumers of alcohol.

In addition to his responsibilities at Moosehead, Derek is Chairman of Emera, the parent company of Nova Scotia Power Inc, and Chairman of Connors Brothers Limited, as well as Chairman of the Trustees of the Connors Brothers Income Fund.

Connors Brothers is the world's largest producer of canned sardines. Derek is also an active member on a variety of regional and national boards including Royal and Sun Alliance Company of Canada and Unifund Assurance Company.

It is now my pleasure to introduce to you our guest speaker Derek Oland.

Derek Oland

Ladies and gentlemen, head table guests, Empire Club members and friends. Bill, thank you for that kind introduction. I am very honoured to be an Empire-Club-featured speaker. I am indeed humbled by your invitation and will attempt to give some thoughtful commentary on some of the business affairs with which I am involved.

As Bill mentioned in his introductory remarks, I am Chairman of three very different Maritime-Canada-based organisations that are each leaders in their respective sectors. But despite the differences among beer, sardines and energy, all three companies long ago realised that economic success depended upon crossing both physical and psychological borders. This afternoon I want to discuss how these regional companies--and others--are adapting to new global markets and how our governments need to rethink their relationships with regionally based organisations.

When I was a youngster growing up in the then-tiny Saint John suburb of Rothesay New Brunswick, life was idyllic. My brother and I rode horses and sailed on the nearby Kennebecasis River. Occasionally we drove underaged and unlicensed, and, when we were older and bolder, we would sneak into the family brewery late at night to impress our dates and whet our whistles.

Ahh, those were the days. Southern New Brunswick was our universe and free trade was something my pals and I did with hockey cards.

I began working at Moosehead in 1962 following graduation from the University of New Brunswick. I am the fifth-generation member of my family to take an active role in the brewing business. I'm delighted that my son Matthew could join us today and while he's with Colgate Palmolive here in Toronto, two of his three brothers, my sons Andrew and Patrick, representing the sixth generation of the Oland family, are now in management positions with Moosehead.

Back in my early days arcane inter-provincial trade rules prohibited Canada's brewers from selling beer in a province at local prices unless the company operated a brewery in that province. The result of this ridiculous notion was a string of small-to-medium-size breweries stretching from Vancouver to St. John's, many competing in markets of less than a million people.

We have become more efficient today. Interprovincial agreements and small brewer preferences make it possible to sell our beer in any province, with a few exceptions. One of those exceptions is Quebec.

Last year Moosehead formed a partnership with a small, regional brewer in Quebec called McAuslan Breweries. Together we're building a new brewery in Montreal that should be producing Moosehead lager beer for the Quebec market by this summer.

Knowing we were coming to Quebec, we thought it would be a good idea to put our beer into the marketplace to give consumers a preview. The only problem is Quebec has a special tax of eight dollars and fifty-six cents per case on beer imported from New Brunswick.

In considering our options we decided we would pay the tax to help build brand awareness. Over a year ago we indicated to the appropriate authorities in Quebec that we were willing to pay the punitive tax. Guess what? We still don't have our permit, even though we said we'd pay. Some things never change!

Back in the mid-1960s when Father decided to take Moosehead beer into the Nova Scotia market, the company--at great expense--was forced to build a significant brewery and warehouse operation in Dartmouth. What did that accomplish? Not much except to put another large brewery in a marketplace with fewer than one million people. It wasn't until 1992 that the Maritime provinces agreed to allow free trade for beer amongst themselves. This permitted us to close our less-productive Dartmouth plant and our competition to do likewise with its brewery in Saint John.

Fifteen years earlier, in the mid-1970s, we realised we had reached a plateau in the Maritimes and growth would soon slow down.

It was at this point that I began to think about a very memorable speech that former Diefenbaker cabinet minister George Hees delivered in Saint John in the early 1960s. I distinctly remember Mr. Hees' theme: Export or Die. That's the day I first realised that Moosehead was essentially a New Brunswick company and we had to look for other opportunities. Our brewery in Saint John was capable of doubling production, so in 1977 we took what was then a bold step: we entered the U.S. market.

The key business driver for us was competition. A regional player must be competitive with any international company or large player in their chosen business niche.

We believed our premium Moosehead product was as good or better than any premium beer import in the U.S.A. We knew that if we could push up our throughput, our plant could be more competitive. It was the need to be competitive, as much as any single benefit, that drove us to expand beyond our comfort zone. And since interprovincial laws made it difficult for us to go west, we looked south and by the end of 1977 the Moose was loose in 26 states.

Not to dwell too long on beer, but I think the lesson for Moosehead was that sooner or later small companies and small economies will max out. And that forces organisations that want to stay around to branch out.

This is as true in Saskatchewan and Alberta and British Columbia as it is in the Maritimes. With the exception of the Quebec City-to-Windsor corridor, Canada is comprised of small, somewhat geographically isolated, markets. Just look at the Maritimes, for example.

While the majority of Canadians live within 100 kilometres of the U.S. border, Saint John is the only major centre in the Maritimes where residents can make that claim. And while New Brunswick shares a border with the province of Quebec, it is a full 10 hours drive to Montreal from Saint John; 15 hours from Halifax. Together our three provinces have a population of not even two million. Geographic distances and lack of political clout combine to make the Maritimes truly economically isolated.

It wasn't always this way of course. In the mid-to-late 1800s, the Maritime provinces boasted an economy--and the wealth that went with it--that rivalled New England's. And it was with New England that Maritime Canada shared the majority of its trade. These strong ties slowly faded after Confederation when the new Canadian politics forced trading patterns to shift to an east-west pattern.

But east-west never really worked for the far reaches of the country. So as a result of our geographic isolation, what we're seeing today throughout much of Canada is what Michael MacDonald, the former President of the Greater Halifax Economic Partnership, calls the realignment of economic relationships.

And the trendsetters in these realignments are the big fish looking to find a way out of their little ponds.

For those in this room not familiar with New Brunswick, I'll wager you did not know that Canada's single-largest petroleum refinery is located in Saint John.

The Irving Oil Refinery recently completed a billion dollar-plus upgrade and expansion designed to feed half of its 250,000-barrel-per-day production to energy-hungry Americans. Last year that amounted to more than $2 billion worth of petroleum exports from New Brunswick.

In much the same manner, Connors Bros., based in the tiny village of Blacks Harbour on New Brunswick's Bay of Fundy, has also been looking south of the border for growth.

Connors Bros., until recently part of the Weston empire, and now operating as a unit trust, is the only Canadian sardine producer. It has 80 per cent of the Canadian market and 60 per cent of the U.S. market. In early 2000 Connors purchased two processing plants owned by Stinson Seafoods of Bath and Prospect Harbour, Maine. This acquisition did two things: It got Connors additional market share and access to more fish in the Gulf of Maine.

These U.S. plants have been integrated into Connors Bros. Operations and now contribute to our company's export programme around the world including almost every Caribbean country, Central America, Western and Eastern Europe and, of course, the United States. Each year Connors Bros. Sends over two million cases of sardines in 21 flavours to its 39 destination countries.

Nova Scotia's Emera, of which I am chairman, is the holding company of Nova Scotia Power, the once-stodgy Crown corporation that was privatised in 1992. Emera has transformed itself into a billion-dollar diversified energy company that, in addition to supplying power to Nova Scotians, has a significant share of the fuel oil business in Nova Scotia and New Brunswick, owns 8.4 per cent of Sable Offshore Energy, and 12.5 per cent of the Maritimes and Northeast natural gas pipeline that stretches 1,000 kilometres from the coast of Nova Scotia to the outskirts of Boston.

Last October Emera became the first Canadian company to purchase an American utility when it acquired Bangor Hydro of Bangor, Maine. This gave us 110,000 new customers and, more importantly, a solid base to continue our growth and development in the United States. The State of Maine alone imported energy valued at $870 million from Canada in the year 2000.

Speaking of the Maritimes and Northeast pipeline, it should not be lost on economic observers that Sable gas is not going to Canadian consumers in Montreal and points west, but to Americans in Bangor, Portland and Boston. This would have been inconceivable had Sable gas been developed 20 years ago.

Officials of the Atlantic Institute for Market Studies, a Halifax based economic think tank, have begun referring to the pipeline as the Pipe LINK, an obvious nod to the U.S. northeast's growing dependence on east-coast energy and, in turn, our region's economic dependence on the northeast.

Reaching beyond the Maritimes has also been Moosehead's goal and, I believe, our future.

You can now enjoy a cold Moosehead lager in New York, Los Angeles and Honolulu, not to mention right here in Toronto, as well as in 15 other countries around the world.

Now, lest you think that this realignment of trade has been easy, let me assure you it has not. Three main obstacles hinder further efforts to develop economic links between the Maritimes and the north-eastern U.S.

Chief among these for manufacturers and processors like Moosehead is poor highway infrastructure, particularly in south-western New Brunswick and eastern Maine. Over 300,000 transport trucks enter Maine from Canada each year--up 50 per cent in the past five years.

At the primary border crossing in St. Stephen these trucks snake slowly through the centre of town, cross into Maine over a small, two-lane bridge, carefully wend their way through the narrow streets of Calais, Maine, and are then faced with a tortuous two-hour drive over a narrow highway before reaching Interstate 95 in Bangor. Even though the State of Maine is spending $10 million a year to upgrade this particular highway, it's still a two-lane test of nerves.

But even when you reach I-95 the problem is that it runs north/south straight to Boston then right down to Florida. In fact, in the so-called Eastern Border Corridor Region, there are a total of six north/south interstate highways. This is the largest region east of Chicago not served by an east/west Interstate highway.

What is truly needed is a new east-west superhighway running across the top of New England linking the Maritimes and the northeast U.S. to northern New York State, Montreal and Ontario and beyond.

There has been much talk of this highway in recent years, particularly in the Maritimes and by a few U.S. politicians, but no action. And meanwhile, in southern New Brunswick, a new major superhighway that will complete the four-lane transportation link from Halifax to the U.S. border sits half finished, virtually untouched since the Liberal government left office in New Brunswick three years ago.

Since access to market is an important piece of any business strategy, Atlantic companies and government need to think and plan in ways that are "outside the box." Perhaps Atlantic industry and Canadian governments should stimulate economic activity by investing directly in the proposed east-west superhighway across New England; in fact, why not make it a toll highway? If we remain concerned only about Atlantic infrastructure and investment, our grasp will never exceed our reach.

Obstacle number two is protectionism. Even though annual two-way trade between Canada and the United States has passed the $500-billion mark, there is a growing sentiment in Washington to put up barriers--both physical and legislated--to slow and even curtail the movement of goods between our two countries and other nations.

One would think that two nations whose economies are so interlinked would understand the necessity of cooperation and come to terms with the need to implement obvious benefits and resolve minor irritants.

Writing in the Wall Street Journal last month, G. Bruce Knecht, the Hong-Kong-based journalist, author and scholar, described New Zealand as one of the world's most isolated economies, struggling to recover from decades of protectionist measures aimed against it.

In many respects New Zealand and Maritime Canada share many of the same problems. Both are geographically isolated, both have small population bases with insignificant domestic markets, and both suffer from what I call the "out of sight, out of mind" syndrome.

In his column, Knecht claimed that New Zealand is the victim of hypocritical international trade policies on the part of the world's biggest countries. As he points out, the loudest proponents of free trade, including the U.S. and the European Union, refuse to open their markets to New Zealand's best products. The result is that New Zealand, which had the world's third-largest economy based on per-capita gross domestic product in the 1950s, now ranks 23rd. Perhaps this needs to be factored into New Zealand's corporate strategy, and new markets investigated.

The lesson for Canadian industries located in the nether regions is to ensure our federal and provincial governments handle trade negotiations with the United States and other countries in the most responsible manner possible.

Should our borders be thrown wide open? Of course not. But Canada's manufacturers--and farmers for that matter--need government to be absolutely the best negotiators in the hemisphere. Our country and economy are dwarfed by the world's most dominant power and domestic industry needs much assistance to help achieve the best deal possible with the Americans and others.

The third obstacle to successful trade between New England and the Maritimes is merely a problem of attitudes.

Unfortunately, on both sides of the border there is little or no understanding about the nature of the Maritimes and its substantial markets. There is also a similar problem with other geographically isolated regions in Canada.

Take Allan Gates, a bright, young New Brunswicker who lives and works in Boston as a management consultant and writer. After rubbing shoulders every day with his Bean Town co-workers and neighbours for the past two years, Gates points out that in the majority of American opinion, nothing exists northeast of Portland, Maine which is considered almost an outer suburb of Boston. Allan, like so many others in his position, has come to realise that when you're a citizen of the most powerful nation on earth, there isn't a need to know much about the world beyond your own window.

And yet, in Canada, what's our excuse? Maybe it's a simple case of the country being too large for people to comprehend its vast geography. But to most Canadians, going east means Toronto, or Montreal if there's a tail wind.

And most Atlantic Canadians will argue that same "we-know-you're-out-there-somewhere, but-you-don't-really-matter-to-us" attitude permeates Ottawa.

Obviously the Americans are not going to solve Canadian export problems; they barely know where Canada is. The Canadian government has a role to play, but, more importantly, so do individuals and companies who must get off their backsides on this issue. The U.S.A. is a big market, and we know a lot more about Americans than they know about us. Certainly the currencyexchange ratio can make up for a lot of mistakes.

In the U.S.A. businesses don't expect government to solve their problems, with a few exceptions, like softwood lumber. I don't think that Canadian businesses should look to our federal government either. Atlantic issues should be solved or resolved by regional governments. But, what is the incentive for Ottawa to take notice of our region's issues? Indeed, that's where the consequences enter the picture.

As we are aware, there are currently only two "have" provinces in Canada--Ontario and Alberta. We all know that British Columbia should also be on that list, but successive incompetent governments have all but stunted what should be one of the country's strongest economies.

So that leaves two provinces carrying the load for Canada's economy. To those of us who live in one of the have-not provinces that have experienced virtually no growth since the last census, the phrase "transfer payment" is synonymous with handout. But trust me, Maritimers, Quebecers and all Canadians residing outside Alberta and Ontario do not want a handout; we want a hand up.

How should we accomplish this when, as the latest census data tells us, people are leaving Saint John, Regina, Charlottetown, and Portage la Prairie in droves? Even once-booming working-class cities in northern Ontario and Alberta are losing people to bigger urban markets where there are more jobs and better opportunities. Add to that immigration outperforming natural population growth, and the rest of the country looks like a pity party handing out invites.

With stronger economies, and governments that have put growth on their agendas, Alberta and Ontario are offering Canadian men and women a better future. Which is why 51 per cent of Canada's total population now live in four urban centres: Toronto and the Golden Horseshoe, Montreal, Lower Mainland British Columbia, and the Calgary-Edmonton corridor.

Meanwhile, the depleted provinces continue to depend on equalisation handouts from increasingly more resentful taxpayers in flourishing parts of the country.

And, by the way, there is a message here for industry as well. If you're not finding ways to take advantage of Canada's trillion-dollar, trade-based economy, your laidoff employees will also join the migration to Toronto and Calgary and Vancouver and Montreal whose municipal governments represent more people than most of the provinces do. If this trend continues, many large companies won't have to worry about a shrinking consumer base because there just won't be a labour force to support those companies anyway.

Which is why the regional realignments taking root in Canada must be encouraged and must succeed. Instead of obsessing about congestion at the Windsor/Detroit border, Ottawa should be concerning itself with helping Canada's regional economies find their own way into rich American markets. Funding for economic partnerships, infrastructure improvements, and trade deals that will make Canada's arteries as strong as its heart need to be implemented now.

Meanwhile, back in my birthplace of Rothesay, things are still pretty sleepy. The local politicians recently made national headlines when, in their wisdom, they banned road hockey. And there's a lot more money in Rothesay these days. New subdivisions have sprung up fed by good incomes from the oil refinery and the newsprint mill and, yes, even from Moosehead Breweries.

But what's missing in Rothesay, and all of the bedroom communities like it throughout the Maritimes, are the entrepreneurs, the visionaries, who are willing to take a chance on the region's future. But, I'd wager they would if they had unrestricted access--both physically and politically--to one of the world's biggest consumer markets. Then every fish in Canada, be they small or large, might find a new pond in which to flourish.

The appreciation of the meeting was expressed by Major The Hon. Joseph H. Potts, OStJ, CD, Retired Judge, Superior Court of Justice Ontario and Past President, The Empire Club of Canada.