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Bridging the Gap between R&D and Commercialization Part 4: Agri Food - Growing the Canada Brand

July 13, 2018 Jen Mahon and Ela MalkovskySR&ED 48 Views

While Canada scores high on the level of research and development (R&D), the commercialization rate of Canadian new-to-market products is among the lowest of OECD countries. This means that Canadian businesses and the government are not receiving the full value of their investment in R&D. The following series examines multiple options available to Canadian companies to bridge the major commercialization gaps in the ICT, Manufacturing, and Agri-Food industries to maximize the return on R&D investment.

Introduction:

Throughout this four part series, we explore how Canadian companies can ease the transition from performing R&D to commercializing their products or services. Previous parts of this series discussed business growth in the Information and Communications Technology (ICT) sector, as well as training/ hiring and capital investment opportunities for bridging the commercialization gap in the manufacturing sector. This final installment explores opportunities for adopting technology that is required to overcome capacity and innovation related challenges limiting commercialization in the Agri-food industry.

With the rapid growth of advanced manufacturing and ICT fields creating vast new opportunities for agri-innovation combined with continual increasing global food demand (the world’s population is projected to expand by roughly 10% by 2025), the adoption of new/emerging technologies is becoming increasingly critical for sustaining Canadian Agri-Food sector competitiveness.

However, in order to take advantage of these opportunities, Agri-businesses must first overcome significant funding barriers related to high costs and unclear benefits of unproven technologies in addition to a shortage of skills and a lack of digital culture. As a result, many companies delay investing in technology, particularly during periods of uncertainty surrounding the free flow of goods. Similarly, the Canadian private sector has had limited incentive to invest in agricultural research due to low short-term return on investments and a lack of strong Intellectual Property (IP) rights.

Various governmental, non-dilutive funding solutions are available to Canadian Agri-Food businesses such as tax credits and grants; these can be leveraged at different stages of the company’s growth to help offset the upfront costs of adapting new technologies including new machinery and equipment in order to address the need for enhanced competitiveness, productivity improvement, and unique product development while minimizing debt.

Funding Opportunities for Agri-Businesses  

Indirect public funding sources such as Canada’s lucrative Scientific Research and Experimental Development (SR&ED) tax incentive program curtails incurred costs at the end of every fiscal year, providing ongoing support. For most Small and Medium Sized Enterprises (SMEs), this entitlement program provides refundable tax credits on all eligible R&D efforts. These refundable tax credits can then be reinvested into further innovation.

Yet to be incurred costs can also be offset through direct government funding sources, such as grants, which provide companies access to public funding to facilitate numerous business objectives from major machinery or equipment purchases and hiring/training initiatives to facility upgrades and expanding commercialization and export opportunities. What is more, grants can be coupled with SR&ED tax credits to increase cash flow as your business progresses.

  • The new Canadian Agricultural Partnership (CAP), launched in April 2018, is a five-year, $3B federal-provincial-territorial agreement providing funding to agri-processors.

Federal CAP programs provide funding for international market expansion activities (such as marketing and advertising, food service promotions, trade seminars, technical training for buyers, market development), and for obtaining third-party certification to meet an export opportunity. Federal CAP programs also support projects focusing on the adoption of new/world leading clean technology (including precision agriculture), increasing productivity through advanced manufacturing, automation/robotics, strengthening Canada’s value-added Agri-sectors, and securing/expanding new export markets. 

Provincial CAP programs are also being rolled out on a cost-shared (60:40) basis. Ontario’s CAP program offers various streams for agri-producers, processors and other businesses. For example, Ontario processors can apply for funding of up to:

  • $250K for integrating new or novel technological and equipment upgrades (defined as having been adopted by less than 20% of the sector in Ontario, to date) to improve labour productivity;
  • $100K for integrating Enterprise Resource Planning software.

Additional streams are available to agri-processors to support other activities/initiatives, such as:

  • Food safety and traceability equipment
  • Ingredient efficiency and waste reduction
  • Marketing of products outside of Canada and internationally
  • Monitoring plant pest and treat equipment and training
  • Improving animal housing, and animal handling equipment with technology
     
  • The Industrial Research Assistance Program (IRAP) provides grant funding for companies that are investing in new technology projects which lead to new products, processes, or services in Canada; the program will cover labour and subcontractor costs.  IRAP is ideal for companies that require funding for early-stage R&D and prototyping.  

Intellectual Property (IP)

IP rights can help commercialize research into marketable products, serve as barriers to entry for competitors, help to establish the reputation of a business, and enhance company value through IP asset valuation, thereby increasing access to additional sources of financing and enabling further innovation.

Although the benefits of IP rights can be significant, companies face the challenge of balancing the value of IP protection against the external costs and internal resources that are required for the application process itself. However, many companies are not aware that there are numerous similarities between the filing process for IP and the submission processes for the SR&ED and IRAP programs and these overlaps can be leveraged to lower the costs of continuous innovation.

Further, in 2017, Quebec instituted an “innovative companies deduction” (ICD) which allows revenue from innovation protected by a patent developed in the province to be taxed at 4% rather than 11.8%. The 2018 Ontario budget proposed a review of various tax incentives implemented in other jurisdictions with the intention of developing a provincial incentive to encourage IP. A patent incentive system is intended to foster the commercialization of intellectual property by reducing the percentage of tax applied to profits resulting from patented innovations. In contrast to SR&ED tax credits, which target the front end of the innovation lifecycle, a patent box regime targets commercialization, the last stage of the lifecycle. 

Leveraging various public funding opportunities such as grants and tax credits can help offset the costs of adopting technology in the Agri-Food industry to benefit consumers and suppliers across the entire value chain by increasing productivity, food nutrition and safety while reducing prices, inputs, and environmental impact, thereby improving competitiveness and economic growth. 

Co-authored by Jen Mahon, Vice President of Operations, and Ela Malkovsky, Technical Writer/ Editor–in-Chief at NorthBridge Consultants.