Ontario growers move south

Since 2012, about CAD $220 million (approx. USD $163 million) has been spent by Ontario greenhouse businesses on opening additional operations in the United States. The Ontario Greenhouse Vegetable Growers (OGVG) says that number reflects the projects of which it’s aware, and although some in the industry dispute the figure, no one argues that the situation is serious.

OGVG’s Science & Government Relations Manager Dr. Justine Taylor says that while greenhouse acreage in Ontario has shown consistent growth of six percent a year over the past few years within the province, it’s hard to pinpoint the rate of ongoing investment south of the border. “There is a lag time between planning for companies and actual investment,” she explains, “and the current extent of the ‘investment leakage’ won’t be known for a year or two.”

Is the high cost of energy the only reason Ontario greenhouse businesses are looking to the south to expand, or are there other factors at play? OGVG Marketing & Economic Policy Analyst Glen Snoek believes energy-related policy decisions by the Ontario government are to blame, but Taylor lists one more. “Energy is a significant factor,” she says. “But there are also investment incentives [being offered in various U.S. states] that aren’t being matched in Ontario.”

Before we delve into energy specifics, here’s a roundup of recent Ontario greenhouse “investment leakage,” keeping in mind that Windset Farms in British Columbia has two operations in the United States.

In 2012, Kingsville-based Mastronardi Produce opened an operation in Coldwater, Michigan. In 2014, Leamington-based NatureFresh Farms began building a 45-acre site in Delta, Ohio. In 2016, Golden Fresh Farms, a grower for Kingsville-based Red Sun Farms built a 20-acre greenhouse in Wapakoneta, Ohio which opened in January 2017, adding to Red Sun's existing operations in Nogales, Arizona; Dublin, Virginia; Pharr, Texas; Taylor, Michigan; Montreal, Quebec; and Numarán, Mexico. Mucci Farms, also in Kingsville, will start construction this spring on the first 30 acres of a new 180-acre greenhouse in Huron City, Ohio.

To read more about NatureFresh’s Ohio beginnings, visit bit.ly/2mpb3oL

Energy woes

Electricity prices in Ontario are extremely high compared to other provinces and nearby U.S. states. In Ontario, greenhouse businesses are mostly located in Kingsville and Leamington and therefore receive electricity from the province’s largest generator and distributor, Hydro One, as small business customers. However, a final calculation of what an Ontario greenhouse business pays for electricity per kWh depends on how the account is set up (time of use or tiered pricing), and on top of electricity use, there are flat rate and usage charges for electricity delivery, regulatory charges and a per-usage debt retirement charge (learn more at bit.ly/2641RFZ). In late November 2016, CBC news quoted Mucci Farms as stating that it has paid up to 18 cents per kilowatt in Ontario, but the company can get hydro for 6 cents a kilowatt in Ohio.

However, cost is only a part of the problem, according to Chris Veillon, marketing director at NatureFresh Farms. He says his company’s decision to expand into Ohio and not Ontario had a lot to do with electricity availability.

“NatureFresh Farms is using mostly off peak power to grow its greenhouse tomatoes throughout the winter months and the transmission grid was insufficient in our area of southwestern Ontario,” Veillon explains. “Factoring in far more affordable energy prices in Ohio, it helped us make the right business decision.” Mucci Farms owner Bert Mucci echoed this complaint about power availability in a recent issue of “The Grower” (a publication of the Ontario Fruit and Vegetable Growers’ Association): “electricity prices, lack of infrastructure and now cap and trade are making it impossible to make money” in Ontario.

Cap and trade challenges

In addition to high electricity rates and grid availability issues, Ontario greenhouse operators are now also contending with a carbon “cap and trade” program (learn more at the Ontario government’s website at bit.ly/1XiAPoM) which came into effect Jan. 1. Smaller businesses annually producing up to 10,000 tons of CO₂ from natural gas consumption will now pay about CAD $6,200 (approx. USD $4,650) in carbon tax per acre of production. Operators who produce more than that, however, have the option to join in with the “large consumer” group identified in the program, allowing them to enjoy a complete program exemption for 2017, and to pay only 4.5 percent of their calculated carbon tax in 2018, 9 percent in 2019 and 13.5 percent in 2020. Businesses in this group do have to complete a third party-verified emissions report, Taylor notes, in addition to meeting other stipulations. OGVG is holding ongoing meetings with the government in the hopes that this disparity between smaller and larger growers will be addressed.

AMCO in Leamington, Ontario is fortunate enough to fall under the large consumer part of the program. (The produce grower had planned to immediately move ahead with a U.S. expansion a couple of years ago, but is delaying until 2018-19 due to investment in a lighting project in late 2015.) AMCO owner Fausto Amicone says that although his company will feel little impact from the carbon tax in 2017 and 2018, he is “very worried” about year three and each year thereafter. “For growers that do not meet the minimum threshold, the issue is here today,” he notes. “And this, together with the high electricity pricing, will really make things hard.” Amicone calls the situation “serious” and believes it will change the industry dramatically going forward. “Older facilities are being outdated very fast and are unable to compete with new facilities, which makes the industry not a really rewarding career choice,” he says. “Hungry government continues to slowly cripple our industry.”

Veillon agrees that with cap and trade, the business climate is getting worse for Ontario greenhouse operators. “Alberta and British Columbia growers are not subject to this tax,” he says. “U.S. or Mexican growers do not have this tax at all, so clearly we are far less competitive.”

Amicone says that while energy pricing is the biggest driver in his decision to invest south of the border over the next two years, they have also looked into various incentive programs for which AMCO qualifies. However, Amicone has found that “given the complexity of these programs, accordingly there is a lot of risk associated with any incentives that are currently offered.” AMCO has narrowed down the possibilities to three U.S. states at this time.

Looking into the crystal ball

Good incentive programs or not, Amicone says he predicts “considerable” U.S. expansions by Ontario greenhouse growers over the next five years, that expansion of greenhouses within Ontario will shrink and that expansion into Mexico will stay at a similar rate due to trade uncertainties.

For her part, Taylor isn’t prepared to predict what the future will bring. “It depends on whether the Ontario government is willing to support an investment climate conducive to growth," she says.

AMCO sales and purchasing manager Mitchell Amicone echoes the thought with a simple, albeit chilling statement that many would likely hope will reach the ears of voters in Ontario, if not elected provincial representatives.

“Inevitably,” he says, “the industry will expand and go where it needs to in order to survive and be competitive.”

Treena is an Ontario-based national and international award-winning writer who focuses on science, technology and industry issues.