Two weeks ago, when I appeared before the House of Commons Industry Committee, one point stood out: Canada’s productivity problem is not caused by weak firms or complacent workers. It is caused by the structure of our economy. We lack depth in the manufacturing ecosystem that makes productivity possible.

In food, health and consumer products manufacturing, this is especially clear. Canada has world-class multinational operations that perform at the top of their global networks. These companies bring advanced technology, automation, research capabilities and high-value jobs. They anchor regional supply chains, create thousands of indirect jobs and often act as hubs for innovation. The challenge is that many of these firms are not expanding here at the pace they once did. Their global headquarters face a choice every time they allocate new capital, and right now Canada is too often falling short.

At the same time, the majority of our sector is made up of small and mid-sized firms that want to grow but cannot achieve the scale needed to adopt the technologies and processes that drive modern productivity. According to Innovation, Science and Economic Development Canada, fewer than one percent of food-manufacturing establishments in Canada are large enough to support sustained capital investment. In the United States, the industrial structure looks very different, with a far larger share of mid-sized and large operations that can compete globally.

This creates a missing middle. Canada is strong at the top and strong at the bottom, but too few firms ever grow into the middle tier where productivity gains accelerate. The result is predictable. Smaller firms struggle to modernize. Larger firms struggle to justify new capital mandates. And the country misses out on the benefits that come from having a deep, competitive manufacturing ecosystem.

The consequences are visible on the shelves of every grocery store. More than half of the products in the centre aisles are imported, even though many were once made here. Domestic plants remain highly efficient, but as costs rise, approvals slow and regulations diverge from global norms, multinational firms increasingly consolidate production in jurisdictions where the environment is more competitive. For small and mid-sized Canadian firms, the impact is a ceiling on growth.

This is not because Canada lacks creativity or capacity. Statistics Canada reported last fall that innovation adoption in food manufacturing has declined. Only 67.7 percent of firms introduced any product or process innovation between 2021 and 2023, down significantly from prior years. Process innovation fell from nearly half of firms to only 38.5 percent. These are symptoms of the scale problem, not the cause.

Labour pressures reinforce this dynamic. Food Processing Skills Canada estimates the sector will need more than 92,500 additional workers by 2030. Without stronger productivity growth, adding labour will not translate into adding output. A deeper manufacturing ecosystem would help close that gap.

Budget 2025 took important steps in the right direction. The Productivity Super Deduction and improvements to Capital Cost Allowance rules finally put Canada on a more competitive footing with the United States. These changes will matter to both mid-sized firms trying to modernize and multinational firms deciding where to allocate their next global mandate. But tax policy alone will not solve a structural challenge.

Canada needs a clear strategy to build both ends of the scale spectrum at once. Large multinational operations must remain strong and competitive so they continue to invest in Canada. And small and mid-sized firms must be supported to scale up, invest in technology and deepen domestic supply chains.

That requires a modern regulatory environment that aligns with trusted jurisdictions, accelerates approvals and reduces duplication. It requires coordinated plastics and labelling frameworks that lower compliance costs rather than multiplying them. And it requires treating supply chain infrastructure as strategic infrastructure. Congested ports, freight rail limitations and fragmented logistics do not just slow goods. They make it harder for global firms to choose Canada and harder for domestic firms to expand.

The productivity debate must evolve. It cannot be a conversation about small firms trying harder or large firms carrying the load alone. Productivity is created when the entire ecosystem has the depth, stability and competitiveness to support continuous investment.

Canada has the talent, the agricultural base, the consumer market and the global reputation to lead in value added food and consumer goods manufacturing. What we lack is the policy environment that allows both global players and domestic firms to grow to their full potential.

If we strengthen the top end and build a stronger middle, Canada can rebuild lost capacity, expand exports and regain its footing as a country that makes more of what it consumes. The question is whether we choose to build the depth that true competitiveness requires.

This op-ed was originally published on LinkedIn.