New data from Statistics Canada signals a troubling trend in Canada’s food manufacturing sector: innovation is slowing.

From 2021 to 2023, just 67.7 per cent of food processing businesses introduced at least one innovation, down from 72.1 per cent from 2016 to 2018. The sharpest decline was in process innovation, which dropped from 48.4 per cent to 38.5 per cent in just a few years.

Statistics Canada defines innovation as the market introduction of a new or significantly improved food product with respect to its capabilities (e.g., enhanced healthfulness); user-friendliness (e.g., drinkable yogurt or microwavable frozen products); and its components (e.g., organic, kosher or gluten-free ingredients).

Ottawa’s national food policy highlights innovation as a pillar of sustainable growth. The downward innovation trends matter for Canada’s economic competitiveness and its ability to respond to labour shortages, supply chain fragilities and the growing demand for more sustainable food systems.

These challenges are especially acute in the context of climate change and food security, where innovation is central to reducing adverse environmental impact and ensuring long-term resilience.

Several factors are causing this decline in innovation, including resource constraints for small- and mid-sized companies in the food sector; rising costs, labour shortages and supply chain disruptions, exacerbated by global events such as the COVID-19 pandemic; limited access to venture capital, compared to other countries; and the absence of a cohesive national food tech strategy.

However, one important but under-recognized contributor to the troubling innovation slowdown is regulatory uncertainty, particularly in emerging sectors, such as plant-based ingredients and food, where Canada has declared global ambitions but remains domestically constrained.

To address these challenges and reverse Canada’s food innovation slowdown, regulation must be treated not just as a risk management tool but as a strategic enabler of economic and environmental goals.

The federal government can take four steps to do that: co-develop regulatory roadmaps with industry stakeholders; establish centralized regulatory support mechanisms; invest in regulatory foresight within innovation policy; and clarify and modernize food definitions.

Regulation: A hidden force shaping innovation outcomes

A recent qualitative study I conducted on experiences in the Canadian plant-based protein sector found that regulation functions as a powerful innovation-shaping mechanism.

While regulation is often framed as a static constraint, stakeholders across the sector described it as an active, evolving influence that directly shapes product development timelines, reformulation decisions and even strategic exits from certain innovation pathways.

Responses to my study show that organizations are not resisting regulation per se. Rather, they face challenges in navigating it. Many firms, particularly small- and mid-sized enterprises, encounter ambiguity in approval processes, inconsistent communication and uncertainty about labelling rules and novel food categorization.

For example, products developed using innovative techniques – including plant protein isolates, fermentation-derived ingredients or cellular-based components – may fall into gray zones not explicitly addressed by existing definitions under federal food and drug regulations.

As a result, companies face uncertainty about whether their product will be classified as a novel food, which triggers a pre-market assessment by Health Canada. This process lacks transparency and firms are often unsure whether a submission is required until after informal consultations, which adds cost, delays and strategic hesitation.

While large firms continue to invest in new technologies, smaller businesses are falling behind. Companies with sales of less than $1 million report significantly lower innovation activity than larger players.

These conditions discourage risk-taking, reinforce conservative product designs and delay the rollout of new technologies. In some cases, firms bypass the Canadian market altogether in favour of jurisdictions with clearer pathways.

The regulatory environment as an enabler or inhibitor of innovation

While Canada has invested in agri-food innovation through funding initiatives and public-private partnerships, these efforts may be undermined by a regulatory system that has not evolved as fast as emerging technologies.

Unlike other countries that actively align regulatory oversight with innovation strategy, Canada’s model remains fragmented and reactive.

For example, the European Union’s novel food regulation includes pre-submission consultations and centralized scientific review processes that help streamline applications while maintaining safety. Similarly, Singapore’s regulatory sandbox model has been credited with accelerating novel food approvals while enabling learning.

Stakeholders in my study in the Canadian plant-based sector consistently emphasized the need for a more anticipatory and collaborative regulatory culture. What is missing is not simply faster approval timelines, but institutional clarity, transparency and early engagement mechanisms.

Without these, regulation becomes a structural bottleneck not only for plant-based foods but for the broader food manufacturing sector that is increasingly dependent on novel ingredients and innovation.

U.S. President Donald Trump’s tariffs and trade wars have introduced additional complexities for Canada’s food manufacturing sector, particularly within the plant-based industry. These exacerbate existing regulatory uncertainties, further hindering innovation and competitiveness in the Canadian food industry.

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Insights from my study, coupled with the current trade climate, point to several practical steps that the federal government could take:

1. Co-develop regulatory roadmaps with industry stakeholders: Collaborative development of clear regulatory pathways can help ensure that emerging technologies are not stalled by misalignment or uncertainty. This approach can assist businesses in navigating both domestic regulations and international trade requirements.

2. Establish centralized regulatory support mechanisms: Creating public helpdesks or digital navigation tools can level the playing field for smaller firms that may lack the resources to deal with complex regulatory landscapes.

3. Invest in regulatory foresight within innovation policy: Embedding regulatory preparedness into publicly funded R&D programs can ensure that innovations are developed with a clear understanding of both current and anticipated regulatory environments. This foresight is essential for maintaining competitiveness.

4. Clarify and modernize food definitions: Terms like “meat,” “milk,” and “simulated” have clear definitions in existing regulations, but their application to plant-based products causes strategic uncertainty for producers, influencing both labeling decisions and consumer perception.

Implementing these changes would not only reduce compliance friction but also signal a national commitment to innovation governance. Aligning Canada’s regulatory frameworks with its sustainability and competitiveness objectives is crucial, especially in light of the U.S. trade and tariff moves that threaten to further impede the growth of our food manufacturing sector.

Canada possesses the talent, research infrastructure and public support to lead in the global realm of food. However, it is imperative to address the underlying factors contributing to the decline in innovation in the food manufacturing sector, including regulation.

Regulation – when ambiguous or misaligned – can suppress the very ingenuity it aims to protect. By modernizing our regulatory approach, starting with high-potential sectors such as plant-based foods, we can create the institutional conditions that allow innovation to flourish.

This strategy is not about deregulation. It’s about designing regulation that keeps pace with change and external challenges. Doing so is essential not only to foster responsible innovation but also to attract investment, accelerate sustainability goals and ensure that Canada can lead, not lag, in shaping the future of food.

Editor’s note: The research project behind this article is funded by Protein Industries Canada and Mitacs. Policy Options is not part of that funding arrangement.