Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 7 - Evidence of February 15, 2005
OTTAWA, Tuesday, February 15, 2005
The Standing Senate Committee on Agriculture and Forestry met this day at 6 p.m. to study the present state and future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chairman) in the chair.
[Translation]
The Chairman: Senators, tonight we are continuing our discussions with leaders in agriculture from across the country on the issue of the development of new packing plant facilities and operations within our country in the wake of the mad cow crisis of a year and a half ago.
We used to have a packing plant industry across the country. In more recent years, it turned into a couple of very large plants in the province of Alberta, and just a few other smaller organizations across the country; however, that has changed. We have entrepreneurs and farmers gathering in good spirits and with a lot of effort and hope to increase Canadian capacity to process our own cattle.
Tonight we have with us Mr. Dean Baglole, who is the Chairman of the Atlantic Beef Producers Co-operative. He comes from Prince Edward Island. We also have Mr. Mark Ishoy, who is the General Manager of Gencor Foods Incorporated. He comes to us from Kitchener, Ontario.
Mr. Baglole, please proceed with your presentation.
Mr. Dean Baglole, Chairman, Atlantic Beef Producers Co-operative: Atlantic Beef Products Inc. is a small beef facility in the Maritimes situated in Prince Edward Island. It is a partnership among beef producers. There are 190 plus farmers who have come together to form a cooperative. They have partnered with a retailer in our Atlantic area to actually build their own beef plant.
We have been working on it for a couple of years. We actually began some limited production in December of 2004. We are in the process right now of getting things moving forward. Our numbers are improving every week, and we are very pleased to actually be in the position that we are today.
With the help of the federal government, we are in the process of implementing a traceability project that will be a pilot for beef or pork or whatever, right across the country. We are actually looking at being able to trace any particular piece of meat right back to the farm where it originated. Right now we are looking at different technology and getting ready over the next month or so to make an announcement about who will be putting that in. We hope to have that up and running in approximately six months.
Because of our ownership structure and because the majority shareholders of our plant are the producers themselves, we are probably more aware of the relationship between the plant and the producer than are the larger plants. We have a number of issues on which the producers have to work very hard and keep in mind. They have to realize that the plant is only as good as the product that goes into it. They have to realize — and we have made it clear from day one — that the plant must be able to show a profit. We are hoping that with the help of a retailer and being able to get some feedback from consumers that we will be able to offer a product on par with any product available in Canada.
The biggest reason we began this exercise in the first place was because we lost our processing plants in the Maritimes, and we had no other options but to go farther, which was to Quebec or Ontario or beyond. The cost of transport was prohibitive, and we could not afford to keep it up.
We feel that one of our main functions is to make the producers viable. We have told them from day one that we are not going to make them rich; that is not why we are in the business, but we certainly hope we can give them an opportunity to expand their operations and continue doing something they are good at and that they would like to continue doing in our area.
Right now we have a staff of around 50 full-time people in our area, and I am very pleased about that. We have excellent buy-in from producers. We sold shares, spaces in our plant, to these producers, and they exceeded our expectations. We actually stopped selling because we did not want to have more cattle than we felt we could do in year one, and potentially in year two. We are pleased. We feel we have opportunities. We think there are markets. We are going to concentrate, for now anyway, on branded double A and triple A products. We are looking forward to seeing what the next year or 10 or 20 will bring.
Mr. Mark Ishoy, General Manager, Gencor Foods Inc: I will give you some background on Gencor, because Gencor is the product of an amalgamation in Ontario between United Breeders and Western Breeders. That happened in 1996. It is the product of a number of farm groups that have been in business since the 1940s and 1950s. Gencor is a non- share capital corporation that was formed a number of years ago, and it is there to benefit producers.
Over the years, it has been run as a business. They have built up an equity base that they feel can withstand the pressures of normal business, and after that, they return money to producers. A few years ago they invested in the Semex Alliance, which sells dairy genetics around the world. They do that in conjunction with semen producers in Quebec, Western Canada and Eastern Ontario. They have a priority discount program now for their producers who participate and they pay back money; they provide a discount back to the producers each year.
They had some money when the cow cull problem came along. As the problem became apparent, the board of directors started to look at the packing industry and look at opportunities to help their producers. They began looking into the whole packing house industry. They hired some consultants from Malik Creek in Fergus. I have been in the packing house business for a number of years ago, and I helped a little bit with the due diligence process.
Gencor looked at five different opportunities in Ontario, some of which were starting greenfield. The plant we ultimately bought had been a former federally inspected packing plant that had lost its licence, because it had been closed for four years. If you were going to buy that plant, you had to refurbish it and bring it up to today's standards for the CFIA. We looked at a plant just inside the border of Quebec that had closed, which was an opportunity to convert a hog facility. Ultimately, they landed on the Kitchener plant because for Ontario, the largest cattle population is probably somewhere in Southwestern Ontario. They bought the plant probably a year ago now, applied to the CFIA to get the licensing approval process going and started to fix up the plant.
Having the membership the way it was, this plant was not just for the members of Gencor; it was for all the producers in Ontario that had cull cows. We sent out letters to 25,000 producers in Ontario advising them that we were going to be opening the plant sometime early in the summer and that we would pay what we called a ``fair market price'' for cattle.
``Fair market price'' in our terms means we get a gross revenue from the cattle that we process. We deduct a processing fee. We need to make a profit to pay for the plant, but on top of that, the money that is left over we pay back to the producers. We have determined to make a grid payment system to producers, which begins to identify fair market value and what is good — that is, what are good cattle for the process and what are not good cattle. We will take any cattle, but some are worth more than others. Within our grid system we clearly identify what is worth more and what is worth less.
We started the middle of last July and did some test processing. Since that period, we have moved up to where we are getting about 800 cattle a week at the moment. The plant has a capacity to process 1,500 cattle per week, which we expect to get to early in May or June of this year. As we are going through the ramp-up, we always have more people on staff than for the numbers, so that we can continue to ramp up through.
We are marketing ourselves to producers in Ontario at the moment as an alternative to traditional marketing methods. One of the reasons we bought the plant in Kitchener was because it could be up and running much faster than starting with greenfield. The most optimistic greenfield start-up would be 18 months and probably less optimistic would have been 30 to 36 months. We bought the used facility. We spent a fair bit of money. We will probably pay $5 million for the plant. We will have another $6 million or $7 million in it by the time we are doing our 1,500 cattle per week.
Currently, we are marketing a Lease Hook Program to Ontario producers. We are saying, ``We have now demonstrated how we will pay you for the cattle for the next number of years to come.'' We in fact have paid a premium to the marketplace since we opened, even in start-up. We are giving producers an opportunity to lease space in the plant. It averages out to be a five-year lease. You lease a hook for five years, so that for each hook you lease, you are allowed to supply one animal each year and we will pay you by that system.
If we subscribe most of our leases, the plant will be debt free, which is important to the health and well-being of any of the meat plants. It is a highly competitive business and that will take care of the financing side of it for us.
As we go forward, we are looking to further process and value-add cow products in Canada, and there are many. We have done demonstrations for producers to show them that cow meat does not end up going into hamburger meat. All the cuts off these cows are saved. Some of them are processed into deli meats. Many of them are processed through the ethnic restaurant trade. If you have eaten Chinese food, you have eaten various cow products, because they cut the meat thin and marinate it so that it is a tasty dish when it is done. Definitely the meat is not just made into hamburger.
I would like to comment more specifically on a couple of things. One is our tariff rate quota system. I am sure some of you may have heard of it in the past. We all recognize that we have WTO commitments. As packers and farmers, we recognize that it is important to meet our commitments. It is also important for us to have a harmonized North American policy. In the past, supplementary permits were issued at will because of the open border with the U.S. and the way the market unfolded.
We have our quota of 76,000 tonnes that we have all agreed is the WTO commitment. Anything over the 76,000 tonnes should attract the duty. Why is that? It is because in the U.S. they also have a WTO commitment, and the number is somewhere between 675,000 and 700,000 tonnes. They allow that amount of meat to come in tariff free, but any time they exceed that amount, the people wishing to purchase the meat then pay the duty. The duty is somewhere in the 28.5 per cent range. It is a significant number.
Historically, Canada has allowed as many supplementary import permits as the industry requested. It was bad for the primary processors. When the borders were open, cattlemen were not unhappy with the situation because they could always in turn ship their cattle to the United States. Secondary processors — and I am talking about people who are in the burger and deli meat system — were happy because imported meat prices were significantly discounted to either American prices or Canadian prices.
If 85 per cent boneless beef was trading at $1.50 in Canada, many times that of imported meat was coming into the country on supplementary permits at 20, 30, 40 cents per pound discount to the Canadian market. There was no reason for Canadian secondary processors to buy Canadian meat.
As the system unfolded, the farmers could ship the meat out. The packer had to find a market into the United States, which packers could do. We could all sell into the United States, but when a live cow crosses the border into the United States and is processed in a U.S. abattoir, it is then a U.S. cow, and through that process is marketed as U.S. meat.
Canadians selling meat into that marketplace — because it is Canadian meat going in, big packer or small packer — all sell at somewhat of a discount to the American market. It puts the primary processor at a disadvantage, as they would get less for the meat. For many years, secondary processors said Canadian meat was not the same as non- NAFTA meat. That is a fact that has largely been dispelled through tariff rate quota committees over the past few years.
I talked to an economist the other day. We were having a discussion on this whole topic. It is important to realize how non-NAFTA countries arrive at the price at which they will sell their meat products into a country. We are all in the meat business. It is a game of pennies. As I explained one time at a meeting, we will send meat to Seattle, Washington, for FOB price one cent per pound more than we can send it to somebody in Buffalo or Montreal. Over the years the meat packing business has largely been driven by pennies. That is just the way it is, and it has always been a very competitive business.
If I am a producer in Australia, how do I price my meat? Here is what I propose. They should review their access, because 65 per cent is exported out of Australia, and 70 per cent of New Zealand meat is exported. When they review at what price they will sell meat, they should review their access to the various markets around the world.
Canada has a fixed number of 76,000 tonnes; the U.S. is at 675,000 tonnes and Japan is at some number. They know that the highest priced markets are probably Japan first, United States second, Canada third, and then the markets after that are sometimes the Middle East, which is not huge, or Africa, and as you get into Africa, the price becomes severely discounted. That is the last place they want to send their meat. If they know that a fixed amount of meat is going to the United States, they will work it so they sell a fixed amount of meat into that marketplace over each period of time, not being too far over or too far under, because they know they will run out of quota as they get to the end of the year. If they run out of quota, they will send their meat to the next highest priced market.
In the past, with Canadians having the supplementary permit system, they could always use us as the safety valve. If they would sell meat into the U.S. at $1.60, the meat would come into Canada at $1.10 or $1.20. Really, we are only hundreds of miles away from the border at best. It came into this country severely discounted, because it was a safety net for them to sell it.
In summary, meat coming into Canada above the WTO commitment must attract the appropriate duties to have a strong primary processing industry. If everybody knows what the rules are at the start of the year, then it will continue all the way through. When the rules are changing, or if it is a free-for-all and you allow the lowest priced meat to come in, that hurts the primary processing industry. It was not the only reason but one of the reasons that hurt the primary processors in the past.
I would also like to comment on SRM and ruminant dead stock feed. I do not have the exact gazette number, but I think it is Gazette I. For anyone who does not know, SRM is specified risk materials that are produced in packing plants. They are in the dead stock industry for sure. The bill is out there, and at the moment there is a lot to be considered that possibly will get in. There are some key points that will ultimately hurt our industry if they are not considered, and I do not think, from some of the meetings I have attended, all the facts or solutions are on the table at this point in time.
There definitely is a problem with the whole SRM issue. If we do not harmonize in North America with the U.S. — and to some degree the Mexicans — the primary processors will be at a disadvantage. The current estimates that you get from cattlemen — and I have heard them from the rendering industry — are that there will be about a $35-a-head disadvantage if we implement a total ban on feeding of SRM. That would give the American packers an advantage of $35 an animal. I do not think any of us in business are naive enough to think that whatever that number is, whatever the number gets to be, the government will write us a cheque to cover that disadvantage as we go forward. That would put us at a disadvantage compared to the rest of the industry.
I will go back to this being a pennies business. Cattle are processed and fed under different conditions here. If they can be slaughtered in the States and shipped back into Canada, where is the primary processing industry going if cattle are freely allowed to flow south? I do not think that is the intent of the law at this point in time.
Second, to my knowledge, science has yet to prove that the current feed ban in place is not working. There is no guarantee that the current changes proposed at the moment will open up export markets. We have talked to producers as we have gone around the province and had these meetings, and one of the obvious questions is this: Why do you not 100 per cent test for BSE? The answer is twofold. In the short term, if we 100 per cent tested for BSE, as I understand it, and I know it is accurate, slaughter capacity would be reduced by at least 40 per cent overnight, because of the cooler capacity required to hold the animals for the testing. The by-products would become a nightmare, because there is no way to keep them all separate unless the traceability program gets to be amazing. It would be very difficult to do.
Any changes that are going to take place need to be both coordinated and realistic. If SRM cannot be used in feed or fertilizer disposal options, disposal options must be realistic and possible to implement prior to any new laws being implemented. To my knowledge, current provincial environmental laws do not allow for the disposal of the resulting waste products. We deal with provincial environmental ministries every day. If we have to put a new stack up at our plant for a boiler installation, we need a permit from the Minister of the Environment of Ontario. We need to have the rules standardized across the country. You cannot have a rule in Ontario that is not good in Quebec or across the country.
Suggestions such as dying SRMs and/or dead stock removal and disposal must be carefully planned so that the system meets the needs of all stakeholders and Canada's international obligations.
We are talking about banning meat meal and all these feed rations. A small plant like ours, processing 1,500 cattle a week, will produce about 100,000 pounds of meat meal a week. It is not practical to burn it, and you cannot burn it in for use as an energy source, because the Minister of Environment will not let you get rid of the residue. There will be a mountain of this material if this law, as it currently stands, is put in place. I know where there are 6,000 tonnes of meat meal currently looking for a home because of the industry's lack of ability to sell meat meal. It will become a huge problem.
The Chairman: You have both given us a lot to think about.
Senator Hubley: I would like to direct my first question to Mr. Baglole, which will be on traceability.
Is your plant up and running at the moment, or are you still looking at the technology, the cost and things of that nature?
Mr. Baglole: Right now we have the same traceability as any plant in Canada. We have the ability to do what is called ``lot traceability'' and we do that now on an ongoing basis. We are not at the point where we see this traceability going over the next 8 to 10 months, but we are close.
Senator Hubley: Where does the technology come from?
Mr. Baglole: We put out a request for information about two months ago, and we have had responses from all over the world — from North America, Canada, the U.S. and Europe. The technology is out there that will allow us to do exactly what we are looking to do.
Most people think traceability means food safety. That is certainly an important component, but from our point of view, from our plant side and from our producer side, it is only part of the whole. The technology we wish to implement would be able to recreate a carcass and the cuts of each particular animal on the computer, price it and bring it right back to actual value per animal.
What becomes important for producers is having any number of cattle — all dressed at 800 pounds — all dressed the same, all graded the same, but ending up with a $50, $60 or $70 difference in value from one carcass to the next because of the cuts and the type of product produced. This helps not only food safety, which is very important, but it will also allow a producer to look at it and say that this particular type of animal, this breed, this feed program, puts more money in his pocket. That is then good for the plant; it is good for the producer, and we see that as very important.
Yes, we expect we are a month or two away from being able to make a recommendation toward what the purchase will be — which will ultimately be up to our board — but we hope to have it implemented in approximately 10 months' time.
Senator Hubley: What does a system like this cost?
Mr. Baglole: The cost is the big thing. We do not have all the numbers yet, because we have only had actual numbers from one company. For a plant of our size, a conventional line would run probably in the $2-million range. It is important to note that we are also looking to minimize labour. These changes have tremendous benefits in labour force in some instances, and there can be some real savings for the plants themselves. We have entered into an agreement with the federal government where we will be the guinea pig, so to speak, to test some of this technology and equipment. We have offered to then make it available to every plant in Canada. Hopefully what we put in place will be something that can be utilized right across the country.
Senator Hubley: Where will you be looking for the $2 million of investment?
Mr. Baglole: We — being Atlantic Beef Products — have already put a fair number of dollars into it on our own behalf. We have received $900,000 from ACOA — Atlantic Canada Opportunities Agency — to make this happen, and we have received a $500,000 commitment from Agriculture Canada.
This cannot just happen in the plant. It has to go right back to the primary producer, to the farmer, and the records that he keeps — the whole deal — but that opportunity is there. It will allow us to have tremendous control over recall if there is a problem with the food, because we can certainly pinpoint each particular animal if need be. It is something that some retailers are starting to ask questions about as well, so it is something that can maybe add value to the product down the road.
Senator Hubley: How many head of cattle are you predicting to be able to process every week?
Mr. Baglole: Our business plan called for 500.
Senator Hubley: You mentioned added value. You are slaughtering the animal, but when that carcass leaves your plant, does it necessarily carry your label or any identification?
Mr. Baglole: It does not necessarily now, but it will with this type of program, yes. The technology we are looking at now will label each piece as it comes off the line and before it is packaged.
Senator Hubley: Does that stay with the product?
Mr. Baglole: Absolutely, right through to the end, until it goes to the store, and then it will be the retailer's responsibility to transfer it. Right now what we sell is what we call ``primals,'' which are the large pieces — a strip loin or the whole loin — so that the actual number would go on that loin and in the box and to the retailer.
Senator Mercer: There are a couple of things you raised that I was a little concerned about. Just to clarify the Atlantic Beef Products process, you talked about your traceability project. Traceability can start in a couple of places, from the gate to the plate, or from conception to slaughter or, as the chairman of our Atlantic caucus called it, ``from the thrill to the grill,'' but where do you want to start? Do you want to start back at conception, or do you want to start at the time the animal is purchased by the farmer who is a member of the ACOA?
Mr. Baglole: No, it goes right back to the time that the animal is born.
Senator Mercer: Would that be born or conceived?
Mr. Baglole: If you go back to when it is born, you will also have the information as to its conception, because the bull and the cow will be copied as well.
Senator Mercer: We are in the early stages of developing traceability but as we develop this technology and this thinking, it is important that we find a way to set some standards as to how we measure traceability.
Mr. Baglole: We are very interested in sharing our information throughout our chain, and that is back to our cow- calf producers, trying to improve on quality. Our quality is good now, but there is always room for improvement. We are more than interested and willing to share information from our plant to try to increase the quality.
Senator Mercer: One of the things that has concerned me more and more, especially since this last case of BSE was identified, was the fact that we failed to ask the question of whether the cows are carnivores or herbivores. We all know they are herbivores, so why are we feeding products to them that are not their natural feed? Then you tell me, Mr. Ishoy, the feed ban is not working. Those were your words, I believe. You also indicated there is not a total feed ban in the U.S. That is what I interpret from what you said, but you can correct me if I am wrong. I am concerned that if we are still putting SRM into feed, we are somehow asking for trouble again. My understanding of the last case is that the farmer in question fed to his animals some feed that had been previously banned. At this stage we are assuming that is how they got BSE.
I questioned what he was thinking. It did not affect just him; it has affected everybody. Fortunately, the Americans have not delayed opening the border, but I am concerned that the technology that looked like was good for us, and was used in Europe and elsewhere, has been identified as something we should stop, but we are still not stopping.
Mr. Ishoy: A point of clarification. I thought I said that the feed ban was working. On that point, I would like to be very clear that I felt the feed ban was working.
Senator Mercer: In Canada.
Mr. Ishoy: In Canada. The feed ban in Canada mirrors the U.S. feed ban. We basically have a North American feed ban in place at this point in time.
Senator Mercer: Do you believe we do?
Mr. Ishoy: I believe we do.
Senator Mercer: I believe we have the ban, but do you believe that the ban is actually in effect? I believe that it is in effect in Canada; I do not necessarily believe that it is in effect in the United States.
Mr. Ishoy: I hear Senator Gustafson over here. I do not have any physical proof that would say it is not working in the United States at this point in time.
Senator Mercer: I guess the other question is this: Do you believe that there are no confirmed cases of BSE in American cattle?
Mr. Ishoy: Why would I want to speculate on that at the moment?
Senator Mercer: You are about the fifth or sixth person who has sat in that very chair, and I have asked the same question. That is a variation of the answer, but it is the same non-answer.
I would contend — maybe because I do not have to worry about it — that I do not believe it. There have probably been hundreds of cattle in the U.S. that have BSE, and they have followed the shoot, shovel and shut-up routine, or they processed the meat and exposed their citizens to bad product. However, that is off the subject. You are not going to comment; you already said that.
The Chairman: I think our guests are seeing this from their own perspective and they are in the business.
Senator Mercer: Mr. Baglole, you said 500 cattle per week. Is that the maximum number you can process?
Mr. Baglole: No, that is what our business plan tells us we can do on a standard eight-hour shift, five days per week. That is what our plant is designed to do. We have the ability to increase capacity by doubling it, merely by adding another shift.
Senator Mercer: My last question is about your members. You operate in P.E.I., but I represent Nova Scotia, so I would like to know what the breakdown is of your members in Nova Scotia, New Brunswick and P.E.I.
Mr. Baglole: We have members from all three provinces. Eighty per cent of the producers are from Prince Edward Island, simply because 80 per cent of the finished cattle in the Maritimes come from P.E.I. They are finished on the island because there is by-product, mainly from the potato industry, that allows us to feed more cheaply than in Nova Scotia or New Brunswick.
Senator Mercer: I thought you were going to give us a tourism ad, because it is so beautiful.
Mr. Baglole: I will not go there tonight. You have to remember that a majority of those calves come from Nova Scotia. It is very much a Maritimes initiative and one is tied to the other. We do not have a cow-calf industry in Nova Scotia if we do not have a feedlot industry in P.E.I. It all works together.
Senator Gustafson: In P.E.I., there was no packing plant before you built this one?
Mr. Baglole: There was a plant owned by Maple Leaf, which was a pork plant that used to do a few cattle years ago, but it has not done any now for two or three years. We had one plant left in the Maritimes, and that was in Moncton, New Brunswick. Maple Leaf had bought that and closed the beef side of it two years ago.
Senator Gustafson: You are going to process both young cattle and older cattle. Is that right?
Mr. Baglole: No, at this time our emphasis is on young cattle only. Our shareholders were our feedlot producers, cow-calf producers, and we had made a decision. This was started before BSE. We had taken this initiative because we had lost our processing plant in the Maritimes. The people who stepped up and said we should do this were the feedlot people.
There has been a lot of comment and question about whether or not we will look at the cull side as well. We will have to deal with many issues when we start talking about that. The first is that we do not want to lose our young-plant designation, which will allow us to ship anywhere in the world — specifically to the U.S., if that opportunity arises. We actually are not planning to do a lot of exporting, but we have to be careful that we do not do something to jeopardize the market down the road.
That being said, we are working with the cow-calf guys and the dairy industry in the Maritimes, talking about the what-ifs, to see if we can bring a cow slaughter to our plant. It will require some changes. It will require us to spend some money, but I think there is a real opportunity there. Stop and think about the age of a lot of these cattle and how far they have to be transported to the plants that are able to process them. It is pretty prohibitive to put cows of that age on trucks and truck them for that long. I think there are some real opportunities there.
I am a producer too, and I have been involved from day one. My general manager does not like me talking about phase one, two, three, four and five of this plant when we are still trying to get phase one off the ground. However, I think there are real opportunities. I think what we are trying to do in the area that we are in and the markets that we think we can achieve are the right things for us, but the cull side has potential.
We see four or five different things we can do to add value to our product, bring more money back to the producers and make them more viable, because without the producers, we are not going to be in business.
Senator Gustafson: So you feel you have a captive market.
Mr. Baglole: The Maritimes does not produce anywhere near the beef that it consumes. There are real opportunities in our area right now. I do not know what you have found throughout the rest of Canada, but I know in the Maritimes — and I believe it is going on everywhere — there is a move to ``buy local.'' People seem to want to buy more from their neighbour than they did maybe five years ago, and we would like to take advantage of that. Yes, we feel we can expand our operation and still sell our entire product locally and be successful at it.
Senator Gustafson: Just on the numbers alone, you should be able to process cattle cheaper than anybody else — on transportation alone.
Mr. Baglole: The transportation is what was crippling our industry.
Senator Gustafson: What is that number?
Mr. Baglole: Right now, it costs about $100 an animal to get it to Ontario.
Senator Gustafson: That much?
I will go to Mr. Ishoy now. Your plant is in Kingston?
Mr. Ishoy: Kitchener.
Senator Gustafson: Was that plant operating in Ontario before?
Mr. Ishoy: It operated through the 1980s and 1990s; it closed at the end of November 2000.
Senator Gustafson: So it was closed for a while?
Mr. Ishoy: It was closed.
Senator Gustafson: This question is to both of you. It appears to me that you would be better off if the Americans never open that border. You do not have to answer that if you do not want to.
Mr. Ishoy: I am comfortable. No, our business plan is anticipating that the border will open at some point in time. Part of the tie-in with our lease hooks is to get producers to buy into the plant. I go to meetings and ask, ``What do you know that has not changed in 75 or 100 years?''
The only thing I know is that cattle auctions still exist. The highest bidder at the end of the day knocks down the animal, buys it, and then it goes off. It is time for change in the industry, and I think a lot of people have recognized that there is a need for change. A lot of barriers are going to be broken down along the way, but there are definite opportunities to get well established.
Senator Gustafson: Twenty-five or 30 years ago, a lot of cattle that came from the West were fed in Ontario. That changed, and those cattle went to Alberta — or a lot of them.
Mr. Ishoy: Yes.
Senator Gustafson: Is that changing now? With whom are you going to be competing? You are going to do 4,000 head by the first of March.
Mr. Ishoy: We are going to do about 1,500 per week, and we expect to compete with everybody across Canada at this point in time. Ontario and Quebec have the two largest populations where people are going to eat. Meat comes from all across the country and from the U.S. into both those areas. It is largely a competitive marketplace. The Ontario slaughter numbers have levelled off here in the last 15 years to where there are about 12,000 cattle processed a week. In Western Canada, it has moved up to 50,000 animals a week.
Senator Gustafson: What is going to be done with all the waste now? I have been around a farm all my life, and I know that of your best animal, a third is waste. For an old cow, it is about half. If you add up those pounds on that many animals, it results in a lot of waste that has to be moved somewhere.
Mr. Ishoy: That speaks to this whole issue of the rendering and the specified risk material, and what we as a country are going to do to deal with it. It will not be dumped down a mine shaft. There are many ``not-going-to-happens.'' Nobody has a solution for it at the moment. People talk about the ability to turn it into power through digesters and using wind turbines to make electricity, but at the end of the day there is still going to be some amount of waste material left. Right now, the rendering process takes most waste and reduces it from 100 pounds to 40 or 50 pounds. Maybe the digestion process will reduce it to 20 pounds, but there will still be some waste to be dealt with. That is why I talked about the fact that environment ministries across the country are going to have to get together and figure out how we are all going to deal with it.
Senator Tkachuk: This is a question for both of you. First, just so I know, Mr. Ishoy, you said you had discontinued processing meat in 2000, and became a primary processor at GenCorp. Did I get that right?
Mr. Ishoy: The plant that we purchased closed in 2000 and we reopened it in July.
Senator Tkachuk: You have to reregister again with the food inspection.
Mr. Ishoy: With the Canadian Food Inspection.
Senator Tkachuk: What was your experience with that?
Mr. Ishoy: I dealt with the Canadian Food Inspection for a number of years, so candidly, they are very tough, but we recognize that they are an international gateway on a lot of issues.
Senator Tkachuk: Did you start this after BSE or before?
Mr. Ishoy: We started this after BSE. Having a closed facility, we knew that we had to bring it up to a new standard. Starting with an older building causes you some difficulty along the way, and some discussion. The one thing we have suggested openly to the CFIA, through members of the Canadian Meat Council and directly to our regional offices, is that their blueprint approval process is not user-friendly. It goes through far too much iteration, so you really cannot deal with a person. It is going up and down a chain. A process that should take six weeks can take six months, so we have suggested they outsource it and have somebody at the agency be the final approval, but certainly, there is a way to compress the process a little bit.
Senator Tkachuk: How about you, Mr. Baglole?
Mr. Baglole: We are brand new so we had not been through this before. I think Mr. Ishoy's comments are quite correct. I have no issue with CFIA's protocol or what the requirements are for plants. After coming through this, I can say that we have the safest food in the world without question, because they are very thorough, and that is fine. We have no issue with that.
I guess if we had a concern or a comment, it is that there is a lot of bureaucracy within an organization like CFIA, and it can be quite difficult to get from the start of the approval process to that high level. One thing I would like to suggest is that they find a way to streamline that process a little better, so that we can get down to the nuts and bolts quicker and be able to meet their concerns and deal with them as soon as possible.
Senator Tkachuk: We had testimony here last week from western primary producers, one from Manitoba and one from British Columbia. The one from British Columbia reiterated at some length his dealings with them, and it was very serious but very funny. He was trying to make a point with his deadpan approach to it.
What we are trying to do is assist this process, not to see what little influence we may have with the bureaucracy. I gather they are not client-friendly. Do they see you as clients, or do they see you as someone who just disturbs them after 4:00 and on weekends, and makes their lives unbearable because they have to actually deal with you?
Mr. Baglole: I do not think it is necessarily fair for me to comment on that.
Senator Tkachuk: I am not saying they mean it; I am just saying it can be perceived that way.
Mr. Baglole: I really think there is an opportunity for them to actually make it easier on themselves. There could be some sort of procedure so that, whether it comes from Prince Edward Island or from British Columbia or wherever, we could all go to a more central starting point. Instead, we started in P.E.I. and then moved on to the regional office. Then you move on to the next person and the next person. It just takes a long time to get it through the process. That is the only suggestion I can make. I understand that CFIA has had a lot on its plate over the last two years since BSE hit.
Senator Tkachuk: I thought they handled that reasonably well.
Mr. Baglole: I think so too. I am certainly not going to sit here and be negative toward them. I know they have had a very difficult job, but there are a couple of things. Mr. Ishoy has talked about them. When we start talking about specified risk materials and what we are going to do with them, it is a real problem. It is a problem that we are going to have to deal with nationally. It should certainly be dealt with throughout North America, but it is going to be a headache for us. It is going to be very difficult for the plants. It is going to end up coming back to the producers, and that is the shame.
Senator Tkachuk: How are you financed — more specifically than what you said earlier? What innovative ways did you find to get your money, and did you use traditional sources or non-traditional sources?
Mr. Baglole: We have taken some different paths to get where we are. Mr. Ishoy mentioned earlier that there is nothing that will kill the beef industry or a plant like trying to service a large debt.
We were lucky in our instance. Our provincial government stepped in and offered to help us with securing some financing to cover some of that debt, because a bank does not want to talk to somebody who is asking for $12 million to build a beef plant. They run and hide. We raised money from our own producers — 190 producers. We raised $1.5 million that we were able to put toward the project. Our retail partner came in with a set amount of dollars, and we were able to use that money and a guarantee from our provincial government. We did it more like a three-piece school. Our contractor owns the building. We have an agreement with a contractor. We have signed a 20-year lease for this building and the equipment.
We know what our costs will be from now until it is paid off. We were able to plug those in and make them work in our business model. Our government stepped in and offered some help to this contractor by guaranteeing that we will be there in the long run. That is what enabled us to get off the ground.
Senator Tkachuk: Did they guarantee the lease?
Mr. Baglole: They guaranteed the lease.
Senator Tkachuk: That is not a problem with NAFTA?
Mr. Baglole: That is not a problem with NAFTA. If they gave us the money it would be a problem.
The Chairman: When you say ``our government,'' you were referring to your provincial government?
Mr. Baglole: The Prince Edward Island government. We went to the three Maritime governments, told them our plan and vision and asked them if they were interested in stepping up and helping us. We were prepared to go to New Brunswick, Nova Scotia or Prince Edward Island with the plan. Prince Edward Island put the best offer on the table.
Senator Tkachuk: We have heard about this guaranteeing of the lease from another witness.
Mr. Ishoy: Gencor did theirs differently. They put up $5 million of their own funds for the facility. That bought the facility. At the moment, we are financed with some Farm Credit Canada money. We have about $3.5 million that we can tap into there. We have borrowed $2 million from the adaptation fund, which is repayable in three years. The Ontario government had the Mature Animal Abattoir Fund. We applied to that and got $2.7 million. We have to pay back $700,000. That was part of our refurbishment money.
Senator Tkachuk: A $2 million grant and a $700,000 loan.
Mr. Ishoy: Yes. If we sell our leases, that will remove all our debt. We have a standard operating line with the Bank of Montreal.
Senator Kelleher: I will draw on my vast farming knowledge. This past week the Department of Agriculture in the United States already reversed itself, and now you will not be able to utilize anything over 30 months. Does this have any effect on either of your plans?
Mr. Baglole: I cannot speak about that from our plant's perspective. If I may as a producer, yes, it has a negative impact.
We have a problem with the way we designate age of cattle in Canada. This idea of using dentition as the science to age them has serious repercussions for the industry. It is not accurate enough to make us comfortable. It can cause producers to lose a tremendous amount of money.
The difference in value between an animal that is deemed to be over 30 months and under 30 months is in the $700 to $800 range. That is a lot of money to lose for a product that has nothing wrong with it. That animal happens to have one more tooth than his brother standing next to him.
It is a big deal to have that border closed again, and it will keep the price depressed. That has a very negative impact on our industry.
Senator Kelleher: Will it have any effect on what you are planning for your plant?
Mr. Baglole: No, it will not affect us. To receive the designation that we are looking for, we have to keep our cattle within that young animal limit anyway. We have actually had to resort to asking our producers to check everyone before they ship them so that they can make a designation as to whether or not they are young enough. It is not an easy thing, as you can imagine, having to check the teeth of an animal that is not that happy about having his mouth opened and looked at.
Senator Kelleher: Mr. Ishoy, what about you?
Mr. Ishoy: It will not hurt our plant or our facility particularly. We fully expected to be selling meat into the U.S. after February 7. We were working with some people in the U.S. to whom we would be able to sell meat. Unfortunately, we will not be able to. It will probably leave more meat for sale in Canada than would have been available. We had expected the prices to move closer to the U.S. equivalent price for the finished goods over the next few months, but we will stay at a discount to the U.S. market for a little while.
As far as our business plan goes, we know what we can sell the product for. We take off a processing fee and pay the rest back to the farmer. That works for our business plan.
Senator Kelleher: As I understand it, Canada is trying to add value to our product. You can get more money if you raise the cattle in Canada, cut them up here and then ship to the United States. Is that correct?
Mr. Baglole: It is a renewable resource just like anything else. There is a lot more value to Canada by keeping it in Canada — absolutely.
Senator Kelleher: The moment we start doing that, the Americans are not going to be happy with the prospect. They like to add value to it, buy our cattle on the hoof and then produce the parts. They will not stand idly by while people in Canada start up these plants to add value to the Canadian product here.
What do you suppose the American reaction will be when they learn that you have started up all these new plants? What will be the effect on our plants, and what will the Americans do?
Mr. Ishoy: There probably will be some short-term effects and some long-term effects. If the border were to open, they would try to drive the price of the live cattle higher here, making it less profitable or unprofitable to process cattle in a plant in Canada. They could certainly make that one part of the difficulty. They could invest some money for the short term to make us suffer and maybe get out over the longer term.
I was at a conference in Alberta three weeks ago where one of the presenters said that before BSE came along, it took the country of origin cool labelling off the table, but if a lot of Canadian meat starts to flow into the U.S. again, there will be a push by the Americans to reintroduce cool labelling. Cool labelling is a law that is in place in Congress at the moment, but it is not funded by the budget process in the U.S.
The Americans, being good-neighbour protectionists as they are when it suits them, will probably go down the country-of-origin labelling road or some of those things, and the non-tariff trade barriers can appear.
Senator Kelleher: Mr. Baglole, what about you?
Mr. Baglole: When you are talking about trade, we are probably no different from softwood lumber. They will look at something else if they think too much value is staying in Canada. That is exactly what we have to do. We as an industry collectively have to try to keep as much of that value here as possible, and it just does not apply to beef; it can apply to all of them. That is exactly what we have done by building our plant in our region, and creating jobs in our region. If there is money to be made in the processing side of the slaughter, we are giving producers the opportunity to capture it and keep it here.
From our standpoint it is not much different from what we had to face when we had no plant and we had to go to Ontario. We were actually sending jobs to Ontario with our cattle. Not that that is unacceptable, but why would we not try to keep them here? ``Here'' being the Maritimes — in our region. The Americans will look at it the same way.
We welcome the opening of the border. The question was asked earlier as to what plants think about BSE. The border cannot open quickly enough for our producers. We certainly welcome that. We are not afraid to compete with the Americans in this business. All we are asking for is the same field to play on.
Senator Tkachuk: You were planning this before BSE, were you not?
Mr. Baglole: Yes. BSE had nothing to do with this.
Senator Gustafson: What is the price of a 900-pound calf now?
Mr. Baglole: The feeder market has heated up significantly with the anticipation of the opening of the border. It varies across the country. The price is currently higher in Ontario than in the East. Calves have jumped 20 cents per pound. A 900-pound feeder can cost 90 cents per pound.
Senator Gustafson: A week ago, my neighbour sold a nice bunch of 900-pound select calves for $1.05 per pound, and 600-pound calves were bringing $1.25 per pound. What would those bring in the States today? I understand they are very high.
Mr. Baglole: I do not have that information. As an industry we must remember that before BSE we had high beef prices. It was common to have prices of $1.85 to $1.90 for dressed beef. We also had a 63-cent dollar. We do not have that today. We have an 80-cent dollar. As producers, we must realize that when the border opens and things go back to the way they were, we will not see prices of $1.85 or $1.90 because, although American prices are high, they are not high enough to make that happen. We must be aware of that as well.
Senator Gustafson: I understand that their prices are as high as they have ever been.
Mr. Baglole: The difference in the dollar will make the difference to us.
Senator Oliver: Congratulations to you both for what you are doing. It is excellent and is certainly the way to go.
I am interested in the specified risk material and how you are disposing of it. Once you take the SRM out of a 1,000- pound live weight animal, how much does it weigh? How much SRM weight will you have to dispose of in your plant in a week?
Mr. Ishoy: I will calculate the answer to that while you ask another question.
Senator Oliver: How do you in Prince Edward Island now dispose of SRM?
Mr. Baglole: It is currently being handled through the rendering process, which is the same thing that has been done for a period of time.
Senator Oliver: What about the HACCP regulations?
Mr. Baglole: That does not come into play with SRM. The problem with SRM will be the new guidelines put in place designating how it will have to be separated within the plants, how it will be disposed of and who will bear the cost of that disposal.
One of our biggest problems, as Mr. Ishoy said earlier, is that we do not know if we have a solution for disposing of it properly.
Senator Oliver: What do you think it might be?
Mr. Baglole: I do not know. It is not for me to speculate. Mr. Ishoy has more experience on that side of it than I.
We have to be careful that we do not overdo it, that we do not try to put a system in place that will be prohibitive to the industry. In this type of industry, when anything is added, the price gets pushed down. It does not go up. If the SRM cost adds $35 to the cost of processing the animal, it does not go on the top end. The consumer will not see that in the store. That will go down to the producer eventually.
That is a problem for producers, because this is a tough business. It was a tough business before BSE, and it is getting tougher every day. We have to ensure that before we do things like this we do them for the right reasons and that we have looked at all the angles and all the opportunities.
Mr. Ishoy: In response to your earlier question, Senator Oliver, I suggest that Ontario would have about 375,000 pounds of SRM to dispose of per week. You can probably multiply that number by five to get the total across the country, which would be almost 2 million pounds per week.
Senator Oliver: Have you as producers heard any figures on how much it might cost per pound to dispose of it, given some of the new regulations that are being considered?
Mr. Ishoy: The new regulations are not dealing with how to dispose of SRM. They simply say that you cannot put it into the feed or fertilizer stream. To my knowledge, there is no other place to put it at this time, nor does the new law contemplate where it will go. There is a law being made that contains no solution.
Senator Oliver: It is truly a never-never land. There is just no place and no solution.
Mr. Ishoy: At this time there is no evident solution.
Senator Mercer: I am interested in the funding aspect that my colleagues started to ask questions about, particularly for the plant in P.E.I. How much did you say you received from ACOA?
Mr. Baglole: We received $900,000.
Senator Mercer: Is that in a grant or a repayable loan?
Mr. Baglole: That is a grant, but it is specific to the traceability equipment. We received no money from ACOA for the plant itself.
Senator Mercer: I am always anxious to underscore the value of regional development agencies like ACOA.
You both commented on the Food Inspection Agency briefly, and you were very tentative, I guess because you probably have to go back to them soon. Besides the comment that we have heard from others as well about the approval of drawings, et cetera, is there one suggestion you could give us to recommend to them that would help improve the process and make your life easier as you embark on a new venture in this very important field?
Mr. Baglole: As I said earlier, I would like them to centralize it more and not force us to go through all the regional offices to get to the people we have to talk to.
Senator Mercer: Are you talking about centralizing the paperwork or the decisions?
Mr. Baglole: I do not know if you can have one without the other. We found that when we finally got to the people who made the decisions, it was a painless process. We found that they were fair to deal with and, for the most part, their requests were realistic.
Senator Mercer: Walk us through that. Where is the office you have to start with?
Mr. Baglole: We had to start in Charlottetown.
Senator Mercer: Did you then have to go to Halifax or Moncton?
Mr. Baglole: We had to go to Moncton.
Senator Mercer: From Moncton, you go to Ottawa?
Mr. Baglole: Eventually. It was held in limbo for a while. There is a bit of uncertainty as to who has the authority to make it move. It took us a little more time to get to the final product than we would have liked.
Senator Mercer: Mr. Ishoy, was your experience similar?
Mr. Ishoy: The blueprint process is onerous, and that has been talked about.
We have heard rumours that CFIA is working on different procedures. Rather than pushing it all to a central office, they may push some of the rule making back to the regional offices.
Senator Tkachuk: Why can the decision not be made in Charlottetown or Moncton?
Mr. Baglole: I cannot answer that question. That was a decision that was made through CFIA. You have to realize that our plant — a greenfield plant, a young-animal plant — is the first to be built in Canada in a number of years. It was the first to get its designation, I believe, with the BSE problems we are having. They were careful — ``Let us not make any mistakes.'' They made sure they had their i's dotted and their t's crossed. We had to follow the rules, regulations and the process.
That being said, what they asked for was not unreasonable, once we got there. We have to find a way of getting there quicker.
Senator Mercer: To follow that up, are we talking about asking them to provide one-stop shopping? There is nothing more frustrating, particularly when people are not used to dealing with bureaucracy, than having to go to Charlottetown, Ottawa and maybe back to Moncton and Charlottetown. The runaround can frustrate you enough that you will leave the process. One of the things we could recommend is one-stop shopping. You want to open a plant, you have your financing in place and you have the products ready to go.
Senator Tkachuk: You want one place.
Senator Mercer: Give us the approval; we will answer all your questions, but we do not need that to answer that question here and here. We want to deal with one entity.
Mr. Baglole: This blueprint process is vital to us. They have the authority and the power to order you to do whatever is necessary. It is prohibitive. You have to be careful. You do not want to move too far on your own. You want to get a business up and going as quickly as possible. Our producers had nowhere to ship their cattle unless they paid the trucking costs. They wanted to get it going faster than we were able to do it, because we had a process that we had to follow.
Mr. Ishoy: We have covered the issue pretty well. Everybody in the industry would support what Senator Mercer said as well as some of the final comments here. That is a good message to take back.
The Chairman: Thank you very much for taking the time to come these distances. All of this is very helpful to the committee. We have been interested, obviously, in this issue from the very beginning. We put out a report on it last spring. We thought if we had two recommendations people might notice them more, and one of them was the ability to recreate packing plant opportunities here in Canada. That is why we are very pleased to have you here, because that is exactly what we are doing and you are doing. We wish you all the very best. We hope to have you back at some other time, and you can tell us how you are just trucking right along with very successful operations. Have a safe journey home.
Honourable senators, if you wish, we could go in camera and have our clerk bring us up to her conversations with Washington.
The committee continued in camera.