Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 2 - Evidence - Meeting of December 6, 2007
OTTAWA, Thursday, December 6, 2007
The Standing Senate Committee on Agriculture and Forestry met this day at 8:05 a.m. to examine and report on rural poverty in Canada and the present state and future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chair) in the chair.
[English]
The Chair: Good morning, honourable senators, and good morning to all of those who have tuned in to watch the Standing Senate Committee on Agriculture and Forestry hearing on rural poverty and rural decline. Good morning to you, Mr. Douglas. He is here as our guest to help us understand the impact of climate change on rural Canada and hopefully to give us some good advice on how rural Canadians can prepare and adapt to climate change.
Climate change has become the defining issue of our time. Canadians living in rural and remote areas are particularly vulnerable to climate change because their livelihoods depend on the health and sustainability of our natural resources sector. This sector is uniquely sensitive to bio-physical changes in the atmosphere. Some have argued that harm is already being felt, citing the damage caused by the mountain pine beetle in British Columbia or the more frequent occurrences of droughts and flooding in the Prairies. Extreme weather conditions will place increased strain on existing rural infrastructure, which is already either aging or lacking. Many rural communities lack a sufficient tax base to fund their replacements or repairs.
Remote northern communities are particularly vulnerable because thawing permafrost threatens pipelines, roads and buildings and places extra strain on drinking systems and sewage lines.
We are glad to have with us Al Douglas, Climate Change Researcher, Centre for Environmental Monitoring. Welcome to a very cold and blustery Ottawa.
Al Douglas, Climate Change Researcher, Centre for Environmental Monitoring, as an individual: It is very much like home here — cold and blustery.
I appreciate the opportunity to be here this morning to talk about climate change and its impact on the rural communities. This is an important issue, and I noticed, as I read through the report, a number of similarities between things are you trying to accomplish in your report and some of the information that I will convey today. As I go through the presentation, I will touch on a number of those issues and point out the similarities.
One similarity is the term "resilient.'' I will open by paraphrasing a quote from the International Fund for Agricultural Development. In a global sense, climate change is certainly real and is happening right now. There are numerous signs across the country indicating that changes are happening. We see warming at alarming rates, especially in the northern part of our country. It is expected to continue into the future regardless of the efforts we take to reduce our greenhouse gas emissions. It is the impoverished parts of world that are expected to feel the impact of climate change the most, and it is these groups, including the developing nations, that are least responsible for the level of greenhouse gases in the atmosphere. They are certainly the most vulnerable of the groups, and we can draw some similarities between them and the impoverished rural groups in our country.
Climate change knows no bounds. There are no geographical boundaries for the impacts that we will feel as a result of climate change. It will impact everyone everywhere, and that includes urban populations and affluent populations, as well.
Climate change requires us to respond in two different ways, and I have already touched on this a bit. The first is mitigation, which is the control of greenhouse gases in the atmosphere and how much we are contributing to those gases. It also includes the sequestering of carbon. Today, I will focus my presentation on the other side of the equation: adaptation — planned adaptation. How do we adapt proactively to the changing conditions we are faced with right now and will continue to face into the future? Additionally, what are the challenges associated with that approach? Those are the two policy responses to climate change.
This graph shows some of the changes seen in the last 50 years. You can see significant changes in temperature in the North, specifically the northwest part of our country. Ontario and Quebec and parts of the Maritimes do not show as high a degree of change.
These models come from our Canadian climate modelling group at the University of Victoria. Looking into the future, changes in temperature will be prevalent in the North while still rising throughout the country. Two or three or four degree changes do not seem like a lot, but it is substantial for the ecosystem.
The precipitation graph shows a precipitation increase in the North, in Ontario, Quebec and the Maritimes, and slight decreases in the Prairie provinces.
The first area I will talk about is agriculture.
Benefits will be seen as a result of these changing conditions. The agricultural community can perhaps capitalize on some of these opportunities. However, other factors have to be considered beyond the increase in temperature. Longer growing seasons are important. You also have to consider the precipitation, the water regime, soil moisture and changes in evaporation and evapotranspiration.
Rainfall patterns vary spatially and temporally across the country. Slight increases for Ontario, Eastern Canada and B.C. are expected, while the Prairies and the North will receive less precipitation. The climate variability, the changes in the extreme conditions, the droughts and extreme precipitation events are also variables in the equation. Frost and disease are important factors for the agricultural sector as well.
It is important to understand that the agriculture community is resilient. They have faced numerous challenges throughout the years and have been able to adapt. The trouble is, the conditions we will see in the future are not necessarily ones seen in the past. We are likely to see new challenges associated with climate change not seen before. A degree of uncertainty goes along with that.
With regard to forestry, current stresses exist in terms of drought, pests and the resulting potential for increase in forest fires. These will adversely impact the economies and social conditions in those rural northern communities. Those communities are dependent on the forest industry. In Ontario, many of those rural communities are suffering in the North as a result of the changes. These are not necessarily climate changes but the economic changes happening and the market conditions from which they are suffering.
As part of their adaptation strategy, rural communities need to learn how to harness these changes. It will also require our forestry planners and people who know that industry the best to understand what is happening in the forests and to treat them well. The boreal forest is a critical part of our global carbon sequestration equation.
Monitoring of the pest movement is crucial to take actions in order to prevent some of those changes in forestry.
With regard to the fisheries, in Atlantic Canada and in Northern Canada, a number of rural communities are dependant on fishing for subsistence and wealth generation. Changes are occurring in the temperatures of the waters, which impacts the species in those waters and the fish dynamics. Where once cold water species of fish were found, now there are cool water and warm water species moving in. We are seeing a complete shift of the species present in different locations across Canada. This impacts both recreational and commercial fishing industries.
Invasive and non-native species are certainly an issue in Canada. A number of invasive species are entering the waters of the Great Lakes and St. Lawrence Seaway and impacting the food chain for native aquatic species. They are impacting different levels of the food chain and making it difficult for the survival of different species of fish. The zebra mussel is one example.
I am very familiar with the impact of tourism on rural communities. A number of these communities are dependant on seasonal tourism. Climate change will impact the natural ecosystem and, as a result, the economic foundation of a number of communities.
Regarding summer tourism, there will be changes in fish species and populations and water levels. For example, lower water levels in the Great Lakes make navigation difficult. If we see increases in temperatures, we can expect to have more people visit these natural areas and parks. Therefore, those managed systems will be more taxed, which will also presents challenges.
In the winter season, one thing that comes to mind is downhill skiing and how ski areas are impacted by the lack of snow. Last winter was an incredible situation in Ontario: one of our major ski hills had to lay off over a thousand people because they did not have any snow to run their operation. We can expect more of that variability as we move into the future. Some of the larger resorts have snow-making equipment as part of their capital. Smaller organizations are not able to do that. However, snow-making equipment is not effective if you do not have the temperatures to sustain the snow. The cross-country skiing and snowmobile industries are not that lucky. They are not able to produce snow.
Infrastructure was mentioned in the introduction. We need to be aware of extreme events and the changes or impacts those will have on our critical infrastructure. Of specific importance is the drinking water infrastructure. We have had situations in North Battleford, Saskatchewan, and in Walkerton, Ontario. The situation in Walkerton, although not directly attributed to climate change, followed an extreme precipitation event resulting in the entrance of the E. coli bacteria into the drinking water system.
Transportation in northern areas is an issue. I am not familiar with the rest of the country, but in Northern Ontario we have an extensive winter road system, and if we have warming conditions it is difficult to keep those winter roads operating. This includes airstrips as well for the landing of planes. Not being able to transport goods into those communities presents a challenge. Navigation and shipping issues as a result of declining water levels in the Great Lakes are also part of that challenge.
We are seeing changes to our ecosystems right now. Suitable habitat for different species of animals is not what it used to be. We are seeing changes to the territories where these animals can survive and flourish.
Regarding human health, you see the potential for vector and water-born diseases.
I want to close with the socio-economic impacts of climate change. Rural communities are often dependent on natural resources and so changes to these natural resources can impact their economies substantially. We need to adapt to the changes we are seeing now and the changes we will see into the future.
Barry Smit put forward a few examples in 2001. The natural systems react to the changes around them — changes in the ecosystem, the composition, the location. They can change their migration patterns and move to different areas.
Under the human systems, we can divide that further into private and public types of adaptation. Crop diversification can be done in anticipation of the changes, and the reactive adaptation strategies are listed as well. In terms of the public adaptation strategy, building codes is an interesting one. The Canadian Council of Professional Engineers is currently conducting a national study on the vulnerability of infrastructure to changing conditions. Their codes have been based on historic climate data that is no longer valid; they need to change their codes.
We have seen examples in the past of disaster relief and relocation incentives. These are ways to react to some of the changes that we are seeing.
In conclusion, climate change should not necessarily be viewed as a stand-alone issue but rather as something that will exacerbate current vulnerabilities. We have existing stressors on our system. Climate change will impact those current stressors and will push those limits and bounds even further. As I mentioned in the introduction, climate change does not know geographic bounds. It is not cognizant of those boundaries that will impact everyone. Additionally, there is substantial regional variation: climate change will not impact everyone the same way across the country.
We need to prepare for the worst, but also to capitalize on the opportunities. It must be understood that we need to build our strategies around coping with these changes and adapting so that we can put a positive spin on the changes. We need to band together, which is a characteristic of rural communities; they are strongly cohesive. Also, we need to examine local solutions and look for other communities that are doing similar things, and perhaps an opportunity to move into the green economy will open up.
The Chair: Thank you very much. You have given us a lot of information and also a broad discussion on the difficulties that we are already seeing the beginnings of as we go across the country.
Senator Gustafson: The general public is somewhat cynical about climate change. They think a lot of it is cyclical. I can remember in the 1940s when we could not get to town with a team of horses and a sleigh, and the snowbanks went right over the telephone lines. There was a case where the snow had covered a house and asphyxiated the people in there. We lived a mile from town, and they called my father to come with a team of horses to take them from there to a train that had been brought in to try to save their lives. One person did die while another lady was safe. That is how much snow we had. This snow in Ottawa is peanuts compared to that. Right now on the Prairies, where we live, it is black; there is no snow. Changes have always been happening.
Warmer climates benefit certain crops. Canola was never grown south of Highway 1 because the climate was too warm, and thus the crop would not mature. Now, there are all kinds of new varieties. They are growing canola in South Dakota, along with mustard and other crops. As you say, there are advantages. I question whether I should mention this, but there is a scriptural reference says that in the last day men's hearts will fail them for fear of things coming on the earth. It seems to me we are about there.
Everyone is concerned about climate change. We could not grow crops in our area because it was said to be too dry. The truth is that most of the grain is grown within 100 miles of the U.S. border.
I would like you to comment on cyclical change. Have you studied that?
Mr. Douglas: I have. There is certainly a component of natural variability in the changes we are seeing. That has been tracked back to the mid-1800s, around 1850 or 1860, when we first started recording temperatures. There has been quite substantial variation as a result of natural forces in the climate. That is certainly one component, but I believe there is more to it than that. A number of scientists around the world agree. The Intergovernmental Panel on Climate Change and the reports they have put out are able to point to those factors. Even as we move into the future, scientists are better able to distinguish between the natural forces and the human contributions to the changes we are seeing in the environment. They are able to distinguish those two.
As I mentioned, I think that we are having an influence on greenhouse gas concentrations around the world. That influence is changing the energy of the entire system. Some of the changes we are seeing will continue into the future. The insurance industry will certainly tell you there is a measurable increase in the number of natural disasters we are seeing around the world, and they can point to insured losses as a result of those natural disasters. The human contribution is significant and it is real.
Senator Gustafson: If Canada remains "pure'' in terms of dealing with climate change, and if many of the nations of the world do not make a move, how much effect will that have?
Mr. Douglas: With regards to measuring reductions of greenhouse gases, the effect will be small in terms of our total contribution to greenhouse gases. Of greater importance is the leadership role that Canada can show to the rest of the world by stepping forward and doing something positive about our emissions. That is even more important. It is very much a political situation, and a very difficult one.
Senator Mahovlich: Between Sarnia and Port Huron, Michigan, there is a channel. To bring in larger ships, the channel had to be dug deeper, which lowered Lake Huron and lowered some of the Upper Great Lakes somewhere in the range of five to 10 feet in some areas. Could the Centre for Environmental Monitoring have warned the government about this before they started to dig? Were you aware that this was happening?
Mr. Douglas: No.
Senator Mahovlich: Would you have warned the government? Deepening the channel was a man-made initiative. We could have prevented this somehow.
Mr. Douglas: I would hope that the government paid due diligence and did research before they made those changes in the dredging of the canal. It is difficult to understand what the impact would be in a situation like that. I have to assume it would be difficult to measure future results of the dredging. Therefore, understanding the impact two, five or 10 years down the road is important.
Senator Mahovlich: Even the impact to the fish ought to have been considered.
Mr. Douglas: Certainly, not only the water levels but the resulting impacts on those aquatic species ought to have been considered. If I had been involved, I certainly would have thought of that.
Senator Mahovlich: Situations like that can be prevented, if we are on top of things.
Mr. Douglas: That is right.
Senator Mahovlich: I am from Northern Ontario, right on the border of the boreal forest. It is really moose country up there. With the drop in temperature, will the trees grow larger? I ask because you very seldom see a tree over 20 feet high in that area. It is mostly marshlands. Will that forest change?
Mr. Douglas: The makeup of the forest and the species will change, but it will take an awfully long time for that to happen. There are a number of reasons for that, including species migrating north and suitable temperatures for different tree species. There are other factors as well, such as correct soil moisture and soil consistency.
Senator Mahovlich: The soil could dry up from the heat, resulting in another species of tree up there.
Mr. Douglas: Perhaps, but tree species do not just migrate north. It takes a long time. There are barriers out there that may or may not be overcome as the species migrate north. In terms of trees growing larger, perhaps higher levels of CO2 in the atmosphere could affect that. However, I do not think it will be significant; there will not be a significant change in the size of trees.
Senator Mahovlich: The storms are also more extreme. I think the last critical storm that Toronto had was Hurricane Hazel in 1954. I was in that. We were playing a hockey game in Guelph and the storm came down half an hour later on our way back to Toronto, as we crossed the bridge over the Humber River. Eighty-one people were killed in that storm. Are we expecting a larger, more extreme hurricane the next time around?
Mr. Douglas: Perhaps. Climate change is expected to show itself by an increase in the frequency and intensity of such events. The return period is a good way to understand it. The return period for a storm of the sort you talked about might be one in 100 years. Under new climate conditions, we may expect the return period to be one in 50 years or even one in 25 years.
Senator Mahovlich: Then the next storm like that could be in 2054.
Mr. Douglas: It certainly could be. The magnitude of the storm changes also, of course. Back in August 2005, a substantial storm hit Toronto and washed out part of Finch Avenue. It was a huge mess. Not only was the road washed out but also all the utilities — the cable and the telephone lines — buried underneath the road were severed. The damage was substantial.
Senator Mahovlich: I think the city should look at the bridges and the highways.
Mr. Douglas: That is certainly one area to examine, yes.
Senator Mahovlich: Now is the time to do it. Thank you.
Senator Callbeck: I am from Prince Edward Island, so I want to ask you about coastal areas. Certainly climate change is bringing changes to our water levels. We are already seeing that on Prince Edward Island. We have had storm surges in the last two years that have done serious damage.
Looking down the road let us say 25 years, how do you see climate change affecting the coastal areas? Are we going to experience these storm surges more often? Are they going to be more severe? What other changes do you foresee?
Mr. Douglas: I think they will happen more often and I think they will be more severe. The impact to the coastal areas is that the storm surges are continuing to eat away at the shoreline. Those coastal areas and communities are certainly worried and are at risk of losing their property and their homes. There are already cases of that happening around the world. Adaptation needs to be put in place to protect those communities and those homes.
Looking into the future, those communities are certainly vulnerable to the storm surges. There are good examples out there of how communities have protected themselves against such storm surges. In fact, the Confederation Bridge was built with the increases in those levels of the seas in mind.
Senator Callbeck: Do you think in 25 years we will see a major change, or will it be in 50 years or 100 years?
Mr. Douglas: I think the major changes could come tomorrow. They could come this year or they could come in five years.
There are two components. The first is the gradual change that we will see in the temperature changes. The second is these extreme events, such as the ones that you just mentioned: the tidal surges that we have and the increasing sea level. Instances of sea level rises are certainly an issue. The sea level rise will continue to happen over the next five, ten, 25 years. It will continue to rise, especially as we experience a melting of the ice caps. At the same time, those intense storms and events will happen more often and will deliver more punch.
Senator Callbeck: Will the effects be more severe in the East or in the West?
Mr. Douglas: I think the impacts will be severe no matter where you are in the country. There will be different impacts, though. In the Prairies, it could be drought or it could be pests. The Maritimes, with the coastline, have coastal issues, like the ones you have mentioned. For people in Ontario and Quebec, the impact is in regards to the water levels in the Great Lakes and the issues with shipping and transportation. There are different impacts to be felt around the country.
Senator Baker: Mr. Douglas, I noticed that your academic background appears to be in chemistry and also in business administration. That is an unusual combination. The information notes that we were provided say that you lecture at a university and that you work for the Centre for Environmental Monitoring. The notes also say that you were Ontario Coordinator for the Canadian Climate Impact and Adaptation Research Network. That is in the past. I would like you to tell us why that is in the past.
My question, however, relates to that particular research network in Canada, because that was a Canada-wide research network, as I recall, with a presence in each province. The matter that interested me and would interest this committee, I think, was a symposium of sorts in which an examination was made of the crop insurance programs in Canada, with suggestions for operative changes that could be made taking into consideration climate impacts and adaptation research. I recall presenters saying that the crop insurance program that is 50 per cent government and 50 per cent producer could perhaps be changed to match up with an encouragement program for crop diversification in times of trouble. Certainly the discussion was aimed at providing a better insurance program for producers in the agriculture industry. I often wonder what happened to that great symposium that you held.
Mr. Douglas: Those are great questions. To begin, the network C-CIARN, Canadian Climate Impacts and Adaptation Research Network, of which I was the Ontario coordinator, came to the end of its mandate.
Senator Baker: Really?
Mr. Douglas: We had a five-year mandate and there was an additional year tacked on at the end, and the network came to the end of its mandate.
Senator Baker: I would say that requires an explanation, but anyway, continue.
Mr. Douglas: When the network was in existence, there were 13 offices located across the country. We pulled together a number of valuable symposia, workshops and conferences, and in my opinion the network did a very good job at education and outreach and bridging the gap between researchers and stakeholders in the area of impacts and adaptation to climate change. It was a valuable network.
My background is not in agriculture, but I believe crop insurance was seen to be an adaptation strategy that has been in place for a number of years for the agricultural community. I am not exactly sure of the changes that they were proposing to the system, but it seems as though that could be one possibility.
However, I do not think that you want to be solely dependent on crop insurance, especially if we are going to see changing conditions and drought conditions into the future. You do not want to be dependent on that crop insurance. Some other form of adaptation or changes to that policy or that insurance setup to make it better for the agricultural community would certainly be positive. That would be a good thing.
Senator Segal: Do not worry about not having a background in agriculture. I do not have a background in agriculture. I think I am on this committee because I look like an enthusiastic consumer of the product.
The Chair: It goes deeper than that.
Senator Segal: I want to get a sense from you, Mr. Douglas, of the balance. Your presentation focused thoughtfully on both the positive and the negative impacts, but you did not, as I think is probably appropriate from a scientific point of view, offer any sense as to whether they will be in balance, whether the good will outweigh the bad, whether in the end it will be a wash in terms of net benefits versus net costs.
I would not mind getting your reflection on that. I realize it is a hard call, but when you talk about increased productivity from warmer temperatures, new crops, longer growing seasons, increased productivity from enhanced CO2, accelerated maturation rates, decreased moisture stress, these are actually significant potential gains, particularly for large parts of the country to the north, such as Senator Mahovlich's area, which has had some limitation as to what they could grow over time.
I would be interested in your perspective on that, understanding that it is a difficult call to make. On balance, using Senator Callbeck's frame of reference, in 25 years do you think we will be net behind or net ahead, or can we do the right things to be about even in terms of specifically focusing on agriculture and its viability in Canada?
Mr. Douglas: Specifically for agriculture, it is difficult to say. From the science, we understand what the potential changes will be into the future. We understand how we may be impacted, but it is difficult to predict economic losses.
If the agricultural community is aware of and understands the changes coming in the future, they can adapt and take advantage of any potentially beneficial changes. At the same time, if they are resilient and able to cope with the extreme events and periods of drought or pests, then again they will be successful and they will build their resilience.
In regards to net benefit or net loss, it is very difficult to say. I know that the grape growers in Ontario who produce wine are interested in what will happen. I think they expect a net benefit if they have a longer season. At the same time, though, there is the risk of early frosts, so we just have to switch to ice wine.
Senator Segal: Let me ask, if I may, about your view of adaptive strategies that we as a country might have to advance and invest in more substantially than we have in the past. For example, other parts of the world are far more advanced in terms of the use of solar energy or wind energy on farms. Other parts of the world have been using drip irrigation far more efficiently than Canadian farmers have for a very long time, because their climate gives them no choice. Regarding the adaptability of those technologies here, is it only about the money? Or is there a resistance to technological change that is more about attitude, because we have always done it one way are we are not going to change?
It has been my general sense, which your presentation underlines, that Canadian farmers have been very adaptive and resilient. Every year the weather is not quite right for some reason. It is too this or too that, too late or too early; nevertheless, solid crops and productivity come off the farm — and, quite frankly, at enhanced levels on a consistent basis.
Given what you are saying, I come away with a fairly optimistic frame of reference, first of all because my mother taught me that there is no situation in the world that is made better by bad manners or pessimism — those two things never help — and second because I think the Canadian farmer has a history of being very adaptive and facing up to these difficulties, sometimes with a helping hand from government when appropriate. Your presentation had some very focused, underlying negative issues that we have to address, but I come away with a relatively positive view of the prospects for farming and an enhanced view of what climate change could produce if we get the adaptation right. Is that an unreasonable conclusion on my part?
Mr. Douglas: No, not at all; I think that is fair. We need to be positive in our thinking and our movement in terms of policy to take advantage of the opportunities and know that if we are swift and put these adaptive strategies in place we can be prepared. We can develop our resilience across the board, rural or urban.
To answer your comment about some of these technologies, solar and wind, for instance, there is huge potential in Canada. The cost is a big factor, because, as you mentioned, the technology is being used in other parts of the world. We do have it coming on line very slowly in Canada, but we need more. We certainly need more technology, especially in the energy crunch that we are in right now. Those are welcome opportunities for the agricultural industry to take advantage of.
Senator Segal: What is your view on ethanol? I can see by the expression on your face that it is an argument you would rather not start. However, it is an area that many people genuinely believe would provide major energy security and diversification. It would also provide an extra source of cash for people in the corn and seeds business. It does have negative impacts with respect to the cost of feed. We will likely hear about that in a few minutes. However, it does seem to be an option that is easily accessible. Is there something we are missing in terms of this? Is it more complex, in your view?
Mr. Douglas: It is slightly more complex. I think there are certainly benefits from ethanol and blending it with gasoline, and moving in that direction.
The issue that is put forth by a number of groups around the world is that you are taking what could be a valuable crop for feeding people and turning it into something that is used to power vehicles. Some people have an issue with that, which is fair and understandable. There is value in ethanol, but at the same time, the market drives the price so that the agricultural community stands to benefit from selling their product to create ethanol instead of using it as a food product, which has a lower price.
Senator Peterson: Other than the natural disasters that you talked about, like storms and hurricanes, do you think global warming will be gradual or will it tend to get logarithmic as we move forward?
Mr. Douglas: We are seeing accelerated rates of change right now in the global average temperature. Again, we are taking a big-picture view here. In 2001, when the Intergovernmental Panel on Climate Change put out their third assessment report, the warming was at 0.6 degrees Celsius. This year, we are at 0.74 degrees Celsius. We appear to be accelerating. As we move into the future, we seem to have an understanding that our conditions are not only changing but that the rate of change is accelerating.
Senator Peterson: Right now, the public seems to be skeptical about climate change and global warming. So far, the remediation is on a voluntary basis; people are supposed to try to improve their footprint. Developed countries are tending to try to buy their way out of the problem with credits. Do you think a voluntary basis will work, or will we need to bring in stricter measures?
Mr. Douglas: I believe we need stricter measures. I think we need a combination of the carrot and the stick to move us along in the right direction. Incentives need to be there to encourage people to conserve energy, be responsible and reduce their footprint. At the same time, there should be some form of penalty for those who choose not to move that direction.
We really should take a positive approach to this. We need to encourage industries around the world to think responsibly and to do what they can to reduce their emissions and, ultimately, their footprint on the environment.
Senator Peterson: Who do you think should take the leadership role in that effort? Your Canadian Climate Impacts and Adaptation Research Network was shut down — possibly due to its results or the direction it was going — and governments tend to be frightened of those kinds of implementations.
Mr. Douglas: Perhaps. There is also a cost associated with doing these things. I think it is the responsibility of government to understand where we are and where we are going, and not only to make efforts to reduce our emissions within our own country but also to play a leadership role to encourage other countries, developed and developing nations, to do the same.
Senator Mahovlich: Are we monitoring the polar bear? What results are we getting? How are they adapting to the climate change? Are they better swimmers? I would think they would be improving.
Mr. Douglas: They would certainly have to be better swimmers.
The Ontario Ministry of Natural Resources is doing research in the Hudson Bay and James Bay area to monitor the polar bear situation there.
I do not have extensive knowledge of polar bears, but from what I understand, their suitable habitat is continuing to be pushed further north. As a result of the reduction of the ice cover, they are not able to hunt. Therefore, to survive they need to migrate to areas further north where there is more ice cover for them.
Senator Mahovlich: Is climate change affecting the polar bear more than any other animal?
Mr. Douglas: Not necessarily, no. I think other species could be in the same situation.
Senator Mahovlich: Such as caribou?
Mr. Douglas: Sure. The situations are creating environments that are not conducive to their way of life, so they are forced to move and to change.
Senator Mahovlich: Everybody is being affected?
Mr. Douglas: Yes.
Senator Gustafson: My question is on ethanol. Germany has legislated that 10 per cent of their fuel must be ethanol- based. I happened to run into some German people who were over here trying to contract with ethanol farmers so that they could meet their obligations.
The Americans, more than Canadians, are now in a big bind. They have built many plants, but in Kansas there is not enough corn to keep the feed lots and plants going. This is will create a major problem. A university professor who appeared before this committee a year or more ago indicated that the problem of dealing with supply would soon arise.
The German people were trying to contract with Canadian farmers for five years of their canola crop. I told them that they will not get any farmer to sign that. I told them it would be better to go to the Wheat Board, the Saskatchewan Wheat Pool and the big players to see what they will say about the situation. To this day, I do not know how that turned out. Supply is a factor and a serious problem.
My other question is about tax credits. It seems to me that the farmers are being left out of the question. They should probably be the most important factor because they are custodians of the land. It seems we talk about everything but farmers and land. I would like to hear your comments on that.
Mr. Douglas: When you were talking about the situation in Germany, were you referring to the supply of material from Canada and/or the U.S. to Germany for the production of ethanol?
Senator Gustafson: The fact is they could not grow enough crops to supply their own need. Therefore, they are coming to Canada to try and get supply from us.
Mr. Douglas: I guess Germany does not have the capacity to grow the material that they need, and so that is why they are coming to us.
Senator Gustafson: Rising grain prices have been very positive for agriculture. That also raises the question of supply. What does the future hold? We are just beginning down this road.
Mr. Douglas: That is right. It is an issue: supply and demand will drive the price to a point where if they want it enough, they will pay.
Senator Gustafson: That puts governments, generally provincial governments, in a difficult position. The government is asked to make a grant to start the plant. Then they are asked to subsidize the product. Put yourself in the position of the premiers of Manitoba, Saskatchewan or Alberta. They will say, "If I support the oil industry, it puts great amounts of money into my treasury. If I support the ethanol industry, what happens? I have to support it.'' However, they may not be too vocal about it, but they may make their decision.
Mr. Douglas: It is certainly a challenge. I understand the implications for the provincial governments and the federal government as well. They need to keep tabs on the support they give to those groups and understand how the price will change into the future as the market drives the price under those supply and demand conditions.
The Chair: Thank you. You come with a different background and knowledge that is difficult to find in this country. We are all concerned, including myself, as I am in the foothills of the Rockies, where we get the droughts and now we are watching our glaciers disappearing in our lifetime. These are troubling times.
Honourable senators, in the past weeks we have heard representatives from the cattle and hog industry who have described to us the crisis that they are living. The livestock industry has faced unfavourable economic conditions in the past months. Hog and cattle prices have decreased drastically during the course of this year at the same time that feed prices have increased due in part to the rising demand for biofuels, which contributes to high grain prices.
We have with us today Don Raymond, Director of Regulatory and Trade from the Canadian Meat Council, and Jeff Rosgen, President of Lakeside Farm Industries - Tyson Foods. They will give us the views of the livestock processors on this issue. We are glad to have you here. We that these are not happy times.
Don Raymond, Director, Regulatory and Trade, Canadian Meat Council: Thank you for inviting us to speak this morning. Unfortunately, our executive is meeting in Toronto today; otherwise, we would have additional members here.
I would like to make a brief presentation to the committee and give you a bit of background on our industry, including some of the issues we face.
Canada's meat processing industry of beef, veal, pork, lamb and poultry is the most important agri-food sector, with annual sales estimated at over $20.3 billion and total employment of over 67,000 people.
The Canadian meat processing sector is feeling the pressure of severe competitive disadvantages due to a number of factors. Many have labelled the events of the past six months as "the perfect storm.'' The challenges have been and continue to be enormous. Four Canadian Meat Council meat members have filed for bankruptcy protection over the past six months.
The Canadian dollar has risen in value from a low of U.S. 65 cents to over U.S. $1 in just over three years and has skyrocketed by 21 per cent since the beginning of this year. High oil prices of over $98 per barrel have raised energy and plastic packaging costs. Feed grains, the foundation of our livestock industry, have reached historic price levels.
A lot more U.S. meat and food products are showing up in our grocery stores. In our diverse, trade-dependent and regionally vital livestock and meat industry, the loss of liquidity, profitability and investor confidence has been swift and profound at all levels of the value chain. For those few publicly traded meat processors, the huge drop in their share price over the past six months tells the story.
Canadian meat processing companies have announced major restructuring plans, including cancelling new construction projects. They are rethinking their business models and taking action through consolidations, sales and closures and attempting to maximize plant throughput by double-shifting to spread out their overhead costs.
At the same time, labour shortages and retention have become major issues for our meat processing sector. Competing for labour has become particularly difficult in Western Canada where meat processors cannot afford the wages offered by the booming oil and construction sectors. It has also resulted in much lower plant capacity utilization and annual employee turnover rates of 95 per cent in some plants.
Recent trade disputes over hog feed ingredients and their maximum residue limits have added to the export risks and highlight the need for immediate adoption by all countries of international standards.
Meat processing is serious business, as we saw with the E. coli recalls of this past summer. The misfortunes of one company can have devastating effects on the entire industry. We witnessed that most recently when, on November 9 of this year, the USDA Food Safety and Inspection Service added very onerous "test and hold'' inspection at the U.S. border of Canadian meat and poultry products. Luckily, they rescinded the hold portion of the new rules, but the consequences of these new measures will be profound. Some estimate that the cost of the additional required E. coli testing in Canada and the U.S. could easily top $50 million per year.
After BSE — bovine spongiform encephalopathy or mad cow disease — hit the Canadian market in 2003, beef slaughter facilities reacted by expanding capacity from approximately 70,000 animals per week to over 110,000 animals per week. In November of this year, weekly kills fell to fewer than 60,000 per week.
In July, Canada's enhanced ruminant feed ban regulations came into effect, resulting in tremendous costs not faced by our American counterparts to the south. We estimate that this new regulation is costing Canada's federally inspected meat processing facilities an additional $23 million per year, much higher than originally estimated by government regulators and what was set out in the regulatory impact analysis statement that went with the regulations.
We know that our industry needs to grow its scale and improve productivity, because the world has changed, but the time has come for immediate action to help the industry survive this incredible series of events.
We have a few suggestions for you to ponder, and they are broken into different categories. We will start with tax recommendations.
We are grateful to the government's accelerated capital cost allowance for manufacturing machinery and equipment depreciation from Budget 2007. We believe that allowance should go beyond the end of 2008, since in many cases a two-year window to budget for, procure, install and commission major pieces of new equipment on line is not long enough.
We should do more. Canada and the provinces should lower the average total corporate tax rate to 24 per cent immediately to compete globally and to attract and retain inward investment. We applaud Finance Minister Flaherty's mini-budget package that was passed a few weeks ago that promised to start reducing corporate taxes, and we need to move quickly.
The Bank of Canada should, if feasible, continue to reduce short-term interest rates to slow the rate of the dollar's climb. I notice today it is down again, so that is positive.
Canada should expand the tax credit refunds for research and development to allow larger corporations the same tax benefits allowed to smaller Canadian corporations.
In the area of business risk management, Agriculture Canada's business risk management programs are currently restricted to the primary producer. There are many programs that the Government of Canada could be investing in that would benefit the entire meat and livestock sector. Full funding of the West Hawk Lake zoning project at the Ontario-Manitoba border is one such example that industry is currently being asked to co-fund. The meat sector alone is being asked to fund the ongoing operation of this project at $100,000 per year for the next five years.
Another example is the National Farm Animal Care Council, an important organization that benefits the entire livestock industry. It recently lost its $80,000 annual financial support from government. This is yet another example of a business risk management program that would clearly fit in the green box category.
As meat processors, we caution government to watch the countervail risk associated with government programs, particularly ad hoc provincial programs such as ASRA, out of Quebec, and the $165-million Alberta Farm Recovery Plan. We know, for example, that the growing volume of live swine exports to the U.S., due to the losses associated with feeding hogs in Canada, has caught the attention of the U.S. industry, and a new anti-dumping and countervailing duty petition is possible.
Canada's programs that assist primary producers with interest-free loans should be expanded to include meat processors to allow them to make capital and environmental upgrades. Canadian meat processing plants will need to invest more in scale and automation to maintain their competitive position, but the payback will not come quickly, and the current absence of profits makes such capital investment decisions very difficult. From an environmental perspective, Canadian meat plants are facing tougher provincial water quality standards in many provinces, examples being Manitoba and Quebec, and are being required to make huge investments in waste water treatment that their U.S. counterparts do not face.
The government should also help with respect to training costs. The ability to attract and retain labour in a very tight labour market requires meat processors to invest heavily in training programs for all skill levels. In many cases, companies are being required to provide English-as-a-second-language training courses for temporary foreign workers and new Canadians that they employ in large numbers.
In the category of regulatory and trade, our beef processors need immediate relief with an emergency, two-year, $50- million bridge fund for the disposal and storage of ruminant specified risk material. Unfortunately, the current program that is cost-shared with the provinces funds capital but not ongoing disposal costs, which we believe it should.
Canada's federally inspected meat processing industry is the most regulated of all the food processing sectors. It is estimated that federally inspected meat processors collectively pay over $20 million per year in fees. Fees for inspection services, export certificates, label approvals, and so on constitute a competitive disadvantage to Canadian processors. These fees come on top of growing staffing costs to deliver programs like HACCP-based Inspection. This is in sharp contrast to American processors and Canadian provincially inspected meat plants that are not subject to the same additional costs. To create a level playing field internationally, the fees should be removed immediately. We thank the House of Commons Standing Committee on Agriculture and Agri-Food for recently passing a motion asking the Canadian Food Inspection Agency to review the fees it charges industry.
Regulatory amendments and modernization initiatives in such areas as dietary health claims, fortification standards, allergens, method of production claims, ingredient approvals and label approvals have been stalled for years. We specifically request that the federal government expedite their approval processes for the use of lactates in both cooked and uncooked meats. The government also needs to accelerate the application to allow the use of irradiation of meat as another food safety option for processors.
The Canadian Food Inspection Agency should allocate more resources to review and enforce the regulatory compliance of imports, especially since Canadian manufacturers are burdened with strict label approvals and compliance. Imports of U.S. single ingredient meat products and some processed products are growing quickly with few significant regulatory barriers or enforcement actions by the Canadian Food Inspection Agency.
We all know that the U.S. mandatory country-of-origin labelling issue will be official in 2008. That will add an additional financial burden to the industry.
Lastly, Canada's provinces and territories should eliminate all interprovincial barriers to trade, especially those that restrict the movement of workers.
Over the last couple of days, we have been in meetings with the beef sector of the industry, discussing a number of issues at the Beef Value Chain Roundtable, which includes all sectors of the beef industry. That was set up by Agriculture and Agri-Food Canada to discuss issues facing the industry. A draft document was tabled at that committee on Tuesday. It is an outcome of the November 17 federal-provincial-territorial ministers meeting at which the issues facing the industry were discussed.
At that November 17 meeting, the ministers agreed to a set of principles, and a livestock task team was formed. The Canadian Meat Council is a member, along with government departments and other sectors of the industry. That document also mentions the need for the transition money, the $50 million related to the regulatory impact of the specified risk material or the feed ban regulation that went through.
The Chair: Thank you very much. Shall we go right to the questioning now? Is that okay with you?
Jeff Rosgen, President, Lakeside Farm Industries — Tyson Foods: Sure.
Senator Gustafson: I am interested in your comments on the movement of cattle and hogs to the United States. It appears to me that the farmers are not moving their cattle off the farms as they have been. In our area, a cow that brought $1,200 some time ago is now moving for $600 and $700. It appears to me that the farmers will hold these cattle, and at the same time the calves are going south — at least they are going by our door in truckloads. That is bound to affect your packing business.
Mr. Rosgen: With the high cost of grains in Canada, as compared to the United States, we are seeing the cost again much higher as well. It is forcing these feeder cattle to go to the United States to be fed, and I am assuming feeder pigs as well.
In Western Canada, the cost of gain through this winter will probably be through the range of 90 cents to 95 cents per pound; in the United States Midwest, it will probably be in the range of 70 cents per pound. To put 500 pounds of gain on an animal will amount to $100 to $125 a head that the Americans have a feeding advantage over the Canadians. That is why we are seeing the feeder cattle going to the United States to be fed.
Senator Gustafson: You mentioned hogs moving south.
Mr. Rosgen: It will be the same issue with hogs. It is much cheaper to finish a hog in the United States than in Canada at this time.
Senator Gustafson: Do your plants get any of the monies, the $165 million, that the Government of Alberta put in? That is the number I heard.
Mr. Rosgen: No; that was designated for the primary producers. The packing plants are not eligible for any of that money.
Senator Gustafson: Will that money hold livestock on the farm?
Mr. Rosgen: Time will tell. I think that is the intent, but I do not believe anyone has seen any money yet. I believe it is being distributed to the Canadian Agricultural Income Stabilization, CAIS, program. The intent is to assist the producers so that the livestock stays in this country and the industry continues to thrive. As far as I am aware, there has been no payment to date.
Senator Gustafson: You mentioned interprovincial trade. That is a big factor in the cattle industry. Alberta's money going into the industry buys the industry away from Saskatchewan and Manitoba. If you go back in history, when they were paying up to $70 a head for fat steers in Alberta, you could not afford to feed steers in Saskatchewan. You had to feed them in Alberta. As I was saying minutes ago, when I was a young lad, all our cattle and livestock went to Winnipeg, but Alberta really bought that industry with oil money. There will be a rerun of that. That probably is positive for your industry because of the bigger plants in Alberta. I would like to hear your comments on that.
Mr. Raymond: Our concern in terms of interprovincial trade is related to the meat processing sector. Under federal regulation, provincially inspected product cannot move interprovincially. We did make a recommendation to the Ontario government in relation to their budget review approximately a year ago that they may want to consider closing down the plants and reinvesting the money for provincial meat inspection into upgrading provincial plants to allow them to move interprovincially. That is our concern with interprovincial movement. I understand that the government will be coming forward with a concept that will break down some of these barriers in the future.
Senator Callbeck: I want to ask a question about higher-valued beef and pork products. In my province of Prince Edward Island, we have a small hog processing facility that is now under new ownership. It is beginning to process specialty lines such as organic, natural and omega-3 pork. We have a beef plant that is producing a very high-quality product. Both of these plants are struggling due to reasons you have outlined in your presentation, Mr. Raymond.
Are we doing enough to develop these products and to market them, not only domestically but internationally? If not, what should we be doing? Can the federal government take a role?
Mr. Raymond: The federal government does play a role in the marketing of products. In fact, I mentioned one mechanism in place for the beef sector. A similar organization, the Pork Value Chain Roundtable, looks at the future of Canadian pork. Their most recent meeting was in mid-November.
On the pork side, there is Canada Pork International, and their mandate is the international marketing of Canadian pork. Approximately 50 per cent of Canada's production does go beyond our borders. Those initiatives are in place. They are struggling because of the dollar right now. That is certainly having an impact.
Senator Callbeck: Let me clarify my question, as I knew that the federal government has a role. My question should have been whether that role should be increased. Is the federal government doing enough?
Mr. Raymond: We work very closely with our government counterparts. We do our best, and I am sure they are doing their best. However, in terms of dollar influx into the system, it is a difficult situation to assess.
Mr. Rosgen: I think government does have a role in helping us to remove any additional costs or regulations that our main competitors in the United States do not have. In his remarks, Mr. Raymond mentioned that the Canadian Food Inspection Agency is looking at the costs they are charging industry and seeing if they could lessen some of the costs charged to the packers.
The American plants do not incur some of those costs. For us to be competitive, we need to ensure there are not any extra regulatory burdens on us as well.
The cattlemen and the Canadian Meat Council have asked the government for a $50-million transition fund to come out of the enhanced feed ban. On young cattle, it costs our industry about $5 a head, and on cows, up to $15 a head to process and remove the specified risk materials out of these animals. This is a cost that the industry in the U.S. does not have, and it makes us uncompetitive. It is one reason why the Canadian packers cannot afford to bid as much for live animals that are being sent to the United States for slaughter.
If the government could examine those issues and help remove those costs, or the regulatory costs that the American industry does not bear, that would help us tremendously.
Senator Callbeck: Are we doing enough, though, to market these specialty beef and pork products?
Mr. Rosgen: Some of the specialty programs are niche markets. I do not think that we could take these large plants and convert them over to specialty markets; those markets are just not big enough yet. More could be done to promote some of these specialty products, possibly, but I think it is something that will develop in time. Perhaps some advertising and marketing dollars would help. I do not think we can change our industry whole scale over to natural or other niche programs.
Senator Callbeck: I am not suggesting that. Whose job is it, then, to put more dollars on the table to advertise and promote these specialty products?
Mr. Raymond: In some cases, regulatory impediments prevent the advertising of the specialty products; those may be domestic or international impediments. As Mr. Rosgen mentioned, this area would benefit from a review of, and especially a change in, the regulatory requirements for the whole area.
Senator Mahovlich: When we ask for funds to help our farmers, do the Americans close the borders every time we try to help our farmers? Who sets the playing field? Does the market set the playing field?
Mr. Rosgen: I can speak about beef. The American beef industry is much larger than the Canadian, and the prices of both live cattle and beef are denominated in U.S. dollars. We adjust them for the exchange for Canadian and local markets. We compete in the North American market, which is dominated by the American sector.
When it comes to issues, though, such as crossing the border, obviously the Americans have control over their own border.
Senator Mahovlich: Right.
Mr. Rosgen: We have had issues with border control. Obviously, BSE was the largest issue. Thankfully, in September 2003, after four months, the Americans opened the borders to a limited degree to allow some of our beef to cross.
Recently we have had issues with the U.S. putting increased testing at the border for E. coli and salmonella and listeria. In the last week they have reduced the requirements for salmonella and listeria, but they still maintain an increased inspection for E. coli. That has really hurt our business. The products in question are trim and ground beef. Those products have a shorter shelf life than whole-muscle cuts. The products are tested and held at the border or tested and released. By the time the results come back from Animal and Plant Health Inspection Service as to whether the material was positive or negative for E. coli, the customers are not interested in the product anymore. This business is like most others with regards to manufacturing and timing. If it gets held up at the border because of testing, it arrives to our customers too late and they cannot use it anymore.
We are having either to render the product, at which point it has very little value, or to box and freeze it. Once you freeze it, then you can extend the shelf life. It has been very costly to our industry.
Senator Mahovlich: Fees for inspection services, export certificates, label approvals, et cetera, constitute a competitive disadvantage. Do American farmers not have certain costs also in order to export their cattle within the United States? American farmers must have their own costs, or does the government look after that?
Mr. Rosgen: Mr. Raymond was referring to the cost to the Canadian packing industry. I am not aware of the U.S. plants having the same cost structure with respect to some of those certificates and documents. Keep in mind that a bigger portion of our industry as opposed to the American is based on export. I think they consume 90 per cent or 95 per cent of what they produce within their own boundaries, whereas approximately 50 per cent of what Canada produces is exported, whether it is beef or live animals. Exports are a much bigger part of our life than they are for the American packer.
Senator Mahovlich: We have to deal with the Americans, so whenever the government makes a decision, they should inquire with the Americans to see if it is a level playing field.
Mr. Rosgen: In a NAFTA environment, these products can freely go across the border, which is good, but we must ensure that we do not overburden the industry with costs that our competitors on the other side of the border do not have.
Senator Mahovlich: You say the government also needs to accelerate the application to allow the use of irradiation of meat as another food safety option for processors. Do the American processors have this option?
Mr. Raymond: Yes, they do. Radiation of meat in the U.S. is —
Senator Mahovlich: There should not be a problem with this, then.
Mr. Raymond: It is an issue that Health Canada, Agriculture and Agri-Food Canada and the Canadian Food Inspection Agency have been dealing with for some time.
Senator Mahovlich: They are looking at it?
Mr. Raymond: They are looking at it, but there has not been much progress.
Senator Segal: I wish to ask two brief technical questions at the outset to ensure that I understand some of the component parts of the present challenges you have been reflecting on.
Am I correct that, independent of the helpfulness of the Canadian Wheat Board, the problem with respect to lower feed costs in the United States is essentially driven by a mix of the subsidy structure in the U.S., their volume, and the present dollar difference? Is that the reason it is cheaper to feed our cattle in the United States than it is to bring them to full size here? Or am I missing something?
Mr. Rosgen: No. This past year, because of the ethanol situation, the American farmer grew a much larger corn crop than previously. In Canada, the barley crop would be just an average barley crop. As well, some of the other barley growing areas of the world had poor crops, for example Australia and some of the former Soviet Union countries. Coming out of an average crop, we have seen above average barley exports because of the poor barley crop in other parts of the world. On the other side, we see the Americans producing a very large corn crop.
Senator Segal: I want to make sure I understand. Until this moment, part of what I had understood to be a contributing factor to the increase in feed costs had been the competition from other uses, such as ethanol. However, you are saying that is not an issue with respect to the beef industry, per se?
Mr. Rosgen: It is not an issue with respect to barley, because barley is not used to produce ethanol. In Canada, wheat is used to make ethanol. In the United States, corn is used to make ethanol. The barley by itself is not related to the ethanol.
Senator Segal: In a best-case scenario, what would be the primary feed mix for our cattle?
Mr. Rosgen: In Western Canada, it is barley; in Eastern Canada, they use corn.
Senator Segal: I have a question about the enhanced ruminant feed ban regulations that we have with respect to what we can no longer do with those products. Can the Americans still feed ruminant to their own cattle? Why is it a problem for us and not a similarly competitive problem for them? Why does it disadvantage us? Why is there not parity on the other side, if we are all to be working to the same regulatory framework with respect to what we feed our cattle?
Mr. Rosgen: Both Canada and the United States, going back to 1998, have a feed ban preventing the feeding of ruminant material to other ruminants. In July 2007 Canada deviated from the United States by putting in an enhanced feed ban where specified risk materials were identified. They were segregated and they are processed and removed out of the rendering extreme. The Americans did not go to that step.
Senator Segal: We know what we do with those materials, but what do they do with those materials?
Mr. Rosgen: The majority of them continue to go in the rendering process, and the Americans have no further costs associated with them.
The Americans are removing certain items, for example the spinal cord, and some of the plants in the United States are removing just the brain. Those items are going to landfill, I believe; no further processing is done on them. The amounts of material, labour and equipment that the Americans have dedicated to this are very small compared to what we have to do.
Senator Segal: In terms of protecting the feed cycle, clearly the public interest is being achieved by their regulatory structure. Are you suggesting — and I know you are being very diplomatic about it — that we have imposed a level of regulatory afterburn here that does not contribute to the public interest but just increases costs to the producers?
Mr. Rosgen: Studies have been done. For example, the Canadian Cattlemen's Association has just done some work that would suggest that the incremental work we have done will not achieve eradication. There will be a small shortening of the time frame for eliminating BSE in Canada, as compared to the situation had we not done these additional steps.
Senator Segal: I would like to ask about the structure of the plants. Tyson Foods is a big company. I am sure that Canadians are delighted that Tyson has invested in Canada and has a major presence here.
Many global companies have to make difficult decisions about where they get product from based on the efficiency of the manufacturing process. It is true of the auto plants and of others. I do not mean to pry into Tyson's affairs, but, generally speaking, do the multinationals that operate here bid into a kind of global mandate grid as to who can produce a certain meat product at a better price for the purpose of the North American market, or are your markets primarily domestic and some export add-on because our market is too small to sustain all our productive capacity?
Mr. Rosgen: Our plant and the Cargill plant in Canada have been expanded, because there is a cattle base in Western Canada and primarily in Southern Alberta where the feed lots are. That is where the plants end up migrating. A little over half of our plant's production stays in Canada; the remainder is shipped to the United States, Mexico, Japan, Taiwan, Hong Kong, and Macau. I guess we fit into Tyson's North American production base, but because the cattle are here, we kill Canadian cattle.
Senator Segal: I understand. Thinking of the industry as a whole, I have a question for Mr. Raymond about the balance between efficiency and consolidation on the one hand and then your concerns about labour shortages on the other. At a superficial level, that would seem to be a little contradictory. Consolidation is usually about reducing the employee base, reducing costs, and having a larger-scale operation that achieves better efficiencies of scale. I wonder how that balances out and what your sense is for the prospects of the industry. Could you comment, when you answer that, on whether our level of automation as an industry is where it should be, or whether we need to do more capital investment in that respect to reduce the dependence upon what may be labour in short supply in some markets? That is a simple question.
Mr. Raymond: It is an interesting question. In terms of the labour and the downsizing aspect of it, I think it is fair to say that the industry at large has been striving to attract and maintain a labour force over the years. The situation has become much more difficult, particularly in Alberta with the oil industry booming and attracting the employees that way.
Mr. Rosgen may want to comment on the capital side.
Mr. Rosgen: On the labour side as well, labour has been very difficult for us. When we first started up, we went to a double shift and increased our plant from a slaughter-only facility to a full plant, including rendering and box beef processing. That was in the late 1990s. We did mobile recruiting right across Canada. We would go to Atlantic Canada and Ontario, and when our recruiters came back, we would have hired 30 or 40 people.
We continue to do that, but with diminishing returns. We go to the same communities that we did in the late 1990s or early 2000s, and we come back with five or 10 people. Labour is tight right across this whole country.
This past year we have been doing foreign recruiting with the assistance of the Alberta and federal governments. That has been very successful for us. At this time, we have about 200 foreign workers in our plant. We anticipate bringing in more in the new year. We need the program to continue. It has helped to stabilize our workforce. Without it, I do not know how we would have been able to keep our production volumes up.
Senator Segal: When you bring in foreign workers, they are guest workers. I think they are given local health coverage, amongst other things, to make it manageable for them as individuals. Do you encourage them to acquire permanent residency and eventually citizenship?
Mr. Rosgen: Yes. Originally the program was for one year, but now it is for two. Toward the end of that second year, if a number of requirements are met, including the company and the provincial government recommend them, they can speak English and they have good standing in the community, they can be nominated to become Canadian citizens. There is a real incentive for these people to come, to work hard, to assimilate into the community, to learn English as a second language and to make Canada their permanent home.
Regarding your comment about automation, the beef industry has been tough to automate. Cattle are all different sizes. It hurt us to go from a weak dollar to a strong dollar so quickly. Most of the equipment is sold in U.S. dollars. When the dollar was weak, it was very expensive to purchase capital from the United States.
Labour relative to the U.S. dollars was cheap, so we, and probably many other plants, simply supplied more labour. In three years, we have gone from the U.S. dollar valued at Can.$1.60 to par, and now we are trying to play catch-up. There is more automation that we probably should be looking at. Maybe other industries can be fully automated. We cannot. The weak Canadian dollar was a detriment to adding a lot of automation at one point in time.
Senator Peterson: To sum this up, input costs keep going up and producer returns keep going down. Is this ever going to change? How are we going to change it?
I presume it is a North American phenomenon that we are facing here, or does it come down to the consumer having to accept paying a higher price for a safe, reliable food chain?
Mr. Rosgen: From the producers' perspective, we have an anomaly now because historically feed grains have been cheaper in Western Canada than in the U.S. I do not know how long it will take to normalize, or maybe it will not normalize.
If it does not normalize, then our livestock sector in Canada is probably at peril. Maybe a couple of good crop years in Canada and around the world will normalize grain prices. That could be a completely different story. It is hard to say where grain prices will go in the next year or two.
From the packing and processing perspective, it is a form of manufacturing. We are most competitive when we have costs under control, our regulations are comparable to the United States, and we can run volumes through our plant. If the cow and calf industry or even the hog industry continues to shrink, there will not be the volumes necessary for these large plants to operate, and we will not get cost competitiveness against our U.S. counterparts.
Senator Gustafson: If input costs in agriculture keep going up, there is little chance of things turning around for the cattle industry or the pork industry. Fuel and fertilizer costs are doubling. Fertilizer has gone from $300 a tonne to $600 a tonne. There is little chance of the price of grain going down. It is going to be eaten up by input costs.
Mr. Rosgen: One thing we need in Canada is access and encouragement to develop more and higher-yielding varieties of wheat and barley than those we are sowing now. The yield in corn continues to increase over the years, whereas barley has stayed flat. Genetic modifications are such that they are going to be producing per acre yields of corn that will blow barley away. If Canada is limited to only certain varieties, then we will have problems if we cannot have varieties that will allow us to compete on production. The Canadian Wheat Board is one of the impediments to that.
Senator Gustafson: There are soft wheat varieties in the U.S. that produce more bushels per acre. We are not allowed to grow them in Canada. It is very closely policed.
Mr. Rosgen: Right. There again is a regulatory environment that is penalizing our industry.
The Chair: We had Hugh Lynch-Staunton, President of the Canadian Cattlemen's Association, and Michel Dessureault, President of the Fédération des producteurs de bovins du Québec also present to us. We are hoping to produce a small interim report on this issue. We appreciate very much that you came today.
Honourable senators, if you will stay for a few minutes, we will continue this meeting in camera.
The committee continued in camera.