Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 9 - Evidence
OTTAWA, Tuesday, May 26, 2009
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 5:30 p.m. to study on the rise of China, India and Russia in the global economy and the implications for Canadian policy.
Senator Consiglio Di Nino (Chair) in the chair.
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The Chair: Honourable senators, I see a quorum. I am calling the meeting to order.
[Traduction]
Welcome to this meeting of the Standing Senate Committee on Foreign Affairs and International Trade.
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The committee is continuing its special study on the rise of Russia, India and China on the global economy and the implications for Canadian policy.
In 2008, total two-way trade in agricultural goods between Canada and China, India and Russia combined was about $3.7 billion, including $2.5 billion in exports to those countries and $1.2 billion in imports. Exports of agricultural products to China, India and Russia have risen by 33.6 per cent over the 2006 levels.
Canada continues to promote its internationally recognized safe, high-quality agricultural and agri-food products abroad, as trade continues to increase with the emerging markets such as China, India and Russia. The emerging markets of Russia, India and China present significant opportunities for the expansion of trade and investment for Canadian agricultural producers.
Appearing before the committee today are, from the Canadian Agri-Food Trade Alliance, CAFTA, Mr. Darcy Davis, President; and Mr. Jim Everson, Director and Vice President Public Affairs, Canola Council of Canada. From the Canadian Federation of Agriculture, we have Ron Bonnett, First Vice-President; and Robert Godfrey, Director of Trade Policy and International Relations. As well, from Agriculture and Agri-Food Canada, we have Blair Coomber, Director General, Bilateral Relations and Technical Trade Policy Directorate.
Gentlemen, welcome to the Senate.
Darcy Davis, President, Canadian Agri-Food Trade Alliance (CAFTA): Good afternoon. We welcome this opportunity to discuss the expanding economies in China, India and Russia. All three of these markets offer tremendous potential for Canadian agriculture.
CAFTA is a coalition of producers, processors and other agricultural and agri-food organizations that support trade liberalization. Our members include beef, pork, grains, oilseeds and sugar sectors. These sectors depend on trade.
The chair spoke before about our expanding exports in these countries; as well, in 2007, Canada exported $34 billion in agricultural products, an increase over 2006 levels and a number that is estimated to have grown again in 2008.
The World Trade Organization ranks Canada as the fourth largest agricultural and agri-food exporter in the world, behind the European Union, the U.S. and Brazil. To put this in perspective, we export over half our beef and pork products, over 70 per cent of our wheat production and over 90 per cent of our canola production in various forms.
Trade matters and it matter to farmers. Almost 80 per cent of total farm cash receipts come from export-dependent commodities. In every province, including Ontario and Quebec, over half of all farm gate receipts are now derived from export-dependent products. Canada has built an agriculture industry that relies on trade, and we are proud of that. Without trade, our agriculture and our food production sectors would contract, having significant economic consequences here at home.
Canadian agriculture needs international markets, and we need a transparent and fair set of rules to govern trading activities. CAFTA believes that the best way to achieve a rules-based system is through the World Trade Organization. The WTO's expanding membership makes it the vehicle of choice for establishing world trade rules. CAFTA was organized 10 years ago specifically to advocate for trade liberalization through the multilateral agreement being negotiated in the WTO Doha Round.
Given the rise in China's economy, that country's 2001 accession to the WTO was a major win for world trade. We continue to believe that a successful WTO agreement offers the most potential for Canadian farmers and Canadian agri-business.
Multilateral agreements are able to address a comprehensive range of trade issues and barriers, including market access, export subsidies and domestic support in a manner that is transparent and rules-based. In late 2007, CAFTA engaged the George Morris Centre to analyze the potential benefits to Canadian agriculture under a WTO agreement. Using draft modalities introduced by the WTO in 2007, the George Morris Centre estimated that Canada's beef, pork, canola and grain sectors would realize a benefit of $3 billion a year in additional exports through increased volumes and increased values in a post-WTO world.
The most recent WTO agricultural text and modalities presented in 2008 represent substantial progress towards a WTO outcome that would provide significant gains for the Canadian agri-food exports. Although Russia is not currently a member of the WTO, a successfully completed Doha agreement would apply to both China and India. Its adoption would eliminate export subsidies, substantially reduce trade-distorting support and expand access to export markets. It will also increase transparency, fairness and discipline in our trade with these countries.
The committee has asked us to comment on the potential for Canadian agricultural products in China, India and Russia. All three of these markets offer tremendous potential for Canadian agriculture. I have a few brief words about beef and pork, and then I will turn it over to Mr. Everson to talk about canola.
Canada's beef industry is working hard to move beyond the U.S. and to open markets that remain closed or highly restricted as a result of bovine spongiform encephalopathy, BSE. Both China and Russia are priority markets for this sector. In 2003, both countries closed their borders to Canadian beef. While China has yet to resume any access, the Canadian industry remains optimistic. With the accumulation of wealth in major urban centres and the accompanying increase in demand for higher-value protein products, the Canada Beef Export Federation estimates that the sales of beef and veal to China could be 9,000 tonnes by 2015, realizing a value of approximately $91 million.
Russia is also a priority market for Canadian beef. Our industry is targeting exports of 2,000 tonnes to Russia by 2015. In 2007, Russia resumed limited access for Canadian boneless beef products. Unfortunately, the U.S. has been granted slightly better access, putting us at a competitive disadvantage. We need to continue to work towards increased access and parity with our major competitors.
In 2008, China and Russia were among the top 10 markets for Canadian pork exports. Likewise, India is considered to have significant potential. China is a large and important market for Canadian pork offal and other cuts that are not popular here. Russia was the world's largest pork importer last year and Canada's third largest pork export market, with most products headed for further processing.
While tariffs are low in these countries, both rely heavily on non-tariff barriers to restrict access. There is much work to do to reduce these barriers and to convince both countries to adopt international sanitary and phyto-sanitary standards.
India offers significant new potential for Canada's hog industry. There is essentially no access for Canadian product right now due to sanitary and phyto-sanitary issues; however, meat consumption in India is expected to double in the next seven years, and India could become one of the top importing countries of pork, with a focus on high-end cuts and processed products.
Jim Everson, Director and Vice President, Public Affairs, Canola Council of Canada, Canadian Agri-Food Trade Alliance (CAFTA): I will focus on China in my remarks as a way of illustrating Mr. Davis's comments on the importance of these markets.
We would agree with the committee that China's influence is increasing in the global economy. We think this has important implications for agriculture and certainly for Canada's canola sector.
China is a priority market for Canadian canola. In our research it will continue to be based on some important trends. China's remarkable and sustained economic growth is leading to higher personal incomes, which in turn translates into better diets and more food purchases.
Similarly, the population is increasingly urbanized, a trend that is expected to continue. An ever-increasing percentage of the population will be relying on food grown by others, whether they are Chinese farmers or foreign suppliers.
Finally, specific to the canola sector, China already has a high per capita consumption level of vegetable oil. Canola is the healthiest cooking oil on the market internationally and trades in most countries at a premium to other oils. As China's food industry develops, we anticipate more demand for healthier products, as has been the case in North America and in other countries.
China imports more than 35 million tonnes of oilseeds and 10 million tonnes of vegetable oils each year and those volumes are growing, and they are not becoming self-sufficient.
China is an important canola seed and oil market, but access to the market is inconsistent, partly as a result of high tariffs. Canada can reliably serve China with 2 million tonnes or more of canola seed and oil annually. At today's prices, this amounts to over $1 billion in export value.
Our challenge is that Canadian canola seed and oil face a 9 per cent import tariff, compared to a 3 per cent tariff on soybeans, placing canola at a competitive disadvantage. No other major customer of ours has a tariff differential like this between canola and soy.
While I focused on canola, I note that China represents an important market for wheat and malt barley as well. This year we will sell more than 282,000 tonnes of malt barley to China.
For this reason, it is important that Canada consider China a priority as a trading partner and work to improve market access and bilateral relations.
In conclusion, Canadian agriculture has weathered some difficult years, and with the global economic crisis our troubles are not entirely behind us. Canada is a strong trading nation, and trade underpins our agricultural sector. We believe Canada needs to continue endorsing the WTO process, and we encourage the Canadian government to work towards a successful conclusion of the WTO Doha Round.
We also believe that Canada needs to continue working to improve trade development and market access to these priority markets like China, India and Russia. We recognize the work the present government has done, and in particular the efforts of the Minister of Agriculture, to build economic relations with these countries, in their 2009 missions to China and India, and Mr. Cannon's recent visit to China. We encourage them to continue this work.
Thank you very much on behalf of CAFTA. We look forward to any questions following the other presentations.
Ron Bonnett, First Vice-President, Canadian Federation of Agriculture: Thank you for the opportunity to present. With me is Robert Godfrey, who is our staff policy researcher in the trade file.
Over the last 10 years, China, India and Russia have emerged as economic powerhouses in responding to a globalized trade era. The growth rates in China have gone from a low of 6.1 per cent growth to a high of 11.4 per cent growth in the last few years. India grew 9.3 per cent in 2007 and 5.6 per cent in 2008, and Russia grew to 6.2 per cent last year. Those numbers underline the amount of growth that those countries have, and you can compare that with the world average growth over the last number of years, which has ranged between 3 per cent and 5 per cent.
Those economies are expanding at almost twice the rate of the rest of the world. This has caused a number of countries around the world to take a look at these three markets and try to target them as priority markets, and Canada has done the same. The Canadian Federation of Agriculture, CFA, believes we have seen only the tip of the iceberg in potential for access into these markets. If we have a strategic approach, we can capture more of these markets.
Where are we now? In China there is a market of 1.3 billion people. In 2007-08 there was almost $1 billion in exports from Canada to China. Canola was a big one, followed closely by canola oil. Barley, peas, and royal mink fur skins round out some of the top commodities shipped.
However, we must ask why we are not accessing more of the soybean market. The U.S. is a major supplier. We must look at which countries are exporting into that market and try to identify what some of those issues are.
In India, again, there is a market of 1.1 billion people, and $400 million in Canadian exports. Peas, dried and shelled, were the vast majority of this.
Soybean meal was again one of the major exports from the United States into that market. Again, we have to take a look at the underlying issues of why they are capturing more of that market than we are.
In Russia, there is a market of 141 million people, but when you look at the trade numbers, that market of 141 million people absorbed almost as much Canadian product as the market of India with 1.1 billion people. If you look at what we are sending there, it is frozen pork, frozen ham and live cattle. It is more high-value product. We have to look at how we can get into more of that.
We also have to recognize that, in agriculture, these three markets are, in their own right, exporting countries. We have to put it in perspective. In world wheat production last year, China was number 1, India number 2, Russia number 4 and Canada number 7. China has a food policy of food sufficiency and discouraged the import and export of wheat last year. India has done this in the past, and Russia often only imports wheat when it is in need of quality, and because of the proximity, they often import from the EU.
The bottom line is that today we are examining markets that hold great potential, and we have only begun to get access in certain areas. In Russia, for example, Canadian pork only began crossing the border in any great quantity in the mid-1990s, and at that time it was a risk that many producers took that is paying off today.
The real question is how do we shape Canadian policy in a way that facilitates Canadian farmers' gaining greater market shares and overcoming many of the barriers that producers face.
Various solutions have been suggested. One is a market access secretariat. This idea has been championed by the Canadian Cattlemen's Association, the Canadian Pork Council and Canada Pork International, and it has been well received by Minister Ritz and the Canadian government. It needs to be put to work immediately in working out technical barriers to trade that exist within these markets. For example, China still has a ban on Canadian beef.
The concept is a coordinated, cross-departmental approach dealing with trade access issues. We must be organized when heading into these markets. When in place, it will help facilitate the flow of trade by targeting and knocking down specific barriers to trade that Canadian producers find. We need to target our marketing.
It is easily argued that disposable income in many of these countries is limited; however, with growing middle-class societies in all of three of these markets, this is slowly changing, and we need to begin targeting and educating these potential consumers on the high quality of Canadian food products. First, we can use the Canadian Trade Commissioner Service, which is active on the ground, to market our products, such as soybean in China, soybean and wheat in India, and pork and beef in Russia, into these emerging middle-class markets. We can use the Canadian Trade Commissioner Service to market to high-end hotels in these markets that are willing to pay the premium for high- quality product.
We must identify the key products where Canada can compete with strong quality and products. We need to begin and to continue working to educate people — particularly in China — on the merits of our food safety system. We need to take an aggressive approach to have them understand the types of checks and balances we have on the ground in Canada.
Another issue is the political will in some of these countries to enter into trading agreements. In countries like China, again you need to educate the politicians that they can enter into some trading agreements that will help reinforce having a solid set of rules in place. Sometimes entering into a legalized, structured trading agreement gives them more security for the domestic markets than if they have a loose-knit set of rules in place.
On the issue of bilateral trade deals, we know that the WTO is slowing down. We would agree with our counterparts that the WTO is likely the preferred method, but we need to move ahead with bilateral agreements with some of these others.
The final point is research. We can use our universities to examine these emerging markets, find out the types of products needed and why some of our competitors are getting into those markets and we are not, and develop strategies to address the issues of concern.
To end as I began, I think we are at the tip of an iceberg of access to these markets, but we must decide strategically what products to export and what techniques we should use to get into those markets.
Robert Godfrey, Director of Trade Policy and International Relations, Canadian Federation of Agriculture: Mr. Bonnett is the face of the organization, and I am the guy behind the scenes. I am here for technical questions.
The Chair: Thank you, Mr. Godfrey.
Blair Coomber, Director General, Bilateral Relations and Technical Trade Policy Directorate, Agriculture and Agri- Food Canada: Thank you for the invitation to be here today to participate in this discussion. There is always the risk, when going last, of repeating some of the points made earlier.
Canada is a world leader in agricultural production, consistently ranking among the top 15 global producers of agriculture, fish and seafood products. With a population of 33.3 million people, Canada's agricultural sector is very export-dependent. As mentioned earlier, some 45 per cent of primary and processed agriculture, fish and seafood products produced in Canada are destined for export.
The quality and safety of Canadian food products is known and demanded by consumers around the world. In 2008, we exported more than $43 billion worth of agriculture and seafood products to over 200 countries in all corners of the globe. In an increasingly competitive marketplace with many emerging players and competitors, continued growth and prosperity in the agricultural sector depends on our ability to expand market access and seize opportunities in foreign markets.
There are many challenges and opportunities for Canada in international markets. With the global population currently at 6.7 billion, a surge in income growth and an ever increasing middle class in developing countries, these countries represent major future opportunities as target markets for Canadian agriculture and food products.
Several trends are driving the market, including rapid urbanization, the increased demand for processed food products and non-food uses of agricultural products. Consumers are demanding value-plus products such as food for health, organic and a greater variety of products. Today's consumer is more informed and has enhanced concerns over consumer food safety and security, the environmental impact and rising food prices.
Countries are entering into regional and bilateral agreements often to obtain preferential treatment. In addition, there are increased non-tariff barriers to trade, while uncertainty surrounds WTO negotiations. Added to this is the issue of the world economy with the recent meltdown. We must strive for further expansion beyond our traditional trading partners to break into new markets for Canadian agriculture and food products. China, India and Russia offer huge opportunities and potential challenges. Notwithstanding, they are among the economic powerhouses of the future. Their agri-food consumption is growing along with their food production.
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AAFC's international trade strategy under Growing Forward, the new agricultural policy framework, targets the following strategic outcomes: achieving a competitive and innovative sector, a sector that contributes to society's priorities and that is proactive in managing the risks of farmers. The strategy supports these outcomes by increasing market growth, enhancing sector competitiveness, defending and protecting Canadian interests and markets, and developing a catastrophic mitigation strategy. AAFC's main activities meet these objectives through the establishment and enforcement of trade rules (WTO, FTAs), advocacy/market access and market development.
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China, India and Russia are poised to become major players in international agriculture and food trade. Yet, they are all distinct markets where a template approach is not possible. The three countries are at different stages as markets. One characteristic common to both China and India is Canada's rich history of collaboration in developing agri-food production. Our trade relationship with China is more mature and is diversifying, whereas India and Russia are emerging as promising partners for enhanced trade. Agriculture and Agri-Food Canada, AAFC, has developed individual approaches to each of these markets.
China is Canada's third-largest market for agri-food and seafood, with exports of $1.8 billion in 2008. We were also China's seventh-largest agri-food seafood supplier in 2008. While most of our exports are bulk commodities, more and more opportunities exist for other product categories. The importance of China as an agri-food import market will continue to be fuelled by an expanding middle class, more demanding consumers and increased health consciousness.
China's food needs and domestic supply often influence global trading dynamics. China is sustaining an impressive growth in food production for both domestic and export use. While China competes with Canada in other Asian markets, their domestic demand may limit their impact as competitors for most food categories of interest to Canada. In addition to market access challenges, the majority of consumers are still price sensitive, and Canadian products face high competition, particularly from the United States, Australia and the European Union.
Strategically, our objectives in the Chinese market are to position Canada as a provider of safe and quality agri-food products, to expand access for Canadian companies, and to position Canada as a valuable partner in China's agricultural sector development to help create conditions that lead to a stable market place and to advance Canadian interests.
In order to achieve these objectives, our approach is to work collaboratively with all stakeholders; leverage our science and technology cooperation to build business opportunities; engage with China at all levels, including ministerial engagement, on market access issues; and assist Canadian industry to strengthen their competitive competencies. By maintaining and expanding access, assisting industry with market intelligence analysis and market preparation, we will enable industry to take advantage of opportunities in the market.
India has an increasing demand for agriculture and food products. Domestic production will be under pressure to meet this demand. Initiatives, both public and private, have been put in place to develop the agriculture and food sector, including input from foreign partners. India will remain a significant market for certain commodities, such as pulses.
Although trade with India can be challenging, liberalization is occurring for certain products as the need arises. An example of that is edible oil. In addition, change in India is happening at an accelerated pace, including demand for westernized foods and the development of a modern and organized retail sector. While India continues to sustain impressive overall economic growth, including increased food production, the focus is more domestic and the impact on international markets as a competitor to Canada is limited.
Canada needs to take advantage of these changes by leveraging past and current cooperation with India in moving their agriculture and food sector forward and translate it into increased trade and business linkages with Canada. A memorandum of understanding on agricultural cooperation was signed between the Canadian Minister of Agriculture and India's Ministry of Agriculture in January to formalize this relationship. AAFC will continue to work on market access issues and advocacy in conjunction with the Canadian Food Inspection Agency, CFIA, and the Department of Foreign Affairs and International Trade.
Canadian exports to India need to move beyond commodities — pulses are over 90 per cent of exports — to diverse products, from animal genetics to value-added foods. AAFC is working at strengthening relationships with India's officials as well as developing ties with major retailers in India. To be successful in India, we need to ensure that Canadian companies are ready to take advantage of this opportunity. We are, for example, providing companies with timely market intelligence and working with industry groups to improve understanding of specific opportunities.
Finally, there is Russia. Increased political stability and economic growth in recent years and, until recently, declining agricultural production have made Russia an increasingly important export market for Canadian agriculture, fish and seafood products.
Russia's agriculture policy is oriented around dramatically increasing production over the short term. Preferred policy tools often include interventionist measures designed to support domestic production and shelter it from import competition. Our strategic objectives in this market are to curb the use of these interventionist policy tools while continuing to promote Canadian products and build upon already strong bilateral relations.
Our approach to achieving these objectives includes relationship building with key Russian decision makers through ministerial and working-level engagement. This involves organizing trade missions, providing seminars and training to Russian delegations and engagement at the multilateral level, including actively supporting Russia's efforts to accede to the World Trade Organization. These efforts are supported by the joint statement on agricultural cooperation signed by Agriculture and Agri-Food Canada and the Russian Ministry of Agriculture in November 2007.
Our approach to market development involves gathering and disseminating market information and intelligence to better equip industry to take advantage of opportunities in this market. Agriculture and Agri-Food Canada also supports Canadian industry in developing business relationships with Russian counterparts and in attending major trade events in Russia.
In conclusion, Canada is ideally situated to meet the challenges of these emerging markets. The agri-food sector is actively pursuing opportunities as the markets evolve. AAFC is working on multiple fronts to ensure our success internationally. We are doing this by working towards a level playing field for trade by expanding market access and influencing key decision makers; continued relationship building through high-level visits and cooperation in agri- food; assisting the Canadian sector to strengthen their competitiveness in international markets; and raising recognition for the Canada brand and Canadian agriculture and food, products and services.
The Chair: Thank you all. You stuck to the time allotted: 10 minutes for each group, which is 30 minutes. That is wonderful. It does not happen often. We have approximately one hour for some dialogue between members of the committee and our guests. I have a long list.
Senator Stollery: I will try to be brief.
The committee is aware of the importance of agricultural exports. Our committee has consistently supported the WTO process. As you people know, the problem with bilaterals is that the two countries agree on everything that they already agreed on anyway and then they send anything difficult to a dispute settlement mechanism, which can take years. Softwood lumber is the best example.
Standards have come up, though. We have had testimony about standards. I think pork may have been the particular item that we were discussing. There are different standards in the trading world. We have standards similar to the Americans because they are a large importer — of our meat, in particular. However, 50 per cent of our beef exports were going to the Far East not so long ago. We heard evidence that standards have been an impediment to our ability to sell pork, in particular. Am I correct?
The Chair: There is more than one product, I think.
Senator Stollery: Yes, but I think pork came up; there may be more than one. In other words, there are different standards, and I thought we comply with an American standard. I am not certain; it could have been something else. However, this is an impediment. Is that correct?
Mr. Davis: Speaking as a producer and as a leader in this agricultural trade, the standards for everything are moveable standards on many fronts. We talk about these as the non-tariff trade barriers; sanitary and phyto-sanitary are the technical terms. However, it is really about how we produce the animals and the grain, what those country's standards are and how they have production and what they do and do not accept.
I think those standards have been changing and the bar has risen on many fronts. The challenge for us as an industry is how to get to that bar in a way that is cost-effective and so that we remain competitive. It is very challenging when that bar is different for different countries. Mr. Coomber deals with that a great deal and can probably elaborate, but as a country, we need teamwork between government, industry and regulators to be able to set our standards where they work for us and also be able to negotiate as a team those three parts of our negotiating with other countries and be able to say, ``This is our position and our standard. This is why — the scientific basis — and this is how we would like to have access. This is how we produce and process the product and we believe this meets the standard and we can prove it.''
All three aspects work together to ratify that and to reinforce each other. Therefore, you do not have a regulator agreeing to something industry cannot meet, or government agreeing to something the regulator cannot meet. It requires a lot of work and coordination.
Senator Stollery: I remember where this came up. Many of us know that China is a large consumer of pork products. Anyone who has watched them being shipped around on trains in China knows that, as do those who eat Chinese food.
We heard testimony not too long ago that there was a problem with pork exports to China — one of the largest markets in terms of consumption — because of these standards. Is that so? If so, why have we not been able to deal with it?
Mr. Coomber: This is an important point. To start off, most of the market access issues that we deal with around the world involve some sort of issue with standards. We are constantly meeting with foreign governments and regulatory and standard-setting bodies to try to influence their standard-setting activities in a way that does not impede trade and in a way that contributes to our export interests.
I wish to make a couple points before going to the specific question. Under the WTO, every country has a right to set its own level of protection and the standards it feels it needs to meet that level of protection. However, they also have an obligation under the WTO that such a level of protection cannot be more trade restrictive than necessary and must be justified through a scientific risk assessment.
In Canada, we encourage every country to base its import decisions on scientific risk assessment and science. That is our goal, but it is not always the case. Some countries use technical standards as a protectionist barrier; they throw a technical standard we cannot meet, and that keeps a product out. The fight is to try to keep them basing their decisions on science.
We encourage countries to adopt international standards set by the international standard-setting organizations such as the Codex Alimentarius Commission, Codex, which is a food standard-setting body; the International Plant Protection Convention, IPPC, which is a plant and animal health standard-setting body; and the World Organisation for Animal Health, OIE, which is the animal health standard-setting body. It affects everything, whether it is pork or beef. For the last five years, as we have struggled to get our beef back into the market, it has been about the standard and the safety. We encouraged countries to abide by the OIE standards and to adopt those, but they do not always listen.
Another way we try to influence these standards in agriculture and work with our industry is by working in the international standard-setting bodies. That is a longer-term thing to try to ensure that, when countries and international organizations are adopting standards, they are adopting them in a way that will be science-based and, ultimately, in the best interest of Canada's export interests. For example, we have had many problems with GMOs, genetically modified organisms, genetically modified products.
On your specific issue around pork, yes, there is an issue with China. As in other countries, they have a standard on a growth promotant in pork called ractopamine, which we are not able to meet at this point. Therefore, our pork exports are shut out of a number of countries because it is widely used in our pork industry, but we do not meet some of the standards in foreign countries.
That is an example where Codex is working towards an international standard, and they are very close. We are hoping that once they get to an international standard, countries like China will adopt the international standards. That will help.
Senator Stollery: I will let other people pursue that.
Senator Corbin: Mr. Bonnett has a comment.
Mr. Bonnett: Regarding the issue of technical barriers, I mentioned in my presentation the idea of a trade secretariat that would bring together the right people to deal with technical standards and would have all the people around the table who can pull it together. It might be AAFC or it might be CFIA. It might be the Department of Foreign Affairs and International Trade.
Second, we also have to recognize that some regulations that cause us some grief going into foreign markets are not their regulations but our own regulations. We have some domestic regulations that drive up our costs of production and make us uncompetitive in some markets.
That leads to the third and final point. When we are looking at foreign markets, we must look at high-value products. If we look at ourselves as a country and our costs, whether they are environmental standards or labour standards, we have higher costs built in. Being the low-cost supplier on the totem pole is likely not the best game in town. We must target our markets.
Senator Wallin: I apologize for my late arrival here. You mentioned that with the ongoing problem of WTO and the fact that they cannot seem to get it together, a fallback position might be bilaterals. You also make the point that the markets are unique these days. Mr. Bonnett and Mr. Davis, would bilaterals not be better?
Mr. Bonnett: My position right now is that, in the absence of the WTO going ahead, we must move ahead aggressively with bilaterals. At least we are then dealing with some of the issues. I would not step back from bilaterals and hope the WTO resolves itself. A parallel approach must be taken. Opening up any new markets with bilaterals is a good thing. We would encourage some of the talks talking place with the EU, back to that point about those being high-value markets.
Mr. Davis: I concur. In the absence of the WTO moving ahead at this point, we would have to follow that strategy, with the qualifier and the understanding that most bilaterals are based on the WTO. Where we ended up with the Uruguay Round, that is where we start with the bilaterals, and if we can get a better deal in the next round, that is where those bilaterals will start.
Senator Wallin: You both seem to be saying that that is your second choice, not your first. Is there not an argument to be made that you can actually target and craft if you do the bilateral?
Mr. Everson: There are some aspects of trade that you cannot get at effectively through a bilateral arrangement, and trade export subsidies would be a good one from the Canadian perspective. We have had difficulty getting into international markets because of export subsidies from other countries. For example, we could try to deal with a bilateral relationship with Europe, but if another country like the United States, just by example, is heavily subsidizing their exports into that market, we cannot deal with that on a bilateral basis because it is a third country that is causing the challenge. It is important not to give up on the multilateral round that brings all countries into fair disciplines.
Senator Wallin: On the question of standards, and this is in the context of that issue, I am a chancellor at the University of Guelph, which does a lot of research in this area. Is there a point at which you think science trumps politics and protectionism?
Mr. Bonnett: Politics always trumps science. The realistic dream of everyone is that you would have a trade agreement that recognizes science. Most of the things we run into in trade disputes are where politics actually is used as a tool to block trade, and science gets put on sort of a second layer. You always need to have in mind that politics will trump at the end of the day, but if you can build awareness of the value of using a science-based system in every country, then there is less chance of that happening.
Mr. Davis: I concur again. If you start trying to meet perceptions in different countries, you find that you cannot meet them all, or you contradict your food safety standards or some other standard in your own country. You have to be careful about what you agree to in the end in trying to meet what they want.
I will stick my neck out a little. What parades as consumer concerns or consumer awareness about imported product is actually brought forward by the farmers and the special interest groups in those countries who do not want to see the imports or the competition coming from the imports. We must be aware of that. All these things are big challenges that we must deal with in trade, but because it is so important, we have to keep trying, even though there are higher and higher hurdles all the time.
The Chair: I suspect that you would agree with my statement if I said that standards, impediments and barriers are often just another form of protectionism. I cannot hear the nod, unfortunately, for the record.
Mr. Davis: Yes, I would say so, often.
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Senator Fortin-Duplessis: Gentlemen, welcome. I had the opportunity to meet with you before the meeting. My question is for Mr. Bonnett.
The years 2006 to 2008 have been marked by an extreme volatility of agricultural products prices on international markets. The skyrocketing prices of many agricultural products observed during the first half of 2008 was the result of a complex combination of factors such as bad weather, lower inventories, a stronger demand, in particular for biofuels, government measures, speculation and higher energy costs. In 2006-07, oil prices went up on the international market, causing an upsurge of the cost of high energy content inputs such as fuels, fertilizers and irrigation.
The effects of higher food and energy prices will probably be aggravated by the global financial crisis, which started in the second quarter of 2008. The results of various coordinated initiatives by political leaders and financial authorities in order to deal with cash flow, solvency and recapitalization problems are not yet known. However, the financial crisis could have an impact on agriculture on several levels.
In your view, what will be the direct or indirect effects of the financial crisis on agriculture?
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Mr. Bonnett: I am glad you gave me an easy question.
The Chair: No such luck.
Mr. Bonnett: The financial crisis in the economic markets in the long term will not have as much impact on the agricultural sector as it may have on some other sectors. It has created some concern around the availability of credit, because farming is a very capital-intensive business. It has created concern around whether or not there would be the spending power to buy some high-value products.
When you talked about the spike in food prices that took place last year, you were correct in saying that there were a number of factors — weather, sort of a mania that started in the media that we were running short of crop, and then some speculation. There is a reality behind all of that. For the last 10 to 15 years, we have gone with commodity prices shaving the margin so far that, at the core, there must be a price increase.
If you look at all of the speculation that took place last year, that was a signal that there will be a readjustment in agriculture prices over the next few years. With high fuel costs and fertilizer costs, we will need to start building more value into the farm level or there will not be a sustainable supply. That will work its way through the system.
Specifically, though, the economic crisis has created concern in some of these areas, but we are somewhat different than, say, a car company. People can decide whether or not to buy a car. People will still continue to buy basic food. I do not think it will be quite as affected as some other sectors. That would be my opinion.
Mr. Davis: I wish to supplement that. As we have seen trade go ahead with the economic crisis, the real issue now is protectionist measures that many countries are putting into play at this point around many different factors. We have seen over 40 protectionist measures come forward. We have seen a number of countries reinstitute their export subsidies. The U.S. just put theirs back in place on dairy exports, and the EU on pork imports last summer. We are ratcheting backwards. We are not going forwards liberalizing trade. When we are going into this economic crisis, trade should be the stimulus. If we have trade working it could be the stimulus that pulls us out of this rather than having things ratchet backwards.
You talk about these macroeconomic effects, and we have had some earthquakes in how things are done. Another aspect of trade is our currency and how our currency is set, where it stands amongst other countries and how that affects trade. If we see a real increase in the Canadian dollar in a number of markets, it affects our ability to compete with others in those markets.
It is not just a matter of trade in agriculture for agriculture: many macro and economic things affect us. I do not think we will go back to where we were before; I think there will be a new awareness of having more of these commodities in the pipeline for many countries, but, at the same time, trying to keep all those other things in mind.
Mr. Bonnett: One more point must be made. With all the speculation that took place and with the pasta riots in Europe, we have to get back to the core fact. They talk about the amount of wheat or corn in any product, and the percentage that the farmer gets out of that is so small. That is not what is distorting the price. We have to keep that in mind sometimes.
Senator Wallin: I have a supplementary on my colleague's question. You said you have to build more value into the base product. Give us an example.
Mr. Bonnett: I am a beef producer. Right now we are struggling with low prices. We are doing a lot of work on developing value chains where we link the cow and calf producer to the feedlot right to the end market and we try to build value into that chain with the recognition that everyone must have enough of a cut out of that system in order to have a sustainable system.
Senator Segal: I want to make sure I understand. You do not have any GMO issues with these countries as we have had; for example, with some of our European trading partners GMO has been problematic. I take it that with these countries it is yet to emerge as either a phyto-sanitary or a trade barrier issue for the commodities, at least those represented here at the table this afternoon?
Mr. Coomber: The largest one, you are correct, has been the European Union and their moratorium on the approval of canola products. We took that to the WTO and had a successful challenge and are now moving forward.
GMO access is a constant issue largely for our canola sector. We face it in a number of fora. One area where we deal with it a lot is under the Cartagena Protocol on Biosafety, the Convention on Biological Biodiversity and the transboundary movement of living modified organisms and rules going into place that would put certain requirements around the moving of GMO products — living modified organisms — between countries that could ultimately impact our trade. In fora like that we are constantly working to ensure that countries do not put in measures. There are also labelling issues at play in various countries around genetically modified products and mandatory labelling versus voluntary.
Mr. Bonnett: I would suggest that these three countries do not have a record of organized opposition to GMO. That might be an underlying factor as well.
Senator Segal: Could I ask then another question with respect specifically to the relationship between the average producer — I notice Mr. Davis is a producer — in Canada and some of these trade opportunities? Is there a long chain of middlemen involved in the process? I am thinking of pork producers in Leeds County or in Frontenac County, for example. Do they have to deal with large consolidators before they can participate in this kind of international market, or do they deal with agents? What is the actual dynamic for a farmer on the ground in Eastern Ontario who wants to produce in these markets?
Mr. Davis: What I miss, Mr. Bonnett will fill in.
Yes and no. The answer would be for the most part yes. Many of our value-added products move as commodities through large agricultural processing companies. That product is then put into those markets generally through an agent in those countries who then distributes it within the country. There are a number of hands that it goes through from the farm gate, especially getting it internationally.
Having said that, there are examples, as Mr. Bonnett said, of value chains where people have gone the whole distance themselves. One of our members at CAFTA, Sunterra Farms from Alberta, has their own pork processing and they deliver that pork into Japan and China themselves, and it is pork they produce themselves.
We have seen that some producers are able to meet those demands and try to get right to those markets. They need the ability to do that to get through those barriers. They need the help, if you will, from the two governments to get that opened up and then producers can do that themselves, or we can get better access through the large commodity aspect.
Mr. Bonnett: The only point I would make is that the majority of the producers will make a link with someone else. That is where, I think, you will see more of the value chains develop, especially as quality and food safety concerns become implicit. They will want to be able to trace right back through to the producer. Even in the discussion in the cattle industry, I am starting to get to the point that when I breed a cow I like to have a pretty good idea of where the market for that calf will be because I design the genetics and the breeding to fit in with a feedlot operation that will fit in with the market. That will happen more and more.
Mr. Davis: We need the assurance the market is there in order to develop those chains. We need to know that we have some assurance that it will be there by the time you build all that, because it is not easy to do.
Senator Segal: Help us understand the contagion effect around the dynamics of trade with issues like avian flu, for example, and transferability through the pork population, as the case may be.
Senator Corbin: Swine flu?
Senator Segal: I never said ``swine flu''; the words never left my lips, just so we are clear.
I would like to know how that impacts the regulatory relationship you have with India, Russia, China, Brazil, et cetera. To what extent do you face trading and competitive opposition that seeks to expand the risk issues beyond what reality requires just to keep Canadian product out? We saw some of that on the beef side in the American context. What kind of risk spectrum do you face in that respect? Looking at our colleague from Agriculture and Agri-Food Canada, what do you plan to do about it?
Mr. Coomber: It is always difficult. We do have that reaction when we have avian influenza and when H1N1 broke out. A number of our markets closed to live animals. Some closed to pork products even though the science did not justify the closure.
In the case of avian influenza, when we had the big outbreak in the Lower Mainland a few years ago, some countries did not close; others closed to British Columbia; others closed to the whole country. We get a broad spectrum of reaction when these things happen. It is always difficult to know whether the decision behind it is completely science- based. Sometimes it is a lack of information. The first thing governments try to do, generally, is to get as much science- based information as possible to the countries and the decision makers in those countries so that hopefully they have enough information to lift their ban.
The most critical thing is getting the right scientific information to them as quickly as possible so that the ban does not last as long. There are constant representations at all levels of government, from ministerial on down, to our trading partners to make them understand the risk and hopefully get them to act appropriately.
Mr. Bonnett: You mentioned things like avian influenza and H1N1. We are now in a world of instantaneous communication. There used to be a time lag to deal with these issues. That is not the case now. That is why it is extremely important that there is the building of a relationship. If you are referring to China, India and Russia, that includes the building of a relationship with our embassies to explain the protocols we have in place to respond and explain those types of protocols in advance of anything happening.
One thing mentioned with the market access secretariat is that there would be a swat team that would have an instantaneous and coordinated response. It is not so much on the scientific basis. The issue is not science; it is about the communication of what we are doing. Those types of things will help buffer it because we know the message will get out there. Assuming someone gets keyboard strokes on a computer now, it is around the world.
Senator Downe: For a number of years now we have been banned from selling beef in South America because of the mad cow allegations. At what point do you finally say enough is enough, the science is fine, the food is safe and you take action against those countries?
Mr. Bonnett: As a beef producer right off the bat, I would say the science has already said that the food is safe. We have had a number of inspections and approvals and a number of countries have said this product is safe. Again, it is more an issue of using that as a tool to put a protectionist barrier in place. It has nothing to do with the food safety issues.
Mr. Coomber: That is a good question. Many factors go into making a decision on when enough is enough. Generally, while it has been slow going with several countries, we are regaining access to our beef markets in a fairly significant way.
A couple of things depend on it — the priority of the market as far as our beef exports go. South America is not a big market traditionally for us because they produce a lot of beef at a lower cost than we do.
The most recent example is with Korea. We have had six years of ongoing talks with Korea about regaining the Korean market, which was a significant market for Canadian beef products prior to BSE, and six years of basically no meaningful dialogue on reopening the market. A couple of months ago, the government said enough is enough. Ministers announced that Canada would request consultations under the WTO with Korea.
Senator Downe: These markets are hard to obtain. When they are lost — for example, South America even though it may have been small market — it would seem to me that the fact that we have been out of that market for a number of years means it is that much harder to get back in. Whoever has our share of market now has it, and they will not give it up easily.
I am concerned that the government has not taken enough action. I am glad to hear what they have done with South Korea, but it seems the timeline for taking action should be much shorter than it is. It should not go on for years and years when the product is safe and has been proven to be so. You would obviously agree with that.
Mr. Davis: I would go back to Mr. Coomber's earlier comments around the OIE and some of those other standard- setting organizations. They are large; they have many members that include countries we trade with, and we need to get them engaged in those negotiations on standard-setting and then get enforceable rules there so that everyone agrees what the standard is. Then we cannot have one-offs in each direction when something happens.
As well, we must take a more holistic approach to our trade. If we have an effect on a commodity like beef, I think we can retaliate at some point. There is always worry about trade wars and those types of things, but if it is an important commodity to us, we should be willing to make the effort to get back in those markets and to take some role in that.
We saw the U.S. do that with South Korea. They threatened to turn ships of cars around. That makes a difference. There must be an ability to take that approach.
The Chair: Thank you for that. Just a quick question before I turn to our next colleague. Canada has had a reputation in the areas of safety and quality that is at the top of the heap. Is that still the case?
Mr. Coomber: I would say so, yes.
Mr. Everson: I think so, and it is important with questions about standards and so on that we use that reputation and that our regulators and inspectors who have that reputation worldwide are able to be part of the international alliance to advance the case around science-based regulation and science-based standards.
We have an important asset in the Canadian Food Inspection Agency and the reputation they have around the world. In addition to their mandate to protect consumers in Canada, we think they have an important mandate also to be advancing that kind of regulatory alignment internationally, based on good, credible, sound science.
They do that, and it has been helpful in terms of markets. The canola industry is involved internationally, but they could have a larger role in that capacity too, in addition to the work that Mr. Coomber does.
Mr. Bonnett: I have a quick comment on that. There is a high level of standards, but I am not sure that we are really good about communicating that, either internationally or domestically.
I sit on the Pest Management Regulatory Agency's advisory committee, and when I see press articles about the approvals process in place and they do not understand the process, I think it hurts us. We do a good job of putting the standards and regulations in place. I do not think we do nearly as good a job at communicating how those standards are put in place and how they deal with the issues they are supposed to deal with.
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Senator Hervieux-Payette: Thank you, Mr. Chair. Regarding the products that we ship versus those that we receive, in terms of inspections in the agri-food sector, do we have problems with these three countries? If our standards are higher, they should have a tendency to be more protectionist toward us because we are putting higher demands on them. Is there a parity or a similarity between Canada and these countries? Do they take countervailing measures against our products if our standards are higher and their products cannot enter our market?
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Mr. Coomber: If I understand the question, are you talking about our standards being high for their imports into Canada?
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Senator Hervieux-Payette: If we apply the same rules, but if they think that our rules are more demanding, preventing their products from entering our market, do they have a tendency, when they deal with a Canadian product, to make some lobbying efforts to bring us to accept their products? Do they use one product against the other? Providing we meet their rules or their standards, do they accept our products? As far as standards are concerned, perhaps our standards are higher than those of China, Russia and India. Finally, are countervailing measures taken against us?
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Mr. Coomber: That could happen. Generally, Canadian standards are among the highest in the world. We like to think that we are basing our standards on science, on sound science and on risk assessment. We have done a risk assessment to determine the standard we need in place to protect Canadians, protect our animal population, protect the environment and so on. Sometimes many of these countries cannot meet these standards and they have concerns.
Sometimes there is a quid pro quo. However, with countries we try to take each issue by itself and deal with the access issue on that particular issue and make the decision based on science. Generally, we do not like to link the issues; we want to deal with each issue on its own merits.
Senator Hervieux-Payette: I will ask the next question in English so maybe it will be easier. I go back to the question of Senator Fortin-Duplessis on different products. I am the one doing the shopping and I might buy apples from China. How can they compete? How can an apple that travels 10,000 kilometres compete with an apple that is produced in Quebec or in Ontario? How can they manage to sell it without subsidizing it? Although people would work for practically nothing, even the transportation cost is more than what it is for our own product.
Is there some magic with this question? I am always amazed at this. Specialized products that come from that country usually look as if they were picked the day before. However, they have travelled 10,000 kilometres. There are nice green peas and it seems like they have been there for eternity and they stay nice. How does it happen that these products are coming here? What is the magic that the fresh product can travel 10,000 kilometres? Do we export fresh products like that to China, India and Russia?
Mr. Bonnett: It is hard to grasp how cheap it is to ship this produce. When you load a refrigerated container onto a boat and fill it, it does not cost a lot per unit to ship it 15 days by sea. That is what happens. The unit cost per apple, when you put them in a refrigerated container, is extremely low.
Mr. Davis: It goes beyond cost. It goes to quality as well, if those apples can be sold a little cheaper because the transport is cheap and growing them is cheap. As well, you understood they were from China when you were shopping and you had a choice, I would assume. Often it comes down to the quality of the product. If people want to purchase it, is it a quality that they are willing to live with? Is it what they want to buy? Seasonality would have something to do with it as well. That is, were those apples picked fresh and transported here in a week? What time of year or in what area of China or India were they picked? In the middle of January our apples are coming out of storage.
My epiphany was when we had sliced pickles in our house that were from India. I was taken aback by that, even as a trader in agriculture. We will see that back and forth. We need to understand their food safety systems and they need to understand ours for it to go back and forth.
Senator Hervieux-Payette: My last question is a supplementary to that of Senator Segal when he was talking about how many people between the one producing it and the one buying it. Is it different between China, Russia and India? I am always insulted to know that the person who produced the coffee beans in South America is paid so little and we pay so much. Do we have different systems in these three countries in terms of to whom you are selling?
Mr. Bonnett: I have actually visited China and I have seen their production system. I have a daughter-in-law who is Russian. I have talked to her about their production systems. Russia and China have very different systems. I have not been to India yet, so I could not comment on that.
The point was made earlier that although these three emerging economies are treated as emerging economies, they are very different. There are different cultures, different ways of doing business, and different linkages between the farmer and the distributor in each of those countries. It is hard to generalize.
Senator Hervieux-Payette: There is a big difference between the three countries in terms of the intermediate players and who gets to do what once product is there. We produce and we ship. How is product distributed in these countries?
Mr. Godfrey: I think that depends on the commodity in many cases. My father is a potato farmer and he will sell his product to an agent who then sells it to a contact in Venezuela, China, or wherever. It depends on the product. However, for a beef animal on our farm, we will ship it to the local plant which then sells it to another agent. It all depends on the product and the country. There is no silver bullet answer to your question.
To go back to what we were talking about earlier in response to Senator Segal's question, we are trying to build in these value-chain networks, and I think it depends on the product.
The Chair: Thank you for that.
Senator Zimmer: Thank you for your presentation. I feel like I am with family. I say that because I grew up in Saskatchewan, in a small farming community close to Senator Wallin's area. My father sold farming equipment to the farmers, so I know the agri-food production industry.
It is believed that the emerging markets of China, India and Russia could greatly increase their agricultural output by using modern production processes and with appropriate investment in machinery and equipment. What do you see as the agricultural production potential of these countries, keeping in mind the saying, ``Give a man a fish and he will eat for a day; teach him how to fish and give him the right equipment and he will eat forever''? The problem is that if they get the equipment to build and harvest the product, the food production, they will not need to import as much.
You have the teeter-totter effect. If they have the equipment, they will not need as much importing as they are doing now. We lose in that area but we gain in the other area. In fact, if their soils are as good as I saw they were in Russia and the Ukraine about 20 years ago, it is a bread basket; it is extremely productive. The problem is that they are importing right now, and we are exporting. On the other hand, if they get the equipment, they would not need to do so as much and we would lose in that area.
What do you see as the emerging area there? What impact will that have on global prices?
Mr. Bonnett: I will go back to my experience talking to my daughter-in-law about the Russian situation. You can put all the equipment in the world there, but unless you do a lot of education and training and change some of their culture, you will not increase their productive capacity. They still have a lot of growing. I think they are a generation or two out before they get that sophisticated farm business attitude that we accept here.
The other factor we must consider is that the statistics on world populations are expanding so fast that our challenge will likely be to produce enough food to meet the demand. Those two things are coming together. It will take them a while to ramp up — not because of the equipment, because you can throw equipment in there and leave it there — but you have to grow the culture and the way they operate. In China I saw very small farms. It will take a transitional generation to switch from the culture of small, somewhat inefficient units to a larger farm.
The other factor is the expanding population. We will still likely see some price increases just because we have to bring all of these things together to feed the world population.
Mr. Godfrey: I would add that these three countries are now exporting nations in the field of agriculture. As Mr. Bonnett said in the presentation, China is first in the world in wheat production, followed by India, then the U.S., and then Russia. They are exporting nations. The complex import regimes they have, which act as barriers to trade, are keeping us out of their market in many ways, whether they are technical barriers to trade or high tariffs in trade. That is what is keeping us out of those markets. I do not think it has much to do with the fact that we can ship seed potatoes to them and teach them how to grow them and then they will no longer buy from us.
If we want to get into these markets, we must tackle these complex import regimes, whether through the WTO, bilateral agreements, or whatever mechanism there is. That is what is keeping us out of these markets.
Senator Stollery: The agricultural exporting business is vastly complex. As I said earlier, this committee is quite aware of that.
We now live in an era of electronic information. I have discovered, as we sat here, that the chemical that Mr. Coomber mentioned, that the Chinese do not approve of, is used to make pigs leaner. Is that correct?
Mr. Coomber: Yes, I think so.
Senator Stollery: It is interesting, chairman, that I have been complaining for some time about Canadian pork being too lean, and I did not know until now that there was a reason for that. That is one of the reasons I stopped eating it, because it is too lean.
I will add that Russia is a big place. What you are really talking about is Southern Russia, because much of inhabited Russia — Saint Petersburg, Moscow, north along the Volga — is almost at the Arctic Circle. That is not where they grow stuff; they grow stuff in Southern Russia, along the Volga where the Germans settled in the 18th century.
I was told at least five years ago that they had already exported 6 million tonnes of grain. Am I not correct? They actually are in the market.
Mr. Godfrey: Yes, they are. That was the point I was making.
Senator Stollery: That was five or six years ago.
Mr. Godfrey: Russia is fourth in the world in terms of wheat production.
Senator Stollery: This was exports, not production.
Mr. Godfrey: They do export. I do not know whether they were fourth in the world, but they definitely do export. That was the point I was making in my answer earlier. In terms of agriculture, these three nations are exporting nations.
Senator Stollery: And they eat a lot of our lean pork.
The Chair: And a good thing too, since we do not seem to eat it here, Senator Stollery.
Mr. Davis: That comes back to the fact that import and export — trade — by its nature is reciprocal. You will see times when they export a great deal, if they get a dry year. Canada and Australia are large exporters of wheat, but Australian wheat exports go up and down considerably depending on weather.
Senator Stollery: Argentina as well.
Mr. Davis: To have enough food supply in the world, you need the trade and the production around the world to keep the supply going.
As well, as the standard of living in these countries rises with the advent of manufacturing and technology, their tastes are changing in what they eat. They are eating more protein that we produce and more high-value protein that we produce.
Part of it is us producing things that the consumers want to buy and being ahead of that curve. That is where the trade promotion things that we do are of great benefit. We do that through the Canada Beef Export Federation and the Canadian Pork Council and other organizations.
Senator Stollery: Put a little more fat into it. It is too lean.
Mr. Davis: There are things we do as well, like grow canola. We have been on the cutting edge of that and we have seen just how many millions of tonnes of canola and canola oil we can put into China.
Mr. Everson: Someone mentioned earlier that we have not only the production but the whole infrastructure in Canada for doing this, and the technological advantage in the product we are selling, and canola is a real example of that. We have fabulous transportation companies and grain-handling companies.
These countries are large producers, in some cases exporters. China is very close in production to Canada in terms of canola production at around 12.6 million or 13 million tonnes. We are very close to Chinese production. In China they grow rape seed and here we grow canola. We do it with 52,000 farmers. In China they have somewhere north of 100 million farmers. That is a significant difference in the efficiency of our production and our infrastructure to grow and sell the product to some of those other countries.
The Chair: Thank you for that. One hundred million farmers is a scary thought, but I will move on.
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Senator Fortin-Duplessis: The putting into place of barriers against exports and the destabilizing effects of these barriers on global markets bring into focus the fact that the WTO rules do not prevent countries from restricting exports, plus the fact that the tax regime in the area of exports does not include any discipline. In view of the lack of rules in this area, the capacity of the world market to be a reliable source of food product supply is being questioned, in my view.
I have two questions and I do not know who will want to answer them among the five of you. In your view, should the WTO apply minimal disciplines in the area of export restrictions, including mandatory notification? Second question: do you find the conditions for development presently included in the Doha program sufficient?
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Mr. Everson: To clarify, is your question about taxation policies in other countries?
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Senator Fortin-Duplessis: In the three countries that we are studying, Russia, India and China, I imagine that they sometime put in place some restrictions. My question deals with these countries. At some point, somewhat along the lines of the United States, they will bring on tariffs.
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Mr. Davis: I think this issue came up around controlling exports out of countries. Argentina and India have done that, and Japan to some degree, where they controlled their agriculture sectors from exporting by putting export taxes on some of the food. I think that is what you are referring to.
Actually, no, the WTO had not dealt with that in the past, but that issue needs to be brought forward in the present negotiations around what controls countries can have around doing that.
The interesting aspect is that it makes the farmers in their countries extremely unhappy. That is not always a good strategy for getting re-elected. It works to the opposite effect that we see with export subsidies where they are trying to sell as much as they can. If they are holding the product in, trying to keep the domestic price low, they kind of defeat the purpose of supporting their own farm sector. If you are not letting the farm sector get the realistic return for their product, you are hampering the farmers, and working against yourself.
Yes, I think we would like to see the WTO take that on. As for enforcing the rules of the WTO, I will broaden it out quickly. The WTO needs the investment from the member countries to have the resources to know what countries are doing regarding subsidization and some of these issues. They need to be able to police that better. They need those resources and need the countries to report honestly and in a fairly realistic timeline. We are seeing countries report on their domestic subsidies seven years ago; there is that kind of time lag. We need a renewal of the trade dispute resolution system in the WTO; we need that commitment. As I said before, with some of the protectionist things, we are seeing things go backwards.
Mr. Bonnett: We heard earlier about politics trumping science. Politics sometimes trumps good policy as well with respect to what is going down with trade.
Mr. Chairman, I must apologize, but for further questions, I will leave my colleague. I booked my time very tight for flying out, but I appreciate the opportunity to appear here.
The Chair: If it is okay with you, we will extend our time for a few minutes and excuse Mr. Bonnett with our thanks.
Senator Segal: I have a brief question. The WTO is bogged down because of agriculture. That is the only thing that is really holding it. If Mr. Godfrey says not, I would be interested in his perspective on that. The BRIC countries that we are studying — Brazil, Russia, India and China — conspired directly with the developing world to make sure that it did bog down on agriculture.
Where is the optimism about the future and why are you so determined that a WTO solution is better than dynamic bilateral relationships with countries where we may have more capacity to get something done than the WTO process has generated thus far?
Mr. Davis: I am the WTO optimist at the table so I will take that question on.
The negotiations broke down for a number of reasons. A critical one, which I will make as simple as I can without oversimplifying, hopefully, is about domestic supports — that is, farm subsidies in the U.S. and EU — as opposed to access to these BRIC countries. The BRIC countries want to make sure that if they open themselves up and increase their access to the U.S. and the EU and in some regards to ourselves, they are doing that in a more level playing field, that those producers in those countries are not receiving domestic support. The issue was at what level is the U.S. setting its domestic supports in the farm bill, and then what access were they willing to allow the U.S. and EU to have to their markets. That is where it came to loggerheads.
I do not think we saw so much a conspiracy as we saw those countries get together and say that they would hold the developed world and that part of world agriculture accountable for what these domestic subsidies are. I think that is the context in which we saw that.
We ourselves have seen damage with the bilateral, like NAFTA, that gave us unfettered access for beef products and beef cattle into the United States, but we saw them able to subsidize their corn and feed grains to a higher degree than we could in Canada, just the way the systems worked, and that was not controlled in NAFTA in the bilateral. We have seen some aspects change in our competitiveness.
Unless you get bilaterals that can deal with every aspect, as we talked about before — market access is always allowed, but domestic supports and subsidies and as well export subsidies — you still do not get that bang for the buck that you get at a multilateral level like the WTO where you have 153 countries all setting themselves to that same level on those three aspects.
The Chair: Mr. Godfrey, do you want to add something quickly?
Mr. Godfrey: I do not think it is as simple as saying that agriculture is the single determinant of why WTO has stalled. The U.S. is holding up the non-agriculture agreement. I do not remember the issue, but there is another issue on the table other than that. I will concur with Mr. Davis' comments.
You want something like the WTO agreement, but the Doha Round, in place because it sets a fundamental set of guidelines that everyone else can follow, and then the bilateral is sort of a bonus.
Mr. Davis: Mr. Everson has pointed out to me that we do not want to condemn bilaterals at the same time. We do get a better bang for the buck we believe in multilaterals. As CAFTA, that is where we came together and that has been the nature of our organization, but in the last 10 months or so we have turned our organization to work towards the EU bilateral agreement. It is such a broad and big agreement and it could allow us access to a market of 500 million consumers for our export products. As CAFTA, it is important to be engaged in that as well. It can be a two-pronged strategy.
The Chair: I want to put on the record your thoughts on an issue that is important for us to reflect in our report. Mr. Coomber may want to excuse himself from responding to this question, but is the Government of Canada providing sufficient support, whether here in Canada or resources in the countries with which we are trying to encourage additional trade and investment? Are you satisfied with the level of support that the Government of Canada is providing for our exporters and, particularly in your case, in the agricultural field?
Mr. Everson: We have a first-class institution of government for looking after these issues internationally. One could always want more resources generally. We are trading with 150-some countries, which means we could use 150 Mr. Coombers. He is quite right. Every market is different. The countries you are talking about are all enormous countries with five different languages being spoken and complex regional differences. We could always use more resources.
By and large, I think that our government historically has understood the importance of agriculture internationally and has put a lot of resources into it.
The Chair: That is from CAFTA. What about the Canadian Federation of Agriculture?
Mr. Godfrey: I am not an elected member of CFA so I feel a little uncomfortable answering this question.
The Chair: You do not have to do so.
Mr. Godfrey: Historically, I would agree with the comment that they are understanding of our need as a nation, in particular with agriculture, that we are dependent, outside of supply management, on trade. We are very dependent on trade outside of supply managed commodities, and they have done a great job of protecting the supply managed sector. As I said, I am not an elected member of CFA so I will leave it at that.
The Chair: I appreciate that. You can understand why we need that information for our report.
Thank you for your very good presentations. We probably could have gone on for another hour but we will not keep you that long. Some of us have commitments as well. You have added good value to our deliberations and we extend our sincere thanks and gratitude for your appearance. We will probably see you again in the not-too-distant future.
(The committee adjourned.)