Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 17 - Evidence - Meeting of May 8, 2012
OTTAWA, Tuesday, May 8, 2012
The Standing Senate Committee on Agriculture and Forestry met this day at 5:06 p.m. to examine and report on research and innovation efforts in the agricultural sector (topic: Canadian agriculture and food: a growing hunger for change).
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, I welcome the witnesses to the Standing Senate Committee on Agriculture and Forestry. My name is Percy Mockler, chair of the committee and a senator from New Brunswick. I will now ask the senators to introduce themselves, and then we will go to the agenda.
Senator Merchant: I am Pana Merchant, and I am from Regina, Saskatchewan.
Senator Mercer: I am Senator Terry Mercer from Nova Scotia.
[Translation]
Senator Robichaud: Fernand Robichaud, from Saint-Louis-de-Kent, New Brunswick.
[English]
Senator Mahovlich: Frank Mahovlich, Ontario.
Senator Plett: Don Plett, Manitoba.
Senator Eaton: Nicole Eaton, Ontario.
[Translation]
Senator Maltais: Ghislain Maltais, Quebec.
The Chair: Thank you, honourable senators. Our committee will resume its study on research and innovation efforts in the agricultural sector.
[English]
Today, we will have two panels. For the first, we will be focusing on the report entitled Canadian Agriculture and Food: A Growing Hunger for Change, which was the result of a study commissioned by the Macdonald-Laurier Institute for Public Policy. The focus for the second panel will be farming equipment and its importance to innovation and agriculture.
Honourable senators, on the first panel we have Dr. Larry Martin, Senior Fellow, George Morris Centre, and Kate Stiefelmeyer, Research Associate, George Morris Centre.
On behalf of the committee, we want to say thank you for accepting our invitation and sharing your thoughts, comments and vision with the committee. There is no doubt in my mind that you are aware of the Standing Senate Committee on Agriculture and Forestry and that we have the following order of reference from the Senate of Canada: The committee shall be authorized to examine research and development efforts in the context of developing new markets domestically and internationally, enhancing agricultural sustainability, improving food diversity and security. With respect to Canada in this regard, I like to say it is the best country in the world. We do have our challenges; we are human.
The first presenter will be Ms. Stiefelmeyer, to be followed by Dr. Martin.
Kate Stiefelmeyer, Research Associate, George Morris Centre: Thank you for inviting us to speak tonight regarding innovation in the agri-food sector. We think this is an important topic and one that could provide a competitive advantage to the sector.
Demand for food has been growing exponentially due both to emerging economy population and economic growth, specifically in Asia and Africa, along with increasing demand for more food. As economies grow, food preferences shift to meat, dairy, oils, fresh fruit and vegetables, and this increased meat demand also pulls the demands for grains. At the same time, there is increasing competition for agricultural resources from non-food products such as biofuels.
This growth in demand is occurring as natural resources are being strained in certain geographies, especially those where demand for food is growing. This global market situation provides plenty of opportunity for our Canadian agri- food sector.
Stakeholders in the Canadian agri-food sector have the technical skills and know-how to provide for an increasing demand for food products. Canada has an extensive infrastructure base, including R & D across the country, veterinarian services and a well-reputed food safety system, as well as extensive natural resources.
However, at this time of increasing food demand globally and a demand for value-added products domestically, Canada is lagging behind in its ability to take advantage of these opportunities. Canada's share of world exports of agriculture and food products is declining. Our red meat industries are shrinking at a time of dramatic growth in world meat consumption, and it is well-documented that Canada's manufacturing productivity lags other OECD countries. Food processing is no exception.
In Canada, food manufacturers tend to invest less in machinery than in other industries and they under-invest relative to their U.S. counterparts. Canada's food processing sector also lacks the scale of its U.S. counterpart.
Recent research examining the extent of innovation in the food processing sector suggests that it is those larger establishments that push the sector forward with respect to R & D and technology adaptation.
We define innovation broadly and stress the need to go beyond R & D. Innovation cannot just be an idea. It is something that needs to be adopted and implemented. Innovation can be breakthroughs in technology that increase productivity, including genetic engineering and other new applications of technology, applying existing technology to new applications, new and better inputs. This may include technological breakthroughs but it also may be simply having efficient access to new seed varieties, plant health products and animal health products that already exist but are not being used here in this country. It may include new product development, for example, providing products of value to customers in the supply chain, including changing or introducing new traits to a product or changing packaging or service provided by a product, and, last, new ways to serve customers.
Whether one competes on the basis of low cost or differentiation, the entrepreneur who takes a risk by introducing something intended to reduce cost or to differentiate will reap many of the economic benefits that are first mover in nature. This means the farmer or processor who invests in cost-reducing and/or output-increasing technology will benefit.
The only true source of sustainable competitive advantage is continuous learning and innovation from a national and sector perspective. People need to be innovators and policies need to encourage innovation.
I will now pass over to Dr. Larry Martin to describe how we feel policy can further encourage innovation.
Larry Martin, Senior Fellow, George Morris Centre: What I will talk about is in addition to the hunger for change paper. Ms. Stiefelmeyer and I did a piece back in 2006 with the help of many people from across Canada, and some of the recommendations I will talk about came from that; plus, we have done I think five studies over time on regulation, especially by Health Canada, and some of this is based on that.
In our view, the most important thing to do in public policy is to change the emphasis for agri-food from what has been mostly I think a kind of a protect-and-preserve approach to policy over the last 50 years, to one that has the mission to create a progressive business environment that fosters innovation, and again remembering that innovation is, as Ms. Stiefelmeyer defined it, not just research and development; it has to be the idea that gets adopted by someone.
In order to accomplish that, we have some suggestions about instruments of policy that would help that. In my view, these are all of a piece. It does not help to do one without the others, in many cases.
The first is to change the regulatory system so that it encourages innovation. Ms. Stiefelmeyer said in her comments that we have a very safe food system and there is no question about that, but we also have a food system that is slow and sloppy and it takes a long time to get things registered in Canada. It discourages innovation. The studies that we have done over time show that in spades.
In no way will I ever suggest that we reduce the rigor of food safety inspections and regulatory decisions and so forth. Our phrase is that we should make it tough but fast, and as a minimum to do this by first of all harmonizing wherever possible the scientific procedures with the EU and the U.S. I am focusing on the scientific procedures when I say that. The EU has a better system right now than the U.S. and faster in many ways.
The second part of that is to require and enforce standardized processes that are applied consistently. One of the things we find is that regulatory decisions are never consistent; you never know what you are supposed to do and you never know what you will get asked for, and it takes a long time to get a decision made as a result.
In conjunction with that, we should put in place mandatory decision timelines for Health Canada and CFIA and then reward them for being met, as is the case in other countries. That is a really high level approach, but I think those are the fundamental things we have to start with.
The second area of policy that we think is really important is to maximize international access for agri-food products. Frankly, my preference would be to do as much as we possibly can to get a Doha agreement because, from a small country perspective, multilateral treaties are much more positive for us than bilateral, but if we cannot get a multilateral decision at Doha then we have to aggressively pursue regional and bilateral agreements. In doing so, it is really important to focus on the downstream products. If you look at tariff schedules and so forth around the world, the downstream, the value-added product is always the one that has the highest percentage tariff and is worth more. That is one of the things that Doha was focusing on, trying to reduce the tariffs that are the highest by the most amount, which gives us the opportunity for more value-added products to go into our trade. That is the second area. Of course, there is a lot to talk about there.
The third area that also needs to happen at the same time is to incent productivity in the food processing industry. Ms. Stiefelmeyer focused on the fact that we are lagging in productivity; in fact, I think you said we invest less in the food industry in Canada than depreciation. We are basically disinvesting, at least according to the last data we have looked at. A lot of that is because of the economies of scale issue, which is of course a function to a large extent of a small population spread over a lot of land. How do we get that done? The first thing to do is to gain market access for our downstream products, so it goes back to the last recommendation that I made. As has been the case over the last few years, the other part of this is to provide wherever possible as many tax incentives for investment in automation and technological improvements in our processing plants. That is one of the things we actually recommended in 2006, and to some extent it has been done.
The fourth area of policy that we think is important is to provide incentives to industries, as many of our competitor countries are doing, to organize themselves vertically instead of horizontally. In our agriculture we have the farm organizations, the processing organizations and the retailing organizations, and in few cases do we look at the industry in a vertical way. A number of countries have encouraged their industries to ask what to do to become more competitive and provide incentives to them to figure out the right investment to become more competitive. Probably the best model that I know of in Canada is the canola industry which probably does this as well as any industry that I know of in Canada; the Europeans and the Australians that do that as well. It helps the idea of value chain innovation.
In addition, the fifth area we talk about — and we are doing some of this at the moment and we see it having a huge impact — is to provide incentives for improved management and entrepreneurial skills in both the farm and the processing industries. As we said before, innovation does not take place until the entrepreneur takes the idea and sells it. We are seeing huge changes in the people that we deal with when they get good managerial and entrepreneurial skills.
The last thing I want to mention is to provide incentives for more reliance and private risk management tools and less reliance on government. I do not know how to say this other than to say it. What I have observed over the last 40 years is that farm organizations and many farmers spend a lot of effort, and so forth, to try to maximize the payout from government programs. If they were to spend the same effort on figuring out how to be innovative in their industries, they would probably be farther ahead.
I have just done a report on this. We are seeing fabulous new ideas coming forward from the private sector, some of which are coming over from the gas and oil industry into agriculture for private risk management tools. It seems that there are some simple things to do. For example, if we are going to get a payment under the AgriStability program, that requires people to have a risk management plan. Require them to have crop insurance. We do not do that now. If they actually have opportunities and the incentives to do that, I suspect that we will have a lot more innovation there. I will stop there.
The Chair: Thank you for your presentation.
We will start with Senator Plett to be followed by Senator Robichaud, Senator Eaton and then Senator Mercer.
Senator Plett: I know we are limited for time so I will only read half of what I highlighted here and try to follow it up with a question after.
You have been quite outspoken in your comments about lack of research and development that we have done. I have read your executive summary, and you refer to huge land mass that we have versus the population. Of course, it is a bit of a Catch-22. When you want to do away with land mass, you are doing away with arable land. You do not want to do that and we only use half of our country as arable land so we should discount that because anything North of 60 I do not think we are not growing much wheat on.
In the Ontario Farmer today there was an article, Dr. Martin, about the food safety act that the government is trying to implement. Maybe they are taking your recommendation and making it ahead of you. We are certainly working on that.
We have done a lot in government. We are trying to get part of the trans-Pacific partnership. You mentioned canola. I am sure my colleague Senator Buth will want to comment on canola, but that was something started in Canada. We have a list of free trade agreements that we are working on. We are working with South Korea; we have committed some $500 million to support the commercialization of next generation of renewable fuels, and so on. I think all of these things are great. In fact ethanol and biodiesel reduce life cycle greenhouse gas emissions. We have done enough to take the equivalent of 1 million cars off the road.
I guess I am trying to get my mind around where we are not doing enough research, development and innovation. I would like you to be a bit more specific and tell me where we have not done what we need to do. I really think our agricultural minister has done a marvellous job promoting our country around the world with the free trade agreement and the deals that we have been negotiating. Be a little more specific, please, and tell me what it is that you believe the government is doing wrong when I believe they have done so much right?
Mr. Martin: I will preface this by saying that this does not just apply to the current government. It is a longer term issue. I will mention two things to be more specific and I can go further if you want.
When we look at the studies we have done on the regulatory industry — and I will go back to something that I can put my finger on and a specific measure — we did one a few years ago that said if you were a firm that wanted to register a product for animal health in Canada, the best practice was in Australia where you had a decision in 240 days; in Canada the average was 893 business days. There was one case where a product was registered in Canada six years after it was registered in the United States and just one year before it was ready to go off patent. If you are a multinational corporation wanting to register in Canada it is really expensive, especially since it is a small country. That whole process, whether it is plant influence, animal inputs, new food products, and so forth, is lengthy. There is example after example after example of people who have come up with new ideas in Canada but cannot get the product registered in Canada so they commercialize it someplace else. Our regulatory system is just too slow. There is research out there that says it does not give any more safety than other systems that are less slow. It needs to speed up. This is not a current government problem or an old government problem but a problem. It has been this way for a long time. I wrote a report in 2006 and just the day before I finished the report I found one that had the same recommendations in it and nothing had changed.
The other piece I will talk about is market access. We talk in our report about the pork industry — and Ms. Stiefelmeyer alluded to it in her comments — where we have gone from 1.6 million sows in 2004 to 1.3 million sows in Canada. If you multiply the 300,000 sows that we have lost by roughly 25, which is the number of pigs a sow has in a year, that means however many pigs that have not value added in Canada because we have lost market share and a large part of that industry.
If you go back to the 2007, 2008 and 2009 period, prices in China were more than twice as high as they were in Canada. China is the biggest consumer of pork in the world, but we did not have access to that market. Therefore we did not have the opportunity to get into that market. To my mind access to the Chinese market and all the Asian markets for all of our food products is really important to encourage production, productivity and innovation in Canada. We are working on getting better market access, but we took a long time to start working on it.
Senator Plett: I agree that we had all kinds of problems before 2006; we certainly are on the same page there. However, we have improved since then.
I certainly support the idea that our hog production has gone down. There is no question about that. I am from the province of Manitoba. You know well that we have a government there that is opposed to innovation and moving anything forward. They are regressive and they have put moratoriums on hog production.
That is a huge problem, but not one instituted by the federal government, whether our federal government or the previous one, because it was done by the provincial government.
However, as you say, we have opened up huge markets in Asia, especially in China. That is a step in the right direction. However, instead of saying that, you suggested that we have not been going in the right direction and we have been losing and losing. That has to be going in the right direction, Ms. Stiefelmeyer, right?
Ms. Stiefelmeyer: Yes, I agree that it is going in the right direction. It underscores the importance of TPP and how much we really need to be involved in those negotiations.
Senator Plett: Which we are trying hard to.
Ms. Stiefelmeyer: Can I add one thing?
Senator Plett: Sorry, I did not mean to cut you off.
Ms. Stiefelmeyer: That is okay. I just want to underscore that in Canada we are excellent at research and development. Where we falter is moving it the next step to commercialization, canola being a huge exception to that rule. We have not done that in many of our other crop products to that extent. I am not sure; it may change with the CWB going away.
Senator Plett: Thank you, I was just going to suggest that.
Senator Robichaud: I must say that I do not agree with your last statement, but we hear all kinds of opinions and we respect them.
Ms. Stiefelmeyer: Thank you.
Senator Robichaud: Mr. Martin, you said that it was taking a long time to register products and some people could not do it here and they went away. Do you have any examples of that happening?
Mr. Martin: I cannot think of one right off the top of my head. I am sorry; I am not thinking of the specific example right now.
Senator Robichaud: I cannot leave this on the record without having some background information.
Ms. Stiefelmeyer: We could provide it for you.
Mr. Martin: We can provide it for you, yes.
Senator Robichaud: Otherwise, we will have to sort of ignore what you just said.
Mr. Martin: Yes, we have it in our last report on the food industry and novel products and so forth. We have a whole section on products that are not available in Canada, some of which were developed in Canada and were commercialized elsewhere. It is just not coming to my head, but we will ensure that you get the report.
Senator Robichaud: Please.
Mr. Martin: Sure.
Senator Robichaud: Your fourth recommendation is incentives to vertically integrate. I have a problem with that. You are shutting out the little guy.
Mr. Martin: No, I am not suggesting that we encourage vertical integration. Rather, I am suggesting that we need to encourage the industry to work together vertically. In other words, the producers work together with the processors and so forth. Let me give you an example.
Senator Robichaud: Please.
Mr. Martin: In Holland in the vegetable industry — and I think there are other industries that Holland does this with, but I know this one because I have worked with it — the producers work together with the processors. They come up with a five-year plan about what they need to do to make that industry more competitive by encouraging innovation and so forth. Part of the policy in that country, and it is this way in other countries, is that once the organization that represents the industry — in a sense it is a trade association, not individual firms —
Senator Mahovlich: It is like the Wheat Board.
Mr. Martin: No, I am sorry it is not like the Wheat Board. The Wheat Board was never a trade association.
Senator Robichaud: It was a farmer-led association.
Mr. Martin: Yes, this is a trade association. It is like the Canola Council of Canada. The Canola Council is probably the best example of this in Canada. It is a voluntary organization, but they put together a plan as an organization representing the industry. Then government actually invests — I am sure there are limits on this — up to 50 per cent of what that industry needs to be more competitive in the future. It is a shared investment in infrastructure that encourages the industry to go forward. They do this in Australia, a bit in Chile, I believe, and in Denmark. I am not talking about a firm; I am talking about a trade association, in a sense, that represents the vertical industry rather than the horizontal layers of the industry.
Senator Robichaud: Usually when you say "vertical integrated,'' it means that the big guys control from the production to the marketplace.
Mr. Martin: No way am I suggesting that.
Senator Robichaud: I just wanted you to make that clear, because this government might just take it that you would want the industry to vertically integrate the way I understand the term.
Mr. Martin: No.
Senator Robichaud: Thank you very much.
Mr. Martin: Sure enough.
Senator Eaton: You are saying very interesting things, Dr. Martin. We have heard at other committees, too, that we have great research in this country, but then research to marketplace does not happen. You know that there have been two initiatives in health in Ontario: MaRS and the Li Ka Shing Knowledge Institute, which is supposed to be from bench to market. I think MaRS is beginning to have its first success stories with patenting medicines.
Would you advocate for this report that we create some kind of desk or council that would look and deal specifically with taking research to market through the various steps? Was there not one in forestry? We dealt with them several times as witnesses. They looked at what was happening in agriculture or they looked at what was happening in forestry and they sort of represented that. Do you think there could be some recommendations where we could actually look at something? That seems to be a big failing generally in this country. We have this research but we do not get it to market.
Do not restrain yourself. You look as if you are trying to hold back.
Mr. Martin: It is not in my nature to do that.
My only question about that is that often creating bureaucracy really creates bureaucracy and does not create much else.
Senator Eaton: Maybe it is not a bureaucracy. Maybe it is an advisory council. What would you do to get all this excellent research? I am sure our government will increase the research we do in agriculture. How do we get that to market? How do we convince Canadians to buy into it? Is it tax incentives? What is it? Is it more marketing of that research?
Mr. Martin: It is hard to describe. There is a wonderful book that I have been reading that actually has a whole chapter about that. The book is called Coming Jobs War, which is a global thing. There is a whole chapter that discriminates between entrepreneurship and innovation. The argument is that, as we have kind of said here a couple of times, it is one thing to have the idea but it is the other thing for the entrepreneur to take that idea and sell it. Innovation does not take place until there is a transaction. How to encourage the entrepreneurship is the difficulty.
Senator Eaton: How do you get it from the bench to the entrepreneur? Is there a middle stage where you have to kind of nurse it along until it gets to the entrepreneur stage? Do you bring it to market?
Mr. Martin: You make sure that the potential entrepreneur knows about it, lots of times. That is one of the reasons I like the idea of a vertical council. Maybe you could incorporate it in that sort of thing. For example, the vertical council for the corn industry or the soybean industry or other has responsibility for, among other things, finding what is useful.
Senator Eaton: Marketing themselves.
Mr. Martin: Yes, especially if you put the incentive in that says, "Okay, you come up with a really good plan and we, as government, will invest in this to some extent.''
That is why I think it works so well in some of the other countries. It seems to be, as I understand it, a totally voluntary organization — as I call it, the vertical trade association — but there is enough sanction in there that if you come up with a really good plan from your voluntary vertical organization, then there is investment. It can be investment in, taking the idea and commercializing it, as well as the investment in infrastructure.
I would really like the idea of having the actual people of an industry there so they can see what is available, first, and what is needed downstream.
Senator Eaton: They would deal with the universities, what they are doing themselves within their own industry, and they would take it forward?
Mr. Martin: Yes.
Ms. Stiefelmeyer: I wanted to emphasize that beyond the association that Mr. Martin is talking to, I think that if we do not improve the regulatory system, it will always be a barrier. There has to be some improvement in the efficiency and effectiveness in the way we approve products.
Senator Eaton: Can you think of specific regulations?
Ms. Stiefelmeyer: There is the regulatory part, there is the legislative part, and there is also the administration of the approval process. There are issues within all three, but the administrative process is probably where there is the biggest juggernaut in terms of the inconsistency in the interpretation of various regulators, that they do not make the approval process consistent.
Mr. Martin: We really need you to see the reports we have done, because there is a plethora of regulatory issues.
Senator Eaton: In terms of food products, would you ever think it a good idea, for instance, that if the United States or Australia approved of those food products, we could fast-track them into Canada and vice versa? Would you ever approve of a system that worked that way?
Ms. Stiefelmeyer: I would approve of a system like that, where you could then pre-approve a product to come to Canada and then would have a certain amount of time to negate that approval if you found something wrong with it.
Senator Mercer: It is interesting. I really appreciate your presentation. However, getting innovation from the scientists' and researchers' brains to commercialization is a huge problem and not one that a lot of people are addressing.
I know that at Dalhousie University in Halifax, they have started a program, with cooperation from at least the provincial government, called Industry Liaison and Innovation. They have on campus people who work with the scientists.
How do we take your idea from your lab and commercialize it? Then, obviously, there are some residual good effects that can come out of that to either hospitals or universities. The famous story I tell is the invention of Pablum at SickKids hospital in Toronto. The residual to the SickKids Foundation has been tremendous over the years and was the foundation for the building of that.
However, I want to go to a more global problem, because we keep talking about the population growth in Canada. I just came back a month or so ago from my first visit to India, and people always ask me what was my impression. I said it was crowded and it was dirty, and I think the fact that it was crowded was one of the reasons it was dirty. They are going to be the most populated country in the world by 2020 and the largest economy by 2050.
Someone has to feed these people, and they are not doing a great job of feeding themselves. We know — and you mentioned in some of your documents — that Australia, Kazakhstan and Canada are the three big countries with the most arable land available to do this.
Have we reached a point where we have to all stop and say, "Hold it now; let us not fool around here''? This is a very serious issue, and the crisis is not that far away. We are not going to be able to feed everyone in this world, and if we do not sit down pretty soon and say, "Okay, how are we going to do this,'' those three countries that I mentioned, ours and the other two, we are part of the solution, but we are also part of the problem.
Is it time for us, as a global community, to talk about having a world food summit where the leaders of the world sit down and stop talking about trying to solve the war in the Middle East, or stop talking about global warming for a moment, but let us talk about food production, which will hopefully be helpful for global warming? Are we at that crisis level? Have we reached that point, almost at the point of no return?
Mr. Martin: It really depends on the day how I would answer that. Fundamentally, I think the answer is yes, we really need to. The reason I say it depends on the day is that I think the most interesting and important piece of information in agriculture is the stocks-to-use ratio for grains. We have it in our paper, if you happened to look at it. That is trending downward, first because we are not going up as fast in production anymore, but also because of the fact that use is increasing so rapidly.
We are in a situation right now where we could have $3 or $12 corn this year, depending on how big the U.S. corn crop is. When we are in a marketplace that is that sensitive to the production of one country, I think it is really scary; I really do. We really do need to start thinking about how big this problem is. As you know, all the recent revolutions in a number of countries have started over food security issues, and I think we are just beginning to see the tip of the iceberg on all these things. Yes, we need to do it, I think.
Senator Mercer: You mentioned the price of corn. Of course, the price of corn is not driven by the consumer who is eating corn.
Mr. Martin: No.
Senator Mercer: It is driven by ethanol and the production of biofuels.
Mr. Martin: Yes, to some extent it is. I have not been a particular fan of ethanol and biofuels, but I also think that some of the criticisms are overdone. I think I am right about this, that China, for the first time, either last year or the year before last, imported corn for feed. They never did before. Two weeks ago Friday they actually bought 1.3 or 1.4 million metric tonnes for feed. To me, the growth in demand for meat is actually driving corn as much as or more than ethanol.
Senator Mercer: The huge explosion in the red meat market in China, of course.
Mr. Martin: Yes.
Senator Mercer: I was interested in your comments at the very beginning of your presentation. You mentioned that we have really missed the boat on red meat production. We are some of the best people in the world at this, in partnership with our American colleagues, because beef moves back and forth across the border. We are good at this. We know what we are doing.
Mr. Martin: Yes.
Senator Mercer: However, somehow what the good farmers in Western Canada are doing, and what we are doing in terms of international marketing of that, there is a great separation between those and we are missing the boat on being able to sell it.
We talked about meat. Senator Plett talked about hogs. Are there other products that you see we are missing the boat on? Those are two main ones, obviously.
Mr. Martin: At the risk of opening a real can of worms, two of the fastest growing products in consumption in the world are dairy and poultry, and we have chosen not to participate.
Senator Mercer: We have chosen not to participate, I think for good reasons. I think that if we get out of supply management, I do not see us being, certainly not in the short term, major participants in the future. I would suspect the vertical integration that Senator Robichaud fears would happen, particularly in poultry, like that.
Mr. Martin: Like that, right. It kind of already has.
Senator Mercer: Well, it may.
With respect to the incentive for farm processing and management, how would you see that working?
Mr. Martin: There are some good programs that have been around for the last few years. I am going to try to avoid the 2006 argument here because I think both of the last two governments have had interesting programs to encourage farmers and others in the food chain to get better management skills, if you will.
We have programs that we teach out of the George Morris Centre for farmers that are intensive, advanced farm management programs. As well, we have one for people in the food industry. It is basically a mini MBA kind of program, so we are talking about finance and marketing and the whole nine yards to upgrade your skills.
As I walk away from those things I always say that I cannot believe they pay me to learn from these people because they are fabulous. We just have so many good people who are thirsting for better knowledge on how to increase their management skills in this country in the agri-food sector. I love those kinds of programs because they are a bit of a subsidy to increase their management skills, and I think the programs are just wonderful.
Ms. Stiefelmeyer: About the programs, though, there are provinces I think that do a better job of providing incentive for training than others, and we notice that in our programs.
Senator Mercer: Who is better?
Mr. Martin: Actually, the one we had the most problem with is Manitoba. It is part of Growing Forward funds, but it is the way they interpret. We have had a fair amount of trouble. I think we are okay, finally. I think we have them convinced.
Saskatchewan and Alberta have done a wonderful job of encouraging those folks, but, again, it is interpretation, and I do not know whether it is by the elected government or the civil servants, but it is there.
Ms. Stiefelmeyer: Senator Mercer made a couple of comments with respect to the arable land. Canada does have more arable land per capita than we need, so that is why our trade agreements are so important. There is also not a lot of arable land left in the world, so we have to take care of it here. There is also not a lot of arable land left in the world, so what will increase our food production, then, comes down to technology improvements, and you get back to the innovation and commercialization.
The other thing I wanted to mention is that trade agreements would allow us to supply some of these countries much better than we do now. The Doha Round was imperative to a lot of smaller countries and emerging economies when they are facing the United States and those larger economies, Japan and the EU. That is why we think that multilaterals are critical, but going the way of TPP and some of the other major bilateral trade agreements would also help us in that regard.
Senator Buth: I just want to explore a couple of things that you said about incentivizing food processing and tax incentives for technological improvements. We are clearly in a time of restraint when governments are taking a look at where to spend resources. They look very carefully at what types of areas that will have the biggest impact.
We have heard from other witnesses that Canada is losing its food processing sector and that we are not getting a lot of new building, essentially, in the food processing sector. Specifically, what types of things should we be doing in the food processing sector?
Mr. Martin: I will not talk about it in terms of specific types of equipment, but, in general, if we look at our human population and our labour going forward, I think 2016 is the first year that we will have more people coming out of the workforce than are going in. 2011 was the first year that they were basically equal, so we will be shorter and shorter of labour going forward.
Therefore, to me, the first most important thing is to start thinking about how we replace labour with capital.
One of our problems in the pork industry, in my view, is, if you look at a European pork processing plant, it is almost all robots, but in Canada, it is not. That has a huge impact on cost, efficiency and so forth. Therefore, that is one area, labour-saving devices. I am on the board of a feed milling company, and we are using robots for bagging and all sorts of things that we never used before.
There is a company that I think has done a good job in the area of investing in colour sorting, quality assurance automation and that sort of thing in the food industry. That company happens to be a French multinational, which is based in, I think, France, but invested first in Quebec and has now come into Ontario. They have done wonderful things in their plants over the last number of years both in terms of automation as well as the colour sorting and quality assurance. It is both those kinds of things.
The third thing is more difficult to give an example of, probably because I am not close enough to it. Our advantage over time has been in flexibility because we are small. That is being able to have short runs, but do short runs of multiple products as efficiently as possible. Any kind of technology and equipment that allows you to do flexible manufacturing would be the third area that would be helpful.
Ms. Stiefelmeyer: The only thing I would add to that is the SR&ED program, and is there a way of expanding what you would include there for technology adaptation, this flexible manufacturing, that type of thing, beyond what currently is considered research.
Senator Buth: That is what I was looking for. I am trying to get to some of the specifics, just like in the regulatory system. I think it is important that we have specifics because it is hard to make a recommendation to improve something unless you have specific examples of where the improvement can come.
Mr. Martin: I see. I thought you were asking about the equipment itself.
Senator Buth: No, I am talking about the incentives. How do you actually do an incentive program?
Mr. Martin: Well, SR&ED is certainly one of them. The other is faster write-off in the tax system, CCA. Those are probably the two best incentives that I know of.
Senator Buth: I just want to make a comment in terms of your comment about harmonizing our regulatory systems. You mentioned the EU, and based on my experience in agriculture, the EU regulatory system is one of the least predictable in the world because certain components of it end up going through a political process. I do not think I would ever advocate going to a regulatory system that would be similar to the EU.
Mr. Martin: Have you had association with it in the last few years?
Senator Buth: Yes.
Mr. Martin: Okay, because my understanding is it has changed in the last few years.
Senator Buth: I would debate that with you at another time.
Mr. Martin: Okay, sure.
Senator Mahovlich: Food versus fuel: Food always trumps fuel, does it not?
Mr. Martin: Well, I think it will in the long term, yes.
Senator Mahovlich: I visited Brazil, and they have cut forests down to grow ethanol. They are using more ethanol than any other country in the world for their fuel. What have we done? Are we looking for biofuels? Have we done any research on them?
Mr. Martin: Do you mean in terms of the economic effects?
Senator Mahovlich: Yes.
Mr. Martin: The George Morris Centre has written several pieces on the economic effects of biofuels.
Senator Mahovlich: Do we have enough land to supply us with biofuels?
Mr. Martin: In my view, in the long term, no, we do not. Here is a little bit of context, the way I think about it. The U.S. uses way more of it than we do. It uses 40, 41 or 42 per cent of a 13 billion bushel corn crop to produce about 10 per cent of its gasoline needs, and that in percentages is quite a bit less than 10 per cent of its total fuel needs because it is not diesel and so forth.
How far can you push that? If you are using 40 per cent of your second largest ever corn crop to produce way less than 10 per cent of your needs, do we have enough land to produce a lot more? My answer is no, we do not, not with the technology we have at the moment anyway.
Senator Buth: I take your point in terms of the amount of land, but if you look at the increases we have seen in terms of corn production, and even on the canola side, in terms of yield increases in production in Canada, would you not say that the advances that we are seeing in terms of production essentially will compensate at some point in terms of biofuel?
Mr. Martin: I would not.
Senator Buth: You would not?
Mr. Martin: I would not. There is actually some evidence that the increases in corn yields are slowing down. When you factor in the increase in demand for food in Asia, they will come to loggerheads. I know Monsanto and others are working on some major potential breakthroughs. Again, at the risk of raising a problem here, we have not done anything in terms of the wheat genome to do biotechnology research on it or to do biotechnology on it so wheat might be a ripe place for a breakthrough, although it is very difficult with wheat, much more difficult than it is with corn. There may be some major changes in technology that we have not seen yet, but at the rate we are going now, I do not think we can continue.
Senator Buth: I am referring specifically to some of those advantages we are starting to see from the biotech companies in terms of nitrogen utilization and drought resistance. I think what you will see in Canada, and I suspect you might agree with this, is increased investment in terms of wheat breeding now that there is an open market system.
Mr. Martin: I agree with that. I know it is happening. I have visited some of the companies that are now beginning to invest.
[Translation]
Senator Maltais: Ms. Stiefelmeyer, I listened carefully to your presentation, and I was a bit startled because I thought for a moment you were talking about a third world country. That was quite different from the picture of Canada other witnesses described in this committee.
I would like to come back to a couple of comments made by Mr. Martin. You mentioned crop insurance. It is available in provinces. Why is it available? Because farmers decided to take charge of themselves and set up a union that the government recognized. All governments cannot be expected to do the same. Farmers were not born yesterday. You just give them a bit of training and they should know that self-insurance is available and that governments are all open.
I would like to talk specifically about hogs. Many experts appeared before this committee, mostly from Guelph. Ontario and Quebec are big hog producers, the U.S. being their major export market. Demand is strong, and new opportunities are emerging in Asia. Will our land have the capacity to sustain an overproduction over the next 10 years?
[English]
Mr. Martin: The pork industry is cyclical so there have been periods of overproduction from time to time, but that corrects itself fairly quickly. Right now, China is gearing up, from what I can tell, because they are importing a lot more feed, but their major concern as I understand it is that pork is such an important factor in their CPI — their price index — that they want to make sure that pork prices are controlled, so they want to make sure they get more production.
If you are asking on a world basis, there is always the risk that you can go too far when you get into expansion, but I do not see that being a chronic issue going forward, if I understand your question correctly.
[Translation]
Senator Maltais: My question is straightforward: is there any chance that hog overproduction in Ontario and Quebec might endanger our fresh groundwater?
[English]
Mr. Martin: It certainly can, if you do not have the right technology and protect the groundwater, of course.
[Translation]
Senator Maltais: What technology would you be referring to?
[English]
Mr. Martin: My understanding on the technology side is that you need to make sure that when hogs are being produced the manure goes into — and in Ontario and Quebec it is now required — tanks that are concrete so there is no leakage. Again, for the most part, at least in that part of the world, and in the West also, to a large extent, when you spread the manure you inject it in the soil so that it is not running off. Those are the two things.
[Translation]
Senator Maltais: You are a scientist, and I am putting my question to people who have scientific knowledge. We heard from other scientists that all products used for animal health, whether hogs or cattle, do not properly disintegrate when manure is used as fertilizer, and that enzymes may continue to run off in the groundwater. Is it true?
[English]
Mr. Martin: I am not that kind of a scientist, so I do not know that for sure.
[Translation]
Senator Maltais: Then I should not bother to talk about fisheries, because the crab fishery is very successful in Eastern Canada; it is top quality and all the production is exported to Japan. Unfortunately, you forgot to mention it.
[English]
Senator Duffy: It is a fascinating study and it is interesting to see how there are still many forces in the country resistant to change. We used to call it progress. Not that many years ago there were constant stories and magazine covers on the death of the farm. There is an exodus from agriculture. There will be depopulation of rural Canada and there will be no one there to actually farm the land.
In the last while, I sense a change in all of that, that the outlook, given the worldwide demand for food products, given the improvements in technology you have told us about today, how we have improved yields, and now if we can move along and streamline both the marketing of international trade agreements and so on and the regulatory process, from a layman's point of view agriculture has a bright future. Would you agree or disagree?
Mr. Martin: I am itching to answer that one. I have said for at least the last 10 years that if you look at the food industry, where would you rather be than Canada? Absolutely it is a very bright future.
It is intriguing for me to watch because of the management programs that we have. I had 25 people mostly from Western Canada last year, most between the ages of 23 and 35. These are men and women who are managing $2 million, $3 million and $5 million worth of assets, taking risks and having technological knowledge that is just fantastic. So, yes, absolutely it is really a bright future. We have some fabulous people in agriculture.
Ms. Stiefelmeyer: I would like to add a comment. In the future for farming I see that there will be two types of farms: the larger farm enterprises that use technology and that are supplying export markets and larger chains in Canada; and then we will get rid of the middle, the sort of the mid-size farm and we will have niche market farms. Those are actually becoming very big. A lot of people coming into agriculture have not had agriculture in the family history before, for example, with organics and direct-to-consumer farms. I see the industry going that way with both larger farms and smaller niche market farms being successful.
Mr. Martin: In my 2010 or 2009 executive course for farmers, I had the two outstanding young farmers of Canada. One was a couple from Saskatchewan with 9,000 acres; the other was a couple from north of Toronto with 150 acres. The ones from north of Toronto have the corn base. The last I knew they had 750 community-supported agriculture customers in Toronto. They are delivering. You write a cheque in the spring and finance the farmer and then you get a basket of vegetables every week for 22 weeks, or something like that, in the summer. We had some of both groups in the course.
Senator Duffy: They are both economic and both succeeding?
Mr. Martin: Absolutely, and it was really intriguing. Ms. Stiefelmeyer is spot on in that. It is hard to do a 100-mile diet in Saskatchewan.
Senator Duffy: Yes, and have the variety that you want. Thank you for coming here. It is important to understand we have a bright future and a big part of government's job is to get out of way and let farmers succeed.
The Chair: With that, I want to thank the witnesses, on behalf of the committee, for accepting to appear here today.
I live in New Brunswick and I have distributed a little over a dozen of these booklets. There are a few questions that came back to me and time did not permit this evening so if you permit me to share this, Ms. Stiefelmeyer and Mr. Martin, we will send it to you through the researcher and the clerk so that you can come back to us in writing on some of those questions.
Mr. Martin: Yes; absolutely.
The Chair: Thank you again and may God bless.
Honourable senators, with us today on our second panel is Mr. T. Howard Mains, Canadian Public Policy Advisor, Association of Equipment Manufacturers.
Mr. Mains, thank you for accepting our invitation. You will lead us through your presentation, which will be followed by questions from the senators.
As we all know, when we talk about equipment in agriculture, plowing, tiling, harvesting, soil compaction, precision planting and less bruising of the crop is the objective of all farmers. With that, the floor is yours.
T. Howard Mains, Canadian Public Policy Advisor, Association of Equipment Manufacturers: Good evening, honourable senators. Thank you, chair and members of the committee and staff, for providing the Association of Equipment Manufacturers the opportunity to address you this evening. I have distributed a couple of photographs of some of the equipment that I might reference just to help in our discussion this evening.
As an introduction allow me to say a few words about the member companies of the Association of Equipment Manufacturers. AEM is a trade association representing manufacturers of forestry, agriculture, construction and mining equipment. Members include the multinational equipment manufacturers such as Case New Holland and John Deere, as well as successful manufacturers like MacDon of Winnipeg, PowerPin of Fort Qu'Appelle, Saskatchewan, and some 800 other members in Canada and the United States.
AEM companies invent, develop, manufacture machines that build the roads, extract resources, plant and harvest the crops so they are not bruised.
This evening I would like to touch upon three subjects: conservation, tillage, the application of GPS technology in precision agriculture, research, innovation and development of new equipment and the opportunities for Canadian manufacturers.
To set the context for today, I would like to share a recent experience. Last Wednesday, I had the privilege of taking a Russian legislator from the Republic of Kalmykia to two very successful farms in the Ottawa area. It was an eye-opening experience for all of us as we discussed the differences in farming practices between the two regions. One cannot imagine the challenges facing their farmers as they move from a nomadic experience through the communist collective period and out of communism to the modern agricultural practices of today — all in a space of three generations. Our visitor from the Russian Republic was in awe of the technology and equipment he saw in use.
During our visit with Mr. Ed Schouten, a dairy farmer in Richmond, he told us of the short planting season in 2011 when he planted 2,000 acres of corn in just three days. Working around the clock, they averaged approximately 30 acres of corn per hour using equipment similar to the planter you see on the first page here. However, in all fairness, it was painted red, not green. In contrast, the corn planter on the left may have averaged two acres per hour on a good day. This was only possible as the result of using modern efficient equipment and the application of GPS technology.
When you are planting 28,000 corn seeds per acre to maximize yield, it is essential to use equipment that can accurately place every seed while reducing waste and overlap. New machinery can plant precisely every one of those seeds at higher speeds and can reduce costly inputs, such as seed and fertilizer, by 5 per cent or 10 per cent at bear minimum.
Let me now turn to innovation and conservation tillage practices. For those of you who are unfamiliar, no-till farming is a form of conservation tillage originally developed to reduce soil loss via erosion. I have included a couple of photographs here of the effects of soil erosion. Someone told me about a wind storm that was going on in southwestern Ontario that had devastating effects there. It is still going on.
Conventional tillage is a three-step process: plowing, seed bed preparation and planting. No-till cuts out all but the last step; and minimum tillage takes out the first step, which is the energy intensive plowing. A farmer who would normally have to make at least three passes on his or her field, with no-till the machine is required to make only one pass. No-till requires specialized machinery, such as that built by Case New Holland in Saskatoon. This is an example of the equipment built by Case New Holland in Saskatoon. Some of you may see a lot of this equipment out on the Prairies. It has a number of significant economic and environmental advantages that more than make up for the additional capital cost. Professor Peter Phillips of the University of Saskatchewan wrote in The Western Producer a couple of weeks ago that in Western Canada more than 75 per cent of the canola producers now use conservation tillage practices.
The primary benefits include the reduction in the use of pesticides, the preservation of organic matter in the soil, a reduction in soil erosion, the conservation of moisture, as well as reduced fuel consumption of upwards of 85 per cent and reduced work time of roughly 80 per cent.
I will move to precision farming and the application of GPS technology. GPS technology allows farmers to create a precise map of each field. I have included an example in your handout that shows how a field is mapped. During harvest, yield monitoring software tracks a field's output in real time and records the data, identifying areas that are most productive. Using this data, the machinery can be programmed to disperse more or less seed in an area depending on the soil's ability to support that crop. With the use of GPS technology, farmers can easily reduce input costs by another 5 per cent to 10 per cent while maximizing yield.
To help you understand, the rule of thumb in corn production was: To get a bushel of corn, you needed a pound of nitrogen. Using this type of technology, you are able to maximize the yields. Where the field might yield 175 to 180 bushel, you apply 180 pounds of nitrogen; and those parts of field where the yield may be only 80 pounds, you reduce the nitrogen application to 80 pounds. Technology allows you to have that range of application of fertilizer according to the ability of the soil to produce the yield.
Let me now turn to research and innovation. On Sunday, I was speaking with Gary Macdonald, one of the owners of MacDon Industries Ltd. based in Winnipeg. As I am sure the honourable senators from Manitoba can attest, MacDon makes some of the finest harvesting equipment in the industry, which is used worldwide. As much as Mr. MacDonald would have appreciated being here today, there are three messages that he would like to leave with the committee: First, he wished to impress the importance of developing new products and technologies and the difficulty in doing so. Innovative new products are the lifeblood of successful companies, but the development process is a slow one. For example, it took MacDon five years to go from an initial concept to a final field-proven product with their 45- foot draper head, which is a top selling product globally. This is a photograph of the MacDon draper header, which has some market-leading technologies built into it. In this context, it is important that the government provides innovative companies with a competitive tax environment to develop new products.
This brings me to the second point shared by many AEM members: changes to the SR&ED tax program. The SR&ED tax credit is a vital incentive for companies to develop new products. The program provides working capital to fund research and development. As outlined in a letter sent to the Minister of Finance yesterday and signed by 47 members of the Canadian Manufacturing Coalition, the proposed changes to the SR&ED program would severely hinder innovation and development in the Canadian manufacturing sector.
Third, Mr. MacDonald wanted to inform the committee of a serious problem that confronts the agricultural equipment industry. There is a pressing shortage of skilled design engineers in the country and relatively few in post- secondary education. Currently, MacDon recruits the majority of its engineers from the universities of Manitoba and Saskatchewan. However, the company could employ six design engineers tomorrow if they could be found. This underscores the need for Canada to have the appropriate post-secondary education and immigration policy so that manufacturers like MacDon can continue innovating and developing equipment that will keep Canada in the forefront of the industry.
Thank you for undertaking this study and for your consideration of our submission. I look forward to your questions.
Senator Plett: Thank you, Mr. Mains, for appearing this evening. I have a couple of questions simply around the tax incentives. All of us have at least read in part our budget and some of the things that are going on there, but I for one have not dissected it entirely. I want you to tell me about the proposed changes to the SR&ED program that will negatively impact your industry.
Mr. Mains: There are changes around the treatment of capital costs and also around the treatment of material costs. The changes proposed would be more favourable to other kinds of companies, such as a software development company where the development of the software is all human resources; it is all timed by individuals. However, if you take a product like the draper head that is now on the market with MacDon or other companies that manufacture goods, there are capital costs that are associated with the development of the equipment, such as the purchase of machinery to build machinery and test machinery, but there are also costs associated with actually building the equipment.
While you have the design and the engineering time that goes into that, the other costs that are associated with the development of new manufactured goods would not be acceptable under the proposed changes.
Senator Plett: Thank you, and certainly MacDon is a great success story, and we appreciate them in Winnipeg.
We have a couple of great universities in Manitoba. One of them is the University of Manitoba, and there are a lot of engineers coming out of that university.
What would you like the government to do to provide incentives for more engineers? That is a fairly broad statement, simply to ask the government to provide incentives to ensure we get more engineers.
Mr. Mains: Well, I will build upon a point that was made by the witnesses before, and which is in the ambit of this committee, and I have heard this as well, namely, that agriculture is becoming a much more attractive industry to be in than what it was, say, 10 years ago.
This issue of fewer people entering agriculture is the cover story, I think, this month of Better Farming, so much more attention is being paid to it.
The first thing I think that would be important is immigration policies — I know that Minister Kenney has made some changes to immigration policies — which would allow the skilled trades to come into the country easier and their accreditations being recognized. That is a good step in the right direction.
When it comes to engineering and post-secondary education, continued funding of the sciences and engineering research council — I do not have its name precisely — is an avenue by which the federal government can ensure research in these faculties of engineering are supported, and, therefore, make it attractive for engineers who want to go into that type of engineering to apply and study in those areas.
Senator Mercer: Thank you, Mr. Mains, for being here. I am fascinated. The equipment that you have shown us is also fascinating. Regarding the MacDon equipment, just to try to put it in context for ourselves and for our viewers, what would that piece of the draper head retail for?
Mr. Mains: Around $100,000.
Senator Mercer: Looking at equipment, that seems like a reasonable amount of money, but I do not base that on any great knowledge.
Senator Duffy: That includes the stereo and the air conditioning.
Mr. Mains: That is just the draper header, not the combine. The combine would be $400,000.
Senator Mercer: You get a half a million dollar piece of equipment going, with the air conditioning and the stereo. I understand that.
I am interested in the company that has developed this product in Manitoba. They have done something difficult that we talked about earlier. They have gone from the development stage to the commercialization stage, and I gather they are also marketing this, I gather.
Mr. Mains: Yes.
Senator Mercer: This is a success story. How many people do they employ, and can you break that down from the development staff versus the manufacturing staff?
Mr. Mains: I would not know the precise number of people that they employ in the different areas. I do know that. I was through their plant last July, and anybody that is passing through Winnipeg, do not be shy. He is right near the airport. If you are passing through Winnipeg, do not be shy about giving them a call beforehand to take a tour through the plant.
When I was through the plant last July, it had three shifts going, and I believe he has upwards of 600 people employed there, but I do not know how many are on the engineering and research and development side as well as the field testing side.
The one thing that Mr. MacDonald pointed out to me when I was speaking with him on Sunday afternoon, which is a credit to Western Canadian farmers, is that the Western Canadian farmers are world leading. I do not have to tell the senators from Western Canada that, but they really do push the limits. They put a lot of demand on their equipment suppliers to provide them with the best technology available, and that is why, if you go to some of the specialized equipment manufacturers, especially in the air drill, seed drill and air planter sectors, there are five, I think, in Western Canada. It is a segment where that sector is now a world-leading group of suppliers.
If you go to their websites, their websites are in English and Russian, which is fascinating.
Senator Mercer: I think those of us who have been involved in this committee for any length of time, short or long, know the quality of the farmers we have in this country, and Western farmers, are leaders in that. We would agree with you.
There are a number of manufacturers in Western Canada who are producing top quality, very innovative equipment, and they are selling it worldwide, as you say. Their websites are in English and in Russian.
From a marketing point of view, as we have talked about the difficulty of marketing, do they all have their own salespeople knocking on doors in Russia, Ukraine and Kazakhstan and Australia, or is there a coordinated effort?
One of the things that we have been able to do in this country for the past number of years, both this government and the previous government, is having had trade missions that have gone to some of our biggest customers and tried to involve industry in that so that there is strength in numbers.
Has that been a help to this particular sector of the manufacturing industry?
Mr. Mains: I am not aware of any of the manufacturers that I speak to on a regular basis having participated in any of the trade missions, so I cannot answer the question fully.
With regard to their sales distribution channel, certainly, there are a number of models that exist. The multinationals such as John Deere have increased their presence in Russia and now have a plant that builds equipment in Russia. They have actually got a footprint down.
There have been challenges with that, though, as Russia in the past has put some non-tariff trade barriers into effect, of which we have advised the government, and the government has been helpful in addressing that.
However, the Russians were keen to cause equipment manufacturers to build facilities in Russia, so they had a couple different non-tariff trade barriers that just made it more difficult for companies to export into that market.
Finally, with regard to the question of the sales distribution, I am not sure what type of distribution channels the Canadian companies, like MacDon, Bourgault or Seed Hawk, use in those foreign markets.
[Translation]
Senator Rivard: Mr. Mains, I was interested in something you say in your brief about international trade policies. You say that Canada is negatively affected by many tariff and non-tariff trade barriers, which prevent Canadian companies from meeting foreign demand for Canadian products, the pork industry being an example. I understand that tariff barriers are imposed by importing countries, so what can we do? We cannot put pressure on other countries; it is up to them to make that kind of decision. I will read your last paragraph:
Expanded and secure market access is the solution for not only Canada's pork industry but the entirety of the agriculture and agri-food sector.
Could you explain to me what you mean by that, since trade barriers are imposed by importing countries, not by us.
The Chair: Senator Rivard, with all due respect, the present witness has been invited to talk about agricultural equipment only, not about production.
Senator Rivard: Then I do not have any questions about agricultural equipment.
[English]
The Chair: The question was vis-à-vis hog production, but it was related to the previous presentation. Do you have any comments, for example, on equipment for the hog industry, or manufacturing of Canadian or elsewhere equipment for the hog industry?
Mr. Mains: Tangentially, the only example I can think of would be the equipment that is used by farmers who are growing their own cereal crops. We will go back to the MacDon header example. Russia was putting a tariff on combines. When a combine gets shipped, the header that goes with the combine is also shipped with the combine at the same time. While the tariff was targeted at the combine manufacturer, it was catching the MacDon, the manufacturer of the header, in the same fell swoop.
That is an example where these non-tariff trade barriers do come up and harm Canadian interests. The trickle-down effect to Canadian consumers or Canadian pork producers, though, I cannot comment on.
[Translation]
Senator Rivard: With your permission, I would like to say that this also applies to equipment, as you explained. Trade barriers are discussed during negotiations for trade agreements like NAFTA and probably the EU, and the objective is to maintain as few barriers as possible so we can export these products.
[English]
Mr. Mains: Yes, indeed, that is a valid point. AEM and its member companies have been supportive of the Canadian government, as well as the U.S. government, in trying to negotiate bilateral trade agreements where they can, but also when multilateral discussions take place we are supportive of those because trade is good and it trickles down to companies such as those that are based in Winnipeg or even a company like PowerPin in Fort Qu'Appelle, Saskatchewan, which makes a hitching system that is used on tractors and tillage equipment. The more trade that we have in these goods, the better it is, even for smaller companies like that.
Senator Robichaud: These machines have had to go through development stages as to how they perform and just how they meet the needs of the farmer. How does the manufacturer somehow give assurance or guarantee to the producer that that machine will improve his ability to sow? I am asking because in New Brunswick I have a processor who bought a machine that was supposed to do a certain thing. He had to go through agencies to get the money. When the machine arrived, it did not produce the way it was supposed to. That fellow got caught with a million dollar investment, which he had to pay back, and it is just sitting there idle. How do the producers and the manufacturers get around that so that some people do not get caught in such a situation?
Mr. Mains: That is actually quite a good question because it is a relationship that is based on faith and trust. In the agricultural equipment sector, there are those farmers who are interested in working with the equipment manufacturer on prototype machines. In the case going back to MacDon again, in one of their newsletters they actually spoke about the original farmer who helped them in moving the development of this 45-foot draper head through field testing over a couple of years.
I have a personal experience with this. Several years ago I was out in Alberta helping a friend of mine. He is in the hay business. They harvest an extraordinary amount of hay. On demonstration was a hay swather that was from MacDon. It was actually plugging in one corner of the head on it. Every once in a while it would plug and so you would have to shut the machine down, get out, lift up the guards and unplug it. I was there with my camera and I took a picture of it and sent it back to the folks at Winnipeg and said, "Next time your design engineers are looking at this piece of machinery and making improvements, you might want to change this unit because it is catching and plugging the hay.''
There is that relationship that is based on trust, especially with the early adopters. In the agricultural sector it is a much stronger trust because, at the end of the day, if you have a machine that does not perform and you have to plant 2,000 acres of corn in three days and you are not able to, suddenly you are not going to be buying green-coloured equipment any more, you are going to be buying red-coloured equipment.
That is quite a strong trust that does exist and can get harmed if machinery does not perform.
Senator Robichaud: That was the case. There was only one supplier. It was supposed to do a certain job and it did not. The machine is still lying there. It is quite a burden on the processor.
We talked about how the farmers in Western Canada are good producers, but I would not want to leave without putting a plug in for the potato producers in New Brunswick, because they do quite a good job as well. They use a lot of sophisticated machines. They also employ GPS and all that technology. It is there for them to use. It is just a plug for our farmers.
The Chair: There is no doubt that the equipment market for Canada is quite big.
Could you share with us the market size by way of sales with your 800 manufacturers and/or suppliers across Canada? Mr. Mains, what percentage would be Canadian manufacturing companies supplying the Canadian market? What percentage would be EU? What percentage would be coming from Japan and even Russia, because I have seen some Russian equipment also?
As we all know, today we need smaller, less heavy, bulky equipment precisely to bring the objective where we will have better productivity such as better precision planting. To follow up on what Senator Robichaud said, I remember very well — and it is still a culture and a practice for all processing plants — that they want their farmers to have better yields. Therefore, we need better precision planters, be it in potatoes, or corn, or elsewhere. We need also to have less tilling and better harvesting, which means that the equipment must be sometimes not as bulky or as heavy, but it has to perform. The objective is for less bruising of our crops so that we have a better yield and a better quality.
That said, what is the percentage of the Canadian market in revenue or sales today and who are the biggest suppliers? Is it the Canadian manufacturing companies or is it EU, U.S. or others? Can you answer that?
Mr. Mains: I can give you some general thoughts on that, but nothing specific.
The agricultural equipment industry is made up of three major companies globally. Those companies are AGCO, Case New Holland and John Deere, along with some others which are not coming to mind at this moment. Those are the three that we see in Canada most often. Those are what we call full line equipment manufacturers. When we say "full line,'' it means that in the case of tillage they would make primary tillage equipment and seed bed preparation equipment, with the planters or the harvesters being either forage harvesters or combines. Those global companies are full-line manufacturers.
Canadian companies have become quite good in carving out niches, such as the air seeders, the air drill companies. I think there are five of them based in Saskatchewan; and then there are companies like MacDon.
In terms of the market shares or their sales, I do not have that information available to me. We might be able to get it from Stats Canada or from another agency.
The Chair: Can your association provide some kind of information? I will have the researcher send you a couple of questions that can help us so that we can have the magnitude of the market in Canada and who are the major suppliers.
Mr. Mains: Okay.
The Chair: We will conclude with a question from Senator Mahovlich.
Senator Mahovlich: Whatever happened to Massey Ferguson? They used to be all over the world.
Mr. Mains: That is right. They are now part of AGCO. They continue to be a successful brand, and in certain parts of the world they have a very good presence. In Canada there are Massey tractors still available; I happen to own one.
Senator Mahovlich: They are collector items now.
Mr. Mains: Well, mine is.
The Chair: I notice that on your card that you have "Can Expo Russia.'' That is an agricultural exposition in Russia?
Mr. Mains: That is one of the trade shows that AEM owns and manages, yes.
The Chair: With that, honourable senators, and to you, Mr. Mains, I want to say thank you very much on behalf of the Standing Senate Committee on Agriculture and Forestry for sharing your vision and your thoughts with the committee.
With that, honourable senators, I now declare the meeting adjourned.
(The committee adjourned.)