Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 18 - Evidence - Meeting of May 29, 2012
OTTAWA, Tuesday, May 29, 2012
The Standing Senate Committee on Agriculture and Forestry met this day at 6:08 p.m. to examine and report on research and innovation efforts in the agricultural sector (topic: importance and challenges of research and innovation in developing the international trade of agricultural and agri-food products).
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, with our responsibilities as parliamentarians, we are late starting today. Welcome to this meeting of the Standing Senate Committee on Agriculture and Forestry.
[Translation]
I also want to welcome our two witnesses. My name is Percy Mockler. I am a senator from New Brunswick and the chair of the committee.
[English]
I would ask senators to introduce themselves.
Senator Campbell: Larry Campbell, from British Columbia.
[Translation]
Senator Robichaud: Fernand Robichaud, Saint-Louis-de-Kent, New Brunswick.
[English]
Senator Mahovlich: Frank Mahovlich, from Toronto, Ontario.
Senator Plett: Don Plett, from Winnipeg, where I moved last week; and Landmark, Manitoba, before that.
Senator Buth: JoAnne Buth, from Manitoba.
Senator Duffy: Mike Duffy, from Prince Edward Island.
Senator Eaton: Nicole Eaton.
[Translation]
Senator Maltais: Ghislain Maltais, Quebec.
Senator Rivard: Michel Rivard, Quebec.
[English]
The Chair: Thank you, senators.
[Translation]
We are welcoming Bruno Larue, Canada Research Chair in International Agri-Food Trade at Laval University. Mr. Larue, thank you for accepting our invitation.
[English]
We also have with us Ms. Justine Hendricks, Vice-President, Resource and Light Manufacturing Group from Export Development Canada.
I have been informed by the clerk that the first presenter will be Mr. Larue, followed by Ms. Hendricks. After the presentations, we will have questions from senators.
[Translation]
That said, Mr. Larue, you have the floor.
[English]
Bruno Larue, Canadian Research Chair in International Agri-food Trade, Laval University: I guess we decided that age would go before beauty. I will do my presentation in English, but if there are questions in French, I will be glad to entertain them in French.
First, I will tell you a bit about Canada's agri-food exports. They have been increasing recently, mostly in part because of high commodity prices. This is a major change in comparison to what we have seen in the past. Between 1900 and 2000 agricultural prices have been declining in real terms because of technological change. Right now, prices are high and are expected to remain high because of strong demand from emerging markets and the ethanol boom, among other things.
Most of our exports, 50.5 per cent, go to the United States. Exports to Japan are 9.2 per cent; to the European Union, 6.5 per cent; to China, 6.3 per cent; and to Mexico, 3.7 per cent; and then it goes down. In terms of provincial share, Saskatchewan and Ontario export $10 billion, Alberta $7.9 billion, Quebec $5.6 billion and Manitoba and the other provinces follow. Canada is known as an exporter of bulk products, but increasingly we are exporting intermediate and consumer-ready products.
In terms of the factors that inhibit our export performance, there is a high Canadian dollar, which hinders our exports to the United States. As well, we have to diversify our markets. Our pork producers are exporting to 143 countries.
Another factor is that agricultural tariffs are much higher than tariffs on non-agricultural goods. For example, for India, the average tariff on agricultural goods is at 31.8 per cent and for non-agricultural goods it is 10.1 per cent. There is a huge difference. That is true for most of our trade partners. We have many non-tariff barriers that hinder trade. Of course, these things could be improved once the current Doha Round of multinational negotiations is completed. The negotiations are not moving very rapidly.
Actually, Canada's game in terms of negotiation is through regional trade agreements. We are currently involved in negotiating a trade agreement with the European Union. We would like to be part of the Trans-Pacific Partnership Agreement, but, of course, there are conditions to enter these negotiations. Our trading partners that are involved in these negotiations want us to get rid of our supply management policies, so it makes the entry rather difficult.
The other thing I would like to say while finishing my quick review of the markets is that liberal import policies also help. For example, one of Quebec's main exports is chocolate, but we do not produce cocoa. The export of chocolate products in 2010 was $534 million, which is more than twice the amount from the export of maple syrup. You do not have to produce the raw product to be a strong exporter of the final good.
There are many programs that I think Ms. Hendricks will cover in more detail, such as agri-marketing and Canada Brand International. These are federal initiatives that help industry and government to develop strategies to boost exports. Various ministries are involved. For example, when we had the bovine spongiform encephalopathy cases, various ministries got together to help bring the situation to where we were before these cases happened. It took some time, but it required quite a bit of coordination.
Another area where the Canadian government is quite useful in promoting our export interests is through its involvement in the WTO and regional trade agreements. There are dispute settlement mechanisms that we can use when our exporters face unfair trade barriers.
In terms of research and intelligence, the Canadian government gathers information about foreign markets and makes it available to exporters, which is quite useful, and there are trade missions. The areas in which I am involved in academic research are funded through the Canada Research Chairs Program. Basically, it is a seven-year $1.4 million package that pays my salary and some of my research costs. Of course, I get a lot of funds from other sources as well. I am also coordinating a research network, one of five research networks funded by Agriculture and Agri-Food Canada: trade is headed by Professor Karl Meilke at the University of Guelph; innovation is headed by Professor Richard Gray at the University of Saskatchewan; food demand is based at the University of Alberta and headed by Professor Ellen Goddard; and environment is based at University of Alberta.
We are investigating the effects of the various trade policies of Canada and our foreign partners; and we are looking at the impact of regional trade agreements. We do more scientific papers but we also do policy briefs that we distribute to industry and government. We are looking at the impact of trade liberalization when countries decide to unilaterally reduce their tariffs. We are looking at how domestic regulations impact trade, which matter a great deal. We are looking at issues like price volatility in various markets and how that impacts trade. Basically, our research is applied and designed to help the policy process. In this network, we commission projects and also work in close collaboration with analysts within Agriculture and Agri-Food Canada.
In short, agricultural markets are quite complex. In terms of the protection that we see in these markets, it is like the manufacturing sector 30 or 40 years ago because tariffs on agricultural products are quite a bit higher. There is much to be done in terms of trade liberalization in comparison to the manufacturing sector. There are also a lot of aspects of agricultural markets that make their analysis more complex. The production process, in some cases, is quite long, and so we have to take that into account. The expected prices that farmers have in mind when they make production decisions are often quite different from the realized prices they get for their products. For example, for beef producers, there are two years between the time a calf is born and the time the steer is ready to be marketed. There is quite a bit of uncertainty in agriculture, and that makes the analysis of these markets quite complex.
Justine Hendricks, Vice-President, Resource and Light Manufacturing Group, Export Development Canada: Good evening, honourable members of the Standing Senate Committee on Agriculture and Forestry. I would first like to thank you for the opportunity to speak to you about innovation in the agriculture sector today.
[Translation]
I propose to divide my comments into three themes, more specifically into two agricultural sub-sectors: grains, agricultural equipment and livestock; and fish and aquaculture.
[English]
I will structure my commentary by providing general themes in each subsector, positioning some of the gaps and challenges where we see an opportunity, and discussing how Export Development Canada sees its role. Let us start with grains, agricultural equipment and livestock.
According to the Food and Agriculture Organization of the United Nations, global food production needs to increase by 60 per cent by 2050 in order to keep pace with a population projected to surpass over 9 billion people. Given the increased demand for food and the increasing importance of food security, we are seeing governments developing policies to allow their countries to become more protein self-sufficient, reducing their reliance on imports in advance of a tightening of the global food supply.
Most of the world's best arable farm land is already in use. Therefore, an important part of filling the pending food gap is to improve farming efficiencies in countries with large banks of arable farm land that are either undeveloped or underutilized.
What gaps does that present? At EDC, we often receive inquiries where foreign agricultural buyers are looking for what we call a turnkey solution where a buyer can deal with a single Canadian company or contract for all the requirements of a project instead of with a large number of individual Canadian suppliers. As an example, a medium- sized, foreign farm could be looking for a supplier for grain and storage handling, as well as for modern irrigation equipment, crop seed or fertilizer and consulting and training services.
[Translation]
What are those opportunities? Canada is known worldwide for being a producer of high-quality agricultural equipment. In addition, we can confirm that a key objective of many developed and developing markets is to improve agricultural production capacity. These data confirm that there are and there will continue to be significant opportunities for Canadian producers of agricultural equipment. Although international markets can be very difficult when it comes to livestock, we are very well-known not only in production, but also in genetic livestock production, which is at the forefront of technology.
Once again, we have the honour of being a leader in terms of quality. That means we have much to offer to developing markets, especially if they are seeking greater production capacity for their herds and the opportunity to provide unique products within their own market. Canadian livestock seems to be meeting that demand.
[English]
Let me now turn to the seafood sector.
As my colleague mentioned, in terms of general exports, Canadian seafood exporters are still very much engaged with the U.S. market, but they are increasingly moving away from that market into other areas such as Asia, Europe and Russia.
Another aspect that is contributing to the increase in demand is an improvement in conditions in developing countries. As a result, people are demanding seafood to improve their diets. For example, China is expecting its middle class to double in the next 10 years, which represents an increase of over 350 million people. A major point to note is that the increasing supply of fish from aquaculture and from developing countries is happening as the supply from captured fisheries in developed countries is actually declining, so aquaculture is taking on a much greater importance in the international marketplace.
What is one gap that we have identified? The gap would generally be in aquaculture. As we see the demand continue to rise, aquaculture is becoming the new hope to fill that gap. This would suggest that aquaculture will become the base supply, no longer just a supplement to open catch. Sadly, Canada is behind the innovation curve; due to strict regulations within Canada, we have been unable to capitalize on the aquaculture trend.
[Translation]
What kinds of business opportunities are there? As in the case of agricultural equipment and livestock, the quality of its products sets Canada apart.
We see that the fish demand will grow as a result of demographic changes in developing countries, and we are very well-positioned to meet that demand. Canadian products are not only of superior quality, but they also sell at higher prices. However, we know that many developing countries are prepared to pay that higher price for better products.
[English]
What is EDC's role in this? If we take into account the grain and equipment aspect when we are looking at markets such as Russia and the CIS, through our ability to offer products such as accounts receivable insurance, as well as financing, we are able be to be there for those exporters to help them navigate through some of the difficulties that those marketplaces offer. From a seafood perspective, though I would argue that it also applies to agriculture equipment, we will often offer market intelligence, through either our Canadian operations or some of our foreign representation. We also engage in a lot of matchmaking, often in conjunction with our DFAIT partners and other partners in the marketplace. For example, we would have been quite visible at the recent European Seafood Exposition in Brussels, and we orchestrated over 25 matchmaking meetings connecting a foreign buyer with a Canadian supplier. We had four buyers come to the table, and all of them were from the Ukraine, a foreign buyer with a great interest in Canadian seafood. We connected them with over 15 Canadian exporters. There is an important Chinese seafood exhibition that will take place in November, and we plan to be there in support of the Canadian seafood industry.
I would like to end on that note and thank the honourable senators for their captive ears over the last few minutes. I remain at your disposal to answer any questions.
Senator Eaton: Thank you, Mr. Larue and Ms. Hendricks.
Canada is involved in trying to get into the TPP, which involves Korea, Japan, India and everything you talked about, professor, as well as our non-tariff barriers. Will our dairy and egg marketing boards be discriminated against? Will that be a big battle? Does India, Korea or Japan subsidize? What will our defence be?
Mr. Larue: In this case, the big unknowns are the concessions that the New Zealanders and Americans will make to bring Japan to the table. Japan is out, as is Mexico and Canada, even though they have expressed an interest in joining the talks.
The condition that Canada faces is that in order to join the talks we have to commit to phasing out our supply management programs. Whether this is the sort of condition that will remain a sine qua non condition remains to be seen. If major concessions are made for Japan to enter the talks, then it will be easier for Canada to also enter the talks, probably without having to make concessions on supply management.
When we started negotiating with the Europeans, they were also talking about us getting rid of supply management. From what I hear, it is not such a big thing any longer for them. When we started negotiating with the United States way back when in the mid-1980s, the Americans wanted us to get rid of supply management. However, in order to expedite the finalization of the negotiations, they let it go. Perhaps it will be the same sort of thing this time around.
Senator Eaton: The Americans subsidize their agricultural industry hugely, and so do the Europeans.
Mr. Larue: That is right. Actually, the Americans subsidize less than we do. The Europeans have made a lot of changes. They still subsidize more than we do, but they made major changes to their Common Agricultural Policy. They are getting rid of their quotas. Since they have made changes, they expect us to make changes, as well.
Canada is being increasingly isolated on the world scene in terms of who will join Canada to defend these programs. At the moment, I think Japan is the main ally, but the Europeans are no longer there.
Senator Buth: I am curious about your comments about Japan. What concessions would Japan need to make in terms of rice or other products?
Mr. Larue: Japan has been asked to modify its agricultural policy. The Trans-Pacific Partnership Agreement goes well beyond agriculture, so there are a lot of areas where they do not agree, even between countries that are currently negotiating. It is the sort of thing that, when they start negotiating, they ask a lot from their trade partners, but after that, they need to compromise to ensure they end up with a deal that can be successfully completed in a reasonable time frame. There will be pressure for them to move.
What is perhaps a bit different this time around is that even the President of the United States has talked about agriculture and the conditions put on Canada. Previously, the American president would never talk about agriculture.
Senator Eaton: What effect would these ongoing trade agreements have on research being done now at Laval, Guelph or any of our agricultural colleges or universities that might have genetically modified programs or areas? Is there any research being done on genetically modified grain?
Mr. Larue: A lot of research is being done on that front. We have plant scientists, for example, working on developing new crops.
Senator Eaton: Would the trade agreements impact on that research?
Mr. Larue: Possibly. GMOs are still very controversial. In Canada, we use it quite a bit, as they do in the United States, but the Europeans are less receptive. In Canada, for example, we do not have GMOs in wheat. The producers made it quite clear they did not want it and that it would hurt their exports markets.
For us, with these sorts of issues, if we negotiate a trade agreement and there are restrictions put on GMO trade, for example, it will impact our research. We will focus then on the implications of such regulations and try to derive the impact it might have.
Senator Eaton: Do you expect that from places like India? Are they as sensitive about GMO seeds as Europe is?
Mr. Larue: Yes. Places like India are very protectionist. As I was sayings, their average tariff on agricultural goods is about 30 per cent. That is very high. In a place like that, we will have to take that into consideration whatever regulations they impose on us, because it is such a big market.
Part of the problem right now with the negotiations at the WTO is that countries like India want to maintain their high level of protection on agriculture.
Senator Campbell: My first question is to Ms. Hendricks with regard to aquaculture. I am interested that you see aquaculture in the future as being a main source and not a supplement or add-on. You said that Canada is not at the top of the list as far as technology in that, because of regulations.
I am wondering if you could give me some enlightenment on where we should be going with that. It is a big deal in British Columbia. Another farm was shut down today because of a virus in farmed salmon. What do we need to be doing to get to the point where we have a sustainable aquaculture industry without all of the downsides that we see from it? I do not disagree with it. It is just that the downsides from a British Columbian's point of view are so dramatic to the ocean. What do we need to do?
Ms. Hendricks: I will just clarify my point. Where I indicated that Canada was lagging, it is not that there is no research taking place; it is that some of the current regulations that exist in our country make it a challenge companies that are looking to innovate further and be able to see some of their research to market.
There is an example out there right now of a company in the aquaculture industry that seems to have developed a technology that can respond to the threat of disease in terms of the purification aspect. We are following them quite closely. They have existing projects in China, as well as in Japan.
Part of the challenge, I would argue, is to be able to invest in terms of that research, to respond to what that number one risk is. Given the availability that we have in Canada, not only of water supply but knowledge in the industry, we could be very well positioned to do it.
Senator Campbell: Would that be on-land contained?
Ms. Hendricks: In some cases. The example I am referring to is actually not on-land; it is off-land.
Senator Campbell: I wonder if Mr. Larue could give me the numbers that he had for the sales to different provinces.
You had numbers there and I did not get them all down. I am interested in that.
Mr. Larue: In terms of agri-food export, in 2011 Saskatchewan had $10.1 billion, Ontario had $9.9 billion, Alberta had $7.9 billion and Quebec had$7.9 billion. The next one I remember is Manitoba, which I did not list here, but I think it is around $4.9 billion. Overall, with all of the provinces combined, it is around $40 billion.
Also, the food manufacturing industry is the second largest sector in Canada now.
Senator Plett: I want to make a comment. First, I want Senator Campbell to note that the liberal import products that were talked about was not a reflection on the Liberal Party of Canada; it was simply the type of product, so do not pat yourself on the back, Senator Campbell.
Agri-food Canada has developed a Canada Brand strategy. How is that perceived internationally? Is it perceived well? I do not know which one of you would want to answer that.
Mr. Larue: I can give it a try. Like Ms. Hendricks has said, Canada has a very good reputation in the world markets. It dates back a long time when we were known as the supplier of cheddar to England, for example. There was a high premium for cheddar and of course when England joined the European Union, it kind of spoiled the fun for us.
It is the same thing with wheat. Some of the research I did in my PhD thesis was about wheat quality and premium, and the quality premium that Canada was getting over the United States. If you look at the number of complaints from foreign buyers that I studied from the 1970s to the 1980s, there were far less complaints about Canadian wheat than U.S. wheat.
In pork, for example, we were among the first to cater to the Japanese. They are very picky buyers and we were able to penetrate these markets because we were able to do the things they wanted us to do. We produced high-quality pork with the requirements they had, which meant organizing the chains and slaughterhouses a bit differently. We did that first and now the U.S. is doing it.
In terms of quality, other countries are also producing high-quality pork.
Senator Plett: Playing catch-up?
Mr. Larue: Playing catch-up, but it is hard to keep ahead of them. There is just so much you can do in terms of innovation. The U.S. has been aggressive in the Japanese market. When there was a problem with Taiwan — which was a main supplier of fresh pork to the market — and it got kicked out because they had a disease issue, the U.S. moved in very aggressively. They had strong programs. In terms of market share, they are the ones that gained even though we produce high quality and a long relationship with the Japanese.
In terms of quality, we have a very good image in the markets. Of course, there is also a risk when you associate the product of companies with the product of a country. If there is a problem with products coming from one company, the other companies might suffer. For private exporters there is some risk as well.
Ms. Hendricks: Yes. To bring a complementary perspective to what Mr. Larue spoke about, I had the pleasure and honour to see the Canada Brand at a few trade fairs. I would like the committee to take into account another element that is also important: offering support to exporters. When you go out there in the real world and you are wearing that flag, the quality associated with it definitely attracts attention. You will get some traffic, if I may use that as an expression, because people are looking for that maple leaf.
The other element I have seen and certainly witnessed in the past couple of years that I had not thought about before is that when you bring a community like that together — recognizing they can be competitors with each other — you help them exchange, in terms of sharing their experiences. I was in Germany late last year where we had almost 50 Canadian companies in the agriculture equipment sector. With our involvement in bringing those folks together, we had some companies in Quebec that commented as feedback. It was more about thanking us for connecting them with some of the big players in Canada — and just to hear from them — because that was worth a lot to them in terms of what they were going to do in their future strategy, but also being part of that Canada Brand. When you market it and mention where you come from, people know right away you have a certain amount of quality.
Another example of that would be that we are currently discussing with a special fund in Brazil that is agriculture focused. In my dialogue with them at one point I offered the opportunity for these individuals to come to Canada, go in your backyard in Winnipeg, go and see what I call the usual suspects, and get a sense of what they offer. They come back to me and say ``You do not need to. We already know.'' That is interesting and pleasant because it brings you to another step and you can move on to the next level of dialogue, which I am eager to get to in my world. There is that perspective as well.
Senator Plett: In light of the time I will forego my other question unless there is a second round.
[Translation]
Senator Robichaud: Ms. Hendricks, when you accompanied a delegation of Canadian equipment manufacturers to Germany, a group thanked you, not for going to Germany, but for helping Canadians get to know each other better. Is there a serious need in terms of that?
Ms. Hendricks: That is an excellent question. I think that it is not necessarily a matter of getting to know each other, as they do know each other. It is more about having a forum where they can meet.
I think that time is lacking. I am not talking only about exporters, but about the whole population today. When one of the largest international exhibitions is being held, and you manage to bring those people together so that they can take a break and talk amongst themselves, the benefits are huge. I would say that this is done more to make the most of our time when going abroad as a Canadian delegation.
Senator Robichaud: Do you do that once you arrive on site and not before?
Ms. Hendricks: We do it before as well, during the preparation. We provide an update on market players. A tremendous amount of information is shared among various departments such as Agriculture and Agri-Food Canada, Foreign Affairs and International Trade Canada, as well as other associations. We begin preparing for an international exhibition almost a year in advance. Preparation is necessary in order to ensure that the delegation puts its best foot forward. Once on site, we take advantage of the opportunity to meet and talk. The youngest participants can talk to people who have a significant amount of experience or were the first to penetrate markets. They really appreciate those discussions.
Senator Robichaud: Mr. Larue, you are talking about exporting raw or processed agricultural products. Where do you see an opportunity to increase the sale of products that could be processed, instead of exporting them raw?
Mr. Larue: There are strong tendencies toward increased processing in almost all industries. I would say that approach benefits Canada, which has a qualified workforce. In terms of the climate, Canada is often at a disadvantage. However, when it comes to raw materials, it is at times simpler to import products and process them here in Canada.
Senator Robichaud: I assume you are talking about chocolate.
Mr. Larue: I would say that, in most sectors that are already exporting, there are some good export opportunities because the demand is very strong, especially in developing countries like India or China. Those countries have huge populations to feed, and their middle class is developing.
Those people want to increase their intake of meat and higher-quality food. That creates a huge need, but at the same time, there is also competition from developing countries, like Brazil, which is a great competitor.
Brazil still has potential lands for development, which are limited in most countries. Production increases will stem from performance increases. The forecast in terms of performance increase is that it will be weaker in the future than it was last year. However, a country like Brazil, which still has a lot of land and large quantities of water, has a strong agricultural potential. Brazil has become the biggest meat processor in the world.
Senator Robichaud: I would regret it if I did not talk about supply management, since you mentioned it. You are at Laval University. You probably know that we must not sacrifice dairy production in Quebec for the benefit of another sector. Is that right?
Mr. Larue: In terms of dairy production, I think that, if we were to slowly eliminate or transform supply management, this shift would not bring an end to the industry, but it would change it considerably. Dairy production would increase significantly, but there would be much fewer farms.
A recently published American study showed that a 1,000-cow or 2,000-cow farm can still make economies of scale and that its production cost may be a quarter of that of small farms in Quebec.
Senator Robichaud: That would happen if Quebec were to follow the American model and use hormones in dairy production. Correct?
Mr. Larue: Actually, bovine somatotropin was not a huge technological success in the U.S. Many farmers did not adopt that method because it created more problems than it solved. Economies of scale do not stem from the use of hormones, but from herd management. Farmers can afford more efficient equipment, such as milking machines.
Some economies of scale are made thanks to precision feeding. That is where the difference lies. I am not saying that Quebec and Ontario have the kind of land required to develop 5,000-cow farms, but those provinces could certainly increase the average size of their herds and do well.
Senator Robichaud: That is what producers are currently doing because, in Quebec, farms have changed.
Mr. Larue: That is a good question. Actually, farms have not expanded a lot, in part because of issues with market quota caps.
Quota prices in the west exceed $30,000. In British Columbia, the price is much higher than in Quebec. In Quebec and in Ontario, there is very little movement in terms of quotas. That is why it is difficult for farms to expand.
Two farms in Quebec, among others, had modernized their equipment. They were on the verge of bankruptcy because they could not obtain quota. The federation got involved and provided them with quota so that they could avoid bankruptcy. There have been issues with people who would buy whole farms to get quota and would sell the farm with a bit less quota to the original owner in order to bypass the cap. I just wanted to tell you a bit about the current expansion issues in the Quebec and Ontario industries.
Senator Robichaud: I will come back in the second round, Mr. Chair.
The Chair: The Government of Canada said that supply management was not part of the discussions.
Mr. Larue: That is true.
[English]
If that is the case, I think we can put that to rest.
[Translation]
Senator Rivard: The document you submitted indicates that, after the 27 countries of the European Union, the United States is the main provider of livestock and our biggest client in the agri-food industry.
Between 1990 and today, the value of our currency compared with the American dollar has fluctuated between $1.40 and $0.95. How can we remain competitive? For instance, did the fact that our currency would fluctuate by $0.05 a year decrease its sales volume? Have research and innovation enabled us to keep our market share?
Mr. Larue: Innovation has certainly helped, but in certain sectors, it has introduced completely different methods and wage structures. For instance, in Quebec's slaughter industry, all processors have renegotiated with their employees very substantial wage decreases of 30 per cent to 40 per cent. Going from a weak Canadian dollar to a very strong Canadian dollar has been difficult.
That led to a kind of a wage structure adjustment that the Americans had made about 15 years before us. In the 1970s, the U.S. slaughter industry had very good wages, but later on, they started hiring immigrant workers to become more competitive. They adopted a completely different model. It was possible to remain competitive when the dollar was weak, but once the dollar started to gain value, major adjustments were needed. However, at the same time, labour disputes in Quebec and Ontario have enabled companies to modernize their equipment. So companies are a lot more efficient than before. In terms of productivity, some substantial progress has been made. Companies realized that, if they wanted to stay in business, they had to become more productive. They quickly understood that the dollar would not go back to its late-1990s levels.
[English]
Senator Mahovlich: I was on the Fisheries Committee about 10 years ago, and we visited many aqua-farms. At that particular time, I think Norway was leading the world in aquaculture. I thought Canada would have caught up and passed them by now. What has been our problem? We have more shoreline than anyone in the world, I would think.
Ms. Hendricks: My understanding is that some of the regulations that exist right now for some of these aquaculture companies make it a challenge for them to meet some of the research that they need to accomplish in order to make that industry sustainable. Earlier on, we were talking about some of the risks associated with aquaculture. There has also been in the past a bit of a stigma to it in that if things go bad — if you lose everything — it is quite significant.
Therefore, the ability to be able to support that research and actually invest in it is what I would say has made a difference in Norway leading the pack several years ago and still being a leader in terms of that type of industry. They are known around the world in terms of their fishery industry as a whole. They invest a lot of money into it, in terms of their own stocks but also in the innovative aspect.
When you are looking at technology in that type of subsector, the ability to be able to prove your technology is what makes the difference. The quicker you can prove it, the faster you can be at market.
Do we have the right type of economic environment or support for something of these organizations? They would typically be the smaller-end type companies that would invest in that, or put time into that, and sometimes time runs out on them.
Senator Mahovlich: When you say ``support,'' do you mean government support?
Ms. Hendricks: Yes. I am not suggesting subsidies, but having the right forums for those companies to be able to either access different funds or the ability to spend time researching their technologies.
Regarding the comment I made earlier about companies trying to come together, sometimes when you are able to complement yourself with other players and then presenting yourself to the world, having a full turnkey solution seems to be picking up traction in quite a few areas in agriculture. The ability to have a forum for companies to come together and to help one another can also add a lot and bring a lot to them.
Senator Campbell: In British Columbia the majority of the fish farms are owned by Norwegian companies. My question is this: If they can operate in that climate, why can we not go one better? Why are we not investing in aquaculture? The vast majority of them in British Columbia are Norwegian. Why can Canadian companies not take the next step past that? Is it just the risk or is there not the market yet?
Ms. Hendricks: My role is not necessarily to opine on a policy aspect of that. I will offer you thoughts, based on the knowledge I have. I can certainly research it further for you. Our industry is vastly away from aquaculture. There are a few select players in this country. Some are quite successful.
However, with respect to the ability of those types of companies to have the funds and take the time to make the investments to go head to head with the Norwegians, they are making a judgment call in terms of whether or not that is the wave of the future. We are certainly getting the indication that it is.
I was recently in a conference in New York, and the topic of aquaculture and the importance that industry will pick up globally in terms of being able to supply emerging markets in particular is pretty sound. We saw it as an opportunity for Canadians to say we need to spend a little more time on that. Also it is important to recognize that we have a traditional industry there that is very viable, too, and that dynamic plays into this, as well.
Mr. Larue: I have one quick point. There is quite a bit of foreign direct investment in agriculture. We talk mostly about trade. The fact that they are Norwegian in aquaculture is not surprising. For example, in cheese, Saputo is a main manufacturer of cheese in Canada and the second-largest manufacturer of mozzarella cheese in the United States. They are also in Argentina. The reason is that they have the R & D.
Mozzarella is a particular sort of cheese. I have a colleague that has a Canada research chair in cheese manufacturing and he likens it to a high-tech plastic, because you are looking at properties of cheese under extreme temperature. He says it is very complex and it takes a lot of money to develop the capacity to do this sort of product.
Senator Mahovlich: You mentioned the production that Quebec goes through to produce chocolate. Do they import cocoa and then export the finished product?
Mr. Larue: We do not produce cocoa. We import it and then we make chocolate products. We make a lot of chocolate products. We export more chocolate products than maple syrup products.
Senator Mahovlich: Are other provinces doing the same?
Mr. Larue: Yes, a lot of firms in Ontario do similar things where they import product, mix that, and export. Part of the wine industry in Ontario was developed this way. When we negotiated the Canada-U.S. trade agreement, people were writing off that industry. They even got some kind of compensation at some point because people thought it would disappear. Basically, the industry asked for a loosening of the regulations about what makes up a Canadian wine, so they started importing better grapes to mix with Canadian grapes in making better quality products. Canadian wines are now very good. It is due to these looser sorts of regulations.
[Translation]
Senator Maltais: Ms. Hendricks, I want to go back to the issue of aquaculture. I visited Norway 25 years ago. That country was already a leader in aquaculture because it predicted the depletion of stocks of ground fish such as halibut, turbot and so on. I am under the impression that Canada's research in aquaculture has been left behind. If Norway is farming fish with the same water as us — Atlantic water — and it is able to fight diseases, why is it that, with all our researchers, we cannot raise a trout made in Canada?
At the supermarket, frozen trout comes from Japan, the rising sun flag imprinted on its tail. How come we are so behind in Canada and no one has spoken out about it? Not much has been said about researchers in aquaculture. Our country is surrounded by oceans — the Pacific, the Arctic and the Atlantic — and we also have the most lakes and rivers.
Why is it that, with all that research and money, we cannot raise trout to put on our tables? That is my question.
Ms. Hendricks: Honestly, I may answer this in a somewhat naive manner, considering your experience and your visit — you had the opportunity to go to Norway. I have not yet had the pleasure of going. This industry has been around for over 25 years, but I would like to point out that we have a very viable industry in Canada without aquaculture.
[English]
Senator Duffy: Ms. Hendricks, you mentioned a 60 per cent increase in food demand. Was it your statistic or Professor Larue's?
Ms. Hendricks: It was mine.
Senator Duffy: Could you repeat that?
Ms. Hendricks: Certainly. The statistic comes from the Food and Agriculture Organization of the United Nations. Global food production needs to increase by 60 per cent, by the year 2050, in order to keep pace with a population projected to surpass 9 billion people.
Senator Duffy: That number is staggering, and that tells us that there will be a continuing demand for Canadian products, the products that we fish and grow in this country. Listening to your testimony here today, I was reminded that all of our economy, but in particular our agricultural economy, is a dynamic, moving and changing thing.
Professor Larue, you mentioned cheddar cheese and our exports to Great Britain. When they joined the European Common Market people said it was the end of the world. We did not give up; we picked up, pulled up our socks and developed new products and markets. Our cheese industry, as you point out, has been thriving.
In P.E.I., we are not growing salmon but mussels, which was a product that was introduced 40 years ago, with the assistance of the Department of Fisheries. P.E.I. mussels have now become a major income earner, a multi-million dollar industry. This is to say nothing of what the McCains and the Irvings have done in the food industry. With a declaration from the Prime Minister that we are not allowing marketing boards at the table, it seems to me that your message here today is one of growth, expansion and positive developments in the future.
Ms. Hendricks: I would support that and would add that you want to keep checking on what the world is asking for. In order for our Canadian exporters to be competitive internationally, they have to respond to the demand. Our ability to take our capabilities and bring them together to offer what the international market is looking for is critical to that success. We definitely have what it takes, and we just want to ensure that we can be as competitive as, or go head to head with, the John Deeres of the world, as an example, because that is who we are competing against.
Senator Duffy: Team Canada.
Professor Larue, when you talk to people in the industry, are you finding that they are optimistic and positive about the future?
Mr. Larue: Yes. Actually, it is because, in many sectors, they were able to innovate. If you go into a grocery store nowadays and go to the juice section, it used to be just orange juice and a bit of apple juice. Now, there are all kinds of juices with nutraceutical properties. That is one area where things have changed. In terms of dairy products, before, there was milk, a few types of cheese and ice-cream. Now, if you go to the cheese section, there are a lot of kinds of fine cheeses, so the industry has made a lot of progress in that way. If you look at the sort of yogurt that we have, there is a whole lot more choice than before. Basically the future the industry is the capacity to innovate and develop new products. The sort of manpower that we have is high-skilled labour. We do not necessarily have the lowest cost in terms of products. However, I think we can be successful, and that is the feeling I get from industry people.
[Translation]
Senator Robichaud: Regarding global food needs, it is said that we need to increase our production. But is India taken into account, where it is not a matter of production because they can produce as much grain as they need? It is more a question of infrastructure for transporting that grain, correct? That is a factor we must take into account when it comes to food production, right?
Ms. Hendricks: Yes, certainly. Capacity also needs to be considered. Regarding grain silos, you have the example of India that, I believe, loses about 30 per cent of its annual production. So being able to meet that need could definitely have an impact on production need. But what will come first? The chicken or the egg? So we need to address both issues in order to ensure that we are properly prepared.
The Chair: Ms. Hendricks, thank you very much.
[English]
On that note, on behalf of the Standing Senate Committee on Agriculture and Forestry, I want to thank the witnesses for sharing their views and comments with us.
(The committee adjourned.)