Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 19 - Evidence - Meeting of November 4, 2014
OTTAWA, Tuesday, November 4, 2014
The Standing Senate Committee on Agriculture and Forestry met this day at 5:32 p.m. to study international market access priorities for the Canadian agriculture and agri-food sector.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry.
[Translation]
The Chair: My name is Percy Mockler, senator from New Brunswick and chair of the committee.
[English]
I would ask all senators to introduce themselves, please.
Senator Merchant: Good evening. I am Pana Merchant, and I am from Saskatchewan.
[Translation]
Senator Robichaud: My name is Fernand Robichaud from New Brunswick.
[English]
Senator Enverga: Tobias Enverga, from Ontario.
Senator Beyak: Lynn Beyak, from Ontario.
Senator Oh: Victor Oh, Ontario.
Senator Unger: Betty Unger, Alberta.
[Translation]
Senator Dagenais: Jean-Guy Dagenais, senator from Quebec.
[English]
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
The Chair: Thank you, senators.
This evening, the committee is beginning its study on international market access priorities for the Canadian agricultural and agri-food sector. Canada's agriculture and agri-food sector is an important part of the country's economy. In 2012, the sector accounted for one in eight jobs in Canada, employing over 2.1 million people and close to 6.7 per cent of Canada's gross domestic product. Internationally, the Canadian agriculture and agri-food sector was responsible for 3.6 per cent of global exports and agri-food products in 2012.
[Translation]
In 2012, Canada was the 5th largest exporter of agri-food products globally.
[English]
Honourable senators, we have two witnesses on the first panel. We welcome this evening, from the Canadian Federation of Agriculture, Mr. Ron Bonnett, President. Thank you for accepting our invitation, sir. We also have Errol Halkai, Executive Director of the Canadian Federation of Agriculture.
Mr. Bonnett will make the first presentation to be followed by questions from the senators.
Ron Bonnett, President, Canadian Federation of Agriculture: Thank you for giving us the invitation to appear. I appreciate appearing before the committee. I have just looked over the report you made on innovation and some of the things there. It tied into some of the discussion you will have on international trade.
Most of you know the Canadian Federation of Agriculture. We represent producers from across the country. We actually work very closely with other groups within the ag sector, food processors and groups like that, to ensure that we're putting policy and direction together that has the support not only at the farm level but taking a look at what processors and others in the system are asking for.
I'm going to talk about three key areas, and I'll try to keep my comments short so there's time for questions. First, I will talk about multilateral trade negotiations, then about the bilaterals and some of the priorities there, and then about market readiness and how we take advantage of some of these trade agreements that are being negotiated.
First and foremost, the Canadian Federation of Agriculture supports the balanced position that Canada has had going into negotiations. I don't think it's different from a lot of other countries. They have both an offensive and defensive position. Canada is like those countries in that there are some sectors that we want to make sure that we protect and don't throw away, and other countries have similar types of interests. If we could come in any of these trade agreements with a win-win situation, it's something that people can accept.
Despite its trouble reaching agreements, I think CFA still views the World Trade Organization as the key area to try to see if we can get all of the countries together. There's been a tremendous amount of frustration getting agreements, and most recently, with even the small package that was approved in Bali last December, it's now basically off the rails. One of the things we have to look at as a result of that negotiation is the fact that India did agree with the Bali package. Then there was an election, and now they're not agreeing with the package. Something to keep in mind when you're into any negotiations, whether they're bilateral or multi-lateral, is making sure that the people signing on to those agreements make a commitment to carry forward with that and it isn't something that can be thrown out the next time there is an election. Particular people that are going to make the investments to develop trade don't need something that is a five-year window. They're looking 15, 20 or 30 years out. I think that's critical.
We also want to remember that WTO is more than a negotiating body. It is also involved in dispute settlement. The recent example with country of origin labelling with the States is an example where we have gone through the process and received favourable rulings, and that is one of the things that the WTO can continue to do. We might want to suggest trying to take a look at that process to see if it can be streamlined because of the expense and the time that's incurred by producer groups and governments if they want to appeal.
The other point I'd mention on multilateral negotiations is taking a look at other nontariff barriers as well. There's a recent report from CAPI, the Canadian Agri-Food Policy Institute, that talks about the impact of some of these nontariff barriers, possibly more of a detriment to trade than even tariff barriers.
On bilateral agreements, we have a number in the works. We have just signed the CETA agreement. It will likely be a couple of years coming through. I think it gives potential market access, but one of the points we'd like to make is that in that agreement, there was the use of tariff rate quotas to figure out how to manage the fact that you wanted access, but Europe was worried about having dumping take place of Canadian product into their markets. When you're looking at trade negotiations, you have to look at not only tariff reduction but other tools such as tariff rate quotas and things like that to see if you can get markets that will open up.
From our perspective, we need to now focus our negotiations on regions for potential for the greatest benefits. The Asian region is one of the most developing regions that there is right now. We have recently signed an agreement with Korea, which has the potential to give us more market. A lesson learned there, though, is that the U.S. got in first, and they actually stole some of our markets away from us. It's critical that we be out front on that.
The two big countries in that region right now would be Japan and China, and I would encourage negotiations with Japan in particular to move ahead as quickly as possible, whether or not trans-Pacific partnership goes ahead. Everybody is waiting and watching the U.S. election today because, depending on what happens there, that could determine whether TPP goes ahead or whether it's stalled for some time if the president doesn't get trade negotiating power.
The final point I'd make is about market readiness. We have to look at what we do once we get these trade agreements opened up, because once they're there, that opens the door. We have to start looking at how to get the Canadian sector ready to capture some of those markets. One example I could give would be in my own industry. I am a beef producer. The beef that is going to Europe will have to be hormone free, so you will have to have certification programs in place. You'll have producers lined up through the chain. You'll have to have the whole market chain working together.
One of the things we need to do is look at that whole supply chain and see how we can make sure that that supply chain can actually take advantage of opportunities.
The other thing — and I'll go back to the non-tariff barriers again — is really looking at how we make sure that other barriers, other than tariffs, are addressed. It's interesting. We were at a meeting a week ago, and Taiwan was saying that Canadian beef imports are expected to double this year from last year. The only reason is the tariff barrier on bone-in beef was removed, and all of a sudden it gave this market for that product.
To summarize, what we need to look at as we go ahead on trade negotiations is making sure that we continue with the balance of trade position because it does give the opportunity for win-win for all countries.
I don't think we should give up on the WTO, but we should look at using it as still the primary negotiating body but continue to look at figuring out how we can streamline the dispute settlement, and as well take a look at some of the issues on non-tariff barriers.
Pushing for bilateral agreements, we should focus on the countries, as I said earlier, that give us the best bang for our buck, which would be Japan and China.
Finally, really take a look strategically at how we develop real market access by making sure that we line up the sector in Canada to take advantage of opportunities.
With that, I'll close off my remarks and look forward to your questions.
Senator Robichaud: Thank you for your presentation. You were saying that you are a beef producer. Do I understand that in your beef production you use hormones in different stages?
Mr. Bonnett: Personally, I don't use them because I have developed a market that pays me a little bit of a premium for not having them. But then I've lined up my own supply chain.
Senator Robichaud: Okay, but you're one of the exceptions, aren't you?
Mr. Bonnett: That's true.
Senator Robichaud: How many people would be producing hormone-free beef?
Mr. Bonnett: It would be a small percentage, and mainly because of the difference in efficiency in getting rates of gain on animals.
Senator Robichaud: To prove that you are producing hormone-free beef, the way you're producing it now, would it be acceptable to the common market in Europe?
Mr. Bonnett: I can't answer whether it would be or not. I don't have independent third-party verification. But what I do is provide sworn statements to the people I sell to, and they can come in and look at my veterinary records to see what I have produced. But I don't have third-party verification.
That's an example of, if we're going to line up to go after European markets, first we need critical mass, because you need volume to make it work. Then you're going to have a procedure of approvals that would be recognized by that company. Finally, you're going to have to have a premium price to justify the extra work that's involved in getting those markets as well.
Senator Robichaud: Actually, how does your beef compare with the beef that's being sold in Europe, which is supposedly hormone free?
Mr. Bonnett: I don't think it would make any difference. But frankly, I don't think there's much difference in the beef that is produced using hormones and non-hormones, because it doesn't show up in the final product.
Senator Robichaud: Dollar-wise per pound.
Mr. Bonnett: I get a premium right now of about 30 cents a pound, so it's worth my going after it. Of course, in the last few months beef prices have really turned around.
Senator Robichaud: Yes. You are having a very good year.
Mr. Bonnett: A very good year, yes.
Senator Robichaud: I hear from a farmer down home, who's a beef producer, Mr. Donohoe, who got recognized as farmer of the year in New Brunswick. He was saying that things were going well for him.
How many other producers would be in the same position? You say very few, but in numbers?
Mr. Bonnett: I wouldn't put a big number on it, but it's a very localized market for hormone-free beef. It's not a huge market.
Senator Robichaud: How long will it take for other producers that are not hormone free now to fit into this category?
Mr. Bonnett: It depends on how much you pay them. If the value is there, they would change their production system. That's one of the things with all of these trade agreements — and whether it's produced hormone free or produced the way the majority is produced now — that will be driven by the marketplace. If the marketplace sends the proper signals, then there will be a shift in production models.
Errol Halkai, Acting Executive Director, Canadian Federation of Agriculture: The other factor is that with the European free trade agreement we have a TRQ for hormone-free beef, and I think it's 50,000 tonnes. The other determinant is going to be: The 50,000 tonnes, how are we going to line up our industry? Who is going to participate to take advantage of the 50,000 tonnes? There's not only the system that Ron is talking about, but there's that volume as well that we have to consider in terms of how we proceed.
Mr. Bonnett: But you also asked the timing question, how long it would take. It wouldn't take that long if the market signal was there, but it has to have a market signal.
Senator Robichaud: But then you need a certification and all that. That would present a difficulty, wouldn't it?
Mr. Bonnett: Yes.
[Translation]
Senator Dagenais: Thank you to our witnesses. You spoke about international trade and free trade agreements, which require producers and processors to be very competitive. What do you think will make the difference? How can you differentiate yourselves from other producers and processors to ensure that the value added is reflected in the sale of your products?
[English]
Mr. Bonnett: I think that's where some of the things that we're already doing might give us a little bit of an edge. If you look at traceability, Canada has been at the forefront on traceability for a number of years. We have developed on- farm food safety systems that are now recognized. All of our livestock have identification that can be traced back. A number of other countries don't have systems as sophisticated as us. That is one thing that will give us an edge in the market.
We have a regulatory system that has stood the test of time and is recognized around the world. I think there's still a role for CFIA to try to fine-tune the regulatory systems and make sure they're as efficient as possible. That again gives us some advantage.
Then just the fact that if you're trading into especially the Asia block, one of the competitive advantages we have is the large land base we have here in Canada and the research and innovation that we've put into not only producing crops but growing livestock. If you see the productivity increases that have been in place in the last 30 years, it's incredible. That's the type of thing we need to continue to invest in to keep that competitive advantage.
On the processing side, there are some issues that are likely going to have to be addressed — issues of energy cost, labour cost, those types of things — taking a look at how can you gain efficiencies within the processing side. That's likely going to be one of the issues that has to be looked at to ensure we're competitive there as well.
Senator Merchant: Thank you again. With the WTO, you seem to think that has worked well. What does happen once there's a decision with WTO? Does anything change?
Mr. Bonnett: The rules are in place that, when they make the decision, there is a process that has to be followed. I read an article today that the U.S. is likely going to again appeal the decision. This is where I would make the recommendation to the Canadian government to really look at trying to push for streamlining of that whole process. The timelines are too long. Quite often too many lawyers get involved in the process. It should be refined so that at least there's a clear step-by-step process that's followed so that you don't get this endless review.
I know we had a meeting with the Canadian ambassador in Geneva earlier this year. We went over to the WTO to see what progress was being made and they recognized as well that that's one of the issues. Streamlining that process for dispute resolution would be a critical win for WTO. As I also mentioned, if the negotiations don't start soon, they really have to take a look at some of these other types of barriers that come up. It could be low-level presence of genetically modified organisms. It could be definitions on how you define certain product. It could be animal care standards that are being put in place. We need to make sure there are some international standards for that, otherwise you'll end up with producers and processors having to meet all kinds of different standards, some based on science and some not. That's where the role of the WTO and other international organizations can look at establishing some more detail on international agreements like that.
Mr. Halkai: I have another point on the WTO dispute resolutions settlement mechanism.
Members have to abide by the final decision of the WTO. If they don't, that's when Canada can retaliate in terms of imposing anti-dumping duties or countervailing duties if the U.S. doesn't comply. The strength of the WTO decision is fairly strong and that's why we are pushing that the WTO be the entity that has the dispute settlement mechanism.
Senator Merchant: With the country-of-origin label, has that hurt you? Is it just the U.S. that has that kind of a designation? Are there other countries? What do you think the solution is there?
Mr. Bonnett: The U.S. passed country-of-origin labelling a number of years ago but they didn't implement it until about four years ago. As soon as they implemented, that put in place by legislation the requirement to segregate livestock that was coming from Canada or Mexico into the U.S. for processing. That added additional cost to the processors and, frankly, the lines of trade were north and south in Canada. They weren't east and west. Immediately, particularly with pork and beef, it dropped the price that the buyers in the United States were paying for Canadian product. I know groups like Canadian cattlemen and the Canadian Pork Council have documented some of those losses.
One of the things we need to make clear is that as an organization we don't have a concern with a country wanting to promote their own product, but when they do it with a legislative tool then all of a sudden you're putting artificial barriers in place that weren't there before.
That would be the same for product in Canada. We would encourage everybody in Canada to consume Canadian product but it should be a marketing initiative and not a legislative initiative. As soon as you do it by legislation, then you put an artificial barrier in there that shouldn't exist.
Senator Merchant: Are there other countries, too, that have that that you're aware of?
Mr. Bonnett: We haven't had this problem with other countries, but then we don't have the volume of trade with other countries that we have with the United States either.
Senator Enverga: Thank you for the presentation. It was mentioned by our last witness and you, too, sir, that there's a problem with supply management. It looks like supply management might be a larger barrier than tariffs. Can you possibly expand more on this and let us know if there is a chance we can resolve this and how long will it take us to resolve this possible issue?
Mr. Bonnett: I'm not convinced that supply management itself is a critical barrier. We see other countries that have sensitive products as well, and that's why we're suggesting that you look at different tools. The trouble with only using tariffs as a tool on how to open up trade is once tariffs come down to a certain point, then all of a sudden you could end up with a huge amount of dumping into a marketplace and it could destroy the market. That why it's interesting in the European deal. They decided on some of the more sensitive products to use a tariff rate quota, which determined the volume that would get into the country and that way you open up trade for that volume and you don't completely distort the local markets.
To say supply management is a barrier I think would be in error. I would say the problem is that people aren't looking at what tools you use to facilitate trade and make it happen.
Senator Enverga: Would you recommend or suggest any way that the government can help you fix these barriers or go over these barriers? Are there any suggestions you could tell us about?
Mr. Bonnett: I said at the outset we support the balanced position that the government is taking going forward in that they want to support supply management as well as look at new market access and they've demonstrated that they've used TRQs in the past as a way to get around some of those barriers. That's the same approach that should be used in future negotiations as well.
Senator Unger: Thank you, gentlemen, for your presentations.
Mr. Bonnett, on the subject of hormones, you said, just as you were closing, hormones don't show up in the final product. Would you explain that?
Mr. Bonnett: The hormone is a little thing that goes in the ear and it's a slow-release hormone. It is a naturally occurring hormone in the animal anyway. It improves feed efficiency and improves rates of gain, but none of it remains in the meat. It's completely dispersed in the growing process. That's why I said it doesn't show up in the meat. There is no difference; you could sample product from animals that have been treated with the little buttons in the ear and ones that haven't and you wouldn't see any chemical difference in them whatsoever.
As I mentioned earlier, it's a marketing thing. Some people have chosen to market non-hormone beef and if people want to pay the premium involved in producing that product then it does create a market, but to say one is better than the other is not necessarily true. It's just a different consumer preference. We have to recognize that if consumers ask for something in the marketplace and we can give it to them at a price that they're willing to pay, then it creates that market.
Senator Unger: What do you think about the development of the Canada brand? Do you think the federal government's brand strategy is improving the image of Canadian products?
Mr. Bonnett: I think Canadian product has improved its image over the last number of years. It's been an ongoing thing. The one thing we could likely do a better job of is getting a coordinated approach to branding Canada from the producer level through to the processors, retailers and exporters so everyone is basically working on that together.
With the Conference Board of Canada we have talked about developing a national or Canadian food strategy and a strategic approach to lining everybody up and promoting a Canadian brand that would also help position Canadian product to its advantage. Another senator spoke about the competitive advantage Canada would have in building on a Canada brand. That would be one thing we could do.
Senator Unger: What is your perception right now of how effective the Canada brand is in its present form?
Mr. Bonnett: An example would be the example I gave you of Taiwan and their increases in beef imports. They're so satisfied with the type of product they're getting and the Canadian branding behind that that the sales have increased. That's sometimes what we need to do. Once we penetrate some of those markets, sometimes the brand will sell itself.
Senator Beyak: We've heard from other witnesses that one of Canada's great advantages is our traceability, that we can trace our products from farm to fork literally. Could you elaborate on that from your perspective?
Mr. Bonnett: That's something that has been taking place for a number of years. In fact, I would say that, when BSE hit Canada in 2001, if we hadn't had our traceability system in place, there would be a lot of markets we wouldn't even be in now. I think the fact that we were able to trace back is a credit to some of the foresight that took place, although I might admit that — I can remember I was a farm organization leader at the provincial level when we first came out with that — I did get a few letters from producers who were less than satisfied that we were going down this road. But I think that it did demonstrate that, if you have that traceability in place and the ability to go forward and backward, then, if a situation arises, it does treat you well. That's one of the things that we sometimes take for granted. Canada has developed this in advance of a crisis. It's not only true for the livestock sector, but it's also true for the grain sector and, I know, for the dairy industry. I was in the dairy industry for a number of years. They have been working on their traceability system for a long period of time. I think something that builds into that Canadian brand is the traceability aspect.
Senator Beyak: Thank you, I agree. May I, chair, ask another question?
The Chair: Absolutely. Please continue.
Senator Beyak: At the last committee, they told me I was talking to the wrong people, so, if you've been in the dairy industry, I wondered about putting all of our milk products into one, amazing, Canadian cheese. There is good cheese around the world, but nobody makes cheese like Canadians. If it was one Canadian brand, I just thought I would ask your opinion.
Mr. Bonnett: That's good, but I'll wait. I know the dairy guys are sitting right behind me. You can you save that question. I'm sure they'd want to answer it.
The Chair: Before we go to the second round, if senators would permit me to ask one question. You talked, Mr. Bonnett, about non-tariff barriers that could create obstacles to trade and market access. The question I want to ask is: Meeting stakeholders in international markets, they always come up with a few questions on GMOs. Would you have any comments on that and on how you could direct or move forward in that particular industry?
Mr. Bonnett: There are a number of issues that come up with genetically modified organisms. Most people recognize now that there are quite a few crops that are grown with genetically modified organisms. It actually has increased yield, reduced pesticide use and all of those advantages. We are shipping them to some world markets, but we still have some markets that want non-NGO. There is the issue of low-level presence. Sometimes, just a little bit of seed in a bin or a little bit of carry-over in a combine can be enough to contaminate a load, and that's where we need some international definition on allowable limits for that.
Another instance that came up with respect to genetically modified organisms is that one of our big export crops now is canola oil. Canola is a genetically modified plant. It has been one of the great Canadian success stories. However, right now, there's not a clear definition as to whether or not the oil is GMO. If you look at the oil, there's nothing in there demonstrating any GMO. The GMO marker stays with the meal, and our position is that the oil should not be branded GMO oil because that creates a barrier to that oil being used. There are a whole series of issues like that on defining what would be acceptable and what wouldn't be and having that done at the international level.
Mr. Halkai, did you want to comment?
Mr. Halkai: Just to add, a lot of the discussion around GMO is not based on science whatsoever. It's based on consumer attitude or perception. One of the things that we would like to see addressed is that the rules and regulations surrounding these issues be based on science.
Senator Robichaud: And to examine these definitions at the World Trade Organization?
Mr. Halkai: That would be helpful, yes.
Mr. Bonnett: One of the things, to put it in perspective, to do with using modern techniques and modern technologies, Mr. Halkai and I were invited to a meeting with the FAO, the UN agricultural organization, last week, and I went on a little bit of a rant because it almost seemed that they were thinking that we could go back and do what we were doing a hundred years ago and feed a growing world population. The reality is that we're going to have to use all kinds of new technology, new seeds, new plants, new techniques, new irrigation techniques, every type of tool that we can use to meet that growing demand. I think the innovation study you did speaks to that. GMOs are only one part of the package, but I think it's going to have to be part of the package.
Senator Oh: Thanks, gentlemen. Before 2009, we had the mad cow disease problem in Canada, so all beef exports to Asia were banned. China has now opened up and we have Canadian exports of $5.6 billion in dairy products to China. So what do you foresee with this large increase in a short time? Would it affect our local beef market?
Mr. Bonnett: I think it gives us an opportunity to grow our market. One of the things that has happened to the beef industry — it started when BSE hit in 2001 — is that a lot of people became disillusioned with the beef industry because of declining profits, and the number of people with beef cattle in Canada is down. I think getting access to some of these other markets will increase demand for beef. I mentioned earlier that beef prices have gone up, and it's throwing some optimism into the sector. You'll see young people starting to reconsider whether or not to go into beef production, and I think the key to having young people enter the sector is having good profits. Not good profits for a year or two but projected good profits going out.
We have been so dependent on the United States, but, if we can get Korea and Japan and China, it does spread some of that risk so that you're not dependent on one customer. It's interesting that, when we're in Europe, talking to some of the Europeans, the loss of the Russian market to them devastated some of their sales. That demonstrates how, if you get too dependent on one market only, it really puts some risk into your business planning because all it takes is something political or an issue with climate or something like that, and it can really distort your market. So I think that's one of the reasons we're encouraged to see some of the exports growing to some of these other countries.
Senator Oh: With the FTA coming, Korea, Japan and Taiwan are all opening up the beef market now. That is a great future?
Mr. Bonnett: I think it is a good future. In some of those markets, like Japan, my feeling is that you'll never see Japan completely eliminate tariffs because they want to protect some of their market. However, if we went in there and started talking about a TRQ and a reasonable amount of tonnage going in, I think we could get a deal because then they would be able to come up with a win-win situation that everybody could agree with.
Senator Robichaud: I have two subjects I would like you to talk a bit about. First of all is TRQs, and then: Do you see the environment coming in as a non-tariff barrier, like the carbon footprint and all of that stuff? How far away is that?
Mr. Bonnett: I don't think it's very far. It is being driven by some of the retail chains now starting to talk about sustainability indexes. Again, that's the type of thing that has to be done based on science and in consultation with the sector in order to get it right. I know that discussion is taking place not only in Canada but also at the international level.
I do wear another hat. I sit on the board of directors of the World Farmers' Organisation, and it's one of the issues that we're grappling with now. It might be animal care standards, it might be environmental standards, and even getting into water use and things like that. People are starting to ask that those types of things be addressed.
But if it's going to be done properly, it's going to have to be done so that there's consultation with the industry to get something that's workable, and then roll that into something like an international agreement that these are acceptable standards. Then you have consistency, so if you're producing for more than one market, if you're doing it right for one market, you're doing it right for the other. We're going to have to keep an eye on those sustainability indexes.
Senator Robichaud: When you say ''keep an eye,'' how far along are we in the process? We've got to be ready in a short time.
Mr. Bonnett: I guess I will rephrase. Rather than keep an eye, we have to be doing our homework right now and start defining what would be acceptable for us. Actually, we're doing development work now on some policy positions on where we should be with some of these environmental standards. Again, I mentioned earlier, meeting with the processor group, I think this is something that's going to have to be done not just strictly by the primary producers themselves but also the processors and the retailers all the way through the chain.
Senator Robichaud: You mentioned TRQs, tariff rate quotas, which are the amount of produce or products you can import into the country, without tariffs. But this means that we've got to have the proper structure to assess and really count what is coming in, because I think some sectors are having problems. For example, the chicken producers, I don't know what they call it, but there is the transformation chicken that's coming into the country from the United States. It's way over but it's not classified as such. So we need to have the structure in place.
Mr. Bonnett: Yes. You're absolutely right. Verification is critical, and having the systems in place so you can get good reporting is critical in order to make that work.
Senator Robichaud: For the milk producers, there is a form of cheese coming in for preparation of pizzas and things like that, and we're not paying sufficient attention to that. I think that could sort of skew the trade or the advantage we have in those trade deals.
Mr. Bonnett: I think that goes to the discussion. If you're using a tool such as a TRQ to manage that trade, you have to have the systems in place to monitor what is coming in and put discipline in place if people go over their allocations.
Senator Robichaud: Do we have that in place now?
Mr. Bonnett: To a limited extent.
Senator Enverga: I was in South Korea last July to work with the free trade agreement. There's always talk that nobody wants Canadian beef in South Korea. However, when we were talking to the locals there, we realized that we're not actually competing with the local beef. We're competing now with the U.S. beef that's coming there. When we realized that, we asked the question why it is the U.S. beef and not the Korean beef. We found out that their beef has a lot of marble in it; they have more fat in there, I would say.
The question is, to compete locally, are we ready to adopt their cultural differences and their taste? Now we're going to Europe. I don't know what their preference is with beef or other agricultural products. Are we ready? Are we going to be adapting to them, or are we going to be moving forward with what we have?
Mr. Bonnett: That's a pretty broad question. I'll give you an answer. I'll go back to what I said: On any product, we have to determine what the market wants and then refine our production to that market.
I know with South Korea, as an example, one of the key things was that we traded products that we didn't eat a lot of in Canada, some of the internal organs and things like that. Those were high value markets to take a product that we weren't utilizing in Canada, so sometimes it is a combination of products that we don't use in Canada, or it's taking a look at, like you said, a high marbling product and making sure there's a production system there.
It's not unlike the comments that I gave with respect to the European market. You have to identify exactly what the specific needs are in that marketplace, and then develop a chain to make that work, and it goes to the comments I made at the end of my presentation about market readiness. We have to do a lot better job making the links work between the chain.
I can use the beef industry as an example. I'm what's called a cow-calf producer. My cows raise calves; they all get sold to a background, which gets sold to a feedlot, which gets sold to a packing plant. There is not the communication back and forth between that chain that there should be, and the packer should be taking the messages from the marketplace right back to the consumers and lining up that system. With the traceability systems and the livestock identification that we have, we can make it work now and make it work fairly simply. But that goes back to the point that we have to think strategically about how we can maximize our market penetration and line up that chain to make it work.
[Translation]
Senator Dagenais: Earlier, Senator Enverga mentioned the Korean market, and I think you mentioned the Taiwanese market. Two years ago I visited Taiwan with a delegation, and Senator Mitchell has promoted Canadian beef in Taiwan. I would like to get back to the sale of beef in Europe, since the free trade agreement with Europe will obviously open up a new market for you. Perhaps you are already there. If I am not mistaken, European producers are smaller producers than Canadian ones, and they have concerns about the influx of Canadian beef in Europe.
Have you already anticipated this reluctance and are you prepared to face reluctance from some of Europe's smaller producers?
[English]
Mr. Bonnett: I can tell you that I had a beer with some Irish farmers, and they were very blunt in telling me what they thought of Canadian beef coming in. However, I think when the final trade agreement came through and they saw that they were protected by a maximum limit on the amount of beef that came in, it gave them some confidence that the penetration would be limited.
So I think there is some nervousness there, but they also know that it's likely going to take a bit of time for Canada to line up to those markets. As I say, we have to get supply chains in place, and at the end of the day, there is a cap to the amount that's coming in.
I go back to the point that I made earlier. We have to look at how we make sure that we have the right tools in these trade agreements so it's a win-win for everybody. To go into a country and create a situation where they feel that they're going to be completely run over with our product is likely not going to be acceptable to them, and we're not going to get an agreement. That's why I think when you're taking a balanced approach to it you have to look at the toolbox. Tariffs are one tool, and TRQs are another tool that can be used to try to find that common ground.
The Chair: Before we close, Mr. Bonnett, you mentioned you're a member of the World Farmers' Organisation, and that hasn't happened too often in the past. I want to congratulate you for that.
I have a question about Codex and what role they could play. I've heard that there is a possibility that we don't have enough science-oriented facts on GMOs. Could Codex, which plays an important role in world trade, especially in agriculture, not be an instrument that we could use going forward?
Mr. Bonnett: I think Codex would be one of the instruments that they use. When I mentioned about WTO, I also mentioned WTO and other international bodies. We have OIE as well for animal health issues. We have Codex for some of the issues around GMO and pesticide use. We can use those bodies, but it's also going to take a little bit of political push at the international level because sometimes the best science goes out the window when politics gets involved in some of these decisions, and we've seen examples of where that has happened in the past.
Using international bodies to use the science-based approach to dealing with some of these issues I think is critical, but the other side, it's going to be an ongoing effort at the political level to ensure that politicians in countries around the world are onside.
One of the reasons our organization actually got involved with the World Farmers' Organisation is to try to get some agreement with farm organizations around the world on some of these issues. Even on the trade issue with Japan, I've actually travelled to Japan twice now, building some contacts with farm organizations there, because obviously they have a defensive position as well and trying to find that common ground, if we can get the farm organizations onside it takes some of the pressure off the political negotiators when they are trying to negotiate agreements as well.
The Chair: Thank you very much. To Mr. Bonnett and Mr. Halkai, thank you very much for accepting our invitation to share with the Standing Senate Committee on Agriculture and Forestry your opinions and comments. Please feel free at any time to add comments. Do not hesitate to give your suggestions to the clerk. We have the same objective, to position Canada to grow more agricultural products so that we can feed and have a better market access feeding 9 billion people.
Mr. Halkai: Thank you very much.
The Chair: Thank you very much for accepting our invitation to be here. We know you are leaders in the industry. We're very fortunate to have leaders like you in the agriculture industry.
The committee is continuing its study on international market access priorities for the Canadian agriculture and agri-food sector. As you know, and we'll share this with our audience tonight, Canada's agriculture and agri-food sector is an important part of the country's economy. We know that in 2012 the sector accounted for one in eight jobs in Canada, employing over 2.1 million people and close to 6.7 per cent of Canada's gross domestic product.
Internationally, the Canadian agriculture and agri-food sector was responsible for 3.6 per cent of global exports of agri-food products in 2012.
Honourable senators, we have witnesses this evening from the Dairy Farmers of Canada.
[Translation]
We will now hear from Bruno Letendre, Vice-President, and Yves Leduc, Director of International Trade.
[English]
Also, from the Dairy Processors Association of Canada, we have Dino Dello Sbarba, Chairman of the Board, and Mr. Don Jarvis, President and CEO.
I have been informed by the clerk that we will have a joint presentation, so we will start with the Dairy Farmers of Canada, to be followed by the Dairy Processors Association of Canada.
[Translation]
Bruno Letendre, Vice-President, Dairy Farmers of Canada: Thank you, Mr. Chair. Dairy Farmers of Canada is pleased to share its thoughts with you. I will let Mr. Leduc speak, and he will present the document. I will then be available to answer questions.
Yves Leduc, Director of International Trade, Dairy Producers of Canada: Thank you Mr. Chair, senators. As Mr. Letendre just said, we are pleased to participate in your study on international market access priorities for the agriculture and agri-food sector. We have provided a copy of our comments, and you can read the document in more detail.
I would like to start by saying that DFC is the voice of the dairy farmers who operate the more than 12,000 dairy farms across Canada. Although we are involved in various areas, we work closely with other industry stakeholders, such as processors and government representatives, towards the common goal of expanding Canada's market and the dairy sector in general.
I would like to take this opportunity to reiterate that Canada's dairy sector contributes significantly to Canada's economy. Dairy Producers of Canada recently commissioned EcoRessources Consulting to undertake an updated economic impact analysis of the dairy sector in Canada. According to preliminary results, Canada's dairy sector — and I am talking about the sector as a whole, which includes both primary production and processing — contributed $19.3 billion to Canada's GDP in 2013.
The sector sustains more than 218,200 jobs in Canada and contributes more than $3.6 billion in local, provincial and federal taxes. These results show constant growth in the contribution of the Canadian dairy sector to Canada's economy. We look forward to sharing this study when it is completed.
Dairy Farmers of Canada believes that supply management has no doubt contributed to the development of a highly efficient and profitable dairy industry in Canada. Unfortunately, it is more expensive to produce milk in Canada's northern climate than it is in other parts of the world. This explains why, 40 years ago, the industry turned its attention to primarily supplying the domestic market and why export activities account for a small percentage of Canada's dairy production — between 1 per cent and 2 per cent.
[English]
A closer look at the world's market allows us to conclude that not only are world markets facing extreme fluctuations, they are essentially a dumping ground. There are some interesting numbers that have been produced by the International Farm Comparison Network. That is an initiative that was started about 15 years ago, and they collect financial data on dairy farms across the world, and they now have over 92 countries as part of their comparison.
The International Farm Comparison Network also constructs a world price for milk. If you look at the evolution of the world price for milk from 2012 to 2013, although the prices were pretty good on the world marketplace, in September of this year the price came back to the 2012 level, and in 2012, that price was covering the cost to produce milk for about 12 per cent of the total milk produced around the world.
The reality is that not only are we facing higher costs of production at the farm level, suggesting that export is limited proportionately, but this appears to also be the case along the production chain with Canadian producers' or processors' margins being almost twice what they are in other parts of the world, notably if you compare with the European Union.
Without disputing that the world markets could offer some opportunities, we must remain realistic in our approach. In addition to price in early 2000, a WTO panel ruled that any exports from Canada sold below domestic price is considered subsidized. Furthermore, exports originating from two of the largest milk producing jurisdictions, the United States and European Union, are also benefiting from a generous level of support in their respective jurisdictions. This obviously creates an uneven playing field not only on the U.S. or E.U. markets but also here at home where the Canadian dairy industry will be facing additional competition, in particular as a result of the CETA agreement.
Combined with a prohibition to use export subsidies in the E.U., the reality is that Canada is not in a position to realize huge benefits from the opening of the E.U. market. The reality is also that subsidies in the European Union can make up as much as 40 to 50 per cent of farmers' income, allowing the E.U. farmers to accept a much lower price. This puts Canadian milk and dairy products at a price disadvantage in a market such as the European Union.
More particularly, despite the outcome of CETA, which will allow dairy exports to enter the European Union market tariff free, it remains a myth, as far as we are concerned, that Canada now has unfettered access to the E.U. market. There is no doubt, however, that Canadian producers and processors, and cheese makers in particular, can compete on quality. A pilot project in select U.S. markets has demonstrated that Canadian specialty cheeses can find a niche in the U.S. market. However, the cost of marketing these products in the U.S. market tends to be fairly significant.
Despite these challenges, we are continuing to pursue a portion of these in the U.S. market.
[Translation]
Let us be clear: DFC is not opposed to pursuing export opportunities. These opportunities, however, must return adequate profits to both farmers and processors. We are more than willing to consider and promote export activities, but export strategies can only succeed if they are jointly developed through a strong producer/processor partnership, in collaboration with governments.
We feel that in order to be successful on the world markets, the dairy industry must target specific nice markets. In addition to the marketing project in the United States, DFC had a marketing representative at the 2014 Salon international de l'agroalimentaire held in Paris last October, and we have also entertained discussions with stakeholders about baby formula exports to China.
There is a real interest in exploring and developing beneficial and smart export activities. These discussions are at a preliminary stage and we cannot provide the committee with highly detailed information regarding which markets should be prioritized at this juncture, even though I made reference to the United States, European Union and the Chinese market. We wanted to appear before this committee because it is important to understand that we are seriously working on finding solutions which would allow the Canadian dairy sector, and our partners here at the table this evening, to take advantage of export opportunities, providing that these are considered within the framework of Canada's supply management system — a system which continues to be defended by Canada's government in trade negotiations.
In conclusion, for dairy farmers, the government's continued commitment to supply management has been reinforced in throne speeches in recent years, which means that the government will work with DFC on solutions that ensure that farmers will continue to derive an adequate income from the marketplace. We can assure you that we are engaged in a dialogue with processors and government stakeholders to find ways to help sustain and grow the Canadian dairy sector.
The Chair: Thank you very much, Mr. Leduc.
[English]
We will now go to the processors, Mr. Dello Sbarba and Mr. Jarvis.
[Translation]
You have the floor, Mr. Jarvis.
[English]
Don Jarvis, President and CEO, Dairy Processors Association of Canada: Honourable Senators, I and our members thank you for inviting our organization to appear here today to assist in your study on international market access priorities. The Dairy Processors Association of Canada represents the public policy and regulatory interests of the Canadian dairy processing industry at the national level. I'm pleased today to have three of our board members here with me to present to you some of our views on the serious issues we are facing as an industry as a result of not just the recently signed Canada-European trade agreement, CETA, but the increasing challenges we face as the pursuit of trade liberalization continues.
Our chair, on my left, Dino Dello Sbarba, is the president and CEO of Saputo, and he'll follow me with some detailed commentary. As well, Robert Coallier, president and CEO of Agropur; and Louis Frenette, president and CEO of Parmalat, are here to assist us in responding to the committee's questions after our introductory presentation.
These three companies all produce and distribute a wide variety of dairy products and ingredients nationally, including fluid milk, cream, butter, cheeses and yogurt. Last year, the dairy processing industry generated more than $15 billion worth of products shipped from approximately 480 plants, 200 of which are federally registered. That accounts for more than 15 per cent of all processing sales in the country's food and beverage industry.
Dairy processing employs about 25,000 workers and is the second largest sector in the food and beverage industry. Processors support the objectives of the supply management system as it's described in the Canadian Dairy Commission Act. At the same time, our members are committed to a modernization of the system in order to better meet the needs of Canadian consumers and to meet the goals, financial and otherwise, of both dairy producers and processors.
We've provided the committee a letter to the Ministers of International Trade, Industry, and Agriculture and Agri- food, and a summary of a submissions prepared earlier this year and that Mr. Dello Sbarba will refer to in his remarks. It's an impact analysis that we did in light of the CETA and the doubling of cheese imports that will result. That detailed impact analysis is available at our website at www.dpac-atlc.ca, along with other submissions to government over the past several years.
The new cheese imports, unless managed properly, will disrupt a tightly managed system that these businesses must operate in, and where processors are allotted specific amounts of milk, where the use of milk ingredients is limited in some products and where interprovincial trade barriers inhibit dairy processing productivity, all preventing our industry's ability to transition and compete with these new imports.
I will turn now to our chair to provide more specific details on those issues.
Dino Dello Sbarba, Chairman of the Board, Dairy Processors Association of Canada: Thank you, Don.
Mr. Chair, senators, thank you also for the opportunity for the dairy processing industry to expand on the submission made to this committee outlining current challenges with CETA and concerns with the competitiveness of our industry.
As stated, CETA will bring a surge of new cheese imports into Canada from the EU, beginning in the near short term. These imports will raise our total imports to almost 10 per cent of our natural cheese consumption in Canada, more than double what it is in other markets, such as the U.S.A. Canada is also in negotiation for a TPP free trade agreement, and early indications have dairy as part of the negotiations.
There is very little growth, if any, in the overall consumption of dairy products in Canada. The milk equivalent per capita consumption is flat. Dairy imports, cheese included, have a significant production cost advantage over Canadian-made products. The cost of milk accounts for approximately 80 per cent of the cost of a dairy product, whether being drinking milk, cheese, butter or other products. Other costs, such as energy, labour, packaging, administration and profit will amount to between 15 to 20 per cent of the cost of a dairy product.
Raw milk prices paid by processors for cheese in Canada is on average double that of world price, 70 to 80 per cent higher than the U.S. price and approximately 40 to 60 per cent higher than the EU price. Even if our processing industry could slash its operating cost, profit and overhead in half, it would still be uncompetitive by a minimum of 30 per cent, due to the cost of milk.
Therefore, in the case of new cheese imports from the EU, all of our Canadian cheese will be vulnerable to substitution, as we are not competitively positioned to face this influx of cheese.
Exports of Canadian dairy products continue to decline. Over the past 15 years, exports have declined from 7 per cent of production to less than 2 per cent today. This decline started when Canada lost a WTO challenge concerning the subsidization of product through the maintenance of the supply managed system. Today most if not all of these remaining exports are achieved with subsidized milk cost.
In addition, there is a likelihood of an imminent elimination of Canadian export subsidies. Therefore, expanding the export of Canadian dairy products is unrealistic at this time under current regulations and the current system. Having said this, the Canadian government has stated that under CETA Canada will be and is granted unlimited access to the EU market and it is argued that Canadian processors should be able to enter this market in the near future.
Again, let me state that under the current regulation and system, increasing of export of dairy products to any country, including the EU, from Canada is unrealistic.
Let me conclude by stating that the current regulatory structure functioning of dairy production in Canada seriously inhibits investment growth, competitiveness and export readiness for processors. Should we want or should we continue to grant access to our market for dairy products without changes to our system, we will seriously cripple the whole industry, the dairy processing industry also. The dairy processing industry believes it can compete, but it needs the support of the producing sector to be able to replace the imported products with exports at a competitive price.
Let us mention that Canada also has to make a clear statement in terms of whether it does or does not support supply management. Our industry, the processing industry, is prepared and willing to work with all constituents to find a solution to this problem.
The Chair: Before we move to a question, Mr. Dello Sbarba, the chair would like to recognize for the record Mr. Robert Coallier and Mr. Louis Frenette.
[Translation]
Senator Robichaud: Thank you to our presenters for the information they shared. My first question is for Mr. Leduc.
When you talk about the world market and you compare the prices on the document you gave us, you say that at US$35.90 per 100 kilograms, only a small portion of total world milk production can cover its cost of production. The percentage given is 10 per cent. Can you tell us more about this? You then went on to talk about dumping, which is the case.
Mr. Leduc: Indeed. I do not think there are any doubts that when a very low percentage of world milk production can be sold at a price that enables producers to recover their cost of production, it essentially qualifies as dumping. If you take the situation in 2012-13, when the world price constructed by the International Farm Comparison Network went from approximately US$35 per 100 kilograms of milk to just above US$50 per 100 kilograms of milk, the same study showed that at US$50, 75 per cent of all milk production in the world was covering the cost of production.
Such a significant increase is not needed to ensure that all world milk production can recover its cost of production. At US $35 per 100 kilograms of milk, the study showed that just a small portion of total world milk production can cover its cost of production.
Senator Robichaud: Many Canadians have told us that they are paying far too much for our milk — not to mention the quality of the milk. We are not sure that milk that comes from elsewhere has the same quality as Canadian milk, is that right?
Mr. Leduc: I think that Canada produces very high-quality milk. We cannot denigrate some other milk-producing countries that likely also produce high-quality milk. It is not just a question of quality, but a question of price and costs. It is clear that governments are intervening quite a bit in Europe and the United States.
Senator Robichaud: In what way?
Mr. Leduc: They support producers, whether we are talking about milk production or other agricultural production in these sectors. Past studies by Peter Clark, an international trade consultant, have shown that if we look at all agriculture-related spending and we look at whether, directly or indirectly, the spending gives the American dairy sector an advantage, the spending contributed up to 31 cents per litre of milk in the American market. This was not a recent study, but the results were nevertheless staggering.
Senator Robichaud: Could you compare that to Canada, please?
Mr. Leduc: In Canada, we do not receive any direct payments to support milk production. We have a legislative framework that enables the industry to manage itself within the supply management system. One of the objectives of supply management was to ensure that milk producers would receive a price that essentially reflects the cost of producing milk in the Canadian market.
Senator Robichaud: Without it costing the government anything?
Mr. Leduc: Exactly. There is certainly an impact on the price, which is higher. I like to believe that the price reflects what it costs to produce milk. It is closer to the real price that is charged when consumers by their milk.
[English]
The Chair: Would there be any other comments from the processors, Mr. Dello Sbarba?
Mr. Dello Sbarba: I will just mention that I agree that some producers are subsidizing their milk. In the same analysis on the page where they outline the subsidies for every producing country, you will find in certain inefficient countries subsidies moving up to 30 cents a litre. By and large, the countries that are efficient in producing on the world market, subsidies would vary in the United States to around 5 cents a litre and in certain European countries will go up to 10 cents a litre.
As far as quality, I would say Canadian milk is of the highest quality, as is the milk in many other countries in the world.
Senator Robichaud: Mr. Dello Sbarba, you have said in your presentation that there is no way you can compete with the influx of cheese from the EU. I was under the impression when we talk about this agreement that it's not that much.
[Translation]
Mr. Dello Sbarba: The cheese coming into Canada would total around 17,000 tonnes. It does not take a lot of cheese to destabilize a market that is not growing and has reached its limit in terms of overall consumption. As Mr. Jarvis said, a large influx of cheese into a market, depending on the market in question and how the product will be allotted and controlled in terms of merchandising, may have a knock-on effect on the system with a cost advantage of 30 per cent to 40 per cent on the price of the product.
Senator Robichaud: Is there no way then to compete with these cheese imports?
Mr. Dello Sbarba: Not at this time, given our system and Canadian regulations.
Senator Dagenais: I thank our witnesses. This topic is very interesting. I have to tell you that I stood up for supply management when campaigning in Saint-Hyacinthe, in 2011, with the Conservative Party. The one thing that the people of Saint-Hyacinthe asked me was whether we were going to keep the supply management system. So I did my homework and I learned about supply management. In fact, in the summer, I was asked to visit two dairy cattle farms, including the Aston farm, which is a major farm in the Saint-Hyacinthe region — at the time I was dealing with another issue, specifically foreign workers and the Guatemalan labourers.
I would like to come back to milk production. You may have listened to the Radio-Canada program "La semaine verte," which aired last Sunday. It was about the massive influx of cheese. Europeans, in turn, complain about the massive influx of beef in Europe. I would like you to tell me more about the economic impact of the Canada-Europe free trade agreement on the dairy industry.
I will follow up right now with two other comments. What kind of access to the European market would you like to have that could help you sell your products? I think you heard about compensation. We cannot establish compensation when we don't know what the future will bring. What would you suggest as compensation? The 17,000 tonnes of fine cheese that are coming in are part of the agreement. We will then need compensation measures, of course. I would like to hear your comments on this.
The Chair: We could start with the producers.
Mr. Letendre: What was your first question?
Senator Dagenais: The free trade agreements will have an economic impact on the dairy industry. There are different ways of looking at this. I imagine that you have already looked into the economic impact of these new agreements, is that right? That was my first question.
Mr. Letendre: The processors' representative spoke to that impact. There will be negative consequences. With regard to those 17,000 tonnes, we could expand our market and try to make it grow by investing $80 million in generic advertising, and at the end of the day our processors would manage to handle those 17,000 tonnes. However, there will always be a loss. When the government tells us that they will see later on, I understand that they do not immediately have to come up with the compensation. When they start talking hypothetically, I get annoyed, because there will always be a loss.
Dairy farmers and processors do a great job, and we have excellent cheeses. They can make them. However, we will have 17,000 tonnes of cheese coming in and we do not know what this will hit. Will it be the fine cheese from Quebec? Those 17,000 tonnes represent 30 per cent of all fine cheese produced in Quebec. Growth is limited. This is also the case in Europe. Between 2005 and 2011, cheese consumption has grown by 0.6 per cent, on average. Our growth rate is similar, at a little less than 1 per cent. These cheeses, which account for only one quarter of 1 per cent of the European production, will have an impact on fine cheeses everywhere to the tune of 30 per cent. I cannot tell you what the consequences will be. This represents about 4 per cent of our global market. We are trying to claim that we had a good year, which is true for dairy farmers. Us, we produce milk to be sold to processors. These 17,000 tonnes will therefore double the amount produced that will be on offer. Unlike beef and pork, the 17,000 tonnes of cheese will be coming into Canada.
Senator Dagenais: Is it less certain that pork and beef will enter the European markets?
Mr. Letendre: Yes, there will be losses that can be evaluated. We are prepared to work with processors. We know that there is less consumption of fine cheese in the rest of Canada, especially outside Toronto. Will we be able to increase the consumption of fine cheese? It can be eaten in those areas too. Will we be able to work together? I think so. If we developed this market in Quebec, we can do it in the rest of Canada.
I will repeat that even if we manage to increase the consumption of fine cheese in the rest of Canada, the 17,000 tonnes will still represent a loss for processors.
Mr. Dello Sbarba: There will be an impact not only on fine cheese, but also on convenience products, such as cheddar and mozzarella. In my opinion, this will affect the entire industry. You mentioned access to the European market and you asked how you can help us enter that market. You cannot do anything at all. We cannot compete with them, because the price of our cheese is 30 per cent to 40 per cent less competitive.
We should keep in mind that it was the Europeans who brought the cheese here. Therefore we are hardly in a position to give them lessons on how to consume their Swiss cheese, or their Camembert, Brie, and so on.
In terms of countervailing measures, dairy processors are asking us to ensure that quotas and TRQs are managed, and urging us not to open our market to any new input that would only afford us a short-term gain. This could do a lot of harm to the processing industry.
In terms of the impact on the market, the general rule is that 17,000 tonnes represent 170 million litres less milk and 170 million litres less milk that will go into dairy processing plants. This therefore affects our efficiency.
Senator Dagenais: I'll go back to my last question. You are quantifying the number of liters of milk. Have you considered a compensation amount? Have you considered putting a number to that amount?
Mr. Dello Sbarba: Milk sells for about 80 cents a litre. So, you have to multiply 170 million by 80 cents to get a dollar figure. Is compensation a long-term solution? It is a band-aid that works in the short term, but it is not a long- term solution.
[English]
Senator Merchant: I appreciate very much your position and your presentation, but can you tell me why we find ourselves in this situation? Why has supply management been the way that we have operated in Canada? Is it because of the size of our population? How do we compare? What are they doing in the U.S.? How do they manage with their dairy industry, with their cheeses? Can you explain to me why we are in this position?
The Chair: Who wants to start first, the producers?
[Translation]
Mr. Letendre: Going back to the negotiations with Europe, the supply management system was not excluded. However, the Europeans said that European Union subsidies were not on the table. Accordingly, all the cheeses that will come in will be ''contaminated'' by the subsidies. As far as we are concerned, we have no subsidies. We have a regulatory system. Then again, it comes to the same thing. In the absence of subsidies, you need a regulatory system. However, we are facing two major markets, namely Europe and the U.S., which give huge subsidies to their industries. Our producers are efficient, as are our processors, but we are not competitive compared to the U.S. or European treasuries. We are aware that the government has maintained the principles of supply management. Nevertheless, the impact of 170 million litres, to help you visualize it, is equivalent to the entire production of the Lac Saint-Jean region disappearing, that is, about 170 million litres per year. It is as if an entire region has disappeared. We cannot handle this competition. According to the document, we are talking about 30 per cent to 50 per cent of the price paid, depending on the cost of farmers' incomes.
I'll make a comparison with what happens at home. If you give me $100,000 per year — which is what Europeans would use just to sod their lawn, with one or two trees by the roadside — I will be more competitive. I will be able to sell my milk and the processor can be competitive. However, that doesn't happen. We live in a northern country. This must be taken into account. Given that there are only 37 million people in Canada, supply management is not the relevant factor here. Certainly, if there were 75 million people in Canada, our agricultural and dairy industries would be more significant. But there are only 37 million of us.
As producers, we know the challenges of European and U.S. producers. We maintain supply management to ensure that we get a fair income. This is about the only place in the world where consumers pay the actual price for the product. Fair trade products are the trend these days, and milk is a perfectly fair trade product. The producer receives an adequate income for his work.
Mr. Leduc: Despite the elaborate structure surrounding dairy farming in other countries such as Europe or the United States, the fact remains that these markets remain highly protected. We are addressing here supply management and tariff rate quotas — Europe and the U.S. have TRQs. The level of imports measured as a percentage of dairy product consumption in these markets hovers around 1 per cent, 2 per cent or 3 per cent, at a maximum, in the U.S. and Europe, compared to levels that can go over 10 per cent in Canada. When it comes to cheese, the level of imports will increase as a result of the agreements with the European Union, reaching about 9 per cent to 10 per cent of our cheese consumption in Canada. Therefore, 17,000 tonnes in additional access will have a huge impact. This will affect not only the processors of fine and industrial cheeses, but also production levels — and the producers that provide the milk for cheese processing in Canada.
[English]
Mr. Jarvis: I think it's a very interesting way that Senator Merchant posed the question. The system has been in place for 40 years and when it was put in place 40 years ago, it suited very well and addressed the issues of the day 40 years ago. It has continued. The system has evolved somewhat. Processors have adjusted to that evolution, but, in the last 15 or 20 years, I think events around the world toward trade liberalization, which I referenced in my introductory comments, have increased.
Other countries have reduced subsidies. The European Union is reducing its subsidies. Other markets are as well. Where we're at now is that the system in Canada, which still produces some security, some certainty to both producers and processors, hasn't evolved as quickly to those other global adjustments. So the system now is probably unique in the world. We're very concerned with the fact that it is very unique and unique to any marketplace.
Senator Merchant: From the point of view of the consumer, I gather that we are paying a very high price for milk and cheese in Canada. Can you tell me how much that might cost a Canadian family a year, over and above what it might cost if we didn't have the supply management?
Mr. Jarvis: I don't have an exact number, but it is significant. I think there are studies being done on the fact that Canadian consumers do pay higher prices than many other markets for their dairy products. There are recent studies that point that out, that identify the cost per family.
What is unique about the system in Canada is that the government doesn't subsidize the system. However, the consumer does directly.
Mr. Dello Sbarba: I think one of your prior witnesses from the Conference Board of Canada stated that supply management costs Canadian families an average of $276 per year.
Senator Merchant: Was that a family or a person?
Mr. Dello Sbarba: I would have to refer to the text, but that is the amount that was stated.
Senator Merchant: I know there was a number, but I couldn't remember today if that was per family or per person.
Mr. Leduc: I would like to briefly intervene on this question. We're not disputing the fact that the price of milk is higher in Canada compared to, for example, the United States. However, this is not the case across the world. I just came back from Australia; I was there for the TPP ministerial meeting last week. I was in Canberra, and there happen to be two Costcos in Australia, one in Canberra, and the other I don't remember where. At the Costco in Canberra they had two types of milk, a generic brand and a private brand. The generic brand was a three litre container. On a per litre basis it was about 95, 96 cents. That compares very well with the 97 cents that you can buy milk for per litre at Costco in Ottawa. The private brand was $1.70 to $1.80 per litre.
The price of milk at the farm gate is only one element that might explain the cost at the consumer level.
With respect to the difference between Canada and the United States, let me go back to what I've mentioned earlier. I think the U.S. supports heavily its agricultural sector. Previous studies, as I mentioned, were showing that that cost was about 31 cents per litre. That's paid by the taxpayer, by families, at the end of the day. We don't have a proper comparison but, at the end of the day, when you had that 31 cents that is spent by consumers, although it may not be all consumers who are contributing to the tax burden, it provides the industry with a comparative advantage, no doubt.
Mr. Dello Sbarba: I'm sorry, I just need to comment because in my part-time job I also take care of our Australian division.
You're right that the cost of milk is a dollar a litre, and that's a marketing policy, stated by the retailers out there, whether it be Costco, Coles or Woolworths, but to compare it to Costco in Canada is unfair because Costco is using milk as a loss leader and it does not reflect the price of milk paid by the Canadian consumer in general across Canada.
Mr. Leduc: Loss leaders are also being used as strategies across the United States as well.
[Translation]
Mr. Letendre: I would like to follow up on Senator Merchant's comments. Dairy Farmers of Canada purchased the AC Nielsen data for Canada and the United States. We could provide you with these data. The average prices provided by AC Nielsen for Canada and the United States show a 3 per cent difference. The difference is 3 per cent. Along the border, the best loss leaders are dairy products. Discounted bottles of ketchup will not attract Canadians on the other side of the border, but dairy products discounted as a loss leader will, so that's exactly what they do — but when you look at the two countries overall, the difference amounts to 3 per cent.
Many Canadian products are more expensive in Canada than in the U.S. and they are not subject to supply management — car tires and so on.
When the Conference Board of Canada publishes its studies, it compares the price the consumer pays in relation to world prices. No consumer in the world can buy at the world price; that is not a retail price. If we could compare oranges with oranges, you would see that there is a difference of 3 per cent, which is within the range — and even below — of all products compared between the United States and Canada.
[English]
The Chair: In order to follow up on your question, Senator Merchant, Mr. Dello Sbarba was correct. It's $276 per family higher, from the Conference Board of Canada.
Senator Enverga: Thank you for the presentations, gentlemen. I'm looking at the prices. You've been telling us the price of producing cheese or processing milk in Canada is more expensive than in Europe. Have you included the cost of transportation? I am thinking that they have to have transportation costs, going from Europe to Canada, and Canada will have less transportation costs. Has that cost been factored in?
Mr. Dello Sbarba: Just to use numbers, the cost of bringing a container across, with all of the documents, would probably be in the 25, 30 cents a kilo. We're talking about $4 a kilo difference for the cost of milk.
Senator Enverga: What interprovincial challenges do you have? Do they really affect the costing of your production?
Mr. Jarvis: I think there are several levels you have to consider when you talk about issues of interprovincial trade that I referenced in my introductory comments. The system is a provincial system. Milk is produced at a provincial level, so there are a lot of barriers with respect still with the movement of milk between the provinces, which inhibits the ability, at the processing level, of finding efficiencies through consolidation and through maximizing your efficiencies. That's one consideration with respect to interprovincial trade barriers.
The simple fact is that the country still has significant regulatory barriers with respect to finished products. I can use two examples. The first example is the little creamers that you see in the restaurants. The various provinces still maintain individual creamer sizes so that if a plant of one of these companies produces a creamer in one province, the size might not be allowed to be marketed in another jurisdiction, in another province. That's a blatant example of how over-regulated the Canadian dairy system still is.
We have had an example recently in Ontario where there has been an issue around the attempt to put in place a new sized container for fluid milk. I don't think those type of regulations are required any more. In fact, we have been involved with a large business coalition in trying to remove those interprovincial barriers to lower our costs and find efficiencies.
A simple policy that we could adopt, which the Europeans already has, is that if you make and market a product in one province, there shouldn't be any reason why you can't make and market and sell that product in another province. If a product is good enough for a Canadian consumer in New Brunswick, for example, I don't know why it's not good enough for a Canadian consumer in British Columbia.
Senator Enverga: If we eliminate these interprovincial trade barriers, do you think it will be more competitive with CETA?
Mr. Dello Sbarba: I don't think it will change anything for the CETA, but it will certainly make our industry more efficient.
[Translation]
Mr. Letendre: In answer to Mr. Jarvis, in the five Eastern provinces, Ontario, Quebec and the Maritimes, which produce about 85 per cent of the milk in Canada, the market is fully integrated. Milk is transported daily from Quebec to Ontario for Ontario processors.
Yes, there are some differences in the milk allocation. However, in Quebec, fine cheeses are being produced thanks to the talented processors, and also because milk has been made available to these companies. Yes, there are rules; however, when we want to make changes to these rules, our processors resist. They say that the milk is theirs. We must not forget that we buy back the surplus. Therefore, we have a responsibility. When a processor makes product and the market does not need it, the producer takes the surplus.
Thus, in Quebec — I cannot take any credit for this because it happened before my time — that was encouraged. This has greatly benefited some Quebec companies, which have become world leaders because we fostered the allocation of these products. These innovators were encouraged. Our system is not perfect, but there is no perfect system in the world. We can see the down side, but we can also see the up side. I think that for us and for the processors, given the soundness of our processing sector, the situation is nevertheless very positive.
[English]
Senator Enverga: When we are talking about EU products, milk and the products, there will be a challenge. How about our trade with Korea or the coming TPP? Will there be any changes to this? Will we have an advantage or disadvantage?
Mr. Dello Sbarba: I assume that in the near future our price of production in Canada will not change. Therefore, the price we will pay for milk will not change. If you look at Korea and Japan, I think it would be interesting to note that, in every bilateral agreement that Canada has done in the past, it has never negotiated anything for access for milk or for dairy products. If Canada changes its approach and starts negotiating individual bilateral agreements that deal with dairy, then yes, it could provide access to the Canadian dairy market, but only in countries where the price of milk is equivalent to the Canadian price of milk.
Senator Enverga: Have you made a study on the cost there? How competitive are we with, say, South Korea or Japan, maybe China in the future?
The Chair: Senator Enverga, I will have to move on. I will add you for a second round.
Senator Beyak: Thank you, gentlemen, for your very impressive knowledge on these issues. Like Senator Dagenais, I have researched and examined supply management very carefully. I don't pretend to have your expertise or anything close to it, but I do know that Canadians are famous for taking lemons and making lemonade, whether it's manufacturing, dairy farmers or fishermen, and doing something innovative. I am also confident that our chairman and the members of this committee will take every concern that you've raised and examine them carefully and make confident recommendations that will be helpful.
On that serious note, my question seems simplistic, but I've researched it carefully, too. I've been to Europe. They have great cheese, but you can't beat Canadian cheese. I am wondering about a premium signature Canadian cheese and the power of supply and demand, the efficiency of putting much of our milk products into one specific Canadian premium signature cheese. The efficiency of the production would make it more profitable in the long run. I would like you to consider the merits of that and any comments that you might have.
Mr. Dello Sbarba: I would tell you that, in the world, the Canadian brand in general is very well respected and very well received. Unfortunately, only in very small instances have they had the ability to test the Canadian brand for dairy. We had exports before 2000 where some of our cheese products, and of course our skim milk powder, which is dried milk, were marketed throughout the world, and it certainly had a very good following. When you talk about a Canadian cheese brand, the logo of Canadian cheese, if we start to be competitive in export, it will certainly be an attribute to the product in Canada.
As far as saying we're going to have one single production of cheese, any of our plants or any of my colleagues' facilities — again, we were competitors — I can certainly respond that we all can make a very high quality product to sell in the market. We are not scared of this challenge.
In terms of bringing every export under one brand, you're talking about more of a marketing board to sell our product. I would say that my colleague here, Mr. Frenette, is part of an international company with a very capable sales force across the world. My colleague here, Mr. Coallier, has also internationalized its business with very capable possibilities of selling its product around the world, and so have we. From that point, I like the idea, but I think we can do our own marketing ourselves. We can be very good and very efficient at providing choice to the consumer in terms of what we're marketing.
Senator Unger: Thank you, gentlemen. It has been interesting to hear what each of you has to say. Again, you're all in the business, and you're extremely knowledgeable.
My question has to do with the year 2000 world trade panel that ruled that Canada's milk producers were being subsidized. You've all referred to the U.S. and the EU as subsidizing their product, so why hasn't the WTO made a ruling? I'm wondering about this particular issue. From a Canadian point of view, it doesn't seem fair. I'd like to hear your comments.
Mr. Leduc: The WTO has different rules governing either export subsidies or subsidization in general. The panel was about export subsidies in the dairy sector precisely. The panel concluded that the export activities that were taking place within the Canadian dairy industry at the time, in the latter part of the 1990s, were de facto subsidized at export, for a number of reasons. Let's go back to the latter part of the 1990s. The export strategies that had been put in place resulted in about, if I'm not mistaken, 8 to 10 per cent of Canada's total milk production that was exported at that time. Because of the result of the panel, the industry had to reregulate its export activities, and now they account for about 1 per cent or slightly above 1 per cent of total milk production in Canada.
Senator Unger: I refer now to the Conference Board of Canada saying that dairy supply management is preventing producers from tapping into global demand. What would be the economic impact if such modernization, if you will, was made in your industry? What do you see, gloom and doom or some possible benefits, light at the end of the tunnel? What are your comments?
[Translation]
Mr. Letendre: We cannot have half a supply management system. The Canadian government is saying that it will keep supply management. That system was in place before 2000 and then, for the reason mentioned earlier, we lost and we complied with the ruling. Producers are prepared to produce according to the margin, and they know that 5 per cent or 10 per cent more product does not have to be sold at $70 a hectolitre. They know that. Milk producers are entrepreneurs. Like any entrepreneur, they want to produce and be paid for their work.
However, saying that we can maintain supply management and that we are going to export is smoke and mirrors. If people have ideas and if the processors can help us, that is fine. However, the first attempt ended in failure. We have to remember that, in the case of the WTO agreement — known as the Blair House Agreement — which took several years to finalize, the European Union and the United States decided that it would benefit both of them. Why is there an impasse at the WTO today? Because according to some people, other countries such as South America, China — BRIC as it is called — will never again see those kinds of agreements. They told themselves that subsidies would not be detrimental. The WTO and OECD decided that the supply managed price, compared to the world price, would represent a subsidy. Momagri, a very well-known organization, also says that its value is inflated by more than a billion dollars. That is why we are being squeezed. We are saying that we want our production to generate revenue, but the global market is telling us that we do not have the right to sell at a second price. What are we to do? I cannot answer your question about exporting because, in light of the cost in Canada, and without subsidies, we are not competitive.
[English]
Mr. Dello Sbarba: I appreciate the Conference Board study when they say there are solutions to that. All of the studies done in Canada concerning supply management say there are great benefits in eliminating it for the consumer. The only thing they fail to address is what do you replace it with? What type of system will we have tomorrow morning? Until we have that answer, processors support supply management because that is the system that we have, that we know, and that works today.
I said in the beginning the issue now is as you're starting to poke holes into it by introducing cheese and new product into Canada, then we are all suffering with the non-respect of the initial supply management.
Having said this, we know that we're also at a crossroad, because price is quite high, and Canadians' capacity to pay is tested. Our plants are also aging, and we need efficiency to be able to reinvest in our plants.
If we were to go to a U.S. system tomorrow, it would be a catastrophe. A lot of producers would not be adapted, and it would be very difficult for them to compete.
We like to think that over time there could be solutions found to that problem, but it's an evolving solution. It has to happen through progressive talks and progressive and constructive trials with the producer and processor. But let's make no mistake, if we're talking of either a capping on the price or a reduction of the price, some players are going to get hurt on both sides, and that's going to happen. I would tell you that if it was easy, we would have found it by now, but it's not.
Senator Unger: Mr. Letendre, you made the comment earlier that fine cheese is not being consumed beyond Toronto. I'm from Alberta. I just wonder if you have any comments. We do enjoy fine cheese.
[Translation]
Mr. Letendre: I am sorry if I offended you, senator. What I meant to say was that fine cheeses are not consumed to the same extent as they are in Quebec, or to the extent that we would like them to be consumed.
[English]
The Chair: For the second round, we'll start with Senator Robichaud, to be followed by Senator Dagenais, and to be completed by Senator Enverga.
[Translation]
Senator Robichaud: How can we control the entry of the 17,500 tonnes of cheese into Canada? Is there a risk that it could be treated like cheese imported as pizza preparations, which is not considered an import subject to quotas?
Mr. Dello Sbarba: I don't think we are talking about the same thing at all. Cheese will cross the border as cheese. A cheese used as a preparation of ingredients which has a low dairy product content in relation to the total finished product, already enters Canada, whether it is coming from Europe or the United States. That will not change. As for cheeses imported, there is a definition and the Codex gives a definition of cheese. Canadian regulations may be slightly different, but, in general, a cheese is well defined. As was mentioned earlier, dairy processors would like to be compensated by having a certain amount of control over how the tariffs will be allocated in Canada in order to impose discipline and to ensure that damage to the market is mitigated.
Mr. Leduc: We are talking about two entirely different matters. In addition to the 20,000 tonnes of cheese presently allocated according to the quotas negotiated at the WTO, the 17,000 tonnes will enter as cheese. You referred to another problem, that of food preparations, which are often put together specifically to get around existing tariffs, which protect the dairy market and the Canadian market for dairy products. These are concerns that we constantly face. New products are always being created and developed, often for the sole purpose of getting around the measures currently in place at the border.
However, as Mr. Dello Sbarba said, it is important to find a way to ensure that the new quota for European cheeses is managed in such a way that their entry onto the Canadian market does not affect the stability of the Canadian market, which is a relatively stable market — in fact it is a very stable market — and perhaps also to ensure that part of the economic rent associated with importing these cheeses can be reinvested in order to ensure greater growth in cheese consumption. The different companies or entities that receive part of this quota must be able to intervene in the market to ensure continued growth of cheese consumption.
[English]
Mr. Jarvis: I'll just add to Mr. Leduc's comments. You'll find in our material that we provided to the committee the recommendation that the greatest proportion of the TRQ quotas be assigned to processors to actually do that, because historically, in fact, all these three companies are significant quota holders now, and they have the experience and the success story in terms of mitigating any damage that could occur by administrating those imports.
[Translation]
Senator Robichaud: I would like you to clarify one thing. You are asking that you be in charge of managing these quotas for new cheeses that will enter Canada. Therefore, that eliminates one importer who participates in this international trade so that, as Mr. Leduc said, you and the industry can benefit.
Mr. Dello Sbarba: What we are saying is that the people affected by the new quotas will be cheese producers, those who receive the milk. We are saying that the majority of these quotas must go to people who, at this time, process the milk and who will be deprived of the milk tomorrow morning because their production will be replaced by an imported cheese.
Senator Robichaud: That impacts producers as well?
Mr. Dello Sbarba: Yes, but there are already formulas in place that provide compensation. If the cost of production increases, there are formulas to compensate for the cost of production.
Senator Robichaud: Mr. Frenette, you wanted to add something?
Louis Frenette, Board Member, Dairy Processors Association of Canada: We must also not forget that it is our job to do the marketing, take the milk, process it, adapt it, package it, whether there or here, and to encourage consumers to buy cheese at the store. Even if it is more expensive than elsewhere, we find the means to do the marketing. Everyone has a role. Today, it is Agropur, Saputo, and so forth, and there are many small cheese makers that do local marketing. Quebec is an extraordinary example of great marketing, but that is our job. We have to keep the responsibility for marketing those imports. We are talking about 17,000 tonnes. If you give that to tourists, they will not know what to do.
Senator Robichaud: Who is going to manage that, who will decide where that quota will be allocated and if it will be given to you or to someone else?
Mr. Dello Sbarba: I believe that we made a recommendation. Take the people who make cheese today and allocate the quota according to the cheese production of each processor across Canada.
The Chair: Thank you, Senator Robichaud. That is a very good question.
Mr. Leduc: The decision regarding who will receive part of the tariff rate quota is in the hands of the Minister of International Trade, Minister Fast. He has to make that decision. We expect that there will be a consultation process which, according to the representatives of the Department of International Trade, should start either at the end of this year, or in early 2015. It is clear that, in addition to the processors, there are a certain number of stakeholders who have already positioned themselves to obtain or avoid part of this quota.
The Chair: Thank you, Mr. Leduc.
Senator Dagenais: Just to comment on what Senator Robichaud was saying, we had some discussions a few weeks ago about the famous pizza mozzarella. We joked that the cheese ball was much bigger than the pizza. I do not know if you understand what I am saying, but it was a caricature.
In fact, Mr. Chair, I want to come back to supply management. Correct if I am wrong, but supply management was set up in 1970. Is it not time to modernize it? Perhaps it should be modernized. Do you think that would have a positive or a negative impact? I believe that we should keep supply management, but could we modernize it?
Mr. Dello Sbarba: I believe that we have clearly indicated that, in fact, we are listening and that is exactly what we are asking for: adapt the supply management system to today's market realities. To answer your question concerning the advantages and disadvantages, staying with the same level of production will obviously have a negative impact because there will be a decrease in the efficiency and the volume produced at our plants. At the same time, if the milk volume remains the same and we have to fight imported cheeses, then with the supply management system, the price of milk will also decrease in Canada. In the long term, are there ways to increase our milk production and cover the costs of milk producers who are efficient and capable of being competitive? I imagine that is what we are trying to determine with today's discussions.
Mr. Letendre: Since 1970, supply management has always evolved. We do not have the same supply management system that we did in 1970. In the case of what we call the P5 — Ontario and the four other eastern provinces — costs and marketing are shared. We promote new products, we have an innovation policy, and we have created many new products and policies to foster growth. Our objective — we just completed a strategic plan — is growth of at least 2 per cent per year, thus 10 per cent in five years. We are always questioning. Our processors tell us that they have problems with this or that. They have a product that they want to bring to market. They do a lot of research. We are always negotiating and on the lookout for new items. Although people say that supply management is the same as what it was in the 1970s, I do not agree.
[English]
Senator Enverga: I know we are looking for ways to make an even competition here. We talked about provincial barriers and local production in Europe. What is the impact of the low cost of our dollar? Does it help you when we have a lower dollar value in international trade?
Mr. Dello Sbarba: If our dollar goes to 30 cents U.S., yes; if the regulation allows us to export, yes; if it stays around 90 cents, nothing.
Senator Enverga: That is my question. Thank you.
The Chair: To the witnesses, we want to share with you that we have a lot of people tuned into the Internet. Also, it's on CPAC, but as chair, I want to say that when we were given the mandate from the Senate of Canada to look into international markets, there was a component, and I want to share this because you are the real reason that we brought you two together, so that the competitiveness and profitability of Canada's agriculture and agri-food sector is viewed from the producer and the processor. Tonight was the example.
Did we appreciate the effort? Yes. Was it informative? Yes. Was it an enlightening presentation by both? Yes. Was it knowledgeable? I will take Mr. Dello Sbarba's quote: Progressive talk, I believe, must continue.
We have seen leadership from both of you tonight, and you are setting the tone to continue to negotiate. Your recommendations and comments will follow the channel. We appreciated it, and we must continue to share best practices, because innovation in agriculture is the key to feeding a growing population, and we want you to continue.
If you want to make comments, you can make them through the clerk anytime as we continue with the study. Do not ever hesitate to contact us.
I will ask for 30 seconds each for you, Mr. Dello Sbarba and Mr. Letendre, if you have any additional comments.
Mr. Dello Sbarba: Again, thank you for the opportunity to present the view of the processing industry in Canada. I must say that the supply management system has served the industry very well in the last 40 years, but we are facing challenges. Those challenges need answers, and we want to remain efficient. We want to remain productive, and it's important to reinvest in our business. We care about dairy in Canada.
Of course, it's up to the industry together to develop some sort of solution, but we also want the Government of Canada to make sure that if it decides to support supply management — because we believe that is a social decision in Canada — that it does so, and we'll know what the rules of engagement are. But if it decides not to support it or to poke holes in the system, let's be clear about it so we can take other decisions in terms of the future of the industry.
[Translation]
Mr. Letendre: Thank you for the invitation. We are very pleased to have presented our point of view.
I completely agree with Mr. Dello Sbarba that we have challenges that we are prepared to address. The vast majority of producers support supply management. Together, we will be able to meet the challenges. Therefore, we are ready to discuss this and to work together to address the challenges. Thank you very much.
The Chair: Thank you very much. I now declare the meeting adjourned.
(The committee adjourned.)