THE STANDING SENATE COMMITTEE ON AGRICULTURE AND FORESTRY
EVIDENCE
OTTAWA, Thursday, May 3, 2018
The Standing Senate Committee on Agriculture and Forestry met this day at 8 a.m. to study the subject matter of those elements contained in Part 5, insofar as that Part relates to farming of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures; and study how the value-added food sector can be more competitive in global markets.
Senator Diane F. Griffin (Chair) in the chair.
[English]
The Chair: I am Diane Griffin, senator from Prince Edward Island, and chair of this committee. I will ask the deputy chair to introduce himself, and then we’ll go around the table for the other senators to introduce themselves.
[Translation]
Senator Maltais: Good morning, gentlemen. Senator Ghislain Maltais from Quebec.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Ataullahjan: Salma Ataullahjan, Ontario.
Senator Deacon: Marty Deacon, Ontario.
Senator R. Black: Rob Black, Ontario.
[Translation]
Senator Gagné: Raymonde Gagné from Manitoba.
[English]
Senator Mercer: Terry Mercer, Nova Scotia.
The Chair: Today, we will continue our study as it relates to the subject matter of those elements contained in Part 5, insofar as that part relates to farming, of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018, and other measures.
For the first panel we have two people from the Canadian Federation of Agriculture, Ron Bonnett, President, and Myles Frosst, Consultant.
We’re very pleased you’ve accepted our invitation to appear. We ask you to make your presentation, and we’ll follow up with some questions.
Ron Bonnett, President, Canadian Federation of Agriculture: It’s a pleasure to be back in front of the committee. I’ve had a chance to present several times.
I know we’re dealing specifically with the greenhouse gas pollution pricing act. However, some of our comments will be a bit broader around the whole issue of how carbon pricing affects agriculture.
The Canadian Federation of Agriculture acknowledges that climate change is a global challenge that requires action on the part of governments, business, communities and individuals.
As Canada’s largest farm organization, representing almost 200,000 farmers across the country, we hear very directly from our farm community in the provincial organizations and the commodity organizations with respect to carbon pricing issues.
We looked at the greenhouse gas pollution pricing act. It excludes carbon pricing on farm fuels and thus is an act that supports, not hinders, the ability of farmers to remain good stewards of the land and to contribute to meeting the challenge of climate change, all the while remaining profitable and competitive.
Our members are stewards of the land. They aspire to leave the healthiest environments for their farms to the next generation. They are effective managers of natural carbon nitrogen cycles, and farmland itself preserves carbon.
On carbon pricing on different farm fuels, the Act does provide an exemption for on-farm fuel use of gasoline and diesel but not for natural gas and propane.
Natural gas and propane play a very important role in production, for example, in grain drying to maintain quality and avoid spoilage prior to marketing and in the greenhouse sector, which is a large user of natural gas for both heat and as a pure source of CO2 to promote plant growth within the controlled atmosphere of the greenhouse. With the introduction of fresh CO2 within greenhouses, the plants would quickly use all available CO2 and no longer be able to photosynthesize. It is the CFA’s position that all on-farm fuels be exempt from carbon pricing.
Another aspect is carbon pricing along the supply chain. We pay for carbon pricing through the products we buy and when we are selling those products on the market. Increased costs come from things like rail transportation, truck transportation, fertilizers and chemicals, and through our equipment supplier.
The impact that carbon pricing will have on producer competitiveness is a big issue. We’re price takers in both domestic and global markets and do not have an opportunity to pass on the additional costs of carbon price to our customers.
Agricultural producers must compete against producers in other countries that will not have a price on carbon or that will be exempt from it.
Increased costs, coupled with the thin margins that most producers face, are likely to reduce investment in agriculture at a time when it needs to be ramped up as a strategic growth sector and to reduce emissions intensity.
Due to the significant investments the Canadian agricultural producers have made in efficiency, technology and best practices, the responsible global action is to support and boost the competitiveness of Canadian production and not hinder its expansion through the levying of additional costs.
There are inconsistent approaches between jurisdictions. The federal, provincial and territorial governments have taken different approaches to pricing carbon, with differing allocation of the revenues produced.
The fuel charge would be imposed on any province that does not introduce and maintain a price of carbon equivalent to or greater than what the federal government specifies. It would only apply to some provinces currently, yet that could expand based on electoral outcomes.
The Canadian agriculture industry has found itself in the position of having variable costs and opportunities due to carbon pricing policies from one province to another that will exacerbate interprovincial and international competitiveness. This inconsistency in approach develops barriers to investment for some jurisdictions and competitive disadvantage within Canada as well as in the global market.
Agriculture can be a part of the solution to climate change. The agricultural sector is unique in that the majority of emissions are from biological processes, not from the combustion of hydrocarbons.
Agricultural producers are inherently adaptable and are stewards of significant carbon stocks through investment in technology and best management practices such as zero and minimum tillage, shelterbelts, woodlots, wetlands, forages and grasslands.
While primary agriculture is responsible for approximately 8 per cent of Canada’s greenhouse gas emissions, the agricultural sector has demonstrated continuous improvement by representing both a smaller share of emissions within Canada and declining emissions per unit of output.
Most of the improvement is the result of increased productivity, advanced cropping practices, and adaptation and adoption of new technologies.
An annual increase in sequestration in agricultural soils of four parts per thousand would halt a total global increase in CO2 in the atmosphere. The value of current agricultural sequestration must be recognized by decision-makers.
For example, Saskatchewan crop producers currently sequester 8.5 megatonnes of carbon through improved management practices every year, and Prairie pastures sequester over 2 billion tonnes. The value of current agricultural sequestration must be recognized by decision-makers.
In a global market in which farmers are price takers, carbon pricing on farm fuels, coupled with carbon pricing costs along the supply chain downloaded onto the farmer, puts the farmer’s investment in stewardship at risk.
There is a need for investment in research and incentives for early adoption of new technologies. Areas of investment would include productivity increases for both livestock and crops; use of new technology, such as GPS mapping and equipment design with a focus on carbon reduction; feeding strategies to reduce ruminant production of greenhouse gas; and by-product, biogas and biofuel research, with the development and adaptation of these technologies moving forward.
Any pricing mechanism should be designed to encourage carbon reduction strategies and avoid putting in place a system that reduces Canadian agriculture’s competitiveness and the ability to meet other pressing 21st century global challenges, such as domestic and global food security.
The Chair: We have a number of people already lined up to ask questions. We’ll ask the deputy chair to lead off.
[Translation]
Senator Maltais: Welcome to our witnesses. You talked about the ongoing efforts of farmers in terms of carbon capture, particularly in the Prairies. We know that in Canada, GHG emissions in agriculture are barely 5 per cent of the emissions. I don’t think farmers waited for legislation to be implemented before starting to eliminate as much GHG as possible, especially in the central provinces where they have eliminated tillage and a lot of machinery that was using industrial fuel. Can imposing a carbon tax be an obstacle for farmers, who could say that, despite all their efforts, they are being taxed on carbon? What do you think the reaction of the farmers you represent will be?
[English]
Mr. Bonnett: I wanted to expand a wee bit on what you mentioned about farmers adopting some of the new technology. You mentioned no-till, using GPS technology. All of those things have been driven not at the start by looking at carbon but by looking at productivity increases and trying to reduce costs.
Just imposing a straight tax could cause a lot of frustration in the farm community mainly because of the competitiveness issue. Everyone understands we export almost 60 per cent of what we produce in Canada, so all of a sudden we could put ourselves in a position where our costs are higher than our competitiveness.
If a carbon tax is to be implemented, there has to be a parallel approach where the money coming in from the tax flows into investments to help offset those costs. All of a sudden, if there was programming in place that would reward or incentivize farmers to make investments in new technology, that could go a long way in offsetting some of those costs.
Part of the problem right now is that the farmers are seeing the tax side coming forward, but they’re not seeing the income side coming back. The whole theory of a carbon tax is you take from here and you move it over there to try to meet those carbon goals; but you have to have that done in a parallel structure.
As I mentioned in my presentation, one of the things that has to be looked at in the research is quantifying what gains in carbon sequestration farmers can make, what the value is of that and how it would work.
I know there have been some attempts. Alberta put a program in place to reward farmers for carbon sequestration with their crops. It was very awkward. It didn’t seem to work very well. There has been a few experiments with that, but there has to be a lot more work done in developing that.
Is there anything you want to add?
Myles Frosst, Consultant, Canadian Federation of Agriculture: No.
Mr. Bonnett: Thank you.
[Translation]
Senator Maltais: Of course, there is the whole issue of competitiveness. Right now, we know that a very large portion of the crops grown in the west is exported. If we do not have compensatory measures to mitigate the effect of the carbon tax, farmers will be penalized, whether we like it or not. They will be penalized, not only because of the carbon tax on their farm and transportation. Could this impede their productivity?
[English]
Mr. Bonnett: It was one of the initial risks identified not last February but the February before. One of the more heated discussions at our board meeting was the concern by farmers about what the additional costs would do to their operations primarily because one of the big players that we compete with is the United States.
Everyone is fairly aware that they’re going in the opposite direction to what Canada and many parts of the world are trying to do in addressing the climate change objectives in the Paris Climate Agreement. It is definitely a real risk to producers. That’s why our position has been that if any tax goes ahead, it has to be mirrored by credits of some type for farmers that are doing the right thing so that it offsets that impact.
We will find that not only agriculture but a number of other resource sectors will likely have the same issue. We don’t want to end up putting ourselves at a financial disadvantage as a country where we’re losing export and we can’t compete in export markets because of extra costs.
[Translation]
Senator Maltais: A few weeks ago, the committee toured western Canada, on the Pacific coast. We have seen the willingness of farmers to make significant efforts to reduce greenhouse gases. In return — you mentioned it briefly at the beginning of your presentation — they expect the revenues from this tax to be invested directly in research and new technologies, be it machinery, fertilizers or any necessary products.
They are already making efforts, but if they are forced to put in extra effort, they will want to be sure that this money will go back to their provinces to fund the research and to help them eliminate as much GHGs as possible. I want to remind you that agriculture generates 5 per cent of GHGs in Canada. Yet agriculture is one of the sectors of Canada’s economy. Have you felt that this is the will of the farmers you represent?
[English]
Mr. Bonnett: Definitely there has been substantial investment made by farmers in new technology. You mentioned no-till technology. In my own province of Ontario, a number of years ago there were incentives put in place to assist people with buying the no-till equipment.
Once people got through the glitches of how to manage that technology, all of a sudden people realized that they were doing something good for the environment and were actually reducing their costs. Sometimes some lead-off money to incentivize those practices is good as well.
Another example would be the use of GPS technology. It’s really interesting now with GPS on tractors with auto steer. You’re avoiding overlap, so again reducing the cost and reducing the impact on the environment.
One thing that hasn’t been mentioned, though, is the work that’s being done on genetic improvement in livestock to really increase productivity so that the amount of grain or grass fed to an animal is much less than what it would be previously because the productivity of that livestock has been improved.
There is another example in many provinces. Large dairy operations, larger beef feedlot and hog operations are putting in methane digesters so they’re capturing that manure, producing methane gas, and therefore reducing the impact of greenhouse gas.
Farmers are very quick to adapt, especially if can they see a few dollars in it for them, to new technologies to reduce greenhouse gas. If you put an incentive in place, sometimes farmers will jump on it.
On our own farm, Ontario came out with a program for putting in solar panels. We have two solar panel units on our farm, not because we’re idealists that want to reduce greenhouse gas, but because we did the math on it and it made sense financially.
In using this example, it is interesting that when we built our first solar panel unit the cost was about $120,000. Within six months the technology had advanced to the point that when we built the second one it was under $100,000, and I understand now that those same units are going in for about $75,000.
That’s an example of where you could have a carbon discussion. If you have a tax coming in and you’re reallocating it to research, development, innovation and maybe some incentive to get early adopters to move in, all of a sudden the costs of the technology changes and you’re reaching the goal of reducing greenhouse gas.
You have to take a broader approach where you’re looking at how you can incentivize things that will reduce greenhouse gas and at how you can make sure that you have the proper research and development so that you have good information to work with.
Farmers are very quick, especially if they can see a dollar in their pocket. You have to remember that farmers are entrepreneurs and businessmen first. They will not do something that will cost them money and put them at a disadvantage, but if you put the programs in place with the information and technology, then they’ll act fairly quickly.
[Translation]
Senator Maltais: Thank you, Mr. Bonnett.
[English]
Mr. Frosst: I would emphasize the need for a whole-of-government approach to this. To reinforce what Mr. Bonnett said, the farming communities initial successes in reducing greenhouse gases came from research.
Should there be any form of tax, then the challenge the government will face is how to make sure a tax from one department and one group of public servants and a minister is coordinated, and that one instrument isn’t used prior to another.
I reinforce that whole government approach, or this won’t work.
Senator R. Black: I want to start with a comment. I point out that the other night we heard from another group of panellists. They noted the exemptions for gasoline and diesel but not natural gas and propane.
I raised the same question that you just commented on, Mr. Bonnett, and really didn’t get even an oh, yeah. That’s a big issue. It’s a huge issue. We need to know that.
When we’re done this series of witnesses and write a report and if you had the opportunity to give three recommendations for us to put forward, what would those three recommendations be, specifically? I mean you have lots here, but what three things would you like to see us nail down?
Mr. Bonnett: The first would be identifying a clear mechanism for flowing funds back through to climate friendly opportunities, whether it’s research, technology or incentivizing behaviour. That would be first: to find a mechanism to make the tax work because right now people don’t understand how is this will work for them. All they’re seeing is money going out and not coming in. That would be number one.
The second would be working with producer groups to identify what would be the priorities on research and priorities on investment.
Senator R. Black: From the dollars that came back.
Mr. Bonnett: From the dollars that came back in. On some of the research there will be different priorities with livestock producers than there will be with grain producers. There may be different priorities depending on what region of the country you’re from. Part of that is just because of the style of farming.
The third and final point that I think would be critical is some type of monitoring system to see if you’re actually gaining anything. One of the frustrations that people have right now with the whole discussion around carbon, carbon policies and carbon pricing is whether or not there are actual gains being made.
If we’ve invested so much in enhancing the use of no-till technology, can you really quantify how much carbon has been sequestered for the investment that was made? The same as if you invest in research on feeding strategies for cattle, for instance, could you quantify how much you’ve reduced emissions of greenhouse gas from cattle?
If you can’t track what you’re doing, then it will be very difficult to make sound decisions going forward.
Senator R. Black: Is that on top of the recommendation that all on-farm fuels be exempted?
Mr. Bonnett: That would be a starting point.
You also mentioned natural gas and propane. I think you have to take a look at some operations that may be using things like bunker C and stuff like that. There are all kinds of on-farm fuels being used.
Senator Oh: My question is pretty similar to that of Senator Maltais. You mentioned that over 60 or more per cent of our agriculture product is exported because the market is in the U.S.
Are we jumping a bit too fast into climate change without properly checking on our exports? If we cannot export as much as we produce, that means there’s no future investment for farmers, entrepreneurs and businessmen. There will be no employment. They won’t be paying taxes. There will be no profit.
If the U.S. is behind on climate change, should we be realigning our climate change procedure to be in line with the U.S. and other big countries like China? We are pricing ourselves out of the world economy for exports, and I think that’s critical.
Mr. Bonnett: First of all, as a farmer I would say that I believe and our members believe that climate change is real. We’re seeing differences in weather patterns. Something has to be done.
Second, we know that the U.S. in particular has an administration right now that is pulling back from this, but I have had interesting conversations with farmers in the U.S. While they see it as a good thing that their government is pulling back, they’re worried now that major buyers are actually stepping forward and filling that vacuum.
Buyers like Walmart, Costco and other companies are starting to say, “We want to know what your climate footprint is.” I think there will be some mechanism coming forward for pricing on carbon, whether it be driven by industry or driven by government.
Canada has sort of stepped ahead of the curve a bit by having the government start. In some ways it is good for Canada to be out front on this, but we have recognized the financial risk. If there’s a carbon tax imposed that will put on an additional tax, we have to have a mechanism to flow that back into the farming community to offset that cost. Otherwise we become uncompetitive.
I will not just stand here and say, no, we should throw up our hands and completely block it. I don’t think that’s the solution in the long term because you’re starting to see governments responding. All of Europe is responding. Canada is responding. Some of the other countries in the world are responding.
The main one against moving forward is the U.S. Even within the U.S., like I said, industry will step forward and say, “We don’t care what the government is doing. If you don’t meet this carbon footprint model, you’re not going to sell to us.” They’re starting to respond to shareholder values.
There’s an advantage to Canada trying to walk through, be upfront and take some moves, but we can’t do it if we don’t have the income in and income out situation resolved.
I don’t know if that answers your question. I think the ship has sailed on dealing with climate change. We have to figure out how we can manage it without putting ourselves at financial risk in those export markets.
Mr. Frosst: I would like to make reference to the 60 per cent of exports. That is on primary products which the farmers produce themselves at a commodity level.
I am sort of anticipating that you’re doing research on value added, but we have to remember that when the Barton report came out agriculture or agri-food was identified as one of the six key industries in the country. It is part of the export of value-added products.
The costs of the farmer will increase. That will make it even more difficult for the value-added products to be exported. That’s the only way in which the agriculture sector will significantly grow.
Senator Oh: Last summer I visited quite a few greenhouse producers in Ontario. They’re very concerned. They told me that they know with the pricing between here and the U.S. they’ll be wiped out if it doesn’t change fast enough to get a parallel return back to the farmers. As you said earlier, it could come too late.
Mr. Bonnett: That comes back to one of the immediate requests, which is to make sure that all farm fuels are exempt because the greenhouses are very vulnerable to propane and natural gas costs. Most of the additional costs on the carbon side would be through their fuel.
That has to happen immediately. It’s way broader than just diesel and gasoline. That doesn’t help the greenhouses at all.
Senator Mercer: Continuing on the discussion of greenhouses, greenhouses use gas but some of them use electricity for heat, depending on where they are in the country.
In your earlier comment you talked about being exempt from the carbon tax for fuel on farms. Fuel takes many different forms, and Senator Black indicated a couple that were not part of it.
Electricity has not been mentioned here. In certain parts of the country electricity is one of the main heating units. In Eastern Canada, particularly in provinces like Nova Scotia and P.E.I., they don’t have natural resources or hydro, et cetera. Are you proposing that electricity be part of that mix?
Mr. Bonnett: It hasn’t come forward as a request to our group, but I could see where possibly in some areas electricity could be a concern.
Maybe the best way would be to have some kind of a mechanism to identify all fuels that are used in the production of agricultural products and have an exemption there. Likely the reason it wasn’t identified right upfront is that normally electricity pricing is a lot higher than what other fuels are, especially in greenhouses and stuff like that. I would expect that’s the primary reason.
If I look at the livestock bonus, poultry or hog barns, quite often they use propane where they don’t have access to natural gas. Likely the reason it isn’t on our list or wasn’t brought forward by our members is just the fact that it’s very limited in its use.
Senator Mercer: You talked about GPS technology. In this day and age it makes so much sense that we use GPS technology to advance what we’re doing.
One of the side benefits of GPS technology in our export market is knowing where the trains are and knowing where the cars are. How many times have I heard, around this table, from farmers, particularly from Saskatchewan? When the farmer calls for local cars to ship his product to market, the railway says, “We don’t know where the cars are.” Standing in his kitchen, looking out the window and watching the train going west across his property, he says, “I could tell you where they are at. They’re going right by the crops I want to ship to Vancouver, to ship overseas.”
It seems to me that it wouldn’t be just the Agriculture Committee that would want to have a crack at this. The Transport Committee would as well. The fact is that we’re missing the boat here if we’re not insisting that GPS technology has to be part of everything you do, if you are moving product in this huge country of ours. Then we know where the empty cars are. We can get the empty cars stopped at the right places. We can get product on them to get it to market fast or, better still, have value added and the product processed a little more before we sell it. The adding of more jobs would be beneficial to everybody.
That was my ramblings.
Mr. Bonnett: You realize you just opened a discussion on rail service with the agriculture community.
Senator Mercer: I don’t feel any guilt at all because I also sit on the Transport Committee and feel pretty good about where I stood on Bill C-49.
Another issue you mentioned was greenhouse gas emissions from cattle. Why don’t we measure that? As you know, in New Zealand the single largest contributor to greenhouse gas emissions is the rear end of a cow.
Senator Gagné: It’s the front end.
Mr. Bonnett: It is the front end.
Senator Mercer: Both ends.
Mr. Bonnett: I didn’t know the discussion would go this way.
Senator Mercer: We’re open to talking about it all, from one end to the other.
Mr. Bonnett: I’ll just make a couple of comments on a few things you mentioned. First, on rail transportation, if you’re really looking at reducing the carbon footprint, I think having an efficient rail system is critical because it is the lowest cost of moving bulk product in the country, other than boats. Most of us aren’t next to the waterway, so I think having a very efficient rail system is critical.
You raised the issue of allocation of cars. I think we need an overall strategy on transportation. How do we ensure that it’s efficient?
You also talked about livestock emissions, particularly with cattle. This is on the research side, where I think a lot of work can be done. I know New Zealand, Australia and some places in Europe have done research. I also know that the universities in Canada are doing research on feeding strategies to see if they can reduce the amount of gas.
There are two things you can do, particularly with cattle, because they sort of get a bit of a bum rap. People know that I am a cattle farmer. The first is getting the feeding strategies right to reduce the amount of gas that’s generated. The second is increasing the productivity of those livestock, so you get higher rates of gain and you need fewer cattle to produce the same amount of product.
That actually boils down to almost the research question. If you get the research right on that one, farmers will adopt it pretty quickly just because of the productivity gains.
Senator Gagné: I was wondering if, as a federation, we are really able to connect the needs of farmers with the priorities for research. Are we able to do that in an effective manner?
Mr. Bonnett: Is that connecting priorities between farmers and consumers?
Senator Gagné: No, for the research. You’re mentioning that it’s really important to invest in research to incentivize farmers.
Mr. Bonnett: A lot of efforts have been made. We could possibly use a little more coordination on what is taking place at the provincial level and what some of the overall national goals are. Some work has been done on that.
As far as producers being engaged, I put on another hat. When I was involved with the Ontario Federation of Agriculture as president, we were fairly engaged with the University of Guelph and other institutions on setting some of the priorities. I think you’ll see that’s fairly common across the country. There’s a fairly good connection, at the provincial level, to the specific universities within their jurisdiction.
Whether it be in Quebec, Alberta or Ontario, that linkage is there. I think there’s a fairly good connection through that. I know the individual commodity organizations work closely with the universities as well.
At the national level, there could be a little more done on coordinating that. We’ve expressed a bit of concern with some of the latest funding rounds of the Canadian Agricultural Partnership. A lot of the funds now flow through to the provinces, and the provinces administer those funds. We still feel there should be a pocket of funds to help fund national initiatives. This may be a partnership between different provinces working on it.
At one time, going back 12 years or so, they had what they called collective outcomes. Senator Rob Black will remember some of those where they actually had different groups and provinces coming together to address something that would be in the national interest.
When you talk about producers linking to the research institutions, yes, it works fairly well at the provincial level. However, the national coordination sometimes is a bit of a vacuum. Would you agree? You’ve worked in this field as well.
Mr. Frosst: I’ve spent a couple of years at the University of Guelph a few years ago as a visiting scholar. My personal experience with OMAFRA was that there was a strong connection with others in the faculty and me.
I would rate it this way: The main driver was OMAFRA. Second was our own scholarly interest of working with our graduate students, our postgrads. The national was third and might even have been fourth or fifth, if I could figure out what went in between. It was a relatively low priority.
Again, speaking on the University of Guelph, the Arrell Food Institutewas set up two years ago. There’s a focus on the national food policy or strategy. Research is a major component. It just happens that the fellow running it has a national perspective. It would change from individual to individual.
To reinforce, it’s OMAFRA first and then the work with our graduate students. Our interest at the federal level in part is driven by the amount of funding that would come in. OMAFRA is a greater part. It won’t work in the final analysis. A national approach and various instruments to make that happen would be required.
Senator Gagné: I am quoting the result of a survey commissioned by Canada’s Ecofiscal Commission. They surveyed people from B.C., Ontario and Quebec, three provinces where they have a carbon tax already. It’s quite interesting that the survey shows only 45 per cent of respondents in B.C., 30 per cent in Ontario and 20 per cent in Quebec knew that their province has put a price on carbon. Most of the rest either said they didn’t know or that their provincial government is planning to bring in a carbon price.
Do you have any comments on that? What does it say about this public policy?
Mr. Bonnett: It could be the surveyors, but there is a disconnect as to what’s going on with respect to carbon pricing. All you have to do is look at Facebook and at all of the information out there. I would say a very small percentage of it is true.
Our society has changed so much in the last number of years in how we get our information and from where we get our information. In some ways it’s difficult for people to make an informed choice. It is an issue we will have to face going forward. It is a lot broader issue than the topic of carbon pricing. It’s about how you communicate the intent and how you move ahead with it.
Like I mentioned earlier to Senator Oh, it’s fairly widely accepted now in the scientific community that climate change is occurring and that modifications have to be made. You could go on any number of sites that say this is a bunch of bull and there is a conspiracy theory going on.
When you see those survey results, it shows the fact that there isn’t really good information. If there’s one thing I would recommend that the federal government do on the whole aspect of carbon pricing is to try to bring some clarity to it. There’s not clarity at the provincial level. There is not clarity at the national level. Basically it is that we’re putting a carbon price in place, but there doesn’t seem to be a really good communication strategy about what are the objectives and how are we to achieve them. What are we going to provide incentives for? What are we going to penalize? Why are we doing it?
Figuring out the communications around the whole carbon focus will be critical going forward, or will we end up in a situation where the public is angry? They will be as mad as hell. They will not take it any more, and someone will be to blame for it. I am not surprised at the survey results.
Senator Gagné: It was Abacus Data that conducted the survey and it was published in the National Post. It’s not on my Facebook page.
Mr. Bonnett: Regardless, you could have a survey like that, but where did some of the information that’s out there come from?
[Translation]
Senator Dagenais: I would like to address the issue of price competitiveness. We know that supply management in Canada keeps prices higher than in the United States. In the United States, farmers receive subsidies, while in Canada, in addition to supply management, we will add the carbon tax, which will indirectly increase prices. In all of this, the government is trying to negotiate free trade agreements to promote international trade.
Do you think a number of aspects of Bill C-74 might even cancel out some of those benefits? If you agree with this statement, what changes do you want to make? It is all well and good to add taxes, but our main clients are still in the United States. Like it or not, this measure reduces our competitiveness.
[English]
Mr. Bonnett: The first thing is the exemption of all farm fuels. That is critical and should be considered. I would reiterate the whole aspect of research and innovation flowing some of the carbon tax money back to producers that are making those investments to see if you can offset some of the increased costs. Those are two very specific things.
I would like to challenge a wee bit on what you mentioned about Canadians paying more for supply-managed products. If you factor in the amount of tax dollars that go into subsidizing producers in the United States, Americans are paying as much for their dairy products. They’re just doing it a different way through direct subsidies to producers.
On the supply management side, in Canada that’s costed out in the marketplace. In the U.S., it’s costed out with taxes and with the price paid to producers.
You mentioned about working on a trade agreement with the United States. It would be interesting to see whether we could open up the whole aspect of domestic support if we’re having a discussion on trade agreements. I think you would see that the U.S. would be very reluctant to open that up because of the amounts of direct and indirect subsidies they put into their producers.
That’s sort of an aside. Your question was very directly on the tax measures being put in place.
Exemption of farm fuels would be the number one way of dealing with it. Because of all of the other indirect costs, whether it be transportation or others that will be borne by the system, trying to find a way to flow the tax dollars collected back to the farmers making investments in climate-smart agriculture would be the way to do it.
We should try to get some clarity on how it will work. We have the problem of different approaches in every province too.
[Translation]
Senator Dagenais: I do not want to debate the tax rate in the United States. We know that the middle class is certainly taxed less there than in Canada. All we have to do is compare prices at grocery stores; they are not the same.
That said, your group is very important in Canada. You represent over 200,000 farmers. Did the government take the time to consult you before it established its carbon tax base? I think the government talks a lot about consultation and its desire to connect with Canadians in order to hear their views. You represent 200,000 farmers. Was the government kind enough to consult you before setting its carbon tax? I see you are smiling.
[English]
Mr. Bonnett: The very short answer on that one is no. There was no consultation upfront. Basically, an announcement was made of national targets. Even in some provinces it has been difficult for provincial farm organizations to have discussion with their respective governments to find out exactly how they were to implement the whole aspect of carbon tax.
You can imagine the discussion around our board. We have members from Saskatchewan who are basically saying that nothing will happen to producers in B.C. who have had to cope with the carbon tax for a number of years.
Was there consultation on what the impact would be? No.
[Translation]
Senator Dagenais: We are talking about a five-year period for the carbon tax. Do you have any examples of the impact, by region, that this tax could have on food production over five years?
[English]
Mr. Frosst: No, there has not been any set quantitative analysis done that I am aware of, either within industry groups or at the universities.
Mr. Bonnett: That even goes back to the question of research. There should be some analysis. When you’re putting a tax in place, you should do some analysis on what will be the overall impact. Frankly, those numbers aren’t out there.
It would be very difficult even to design a study right now because you would almost need to have a study in each individual province to see what their particular approach would be. To pull that together in a national study would be somewhat difficult.
[Translation]
Senator Dagenais: So we could conclude that a tax has been imposed, but without acknowledging the future consequences.
[English]
Mr. Frosst: I would suggest that isn’t the case at the national level. I could check in. I haven’t looked to see what the government has actually done, but it would be at the national level.
I had mentioned earlier the Arrell Food Institute. I am sorry for putting in a plug for that. I am certain that there is, at the national level, and perhaps at McGill as well, some initial effort to assess that has been done, but as far as I am aware, nothing concrete yet. At the provincial level, my sense is that it hasn’t been done. It’s just my sense, though. I will try to look into that.
Senator Ataullahjan: Senator Dagenais asked part of my question. In your testimony you talked about the federal, provincial and territorial governments having taken different approaches to carbon pricing, with differing allocation of the revenues produced. You further stated that inconsistency in approach develops barriers to investments for some jurisdictions.
Can you elaborate a bit on that? Do you feel that farmers have been part of the conversation at all with the federal government and the provincial governments? You have kind of answered that. If not, why not?
You’re an important part of Canada. You produce the food that we consume. Why are you being ignored? Why is no one having the conversation with you?
Mr. Bonnett: I think what we have is a classic case. When the Paris Agreement was agreed to, there was an intent to act but there wasn’t any analysis done as to what the implications would be. In any decision whenever a tax is put in place, quite often you end up with people making financial decisions based on the information they know if a revenue stream is not seen to come in to offset it.
The greenhouse sector was mentioned earlier. I do know that some greenhouse operators in southwestern Ontario are definitely making a decision as to whether or not to stay in Ontario or relocate to the United States, particularly those greenhouse operators that are actually exporting product into the United States.
They are making a financial analysis and a financial decision. Again, it goes back to the fact that when the carbon tax was first announced there was no discussion whatsoever about the aspect of having any kind of exemption on farm fuel. All of a sudden, you have a greenhouse sitting there and they have a huge bill for natural gas. All of a sudden, they’re doing their math and they will have to do the planning.
If you’re sitting there and you want to put another $5 million in investment into greenhouses, you want to be sure what will be your cost structure a lot more than one or two years out. You’re talking five and ten years out.
Having some predictability is critical. Having an analysis of how the tax will work when the announcements were made about imposing a carbon tax and having a clear message at the start that all farm fuels would be exempt, would make a real difference. The fact that propane and natural gas right now aren’t included is having a huge impact in the greenhouse industry and the greenhouse sector, particularly in British Columbia and Ontario. It is a huge sector and has quite a huge financial impact on those communities where those greenhouses are located.
The Chair: I have a couple of questions.
In your presentation you said it was the position of the Canadian Federation of Agriculture that all on-farm fuels be exempt from carbon pricing.
Do you indeed mean all fuels, including bunker C?
Mr. Bonnett: We would expand it to that, yes.
The Chair: I am just checking on that. Another thing you mentioned was U.S. subsidies in the farm sector.
Is this actually counterproductive to efficiency and to farmers looking for new ways to do things, to cut down on greenhouse gas emissions, et cetera?
Mr. Bonnett: Do you mean in the United States?
The Chair: Yes.
Mr. Bonnett: I think it has created an atmosphere where many of them are doing the same thing over and over again and expecting the same result.
It’s interesting. I had a meeting with dairy farmers in Wisconsin about six months ago. One of the issues they’re concerned about is the fact that the price of milk has really dropped. Wisconsin, right now, has one of the strongest subsidy programs in place to expand their dairy operations.
There you are with a government policy encouraging the expansion of the dairy industry when the actual dairy farmers that are there are closing shop because they can’t make enough money to see it going ahead. Sometimes, depending on the design of a subsidy, it can really distort market signals.
The Chair: It’s a great point. Thank you.
In Canada, with trade between provinces where some have a carbon tax, carbon levy or whatever in place now, do you think that the fuel levy under Bill C-74 would entail additional charges to producers?
Mr. Bonnett: Right now they’ve talked about gas and diesel. The fuel cost for propane and natural gas would be a significant additional cost to producers under the way it’s worded right now.
The Chair: I see no hands up for a second round, and I know one of our guests has to leave promptly. I thank you, gentlemen, for being here today. It was an excellent panel with lots of great questions and lots of great answers.
Our second panel today is from Food and Beverage Canada, Teresa Schoonings, Member of Board of Directors, Food and Beverage Canada, and from Canadian Food Exporters Association, Peter Mulherin, Chairperson, and Susan Powell, President and CEO.
We’ll start off hearing from Teresa Schoonings on behalf of Food and Beverage Canada.
Teresa Schoonings, Member of Board of Directors, Food and Beverage Canada: Thank you for the invitation to participate in your study to better understand how Canada’s value-added food sector can be more competitive in global markets.
Food and Beverage Canada is a new national not-for-profit organization which officially launched in January 2018. It includes all seven regional food and beverage manufacturing associations in Canada, as well as many individual members and associates. We represent about 1,500 food and beverage businesses with manufacturing in Canada.
Food and Beverage Canada is committed to building and sustaining collaborative relationships and constructive communications with federal and provincial governments. We believe this will lead to effective public policy development and shape a progressive industry which will benefit all Canadians.
We are known internationally as a source of high quality and safe food products. We need to work together to capitalize on this and to expand our global sales and growth within Canada.
Today, Canada is the fifth largest exporter of agri-food products in the world, but we used to be third. The industry has historically underinvested in technology, which impacts productivity and in turn our ability to export. The lower Canadian dollar also significantly increases the cost of acquiring food processing equipment, mostly imported from the U.S. and Europe, which impacts investment.
To us, there are four key factors challenging the competitive position of value-added food and beverage manufacturing in the global market.
The first is the cost of doing business in Canada. Simply put, costs are rising and competition among food retailers is growing. This equals shrinking margins, which leaves fewer dollars for companies to reinvest in growing their businesses. Costs in all areas of business are increasing, and our global competitors are not all experiencing the same rate of increase. This obviously has implications for cost competitiveness.
The second challenge is capital spending. If we consider the challenge of increasing costs and decreasing margins, it is not surprising that we have a decrease in investment. Dollars are being diverted to operational costs instead. On top of this, it is difficult for many companies to take advantage of the funding opportunities available.
Companies that have the capacity and capability to scale up are often outside of the government’s definition of a small or medium enterprise. That is where there is a focus for funding, and they are ineligible to apply.
This impacts investment decisions, especially with major international brand players that can choose to invest elsewhere, where costs are lower and there are other incentives like the new Trump tax advantage.
Another challenge is the cumulative, costly regulatory burden. Regulatory costs and burdens, as well as interprovincial regulatory fragmentation, are greater in Canada and are getting worse. They tend to happen in a piecemeal fashion, so increasing regulatory burdens simply shifts the focus of food manufacturers from investing in innovation and new technology to grow their business to investing and innovating for compliance.
Finally, we’re challenged by labour shortages. The foundation of any business is its employees, and we just don’t have enough of them at all skill levels. Employers are also facing increasing costs of labour, and education systems are not steering students toward careers in agri-food. We need to change the perception of working in this industry and share the message more broadly. This would be achieved through the expansion of the Food and Beverage Ontario Taste Your Future to a national initiative. We have provided more background on this in the larger paper we submitted.
The Food Processing Industry Roundtable, the work of the agri-food strategy table and the Canadian Agri-Food Policy Institute support these themes as key challenges to our business.
There are three progressive changes which we feel can make a lasting difference for us to be more globally competitive.
The first is a cohesive policy development. We need a new approach to how we all work together. With a fact-based, solutions-oriented partnership and open collaboration between industry and the whole of government, we can tackle the above challenges in a way that meets the needs of all and enables the industry to grow.
The second is a need for a new Canadian food act. To compete, there must be a level playing field. The safe food for Canadians act, which would modernize or replace the Food and Drugs Act with standards dating back to the 1920s, fits the need to fundamentally change the current process to meet the needs and challenges of today’s market and oversee compliance based on modern, risk-based and progressive regulations. It would also help to address the growing consumer trend across the world of greater social consciousness, public health, food safety, affordability and environmental sustainability.
The third is a national food policy. Today we treat agri-food as an extension of farming where small and local is beautiful. The shifting preferences of affluent urban consumers are a greater policy and regulatory priority than cost competitiveness. We won’t achieve the industry’s full economic potential and gain public trust if we continue with this approach. Nor will we meet our global export target of $75 billion in growth.
Food and Beverage Canada is committed to working with the provincial and federal governments cohesively and progressively on the enormous social, environmental and economic opportunities embodied in our industry. This could mean some major changes in our industry to make it happen, including the consideration of shifting lead responsibility of our industry to ISED, Innovation, Science and Economic Development, as well as establishing a national food policy with all stakeholders acting as partners to shape the future of the food system.
Canada is a resource-rich country with exceptional opportunity for growth both domestically and globally. We want to achieve the same thing, and together we can get there.
Susan Powell, President and CEO, Canadian Food Exporters Association: Canadian Food Exporters Association was established in 1996 to assist small to mid size Canadian food, beverage and ingredient companies with their export initiatives. We are a multi-sector,not-for-profit association that deals primarily with the promotional aspects of international trade and offers a one-window approach to our members to provide market and regulatory information so that they can make informed decisions and be successful exporters.
We currently have 220 members that account for annual export sales of close to $600 million. We believe this number will increase once the comprehensive and progressive agreement for Trans-Pacific Partnership is ratified. We are encouraging the Canadian government to focus on this so that it opens more of a competitive marketplace for Canadian exporters.
We are also encouraging the Canadian government to enter into new free trade agreements with other countries such as China, India and Indonesia, et cetera, as we believe exporting is not a choice but a must especially for the Canadian processed food industry’s long-term sustainability.
We also hope that the Canadian government can put more resources toward market access issues, especially those related to non-tariff trade barriers, as they continue to be a barrier to trade for Canadian companies.
For example, Canada does not have an organic equivalency in place with South Korea. As a result, Canadian organic manufacturers are not able to do business with South Korea. There is interest from South Korea for Canadian organic products, so we would like to see this matter resolved.
Another issue that has come to light recently pertains to dried berry exports to India. According to CFIA, India maintains a white list of permitted imports that are origin country specific. If the specific import is not listed as permissible from Canada, it is considered prohibited. Unfortunately, Canadian dried berries do not appear on this list so our berry companies cannot do business in India despite the high level interest for these products.
This is a sampling of the barriers our exporters are dealing with. We understand the Canadian government has been working on these issues, but we are raising them today so that you understand some of the issues our members are experiencing as they try to enter new markets.
The Canadian processed food industry is a strong exporting industry with about 40 per cent of production already exported internationally. The industry has the capacity to support both local and international markets and can compete against our major competitors like the U.S.A. once more agreements are in place and trade barriers lifted.
Thank you for giving me the opportunity to come here today.
Peter Mulherin, Chairperson, Canadian Food Exporters Association: Even though I am with the CFEA, I’ve taken the approach from a manufacturer’s perspective to give you live examples of things we are dealing with and the way the government can help us.
By way of background, I have a small business that assists companies with their export objectives. One of the companies I work with is a company called Riverside Natural Foods. It’s a family business that manufactures organic and allergen-free snacks under the brand name of MadeGood.
The idea was hatched for a school-safe, allergen-free product when the owner was frustrated by the limited number of items on the market that would be allowed in schools due to food allergies. The company operates a 100,000 square foot facility in Vaughn and has grown from four to 200 employees since launching in 2013. My role is on the export side of the business.
Shortly after launching, we established a subsidiary of Riverside called Riverside BV in the Netherlands. This was done primarily to avoid a lot of the import tariffs into the EU at that time. Fortunately CETA has eliminated that. That has been a benefit for us, but we still have a distribution centre there.
Unlike most Canadian brands that gravitate to the U.S. following a Canadian rollout, we chose to launch in the EU first. This was done for a number of reasons including cost of launching into the U.S., distributor contacts in the EU and general familiarity with the organic products there.
In October 2013, we attended Anuga, the world’s largest food show in Cologne, Germany, when MadeGood was launched. Since then we have grown to more than 40 countries around the world in less than five years.
With regard to where the Government of Canada could assist companies such as ours, I have identified three key areas.
The first is documentation. Most importing countries require a number of documents including proof of organic, non-GMO, BRC certified, et cetera. One that is universally required is a certificate of free sale. In 1961, the Apostille Convention abolished the requirement of legalization for foreign public documents, thereby eliminating the need to have the certificate of free sale certified by the local government.
Unfortunately, Canada is the only western country not to sign this agreement. As a result, many of our trading partners require that we obtain a new certificate from the CFEA, send it to Ottawa for authorization, and then send it to the importing country’s local embassy for final certification. This one simple step will take weeks to complete in addition to the costs involved in doing so.
The obvious question is: Why has Canada not signed on to this agreement? I am sure there was a reason in 1961, but countries are joining all the time.
The second is foreign reciprocal agreements on organic products. As Ms. Powell just mentioned, because everything we do is organic we are basically shut out of South Korea and China. There is no reciprocal on organics with Canada in those two key markets. They both have USDA agreements, and even though we are USDA certified because we are manufactured in Canada, they won’t accept our certification. We need the support of the government to help change this.
The third is import tariffs. In our opinion this is the area in which the federal government can assist the greatest. By continuing to negotiate free trade agreements such as at CETA and the TPP, it will open up new markets and enable Canadian companies to compete on an equal basis.
To use a current example, we have had a great deal of interest for our products in India. However, we have been told that import tariffs range from 43 per cent to 47 per cent in our product category. At this level, we would not even consider launching there.
We believe it is in the best interests of all Canadian companies that want to export to have as many trading partners as possible rather than relying on one or two large companies. The elimination of protectionist trade barriers will certainly aid all Canadian exporters.
We also believe that the ongoing support of associations such as the Canadian Food Exporters Association is extremely important in assisting new and small businesses that wish to expand internationally. These associations add value by making the intimidating and extremely complex world of export sales more manageable by providing guidance, turnkey trade events and missions, and general advice and consultation for specific markets around the world. They are extremely valuable tools to all members, and they rely on the continued support of the government to maintain this service.
Thank you for providing the opportunity for us to express our opinion here today.
The Chair: We'll now lead off with questions.
[Translation]
Senator Maltais: Ms. Schoonings, you raised a lot of points in your brief, which was short, but well structured. I would like to address the issue of the workforce. In your companies, do you use specialized labour or do you do the training yourself? What could you ask from the government in terms of workforce training?
[English]
Ms. Schoonings: Thank you. It’s actually both, so we need labour at all skill levels and not just high skilled.
Some 34 per cent of food processing jobs were high-skilled positions last year. Absolutely that’s a need, but we do need them at all levels.
We’ve been noticing that the Taste Your Future initiative in Ontario did some research. Something that came out of there is that youth are confused by agri-food careers. Either they have the perception that it’s dirty or factory based and they just don’t understand what it is, or they’re confused and wondering: Are you talking about executive chefs, or are you talking about fast food jobs?
First and foremost, we need to change the perception and the conversation about jobs in agri-food to let people know what they actually are and that there are very strong career paths in this sector.
At the same time as we are facing labour shortages, there’s also a bit of a disconnect with some of our public policy like the Temporary Foreign Worker Program and increasing labour costs.
An example would be Ontario, as you would be familiar with, I am sure. The minimum wage will increase 32 per cent in a 16-month period. Even though the majority of jobs in food manufacturing pay above minimum wage, it makes it much more difficult for us to attract workers to that industry without also increasing the base wage that we’re already paying.
Many different factors impact labour in general, but we really need to change the conversation and perhaps start it from an education perspective. Somehow we need to intertwine agri-food career conversations within our education system, which really doesn’t exist today.
Of course, there will be ongoing training in house. Baking takes a special skill set and different ideas, but in general we just need some education around food.
[Translation]
Senator Maltais: Do your companies do promotion in high schools and vocational colleges to tell young people, who will be graduating in a year or two, about the benefits of going to work with you? Do you do promotion in schools?
[English]
Ms. Schoonings: As I said, we are a new organization, so we are still getting information from our specific members.
From what I see within Food and Beverage Ontario, some of the other organizations I am also a part of, and through our own company, is that it’s done in a very ad hoc manner today. There is not a cohesive approach outside of Ontario that has Taste Your Future. Through Taste Your Future, they are working with the schools directly.
Some companies are working with schools directly through co-op programs, workshops, plant tours and things like that, to try to attract people; but it isn’t a collective approach at this point.
[Translation]
Senator Maltais: I think you should develop a medium- and long-term program to make yourselves known. As far as I know, beer brewers have no problem finding workers. There is a class of skilled workers and a general workforce. The breweries do not complain about the shortage of workers. I think you should take steps in that direction in the years ahead.
You talked about a cohesive policy and new legislation on food safety. Yet, internationally, Canada is recognized as a country with one of the world’s best food safety policies. I’m surprised to hear your comments about countries saying that Canada does not have a good food safety policy. I think their facts are wrong. The Canadian brand is recognized. We went to China a few years ago. The Canada brand is worth its weight in gold there. In your opinion, what more could be added to the Safe Food for Canadians Act?
[English]
Ms. Schoonings: My apologies. I may have said that incorrectly when I was saying it was about food safety. It’s more about the policies and the modernization of it.
What we mean by that is: The Food and Drugs Act is from the 1920s, but all of our regulations on food safety and policy are against today’s modernization and some of the highest in the world, which is excellent. That’s how we have our brand reputation around the world.
We need to bring up our actual regulations from the 1920s and modernize those so that they fit together and are more cohesive and simplistic for companies to understand what they’re measuring against.
One example in our larger paper was a regulatory challenge that was addressed in the current Food and Drugs Act about stopping fraudulent marketing of snake oil liniment. That’s not really an issue of today. We were not implying that today’s food is not safe. We are just saying that we should modernize the act and make sure our imports are being measured against the same when they’re coming into our country so that it’s a fair playing field.
[Translation]
Senator Maltais: I agree with you. In Canada, it is difficult to control imports. You mentioned oils, but there are other foods as well. Canada is having a hard time controlling what is in the small plastic bags in grocery stores or other food markets.
However, in the free trade agreement with Europe, there are obstacles. European countries are unable to compete in terms of Canadian food safety and traceability. The former Eastern bloc countries, in particular, have difficulty in this area.
Let me come back to a question that Ms. Powell was asked. Why are your exports banned in China, India and Indonesia? Can you clarify that for me?
[English]
Ms. Powell: In the case of India, the example I gave was specific to the berries. It all has to do with what’s on a white list. The Indian government has a list, and Canada is not on it. In the case of berries, only the United States products are eligible for import into that country. It’s a non-tariff trade barrier.
For China, we can do business there and we are doing business there. We have a lot of interests, but there are a lot of duties on Canadian products. Canadian products tend to be higher in cost already, so when you add in a duty, it makes it impossible to compete with other cheaper products on the market in those places.
Then, in the case of organic, because there’s no equivalency you’re not even going to look at those markets if you don’t have that. It makes it so that the organic companies in Canada cannot do business in those countries.
[Translation]
Senator Maltais: I would like to talk about berries. Last year, we went to the Shanghai exhibition. There were a number of booths, and we found that Quebec cranberries were very popular. However, this is not the case for blueberries. Yet, China imports blueberries from Canada, particularly those from Nova Scotia and the Maritimes. What should the government do to remove you from the blacklist and put you on the white list?
[English]
Ms. Powell: The banned list is for India. For China it’s open. For India it is a matter of talking government to government to get Canada on the list. Once Canada is on the list, then that opens the doors for dried berries into India.
We have a lot of dried berry members, and they are doing very well in China. Both blueberries and cranberries are doing very well, and cherries too.
[Translation]
Senator Maltais: Another important point I would like to raise deals with organic products. I think if you had better advertising in Canada, you would not need to export them. You might not even be able to produce enough. The problem with organic products in Canada is the high price. I conducted an experiment. I followed ladies doing groceries with their children, and when they walk past the organic food and look at the price, they keep walking. You have no problem with that in Canada? If Canadians bought all the organic products you produce, you would not have to export them, but the problem is the cost. You will have the same problem when you try to export organic carrots to India. Indians are not as rich as we think.
[English]
Ms. Powell: On that I would agree. The Indians aren’t as rich, but I tend to disagree on the point that if every Canadian was buying organic products there would be no need to export, especially in the processed food industry.
We do not have a population base in Canada to sustain our food manufacturing industry. We must export in order to sustain it and to keep jobs in Canada. Opening doors for Canadian manufacturers to export worldwide, and not just to select countries like China and India, will provide a lot more opportunities for our few manufacturers to be able to stay in business.
[Translation]
Senator Maltais: Mr. Mulherin, what sorts of products are you producing exactly?
[English]
Mr. Mulherin: It’s a product range of granola bars and different formats of granola snacks. They’re all oat based, so when you add the cost of organic oats to the cost of certified gluten-free oats it’s very expensive.
To your point about these products being more expensive, they are because our raw materials are more expensive to produce. The costs are coming down as people are becoming more aware of organics and there are more farmers getting into that business; but because we’re organic and allergen-free, it’s more expensive.
As an example, oats is a misnomer. There’s no gluten in oats, but historically, because the mills processed all different types of grains, there was cross-contamination. To have certified gluten-free oats in a dedicated facility is more expensive, so that’s why our costs are higher.
[Translation]
Senator Maltais: Do your cereal bars only contain oats?
[English]
Mr. Mulherin: We have various flavours. We have a strawberry flavour, a chocolate banana flavour and an apple cinnamon flavour; but the base product is oats, so it’s probably in the range of 75 to 80 per cent oat base.
[Translation]
Senator Maltais: Do they sell well in schools?
[English]
Mr. Mulherin: They absolutely are. Our positioning is that the whole school is safe. It’s not just schools. We fell upon allergies on airlines as a result of that. If you google anaphylactic shock on airlines, you see the number of emergency landings as a result. We solicited that business, and we are now on Air Canada and WestJet as a snacking item.
Senator Gagné: I’d like to address labour shortages. I was wondering if I understand correctly that manufacturing operations are still highly manual in nature. Am I correct?
Ms. Schoonings: Not all are. There is certainly some manual, more so because a lot of our food manufacturing processing plants in Canada are smaller and haven’t been able to afford the new technology to upgrade their plants. In those plants there’s probably a bit more manual labour there, but I wouldn’t say as a general rule that it’s more manual.
The perception of our millennials today, for example, is that they would not consider food processing to be a sexy industry to be a part of. It’s more around the perception of working in the food industry versus what it’s actually like to work in the food industry.
If you walk through many of the food processing plants in this country, you can eat off the floors. They are spotless. Yet, if you ask anyone, it’s “Ugh, a food plant.” It’s more of a perception than a reality.
Senator Gagné: Could you give us an idea of the current level of automation within the sector?
Ms. Schoonings: To be honest, I really can’t. As a board member of the organization, I can only give you our exact perception at this point.
I apologize, but I can look into that for you and get back to you on that one.
Senator Gagné: In your submission, you also mentioned that Canada should be considering some major change for the industry, including the consideration of shifting lead responsibility of our industry from Agriculture and Agri-food Canada to Innovation, Science and Economic Development.
That’s an interesting concept. This is the first time I’ve heard that suggestion.
Ms. Schoonings: Again, that was just an idea. As I said, we’re not really in the position to be giving solid solutions right now. It’s one of those ideas we’ve been chatting about internally.
Senator Gagné: That’s right. I imagine it’s around trying to evaluate the potential areas of future technology development.
Ms. Schoonings: Absolutely.
Senator Gagné: What is needed as an investment in technology for the development of robotics and automation?
Ms. Schoonings: I’ll give you an example using Maple Leaf Foods. We feel that the definition of small and medium enterprises in Canada is a bit off the mark when you look at other countries and compare.
I’ll read off the exact numbers. Maple Leaf Foods is one of the largest food manufacturers we have in the country. They have 11,500 employees and 20 plants but their main competitor in the U.S. would be Kraft. Kraft has a market cap of USD$110 billion, compared to Maple Leaf at USD$3.14 billion.
Maple Leaf is really a medium size company when you look at the global market, yet they’re priced out of the game, so to speak, from a funding perspective because the majority of funding is for small to medium enterprises.
I heard in an earlier presentation about some of the funding going from federal to provincial. Some larger companies used to qualify for some funding, for example, under a Growing Forward 2 grant. Now, under Growing Forward 3, they have to have fewer than 200 employees to even apply, so that leaves them out of the market.
Some of those small to medium enterprises don’t have the understanding or the resources even to try to apply for those or start to grow. Then they have a company like Maple Leaf that has the capacity and capability. Yet they can’t apply for the funding to take advantage of it to help their business case internally to get that technology improved. They’re currently in a Catch-22.
I would say it would be better to look at some of our funding opportunities for what we call our large companies that may not necessarily be large in the global scheme of things.
Senator Gagné: Would you have any comments on the investments needed in automation and robotics technology? Is that an issue?
Mr. Mulherin: It’s something we are doing. As we grow, we’re installing much more automated equipment to actually bring our costs down. We’re in the process of doing that now with our bar line.
Senator Oh: Since you’re in the Canadian Food Exporters Association, I want to confirm with you if it is true that after the Prime Minister’s visit to India and before the previous issue of the 30 per cent import duty into India, we now have a ban on yellow beans exported to India? Is that true?
Ms. Powell: It is true, yes. There’s a percentage on certain beans and peas, and from what I hear a ban has been instituted.
Senator Oh: How will that affect us?
Ms. Powell: I don’t believe the Prime Minister had any influence on that. From what we were told, India has a stockpile and they need to use their own before they start importing again.
Originally, they started importing a lot of Canadian product when they had a poor crop year. Now they don’t require it any more, so they've banned it instead.
It is actually having a huge impact on a number of our members at this point because India was their biggest market.
Senator Oh: I was told that Ontario is the world's number one producer of ginseng products, ginseng roots.
Ms. Powell: Yes.
Senator Oh: Hardly any of our ginseng is exported directly from Canada to the Asian market. Most of the ginseng is exported to the U.S. Then it becomes American ginseng and is re-exported for the high-yield market in Asia, including China. Is that true?
Ms. Powell: I don’t think that is very true. I know with Ontario ginseng that my members are selling directly to Hong Kong and Taiwan. They can’t sell directly into China at this time, but they are selling to Hong Kong and Taiwan.
I can’t speak for the whole ginseng industry, but I can speak on behalf of the members that I do have from the ginseng industry. They’re not selling to the U.S. for re-export.
They definitely won’t be doing that now. I actually just read an article about it recently. China has instituted a large tariff on American ginseng, so it wouldn’t be wise for Canadians to be selling their ginseng to the U.S. to be re-exported to Asia.
Senator Oh: I was also told that there is a ban on exporting Canadian horses to China, and that Canadian horses are exported to the U.S. to become American horses to be re-exported to China.
Ms. Powell: I don’t know about that at all. At this point in time I don’t think it’s worth while to be selling anything into the U.S. for re-export to Asia, not with all the tariffs that are being added to American products.
Senator Oh: I want to get back to the labour shortage. I am on the road a lot of the time, and I get a lot of feedback. Everyone has the same complaint: There is not enough skilled labour, especially in food processing. They all complain that they cannot get enough people to help.
Do community colleges have training programs to help? Does your association collaborate with community colleges to introduce programs for training young people in the perception of the food processing business now?
As you say, in the factories now you can eat from the floor. It’s not like the old days when they were unpleasant places to work in.
Ms. Schoonings: Food and Beverage Canada has not yet. Our hope is that we can find some funding and get the backing from our members as well to expand the Taste Your Future program, which Food and Beverage Ontario has implemented. It is making a difference in Ontario.
We are getting people interested. We are presenting within schools. We’re working with academia to hold workshops. We are getting that message out there. However, it’s small. It just started a couple of years ago. As we know, these things take time to catch on, and it’s not built into the school curriculum.
It is our knocking on doors and saying, “We’d like to come in and speak to your students. We’d like to promote this industry,” and then trying to get into the career fairs and their information in the schools.
It isn’t yet part of the curriculum. It’s still done in a piecemeal fashion. We are working through that.
We’re seeing a difference in Ontario, for sure, from a perception perspective and an engagement from academia. Again, that’s only Ontario. This type of program, as far as we know, doesn’t exist anywhere else in Canada. All of the other provincial associations would say this, so it’s brand new.
Ms. Powell: I believe that Centennial College has some courses that are specific to the food industry and an encouragement to the food industry. I met with a gentleman from the college. They are actually adding more because they’re getting a lot more interest from students looking at the food industry.
Senator Oh: I also heard a lot of concerns about minimum wage. You will probably be affected too.
Mr. Mulherin: We will be affected.
Senator Oh: A lot of owners were telling me that it’s not just the lower minimum level. It is overall. Everybody is saying, “You increase mine too. Mine has to come up.” It’s not only one level; it affects the whole chain. Can you comment on that?
Mr. Mulherin: I am not on that side of the business, so you go ahead.
Ms. Schoonings: I’ll speak from our personal experience versus all of the members. With our own company, for example, let’s say we pay supervisors $17 an hour on the line to manage what’s happening during a shift.
Now minimum wage is increasing to $15 an hour. Previously they were making $5 or $6 more an hour or even $4 more an hour than their peers on the line. They’re now looking at us and saying, “For an extra $2 an hour, I don’t really want that responsibility.”
Their expectation also increases. It’s more the domino effect, I would say, of the increase in minimum wage that people are feeling. It’s about trying to keep your employees happy.
It’s not even just Ontario. Once people find out people in Ontario are making more, if you’re a national company your employees in British Columbia or Quebec want more as well.
To keep everybody happy and equalized, you can’t increase your entire wage force at 32 per cent in a 16-month period and still make profits, still invest in the business and still have the money to invest to comply with new food labelling standards and all of those things.
It’s all still the same pot of money. It’s just shifting it to different places. It’s definitely a challenge. It’s about being more creative about how you keep your employees engaged today than just money.
Mr. Mulherin: It will increase costs. There’s no doubt about it. Those unfortunately get passed on to the consumer and then we become more uncompetitive, especially in the export market. There will be a trickle-down effect as a result.
Senator Oh: The feedback to me has been that it’s jumping a bit too fast and that it should be phased in.
Everybody agrees that the minimum wage increase is good for everybody, but if you jump it too big, too fast, you might hurt the industry.
Senator R. Black: With respect to the labour issue, the University of Guelph has completed a study that says that for every graduate from an ag college there are four jobs in the agri-food and agriculture sectors.
There are a lot of jobs out there. I don’t know if the word is sexy or whatever, but we need to encourage our young people who are graduating. There are four jobs for every graduate. I think that’s something to keep in mind.
I asked this question of the other panel. In our report that we send on, what are two specific things you each would like to see included as recommendations from your organization, your organization, and your company?
Ms. Powell: I would like to see more resources put toward market access. We deal with Agriculture and Agri-Food Canada. They’re understaffed in the Market Access Secretariat. They have to prioritize. They have a prioritization list of how things get handled. Our issues may get down to number 10 because they don’t have enough staff.
Those numbers could go up higher and things could be moved along a lot quicker if they had more staff put toward that department. That would be my number one.
Ms. Schoonings: Our number one would probably be cohesive policy development because once you get that you can also build things like a national food policy and make it effective for all.
I know it was mentioned earlier that food processing or agri-food is part of one of the six priority sectors. This is really exciting for the sector, but at the same time there seems to be a disconnect there. Not all the parts of government are working together to actually make that happen. We’re excited on this side, and then the industry is feeling a lot of pain on that side.
How do we as the whole of government engage industry and work as partners to come up with public policy that makes sense from a regulatory perspective and a business perspective? How do we stay competitive?
I would say that’s the number one. Once we build a strategic approach and align the resources needed and the method we undertake to make that happen together, we can solve a lot of the challenges versus having to say, “Here are all the specific ways.” We can just do that together.
Mr. Mulherin: I will give our top two. Number one is the reciprocal on organics with markets like South Korea and China. Those are hugely important, selfishly, and for all organic producers.
Number two would be trade tariffs and anything the government can do to negotiate those down or eliminate them, such as with India. That would be a huge advantage for all Canadian manufactures.
[Translation]
Senator Dagenais: Thank you to our three guests. My question will be for all of you. Given the aspects and some of the challenges that you have presented, what is your assessment of the government’s much-touted AgriMarketing Program, which has been put in place to help SMEs improve their access to the international market?
[English]
Ms. Powell: Our association accesses the agri-marketing program for the national association side. We’re very appreciative of the support we receive.
As for the SME program, we’re hoping there will be some improvements this year under the new program. For companies to get approvals under the previous program it was quite slow and sometimes they didn’t get approved at all.
We’re hoping there will be some better management of that program this time around and that more of our members will be able to access it. It is very helpful for them. They are all small to mid size companies, and it makes them more competitive if they have a bit of support from the government, especially in accessing emerging markets like China.
Ms. Schoonings: I apologize, but I think it’s a little premature for me to be commenting on our members’ position on such a specific program, just because we are still getting our feet off the ground.
I would hate to take a position on behalf of our association without actually speaking to all of our members or getting a panel on that first. I’ll undertake that and get back to you with that one.
Mr. Mulherin: As Ms. Powell mentioned, support programs are critical for new and small companies. Exporting can be intimidating and scary. Associations like the CFEA made it much easier for us when we started and for other companies we’ve been involved with.
You don’t generally have the people resources to research: How do I do all this documentation? How do I go to these trade shows? Who funds these things?
Ms. Powell’s organization made it easy for us to know what to do, where to go and how to challenge these markets and get going. That’s how we’ve established our international business. Support of those programs is essential, especially for new and start-up companies.
[Translation]
Senator Dagenais: Ms. Powell, since you represent a major association, when the government decides to put in place programs to help exporters, does it consult you? I would think so, because the government always says it wants to consult Canadians to find out what they want. Have they consulted your association?
[English]
Ms. Powell: Yes, in agri-marketing they did. However, when they changed the Canada Pavilion Program, they did not. We found out after it happened.
That was a bit of a hardship for us, because it would have been nice if we would have been consulted.
[Translation]
Senator Dagenais: When we submit our report to the government, we could mention that, before implementing new programs or making changes, it should consult stakeholders in the various programs. After all, you are a major stakeholder, so we’ll include that aspect in our report, madam. Thank you very much.
[English]
The Chair: I have a couple of questions. You’ve mentioned labour shortages and the problems with getting skilled labour. What about temporary foreign workers for your associations? Has there been much discussion in that regard?
Ms. Powell: We have members that use temporary foreign workers, especially the ones on farms. We haven’t really had any negatives about it as of late.
Ms. Schoonings: It’s the same for us. We’re finding that it’s getting to be more difficult to bring temporary foreign workers into the country at the same as we have a labour shortage. I would say it’s more of a frustration right now. We would love to see some changes to that program to make it easier.
You see some of the news stories about temporary foreign workers. You only hear the bad stories, but there are some great stories as well. In our industry, we certainly have people who came into the country who are now permanent citizens. They’re doing very well. They have grown and have really contributed to society. You don’t get to hear those stories.
It would be great to have an update on that program to make it easier to bring people into the country for these roles and shortages.
Senator Oh: Did you get any help from CIC? Are they helping food producers in all this?
Ms. Schoonings: I don’t, I am sorry.
Ms. Powell: I don’t know who CIC is.
Senator Oh: Canada Immigration and Citizenship.
Ms. Powell: No, I don’t have any involvement with them.
The Chair: My question relates to transportation. It seems like the opportunities are almost endless in terms of the potential for greater exports for our food products, yet transportation is a bottleneck. What do you need for transportation?
Ms. Schoonings: Transportation is a new conversation in our organization. It is something we want to make as one of our platforms for opportunity to come up with a plan.
I apologize that we do not have a plan yet. We certainly see, within the country and from an export perspective, a lot of half-empty trucks on the road.
Earlier you were talking about greenhouse gas emissions and carbon taxes. How do we consolidate some of the movement of products by incentivizing people to make that happen together so that we’re sending full trucks on the road? It’s simple things like that.
The rail system is an ongoing challenge. As much as the earlier panellists said it’s the cheapest way to move product across the country, it is when it’s reliable. The company I work is a fresh product one. If it gets held up for some reason, it is no longer reliable because now it’s just waste.
There are some challenges within the transportation system, but we just don’t have that plan in place yet or a solid recommendation for you. We certainly see that as a huge opportunity within this business.
The Chair: Do you any comments from the other panellists on transportation? Is it a bottleneck?
Ms. Powell: It is a bottleneck, and our grain industry is struggling right now with the railcar situation.
We have transportation members that are trying to sort out ways to get freight moved easier. It’s a challenge.
Canada is a big country, so to get something from Ontario out to the west it’s an expensive endeavour. There need to be some more efficiencies and reductions in pricing. It’s cheaper to send something to China than it is to send it to Vancouver, and that is sad.
The Chair: It’s also amazing.
Ms. Powell: Recently one of our members had to ship something from Ontario to Vancouver. Then they also had to ship something to Singapore. They said the freight cost them $4,000 to send it to Vancouver, and it cost $1,400 to Singapore. That’s a huge problem.
I don’t know the fix because it’s the transportation industry that is dictating the pricing. I am not sure what kind of fix there can be.
The Chair: I would suggest it’s a very important aspect of the study we are doing on value added in the food industry on agricultural products.
Ms. Powell: How can we get more efficient in Canada to be able to move freight across country? Yes.
The Chair: With that, I’d like to thank the panel.
I ask senators to stay for a two-minute meeting in camera.
(The committee continued in camera.)