Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 13 - Evidence - Meeting of March 13, 2012
OTTAWA, Tuesday, March 13, 2012
The Standing Senate Committee on Agriculture and Forestry met this day at 5:04 p. m. to examine and report on research and innovation efforts in the agricultural sector (topic: Why healthy trade relationships are essential to an innovative agri-food sector).
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I call the meeting to order.
[English]
I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. I want to thank the witnesses for having accepted our invitation. We want your comments, your views, your recommendations and your vision on agriculture.
My name is Senator Mockler from New Brunswick, chair of the committee. At this point I would like to ask all honourable senators to introduce themselves.
Senator Mercer: I am Senator Terry Mercer from Nova Scotia.
Senator Merchant: I am Senator Pana Merchant from Saskatchewan.
Senator Campbell: I am Senator Larry Campbell from British Columbia.
Senator Mahovlich: I am Frank Mahovlich, Ontario.
Senator Plett: I am Don Plett, Manitoba.
Senator Buth: I am JoAnne Buth, Manitoba.
[Translation]
Senator Maltais: Ghislain Maltais, Quebec.
[English]
Senator Duffy: Mike Duffy, Prince Edward Island.
Senator Eaton: Nicky Eaton, Ontario.
[Translation]
Senator Rivard: Michel Rivard, The Laurentides, Quebec.
[English]
The Chair: The committee is continuing its study on research and innovation efforts in the agricultural sector with an order of reference mandate from the Senate of Canada, which states that we shall be authorized to examine research and development efforts in the context of developing new markets domestically and internationally, enhancing agricultural sustainability and improving food diversity and security.
Today we are focusing on why healthy trade relationships are essential to an innovative agricultural food sector.
[Translation]
Today, we welcome Mr. Jacques Pomerleau, president of Canada Pork International, and Ms. Kathleen Sullivan, Executive Director of the Canadian Agri-Food Trade Alliance.
[English]
We also have with us Mr. John M. Weekes, former Canadian ambassador to the WTO and chief negotiator for NAFTA, and Mr. Peter Clark, one of Canada's most active international trade practitioners.
[Translation]
Madam, gentlemen, thank you for accepting our invitation to appear.
[English]
We ask you to make your presentation, to be followed by questions from the senators. I am informed by our clerk, honourable senators, that the first to make a presentation will be Mr. Weekes, to be followed by Mr. Clark, Ms. Sullivan and Mr. Pomerleau.
John M. Weekes, as an individual: Thank you very much, chair. It is a pleasure to be here this afternoon.
The answer to the question posed by today's topic, why is a healthy trade relationship essential to an innovative agri-food sector, starts with the importance of the international marketplace for Canadian agriculture.
I begin with the global picture, the world population, as we all know, is increasing dramatically. It is expected to reach 9 billion by the year 2050. There is an enormous amount of increased disposable income in a number of the leading developing countries so the wealth of this international market potential is growing. Canada is one of the very few places on earth with sufficient arable land and water resources to be able to increase agricultural production.
It is fair also to say that the future growth in Canadian agriculture is heavily dependent on exports. By any standard, the Canadian market is small when compared with the global marketplace that is out there. Take beef, for instance, as an example. Per capita consumption of beef has been falling now in Canada for some time. Some 50 per cent of our beef is already exported as both meat and live cattle. About 85 per cent of that at the present time goes to the United States. However, there is growing potential in high value markets in Asia and Europe.
I think it is useful to note, also, that around the world, consumers are increasingly focusing on more than just price; they want information about what is in the food, where the food comes from, and how it was made. Canadian retailers are responding in this environment, as are foreign marketplaces. You see this with Loblaws, for instance, with their "free from" program where they have certain products they guarantee to be free from the use of hormone additives or antibiotics in the production process. Sobeys has introduced a "trace the fish" program, and Loblaws is talking about exploring traceability for beef products within the next year or so. Those are just a few examples.
Providing such assurances to consumers requires an effective traceability system; that is, the capacity to be able to trace where the product came from and how it made its way to the supermarket shelf.
I believe producers need to have a clear environment and set of rules or parameters within which they can do their planning. It is important to consider that as we look at these opportunities in the international marketplace. We have at the present time an unprecedented set of opportunities for negotiating international trade agreements. The government's trade negotiations program clearly offers major potential benefit to Canadian agricultural producers.
Foreign barriers to agricultural products remain high. For instance, the tariff in Korea on beef and pork products is 40 per cent. Beef tariffs in Japan are 38.5 per cent, and so on. There are a lot of high barriers out there as compared with what we have become used to with trade among our more developed partners in North America.
Other countries are also ahead of us, in some cases, in terms of lowering barriers in some of these key markets. For instance, both the United States and the European Union already have a free trade agreement with South Korea. We are still in the process of negotiating an agreement with South Korea. This potentially puts Canadian producers at a significant disadvantage in that market. In addition, New Zealand has free trade agreements with Japan and China, and the list goes on in terms of where we are potentially falling behind.
I think government action in negotiating trade agreements and in improving trade and economic relationships with priority markets will have a major impact on the future of the agriculture sector in Canada.
I will now run through four or five examples of what I think those priority markets are. The United States is always our top priority, but it is clearly no longer enough. We are told by government negotiators and ministers that we are in the final stages of an important negotiation to conclude a comprehensive economic and trade agreement with the European Union that would give us preferential access to that major market in agricultural and other products, which would be a very significant development.
We have the potential of opening a free trade agreement negotiation with Japan. There is a report on that now out on the Department of Foreign Affairs and International Trade website suggesting that an agreement with Japan would be very much in Canada's interests. I mentioned Korea; we are negotiating with Korea, but those negotiations have been stalled for some time. The Prime Minister will be there at the end of month. Perhaps we will hear something as a result of the interaction he has there at that time.
We are negotiating a free trade agreement with India. Those negotiations are under way. That is a major developing market.
We are trying to seek admission to the negotiations on the Trans-Pacific Partnership, which could be a very important agreement now involving the United States, Australia, New Zealand, some Southeast Asian countries and a couple of Latin American countries. There are no big heavy hitters yet except the United States, but certainly the United States and other partners in that negotiation have said they are looking to set up that agreement as a template for other agreements in the Asia-Pacific area. That should be of interest to us.
Perhaps we are not ready to negotiate a free trade agreement with China tomorrow, but there is lots of potential for developing our trade and economic relationship with that country in a way that will benefit Canadian agricultural producers.
I have not mentioned the World Trade Organization. The Doha Round negotiations are dormant, but I think it is important to note that the WTO remains important. It is important in the dispute settlement area. Canada has recently won panels on the country of origin labelling regulations in the United States and on Korean beef. The Korean panel has resulted in the reopening of the Korean market for Canadian beef exports for the first time since the eruption of BSE in Canada in 2003.
The WTO is important for disciplines on agricultural subsidies, which cannot really be negotiated bilaterally. That is another important matter for Canadian agriculture — both domestic and export subsidies. It is important to note it is also the place where we house the science-based rules regarding product regulations.
I have noted that the committee is dealing with innovation and research. In considering what I have just said in this background, it would seem from my perspective that most investment in research will be done for investment in increasing our capacity to be able to export. I think it is also clear that the kind of new challenges we face in the global marketplaces will require investment in innovation and research. Perhaps we ought to be looking at ways in which we can engage in international cooperation with some of our foreign partners in terms of sharing the burden of how we go about these tasks.
Thank you, Mr. Chair.
The Chair: Thank you, Mr. Weekes.
Mr. Clark, please go ahead.
Peter Clark, as an individual: Thank you, Mr. Chair.
As a trade practitioner, I certainly agree with many of the things that Mr. Weekes said. I would not disagree with much he said, since we essentially did the same things in the early part of our careers. At one point we were sitting next door to each other in Geneva.
As for the Doha Round for the WTO, my normal approach to explaining its status is to show Monty Python's "dead parrot" skit. That is the Doha Round. One need not say much more than that about it.
As for China, I would start with China tomorrow because it will take a long time. I go there too much — in one year, I have been seven times. It is really too much but it does teach you that China is rapidly evolving. The younger Chinese who are moving into positions of influence — not quickly enough — are a different breed of cat. They really are. They are very outward-looking. Many have been to school outside of China. If you are sitting quietly with them, without too many people around, the dogma disappears. They are more interested in when they will move ahead of the United States. It is not in jingoistic or belligerent terms. It is really an interest in where they are going.
The Vietnamese are the same. They are behind but they have the same approach.
Therefore, I would start with China now because it will take a long time.
What Mr. Weekes was saying about other people being into agreements before us is true. The Korean agreement with the Americans could potentially affect $1 billion of our existing and potential agricultural trade. Most of that is in pork. Ms. Sullivan can tell you who the others are. We just got access again with beef, but how will we realize it?
On March 15, we will find that Americans have a 12 per cent advantage to us on very low-margin pork items going into Korea. It is a big, expanding market. Their herd was essentially wiped out with foot and mouth and they cannot rebuild. We cannot wait much longer to get in there.
It is the same with the Trans-Pacific Partnership. My view is we will be much better if the Prime Minister can announce with Prime Minister Noda that we are working on a Canada-Japan partnership agreement when he drops in on Japan later this month. It is the same with Korea. That is where the business is.
The United States wants us in the TPP, if they want us at all because they do not need us, to try to enhance a few things they missed in NAFTA. There is no real market access for us there.
New Zealand, I am sorry, there are 82 cities bigger than New Zealand, with all due respect to the Kiwis. They should not be driving world trade in anything.
In terms of innovation, you find innovation over the years. I have been around a long time in dealing with agriculture inside and outside government, and you notice things as they go along. About 30 years ago I met a young Filipina lady who is now my wife, and her father was a farmer. He and I went into the pig business in the Philippines. When I asked him where he was getting his breeding stock from, he said, "only Canada." He said it is the best in the world, and that is the breeding stock they want. Genetics is very important.
I worked on the country-of-origin labelling dispute at the WTO; I am counsel to the pork producers. When I was studying what had happened in Manitoba, we found that all these millions of piglets we ship across the border to the United States go there because of their better genetics.
We are improving pork on the table.
When we were having another dispute about American subsidies on grains, I was speaking at the Ontario Pork annual dinner and they gave me pork that was medium rare. I asked if we could eat it, they said "sure" and then explained to me why.
We are moving along, and that is not the only area where we are doing it. If you look at poultry, the bulk of the chicken in Canada is air chilled after slaughter. In the United States it is still water chilled, which means you have 12 to 14 per cent water content in your chicken. That does not do much for the taste either. We have developed that. If you look at the statistics on salmonella occurrence in poultry between Canada and the United States, it is lower here because farmers have the money to do the things they have to do to keep the chicken clean.
I have eight grandchildren and am happy they do not have to drink hormones in their milk like they do in the United States. As for the two in the United States, their father assures me that they only get organic milk.
The dairy farmers, a lot of people were surprised when they saw the article in the paper about how much genetics we ship to China. Why do the Chinese like our cows? Because they give a lot of milk and because they are pretty. I will not get into any jokes about pubs and Whales; we will leave that aside.
We are doing the work, but we have to have the markets to go for. By 2050 food demands around the world will be such that no one will have tariffs or other restrictions on agriculture and on food, but we have to get there. We really do have to get there. I am impressed when I go to meetings to talk to farmers, usually about trade issues or Monty Python's parrot, and how well educated they are, the things they are interested in. The ones who specialize in animal husbandry and genetics and are involved in seed development, all of them have to work together.
Unfortunately they do not work together enough. When they do not work together the government divides and conquers and gives them half a loaf.
In terms of research, I read some of the reports on your earlier committees and saw the criticism about the research being too academic and not applied to the market. I do not have anything to dispute that and I do not have anything to support it.
However, you are going to Washington, and I would suggest you talk to the Agricultural Research Service people there and people on the Senate agriculture committee. They will be so proud of what they do in the United States with their land grant colleges and different programs. You can pull up every year and see what they have given money to.
I had a list of one program with five pages of different grants, all looking at state-of-the-art or current issues. The senators are very proud of what they do. They are gearing their research to the market. They are gearing their research to problems. It cannot all be market-ready research because you have to deal with the problems.
As Senator Duffy will recall, I was involved in defending Prince Edward Island potato growers and attacks by Senator Snowe, bless her soul.
Senator Duffy: Nefarious attacks.
Mr. Clark: Nefarious, yes. That was disease control. That is isolation and eradication. You will see all kinds of money the Americans put into that. They are putting money into developing agriculture in Afghanistan and emerging markets.
One of the emerging markets they are providing money to under the export credit financing, to the tune of $750 million is Korea.
I think I am over my time. I am happy to answer questions.
The Chair: Ms. Sullivan?
Kathleen Sullivan, Executive Director, Canadian Agri-Food Trade Alliance: Thank you very much. My name is Kathleen Sullivan and I am Executive Director of the Canadian Agri-Food Trade Alliance. It is a pleasure to be here today.
CAFTA is a coalition that represents Canada's agriculture community — farmers, processors and exporters — although we mainly represent farmers who export their food. My members include the Canadian Pork Council, Canadian Cattlemen's Association, the Canola Council of Canada and Grain Growers of Canada. I essentially represent the beef, pork, grain and oilseed sectors, which would be our major agriculture exporters in Canada.
CAFTA was formed 10 years ago because Canadian farmers, processors and exporters realized that trade was so important to our community that we had to have a united voice. My sole job is to work on trade negotiations that Canada has under way and make sure they have a strong and solid agricultural component.
The reason we do that is because, as Mr. Weekes pointed out, Canada's agricultural community relies on trade. Canada is the fourth largest agriculture exporter in the world. Every year we ship about $40 billion in products out of the country. We are surpassed only by the EU, the U.S. and Brazil. In fact, we ship half of what we grow. In some cases, in the case of pork for example, it is getting close to 70 per cent of all of our pork. In the case of canola, 85 per cent of all the canola we grow actually leaves Canada.
If we did not have access to foreign markets, the size and structure of our farming community and processing community would be radically impacted. Our exports are really critical to the national, provincial and rural economies across the country. About 10 per cent of all of Canada's merchandise trade is agriculture and food. We have estimated that about 210,000 farmers across Canada rely on export markets. That is the majority of farmers in every single province, including Quebec which many consider to be a supply management province, but still the majority of farmers in Quebec depend on export markets.
Trade must be a priority for us, and we have identified three main areas where we would like to see focus. One is continuing to seek opportunities to liberalize trade through a multilateral trade deal like the WTO.
The second is actively and aggressively pursuing FTAs and regional trade deals. The final one is addressing market access barriers. That would be non-tariff trade barriers that often impede or can even block trade around the world. I will briefly touch on all three.
Mr. Clark and I may differ in our views on the WTO, but I think the one thing we all agree on right now is that the WTO is at an impasse. We are unlikely to see any movement on a multilateral trade deal through the WTO for the next few years.
It is unfortunate that around the world 60 per cent of all trade distortions are related to agriculture trade, even though less than 10 per cent of trade is agriculture. We have a huge problem, and a lot of the problems in agriculture trade just cannot be addressed on a bilateral basis. They really do have to be addressed through a multilateral trade forum. We will never give up our vision of achieving some sort of multilateral deal.
Our current focus is bilateral and regional trade deals. I think Mr. Weekes did an excellent job of identifying our priorities. I just came from the agriculture minister's office, where we listed our priorities. If Mr. Weekes had been there it would have been identical.
I will say that the Canadian government has in place the most ambitious trade agenda this country has ever seen, really since the NAFTA but I think in history.
The trade deals we are currently looking at, the ones Mr. Weekes rhymed off — EU, Japan, Trans-Pacific Partnership, India, South Korea — those markets represent 70 per cent of Canada's agriculture exports. If we can land deals with those countries, it would be quite significant for us; and if we do not have those deals, it could be quite harmful.
Mr. Weekes has pointed out that the U.S. and the EU are ahead of us in South Korea. That is a billion-dollar market for us. If we do not get a deal signed with that country very soon, we are at risk of losing a billion dollars in exports. That is a billion out of $40 billion.
If, for example, Japan got in the Trans-Pacific Partnership and we did not, we would be at great risk of losing our Japanese market, which is our second-largest export market.
Market access barriers is the third area where we focus, and this comes very much down to regulations. Market access barriers deal with things like non-tariff barriers to trade; regulations; sanitary and phyto-sanitary issues, which of course affect food exports; customs administrations and procedures; and rules of origin, these various measures that are not specifically tariff related and that can have a tremendous impact on trade.
We say this is the emerging future in trade barriers. Our negotiators know how to deal with tariffs and quotas, but you really have a moving target when you are dealing with non-tariff barriers.
In my paper, on page 4 all the way through to page 5, I have given you a handful of the barriers that we face around the world. It is anything from country-of-origin labelling in the United States, to blackleg restrictions in China on our canola products, to the hormone ban that the EU has placed on our beef going into that country. If we cannot deal with those things, then we can block trade.
One example is that because of GMO regulations in the EU, while we essentially have tariff access to the EU for our canola products, we do not ship any canola products right now to the EU because of concerns over how they treat GMOs versus how we treat them. Canola is our largest cash crop and our largest crop export. We need to be opening up markets for these products.
Twenty-first century trade deals are what we were looking at going forward. Those are deals that start to address these trade barriers. That can be done a number of different ways. On page 6, I list them: Looking at regulatory cooperation and coherence through trade deals, customs administration, dealing with technical barriers to trade and SPS issues, and dealing with rules of origin.
My final thoughts are just that trade is critical to Canada's agriculture producers and our food processors, and it is critical that we continue to focus on trade deals that open up markets for our farmers and our processing community.
The Chair: Mr. Pomerleau?
[Translation]
Jacques Pomerleau, President, Canada Pork International: Thank you, Mr. Chair.
Canada Pork International is the export market development agency of the Canadian pork industry. Established in 1991, it is a joint initiative of the Canadian Pork Council and of the Canadian Meat Council. The initiative was undertaken principally in reaction to the measures that the Americans wanted to impose on us at that time, when we were heavily dependent on that market.
Our organization deals primarily with market access issues, the promotion of Canadian pork abroad, providing market intelligence as well as working on other significant export-related issues.
Although Canada has been exporting pork for over 100 years, Canadian pork exports have grown considerably in the last 20 years. From 250,000 tonnes, worth $600 million shipped to 54 countries in 1991, they grew to 1.1 million tonnes, worth $3.2 billion shipped to over 100 countries in 2011.
With close to 20 per cent of the total world's pork trade, Canada is the third largest pork exporter behind the United States and the European Union. We should retain that position in the foreseeable future. Our major markets are the United States, Japan, Russia, China, Hong Kong and South Korea.
As Mr. Clark and Ms. Sullivan mentioned, more than 60 per cent of the Canadian pork production is exported. If you add live hogs into that equation, almost 70 per cent of our production is exported. Our industry is therefore heavily dependent on exports.
It is worth noting that Canadian pork exports to the United States now represent less than 30 per cent of the country's total exports. When our organization was first established, more than 20 years ago, this market represented more than 75 per cent of our total exports.
This is the proof that our strategy to diversify away from the United States and be less dependent on one market was successful.
To digress in the light of previous comments, in the case of Korea, without a free trade agreement, our industry alone runs the risk of losing a market worth $300 million in the next 12 to 18 months. In the case of Japan, our share of the market is close to $1 billion. Contrary to what people might think, the far-western provinces are not those that supply most to Asia. The supply comes principally from Quebec and Ontario, specifically Quebec. So more than 50 per cent of the production is exported.
As Mr. Clark mentioned earlier, the success of the Canadian pork industry on world markets can be in good part directly attributed to the research work done over the years by the federal government on swine genetics and meet quality. Agriculture and Agri-Food Canada developed a new breed, Duroc, which is now recognized worldwide for its superior performance.
The elimination of the halothane gene, which is responsible for a major meat defect, has had a significant impact. Not to mention the work done extending the shelf life of pork, which now allows us to export fresh pork all the way to Asia. Known as chilled pork, our product now has a shelf life of more than 45 days; this allows us to reach almost all major markets, including Singapore and even into Russia. We are actually one of only two countries that have mastered this technology.
As for the work needed in the future, however, we must keep in mind that success is no guarantee of future results. Canada's pork industry operates in a challenging, highly competitive environment. Canadian hog producers and Canadian pork packers and processors must compete in a global marketplace while facing challenges from the rapid appreciation of the Canadian dollar, the cyclical nature of prices, increasing costs of production such as feed grain, fuel and regulatory costs both in Canada and overseas.
All of these factors have created the need to improve Canadian competitiveness in the global marketplace. Twenty years ago, our industry was built on a 65-cent dollar. Now we are at parity with the American dollar, which requires enormous effort from us to adapt our production. Despite that, our exports are on the increase. So the industry has shown itself capable of making the effort needed to improve our competitiveness.
Although, as I indicated earlier, our industry has been quite successful on the export markets, it will still require assistance to reach its overall objective of becoming the preferred supplier of high-quality pork. It is not our intention to feed the world; we do not have sufficient production capacity. But nothing is stopping us from targeting the high- end products and having a much more significant edge because of our product.
To achieve this, the industry will need to be able to supply a well-differentiated product and effectively position and merchandise it in the domestic and export marketplace. It is recognized that the quality advantage the Canadian pork once enjoyed over its competitors has narrowed and our traditional differentiation points no longer suffice. A science-based differentiation is now required to improve the competitiveness of Canadian pork. Word of mouth is no longer enough in international trade. We need proof, especially for our Japanese purchasers.
Pork is still the most versatile meat, but we are a long way from exploiting its full potential, as the chicken industry has done in recent years.
In that regard, the research work conducted by Agriculture and Agri-Food Canada is essential. Improved swine genetics and meat quality attributes have a direct impact on our ability to compete at home and abroad. The department has an expertise that cannot be matched by the private sector.
Although aligning government research with the private sector's needs is somewhat of a challenge at times, it is reasonable to say that, in the pork industry, it has been well handled. However, we have to point out that the number of researchers working for the pork industry is very small in terms of Agriculture and Agri-Food Canada's total complement of researchers and that more than 50 per cent of researchers in the pork industry will be retiring in the next five to six years. So we have a challenge to meet in that area. We understand that the economy remains the government's number one priority.
We agree with the government that engagement and increased trade are important drivers of Canada's long-term prosperity and growth. But it is essential to maintain an effective research and innovation platform. Our experience demonstrates that there is a good return for all stakeholders, including the government. It should be looked at as an investment rather than just another government expense.
The Chair: Thank you, Mr. Pomerleau.
[English]
Senator Mercer: This is a very interesting group of presentations. I am very optimistic about what our future can be and perhaps should be.
I like your comment, Mr. Clark, that we should start the negotiations with China tomorrow because it will seem like it will take forever as we proceed through it.
However, in all the countries people emphasized, I only heard mention of India once. Ms. Sullivan mentioned India. India, of course, is the second-largest country population-wise, and in a few years will be the largest.
I was recently there on a Commonwealth Parliamentary Association trip. One thing that I was fascinated by, amongst many, many other things, was that they buy a lot of our oilseed, chickpeas and lentils, our pulse products, particularly from Saskatchewan and Manitoba. They mentioned several times as we went around the country their interest in pork products. There is a great opportunity for us there.
I did not hear any great emphasis about pork and shipping other things to India.
I know we are shipping a lot of pulse products to India through the Port of Vancouver to parts of Asia. I would be remiss if I did not point out that the Port of Halifax is closer to southern China, all of India and Pakistan, Malaysia and Indonesia than any port on the West Coast, and it is closer than any other port on the East Coast. I would suggest if you have any influence on how they are shipping, we are open for business and ready to go.
My question is about India. Why is India not on our list of countries that we want to do a deal with? It is a huge market and getting bigger. They are getting wealthier. They have money to spend. Just on infrastructure alone, they have to spend U.S. $1 trillion in the next five years. It is just huge.
Ms. Sullivan: I will start and maybe turn it over to Mr. Pomerleau to talk specifically about pork. I should mention that Canada Pork International is one of my members.
India is absolutely one of our priorities. From a timing standpoint, the EU and South Korea are our top priorities, only because we are on the cusp of finishing the EU, and if we do not move on with Korea we will lose that market. Then we have Japan, TPPand India as our priorities. You are correct; it is a huge marketplace for us. There is potential for virtually all of our products to go into India.
Senator Mercer: Other than beef, perhaps.
Ms. Sullivan: There are hurdles, but there certainly is tourist trade. There are parts of India that might be interested in consuming the sort of beef that we grow as opposed to the kind of beef that they have in India, which is water buffalo.
We do see a lot of potential. The reason India does not come up top of mind is because, much like China, India is a deal that will take a long time. One of the biggest challenges with India is the non-tariff barriers we face there. They are often a moving target. Because of that, and I agree with Mr. Clark's comment that we should start China right away as well, we estimate India will take five, if not more, years to complete, but it is something that should be a priority for the government, and it is.
Mr. Pomerleau: I have been to India twice, and we know for sure what the opportunities are. The opportunities are with the five-star hotels. We met with the Taj Mahal chains and others, and also the Western style supermarkets that are starting in the Bangalore area, and we know they want the Canadian quality. Keep in mind that I do not know how many people from India are here in Canada, but they have heard about our quality; they have seen it and experienced it.
We know for us India would be a market for high-end products. However, the problem is to negotiate an agreement with India. We started about 10 years ago and still have not got one yet. It is very difficult to get them to engage in negotiations. Basically, what they are asking for at this time is that our pigs not be fed with ruminant protein in the feed. We have developed a protocol. We have given that to them. It has been six months. We are still waiting for an answer.
The most difficult part is when it comes to the diseases. As you have found out in India, they do not have any diseases of any kind, but they insist that all our pork be exempt from all the diseases that you could find in the book. It is very frustrating to deal with the Indian bureaucracy, but it is a high-end market for us.
Ms. Sullivan: Could I comment on your remark about the Halifax port? It is important and one of the great opportunities for Eastern Canada from a trade standpoint is our trade deal with the European Union. We are estimating that food and agriculture trade to the EU could grow by $3 billion as a result of that deal. In fact, a quarter of the whole value of a deal with the EU, goods and services, will be agriculture and food trade.
With that, there are tremendous opportunities on a more immediate timeline for Eastern Canada, eastern processors and the Port of Halifax, if we can conclude the deal with the EU.
Senator Mercer: Obviously, we are anxious to do business with everyone, and we are closer to the European market as well.
Mr. Weekes, you are a man with a lot of experience. You suggest that China should not be on our priority list whereas your colleague Mr. Clark said that we should start tomorrow. Could you give us an opinion on that?
Mr. Weekes: Yes, I would be happy to.
I did write an op-ed piece in The Globe and Mail with Eddie Goldenberg a little over a year ago suggesting we should negotiate a free trade agreement with China. It is really a question of the timing. It is definitely something we need to do.
The reasons I do not think we should do it immediately are twofold. First, we need a bit of time to build a consensus within Canada that it is a good idea because there are a number of industries that seem to be somewhat frightened of the prospect. Second, we want to be careful in terms of managing our relationship with the Chinese, that we do not build up expectations that cannot be realized. The Australians are engaged in free trade negotiations with China, and I think it has proved a bit of an embarrassment to them because they have not made the kind of progress they hoped they would. In my view, it might make more sense to spend some time working together with the Chinese on the sorts of issues that would eventually have to be addressed in a free trade negotiation, but really try to do some underbrush clearing before we actually got to the bargaining table.
Senator Mercer: Ms. Sullivan, you talked about liberalization of trade and removing trade barriers. That always raises a question for me with respect to supply management. Are you suggesting that the government throw supply management under the bus?
Ms. Sullivan: No, CAFTA has no policy on supply management, quite happily.
We are interested in trade deals. What I would say has been a great development in the context of Canada-EU is that for the first time the Canadian government did not exclude any industries upfront from its negotiating mandate. They left it to the negotiators to recognize what Canada's sensitivities were. The Europeans have sensitivities as well. I think that is the way to do it.
One of the problems we have when we go out publicly, internationally, and say we will not talk about this and we will not talk about that, is that we send a message perhaps stronger than we intend that we are not prepared to talk about trade. Other countries such as New Zealand use that against us.
We need to give our negotiators the ability to go into the room and negotiate a deal that makes sense, recognizing what Canada's priorities are, whether it is domestic or from a trade standpoint.
There are lots of things that hold up a deal. In the context of Korea, it is the auto sector that held that deal up for us. There is no supply management on the table in that deal at all. In the context of the EU, I think the Europeans will look for some additional market access for dairy, but they certainly are not interested in collapsing Canada's supply management system. Why would they? They have a ready environment of consumers who like to pay high prices for high- quality cheese. It is in their interest to keep the market we have right now. Every deal is very different.
The only thing we would suggest to our negotiators is to not exclude anything from your mandate up front; if you do, that limits your ability to go to the table and talk. The other thing we would say to them is to fight like heck to get us as much market access as you can, because we rely on it.
Mr. Clark: Can I add to that, please, senator?
I will not argue about supply management. When I worked in the Department of Finance, my job was to try to kill it, and I failed miserably.
Senator Mercer: I am glad.
Mr. Clark: Aside from that, I work for dairy, chicken, egg, and pork farmers. Sometimes I work for beef farmers. Therefore, I cannot take a position on supply management.
My comment on this is that if the Europeans would like us to come clean, so to speak, then they should get rid of the subsidies under the Common Agricultural Policy. We had a discussion at Carleton with the deputy chief negotiator for the EU. The last question was the one I asked. I said, "Are you going to put the CAP on the table?" They said, "No, we cannot do that," and that is one of the reasons that we have a problem.
With respect to TPP and CETA, Canada has said everything is on the table, so if everything is on the table, it is on the table.
Ms. Sullivan: Representing farmers, if there is one thing we do not like, it is being caught in that supply management/exporter box. It is no fun for farmers to beat up other farmers. We have to trade. We hope that our supply management colleagues understand and respect that. They have a marketing system that they have chosen. We try to understand and respect that. If we are up head to head against each other, I guess we would have to figure that out at the time.
However, farmers do not like beating other farmers up. One of the great things about the trade deals Canada is negotiating now is that they are so big and so broad that, in the context of the Canada-EU negotiations, it is not agriculture for agriculture. The Europeans want access to our government procurement system. That is what we hope will buy us access for our beef and pork. It is not anything to do with supply management.
When we are negotiating these really big deals, that is the opportunity that we have.
Mr. Clark: To complete this, one of my concerns with the Common Agricultural Policy is that it restricts imports of pork to one fifth of one per cent of consumption in the European Union. I am not arguing for supply management here. I am saying the Europeans are not playing the game the way it should be played.
Senator Plett: Thank you all for excellent presentations.
Mr. Weekes, I believe last week we had some witnesses in here who were suggesting that we were running out of arable land. In your remarks you talked about the 9 billion people that we may have to feed down the road and that we have sufficient arable land to increase.
Could you elaborate a little bit to what point we have sufficient arable land to increase our production?
Mr. Weekes: I must confess, senator, that I am not an expert on availability of arable land, but I have attended a number of conferences dealing with the issue. There was an interesting one in Ottawa a few months ago, the Feeding a Hungry World Summit. The experts who were providing presentations made the point that there are three countries in the world that have the most potential to increase the arable land that is being used: Canada, Australia and Kazakhstan. However, of those three, Canada is the only one that is well endowed with renewable water resources and therefore has the advantage in terms of being able to increase its agricultural production in a more reliable fashion.
That is really all I have to say today.
Senator Plett: Does anybody else have a comment on that?
Ms. Sullivan: I think the only thing to add is that I think a lot of increase we will see in production will also come from increased yields. I think that is where your questions about investments in science and research really come into play. If we can look at different farming techniques or look at different varieties that might be developed, whether genetically modified or just through traditional breeding, you may start to see increases in yield, as well, that will help in terms of our output.
Senator Plett: That is a question I asked last week as well, so thank you for that.
Ms. Sullivan, I think it was you who rightfully stated that we have a very aggressive plan for free trade. I certainly support it. Since the Conservative government took power under Stephen Harper — and those have been good days, Senator Campbell — we have completed nine free trade agreements and are presently in negotiations with 50 countries at this point.
I wonder whether we are being too aggressive; that we are negotiating with too many countries at one time and if that is a problem. I would like you to talk about that.
I will also just throw two more questions in there. Somebody suggested that China and India take an awfully long time to do. It seems to me like South Korea has taken forever. Please talk about that a little bit.
On the issue of China, we have not started free trade negotiations, but I think our Prime Minister has made it very clear that he wants to do business in Asia, including China. He made that very clear just a month ago, and Senator Buth was there with the Minister of Agriculture. They made a number of very good deals for our country.
Whether that is a segue into free trade or not, I am not sure, but touch on the three issues, please.
Ms. Sullivan: Sure. First of all, the current trade agenda is phenomenal. It is thrilling to work in trade right now with the negotiations that we have going on. However, you are correct that we are limited in resources; we only have a certain number of negotiators. Even from a production standpoint, if we had trade deals with every country around the world, our agriculture sector would still need to catch up in terms of production.
We need to start to prioritize a little bit, but we also need to recognize that there is a queue here that needs to form. A deal like the EU is very active right now. South Korea needs to become active. You can be working on those at the same time that you are trying to sort out what you are doing with China or court China. Some of these deals will take longer than others. If we are careful, for the next five or 10 years, we can maintain the robustness of the current trade agenda.
I hate to say no to a trade deal, but perhaps we have to stop some of the smaller deals. There are a lot of smaller deals that still take a lot of time from and attention of our negotiators, and I think we may have to go back and take a look at some of those and perhaps put them aside.
The kinds of deals that we are looking at right now are fantastic. That is where we should be focusing our resources and getting those done.
South Korea is a huge challenge for us. Negotiations with South Korea stopped in 2008 because of problems, namely the auto sector concern over the FTA. There were also concerns over South Korea blocking our beef trade. The WTO challenge on beef access has now concluded; we have negotiated a settlement with Korea and we now have access for our beef. That challenge is eliminated.
I think the government is starting to realize that, although the auto sector has some concerns about South Korea, perhaps those concerns have been overstated in the sense that most Canadian auto production leaves Canada — about 85 per cent leaves Canada for the United States — and Canadian-manufactured autos are not for the most part competing with the Korean automobiles coming in. Base that against the fact that the Canadian agriculture sector is about to lose a billion dollars in trade.
The problem we have is that the Koreans are about to go into an election in April and it will be very difficult for us to engage them in negotiations until their elections are over. Once those negotiations end in April, we have to get moving on this. We are very helpful that Minister Ritz goes to South Korea because that will send a positive signal.
Mr. Pomerleau will add to this, and Mr. Clark as well. We have already seen Korean buyers stop buying Canadian product because they will be able to buy American product at a reduced tariff. That tariff is being phased in. We are going to see, with the U.S. dealing with Korea, tariffs on almost all agricultural products eliminated over a period of time, up to 15 years. We will always be playing catch-up with the Americans, the longer we wait to conclude our own deal. This is our fifth largest export market, and it is a market in Asia which is a priority for the government and for us as well.
In terms of China, it is a priority for us. It is a huge export market for us and one of the top five. As you mentioned, Senator Buth was there with the Prime Minister and several sectors, including some of Mr. Pomerleau's members. Minister Ritz has spent a lot of time in China, trying to solve problems with the Chinese. A lot of the problems we have are these non-tariff barriers.
I think both Mr. Clark and Mr. Weekes are right. It is a tricky to negotiate with the Chinese; it is a bit of a moving target. It will take us some time to work through the issues and understand how serious the Chinese are about negotiating and, in some ways, what the best tool is. Is it an FTA or some memorandums of understanding? To Mr. Clark's point, we need to get started sooner rather than later, because it will be a very long process.
Mr. Clark: Mr. Weekes is right about not disappointing the Chinese and getting ahead of ourselves. I am talking to an agriculture committee here and talking about agriculture. We have other people trying to get into the market ahead of us: Australia and the Europeans will try to get into the market. We need to be there first.
It is a bit like we used to say when I represented the beer industry. The first guy with dry beer on the shelf will have the best market, because if you are there first you get the best self space and the best distribution. It is the same with agricultural trade. It is the same with any trade.
Having spent a fair amount of time in China, I would say that when the Premier said, in what appeared to be an off- hand comment, that they should negotiate free trade with Canada, they do not do that. They do not make comments like that off the cuff. They have seriously considered it. We have actually been working with them for more than six months on trying to shape this report that we have announced we are doing. There is a lot of work going into it.
They have other reasons that they would like to do free trade with Canada. It helps in their strategy. The TPP and what the Chinese are trying to do with Japan and Korea and ASEAN is another element of what trade should look like in Asia. They would not mind at all if we did free trade with Japan, Korea and China. It would help them. They see TPP as an anti- China initiative by the United States. That is the way they see it in China.
The New Zealanders have come out and said if this is anti-China deal they will have to walk. The Australians, with all the fuss with the TPP in Melbourne last week, said clearly they do not want rules in the TPP for state-owned enterprises to deal with China because China is not in the negotiations. Is there messaging going back and forth between Beijing and Canberra and New Zealand? Yes, sure there is, because there is that element to it. The Americans are trying to regain position in Asia, Southeast Asia, and the Chinese do not like how they are doing it. The Americans talked about it, and they never should have.
Mr. Pomerleau: I think everything was covered, but in our case being so export dependent, the fact is when it comes to Korea we were able to develop a very high-end market. I was told by the largest supermarket in Korea that we have the best product. He did not have to say that. We were able to promote it.
It is the very first time, I think, that the Canadian government is faced with a situation where, instead of gaining something by negotiating a free trade agreement, in this case we are in a position to lose something because we do not have a free trade agreement. The government has never seen anything like this. It is a bit difficult for the current government to proceed, but we are hopeful that it will shape up again in the next few months and that we will be able to maintain what was looking like a promising market.
Senator Plett: Ms. Sullivan, why is there an impasse at the WTO?
Ms. Sullivan: Mr. Weekes would be better at answering that than me, but I will take a stab at it.
I think since the WTO negotiations were launched quite a long time ago, now there has been a shift around the world in where economic and political power lies. A lot of it now rests with large, developing countries like Brazil, Russia India and China, the BRIC countries.
There is a difference of opinion between those countries and the U.S. in terms of the appropriate concessions across the board. The U.S. would like those countries to be treated more like developed countries. It is important to recognize that at the WTO if you are a developing country you are asked to do less than a developed one. If you are cutting your tariffs, a developed country cuts them further. If you are cutting quotas, the developing countries have to do less.
At the WTO you self-declare, so Brazil, India, Korea, these are all considered to be developing countries at the WTO. China, these are considered to be developing countries, so they will do less in the WTO context than Canada, the EU, the U.S. would have to do. That has created some tension.
I am sure Mr. Weekes will tell me that is a massive oversimplification.
Mr. Weekes: That was a very good presentation.
It is interesting, in the Uruguay Round, the GATT negotiation that led to the formation of the WTO, everybody said that the negotiations would not come to a conclusion until the U.S. and the EU sat down and really figured out some of the key things dividing them, and then more or less sold it to the rest of the people on a take-it-or-leave-it basis. That happened.
This time people are saying that the United States and China have to have a meeting of minds, and they have not as yet.
I think also another reason that, frankly, the negotiations have run into problems, despite the fact they have been going on for 10 years, is there was inadequate preparation for them. Part of that led to the confusion that Ms. Sullivan just described about the extent to which the developing countries are really supposed to make contributions or not. They have now agreed they will, but the contributions are not big enough to satisfy the United States.
Frankly, on the industrial tariff side of this negotiation, if you look at the proposals on the table, the end result of that negotiation would be almost the total elimination of industrial tariffs in all the major industrialized markets. When they looked at what was on offer — and this happened in particular in the United States — in those leading developing countries where the markets of the future are, they did not see enough to warrant those kinds of concessions on their part.
It was launched several months after 9/11, so people thought maybe it would be a good idea to show some signs of international cooperation. Some of the issues had not been thought through as clearly as they might, and now I do not think we are going to see it revived without some substantial reworking of what the objectives are.
Senator Mahovlich: We have been doing a study on Brazil in one of the other committees. Is Brazil involved in more active trade with India than we are?
Mr. Pomerleau: I do not think so. It is interesting when it comes to Brazil. They do not have that many markets.
Senator Mahovlich: They are closer to India than we are.
Mr. Pomerleau: Not really. Not if you go through the Suez Canal. Brazil, yes, has the power to be, but they do not have that many markets because of their infrastructure, because of the phyto-sanitary problems they have, just in the case of pork. They only have three markets in the world: Hong Kong, Russia and Ukraine. Basically that is it.
This is the first time I have heard that they could get close to India. I do not think so. Canada has a much closer relationship to India than Brazil will ever have.
Mr. Clark: In São Paulo state there is a lot of agricultural land owned by Japanese Brazilians, and they do heavy business with Japan.
Senator Mahovlich: It must be good quality, then.
Mr. Clark: The food in Brazil is top quality.
Senator Mahovlich: The population of India is increasing more so than in China, and so there would be much more demand in India, I would think, for food to export than in China. Am I correct in that?
Ms. Sullivan: They would both be substantial markets. The problem with India is that they have a lot of barriers to trade. If we could eliminate those barriers, it would be a huge export opportunity for us. India is already one of our top 10 markets, notwithstanding the barriers we have. However, we ship no pork there right now, and because of their religious prohibitions we ship no beef, and those are two very high-value exports for us. We ship a lot of pulses, but when it comes to our grain products, they have a lot of barriers and will test for things.
Senator Mahovlich: Are there certain grains that they like that are ours?
Ms. Sullivan: Yes, the pulses: lentils, chickpeas. There is a huge market for those products for us, and we would like to increase that. They are a large producer of those products as well, and it is highly regional in terms of both production in India but also taste preferences in India. We will ship specific pulses to specific areas of India, and often it will depend on what their local crop production looks like in terms of what our exports will be.
There are opportunities in India for our processed foods, for pork products, and even in some areas for beef products if we can deal with barriers; however, the barriers we are dealing with in relation to India are quite substantial.
Senator Buth: Thank you to the witnesses for your presentations and comments.
Ms. Sullivan, I will start with you. You are very familiar with the fact that one of Minister Ritz's initiatives was to develop the Market Access Secretariat and the canola industry's experience with the Market Access Secretariat, and CFIA has been positive in dealing with the blackleg issue in China. You have a long list of non-tariff barriers that need to be addressed. What more does the federal government need to do in order to address those non-tariff barriers?
Ms. Sullivan: There are a couple of different tracks. I would agree with you wholeheartedly that the Market Access Secretariat has been a very welcome development for the agriculture sector. One of things it does well is that it crosses the boundaries between various departments — trade, CFIA and Agriculture Canada — which has been really helpful in terms of addressing issues. The more resources we can provide to the Market Access Secretariat, the better. It is a good institution within government, and if we can continue funding it and increase its resources, that would be great.
The Market Access Secretariat already does work with industry, but I think reinforcing those ties between government and industry in terms of identifying the non-tariff barriers is always helpful, and there is more that can be done there.
The third thing that needs to happen is to be trying, in the context of trade deals, to incorporate solutions to our problems with non-tariff barriers. That is tricky. It is not that non-tariff barriers are new, but their proliferation has gotten out of control and they often take various shapes and sizes, and countries often change what they do, so it is hard to pin them down. The extent to which we can try to bind countries to international organizations like the OIE for animal and meat health issues and to Codex Alimentarius for other regulations is helpful as well.
For example, the low-level presence for genetically modified materials is something Minister Ritz has done separately, and Canada has shown real leadership in that area. There is a conference coming up, as I am sure you know, to bring together countries to establish international standards for low-level presence of genetically modified material. It is that kind of leadership that Canada can show on an international stage. In the context of the WTO, we may have lost some of our leadership in trade negotiations because of the shifting world, but there is a real opportunity for Canada to play a strong role when it comes to non-tariff barriers.
Senator Buth: Mr. Pomerleau, you made the comment in your presentation that you value current AFC support and there are concerns about retirements. Can you describe more to this committee about what kind of support you are getting on the research side? How much do the pork producers and industry put into that research in terms of a cost share?
Mr. Pomerleau: That is a big question. I do not know who is familiar with the structure, but we have the Pork Value Chain Roundtable, and the research of Agriculture Canada and CFIA are present there. Minister Ritz and the department have what they call the research clusters. It is a shared partnership between the federal government, the meat council and the pork council. There is a lot of money involved in that area.
Also, Agriculture Canada — Minister Ritz again — gave more than $50 million to the pork industry for the Canadian Swine Health Board to develop and improve on animal health.
That is one part. The other part would be the people in research stations, like in Lennoxville or Lacombe, that are specialized in meat quality and animal handling and care.
There are many issues that need to be taken care of. At the same time, there is a partnership between the government and industry for the Centre de développement du porc du Quebec and the Prairie Swine Centre in Saskatoon. There is a lot of interaction between the government and industry. I would put the industry's contribution in the several millions, and there is provincial participation on top of that.
Senator Buth: There are at least two different views here in terms of TPP. Mr. Clark and Mr. Weekes, could you comment on what you believe are the benefits and impediments to belonging to TPP, and what are the impediments for us essentially joining TPP? Could you explain what TPP is, to start with?
Mr. Weekes: This is something called the Trans-Pacific Partnership, which is kind of a grand name that the people who are negotiating it have given to it, and it includes, I think, nine countries at the moment. The biggest country is the United States. It is building on an earlier agreement that was put together by New Zealand, Brunei, Singapore and Chile, and it now includes also Peru, Malaysia, Vietnam and Australia. The idea is that these countries wanted to get together — this is at a high level of generalization — and create a new agreement that went beyond previous agreements and created a new sort of standard of trade agreement for the 21st century, as they would call it.
The impediments to Canada joining at the moment are really ones that have been created by the countries that are currently negotiating, because they are the people who are sitting around a negotiating table. Canada, Mexico and Japan have now knocked on the door and said, "We would like to participate. We think this is important and we are ready to come in and start negotiating with you."
These nine partners have agreed that they will decide by consensus who will be allowed to join the negotiations. Everybody knows consensus is necessary, but 96 per cent of the consensus seems to be what the United States will decide to do; and of course with the United States, you know how decisions are taken there. There are a lot of various interests. They are saying: If Canada is going to join, can we get them to make some prior commitments on this, that and the other thing? New Zealand has staked out its concerns about our supply management system — about dairy, in particular, because for New Zealand the major prize in the Trans-Pacific Partnership would be negotiation of better access for dairy products, particularly to the United States, and the United States has not said they will not do that. This creates a rather interesting dynamic for Canada.
That is the issue. Why is it in Canada's interests to get into the negotiation? We have told you who the current participants are. That does not open up a lot of new big opportunities, but if the overall scheme of this agreement — to create a new agreement that would eventually involve other countries in the Asia-Pacific area — were to happen and we were not part of it, then that would be very damaging. Ms. Sullivan has said how damaging it would be, for instance, if Japan were to join and Canada did not, that we would lose our second largest agricultural market in a number of sectors because the Japanese trade barriers remain quite high on paper even if, in some cases, they have been lowered in practice.
It would be a big mistake for Canada not to try to be there, to influence the outcome of that negotiation and make it one that we would see as representing the kind of agreement that we think makes sense for the 21st century. If we are not there, and it does go on and become a broader agreement, then at some point we will face the problem of having to join it without having had any say on how it was put together, and that would be undesirable.
Mr. Clark: The United States has hijacked the TPP. They want to sell accession to the TPP whether we negotiate it or not and they would prefer that we do not negotiate it because we know where all the skeletons are buried and we are a pain in the butt, and we will make it longer and more difficult for them. We will help New Zealand and Australia with their Medicaid programs and probably help a few people on intellectual property.
This 21st century high quality trade agreement is hogwash. It is not free trade. It is protecting American property rights. It is protecting American investors. It is about protecting a whole range of things. I do not want to sound like Maude Barlow, but there are valid concerns about that, not necessarily the ones we see when city councils vote to stay out of CETA. It is not really a free trade agreement. It is the American interests, it is Hollywood and other people, trying to protect their rights through trade agreements.
Some people find that repugnant. We should; we have been up against it for years.
I will not get into dairy. I will offer a solution to New Zealand. If the Americans, who import 3 per cent of their dairy consumption, were to import 6 per cent like we do, everyone in New Zealand would be driving Rolls Royces.
Looking at it this way, the TPP is worthwhile to Canada if Japan is in and we do not have the alternative to negotiate with Japan separately. With some of the other countries, like Peru and Chile, we already have free trade agreements. We have one with the United States. All they would like to do is update the NAFTA to suit them without negotiation. That is what it is. All the other countries are what Ms. Sullivan referred to as too small to bother with, except maybe Vietnam. I used to refer to them when I came to this committee before as the Canadian policy of looking for love in all the wrong places.
Ms. Sullivan: I will build on what Mr. Weekes said about the TPP. There are some other possible advantages. It depends on how robust the final TPP deal ends up being. We do not have a crystal ball so we will not see.
When people refer to a 21st century deal, it is dealing with things like non-tariff barriers, phyto-sanitary issues and the text of those agreements. If you can deal with those things on a regional basis and get consistency across nine, maybe twelve countries, you start to get what you might refer to as a regional supply chain. Rules of origin are an excellent example of that. If we could have a trade deal with 12 countries that had consistent rules of origin, that starts to be helpful for our trade in particular in processed products.
Sugar is a problem for Canada. We have a large sugar refining industry in this country, but when we export products that contain sugar or try to export sugar, we often cannot because the sugar did not originate in Canada. However, if you had TPP, we could import sugar from some TPP countries, put it into baked goods or chocolate and ship it back out to those TPP countries. Having a regional supply chain can be helpful from an agriculture standpoint and that is one of the potential advantages; also, dealing with regulatory issues and doing regulatory cooperation across 12 countries. That is one of the things that is an issue for us and helps to block trade. If we can start to deal with those things and get a consistency across countries, that could be helpful as well.
Mr. Weekes: I will make a footnote point. Another reason why it makes so much sense for Canada to be there and why we have quite a bit of support in the American business community for our participation is this point about global supply chains. In so many sectors, production between Canada and the United States is integrated. It does not make a lot of sense for American business to be pushing their government into a negotiation of an agreement where they cannot export product from Canada from plants that are part of their network into these new partners they have developed.
That is a very compelling argument why Americans should want us there, because we are natural partners. We make things together and we want to be able to sell them to the world. The Americans would have more difficulty doing that if we were not part of that game. That is very important.
It is becoming clear that this negotiation, which the Americans said they want to be over by summer, will take a lot longer, and there are many problems, some of which have already been alluded to.
It makes sense for us to be there and I think the prospect of that happening is not too bad.
[Translation]
Senator Maltais: Thank you for your presentations, Ms. Sullivan, gentlemen. Given the lateness of the hour, I am going to ask you to give us brief answers so that my colleagues have a chance to ask questions.
I am beginning to understand why it takes time to negotiate free trade agreements.
Mr. Pomerleau, can you give me the percentage of Canadian pork exported by Quebec and Ontario?
Mr. Pomerleau: Quebec alone exports 50 per cent. For Ontario, it is about a third.
Senator Maltais: Which are the other exporting provinces?
Mr. Pomerleau: Manitoba and Alberta.
Senator Maltais: You mentioned a really outstanding preservation technology that I had never heard of. Without giving me a technical course, can you explain briefly what it involves?
Mr. Pomerleau: It just involves vacuum-packing the pork and keeping it at a temperature of -1.25 degrees Celsius for its entire shelf life.
Senator Maltais: I see. If all the free trade agreements with Korea, China and India were signed tomorrow morning, what percentage increase in pork production would be necessary in Canada to serve that vast population base?
Mr. Pomerleau: Just to put your mind at ease, I have to say that satisfying the demands of the whole world is out of the question. We are interested in the high end that gives our producers as big a profit as possible.
Senator Maltais: Mr. Clark, you know that Canada is a country with vast natural wealth. We are seen around the world as a country endowed with exceptional natural riches, whether it be agriculture, oil, the oceans, and, particularly in Quebec at the moment, minerals. We know that China is doing a lot of exploration for minerals, for iron and for titanium in the north of Quebec, in Labrador and in the Arctic.
In negotiating with a country, would it not be a good argument to tell them that, since they need raw materials, we have them to sell?
It goes without saying that, if they are coming to look for them in the north of Quebec, it is because they have not found any around Beijing. If they had, they would develop them at home because the cost of transportation is pretty astronomical. They are going around the world with a big barge and it is costing them a lot. Is it not a negotiating approach to say, "Listen, you need raw materials from us, but you also need to feed the workers who turn that iron into other products that you sell back to us." Usually negotiations are about win-win situations — I am not familiar with free trade negotiations. You need to sell a product, but you also need to feed your people. I would like to hear your opinion on that, briefly.
[English]
Mr. Clark: Senator, you raise an interesting point, because the Chinese do definitely need and want our resources. In the NAFTA and the Canada-U.S. Free Trade Agreement, we made certain commitments to the United States on energy that were pivotal in getting that agreement. What you can agree to in a bilateral agreement is essentially limited by the will of the parties to the negotiation, as long as it does not discriminate against other people. There is no reason that Canada could not give supply assurances to China as part of an agreement. It sometimes gets a bit tricky if you do not own the resources you are committing to sell, but those could be elements of discussions, like obligations not to impose export restrictions or not to impose export restrictions not commensurate with what you are doing to your own people.
The Chinese will certainly want to talk about that. What we do about it and whether it is in the agreement is another matter. However, we should be using our leverage to the maximum extent possible.
[Translation]
Senator Maltais: Ms Sullivan, you seem to be focusing on South Korea. Why is that?
[English]
Ms. Sullivan: We are focusing on South Korea because, frankly, we are in a crisis mode with respect to that country. We export a billion dollars to South Korea every year in agriculture and food products, and in the last year, both the EU and the U.S. have signed free trade deals with Korea that will, over time, eliminate most of the tariffs that those two countries face on their agriculture products going into South Korea.
Although Canada does have a quality advantage in terms of our product, such as pork, eventually Koreans will not be willing to pay more for Canadian pork or other products when they can buy U.S. and EU products cheaper because the tariffs are lower and eventually eliminated. We already have buyers in South Korea who are switching from Canadian product to U.S. product because it will be cheaper very soon, and once we lose those customers, it will be very difficult to get them back.
Therefore, we are imminently at risk of losing a billion-dollar market.
[Translation]
Senator Maltais: One last question. Certainly, what you have just said is important; that I understand very well. But when you are negotiating with Korea, are you not able to have a plan B and C?
[English]
Ms. Sullivan: I will let Mr. Pomerleau speak to it. I am not sure there is a Plan B or C with Korea. I think it was Mr. Weekes —
[Translation]
Senator Maltais: No, excuse me, we are negotiating with Korea and we may or may not come to an agreement. Now if that fails, we do not want our product in warehouses, even if it does keep for 45 days. Are there other markets that you are looking at in case of failure? Even the best unions always end up going on strike.
[English]
Ms. Sullivan: Absolutely. Our other plans are opening up the European market for Canadian pork, trying to get a free trade deal with Japan, trying to negotiate market access into India, and trying to get into the Trans-Pacific Partnership. If we lose Korea, we lose Korea. The backup plan is to open up other markets so we have somewhere to ship our product.
[Translation]
Mr. Pomerleau: Except that Korea is the only country that pays as much for the cuts we send, and we are talking about pork bellies. If we ever had to bring $200 million worth of pork bellies back onto the North American market, we would have to bring our price of production down a lot because there are no other lucrative markets anywhere else.
Senator Maltais: The market for bacon is dropping, as I understand it.
Mr. Pomerleau: Yes.
[English]
Senator Eaton: Ms. Sullivan, what is the deadline for Korea? As you know, the Prime Minister is going there at the end of this month.
Ms. Sullivan: To be frank with you, the deadline for Korea has passed. Once the U.S. deal comes into effect, which I think is on March 15, the U.S. already has an advantage.
Senator Eaton: That is the deadline, is it?
Ms. Sullivan: That is the deadline.
The sooner we get a deal done, the better. We certainly would like to see one completed this year. The good news is that a lot of the negotiations are completed. When our talks broke off with Korea in 2008, much of the deal was already negotiated and on paper, so there are really just a few areas that we would still have to finish negotiations on.
I think we have had our negotiators say one or two rounds. If we can get the Koreans back to the table, we can wrap this thing up pretty fast.
Senator Eaton: Looking at the TPP, the Prime Minister's trip to China, and the trade negotiations with Japan, can you see a race? Is there a race? In other words, would it be faster to do an end run and to say to China, "We are doing the Northern pipeline; we can give you oil; we can give you this" — picking up from Senator Maltais —
Senator Duffy: "Sell you."
Senator Eaton: Obviously.
Which will be faster? Will we try and do both?
Mr. Clark: We can finish Korea faster than we could finish China.
Senator Eaton: Japan?
Mr. Clark: Japan would probably take a year and a half.
Senator Eaton: Would that be faster than the TPP?
Mr. Clark: Who knows? The real problems have not been unearthed.
Senator Eaton: We will be working on both fronts.
Mr. Clark: Mr. Pomerleau and I get messages from pork exporters daily. It is not that it will start on Friday. It is already there. In Korea, orders are being lost and suppliers are being lost. The Canadian government has not indicated that it intends to negotiate a deal, so they have no confidence that we will be a long-term supplier.
Senator Eaton: Forget Korea. Will we continue with Japan and China — the TPP? Are we working on both fronts?
Ms. Sullivan: China is not involved in the Trans-Pacific Partnership at all.
Senator Eaton: Not yet.
Ms. Sullivan: Not yet. In terms of Japan and the TPP, we need to do both.
Senator Eaton: So we are doing both?
Ms. Sullivan: We need to do both and right now Canada is doing both.
Senator Eaton: All right.
Earlier, you were talking about things like traceability, quality, the Canadian brand, and the excellence of our products. Are parts of the issue sometimes the non-trade barriers? And the GM products, obviously. Is our farming industry more advanced than, say, the farming industry in India and Japan? Therefore, is this largely political? In other words, this is how they see themselves protecting themselves against a country that does things in a more advanced way. How do you explain the hatred for our GM products, which have proven over many years, like canola, to be excellent products.
It is affecting things because we cannot trade in Africa because the Europeans have set our products up.
Ms. Sullivan: I spent a month in Europe last year working on the Canada-EU negotiations, and I never really understood the difference in sensibility toward the GM products until I was there and I started to hear stories from their members of Parliament. One German MEP was telling a story, and she is quite supportive of GMOs, and her constituents burnt her in effigy.
Senator Eaton: Look what they have been doing to our honey.
Ms. Sullivan: Yes. With non-tariff barriers, it can vary quite a bit. I think countries use them to block trade to protect the domestic industries.
Senator Eaton: So it is political protectionism.
Ms. Sullivan: In some cases, like the GM situation in the EU and also the ban on growth hormones in the EU in our beef, for example, I think some of that is driven by consumers — and by "consumers," you may read "interest groups" and "activist groups" — as opposed to being driven by politicians. The politicians often feel that they have to take these positions because they have got such strong lobby groups. In some cases, it is driven by political interests.
Senator Eaton: Besides being very good at the negotiating table — and I am sure Mr. Clark and Mr. Weekes are excellent at doing their jobs — are we helping you any by trying to educate consumers abroad about the excellence of our product and that these things are not really an issue, or is that not helpful?
Ms. Sullivan: Yes, it is very helpful. Canada does have excellent trade negotiators and I think they are recognized around the world for that. It is helpful when the government and industry work together to promote a Canadian product.
Senator Eaton: Do we do that?
Ms. Sullivan: We do quite a bit. It is really farmers themselves in Canada and not so much processors. Mr. Pomerleau has offices around the world. He has one, but Canadian Cattleman's Association has about seven offices around the world. Farmers are constantly on the road promoting their products around the globe and trying to build new markets for them.
Anything we can do to build knowledge of Canadian product is great, but I think when it comes to issues what we have to do is be on the ground explaining the issues and our perspective to decision makers. I have been to Brussels approximately eight times since the negotiations started. We meet with EU member states, negotiators and members of Parliament. We were a bit asleep at the switch on some of these issues. We should have been there sooner.
Senator Eaton: It seems to be a Canadian trait. We let ourselves fall back about the oil sands. We let them define us in terms of the environment, which is ridiculous. You are telling me we have done it a bit with our farm products and our excellent GM seeds. I am worried the next thing they are going to do is hit our mining industry, but that is a whole other topic.
Ms. Sullivan: We do have to be out more. We are recognizing that and why we are committing so much time to being in the EU. We hope to go to Korea and Japan over the next couple of weeks. We have to be on the ground explaining the issues, differences in our production practices and, frankly, understanding the sensibilities in the markets we are trying to trade with. Sometimes consumers do not want what we have to offer and sometimes we have to develop a product that they want. There are differences there.
Senator Eaton: Are we doing that?
Ms. Sullivan: In a lot of cases we are. For example, with growth promoters in our beef into the EU we have pretty much acknowledged their consumers do not want beef with hormones in it so we create a hormone free stream for them. We say that we do not want the regulators regulating against it if the products are safe. This is a consumer issue. If your consumers want hormone free beef, we will make hormone free for them; we can do that, but do not create a regulation that bans the use of hormones that are deemed to be safe by international bodies.
[Translation]
Senator Rivard: Mr. Weekes, we determined earlier that Korea has lifted its ban on imports of Canadian beef that followed the mad cow scare a few years ago. To your knowledge, do any other countries still keep that ban on imported beef in place?
[English]
Mr. Weekes: I believe Korea is certainly the last significant market that had a complete ban on Canadian beef as a result of BSE. However, there are other markets where there are still residual restrictions in effect. For instance, in Japan, they only allow importation of beef from Canada and from the United States from animals that are under 21 months of age. However, the Japanese are in the process of reviewing this policy and the government has asked their food safety commission to reconsider the rules they have in this area. There is considerable expectation that they would not have done that if they were not prepared to go the next step and actually liberalize it. Even in our NAFTA partner, Mexico, they still only allow beef less than 30 months of age. They do not allow an unlimited supply of beef to their market from Canada.
There are still residual restrictions, but the last major ban that was a real ban was Korea.
[Translation]
Senator Rivard: Mr. Pomerleau, in the pork industry, do new environmental regulations, federal or provincial, put a brake on our exports? Do our competitors in Asian markets, the Americans for example, have the same environmental regulations as your industry does in Canada?
Mr. Pomerleau: That depends on the region. In Manitoba, there is a moratorium on any expansion of the hog industry. However we judge it, it does act as somewhat of a brake to the expansion of our exports.
As a general rule, producers work relatively well with government bodies. There were a few issues in Quebec, but they involved some specific municipalities. So it varies from one region to another.
Can we say that it puts a brake on our exports? With the exception of the moratorium in Manitoba, I do not believe so.
Senator Rivard: I have a question about the free trade agreement that we are currently negotiating with the European Union. Last year, at a meeting with the European Parliament, we were told that the treaty on our oil sands had been put on hold because of the dangers they pose to the environment. But we know very well that Canada's greenhouse gas production represents 1.8 per cent of the world's total and that the oil sands represent scarcely 0.1 per cent. They come at us with that argument even though we know that a number of countries in the European Union produce their electricity from coal, which is much more polluting. What is your opinion on the matter?
Mr. Pomerleau: I had the opportunity to spend a few years at the Canadian Embassy in Paris and I had the pleasure of dealing with Ms. Bardot and the seal hunt.
You have to realize that, given the way in which members of the European Parliament are chosen, you do not always get the most representative elements of society there. They are often groups of activists, on the right as well as on the left, and they manage to get their messages across.
If you go to a meeting with members of the European Parliament, you will hear about the major bone of contention between Denmark and Canada about Hans Island, which is located between the two countries, and which symbolizes the motivations of some of them, including about the seal hunt.
The European Parliament is about to change because of the Treaty of Lisbon. They are trying more and more to be taken seriously, despite all the lunatics that ended up there in the past.
The European Parliament is evolving. But we will certainly still hear about minor issues. But, as a number of our contacts in Brussels these last few months have said: let them have their say and they will always end up seeing reason.
Senator Rivard:Mr. Weekes, would I be wrong in saying that there is no customs tariff on beef and pork exports between NAFTA members? I know that the market is developing, but are we achieving the objectives we set out to achieve with our NAFTA partners?
[English]
Mr. Weekes: That is a good question. First, I will take it in pieces one country at a time. In Mexico our trade has grown substantially. In terms of agricultural export production, they have become a very sizable market for a range of Canadian agricultural products since the signing of the NAFTA.
The United States remains, of course, our largest market overall. For a wide range of agricultural products, including, for instance, beef and live cattle, it is our largest market. However, we have more or less in a number of areas got to somewhere near full potential in terms of the likelihood of market penetration. It is a mature market. It is not growing rapidly. In a number of areas they have their own production. Other exporters are also competing in their market. The future potential for major growth is in a number of these foreign markets that we identified earlier.
Senator Duffy: I want to thank our witnesses for coming, and I want to say a word to our viewers at home. You have heard a lot of acronyms and a lot of shorthand about international trade. I think it comes down to this: For every $5 bill you have in your pocket, at least $3 of that is as a result of the work done by the people at this table, if not more.
Trade is so critically important for the people at home, for our prosperity, for what we as Canadians have and the way of life we have. You and all of your members are to be saluted for what you do to keep our country prosperous. Never forget it. When you look at what you have in your pocket, at least two thirds, if not three quarters, of it is as a result of trade in its broadest aspects.
Mr. Weekes and Mr. Clark, we go back a long way. One thing that has remained constant — and we just heard about it with the senator who was asking questions about the view of Europeans and the people in Europe of our products — is fear mongering about freer or free trade. We go back to a time when other people in our Parliament opposed it. They staged all kinds of demonstrations, and so on and so forth.
Mr. Clark, can you give us, in a brief capsule, what free trade has done for our prosperity in the last 25 or 30 years and where you see these new initiatives on trade, which are already starting to get some of the boo-birds out of the woodwork, saying, "We do not want to get involved," et cetera? How far have we come and what does it hold for our future?
Mr. Clark: Senator, when I started working in the Department of Finance, we were keen that we had moved above a few tens of billions of dollars in exports. With Canada-U.S. free trade, before NAFTA, that is where we made the big kick. We started on another direction, and we have to keep on that other direction because the WTO, bless its soul, and the Doha Round, was something that was started at the wrong time, for the wrong reasons, and we are not likely to see anything there for 10 years. We have to do these regional agreements, and we have to do them because other people are doing them. There are hundreds of others being negotiated out there. If we do not do them, we are at a serious disadvantage.
With respect to the European Parliament, in the other place last week I was asked by somebody from Prince Edward Island about the seal hunt. He said, "What can you do about the seal hunt?" I said, "Abolish the European Parliament." However, that will not happen.
Senator Duffy: You are telling us the fear mongers will always be there. As Roosevelt said, you have nothing to fear but fear itself.
For the folks at home, when people go around saying, "We are not going to do any more trade deals, especially with those dastardly Americans; they are taking our prosperity away," what is the answer?
Mr. Clark: For the Americans, charity begins at home, especially in a recession. The Americans are our biggest market, and let us be clear about it; they are going to be our biggest market forever. We are trying to take advantage — as they are, and as are the Europeans and everybody else — of the growth and integration of the world. The income growth and population growth is not coming in North America; it is coming in Asia. Therefore, it is smart to go into Asia.
We also think — and we will be talking to people in the trade area — that we should be looking at trying to do a deal with Russia and the former CIS states, because there is some good potential there too, and not as many problems on the other side.
Senator Duffy: Mr. Weekes, what do you say to those who are afraid, the people who say that change is always scary? Some people in our political system have made a history of it.
Mr. Weekes: I can understand why some people would be afraid. We live in a world in which our economy is already integrated. We have traders selling in markets all over the world. Frankly, as a medium-sized country, we are better off in a world of rules than in a world based on power relationships. The more rules we have for international trade, governing the trade in the products that we sell and buy, I think the better off we will be as a country and the more opportunity there will be for Canadians to participate on an equal footing in the international marketplace.
Senator Duffy: Ms. Sullivan, when you hear people say that we should not export our petroleum products, we should not export our iron ore from northern Quebec and Labrador, that we should keep it all here because we are afraid of the outside world, what is your answer?
Ms. Sullivan: If we were not exporting, half of the agriculture economy in this country would dry up and go away, and that would have a devastating impact on rural communities across the country. You talked about people who fear change. This is not change. I think there is a lack of understanding across the country about what our economy is based on. We trade. We ship half of everything we produce out of this country.
This is not about change. This is about getting people to understand what the backbone of our economy is like. There is certainly a strong domestic market, but there is a strong export market as well.
We also import a lot. People are pleased to see the assortment that they are now used to in the grocery store. It is certainly a lot more than was there when I was a little girl, and it would be a thousand times more than what was there for my mother and my grandmother. People enjoy that. That is imported from other countries, and we cannot import if we do not export.
[Translation]
Senator Duffy: Mr. Pomerleau, tell me about the impact of free trade on Quebecers.
Mr. Pomerleau: That is a referendum question. I cannot speak for Quebec society as a whole, but what I can tell you is that, in our industry and for most agricultural products — I come from a maple syrup-producing area myself— if there were no exports, I am sorry, but there would be nothing. The same goes for meat products. Even for supply management, animal feed, a number of costs have to be paid to make those industries profitable, and that money comes from outside. So if you cannot negotiate a good price for feed, even for cattle, you are going to have a problem. Practically, there is an advantage, yes, but you have to break it down a bit more, sector by sector.
Senator Rivard: Mr. Pomerleau, I do not know if you are one of the Pomerleau family from Beauce, but I can tell you that free trade has been very good for steel assemblers. Think about Canam Manac and about all the contracts that Pomerleau-Verrault has won in the United States because of free trade.
[English]
The Chair: Honourable senators, to the witnesses I will wrap up by saying we do have a couple of questions we would like to send to each of you in order to have your comments, and through the clerk we will be providing that to you in writing. If you could reply to us in writing, that would be appreciated.
You have been very informative, interesting and enlightening, and it is an eye-opener of what is coming down the tube. Thank you very much for your time.
(The committee adjourned.)