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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 18 - Evidence - Meeting of October 28, 2014


OTTAWA, Tuesday, October 28, 2014

The Standing Senate Committee on Agriculture and Forestry met this day at 5:02 p.m. to study international market access priorities for the Canadian agriculture and agri-food sector.

Senator Percy Mockler (Chair) in the chair.

[English]

The Chair: Honourable senators, I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry.

[Translation]

I am Senator Percy Mockler from New Brunswick, chair of the committee. I would ask that all the senators introduce themselves.

[English]

Senator Merchant: Pana Merchant, senator from Saskatchewan.

Senator Maltais: Ghislain Maltais, senator from Quebec.

Senator Enverga: Tobias Enverga, senator from Ontario.

Senator Oh: Senator Oh, senator from Ontario.

Senator Ogilvie: Kelvin Ogilvie, senator from Nova Scotia.

[Translation]

The Chair: Thank you, honourable senators. This is our first meeting since the tragic events of last week.

[English]

Before the committee begins its proceedings, I would like to propose that we take a moment of silence in honour of Warrant Officer Patrice Vincent and Corporal Nathan Cirillo.

A moment of silence, please.

(Honourable senators observed a moment of silence).

Thank you.

This evening the committee is beginning its study on the international market access priorities for the Canadian agricultural and agri-food sector.

[Translation]

Canada's agriculture and agri-food sector is an important part of the country's economy. In 2012, the sector accounted for one in eight jobs in Canada, employing over 2.1 million people.

[English]

Our contribution is approximately 6.7 percent of Canada's gross domestic product. In 2012, internationally, the Canadian agriculture and agri-food sector was responsible for 3.6 percent of global exports of agri-food products. In addition, in 2012, Canada was the fifth largest exporter of agri-food products globally.

[Translation]

For our first witness, we welcome this evening, from the Conference Board of Canada, Mr. Jean-Charles Le Vallée, Senior Research Associate for the Centre for Food in Canada.

[English]

Mr. Le Vallée, thank you for accepting our invitation to appear before the Standing Senate Committee on Agriculture and Forestry with its new mandate entrusted to us by the Senate of Canada.

Sir, I would now invite you to give your presentation. It will be followed by questions by senators.

[Translation]

That being said, you have the floor, Mr. Le Vallée. Once again, thank you for coming.

[English]

Jean-Charles Le Vallée, Senior Research Associate, Centre for Food in Canada, Conference Board of Canada: Thank you for having me. I'll skip my own introduction and I will start by telling you about the Centre for Food at the Conference Board of Canada.

Since 2011, we worked on developing a Canadian food strategy for the country, which is available on-line. I will leave hard copies with you and I will email electronic copies to Kevin. After three years of work, we came up with: 20 research reports, 3 national food summits and a multitude and numerous consultations across the country with thousands of Canadians. We came up with a strategy that has a road map along five main themes: industry prosperity, healthy diets, food safety, food security and environmental sustainability. If the committee wishes, while I speak, I can show you this and I will circulate it.

We broke those five themes down into eight goals, sixty-two outcomes, and hundreds and hundreds of actions. They are listed in the strategy. Following this work on the strategy, we are now going into a new phase called the Canadian Food Observatory, where we're monitoring Canada's food performance. We will report on the strategy. It includes elements of international access to food markets. Your committee is timely. For us, it fits well as we can help guide that development. I hope these documents will help further inform your recommendations and help in the development of your report.

Beyond the strategy, I wanted to give you a bit of context before I get into market access priorities, which is the theme of the report.

We're independent and not-for-profit. Our research is evidence based. That evidence has guided us to develop this strategy. We've learned that everywhere — not just in Canada — that price, quality and healthy diets are important to consumers. You need to keep that in mind when you look at market access in other markets.

However, the market in Canada is slow. In North America — and generally — I would say that the largest growth opportunities in the domestic markets are with new Canadians. They spend a lot more money on food and they're asking for a lot more variety, which we do not necessarily have. So, these are growth opportunities for the industry.

More important, these opportunities are much bigger abroad. That's why I said your report is timely, as we need to focus more on market access abroad. We've got slower growth here, but there is larger growth in the developing world and in Asia, in particular.

You're also seeing in these countries that consumers are becoming wealthier and urbanized. The United Nations figures show about 80 per cent urbanized in terms of the share of people organized in cities by 2030. If you're going to focus on market access, these are large markets for Canadian products and commodities.

Another thing we need to understand is that these diets are changing not just in Canada but also abroad. As people and consumers become more urbanized, they ask for a greater variety of diet and a greater variety of fish and meat proteins, which we produce in this country. They're also asking for ready-to-eat and processed foods, so you're seeing an increased demand for a wide variety of products that this country produces.

Trade is already increasing and will continue to do so. It's really smart that the Senate decided to focus on this issue.

In addition to that, one of our strengths in Canada is our food safety. As a sidebar, you will be interested in knowing that I'm producing a food safety ranking report on 17 OECD countries' food safety performances. It will be out in the coming weeks. I will not say more about that until it's published.

Now that we have a bit of context, I want to give you some sense of direction from the strategy work and the evidence we have gathered. Based on demand and growth, you can see that we need to reorient the food sector abroad toward faster-growing economies and food markets, including China.

One other aspect, and this is not just for the agriculture sector but fisheries as well, is a greater focus on value, more so than on volume and bulk commodities, and to tailor the products and value-added products to durable growth and niche markets. This is key if we want to focus on additional growth for our sector in this country.

One additional investment area that we need to focus on is innovation. If we are to tailor those products, we need innovation. We can achieve, obviously, some growth with lower cost through scale and efficiencies. However, those are traditional and I would say that we underinvest. We need to focus additionally on food innovation.

Parallel to innovation, we need to call for more food traceability. We don't do as well as other countries in the world, especially the Europeans, so we have some work to do to improve our performance there. If we're going to win over new markets and existing markets, traceability is a fantastic tool and it is in the public and private interests. Consumers value it and want to know where food is from. It helps to mitigate food safety risks, so it's another path that we need to pursue alongside innovation.

Now that we have the context and some direction, the theme is market access priorities. I tried to sum up across many of our reports but, with 20 research reports, it's impossible for me to sum up everything for you within a few minutes. What's valuable for your purposes is to address cross-commodity factors like protection in supply-managed commodities and how it affects other non-supply-managed products. There are opportunities for the food sectors and exporters like pork and beef; but we are affected by the protection measures and the high tariffs in other commodities.

All countries support their agriculture sectors in some way. It's in everyone's interest to continue to pursue trade liberalization, which we argue for in a trade report that I will send to Kevin for you. It further details the why and the how. We need to reduce trade barriers, non-trade barriers and negotiate within bilateral, regional and multi-lateral trade agreements access to new markets and existing markets. That includes dairy. There is tremendous growth opportunity in the dairy sector, not necessarily for fluid milk, but for industrialized milk where it's processed such as cheese and yogurt. There is tremendous interest for those products. The market is growing abroad, and you can see a lot of Asian countries benefiting from that. However, we are not benefiting because of the supply-managed structure we have.

We have produced a supply management paper, which I have here in hard copy if you wish, and it looks like a win- win. I would say it's not just high tariffs, but beyond that because it provides ideas through levies and through a book value of the quota to be bought out over a period of say 10 years. Those are ideas in the supply management paper. They have an effect on Canada's market access because that's what I meant by cross-commodity factors that affect opportunities for the food sector. There are inter-relationships, not just within the sub-sector, that have an effect across the commodities.

We have high tariffs not only for supply-managed commodities but also for beef, veal, wheat and barley. In most cases, in practice, they are almost never used, so they are easy to reduce to nil or eliminate.

Those are the four or five elements that I would say the committee could focus on as priorities, based on our evidence that we've gathered so far. We will continue our work with the observatory. I see my time is up, so my thanks to the standing committee for the opportunity to speak today. I am happy to respond in French.

Senator Merchant: Thank you very much and welcome. First, you talked about Canada subsidizing agriculture. That increases across through tax expenditures and through supply-management pricing, and you mentioned eggs, beef, wheat and barley, I think. How much more are Canadians paying for these products than the real value in an unsubsidized and unprotected world market?

Mr. Le Vallée: The figure that OECD uses for Canada, I believe, is $276 per year for a family.

Senator Merchant: Second, as to non-tariff barriers, does your organization have a view on country-of-origin labelling and GM modified? People tend to trust only their own food safety officials. Country-of-origin labelling increases the cost to keep products separate, increases the cost for labelling and shelf space, and defeats free trade balkanizing food marketing. You spoke about tracing, and perhaps that adds an extra expense.

Mr. Le Vallée: Yes.

Senator Merchant: You may remember a few years ago that 1 kernel of triticale in 10,000 was over the limit, which caused a lot of problems for us about six or eight years ago in Europe.

What is your view of these kinds of non-tariff barriers? If you think this is serious, what should the government do to fight European and Japanese paranoia spreading to the food shelves in North America and the world with the attendant impact on food production and the increase in food costs impacting world poverty and the ability to feed the poor of the world?

Mr. Le Vallée: The question is mainly about non-trade barriers.

Senator Merchant: Yes.

Mr. Le Vallée: We did not look at GM foods, for example, because we couldn't find evidence that it was a major concern, and Health Canada seemed to be addressing it properly. We didn't research it further for our purposes in our strategy.

What was the other example that you had?

Senator Merchant: I asked about traceability.

Mr. Le Vallée: The evidence we have come up with so far is that the investment is worth the cost, because the savings over the longer term are worthwhile. It could be a shared cost, public and private. The private would do more,but it's in the public's interest in acute emergencies to be able to trace back and forward where the source of the problem is along the supply chain. It's an extra tool that this country could use in an emergency food scare.

For the poor, the strategy didn't look at addressing hunger in the world. It looked at food security in Canada, and I think now 8 to 12 per cent of households are food insecure, according to Statistics Canada. There's work to be done. In terms of supply management, the price of milk is higher for them. So it's a form of milk insecurity, if you will, especially for lower income households, but, like the HST, we don't have a mechanism to support them or provide some funding to them to pay for that.

To us, it's a very comprehensive strategy that addresses a broad set of issues that need to be taken in parallel. To be addressed together, we need buy-in from all of the stakeholders. We need involvement from the federal government, as well, and for them to play a leadership role.

Senator Merchant: The poor cannot afford to buy the perfect product, and that was my concern. The wealthier people can afford to buy the organic, with the separation of the food on the shelves.

Mr. Le Vallée: Yes, the niche products.

Senator Merchant: But I just wondered what the strategy to address the broader problem of feeding the world was.

Mr. Le Vallée: As to feeding the world, like I said, we didn't address that. However, as for feeding Canadians, we understand, for instance, that single parents, but mothers, in particular, are the most food insecure, in terms of households. People on social assistance obviously spend more on food, so their food basket is much more important to their overall expenses and has an impact. They will reduce their consumption if there are increasing transportation costs, housing costs or utilities. They will reduce their consumption of food and, so, clearly there is an impact.

We do have low prices and there are choices we can make. There are very healthy diets at very low prices. You could have rice and beans, for instance, that is extremely cheap to make. It is a basic staple, but there are ways. Ideally, people find work and they are able to have a wage to increase the variety in their diets.

Senator Oh: Thank you. Canada is now working on a few free trade agreements, such as the TPP, with Asia-Pacific countries. What are your expectations for the agriculture sector in these negotiations?

Mr. Le Vallée: I wish I was able to answer. We don't have enough information to be able to assess it properly. We would argue that we don't have to wait for the TPP. We can continue any FTAs bilaterally or regionally. One of the points I suggested earlier was to continue pursuing trade liberalization. It's in the country's interests to pursue this. I can't say yet, for the TPP, how it will play out. I don't have the information to answer that.

[Translation]

Senator Tardif: In your presentation, you said that traceability is very important.

Mr. Le Vallée: Yes.

Senator Tardif: Can you tell me how various free trade agreements address traceability needs?

Mr. Le Vallée: I do not know the connection between the two. I can give you information about the sector, but not in relation to free trade discussions or agreements. Traceability is a newer trend. It was not a consideration when NAFTA was prepared because it was not very well known at the time. Interest in food safety has grown over time, specifically after the mad cow and E. coli crises. Consumers are requesting it more and countries are including those items more and more for the sake of their industries. We have not studied the link between traceability and trade agreements, so I cannot give you an answer. I am sorry.

Senator Tardif: Have you studied the trade agreements that have been signed? I think Canada has 12 right now.

Mr. Le Vallée: No. We have modelled the benefits based on the various scenarios of low, average or high growth. This includes the TPP as well; we have discussed that with Senator Oh earlier. We simulated the possible results. We have data, but they are estimates. It is up to you to see whether that reflects the development of the strategy well. I do not have concrete data that show a real impact.

Senator Tardif: Based on your estimates, would some agreements be more beneficial than others for farmers or other sectors?

Mr. Le Vallée: Overall, each agreement is beneficial, but we do not compare them. We have not done that.

Senator Tardif: Okay. Thank you, Mr. Chair

[English]

Senator Enverga: Thank you for the presentation. My question is about the TPP and maybe the Comprehensive Economic and Trade Agreement, which is CETA. From what I read, it seems that the Conference Board of Canada is in support of bilateral rather than multilateral trade agreements, based on complexity. Is that correct? Should we just work on bilateral FTAs? What is your recommendation on that?

Mr. Le Vallée: I would say that all trade agreements are in the country's interests. We are a medium-sized player, as a country, so multilateral is of interest to the country, and it's a shame that the Doha Round is stalled, because it's not just in Canada's interests but also in the world's interests because it has many elements that are very interesting, like the elimination of export subsidies, the reduction of tariffs and TRQs.

We don't say, in our work, that bilateral is better than multilateral, but we recognize that the multilateral has been stalled. We just say focus on what you can work on right now, which is regional and bilateral.

Senator Enverga: Another thing that I noticed is that it seems to say that Canada's supply-management system is a larger barrier than tariffs. Is that true? Can you elaborate on that?

Mr. Le Vallée: I can't weigh the differences and which is more important. What we have suggested in our work, through evidence and investigating and examining the sector, is that supply management has an impact. We've suggested reforms and, if the sector decides to pursue those reforms, we've provided guidance on the way forward.

To us, it's win-win. There will be further consolidation. It's based on equity and efficiency, where you focus more on the larger farms that can grasp that efficiency and expand into those emerging markets.

Senator Enverga: What can you foresee from here? Which is bigger? Which do you work on first?

Mr. Le Vallée: That's what I said in my presentation. There is no priority. We should address all of them now. Why wait and prioritize one action? I would say work on tariffs at the same time as you're working with the supply-managed sector and even various commodities. They need some strategy. Canola has a good strategy, and others do also. Fisheries is not part of the subject, but I would say fisheries needs a strategy as well for its sector. It's not the only sector that needs to have some kind of support and guidance and to work collaboratively with stakeholders across the supply chain and with government to come up with a way forward for all of its sectors.

Senator Enverga: My last question is: With all of these negotiations and agreements that we're trying to get, what is the risk for the Canadian agriculture and agri-food industry in opening our markets to gain access to markets?

Mr. Le Vallée: If other countries haven't opened their borders, then there is less interest in us doing so. If they're opening and reducing their barriers and tariffs, then it's of interest to us to do so as well. Everyone wins when all countries take part together and it's a collaborative effort. We can be patient and continue with and support negotiations and greater access to markets.

I would say it's difficult because there are a lot of political interests on the food side in most countries and they have strong lobby groups that are not necessarily interested in change. However, there is pressure for change and, in time, it happens. We just need to be ready for change, to prepare for that change, which is what we have done for the supply- managed sector.

[Translation]

Senator Robichaud: Mr. Le Vallée, your comments on supply management concern me. Our rural economy, in Quebec, New Brunswick and elsewhere, is highly dependent on supply management in many cases. We see dairy farmers as we walk along the St. Lawrence River. You are saying that we might end up with large farms only.

If, as you recommend, we move away from the supply management system — and I disagree with you — what will we gain? We will empty rural areas to send people to the city and have cheaper milk. However, dairy farmers will tell you that their milk is of higher quality and has no hormones, unlike milk in other places.

When you say that we would benefit from it, I wonder where the benefit is. We will not have a high quality product and our small communities will be empty.

Mr. Le Vallée: The proposal is a process. If the sector decides to reform itself — and the report suggests that a reform is needed so that the sector can grow and have access to international markets — we will benefit from it. The sector will grow and, yes, there will be larger farms. There will also be more jobs, more production, more efficiency and lower prices for Canadian consumers.

Senator Robichaud: When you say ''if the sector decides'', who are the stakeholders in the sector who will decide?

Mr. Le Vallée: There are many; we are not.

Senator Robichaud: No, but the sector is not usually involved as much as it would like to be when free trade agreements are negotiated. For instance, the milk production sector has serious reservations.

Mr. Le Vallée: We have talked to people from various groups. We give our opinion and the report is balanced in the sense that it reflects what we have heard. We are neither for nor against. Our role is to make recommendations, to inform, to guide and to advise. We have our report here with us and we can leave it with you.

Senator Robichaud: Yes, please.

Mr. Le Vallée: It is a process to monitor this change and avoid chaos, because there is a lot of pressure for the change, even from within.

Senator Robichaud: You are saying that you are neither for nor against.

Mr. Le Vallée: Yes.

Senator Robichaud: In your presentation, I thought you said that we should move away from the supply management system.

Mr. Le Vallée: Having a supply management system has an impact on other agri-food products in the country, in terms of access to international markets. I said there was a link between the various products. If we want to allow other exporters to access other international markets, some countries will put pressure on us to change out management system.

We know that the pressure exists and we recommended an approach. However, we are not participants. We are there to inform. We can follow up, help, advise and do other studies, as required, if the sector requests it. We have prepared a report that is different from other reports and we propose solutions.

Senator Robichaud: Those solutions are acceptable for the sector in question.

Mr. Le Vallée: Some people in the sector are openly in favour and they have supported us.

Senator Robichaud: We could talk about it more. My intention was not to be confrontational with you. However, we take things to heart when we talk about supply management in agriculture.

Mr. Le Vallée: Of course, and I have had this conversation before.

Senator Dagenais: The World Food Summit's definition of food security is that food must be produced in sufficient quantity but it must also be of good quality.

Mr. Le Vallée: Yes.

Senator Dagenais: Canadians must have access to good quality food. Could the quality of those products be affected by our participation in various trade agreements?

Mr. Le Vallée: It should increase. Normally, for imported products, the quality is the same, sometimes even better. Sometimes those products are fresher than local ones; at other times, the local products are fresher. It all depends on the season.

We import a lot of fruits and vegetables from the United States that we cannot produce ourselves, as well as wine and beer. We import a number of products that we do not produce. We may produce them, but not in sufficient quantity to feed the population as a whole.

For some things, the Canadian consumer needs free international trade. Quality is included in the standards and norms that are part of the quality control system.

Senator Dagenais: Will these agreements also make it easier to standardize health regulations?

Mr. Le Vallée: It is a good idea, and we encourage it. I would like to see that, yes.

Senator Dagenais: You would like to see it, but is your mind at rest?

Mr. Le Vallée: Various players are calling for it as well, people in a position to take action that will directly lead to changes in the direction of standardization. The data we have tells us that the idea of harmonization and standardization is a good one. That includes traceability, and we are in agreement.

Senator Maltais: Let us talk about traceability, Mr. Le Vallée. The Conference Board of Canada provides opinions. That has been its role for a long time. Those opinions are very sound, for the most part.

Have you really looked into traceability, or did you just take the language from different treaties? Have you looked into traceability in depth?

Mr. Le Vallée: We think we have done so in depth. We conducted a new study. Our method included a revue of the available literature, and we also looked at the data there again. The report is new and different. We are also working with Sylvain Charlebois at the University of Guelph.

Senator Maltais: He is someone we know very well.

Mr. La Vallée: He co-authored the report with me; it is a global view of food safety, including traceability. He produced a report on traceability himself last month, comparing Canada to the rest of the world. We built some ways to increase the country's performance into our strategy, because we are some way behind other countries at the moment, especially European countries.

We have some work to do. The phenomenon is no longer new here. Industry is definitely interested in the issue. There is growing interest and we are seeing the issue being embraced.

Senator Maltais: You say that we are a little way behind European countries. I imagine you mean countries in the European Union?

Mr. Le Vallée: Yes.

Senator Maltais: We are about to implement a free trade treaty with the European Union. Did you look at products coming from the European Union? I am not talking about products cultivated in the European Union countries. The European Union imports a lot of products from former Eastern countries. That is how the French ended up with horsemeat in their lasagna. That story went around the world. What guarantee do we have that the countries of the European Union will not pass on to us products coming from Eastern countries that we will not be able to trace?

Mr. Le Vallée: We did not study the issue of internal European trade or the products they import. Generally speaking, those countries have a quality control system that we recognize. So we trust them.

Senator Maltais: Canada is a huge and sparsely populated country with only about 36 million people.

So we are being called on to play a greater role in the next 50 years in terms of the world's food supply. Hence our treaties with Europe, Asia and India, of course, since it is human nature to avoid starving to death. If more populous countries have insufficient basic food, they will cast their eyes on all our land.

To what extent can Canada develop its agriculture by simultaneously keeping its well-paying jobs and serving the international community with its production capacity? Have you studied that at the Conference Board?

Mr. Le Vallee: There are trends, but we have no exact figures. I would say that it is an increasing trend. Canada can feed more people; we can play a greater role and we will be asked to do so. To a large extent, we are ready to do so. Can we improve? Yes, that is why we are presenting a strategy that points the way, so that we can meet the demand that will come internationally.

Senator Maltais: Have you looked at GMOs?

Mr. Le Vallee: In what sense?

Senator Maltais: I do not believe that Canada is a large producer of GMOs but we know that some countries are. Could that become a problem that will make us less competitive? Take corn in the United States, for example, where they are turning to production of that kind a lot. Will that be accepted around the world or will people prefer to go back to the traditional way of growing corn?

Mr. Le Vallee: We have not studied that.

Senator Maltais: Do you have an opinion?

Mr. Le Vallee: I have a theory: it is based on demand. If the consumer does not want a product of that kind, it will certainly be better for those who do not produce it.

Senator Bellemare: Thank you for your presentation. Using the recent free trade agreements, did you make any forecasts about the impact on employment in Canada and in various provinces?

Mr. Le Vallee: In terms of employment specifically, no.

Senator Bellemare: Will the free trade agreements mean more or less employment in agriculture, given that more intensive cultivation may not necessarily mean more employment?

Mr. Le Vallee: Yes. In theory, intensification can mean more machinery and fewer jobs, but if we are able to increase our sectors in order to process our products at home, we will also create more jobs. The choices we make within our industry will either increase employment or they will not.

I work with the Canadian Agricultural Human Resource Council. We are currently developing a supply and demand model for agriculture in Canada. A year from now, we will have an idea of how many people are employed, in which occupations, and what is the current and future demand. I will be able to give you a better answer in due course, not necessarily in terms of the international treaties, but at least in terms of the national picture.

Senator Bellemare: In agriculture, as you say, we have supply and demand management in a number of subsectors, such as dairy products, cheese, and so forth. In Quebec, we know that people are committed to it. Canadians are committed to their products too. Perhaps I am just perceiving this incorrectly but if we see ''made in,'' we may be a bit reluctant and we will buy a Canadian product, even if we have to pay more for it. Have you studied that preference issue?

Mr. Le Vallée: We conducted a number of studies on what we called safe food. We examined consumption in Canada. Another report presents a study on local products and public markets. We did another study on Canada's food literacy; I can send it to the committee. That gave us a picture of the demand, the preferences and the trends. Yes, there is interest in home-grown products. In some provinces, it is very significant. Quebeckers, for example, eat more fruits and vegetables because they eat at home more often and prepare their meals at home themselves, more than in any other province. That has an impact on their preferences and on local products. So we see that it is higher. In British Columbia, it is high. It varies between provinces. I will happily provide you with the specific data we have on this.

Senator Bellemare: Do you not see the preferences of Canadians as a brake on the increase of free trade agreements affecting agriculture?

Mr. Le Vallée: Unless it is very specifically spelled out. The consumer wants more information. If a product contains GMOs, the consumer wants to read that on the label.

Senator Bellemare: Labelling is going to become more and more important in this area.

Mr. Le Vallée: That is why we talk about literacy. As we were doing our report, we discovered that not all Canadians were able to read the labels or the numbers. The lack of literacy and the lack in the knowledge of basic notions in math is a concern. They cannot calculate the energy yield.

Senator Bellemare: We have a lot of education to do. Thank you very much.

[English]

Senator Beyak: You mentioned that some reforms should be included while they're negotiating the trade agreements. I wonder if you could elaborate on what you think those reforms should be.

Mr. Le Vallée: Obviously, if they're linked to the agreement, those reforms have to wait until the outcome of the agreement, and then there's a ratification process. There's a whole process to follow.

However, as I was suggesting earlier, we have very high tariffs on beef and veal, which are not being used anymore. We don't fill up those quotas, so we can do away with those right now if we wanted to, or we can use that as a negotiating piece. It's easy to do because we don't use them, so it's case by case. I'm not an expert in trade agreements, but I would think that overall it's of interest to use those cards wisely.

It is the same thing for supply management. I think change is going to occur. There's pressure from above for change, from many stakeholders, even from within. We've suggested a way forward. Will those reforms come along with trade agreements? It's tough to say, but probably yes because those pressures are coming, and we'll have to make that change once those agreements have been signed.

Senator Beyak: Thank you very much.

[Translation]

Senator Robichaud: Are you leaving that report with us?

Mr. Le Vallée: I have an electronic copy of it.

Senator Robichaud: The clerk provided me with a summary.

I want to go back to the question of supply management. Canadians have established a system that allows them to make a decent living by receiving a reasonable price for their products. Is that of no importance, now that you are saying that the industry will be changing to large companies?

Recently, I saw a report on television where they were talking about Canadian poultry producers and quality control. They showed a company in the United States that had goodness knows how many cages. It was so big that there were not enough people to pick out the dead chickens; the quality of their products was noticeably lower.

Should we not be attaching value to the quality of our products and not sacrificing it just so that importers and exporters can have access to the international market?

Mr. Le Vallée: We are not sacrificing quality.

Senator Robichaud: You say that, but it is not what you are recommending.

Mr. Le Vallée: No, I did not say that. We are not sacrificing quality. That is our strong point. We are recognized around the world for our performance, for our genetics and for the quality of our products. Those are strong points in terms of market access. That is what consumers want. They are ready to pay a price for high-quality products from Canada. It is a win-win situation.

Some consolidation is being done at the moment. There will be more.

We are not talking about farms with 3,000 head of cattle. They would still be family businesses. Our model does foresee huge farms like in California or in the American system.

Senator Robichaud: They will come eventually.

Mr. Le Vallée: I do not think so. I can only tell you about what I know. The model scenarios we proposed and the document you have in your hands show that the sector has room to grow. At the moment, the market in that sector is stagnant. It is not expanding because our growth is weak. We cannot export and yet the foreign market for those products continues to grow. As Senator Maltais said, we are going to ask Canada if we can implement a system like the Australians have where consumers start by paying a premium in order to help producers reach their quotas. So the system is eliminated but it will take time. We can make it so that the process is shorter.

If we take the carrying value per pound, we get 3 or 4 billion. We can accelerate the process by paying for it from the outset. That is why we are proposing changes now so that we are in a better position to compete internationally, while still reflecting the business model that is largely family-based.

Senator Robichaud: I have some reservations and I will probably still have them for a long time because, in my part of the world, we make our living mostly from fishing. Lobster fishers are at the mercy of a market that pays no attention to them. In my opinion, they are being exploited. They had more luck this year, because there were more lobsters. I do not want the same thing to happen to those who can rely on some stability and can look forward to a degree of security in the long term for themselves and their families.

Mr. Le Vallée: Yes. The two production systems are very different. Fishing depends on the vagaries of the natural resources in the ocean. Aquaculture is more stable, perhaps. As the number of cattle does not change as much as the number of fish, the sector is more stable and more secure.

Senator Robichaud: I understand that the systems are different. I am simply saying that it is a concern for families who are at risk of losing their security at any time.

Mr. Le Vallée: Last December, we published a report on fishing and aquaculture in Canada. We painted a picture of the sector and pointed out the ways of the future.

Aquaculture is the sector that will gain the upper hand over the wild fishery. We see the cod sector coming back a little.

Senator Robichaud: Not a lot.

Mr. Le Vallée: No, but the report contains recommendations on how to deal with integrating the sector. We are also trying to get everyone involved to work together all along the food chain, thereby gaining access to capital and to processing markets that will open up the added value I mentioned earlier and reduce the risks. It is a good model. I am hopeful for that sector and for dairy products.

Senator Robichaud: We have a lot of aquaculture at home. I would like to propose that the aquaculturists develop a supply management system so that they can get the true value of their product. That is just a comment.

Senator Bellemare: I would like a last comment from you. Are there any contradictions between those advocating food self-sufficiency and the free trade treaties, or do they come together?

Mr. Le Vallée: What do you mean by self-sufficiency?

Senator Bellemare: I am referring to food self-sufficiency.

Mr. Le Vallée: To food sovereignty?

Senator Bellemare: Yes, being self-sufficient.

Mr. Le Vallée: We cannot do that. The price for fruits and vegetables would go up. When the supply goes down, the price goes up. But demand is strong. We do not eat enough fruits and vegetables as it is.

In terms of fruit and vegetable consumption, Statistics Canada suggests that Canadians are consuming five servings of fruits and vegetables per day, while the Canada Food Guide recommends seven for those 14 years of age and older. Only 40 per cent of Canadians consume five servings per day.

Senator Bellemare: What you are saying, basically, is that is a pipe dream.

Mr. Le Vallée: It could encourage self-sufficiency. It is important to have a local system. In an emergency, when we cannot get a supply of food from abroad, we can count on local systems to be able to supply food to the local population on a temporary basis for a certain amount of time. It is good to have that in place, and we do. We will make food choices, perhaps reduce our consumption, but, overall, Canadians consume too much as well. That is a whole other question.

[English]

Senator Enverga: While we are trying to negotiate free trade agreements, as we go along, we know that other countries are doing the same thing to other countries and most likely they already have trade agreements with other countries. Who do you think is our main competitor? Should we adapt to our competitor or with the country we're trying to work with?

Mr. Le Vallée: Our main competitors vary per commodity. Some things we're leaders in. If you look at canola or some pulses and other types of commodities, we're clearly leaders in the world, even mustard, barley and oats and some other things.

In terms of countries, our biggest competitors are the U.S., Europeans, Japan and Australia, depending on the commodity. It's in all of these countries' interests to get together and reduce trade barriers.

Senator Enverga: Should we focus on our competitors or the needs of the particular country we're trying to work with?

Mr. Le Vallée: It's important to work in the countries where we have large opportunities who are not our competitors. I was saying earlier that the U.S., for instance, is not a large growth opportunity for us, but emerging markets are. So, it's important to pursue those markets to access them and to negotiate further to increase that market access for our products.

Senator Enverga: Thank you.

[Translation]

The Chair: Mr. Le Vallée, are there studies available on the economic impacts? Do you have something at hand that deals with penetrating new markets, getting access to new markets, if supply management were no longer available in Canada?

Mr. Le Vallée: The report I gave to Senator Robichaud includes scenarios that address that question. I do not know the figures by heart, but there are elements of an answer in the report.

The Chair: With regard to the statements you have presented to us this evening, did you take any time to have discussions with the producers who are part of the supply management system?

Mr. Le Vallée: We have had exchanges with a lot of sectors, including those with supply management: dairy products, poultry, eggs. We consulted them and interviewed them on occasion. We are listening to them and forming ideas. We analyze what we are told and use the data as a basis for our evaluation of what is best for the country.

The Chair: On behalf of the Senate Committee on Agriculture and Forestry, I thank you for coming to share your point of view with us.

Honourable senators, let us take a break so that the second group of witnesses has time to take their places.

(The committee suspended.)

(The committee resumed.)

The Chair: Honourable senators, let us begin the second part of this meeting of the Senate Committee on Agriculture and Forestry.

[English]

From the Canadian Agri-Food Policy Institute, we have Mr. Ted Bilyea, Chair of the Board of Directors, and Mr. David McInnes, President and Chief Executive Officer. Thank you to both gentlemen for appearing as witnesses. I have been informed by the clerk that Mr. McInnes will make the presentation, to be followed by questions from the senators.

Mr. McInnes, the floor is yours.

[Translation]

David McInnes, President and Chief Executive Officer, Canadian Agri-Food Policy Institute: Thank you for inviting the Canadian Agri-Food Policy Institute (CAPI) to present to you on your first day of hearings on international market access priorities and their implications.

CAPI is an independent, non-partisan and non-government think tank dedicated to the future success of Canada's agri-food sector.

[English]

Tonight we're focused on the following question: How can Canada's agri-food sector best position itself in a world of increasing globalization of food production and supply? Answering this goes well beyond securing trade agreements. It's about linking policy, supply chain strategies and marketplace foresight. We present five principles to help make this point.

Our comments are based on a paper we published last month, entitled Leveraging Trade Agreements to Succeed in Global Markets. I would like to acknowledge the other co-authors, John Weekes, Bennett Jones and Al Mussell who is now with Agri-food Economic Systems.

This is our initial work and we will have more to add when our deep dive into trade strategy is completed in early 2015.

I'd like to turn to the principles.

First principle: Export success depends on the timely negotiation of preferential trade access. Canada is working hard to expand market access for its agri-food sector. This we know. But in a world of competitive trade liberalization, countries are competing with each other to be the first to secure free, or at least preferential, access to the world's major markets. We've long understood this. For much of the 20th century, Canada has enjoyed preferential access to a major part of the trading world under the British preferential tariff.

After that was lost, we gained access to the United States through the free trade agreement there, and then NAFTA. There were periods of great expansion for agriculture and food processing industries during those times.

While Canada is now securing a trade deal with South Korea, the bilateral agreement between the U.S. and South Korea was negotiated first. This has been costly to Canada. We made a tactical decision and did not follow through on our trade deal opportunity back in 2008, or so. However, Canada has beaten the U.S. in striking a deal with the EU.

Second principle: Winning preferential access depends on isolating a country's core food preoccupation and building a win-win trade advantage with this in mind. Take Japan, where food security is viewed as a critical issue. Japan's food self-sufficiency has fallen from about 70 per cent before 1970 to less than 40 per cent today. Aging farmers, demographics, the prevalence of small-scale farm operations and decreasing agricultural production are the main reasons.

Reducing tariffs and improving access are the desired outcomes of any negotiation, but the longer-term strategic objective is, or should be, about positioning Canada as a major reliable food supplier to the Japanese market. Japan should be very interested in this longer-term supply solution. Doing so, we believe, requires fully aligning our supply chains in response, such as Canadian input providers, producers, processors, distributors and the necessary support sectors to make this happen. A bilateral deal with Japan that adheres to this principle could shape how we proceed with the TPP.

Third principle: Export success requires deeply understanding the foreign consumer. Many consumers shop for their food on the basis of price; but consumers also expect something else that transforms global supply chains and food practices here in Canada and abroad; and that is trust. Increasingly, consumers want to know, ''What's in my food?'' ''Is it safe?'' ''How was it produced?'' ''Does it harm ecosystems?'' ''How are the animals treated?'' ''Where does my food come from?'' In certain market segments, these factors easily trump price. I've circulated to the committee figure 1, which represents these various pressures.

Individual companies and producers promote these attributes. Supply chains establish global and domestic standards from field and ocean to fork on quality and on ethical and environmental sustainability requirements, among other things, and governments are responding, with the EU's restriction on growth promotants and the actions of governments elsewhere to reduce trans fat and sodium, among many examples.

All this requires traceability and the governance practices to develop it and support it. You'd think that Canadians would be among the best at this and negotiate strategically such protocols in trade agreements. For instance, Canada has mandatory traceability from ranch to slaughter in the beef sector and the Americans don't have that.

Fourth principle: Export success also requires the constant pursuit of differentiation. This principle is linked to the last point. We can differentiate ourselves on governance practices. It also extends to our brand. Japan and South Korea, for instance, are seen as premium markets for our food ingredient exports. Our reputation for clean water, good soil, open spaces and nutritious ingredients should have value. The task is systematically supporting such brand attributes. Our R&D capacity has a role here in demonstrating the nutritiousness of our ingredients or that it contains fewer residues than that of other agricultural producers. Canada's trade strategy needs to be about differentiating ourselves from the Americans and offsetting their scale advantage. We want foreign consumers to seek our ingredients and our food because of what they offer.

Fifth principle: Being competitive in this changing trade world requires taking essentially a systems view. We present a diagram to help make this point, which is figure 2, distributed to the committee. It provides an integrated view of trade, domestic policy and business strategy considerations. This is found in the report that I mentioned at the outset.

Eliminating tariffs gets a lot of the attention when we talk about trade agreements, yet securing a trade agreement is only one step. Firms must also deal with non-tariff barriers and other regulatory, policy and legal requirements, and supply chain standards, as noted above. Plus, export success requires knowing how to target the right consumer market segment with the right product. In short, positioning Canada in a world of increasing globalization of food production and supply requires an integrated and strategic approach.

We'd like to close our comments by making the additional point that we need to take a long-term view. For many good reasons, Canada's agri-food sectors will be highly motivated to solve their immediate respective market access challenges of the day, but trade policy has a multi-generational effect. Today's deals will set the rules for decades to come. We need to be clear about what our long-term objectives are. We believe there will be increasing global interest in Canada's agri-food sector. Countries and global supply chains will want increasingly to lock in reliable sources of food and value-added ingredients. We don't have all the answers today, but we will need to decide how to fully leverage our productive capacity going forward. This needs to be part of the dialogue.

Senator Tardif: Thank you for your interesting and informative presentation. It was excellent.

I will go back to the question of traceability. You spoke about the importance of trust, especially with our export market. I'm from Alberta and I know well how mad cow disease affected some of our markets in Japan, for example. I'm sure it's resolved now and that we are again exporting to those countries, but it impacted our industry heavily in terms of trust and confidence in the product and the brand for probably a good 10-year period.

You indicated that Canada's beef industry has farm-to-fork traceability. In other areas, what is the reaction of Canadian producers to traceability? Is everybody on board? Is there general agreement that this is the way Canada should be going? Is it an accepted fact?

Mr. McInnes: In fact, a couple of years ago we did a fairly in-depth study on the Canadian beef food system, as we called it. We inquired and reached out to many in the beef sector and conducted about 80 interviews to formulate some insight and data. For many, this is an evolving picture. There is no question that traceability has a cost that is often borne by the producer or the rancher, among others in the supply chain.

On the other side, there's an increasing recognition that the consumer, the retailer and even the producer see the value in having that information to reassure the final consumer and the export market how that animal was raised and how the product was prepared. We're seeing quite a transformation.

We mentioned that Canadians are actually further ahead than the Americans. This is a very important point because it speaks to how we leverage that information flow from genetics, to feed, and right through to the consumer so we can win a greater market share.

Sometimes these big transformations take time to sink in and be absorbed and well understood. We are on the right track, and it's encouraging to see that.

Senator Tardif: Talking about GMOs raises the question of how Canada is perceived. Canada continues to use them, for example, genetically modified wheat products. There is a niche market out there and, certainly, a European market that is very wary of having products in from Canada that have genetic modifications. How do you see this evolving?

Mr. McInnes: Unlike in the beef area, we haven't done a deep study or deep dive into this particular issue. What we have done is start to look at the trade issue, if you will, the trade opportunity. We've recognized that, when we think of a trading world and where we want to be, there are the agreements, the non-tariff barriers, and the rules to enter a country, and then, of course, there are marketplace and supply chain barriers and opportunities, which are really forming part of that diagram that I distributed earlier on.

As it relates to the GMO issue, one of the issues that does come up or is raised as a question is that we're probably going to see an increasing opportunity by some to use highly sensitive technologies as a basis to restrict Canadian exports abroad. This is only inevitable, I suppose, given the nature and change of technology and the finer they will look at the component parts of products. I think what we have to do as a trading country — and we really do want to be a better trading country — is to really push the need for science-driven risk assessments on countries and the governance around that so that we can continue to have that market access in terms of, for example, the opposition to or the view on GMOs. This issue is important for Canada to get right and to stay nimble enough on so that we can be responsive to these various market challenges.

[Translation]

Senator Maltais: Thank you for the document you presented to us, gentlemen. It is very well done. We understand what it is saying because a number of factors in our study are important to us and we have been talking about them for at least three years here at the agriculture and forestry committee. A study like this gives us some comfort and confirms that we have not been voices in the wilderness and that our work has been useful. This is really interesting.

I would like to bring up two points. You mentioned exports to Japan. Twenty-five years ago, Canada sent no snow crab exports anywhere. A market developed in Quebec and New Brunswick and today, 80 per cent of the catch is sold in Japan. But the Japanese have certain requirements. They have their own inspectors in each plant. The effect has been that Canadian consumers are priced out unless they live near the plants. In supermarkets, you are going to be paying the price they are paying in Japan, and that is okay. Today's producers make a profit and I am very happy for them. The resource is still very plentiful. Processers and fishers get their share and everyone makes money. That is great!

I have two questions about interprovincial barriers. The Canada we live in is a federation with 10 provinces and three territories. We have interprovincial barriers. Can we hope to abolish those barriers one day? If we abolish those barriers, we would have to standardize inspection services. British Columbia and Newfoundland and Labrador do not have the same inspection standards. They are not bad, they are different. If we want an internationally competitive country, we are going to have to act as one, not as 12, because free trade treaties are signed by the Canadian government. It will be up to the provinces to come under the Canadian government's big umbrella. Tariff barriers and inspection services are very important if we want to make sure that our products are of high quality and that they meet the needs of those who are buying them from us.

Finally, let me raise one small point. In Canada, we have observed certain facts. The average consumer is more and more difficult. I am not talking about rich people or extremely poor people. I am talking about the average consumer, who has become very demanding. That trend is likely to increase with time.

How is that consumer going to behave when foreign products from Asia or from Europe arrive on our shelves? Consumers will have unlimited choice in stores. How are they going to behave? What will they be demanding now in the next 25 years?

[English]

Mr. McInnes: Those are some good questions. Let me start with the first one, senator, interprovincial trade barriers. We recognize, as well, that this is something of considerable interest. We know that there is a lot going on. There's a lot of activity going on across the country to address those. We are, in fact, now scoping out a research project that may end up doing a piece of work to try to understand interprovincial trade barriers.

The question that we came up with after the progress on the CETA, the Canada-EU agreement, was: What are we doing right now, as a country, to prepare for the inevitable formalization of that agreement so that we can compete with the European firms coming to Canada? That led us to think about interprovincial trade barriers.

Once that project is done — and I guess I've just invited myself back to the committee when it is — perhaps we can come back to you and share our results if we go forward with this project.

With respect to the consumer, it's a fascinating area. The chart that we've shared is both a frustration for companies in the supply chain and an incredible opportunity because the consumer is fickle. It changes by market segment and by demographic. Today, it is gluten. Tomorrow might be sugar. We were at sodium and trans fat. What is the trend for tomorrow? These changes that seem to be trends actually become mainstream. What we're looking at is how to create the opportunity to leverage those opportunities and compete. This is where we feel that there is an opportunity for the food processing sector, for instance, and producers to target some of these attributes.

Ted Bilyea, Chair of the Board of Directors, Canadian Agri-Food Policy Institute: If I may, there are two other important points you have raised that I would just like to keep in front of the committee for strategic reasons.

One is that, just as in the example you used on crab, I actually sold that crab to France and into Canada before it ever went to Japan. Then, it went to Japan and we were involved in that, too.

The key point was that there are always consumers in the world who are prepared to pay more for that product than Canadians are. We should get used to that concept. It's happening today in pork. Our very best pork is, in fact, being exported, and I was involved in that. It's happening with many other products that you can think of and will continue to happen and gain momentum. That's the first point, I think.

The second one is that, when we talk about imports from Europe and Asia, the key missing ingredient is what consumers will think about it. That presumes that the consumers know that that product is imported. I have been in this business for 40 years. I can go into the supermarket, and all I do is ask questions to myself when I go to buy something. I see that the address is actually the address of the supermarket. I have no idea where the product was produced, in many cases. The question you're asking is very important to the food industry in Canada. I do not have a simple answer for you, but we have actually said to the Americans, ''We respect your right to know where your food comes from. We just don't like the way you're implementing it.'' That's our legal argument.

The same thing applies to Canadians. All Canadians have a right to know where their food comes from, but the problem today is that we don't know. I'll just leave that comment there on the side, but I think you're onto something interesting.

[Translation]

Senator Robichaud: My question is a short one. What is the attitude of consumers in general? How are they reacting to the environment? You are talking here about the carbon footprint, the water footprint, chemical residue, pesticide and herbicide use. Are people beginning to pay attention to what is being used to produce food?

[English]

Mr. McInnes: Thank you, senator. I think the question is very complex, in a sense, because we know that consumers, when they buy their groceries, going into the store, they may feel that sustainability or other things are important. However, at the end of the day, many consumers will buy on price. They assume the food is quality and safe, but they will generally buy on price.

That being said, increasingly consumers want to know where their food comes from. When you go into retail outlets today, you will see sustainable seafood only. There have been some high-profile cases recently that talk about restaurants only selling certain types of product that may have been subscribed to certain ethical practices or certain additives are not used. What we're seeing is that as supply chains and individual retailers and processors try to compete, they're using and leveraging these attributes to try to get access to the consumer's dollar.

Not unlike some of the trends, what might have been a marginal response is becoming increasingly main stream. As a result, global supply chains and the capital markets, in turn, are looking at how these companies are ensuring that they have a reliable ingredient supply. Take palm oil, for example, from Southeast Asia, where there's a tremendous amount of scrutiny internationally on the sustainability of palm forests and what's happening with rain forests.

From the store level, from how we buy our shade-grown coffee, right through to global supply chains, the drivers of how these purchases are made are increasingly reflecting sustainability and other practices, so it's here to stay.

From Canada's standpoint, how do we create that opportunity based on those particular drivers? Companies and supply chains need to have the response. This goes back to some of our work and the senator's question earlier about traceability and beef and so forth, is that in order to be nimble enough to respond, this is going well beyond the individual company's promotion. It's a supply-chain response. Consumers want to know where their food is grown and raised, at the ranch or at the farm level, and that it carries right through to the shelf where they pick up their food.

[Translation]

Senator Dagenais: My thanks to our two guests. In an environment in which commercial trade is becoming more liberal, companies that make products are clearly looking to attract consumers; that creates competition on international markets. I would like to hear your opinion on the challenges being faced by those involved in agri-food, especially in terms of access to export markets.

[English]

Mr. McInnes: There are probably many different ways to answer that. I will start and perhaps my colleague Ted can pick up on it.

We just completed a fairly major study on the competitiveness of the processed food sector in Canada. In the course of that study, we found two very interesting data points, among other things. The first was that this is a sector that is now the number one manufacturing segment in the Canadian economy, surpassing auto manufacturing and aerospace manufacturing combined. It is the number one manufacturing segment in the Canadian economy coast to coast, yet this is a sector that is experiencing record trade deficits. In secondary processing, we now have a trade deficit that was hovering around a billion dollars in 2004 and we're now at a $6.8-billion deficit.

The importance of food manufacturing is that it actually pulls about 40 per cent of Canada's agricultural production into processing, and that number actually gets higher in Quebec and Ontario, where well over 65 per cent of what we produce on our farms is processed.

So this is a deep-seated competitiveness issue.

As a trading nation and as individual consumers, we choose foods for all sorts of reasons. This is not about being anti-imports, because we eat all sorts of different food, but the question is how do we create those export markets so we can create channels to market for food manufacturers and agricultural producers? In our view, if we are trying to do so by competing against the large American plants that have the scale and efficiency to beat us on price, I suspect that that trade deficit number is only going to get worse.

What we've concluded, based on our work, is this emphasizes the importance of that differentiated advantage that we noted earlier. How do we consistently differentiate our products so those consumers in Japan and Europe, among other countries, can really see what the value of Canadian food is and the ingredients that form part of the processed food sector?

Mr. Bilyea: As the committee well knows, there are lots of barriers for Canadians trying to enter specific markets. The key is, some of those barriers will eventually be able to be removed and others will be with us for a long time.

The ones that are with us for a long time, we have to begin to think about how valuable the market is and, if it is, readjust our strategy. As David said, in Canada, particularly in processing, but it's also in most of the agricultural products with the exception of canola, our issue is scale. If we want to deal with our U.S. competitor who's got scale, we have to find uniqueness. We have to go the other way and break it.

That's the breaking of scale. To the extent that we can do that by utilizing some of these trade barriers that other countries have as a leverage point, where we can get over the barrier because we've done things to do so, but companies with large scale are not going to do that. It's too costly. It's too disruptive to their systems. They won't do it. It opens up an area for Canada.

Certainly the best and easiest example I've seen, and the easiest to understand, is what happened in China with beef. It was a very simple calculation that we had mandatory cattle ID put in place because of BSE that allowed us traceability from farm to slaughter plant. When we were negotiating with the Chinese, the Chinese, of course, were looking for ways to prevent large-scale importation of beef overnight, and they came up with one. They said because of the health issues, we should demonstrate that we've got mandatory traceability from farm to slaughter plant.

Our trade negotiators were perceptive enough to say that yes, we will do that, because we already had it in place. But the interesting thing is that created a massive speed bump for our large-scale competitor to the south, because they did not have mandatory national traceability from farm.

We are now making money out of that form of traceability, despite all the thought process that we would not, because we have legal access to China. The Americans do not. I leave that as an example.

Senator Enverga: I have learned a lot from your presentation. These steps that you mentioned are something we should think about all the time.

From what I see from your steps is that the FDA is just the first step. As the Canadian Agri-Food Policy Institute, do you recommend a marketing strategy for every agri-food that we export to other countries? Do you recommend any marketing strategy, like good drinking water for cows or nice green land? Do you make any recommendations?

Mr. McInnes: Unfortunately, we have haven't gone market by market and product by product. In our paper that we issued last month that I've referred to in our remarks, we suggested that perhaps a trade audit can be done by the supply chains or companies, even governments, in the market to understand what the combination of barriers, rules and access opportunities are. We've tried to take the concept that trade agreements are vital to Canada and much is being done here, but there's so much else to actually get and land the product on the shelf and stay on the shelf. The audit concept is something we've suggested.

However, this is just our initial piece of work, and we might have some ideas to come. In fact, we're going to be in China in a couple of weeks trying to get a much deeper understanding as to how we can get more Canadian food products on the retail shelf in that massive country. We hope to come out with some ideas that might be useful along those lines.

Senator Enverga: We were talking about processed foods a while ago. Since Canada is a multicultural country, how can we leverage this multicultural relationship into the processed food industry? Have you made any recommendations, or have you thought about those things?

Mr. McInnes: We have, actually. In our processed food work that came out in June, we recognized the importance of the multicultural society that we have. There are different ways of looking at this.

One idea that we identified was we have so many foreign students coming to Canada to study here, and then after their time at school, they go back home. They are individually possible ambassadors for Canada in so many ways, including food and beverages. How can we tap into that? How can we try to take that opportunity so that they in returning can become a pull from those countries to look out for more Canadian food? It's possible, given the rise of e- commerce and e-retailing, and the world is moving to that spot, pulling product from wherever they might be if it's not readily available.

As we all well know, some of our largest cities, even in many cities, the multicultural communities are hotbeds of innovation. When I was growing up, I remember when bagels hit the shelves. There was no such thing as naan bread, but now, of course, it's mainstream. Think of naan bread; think of pita bread. The ethnic influence on the palate and the opportunities it creates for processors and producers are increasing. All we have to do is walk through the aisles of a grocery store and identify that for ourselves.

It's a very important market. The question then is how to turn that into global opportunity. That's when we think back to the farm level, the ingredient level and the nutrition level of those ingredients and how it's sustainably produced. Now we start tapping into the brand aspects of what we produce here in Canada. Now we've got something. There are a lot of examples country-wide where businesses are being built around putting this together, in the pulse sector, for instance. Perhaps we can do more of that.

Mr. Bilyea: I would add another point on the processed food. David indicated to you how important processed foods were in general to the health of Canadian agriculture, the primary products. It occupies a major piece of the market for those products from the farm.

However, one of the problems I've seen trying to export processed foods is that the barriers on processed foods are even greater than they are on the raw materials. When I look at the priority list for our market access secretariat — they have a spreadsheet of priorities, which I recommend that the committee takes under consideration — they are very limited. There are hardly any processed food items flagged on that list. The thrust has been to free up the commodity so it can move without any consideration of dramatically freeing the processed food side.

The processed food industries in Canada can only grow if they can find scale, and they have to get beyond the Canadian market so that we need to concentrate on those things.

For example, in China, if you take the pork product, it is approved to go in as frozen pork, but if you cook the pork, it's not approved. That eliminates a very large number of products we could be shipping. We have people in Canada who have actually made investments to produce various types of Chinese foods with pork or beef in them. They can't ship them because, once you put them together, they're not approved. I would recommend that we also look seriously at this issue.

Senator Oh: Gentlemen, you're probably one of the best. You're so detailed in your study on the world food market. With China being the number two biggest trading partner with Canada, would you be able to tell us, in your research on China, what is the current value of food exports to China from Canada?

Mr. Bilyea: I don't have it with me.

Mr. McInnes: Unfortunately, I don't have that information on hand, but perhaps we can get something back to you on that.

Senator Oh: If you could, that would be great.

Can you also predict the future potential of food exports to China five and ten years from now? That is a huge market and I think Canada could aim at that. Our maple leaf brand sells everywhere in Asia, especially in China, for food safety and quality of food. They look up to Canada and anything that comes from Canada, if you can get it onto the shelf, it always sells.

Mr. Bilyea: The simple answer to that is we would have very significant difficulty in supplying any products from Canada on the processing side and, for that matter, with the exception of canola, we would have difficulty in supplying any products at all significant to those consumers. Even if one city came online and said, ''We want Canadian products,'' in half a dozen of our retailers, we couldn't supply that. It's that big. The shift from brick and mortar retailers to the online e-tailers is so huge that I don't know how anybody can supply it.

The market is big today, but we've just seen the tip of the iceberg. This is a conversion that has occurred in the last seven or eight years from 1 per cent of the people in China buying imported foods to now where we're somewhere up to about 30 per cent of the people, mostly in the coastal cities, buying imported foods. Many of them, as you probably know better than I, when they travel take those foods back with them, particularly baby foods. Self-importation is massive in China. Canada could tap into all of that very easily. The problem is we've got to get ourselves lined up in a systematic way to serve that market. It means we will have to have differentiated products. Micro branding is very important to the Chinese, but we're also going to have to have enough scale so that we're meaningful.

The one advantage we have going in there today is there's no retailer in China with even 1 per cent of the market share. Think of that in terms of Canada. What a difference. All you have to do as a Canadian is find two or three of them at 1 per cent, and you're good. There's lots of them.

Senator Oh: Make sure you put Canada as the place of origin, and that will sell.

[Translation]

Senator Bellemare: Your presentation was quite exciting. The vision for agriculture that you have for us is very positive in its scope. As I listen to you, the supply management problem almost goes away because, if our approach is to differentiate our products, sales will increase and, if we sell more, we no longer have to protect our income, because it is linked to our volume of sales.

I find that very interesting as a vision but it is based on a rather systemic analysis of what is happening because agriculture is in a period of profound change. If we extrapolate, actually, given the increasing wealth of some countries, people there will want to try good products, different products, and consume them. Agriculture is perhaps going to see some growth whereas, for years, it was the opposite in terms of percentage of the GDP and of jobs. Curious taste buds are going to turn the sector into something quite different from what it was in the 1930s.

That said, this systemic approach also depends on an educated labour force, on an education system that put a value on agricultural knowledge. I see a lot of things that can be done in public policy to make this vision into a reality. The vision is possible, but it may not happen if we do not put things in place.

I would like to hear your opinion on the conditions attached to implementing that vision in terms of universities, schools, workforce training, and research and development.

[English]

Mr. McInnes: Thank you for the question and the commentary. In fact, we're seeing the school system starting to take quite an interest in our work. For example, if you were to go on the website for Agriculture in the Classroom, which is a federal-provincial initiative, you'd see that they're using our food systems concept as a framework to communicate to school-aged children about how to think of the food sector.

For many years, most of us, if not all of us, thought that the food sector was about the supply chain of production to retail. It certainly is, but there's so much else to it: the R & D; the education community that trains for technical jobs; and the roles of financial institutions and federal, provincial and municipal governments in terms of zoning, regulations, et cetera, that support the sector. The list goes on.

This initiative, which we were delighted to see picked up, acts as a framework to say to children: If you consider a career in the agri-food sector, by all means think of the traditional roles, but think more broadly.

I mentioned the food manufacturing study. Also, for the first time we worked with several business schools across the country, from Halifax to British Columbia, to look at why some companies are so successful despite the trade deficit, the challenges and other things that we know are challenging. Why is it that some companies are so successful? For the first time, that we're aware, we harnessed the energies of several business schools to examine a number of these companies. We're seeing interest amongst a couple of those business schools start. They are taking the case analyses that we've developed to create new curricula.

So things are being done. The systems concept, though, is an opportunity to create a new dialogue. I'm coming back to Senator Maltais and the question about interprovincial trade barriers. When we think about any of the challenges we face, we need to have a conversation. When we think about agri-food success and the challenges we face as a sector, we need all the players to be at the table to resolve what stands in the way of that success of the food system. As I mentioned, that includes the municipal level of government, which often in our discussions just doesn't seem to be as front and centre as other levels of government. We need to consider, for example, how health, environment, trade, tax and finance departments and others, which all have a touch point on the food system, contribute to and sometimes hinder or enhance what the food system does.

I think it's broader and more complex, but the reality is that it's a complex business getting food to our plates every day. The companies in the sector sometimes feel great frustration because they can't seem to resolve issues. Having a bit of a different view creates a different discussion.

The Chair: On that same question, Walmart, Costco and other big chain stores in North America present a new type of merchandising of food products. Have they taken into consideration consumer behaviour in terms of food? Have they contributed to increasing agri-food production in Canada?

Mr. McInnes: I'll defer to Ted to see if he can answer on the question of production. I'd have to think about that, but certainly the bigger players are very much trying to respond to the consumer, just like any other retailer in the country does, by trying to tap into what is going to pull us into the stores to buy food. Some of these bigger players are actually doing quite a bit, for example on sustainability and other initiatives. These are global mandates, so it's not just about what they're doing here in Canada. This is a factor that we can't disregard when we think about how we access the retail shelf in Canada. Ted, do you have a view on that?

Mr. Bilyea: I prefer not to comment on any particular names.

The Chair: Please don't.

Mr. Bilyea: The reality is that, to my knowledge, all of the retailers are trying very hard to find their own niche of differentiation in serving the consumer. One of the things they struggle with is the fact that when you're as large as they are, they have to find enough of the product to be able to fill their shelves. This is where there's a bit of a struggle. Many of them have developed quite vigorous Canadian programs, for example, in fruits and vegetables in the summer, and in beef and pork. Chicken and dairy are easy to do because they're all Canadian except what's involved in the import quotas. They've all looked at that because they all know it works — it attracts consumers.

The issue is how to fill the entire store. That is a problem we're facing today when we have lower animal numbers than we've had virtually in my career. That's one of the issues they're grappling with.

Senator Beyak: Gentlemen, I'll echo Senator Bellemare's excellent words. Your presentation was positive, enlightening and great.

I listened to other senators' concerns about the dairy industry and I've heard the same; but I've heard positives, too. Is there any way your firm can look into a signature Canadian cheese? There are good cheeses all over the world, but I would argue that Canada's is the best. Is there one brand that every single resource could go into that would make it renowned worldwide, delicious and create an economy of scale?

Mr. McInnes: Well, I love Canadian cheese. We haven't looked at that issue, per se, and we haven't looked at supply management as an issue yet, although it did come up in our food manufacturing review amongst food manufacturers. Various comments were raised.

Your question is relevant to many food and beverage types across the country. It's about how we leverage the brand. I don't want to take us off on a tangent because it's not answering your question directly. I haven't looked at that particularly.

Mr. Bilyea: I think it's a great idea. It's not gone unnoticed that the two companies that are very large and growing very quickly in Canada, in the food area, are both in the dairy business. Those two companies are becoming the Canadian giants on the world stage. They would be very good people to address that question to because they know what they're doing in that business. They're growing very fast and are world scale.

Interestingly enough, Canada may not export dairy products, but we have managed to produce two large and excellent dairy companies.

I would add one more positive note on the supply-managed materials.

To my knowledge, there are absolutely no issues with Japan on the dairy file. In fact, Canada and Japan share many of the same concerns and, if I were to rank trade agreements that had the most potential for Canada — and I have said this steadily for about five years now, right through the whole TPP debate — Japan is what we should be focused on. In that sense, there is no issue. We're all united, as Canadians, in going after that market, and we should be totally focused on it.

I'll say one more thing, and that is: It's an interesting phenomenon, but I know of a company today that is fully prepared to, and may well have already done it, export milk to China from Canada, just whole milk. The issue there simply is that the consumer is willing to pay a price at least as high as Canadians are prepared to pay, regardless of the world price for milk. They are importing that by air and that is entirely based on trust. I'm not saying you could develop the entire Chinese market that way, but we need to recognize that the world is changing in ways that we are not fully able to predict. We need to be very cognizant of that. I think trust is a major issue.

I think we will work our way towards some form of a solution eventually with the supply-managed industries, but it will be only in a forum where there is lots of neutrality and where the best minds from both the supply-managed industry and processors and exporters can come together and think about what it means. What does it mean that twice in the last five years the world dairy price has spiked, and it's almost gotten to the support price in Canada both times? What is that telling us? It's backed off a bit now, but twice it has spiked to the point where we could almost, theoretically, export at our support price. I talk to my friends in that industry all the time. I poke them and say, ''What would you do if it was actually at that price? You would expand.''

Senator Beyak: Exactly.

[Translation]

Senator Maltais: In the table you circulated to us, we can see a very interesting little insert. Once we are producing and exporting a lot, what condition will our ecosystem in Canada be in?

[English]

Mr. McInnes: Would you mind repeating that?

[Translation]

Senator Maltais: When we are producing more than we do now, when we have a lot of exports and have reached the upper threshold of our land management, is there not a danger, or an alarm bell we should be listening for, since soil overcultivation is known to be a danger?

[English]

Mr. McInnes: I know many producers who are excellent at soil management and take great pride in how they manage their natural resource. I think that, as technology and awareness and the connection to the consumer increase, that's only going to increase.

Actually, to come back, perhaps, to the premise of the question, which is that this is only about volume, Canada's opportunity may also be about value and how we add value to those products and ingredients.

I'll come back to pulses. We have tremendous land base to produce pulses across the country, and you might hear from the pulse sector in your hearings to come. They are also finding ways to take the protein powder, to apply it and to partner with the pasta industry and other sectors to enhance the protein value of pasta. We have to take that holistic view of the value of what we produce and how that creates processing opportunities, which may not actually increase acreage but might be smarter in how we add value.

Mr. Bilyea: One very short point. I think you're touching on a very sensitive topic because, as part of our strategy, we have laid out that we fundamentally believe that this has to be a sustainable agriculture.

One of the questions that I believe you're going to have to grapple with — we're not going to grapple with it, but you're going to have to — is, if the family owns the land for a long period of time, they look after it. They won't do anything to endanger their future because that soil is their future. We see tremendous pressures mounting for foreign entities to own land in Canada because it is so valuable to them. I think there are many points to what you're doing here that are extremely important to think about. That comment is bang on. No farm family that I know will go out of their way to do any harm to their land. That's the last thing they would do. They're essentially managers of water and soil.

Senator Maltais: Thank you.

The Chair: To Mr. Bilyea and Mr. McInnes, no doubt you have set the marching orders in many ways when we look at the presentation of tonight. It was very enlightening and informative, and there is no doubt that we might call on you again, especially when you're back from China, so that you can share your views and what would be next for Canadians as we look at that great country.

Honourable senators, I thank Mr. McInnes and Mr. Bilyea. The meeting is now adjourned.

(The committee adjourned.)