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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 19 - Evidence - Meeting of November 6, 2014


OTTAWA, Thursday, November 6, 2014

The Standing Senate Committee on Agriculture and Forestry met this day at 8:04 a.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: Welcome to this meeting of the Standing Senate Committee on Agriculture and Forestry. My name is Percy Mockler. I'm a senator from New Brunswick and chair of the committee. I would ask all senators to introduce themselves, please.

Senator Beyak: Senator Lynn Beyak, Ontario.

Senator McIntyre: Senator Paul McIntyre, New Brunswick.

[Translation]

Senator Robichaud: Good morning. My name is Fernand Robichaud, and I am a senator from Saint-Louis-de-Kent, New Brunswick.

[English]

Senator Merchant: Good morning and welcome. Pana Merchant, Saskatchewan.

[Translation]

Senator Maltais: Good morning. My name is Ghislain Maltais. I am a senator from Quebec.

[English]

Senator Enverga: Tobias Enverga from Ontario..

Senator Unger: Betty Unger, Alberta.

[Translation]

Senator Dagenais: Good morning. I am Senator Jean-Guy Dagenais, from Quebec.

[English]

Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.

The Chair: Witnesses, we will introduce you formally but, before we do that, I want to take the opportunity on behalf of the committee to thank you for accepting our invitation and sharing your opinions, thoughts and recommendations to this committee.

Today, the committee is continuing its study on international market access priorities for the Canadian agricultural and agri-food sector. Canada's agriculture and agri-food sector is an important part of the country's economy.

[Translation]

In 2012, the sector accounted for 1 in 8 jobs in Canada — employing over 2.1 million people — and close to 6.7 per cent of Canada's gross domestic product.

[English]

Internationally, the Canadian agriculture and agri-food sector was responsible for 3.6 per cent of global exports of agri-food products in 2012. In 2012, Canada was the fifth largest exporter of agri-food products globally.

As witnesses, we have this morning, from CropLife Canada, Dennis Prouse, Vice President, Government Affairs; and Stephen Yarrow, Vice President, Biotechnology. CropLife Canada represents the manufacturers, developers and distributors of plant science innovation.

From the Canadian Fertilizer Institute, we have Clyde Graham, Acting President. It's our pleasure to have you as a witness with CropLife Canada to share and listen to your recommendation.

I am informed that Mr. Prouse will make the first presentation, to be followed by Mr. Graham. Mr. Prouse, the floor is yours.

Dennis Prouse, Vice President, Government Affairs, CropLife Canada: Thank you, Mr. Chair.

As the chairman mentioned, CropLife Canada is the trade association representing the manufacturers, developers and distributors of plant science innovations, including pest control products and plant biotechnology, for use in agriculture, urban and public health settings. We are committed to protecting human health and the environment, and providing a safe and abundant food supply for Canadians.

Our mission is to enable the plant science industry to bring the benefits of its technologies to farmers and the public. Those benefits manifest themselves in many different forms, including driving agricultural exports, job creation, strengthening the rural economy and increased tax revenue for governments.

We're immensely proud of the role that plant science technologies have played in growing Canada's food supply. Canada's standing as a net export of food continues, and about 65 per cent of Canada's food surplus can be attributed to increased yields because farmers had access to our technologies.

As you can see, our members are strong free traders and so, too, are the grower groups who are members of our Grow Canada partnership. With them, we know that trade and innovation are two of the key pillars to growth and prosperity in Canada, making this study on market access particularly timely.

Across Canada, nine out of every ten farms are dependent on exports. This represents 210,000 farms and includes a majority of farms in every province. Canada's food processing sector employs a further 290,000 Canadians. Together, these two industries support over $44 billion in annual exports and account for 11 per cent of Canada's gross domestic product.

I want to focus my remarks on two particular markets that are very important for Canadian agriculture but where barriers to access remain. Those would be the European Union and China.

First, the European Union. Current agri-food exports to the E.U. are $2.4 billion a year. When completely implemented, CETA will eliminate tariffs on virtually all of Canada's agriculture and food products. The Canadian Agri-Food Trade Alliance believes that CETA could increase total agri-food exports to the E.U. by up to $1.5 billion a year.

Our industry and Canadian farmers, however, have had consistent difficulties with E.U. cultivation approvals and import approvals of products of genetic engineering. The reason, quite simply, is political oversight on what we believe should be a science-based regulatory decision. While the E.U. continues to verbally support a science-based approach, the reality is that there are now a cumulative 37 years of backlogged approvals. Again, these are products that have received their safety approval, but have not received final approval.

Let us be clear: This is a de facto ban on these products, which in turn creates a barrier to trade for Canadian farm commodities. This cumulated in a WTO challenge would help greatly in bringing this issue to light.

In addition, the incoming European Commission has announced that they will review the entirety of the authorization system within the next six months, which will likely lead to no new product approvals until mid-2015. The new commissioner, Jean-Claude Juncker, has signalled that the scientific approach to product approvals is not a priority for the incoming commission, with statements such as:

The Commission should be in a position to give the majority view of democratically elected governments at least the same weight as scientific advice . . .

In other words, approvals and trade will be based on political winds of the day and not science-based regulation and rules-based trade.

This type of rhetoric is concerning on many fronts, as it makes it very difficult for Canadian farmers and commodity traders to plan what they will seed in the spring; what they should store in the winter; and where, what and how they should move their commodities from an international trade perspective.

We also have serious concerns about the European Union's regulatory framework for crop protection products. The approach taken by the E.U. changes their pesticide registration process and moves it away from a science-based approach. The E.U. approach will impact not only trade and pesticides current and future, but also food, feed and seed products produced by using these pesticides. The import tolerance specified by the E.U. for these products is effectively zero, so even trace amounts could prevent the product from entering the E.U.

The use of hazard-based cutoffs as opposed to Canada's risk-based approach will expand to include compounds categorized as endocrine disrupters. The use of hazard-based cutoff criteria has the potential for negative and far- reaching impacts on global commerce. We believe this approach is not consistent with the World Trade Organization Sanitary and Phytosanitary Agreement, to which the E.U. is a signatory.

We have concerns about the impact of this action on Canadian farmers. Growers of cereals, oilseeds, pulses, horticulture and many other crops destined for E.U. markets will potentially be prevented from using a large number of safe, effective pesticides assessed by Health Canada. Growers need all the tools they have, as well as future innovations, to combat pest problems and feed a growing world population. Europe's actions in this area could have tremendous negative impacts on innovation and introduction of new technologies.

We believe the foundation of Canada's agricultural success and overall trade success is science-based regulation and rules-based trade. In order for CETA to truly be a success for Canada's agriculture sector, we must insist that E.U. member states adhere to clear science-based standards.

The Chinese market for Canadian grains and oilseeds is incredibly important to the viability of the Canada-China bilateral trade relationship and the Canadian agricultural economy. In 2013, Canada exported roughly $3.2 billion worth of canola and soybean products to China, accounting for more than 15 per cent of total Canadian exports to China. Canada's exports to China have more than doubled from 2008 and 2013, now accounting for approximately $20.5 billion. It has surpassed Britain as Canada's number two export destination. Over the past five years, canola has emerged as the number one Canadian export to China.

In parallel with the trade growth of Canadian grains and oilseeds to China has been the adoption of new technology by Canadian farmers making their farm business and the entire industry more profitable, efficient and environmentally sound. In this context, agricultural biotechnology is of key importance to Canadian farmers, with acreage of biotech canola varieties totaling over 90 per cent in 2014.

A serious challenge currently facing the Canadian agriculture crop value chain is providing for predictable and stable trade to China. The inability to secure timely import approvals for new biotechnology products and a growing concern that factors other than science are being used as justification to reject applications has created a situation where Canadian exports are in jeopardy of being rejected in China. In addition to trade risks, access to this technology in Canada would in turn be limited. This hurts research and development in Canada and limits the technology available to Canadian farmers.

Efficient, transparent and science-based regulatory approvals by China for Canadian crops is a top priority for our sector and will ensure that the Canadian trade of crops produced with safe and approved modern crop biotechnology can continue to be exported to China.

Finally, Mr. Chair, a word about Canada's low level presence policy, LLP. In the context of global trade, the low- level presence of products of biotechnology in shipments is inevitable. In other words, a standard of zero is impossible. Although the global consensus related to the safety of these products is strong, this LLP can create unnecessary trade disruption and restrictions on market access. A global approach to managing this reality of modern trade is necessary and crucial to Canadian commodity traders and farmers in order to help Canadian produce move around the world.

CropLife Canada commends the Government of Canada for its work in developing a domestic LLP policy. We eagerly await the final policy, which we expect will be completed prior to 2015. Canada is also a global leader in advancing the discussion on LLP and has played an integral part in the development of the International Statement on Low-Level Presence, which was signed by 15 countries. The statement commits these countries to work collaboratively to facilitate international trade of agricultural commodities by developing practical approaches to product approvals, risk assessments and thresholds designed to address LLP globally.

Canada is a lead member of the global LLP initiative, which is advancing international understanding related to asynchronous approvals, risk assessments and thresholds. China attended the last meeting in South Africa as an observer. It is important that Canada continues to lead on this issue and continues to press the adoption of reasonable risk-based approaches to managing this reality of agricultural trade in order to protect Canadian export markets and Canadian businesses from technical barriers to trade.

Thank you, Mr. Chair. We would be pleased to answer any questions committee members may have.

The Chair: Thank you, Mr. Prouse. Mr. Graham, please proceed.

Clyde Graham, Acting President, Canadian Fertilizer Institute: Good morning, my name is Clyde Graham and I am Acting President of the Canadian Fertilizer Institute. CFI represents the manufacturers of nitrogen, phosphate, potash and sulphur fertilizers, as well as major wholesale and retail distributers in Canada.

Our member companies produce over 25 million tonnes of fertilizers annually. Over 75 per cent of that is exported to more than 60 countries around the world. Canada accounts for about 33 per cent of world potash production and 45 per cent of world potash trade. Canadian farmers purchase about $4 billion worth of fertilizers annually.

There are three key points I want to make today. First, global markets are increasingly demanding that farmers demonstrate that their crops have been grown sustainably. Second, fertilizer is essential to feeding the world, but we have to use it more effectively to improve economic, environmental and social outcomes. Third, for our nutrient stewardship system, the right source of fertilizer at the right rate, the right time and in the right place is a critical tool for sustainable crop production.

Sustainable production has become increasingly important for gaining market access and market share for Canadian grains, oilseeds, pulses and special crops. Increasingly, importing countries and food processors are including environmental and social considerations in national trade policy or product-sourcing specifications. They want to know if the food is healthy and whether it was produced in a sustainable way. In some cases, participants along the agriculture-based value chains are being or will soon be asked to demonstrate compliance with sustainability standards to gain access to international markets or food processors or retailers.

Canadian agriculture must embrace the challenges and opportunities presented by the growing global demand for sustainably grown food products. To enable cross-sector dialogue, information sharing and collaboration in support of the objective, the Canadian Roundtable for Sustainable Crops was formed in 2013. Comprised of growers, industry, customers and the food industry, the roundtable is a national industry-led forum engaging value chain stakeholders in assessing and responding to marketplace demands and showcasing Canada's performance in the area of agricultural sustainability. That performance is actually very good. The Canadian Fertilizer Institute is at this table.

While these sustainability requirements can have the potential to function as market access barriers, they also provide significant opportunities. Canada is in a position to benefit. We are already doing a great deal to facilitate the adoption of sustainable production practices and measure outcomes to satisfy customer requirements.

As an example, last year Walmart, the world's largest retailer of food products, drew considerable media attention announcing a goal of 30 per cent reduced fertilizer use on 10 million acres in the United States by 2020. The launch of their sustainability hub included a tiered system for best practices documentation by suppliers. You can imagine that our industry was not in favour of that kind of approach by Walmart, but we opened the doors to Walmart and had a dialogue with them. Today, Walmart continues to work with the fertilizer industry to focus on increasing nutrient use efficiency, rather than rate reductions, to improve outcomes for the environment. In fact, they have recognized 4R nutrient stewardship as part of their tiered system.

The 4R Nutrient Stewardship program is an innovative approach to improving profits, protecting the environment and meeting society's goals on Canada's crop lands. The objective of the program is simple: helping to ensure that producers apply fertilizer using the right source, the right rate, the right time and the right place.

With the world population expected to reach more than 9 billion people by 2050, we must grow more food on a limited amount of farmland without harming the environment or putting farmers in the poorhouse. It is a serious challenge. More fertilizer will be required; however, we must use it more wisely. Science is showing that implementing the 4Rs in Canadian farms can cut greenhouse gas emissions from nitrogen fertilizer by 25 per cent and even more.

There is evidence that the 4Rs reduce fertilizer losses to rivers, lakes, groundwater and the air. This also means better yields and more money in farmers' pockets.

The 4R Nutrient Stewardship program is being implemented in provinces across the country. Over the past two years, CFI has developed regionally specific programs through partnerships with farm groups, provincial governments and environmental groups in Prince Edward Island, Ontario, Manitoba and Alberta. We are planning to expand into Saskatchewan and New Brunswick this coming year.

The Canadian Fertilizer Institute also provides $200,000 a year in funding to support scientific research projects in Ontario, Manitoba, Saskatchewan and Alberta to verify the effectiveness of the 4Rs in reducing greenhouse gas emissions, and more is coming. An additional $1 million has been allocated to Canadian projects under the new North American 4R Research Fund over the next five years.

CFI works closely with well over 20 organizations on 4R Nutrient Stewardship nationally, including agriculture partners like Keystone Agricultural Producers in Manitoba, the Prince Edward Island Potato Board, government- funded bodies like Alberta Innovates Bio Solutions and NGOs such as the Nature Conservancy. We are enormously proud of the results that have come out of our research and extension work with all these partners.

We must continue to work proactively and collaboratively to build on this foundation to grow Canada's market share in the world. This means working with all value chain links to raise awareness, transfer knowledge, and assess and promote adoption of sustainable practices such as 4R Nutrient Stewardship. Conducting research, developing tools to measure compliance with marketplace indicators, and getting in front of the marketplace as an industry will maximize our opportunities.

To be successful, this will require strong industry-government partnerships and dedicated resources on a long-term, sustainable basis. Without industry-government partnerships and dedicated resources, we cannot achieve what is necessary to maintain and increase Canada's share of agri-product trade. This has enormous consequences for the domestic economy nationally, provincially and in rural economics.

I thank the members of the committee for this opportunity to present our views, and I am pleased to answer questions you have.

The Chair: Before we commence questions from the senators, Mr. Prouse, could you please, for clarity purposes, define what you see as ''low-level presence''? The second item I would like you to also define for people watching and listening is ''pulses.''

Mr. Prouse: I will see if I can address the low-level presence question, Mr. Chair, and ask Dr. Yarrow to jump in if I make a mistake.

Low-level presence is the presence of a biotech crop within the shipment of a conventional crop. What happens now is they have detection equipment that can detect very minute levels, almost dust in the lining of a container — if we are sending a shipment of wheat over, for instance, but the container was previously used to ship GM canola. There have been shipments that have been turned back in the past. I believe it was Triffid flax a few years ago, and Canadian trade was stopped because they found a low-level presence of a biotech crop within the conventional crop.

Countries have the right to decide what they wish to import or not. Minute levels of a biotech crop are not a safety threat, but the detection of those minute levels is being used as a de facto trade barrier. We need a global standard on low-level presence to facilitate trade. That's what we're looking for. Any time they try to apply a standard of zero, obviously trade grinds to a halt. It's a technical trade issue, not a safety issue.

Stephen Yarrow, Vice President, Biotechnology, CropLife Canada: ''Pulse'' is a term of phrase in the farming community and includes lentils, peas and certain beans. People may argue about which ones are which but, generally speaking, that's it.

The Chair: Thank you, doctor.

Senator Robichaud: My first question would be to Mr. Prouse, and it has to do with the E.U. We are all looking for scientifically based evaluations of whatever product or process we are using. You said that, in the E.U., that's not the way they do it. How do they do it?

Mr. Prouse: The safety assessments that products go through in the European Union are not very different from ours. They have the European Food Safety Commission. The science they use is similar. It receives safety approval, but now it has to receive approval from the commission. Now it goes through a political process, and the politics of that is such that those approvals are being held up.

That has real-life consequences as a result. There are not products being approved, and European farmers don't have access to technologies, and European consumers don't have access to products. There is the safety assessment process, and then there is the political stream.

We believe that it ought to be science-based regulation. Here in Canada, there is an arm's-length relationship. The CFIA is an independent, arm's-length agency. They use science-based standards. If they give the product its approval, they give it its approval, and it does not go through a further political pipeline. That's not the case in Europe. It's political, and the incoming chair of the commission is completely unapologetic about that. We view that as a problem.

Senator Robichaud: You wouldn't like to find a recommendation from this committee that we have such a commission?

Mr. Prouse: It's a very good question. We think that Canada's science-based regulatory system has been a tremendous success. Canadians have access to one of the safest, most abundant and most affordable food supplies in the world. We think that has happened because of science-based regulation. If you look around the world at the successful agricultural exporting countries, what do they tend to have in common? Science-based regulation.

This meshes into low-level presence. We are looking to form what we call a ''coalition of the willing'' amongst agricultural exporting nations who believe in science-based regulation to exert a little bit of pressure on those who don't always practise it.

Senator Robichaud: Does that commission have the last word?

Mr. Prouse: That's correct. The European Commission has the last word. Typically, you get a backlog of approvals that aren't being dealt with. It's a de facto ban, because new trades simply don't receive their approval. They don't outright ban it; they just don't give it its approval.

Mr. Yarrow: If I may elaborate, there is a bit of a contradiction, and we haven't been entirely honest. You could argue that the European Union is one of the largest markets that embraces biotechnology products, but that is for feed. The European Union is buying up as much soybeans and corn to supply their feed industry for their livestock as they can get their hands on, because they can't produce enough themselves. They come to North America to buy U.S. and Canadian soybean and corn. Currently, in North America, the vast majority of that is from varieties that have been improved through biotechnology. They have a regulatory system that approves those, but in terms of seeds for cultivation, forget it.

Mr. Prouse: There are 30 billion metric tonnes of animal feed imported into the E.U. per year, genetically modified animal feed, because if they didn't, they simply couldn't feed their livestock. There is that contradiction and we find that frustrating, obviously.

Senator Robichaud: I'm sure you do.

Mr. Graham, you've mentioned a few times in your remarks the 4Rs — the right time, the right place, the right rate. How close are we to having this in place? You said Walmart didn't like it when they came out with their program, but is that because they feel we are too far from the 4Rs?

Mr. Graham: I think Walmart thinks the 4Rs is a practical solution to improving the sustainability of Canadian farms.

Canadian farmers are efficient. They do a good job. They are concerned about the environment and about using fertilizer efficiently. We're very close to the 4Rs. It varies from farm to farm and from area to area. We're trying to bring all farmers along, and I think we're very close. We need to verify the beneficial impact of the 4Rs; how much we can reduce greenhouse gas emissions from a field of wheat; and how much we can reduce phosphorous losses into Lake Erie by improving practices already there.

Part of it is the verification. We have a program in Manitoba where agronomists determine whether farmers' fertilizer application programs under the 4Rs are sufficient; and, if they are, we count those acres as being under environmental stewardship.

As well, we need the science. We need to be able to measure those emissions and the improvement in performance so that people at Walmart and citizens of Canada can see that farmers are doing a good job.

Those are some of the major challenges we have going forward. Some parts of the country use a little too much fertilizer, and some parts of the country don't use enough.

Senator Robichaud: How much New Brunswick potash is used in your fertilizers?

Mr. Graham: Canada's soils are very blessed in that they have a lot of natural fertility with potash; so most of the potash produced in Canada, 95 per cent, actually leaves the country and goes to the United States and about 60 other countries around the world. We don't use a lot of potash in Canada. It is part of a balanced fertility, but a lot of our industry is driven by export markets.

[Translation]

Senator Dagenais: My question is about supply management. As you know, certain areas of agricultural production benefit from supply management, which the government is committed to maintaining — a good decision, for that matter. As a result, some products are sold at a higher price than in certain other producing countries. What impact will that situation have on our capacity to advance and grow our agricultural export market?

[English]

Mr. Prouse: We have tended to be ''Switzerland'' on the issue of supply management, simply because we are in the plant sciences sector and supply management is dairy and the like; so we haven't tended to weigh in. We don't have any defensive interests on trade, let's put it that way. Our members are about exports. As you can tell from our remarks, we are a little more focused on biotechnology, the safety of biotech and the adoption of it as a trade barrier.

Supply management is ultimately a political question dealt with by the government of the day. My president would say that we've got enough issues on our plate that I don't really need to take that one on.

Mr. Graham: Yes, certainly livestock production, particularly supply management, is not our business; although, I would say that all livestock production is dependent on crop production. As well, many farmers who are in supply management also use fertilizer to grow the crops on their own farms to feed their animals. Being more efficient as a feed crop producer is good for supply management and for all livestock production. Whether supply management is the best system, I would leave to others to determine.

Senator Merchant: When you spoke about low level presence, the Chair asked you for a definition. Is that what happened a few years ago when triticale was found in grain shipments? It was a major thing, I think, for exports; but I don't know how long ago that was.

Mr. Yarrow: Yes, just to clarify, we think you're talking about Triffid flax, rather than triticale, which is related to wheat.

Senator Merchant: This goes back a few years.

Mr. Yarrow: There was a major thing around flax, which is an excellent example to illustrate low level presence.

Flax is one of the successful crops in Canada. Canada enjoyed excellent export opportunities to the E.U. The E.U. was buying our flax. They saw our flax as being very high quality and so on. However, as you know, the E.U. has a bit of an aversion about biotech-derived fax. Several years ago, a biotech-derived flax was developed. I'm going back now 15 to 20 years. It went through the regulatory process in Canada and was fully approved here and in several other countries. Unfortunately, the flax industry, conscious of the sensitivities of the E.U., urged that particular flax variety not to be commercialized, so it wasn't grown in any big way and life carried on successfully.

Unfortunately, for reasons that are not entirely clear, the European Union, who as I said are very sensitive about biotech and do a lot of testing in terms of imports, whether it be flax or any other grain, found very low levels, one would say accidental presence, of this GM flax. Essentially, that shut down flax exports from Canada to the E.U. with devastating results for the flax industry.

That spurred a much greater interest in a need for a broad policy about what to do about those sorts of situations, given that in this particular example this flax had gone through the regulatory process, at least in Canada, and was found to be perfectly safe. I don't quite recall how far it got in the E.U. system, but it was never actually approved in the E.U. That is classic example of low level presence.

Senator Merchant: Have we come to some way of dealing with that?

Mr. Yarrow: The flax industry put a great deal of effort into making sure that all shipments going forward to the E.U. met their standards, which were very strict. My understanding, and I'm not an expert on the flax industry, is that to a certain extent the Canadian export market of flax to the E.U. has recovered. However, it's a warning that when there is asynchronicity — when products are approved in one country but not in another and yet trade in terms of shipments of grain could include some of those products going from one country to another — it makes grain shipments extremely vulnerable. You can imagine these massive tankers full of grain going across the world and sitting in a harbour in Frankfurt. As soon as a question comes up around low level presence of a so-called GM crop, then we have a problem. That's extremely expensive for the grain handlers and comes all the way back to affect our economy.

Senator Merchant: I think you said that Manitoba was one of the provinces you had chosen to work with regarding the 4Rs. Is Alberta in that as well?

Mr. Graham: Yes.

Senator Merchant: What about Saskatchewan?

Mr. Graham: We have tended to focus our programs where there is greater urgency. In Manitoba, Lake Winnipeg has been facing issues related to phosphorous and alga blooms. In Ontario, Lake Erie has been challenged as well by phosphorous loading. You're probably familiar with what happened in the city of Toledo, Ohio, on Lake Erie. Prince Edward Island has issues with nitrates in groundwater.

Obviously, all environmental issues are important. We would say that the urgency in Saskatchewan hasn't been as great as in other parts of the country; but we are moving the program into Saskatchewan.

Keep in mind that these are programs. All of our industry works to give farmers the best advice on how to use our products efficiently and that goes on every day. Every spring, recommendations are made to use fertilizers as efficiently as possible. That's economically driven. Fertilizers costs money. Farmers want to get the best value they can. Using it efficiently is good for their economics, and it's good for the environment.

Saskatchewan is a modern and effective agricultural area, so we've just put our emphasis in other places. We sell more fertilizer in Saskatchewan than we sell in any other province, so we certainly want to get in there with our program.

[Translation]

Senator Maltais: Welcome, gentlemen. Thank you for contributing to the committee's study.

Mr. Graham, I would like to pick up on your discussion with Senator Merchant. You said that you focus your research efforts on the Prairies and Ontario. Does that mean that the land in eastern Canada is more productive because the need for fertilizer is lower than in central Canada?

[English]

Mr. Graham: We like to say that every farm and field is different. There has to be specific recommendations for fertilizer on a local and regional basis.

There is less crop production in Quebec than there is in other areas. It varies based on the arable land and the productive capacity. Our fertilizer sales vary regionally, locally, et cetera. Certainly Quebec is an important market for fertilizer and obviously there is tremendous agricultural production. Our member companies in Quebec, such as La Coop fédérée and Synagri, are also working very closely with growers to ensure the efficient use of fertilizer.

[Translation]

Senator Maltais: According to you, Quebec is unable to feed itself and lacks arable land. Quebec, however, is a major exporter. I am not talking about the crop production in central Canada. Quebec is not a land of soybeans and does not engage in mono-cropping. But we do a pretty good job of feeding our pigs, our cattle and our sheep, and we produce enough vegetables to feed 9 million people. That is not too bad. You do a lot of research work with universities, providing $200,000 a year in funding. How much work do you do with universities in Quebec?

[English]

Mr. Graham: I don't have the exact figures. We have one project under development in Quebec in the next round of funding, and it's a significant project in partnership with Agriculture and Agri-Food Canada.

[Translation]

Senator Maltais: Does that mean farmers in Quebec are purchasing fertilizer from companies that you do not necessarily represent?

[English]

Mr. Graham: We represent about 97 to 98 per cent of the fertilizer industry in Canada, so it's more than likely that a farmer in Quebec is purchasing fertilizer from one of our member companies or a company that buys from one of our member companies.

Quebec is a very important market for the fertilizer industry, and it's a very important part of Canadian agriculture. If you just look at the statistics and the total amount of arable land, there is less in Quebec than in some other provinces, but every acre in Canada is important to us. Our member companies, as I said, are very active in Quebec.

[Translation]

Senator Maltais: I am talking about not just Quebec, but also eastern Canada, right out to Newfoundland. I want to come back to the research work you do with universities. How involved are you with the Universities of Dalhousie, Moncton and Laval? How much of your total revenue does the $200,000 you spend on research a year, on behalf of all fertilizer manufacturers, represent?

[English]

Mr. Graham: Let me say first of all that we have other programs in development. One project is in partnership with Dalhousie University. We are looking to develop an agreement with New Brunswick. We hope to have that announced shortly. We have a number of demonstration farms in Prince Edward Island where growers are using the 4Rs and we're measuring the results on their farms.

One thing I would point out is that there are a limited number of soil scientists in Canada with the capability to do the kind of work we're doing. If we had $50 million to spend on soil science, we probably would run out of researchers with PhDs who could do that kind of work. I think in science often it's the quality of the work and how well it's integrated, rather than the total amount that's critical.

The Chair: Could you, Mr. Graham, through the clerk, provide us with the research facilities that you do have across Canada in cooperation with agreements vis-à-vis what you just mentioned happening in Prince Edward Island or elsewhere?

Mr. Graham: Sure. We can certainly provide information about the scientific work projects that we have under way and the demonstration farms that we have that are under supervision of agronomists. We probably are limited in what we can say about our grant application before the federal government, because that's still confidential, but we can provide the information that's publicly available, absolutely.

[Translation]

Senator Maltais: I have one last question for you. Is it possible that farmers in eastern Canada are buying some of their fertilizer from the U.S.?

[English]

Mr. Graham: The way the fertilizer market works in Canada is that Canada is, on net, self-sufficient in fertilizer, but it is actually in Eastern Canada more economical due to transportation and logistics to bring some of that fertilizer in by vessel. Some of it comes in by rail from the United States, but a fair bit comes by vessel from overseas rather than moving it by rail from Western Canada. That's just an economic choice that's made by farmers to get the best deal.

Our industry is made up of manufacturers and distributors in Canada, but also companies that import fertilizer into Canada. That's part of the robust nature of our industry. The most cost-effective fertilizer is available to farmers when they want to buy it.

The Chair: So for Eastern Canada and the U.S., basically, it would run on a cost factor analysis.

Mr. Graham: Yes. Companies and farmers make decisions about where they want to purchase their fertilizer. Some fertilizer moves from Western Canada east, but there is a significant import into Eastern Canada just because the Seaway is a very effective logistical mode.

Senator McIntyre: Thank you, gentlemen, for your presentations. There's no question that agriculture and the agri- food sector is an important part of our economy. It creates jobs and boosts the economy.

As I understand, one of the reasons for our export being so good is the many free trade agreements that have been signed between Canada and other countries. Some agreements have been signed, and others are presently in force. Could you elaborate on the impacts of those trade agreements on Canada's agriculture and agri-food sector?

Mr. Prouse: As I said in my remarks, we are hugely supportive of any and all efforts the Canadian government makes to expand trade. I think what's more important now is not just the removal of tariffs but the more comprehensive nature. If you look at CETA, it is far more comprehensive and involved than, say, the Canada-U.S. free trade agreement was 20 years previously.

Just to put a little bit of detail around that, for us, a dispute resolution mechanism around issues of biotech and agreeing on common definitions is important. As I elaborated earlier, we face a lot of non-tariff trade barriers and having a mechanism to resolve those non-tariff trade barriers, recognizing those and recognizing science-based regulation is incredibly important. We are seeing more comprehensive trade and economic agreements, which we view as a tremendous positive.

Senator McIntyre: In reviewing that list of trade agreements, it appears that Asian companies, particularly Japan and China, are key markets for Canada's agriculture and agri-food sector, whereas markets in other countries are not as active. Why is this? Is it because China, for example, has a larger population than other countries?

Mr. Yarrow: Yes. China is very much influenced by demand of the sheer size of the country to meet their needs. The Chinese will literally shop wherever they need to shop around the world.

I was in China in June. During a conversation with Chinese officials, I was struck by something, and I don't think they were making it up to be polite. They kept talking about the quality of the Canadian product. They find that extremely attractive. They spoke about the pristine water supply that helped to fertilize, along with the fertilizers, of course, the canola and those sorts of things, in contrast to some of the conditions in China with high rates of pollution, et cetera. I was struck by that as being a very big factor in terms of the quality.

Senator Enverga: Thank you, gentlemen, for the great information you've shared with us. We have heard about some of our crops being returned because of low level presence in our products. My question is: Was there ever a chance that Canadians returned some crops to other countries because of low level presence?

Mr. Prouse: Stephen, correct me if I am wrong, but I don't believe so. Canada is a net food exporter. When we're talking about low level presence, it is mainly grains and oilseeds. Canada is a producer/exporter of grains and oilseeds as opposed to being much of an importer; but you make a good point. It's important that we establish a domestic low level presence policy, which we're in the process of doing. Then we can attempt to form that coalition of the willing I talked about to have other countries sign on to it. That process is currently under way.

Senator Enverga: You mentioned the E.U. has an issue with low level presence. Have we attempted to make an agreement with other manufacturers in the E.U., so we can lessen the impact of any trade confusion or problems?

Mr. Yarrow: Well, we've spoken about the Canada-E.U. Comprehensive Economic Trade Agreement. In the early days of discussions, our industry was very much hoping that biotech would be a key part of that, or at least included; but the European Union and the commission could not agree to that.

That said, there is a reference in the proposal for a more enhanced dialogue to allow for greater conversation between the regulators and policy-makers of Canada and the European Union to discuss issues around biotech, which is code for discussing issues around low level presence. How that will unfold going forward is hard to tell. To be honest with you, we're not very optimistic.

Senator Enverga: You mentioned that we're basically exporting 95 per cent to the east. With all these trade agreements happening, do we have enough supply of fertilizer?

Mr. Graham: That's a good question, which usually means it's a tough question.

Our industry and the potash industry have invested well over $15 billion in the last decade in expansion of fertilizer capacity, primarily in Saskatchewan but also in New Brunswick, which is leading to a significant increase in our production. That's a huge benefit to the Canadian economy. Saskatchewan and New Brunswick are benefiting from the infrastructure from those billions of dollars of investment and the ongoing increase in production in the communities where the mines are located. Also, we pay a lot of money to the railways, port facilities and vessels. The whole infrastructure of exporting fertilizer around the world is massively beneficial to the Canadian economy and it's growing. The nitrogen industry, as well, has been able to make some gains in production.

Right now, there's enough fertilizer for the world. The challenge over time is that as we move towards 9 billion people, fertilizer production will have to continue to expand, because you can't grow more food without more fertilizer. We're going to have to be more efficient in how we use the fertilizer, but fertilizer production will have to continue to expand.

One good thing about potash is that the reserves are measured in hundreds of years in the province of Saskatchewan, so our ability to maintain that production for a long period of time is very promising.

Senator Beyak: This has been very informative, and you've answered most of my questions on managing the low level presence in crops. The federal government is drafting a proposed policy. Do you think the right people are at the table asking the right questions and are they being addressed to your satisfaction?

Mr. Yarrow: In short, yes, yes and yes. We're very happy with the discussions. They're very productive. Canadian officials have been respectful in seeking the views of the industry, such as ours — the tech developers who are creating the GM crops in the first place. It's very broad as they are consulting with many of our stakeholder allies, grain growers of Canada, seed trade associations and so on. My impression is that it is very good.

Mr. Prouse: I don't think we can emphasize enough how important it is and how grateful we are that Canada's playing a leadership role on this file internationally. It's been difficult. No one wants to be first. Everyone is hoping that there is another major agriculture exporting nation that will take the leadership role on this. Canada is doing that, and we're appreciative of the effort that they're putting into the file.

Senator Beyak: On a separate issue, this committee is studying bee health and the effects of pesticides on bees. In a study in France, they tried to blame the pesticide neonicotinoid, but after two years of not using the product, they found negligible change. Do you get that information to add to your work on the myths versus realities?

Mr. Prouse: We do. There is a great deal of science out there. Because that file is gaining such public notice, it's now attracting a lot of research dollars. Because it's attracting a lot of research dollars, you're going to see a fairly steady stream of science on this, some of it a little more useful than others.

We believe that's why we have an arm's-length regulatory agency. The job of the Pest Management Regulatory Agency under Health Canada is to review all the science, not just cherry-picked science or the science they like. Their job is to review all the science. We believe that having an arm's-length science-based regulator serves Canadians best. That's their role and they're playing it.

Senator Unger: Thank you, gentlemen. I've learned a lot about these particular issues. Most of my questions have been answered. I don't know if you just answered this question or not, Mr. Prouse. Does the WHO play a role at all in our scientific evidence not being accepted in this seeming tug of war?

Mr. Prouse: To be fair to the World Health Organization, we always point to them and the fact that they have said that biotech crops are safe to consume. They have given their approval to it. So, too, has the European Food Safety Commission. They've said that biotech crops are safe to consume. This is why our frustration level is such. The opposition to this is political. It's not safety, because every major health body in the world and every major regulatory agency in the developed world has approved the safety of these crops. The WHO, to be fair, has said that biotech crops are perfectly safe for human consumption, and we're fond of pointing that out.

Senator Unger: It's not really a coalition of the willing.

Mr. Prouse: Our coalition of the willing, when I talked about that, is the major agricultural exporting nations. Canada, the United States, Brazil, Argentina and Australia, as well, would be the first ones who would be on that list.

Senator Unger: My last question has to do with the red tape reduction commission. In your opinion, has that work been done, or is it still ongoing? That's to reduce regulations.

Mr. Prouse: It's always going to be a work-in-progress. I will ask Dr. Yarrow to weigh in on this, because we have a very specific piece of work ongoing now with the Canadian Food Inspection Agency. We participated in that process. We had some very specific asks and recommendations, particularly around the Canadian Food Inspection Agency, and we're trying to actually have the rubber meet the road on that now.

Mr. Yarrow: What my colleague is alluding is the following. I will just go back a step in terms of how a biotech crop is regulated to make sure it's safe to eat and for livestock to eat it and safe to grow. There is an environmental assessment and a livestock feed assessment. They are both done by the CFIA. Then there is a food safety assessment done by Health Canada.

Not getting into too many details here, but a number of elements are common to all three or sometimes to two of those types of assessments. We're trying to make the case to the regulatory officials that it has been 20 years now of regulating these crops, and a lot of the new ones that we see are very similar to the last ones in a general way. Isn't it time that we sort of upped the game in terms of regulatory efficiency and start addressing duplication? We are actually in very fruitful discussions with the CFIA and Health Canada to address that.

Senator Unger: Thank you. Mr. Graham, most of the questions I had for you have already been answered, but I do have one short one. Does Alberta have potash?

Mr. Graham: I'm not a geologist, and I'm not a prospector. I do believe some of the potash deposit may extend under the border, but I'm not entirely sure. The major deposits are in Saskatchewan, itself, just based on the way the geography occurred. Albertans are very good at finding valuable things under the ground and bringing them forward, so I'm sure Alberta will find it if it's there.

The Chair: Witnesses, we received your message loud and clear: science-based regulation and standards, and the 4Rs. Previous witnesses mentioned the 4Fs. The country that has the 4Fs — food, forests, fuel and fertilizer — will be leading the way. We ask you to continue leading the way for Canada. Thank you.

Honourable senators, we will hear now from the second panel.

[Translation]

From Export Development Canada, we have joining us Johane Séguin, Vice-President of the Extractive and Resources Sector, and Marc Deschenes, Strategic Account Executive.

[English]

Thank you for accepting our invitation and sharing your comments with us. I am informed that Ms. Séguin will make the presentation, followed by questions from senators.

[Translation]

Johane Séguin, Extractive & Resources Vice-President, Export Development Canada: Thank you, Mr. Chair and members of the Standing Senate Committee on Agriculture and Forestry. We appreciate the committee's interest in EDC and its role in the agriculture and agri-food sector, especially as regards the support we provide to companies to help them do business in international markets.

[English]

I will take a few minutes to talk about Export Development Canada, our main role and what we do. As a Crown corporation, the mandate of EDC is to provide support to Canadian exporters and Canadian investors abroad and their activities internationally. We provide various financial services to them. We were given that mandate over 70 years ago by the Government of Canada.

We're a financial institution, and we work very much with our Canadian bank partners as well as international banks. I'll give you some examples of the products and services we offer.

First, one very popular product is Accounts Receivable Insurance for Canadian exporters. In a best case scenario they would ask for payment up front, but that's not always possible. For them to be competitive, they would offer payment terms. After delivery, a buyer will say ''I will pay you in 30 or 90 days or more.'' To mitigate those risks, we cover those international receivables against non-payment.

Second, we also provide financing to Canadian companies for their expansion projects for exports. We provide that financing through Canadian bank guarantees. This financing is also for a Canadian company that gets large export contracts and financing for investments abroad by Canadian companies.

The third is financing to a foreign buyer of Canadian equipment and services. There are many other services, but I will talk about these three main ones. I will be happy to answer questions on more products.

We believe that your study is timely. We listened to prior witnesses who told you, and EDC believes, that the Canadian agriculture and agri-food sector is very well positioned to take opportunity of this growing demand for these products internationally.

Based on several studies, including the one from OECD-FAO, the main key drivers for this increasing demand internationally are coming from a growing population, and the increasing middle-class income growing throughout emerging markets. Also, we see a change in diet for an increase in protein products or demand for meat, as well as the use of more agriculture crops that go into feedstock for biofuel and biomaterial.

[Translation]

Agriculture and agri-food stakeholders agree that a key to achieving international success and taking advantage of growth opportunities within the sector is the ability to access credit and reduce financial risk when doing business abroad.

I would like to give you an overview of how we support the sector in international markets. I am going to cite a few figures in relation to agricultural consumer products, and just to give you some context, they include livestock and fisheries production. The figures include all aspects of food processing, as well as equipment and technology.

In 2013, we provided more than $6.5 billion in funding to support exports and investments in international markets, in this sector alone. That represents about 7 per cent of total funding dollars provided by EDC to all sectors in 2013. The money goes to businesses in all provinces, some of which produce more than others. I could speak to that later. The main markets targeted by these exporters and investors are as follows: the U.S., with 40 per cent; Asia, with 20 per cent; Europe, with 15 per cent; and Latin America, with 10 per cent.

Currently, we have over 800 clients active in this field, 80 per cent being small and medium-sized businesses, or SMEs. And our support is not just financial. In partnership with actors such as DFATD, the provinces and Canadian industry groups, we organize key events to promote Canadian capacity to potential international customers. We take part in trade shows and forums to showcase Canada's capacity in the agriculture and agri-food sector.

[English]

I want to mention that we're a financial institution. There are elements that we might not be best to comment on, such as policies, and perhaps some technical information pertaining to the agriculture and agri-food industry. Some of the witnesses before you over the last few days and weeks were in a much better position to address those points.

To conclude, we definitely see an increasing trend and demands for agriculture and agri-food products internationally. We believe that Canada has a great strength in those sectors, including abundant water and land, and world-class equipment and technologies. We have a good reputation for safe, high-quality food. Finally, we have very good infrastructure to increase production.

We have increased our resources internally, head counts, for example, to support those sectors. We look forward to providing more support to the agriculture and agri-food sector. We thank you very much for your attention. My colleague Marc Deschenes and I will be pleased to answer questions.

The Chair: Thank you, Ms. Séguin and Mr. Deschenes.

Senator Merchant: I have questions that I hope you can answer about our ability to provide food and make more deals with countries in the E.U. and Asia for increased exports.

First, how do you reconcile the increased demand for our products with our ability to ship those products in increasing amounts to markets? Can we be timely in our deliveries? Is that something you could answer?

Second, if we aren't able to move our exports quickly — for example our western farmers won't have money to seed the crop for next year — is the insurance that you offer something that would cover this concern by our farmers?

[Translation]

Marc Deschenes, Strategic Account Executive, Export Development Canada: I will try to answer your questions. As far as Canada's export capacity is concerned, I will answer in a bit of a roundabout way, if I may, and compare Canada's competitive advantages with those of other countries.

Earlier, we were talking about transportation infrastructure. Yes, some farmers and businesses do have trouble shipping their products in a timely fashion. But if we look at other major exporting countries, such as Brazil, we see that they have a lot more trouble. I will give you an example to illustrate the problem. In Brazil this spring, trucks filled with grain crops sat waiting in an 80-kilometre-long lineup at the Port of Santos, next to São Paulo. There are problems. And, in order to fix them, significant investments in infrastructure are needed, both here and elsewhere. In comparison, however, Canada is well-positioned. We do, after all, have modern infrastructure and effective storage systems. Most countries in the world do not have the modern infrastructure that we do to store grains and must wait for transportation channels to become available. In that respect, then, we have a huge competitive advantage. Bear in mind that we have access to the Asian market on the west coast and access to the European and African markets on the east coast. Competitively speaking, we are in an excellent position.

[English]

Senator Merchant: What about the insurance aspect? You spoke about insurance that you offer. Would that help farmers, and I'm just talking about the farmers right now, who need money in order to seed the next crop, or do they have different kinds of insurance they can turn to?

Ms. Séguin: EDC is covering their accounts receivable. It doesn't matter what size the company is or if it is a farmer or something different. There is no size too small to provide insurance for their receivables and covering their risk of non-payment. Small or larger accounts, we insure their accounts receivable. That's available. It doesn't matter what type of agricultural product either. We can cover all these products.

Senator Merchant: But they have to get their product to the buyer. Their inability to ship is what's causing it. It's not that the buyer isn't paying; it's that they can't find the railway capacity. It's not only the grains, but the potash people require a certain number of cars, as does the oil, the products that we bring in and send out, the cars that we bring in from Asia.

Ms. Séguin: The insurance doesn't cover for inability for transportation, if that was the question.

Senator Unger: My question is about risks. Basically, you're a guarantor of money banks would lend to people. Would you comment about that? Also, has the EDC had to write off any loans?

Ms. Séguin: In terms of risk, let's take the scenario of lending to a foreign company buying equipment or services from Canada. There are various risks. Like any other bank, the first one would be the financial risk, so we always do a financial analysis, but there are many other risks, such as the country risk where the borrower is, so that is the country risk and the political risk. We also always look at corporate social responsibility risks, or CSRs, reputational risks, and environmental risks, if it applies. Frankly, on the agriculture and agri-food sector, the CSR and environmental risks are to a lesser extent important versus when we look at a mining project or an oil and gas project. These are the main risks that we look at. There is also the risk of the exporter to be able and technically capable of delivering the goods. These are the main risks we look after.

What was the second question?

Senator Unger: Have you had to write off loans?

Ms. Séguin: I don't know. We don't have the answer to that, but we can look into whether we did have some write- offs in the sector. It's not apparent to us. We do have write-offs sometimes, but in other sectors. We can check into that if you want.

The Chair: Could you please verify and forward it to the clerk?

Ms. Séguin: Absolutely.

Senator Unger: How do you go about doing a risk assessment in a foreign country? How does that happen?

Ms. Séguin: EDC has over 1,100 employees, and a good percentage of them are for underwriting a transaction, so it's looking at all the risks. We have access to various sources of information, but starting with a company's public financial statements or, if it's not public, we ask them for the availability of that information. We have access to various sources, considering also the country monitoring we do on a regular basis. We look at the website for CSR and environment risks. We look at their website. We also call them and sit down with them, and also sometimes ask a third party, other banks, colleagues' banks we work with. We very often work in partnership with local banks, and that's useful because they know the market even better than us, so they can provide us information and good insights on a particular client.

[Translation]

Senator Robichaud: If I, as a business owner, want to deal with you, must I have been turned down by a Canadian bank first?

Ms. Séguin: No. Most of the time, we work with the banks, especially when it comes to providing accounts receivable support to Canadian companies or responding to their financing needs. So the answer is no. If insurance is needed, Canadian insurance companies provide the coverage for accounts receivable. If financing is needed, the banks are involved. Therefore, it is not a matter of being turned down by another bank. Most of the time, we work with Canadian banks to share the risk, quite simply.

Senator Robichaud: Why, then, would I do business with your organization instead of a Canadian bank?

Ms. Séguin: In the case of a major export contract, the exporter needs access to financing. Canadian banks will often refer the exporter to EDC to obtain an export contract. In fact, Canadian banks are the ones who will ask EDC to step in. If we are in direct contact with the exporter, we will ask them which Canadian bank they deal with and we will work with the bank. That is how EDC operates.

Senator Robichaud: You work with the exporter, but my understanding from your presentation was that, if I am from another country and want to import Canadian goods — even if I come from a foreign country — you would help me finance that transaction. Must I be partnered with a Canadian company?

Ms. Séguin: I can give you a real-life example. I came back to Ottawa in July, but before that, I was EDC's chief representative in Mexico. We have 16 international representatives, all of which are based in Canadian embassies. My job was to maintain ties with potential buyers, which are often large companies interested in learning about Canada's capabilities. Along with officials from foreign affairs and the provinces, we would market Canadian capabilities. When they wanted to know what we could offer in terms of financing support — in the case of a Canadian component in relation to buying in Canada — EDC would become involved and inform them that financing was an option.

The foreign company's financial statements have to be sound, just as any bank would require. A company with $2 million in sales applying for a $1-million loan will not receive approval. Our role is to provide foreign financing to companies that are in good financial shape and present an acceptable risk level in all the other areas I mentioned.

We also receive requests directly from exporters wanting to know what we can offer their buyers in terms of financing. In those cases, we deal directly with the foreign companies.

Senator Robichaud: I am having a bit of trouble with what you said about exporters who turn to you to help finance the importer at the other end. Why not undertake the whole transaction with the Canadian exporter in the first place?

Ms. Séguin: Needs vary. If the exporter needs working capital to fulfill a contract, the financing can be done here. Oftentimes, it is shorter-term financing that is needed. A buyer wanting to acquire $10 million in equipment may request financing over a 4- or 5-year period. The exporter does not want to assume that financing responsibility and asks EDC to deal directly with the buyer so that the exporter does not have that liability on its books. When the exporter delivers the merchandise, the contract is paid. The account with the exporter is all settled, and the financing with EDC remains.

Senator Robichaud: You assume the risk that the exporter does not want to take on.

Ms. Séguin: Precisely.

Senator Robichaud: Do you have a sense, percentage-wise, of how much business you do with Canadian exporters and foreign exporters?

Ms. Séguin: Every transaction involves a buyer and an exporter, so it is usually for insurance products and I do not actually have those figures. The most common is accounts receivable insurance. As for foreign company loans, I do not have that information, but I could send it to you later. Would you like the figures for the agriculture sector only or all of EDC?

Senator Robichaud: It is actually the agriculture sector we are interested in.

Ms. Séguin: Great.

Senator Maltais: Welcome to both of you. I would like to pick up on what the honourable senator from New Brunswick, Senator Robichaud, was saying. Small and medium-sized businesses have two major problems when it comes to exporting. The first has to do with the customer and, on the other end, the carrier, or shipowner given that goods are usually shipped by boat. I am talking about eastern Canada, from the Maritimes and Ontario to Halifax and St. John's, Newfoundland. The exporter has to pay for shipping up front; the shipowner does not extend credit. If it does not get payment, the ship stays docked in the harbour. That matters to a small business that ships 20 containers on a boat that can hold 100 containers; the boat has to sit there until it is fully loaded. That is a small problem. Delays happen; the producer, or exporter, is not paid but still had to pay the money.

The other problem involves the recipient at the other end. Most small SMEs do business with developing countries, which cannot guarantee payment when the merchandise arrives in their country. So payment remains uncertain.

I will give you an example of a specific region that does business with foreign countries: Beauce. It is a region of Quebec that does a considerable amount of exporting. The exporters are profitable, but the uncertainty is always there because they wonder if they will be paid when the ship arrives. It is often that lack of a guarantee of payment that keeps the region's small businesses from expanding. What can you do to give those SMEs some financial stability?

Mr. Deschenes: Thank you for the question. The situation you just described is precisely why our agency exists. EDC's mission is to promote Canadian exports. We cover the risks that small businesses face when it comes to non- payment by a foreign company. We also cover risks of a political nature. Thanks to our array of insurance services, we can offer Canadian exporters reassurance and protection. They will be paid either way, because should the customer fail to pay, EDC normally covers up to 90 per cent of the account receivable.

Senator Maltais: I will give you a very real example: Canada has always continued to do business with Cuba. Everyone knows that Cuba is in great need of food products. And one of the biggest barriers Canadian companies used to come up against was the capacity to receive payment. They had to be paid in a currency other than Cuba's; you can appreciate that Cuba's currency is not worth a lot in Canada. Even carriers have always exercised caution.

I go to Cuba fairly regularly, and I meet with government and Canadian SMEs, but this is still a restricting factor for them. How much sense does it make to say that we will do business with those countries without any issues? Poor countries are very willing to do business, but Canadian companies want to be paid in dollars, and we know that currency in Cuba has a fairly limited value. Canada is Cuba's biggest client. Our country imports $250 million worth of nickel — which accounts for 98 per cent of Cuban nickel production. However, we do not export to Cuba very much. So there is an imbalance in that area.

I would like to know whether we could do more for our small exporters, who need help when it comes to that particular country.

Ms. Séguin: Export Development Canada is active in Cuba. A mechanism involving letters of credit is in place. Those letters of credit provide the exporter with an assurance of payment. A Cuban bank issues a letter, which is received by a Canadian bank, and we guarantee those credit letters. There is a maximum portfolio, and numerous exporters are involved. That is one of the services we provide. So we use a letter of credit to guarantee a payment.

Senator Maltais: You are talking about Cuba's insurance company, Securitas de Cuba.

Ms. Séguin: A number of Cuban banks — and I do not have their names — can issue letters of credit to guarantee payment upon delivery. The letter is received by a Canadian bank, which asks us to guarantee it.

The Chair: To follow up on this, Ms. Séguin, the same thing goes for potatoes. When potatoes are sold to Cuba, guaranteed letters of credit are issued.

Ms. Séguin: Yes.

Senator Dagenais: I would like to discuss Canada-Europe free trade agreements, which will be of interest to agriculture and agri-food businesses. How can you help small companies in that relatively expanded market?

Mr. Deschenes: Free trade agreements are fairly complex. We are affected by them collaterally in our role as financial service providers. The goal of those agreements is to facilitate trade. If the agreements propose sales conditions for Canadian companies' products equal to those for other countries, they make things worthwhile for the companies. If they produce a competitive effect — benefits compared with other countries — the situation is even better. In most countries, tariff and regulatory barriers often hold down Canadian exports. Those free trade agreements clearly support trade, but we are seeing that many countries are imposing significant barriers that inhibit trade.

Senator Dagenais: On another note, the government has implemented the Canada Brand strategy. I am sure you are familiar with that. How do you think this strategy will improve the performance of Canadian products on the international market?

Ms. Séguin: I spent five years at the embassy in Mexico. I saw first-hand what type of promotion was being done. For instance, television commercials for pharmaceuticals would say that those were quality Canadian products. At the grocery store, very popular products with the Canadian brand were being sold and had an excellent reputation. An initiative was also in place to hold events that attracted many people. The trust level was high. I experienced and saw this. In Mexico — and I would even say across Latin America — Canadian products are considered to be a very good brand.

Senator Dagenais: So this was a good government initiative.

Ms. Séguin: Exactly. That is what I saw.

[English]

Senator Beyak: Thank you. I have learned a lot today. I knew about your financial services and that capacity. I didn't know that we loaned to foreign investment to buy our products. Has that always been your mandate over the 70 years? Is that something new? Did you seek them out? Do they seek us? Is it a competitive interest rate that we charge? Is it a net return of revenue to us or a loss, or is that not important?

Ms. Séguin: Actually, I don't recall 70 years ago, but I suspect it was mainly for credit insurance at the time. We have been providing financing to foreign buyers for a very long time. I cannot tell you how many years, but it's probably over 40 or so years.

In terms of what we offer, it's very much in line with commercial terms and conditions. What other banks offer, that is what we can offer. However, we have a lot of appetite, sometimes more than commercial banks, or we just work with commercial banks. There are no subsidies. We actually fund ourselves on capital markets to raise those funds and then lend them back. It is a profitable segment of our business. Because of that, actually, in the last few years, we've provided dividends back to the Government of Canada, so it is profitable.

Senator Enverga: Thank you for the presentations. In line with the question of Senator Beyak, EDC is a Crown corporation. Does it receive any funding from the government at all?

Ms. Séguin: No, we don't receive any appropriation from the Government of Canada. Initially, equity was invested back then, 70 years ago, but no, on a yearly basis we raise our own funds through bonds having AAA rating, and we lend that money. We don't receive any appropriation from the government. This is very different from most of the export credit agencies, EACs, based in most OECD markets. Many other ECAs in these countries receive appropriation. That's not the case for EDC.

Senator Enverga: With regard to these free trade agreements with different countries, what is your expectation on the growth of EDC? Are you prepared for the growth that is coming along?

Mr. Deschenes: Yes. Usually, we see an increase in our volume when some free trade agreements are signed. Probably the most obvious one would be the one with the U.S., our biggest partner. We have seen a significant increase in our trade with this particular partner, who was already our biggest partier. When you're looking at the flow of goods, the proximity and the fact that there are no barriers of entry, that helps a lot in terms of the flow of those goods.

It's still interesting to know that even though our closest partner, the U.S., is probably one of the countries that is most open to trade with Canada, there are still some companies that decide to set up shop in the U.S. to better serve their market. They actually prefer to have a local presence in order to better serve their market. You'll see that as well in other large markets. I always say we're only 30-odd million, and some countries have cities of that size. Scale is always a problem for a Canadian company. The opportunities are immense. It's just how can a company that is used to serving 30 million now serve 250 million? The problem of scale is sometimes the issue here.

Senator Enverga: I know you're in partnership sometimes with the banks, and sometimes you are just alone. How would you compare your services with the large banks that we have? Are you any better?

Mr. Deschenes: Basically, EDC is operating on a commercial basis, and our strength is to leverage every asset that is borne. Our Canadian banks and companies, financial intermediates, are good to secure goods that are within the Canadian jurisdiction. Our speciality is to do everything outside of Canada. That's basically where our opportunity is, working with Canadian partners to help Canadian companies that have assets abroad or, again, foreign receivables or investments. There's a whole suite of situations that you may encounter. This is really where we play the biggest role. It's that additional capacity when you're looking at foreign assets or foreign receivables that we provide.

Senator Enverga: Thank you.

[Translation]

Senator Robichaud: I am an exporter. My entire company is here, in Canada. However, I would like to set up in the country that purchases the most of the products I export. If I decide to move my company to the United States, will I be able to count on your assistance? How important are net benefits for you? A significant number of jobs would be lost here, and some people would be displaced elsewhere, to another country.

Ms. Séguin: That is a good question. Before providing any support for an investment, it is important for EDC to determine that the base of operations is in Canada. The company must be operational and have its head office, its market and its employees in Canada. Our vision is an extension of that economy. There is a market served in Canada. For instance, if a cheese producer wants to export to Mexico — which has a good market for that product — it is difficult to export the cheese given the conditions. That company may want to expand the Canadian business and go to Mexico in order to invest there. That company's significant Canadian foundation would have to remain here for it to benefit from our support. Opening a new factory abroad and buying equipment would be based on their fiscal capacity. That is how we can become involved and provide that company with funding.

Senator Robichaud: It has to maintain its operations. You are saying that the company must have its foundation in the country

Ms. Séguin: Absolutely.

Mr. Deschenes: The benefits for Canada are among the most important criteria for Export Development Canada. That is what guides our decisions. If there was no benefit for Canada in your example, EDC would not, by definition, be interested in participating in that transaction. That is one the important criteria. It is among the first questions we ask. There have to be some additional benefits for Canada for us to become involved in a transaction.

Senator Robichaud: Yes, but you are targeting exports. If a company can export more, it can move a large portion of its operations to another country and, in some cases, we could lose out. Right? That is why I am talking about net benefits related to jobs.

Ms. Séguin: The company has to have a foundation in Canada. Its profits have to come back to Canada, where the company has its base of operations. We have a model to follow and certain questions to ask. Our chief economist, Peter Hall, would say that Canada is currently exporting through its Canadian subsidiaries almost more than through direct exports from Canada. There are some obvious sectors, such as the automobile industry, where companies need to be close to large automobile producers. When it comes to exporting, that would not suffice. Companies have to be located very close to the source of production. The Canadian foundation does exist.

The Chair: With benefits here, in Canada.

Ms. Séguin: Absolutely.

Mr. Deschenes: Just to give you an example, some foreign markets have import tariffs of 80 per cent. For a Canadian company, selling in such markets implies punitive tariffs. So, in some markets, the only solution is to set up locally in order to benefit from those additional sales. That is one of the decisions a business owner must make. That is part of market realities, as some countries protect themselves this way.

The Chair: Based on your risk analysis.

Mr. Deschenes: Of course, that is the basis.

[English]

The Chair: Senator Merchant, you had a question?

Senator Merchant: Just a very quick one. What percentage of requests that are made of your enterprise do you turn down or, to put it positively, do you help? Do you have any statistics? Also, do you have any statistics as to how many fail?

Mr. Deschenes: There are a couple of points on your question. I'll try to handle the latter part. I don't have the statistics with me, but we will provide them to the clerk. They are in our financial statements. We report on them on an annual basis. Basically, our losses due to our insurance product are something that we are fairly transparent about, so it's not a problem to give you that.

Ms. Séguin: In terms of unsuccessfulness in being able to support a transaction, it's very difficult to answer that question because, sometimes, a transaction, just a commercial contract, takes a very long time to conclude. Financing might take a long time. We're talking about months, sometimes years, to conclude. Often, it's a matter of time. Sometimes, it is, indeed, because of financial capability, for example, or a constraint in the CSR environment. So it is very difficult to put that type of data together.

[Translation]

The Chair: Ms. Séguin, are the interest rates EDC charges competitive with those of banks, or are you a last-minute source of funding?

Ms. Séguin: That is a typical question all our borrowers and clients ask. We have two models. One is based on the OECD consensus. I will not go into details, but all export credit agencies can offer those rates, so some minimums have to be met. We are competing with other export credit agencies. The other model, which is used the most, is the commercial model where our rates are fully competitive with major bank rates. We can support a client thanks to the most competitive rates for them.

The Chair: I was watching a report from the United States, as I live right next to the U.S., in New Brunswick. Since Canada already has that agreement with Europe, they were saying that —

[English]

We will see companies from the E.U. coming to Canada to penetrate U.S. markets and Mexican markets. Would these companies that locate in Canada to penetrate the free trade agreement with the U.S. and Mexico be eligible under EDC?

Ms. Séguin: Correct. So that's another scenario. If they produce in Canada, establish a manufacturing plant and export from there, absolutely. If they just bring goods from Asia or Europe and it's just a warehouse and the goods shipped elsewhere, we could not provide support to them.

[Translation]

The Chair: Ms. Séguin, Mr. Deschenes, we often have an opportunity to chat with SMEs from the agricultural sector, and we discuss your role. This morning, I am certain that the questions that have been asked further demonstrate the role you play in the Canadian agricultural sector. We ask that you keep fulfilling that role. Thank you for sharing your expertise with us.

(The committee adjourned.)