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.
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
Senator Beyak: Senator Lynn Beyak, Ontario.
Senator McIntyre: Senator Paul McIntyre, New Brunswick.
Senator Robichaud: Good morning. My name is Fernand Robichaud, and I
am a senator from Saint-Louis-de-Kent, New Brunswick.
Senator Merchant: Good morning and welcome. Pana Merchant,
Senator Maltais: Good morning. My name is Ghislain Maltais. I am a
senator from Quebec.
Senator Enverga: Tobias Enverga from Ontario..
Senator Unger: Betty Unger, Alberta.
Senator Dagenais: Good morning. I am Senator Jean-Guy Dagenais, from
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.
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.
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
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
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
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
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
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
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
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
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
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
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,
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
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
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
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?
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
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
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
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
Senator Maltais: Welcome, gentlemen. Thank you for contributing to the
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?
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
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.
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
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.
Senator Maltais: Does that mean farmers in Quebec are purchasing
fertilizer from companies that you do not necessarily represent?
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.
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?
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
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
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.
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.?
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
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
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
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
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
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
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
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
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
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
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
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.
From Export Development Canada, we have joining us Johane Séguin,
Vice-President of the Extractive and Resources Sector, and Marc Deschenes,
Strategic Account Executive.
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
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.
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
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
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.
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
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.
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
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?
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.
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.
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
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
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
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
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
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
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
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.
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.
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.
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
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
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.
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 —
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
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.
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.)