Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 21 - Evidence - Meeting of November 25, 2014


OTTAWA, Tuesday, November 25, 2014

The Standing Senate Committee on Agriculture and Forestry met this day at 5:55 p.m., to continue its study on international market access priorities for the Canadian agricultural and agri-food sector.

Senator Percy Mockler (Chair) in the chair.

[Translation]

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

[English]

I will introduce the witnesses formally, but as chair of the committee, on behalf of all senators I thank you for accepting our invitation to come and share your opinions and thoughts on the order of reference that we received from the Senate of Canada.

[Translation]

I'm Senator Percy Mockler from New Brunswick, chair of the committee.

[English]

I will start by asking senators to introduce themselves.

Senator Beyak: Lynn Beyak from Ontario.

Senator Tardif: Claudette Tardif from Alberta.

Senator L. Smith: Larry Smith from Montreal.

Senator Oh: Victor Oh from Toronto.

Senator Enverga: Tobias Enverga from Ontario.

[Translation]

Senator Rivard: Michel Rivard from Quebec.

[English]

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

[Translation]

In 2012, one out of eight Canadian workers, meaning 2.1 million people, was directly employed in this sector, which contributed nearly 6.7 percent of the GDP.

[English]

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

This evening we have for our first panel, from the Egg Farmers of Canada, Peter Clarke, Chair; and Tim Lambert, Chief Executive Officer. And from the Chicken Farmers of Canada, we have Mike Dungate, Executive Director; and Yves Ruel, Manager of Trade and Policy.

I have been informed by the clerk that the chair has to choose between egg farmers and chicken farmers who will make their first presentation. Therefore, I ask Mr. Lambert to make the first presentation to be followed by Mr. Dungate, followed by senators' questions.

Tim Lambert, Chief Executive Officer, Egg Farmers of Canada: Thank you for inviting us to partake in your study on international market access priorities for the Canadian agricultural and agri-food sector. Egg farmers of Canada represent more than 1,000 regulated Canadian family egg farms.

One of the questions around international market access is where do supply management and our system fit into the government's trade agenda. Supply management is as relevant today, and perhaps even more relevant, than it was when it was started in 1972. It's a domestic-focused policy that allows us to produce eggs for Canadians that are among the best in the world in terms of freshness, quality, food safety and animal welfare. Also, one of the key points we want to make around this is that typically with global market opportunities, there are some boom and bust cycles, and there is great value in having domestic stability at home.

Stability in rural communities often illustrates this. By way of example, number of years ago, the pork industry was struggling badly, but doing much better now as well as the beef industry. Without strong domestic agriculture supply management, like eggs, dairy, turkey, chicken and hatching eggs, you may have seen situations in some communities of businesses closing without the local feed mill, such as the veterinary practice or the farm machinery dealership. Despite that, you have egg, dairy, chicken producers buying feed and machinery in good times or bad because of that domestic stability.

We see ourselves much like the blue chip, safe-return investment year after year, like a financial portfolio. It really lays the groundwork for a more export-oriented focus for certain commodities. We see supply management as playing a vital role in the future of Canadian agriculture in a very dynamic and progressive way.

We think that that balanced approach has worked very well to date, and it's an approach that makes a lot of sense when you consider global volatility in agriculture prices; the difficulty that farmers outside of supply management have in ensuring sustainability; global population growth making safe, secure domestic food production even more pressing; and the possibilities of export market declines or the collapse of an export market. We think that the continued strength of our system helps the overall agricultural commodities in Canada to weather those ups and downs.

Because supply management is profitable as a set of agricultural commodities, Canadian farmers regularly, routinely, continuously improve our programs. Whether it's on-farm food safety or on-farm animal care, you see continued reinvestment. In fact, we regard supply management and the ability to function under that structure as very much a privilege and not a right. As such, we take our social contract with Canadian society extremely seriously, and we look at ways to do the best job possible, not just the minimum of what is required. For example, in the egg sector, we have recently invested in a full traceability system for eggs, not because we are legislated to do so but because it's absolutely the right thing to do in our industry.

Also, we keep jobs at home. Because we have a dynamic egg production sector, it also ensures that we have a very viable egg processing sector. Rather than a lot of those jobs going to other countries, we process the eggs that get used in pasta making or in breakfast sandwiches or baked goods right here at home.

Now one in five of our farmers in egg supply management is what you would refer to as a young farmer; they are younger people coming in. Virtually every province in the country has a young farmers or new entrants policy — ways to bring new farmers into supply management and help them to get established. As a result, we are seeing our average age drop as time goes on. In fact, Peter Clarke's son Jeff is someone who has taken over the family business. You look at young people nowadays, and they have a lot more choices. It's really exciting to see these people choosing to be on the farm. It isn't just the family of people who are already in the industry; because of these new entrants programs, a lot of new people are coming in from a totally different background and joining our sector.

The Conference Board of Canada's 2013 report Cultivating Opportunities: Canada's Growing Appetite for Local Food talks about the increasing interest in local food. We have production in every province, from Newfoundland to Vancouver and onto the island. We even have a farm in the Northwest Territories, in Hay River. Generally speaking, Canadians are able to access fresh, high-quality eggs that are produced locally. They have them year round, at very reasonable prices and at a price point that is stable.

I'd like to emphasize something that comes up every now and then in the media. We do not set the retail price of eggs. We in fact set the floor price that farmers will be paid.

As the government moves its international trade agenda forward, Egg Farmers of Canada is taking every step to continue building a world-class domestically focused industry to help support that ambition, and we appreciate the support that we continue to receive from Canadians at all levels of government. We see ourselves as very constructive partners in all of agriculture. We know that many successful trade deals have been signed where one commodity has not been traded off for another, and we believe that that can continue and that we can continue to be a vibrant partner in Canadian agriculture.

Mike Dungate, Executive Director, Chicken Farmers of Canada: Thank you for inviting us here today to share our perspectives on the international market access priorities, not just for ourselves but for the whole agricultural and agri-food sector in Canada. Chicken Farmers of Canada is a national organization that represents 2,700 chicken producers in all 10 provinces. Our decisions are made by a board of directors that includes farmers, processors, further processors and restaurateurs. We bring in all aspects of the value chain in terms of our decision making.

When it comes to farm animals, chickens are not very large, but our contribution to the economy is. It is both rural and urban and through the whole value chain. I'll come back to that in a moment.

We sustain 56,000 jobs on farms and in processing plants. We generate $2.4 billion in farm cash receipts and $6.5 billion to the country's GDP. We pay $1.3 billion in taxes and revenues. We're a positive contributor to the economy, and we purchase 2.4 million tonnes of feed a year.

The chicken industry is a growth and value addition success story. We have production in every province. We have more chicken farms today than we did back in 1978, when we started Chicken Farmers of Canada. The average farm size has increased by 25 per cent since 2000, and production has grown more than 20 per cent in those same 15 years. We're not consolidating dramatically to get bigger; we're growing the industry to get bigger. That's why we're seeing stability in terms of numbers of farms.

We are all about value addition, so we don't export any live birds. For every bird that is produced on our farms, we get hatching eggs. They go through a hatchery. They come onto our chicken farms. They go to a processing plant. Forty per cent of those birds are further processed in another plant. It is all about value addition throughout the whole chain.

We're innovating and investing in our future. Twenty-five per cent of our farmers have been in the industry less than 10 years. It's a similar story to eggs. Twenty per cent have built new barns in the last five years. Fifteen per cent more have substantially upgraded, with the average value about half a million dollars for each one of these renovations. That's a significant contribution.

At our processing level, we have brand new plants that have gone up in New Brunswick and in Nova Scotia in the last two years, and, in the last five years, we've had two others, one in Saskatoon and one in Lethbridge. There is not a capacity issue for us to expand.

You want to talk about international exports. We see ourselves as a platform that allows Canadian agriculture to export. We are a key component, as Mr. Lambert said, of that overall investment portfolio. Your investment advisor would not tell you to put all of your retirement funds in emerging market funds. They are high-risk and unsustainable. They would want to diversify your portfolio so that you had a balanced interest and were diversified in terms of markets, investment style and all of that.

We think that's the same good policy for agriculture in Canada. We represent 20 per cent of Canadian agriculture's supply management. That's a good portion. It's a solid base that allows downturns, as mentioned in the hog sector. If you were a feed mill and relied only on the hog industry, you might not have made it through that downturn, but if you had business with egg farmers, chicken farmers and other farmers at that point in time, you were able to ride out some of those ups and downs because they have diversified their customer base. Our farmers know diversification is key. Only one third of chicken farmers just do chicken. Forty per cent grow corn, wheat or soybeans. Twenty per cent do cattle. Fifteen per cent do canola. They are in the export game, but they understand what portion of their farm is interested in exporting and what portion is a stable portion of their investment environment. In fact, 34 per cent rely on off-farm income for their income. That's a reality in agriculture in Canada. A significant portion comes from off-farm.

My former chairman was from Lethbridge and was a cattle feedlot operator. He used to say that he was able to be more aggressive in his cattle business knowing that he had a certain level of cash flow on his chicken. When the cycle went down, he didn't have to liquidate his cattle herd and therefore suffer the consequences. He could ride out the storm and be more aggressive in his cattle business.

We support other farmers by buying 2.4 million tonnes of feed in a year, to provide another outlook.

I think there is also a balance between crop and animal industries. When feed prices are high, crops tend to succeed. When feed prices go down, animal industries tend to succeed, and you need a balance of both.

In sum, we would see ourselves as a key component of the economic solution for rural Canada — in fact, for the Canadian economy overall.

We provide significant benefits to Canadians themselves, food safety. We have a mandatory on-farm food safety program recognized by the Canadian Food Inspection Agency. We have a mandatory animal care program. We have traceability that we use our supply management regulations to put in place. We know where all our chickens are. We know where the barns are. We know if there are birds in that barn or not; we know what age they are. Whenever there is an issue, we can trace it back immediately.

To the point why we're here today, Mr. Chair: Supply management and international trade are absolutely compatible. Don't let anyone tell you differently. Since the Uruguay round, Canada has negotiated or implemented 42 free trade agreements. Every single one of those has gone zero in quota tariff for supply management products and allowed us to gain access in other markets. We've got duty-free access to our products. When everybody talks about a 238 per cent tariff in chicken, nobody pays it, but we're the fifteenth-largest importer of chicken in the world, and it all comes in at 0 to 5.4 per cent. That's what we have negotiated in a free trade deal, and we've been successful in that model, and we expect the government and, in fact, we believe the government is going to continue that successful model with the Trans-Pacific Partnership.

We're the third-largest market for U.S. chicken exports, and when you put us in the context of the Trans-Pacific Partnership, we import more chicken in Canada than the U.S., Peru, Australia, New Zealand, Brunei and Malaysia combined. So when the Americans or the New Zealanders want to talk to us about access, we're right there with them; we'll stand on our record. New Zealand doesn't allow any chicken. It doesn't have any tariff on chicken and doesn't allow any chicken in. That's what we need. That's a non-tariff barrier. That's not on the table. That's what needs to be on the table. You can see our tariff. That's why they point to it. I give the New Zealand high commissioner a lot of credit for his public relations skills.

So play by the rules. We're all in favour of a rules-based trading system, science-based, so that we get the access for our exporters that we deserve but that we also provide Canadians with assurances that the product that they see on their store shelves meets the same requirements, the science base that we have here in Canada.

I just want to quickly mention three outstanding issues we have. One is spent fowl. These are old laying hens. They're not import-controlled, but we're importing more spent fowl meat from the United States than they produce in the U.S. I don't know how we import more than they produce, but we do.

The Chair: That's a good question.

Mr. Dungate: Because they are bringing in chicken, declaring it as spent fowl, they are defrauding the Canadian system, the Canadian government, of taxes by avoiding that and undermining a successful business.

The other thing is what's called a specially defined mixture. Mr. Mockler, you would have seen a little presentation we had last week at our reception. If you just add sauce in a packet, it is no longer chicken. Add a little packet of sauce and it's no longer chicken when it comes in. That's another thing.

Last, we have a Duties Relief Program. We had a great program under Foreign Affairs called import to re-export. The product had to come in, be processed and it left the country again within three months. In fact, it provided a lot of good opportunity for Canadian companies, except Foreign Affairs kicked out the cheaters. They went over to CBSA to the Duties Relief Program and now they can re-export chicken in four years. I'm not sure if any of you want to eat chicken after it's been sitting around for four years. I don't. The fact is, they're not re-exporting it. We're fearful that they're just subverting the rules and leaving it in the Canadian marketplace.

We've got an evolving supply management system that I would argue is as relevant today as when it started 40 years ago. We're a significant contributor to the overall health of agriculture and to the economy, particularly in rural Canada. We support a rules-based trade system, and we will stand on our record in terms of the market access we provide.

The Chair: Thank you very much, Mr. Dungate.

Senator Tardif: Thank you for your very informative presentations.

You have spoken very strongly, and I would say even forcefully, about the importance of keeping the current supply management system. Our committee has heard from other witnesses, however, including the Conference Board of Canada, that the supply management system must be modernized to allow the industry to capitalize more effectively on international trade markets. I'm trying to understand. How do you balance this question of access to international markets while maintaining the supply management system here in Canada?

As well, I would add to that as a further question, countries like Australia and New Zealand have moved to a deregulation of their supply management system. How has that move affected their industries?

Mr. Lambert: Those are good questions. I'll start with the second one first. We're very actively involved in our international trade association called the International Egg Commission. There are probably 50 or 60 countries involved in that organization, and one is Australia.

Currently, Australian consumers pay more for a dozen eggs at retail than Canadians. We were down at the TPP meetings not that long ago and did a bit of digging around. We went to a couple of different retail outlets and found they're paying more. So what happened? When they deregulated, initially there was a short-term drop in consumer prices, but what actually happened over time is that farmer incomes dropped. The price gradually crept up to be even higher than it was before. That's a function of retail concentration. It's a function of consumers used to paying that higher price. So, in effect, all that really happened in the long run was a transfer of wealth from family farms to wealthy multinational corporations. That was really the net result.

Farmers in that country and others — they used to have forms of supply management in Europe — have said to us, better not ever let it go because things are not better for farmers as a result of deregulation.

How do you balance it? I think a lot of it is in what Mike and I both talked about. I thought Mike used a great example about someone who had produced cattle and had a chicken quota. You need to have that stability to leverage exports.

To think that you have to give up or trade off one commodity to get another is a pretty poor deal. I don't see that as being good business. We've signed however many trade deals without giving up supply management. Why would that be required? For the Conference Board of Canada, I think it's a little bit disingenuous because they represent a lot of those large multinational players. What are they after? Cheaper prices and higher profits.

As is so often the case, it's about balance. It's not about swinging too far in one direction; it's about steering a middle course.

Mr. Dungate: The prize in the TPP is Japan. We already have free trade agreements with the U.S., Mexico, Peru. In fact, Canada didn't want to be in the TPP when we only had the U.S. there. Why? We already have as good access to the U.S. as we're ever going to get. All we're going to get by signing a TPP without Japan is better access for our competitors to our number one market, the U.S. Japan is the key. We're working bilaterally with them.

I really don't care what New Zealand says. New Zealand has nothing to offer Canada, because they want access to us. That's their problem. What are they going to give to us in return? They have nothing to offer us. They're a small market, a long way away.

What's a prize for us is Japan, and that's where we want to seek access. If we focus on what we need in terms of export opportunity, we can absolutely be compatible with supply management and with what our options are out there. But if we just want to follow a path of New Zealand that says get rid of all tariffs and we'll keep the non-tariff barriers for ourselves while you don't have any of those, then that's a different story.

I'll give one more example, and that's Brazil. The U.S. and Brazil represent 75 per cent of all chicken exports in the world. Brazil exports to more than 100 countries in the world, including Canada. They don't export to the U.S. Why? It's not tariffs. It's because the U.S. says that Brazil has Newcastle disease and they can't ship there. A hundred other countries are accepting chicken from Brazil, but the U.S. isn't. Any Canadian plant that imports from Brazil is delisted from exporting to the U.S. That's the game that they play.

So when those countries keep coming to us and talk about access, I'll talk about that we import more than they do. Don't focus on the tariff and people trying to wave a flag over here and distract you. Keep your eye on the ball. We want real access. We provide it.

Peter Clarke, Chair, Egg Farmers of Canada: Just to add more to it, if you want to talk about modernization at the farm level, our farms are among the most modern in the world, be it with regard to the programs we have or the type of operations we have. There isn't any world that we don't measure up to. We have some of the highest technology actually available.

As well, if you want to talk about different programs, our on-farm food safety, food security and trace-back programs are second to none. As Tim indicated earlier, a trace-back program for us is something that we chose to do, not something that we had to do. If that isn't being out there at the front of some of our challenges, please enlighten me on what that is.

Senator Tardif: Thank you so much.

[Translation]

Senator Dagenais: My first question concerns egg producers. You know there is a minimum price for egg producers, but not for retail sales. We know the situation is different for dairy products when it comes to supply management, as you mentioned earlier. In your opinion, are you in a better or worse position than dairy producers in terms of international trade?

[English]

Mr. Lambert: It's egg production, so you have a shell egg. It's really not a product that has a lot of export opportunities to be shipped for long distances. So 5 per cent of our market comes in from the U.S. There are virtually no other eggs that would come in. If we were to try to export, the only country realistically we could export to would be to the U.S. The only other products that could potentially be exported would be lower-value processed egg, for example, dried egg powder, egg whites and that sort of thing.

Egg production is very much a local form of agriculture. It doesn't really lend itself to being an export-oriented growth market.

Just to put this all in context, there are about 23 million layers producing eggs in all of Canada. There is one company in the U.S. called Cal-Maine Foods that has 27 million birds in production. If we were to dismantle supply management in the egg sector, egg production in Canada would rapidly disappear and the eggs would come in from the U.S.

Compared to the dairy sector, there is very little opportunity for export of eggs. It's just not how the industry is structured.

[Translation]

Senator Dagenais: Please elaborate on that. I visited a company that extracted egg whites. It was a sizable Canadian company. Does the same hold true for egg whites, can they be frozen and sold later on?

[English]

Mr. Lambert: Potentially there are some smaller markets where there could be opportunity for unique products, but generally speaking that would be very limited.

Senator Enverga: Thank you for the presentation. I have been listening to the issues of play-by-the-rules and spent fowl. A few weeks ago, we were talking to the cattle farmers and the pork farmers, and they seem to have some worker issues. They want temporary foreign workers. How about your industry? Is that a problem for you, or is it not a problem?

Mr. Clarke: In our industry, it isn't a problem for us, so we're not looking for a larger labour force across our country.

Mr. Dungate: For us, the only issue with the temporary foreign workers is that we have catchers who catch the birds and load them onto the trucks. Generally, they're crews that work on-farm. But because they're hired by the processing plant, they're not considered agriculture workers. It's just that distinction on that point that is a point that we've raised with the Temporary Foreign Worker Program.

They also say that they must speak English or French, and the bulk of them speak Spanish.

Those two issues for us are the only ones around the temporary foreign workers.

Senator Enverga: You mentioned that you do not export live chickens. Is it because you want to keep the genes in Canada, or is there another reason for that?

Mr. Dungate: No, I'm just saying we're not exporting live animals. We're adding value here, so there is no need to export them someplace else. We're doing them right here, and we're prepared to do it. It's not about genetics and all of that. In the chicken industry, it's really a global genetics business. There are only about five major genetics companies in the poultry business globally.

Senator Oh: Thank you, gentlemen. My question is back to the same problem with the spent fowl. We are now importing 106 million kilos of spent fowl from the U.S. How does it affect the local spent fowl business?

Mr. Dungate: That is about 10 per cent of our market. I would argue about 4 per cent of our market, so about 40 million of that spent fowl, is traditional spent fowl product that should come in tariff free. We're not trying to stop regular business. We're trying to stop the people who are defrauding the Canadian public.

When you do a pot pie or soup, you're just using spent fowl, and that's the processing. We're now seeing that 62 per cent of that spent fowl is coming in as boneless, skinless breast meat. That's not a spent fowl product. That's our prime product. When we see that coming in, then we think people are declaring regular chicken as spent fowl just to get additional chicken and not play by the rules. So the impact, from an economic perspective, is about 9,000 jobs as we've estimated, and it's about $600 million in GDP, and they're avoiding paying about $66 million in taxes.

Senator Oh: Do you know if a Chicken McNugget is a spent fowl?

Mr. Dungate: You'll see very few spent fowl. They are old laying hens that are out of lay, or old breeders, and it's mostly the breeders that are the issue. They're not young broiler chickens, so they will have to be tenderized to a certain point.

Now I'm giving you a shopping tip: If it says "seasoned'' on it or "may contain egg,'' then you know that you're not buying good, fresh young chicken. You're buying spent fowl.

Senator Oh: What about McDonald's fast food? Are they using a lot of spent fowl?

Mr. Dungate: They are not using spent fowl. They used to use spent fowl in their nuggets and they have moved over, from a quality perspective, to broiler chicken. This is mainly because when you do that, then there are brittle bones in an older chicken and they were worried about bone fragments. From a health perspective, McDonald's goes for young broiler chicken.

[Translation]

Senator Rivard: I'd like to thank the witnesses for their testimony. I gather from the egg producers' presentation that in Australia, where supply management regulations were abolished, eggs ended up costing more money over time.

I would like to discuss the United States. In Canada, as things stand, and until the free trade agreement with Europe comes into effect — which will not be for another four or five years — the United States is both our biggest client and our biggest supplier of goods and services.

We are talking about the price of eggs in Australia, but what about the retail price of chicken and eggs in the United States? In your opinion, if prices are comparable, is the eggs and poultry sector subsidized in the U.S., or do they have a free market like we do in Canada?

[English]

Mr. Lambert: Yes, that is another good question. It depends on where you look in the U.S. You can find different markets, where eggs are cheaper. If you go into some of their larger cities, New York City, L.A., et cetera, then eggs are as or more expensive. It's quite variable. Interestingly, in the U.S. most things are cheaper. That's just a fact. This is for things that you might not realize or expect, for instance, ketchup. The Heinz plant just closed in Canada. But for ketchup, it is 65 per cent more expensive in Canada. Cereal — we grow lots of grains here — is 15 per cent. Diapers are nearly 32 per cent more expensive in Canada. Snack foods — 36 per cent. We have different labour costs, tax structure and social safety nets. We have a population of 33 million, spread across a vast country, with a lot more challenges with climate and distribution. The state of California has as many people as we do in all of Canada, so you are dealing with completely different economies of scale. Despite that, for eggs, our prices are extremely competitive with what you would see in the U.S.

In truth, that's another argument made by people on the other side of the debate. That simply does not hold up in the light of day.

[Translation]

Senator Rivard: Thank you for your answers. You made some excellent comparisons, but I'd like to come back to my initial question. Does the American government subsidize its egg producers or chicken producers in any shape or form?

[English]

Mr. Lambert: I can't speak to chicken or turkey, but the egg industry in the U.S. is not directly subsidized for their production. They are able to access grain subsidies and a lot of other programs on their input side. But for the egg production itself, not specifically.

The other thing you should never lose sight of with the U.S. is that there are the subsidies that they have to declare as part of trade agreements. But there are massive subsidies for things like water and the Army Corps of Engineers building canals and pipelines to move water into California, which are never declared. So in reality it would be hard to get to the bottom of the well of the subsidies provided to U.S. producers. As to a direct subsidy specifically for producing eggs, I do not believe there is one. But, there are lots of indirect subsidies.

Mr. Clarke: In addition to this, the industry in the U.S. is so much larger than ours. There are 300 million birds, for example, across their country. With regards to the U.S. farm bill, the egg producers would have access to funds for a number of things, as Mr. Lambert indicated, and some of them are difficult to dig down into in order to find the specifics. But the egg industry in the U.S. has access to the U.S. farm bill.

The Chair: They have a definition of their farm bill.

Senator L. Smith: Listening and remembering Senator Tardif's question about supply management — because I was the same in that I read it about 10 times in the presentations. With eggs and with chickens, are you saying that because of the shelf life or the cost of transportation, we have a competitive advantage? What is our competitive advantage versus people from outside coming in? With these new trade deals, do you folks have an export capability, or is it basically a local market that you are supplying, which is the Canadian market? The third question is what type of growth opportunities do you have, for each of your industries?

Mr. Dungate: In terms of export, we're the eighth-largest exporter of chicken in the world. You have to put that into context. Brazil and the U.S. are 75 per cent of all global chicken exports. Only about 10 per cent of chicken production globally is exported. Why? It's a fresh market. So if you wipe out our industry, then what are you going to do for fresh chicken? Are you going have it trucked in from the Southeastern U.S.? Chicken has the least shelf life of any meat, so it doesn't travel as well as some of our other commodities that we are exporting. That's one thing to keep in mind.

We have a cost disadvantage, which is where we live. We have fully insulated barns that we have to heat through winter and cool down in the summer, as opposed to putting a roof on posts, on the dirt and putting a curtain and some chicken wire around it, which is what you can do in the U.S. and Brazil.

We have vastly different cost of production perspectives. If we want to have a fresh market and if we want the economic contribution from what we do, then we can't compete head-to-head on production cost. That is not similar around the world. So we do export, but we export dark meat. Our two biggest export markets are the Philippines and Taiwan. Dark meat is the preference in Asia. In North America and Europe, it's for white meat. Just about all of our imports are white meat and all of our exports are dark meat. That's how we balance the market. The U.S. does a similar thing. They export about 17 per cent of their production, which is all dark meat. They don't import. We have roughly the same preference in the marketplace. With immigration here, more and more dark meat is coming into favour. We are taking advantage of that. We have just put in place a new specialty market program for silky chicken and for Taiwanese chicken that we are producing. This is because it's a special production and we've been given additional quota to do that.

For those who say we don't evolve, last week you might have seen our press release that we just signed a new agreement, that across the country, starting from last July, 55 per cent of all future growth will be allocated based on comparative advantage factors as opposed to historical base. We are moving with the times. People who say that we are out of synch are not in touch with our industry.

Senator L. Smith: Your price points to the consumer?

Mr. Dungate: Our price points are competitive. This comes back to Senator Rivard's question. We shop in Ottawa every six months. For the same cut of chicken, we can see a price difference from one store to the next of 250 per cent; and I'm not talking about Whole Foods, where chicken was $40 per kg. I'm not sure who has the money to buy that chicken, but the money's not going in a farmer's pocket, let me tell you. It's a different cut in a different store, and it's not always the same store that's the high price. The biggest determinant of what you pay for chicken is where and when you buy your chickens. Look at the ads. Every Thursday, they put out the meat ads so you can look at where you are going to buy your chicken, and you will get a good deal.

Mr. Lambert: Our industry has grown in terms of egg sales 21 per cent in the last seven years, and that's in a very mature commodity. We're growing on average 3 per cent a year; and the Canadian population is growing 1.8 per cent per year or so. That growth comes from an increased interest in higher protein diets. It also speaks to innovation in providing choice to Canadian consumers, such as organic, free-run, free-range or conventional products.

You asked about local. It is largely a local market. However, in our industry, because it is stable and there is profitability, you see a tremendous amount of innovation. A simple example: Mr. Clarke and I were in Halifax last week meeting with an environmental scientist at Dalhousie University. We're looking at setting up a research chair in environmental science and engineering with the goal to take all of the systems used in egg production, such as air quality, water quality and the use of manure to produce energy — renewable fuels, so that we can take this very efficient form of local agricultural production and make it even greener and more efficient and environmentally sustainable. You will not get that if you are focused solely on the cheapest product to import into our country. There are huge trade-offs when making those kinds of choices.

[Translation]

The Chair: Thank you, Senator Smith. We will now give the floor to Senator Robichaud, since this is the second-last meeting he will attend and be able to ask questions at. We will no doubt be seeing him Thursday morning as well.

Senator Robichaud: As they say in my neck of the woods, I shall "soldier on''!

[English]

The Chair: Senator Robichaud is retiring from the Senate. He has been a great contributor to our committee.

[Translation]

Senator Robichaud: Thank you, Mr. Chair. Please tell me a bit more about spent fowl, because I don't quite understand — in English, the expression used is "spent fowl,'' is that right? Who is responsible for monitoring this import, and why are so many coming onto the market and de facto stealing your market share?

Mr. Dungate: CBSA is responsible for monitoring spent fowl imports, and that takes place at the border. We did our own research; we spent a quarter million dollars developing a DNA test. It is amazing, the test works quite well. Not only can we determine whether it is a spent fowl or a broiler chicken, but we can also identify the genetic background and race. We are also discussing a pilot project with the Canadian Food Inspection Agency that we will be able to jointly implement to perform testing on the imported products. That would require cooperation between the two agencies, and we appreciate the support we've received from Minister Ritz. The Minister has wholeheartedly supported us, but we have encountered some difficulties with CBSA in setting up a program. That is what we are currently working on.

Senator Robichaud: At this time, the monitoring is being done by border officers isn't that so? I suppose they can't taste the chicken, as it's raw.

Yves Ruel, Manager of Trade and Policy, Chicken Farmers of Canada: As you stated, the problem is that the two products look nearly identical to the naked eye. Whether it is a young broiler breast or a boneless breast from a layer hen that spent 50 to 60 weeks laying eggs, the two will look exactly the same to an inspection officer at the border.

Senator Robichaud: To me too, for the matter.

Mr. Ruel: Quite so. The problem is also due to the fact that when these products are sold in Canada, they will both be sold under the "chicken'' label. Even the consumer cannot tell the difference. It is as if we used the same name for veal and beef; and yet, those two products are completely different.

We developed a DNA test as a tool for inspection officers to use. As explained by Mr. Dungate, we are currently working with the Canadian Food Inspection Agency, which inspects imported products. When CFIA officers check whether the product is safe and sanitary before allowing it onto the Canadian market, they may take samples of the meat to perform the DNA test, and would then know whether it is chicken or a hen. When a hen is imported, the product is not subject to monitoring, whereas for chicken, an import permit is required.

Senator Robichaud: Once the Canadian Food Inspection Agency performs an inspection, is it not already too late, since the product has already crossed the border and is already in some part of the country?

Mr. Ruel: Well, such a test will certainly be helpful. An importer may slip a product through once, but not twice, because if he has been caught importing hens rather than chickens, the CBSA will charge him an over-quota tariff and he will be penalized. So he will have a real incentive to not do it again once he's been caught. It is still an edible product, but it is a way of getting around the tariff rules, and it has an adverse effect on chicken production in Canada. If you are talking about growth opportunities, that is one of them. Over the last few years, 100 million kilograms of spent fowl were imported into Canada. Clearly, a fair percentage of that large volume would have been chicken, but was labelled spent fowl.

Senator Robichaud: How much time will be needed to implement this DNA testing system with CBSA and the Canadian Food Inspection Agency? Everyone will have to play their role.

Mr. Ruel: The test is currently functional. It has been scientifically validated. How it will work with various environmental agencies, the Canadian Food Inspection Agency and the Canada Border Services Agency has yet to be determined. CFIA has access to the product and is already inspecting it. CBSA is responsible for upholding the fee structure, which means ensuring that the product is classified under the right tariff line. Aside from that, coordination between agencies still must be ensured, and they must consider how they can integrate it to the tools they already have available, and ensure that the product is correctly classified during import. For us, the faster this happens, the better. Of course, these are things that, unfortunately, cannot be done in a day.

Senator Robichaud: Unfortunately. Do you have an idea of the time this could take? Because the Canadian industry is losing out in the meantime.

Mr. Ruel: We are currently discussing a pilot project with CFIA to see how their officers could actually take these samples and test them. I would imagine that it will take a few months before this is implemented as part of a pilot project.

[English]

Mr. Dungate: We designed the test, which is simple and easy to do, such that we are not thickening the border at all. You don't have to hold shipments at the border to confirm the test. It is not a food safety issue, so the shipment can go. We want CBSA to apply the proper tariff classification. We are cognizant that we are trying to promote trade between the U.S. and Canada and not frustrate it at the border. We think we've done a test that is very simple, and you don't have to hold the shipment. It can still go.

Mr. Clarke: For a bit of clarification, the spent fowl from our egg industry normally does not find its way into the markets that Mr. Dungate has been speaking of. Normally our spent fowl would find its way to being further processed and then up either into pet food or in some cases, like the mink industry, feed for the mink industry.

Senator Robichaud: It doesn't make its way to the market?

Mr. Dungate: This is called light fowl from laying hens, because they're a thinner breed of bird. The spent fowl from breeders of our meat chickens are big birds, and that meat will get into the food chain. You would see it in hot dogs and wieners, and it has to be further processed from a light fowl perspective because there's not as much meat on the bone.

[Translation]

Senator Robichaud: Back home, when we want to make a good chicken stock, a chicken stew, for example, we needed chicken of a certain age.

How much money did you receive to develop this test, because you developed it, is that not right?

Mr. Dungate: Yes, we did. We spent a quarter of a million dollars to develop this test. We are ready to give the test. We are working with a Canadian company which now has the opportunity to sell the test. This could interest retailers who want to know exactly what they are buying from a supplier.

Senator Robichaud: That is good. Thank you, sir.

[English]

The Chair: We talk about specially defined mixtures. I visited the presentation you had last week and was introduced to this particular product. Could you clarify for the committee to enable us, as we go to our report, to make certain recommendations? I want you to explain again, Mr. Dungate, and then answer these two questions: What could be done to overcome this issue? What action has CFIA taken regarding this issue?

This is in the presentation that Mr. Dungate made on playing by the rules.

Mr. Dungate: Right. We brought a couple of boxes with us if you want us to show you.

The Chair: You have?

Mr. Dungate: Yes, we did.

The Chair: Would you please just circulate it around?

Mr. Dungate: Sure. Mr. Ruel will show you just a couple of boxes. Anybody buying these boxes would think they were just buying chicken. But the trick is now if you just add a packet of sauce — you might not like some of the sauce, either. There is a health issue there.

The Chair: Let's stick to the sauce and the product and answer the two questions, please.

Mr. Dungate: If you just add sauce to the product, and what people are doing is they are adding one packet of sauce. In fact, in some of these products, 40 per cent of the weight of the product is the sauce. By adding that packet of sauce, it's no longer chicken. As long as you add, by weight, 13 per cent — so it could be 87 per cent chicken and 13 per cent sauce, that's it — it's no longer chicken and import-controlled: It's a specially defined mixture.

The difficulty we have is when we negotiated the Uruguay round in 1994, you weren't allowed to count sauce as "other product.'' That was the rule we negotiated. You also had to cook the product. It either had to be cooked, partially cooked or par-fried.

All we are asking for is a simple fix. Canada doesn't have to go back, doesn't have to go to the WTO to change anything. Canada just has to implement its WTO schedule and its definition of "specially defined mixture,'' which does not allow you to add a packet of sauce to create a specially defined mixture.

The reason for the specially defined mixture in the start was TV dinners. You're putting chicken, you're putting a dessert, you're putting some potatoes and you're putting some vegetables. Okay, I get it, it's a mixture. Including a packet of sauce was never intended to be what was going to qualify as a product.

Once again, we're not trying to stop and expand the import rules that were there from 1994 that we negotiated at the WTO. We're just trying to apply the ones there, and if people make innovative products that people want and stuff the chicken with broccoli and cheese and all of that, then so be it. We're not trying to stop legitimate business. We're trying to stop the fraudsters and telling them to play by the rules.

[Translation]

The Chair: Senator Robichaud, you wanted to ask a complementary question.

Senator Robichaud: It is said that the rules have to be obeyed, but how is it that they are not being obeyed and that these products are being let in?

Mr. Ruel: That is an excellent question. As Mr. Dungate said, according to Canada's commitments to the WTO, the definition of these specialty mixtures indicates that the sauce should not count as part of the 13 per cent content.

Senator Robichaud: I understand that.

Mr. Ruel: Unfortunately, under Canadian fee structures, there is a difference; the sauce is described as though it counted for other products that are not chicken. That means there is a mistake in the definition which allows the sauce to qualify in conjunction with products that are not import-controlled, which are specialty mixtures, according to the definitions. We are therefore more generous than what is required under our commitments to the WTO.

Senator Robichaud: We are good that way.

Mr. Ruel: I would imagine, however, that at the time, in 1995, no one would have thought that someone today would be creative enough to make packaging like that, where all one has to do is put a bag of chicken wings and a bag of sauce in the same box. That is not a product mixture; rather, it is creative packaging.

Senator Robichaud: Very well.

[English]

The Chair: Honourable senators, looking at the time and the other witnesses coming forward, we will conclude with a question by Senator Beyak.

Senator Beyak: Thank you very much, gentlemen. The Canadian brand is a powerful marketing tool around the world. We've heard from witnesses that all citizens will pay more for the quality that comes from Canada because of our pristine water, soil, air and feed. Do you see a future for chicken? I know we talked about the exporting and the small percentage now, but I can see around the world the Canada brand and its quality becoming famous and important if it's marketed properly. Have you considered that for the future?

Mr. Dungate: We're actually just introducing our own brand, "Raised by a Canadian Farmer.'' We have already signed up. We just launched this brand, so we have Sobeys on it and Federated Co-ops in Western Canada. Today we just got Maple Lodge Farms signed on as a processor, and we have Yorkshire Valley Farms. We're taking that concept here, and it's Canadians who want to know that the chicken they're buying is Canadian.

Part of our initiative to compete with some of this stuff is to make sure we will promote a brand and will stand behind that brand. They know that they're getting safe animal care and environmentally friendly product from Canada. We're seeing a lot of pickup in terms of that.

We will leave it where our best market is right now in Canada. Down the road, if we can lever it beyond that, we'll see.

Mr. Lambert: Your question is posed to chicken, but on the opposite side we have imports coming in from the U.S., and that same thing applies. We get more complaints from consumers saying, "Why am I buying or seeing American eggs in the retail stores?'' So you're right. On the domestic side as well, Canadians want to see Canadian product on the shelves.

The Chair: To the witnesses, you have been very informative and educational.

[Translation]

Honourable senators, we are resuming the meeting with the second panel of witnesses.

[English]

To the witnesses, thank you for accepting our invitation to share with us your opinions, recommendations and professionalism.

[Translation]

Tonight, from the Canadian Agri-Food Trade Alliance, we have Ms. Claire Citeau, Executive director.

[English]

We also welcome Mr. Ron Davidson, Director, International Trade, Government and Media Relations with the Canadian Meat Council; and Mr. Phil de Kemp, President of the Malting Industry Association of Canada. We are being informed, honourable senators, that Ms. Citeau will make the presentation, and we will follow with questions.

[Translation]

Ms. Citeau, you have the floor.

Claire Citeau, Executive Director, Canadian Agri-Food Trade Alliance: Thank you for inviting me today to speak on behalf of CAFTA regarding international market access priorities.

[English]

The CAFTA is a coalition of national and regional organizations that support a more open and fair international trading environment for agriculture and agri-food. CAFTA's members include farmers, producers, processors and exporters from the major trade-dependent sectors, including beef, pork, grains, oilseed, sugar and malt. Together, CAFTA members account for 80 per cent of Canada's agriculture and agri-food exports, totalling $46 billion in exports annually, and directly employ half a million people.

Many CAFTA members have already appeared before this committee or will be doing so in the coming weeks, so I will focus my comments on trade issues, given that this is our mandate.

To begin and to be clear, Canada's agriculture and agri-food sector depends on trade, and our agri-food exports are critical to national, provincial and rural economies. I will provide you with some numbers to illustrate this. Nine out of every 10 farms are dependent on exports in this country. This translates to roughly a quarter of a million farms stretched across every province.

Canada is also the fifth-largest agri-food exporter in the world, after the U.S., Europe and Brazil. Agriculture and agri-food products account for almost 10 per cent of Canada's total merchandise trade.

We export $50 billion a year in agriculture and agri-food products, and approximately half of everything we produce is exported as either primary commodities or processed food and beverage products. We export half of our beef and cattle, half of our wheat, 60 per cent of our hogs and over 70 per cent of our canola.

With so much at stake, it is critical that Canada identify new trade opportunities for our sector to diversify, reduce reliance on existing markets and increase access to markets where our producers can get better value for their products.

We congratulate the government for laying the groundwork in concluding, earlier this year, the Canada-Korea Free Trade Agreement that is expected to result in over $800 million in Canadian agri-food exports per year. We're most hopeful that it will be implemented on or before January 1, 2015, so that we do not lose further tariff advantage to our competitors, like the U.S. and Europe.

We are also very pleased by the conclusion, this fall, of negotiations of the Canada-European Union Comprehensive Economic and Trade Agreement, the CETA. The CETA will offer significant new opportunities for Canadian agri-food processors in one of the world's few billion-dollar export markets. This is a great opportunity and one we will be able to take advantage of long before our competitors. In fact, once fully implemented, this agreement is expected to drive an additional $1.5 billion in exports to the European Union each year.

As these agreements show, free and fair trade is the top priority to ensure competitive access for Canadian agriculture and agri-food products throughout the world. In the current environment of competitive trade liberalization, countries are competing with each other to be the first to secure free, or at least preferential, access to the world's major markets. Today, as a result of this, the success of our export markets also depends on the timely negotiation of preferential trade access to the markets that our competitors are also after. In other words, any free trade agreement that the world's major markets negotiate with our competitors before us leaves us at a disadvantage.

Canada must continue to identify and pursue meaningful comprehensive trade agreements that offer significant benefits and maintain our competitive position vis-à-vis our global competitors. With that in mind, Canada's priorities for trade going forward should consist of three main priorities.

First, we should pursue and conclude multilateral trade deals, such as the Trans-Pacific Partnership, which can further regionalize trade. The TPP is an ambitious, comprehensive agreement that is meant to emphasize trade within the growing Asia-Pacific region. The TPP region represents 40 per cent of world trade and is an integral part of global value chains. It has the potential to improve the competitiveness of our economies and enhance regional supply chains by permitting the production, processing and movement of products and ingredients among TPP countries.

Without a plural lateral agreement with all countries in this region, the TPP could actually reduce the competitiveness of our exporters if some countries are provided greater market access than others.

Second, we should actively and aggressively pursue meaningful bilateral trade deals with major markets, such as the proposed Canada-Japan economic partnership agreement. While we are hopeful that we will benefit from increased access to Japan within the TPP, Canada should be in a position to quickly conclude a bilateral agreement should the TPP talks not progress soon enough. Canada has a significant stake in our outcome of negotiations with Japan. It is our third export market, the world's third-largest economy and a priority market for our agriculture and agri-food sector given that it relies on imports to feed its population.

Third, the priority should be continued emphasis on concluding trade deals that address non-tariff barriers. While tariffs are often the most emphasized aspect of free trade agreements, it is important that trade agreements incorporate disciplines to ensure regulations are based on science and advance solutions that minimize technical barriers to trade.

In closing, the Canadian agri-food industry depends on export. CAFTA members hope and expect quick ratification of implementing legislation of the Canada-Europe and Canada-Korea free trade agreements. Free and fair trade is the top priority to grow the Canadian agriculture and agri-food industry. Canadian agri-food exporters require an aggressive trade agenda to ensure competitive access to the world's largest markets.

[Translation]

The Chair: Thank you very much, Ms. Citeau, that was very well presented. We have a question from Senator Tardif, who will be followed by Senator Dagenais.

Senator Tardif: Thank you very much, Ms. Citeau; it is always a pleasure to see an Albertan in a position such as yours. In your presentation, you said the following, and I will read it in English.

[English]

You said the third priority is a "continued emphasis on concluding trade deals that address non-tariff barriers.'' What are some examples of non-tariff barriers that countries have to face or deal with?

Ms. Citeau: Maybe I could invite some of my directors to provide specific examples in the meat sector.

Ron Davidson, Director, Canadian Agri-Food Trade Alliance: In the food and agriculture sector, there are many. The standard terminology is sanitary and phytosanitary barriers, with sanitary referring more to the livestock sector and phytosanitary to the plant sector. In addition, there are technical barriers to trade, which may be a number of other things. Let me start with the sanitary ones.

It is all of the measures we must take to prove to our own consumers — in addition to every foreign country — that our food is safe. It can go anywhere from how we produce our livestock. For example, we use some growth-enhancing products in Canada that are not accepted in some foreign countries, even though we have international scientific evidence that those products are completely safe. That is a non-tariff barrier. We may use different products within our meat processing plants, for example, to remove the bacteria that might be on meat.

In the case we're working with now, in Canada we use a product called lactic acid. It's a carcass wash. It goes over the beef to remove any potential of any bacteria on it. We also use recycled hot water. In preparing for the agreement with Europe, we have now achieved approval for lactic acid, but we're still waiting for approval for the recycled hot water. Those are just two of a myriad of examples of non-tariff barriers. I could spend a long time on this because there are a thousand of them. Maybe Phil will want to add some from the plant side.

Phil de Kemp, Director, Canadian Agri-Food Trade Alliance: We could be here a long time. On the grains and oilseeds side, and certainly for the value added, you have issues with dealing with GMO and genetically modified organisms. You're starting to hear a lot more of it, and I assume you're going to hear an awful lot more in the years to come, particularly in dealing with a thing called low level presence, or LLP, and finding that in a shipment. Certainly being based on science, we're saying it is okay, but you're seeing countries say, "No, we don't want it.'' It's not science-based. It's dealing more with what they say is in the public interest.

The other one is on maximum residue levels, and that pertains to levels of herbicides or pesticides that you can find in a grain shipment. Generally speaking, you have the Codex Alimentarius, which is like the United Nations of organizations, saying here are the levels that everyone should adhere to. But again, we're now seeing countries imposing their own that are different and lower, some of them not based on science. If they don't have a test for it, they go to an automatic default, and that default number is even lower. With technology as it is nowadays, you can pretty well pick up anything to almost one trillionth of a part.

So where do you stop that? In malting it isn't so much of an issue, and Senator Smith, certainly you have experience way back with the milling. That's becoming a really big issue, having worked there many years before, too. Those are the types of non-tariff barriers, and you hear it even from Mike Dungate on this Newcastle disease. There are ways, and the only thing countries still have, regardless of whether or not we're seeing a new WTO agreement, which we still have, and we have the old Uruguay around. At least the WTO has the ability to be the court, so to speak, to take trade issues to see whether they're science-based, et cetera. But it's a long and expensive process, and that's all we have at the present time.

Senator Tardif: Thank you for those explanations. I was moving towards this question of the low level presence of genetically modified crops, because I know Europe has zero tolerance. This is probably an irritant in the negotiations of the Canada-E.U. free trade agreement. Can I ask about the country-of-origin labelling? Is that considered a non-tariff barrier?

Mr. Davidson: Yes, it's been a non-tariff barrier. Clearly, we have gone repeatedly to the WTO and won the cases. I'm speaking primarily on behalf of the producers now who led that fight. As you know, it continues to go on, and probably the U.S. is going to appeal even again. It can drag on. This has been going on since 2008.

That is the problem. In spite of having relatively robust international agreements which drive us towards science-based decisions, big countries have ways of delaying the impact of those.

We went through the same thing with Europe on the growth promotants for cattle. We actually won those WTO rounds, but, at the end of the day, a country that doesn't want to change its laws can say, "Okay, we will pay. We will pay for the damage.'' And that's what happened with Europe. We actually got a quota for hormone-free beef, if you want, that they used as payment because they didn't want to change the rules. So at the end of the day, if they keep on losing, they have to pay, but there's nothing that will actually force them to change the rules.

Senator Tardif: As a quick supplementary question, are there other countries that you've negotiated or signed treaty agreements with that have this similar COOL — country-of-origin labelling — requirement?

Mr. Davidson: The Europeans are sympathetic to some of the philosophy behind the COOL. It is possible to use that kind of labelling if you're actually providing some useful or wanted information to consumers, but if you're going to do that kind of thing, you have to do it in the least trade-disruptive manner possible. In this particular case, the WTO found that the weight of evidence that the industry was having to provide far outweighed anything that consumers were gaining from this.

So it's very complicated, with a lot of international lawyers working on it, but the U.S. is a particular problem that goes well beyond anything else that we have to deal with.

[Translation]

Senator Dagenais: Thank you to our three guests.

I would like to come back to the Canadian Agri-Food Policy Institute. According to an individual who works there, Canadian Agri-Food companies have to distinguish themselves from their competitors based on quality so that the value added can be reflected in the sale of their products. How, in your opinion, can Canadian farmers and food processors distinguish themselves from their international competitors?

[English]

Mr. de Kemp: I'll speak from a malting perspective as far as the guys who make the malt for the beer industry around the world.

There are two things. In our industry, part of it is quality. Most of it is varietal. You may hear very much more about this perhaps in a couple of days from Brian Otto, who will apparently be here. We as an industry are part of the Barley Council of Canada, and it's a value chain where we work very closely with the barley and varietal researchers.

Quality means different things to different people. With respect to the beer industry, it's the characteristics of the barley and the chemical process as far as when you're germinating it and how much malt extract you get and what they call beta glucans that will give you different quality characteristics of the beer. Canada, on the grain side, as far as malting barley is concerned, is recognized as the top quality in the world because of those attributes, not that it looks nicer or it's plump or what have you. Quality means different things.

With respect to wheat, absolutely, Canada has a very strong brand because of the proteins, because of how it works. Senator Smith knows more about that than anybody, working in the flour milling industry for many years.

The problem with commodities is that they are commoditized. People think wheat is wheat or barley is barley and pork is pork. Yes and no. What is important is, if you're going to talk about quality, if you're going to go into a market, and I heard this a couple of days ago from Canada Beef from a gentleman who used to be on my board, and it really made a lot of sense, he said, if you're going into a new international market, whether it's China or Korea or what have you, know your partner. Don't try to simply work on the brand. Work on what you believe is a good-quality characteristic and then give it to the supplier, who basically is just going to move it and charge whatever he wants when he's going to put it through the system. You want to control that. You want to control really who your partner is, who the store is, and why you're saying this is the price we want you to see it at, because we want to maintain it. If you give that up, you give up an awful lot.

Getting back to the issue about quality, you don't want to be all things to all people, and we don't want to be all things to all people, and we can't export to everybody around the world. No question about that. You've got to pick your markets because there's only so much capability presently in Canada. Certainly, going forward, we'd like to have more capability or capacity, but that's tied to transportation, and that's a whole different issue now in terms of the CTA review for grains and oilseeds and everyone else.

[Translation]

Senator Rivard: I would like to give you a scenario.

In your brief, you highlight the fact that the economic impact for the agri-food sector is $1.5 billion per year and that you would like trade agreements to be implemented as quickly as possible. Let us compare this to the free trade agreement negotiated with our American neighbours. We were dealing with one country, and then Mexico joined in, but we were dealing with one country and one language, which was English.

In the case of the European Union, negotiations were started six years ago, and from what I heard last week, it could be five or six years before the agreement is actually implemented. It is important to keep in mind that we are dealing with 28 European Union countries; the translation industry is currently sitting on a gold mine because there are 22 different languages. Then, the agreement must be ratified by those 28 countries.

During those six years of negotiations, at one time or another, was the Canadian Agri-Food Trade Alliance consulted or, just like everyone else, were you not informed until an agreement in principle was announced?

[English]

Mr. Davidson: In the case of the CETA, I can say that the livestock and meat industry was well consulted. We never saw text or that kind of thing, but as for having input into the negotiations, I would suggest that every step we felt comfortable that more or less we had some idea of how the negotiations were going, and as the negotiations went on, we had a perception of sort of the area or more or less where they might end up.

In the case of consultation, we would have nothing but positive response to that question. We were satisfied with the consultation.

[Translation]

Senator Rivard: I know, because everyone knows it, that the automobile industry was heavily involved in those negotiations, as well as wine producers, cider producers, et cetera. I would have thought that you would have been consulted during all of those negotiations. I understand now, as we speak, that you were not any more updated than we politicians about the final agreement. We know that an agreement in principle was signed by President Barroso and the Prime Minister of Canada, but we do not know the details of that agreement; we should know over the next few months.

I understand than that your organization was not consulted, correct?

[English]

Mr. Davidson: Yes, the alliance was very closely involved, and we as members of the alliance were closely involved. We saw the text when it was leaked in Europe, to be honest with you. We didn't see the text beforehand. We had a feeling of more or less what the ballpark was, where we were coming out on it, so as the negotiations evolved we were satisfied with the discussions.

We would have preferred a more ambitious outcome, naturally, because we didn't end up where we had asked to end up, but that's every deal. They're all the same in that respect.

[Translation]

Ms. Citeau: The Canadian Agri-Food Trade Alliance was consulted.

[English]

Mr. de Kemp: Not only were we consulted, but again kudos to our negotiators and certainly Steve Verheul. He used to be with Agriculture Canada. We were not only consulted, we were briefed a lot, not as far as the nitty-gritty because obviously of the confidentialities. But as far as the nuances and where things were going, the alliance and a lot of our members, we were always going up and down to Europe to meet with negotiators when everyone was getting together — and not just with the negotiators, but certainly on the meat and pork side to meet with the individual EU countries. It wasn't that we were just consulted. Absolutely, we were in it from the beginning thick and thin.

Senator Beyak: Thank you for coming tonight and informing us. I asked the producers that were here this evening about exporting chicken and eggs, and I see the problem with eggs, they're fragile, and I don't know what the market would be like overseas. With chicken and dairy products, cheese, it seems to me there is a huge market over there, and the beef and pork witnesses that we have had are excited about it. Do you see a way for the products that are concerned with supply management, like cheese, milk, dairy, finding a way into that market, or are they right to be concerned?

Ms. Citeau: In principle, we don't represent those commodities, so we are happy to let them speak for themselves.

Senator Beyak: Certainly I didn't mean to put you on the spot. I meant with trade negotiations, is there a way to have those products, the quality, the Canada brand, advertised or any kind of restrictions lifted for them?

Ms. Citeau: I believe that in broad terms Canada has a very good brand internationally, and we are certainly looking to build on that to sell our commodities and food products internationally. Again, I can't speak for the products that we don't represent.

Mr. Davidson: There are many countries in the world that don't impose significant tariffs on food products. For example, if you're looking at the dairy sector, which you have asked about, New Zealand is a small country and a massive exporter of dairy products to the world.

As Mike Dungate said, we do export a substantive amount of chicken because of the nature of the consumption in Canada where we prefer the white meat, and we export that to about 30 countries. There are markets out there for all agricultural and food products, but playing in the international market, you have to be competitive.

We talked about brand. Well, brand is important, and Canada does have brand recognition. I worked in five embassies abroad in my career, and we have brand in Canada. We may not like to admit it, but Australia is extremely strong in promoting their brand. The U.S. spends massive amounts of money in promoting their brand, and they think they are good, too. So we compete. In the case of the meats, we have got Canada Beef Inc. and Canada Pork International, which do export marketing and promote our brand abroad.

There is a big international food market. There are not very many countries that export most of the world's food. We are talking about fourth or fifth. There are very few. We are in an advantageous position. We have got the land or the space and water in this country, fortunately. We have the technology, the knowledge and the farmers to produce it. There is an advantage out there.

That is why you have heard such enthusiasm from the pork and the beef producers. We have internal domestic challenges right now, particularly on labour, both on the farm and in the meat processing plants, and these are big challenges which are holding back our exports today.

We are optimistic we will get by those, because it is so blatantly evident that we are losing export opportunity and value added because of that. But the opportunity is there, and that's why we are strong supporters of international trade because we are ready to take it on and we can win.

Senator Enverga: Thank you for the presentation. As we are getting the markets to open up for us, how ready are we? Do you think we are ready to expand the new TPP-EU trade deal? Are we ready to go into the markets, and will we be competitive with everybody else?

Ms. Citeau: Are we ready? Is the industry ready? Yes, capacity is there and the industry, in the case of Korea, for example, even though we have lost market share as a result of our competitors getting access to that market before us, some of the business relationships have been maintained in preparation for the implementation of the Korea agreement. So what you will see as soon as the agreement is ratified is hopefully our exports will increase again to that market.

As for Europe, it's the same thing. It will take some time for translation, legal scrubbing and implementation of the agreement, but the opportunities are there. What is very interesting for some of the commodities with Europe, in particular, is that it's a market where companies can get higher value for some of their products.

In some of the other markets, in Asia — and this is true particularly in the cattle sector — companies are able to sell most of the animal that they are not able to sell in North America. Depending on the markets, there are different benefits that the sector is looking at.

What I think is really important is with the myriad of free trade agreements that are being negotiated internationally, really the major one that we have right now is NAFTA with the U.S. and Mexico. The agreement with Europe, hopefully, will be implemented in the next two years. That's what we're hoping for. The agreement with South Korea is the first one in the Asia region. We are most hopeful that TPP will conclude. Our eyes within the TPP context are on Japan, but what is also key is the fact that our competitors — Europe, the U.S., Australia, Brazil, among others — are also negotiating free trade agreements with these major markets.

Just last week, Australia announced a free trade agreement deal with China, a market that is our second export priority market that we should also be seriously looking at. Australia also announced earlier this summer a free trade agreement with Japan, and we are not there yet. I think this is the level playing field with our global competitors that we really need at this point to remain competitive.

Senator Enverga: If there are a couple of major challenges that Canada will have, what are they, competing with other countries? Do they have any major challenges as compared to other countries?

Mr. de Kemp: Challenges in what way?

Senator Enverga: In competing.

Mr. de Kemp: Currently?

Senator Enverga: Well, currently and —

Mr. de Kemp: Well, we will with China on the barley side, absolutely, because they have the immediate tariff removal on barley, malting barley, absolutely. There will be challenges. When Claire talked about Australia, they have been extremely aggressive and they have done a very good job to a certain extent with respect to getting in ahead of everybody.

Our negotiators have done a wonderful job with respect to Korea and also with CETA, but it is like one step behind, particularly in that big Asian market. That's where the game is. The game is Asia, and the importance of the Korean one is that it's the gateway; that's the first one. Yes, there are challenges because some of our competitors are getting into these markets.

Japan is a little different because demographically they don't allow immigration. The country is getting smaller, they're getting older, so it's like trying to compete for your size of the pie because the pie will not get any bigger.

That gets back to know your customer and what is the value on that particular product as far as how much value you can add to it here in Canada.

China will be very different for a lot of people, and as far as coming from the grains and oilseeds side and the value-added side, I heard earlier tonight that we are not the blue chip industries. I guess it's supply management that uses the words "blue chip,'' so I guess we are not. We employ a lot of people, and there is a lot of value added and a lot of taxes paid, too.

For the sake of education, on the barley side, we only buy $70 million worth of malting barley to make malt for Labatt and Molson and whatever. That $70 million of malting barley from Canadian farmers generates federally and provincially about $4.1 billion just from tax on the beer case — that's on $70 million. You show me an industry anywhere that will get you that. You won't even see that in the oil sands, and that's just on barley.

[Translation]

Senator Robichaud: I was just listening to a speech given in the Senate, this afternoon, about the agreement with Korea, which reviewed the trade agreements that we have signed in the last while. It was shown that we have been the losers, in the sense that our exports had decreased and that our imports had increased, according to the data in question.

In the industry that you represent, are our exporters ready to seize the opportunity instead of having importers benefit from these agreements?

Ms. Citeau: The answer is yes.

Senator Robichaud: You are sure that we will benefit, that we will export a lot more than we will import? I hope so. I am talking about other agreements that were signed and for which it was not the case. I cannot tell you if they were for the agri-food industry, however. There are areas in which we did not come out on top. So if we can do well in this case, it will be our Canadian producers who benefit.

I heard a Statistics Canada report according to which the consumer price index had increased by a certain percentage, and it indicated that one of the factors was the price of beef and pork.

Now that we have signed agreements concerning the products they buy, what effect do you think that will have on the price of beef and pork for Canadian consumers?

[English]

Mr. Davidson: We operate in beef and pork in a world market, and frankly the price in Canada is more dependent on what is going on in the Chicago Mercantile Exchange than anything we are doing here. Our market is open for product coming in from abroad for the most part. We export to over 100 countries around the world, so we are involved in a global market.

The reason the price of beef and pork is higher now is we have gone through some very difficult periods for Canadian producers in recent years where the price of grains was high but the price of meat did not rise at the same pace, and they lost money and many left the businesses. It is stunning how many pork producers disappeared in recent years.

But we are in a global market and the price in the world market is high right now. It's not just related to Canada.

The incentive now exists because of the grain prices and the price of the meat. It will take longer for beef than pork, but you will see that we will produce more again, and those prices will go up and they will come down because it's not a regulated price. It's a price that, when the price goes up, we will produce more; when it goes down, some of the producers will cut back.

So we will be exporting more. We have an industry that depends on it. We have to export, as Ms. Citeau said, 60 per cent of beef and 50 per cent of pork. We have no choice but to export. That affects the whole industry in Canada. The meat processing industry in Canada is about 65,000 jobs; 26 per cent of food processing is meat industry.

Senator Robichaud: I'm not arguing that.

Mr. Davidson: We are solid. We are exporting to 100 countries. We are competitive, and we will move the products around to take the best advantages of what product makes the most money in each one of those markets.

I know the studies are out there. What you might ask those studies, because they don't address it, is what would happen if we did not have a trade agreement with those countries. We might not be so better off, either. Maybe we were going to lose our market share anyway. If Canada is a global trading partner and we as a country are export-oriented, our future depends on maintaining that competitiveness. It's all about being competitive. We are competitive in the meat industry today, and we have the ability to stay that way.

Senator Robichaud: I know you're doing a great job, and we want to export. I'm taking the consumer point of view here. If I have to pay more for what I have now, and I'm presenting the situation because those who are against supply management always throw in the face of those who support it that's it's costing more to Canadian consumers because they have a certain control of the product, which you can argue both ways. This is why I am mentioning it. Okay, it's always mentioned in the case of supply management, but if we do more trade and it costs more to the Canadian consumers, that's great. That's part of doing business. Do you see where I'm coming from?

Mr. Davidson: The fact that we have signed trade agreements with other countries will not have a major impact on the price in Canada because in an open market, the price is determined in the international market, so we will have a price which goes up and down internationally as the world supply of these products goes up and down internationally.

For the consumer, it is in their best interests. If we go through any period of drought or we have any problems domestically, an open market will then give them the food security they need. Maybe you can have these short-term variations in the price, but in the long term, it's better for the consumers that we have a world market that they can purchase product from whenever they need it.

Certainly, it is better for consumers in the amount of jobs we are providing in this country because of our export-based industry.

Senator Robichaud: I am not arguing the jobs. I'm not making any headway.

Senator L. Smith: One of the things that struck me when I was in the milling industry and selling grains, when we were selling internationally, I always felt that Canada had a competitive advantage. The competitive advantage was our ability as Canadians to be well received, be versatile and learn languages in other countries, because when we competed, we competed against the big American producers in Asia. When you go to Japan and you can speak Japanese, produce your cards properly and you're competing against the big American players, and they are saying, "Well, you know, we don't speak no Japanese at Archer Daniels down in Kansas.'' I always found that we had a great competitive opportunity to be able to sell. You can take the technical elements of our products and the climatic advantages, because this is a huge thing we have. We have water; we have a better climate; we can produce better wheat in Canada than they can in the United States, which is becoming more arid. I think I'm right in saying that, even though I'm not in it anymore.

So there are competitive advantages we have from a technical perspective, from a climatic perspective. But as a selling perspective, we should make sure we don't negate or forget we have a competitive advantage as Canadians from a cultural perspective because we are open, polite and we are going to do things that we have to do to be able to sell.

I know that Labatt was very successful when selling wheat starch and gluten over in Japan. It took five years to develop the relationship because you have to understand the culture of the countries, because you are going in through big trading houses in many instances, and these trading houses have the local relationship. In Japan, people don't trust you, and it takes you five or six years before you can sell your product. We can recognize the strengths of our culture with their culture.

Is that still prevalent today in terms of how you guys work in business? I saw Phil's eyes light up.

Mr. de Kemp: Absolutely. I was president of the milling industry just after you left Ogilvie, and Gord Harrison is there now.

I was in Japan and Korea earlier this year. Part of it was we have long-standing relationships certainly in both countries as far as malt is concerned, and part of it was to go with the minister because it was, quite frankly, damage control because of the issue with transportation.

When you talk about taking a long time to establish a market and just Canada's openness and the cultural melting pot, so to speak, there was a comment made to me 20 years ago in Korea when we started to go in there for malt, and it was a gentlemen from the largest brewery there, which I believe Coca-Cola at the time owned, and his English was impeccable. I asked where he went to school, and he mentioned the name of the university in the United States; and then he told me, and I found this quite fascinating, Korea being different from Japan, that a lot of the relationships and business relationships are really started by who they meet at the universities when they go there. With Canada it's a little bit different.

It's not part of this committee's review, but I think it's really important to recognize that Canada — I think we're starting to do more of that — is bringing in some of those international students, the best and the brightest. Hopefully they are going back to their country, and it's those relationships that they have with the people they have gone to school with that hopefully they will connect with.

You used to hear about the so-called old boy's school or if you went to private school or private high school and you keep that. It's the same thing. That's how the U.S. uses it. Ours is a little different, but we can probably do the best of both worlds if we start doing the cultural and the exchanges.

The Chair: Very good point.

Thank you to the witnesses. You have certainly given us a lot of food for thought.

With that, honourable senators, we will go in camera for an item we must address.

(The committee continued in camera.)