Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 21 - Evidence - Meeting of November 27, 2014
OTTAWA, Thursday, November 27, 2014
The Standing Senate Committee on Agriculture and Forestry met this day at 9:02 a.m. to study international market access priorities for the Canadian agricultural and agri-food sector.
[English]
Kevin Pittman, Clerk of the Committee: Honourable senators, as clerk of your committee, it is my duty to inform you of the unavoidable absence of the chair and deputy chair and to preside over the election of an acting chair.
[Translation]
I am ready to receive a motion to that effect.
Senator Ogilvie: I understand that today will be the last committee meeting for Senator Robichaud of New Brunswick. I would therefore like to appoint him acting chair.
[English]
Mr. Pittman: Is it your pleasure, honourable senators, to adopt the motion?
Hon. Senators: Agreed.
Mr. Pittman: I declare the motion carried.
[Translation]
I invite Senator Robichaud to take the chair.
Senator Fernand Robichaud (Acting Chair) in the chair.
The Acting Chair: Honourable senators, thank you for appointing me chair for this committee meeting, which will be my last. As you know I am retiring. I am very honoured to preside over this meeting.
We shall get down to business right away. We will introduce the witnesses once the honourable senators have introduced themselves.
[English]
Senator Merchant: Good morning and welcome. I am Pana Merchant from Saskatchewan.
Senator Tardif: Good morning. Claudette Tardif from Alberta.
Senator Beyak: Good morning. Lynn Beyak from Ontario.
Senator Plett: I am Don Plett, and I am from Manitoba.
Senator Oh: Victor Oh from Ontario.
Senator Enverga: Tobias Enverga from Ontario.
[Translation]
Senator Dagenais: I am Senator Jean-Guy Dagenais from Quebec.
[English]
Senator Ogilvie: I double checked my ID, and I am Kelvin Ogilvie from Nova Scotia.
The Acting Chair: I'm very happy to realize that Senator Ogilvie remembered his name this morning.
So on we go with the business of the committee. We have before us today, from the Barley Council of Canada, Mr. Brian Otto, Chair, and Mr. Phil de Kemp, Member.
In addition, we have with us, from the Canadian Canola Growers Association, Ms. Jan Dyer, Director of Government Relations; and from the Canola Council of Canada, Mr. Brian Innes, Vice-President.
I'm informed by the clerk that Mr. Otto will be the first to make a presentation.
[Translation]
After your presentations, the honourable senators will be invited to ask you questions. Mr. Otto, you have the floor.
[English]
Brian Otto, Chair, Barley Council of Canada: Thank you, Mr. Chair. I'm Brian Otto, Chair of the Barley Council of Canada, and I'm a farmer from southern Alberta. I farm about 4,000 acres south of Lethbridge, Alberta. I'd like to thank the committee for inviting me here today to present on behalf of the Barley Council of Canada.
The Barley Council of Canada is a national organization that is comprised of all stakeholders throughout the entire barley value chain. Our members include all Western Canadian provincial barley producer commissions, Quebec and Maritime grain producer organizations, the national organization for the feed milling and cattle feeding industry, the entire Canadian beer and malt industry, the barley varietal research community and life science industry, and lastly, some of the major grain procurement and handling facilities. We are effectively national in our scope and represent the entire barley industry from coast to coast.
On behalf of the Barley Council of Canada, I would like provide you with our views regarding your study on international market access priorities for the Canadian agriculture and agri-food sector.
World demand and trade in barley continue to grow. In 2012, Canada exported $484 million in barley and an additional $265 million in processed malt product to our international customers. Canada's feed and malt barley exports are mainly destined for the United States, Japan, China, Saudi Arabia and Colombia.
Free and fair trade is critical to the barley industry in Canada. International trade agreements are integral to the profitability and sustainability of all Canadian agriculture sectors.
The Barley Council of Canada would like to commend the federal government for their ambitious trade agenda and the efforts of our chief negotiators, noting the recent success in the European and South Korea agreements. In addition to creating opportunity for Canadian barley, South Korea will serve as a gateway to help expand free trade with other countries in the Asia-Pacific region.
We know that there is significant opportunity in accessing other countries in the Asia-Pacific region, and that is why we support the government in their efforts to conclude the Trans-Pacific Partnership.
The TPP is one of the most significant trading initiatives around the globe. Collectively, the TPP countries account for 40 per cent of the world's GDP and over 65 per cent of Canada's $50 billion in agriculture and food trade. This regional trade deal also has the potential to move beyond its current membership and draw in additional emerging and developing economies in the Asia-Pacific region.
Among the TPP member countries, tariffs on agricultural goods are wide-ranging. For example, Japan maintains an average most-favoured nation applied tariff of 23 per cent. Malaysia is 11 per cent and Vietnam is 17 per cent, and this is towards agricultural goods.
Eliminating tariff barriers could help support incremental exports of Western Canadian quality agricultural products in the lucrative TPP market of 792 million consumers. We need a level playing field with our competitors. With a pluri-lateral agreement with all countries, perhaps the TPP could reduce the competitiveness of exporters if some TPP members provide greater access to some countries than to others.
Japan is the second largest market for Canadian malt. A free trade agreement with Japan could result in additional exports of high-value Canadian agri-food products to that country. In vying for Japan's attention, Canada has some tough competition. Japan has already concluded a trade agreement with Australia and has entered into negotiations with some of our key competitors, including the European Union and the United States. Canada learned a tough lesson in the case of South Korea when we lost half of Canadian agri-food exports in the wake of the U.S.-Korea free trade agreement and the European agreement. Canada cannot afford a similar outcome with Japan.
China represents a tremendous opportunity for Canada with its growing middle class and increased demand for quality products. But the support of the FTA between Canada and China is low at the moment, while our competitors are securing market access with China.
Just a week ago, Australia and China announced a free trade agreement. As a result, Australian barley growers will benefit before we do from greater market access into China, our second largest export market. Among the key outcomes of the agreement was the immediate elimination of the 3 per cent barley tariff. Australia currently sends about 7 million tonnes of grain to China each year worth about $2.1 billion. This is particularly disconcerting when you consider that Canada exports between 350,000 and 500,000 metric tonnes of malt barley to China every year. This 3 per cent reduction for Australia puts Canadian barley at a $10-per-metric-tonne disadvantage selling into that market.
The Barley Council of Canada supports these and other trade opportunities for increased market access. We encourage the federal government to continue to work diligently towards the completion and implementation of these important agreements. It's not just about addressing market access pertaining to tariffs because addressing non-tariff barriers — including low-level presence policy and maximum-residue limits — inconsistent application of regulations and testing, and encouraging greater adherence to internationally recognized standards could expand trade and reduce export costs for some exporters.
I would be remiss if I did not take this opportunity to address one of Canada's greatest challenges when it comes to fulfilling our commitments to international buyers. Our transportation system is holding us back from maximizing our potential. We want the grain industry to have fair and equal access under a transparent system, and we want our industry to grow in conjunction with other commodities. As a member of the Coalition of Rail Shippers, we recognize the challenges faced by our shipping partners in other sectors.
Following the example of the Barley Council of Canada, we believe that everyone needs to be at the table to fix transportation in Canada — the entire value chain. This cannot be the function of cooperation between a couple of departments. A collective approach will be required to overcome the current challenges.
In closing, I'd like to say that Canada's international reputation was built over time and has required significant investment from a cross-sector of stakeholders. Canada's national economic security depends on our ability to respond to growing demand for our quality products. Our competitiveness depends on Canada's ability to negotiate meaningful and comprehensive trade agreements that offer significant benefits and maintain our competitive position vis-à-vis our global competitors.
Thank you for the opportunity to present. I look forward to your questions.
[Translation]
The Acting Chair: Thank you, Mr. Otto. We will now hear from Jan Dyer, from the Canadian Canola Growers Association.
Jan Dyer, Director of Government Relations, Canadian Canola Growers Association: Thank you, Mr. Chair.
[English]
Good morning, everyone. The Canadian Canola Growers Association thanks you very much for the opportunity to provide input to your study on international market access priorities for the Canadian agricultural and agri-food sector. The topic is critically important to Canadian farmers.
The CCGA is a national association. It represents 43,000 growers from Ontario west to B.C. It's governed by a farmer board of directors and represents the interests of canola farmers on national and international issues and policies that affect the profitability of canola. With 90 per cent of canola seed and products exported on an annual basis, much of canola's current and future success is related directly to our ability to access and compete in global markets. Our industry plans to grow significantly over the next 10 years.
To achieve this growth, we must secure new markets and ensure competitive terms of trade. We will also need to have a world-class domestic infrastructure that can deliver top-quality products on time to our international customers. We have made very good progress by signing the Comprehensive Economic and Trade Agreement with the European Union and the Canada-Korea Free Trade Agreement. Implementing these agreements will eliminate tariffs on canola oil and seed to Korea and canola oil to the EU.
Concluding negotiations with the Trans-Pacific Partnership and with Japan will be very important to further market access. In particular, the TPP could establish new commitments to reduce biotechnology-related trade barriers.
Eliminating Japanese oil tariffs, whether through the TPP or directly in a bilateral agreement with Japan, will encourage more value-added processing and enable increased market share.
China is an important and growing market for canola. It was worth $2.8 billion last year. Other exporters, as our colleagues have said, are negotiating free trade agreements with China, and Australia just recently announced an agreement. However, in China there remain numerous regulatory barriers to that market.
More broadly, canola growers need relief from delays in regulatory approvals by our trading partners of new biotech traits and pesticide products. These delays prevent our farmers from accessing new technology, new seed varieties and crop input tools that could address and limit profitability losses from agronomic and disease factors.
In order to capitalize on the new opportunities afforded by new expanded trade agreements, canola needs a world-class transportation and logistics system and a regulatory system that assures our customers that canola products are safe and of the best quality. The canola industry does its part by investing in areas that impact the profitability of our sector, but we can't do it alone. Public infrastructure requires a wise investment by government as well.
While an important steward of the Canadian brand and high-quality standards, the Canadian Grain Commission needs to be modernized. It must be more cost-effective and responsive to supply chain needs. Changes to the commission funding structure last year shifted the financial responsibility of the organization to farmers, particularly growers who sell internationally. If industry is going to fund the commission, additional reforms are required to ensure that it's accountable to its stakeholders and operates in the most cost-effective manner. To do so, a new governance structure and funding model will be required.
Rail service and capacity must also improve. Last year's rail logistics challenges adversely impacted growers' ability to move grain and oilseeds to port and the ability to serve our international customers. In order to get needed investment and increased capacity of the railways, changes to legislation must address the imbalance of power along the logistics chain. Better performance monitoring and more specificity on the railways' obligations to its shippers are two areas that really need attention.
The ongoing review of the CTA is an opportunity to improve the performance of the railways if we all work together.
The canola industry has already done its part. It's made significant investments to make sure that we're export ready. For example, canola is the only crop that has been certified sustainable in international markets. This provides access to the EU and U.S. biodiesel markets by demonstrating that canola complies with their respective renewable fuel directives.
Investments in sustainability indicators at the industry level are also being developed so that there will be one sustainability standard for all grain and oilseed industry participants to adopt when customers require it. At the farm level, canola is investing in the development of an on-farm field calculator that will let growers know which practices are more sustainable and profitable.
Finally, I would like to stress the importance of a transparent and science-based regulatory system and policies in Canada and with our trading partners. The canola industry is built on a foundation of science-based practices, and this framework is vital to the continued success of our farms. It allows farmers to access new crop input tools and maintain a competitive, predictable environment for us to invest in and grow our farms.
Thank you for the opportunity to speak to the committee. I look forward to your questions.
[Translation]
The Acting Chair: Thank you, Ms. Dyer. I now invite Brian Innes, vice-president of Government Relations with the Canola Council of Canada, to make his presentation.
Mr. Innes, the floor is yours.
Brian Innes, Vice-President, Government Relations, Canola Council of Canada: Thank you, Mr. Chair.
[English]
Good morning, honourable senators. Thank you for the invitation to be here today.
While canola is made in Canada, our success really depends upon international markets, and so it's a pleasure to be here today to describe our market access priorities as an industry.
First, I would like to describe a little bit about the Canola Council and our strategic plan. The Canola Council is a value chain organization representing the entire canola industry, from the 43,000 canola producers to the seed developers and the canola processors that turn canola seed into canola oil and canola meal, as well as canola exporters who export canola seed for processing at its destination.
In the last decade, canola has become a leader in Canadian agriculture, and the world's growing appetite for healthy oil and protein has said that we should keep it coming.
Earlier this year, our industry launched a strategic plan called "Keep It Coming.'' "Keep It Coming: 2025'' is the next plan for our growth into the future. We plan on increasing demand for canola oil, seed and meal, and meeting this demand through increased productivity and increased yields to produce 26 million metric tonnes of canola by 2025.
Let me put that 26 million tonnes into perspective. In the last 10 years, we've doubled our production of canola, and in 2014 we produced about 14 million tonnes. So it's a significant growth opportunity.
We're driven by international demand, and we will keep it coming. However, we will only be able to do this if we have stable and open market access to the markets that value our products the most. That is why our strategic plan has three priorities, one of which is stable and open trade, with the other two being sustainable production and differentiated value.
That's why market access is so critical for our industry. As Ms. Dyer mentioned, over 90 per cent of canola is exported as seed, oil or meal. This provides jobs and economic growth across the country. Access to a variety of markets is important for us to not only attain the most value but also to have resiliency should market conditions change.
Canola is exported to about 45 different countries around the world, but most of it goes to four — the United States, China, Japan and Mexico. South Korea and the European Union are also important markets.
We have had success in market access, as a canola industry, by working together, and we have a plan to create more market access for the future. Efforts by industry and government to improve market access have been successful and must continue. Whether it's implementing the free trade agreements mentioned by my colleagues, including Korea, the European Union, and the Trans-Pacific Partnership, whether it's resolving trade issues or whether it's preventing trade barriers, the support of market access by the Government of Canada, especially Agriculture Minister Gerry Ritz and International Trade Minister Ed Fast, has been instrumental to the success we've achieved to date.
Through all of this effort, we've seen firsthand that market access is truly a team effort. We've had success when we've worked together, both within and between government and industry. We've worked closely with the Market Access Secretariat to maintain market access worth $2.3 billion in 2013. The Market Access Secretariat in Agriculture Canada brings together resources across government, including the Canadian Food Inspection Agency, the Pest Management Regulatory Agency, the Department of Foreign Affairs, Trade and Development, resources at our embassies abroad, governments across Canada and many more. Similarly, industry has come together through the Canola Council and worked collectively with the government to achieve our market access success.
But there is more to be done. The canola industry and the Canola Council have prioritized the key market access challenges facing our industry. We have a long-term plan to improve market access, reflecting four areas of priority: tariffs, sanitary and phytosanitary measures, innovation and biotechnology, and sustainability.
As Ms. Dyer has touched on, for tariffs, it's about competing fairly with oilseeds and having competitive access for seed, oil and meal.
For innovation in biotechnology, it's about having science-based regulations for biotech innovations, as well as for new innovations that come along.
For sanitary and phytosanitary measures, it's making sure that these measures to protect plant, animal and human health are based on science.
For sustainability, it's about ensuring that the environmental practices of our growers are reflected, respected and understood by our customers.
Lastly, I'd like to highlight two important areas that my colleagues and others in the agricultural industry have also touched on: China and the importance of the government's engagement in regulatory and scientific expertise internationally.
China is one of the most important markets for Canadian canola, but we have a significant number of market access barriers in this market. To take advantage of the growth opportunities that we see in China means that we have an increasing amount of market access work to do.
The importance of the Canadian government engaging directly with the government of China, at all levels, cannot be understated. As my colleagues have mentioned, enhanced economic cooperation with China, as Australia has done with their free trade agreement, would provide significant benefits for the Canadian canola industry.
On the scientific and regulatory expertise of government, we've seen that as tariffs fall, non-tariff barriers are increasing, and as an industry we're exporting more canola oil and more canola meal — more processed products — all the time. These processed products are more prone to non-tariff barriers. These non-tariff barriers require government expertise in science and in regulatory affairs to prevent market access issues and deal with issues as they arise. It's important that our government agencies, such as the Canadian Food Inspection Agency and Health Canada, who are experts in this area, have the resources and are properly organized to engage internationally.
In closing, canola has grown to what it is as a competitive exporter. Our industry contributes $19.3 billion to the Canadian economy each year and supports 249,000 jobs across the country. Maintaining this prosperity will require that we successfully overcome many market access barriers in the future.
I thank the committee for bringing attention to this issue, and I look forward to your questions.
The Acting Chair: I notice that it is Mr. de Kemp's second appearance before the committee this week, so I would ask him if he has any comments to add to the three presentations.
Phil de Kemp, Member, Barley Council of Canada: No, not at this point.
The Acting Chair: I'm sure we'll hear from you later.
Senators have indicated they want to ask questions.
Senator Merchant: Thank you, Mr. Chair. I would like to ask questions regarding a couple of issues.
In this committee, we keep talking about — and we are not in disagreement with you — scientific-based evidence. With the European Union and their attitude toward GM products, what role can you play in resolving that issue? Is it just up to government, because you said they need to have the tools to deal with this? Is there something you can do differently? Can you make some adjustments to the way we grow things? How do you see yourselves contributing to get the results that you want at the end? Both barley and canola can perhaps deal with this because I feel both are affected by this GM ruling, aren't they?
Ms. Dyer: In terms of the technicalities of how we deal with Europeans on the biotech issue, Mr. Innes probably has more expertise than me. What we see from growers as a positive sign is that we have this side letter that goes with the CETA agreement. So we have, not as part of the agreement but as a parallel piece of agreement that we have, negotiated with the Europeans to improve the regulatory process that goes with the approval of genetically modified traits.
We have access to the European market on biofuel, we have access to the market on feed, and we work very hard with the government to continue to work on the protocols that allow us to trade those products into those markets. But it's really up to the European Commission and various European governments to press for more speedy access of the GM traits that we are approving, and the improved traits we are approving over the next few years. So the side letter has committed to much better timely approval of those things, and to move them through their systems as quickly as they can.
It really is government to government. It is not something we can uniquely do, but we certainly are present and work on the protocols that need to be in place to manage to trade those. However, I think Mr. Innes is better placed to answer that.
Mr. Innes: To follow up on Ms. Dyer's comments, it's true that through the Canada-EU Comprehensive Economic Trade Agreement we were able to achieve an enhanced biotechnology dialogue to speak about these issues and talk about how we facilitate trade between our governments.
To your specific question about how we as industry can engage in this, one thing we do is work with our customers in the European Union. I can say that they would like a steady and predictable supply of products for their crushing plants and biodiesel plants to which our canola goes in Europe. We help them work with their own governments to facilitate trade. Europe is large importer of oilseeds, not just canola but soybeans, proteins and oils from other destinations.
Senator Merchant: You talk about a different issue altogether, the moving of our product here with the rail companies and the issues we have had over the past year. Has that seed from the previous season all been moved now?
Ms. Dyer: Mr. Otto should answer in terms of barley and other cereal products, but with regard to canola, going into the last year our inventories were very thin, so we didn't have a lot of carry-out to move. Last year was a problem. My understanding is there has been some progress. There is still a very large crop though, still a very large carry-out; it is much less than it was.
There has been good progress, but I don't think we can let the gas off just yet because we still need the measures in place, the minimum mandatory volume movement targets that have been in place for the fall. We still need those into spring because we are moving product better than we did, but there is still a very large crop to move.
We will soon be coming up on next year's crop, which is not as big as last year but it's certainly a good crop.
Mr. Otto: In response to the first question, barley does not have a problem with GMO technology. It's not in our barley industry, so it's not something that we get too concerned about. If we did have a problem with that, certainly we have the whole value chain around the table and we can address it with our customers. But at this point in time, I've been asked this question once before and it's certainly not high on our radar screen.
When it comes to the transportation difficulties, we applaud the government with what they did. It has started to alleviate the problem we experienced last winter, however there were some unintended consequences of the bill that was put through. With the barley industry, we had smaller malt barley players that were affected. We were getting a lot of movement going east and west — west to Vancouver and east to Thunder Bay — but in the north-south movement, we have one major player, Anheuser-Busch, and they found it almost impossible to get movement of Canadian barley into their marketplace. It seriously affected their business to the point that this year they are having difficulty and they are going to bring offshore barley into their Eastern Canadian market because they cannot access Western Canadian product. That's very serious.
The Barley Council of Canada supported the legislation last winter and, yes, it did accomplish what it set out to do, but certainly it's not working for industry today. So we don't support extending the order-in-council. We're probably one of the few that feels we would rather see the marketplace take care of this. Certainly we feel the minister has served notice to the railways that if they don't give service to the industries that need their transportation, he is willing to step in and do that. I think that message is loud and clear.
As we said before, to resolve this whole transportation issue, it's not just negotiations between elevator companies and railroads. We need all the players around the table and we should not be pointing fingers at each other. Let's sit down and work it out so we can get an efficient and transparent transportation system. That's our position.
Mr. de Kemp: The only thing to add as far as moving last year's crop, in one particular case, is absolutely. They are getting cars now that they should have gotten in March. Mr. Otto alluded to the fact that some barley will be coming from offshore into Canada, which is correct. But in addition, when we talk about China, one of the members within the Barley Council, which is a very significant player for malting barley, they have had to go to another destination to pick up over six-figure tonnages to meet commitments in China. We cannot get it through Canada. Because of the backlog on wheat, canola and everything else in the system, there was no confidence in getting assurances that things would have been cleared up by now. We have to go offshore as opposed to traditionally buying out of Canada.
[Translation]
Senator Dagenais: Clearly, we are talking about China and Japan. These are major markets because exports from Japan in 2013 were worth $1.47 billion. In terms of the canola industry, what are your expectations for a free-trade agreement with Japan, among others?
Mr. Innes: Thank you for the question.
[English]
Japan has been a long-standing and very stable market for the canola industry; one of our first canola markets, in fact. It's an incredibly good market for us. We have more than 40 per cent market share there, but we are only able to sell canola seed to Japan, where it's processed, because there are high tariffs on canola oil. So our innovative and competitive processing sector here in Canada cannot compete in that market.
Our main objective in negotiating with Japan is to eliminate the oil tariff in Japan, which would allow our further processors that employ Canadians in rural communities across the country to have access to that market. Those are our primary objectives with Japan. Whether it's achieved bilaterally or achieved in the context of the Trans-Pacific Partnership is a function of things outside of industry and government's control, but certainly we value that market a lot and see opportunities to increase our market share and have more value-added exports to Japan, in a significant way, I would say.
If we look at the benefits we've achieved from trade agreements negotiated to date — approximately $80 million in Europe and increased access; approximately $80 to $90 million in Korea — we're talking numbers that are significantly larger than those for canola, given the importance of the Japanese market and how important canola is to them.
[Translation]
Senator Dagenais: What are your expectations for the opening of the Chinese market?
[English]
Mr. Innes: Similarly, in China, we have tariffs that disadvantage canola and disadvantage our products. In China, canola faces a 9 per cent tariff versus soybeans, which have a 3 per cent tariff. If you look at the quantity of canola we are exporting there, just on the tariff alone, that's $150 million. If you look over time, the impact of that has meant that soybean imports have gone from 10 million tonnes 12 years ago to approximately 70 million tonnes, whereas canola is approximately 2 or 3 million tonnes in that market. It's not coincidence, because of that tariff.
We have a number of other regulatory issues, which Ms. Dyer mentioned and I referred to, specifically in reference to food and feed safety and other concerns about blackleg, for example, that we have been working through with the Government of Canada's assistance. These are very technical issues that require a lot of expertise and investment on behalf of both industry for research and government to engage directly with the Government of China. It is very much a government-to-government engagement, but we have provided significant support in terms of research and helping to move that process forward.
[Translation]
Senator Dagenais: Thank you very much. Are there any comments? Okay? Thank you, Mr. Chair.
[English]
Senator Tardif: Thank you for your presentations.
Ms. Dyer, I would like to come back to something that you mentioned in your brief. You've indicated that in order to keep Canada's reputation for the Canada brand and for the high-quality standards that it has, the Canadian Grain Commission needs to be modernized and be more cost-effective and responsive to supply chain needs. What are you referring to, and could you elaborate on that, please?
Ms. Dyer: Sure.
As of last year, the Canadian Grain Commission is now fully cost-recovered by the industry. There is a very small part of the Canadian Grain Commission with respect to its research lab that is paid for by the federal government. The rest is paid for by user fees that are paid for the shipments primarily of exports. There have been some changes made to the Canadian Grain Commission with respect to how they fund their services, but farmers have seen a doubling of fees, which pass through from the grain industry, that they are charged for exporting grain. So the industry is now paying the full cost of those services, which include services like inspection for quality, safety, making sure that there are no insects, no disease, and certifying to our trading partners that Canadian grains and oilseeds are the quality that they say they are.
Those fees are largely paid for on what we call outward inspections. When a shipment goes for export, that's when they collect the fees. There are lots of other services provided domestically, and those services are largely funded by the export fee.
The cost of the grain commission is really falling on the shoulders of exporters, not the whole industry, and certainly not all of the services that are provided domestically, but to the people who export. That, coupled with the fact that the fees have doubled and are now fully funded by the users, has led us to say that we do need a rebalancing of how those fees are collected. If the industry is going to pay fully for the costs and services of the Canadian Grain Commission, we're happy to pay for the services that we use, but we are not content to pay for a large amount of government overhead, to put it more bluntly.
The services of the grain commission with respect to what we actually need in terms of export certification, we are perfectly fine to have those services cost-recovered, but we don't feel it's appropriate to download a government department's overhead directly on to growers and the industry.
Senator Tardif: You have indicated that this change came about in 2013. Who was paying these costs before?
Ms. Dyer: It has been some time that the legislation has been on the books to fully cost-recover the grain commission, so it goes back a number of years. Last year was the first year that the government actually moved those costs forward to the industry. The legislation and regulations have been on the books for a while, but up until now the government has stepped in on a regular basis to continue to partially fund some of those services. They've done it by special allotments when it came to the budget of the grain commission. But last year was the first year that they haven't funded it by a special allotment in the fiscal process.
Last year was the first year that farmers actually faced those costs. We know that the services themselves cost approximately, I think, 50 cents a tonne, but the costs are $2 a tonne, for example. The difference between what we believe the services cost and what we are actually charged is the difference that we're talking about.
The grain commission started a modernization exercise a few years ago. They did part of the changes, but they haven't made all of the changes promised by the government. We think that that needs much more attention and we really do have to get to work on what other modernization the grain commission needs.
Senator Tardif: Do you see that the financial burden that has been now put on the producers is going to be limiting the capacity for export?
Ms. Dyer: It's a significant chunk of money that exporters have to pay for export certification. It's much higher than our competitors. The amount of money that a grain shipper has to pay for export certification compared to our competitors like Australia is significant. We pay three or four times higher than some of our major competitors.
Senator Tardif: Thank you for the clarification.
Senator Oh: Thank you, witnesses. My question is for the Canola Council of Canada.
Recently, I travelled with the Prime Minister on a state visit to China, and a contract was signed to import $1 billion worth of canola oil to China. I know our market was $2.83 billion in China, and I was told the province of Sichuan has been buying canola meal seed after the oil is extracted. They are buying it as animal feed in China, and that's good. That's value-added to the farmer. Can you comment on that?
Mr. Innes: Absolutely, senator. I would like to reflect the importance of the mission that you were on and the engagement of the Government of Canada in the meetings in early November around APEC.
As you mention, a significant sale of canola was announced, and I think it reflects the growing demand for our products in China. We're investing significantly to develop that market in Beijing and Shanghai, and we've heard canola is a well-known oil in China. It's something appreciated for its culinary aspects, and there is an increasing understanding of the health benefits of consuming canola oil. On the oil side, as you mentioned, there was an incredibly significant announcement that shows the interest in China for more canola oil.
You also mentioned canola meal and the demand in China for protein. We have seen that build over the last number of years. Specifically, canola meal works well in dairy rations for dairy animals and for aquaculture to feed fish.
We have seen that demand increase. We have had market access challenges to be able to ship our canola meal from Canada to China. Currently, I believe we have one plant that is able to do that because of those challenges. We hope to have more plants able to ship the meal that, as you mention, is demanded by our customers in China.
These are the sorts of food and feed safety issues that I referred to that require regulatory expertise between our two governments to ensure our plants are recognized by China according to their standards.
Senator Oh: Thank you.
Senator Enverga: Thank you for the presentations.
I just heard that Australia has just been listed as having a free trade with China and Japan. What kind of impact will it have on your industry? How much will we lose? Can we recuperate in case we lose something?
Mr. Otto: Certainly, it will have an impact on our industry. I was in China in June with Minister Ritz where we had conversations with two significant malt players. They were looking to access more Canadian malt barley. We talked a lot about that. As I said, we ship about $350,000 to $500,000 worth of barley to them.
At this point, can we say how it will affect our barley shipments? No, I think that remains to be seen, but as I said before, it puts us at a disadvantage at this point.
I should let Mr. de Kemp talk about it. He is from the malt industry and can answer your question more clearly.
Mr. de Kemp: Malt barley tariffs into China are 3 per cent. Malt, the value-added product, has a 10 per cent tariff. The announcement on the immediate elimination was interesting because the Australians have a number of implementation periods of four, five or six years, depending on the commodity, but with respect to barley it was immediate.
Three per cent, as Mr. Otto alluded to in his presentation, is about $10 a tonne. In Canada, at least in respect to malting barley and malt — we hear a lot about quality and it was probably referred to a couple of days ago — we do get a premium in certain markets because of quality. What I mean by quality is there are certain genetic attributes as far as the proteins and the beta-glucan that work better, so they refer to Canadian barley as a cooking sherry. It works well with everything. The Chinese and Japanese will take lower quality malt and or malting barley and blend it up using Canadian. At a $10 a tonne discount when you ship it on a 50,000-tonne vessel, that's half a million bucks. You can only extract so much from the market as far as premiums, rightfully so, depending on your product, but that starts getting eroded as that basis starts to widen as far as the price differentials. I have nothing to base that on now, but I suspect that will have a significant impact as far as malting barley coming out of Canada is concerned.
As other witnesses mentioned, we've had an aggressive trade agenda with this government, but as far as barley is concerned with respect to Australia, we seem to be one step behind as far as the timing, whether it's with the announcements with Japan or China or Korea.
The Korean deal has been great. The way it is structured for a lot of the commodities is that by the time of the sunset of the implementation period, we're going to be as good, if not better, than certainly the Australians with respect to malt and barley. But, yes, it will have an impact.
Mr. Innes: If I could comment briefly on the impact on canola, as I mentioned, we have a number of market access issues with China. What we've seen with the development of the Australia-China FTA is a close working relationship between the two governments. We've seen, from our perspective, how it is so important to be able to resolve issues at all levels of government, including regulatory officials, ministers and prime ministers, even. From our perspective, I would say that this is relevant to all of the issues I mentioned, in addition to issues around biotech trade approval, as Ms. Dyer mentioned. We have had biotech canola traits approved in Canada for two years now, but as our industry does not grow traits that aren't accepted or approved in our major markets, those traits are not approved in China and are being delayed because of regulatory delays in their system. These traits have been approved two years ago. It may be two, three or four years more before Canadian growers have access to that technology. We are a country that has a highly developed agricultural system. It's very innovative and high tech, and without access to those sorts of technologies, that puts us back and not forward.
To answer your question directly, the impact of that free trade agreement means that Australia now has closer relations and puts us at a disadvantage to resolve some of our market access issues, whether it's food and feed safety or biotech trait approvals, or things to do with maximum residue limits of pesticides, all of the things that impede our ability to have stable and open trade.
Senator Enverga: We have been really close to Australia; it is one of the closer countries with Canada. Is there any cooperation between the two countries as to the industry? Do you talk to each other, or are you just competing with each other?
Mr. Innes: Certainly, we supply similar products, and so in that sense we are competitors. I think as industries dealing with the same market access challenges and markets like China, they have similar concerns from the Chinese as we do in Canada on issues around blackleg disease and canola. We cooperate with our colleagues there on issues of common interest because we face similar market access issues.
There is healthy industry cooperation, but, as I say, the importance of government-to-government engagement directly from Canada to China is paramount.
Senator Enverga: Thank you.
Senator Beyak: Thank you very much for the excellent presentations.
Mr. Innes, you mentioned the three pillars of your 2025 strategy, which is very impressive. You said that sustainable production was one and differentiated value was another. I wonder if you could elaborate on that for us and for the viewers at home.
Mr. Innes: Absolutely.
Briefly, what that means for us as an industry is helping consumers understand the health characteristics of canola oil and helping people who are feeding animals understand the protein value of canola meal, specifically in the dairy sector, for example, where we've seen significantly increased milk production from feeding canola meal relative to other proteins.
We do a lot of market development work. I mentioned some of the work we're doing in Shanghai and Beijing in China. We do market development work in the United States, Mexico and India as well.
As you may know, canola is a relatively new oil, having only been around for a couple of decades, and it's mostly a Canadian product internationally. We're about 65 per cent of world trade. So a lot of our efforts are around market development and communicating how canola is different from other vegetable oils.
We're about 5 per cent of global vegetable oil trade. While canola is big in Canada, internationally it is very small, so we need to spend a lot of time helping people understand what canola is and how it's healthy.
Senator Beyak: Thank you very much. That was very helpful.
The Acting Chair: Would the other witnesses care to add anything?
The time slot for this meeting was from 9 to 10, and if the witnesses could hear a couple more questions on the second round, Senator Merchant and Senator Enverga have questions. Are you available? Maybe we will hear the two questions and then you can answer them at the same time.
Senator Merchant: I have a question for Mr. Innes.
When you talk about environmental sustainability, exactly what do you mean by that? Again, what role do you people play in that respect?
The Acting Chair: Senator Enverga, do you want to put your question now?
Senator Enverga: With regard to canola, what percentage of your exports is being used for the biodiesel market, for fuel, and for food and other purposes? How will the new prices in the oil market affect your industry?
Mr. Innes: I will start with Senator Merchant's question. Ms. Dyer will have something to add on the sustainability piece.
I'll start with the question regarding what we mean by sustainability. This is about meeting the requirements for biodiesel markets in the European Union and the United States that have mandated levels of inclusion for biodiesel, for which canola is one of the most sustainable feed stocks. It is being able to demonstrate to regulators in those markets that the environmental footprint of what we produce is significantly lower than other sources — for example palm oil — whether we're talking about greenhouse gas emissions, water use, pesticide use or energy use. It's about demonstrating to regulated markets how our product is sustainable.
It is also about demonstrating to our supply chain how our product is sustainable. Maybe Ms. Dyer will want to add a bit more to that.
Ms. Dyer: In terms of the role and what we're doing globally versus what farmers are doing, we are developing an on-farm field calculator, which takes various agronomic factors and puts them into a model that will give farmers indications of how much water they're using, how much fuel they're using, how much fertilizer they're putting on the field, and that will tell us what the environmental footprint of that particular farm is. Then farmers can use that information to vary the amount of inputs they use and figure out how to reduce their greenhouse gases and water use, et cetera. So it's a very micro-oriented, on-farm tool that will help them reduce not only their environmental footprint, but we hope it will help them with their profitability because it will reduce their costs.
Just one note: In terms of canola biofuel in general, it reduces greenhouse gases 95 per cent more than conventional fuel and about 95 per cent more than other fuel stocks that are used, such as palm oil. So the greenhouse gas reductions from canola oil are highly significant.
Mr. Innes: If I could answer the senator's question about how much canola oil is used for biodiesel, it depends on the year. We estimate somewhere between 1 and 2 million tonnes per year of canola seed. The oil from that would be used for biodiesel. So we produce about 14 million tonnes, and somewhere between 1 and 2 million, depending on the year, are used for biodiesel.
Senator Enverga: About 10 per cent?
Mr. Innes: A little bit less than that, yes.
[Translation]
The Acting Chair: Senator Dagenais, do you have a quick question?
Senator Dagenais: I do not have a question, Mr. Chair. Since this committee meeting is at an end, if our guests would allow me, I would like to tell you that it is a shame that you are leaving us. You would have made an excellent chair. I would like to thank you for the wonderful years you have dedicated to us and that we have spent together. I am sure that our guests would agree with me. You have done excellent work, and I am convinced that your abilities will serve you in the future. We are still waiting for your blueberry honey.
The Acting Chair: Thank you, Senator Dagenais. To our witnesses, you do not have to agree with what Senator Dagenais said.
[English]
Mr. de Kemp: Mr. Chairman, seeing you here for the last 27 years off and on and in your other capacity as a member of Parliament, I want to recognize on behalf of the malting industry — we met with you before this committee and when you were at the house committee — I really wanted to say that I found you to be a real gentlemen, very thoughtful and insightful with respect to your questions. I recognize that you have represented your constituents in New Brunswick very well, but more importantly, I would like, on behalf of our council, to commend you for the service you've done for Canada, particularly with respect to agriculture. We've seen some pretty contentious issues over the years, as recently as the Canadian Wheat Board, regardless of what side of the aisle you're on, but the manner in which you've addressed issues, handled things and conducted yourself, you are a true gentleman and you have done a real service to Canada.
On behalf of all of us here, thank you very much. We wish you all the best.
The Acting Chair: Thank you, Mr. de Kemp.
I should close this meeting while I'm still ahead. To the witnesses, I want to thank you for your presentations and all the information you communicated to us, as well as for the direct answers you provided to our questions.
I must say that I have really enjoyed working on this committee and receiving people from the industry because I've learned an awful lot. I really felt part of a greater team for the betterment of agriculture and the country as a whole.
Senators, I thank you for allowing me to chair this meeting, my last. I will certainly sometimes turn on CPAC and see how things are going here.
Thank you.
(The committee adjourned.)