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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 25 - Evidence - Meeting of March 10, 2015


OTTAWA, Tuesday, March 10, 2015

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

Senator Percy Mockler (Chair) in the chair.

[English]

The Chair: I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. To the witnesses, we will officially recognize you in a few minutes.

My name is Percy Mockler, senator from New Brunswick and chair of the committee, and at this time I'd like to ask all senators to introduce themselves.

Senator Merchant: Pana Merchant, Saskatchewan.

Senator Beyak: Lynn Beyak, Ontario.

Senator Tardif: Claudette Tardif, Alberta.

[Translation]

Senator Maltais: Good afternoon. I am Senator Ghislain Maltais from Quebec.

[English]

Senator Tannas: Scott Tannas from Alberta.

Senator Enverga: Tobias Enverga, Ontario.

Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.

The Chair: Thank you, honourable senators.

This committee is continuing its study on international market access priorities for the Canadian agriculture and agri-food sector.

[Translation]

Canada's agriculture and agri-food sector is an important part of the country's economy.

[English]

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

When we look at the international scope, the Canadian agriculture and agri-food sector was responsible for 3.6 per cent of global exports of agri-food products in 2012. And, yes, in 2012, Canada was the fifth largest exporter of agri-food products globally.

For our first witnesses, honourable senators, we welcome this evening from the Canadian Vintners Association, Mr. Dan Paszkowski, President and CEO.

[Translation]

We also have with us Ms. Beth McMahon, Vice-President of Government and Public Affairs.

[English]

From Spirits Canada, we have Mr. Jan Westcott, President and CEO.

[Translation]

Also with us is Mr. CJ Hélie, Executive Vice President.

[English]

Thank you for accepting our invitation to come and share with us your views, your recommendations and ideas about access markets.

I would now invite the witnesses to make their presentations. According to the clerk, the first presenter will be Mr. Westcott to be followed by Mr. Paszkowski.

Mr. Westcott, you have the floor.

Jan H. Westcott, President and CEO, Spirits Canada: Thank you. I appreciate the opportunity. I'm Jan Westcott and this is my colleague CJ Hélie, our Executive Vice President. We're the only national trade organization representing the interests of Canadian distilled spirits manufacturers and exporters. We're very pleased to be here today to share our views and perspectives on the committee's study on international market access priorities for the agriculture and agri-food sector.

By way of background, Canadian spirits manufacturers locally source virtually 100 per cent of all our agricultural inputs. Canadian spirits are made from a range of cereal grains including barley, corn, rye and wheat, all grown right here in Canada. In fact, one of our members is the largest single buyer of rye grain in Western Canada, and the Grain Farmers of Ontario tell us that we are the fourth largest corn buyer in Ontario. We're also substantial corn purchasers in the provinces of Quebec and Manitoba.

Canadian spirits manufacturers transform these high-quality cereals into word-class Canadian whisky, vodka, liqueurs and other spirits enjoyed by adult consumers around the world. Last year, over $600 million of spirits were exported internationally, representing two-thirds of all Canadian beverage alcohol exports, far surpassing the combined value of beer, cider and wine exports.

The industry's signature products of Canadian whisky and Canadian rye whisky accounted for nearly $400 million of our total in international sales and over $100 million in liqueurs, which was the second largest category. In addition, some $70 million-worth of bulk spirits was sold overseas, largely to be used as a base for various spirits brands mostly in countries with limited domestic agriculture production capacity and beyond their immediate food consumption needs.

The United States remains the industry's principal international market. Canadian whiskies are well established in the United States, and a renewed American consumer-driven interest in whiskies, particularly in rye whiskies, our forte, provides very substantial growth opportunities in the short and medium term.

A key concern in accessing the new dynamic American alcohol market is the transportation congestion issue that we see at key border crossings in Quebec, Ontario and Alberta. For this reason, we are very pleased with the leadership provided by the Government of Canada to proceed with the Detroit River International Crossing project right next door to two of our very large facilities in Windsor, Ontario and Amherstburg. As an aside, I would mention that our distillery in Windsor, the Hiram Walker & Sons Distillery, is the largest in North America.

I want to turn to trade agreements. Newly negotiated free trade agreements provide market access opportunities to previously closed or commercially challenging markets. The Canada-Colombia Free Trade Agreement, for example, formally recognizes Canadian whisky and Canadian rye whisky as distinctive products of Canada. The legal protection for signature goods provides Canadian producers the security and the comfort that the investments they make in those markets to educate Colombians about the category and the brands that they are selling will not be undermined. The agreement also requires that Colombia eliminate their punitive 20 per cent import tariff in 12 equal annual steps, meaning that Canadian whisky that enters Colombia as of January 1 this year is now subject to a 12 per cent import duty and not a 20 per cent duty. So we're making progress.

At the same time, the Colombia FTA also highlights the risks and the costs of entering new markets. Canadian trade negotiators were successful in having Colombia commit to bringing their internal excise duty structure in line with its national treatment obligations, under the agreement, within two years of the coming into force of the agreement. That was by August 2013.

However, we're well past this date and Canadian and other imported spirits still face a much higher excise duty rate than the one imposed on domestic Colombian spirits.

We have worked very closely with Canadian trade officials here in Ottawa, in Bogota, as well as in Geneva and Paris, all had whom have been very helpful and diligent in pushing and cajoling Colombia to meet its FTA obligations. Thanks in large part to efforts by the Canadian government, the good news is that the Colombian federal government tabled a bill last month that would phase in full excise neutrality over five years, by 2019, which as you appreciate is some six years past Canada's negotiated deadline. All of this is to say that in some ways the signing of an FTA is only the first step in actually making real commercial progress in any given international market.

The Canada-Korea Free Trade Agreement came into force on January 1 this year. Canadian trade officials were brilliantly successful in having Korea's 20 per cent import tariff on Canadian rye whisky eliminated immediately, as well as having both Canadian whisky and Canadian rye whisky recognized and protected as geographical indications of Canada. That's important because Korea is the seventh largest whisky market in the world.

These critical elements are essential to our ability to rebuild sales to Korea, which have been cut literally in half due to earlier FTAs that Korea signed with the United States and the EU respectively.

We are keenly interested in current negotiations with the Trans-Pacific Partnership and we hope real trade liberalization will occur, particularly in Singapore and Vietnam, two countries that we believe represent significant export potential for our companies. We currently do not have a bilateral FTA.

I mentioned earlier how much we appreciate and rely on the work done by trade officials with Agriculture and Agri-Food Canada and as well as the Department of Foreign Affairs, Trade and Development Canada here in Ottawa and literally in their postings around the world in dealing with trade barriers to our exports. Some of these barriers are addressed directly in various bilateral agreements. Others are subject to discussions or consultations with foreign governments and their agencies, whether it's commerce, border services, trade, health matters or finance. We've enjoyed very strong support from those professionals. The professionalism, expertise and work ethic of these Canadian officials is truly outstanding.

That said, a worrisome trend is emerging right here at home where new protectionist provincial alcohol measures designed to protect and assist local in-province producers are having a significant impact. These protectionist measures actively weaken Canada's efficacy in dealing with similar measures by foreign governments. It's hard to go abroad and lecture people about setting up barriers to the free flow of goods when your own governments are doing that here in Canada. We suggest that Canada really needs to fully embrace free trade within our own country if we, as a nation, are going to be truly successful internationally.

I'll stop there and be happy to answer any questions. Thank you.

The Chair: Thank you very much. There's no doubt that senators will have questions for you.

Mr. Paszkowski, would you please make your presentation? It will be followed by questions from senators.

Dan Paszkowski, President and CEO, Canadian Vintners Association: Thank you, Mr. Chair. Thank you, senators.

The Canadian Vintners Association, better known as the CVA, is the national voice of the Canadian wine industry. Our membership represents more than 90 per cent of the wine produced and sold in the Canadian and international marketplace. CVA members are engaged in the entire value chain, from grape growing, farm management, grape harvesting, wine production, bottling, retail sales, research and tourism.

The Canadian wine industry is made up of 500 grape wineries and 1,300 independent grape growers, contributing $6.8 billion to the national economy. We produce two types of products: premium 100 per cent Canadian wines, representing a $3.7 billion economic impact; and value-priced International Canadian Blended wines from imported and domestic content, which represents a $3.1 billion contribution.

Grapes and wine are a prime example of success for Canada's value-added agri-food industry. From vineyard development and grape cultivation, to wine making and bottling, our compounded impact extends well beyond cellar door sales and employment, with strong linkages to tourism, retail sales, and bars and restaurants across Canada. As a result, the domestic wine industry helps support more than 31,000 jobs and is motivation for more than 3 million tourists visiting Canadian wineries each year.

This past September the Canadian wine industry launched its Red & White International Export Strategy. Our vision is for Canada to become globally recognized as the world's finest producer of premium cool-climate wines. The strategy recognizes the opportunities for Canadian wine in global markets. Given our size and limited resources, we have focused our export efforts on the most promising metropolitan centres: New York City, San Francisco, Hong Kong, Tokyo, Seoul and London.

Currently we export over 40 million litres of wine, predominantly to the United States and China. As a young and growing industry, only 10 per cent of Canadian wineries are presently involved in the export market. This is largely based on economies of scale and the investment in inventories required to enter and sustain these new markets. As such, our strategy is focused on first growing exports interprovincially, which will in turn support investments in international export development.

The good news is that wine is becoming the beverage of choice in Canada and presently accounts for 30 per cent of all beverage alcohol sales, up from 18 per cent in 1995. Regrettably, Canadian wines only account for 30 per cent of total wine sales, with the remaining 70 per cent owned by our foreign competition. At 30 per cent, Canada has the lowest wine sales market share of any wine-producing country in the world.

I want to be clear that our industry is a strong supporter of free trade and works diligently with the federal government and wine producers around the world to address tariff and non-tariff barriers to trade. However, to take advantage of new export opportunities like the Canada-Korea FTA, we cannot ignore the following key facts about our domestic dispute market.

Canada is ranked among the top three fastest-growing wine markets in the world. All major wine-producing countries are investing tens of millions of dollars in Canada to support their sales. Import tariff reduction elimination makes Canada a more profitable market, and wine imports have garnished 80 per cent of total wine sales growth in Canada over the past decade.

While exports are a priority and an important part of building the Canada brand, the Canadian wine industry cannot ignore the importance of owning a larger share of our domestic market. Success at home will improve our profitability, strengthen the foundation of Canadian wineries and build a strong and sustainable export sector.

The Canadian wine industry's objective is to grow our wine sales market share from 30 per cent to 50 per cent across Canada. This is good for the Canadian wine industry and good for Canada, as every $1 increase in wine sales stimulates a $3 increase in gross output: revenues, taxes, jobs and wages across the wine industry value chain.

To fully recognize our industry's potential, we recommend the following: support funding for a domestic market promotion campaign to educate and build relationships and continue to grow tourism; introduce a sliding scale excise duty system which exempts the payment of excise on the Canadian grape content in wine sold in Canada; and heighten federal engagement with provincial governments to remove interprovincial barriers to wine trade.

In conclusion, we are a young industry operating in one of the fastest growing wine retail markets in the world. Our goal is to grow the Canadian wine industry from a $6.8 billion to $10 billion sector over the next five years. With continued support of the federal government, we will achieve this goal together.

Our sector is resilient. Many argued that the Canada-U.S. Free Trade Agreement would be our demise, yet 25 years later I can proudly say that these naysayers were wrong. We are a small wine producer in global terms, but over the past decade, domestic wine sales have grown by 20 million litres, stimulating an economic impact of roughly $800 million annually. Exports have also grown from 1 million to 42 million litres over the past years. This is positive progress.

If our three recommendations are implemented, it will further help improve competitive opportunities at home and abroad while continuing to deliver a positive return on investment for Canadians.

Senator Tardif: Thank you for your most interesting and informative presentations.

In June 2012, the Senate of Canada passed Bill C-311 and it received Royal Assent. I remember, because I spoke in favour of that bill. That bill was entitled "An Act to amend the Importation of Intoxicating Liquors Act, making it legal to move wine across provincial barriers for personal consumption. I think it was very well received by the vintner industry, because the fact wine could not be moved from one province to another reduced access for consumers and was seen as a hindrance to interprovincial trade. What has changed since the passage of that bill? Has anything changed? Has it improved the situation?

Mr. Paszkowski, you spoke about the need to grow the Canadian market share and to own more of the market share in Canada.

Mr. Paszkowski: I appeared before the House of Commons Agriculture Committee on this issue a few weeks ago. There have been some small changes since the bill passed unanimously in both houses.

British Columbia has opened up their market to interprovincial trade. Manitoba has done the same. Nova Scotia has announced that they will open their borders before the end of 2015. All other jurisdictions have worked with their liquor board or their provincial government to allow consumers to bring one case of wine into the province, as long as that case of wine is brought into the province on their person for personal consumption.

Most provinces have skirted the spirit of Bill C-311, but we're hopeful more progress will take place.

In your province, there was an allowance for delivery of wine, and that was changed in 2014. Now the Province of Alberta only allows wine to be transported, any volume of wine, as long as it's on your person but cannot be delivered any longer by a courier from a wine-producing jurisdiction into the province.

Newfoundland is currently going before their courts to charge FedEx for the transportation of wine from British Columbia into the province of Newfoundland. That case will be heard before the Newfoundland court in the next several weeks.

Senator Tardif: This is regulated by the provinces presently. For example, in Alberta would it be regulated by the Alberta Gaming and Liquor Commission? Would they be the ones setting the parameters?

Mr. Paszkowski: That is correct. The amendment to the federal law allowed for the transportation of wine. That was extended to beer and spirits three or four weeks ago to allow for the transport of wine across provincial borders as no longer being a violation of federal law or the Criminal Code. It's up to the province to put in place the regulations to allow it to happen.

Senator Tardif: Mr. Westcott, you mentioned that you would like the interprovincial trade barriers to be abolished, as it would allow you to have better success internationally. Could you elaborate on that?

You also touched on provincial protectionist measures. Are these kinds of trade barriers that we're speaking about, transportation costs, not being covered? Are these the kinds of things you're referring to or is this in another area?

Mr. Westcott: We have large commercial distilleries in four provinces. We have three distilleries in Alberta: Calgary, Lethbridge and High River. We have a very large distillery in Manitoba, and we have five distilleries in Ontario and three in Quebec. So we are spread across the country, but we're not in every province.

Dan alluded to the fact that British Columbia has opened its borders to accept wine. I'll just use one example.

Two years ago, the State of Washington in the United States privatized its liquor system and made the changes necessary to implement the privatization. They had a liquor board not exactly like you would see in Ontario or Quebec or some of the other provinces, but they had a central liquor authority. One the changes they brought in was that if you were shipping into Washington State, if you were shipping from outside of the United States, you could only ship to a distributer, not a retailer. If you were inside the United States, if you were shipping state to state, you could ship directly to retailers. That breached a number of trade agreements that the United States had. Through activity and lobbying by a number of parties over the course of about a year, I think it was, Washington State changed that so that everybody had the same access into the marketplace. That's important to understand because, as I said, the United States is a very large customer for Canadian whisky and other spirits. My member companies that have distilleries in Alberta, Manitoba, Ontario and Quebec can ship directly to a retailer in Washington State.

That same opportunity isn't available to them in British Columbia. If I'm an in-province producer in British Columbia, and it doesn't matter whether I'm a beer or wine or spirits producer, I can ship directly to a retailer. If I'm an out-of-province manufacturer, I can't do that.

Here we have an example of an opportunity in front of us in terms of being able to ship to an American state, but we don't have that opportunity to do so in Canada. That means extra work. It means more limited access to the marketplace. It means less choice for consumers. It's hard to grow your business when you're going to be limited. We're seeing that.

I don't want to single out British Columbia, as it's certainly not the only province doing this, but it just happens to fit into the example. Right next door to B.C., we have a bunch of distilleries that make whiskey out of grain grown in Alberta and don't have the opportunity to ship to retailers in British Columbia.

I agree with Dan. We need to be mindful of those barriers because they're handcuffing the Canadian industry from growing its business domestically, and it points out the differences we're seeing in the treatment.

Senator Tardif: Thank you for your explanation.

[Translation]

Senator Maltais: Mr. Westcott, the Canadian interprovincial tariff barriers do not seem to affect you too much. The spirits made by your producers are meant for the Canadian market. All the provinces get their supply from your factories. We import very few spirits from overseas. Whether it be rye, vodka, gin or Seagram products for example, you have no problems with market share. The provincial liquor boards, whether in British Columbia or Newfoundland, have to deal with you. They buy your products in large measure because Canadians like them. That is why provincial liquor boards get their supply from you. I am convinced that the free trade deals will have beneficial effects for you. I hope so, in any case, because your industry is a major one, and it is part of Canada's agricultural plan. I congratulate you for your work.

Mr. Paszkowski, you do not have the same luck. Your wine producers' products are limited mainly to the provinces they are made in. I have long thought that this is an aberration — the fact that you have 10 or 11 tariff barriers in the same country is nonsense. Free trade should start at home. This situation has created problems. The Société des alcools du Québec does not buy many wines from British Columbia, for instance. British Columbia's liquor board, for its part, does not buy much ice wine from Quebec. British Columbians do not know that particular wine very well. Every liquor board in this country has a market they want to protect. I do not know which province you are from, but I challenge you to find a bottle of delicious B.C. wine in Quebec or in Ontario. You will be looking for a long time — and you can bet it is even harder in New Brunswick and elsewhere.

Over the next few months, you will have to work on breaking down tariff barriers. That way, your wine will get more exposure. If it is better known, its sales will increase and you will be able to face this stiff competition from South American and Chilean wines, among others. I know my question is a long one, because it has been on my mind for a long time.

CJ Hélie, Executive Vice President, Spirits Canada: Senator, it is not true that we have access to all the provincial markets like the local producers do. In Quebec, you will find us at the SAQ. However, our market share in Quebec is half what it should be, because wines bottled in Quebec can be sold in convenience stores and supermarkets. This eats into the money we have to develop our market share in Canada and overseas. The liquor boards treat us well. However, in five or six provinces, the market is accessible to other products but not the spirits.

Senator Maltais: Quebec wines have only been available at the SAQ for a year. Before that, they were available only in convenience stores or directly from the producer. That was the only way to get some. The SAQ has now been selling them for a year. Unless I am mistaken, the same goes for Ontario. I have seen a few store displays, and spoken to some producers. Of course, we like having a drink now and then, and we speak first to our Canadian producers. Quebec has been lagging far behind. What intrigues me is that we still have these tariff barriers. I would like to hear what Mr. Paszkowski has to say about the issue, because it is a major one for the future of Canadian wine producers.

[English]

Mr. Paszkowski: I completely agree, senator. If you look at the statistics, they speak for themselves. VQA wines, which are our premium wines, represent a 6 per cent sales market share in this country. If you add the Quebec wines to that and Nova Scotia wines, our premium, our best wines, represent a 10 per cent sales market share. In 10 of 13 jurisdictions in Canada, our market share is less than 4 per cent. In Quebec, at the SAQ, VQA, our premium wines sales market share is less than one quarter of 1 per cent. That is the largest wine-consuming jurisdiction in the country and the liquor boards are not providing the opportunities in those circumstances.

Now, we work well with the liquor boards, but it's important for us to increase the education of Canadians about Canadian wines. I am looking at a number here in terms of the European Union spending US$200 million per year to promote their wines in third market countries. Matched by member states, that's $400 million per year.

In Canada, to support domestic market promotion, our federal government provides us currently with a couple of dollars. We are proposing $7 million per year for five years to educate Canadians about our wine products which will encourage liquor boards to list our products and sell them successfully because Canadians will have more knowledge of our products and they won't be sitting on a shelf collecting dust.

That's one big aspect: to eliminate all the barriers on direct consumer delivery. If every province eliminated that, it would not be a significant loss in revenue for provincial governments or liquor boards because it will be a limited amount of high-quality, high-priced wines. However, it will educate consumers who are knowledgeable about wine and that will build that knowledge and demand for wines in liquor boards. It will work together and benefit not only the Canadian wine industry but the Canadian economy.

As I mentioned in my presentation, when you have 3 million tourists visiting our wineries every year, contributing $1.2 billion to the national economy, that can continue to grow. It's not going to stop, but we need a little bit of support to make that grow.

Mr. Westcott: I would like to talk about the definition of what constitutes an interprovincial barrier. The fact that we produce spirits in Quebec, significantly, and export a tremendous amount from Quebec but are restricted to only selling in the SAQ stores in Quebec versus beer and wine that can sell in 15 or 17 thousand — if you are not from Quebec, then that constitutes a tremendous barrier. I take your point, but the fact is that that is a barrier to investment for distillers in Alberta, in Manitoba. I recognize it has been there for a very long time, but it is emblematic of the kinds of problems that we have. So I'm going to produce whisky, which we have to put away in a barrel for many years to age it before we can sell it. When I go to a province like Quebec, which is 23, 24 per cent of national population — spirit sales in Quebec are 14 per cent — so that is a tremendous barrier to people trying to do business in Quebec. Again, I don't want to single out any particular province, everybody is doing it, but that makes it very difficult to rationalize investment in the Canadian marketplace.

More importantly, that deprives all of the Canadian industries — the wine industry, the beer industry and the spirits industry — of revenues to be able to drive their businesses up, either inside Canada or internationally, which is more our case. Seventy per cent of what we make in this country leaves the country, and we are proud of that, but you have to have the money in your jeans to be able to do that.

[Translation]

Senator Maltais: I agree in part with what you have said, but at the same time we cannot forget history. The first Canadian distillery was located in Quebec. Quebeckers are beer drinkers, because they were the first to meet the anglophones after the conquest, and they were wine drinkers to begin with, being of Latin origin. The Société des alcools du Québec, in the 1800s, basically took over the sale of spirits, leaving beer to the free market of grocery stores and other stores. When wine came to Quebec, the SAQ took on its sale.

What you are saying is that the monopoly that you have in Quebec is the same as that which also exists in the other provinces. Do not try to sell your rye at the corner store here in this city. The LCBO will not allow you to do that. However, I would note one thing, which is that the distribution method for distilled spirits is the sole purview of each provincial government.

The Chair: An excellent comment, Senator Maltais. Any further comments, Mr. Hélie?

Mr. Hélie: It is important to know the true story. In the not too distant past spirits had greater market share in Quebec than beers and wines. It was only after beers and wines bottled in Quebec became available in corner stores and grocery stores that the market for spirits dropped to a point where beer and wine now have a greater market share.

Senator Maltais: I believe that spirits are also available in corner stores in Quebec.

Mr. Hélie: No. There are malt-and wine-based products, which are advertised as spirits, but which are not spirits.

The Chair: Mr. Hélie, if you wish to continue this conversation later, you are welcome to. We will now move to another question from the senators.

[English]

Senator Merchant: Both Mr. Westcott and Mr. Paszkowski mentioned the frustration with the borders leading into the U.S. Perhaps now we can change the tempo. What are you looking to be done by the federal government to facilitate the transportation difficulties that you both mentioned?

Mr. Westcott: We ship our finished goods by truck down to the United States and they go through a couple of crossings; they go through Alberta, Ontario and Quebec, largely, not entirely, but pretty much. So when you see problems at the bridge — I will use Windsor as an example. I live in Oakville and there is a large Maple Leaf meat plant. They send 50 trucks a day down to Windsor to cross the border. When there is a problem you can see those trucks backed up, going to the bridge, for a couple of miles.

Pretty much the whole world has moved to just-in-time delivery. Most distributors and retailers don't carry a huge amount of stock, so if you run into those border problems, you can be out of stock on a shelf in a store in the United States. Consumers are consumers: If they go in to buy something that is not there, they either walk out of store or buy something else. You have tremendous investment to interest them in your brand and get them to be one of your consumers. If that product is not on the shelf because you couldn't get your truck across the border, that's a very expensive proposition. You've lost that sale. You may lose that customer and on and on. Having those choke points fixed is critically important.

We are four or five years away from the completion of the new bridge in Windsor. It is critically important infrastructure. Not quite as acute, but there are similar issues in going into the United States from Quebec and similar issues everywhere across the border.

We are very pleased that Canada is paying attention to those things. We are very pleased that government has worked with the Americans to overcome a lot of post-9/11 administrative burden that seems to be put on our products. It is not only us, but common to everyone that crosses the border. We need more of that kind of thing to help us get our goods across the border, whether it's whisky, wine or beef. It doesn't matter how good our products are; if you can't actually get across the border in a timely manner and without a lot of American administrative practice, then we're all frustrated and we'll lose.

Mr. Paszkowski: Senator, we don't export as much wine to the United States as Jan exports spirits, so we don't really have a transportation issue. I will state that we can direct deliver our wine to almost every state in the U.S., but we can't do the same in Canada. So we have more access in reaching our customers in the United States than we can in our own domestic marketplace.

On another note, around the year 2000, the Canadian government, along with industry, established what is known as the World Wine Trade Group. That is a group of wine producing countries — Canada, the United States, Chile, Argentina, Australia, New Zealand, South Africa and Georgia — that meets twice a year to identify market access barriers to trade. Over the 15 years that we have been working together, we have put in place logical practices agreements, labelling agreements, all which have been extremely successful in terms of reducing costs of international trade and eliminating discrepancies between the parties through negotiation to get the work done. If we do have a transportation problem, we raise it with the World Wine Trade Group to fix it very quickly with the United States.

Senator Merchant: My second question is with respect to the value of the Canadian dollar. I noticed today the Canadian dollar dipped below 80 cents and the predictions are that by the fall it may be down to 69 cents. What does that do for your industry?

Mr. Westcott: It's better than going the other way. To be honest, stability is what is critical. Wild fluctuations don't help anybody.

I think there's a belief in Canada that when the Canadian dollar gets really low it becomes almost brain-dead simple to sell your goods in the United States and other markets. I wish that were really true. There's no question it helps, but it's not the panacea that some people seem to think it is.

The United States is an extremely competitive market. They have a robust spirits industry of their own, whether it's producing different kinds of American whiskeys or bourbons, and it's highly competitive. I think, on balance, it gives us a bit of a leg up, but it's overestimated in terms of the values.

Let's be honest: Our customers are large distributors and large retail chains in the United States and/or liquor boards. The United States has 18 control states or places that would be akin to Ontario or Quebec in terms of having liquor boards. We negotiate sales with them over time, and so certainly it's helpful, but again it's not the be-all.

In many cases when you're selling something to somebody, unless it's an incredibly strong market, you can't set the terms completely. So in a lot of cases people buy our products and pay for them in Canadian dollars. We don't actually see the benefit of the lower dollar because we are getting paid in Canadian dollars, just as we've seen in some parts of Canada that some liquor boards are now insisting that people pay or bill them in local currencies as opposed to international currencies. No question it's a help, but it's not as profound as many people think or seem to ascribe to the benefit.

Mr. Paszkowski: It definitely does impact the industry, both because we are not a large exporter but an exporter nonetheless, especially icewine products, but we're also a significant importer of bulk wine, which we blend with Canadian content and are value priced under $10 a bottle. So the value of the dollar impacts us. It's not a huge issue in terms of our members raising complaints. It's something that we have to live with. I can give you, anecdotally, an example.

One of our largest members recently told us that every 1 per cent change or 1 per cent per cent decline in the Canadian dollar is equal to roughly $350,000 to their business. So for small companies it does have an impact.

Senator Ogilvie: The business of trade within Canada versus trade externally is a fascinating issue, not just for you producers but for consumers in your areas as well. Historically it's been complicated because producers in the beer and wine area have probably been as aggressive in protecting territory as anything else. It's a complicated situation that arises, and it's always fascinating for me how easy it is for one other component of the industry area to frustrate legislation and other good intentions with regard to open trade. I will not pursue this anymore; we've had a lot of discussion on it.

Mr. Westcott, at the end of your presentation you have some photos here, and the title is "Disproportionate Federal Excise Burden Harming Export Growth." You have numbers below the three major categories there. Could you explain that in more detail for me?

Mr. Westcott: Sure. Let's start with a basic premise. We all do the same thing. Dan's members and my members, and if our colleague Luke Harford from the beer industry were here, we all do the same thing. We take Canadian raw materials, transform them into a consumer good, add a lot of value to that consumer good by branding them — we're not in the commodity business — and sell those to Canadians and export those all around the world. We are all virtually in the same business.

There are three different streams, and in fact we all have almost the exact same processes. We all start with an agricultural product that we crush or grind up; we then cook or ferment that and draw the alcohol out. You either are in the wine business, the beer business or the spirits business.

In our particular case we buy grain, grind it up, mash it, cook it and make beer. So we're in the beer business. We take it one step further and distill it and make spirits out of it.

Largely through accidents of history, excise federal taxes on spirits in the equivalent amount of alcohol are about 20 cents. These are standard drinks, so an ounce and half of spirits is 40 per cent; I think a 5-ounce glass of table wine is 12 per cent; and a 12-ounce bottle of beer is 5 per cent. All have exactly 17.01 millilitres of absolute alcohol.

In 2006, the Government of Canada had the foresight to eliminate the excise duty on wine made from 100 per cent Canadian grapes, Canadian fruit. We have lauded that, and it has helped the domestic wine industry grow, be successful and reinvest that money. Our excise duty is roughly double what it is on beer. As I said, Canadian wine, produced from Canadian grapes, has no excise tax.

My point is that virtually 100 per cent of the feedstock that goes into our products, whether it's barley, rye, corn or wheat, is Canadian. We don't buy grain from outside the country. Nobody set these up in the last few years; these rates have been in place for a long time. What that means, though, is because the excise rate is so high, the gross margins available to people in the spirits business in Canada are amongst the lowest in the world. So we make a lot less money in Canada than anywhere else in the world.

We're part of a global business. The same people who own the company that makes Crown Royal or Wiser's or Gibson's owns distilleries in Scotland, the United States and Ireland, and they make a lot more money. If you imagine sitting at that global capital table and my boss — who happens to be the President of Corby's, which produces Wiser's — puts his hand up and says, "I'd like some investment in the Canadian whisky franchise and this brand because I would like to develop my markets." They look at him and say, "That's really great, Patrick, but we can make a lot more money if we channel that dollar into Scotland, Ireland or the United States." It's an issue, and that's the point we're making.

We've seen the success it has had in helping the Canadian wine industry. We are one of the few industries in this country that has actually seen their taxes go up in the last eight or nine years.

Senator Moore: About seven or eight years ago I was on the Banking Committee, and we did a study on interprovincial trade barriers and the reasons to get rid of them. At the time, if I recall correctly, there was an agreement in place between B.C. and Alberta. They negotiated a trade agreement between themselves. Later on I think Ontario joined in somehow. They're obviously not connected geographically, but I think they did. Anyway, the bottom line was it was something like a $5 billion benefit economically per year for those two provinces to do that.

So I was a bit surprised when I heard you say that the barriers still exist and there was a distillery in Alberta and couldn't ship into B.C. I thought that was removed. Did it not include those products, or was it just for certifications for trades? I thought it was the whole deal.

Mr. Westcott: I think you are referring to the New West Partnership Trade Agreement between British Columbia, Alberta and Saskatchewan. It's a great agreement. Here's what happens: People sign agreements and they sort of go to sleep and put practices in place that breach agreements. At least in those provinces there is a structure that each province can go to the other and say, "Hold it, you're not living up to the New West Partnership Trade Agreement that we made."

We haven't seen that yet. There have been some consultations. I don't want to call them disputes because I don't think they've got that far, but that framework allowed the opportunity to bring people together to have that conversation and say, "You're not living up to the agreement."

Senator Moore: What was the agreement that they weren't living up to? Was it to be open trading?

Mr. Westcott: Yes, between those three provinces.

Senator Moore: That's what I thought.

Mr. Westcott: It is a free trade agreement. It provides a mechanism for each of those three provinces to talk to each other and, if necessary, take them to disputes and have penalties.

What we don't have in the Canadian agreement on international trade is anything that really resolves disputes because there are no penalties. There is no linkage. Every part of the country doesn't produce the same things. We produce whiskey in some parts of the country, and spirits, and they produce wine in some parts of the country. In some parts of the country, they produce lobsters. If Ontario treated lobsters the way some provinces treat whiskey or wine made in Ontario, the whole country would come apart. In most products, we don't think of it that way, but in beverage alcohol we do, in part because the provinces make so much money off alcohol. When government gets involved, it becomes a child or creature of the government.

Senator Moore: So just to tidy that one up, where is that going between those three provinces? Are you encouraged? Is there going to be a meeting of minds and realizing the value of open trading as they originally said they were going to do, and are you or your industry at the table trying to encourage that?

Mr. Westcott: It's interesting. The federal government has taken a good leadership position in trying to persuade everybody that they have to bring down the barriers. Whether it's the movement of labour or whether it is sourcing, it doesn't matter.

Six or seven months ago, the premiers, in their Council of the Federation meeting, stood up and said, "We are going to take this on and we're going to do things." They formed a committee. There were three or four provinces on the committee. Six months later, they haven't even met.

In part, I'm encouraged because of the examples like the New West Partnership Trade Agreement. Some other provinces have said they would like to join it or do things with it, but it seems to be hard to get the provinces to move along in this direction.

Senator Moore: Do you have any comments on that from the vintners' perspective?

Mr. Paszkowski: The New West Partnership Trade Agreement is positive. Alcohol is always treated a little bit differently. You have different liquor board systems and different markups. For example, in Alberta, the markup on wine is a flat $3.45 per litre, whereas in British Columbia the markup on wine would be in the area of around 170 per cent. Moving alcohol across borders means governments are scared of losing revenue because you can purchase a bottle of $1,000 wine in Alberta much cheaper than you can in the province of British Columbia, for example.

Progress has been made through the Council of the Federation when the premiers meet, and I agree it is slower. There has been agreement between British Columbia and Saskatchewan to do a reciprocal agreement on the interprovincial trade of wine and craft products. Following the last meeting in Prince Edward Island, officials from Ontario, B.C., Alberta and Saskatchewan got together to try and work through a legislative proposal to allow for the interprovincial trade in wine and possibly all alcohol products. That was making progress, and then different things happened in different provinces and things pulled back. The premier's advisory council in Ontario, which is addressing alcohol issues, was a reason for Ontario to pull back on discussions with other Western provinces on this issue. We are hopeful it will come back to the table.

Premier Clark and Premier Wynne met last week. The issue of interprovincial wine trade is always on the table because it's a priority for Premier Clark. It's slow, but progress is being made.

Senator Moore: Mr. Westcott, with regard to volume and production numbers, where do the boutique distilleries fit in? Do they have much of an impact? They certainly help economically in small communities. We have one in Lunenburg, and we have some little wineries in Nova Scotia, as Dan would probably know. Are those important or not?

Mr. Westcott: They are important.

I've worked in all of the businesses. I was Dan's predecessor many years ago when the first small wineries came into the Canada — Inniskillin, Paul Bosc at Château des Charmes and Reif. We've have gone from those three tiny little distilleries to 600, you said. I then moved over the beer industry and watched the development of micro brewers, and we now have hundreds of those across the country. We are starting to see that in the spirits business with some small distillers. At this point, they are very much in an assent stage. They are an important contributor in terms of innovation, but most of them are in the 10,000 to 20,000 case a year business out of a market of about 16 million or 17 million, so they are still pretty small. They are coming, and they are growing. I think they will play an increasingly important role, but we are just at the very beginning of that.

Senator Moore: Are they members of your organization?

Mr. Westcott: No. They are too small. They are very local. We talk to them if we can help them and do things. They are very small businesses. I don't want to say it the wrong way, but in many cases a lot of people who started them got into them as almost hobbies. They are very passionate. In different parts of country, they are making some interesting and good products. It will be up to the marketplace to decide whether they have a future or not. If you can make it and sell it for a reasonable price and people like it, they will do well.

Senator Moore: Anything on the wine side?

I guess that's it.

Senator Enverga: Thank you for the presentations. We were in Taiwan and South Korea, and we were actually looking for Canadian wines. Practically, we could not find anything. What is the problem with exporting to places like Taiwan or South Korea? Are there cultural differences that we have to look at, or do we have to promote our Canadian brand more?

Mr. Westcott: We sell in both of those markets. Korea is an important market. Taiwan has been an important market.

When the U.S. and the European Union finalized trade agreements, they had a dramatic impact on our goods because we did not yet have an agreement. We have fixed that, and we see huge opportunities in those countries. I can't speak on the wine side, but certainly those are both cultures that drink whiskey, happily. There is good fortune ahead if we can make the right kind of investments and bring in the right kind of brands.

Mr. Paszkowski: Korea and other Asian countries are not typically wine consuming countries, but they are growing rapidly. Over the past decade, wine exports into Korea have increased by almost 200 per cent. Japan followed a very similar increase in interest in wine with I think the largest number of sommeliers in Japan now than in any other country. The opportunities are there.

For Korea, the elimination of a 15 per cent value-added tariff immediately on January 1 for icewine will definitely help our icewines compete in that marketplace, and then the removal of 15 per cent tariff over three years on all their table wines will support our table wine industry in that market.

Cultural differences? More disposable income to the younger generation and more females interested in wine in Korea and Japan offer huge opportunities for us.

Senator Enverga: If everything comes into place, will there be a capacity for our industry? Can we achieve the goals? Can we supply the world?

Mr. Paszkowski: Well, we're one of smallest wine-producing countries in the world, so having supply in inventory will be a challenge in comparison to other markets. We look at niche opportunities. We produce the best icewine in the world, which we have small volumes of but very large pricing for. That's very lucrative market for us. We can meet those demands in most markets.

Table wines and sparkling wines are growing in international acclaim. They will always be small lot, very unique wines available to discerning consumers in different marketplaces. So we'll never be France or California, but we will be able to take a look at specific markets and focus in on those. That's what we do through our export strategy. Unlike some countries that look at entire continents, at this point we identify and look down at specific metropolitan areas and conquer those.

[Translation]

Senator Dagenais: I just have a comment. We know that the provinces control the price of wine. I am from Quebec, and I have had the privilege of working in Ontario for the last three years. During that time I have realized that, to purchase wine of comparable quality, one always pays $3 less per bottle at the LCBO. So you will understand that, before returning to Quebec, I have been stocking up in Ontario for the last three years.

How do variations in the price of grain affect your competitiveness in the market? The price of grain can go up or down. I would like to know what influence that fluctuation can have on the market for your products.

[English]

Mr. Westcott: They have some effect, but not huge. I've lived through very low grain prices, particularly corn prices, and in the last four or five years very high grain prices.

It's not as significant a factor as you might think for one reason: When we make whisky, it goes into a barrel. The legal minimum in Canada is three years. Most of the whisky today is five, six, seven eight years. So a huge investment that goes into converting the distillate into whisky in those barrels. If you went to Hiram Walker, just outside of Windsor, they have a maturation facility. I think they have 3 million barrels there, which is a lot of product.

People are surprised. We have very close working relationships with the grain farmers in Western Canada, in Ontario, through the Grain Farmers of Ontario, with our colleagues in Quebec, and I'm struggling with the name of the organization that we're doing work with.

We celebrate when the grain farmers actually have good pricing. It seems a bit strange, but if you talk to distillers and master blenders, the one thing that they will tell you is that if you don't have great input cereals, you're not going to have good whisky coming out the other end. So there is recognition in our business that if prices are low, you don't really get high-quality inputs. If prices are good and they're high, it encourages good farmers to come into that business and produce what we need.

I'll give you an example. Those of you who are from Western Canada will know that we have a very large distillery in Manitoba. The Crown Royal that is sold all over the world is distilled in Manitoba. Six or seven years ago, a great portion of Manitoba was under water — only about that much water — but we had been sourcing our corn and a little bit of rye in Manitoba for the distillery in Gimli. All of a sudden there were three or four years where there wasn't any grain. It's taken us about five years to get that business back, but we're very proud to say we're sourcing virtually every kernel of grain corn and rye that is available in Manitoba to support that local distillery, for a whole bunch of reasons: security of supply; it's close, so trucking is less, all those kinds of things.

It does have an impact, but it's not a significant impact. Our industry has recognized the trade-off between having a higher price or a good price for the grain and the things that that does inside of agriculture; it stimulates people to grow.

Some people tell you that you're seeing a decline in rye growers in Canada. High prices will help arrest those kinds of shifts, whether it's to canola or to other kinds of things. So it has an impact, but it's one that we think is a positive impact for the business.

Senator Beyak: You'll be pleased to know that my question has been answered, but I wanted to tell you both how impressive your presentations were. The knowledge of your business is exceptional and it has been very enlightening for me. Personally, your suggestions and recommendations I know will be workable for the committee. Thank you so much.

The Chair: In 2014, a new national standard for icewine was established to protect consumers from counterfeit products. Since icewine is Canada's main wine export in value, how does this standard help improve Canada's wine industry and exports?

Mr. Paszkowski, that's your question.

Mr. Paszkowski: It is something we worked on for almost a decade, and we were very happy when the federal government in February 2014 put in place a national definition of icewine, which is going to help us address counterfeit products both in Canada and abroad. In some Asian countries, such as China, you could have about 50 per cent of icewine that you see in the marketplace that would be a counterfeit product.

The way the definition works in Canada is that the federal government defined the definition and provincial governments have to put in place a certification of icewine for production in that province. In Ontario, British Columbia, and Nova Scotia, that certification is in place. It's naturally frozen on the vine and harvested at minus eight degrees Celsius, which is the international standard.

Unfortunately, in the fall of last year, the Quebec government approved an icewine standard that allows the grapes to be harvested not at minus eight, when it's cold outside, and then they're hung in nets and left outside until the temperatures reaches minus eight. Then they are crushed and called "Vin de glace" in Quebec. That is not the international standard and not what all the other provinces view as icewine. It has a significant impact on the international reputation of our premium product because we're the superpower producer of icewine in the world. It's something that we're trying to address with the Province of Quebec right now.

The Chair: For the benefit of the public, Canada has completed 12 free trade agreements. We have one that is concluded and is to be ratified with 28 countries, Canada-EU. We have 11 that are in ongoing negotiations with different regions of the world. We also have three exploratory discussions with three different countries.

That said, to the witnesses, thank you for sharing your views with us.

Honourable senators, as our second set of witnesses, we have with us Mr. Christopher Kyte, President of the Food Processors of Canada. Thank you for being here. We also have with us Mr. Rory McAlpine, Senior Vice President of Government and Industry Relations, Maple Leaf Foods. Again, thank you.

Mr. McAlpine, we really appreciated our tour of Maple Leaf Foods when we were in Toronto, and again give our respects to the family.

I have been informed by the clerk that Mr. McAlpine will do the first presentation, to be followed by Mr. Kyte and then questions from senators.

Rory McAlpine, Senior Vice President of Government and Industry Relations, Maple Leaf Foods: Thank you for this opportunity to contribute to your study on international market access priorities for the agri-food sector.

I would like to start by giving you a dollars and cents snapshot of why Maple Leaf cares about trade and trade policy based on things that happened in our business in 2014.

In 2014, we had exports globally of processed pork and processed meats of $634 million to 24 countries. On the surface you would say that's a successful year, but let me quickly run through some of the things that happened behind those numbers.

In our most profitable market, Japan, our sales volume fell by 9 per cent, but our profits fell by 95 per cent. This was the result of some very high-cost issues we faced as a result of the PED virus in North America, the fact that EU pork came into Japan as a result of being shut out of Russia, and the exchange rate.

Second, the Russian market should have been worth about $25 million to us in 2014, but on August 6, thanks to the trade sanctions, the door was slammed shut. We had 50 containers of pork on the water or at the port in Russia that were suddenly without a home. There's been no compensation for this, unlike our EU competitors who are now receiving storage aid from the EU commission to offset the losses they experienced.

In Korea, we got the good news in 2014 that the Canada-Korea Free Trade Agreement had been concluded and would enter into force in January 2015. We sold $16 million of pork in Korea in 2014, but in 2011 we sold $75 million worth of pork. Of course, this was the consequence of being behind the Americans in securing a free trade agreement. That will persist for six more years because of the lag in the tariff reductions.

Senators, 2014 set a new bar in terms of labour disruption at West Coast ports, first because of the truckers' strike at Port Metro Vancouver, a major slowdown following at all the U.S. West Coast ports that began to delay vessels by three to four weeks, causing massive congestion. Perhaps the only good thing on logistics was that there was no Canadian rail strike in 2014.

As for China, 2014 was somewhat of a bleak year for Maple Leaf. We did export a reasonable volume of products to Hong Kong, but we couldn't ship directly to China because our Brandon plant had been delisted the previous year for a trace finding of ractopamine. We have now solved that, with great thanks to Minister Ritz and the CFIA, and we should be shipping again soon. Essentially we were out of the market for two years, and it cost us significantly.

In 2014 we also heard the good news about the conclusion of the Canada-EU Comprehensive Economic and Trade Agreement, but how good was this? Currently there is already a duty-free quota for Canadian pork going into Europe. There is no pork actually going into Europe from Canada. Why? Because there are all kinds of technical barriers that prevent access: quota administration, their unscientific ban on certain animal health products, their Trichinella testing requirements and their plant licensing requirements. Our Brandon plant is not eligible to ship even though it is a world-class plant by any standard. We're hopeful about the new opportunity, but we need to resolve these issues, which are under negotiation.

Part of this, too, was our disappointment that we will now have to give up exclusive rights to the Parma trademark in Canada because of the protection of the Prosciutto di Parma geographic indication under the agreement.

As for the United States, we had a good year. We shipped about 5,500 truckloads of pork products across the border, worth about $300 million, but every one of those trucks had to stop at a privately owned inspection house, costing tremendous time delay. Not a single violation of a food safety requirement was found nor would it likely be found given the needle-in-the-haystack approach to border testing employed by the Americans. We paid all kinds of fees, experienced considerable cost, particularly when testing fresh products. They have to be returned to Canada because we can't wait for the test result and hold the product in limbo. This has been very costly.

We spent another year waiting for the Americans to implement the preclearance pilot that had been promised under the Beyond the Border action plan. That still hasn't happened.

Finally, in our home market we saw approximately 180,000 tonnes of fresh, frozen and processed pork imports, more than double what it was 10 years ago.

By making these comments, I'm trying to illustrate that the day-to-day business of global pork trade and the challenges we face are constantly evolving. The risks are very real and Canada, even as the third-largest pork exporting country in the world, can take nothing for granted. Moreover, the way we think about trade policy in Canada and the role of government has to reflect these harsh realities.

I'm going to give you my three half-truths and three whole truths that emerge from this.

The first half-truth: Canada's agri-food sector depends on exports, and success requires that we get the international market access priorities right. It's true, but the whole truth is that business success in Canada's agri-food sector is achieved by growing profitable, sustainable market share in domestic and export markets in the face of fierce global competition and constantly shifting market access barriers. Getting the market access priorities right is only half the battle.

As I've said, there's nothing automatic about our export success. A sudden new trade barrier, a shift in exchange rates, a change in tariff preference or an unexpected port workers' strike can change the foreign-customer sourcing options or even our ability to ship and quickly hand the business to a competitor. A good, profitable export market one year can be gone the next.

This rapidly shifting, competitive landscape needs to be understood by ministers and trade officials. Fortunately I can say this is largely the case. We have great collaboration with the government in managing all these issues. If there's one frustration, it's timeliness — getting the bureaucracy to move at the pace of business.

My second half-truth: Continued export success for Canada's agri-food sector will be achieved by new trade agreements with priority markets. The whole truth? Well, new trade agreements are a necessary but not sufficient condition for continued export success. We also need world-leading trade capacity and competence both on the part of business and on the part of government.

Put simply, a new trade agreement, even one that gives Canada a potential "first mover" advantage like CETA does, can set us off in a wonderful new direction, but only if we have gas in the tank. For business, this means we need competitive supply chains, including modern, world-scale plants. We need to have labour. We need competent financial institutions and so on. In the government sector, we need highly competent trade institutions. They need to work closely with the domestic economic departments whose decisions directly impact our competitive situation. We need modern transportation and telecommunications. We need to knock down internal regulatory barriers that harm our competitive position.

I've mentioned how several of these factors affected our export activity in 2014. Most of them had nothing to do with trade agreements, trade missions or the press releases that go with them, but let me mention one that fits the classic definition of shooting yourself in the foot — the government's overreaching reforms to the Temporary Foreign Worker Program. Because of the government's decisions and despite a 10-year record of exceptional success in recruiting highly productive foreign workers and transitioning them to permanent residency, we have today 150 job vacancies at our plant in Brandon. This means we have stopped exporting certain products to Asian markets, we have diverted labour away from the value-added activities that are most desired by our best customers, and we can no longer grow our chilled pork business to Japan. We may not be able to meet our export goals in China. Taking advantage of new trade agreements is out of the question.

And finally, my last half-truth: Winning new export market access should be the fundamental driver of Canada's trade policy. Well, I would say the whole truth is that we need a sophisticated, strategic, hard-ball approach to trade policy, both offensive and defensive. Our trade policy must be responsive to changes in relative competitiveness, mindful of maintaining a level regulatory playing field, stubborn in protecting the preferred access we enjoy under existing agreements, vigilant in guarding against bilateral deals that give our competitors a leg up in priority markets, and relentless in fighting new technical trade barriers and unfair trade practices.

This mindset is particularly important in the multilateral context, particularly as the WTO shows no sign of progress. And in the TPP it's especially important as regards agriculture market access to Japan. If the U.S. were to secure better terms of access than Canada enjoys, and in the absence of a stand-alone Canada-Japan agreement with a most-favoured-nation clause such as Australia has concluded, 30 years of growing a highly profitable chilled pork business in Japan could be eliminated overnight for Maple Leaf Foods.

A further illustration of this third whole truth applies in dealing with the U.S., or I'd say particularly with the U.S. Congress, in a bilateral free trade relationship that I believe needs a reset. It's not a good feeling to be running a business in 2015, with dozens of trucks crossing a border daily between two countries that seem able to find common cause in fighting global terrorism but struggle to facilitate bilateral trade in pork bellies. It's a sad feeling to actually imagine that retaliatory tariffs being applied to U.S. agri-food products could be here in a few months because of the U.S. refusal to withdraw their own version of a shoot-yourself-in-the-foot policy, mandatory COOL.

In conclusion, Maple Leaf applauds the government for its ambitious trade agenda and for the tremendous support we get in confronting complex trade risks and opportunities that we face. The incredible work of Minister Ritz is greatly appreciated, but we can never get complacent about our agri-food industry's competitive position or its trade performance. As Chris knows all too well, we have a serious deficit now in our agri-food or processed food trade balance. It now sits at negative $6.8 billion. We were significantly in a surplus 10 years ago. We can do better by deploying trade policies aimed at making global agri-food free and fair while deploying tactics that assume it is neither.

Thank you.

The Chair: Mr. Kyte, how can we do better? Please make your presentation.

Christopher Kyte, President, Food Processors of Canada: Anyone want to trade my problems for his?

Thank you for inviting us. I agree with much of what Maple Leaf is seeing on the ground. My association represents Canadian owners and operators of food companies. We make high value-added products — dinners, entrees, pizzas, sandwich meats, all of those kinds of activities you want in your local municipalities. We service domestic and international markets.

We were involved in a little issue a few ago. Through developing this issue, we found just how important food processing is to individual communities. It's amazing to see the impact it has on daily life. We've had some unfortunate situations development in Leamington, but the wastewater system was funded by the company, the road system was funded by the company and the baseball teams were sponsored by the company. It was a big part of local life. Right across the country, we have situations like that with Otter Valley in Tilsonburg being a big supplier of wages. You have companies like Leahy Orchards in Franklin Centre, Cavendish Farms in P.E.I., and Bonduelle in Tecumseh. What would happen if you didn't have these companies? That's kind of an issue that we're facing, and certainly Maple Leaf has alluded to this.

We found that not only do our companies have an impact on the towns and cities, but we have a huge impact on the growing communities. When we see a plant go south, we do not see the municipalities, the people or the farms go south too. They're left behind. That is really quite an important factor.

Thirty-eight per cent of farm production in Canada on average goes to the food processing industry. In Ontario and Quebec, 65 to 70 per cent of farm production goes to food processing. That's a huge amount. Every time we export, there's a payback to that community.

I think you've met with the Canadian Agri-Food Policy Institute, Ted Bilyea and David McInnes. I used some of their work in preparing for this, and it was interesting. Ontario lost 52 per cent of manufacturing jobs in the last eight years, and 73 per cent of that 52 per cent were related to food processing. That's kind of devastating.

We've observed that profitability in the United States and research and development is 50 per cent greater than in Canada. Skill has something to do with that, but also the cost of production has a great deal to do with that. It costs 2 per cent to 30 per cent less to produce the same products in the United States than in Canada. It's cheaper in the United States than it is in Canada. Plant size, of course, is something, but to have ingredients, packaging and labour to be 2 per cent to 30 per cent is a huge difference. I'm not suggesting we make policy changes that have an impact on how we employ people in this country, but I think you'll see that this is an important consideration.

Customer consolidation is going to drive companies to seek out more customers. We're down to about three major retailers in this country and two major food service distributors. So we have to go elsewhere to find new customers. We can't remain here.

The competition is moving south. According to CAPI, 144 plants closed their doors in the last eight years. Almost every American multinational has shifted major production back into the United States. There are very few plants remaining, compared to, say, 10 or 15 years ago.

American multinationals move south. The U.S. government and the individual states are working very hard to attract Canadian plants to move south, big time. I have a brochure here that I will leave with you. I'll pass it around. It shows how active they are. They are giving huge inducements, and 50 per cent of my board of directors have either invested in the United States or will invest in the United States. We don't want to see that bleeding. We have to stabilize the business community here.

The trade deficit, as mentioned, the good news is you were using 6.8 per cent. The figure today is 7.8. It has gone up $1 billion in a year. The trade deficit has ballooned by $1 billion. That says to me that probably the food industry is sustainable. We have to do something about that.

My thinking is this: Exporting really starts at home. What we've got to do is continue to work on the NAFTA before we think of Europe and Asia, their distance. They are commodity markets, but for the value-added food processing industry, what we want to do is stabilize the Canadian business.

The problem is that nobody in government seems to be taking any leadership, and that's worrisome. That's one thing to consider. Who will lead us out of this mess? The second thing is we then have to agree on how to deal with the impediments.

My board of directors are all optimistic and feeling good about their businesses, sales continue to grow, but what we have seen is deterioration in our performance. That's somewhat worrisome.

We have to make strategic investments, both as government and industry, to shore up the Canadian business. Like I said, you can't drive down your milk prices or farm produce, but there are other things you can do, such as re-engineer your operations to drive down your costs.

To conclude, we are looking for investment to strategically re-engineer the operations, and we are looking for leadership, who will take us out of this mess, which department.

NAFTA remains our number-one market still, but as Rory mentioned, it's not easy getting across to the United States. They own that border. There are different approaches they use in making sure we adhere to their regulations or make sure that we are playing honest or just to teach us a lesson that we don't do in this country. I don't think we should do tit for tat, but there are problems getting into the south. One of the things is when you put your plant into the United States, it's easy to access Canada. Americans love to buy American.

If you want, I can quickly take you through a couple of thoughts. The industry needs three things. We need the right regulations and levels of enforcement. Right now no one is checking the border to see what is being imported. A lot of mislabeled products are coming into this country.

Secondly, we have to harmonize our policies and programs with the United States. You cannot be the high-cost producer in a North American market.

Thirdly, you need predictable access to markets. I would suggest that exporting to the United States is not predictable, and you need predictable access to competitively priced inputs.

Thank you.

Senator Tardif: I must say that I'm shocked by the enormity of the challenges that your industries face. I was not aware of the challenges you face, and now I'm concerned there may be a new challenge on the horizon.

On February 20, CFIA announced the discovery of a case of BSE, or mad cow disease, in a beef cow on an Alberta farm, and since that time, Korea, Taiwan, Peru, Belarus and China have blocked imports of Canadian beef. What impact will this new challenge have on your industries?

Mr. McAlpine: Maple Leaf Foods is not a beef processor. We do utilize beef in a number of products. It doesn't affect our business directly, but it demonstrates how vulnerable we can be to these kinds of events.

At the same time, we have made tremendous strides in managing the BSE risk. I think so far there is a fairly high confidence that this will be a temporary situation once the investigation is completed.

Senator Tardif: Do you believe that this particular situation of BSE will have an impact on the U.S. repealing COOL?

Mr. McAlpine: Absolutely there is nothing but protectionism behind COOL. You can tie COOL very much to the BSE case in 2003 and the political fallout from that or the opportunity that was seized upon to use COOL as a way to potentially limit the import of products from Canada. There is no question of that. Having said that, at this point we're well beyond those days, and I don't believe there would be an implication to the current situation.

The big issue with COOL is simply getting Congress to recognize and have the courage to change what is a badly flawed and illegal measure. But I don't think there would be anyone suggesting that the BSE case is a reason not to proceed. It certainly won't be a factor in Canada's decision on retaliation should the Americans not do the right thing.

Senator Tardif: I certainly hope you are right on that. It could be used as an excuse, though.

Mr. Kyte, you made a comment in your presentation:

Product of Canada is out of whack with NAFTA and leaves countries at a disadvantage with the Product of USA designation.

What do you understand by that?

Mr. Kyte: Several years ago the government arbitrarily changed the "Product of Canada" designation. That requires us to have 98 per cent Canadian content in a container to be called "Product of Canada." Under NAFTA, it was 51 per cent. So "Product of U.S.A." coming into Canada can have 51 per cent U.S. energy, whatever. We have to have 98 per cent in Canada.

It puts us at a disadvantage because most things, such as ketchup, dinners, entrees, are sourced from all over the world. You can't have 98 per cent in the container, so we don't put "Product of Canada" on the container. We put "Made in Canada," or nothing, or your address or a maple leaf or some other way to get around it. The Americans can have 48 per cent Chinese beans in a can and it's "Product of U.S.A." Our product of beans, even if it was Canadian beans, would be product of nothing.

Senator Tannas: Thank you, gentlemen, for being here. I'm not a regular member of the committee. I'm substituting for another Alberta senator who is away. I would like to take this opportunity to further educate myself on something I have always wondered about, and I'm looking for Mr. McAlpine's tutoring.

I've always heard that being a pig farmer, in a good year you're just going broke more slowly. There are all the jokes about how you end up a million dollars as a pig farmer, and the answer is you start with $2 million. Now I've heard the tale of woe that you have laid down with respect to the business.

Have we got a systemic problem in the pork industry in this country concerning the challenges that you've laid out? It doesn't sound like there is a lot of success happening, coupled with the primary producers who clearly — as I say, I've never heard of a good year for a pork farmer. Have we got a bigger problem here in your specific industry?

Mr. McAlpine: There is no question there are major structural challenges in livestock production outside of the supply-managed commodities, and I would say beef is not that dissimilar.

Having said that, pig farmers had record profits in the past year after four or five years of horrible losses due to the very poor price of pigs but also very high cost of feed and the variability. Part of the problem seems to be that you are getting wild swings in pig prices and feed costs so that the margin predictability is gone, and the cycle of profit to loss that used to be two or three years long now seems to be much more unpredictable.

Having said that, as I said, they made great profits last year, but they are mostly using that profit to pay off debt that they had accumulated in the previous four or five years. And there has been a huge downsizing. There has been a retrenchment in the hog production sector and we went through the H1N1 issue. That impacted the business, as well as the dollar, feed grain pricing and labour problems. There have been lots of challenges.

I could go on at length into the risks and the opportunities. At the end of the day we have a number of advantages. We are still overall probably the third-lowest cost jurisdiction in the world for hog production.

We need to get the fundamentals right. We've lost any meaningful government business risk management programming to underpin the industry, which has further eroded investor confidence.

But we've got great animal health status and good genetics. We've got very good farm management, and in Western Canada we have growing or raising conditions that are ideal in many ways, but we have to find stability.

We have to find a way to manage risk and recognize it's a very capital intensive industry. A multi-barn loop today in hog production costs millions of dollars. It's not the old single barn. It has to have several pieces to it, and the regulatory issues are quite significant to getting those investments in place.

Maple Leaf wouldn't have invested over $1 billion in the last 10 years in its assets in Canada if it didn't believe we could operate viably with a solid pork supply, but we have to get this fixed in some ways and we have to recognize that it's an industry unlike crops and, in many ways, unlike cattle.

Senator Tannas: You mentioned we are probably number three in terms of low cost producers. Who are number two and one? What do they have or what are their governments giving them that you need?

Mr. McAlpine: It would be South America — Chile, Brazil. The United States I guess has the lowest costs. The United States benefits tremendously through subsidized fee grain, the support that is given to grain production in the United States, and just the sheer size of the market and the volume of the grain. We have the distance problem and our basis is affected. But I would say that's the main factor. It's also the result of having lost the agricultural income stabilization support that did underpin the industry and was very helpful through the last period of loss but which now is essentially no longer there going forward.

Senator Moore: Thank you, gentlemen, for being here.

At the end of January this committee was in Washington and Virginia on another study. We had occasion one day to meet with the adviser to the chair of the agricultural committee in Congress. He tells us the chair's position is that COOL is a failed experiment and he's going to get rid of it. We asked what they thought Canada should do. They are aware of the fact that we had a retaliation list. They made it clear to us — the adviser did and legal counsel was with him — that Canada should hang tough and stick to our position; if not, we will be trampled and it will be gone forever.

Do you have any thoughts on that? We've heard COOL for many years now; it's back and forth. Do you have any thoughts on that and what we should do? Do we retaliate? Do we hold tough?

Mr. Kyte: Americans listen to Americans; they don't listen to Canadians very well. Our thinking is that the government has done a good thing by taking a very tough stand on COOL. It has been designed to put pressure on American interests to lobby their own government. They were a little slow to get started, but they've got a massive lobby effort going down in the United States, headed by the U.S. Chamber of Commerce. It's massive, but they still don't seem to be getting through.

If the United States gets away with this, they're arbitrarily changing NAFTA and they can continue changing NAFTA, and after a while it only works for them; it doesn't work for us. So my board supports applying the heavy tariffs on finished products and exempting the Canadian companies from their inputs, and that works well.

Mr. McAlpine: I would fully agree.

[Translation]

Senator Dagenais: Thank you to both of our witnesses. You have spoken about tariffs on products. You will know that, as of January 1, 2015, we have concluded a free trade agreement with Korea. It is understood that, if all goes according to plan, customs tariffs for beef should be progressively reduced over a period of 15 years; for pork, the same will happen over a period of 13 years.

I would like to know what impact this will have on the market, and if this access to the Korean market will be advantageous or if, once again, it is the Koreans who will be able to benefit.

Mr. McAlpine: Thank you for the question.

[English]

Absolutely, we're going to benefit. The problem is, though, the lag. We'll get there, depending on whether it's fresh or frozen product in pork or beef, by 2022 or 2027 where the tariffs on Canadian product will be at zero. But the problem is American product will be at zero two years ahead of that and every two years they will be ahead, so there is the relative competitiveness of our product.

Having said that, Korean buyers don't want to be beholden to one source of supply. They understand the need to have diversification and they appreciate the quality of the Canadian product and know we will be on a completely level playing field. They want to have these relationships.

I think we will sustain a presence in that period, but we as a company have invested millions of dollars in trade relations, in an office in Seoul, and all of that investment has been compromised badly. We're hanging on, but barely. We're grateful for the outcome, but we just wish it had come sooner.

Senator Enverga: Thank you for your presentations.

Several witnesses expressed concerns about the shortage of skills and you mentioned it too — shortage of skilled workers. The federal government introduced a new electronic system called Express Entry. How would you assess the efficiency of the Express Entry system; is it working for you?

Mr. McAlpine: It's not working for us.

Mr. Kyte: There you go. It's not working for us.

Mr. McAlpine: This is frankly very disappointing because we were assured of something very different. We were assured that Express Entry would work on the basis of aligning the economic streams of immigration to high-demand occupations in the economy and not arbitrarily defined by skill level. Well, it has come in and it is defined solely by skill level.

In the case of meat processing, our industrial butchers, which we employ by the hundreds and of thousands and of which there are thousands of job vacancies today in Canada, are not eligible for Express Entry because they do not meet the skill level B definition under the National Occupational Classification. This to us seems very misguided.

Again, primary agriculture is exempt under the primary or seasonal agricultural worker stream, but as soon as you move into processing activity, if you don't meet that high skill definition then you're not eligible.

What has happened is we have been severely compromised by the impact of changes to the Temporary Foreign Worker Program, but it hasn't been offset by what we had hoped would be a much more labour and market economy driven approach to the immigration system. As a meat industry, we are in a difficult situation that we are trying to explain and help find solutions to.

Senator Enverga: What would you say that we suggest to our legislators here?

Mr. McAlpine: Virtually the whole agriculture sector, the agri-food sector, has rallied behind a group called the Canadian Agricultural Human Resources Council. We as the meat industry are part of that. Really what we're saying is we need to look at this as a value chain. It's no good to exempt or provide the labour at farm level if you don't have the labour to process. The idea is to have a program that recognizes the needs of the entire value chain, obviously always primarily focusing on recruitment and training and more development of Canadian applicants for these jobs. But, where there's a demonstrated shortfall, as there is, particularly in rural communities where many of the plants are, that should be open to an immigration programs that ensures they get permanency and can become stable long-term employees of the businesses that otherwise, as Chris has said, are literally fleeing the country.

Senator Enverga: Have you made any programs to attract Canadians?

Mr. McAlpine: Absolutely. We always have. In fact, the point is that under the previous program you can't get a labour market opinion to bring in a foreign worker unless you have exhausted all of your efforts to find Canadian employees. In our case, we have redoubled this. We have been at trade fairs across the country. We're doing everything to try to attract. The issue sometimes is not so much attracting; it's retaining. It's tough work. There is no question that working in the food industry, the meat industry particularly, is not easy work, and it's very hard to find young or older Canadians who can stick it out. That's part of what we do. We absolutely can do more of that. We have to have more Canadians coming into the industry, not just for now but 10, 20 years from now. We need to do all of these things.

We have a number of things that could be improved. We still feel that the matching of jobs to opportunities is not good. The job bank is not very functional nationally. There are lots of things that disincent people from relocating from high unemployment to low unemployment areas. There are lots of things to work on, and all of those are captured in a lot of good recommendations.

Mr. Kyte: None of our competitors in the United States have labour problems. We have labour problems, and you can't make stuff without labour. You just can't do it. If we all had magic wands, that would be lovely.

If you take it from a seasonal point of view, if you go to any company doing seasonal crop production, farmers are able to take it off of the fields, but we can't get help to process it in the plants. What do we do with it? Mother Nature decides when asparagus is ripe for picking, and then you get it to your plate. You have to process it within 90 minutes. For peas, it's the same thing. You can't go transporting tomatoes all over the place, storing them. You want to process it right away. We need those temporary foreign workers.

One of my members had seasonal 100 jobs to fill. People signed up for those jobs. Fifty people showed up to do the jobs, and 35 showed up the second week. The third week, nobody showed up. You can't run a business like that.

Senator Moore: Why?

Mr. Kyte: Why didn't they show up? They just didn't like the work. They were all local. They didn't want to get their hands dirty. Yet we have been bringing in some of the foreign workers for 30 years — the same people — and they are happy to work in those plants.

One of my members built up a fish processing operation in Nova Scotia from nothing. The top three employees were over 65. You've got to worry that when those three guys go; nobody else wants to come in every day.

We have labour problems. Our competitors don't have labour problems.

Senator Beyak: Thank you very much, gentlemen. I, like Senator Tardif, am concerned about the enormity of this problem.

I am hopeful on the temporary workers, only because it's such a big issue with all of the MPs and senators. We are hearing it across Canada. Does the new organization that you are working with, the Agricultural Human Resource Council, have a strategy? Are they meeting with the minister on doing something right now?

Mr. McAlpine: Yes, absolutely. There is a national labour force action plan for the agri-food industry. It's just been updated with the input of all of the stakeholders. It lays out all of these different strategies, both in the context of skills and labour development of Canadians and labour market efficiency, and also how to address the issue of foreign workers and immigration. There is a very robust set of recommendations, and many meetings have been held just in the last couple of weeks.

Senator Beyak: You mentioned in your presentation the loss of the Parma trademark that we've had since 1954, and its significance. I wondered if you could elaborate for those watching at home what that means.

Mr. McAlpine: The issue is that geographic indications are commonly understood in the wine sector, where you identify a product by its origin, whether it's champagne or what have you. But this has moved well beyond that in the European Union, where they have a whole list of meats and cheeses and even pickles that they uniquely identify according to the place of origin. In the case of Parma — Prosciutto di Parma — there is a region of Italy called Parma. Well after we owned the trademark in Canada, they began to control the quality standards and the use of that geographic indication.

In trade agreements, they want to have that protection respected. So it's a clash of an existing legal and internationally agreed trademark right that we enjoy and a negotiating process that, in this case, has given them a right for their GI to co-exist with our trademark, which in our view is commercially damaging and something that we don't agree with and that we feel should be compensated in some way. It is not being compensated.

Senator Tardif: I would like to get back to the topic of discussion with Senator Beyak, that is, an item under CETA. What impact will access to the European market have on Canada's processing industry?

Mr. Kyte: One of the things we were recommending as part of this strategic plan is that we really have to get our costs in a row. In Europe, they subsidize differently. They subsidize poultry, dairy. Everything is subsidized differently than it is here in Canada. We don't have a plan in Canada so that we can access products at a competitive price. That's going to be a bit damaging. We will have a difficult time protecting our business against imports, and we will have a difficult time expanding our business in the European theatre for some products.

Senator Tardif: What can government do to support you?

Mr. Kyte: A couple of things.

By the way, this reminds me that just because you are looking at the profitability of the food industry, be very careful about the figures you get from Statistics Canada. The figures collected by Statistics Canada are faulty because the collection system is faulty. What they are doing is that products that are imported by, say, Kraft and resold in Canada are considered a manufactured product. American products have much wider margins. So all that profitability data at Statistics Canada is faulty and we can't seem to get it fixed. I can give you benchmarking studies and things like that, but I digress.

The thing that we have to do is to get some leadership from some department to sit down with the food processing industry and say, "What are we going to do to re-engineer this industry so that it is sustainable?" Because we've seen that we are losing. Our balance of trade with the rest of the world right now, with Europe, is $3 billion. Will that improve with a free trade agreement? Not unless we get the basics right.

The Chair: I've heard some statements from the witnesses, and I'd like to share information with you. When the committee travelled to Washington, D.C., we did talk to Congress representatives and also senators and employees of both Congress and senators. I want to share with you that we did talk about COOL. This committee, because we're the Standing Senate Committee on Agriculture and Forestry, did talk about the softwood agreement with Canada-U.S. We did talk about energy. We did talk about the west-east pipeline. We also talked about Keystone XL. A senator who here is tonight, Senator Dagenais, had a meeting with security officials. We did talk also about food safety. This was over and above the main purpose of the health of bees, the impact of bees and the challenges we face for bees not only in North America but also worldwide.

I would like to put this on the record. We talked to senators and Congress people who told us that in the U.S. over the last few decades the problems they talk about are labour shortages and an aging population, especially in the industry. They said:

Over the last few decades, the problem has become even more acute. According to data from the annual National Agricultural Worker Survey, between 1989 and 2009 the share of U.S citizens among the farm labor force working in crop production fell to about 30% from about 45%. In the same time period, the share of unauthorized foreign workers has risen to about 50% from less than 10%. No comparable survey data is collected for hired labor on U.S. dairy and livestock operations, but they face similar shortages.

My question is to both witnesses. You talked about customer consolidation and the need for more customers or consumers. The leadership that you're providing is laudable. Every time I see a Costco, I stop in to see where the product comes from and to see if they buy local. I do the same thing now with Walmart. Now that we have Costco and Walmart across our nation, how do their marketing practices and policies impact on Canadian food sales and consumption in Canada and enable the provision of more Canadian products?

Mr. McAlpine: You're hitting on obviously an important issue. We have a big and fairly concentrated retail and, to some extent, food service sector in Canada. Of course, currency is a big factor. The strong Canadian dollar was a boon to importing, but that's begun to change. We're already seeing some impact from that in terms of the relative price advantage of domestic versus imported.

Certainly I would say that a major challenge is that these major retailers, be it Costco or whoever, have a pretty sophisticated regional distribution system. They need to procure products in large quantity with predictability of supply and long-term pricing. They want the branding and everything that comes with that from a larger player. Again, that's where Canadian suppliers are challenged. Maple Leaf is relatively large but certainly nothing like the size of the major meat processors in the United States, so that's an issue. To have the scale to meet the needs of those retail chains is a challenge for us and one that we fight every day.

I would say that the desire to source more locally is real. There is more indication of that. You can see in your grocery store a lot more focus on profiling local products, but that's no substitute for having the scale and the efficiency and the quality that our major U.S. competitors have.

Mr. Kyte: Our members market to Costco and Walmart U.S.A., and to Costco and Walmart Canada. Depending on the ingredients, they may market different products. If the dairy is more expensive in Canada, they may be selling only dairy-containing items to Walmart or Costco U.S.A. Some of our members have branded products and some of our companies co-pack for a retailer's own brand, such as Kirkland, so we have some flexibility.

My understanding is that Canadian retailers such as Loblaws are paying more attention to Canadian processors. Perhaps that's because of the change in the dollar and it gives us some reprieve right now, whereas our balance sheets were quite tattered when the dollar was at par.

My sense from talking to executives is that we are best at an 84-cent dollar as we're able to have some margin, some profit, and something left over at the end of the day. Below 84 cents, we get lazy.

The Chair: Thank you.

[Translation]

Senator Dagenais: Gentlemen, one last question. Let me know if you have any information on the subject.

Last week, I was listening to a show on the economy where poultry farming was being discussed. A big buyer of chicken, the Quebec restaurant chain Saint-Hubert, would like chicken raised without antibiotics. The company also admonished breeders for acting like a cartel or like lords. He said that given that producers were protected by supply management, they were making slower progress on the antibiotic-free chickens, and that he was unable to buy chicken from elsewhere. Saint-Hubert's customers want chicken without antibiotics.

What can you tell me on the matter? Will producers change their ways, or will they hide behind supply management and say that they are protected by it? The client, in this case Saint-Hubert in Quebec, which I know well and which buys a large quantity of chicken, seems to suffer from this decision.

[English]

Mr. McAlpine: It's a very timely question because the issue has a new profile just in the last week due to a statement from McDonald's in the United States that they are shifting all of their chicken procurement to a sourcing of products that have not been treated with certain categories of antibiotics important to human medicine.

I would simply say two things. Firstly, our company and many others in different channels now have dedicated antibiotic-free production — raised without antibiotics. It's available now and is over 12 per cent to 13 per cent of our supply and growing.

More broadly, the chicken industry is working on many things, as are those in other livestock groups, on how to better manage and regulate and reduce the use of antibiotics important to human medicine. There's a whole strategy around that. There's an involvement of the provinces, the federal Veterinary Drugs Directorate and Chicken Farmers of Canada. There are numerous aspects to how that's going forward.

As a key point, there is no preventive use of these Category 1 antibiotics in chicken production in Canada — the ones most important for human medicine, recognizing that the antibiotic isn't in the chicken you eat. There is the perception and the issue of antimicrobial resistance.

I would express it that way. I think the industry is modifying. The marketplace has already begun to shift, and I think it will shift more.

The Chair: On behalf of the Standing Senate Committee on Agriculture and Forestry, thank you Mr. McAlpine and Mr. Kyte for sharing your views with us. Please feel free to add information or comments through the clerk of the committee.

(The committee adjourned.)