Standing Senate Committee on Agriculture and Forestry
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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 28 - Evidence - Meeting of May 14, 2015


OTTAWA, Thursday, May 14, 2015

The Standing Senate Committee on Agriculture and Forestry met this day at 8 a.m. to continue its study on international market access priorities for the Canadian agricultural and agri-food sector.

Senator Claudette Tardif (Deputy Chair) in the chair.

[Translation]

The Deputy Chair: Honourable senators, welcome to this meeting of the Standing Senate Committee on Agriculture and Forestry. My name is Claudette Tardif, and I am honoured to chair today's meeting.

I'd like to begin by asking the senators to introduce themselves, starting on my left.

[English]

Senator Beyak: Lynn Beyak, Ontario.

Senator Oh: Victor Oh from Toronto, Ontario.

Senator Enverga: Tobias Enverga, Ontario.

[Translation]

Senator Maltais: Welcome. I am Senator Ghislain Maltais from Quebec.

[English]

Senator Unger: I'm Betty Unger from Alberta.

[Translation]

Senator Dagenais: I am Jean-Guy Dagenais from Quebec.

[English]

Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.

[Translation]

The Deputy Chair: Today, the committee is continuing its study on international market access priorities for the Canadian agricultural and agri-food sector.

Canada's agriculture and agri-food sector is an important part of the country's economy. In 2013, the sector accounted for 1 in 8 jobs in Canada — employing over 2.2 million people — and close to 6.7 per cent of Canada's gross domestic product.

Internationally, the Canadian agriculture and agri-food sector was responsible for 3.5 per cent of global exports of agri-food products in 2013. Canada was the 5th largest exporter of agri-food products globally in 2013. In addition, Canada is engaged in several free trade agreements, or FTAs, with 12 FTAs in force to date.

Today, we are pleased to have with us, from Equine Canada, Julie Cull, Program Manager, Participation and Equine Development; and from the Canadian Sheep Federation, Corlena Patterson, Executive Director.

Thank you for accepting our invitation to appear. My understanding is that Ms. Cull will go first. Afterwards, senators will ask you questions.

[English]

Julie Cull, Program Manager, Participation & Equine Development, Equine Canada: Thank you for the invitation to be here today and good morning, honourable senators.

Equine Canada represents, promotes and serves the Canadian equestrian community and equine industry and is recognized by Agriculture and Agri-Food Canada, Sport Canada, the International Equestrian Federation and the Canadian Olympic and Paralympic Committees as a national organization representing equestrian sport and equine interest in Canada. With more than 78,000 members from 10 provincial equestrian associations and the Yukon, Equine Canada organizes its operations through divisions responsible for sport, industry and recreation initiatives.

There are 40 equine breed associations operating in Canada, representing approximately 30,000 individual breeder members, of which 27,000 members are represented to Equine Canada through their national breed association's affiliate membership with our federation.

I want to give you a bit of information about our equine exports. Canada exports equines in three broad categories. The first category of exported equines is usually horses in sport, racing and competition, including breeding stock. These are the most valuable animals per unit that we export from the equine industry. This value is due to the fact that these horses are generally between three and five years old, sometimes a bit older, and they have significant investment in training and competition experience. This unique supply chain exists as most often the breeder is not the ultimate exporter. Rather, the current owner is. Our breeders produce foals and young horses that go into sport, racing or competition sectors for value-added training. These trained horses are the final export.

The second category is equine genetics. Canada exports equine semen to some international markets. This product is predominantly fresh chilled semen that requires rapid international delivery. There are opportunities for Canada to increase exports within the equine semen market as international markets continue to evolve. Canada has the potential to further participate in international markets for other genetic products, including frozen semen and embryos, and this market for frozen semen export sales is directly attached to the success of the Canadian stallion in its respective sport and racing sectors, combined with the historical success of its progeny in sport and competition markets.

The third and final category of equine export is horse meat. Canada exports a significant amount of horse meat annually. According to the CFIA, Canadian horse meat is Canada's highest exported red meat into Europe. In 2014, Canada exported $5 million of beef and veal, $5 million of pork and $27 million of horse meat into EU28 countries. Canada also exports a limited number of live horses each year to Japan for feed lot and processing markets there.

That's just a little bit of background about our equine export industry. Now I will bring to your attention some of the issues or concerns that we have.

One of the biggest problems we have is direct destinations. The significant factor that impacts our market access to emerging markets is the cost of transportation to destination countries, and the requirements pertaining to pre-export quarantine and testing from the specific destination country. Most high-value horses travelling outside of North America are transported by air. Due to the prolonged travel time required for shipping by sea, it's usually not done, so flying the horses is usually the preferred choice.

Options for air transport for horses from Canada are available from Toronto and Calgary airports, and the movement of horses internationally requires pre-export and post-import quarantine, mandatory health testing prior to export. Canada's only CFIA-recognized quarantine facility is at Spruce Meadows, which is located in Calgary, Alberta, and the majority of horses shipping overseas do so via the United States Department of Agriculture quarantine facilities in Atlanta, Los Angeles, Miami, Houston, Lexington and New York.

In order to access these emerging markets, it would be more economically feasible to allow horses to fly directly from Canada to their destination. Ideally, Canada needs to establish equine trade and travel agreements with countries in the Americas, China and other nations where such arrangements do not currently exist to allow our horses to fly directly. Currently, Canadian exporters must bear the additional expense of transporting their horses from Canada to the U.S. quarantine facilities for export to their final destination.

By establishing additional trade agreements with emerging markets, and if the CFIA could recognize additional quarantine facilities for Canadian producers in Canada, these horses would have the ability to become more competitive in the international market and increase the profit margin for each equine sold due to decreased shipping and transportation charges. Additionally, Canadian horses exported through the USDA quarantine facilities are exported as U.S. horses to their final destination. These horses and their related values are included in the report values as U.S. exports and not Canadian.

Another concern is Canada's market share of equine genetics. The CFIA currently reports on the exportation of units of equine semen to all destination countries other than the U.S. Semen exports to the U.S. do not require health certificates and, therefore, are not tracked by any agency.

Semen export data recorded by the CFIA also does not currently have information regarding the breed of the horse or the value of the semen exported. Equine semen exports have increased by 198 per cent in unit volumes from 2006 through 2009, and these amounts would be substantially higher and more accurately recorded if semen exports to the U.S. were tracked.

The final concern is equine traceability. The CFIA is commencing a second round of consultations for changes to the Health of Animals Act, with the target of having the regulations for national traceability in place by July 2015. At this point in time, the CFIA is not intending to include horses within these regulations.

A lack of a national identification system for horses poses a major threat to the Canadian equine industry on many levels.

The CFIA in collaboration with equine industry leaders and partners in Canada has created an equine biosecurity standard, which has just been released to our industry. The biosecurity standard is a tool to assist horse owners and custodians in protecting horse health on farms and to minimize the risks of the transmission of diseases.

But this standard alone is not enough to protect the Canadian horse population. Due to the myriad of horse diseases and issues, and how easily these diseases are spread due to the highly mobile nature of our equine population, the Canadian herd could easily be compromised. As a result, borders would be closed, and the international travel of horses would quickly cease.

Traceability and equine identification would allow for facilitated trace-back of potentially contaminated horses and a quicker return to international trade and international competition if such a situation occurred.

Currently, the equine identification document implemented by the CFIA for equines bound for processing has limitations. A nationally implemented equine identification and traceability program that includes all horses in all sectors would ensure that the proper measures are in place to regulate animals bound for meat production and ensure that the industry is only processing equines that qualify for human consumption.

The Deputy Chair: Thank you very much, Ms. Cull. We will proceed with Ms. Patterson, please.

[Translation]

Corlena Patterson, Executive Director, Canadian Sheep Federation: Good morning, Madam Chair and honourable senators. The Canadian Sheep Federation wishes to thank the committee for the invitation to appear today.

[English]

The Canadian Sheep Federation is a national not-for-profit organization that represents over 11,000 Canadian sheep producers. Established in 1990, the organization has as its primary responsibility to set national policy for the sheep industry. Our mission is to work closely and cooperatively with all levels of government and organizations, both domestic and foreign, to further the viability, expansion and prosperity of the Canadian sheep and wool industries.

To that end, the Canadian Sheep Federation is pleased to take this opportunity to share with the Standing Senate Committee on Agriculture and Forestry the Canadian sheep industry's expectations and concerns with respect to market access and competitiveness.

Market access has been a standing issue for the Canadian sheep industry for some time. Prior to bovine spongiform encephalopathy, the mad cow disease announced in Canada in 2003, Canada was a net exporter of sheep, and the industry was experiencing a period of growth. Between 1992 and 2002, Canada's breeding flock grew by 39.3 per cent and the economic value of sheep exports in 2002 exceeded $18 million.

In May 2003, the Canadian border closed due to mad cow disease, impacting all ruminant animals, including sheep. The immediate effect of the closure was seen in the decrease of lamb prices and of ewe flock size. By January 2015, the national breeding flock shrank in size by 11.8 per cent compared to pre-BSE numbers. Sheep and lamb exports in 2014 were valued at nearly $443,000. Had the national ewe flock maintained its 2002, pre-BSE size, the economic activity of 2014 lamb sales would have generated $72 million more than it actually did.

Reestablishing market access lost as a result of the BSE crisis with the same level of zeal and support experienced by other affected sectors should become a priority for Canada as it has been for the Canadian sheep industry.

Since 2003, the sheep industry has been struggling to rebuild its flock, keep the industry infrastructure in place and fulfill market demand. As the ewe flock shrinks, the production capacity diminishes and the value chain struggles to maintain processing capacity, it becomes increasingly difficult to get Canadian product onto Canadian shelves and in front of Canadian consumers.

In a recent presentation to the House of Commons Standing Committee on Agriculture and Agri-Food, the Canadian Sheep Federation outlined concerns about the limitation Canada's meat inspection system has on interprovincial trade. That same regulatory red tape that has Canada's existing meat inspection system failing Canada's sheep farmers and Canadian consumers alike will fail the industry in future market access opportunities. This is a prime example of the limitations imposed on the Canadian sheep industry's ability to compete domestically and globally.

While domestic production continues to decrease, domestic demand is being met largely by imported product. In 2013, only 46 per cent of the sheep and lamb consumed in Canada was produced in Canada; 54 per cent of what Canadians consumed in 2013 profited sheep producers in other countries and foreign economies.

Imported sheep and lamb products primarily from New Zealand and Australia are produced in a markedly more competitive environment than is afforded producers in this country, putting Canadian product and producers at a competitive disadvantage. Regulatory burden and differential levels of producer support account for the higher cost of production faced by Canadian producers.

In Canada, producers and industry groups are responsible for financially supporting a national traceability system that remains only partially functional, where comprehensive traceability systems in other countries are supported by federal authorities. Canadian sheep producers do not have access to the same veterinary drugs available to their competitors because of Canada's onerous drug approval process. Not only does this result in greater production losses for Canadian producers and impede their profitability, it leads to animal welfare concerns and increased off-label use that can pose significant food-safety risks.

To that same end, national on-farm food safety programs and programs like Canada's Global Food Animal Residue Avoidance Databank, also known as CgFARAD, receive only partial federal funding, and industry groups are left to deal with increasingly restrictive cost-sharing funding models. In competing countries, programs that serve a societal good are supported by society as a whole and not simply by producers.

As a country capitalizing on its strength as an agricultural product exporter, Canada should focus on creating an environment that supports producers in their productivity and profitability.

The Canadian Sheep Federation would like to provide some of the following recommendations for improving market access and competitiveness for producers in this country. We would recommend the following: prioritize market access for the Canadian sheep industry and work to immediately reopen U.S. markets, including cross-transit access that will allow producers to access markets in Mexico; design an innovative national meat-inspection system that preserves Canada's high standards of food safety and satisfies the expectations of both domestic and international markets, while supporting growing livestock sectors; restructure the veterinary drug approval process to facilitate approvals of pharmaceuticals for minor-use species, including sheep; and develop and implement long-term, sustained-funding strategies for fundamental agricultural programs dedicated to maintaining a competitive environment for Canadian producers in all sectors.

The Canadian sheep industry is uniquely positioned to experience tremendous growth and capture both domestic and international markets if provided a level playing field. National and provincial organizations have developed strategies to increase production and provide tools to facilitate producer profitability in an effort to grow the industry. The role of government and federal policy needs to be one of supporting Canadian producers, including sheep producers, in their efforts and not to impede progress. Prioritizing market access and industry competitiveness will help drive the expansion and prosperity of Canada's sheep industry as it works to meet ever-increasing demand from Canadian and international consumers alike.

On behalf of our chairman, Phil Kolodychuk, and our board of directors, I'd like to thank you for this opportunity.

[Translation]

The Deputy Chair: Thank you. We'll now begin the question and answer session.

Senator Maltais: Thank you kindly, Madam Chair. Welcome, ladies. Canada's sheep farming sector is in a rather difficult situation. First of all, you have to deal with interprovincial barriers, without which, your production would likely increase significantly. Furthermore, some provinces, like Quebec, have protected brands. No doubt, everyone is familiar with Charlevoix lamb.

I pay attention to what goes on in Quebec, as well as the other provinces. Protected brands don't have high production and the rest of the lamb in Quebec comes from New Zealand. There aren't two or three markets. There isn't lamb from Ontario, out West or British Columbia. And that's one of the factors keeping lamb production low in Canada. When it comes to sheep production, lamb is, of course, the first focus.

That's always been a problem, and we need to eliminate that barrier. That's one of the first steps we need to take in order to open up Canada's market to Canadian producers, regardless of where they are in the country. If that doesn't happen, the industry will have a hard time competing internationally, given that, when you open up a market in a country as large as Canada, it gives rise to new technology considerations such as access to drugs. So that's something that needs to happen. That's my first comment.

One of your problems is traceability as far as new international markets are concerned. How does traceability work in the beef and pork sectors? Does the cost fall to producers or the government?

[English]

Ms. Patterson: I'd like to thank you for the comments because we would concur wholeheartedly that one of our major challenges is interprovincial trade. That was the gist of the comments we made to the House of Commons Standing Committee on Agriculture and Agri-Food.

To put it into perspective, 53 per cent of Canadian lamb is processed in Ontario, but 90 per cent of that is processed in provincially inspected facilities. As a result, that product cannot move out of province. That means that 28 per cent of Canadian-produced lamb has to be used in Ontario, and it can't be moved to other provinces. There are a number of other provinces that have zero provincial or federally inspected capacity, and as a result, we can't get our product onto those shelves.

Moreover, the major grocery distributers have a distribution system that requires interprovincial movement. So to get lamb into major grocery stores — I won't name names, but you know who they are, the large national chains — it has to be federally inspected product. Otherwise, it can't go on the shelf. Oftentimes, we can't get Nova Scotia lamb onto Nova Scotia shelves because their facility is provincial and their distribution centre is New Brunswick, so producers can't get it there. So that is absolutely a limitation, and I appreciate bringing it up in this forum again.

To your question on traceability, groups, including the sheep industry, have a national ID program. It's included in regulations just as the cattle sector does, so we have that component of traceability in place, and we're building a traceability system now. There was some remark about the second round of consultations on traceability, which has started, with an expectation of further regulation changes in 2016 that will support a larger, more effective traceability system.

In the pork sector, just as in the beef and sheep sectors, by and large, the expense of traceability is supported by producer and industry organizations. As an example, for the sheep sector, where we have a regulated ID program, producers pay for that program when they purchase a tag, and they are required by law to purchase a tag if it moves off its farm of origin. That's the money that goes to maintaining the database that keeps that information, providing communications and negotiations with the Canadian Food Inspection Agency and Agriculture Canada about what those regulations are and how compliance is enforced.

Much is the same in the cattle and pork sector. Ultimately, either through a fee affixed to tag purchases and/or memberships and national industry groups, they eventually pay for that system. Funding is available through different funding initiatives and at different levels, but by and large the program is not federally funded; it's producer funded.

[Translation]

Senator Maltais: Another one of Quebec's problems has to do with specialty cheese made from ewe's milk. It's a market that has experienced tremendous growth over the past 20 or 30 years. In terms of milk production, ewes have only one or two, at most, lambs a year, and that limits the market. Domestic production in Quebec satisfies only a third of the necessary demand.

Specialty cheeses produced in Quebec and Ontario are really starting to gain market popularity and are even exported to other countries. That brings me right back to the trade barrier problem, which is hugely limiting. We have lamb in New Brunswick, Nova Scotia and even Prince Edward Island that can't make its way to dinner tables. How do we remove those barriers?

[English]

Ms. Patterson: As part of our recommendations we made to the house, we need to find a way of creating a federal inspection system that's less onerous for approvals. It's not only the cost of having a provincial facility migrate into a federally inspected system, because meeting the requirements to be recognized as federally inspected comes at a significant cost. It's also the cost of maintaining that. That cost can be supported by sectors with huge processing capacity, with large numbers. You can recoup the cost of migrating from a provincial to a federally inspected facility and support the maintenance costs of that federal inspection if you can process a large number of animals. When you're a growing and, hopefully, emerging market but you don't yet have the numbers to be processed in that facility, it becomes difficult to maintain capacity.

We need to find a methodology, and I'm not saying I have the answer to how that is best done, but find a federal inspection model that's not as onerous and that can be supported by processors doing minor or emerging species.

I think part of it may be revisiting the requirements to be recognized as federally inspected. In some instances, the difference between being recognized as a provincially inspected facility and a federally inspected facility is a paved driveway and an extra bathroom, and that has to do with creature comforts of inspectors and very little to do with food-safety requirements. That's not the case across the board. Every province has a different inspectorate level, so the closeness between them can be very different in some provinces, or in some provinces it's very similar. Maybe it's a matter of making the inspection system more outcome-based, a little less prescriptive, focused primarily on food safety and taking out some of the inspector comforts in terms of what facilities are available to them while they do the inspectorate. It has to be a safe work environment, but it doesn't have to be a luxurious one. Perhaps some of that will help with finding that model of a federal inspection system that satisfies food safety first and foremost always and satisfies the major grocers. When we have a two-tiered system, it almost creates an environment where those retailers have to choose. Do we set a standard? What is the standard? If the international standard is federally inspected, then the domestic should be equally federally inspected, but we have two systems and we have to pick. We've kind of created an environment where we've left them with the choice to pick one. If we can find one that not only covers food safety but does it affordably and is recognized by those national retailers, I think we'll have a good start.

Senator Ogilvie: My first question is to both of you. Are low doses of antibiotics routinely used in the animal food in each of your sectors?

Ms. Patterson: I would say that in the sheep industry, by and large, we see them for therapeutic use as opposed to promotant use of antibiotics. We have a market issue with antibiotic and pharmaceutical use in the sheep industry. It's not because our producers lack due diligence. In the sheep industry, we have very few approved products in this country for use.

The reason is business decisions on behalf of the pharmaceutical companies, and you can't blame them. We have an onerous drug approval system in this country. It makes it expensive for a new product to be approved on label for an animal. When a pharmaceutical company has to make decision to seek approval of a product in that country, they have to balance what their projected revenue is. Because the sheep sector is still small, oftentimes the concern is that they go through a process that will cost hundreds of thousands of dollars to get a product approved, and they'll never recoup that in terms of sales in the country.

It leaves very few products available to the industry. As a result, a large component of our pharmaceutical use is off-label use, and that will be done with the help of a veterinarian. I had mentioned CgFARAD in my presentation. CgFARAD is the Canadian Global Food Animal Residue Avoidance Databank. It allows veterinarians working with producers — not producers directly — the opportunity to call them and make a recommendation for dosage and withdrawal times on a medication if the animal is not on label for that particular product. That helps avoid issues with overdosing. If you don't have a label, that gives an indication of how much you give, how long you give it for and for how long a withdrawal period is. Then you need a recommendation that ensures food safety. So that provides every species group that opportunity, not just our own.

Where we don't necessarily use a lot for promotant, we do use for treatment of sick animals. You need to have products available, but we don't have indications on labels for them. We have to oftentimes rely on veterinarians. We have to rely on CgFARAD in some instances, and in other instances producers have incurred production losses as a result of not having them.

As a result of all of those situations put together, we do have some residue issues in lamb meat and sheep meat. We're not alone in that. Every sector has it.

Senator Ogilvie: I'd like to come back to my original question. The way you've answered it suggests to me that there is some use of antibiotics as a growth promoter in the sheep industry.

Ms. Patterson: No, therapeutic use for treatment, not so much as a growth promotant. It's not —

Senator Ogilvie: Not so much as. Does that mean there is none?

Ms. Patterson: I can't say that there isn't any.

Senator Ogilvie: In the equine area?

Ms. Cull: The short answer is no.

Senator Ogilvie: There is no use of antibiotics?

Ms. Cull: For growth promotion in horses? It's not seen; it's not put in feed and water. Horses are not given antibiotics for growth.

Senator Ogilvie: That's truly wonderful. You're leading the industries, and it's important. That's very good.

The final question was going to be with regard to what you went on to deal with, and that is the access to new pharmaceuticals. I won't go back through all of the answers you gave. On the question that I was going to ask you, you answered part of it. You indicated that drugs that are available in the sheep industry in other countries are not necessarily available in Canada because of the market issues and so on.

Then you went on to speak about off-label use. Am I correct in assuming that you were referring to drugs that have been approved for other animals in Canada but were not specifically originally tested for use in sheep? Is that exactly what you were referring to?

Ms. Patterson: Yes, it is.

Senator Ogilvie: Thank you very much.

Senator Unger: Thank you both for your presentations.

Ms. Cull, I have questions for you about equine issues.

Canada exports equines in three broad categories, and you named them. We export semen for genetics. Why is semen exported? Is it imported from other countries back into Canada? Particularly, I'm thinking about thoroughbred horses and show horses for jumping.

Ms. Cull: Thoroughbred horses are not allowed to have anything other than natural live cover worldwide. So with thoroughbred horses, you have to ship the horse. Usually it's shipping mares to the stallion. That's the traditional way it has been done. That industry has not changed and, as far as I know, is still maintaining the no-shipped-semen rule.

We ship semen out of Canada. What happens is that particular genetic lines and particular stallions are identified as very successful in their show careers, producing top quality progeny and/or both. When that happens, the world takes notice of a particular horse that's excellent. Then the world wants to breed to that particular horse. It's very common now that someone will call from Germany, from Australia, from South America, and they want to breed to a specific horse. In this situation, it's most often competitive horses, Western competitive horses, show jumpers, all the Olympic disciplines.

If a stallion is producing or competing at an international level successfully, then breeders want to use those bloodlines.

What is nice now with overnight transport is that semen can be put in a chilled container and sent overnight to various countries so that other breeders have the opportunity to use successful Canadian bloodlines. That makes it a global market for horses, and good horses are available around the world.

Canada has been noted for producing great horses, and great healthy, strong horses based on the way they're raised outside with great pastures. We're well known, so our genetics are sought after.

We would love to allow breeders even more opportunity to export internationally, and we would also like to be able to track. One of our major partners in semen export is the U.S., and since those results aren't tracked because no veterinarian certificates are required, we don't know how much goes across the border back and forth. We would love to know those numbers for our industry and prove our industry is growing.

To your question on semen, we import a lot of semen. Right now, the U.S. has a disease called contagious equine metritis, otherwise known as CEM. Due to that fact, a federal vet has to sign off in the U.S. on each import of semen coming across the border to verify this disease does not exist in the semen so it can be brought into Canada. It is cost-onerous on breeders who want access to American semen. One of the recommendations was that CEM has been declared endemic in the U.S., but it would be nice to isolate the areas or the breeds in which it is endemic and facilitate the transport of semen into Canada from the other breeds that don't have it.

Senator Unger: So there has to be testing.

Ms. Cull: For U.S. semen to come into Canada, yes, but not for Canadian semen going out of Canada to the U.S.

Senator Unger: Okay. You identified some issues, one being the cost of transport to destination countries, and the other is a requirement for pre-export quarantine and training.

What would the ability for pre-export quarantine look like? I know Spruce Meadows, and it's known well. Horses from Canada can't be put into quarantine, they have to go to the United States to be put in quarantine and then go. Why is that?

Ms. Cull: Spruce Meadows has such big international competitions. They're such an international force in competition worldwide. In Calgary, it has been set up to have extensive import/export set-up.

I'm not sure. That's something I will have to look into for you. Right now, the horses are shipped south, and U.S. quarantine facilities are used. As far as I know, Toronto and Calgary have export abilities. Primarily, the only CFIA-regulated export area is Calgary. So it's quite cost-onerous. If an owner sells a horse, it either has to go to Calgary to be exported or it has to go to the United States to be exported, which adds additional costs onto buying a Canadian horse to ship outside.

The other concern is that Canada doesn't have international trade agreements for equines with a number of countries, where the U.S. does. So a Canadian horse shipped to the U.S. follows the agreements that have been established with the U.S. and then is exported to that country through the U.S. The problem with that is it is then deemed an American horse, and the records show it is exported as an American horse, so it doesn't go back on our Canadian export records as a Canadian-bred horse that was shipped to China to compete for the Chinese Olympic team.

Senator Unger: What would the overall value of those exports be to Canada?

Ms. Cull: These are high-value horses in the range of $5,000 to $100,000 or more each, upward to 1 million or 2 million euros. Some Olympic-level horses have been sold internationally for 9 million euros.

In terms of per-unit export, these are very valuable, and we want to target emerging markets with our Canadian genetics and Canadian-bred and -trained horses. Having more opportunities for sellers to export through Canada would lower the cost.

Senator Unger: So it is your industry or your Canadian group of exporters that needs to get together and formulate some definite ideas to promote this trade.

[Translation]

Senator Dagenais: Thank you for joining us this morning. Both of my questions are for Ms. Cull. In the notes you submitted to the committee, you indicated that recent data on the equine population may be lacking. Please correct me if I'm wrong, but I believe the last census was done around 2010. Is your association planning to update that study? How could the federal government help you update that data?

[English]

Ms. Cull: We did an industry-wide survey; in 1998, 2003 and 2010, we conducted industry-led Equine Canada national surveys to determine the value of our industry, extensively domestically and also internationally. It's very cost-onerous on the industry to do those surveys, but another one is needed soon, because 2010 was a long time ago. We will have to do another survey soon.

I have approached statistics Canada and asked if equines could be included in statistical analysis through Statistics Canada through the census. It was mentioned to me that horse breeders and farmers are considered hobby farmers and not included in agriculture establishments when doing the census. So I'm currently working with the government to try to see if we can expand the census to include equine breeders and the equine industry as an agriculture product. That's one of my personal initiatives right now in my department at work.

I don't know if I answered both of your questions.

[Translation]

Senator Dagenais: You said it was very cost-onerous to do such a survey. Do you have a general idea of how much the survey cost in 2010?

[English]

Ms. Cull: I'm sorry that I don't have those numbers. I can get those for you and find out what the costs were for the surveys we've done and get a projection of what a survey would cost for our industry.

It has been done by a consultant who has polled the industry extensively for us those other times. It's been a whole year's project for her and her team.

I can get those numbers for you and make sure I get them to the clerk.

The Deputy Chair: If you could forward that information to our clerk, it would be much appreciated.

Senator Oh: Welcome, witnesses. Today, May 14, coincides with the RCMP Musical Ride in Ottawa. Welcome to our committee.

With Equine Canada, you contribute $15 billion each year to the Canadian economy. The care of horses and activities with horses support more than 200,000 full-time jobs in Canada, so that's a very important industry.

My question to you both is that the committee has heard from many witnesses about the importance of the Asian market, especially China and Japan. Currently, how important is the Asian market to you both? Also, are there any significant opportunities in these markets for your industry?

Ms. Cull: I can go first. China, specifically, and the Asian markets have been identified as an emerging market for Canadian equine exports. The different countries have even approached Canada to assist them in training their world championship teams. For some disciplines in equestrian sport, they have come to Canada looking to buy horses and get trained on the horses in Canada prior to competition.

The Asian market, especially China, has been identified as an emerging market for equestrian exports. For export of high-end-use horses, the Chinese government has defined Olympic success as one of their priorities. A sub-identification has been equestrian sport success. So it has been a focus of the Chinese government to excel in equestrian sports at the Olympic level. As a result, there has been quite a surge in importing high-end, high-value equines, and Canada would like to be part of that process.

The problem right now is that we don't have an equine trade agreement regarding horses being exported directly from Canada to China. As a result, our horses have to go through the U.S. if they're purchased, and it significantly increases the cost associated. When you're buying a large number of horses, if they all have to travel a long distance to get quarantine and export permits, it can be cost-prohibitive versus shopping in the U.S. or shopping in Germany.

So it would be ideal to open up the trade lines. But, yes, Asian markets have definitely been identified by Equine Canada as one of our emerging markets.

Senator Oh: So you have to export to the U.S. first and from the U.S. to the Asian market.

Ms. Cull: I believe some horses have been exported that way.

Ms. Patterson: We have the Chinese market in our sights, both short term and long term. From a short-term standpoint, we see China as a value-added market for some of our products in processing.

For example, perhaps our largest major federally inspected export facility was exporting sheep casings to China. That was their target market and primary market for those products. Based on some phytosanitary concerns — probably not quite so founded; they're more like a bit of a non-tariff trade barrier issue — we have lost the market for sheep casings to China.

With the Market Access Secretariat, we have that market listed as one of our priorities, along with the U.S., for live animals. One of our definite goals is to recapture that market.

On a long-term basis, when we think of international powerhouses of sheep and lamb production, people often think Australia and New Zealand first, but China is the largest sheep-producing country in the world. People don't know, because there haven't been exports; they've supplied their own country with sheep and lamb.

But two years ago, New Zealand gained access to China, in terms of shipping lamb product. That's a bit of an indication that China needs support in supplying demand for lamb.

We had a meeting with Beef and Lamb New Zealand in 2013 where their question was, long term, do you see an opportunity for Canada to help us be a supplier to that market? I thought that was a very important comment, so for a long-term goal, of course, we have our own more immediate low-hanging fruit of supplying domestic demand, but long term, for sure, that is one of the markets we see as a potential for some real trade opportunities in market access.

Senator Oh: Earlier, when you mentioned facilities in Toronto, could it not be done together with federal joint inspection so that your products could be exported overseas?

Ms. Patterson: Our largest federally inspected facility is in Alberta, and they had been exporting the value-added products to China and have since lost that, and I think that is more political than necessarily phytosanitary. That corresponded closely to a New Zealand access to the Chinese market for lamb product. Usually with lamb products comes by-product, and there is a bit of suspicion that that's where that access was lost.

We would welcome an opportunity to get more federally inspected facilities. That's without question. We had two Ontario facilities transition from provincial to federally inspected, but again, with the diminishing ewe flock and diminishing productivity came less processing to be done. Unfortunately, both of those facilities, after having changed to federal inspection, failed and closed because their processing capacity could not support the cost of the transition and maintaining that federally inspected status.

So that's where we need to find a methodology for making processing facilities that service smaller emerging markets to have federal inspection to be recognized for interprovincial movement, to be recognized for export and still be able to thrive despite a lower number of animals being processed. That's the balance we need to find. That would then allow us the opportunity to export.

But the fact that we lost the casings market is not based on federal inspection. That was a federally inspected facility. As I mentioned, there was a very close correspondence to trade negotiations between New Zealand and China in terms of lamb product, and that may have had some influence on it. We would like to see that reopen. That certainly is on our Market Access Secretariat priority list.

Senator Enverga: Thank you for the presentation. I'm following along the lines of Senator Oh. If you think about horsemeat, you're thinking a different view here. Some people will say it's not the right meat for you, but I know that Europe is a high consumer of horsemeat.

With CETA, the free trade agreement with Europe, what is your expectation? Do you think it will be increased? Can we supply the demand? How much increase will we have in trade?

Ms. Cull: That's not something I'm really versed on, but I can find out for you. It's something that we know happens, and it's one of our exports. I can actually find out for you and get back to you on about whether we expect the market to grow. I'm very sorry. I don't have a lot of information on the Canadian horsemeat industry. It's something that exists in Canada, and I can find out the growth rates in the past couple years and what projections will be.

Senator Enverga: Thank you. For the sheep and lamb industry, do you think there will be more market for you in Europe?

Ms. Patterson: I don't think so, again, because we have that low-hanging fruit opportunity to expand domestically. In terms of long-term access in the EU market, they are in and of themselves large sheep and lamb producers. We don't see ourselves in that agreement right now in the short term. I don't know if even in the long term that becomes a prime market for us as much as perhaps the South American, Chinese and Asian markets. They would likely be more of a priority.

Senator Beyak: Thank you for your presentations. My questions are practical for consumers that are watching at home. We have that quite a bit in our committees, and most of our witnesses have told us about selling their products overseas and the use of the Canada brand.

New Zealand spring lamb is a big issue, as well as Australian lamb, as you said, but in my supermarket when I'm buying lamb, nothing is marked "Canada." Is all the other stuff in the cases Canadian lamb, or do we have to market Canadian lamb better with a brand?

For the horsemeat, it's a great delicacy in Europe, as Senator Enverga was saying, and in Toronto restaurants, but we're told we don't eat horsemeat in Canada because factually or as a matter of perception the inspection process isn't the same. I wonder if each of you could give us a little bit of a practical viewpoint on that.

Ms. Cull: I can go first with regard to horsemeat consumption in Canada. The inspection process, as far as I know, is legitimate and the same.

I believe it's a cultural perception with regard to horses in Canada. It is consumed in Canada. I believe around 18 per cent of horsemeat that is produced by Canada is consumed in Canada, but I will have to get that fact for you to be sure. I believe it's more of a cultural perception; horses are often seen as competition partners and companions, not so much as livestock in Canada.

Equine Canada would love to have all equines designated as livestock across the board in all government departments. It's something that isn't consistent. It's not for the horsemeat industry but access to different programs and initiatives agriculturally that would help our unique market share and our marketing initiatives.

Live competition horses are a unique market when you consider them agriculturally. They are born on farms, raised by breeders and are an agriculture product that often turns out to be a sport partner or a companion in Canadian life. With horses designated as livestock, our producers would have more opportunity to engage in different programs and initiatives that are offered federally and provincially if horses were considered livestock.

It's not applied consistently across the board in the Government of Canada, so we'd love to have that happen.

Like I said, the majority of horsemeat in Canada is exported, and I believe that's due to cultural sensitivities around horsemeat.

Ms. Patterson: In the sheep industry, again, we have some of those challenges in terms of getting a Canadian product onto the massive supermarket shelves. We certainly can do more work in marketing a Canadian brand, and we have launched a project that will see more of that coming up. It's a project that will build on our food safety, biosecurity programs and our animal care. We will see over the next two or three years much more concentrated work on a Canadian brand of lamb.

But we have to praise a lot of our provincial organizations because they are capitalizing on eat-local movements. They have some provincially specific programs. They will have a B.C. lamb program, an Alberta lamb program, an Ontario lamb program. Quebec has their Quebec lamb program. Nova Scotia also has a program promoting the local production and consumption of those products in province.

So as those programs build provincially and we work to improve our interprovincial trade and movement of product and build our own internal program to market a Canadian product, we'll see that in the coming years. For sure it's a mandate for us to create the profile of that product to Canadian consumers and ensure it's a consistent quality and safe product, with some of the assurance programs that we can't always be certain were used in other countries in raising them. It is proper standards for food safety, animal care and biosecurity and traceability all melded into one to create a superior product.

I would suggest you keep an eye open for it here in the next few years.

The Deputy Chair: I would like to thank most sincerely the witnesses who have appeared before us today, Ms. Patterson and Ms. Cull. Thank you for sharing your experience and expertise and for making recommendations to our committee.

If there is any other information, as requested by the senators, please send it to our clerk. That would be most appreciated.

Honourable senators, we will now hear our next witnesses from the Canadian Agri-Food Policy Institute. We are very pleased to welcome back Mr. McInnes and Mr. Bilyea, who appeared before our committee in October 2014. Since then, they released a report in February entitled Competing in the World's No. 1 Emerging Market following a trip to China in November 2014.

We look forward to hearing from you. I understand that Mr. McInnes will make the presentation and then senators will follow with questions.

David McInnes, President and Chief Executive Officer, Canadian Agri-Food Policy Institute: Thank you for allowing us to come back to visit with you again. We appreciate it.

As a little bit of background on CAPI, the Canadian Agri-Food Policy Institute, we're an independent, not-for-profit, non-government, non-partisan policy think tank. We bring leaders together. We provide balanced perspectives on issues, and we present strategic choices for Canada.

To help generate a practical discussion about our trade prospects with China and their policy ramifications, we embarked upon a trip to Shanghai and Beijing in November 2014, as mentioned.

[Translation]

With us on that trip were a number of Canadian food companies and organizations from across the country, and we met with online food retailers and merchants in both of those cities.

[English]

We also visited the Shanghai Pilot Free Trade Zone and met with the Canadian embassy and the Chinese regulator. If you don't mind, I'd like to refer to the handout. You'll see a map on page 1 of the places we visited in those two cities, and a representation of the companies and organizations that came with us in November. As the chair mentioned, we published our report in February 2015.

The focus of our trip was quite simple: How can Canadian food companies get more products on the retail shelf in China? Today we'd like to share with you some observations, lessons and recommendations, and we'll close with a final comment, but first I'd like to share our key message.

Chinese retailers want to present more Canadian food and beverage on their shelves, or virtual shelves as the case may be, but we're being largely outflanked by our competitors. We did see Canadian food and beverages on the shelves of Chinese supermarkets and on China's e-commerce sites, but there's more work to do.

If you look on page 2, you will see an example at the top of a store shelf in Carrefour, which is a large French retailer in China. You will see an array of foods presented in a store flier, but not a Canadian product. The good news is that we can do something about this, and I'll turn to our observations.

I'll start with physical grocery retailing. Chinese food retailers are in vigorous competition to drive up consumer traffic. They're looking to differentiate their food offering to Chinese consumers. Among upscale retailers we visited, over 70 per cent of the products on the shelves, the SKUs, the stock keeping units, are imported. On one of the online retailers, it's over 80 per cent. We saw clear evidence of how our competitors are using in-store displays, promotions and tastings to win over their customers.

On page 2 you'll see an Australian beef display at one of those high-end stores in Beijing. The picture is small, but you'll see there are posters of the Australian landscape. It talks about the feed protocols, quality, environment, and there's the Australian flag, so it really draws down on the national brand, if you will.

To deliver on this promise, Chinese retailers are actively seeking out new supply relationships to secure quality food products from the West and elsewhere. For example, one major retailer, Beijing Hualian Group, recently located its North American buying office in Toronto. For purposes of transparency, Ted Bilyea, our chair at CAPI, is a Canadian director of this affiliate.

Turning quickly to online commerce, while only about 10 per cent of all retail sales in China are done online, e-commerce is growing rapidly. China surpassed the United States as the number one e-commerce market in 2013, and buying food online, which is not high today — it represents about 3.3 per cent of purchases — is one of the fastest-growing categories. Major Chinese online retailers have created dedicated platforms to profile the foods and beverages of several countries, our competitors, such as the United States, Australia and countries of the EU. You'll see on page 2 some flags in an image. This is off one of the online sites where the online company is profiling food festivals from these various countries. Then you drop down and you get exposure to the products being sold on that particular site.

Canada has done some online promotions and is now exploring new possibilities, but right now our competitors are putting a better foot forward.

There are a couple lessons, and I will talk about the importance of targeted relationships. In our collective desire to urge companies to export to China, we may be ironically overwhelming their capacity to do so. Canadian food companies not already exporting to this country might want to move away from feeling like they need to look at the entire country to export to as one market. Initially, they might target one grocery retailer in one Chinese city to gain entry into this vast marketplace. There's a lot of choice.

Retail concentration is very low in China. The top five retailers, for instance, have a combined market share of 6.5 per cent or close to 7 per cent, so being selective is vital to relationship-building, as well, as we know.

Second is the importance of trust as a brand driver. On the heels of many tainted-food scandals in China, traditional and online grocers wish to satisfy that ever-rising consumer expectation for safety and quality, and for food to be sourced or produced in a clean environment. To quote one Shanghai grocery store manager with whom we met, "Chinese people don't trust food grown in China."

These are among the attributes that Canada's brand can leverage in seeking greater prominence among these leading retailers. There are opportunities for commodities and value-added foods alike.

But other countries have moved quickly to deliver trusted sources of supply, and the premium for imported baby formula, for instance, from New Zealand and elsewhere has made this point clear, particularly when we visited and saw the baby food and other formula available on the shelves.

I have a few recommendations about promoting Canadian. A consumer revolution is occurring in China, driven by rising incomes, the burgeoning middle and upper classes, and urbanization. This is driving up food imports, and Canada needs to keep pace. We need to leverage our food brand and develop, for example, a "Canada online food festival" of our own in order to give companies, particularly small and mid-sized enterprises, the advantage of promoting their products to Chinese consumers.

We need to try this out and see if it works in Canada. Some food products are very well-suited to the online world, such as lobster, wine and cherries. But we also need to keep in mind that 90 per cent of retail purchases are still made in traditional physical settings. Still, the idea about the online festivals is at least giving Canadian food companies the chance to have a level playing field with other exporting countries in the growing e-commerce market.

The second recommendation is clarifying the rules. More needs to be done by trade organizations and governments to clarify the export-import process and facilitate regulatory approvals in China, particularly for new or niche products. We spent a lot of time when we were there visiting the stores and the organizations with our companies on that trip just trying to understand what the rules of the road were, how to get product in and how to navigate China's complex processes.

We suggest in our report the need for a road map that would not detail every regulation but would actually capture vignettes or case studies to show how some exporters do it in order to learn or identify the principles. We were therefore pleased to see that only a couple weeks ago the Ontario government, after its recent trade trip there, issued a press release and adopted this idea of a road map for its exporters.

Third is strategy. There are two parts to this. In the near term, much attention is understandably focused on improving access for our biggest exporters, and the largest by far is canola oil, at about $1.2 billion in business in 2013. Value-added or further-process exports, such as wine and packaged foods, represent just over 1 per cent of the total export value. The latter sector is a growing focus of our competitors' interest, and as an investment in our future competitiveness, we need to enable access for these products as well.

Over the medium term, we need to reflect on what Canada's China strategy is and how it should evolve. Should we include setting goals, such as doubling or tripling Canada's value-added agri-food exports? We need to decide how we can truly differentiate Canadian foods, beverages and ingredients from our competitors to gain greater share.

Today, just to note, we supply only about 4 per cent of China's food imports.

We also need to consider market access in terms of the geopolitical context. Other countries are securing free-trade agreement deals with China. Free trade was not a subject or purpose of our trip, but the companies that we travelled with certainly observed that Australia — and there was a lot of publicity about this in China at the time — had secured a deal with China, and they wondered about Canada's plan to ensure future access.

I'd like to conclude with a final comment. Moving forward in this market, and perhaps every market, requires increasing alignment between industry and government. We saw what others were doing in China. Our trip only reinforced the point that the need to be even more collaborative and more strategic about differentiating and delivering on our trade opportunities is a priority so that we can start out-flanking our competitors.

Thank you very much.

The Deputy Chair: Thank you, Mr. McInnes. We will start questions with Senator Ogilvie.

Senator Ogilvie: It's a very interesting presentation, and there are a lot of things in there one could ask about because of your role in looking over trade in the agriculture sector — and you look at all sectors of agriculture, at least according to your pamphlet here.

I want to ask a question that gets into the issue — I'm not dealing with China specifically at all here — of non-tariff barriers to Canadian goods. I'll preface it with the example of pesticide residues, where some countries put a zero-tolerance level on pesticide residues. But the reality is that there's no such thing, but that can act as a de facto barrier to importing certain products, such as grains, into their countries.

I want to come to the issue of antibiotic resistance, which is a growing international pandemic concern; it's a major health concern for humans around the world. Generally in the poultry and beef area for a long time and continuing, there has been an indiscriminate use of antibiotics as supposed growth promoters in these particular areas. While a number of producers have recently said they're eliminating that from their practice, a fair amount of it is still going on.

Are you seeing any indication of international markets, particularly the European markets, identifying that they want to import only beef and poultry that has been produced under conditions where antibiotics are not indiscriminately added as part of the food growth chain? In other words, is anyone using that as a non-tariff barrier, but with that focus on antibiotics?

Mr. McInnes: Thank you, senator. I'm going to start the answer, and I think Ted might jump in, as well.

When we were here last, we came with our recent report in hand that we'd published in the early fall of last year where we framed the issues of competitiveness and trade in three buckets: We need market access — free trade agreements or other requirements; then we need to address a whole range of regulatory, non-tariff issues that any company or country needs to face once you have that access; and, finally, we need to ensure that supply chains and governments have the capacity to get the product to the retail shelf, and what is required to deliver the final product there.

All three pieces need to work in harmony. We need to get all three right if we're going to be competitive. That puts a point of emphasis on the need to also address these non-tariff or other barriers. Perhaps with that context in mind, maybe Ted wants to offer a thought.

Ted Bilyea, Chair of the Board of Directors, Canadian Agri-Food Policy Institute: Yes. I think you're on a point that is very strategic for Canada.

I'll start out by saying I agree that strategically it makes a lot of sense to have a level that's not zero because that becomes too political. But I'm going to say something that might be controversial, and that is I think Canadians will be well-served by having a level that would be at the detectable limit. I say that because I believe — and I've seen some data on this — that we actually have very low levels in general in all of our animal products. The reason is that we are less challenged, far less challenged than our big markets and some of our big competitors. And therefore we can operate in a system of lower antibiotic use than occurs.

I think the issue is in the measurement, and not how it's used. If we do go there, we will find some countries that do not permit antibiotic use as an animal feed growth promotant will have problems exporting because they have to use it significantly in the treatment of animals. I believe that will catch some of our larger competitors.

I think the industry in Canada is coming around to that view; many of the larger companies are. What we need is to focus on as low a standard as possible at the detectable level in the food product, so we essentially don't want it at the detectable level. If we can get our heads around that concept, it's going to make Canada much stronger and give comparative advantages in many other things that we know about. We'll get a lot more reward for those comparative advantages. They're taken away from us today because we're forced down to more lax international standards than would otherwise benefit us.

Senator Ogilvie: I'll just clarify my question a bit more on the antibiotic issue. I agree with you entirely in what you've said with regard to the detectability and so on. There's a rational limit that you can deal with.

In the case of antibiotics, I wasn't looking at residue of antibiotics in the product. It's the fact that they are used in large quantities as supposed growth stimulators and the idea that if the country is known to be allowing that to occur in its food production, even though there will not be any residue on the product, it is possibly enhancing the increasing development of antibiotic resistance in general, including the element of impact on human health, which is a concern.

Since it has been raised in at least one European parliament, my sense is that it would be wise for Canadian producers to get ahead of the curve on this one as there's not terribly good science to suggest that the rampant use of antibiotics actually leads to significant growth enhancements. The use of antibiotics in animals for veterinary use is accepted worldwide, and that's not the issue I was asking about at all. I thank you very much for your response.

Senator Oh: Thank you, gentlemen. It is nice to see you back here. You had a great trip to China. What you said was absolutely right about the food problem in China. We only have 4 per cent of agri-food exported to China, and that's a huge market. In some of the cities I travel to, I went to the supermarket to take a look, and I couldn't find a single item of Canadian-made products on the shelves. They need quality food from Canada.

What were the key findings of your mission to China? What would be the best strategy for Canadian businesses that are interested in pursuing the Chinese market? How could the federal government help with that strategy?

Mr. McInnes: Thank you very much, senator. The key finding of our trip was to observe quite clearly that, to reinforce your point, one might be able to identify a product that's on the shelf, but from the other countries that we compete against. Because the Chinese retailers and consumers want trusted product from abroad, we are largely absent from the shelf. However, there are exceptions.

It was an anecdotal piece of evidence, but it is born out of the data that we further provided here about the percentage of our value-added exports. It leads to a key observation, which is how do we enable a small, mid-sized or even a larger company to understand how to export and what support is required? The rules are complex. They're ever-changing. They can be fickle, so clearly understanding how to export is a vital part of that.

What's interesting is that some of the larger chains in China and e-commerce providers are trying to facilitate the import of these quality products from around the world. We're seeing these Chinese entities reaching out beyond their borders to try and enable that. For example, Carrefour, as I mentioned, which is a French retailer, has its own private-label brand, and it's making efforts to try and facilitate imports of product because of that.

The key task, then, is to bring together the Canadian brand, to bring together the regulatory access and to bring together the channels that we want to focus on and leverage our capacity, recognizing that we're not the biggest player. That led us to believe that a good place to start is to marry up our export strategy with how to get greater visibility on these e-commerce sites, and then hopefully use the physical retail locations to allow consumers to touch, feel, smell, pick up and handle the product as a complement.

What I'm painting here is that there's a web or a holistic approach. It's not just, "We need X." It has to carry through on a number of pieces so that we can be more strategic.

Senator Oh: Ted, do you have anything to add?

Mr. Bilyea: David has given you good overview. I would add that there are some other things that are much longer-term that will be necessary. The first is that we're going to have to develop a new relationship between government and business in this country. We're going to have to be collaborative in how we approach this market.

The reality is that if we don't have size — and most Canadian businesses don't — then we're going to have to work extraordinarily hard at being different, and that attracts the retailers on small-scale items.

On some of the large items, we're simply going to have to try and find ways to collaborate enough so that we can be bigger. We need to have some size that means something there. In order to tackle any broader part of China, we're going to have to be bigger. We have to work at growing our companies, but that's something we should be doing anyway.

We also need to have better knowledge. We have to develop our networks in China, particularly for the leadership of our businesses and government. We need personal networks in a bad way because we're going to have to be able to do things. Many people in the meat industry have an idea that if we can just make a sale to a supermarket or an importer, we're fine, we're done with it. The reality is so much more complex than that, because as you know, most retailers don't even own their own meat counters; they rent the space. The meat companies in China provide the people behind the counter, provide what's in the counter, and the store just makes a rental fee on that, and a markup.

So when you talk to Canadians, they have this concept that they're going to sell their product to the retailer, and they don't even realize that's not how the store works across China. There are so many complicated issues like that that only developing personal networks, spending time and putting networks on the ground are going to work. I don't see this happening unless government and business work closer together in this country. The knowledge gap, let alone the leadership gap, is huge. I would add that to David's comments.

Senator Oh: For the Chinese and Asian markets, normally, the culture is they want the government from here to lead the way. It's the trust and the brand name of the maple leaf. That's what they want to get onto the shelf.

[Translation]

Senator Maltais: Thank you and welcome again. Churchill used to say that having a good strategy was half the battle.

Given the state of the market, we should probably do as you suggest, and as it says here in these notes, and alter our strategy for Asia. Which niche markets does the population need filled? In which areas of Asia's food market could we compete with the French, Australians and Americans and all the components of the existing chain? There must be some niches that are still open. I think it would be in Canada's best interest to get into those niche markets, given how large China's population is. I don't think everyone necessarily eats beef, chicken, filet mignon or Heinz ketchup every single day; some niche markets must still need to be developed, markets that Canada would do well to tap. Having been to China a number of times, you may have identified some of those areas. These markets could hold significant potential for us, in terms of a new strategy for Canadian exports.

[English]

Mr. McInnes: Thank you, senator. There are so many different ways to answer that question. I'm going to take one approach on it, and Ted might offer an additional view.

I don't think it's up to CAPI, our group, to say this is a niche for Canada. There are a lot of good marketing people and companies out there that could do that.

However, I would like to focus on maybe not looking at today's niche but looking at what might be tomorrow's niche. We were given a really interesting indication of this when we were in China, and I'll tell a small story.

We were there during the APEC leaders' event in Beijing, and they took, I think, a million cars off the roads, closed thousands of factories in the valley around Beijing so the smog would evaporate, and you could see the sky for the first time in many years, maybe since the Olympics, so the sky was called "APEC blue."

That is significant to the question because I think there is a rapidly emerging feeling that food is being produced in contaminated soils and water in China and that the issue of the environment and sustainability may become or is becoming an important issue in that country.

When we were visiting stores, we saw organic product. We saw product that was emphasized from the standpoint of safety and price. We saw local products.

What we didn't see, at least I can't recall, was where sustainability was a driver, as we see here and in Europe.

Perhaps the future niche for Canada, although they want food produced from the West in a clean environment, it's translating that so that our niche might be to be one of the more sustainable food producers in the world and build our brand truly around that and beyond where we are now. We use the words "quality" and "safety," which are important — "taste" as well — but perhaps our future niche is to truly leverage that clean environment and how food is truly coming from the soil, water or air. That is a Canadian future advantage.

It's not responding to how we can beat Nabisco at cookies, although certainly there might be opportunities for Canadian food manufacturers in that domain, but where is our future niche. I think this is tied to the brand. It is tied where industry and government, as Ted mentioned, could be far more strategic and collaborative, and I think there is a conversation at the very least that needs to be had on that.

Mr. Bilyea: I agree with David. I think that the Chinese and, in fact, many Asians, are, like Westerners, making a connection between food safety and sustainability. They go hand in hand. If you exceed the carrying capacity of the land, you're probably going to wind up with a food safety issue in order to do that, but you're definitely dealing with a sustainability issue. You're drawing down the aquifer — northern China is the same as California — or you are putting far too much carbon into the atmosphere and you'll make the situation unlivable.

Canada is in a unique position. Very few countries could say they are able to actually increase production without significantly damaging natural capital. That's a pretty rare thing. So as people begin to link the two issues, health on the one hand and food safety together with sustainability, that's a niche that we could drive a truck through.

[Translation]

Senator Maltais: So Canada should focus its advertising and marketing on food quality and organic products. That might be a potential market for Canadian companies in the future, not necessarily today. That would be a niche market that the Canadian government could hone in on when marketing to the Asian population.

[English]

Mr. McInnes: Essentially, yes, although I would just add it's what industry and government need to do together. It's not all on government to create this.

Another comment I heard from a Chinese retailer in thinking about Canada was, what is Canadian food? Is it Ameri-Canada? Coming to a point that Ted raised earlier, how do we differentiate ourselves? That's the niche question. I don't think it's up to one department of government to come up with that answer. That's a big ask.

We need industry. We need those who manage the land. We need researchers who have the science. We need the regulator, definitely. We need leaders in industry, government and academics who think these things through.

We need a full-on systems approach to compete in this future world. Otherwise, we might just be relying on a price competitive stand, which is fine. That's an option we can decide to take.

This trip to China, while this is not our ordinary business, was a learning experience. It put perspective on something for us, and I think it's something that we're going to put more thought into ourselves.

[Translation]

Senator Maltais: That's really our mandate, innovation in agriculture. To my mind, that isn't the government's job but, rather, industry's. Of course, the government can support those efforts, but it's up to the industry to take the lead and follow your advice. The fruits of innovation aren't instant; instead, they take 10, 15 or 25 years to materialize. That's an opportunity that we can work on, according to your expertise and observations on the ground. Thank you. That was very insightful, and you've done a great job.

Senator Dagenais: Thank you, Madam Chair. And thank you to our witnesses. I'd like to pick up on the Canadian brand. It's a challenge, as you pointed out. When Canada's brand isn't familiar to consumers, our products end up on the bottom shelf in Chinese supermarkets. It's the same in Quebec's liquor stores, where Italian wines are prominently displayed, while Quebec wines appear on the bottom shelf. Displays and shelf placement are important, and we need to make retailers there understand that.

I'd like to come back to the topic of online grocery shopping. You said e-commerce had grown rapidly. Are there other markets where the online sale of food products holds significant potential for exporters?

[English]

Mr. McInnes: Thank you, senator. I don't know if there are any other markets. Maybe Ted might offer a view.

I would just like to pick up on the opportunity of the online aspect that's intriguing, because I think you put your finger on it precisely: How do you get visibility with a billion consumers when the world is trying to compete in the same marketplace?

This is why, in part, we focused on the online opportunity as an indicator of what we can do — namely, let us lead with our best and known products, which are lobster, some other seafood, perhaps maple syrup, icewine and maybe a handful of others. Let's lead with those on online sites where people search for and purchase icewine and lobster. Then, underneath that, would be all sorts of other products that we produce across this country.

So people might be thinking of Canada in terms of seafood, but they might not have thought that Canada offers X, Y and Z product. That's why this online opportunity is intriguing; it is not a panacea, but it is intriguing, because it may allow a coattails strategy to promote product for some of the small and mid-sized companies across the country.

Mr. Bilyea: I agree with what David said about online. I'm also an advocate of trying to have companies work individually with retailers — to use a retailer — pick any one they want — as a showroom in China for their product. There has to be a place to go to touch and feel and see, and then it complements that. It works better with the online. I think that's a key thing.

In order to get this array of products going, we're also going to have to consider doing more. I know the government has put additional assets into the market mechanism for looking at increasing our ability to have market access. They put money there, and that's a good thing. But they're going to have to do more, I think, because there are so many products on the Market Access Priority list, even just for China, let alone the other countries — but just for China there are many other products.

What I don't quite understand is why industry isn't jumping into this in a bigger way. In some cases, there are paybacks. Industry will usually go and build something and invest if you've got a two- or three-year payback; that's usually not a problem for industry. But I don't know why we wouldn't look at even helping out the government. I'll give you a simple example: poultry. The back-end half of the bird gets exported, and the breast stays here. We keep the breast and don't know what to do with the rest of the bird; it goes offshore, even though Canadians should eat more legs because they taste better, but they go offshore.

China is the highest-paying recipient for leg meat, and they love to have leg meat. The supermarket I'm associated with keeps asking me, "When can you get Canadian chicken? We'd like to brand it." I tell them I'm sorry, because we have no protocol with China, so we're not allowed to bring it in through the legal mechanism to China.

Somewhere buried down in that list of market access priorities is chicken. But there's a payback on that, because the cost of getting it in and the amount of money you would recoup would surely pay the salaries back if we put two more people on it and get it done. It would be a two-year payback, I'm sure.

The Chinese have no objection to it. It's not in the queue, so to speak. How many items, if we had people working on them, could we have done? Then go and ask the industry, "Why wouldn't you fund the darn thing and get it done?"

There are some questions like that I think just need to be asked.

Senator Beyak: Thank you, gentlemen. It's good to see you again. I thought about the Canada brand ever since the last time you were here. It sounds like it was a productive trip.

Looking at that one picture, I wonder how much Canada's flag would stand out with mountains, streams, fish and lobster around the flag, so I think you're onto something there. Also, there's the government-industry collaboration. I think that's essential.

I wonder if you could elaborate for me what we could do here as a committee to help that happen. We're going to be making recommendations, and it seems everyone is on the same page, but we almost need a coordinator to make it happen.

Mr. McInnes: Perhaps this is one of the more challenging questions: How do you foster collaboration? We're in a federation country. There are many associations representing different interests in the agri-food sector — competitive supply chains, different parts of the country, different sizes. It's the ultimate question for Canada: How can we do better?

There may be a handful of ways. We issued a report last year on the competitiveness of the processed-food sector, which is the number one manufacturing segment in the Canadian economy, by the way, in terms of GDP and number of employees, and it faces some challenges. In that report, we suggested that this issue of promoting collaboration is not just a government industry question; it's actually an industry-to-industry question, as well.

It's almost a governance issue. Having diverse representation on boards of directors of associations that represent other interests is one small way to increase the exposure and broaden the voices around the table. For example, why wouldn't a producer organization have a retailer sitting on the board, and vice versa?

This is an opportunity as we become more competitive. We're not just competing food product to food product; we're competing supply chain to supply chain. So we need this broader number of voices around the table.

By extension, how can we involve government more? There are opportunities such as various round tables that are representing government and industry at the federal level. They play a role. But I think that you can't just have one entity. This has to be a cultural, if not endemic, approach to how we foster good ideas.

Senator Beyak: Mr. Bilyea, do you have anything?

Mr. Bilyea: I think he's covered that very well.

Senator Enverga: Thank you for your presentations. I know there are some sort of challenges with our industry here with regard to agriculture, especially with our beef and maybe some dairy products or poultry.

I was thinking that almost every industry — let's say the beef industry was telling me that there is some sort of challenge with regard to manufacturing processed foods because of the labour shortages here. Is there ever a trend that maybe some beef producer would just ship the whole beef there to be processed, let's say, in China, because of the low cost of labour there? Was there ever talk about outsourcing our processed products to China?

Mr. Bilyea: As you know, we do that in the fish industry today, and I think there are some economics heading in that direction.

At least one of the processors of beef in Canada is now asking anyone that wants to buy the beef for China, other than the beef offal, to take full sets, which is essentially what you're saying. That means we are being pulled in that direction to some degree, where labour is the key issue. Where we can add capital to handle this labour shortage, that's not the case.

It's industry by industry and very specific. There are many cases where we have seen some of that further processing repatriated here. As you probably know, in China, particularly, the retailers would like to have fully processed product manufactured here and labelled here, and done in such a way that it can be guaranteed that it's not counterfeit.

So we have two different things pulling against us here. We have this labour economics issue, which we have to think about, but we also have this consumer demand issue on the other side that is saying, "No, I don't want you to send the bone-in beef over there and have somebody cut it up because I don't know it's still Canadian. It can get lost in the processing in China, even if it's not intentional. It goes into plants that handle multiple species, multiple country-of-origin products."

This is a complicated issue, but we know what the consumers want. They want a product where they are guaranteed that it's produced here.

Senator Enverga: I'm glad to know that. I'm happy about your reply.

The Deputy Chair: Our committee is considering a fact-finding mission to China in the future. Do you believe that this would be a worthwhile endeavour, and if so, what would you recommend that we should see and do based on your experience and recent trip to China?

Mr. McInnes: That's a very good question. Our trip faced some limitations. We only looked at two big cities, only on the east coast essentially, which were Shanghai and Beijing. We acknowledged that for our own purposes, we have a view of China and not a diverse view. It's a big country.

I think that any time we can get a better insight on this very fascinating and complex country it is a good thing. As the title of our report said, this is the number one emerging market and a very important trade partner for Canada, the number two for agri-food exports. The more we can understand and leverage those opportunities and relationships, as we mentioned earlier, the better.

But the diversity of views is quite important. Acknowledging that we didn't have a lot of time, we only looked at one part of the supply chain, essentially the retail side. We didn't look at the processing or some of the others. That might inspire you to see how broad a view you take in the agri-food space.

Mr. Bilyea: I would encourage you to do as much homework as you can beforehand and, as David said, look at all aspects of the supply chain to the consumer.

I would want to go with the thought in my mind of what Canada's position is on the issue of who is going to benefit most from this trade. I say that because I believe that we have a very limited time in which Canadian companies are going to be able to grow and do things in China. China is coming here in a very big way. They have recognized what Canada has, from all of our food products and production, and they're going to find ways in which they can service their market one way or the other. If Canadians today are going to fully benefit from that, we are going to have to understand it much more and be able to grow much quicker.

I would very much encourage you to do that, but I would keep in the back of your mind that the food trade between Canada and China is not something that is going to happen or not happen; it's going to happen. However, it's under what conditions it is going to happen and who is going to benefit most by it. Are we going to see Canada have any real control over that? Those are the fundamental questions, I believe.

The Deputy Chair: That will be very useful to our committee.

[Translation]

Senator Maltais: After listening to your remarks, I got the sense that you were sending this message to the Canadian Federation of Independent Business: "You have some homework to do for the future." I hope you'll share your beneficial experience with them. The Canadian Federation of Independent Business definitely has some homework in preparation for the future, and it needs to step up. Otherwise, we could miss the boat, could we not?

[English]

Mr. McInnes: Thank you, senator. I will just come back to our trip. We had several food companies and organizations from across the country come with us. They wanted to do their homework. They wanted to better understand what it is about China that's so compelling.

We understand that since that trip some of the companies have increased their business and others have added to their strategy, and they have not just jumped in because it's the trendy thing or something that we feel we need to do.

In a way, yes, we need to do our homework, but the obligation to do better comes back to a theme we've represented. All parts of the food system, from government regulatory and all across the supply chain, need to do that homework, and maybe even doing it together can be useful. We can have the access, the protocol, we can have the product the consumer wants, but if we can't get it out of the Port of Vancouver or get it shipped for whatever reason, we're not following through on our obligations to be a trusted supplier.

So it is a systems view that's required here.

The Deputy Chair: On behalf of the committee, I wish to sincerely thank David McInnes and Ted Bilyea for being present before our committee this morning. Thank you for coming back and for sharing your very insightful comments regarding your most recent trip to China.

With that, I declare the meeting adjourned.

(The committee adjourned.)