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

Issue 29 - Evidence - Meeting of May 28, 2015


OTTAWA, Thursday, May 28, 2015

The Standing Senate Committee on Agriculture and Forestry met this day at 8:34 a.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: Before I introduce the witnesses, I would like to take this opportunity to share with all senators and people listening to us and watching us on CPAC that yesterday Senator Tardif, the deputy chair, and I tabled the report on bees.

It was reported to me this morning that we've had a lot of hits on the web, a lot of articles being criss-crossed from coast to coast, and also in the U.S. and in Europe. The officials we met when we interviewed them by video conference and/or by visiting them in Washington, D.C., were impressed by our recommendations. We will follow this, but I would like to take this opportunity to thank each and every one of the senators. It was a report welcomed by the industry.

Last night I spoke to a leader of the industry and they were very content to see that we were making recommendations that were balanced in order to sustain bee health and also recommending that solutions have to be based on science rather than hearsay or gossip. As chair, I thank you very much for your cooperation, collaboration and your presence. To the witnesses that participated — 85 of them — I take this opportunity to thank you again.

[Translation]

That said, I would like to welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. I'm Senator Percy Mockler from New Brunswick, chair of the committee.

[English]

At this point, I would like to ask senators to introduce themselves.

Senator Merchant: I'm Pana Merchant from Saskatchewan.

Senator Beyak: Lynn Beyak, Ontario.

[Translation]

Senator Tardif: Claudette Tardif from Alberta.

Senator Maltais: Ghislain Maltais from Quebec.

Senator McIntyre: Paul McIntyre from New Brunswick.

[English]

Senator Unger: I'm Betty Unger from Alberta.

[Translation]

Senator Dagenais: Jean-Guy Dagenais from Quebec.

[English]

Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.

The Chair: Before we proceed, senators, another comment I'd like to make is to recognize the hard work of our staff through the clerk, Mr. Pittman, and to Aïcha Coulibaly. When we arrive at our meeting the clerk has connected with the witnesses. We have a sense that the witnesses are knowledgeable in the field and aware of the mandate we have received.

[Translation]

This morning, I would like to recognize the work carried out by our clerk, Kevin Pittman, and his team. Today, the committee is continuing its study on international market access priorities for the Canadian agricultural and agri-food sector.

[English]

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

[Translation]

The sector accounted for 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. In 2013, Canada was the fifth largest exporter of agri-food products globally.

[English]

Canada is engaged in several free trade agreements, FTAs. To date, we have 12 FTAs in force. The Canada-EU Comprehensive Economic and Trade Agreement has concluded, and 11 FTA negotiations are ongoing including the negotiations to modernize the Canada-Costa Rica Free Trade Agreement.

[Translation]

The federal government is also undertaking 3 exploratory trade discussions with Turkey, Thailand and the member states of Mercosur (Argentina, Brazil, Paraguay, Uruguay and Venezuela).

From the Conseil de la transformation agroalimentaire et des produits de consommation, we welcome Ms. Sylvie Cloutier, president and CEO. We are also welcoming Mr. Dimitri Fraeys, vice-president, Innovation and Economic Affairs. From the Agri-food Export Group Québec-Canada, we will hear from Mr. André Coutu, president and CEO, and Raymond Dupuis, economist and strategic adviser. When we invited you to appear, we gave you some instructions about your presentation. Following your presentations, we will move to questions.

Feel free to let us know what you think. We want to hear your point of view with regard to the next step in these agreements. We will ask Mr. Coutu to make his presentation first, and then Ms. Cloutier. Mr. Coutu, the floor is yours.

André Coutu, President and CEO, Agri-Food Export Group Québec-Canada: Thank you, Mr. Chair, senators. It is my pleasure to appear today before your committee to discuss issues related to the export of Quebec products throughout the world.

The Agri-food Export Group Québec-Canada is headquartered on the South Shore of Montreal. It is a business group with 400 members, including 359 agri-food manufacturers from all the regions of Quebec.

The group's mission is to promote our food and beverage trade throughout the world. We help our exporting members gain access to markets.

On average, we participate in approximately 25 international events annually, like agri-food fairs in China, Japan, the United States, and South America. And we receive buyers. We plan to carry out market evaluations throughout the world to help businesses better position themselves with regard to these markets.

We are also partners and shareholders of the international food exhibition which just took place in Toronto. This exhibition is an extraordinary platform for Canadian food products. During the latest event, we welcomed about 50 countries and 15,000 other visitors from the agri-food sector. This event is not for the wider public; it is tailored to business people. About 750 Canadian participants exhibited their products during the event, which was launched about 12 years ago in order to promote the interests of Canadian businesses.

The Agri-Food Export Group Québec-Canada works with the Department of International Trade and Minister Ed Fast, who has done excellent work over the last few years. We support his efforts. We believe that this is the right way to do things: break into foreign markets, develop markets, start negotiations, specifically with Europe and Korea. Soon, there will be the Trans-Pacific Partnership.

I have had the opportunity to speak with Minister Fast on a variety of different topics over the last few years. He had planned to attend the SIAL tradeshow in Toronto with Minister Ritz, but unfortunately, the Prime Minister asked him to stay in Ottawa because of other priorities. That said, they sent us written thanks for our participation in that event.

Our group works on various markets. The impact of agri-food exports in Quebec is very significant. When I talk of exports, I am referring to all products that exit Quebec's borders. We export, so to speak, as much in Canada as elsewhere in the world, for a total of $14.1 billion. The agri-food industry is immense and extremely important in Quebec.

Internationally, our exports are of $7 billion, of which $4.7 billion are sold to the American market. Clearly, the United States are our most important export market. They are right next to our borders and easily accessible. We have established transportation and funding parameters. We know how to work with the Americans. Of course, we shouldn't make the mistake of thinking that we've conquered the American market, and that we don't need to work any further with the Americans. On the contrary. We need to continue making efforts in that direction. We've only reached the tip of the iceberg. Our exports to the United States represent nearly $5 billion out of $7 billion. That's a huge proportion.

Another thing to take into account is the Canadian market. I'm speaking of the rest of Canada. This represents $7 billion in Quebec, which is quite significant. We agree with Minister Moore's philosophy: lifting barriers between provinces, encouraging interprovincial trade, and opening new markets. We agree with that approach. Nothing should prevent a cranberry grower in Quebec from selling their products to a cookie manufacturer in Alberta, and vice versa. These resources are a priority in Canada as well as abroad.

The impact of exports in Quebec is highly significant. Exports contribute about $1.2 billion to Quebec's economy, and create tens of thousands of jobs, a figure that will soon reach 100,000. Currently, there are 90,000 jobs in Quebec that depend on exports. Looking at the predictions saying that exports will increase in 2015, 2016 and 2017, we can easily say that 10,000 to 12,000 new jobs will be created in that sector, for a total of 100,000 jobs in Quebec alone. If you scale that up to all of Canada, that is quite significant.

At the federal level, the benefits for Quebec are of about $750 million. It's a lot of money, what with government investment and agri-marketing programs to market Quebec products.

Through Agriculture and Agri-Food Canada, the federal government invest $1.1 million annually in our organization for manufacturers. There is a five-year plan. Before, we received $1.7 million. You may be wondering why we now receive less money. This is because our goals have changed.

The government first prioritized emerging markets, the BRIC countries: Brazil, Russia, India, China and Africa. Since we work with processors, especially the Americans, the Japanese, and other markets, there was a bit of a disparity there. Our group is in favour of the sale of wheat, barley, and beef commodities throughout the world. We sell these products whenever we can. However, one shouldn't forget that in the east of Canada, in Ontario, Quebec and the Maritimes, we are value-added processors. We need to support our manufacturers' activities on the international markets.

For SMEs from Quebec, doing business with China is very glamorous. Everyone wants to do business with China: that's the way of the future. Everyone says that we need to go there, that is where there is development, and they ask us why we are not there already. People really insist on that.

For our China missions, we recruit about 8 to 10 Quebec companies, including 4 maple syrup companies and 3 from the fisheries sector, and that is all. But when there is an activity in Chicago, we recruit 50 or 55 companies. So of course I am not saying that we are not interested in going to those countries, on the contrary, we are very interested. We're in the Middle East, we are everywhere. However, this requires significant financial and human resources for companies, and not everyone can manage it, especially since programs are limited currently. Smaller companies try to do business with more accessible partners rather than spent a lot of money travelling to the other side of the world to try to find new opportunities.

I'm talking about this reality because I believe in the American market. We need to continue working hard there. We work with a large company which does business-to-business work on the American market, which is where companies meet face to face for two or three days. This helps agreements get signed and helps our companies on the American market step up.

With regard to the European market, we need to take measures. We need to do that, because the government has opened up that market. We have a free trade agreement which is currently pending, and we have about two years to position ourselves. If we don't look sharp, the Americans will get in ahead of us. Already we've seen some international reactions, like Japan which is starting to procrastinate, saying, "The Americans are coming in there, so maybe Canada will be less important."

The United States and some European countries have set up committees to monitor non-tariff barriers. In the area of plant health, they have specialized teams that look at what is happening, find ways to get around barriers, get into countries and position themselves. In Canada, we just don't have enough resources. We recommend that the Canadian government allocate additional human resources so we can position ourselves given what's going to happen on the European market.

We are talking about 500 million additional consumers. Of course, it's not going to be easy, and we'll have to work hard, but these are major opportunities for our companies. We need to be there. The Americans are very strong, and the Italians too. They support their companies. People think that export programs are very expensive, that there is not enough money, and they say that we need to be patient. However, international companies are subsidized. The countries that are competing with Quebec and Canada are highly subsidized. When we participate in the SIAL tradeshow in Paris, or other major international fairs, the companies there, whether there are 40, 50 or 100, are fully subsidized, which is not the case for us.

Therefore, adjustments need to be made, and our first recommendation is that the government continue to support our efforts on American markets. And obviously, we need to make Europe a priority so that we can position ourselves now on that market.

We recently undertook an important study with the Institut de la statistique du Québec, that provided us with a 150-page report on the situation and context for foreign trade and exports. The report contains important elements which I will not attempt to explain in any detail because only an economist would be able to do that properly.

As I was saying, one important point is that, in terms of total production on the domestic market, Quebec generates approximately $22 billion. It is therefore self-sufficient, because this is approximately 53 per cent to 54 per cent of what is produced in Quebec. I already spoke to you about sales outside Quebec.

The other point I wanted to make concerns our percentage of imports from the European Union, where we have a significant trade deficit. In fact, European Union sales on our market represent $1.8 billion per year, whereas our sales represent $730 million annually. That is an annual difference of $1 billion, which is not insignificant.

We have to find new methods and ways of correcting this and exporting more to the European market. However, in order to achieve this we need a group strategy. The 10 provinces have to find a platform together that will ensure a strong presence in Europe. We already have a few ideas, more specifically with respect to SIAL Paris, in the fall of 2016. We would like to take advantage of the platform we will have in SIAL Paris in order to create a Canadian happening that will bring together exporters and manufacturers from all Canadian provinces. SIAL attracts 175,000 visitors from 135 countries, and we could seize that opportunity to display our safe food production, to showcase our creativity, and to make sure that the Europeans get an opportunity to see how we do things in Canada and how we can occupy a predominant position on that market.

The number to keep in mind is a $1 billion-dollar deficit. Thank you.

The Chair: Thank you, Mr. Coutu. Ms. Cloutier?

Sylvie, Cloutier, President and CEO, Conseil de la transformation agroalimentaire et des produits de consommation: Honourable senators, it is a privilege for me to be here this morning. Thank you. The CTAQ, the Conseil de la transformation agroalimentaire du Québec, is a council of industry players. We are a federation of small industry associations and we represent several sectors, including poultry, maple syrup and bakery products.

The CTAQ's mission is to represent and promote the industry's interests. Our members account for approximately 80 per cent of the annual sales of the agri-food industry in Quebec, in other words, approximately $18 billion or $19 billion out of the $24 billion total.

As you said, the food processing industry is the most important manufacturing sector in Canada and in Quebec; it is our best kept secret. It is responsible for 259,000 jobs in Canada. Furthermore, the food processing industry represents 16 per cent of the manufacturing sector, 17 per cent of the manufacturing jobs in Canada, and it generates revenues of $103 billion, or 6.7 per cent of Canada' s GDP. We tend to underestimate the importance of the agri-food sector, but obviously it is much more important than the aeronautics or transportation sectors in Canada and in Quebec.

Our trade balance — and Mr. Coutu briefly referred to this — has been in a surplus position for the past 20 years. In 2014, it peaked at $14.5 billion, or 14 per cent of the industry's $104 billion in estimated revenues. Canada exports $56 billion and imports $41 billion.

Quebec's trade surplus reached $450 million in 2013, 2 per cent of total manufacturing shipments estimated at $24 billion. Exports were $6.1 billion and imports were $5.6 billion.

Canada's trade surplus has grown over the past 20 years; following a dip in 2009, the trade surplus exceeded the 2008 peak in 2014. When you break down the trade balance, on the other hand, you realize that not all products are in a surplus position.

I am now going to give the floor to my colleague who will continue our remarks.

Dimitri Fraeys, Vice-President Innovation and Economic Affairs, Conseil de la transformation agroalimentaire et des produits de consommation: Good morning. I have handed out some coloured graphs to make it easier for you to follow.

The live animals and animal products category has a $7.5 billion surplus. That is the red line. If you break down the trade balance into four separate categories — that is the second chart — you can see that the second line, the purple line, the fats and oils category, also has a $2 billion surplus. The green line also has a trade surplus; that is the vegetable products category and it represents a $12.7 billion surplus.

On the other hand, the small line at the bottom which keeps going down represents the food products and beverages category, in other words everything that is manufactured and processed. This category has had a trade deficit for several years which reached $7.7 billion in 2014. Exports are $13 billion and imports are $21 billion. That is for all of Canada.

Even if the overall trade balance appears to be in a surplus position, the trade balance of processed food products, the products that have a value, is decreasing, and what we export is mainly raw material. I will go into further detail depending on your questions.

I have tried to break this down and to give you the key reasons for this trade deficit for food products and beverages in Canada.

As you know, the economic environment has changed significantly since the 2008 recession. There has been an economic slowdown, and a fluctuating Canadian dollar. When the dollar goes down, it is good for exports, but it is not as good for purchasing cutting-edge equipment. There is increased competition from imports, which also explains the decrease in the trade balance. Higher input costs have also had a huge impact on margins. I will go into a little more detail later.

The third chart shows why companies have found it difficult to export. Quebec's margin — the small blue line at the bottom — is still lower than the Canadian average, which is the green line in the middle, and the Ontario margin is still higher than the average. There is a reason for this. In Quebec, 85 per cent of companies are small businesses with fewer than 50 employees, whereas in Ontario, there are more subsidiaries of larger multinationals which are able to sustain larger margins.

Another very important factor is the increase in input costs over the past 10 years. I would ask you to look at the fourth chart. The dotted line represents the increase in the CPI; that is what you pay at the grocery store when you buy your products, your drinks, and other items for your meals. That is increasing.

The yellow line represents retail products and the dotted red line represents agricultural products. You can see that agricultural inputs — the small red dots — have been increasing over the past five years.

On the other hand, the blue line at the bottom, which represents the price of processed products, has increased, but it has been stable over the past few years. This is for a few different reasons. One is that companies have had trouble in passing on higher costs to the distributors, retailers and consumers.

There is another reason for companies having trouble exporting. As you know, a few years ago, Canada withdrew the ability for companies to use the "product of Canada" label. The requirement for products to contain 98 per cent Canadian content eliminated just about all possible products, besides maple syrup. This is an important factor to consider in crafting an export strategy, that is the ability to use the "product of Canada" label. Perhaps the 98 per cent could be reduced to 85 per cent, as is the case for product of Quebec labelling.

Another reason why exports are very high is that the food inspection export rules are not as stringent as those for imports. For example, in the case of duck products coming from Europe, the rules are very strict for the first few months, during which 100 per cent of the products are inspected. However, once the importers have proven their reliability, then 1 out of 10 products are inspected, where as in Canada, 100 per cent of the meat is inspected every day on an ongoing basis.

Another important factor, as Mr. Coutu mentioned, is that businesses need labour. In Canada, we use skilled and less-skilled labour. The overhaul of the Temporary Foreign Worker Program came into effect on May 1 and it severely limits the ability of businesses to bring workers into their plants.

Those are some of the points I wanted to share with you. We would be happy to answer your questions at this point.

Senator Maltais: Ladies and gentlemen, welcome once again. I am pleased to have you with us. You represent a significant part of the economy, both the Quebec and Canadian economies. You have brought up some very interesting points. I am interested in the anachronisms that you have raised because they are important.

Let us talk about Canada first. Over the past four years, the Standing Senate Committee on Agriculture and Forestry has done a lot of work on the removal of tariff barriers. We managed to do it with wine, and we want to continue because we have seen that this is a huge problem from Newfoundland and Labrador to British Columbia. Before we attempt to spread the good news in other countries, we should be starting right here by removing the fences along our borders, for all products.

There are three areas in Canada: the eastern part of Canada, the central part of Canada and the western part. Canada does not produce the same things everywhere. In Quebec — and I come from Quebec — we have a very diverse agricultural sector which you don't necessarily find in the western part of Canada. There is also a very diverse agricultural sector in Ontario and in the Maritimes. You talked about the Chinese market. Western Canada produces grains, beef and pork and therefore it is easy to penetrate the Chinese market because these are mass-produced food, if you will.

However the situation is not the same in the case of more refined products, if I can call it that, because we are competing with countries that have a 1000-year-old agricultural industry, and ours is only about 400 years old. There is a whole revolution taking place in the agricultural and processing sector.

Ms. Cloutier, when you were speaking about processing you were saying that the higher the quality, the more costly it is. The two are related. The more expensive the product, the more difficult it becomes to export. We have to strike a balance with our imports. We do not import many basic products into Canada; we produce enough wheat, beef, pork, poultry and eggs.

How, today, in 2015, can highly processed food production in Quebec compete with Europe, for example?

Raymond Dupuis, Economist and Strategic Advisor, Agri-Food Export Group Québec-Canada: Perhaps I could answer. First, thank you for having us.

When we speak to businesses developing on both sides of the Atlantic, there is no doubt in my mind that our products are highly competitive. Take labour costs to begin with. In Europe, the cost of labour is very high, as well as energy costs. In terms of primary resources, inputs, et cetera, we are very competitive.

As Mr. Coutu said earlier, an agreement that will come into effect in 2017 will be negotiated. Tariff barriers will be reduced, which is excellent, but we have now entered another era at all levels of negotiations. We are in a post-tariff era. The problem will be the non-tariff barriers: sanitary and phytosanitary measures, technical trade barriers, et cetera.

When we are talking about competitiveness or real access to markets that will be opening up, that is what we will need to focus on. There are two parts to this: we will have to develop a market offensive and assist our businesses in getting off to a very strong start, because we are two years behind the Americans in terms of agreements with Europe, and the Trans-Atlantic Trade Investment Partnership, TTIP, which will come after the ongoing discussions on the Trans-Pacific Partnership. I do not want to confuse things, but that is the situation. We have about two years to position ourselves on that market. Do we believe that we can be competitive? Yes, but we have to make sure we have all the right tools. Those tools include market development but also expertise, which we have to make sure we have. We have expertise in Canada, but not to the extent of the United States and Europe . . . Europe in particular has a system called Trade Defence, whose mandate is to examine technical barriers to trade, non-tariff barriers, and to then take steps, if necessary, if one of their businesses is having problems with other trade partners. It examines the situation and if there is a breach of the agreement, then measures are taken. We do not have a system like that. Furthermore, the partners we are talking about are the Americans and the Europeans. This is very important, and the work has to be done at the government level, at the federal level, and in some cases, at the federal-provincial level.

Ms. Cloutier: I would also add that innovation is at the heart of product exports. In Quebec and in Canada, we are known for quality food products but we have to remain competitive. One of the keys to that is innovation.

How can we help our Canadian businesses innovate in a way that will help them remain competitive on their markets but also to provide added-value products? We already have a reputation that outstrips many countries all around the world. Several countries want Canadian products because of our reputation which is connected to water, forests and nature. Canada must give itself the tools it needs to remain competitive in terms of innovation, technological transfer, and equipment in order to continue exporting products of equal value.

Mr. Fraeys: With respect to innovation, tax credits for research and development are very important. That is a great tool for businesses; however, they are becoming less and less available to processing businesses because they do a lot of product development and they improve products that are already on the market. The CRA's tax credits do not consider product development as being eligible for tax credits, and this is taking a very important financial tool away from businesses. So that is one interesting factor. If it were possible to grant tax credits for new product development, that would provide another tool. Furthermore, tax credits are considered to be green box support and not tariff barriers.

Senator Maltais: Bit by bit you have managed to open the door to the American market. We know that Americans are very protectionist, much more than we or the Europeans are. I am sure you could also do this in Europe.

I would like you to send us two or three of the points you discussed with us, that you raised, simply so that we can continue to work on them. The committee' study this year has dealt with innovation in agriculture. You have raised some very important points. If you could send them to our clerk it would be very useful to our work.

Senator Tardifs: Thank you for your very interesting remarks.

I would like to continue on the topic of Europe. Mr. Coutu, you said that the European market is very important for Canadians, especially for the agri-food industry in Quebec, but that in order to penetrate the European market more human resources, or resources in general, were needed. If I understood you correctly, one of your recommendations is that the federal government invest more in resources that can help you in your work on the European market.

Could you be a little more specific about what it is you would like?

Mr. Coutu: Thank you. Your question is a very relevant one. I will answer in two parts, based on what we were talking about earlier with respect to a committee or a group that would examine non-tariff measures. We do a considerable amount of work with our embassies and consulates abroad on market development. However, it often happens that there are no agri-food experts involved in this work. These are people who work across many sectors. When you are a commercial attaché in Paris, in Germany, anywhere, and half of Canada needs advice from you, needs you to find distribution networks, to undertake studies or group consultations, you can often lose track because there are only 24 hours in a day and you cannot deal with every single issue. One of our recommendations would definitely be to have agri-food experts in those key countries where we want to increase our presence.

If our research shows us that we should be doing business in Germany rather than France or Italy or elsewhere, depending on the products we want to sell, on the product category and markets we want to penetrate, we need to have an agri-food expert on the ground who can do strategic intelligence work and tell Canadians about those market opportunities, distribution networks, appropriate ingredients in the food industry, or elsewhere. We have to do this. The free trade agreement will include all European countries and we can't be running from one end to the other of Europe without knowing exactly where we should begin. We need to identify a priority market and then take the necessary steps to support the work of Canadian associations who will want to do business. This could be a public-private initiative. Industry could set aside a type of fund and make sure that they have someone on the ground in Europe who can provide that information. We cannot go do the work in a haphazard fashion, and the government could very well provide resources for that.

Ms. Cloutier: In terms of investing in the food processing sector, it is important to point out that we are the most important manufacturing sector in Canada and in Quebec. However, contrary to other manufacturing sectors, we fall under the Department of Agriculture and not the Department of Economic Development.

Therefore, right from the outset we do not necessarily have access to industrial manufacturing resources, whether Canadian or Quebec resources. This has always been the case. We fall under the Department of Agriculture even though we are a manufacturing sector with the same needs as all the other manufacturing sectors in terms of innovation and investment into new equipment.

I think that Canada and Quebec should begin by putting the food processing sector at the heart of their economic development strategy.

Mr. Dupuis: To add to what Mr. Coutu was saying earlier, I'd like to show you how important the European market is, for your information. The European market imports $2,300 billion worth of product, which is more than Canada's GDP, which is $1,800 billion.

In the agri-food sector, European imports represent $130 billion. Total Canadian exports are approximately $50 billion, and Quebec's exports represent $7 billion. That gives you an idea of the size of the potential market. Once again, I repeat the message. We have to put our efforts into that market.

Senator Tardif: Ms. Cloutier, you referred to the trade deficit in some food processing industries. One of the witnesses who appeared before this committee told us that is was difficult for small and medium size businesses to find the necessary funds for research and development. Obviously this is related to innovation.

What kinds of measures could be taken to assist SME's in becoming more competitive and ultimately being able to acquire their share of global markets?

Ms. Cloutier: First of all, I would say that the agri-food sector has to have the necessary programs and expertise and it has to be at the centre of our economic development strategy. Mr. Fraeys said earlier that tools such as tax credits that currently exist for research and development are practically unavailable for food processors. So the current legislation needs to be corrected.

Secondly, we need more support for the sector when it comes to innovation. For example, in Quebec, there was a total amount of a billion dollars. We asked the government to earmark the value of the agri-food sector to the Quebec GDP within that amount in order to help companies, to support them with technological and scientific monitoring, for best practices, and, of course, from modernizing equipment in Canada, in order to allow companies to be more competitive.

Senator Dagenais: About the Chinese market, I think Mr. Coutu explained that very well. It is all very well to go do business on the other side of the planet, but there are high costs that come with it.

It is hard to get into the Chinese market. Is it because the Chinese are too protectionist or because it is hard to approach them? It is not easy to do business with the Chinese. Of course, it is expensive, but maybe it is also their way of doing business that is difficult.

Mr. Coutu: Well, of course, there are cultural factors. Novice exporters often make the mistake of thinking that because you sell chocolate milk in Montreal, you can sell it in China. That is not true at all. You always need to bear that in mind.

Moreover, it is just so far away. Doing business with Hong Kong, Shanghai, or Beijing, is far and expensive. You need to send products by specialized transportation. You need to work with other languages, with other currencies. You need to set up distribution networks. You need to make sure that the cold chains are there to maintain food quality. You need to be able to work with very competitive margins, because there are German competitors there who have been there for several years. There are also the French who are there with the Carrefour chain. So there are major competitors who are very well positioned there.

It is much harder for SMEs to find space in their budgets for market development. I am not saying it is impossible, but I am saying that when they have to choose between China and the United States, they are going to choose the United States. It is probably because there is less effort required. It is not easy to break into any market, but some are certainly easier to approach.

When we go to China, we carry out two or three activities yearly in international fairs, particularly with seafood companies, sometimes with maple syrup companies, and sometimes we manage to bring a processed foods company, like with pasta or something else.

But it is not a naturally attractive market. It is a promising market, a little bit like India. There is a growing population of clients with the financial means to buy added-value products. I myself worked in China for several years and represented Quebec companies there. Apart from the challenges I already mentioned, there were challenges related to compliance and product approval.

Moreover, at the time, you needed to know the right people to make things move forward, if you know what I mean. It was not easy. You need to have human resources, like translation services. That is not within everyone's reach.

That said, there are also business opportunities in Korea and Japan. China is a good market. With regard to commodities, like someone said earlier, those are not processed products. Those products are sent in containers and are placed in sacks, barrels, or pouches.

To answer your question more precisely, one must make efforts, one must participate, one must validate interest for Quebec products or Canadian products, and after all that, these efforts must be supported through funds, on-site presence and presentations. There no other secrets.

Ms. Cloutier: I would like to add something. It also requires production quantity and capacity. China is not a small market. Therefore, clearly, any business signing a contract over there must be able to meet demand. Generally speaking — or quite often — businesses do not succeed in China simply because they do not have the production capacity to do so.

Senator Dagenais: I have one last question, and it is rather sensitive. Given the competitiveness of markets as we are about to sign the Trans-Pacific Accord and the agreement with the European Union, do you think Canada should harmonize its supply management?

I know it is the elephant in the room, and might even be called the killer question.

Mr. Coutu: On that subject, I would tell you that I am not a politician, and that business is my main concern. I think Prime Minister Stephen Harper has expressed a clear position on supply management. Over the last few days, as you no doubt saw on the news, he was joined by the Quebec Minister of Agriculture, the President of Agropur, the President of La Coop fédérée, and Marcel Groleau of the UPA. Quebec has grounds for concern and wishes for its producers to be protected in the agreement. I recommend you read Mr. Paradis' policy on this area if you wish to know the official position.

[English]

Senator Merchant: A few weeks ago, the WTO ruled against the U.S. on their COOL labelling. You mentioned this to Ministers Fast and Ritz. They said they would stand firm with Canada and ask the WTO to authorize retaliatory measures against the U.S. How will that affect some of your concerns and which ones, please?

[Translation]

Ms. Cloutier: We cautioned Minister Ritz simply because we purchase many inputs from the United States for processed products. That could have a negative impact on several sectors. Frozen concentrated orange juice was one of the products listed. However, if there were a 100 per cent surtax, there would be a supply problem in Canada. We do understand the minister's position and we support Canada's position that the United States must be fair in their trade practices and should lower their protectionist barriers. At the same time, we must be careful and avoid placing Canadian businesses in a non-competitive position through Canadian barriers that increase the cost of inputs substantially. We can only hope that the United States complies with the WTO decision.

Mr. Dupuis: I completely agree with Ms. Cloutier. To my knowledge, there is no reason to think that the United States will not comply with the decision, which has now been firmly upheld and recognized. Personally, I would be quite surprised if things went further in this matter. We remain optimistic that our main trading partner's behaviour will be adequate.

Mr. Fraeys: I was also reading that the American wine industry is extremely fearful that Canada may impose sanctions. When we analyze that $7.7 billion deficit, we see that $4.7 billion comes from imported wine and liquor from the United States and Europe. For the United States, this is a $2 billion to $3 billion market. I doubt very much that they want to see it slip away. The wine industry will help us ensure regulatory compliance.

[English]

Senator Merchant: Thanks for those answers. With CETA and the EU, that will eliminate EU duties on processed foods and beverages, including the majority of processed beef and pork. In accordance with the rules of origin, some witnesses who appeared before the Senate committee noted that these processed products will have to contain only Canadian ingredients to benefit from this new access.

My questions are: How will this access to the European market affect your sector or the sectors you represent? Do the rules of origin entail some challenges to your exports into the EU market?

[Translation]

Mr. Dupuis: Yes, that could be a problem. This is the type of non-tariff measures that are in place. However, overall, products processed here, as far as I know, do not have a major problem in that respect, nor in their access to the European market. There are some exceptions, but overall, it is not a problem as such.

Ms. Cloutier: There is one exception: GMOs. The European market requires certification, traceability for GMOs. In Canada, we do not have a system that allows us to do this. It is an example of a non-tariff barrier that could have a negative impact on several types of products.

[English]

Senator Unger: I have a comment about Country of Origin Labelling.

U.S. politicians are scrambling to comply with the WTO's determination. They don't want a trade war, so I think there's optimism on that front. Certainly, it has affected the export of Alberta beef — it has created problems. I hope they do comply. Unless the President of the United States steps in with some sort of Executive Order to the contrary, it should be resolved quickly.

Mr. Coutu, I was really pleased to hear you talk about domestic trade. That's important because we've heard from many witnesses, and one group struck me as being rather odd. They manufacture just a few products and don't appear interested in trying to gain market access to Canada. They talked specifically about China and wanted government assistance but there's only so much.

Mr. Coutu, you mentioned the Korean market. Will access to that market affect the Canadian agri-food sector? Do you see that as maybe an easier market than China?

[Translation]

Mr. Coutu: Yes, of course. I believe that the Korean market is promising, at least for Quebec. We have already led three trade missions for this market, and there is a marked interest for Canadian pork. You will recall that the Americans conquered the Korean market several years ago. Now, this will allow us to get into the market.

There are people in our group who validated store products, and who met distributors and importers. There is a marked interest for value-added Canadian products.

Of course, we are continuing our efforts. We have only touched the tip of the iceberg in Korea. That is a market which is more easily accessible, because it is larger than China's when it comes to value-added products and fully processed products. This is a population that can afford to pay for these types of products. In my opinion, our relationship with Korea over the next few years will continue to improve.

Yesterday, I was just saying to Mr. Dupuis, when talking about commodities from the western part of the country, is that it is often the key for penetrating a market. I was going to talk about Russia, but that is not a good example. Before the embargo, my friend, Jacques Pomerleau, from Canada Pork International, was telling me that restaurateurs are open to other types of products. Trust has been established, thanks to the safety and traceability of our foods. This atmosphere of trust means that we can open other markets. That is why Canada is a complement. Western provinces are struggling to open their market, which is a complement to eastern provinces bringing forward fully processed products.

And so, yes, Korea is a market that is viewed as enormously promising on the Quebec side.

[English]

Senator Unger: Maple syrup seems to me to be the trailblazer; everyone wants it. But it also seems to me that because our government has been so active in opening doors to new markets globally, it's leaving Canadian exporters scrambling to try to take advantage of all of this because this has happened fairly recently. Would you agree with that?

[Translation]

Mr. Coutu: Yes, absolutely. In fact, with Minister Fast, we had the opportunity in Quebec to meet former premier Johnson. We carefully analyzed the effects of development flowing from signed free trade agreements.

With the CTAQ, we are one of the first organizations in Quebec to support this initiative by the government and Minister Fast. You may recall, on Saint-Jean Street, in Quebec, the first press conferences. We firmly believe in this.

In Canada, it is not possible to consider increasing our gross domestic product without being able to access external markets. Money really does have to be made elsewhere. Every time the government makes this type of attempt and that it opens new possibilities and new opportunities to us, participating in that initiative and supporting it is a must. However, signing a free trade agreement is one thing, but the follow-up must come afterwards. It is necessary to invest in human resources to support entrepreneurs' efforts; entrepreneurs can make their efforts on two fronts at the same time, but they also need a hand from the government through specific programs.

Ms. Cloutier: As you mentioned, senator, we also have a great deal of potential within the Canadian domestic market. As we were saying earlier, we have a $7-billion trade deficit for processed products. These are products we import from abroad, and we certainly have work to do to shore up this balance in Canada with Canadian products. There is a great deal of potential with regard to the domestic market.

[English]

The Chair: Before the chair recognizes Senator McIntyre, Senator Oh, do you have a supplementary question? Please go ahead.

Senator Oh: We talked earlier about emerging markets in Asia and Russia. In China, the EU got in early, as early as 1985. We were one of the first countries to recognize China and the other Asian countries, but we didn't move fast enough. You get a lot of products from EU countries, Australia and New Zealand. They are all on the shelf. But I still believe the emerging market, the middle class in Asia, is getting bigger and bigger and that is why it is never too late. We can still move to get into those markets.

Canada is a diverse country. We have strong diversity here. We have 1.5 million Asians or more living in this country and you must use the expertise to open the market up in Asia. That's my point.

The Chair: That was a question, Senator Oh?

Senator Oh: Yes. Could you expand on that?

Mr. Coutu: As a matter of fact, yes, we should use our human resources in Canada. You have made a very good point.

Ms. Cloutier: Maybe you should organize a mission in Asia.

The Chair: Senator Unger, you had a final question on your list?

Senator Unger: Yes, I did. Regarding human resources and your suggestions that you should be able to have more experts, our committee went to Washington dealing with our bee study.

Our ambassador sat down with us as soon as we arrived and gave us a one-hour briefing. It was excellent. He outlined all the issues and told us to go ahead and talk about them, and COOL was one of them. I think the ambassadors are good ambassadors. They may not have the in-depth knowledge that you're looking for, but I think they certainly could do more, could be better educated to provide the support that companies need rather than starting to layer in experts.

I would also agree with what my colleague Senator Oh said.

The Chair: Any comments?

[Translation]

Mr. Coutu: Indeed, I know that embassies and consulates around the world already offer resources. In fact, within the framework of the free trade agreement, the export group is holding an annual general assembly for all of its members next June, in Montreal. The agenda includes guests for that day, such as the Canadian embassy in Paris, represented by Mr. Yannick Dheilly, who will come to meet entrepreneurs to advise them on the best way to access European markets.

When it is possible to do so, and when there is local expertise in agri-food, we use it, of course. We have already done so in Dubai, in the Middle East, and we also do that in China, when it is possible and when they have the human resources to do so; other consulates or embassies in Canada are not as well organized in agri-food. My suggestion would be to plan on specific attachés for Europe, for the markets that we wish to work on. But I agree with you, this resource must not be neglected.

Senator McIntyre: Thank you for your presentations. I would like to ask two short questions.

Mr. Coutu, you spoke to us earlier about the SIAL tradeshow. I understand that your group is a financial partner with SIAL Canada, an international agri-food event group for agri-food professionals in North America.

I also understand that SIAL China, an international food tradeshow, was held from May 6 to 8, and that your group helped its members to participate in that commercial tradeshow.

Could you tell us a bit more about the importance of the tradeshows? How many of your members participated in the SIAL China tradeshow?

Mr. Coutu: Thank you for your question. The SIAL, or the signature SIAL tradeshows, can be found throughout the world; there are many. There is the SIAL Paris tradeshow, which is the showcase, one of the biggest in the world; there is also SIAL Brazil, SIAL Abu Dhabi, SIAL China, SIAL Indonesia, and so on.

In the case of SIAL China, work was done with my colleague from Ontario, Ms. Powell, who leads the Canadian Food Exporters Association. Both groups, Quebec and Ontario, in general, rent space in the Canadian pavilion and accompany businesses for those markets to help them at the tradeshow.

I myself am a shareholder of a food tradeshow, but I am also a shareholder in a business that conducts business-to-business trade. When one attends a food tradeshow, it targets a specific clientele. We have many reasons to attend a food tradeshow. In Montreal or Toronto, there is of course the aspect of discovering new clients, but there is also the aspect of consolidating our current market with our current clientele. The fact remains nonetheless that an agri-food tradeshow is a fishing pond. You are in a kiosk and you attempt, to the best of your ability, to draw in a client, a buyer, who is interested in the products that you are presenting and who, afterwards, you will be able to negotiate with.

Concerning China specifically, when we accept an invitation to go to a tradeshow in China, whether it is the SIAL or our organization, recruitment is much more difficult. Few industries attend, with the exception of the maple syrup industry, of course, but sometimes, disagreements arise among individuals, because they are all competitors and there are four maple syrup kiosks in a row. As a result, there may be a lack of confidentiality concerning their business contacts. The main reason our members attend is to explore the market, to understand what is going on and to see whether the niche in which our members operate can be sold to the Chinese market.

People also want to get to know the local culture, because before attending the trade show, we often organize missions and store visits. We meet with distributors, we visit the embassy or the consulate, and we gather information. It is therefore complementary.

As I said, it is not our best opportunity. We do it because there are businesses that want to participate, but it is not profitable; these are not our biggest tradeshows.

Senator McIntyre: There has been a lot of talk about the Canada brand. In your opinion, has this brand improved sales of Canadian agri-food products on international markets?

Mr. Coutu: Without a doubt. The Canada brand was one of the Government of Canada's good decisions, mainly, spending sums on the promotion of the Canadian image across the world. Everywhere I have travelled, and my colleagues have had the same experience, Canada has a reputation for a good passport, cleanliness, and high-quality products. It is an incomparable advantage for Canadian businesses to be able to brand with the maple leaf somewhere on the product or in kiosks. When we have kiosks overseas, everything is red, because we want to transmit this message.

The Chair: Before moving on to the second round, I would like to draw your attention to the presence of Senator Beyak.

[English]

Senator Beyak: Thank you for very informative presentations. You all know that the rules for the Temporary Foreign Worker Program have changed a lot. Witnesses have told us about the challenges the changes present for them. I wonder how they affect your members and if you have a channel of communication with the government or any recommendations you can give to us that we can take to the government on your behalf.

[Translation]

Ms. Cloutier: The file of temporary foreign workers is a very sensitive one for food processors in Quebec. As you are aware, food processing is often linked to the harvest period and, during this period, there are no student workers, because students have gone back to school. These are temporary jobs, but during very intense periods where it is difficult to find local resources or workers.

For example, some of our members have enormous farms between the U.S. border and the city of Montreal. There is no workforce. They are forced to seek out temporary foreign workers — obviously, they have set aside facilities for them — for periods of three or four months. It is the same situation for the wine industry in Quebec and elsewhere.

The change made to the regulations across Canada affect many processors in Quebec. Furthermore, there were some who were considering making investments and who will not do so, because they would have had to hire an additional 100 workers. Unfortunately, with the new regulations, it is almost impossible or it is very expensive.

There is not a lot of openness from the Canadian government. We have been asking the government to recognize workers in the food processing sector as being agricultural workers, because there is a direct link between the harvest period and food processing. But there is not currently a lot of openness on the issue. We are talking about thousands of jobs in Quebec.

Mr. Coutu: At the last SIAL in Toronto, I met companies that had to invest in their infrastructure to increase their production capacity. Some of them were considering crossing the border if this problem is not solved. I was even told by important companies that that is their plan B. This issue needs to be looked at very seriously. It is a critical problem.

Mr. Fraeys: We are asking that the reform exclude or remove the food processing sector, given that the reform was made across Canada for all industries, particularly for financial industries or restaurants, because the reform will have an impact. There will certainly be an impact in the east, but also in the Western provinces. It is quite significant for businesses that use seasonal workers. However, next year, the reform will also have an impact on meat companies that hired workers on two-year contracts. The problem will arise next year in slaughterhouses. For example, in Alberta, it has become almost impossible for slaughterhouses to find workers for the plants.

I know that the goal is to put Canadians to work, but if people do not want to work in factories, we cannot force them to. People say that salaries need to be increased, but it is not an issue of salary. It is an issue of promoting processing fields, and we cannot do this in a few months; it will take years.

Canadians need to understand that food processing jobs are valuable jobs with a future. It will take several years to accomplish this. In the meantime, we need to be able to hire foreign workers to meet our needs, while we wait for Canadians to understand that the processing sector offers great career options.

Senator Maltais: I would like to thank you for the work that you do in the food processing sector. It requires a lot of skill and competitiveness.

We have talked about a lot of things, but we have not talked about consumers. For a number of years now, the Canadian consumer has seen his grocery bill go up every week. The price of beef mirrors the price of oil, and you wonder if there is not a cartel somewhere, because every spring, when the barbecues come out, the price of beef rises. During this time, the price of tomato juice increased by three cents. No one noticed, but if you do a check, it is true.

When there is an increase in the price of a specific product, people take advantage of that to increase the price of other products by a few cents, and the consumer sees this in his or her grocery bill. For a mother of three children, this may represent a difference of $20 to $40 a week.

How do you react to these increases?

Ms. Cloutier: I would draw your attention to the fourth chart: the prices paid to food processors have not increased since 2001. Do not forget that general costs are increasing for food processors. The price of oil has been increasing for everyone, and the cost of inputs is increasing. Currently, people are saying that the Canadian dollar in comparison to the U.S. dollar represents an advantage for the manufacturing sector, but when we purchase inputs in the United States — which is unavoidable, for sugar and other products — there are additional costs for food processors.

Currently, profit margins for food processors are decreasing year over year. In Quebec, we are the industry with the lowest revenues in Canada, about 6 per cent on average, which is not much. However, the costs paid to food processors have barely increased, despite the costs of oil, et cetera.

Senator Maltais: I am going to ask you another question because you are an economist. Producers, farmers and processors come see us. The farmer, the person who works in a slaughterhouse, the one who sows vegetables or the one who processes products does not make money.

The person who pays for all of these people does not earn much, and it is an employee who works in one of your plants. He sees his grocery bill going up week after week.

As Ms. Cloutier mentioned, some factors are independent, but it is still a fact. What would you say to them?

Mr. Dupuis: I have a comment to add to Ms. Cloutier's. A few years ago, prices were very low. Over the past few years, the price of food has increased considerably, and that is a good thing. Prices always fluctuate and can go down a little, but the fact remains that prices are firm.

Ms. Cloutier talked about processing, which has low margins, and it is the same thing for distribution. Let us take the example of Target stores that were a dismal failure. The profit margins of the food retail market in Canada and in Quebec are very low. People do not know it, but it is true. Competition is fierce, which should be reassuring for consumers. Target did not succeed in breaking into the Canadian market, which is extremely competitive in all regions.

Therefore, the ever-increasing grocery bill has nothing to do with the margins of stakeholders in Canada. It is the cost of raw materials that have increased. Yes, there is efficiency to be gained through innovation and we must always continue our efforts in that area. I think that is the basic answer to your question.

Senator Maltais: On behalf of consumers, thank you, Mr. Dupuis, for your explanations.

The Chair: In discussing your participation in SIAL, you mentioned that Canada's presence is important. In your opinion — because you are at the Standing Senate Committee on Agriculture and Forestry, this morning — do you think our committee could play a role, along with others, in raising the profile of the Canadian agri-food industry, particularly regarding processing? We do not want to impose ourselves, but I would like to hear your opinion on this.

Mr. Coutu: Paris is lovely in October.

Ms. Cloutier: We extended an invitation to you last year.

Mr. Coutu: If it is good for the industry, it is good for us as well. A stronger presence by the Canadian government to support our policies abroad would be good for our sector. This presence would demonstrate that the agri-food sector is a priority for the Canadian government, which is certainly needed.

The agri-food industry has a low profile. We hear about technology and companies like Bombardier, but we are the number one industry in Canada. We are grateful for your physical presence and for the moral support you will provide through the reports you will submit to the government. We ask you to continue your efforts in support of the agri-food industry whenever you have the opportunity.

The Chair: You also raised an issue that is the subject of debate, that is the number of companies within your associations. We want to draw your attention to the matter of temporary workers.

Ms. Cloutier, you mentioned hundreds or thousands of people. Could you verify those numbers within both of your associations and send them to us through the clerk? Can you give us specific numbers, mainly whether it is 1,000 or 5,000 jobs?

Ms. Cloutier: We will send you the numbers. We have done the calculations over the past few months. We have been in touch with the main affected companies. We will send you the documents in question.

The Chair: We could include this information in our report. Thank you. Meeting adjourned.

(The committee adjourned.)