Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 49 - Evidence - Meeting of April 26, 2018
OTTAWA, Thursday, April 26, 2018
The Standing Senate Committee on Agriculture and Forestry met this day at 8:01 a.m. to study how the value-added food sector can be more competitive in global markets.
Senator Diane F. Griffin (Chair) in the chair.
The Chair: Honourable senators, I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. I’m Senator Diane Griffin from Prince Edward Island and chair of the committee. I would like to start by asking the senators to introduce themselves.
Senator Mercer: Terry Mercer from Nova Scotia.
Senator Gagné: Raymonde Gagné, Manitoba.
Senator R. Black: Rob Black, Ontario.
Senator Oh: Victor Oh, Ontario.
Senator Petitclerc: Chantal Petitclerc from Quebec.
Senator Doyle: Norman Doyle, Newfoundland and Labrador.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
Senator Maltais: Ghislain Maltais from Quebec.
The Chair: Thank you, folks. Today, the committee is continuing its study on how the value-added food sector can be competitive in global markets.
On our first panel, we have, from the Canola Council of Canada, Brian Innes, Vice-President for Public Affairs; Jack Froese, President of the Canadian Canola Growers Association; and also, from the Canadian Oilseed Processors Association, we have Chris Vervaet, Executive Director; and, to round out the panel, Catherine Scovil, Director of Government Relations for the Canadian Canola Growers Association.
With that, I’d like to thank the panel for accepting our invitation to be here today. It’s great to have you. We’ll ask the witnesses to make their presentations, and I understand we’re starting out with Mr. Brian Innes.
Brian Innes, Vice-President, Public Affairs, Canola Council of Canada: Good morning, honourable senators. It’s a real pleasure to be here today to share information about how the value-added canola sector can be more competitive in global markets.
First, I’d like to explain a little bit about the Canola Council of Canada. We’re a value-chain organization representing the canola industry, the 43,000 canola growers, the seed developers, the processors who crush seed into meal for livestock and oil for humans, and the exporters who export canola for processing at its destination. I’m here today with two parts of our value chain that are most interested in how we can make our value-added processing sector more competitive.
We’re here today because competitiveness in global export markets is critical for the canola industry. More than 90 per cent of everything we grow in Canada is exported to markets around the world, and we’re seeing growing global demand for the healthy oil and protein we produce.
The question is how we seize this demand and how we increase our value-added processing here in Canada.
Our industry has a plan to help to do this, to meet the world’s growing appetite for healthier oils and protein. Keep it Coming 2025 is our industry’s plan to increase demand for canola oil, meal and seed and to meet this demand through sustainable production and yield improvement, achieving 26 million metric tonnes of production by 2025.
To put this in perspective, when we achieve this, this will be an extra $4.5 billion in exports for Canada. As we collectively aim to meet the Government of Canada’s target of $75 billion in exports by 2025, creating the conditions for value-added growth is a key part of our industry being able to contribute $4.5 billion towards this $75 billion target.
Reaching this target means our value-added sector must continue to be globally competitive. How do we achieve this, and what is the role for the federal government in helping to create an environment where we can be competitive globally? That’s the question that seizes us.
Let’s start by looking at what got us here today. Our world-class canola processing industry has grown by more than 150 per cent in the last decade. There’s been more than $1.5 billion invested in new and upgraded facilities during this time, and all of this output from this additional capacity has been destined for export markets.
As a result, stable and open trade has been a key factor to enable our growth. That means we’ve either had no tariffs on our processed product or we’ve had tariffs similar to those of our competitors. It also means we’ve been able to export our value-added products free of non-tariff barriers.
When we look to our future, stable and open trade free of tariff and non-tariff barriers is essential for us to continue to grow our value-added exports.
Let’s think about an example. There’s lots of attention to NAFTA in the news. Before NAFTA, our canola meal faced a 37 per cent tariff when it was exported to the United States. Now, the U.S. is our largest market because we have no tariffs going to the United States. When we prepare the path for future value-added export, we need to have competitive access to global markets. Consider the following barriers that our sector currently faces for value-added exports.
In Japan, no tariffs apply to our raw seed, but our processed oil has tariffs of up to 16 per cent. We’re losing ground to Australia in this market because their tariffs on canola oil are lower than ours. Japan has a free trade agreement with Australia, where the tariffs on oil coming from Australia are being phased out.
In Vietnam, a growing market for healthy oil, we face a 5 per cent tariff on canola oil. In Colombia, our canola faces variable tariffs as high as 40 per cent. Competitive exports of oil from the United States don’t face these tariffs. Their free trade agreement got rid of the price-band system that puts tariffs on our value-added exports.
In India, tariffs on canola oil fluctuate wildly. Right now, India applies a 35 per cent tariff on canola oil from Canada.
In the United States, despite NAFTA, our processed products like margarine and shortening have tariffs of 8 per cent.
This list may seem daunting. What do all of these barriers have in common? The answer is Canada is either negotiating or has concluded a free trade agreement with these countries, concluded but not yet implemented. As a result, a priority for the Government of Canada should be to complete and implement the trade agreements with these countries to enable us to have competitive access and get rid of the barriers I just described.
I’ll conclude my remarks by stating that being globally competitive is not an option for an industry that exports 90 per cent of what it produces. It’s an imperative. On behalf of our industry and the quarter million Canadian jobs it supports, we thank you for studying this incredibly valuable issue of how we maintain competitiveness in the value-added sector. I look forward to your questions, and my two colleagues from our industry will describe other aspects of how we can maintain this competitiveness.
The Chair: Thank you very much for your presentation, and we’ll hear from Mr. Jack Froese.
Jack Froese, President, Canadian Canola Growers Association: Thank you for the opportunity to appear on the committee’s study on how the value-added sector can be more competitive in global markets.
As introduced, my name is Jack Froese. I’m a fourth generation Canadian farmer from southern Manitoba and currently serve as the President of the Canadian Canola Growers Association. I’m here today with Catherine Scovil, CCGA’s Director of Government Relations.
CCGA is a national organization of canola farmers, representing 43,000 farmers from Ontario to British Columbia.
I want to start by discussing the importance of the value-added sector to canola farmers. In 2017, 43 per cent of the canola produced in Canada was processed domestically into oil and meal. While ultimately destined for export markets, processing canola at home keeps the economic benefits within Canada, supporting communities across our country, creating and sustaining jobs and providing delivery options for canola farmers.
Where I farm, I am fortunate to have the ability to deliver to my local grain elevators or to a canola processor, which is about 40 kilometres away. I am also just under 100 kilometres from a processing facility in the United States. Multiple delivery options amount to better competition.
I can shop around for the best price and contract terms that work for my farm. In many cases, the price I receive from the processor will be higher than the price I receive at the grain elevator as I am essentially cutting out a middle step. Processors need canola regularly to keep their operations running at capacity.
Keeping our value-added processing and growing it in the future has benefits for me and the Canadian economy, keeping jobs here at home. To make this happen, we need solid trade agreements, an efficient transportation system and domestic policies that do not erode our competitiveness.
Exporting 90 per cent of canola production as seed, meal or oil means that open and predictable trade is critical, and tariffs create signals on what to ship. For example, Japan is our third largest customer. Canola seed enters duty-free, while canola oil faces a 16 per cent duty. As a result, Canada exported $1.4 billion in seed and only $6.4 million in oil to Japan in 2017.
Known as tariff escalation, applied tariffs are set higher for processed products than the raw commodity, allowing the import country to capture the resulting value-added activity.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP, agreement will eliminate this tariff discrepancy. The removal of Japan’s oil tariff over five years is expected to spur demand for Canadian canola oil. A study commissioned by the Canola Council of Canada, and Brian Innes, estimates an increase of $780 million per year, or roughly one million tonnes of canola oil and meal exports. The increased demand will directly support the growth of value-added processing and productivity in Canada.
On behalf of Canada’s canola farmers, I urge the government to quickly ratify the partnership and ensure Canada is among the first six countries to implement the agreement. This secures the competitive advantage Canada will have over the United States and reduces the advantage Australia has through its free trade agreements.
Similarly, the tariff structure acts as a market access barrier to China. The tariff on soybeans, a substitute product, is 3 per cent whereas it is 9 per cent for canola. This effectively creates a disincentive to canola sales. Tariff elimination, such as that possible through a free-trade agreement, would address the tariff advantage soybeans have over canola and enhance the competitiveness of oil and meal processed in Canada.
Next is transportation. I cannot stress enough the need for Canada to have a world-class rail system. Each tonne of grain moves an average of 1,500 kilometres to reach an export position and we absolutely need an effective, predictable and timely rail system. We don’t have this now. Bill C-49 has the potential to make significant improvements to our rail system, and we continue to look forward to its passage.
Infrastructure investments are also important. Even our own export market customers comment on our rail system. Each year, the canola industry meets with Japanese customers — and we’ve done this for 42 years — as the market is stable and consistent. In my discussions with them, it was clear they viewed Canada’s transportation system as needing improvement.
Finally, we need to ensure domestic policies enhance our ability to compete, not erode it. We know that the environment and sustainability are key priorities and farmers are doing their part. With changes to production practices, we are now sequestering more carbon in our soils than in the past and new tools and equipment means we are also mitigating our emissions. As farmers, we want to be recognized for the work and we cannot afford to have domestic policies such as carbon taxes erode our competitiveness.
One opportunity to benefit value-added processing is through the Clean Fuel Standard. Canola biofuel can be part of the answer as it produces up to 90 per cent fewer greenhouse gas emissions than fossil fuels. A clear signal, such as through an increased biofuel mandate, would contribute to reduced greenhouse gases and provide the confidence processors need to invest in processing facilities.
In conclusion, better access for oil and meal globally, a strengthened transportation system and domestic policies that enhance, not erode, competitiveness will create opportunities to grow our markets for value-added products.
Thank you for the opportunity to appear today.
Chris Vervaet, Executive Director, Canadian Oilseed Processors Association: Thank you very much, Madam Chair, and members of the committee. On behalf of the Canadian Oilseed Processors Association, COPA, I would like to extend our thanks to the committee for the opportunity to contribute to this important study. My name is Chris Vervaet and I am the executive director of COPA.
The COPA works in partnership with the Canola Council of Canada to represent the interests of oilseed processors in this country. We represent the companies that own and operate 14 processing facilities from Quebec to Alberta. These facilities process canola and soybeans grown by Canadian farmers into value-added products for the food processing, animal feed and biofuel sectors. This creates not only incredible demand for oilseeds grown by Canadian grain farmers but also injects stable, high-paying jobs into the urban and rural communities where our members operate.
COPA member companies have identified Canada as a good place to invest, almost tripling processing capacity over the past decade and setting a goal to process 14 million metric tonnes of canola by 2025. In fact, it is estimated that processing canola and soybeans in Canada is now responsible for approximately $7.8 billion in economic activity, and according to the Conference Board of Canada’s Canadian Industrial Outlook: Food Manufacturing—Winter 2017, our sector has been the key driver for the food manufacturing industry’s growth in this country.
Despite this success, the industry currently faces difficult headwinds to spur additional investment and meet our 2025 target. My testimony today will focus on some of the challenges that impact our competitiveness and influence our industry’s decisions to invest in Canada.
First, I’d like to briefly talk about trade. My colleagues have already covered this in some detail, but I just want to underscore that our industry’s success really is predicated on the ability to trade into the global marketplace.
I want to focus some attention on railway service. Predictable and consistent railway service really is the lifeblood of our business. Approximately 80 per cent of our value-added products are moved by rail to access both continental and offshore markets.
Inconsistent rail service is unfortunately a chronic issue in Canada, which continues to impact our ability to service customers in a reliable and timely fashion. When customers can’t adequately source from oilseed processors in Canada, they quickly turn to alternate suppliers in the global marketplace.
In the absence of a competitive environment for railways, COPA is of the view that legislation and regulations are necessary to hold the railways accountable to provide the service required to ensure the success of our industry. In this regard, we support Bill C-49 as amended by the Senate. It contains several critical components that oilseed processors feel will improve the commercial balance between shipper and railway. We encourage the Senate to work closely and collaboratively with the House of Commons to ensure the bill passes with amendments as soon as possible.
We also encourage the government to get involved as necessary to prevent rail service issues from occurring due to labour disruptions. Any work stoppage will have far-reaching negative impacts on our industry, the canola value chain and the entire economy.
Third, I’d like to briefly talk about climate change and carbon pricing policies. My members acknowledge the role of government to address climate change and reduce greenhouse gas emissions through legislation and regulations. The oilseed processing industry is an energy-intensive operation that requires significant amounts of natural gas and electricity. Due to this reliance on energy, COPA’s members have long recognized the importance of resource and energy efficiency to lower costs and also greenhouse gas emissions.
Although the industry has implemented technologies to maximize efficiencies, a price on carbon will place a significant cost burden on our industry. For example, a carbon price of $50 a tonne on CO2 will cost oilseed processors an additional $30 million every year.
Due to the globally competitive nature of our industry, these additional costs cannot be passed through the supply chain, which impacts our ability to compete, particularly against jurisdictions that do not have any carbon pricing mechanisms in place.
It is critical that Canada maintains and improves a business environment to attract investment in agriculture processing while it concurrently addresses the climate change challenge. In this regard, my members in COPA were encouraged that the federal government pricing backstop proposes mitigation measures to offset costs associated with carbon pricing and address competitiveness implications.
Similar measures are being implemented and/or proposed in other Canadian jurisdictions. It is critical that the federal backstop and provincial initiatives do not result in multiple regulatory obligations for our industry.
It is equally important that other proposed policies and regulations under the Pan-Canadian Framework on Clean Growth and Climate Change are not duplicative in nature and/or place costs on the same greenhouse gas emissions. The government must work closely with provinces and industry to develop climate change policies that maintain competitiveness and minimize regulatory burden, while at the same time encouraging reasonable emission reductions.
In conclusion, open and stable trade, predictable rail service and policies related to climate change are some of the key issues that determine our industry’s ability to compete. However, there are a multitude of other factors that influence the competitiveness of our industry, including but not limited to, a predictable domestic regulatory environment for food and feed safety, access to labour and government incentives or programs that support efficiency and improve productivity.
I won’t have the time to cover all of these factors in my presentation today but would welcome an opportunity to address any questions on these and other aspects that drive our industry’s ability to compete in the marketplace.
The Chair: Thank you very much. We’ll now move to questions. I’d ask senators to keep their questions to two for the first round, and we’ll start a list for a second round if you want to ask more questions.
Senator Maltais: Welcome. Your observations were very interesting. I have some questions for you. Firstly, will Bill C-49 in its current form fix some of our interconnection transportation problems?
Mr. Vervaet: I can address that question.
We certainly feel Bill C-49, as drafted originally and as amended, is a step in the right direction in terms of addressing some of the chronic issues we face as processors when it comes to rail service, most notably the ability to apply reciprocal penalties when railways don’t provide the service that we need to move our products. We think this is a really important component in the bill. We feel other provisions, such as the long-haul interswitch provision, are steps in the right direction towards compelling better service but also introducing some level of competition in the marketplace. We feel the amendments put forward by the Senate on that particular provision are quite important to make that a feasible option should the bill reach its conclusion.
So we definitely feel Bill C-49 in its entirety is a step in the right direction, and we do encourage the government to pass the bill, as amended, as quickly as possible.
Senator Maltais: Thank you. Secondly, what impact will the carbon tax have on canola producers? Mr. Froese, you are yourself a canola producer.
Mr. Froese: We’re just starting to see the impact of it now with the prices on fuel, but it will definitely impact the costs that we have. Our costs on the farm have been escalating in the last number of years, and it’s really escalating in a lot of different areas, this being one of them.
Senator Maltais: Is this enough to make you uncompetitive on international markets?
Mr. Froese: It’s tough to answer because we haven’t really seen impacts on the tax as such. It’s just coming into play.
Senator Maltais: I have a final question. How many tonnes of greenhouse gases are emitted by canola producers? Do you have any figures on this?
Catherine Scovil, Director of Government Relations, Canadian Canola Growers Association: We don’t specifically, but there are some figures about grain production overall, and we’d certainly be happy to get those and share them with the committee.
Mr. Innes: If I may answer.
One important factor in agriculture is not just thinking about emissions but our ability as a sector to capture carbon in the soil. There has been a lot of research that looks at the ability of agriculture to sequester carbon in the soil. When we look at the impact and the benefits of agriculture, it’s also about our ability to take carbon out of the air with plants, to sequester carbon in the soil and to have an impact on the overall amount of emissions by our ability to bring carbon from the air into the soil into the plant.
Senator Mercer: Thank you for being here. I want to go back to Bill C-49 for just a moment. Bill C-49 was sent from the Senate back to the House of Commons on March 29. Today is April 26. The House of Commons hasn’t discussed the amendments sent back to them. This is the same House of Commons that harassed the Standing Senate Committee on Transport and Communications — I happen to be a member of that committee as well — to pass the bill.
We all received calls from MPs. Some of us received calls from cabinet ministers trying to get us to pass the bill in its original form. We didn’t do that. We sent it back and I think we’ve improved it, particularly with respect to transportation. I just want to report that. You probably know that, but people viewing may not.
I want to talk about something that always confuses people when they watch us having these debates. We continue to talk about value-added and we continue to talk about exporting our product, but we don’t know how our customers purchase canola. When I buy canola, I go to my Sobey’s store in Nova Scotia and I buy canola in a bottle and use it for cooking in my home. I do most of the cooking at home when I’m there, so I use canola. How do consumers in Japan, Vietnam, Colombia and India use canola?
I’m asking the question because we’re studying value-added, and value-added may be some post-harvesting production that might put the product in a better format, creating more jobs in Canada, et cetera. How do those consumers need canola? In what form do they need it and what do they use it for?
Mr. Innes: Just to start, consumers around the world value canola for the same things the North Americans value, which is a very healthy oil that can lower the risk of cardiovascular disease and diabetes, that’s very low in saturated fat, that’s very versatile for a number of different cuisines. Whether you are making gyozas or tempura in Japan, stir frying in China or making tortillas in Mexico, it’s a very versatile oil. The properties that make it fit well into a Canadian diet, regardless of our cultural background, also make it fit very well into diets around the world.
As an oil, the reason we grow so much is because we are providing a versatile, healthy product that fits into the cuisines of many different cultures. When we look to the future, there’s also an opportunity to make more value from the protein that canola contains. Right now the protein is fed to livestock, and we’re working on how to make the protein even more valuable for more varieties of livestock and fish.
When we look to the future and the results of research and efforts we’re putting in right now, we’re seeing opportunities in plant-based proteins, being able to take the protein from the canola seed, to process it and be able to incorporate it into human diets as well.
Essentially what we produce in canola is oil and protein. The oil is already highly valued for food and biofuel, and the protein is an opportunity for us to add even more value in the future.
Mr. Froese: I’d like to add in the case of the canola meal, which is a byproduct, the dairy industry really likes meal as a feedstuff, because it produces an extra litre of milk per cow per day if they put it in their rations. That’s significant.
Senator Mercer: Yes. That’s why we ask interesting questions.
Of the countries on the list in your presentation, still our biggest market is the United States. The potential bigger markets are from the TPP, correct? Those would be markets that normally would want to use canola oil, which includes Japan and Vietnam, and India in particular.
We agreed to the agreement and so have our partners. Is it the signing or the implementation of the agreement that is holding us up from benefiting?
Mr. Innes: Exactly. We have signed the agreement, but until we put it through Parliament, it’s not in effect. The agreement, as Jack outlined, will come into effect when six countries put it through their legislative processes. We need to get it implemented.
I was in Auckland when we first signed that agreement more than two years ago. Signing is a good step, but it’s not enough for us to be able to export more value-added products.
Senator Mercer: One of the things that makes things move in this city is people like you telling us how many jobs are pending when we finally get it ratified by Parliament. What members of Parliament and senators are motivated by is the end result of how many jobs would be created, and if we know where the jobs will be created, that’s even better. Can you help us with that? What is in the system that will click in when ratification takes place?
Mr. Innes: I’ll start and allow my colleagues to contribute and provide some examples.
Jack outlined that we see an opportunity to export $780 million more of value-added products when the CPTPP comes into effect. Those jobs are throughout the whole value chain, but especially in the processing sector, and all of the jobs that are supported not just directly, but indirectly through processing facilities.
I’ll allow Chris and Jack both to explain how, when we increase exports, we’re able to create more jobs.
Mr. Vervaet: The TPP and specifically, and probably most important, the access to the Japanese market for canola oil is critical.
By way of anecdote, COPA recently moved offices. I was cleaning out old filing cabinets and came across an old masters student thesis from 1978 talking about the importance of access to Japan for canola oil. Here we are decades later, still having that discussion. That’s to underscore how great an importance we place on getting that access to Japan so we can meet our target of 14 million metric tonnes by 2025.
We’re still hoping we can meet that target. Like I said in my testimony, we do have some headwinds. Among them is the ability to access these important markets like Japan. It is critical to get the CPTPP ratified and implemented as soon as possible.
The Chair: Senator Mercer, we’ll put you on second round, and you can come back to this one.
Senator Mercer: It just demonstrates, chair, how government moves in slow increments.
Senator Oh: Welcome back, gentlemen. This is informative on the issue for exports.
I think your area of most concerned is exports, looking for newer emerging markets, maybe in the Asia-Pacific rim. You guys are also fighting for tariffs. Recently, I attended a conference and the worry was about protectionism on tariffs increasing between countries.
What do you see? Do you see that there will be more tariffs coming in — new tariffs — affecting your exports, besides to the south?
Mr. Innes: When we look at the world today, it’s very uncertain — much more so than five years ago. The vision that the Government of Canada is projecting around how we can all prosper through trade is one we need to keep explaining to Canadians and people around the world, because we do see protectionism from the United States. We have also seen a move away from open trade in the United Kingdom, with Brexit, and we have seen around the world that protectionism forces do bubble up.
Our vision of how we’ve prospered as a sector and how Jack has been able to export his crops has been supported by being able to export free of tariffs.
Mr. Vervaet: To add one thing, I think tariffs are an important component — the actual explicit tax charged on goods — but the non-tariff barriers are often of greater concern to us, and trying to manage those as an industry. Those are probably the bigger challenges we face when we export into the global market.
Mr. Froese: It creates a lot of volatility and instability. We need stability. Anytime you have these kinds of actions, there is substitution and different countries sourcing from different spots. This causes a lot of volatility.
Senator Oh: Would you say your competitor for canola oil is probably Australia? Is Australia the biggest competitor for Canada?
Mr. Vervaet: When it comes to canola oil, Australia is one of the major players.
However, when we look at the global marketplace, we look at the space of vegetable oil overall. We do compete against other canola producers and oil suppliers globally, but our bigger competition, arguably, is the palm oils and the soybean oils of the world. We compete against other vegetable oils, not just against the other canola oil producers in the market.
Ms. Scovil: Chris was starting to get on the idea that we look to have our governments engage in free trade agreements to really address tariffs but also the non-tariff barriers. That’s critical. Those are the ones that seem to come up regularly. We look to our government and our government officials to be active in helping us to address those non-tariff barriers. That’s a day-to-day, week-to-week, month-to-month job we have to keep on. It’s industry and government working together.
Senator Oh: Do we know if Australia is doing things the same way we are on climate change? If we go too fine on climate change, we are going to lose the edge when they are not doing the similar phases to what we’re doing?
Mr. Vervaet: That’s a terrific question and a very good point. I’m not going to pretend to be an expert on climate change policies globally, but in terms of Australia’s position specifically, I have read they did have a carbon tax in place at one point in time. That has since been repealed. We also compete against jurisdictions like the United States, which is one of the biggest soybean crushing countries in the world. They do not have a carbon tax in place either.
We compete, again, in the global marketplace, whether it’s against a canola-producing nation like Australia or a soybean-producing nation like the United States. When we see policies like a carbon tax put in place in Canada and not in the other jurisdictions we compete with, we definitely feel that.
Mr. Froese: In my case, I have a processing facility 40 kilometres away from my farm in Canada and 100 kilometres away from a facility in the United States. If you have a carbon tax that is going to impact the industry, once it’s on the truck, whether it’s 40 kilometres or 100 kilometres, it doesn’t matter, but if it’s going to put an extra $5 or $10 per tonne in my pocket, guess where that product is going to go.
Senator Oh: I know you are going to China in November to sell more canola oil. I wish you all the best. Sell more.
Senator Gagné: I was wondering if there are enough processing plants in Canada.
Mr. Vervaet: I would say no. It would be great if we could process more.
I think it was in Jack’s presentation where he articulated that half of the canola produced in Canada is processed in Canada and then sold abroad as a value-added product. We have a goal of reaching 14 million metric tonnes of processing. We are currently at about 9 or 10 million tonnes. We have a way to go, and we have a goal to do more. We think that Canada, again, is a good place to invest where we can see some expansion, but we need the right regulatory environment to be able to make those investments.
Senator Gagné: How big a challenge is the access to labour?
Mr. Vervaet: That’s a really good question. It’s something that around our board table as a COPA membership, it does come up from time to time. Certainly in the West, when we see the resource sector firing on all cylinders, it does become a bit of a challenge to maintain labour at the processing facilities we operate.
At times, it can be a considerable challenge to have access to labour and then to maintain employment at our locations.
Senator Gagné: Richardson Oilseed is a member of your organization. They announced on April 4 they were investing more than $30 million to develop an innovation centre in the heart of downtown Winnipeg featuring state-of-the-art technology and equipment for research and product development. Certainly, it’s a very good announcement, very happy for Manitoba, and for Canada. Would you agree this is a testament to the optimism for the Western Canadian agricultural industry and its potential growth?
Mr. Vervaet: Yes, I think construction of the innovation centre is important and indicative of the commitment the industry has towards the grain and oilseed sector generally. In fact, I can see the construction from my office window. It’s really encouraging every time I turn around to see the progress they are making there.
I think the innovation of new products to meet the demands of consumers is an important component for the continued success of our entire value chain. I don’t know if colleagues want to add to that. But again it’s an encouraging step to see that type of investment and commitment to the industry.
Mr. Froese: I would agree, but it’s further testament to getting our transportation system right. We can move both products and it’s not moving in a proper fashion. Once you have the processed product, it’s got to move. It’s got to move in a timely fashion. We will have to have a long-term vision in my estimation as well, to either port, making sure we have the corridors in place, and having the infrastructure vision for this as well. We’re an export nation. Ninety per cent of what we produce is exported, whether it’s grain, potash, forestry, oil or gas, and everybody is looking through the same corridors to get their product to market. It’s not happening now in a good fashion. We need to get that corrected.
Senator Gagné: I was reading the newsletter published by Farm Credit Canada, and it was about the 2018 outlook for the Canadian food processing sector. It was published in January. In this newsletter, they were saying processed foods like canola oil, beef, pork, chocolate and bread are a “sweet spot” for Canadian exporters. Food preparations, a category currently growing in world markets, also holds potential. I imagine that it is partly why the Richardsons will be investing in food preparations in this innovation centre. Am I correct?
Mr. Vervaet: I couldn’t speak to the specific motivations of that particular initiative by Richardson and that food innovation centre.
Senator Dagenais: Thank you to our guests. My first question is for Mr. Innes.
I would like to return to the topic of the tariffs imposed by different countries, which you mentioned earlier, and which deprive you of export revenue for processed products.
For example, if tariffs were abolished for the Australian market, I would imagine that you would have to mount an offensive to counter the elimination of these Australian tariffs. Could you evaluate how much such an offensive would cost? Because things are continually changing with the various agreements. Could you evaluate how much it would cost to compete with Australia if its tariffs were phased out?
Mr. Innes: Thank you for the question. With regard to tariffs and how much all this costs us, we are at a disadvantage compared to other countries.
Canadian canola is most of what is exported to Japan. Australia is another major exporter of canola in the world and has capacity to increase their exports of canola oil to Japan. The cost to us is losing the market of canola seed exports that we currently have to Japan, as well as losing the opportunity to export more value-added products like canola oil.
As Jack outlined, our exports to Japan are about $1.2 billion right now. When Australia has the advantage, as they do now, they are taking away some of our market for canola seed exports, which is lowering that $1.2 billion compared to what it could be. Their tariffs are coming down over time, and now, it’s really starting to get to the point where they have an ability to export canola oil from Australia to Japan. We’re just starting to see that transition. The longer it goes on, the more Australian tariffs come down, the more they are going to eat away at our seed exports and take away the opportunity we have to add more value for our oil exports.
Senator Dagenais: Thank you.
Mr. Froese, when we look at what is happening in the United States, we see that there are the NAFTA negotiations as well as the protectionist attitude in the U.S. This morning, I read in the newspapers that they are once again considering the infamous sunset clause. That means that the United States could withdraw from NAFTA in five years without giving any explanation. We should also remember that American factory owners receive tax benefits from the American government, as they always have.
Could you tell us a little more about the prices that you can obtain on both sides of the border? Competition is very intense. Have you thought about where you might be in five years, for example, if nothing changes?
Mr. Froese: Presently there is very little difference. There is a lot of transparency. I receive my daily market reports out of the U.S. and Canada. As far as canola pricing is concerned, it’s within cents of each other. If we look at trade with the United States and their consumption of canola meal in their dairy markets, if they would close that market to us, that would have a disastrous effect on our processing plants. A lot of the meal goes into those markets.
Any time there is a disruption in trade between those two nations, there is so much trade happening there back and forth in all the different products, particularly, the oilseed market. I couldn’t perceive where there is a real impediment to trade along that border.
Senator Dagenais: I have one last question. We know that the value of the Canadian dollar is fluctuating a great deal. Last week it was at 80 cents, and now it is near 77 cents. Some think it will even go down to 70 cents. Is that impacting your markets?
Mr. Froese: Yes, it definitely would. That is presently the case, even with an 80-cent dollar. If we look at farms in United States, a lot of them are eating into equity. They are not very profitable. That 20 per cent exchange is what is keeping us profitable in a big way. I guess if it went to a 70-cent dollar, the products that we import or consume from the United States are way less than what we receive for our product. A lower dollar is good in a sense for Canadian farmers.
Mr. Vervaet: It’s about currency. It is a factor, obviously, from day to day in terms of the competitiveness on price. In terms of fundamental factors that would incentivize investment from an oilseed processor’s point of view, it’s not so much currency. It’s very much the key factors we’ve covered in our testimony: the trade, regulatory barriers, whether it’s on carbon tax or otherwise, and transportation.
Senator Petitclerc: I wanted to speak about workers because we did hear about access to the workforce and regulation, but you covered that a little.
Maybe this is not that significant, certainly not as significant as the trade agreements or carbon tax, but how important or relevant, in terms of added value, is building a Canadian brand in terms of canola? Are we recognized internationally? Does that even apply to this kind of product? For example, some products you will say that you have a market advantage because people say, “Oh, you know, I want this product from Canada because of the branding or recognition of it.” Does that apply or should it?
Mr. Innes: In the world of canola, Canada represents about 70 per cent of all the canola traded in the world. Two thirds of all canola that crosses borders comes from Canada. Canola is already a Canadian brand. It stands for Canadian oil, low acid. “Can” is already part of our identity. It is something we created here. We’re very proud of it, and it speaks to Canada even in the name itself.
We do see there are advantages of being a product from Canada and being can-ola. What it really depends on how our customers want to use our product. For example, in high-end grocery stores in Beijing or Shanghai, we see Canadian bottled products on the shelf for very high prices. We see the same thing in India where there can be an advantage.
It is not for all of our exports; it is for some of our exports. Where there are advantages, our members take advantage and send bottled products with clear identification that it comes from Canada and are able to capture those opportunities.
Senator R. Black: According to information provided by Agriculture and Agri-Food Canada, Canada produces a wide range of functional foods and health products. I understand that canola oil with high levels of carotenoids is an enhanced functional food. Are there other canola products considered functional food in nature?
Mr. Innes: When it comes to functional attributes, canola was created to be a much more functional product. When we changed it from rapeseed into canola, we took away anti-nutritional compounds to make the oil good for humans and the meal good for livestock.
Since that original innovation, there have been many added innovations. For example, we have a high-stability oil, a specialty oil program in Canada. It is a higher-stability oil for frying and food service applications.
We’re seeing now the introduction of oil with high levels of omega-3 or DHA, which can then be fed to fish and give humans a source of sustainable plant-based DHA. We’re seeing that our innovation continues in canola to create those functional attributes.
From the creation of canola to high-stability oil to omega-3 oil and to the next generation of functional proteins, we see great opportunity to make those things happen.
Mr. Vervaet: We talk often about oil when it comes to canola. Rightfully so, but I think my colleagues have already mentioned we can’t forget about that meal component. There is significant potential to make meal, the animal feed, a lot more functional for animals, but also there is potential to see the meal being used in human food as well.
Senator R. Black: If things went perfect and trade agreements were put in place tomorrow, what would be the time delay as far as ramping up to be able to grow and process the added necessary tonnage?
Mr. Vervaet: That’s a really good question. What the value chain does well already is the supply. The growers are growing the product. The majority of product is being shipped as seed offshore. We would like to see more processed here. There is a multistep process to building a new processing facility or even expanding an existing one.
I don’t know exactly what those timelines are, senator, but it certainly would take time. It wouldn’t be an overnight shift to accessing the markets, but it certainly would be a critical incentive to start making those investments.
Senator Marwah: Thank you all for your presentations; they were very informative. Many of my questions have been asked, but let me position it slightly differently. Given the fact this study is about value-added products in agriculture, what percentage of your sales or your profits would be spent on R&D? In terms of creating innovation products so we are not always held hostage to a price game but are playing the game whereby we are at the leading edge of creativity and changing our products to suit the market and what the market wants rather than the other way around, what percentage would be spent on R&D? Are we keeping up with the rest of the world in research, development, innovation, new products, new ways?
Mr. Innes: I will start on the crop development side, and Chris can contribute on the processing side. When we look at R&D and canola, it is not just about processing but the whole sector. Growers invest tens of millions of dollars every year in research on productivity enhancements at the grower level.
Our seed developers invest more than $100 million every year on making the seeds more resilient to stress, whether it is from insects, diseases or weather. When we look at how we’re able to invest in R&D, the next frontier is in this protein innovation supercluster that the sector is collectively investing hundreds of millions of dollars in to enable us to supply plant-based protein from prairie crops including canola.
There are a number of levels of investment and research and development. Maybe Chris can speak better to processing facilities.
Mr. Vervaet: I don’t know if I can speak specifically to what percentage of revenue might be spent on R&D. To the point made earlier regarding the Innovation Centre in Winnipeg, for example, many of my members do have their own innovation centres like that to invest and to do research and development on new, innovative products. You have to continue to be innovating to meet the consumer’s demands, and I would say my members across the board recognize that and do invest. I don’t have a specific number in terms of a percentage.
Senator Marwah: Would you say we are competitive on innovation and R&D globally? Are we doing enough compared to Australia or other producers or processors?
Mr. Innes: When I say we’re 70 per cent of the world trade in canola, investment in canola innovation needs to happen here. We can’t rely upon innovations elsewhere and then adapt them here. When we look at the investment we make in canola, it needs to continue. The protein innovations Canada investment is one that’s very helpful to help us keep pace, but we cannot rely upon past investments. We created canola in the 1970s, but the world is always changing; so continued investment is required. Currently we’re keeping pace, but we’re not seeing increased investments in research at Agriculture and Agri-Food Canada, for example.
The current policy framework is the same amount of funds that were put in five years ago, and we all know that things don’t cost the same as they did five years ago. In that sense we are falling behind, but we’re seeing some opportunities with protein innovations in Canada.
Mr. Froese: On the farm side of things, what genetic seed enhancement has done on a single trade, like seed pod shatter resistance, I’m gaining an extra bushel or two per acre in saving seeds when I’m harvesting my crop.
I can let the crop mature fully before I swath, and then I get better quality on the oil and on the seed itself. It’s farm safety, because my employees don’t have to get up in the middle of the night and swath the canola when there is dew. They can swath it in the morning, so it provides enhancements to their physical well-being. That’s one little genetic modification trait.
When I take that trait a little further, it affords sustainability to my farm. For example, we used to till our soil three or four times before we would put in the crop and take it all off. Now a single pass over the field and the seed and fertilizer is in the ground. We saved two passes, and look at the carbon footprint and the greenhouse gas emissions that we’ve saved.
There are so many things that go right back to the core. One little trait or modification. It’s all research and development.
Senator Doyle: I have one small question. You said you supply about 70 per cent of the world market in canola. What about the U.S.? Where would their market be located? Would it be mostly feeding the local marketplace in the U.S.? Where would their markets be?
Mr. Innes: In Canada, we’re really good at growing canola. The U.S. is good at growing other crops and as a result, they import a lot of canola on a net basis. They export a lot of things like soybeans and corn but they import canola. Their market is very internal, whereas with our market — being really good at growing canola, with growers like Jack, our weather is really good for canola — we’re big exporters.
Senator Doyle: They would supply their local marketplace?
Mr. Innes: Correct, yes. Just locally.
The Chair: We’ve reached the end of our time. I’d like to thank all the senators for their questions, and I particularly want to thank the four panellists. Excellent presentations and excellent answers to the questions. We’re very pleased to have you here today.
Mr. Froese: I’d just like to make one comment. I want to take the time to thank the Senate for the work they’ve done on Bill C-49. It is a job well done.
The Chair: Thank you.
Honourable senators, we will now hear from our second panel. With us, we have the Canadian Association of Importers and Exporters represented by the President and Chief Executive Officer, Ms. Joy Nott; and by video conference from Oakville, Ontario, we have Keith Mussar, Vice President Regulatory Affairs.
Thank you to both of you for accepting our invitation to appear here today. We’ll ask you to make your presentation, and we’ll start with Ms. Nott. After that we’ll have questions for you.
The floor is yours.
Joy Nott, President and Chief Executive Officer, Canadian Association of Importers and Exporters: Thank you, Madam Chair and senators. First of all, thank you for the opportunity to be here today. The Canadian Association of Importers and Exporters, otherwise known as I.E. Canada, was founded 86 years ago. The likely primary reason was to push back against American protectionism. It’s 86 years later, and here we are.
We have a very active food committee at I.E. Canada. I.E. Canada represents, of course, both importers and exporters from all industry sectors. We have oil and gas members, food producers, manufacturers, retailers and distributors. We represent transportation companies and service providers who also service the importer and exporter community. As Madam Chair said at the beginning, Keith Mussar, Vice President Regulatory Affairs, is here today. He’s commonly referred to within our association as our food guru. I will refer any particular food technical questions to Mr. Mussar.
In reviewing the questions set out in the Journals of the Senate on February 15, Keith and I discussed this with some of our members and realized there were a few points we wanted to make here today.
For starters, I’m sure it may not be that much of a surprise for those in the room today that Canada has an excellent reputation globally for all food products. We’re seen as being a clean, healthy, safe and phytosanitary type conscious country. We have a reputation that anything that we produce is top-notch, top quality.
That reputation is something I think a lot of other countries would very much like to have. We have it, and I think it’s something we don’t necessarily give as much attention to and try to leverage as much as we should. In some respects, we’ve had it for so long, we maybe don’t pay it as much attention as we should.
I.E. Canada believes, however, that some aspects of our regulatory environment prevent Canadian food producers from taking full advantage of that reputation, including attracting foreign investment to Canada.
I’m going to talk about supply chains for a second. Where goods are manufactured really depends on a number of different factors. This is true when you’re talking about food or any other product. There are things like labour costs, scale of capacity, the tax environment of the country, the overall regulatory environment and then, of course, the transportation infrastructure. If you’re going to look at producing anything, including value-added food products, decision-makers look at all of those things and then they make a determination as to how attractive a particular market is for foreign investment.
If Canada really wanted to be a leader in this area, we’ve got all the ingredients necessary. I’m looking at the senator here immediately to my left. It’s just like the 2010 Olympics in Vancouver; we made the conscious decision as a country that we wanted to own the podium. We could own a much larger space in this area if we collectively adopted the mindset that that is what we wanted.
We’ve recently done it in other sectors, like the IT sector and in pharmaceuticals, to some degree. We’re setting up superclusters, and we’re consciously saying we want to lead in those particular areas, but you don’t hear it much in food. We are certainly well-known globally and we have national pride in our farms, but what about that vertical integration, the value add that comes after the farm, whether it be value-add of a crop all the way to edible food products from that crop?
We would have to do a serious review of some of the policies we’ve put in place in the past to determine if they’re still in the best interest of Canadian farmers and Canadian citizens in the 21st century.
In some ways, Canada has a bit of an inferiority complex. In many ways, we don’t think we can compete as a country on the global stage when it comes to certain things. Because of that fear, we sometimes revert to reflective protectionist policies.
Before I go any further, I want to make it clear we’re not saying that Canada has to completely do away with any policies that can be construed by other countries as protectionist, but I think we need to be strategic. Things we’ve held previously as being necessary in a protectionist stance — things that were deemed necessary even 10 years ago — the global climate has changed, as the previous panellists were saying, and something that might have been protecting us 10 years ago could be hurting us today.
Supply chains are like a train that goes by: You either get the opportunity to hook your car up to that train and move along with it, or the train roars through your station and you watch it go by. Things like standard of identity, having different container sizes than some of our largest trading partners — in the past, there was the belief that, for example, container size would guarantee jobs in Canada. Since our container size was different, it would force filling of containers and certain types of activities in the supply chain to happen here, simply because it was different than everyone else’s.
In the modern 21st century, with the globalization that has happened and now with some of the protectionist stance pushback we’re seeing in Europe, with Brexit in the U.K., and the current administration in the United States — there are some bright spots, too, such as CPTPP, and there are countries that want to do business. Having something like that in place means that — we’re a market of 35 million or 36 million people, and when all those factors are put onto that proverbial spreadsheet and the costing is done, Canada may not seem like as attractive a place to do business because of small non-tariff trade barriers.
In recent times, we’ve seen specific regulatory oversights, I’ll call them, that are in place and have caused facilities here in Canada to reconsider whether they want to continue doing business here. We’ve seen facilities shut down in the past couple of years. The decision makers are looking for global trends. Consider the list I read off earlier: They look at the income tax and the regulatory environment.
I have a good example of a regulatory environment, aside from container size, that will hopefully help crystallize the concept of what we’re trying to put on the table. It’s not something that directly relates to health, safety or security; it’s not that kind of a regulatory requirement. Meat flavours have had a hard time being imported into Canada since 2012. Some regulations changed. Keith can be far more articulate and detailed on this topic than I. Since 2012 when the regulations changed, it’s almost impossible now for a Canadian food producer who needs meat flavouring as an ingredient to import those ingredients into Canada. The reason, to oversimplify for the sake of illustration, is that Canada defines a “meat product” differently than the United States. In the United States, anything that contains 30 per cent or more meat is considered a meat product. In Canada, anything that contains 2 per cent or more is considered a meat product. You have this wide gap in policy. Then meat flavours show up at the border, and because it’s considered to be a meat product, all of the meat regulations kick in in Canada. That’s compared to the same meat flavouring showing up at the border in the United States, where it’s not considered to be a meat product and is not put under the same sort of regulatory scrutiny.
Just think about meat flavouring for a second. It’s not all that unusual in a lot of processed foods to have meat flavouring as an ingredient. Now actually think about why we define “meat product” that way. Whatever the reason, whenever that came in, is that still of benefit to us in the 21st century? Are we shooting ourselves in the foot in an attempt to protect domestic jobs and domestic food?
To be clear, I know I represent the Canadian Association of Importers and Exporters. Our official stance is we very much want the Canadian government to protect Canadian jobs and Canadian farmers. Canadian importers are Canadian citizens. We eat here, send our children to school here and work here. This economy directly impacts our families. We want to see Canadian farmers and manufacturing flourish. That is what we would consider to be a successful importing and exporting environment, and that’s what we’re here to champion.
I don’t want to take too much time today, because we’d like to get to the questions you have for us, so I’ll leave it there. We welcome your questions, and I’ll defer to Keith right now to see if he wants to add anything to our opening comments, if the chair would permit that.
The Chair: Sure.
Keith Mussar, Vice President Regulatory Affairs, Canadian Association of Importers and Exporters: Thank you, Joy, and thank you, senators, for allowing me to join you by video conference.
I totally support all the comments Joy has made with regard to policies and difference in policies between Canada and our trading partners, not only the United States but others around the world. Also, in listening to the previous testimony, one of the questions asked was with regard to the value of the branding of Canada. I support the comments issued previously, which were reflected by Joy, that Canada is uniquely positioned from a couple of perspectives. First, we have and are recognized as having an outstanding food safety system. We are enhancing that by the passage of the proposed Safe Food for Canadians Regulations, which we hope will happen in the next couple of months. That’s going to enhance our ability to be able to access foreign markets.
We are so proud and so protective of that that we are putting in place, through the Safe Food for Canadians Regulations, some provisions that require Canadian companies to assure the manufacturing of safe goods, even though they’re destined for export markets. We as a nation have made the commitment to not only keep Canadians safe but to keep safe the citizens of countries with which we trade as well.
There’s an important aspect that is our Canadian brand. This is very important for us to continue to support and protect.
Also, there’s a notion, and Joy touched on this, about the purity and the natural concept that comes with Canada.
We are uniquely positioned in the globe not only climatically, but by how our forefathers and those who preceded us have represented Canada as a wonderfully natural environment. It’s a natural environment that many countries around the world envy us for having. We use that frequently as part of the marketing promotion of our food products here in Canada, but also those products we market around the globe.
While there are some things we should possibly look at and change with regard to some of our policies and programs here in Canada, there are also some things that are very important for us to continue to protect in order to access our foreign markets.
Senator Maltais: Ms. Nott and Mr. Mussar, thank you for being here today. It is very important for us to hear your perspectives. As you so eloquently said, Mr. Mussar, Canada has had an excellent reputation for many years. We did not get this reputation overnight. It was built gradually. As importers and exporters, do you have a relationship with the countries you export to, and with processors? Let me give you a concrete example. The Canadian Beef Group is gradually opening up markets in China. As the Chinese do not consume beef in the same way we do, they have arranged to import whole carcasses from Canada and to process them in accordance with their consumption habits. Are there other examples of countries that you export to which are causing Canada to adjust its methods?
Ms. Nott: Thank you for your question.
Keith, I don’t know if you can hear translation, but basically are there other countries aside from Canada where we might have to export our food so the local country can process it in the way they like to eat it, and beef was the example.
I’m not aware personally, because I deal with so many different commodities and because we have members that import everything from machinery to retail products. When it comes to food exports, one of the things that often comes up in Canada, for example, is fortified flour. Keith, I’ll defer to you to explain further. Again, a place where we have a regulatory difference from other countries is in the way we view some of our ingredients. There are times where we, in Canada, have to produce food in a certain way for domestic regulatory reasons, but to your point, foreign countries may not have the same requirements that we have, and then it puts us in a bit of a quandary.
When we’re talking about things like the export of beef, the export of pork and that sort of thing, I.E. Canada sits on the board of directors of Canada Beef. We’re heavily involved with that association. I’m not aware of any other food products per se that are produced in Canada.
I’ll defer to Keith because I’m not aware of any.
Mr. Mussar: Thank you very much for your insightful question. Let me attack that in a couple of different ways.
First, if you allow me the freedom to adjust the question a little to explain how the multinational company world is operating, that would be one aspect I’d like to address. And then I’ll come back and address specifically some of the product commodities you refer to.
Today, large multinational companies may have a manufacturing facility in Canada. They likely have one in the United States, possibly Europe and other countries in the world such as Australia. The decision around who manufactures a product is made by global corporate entities. Products are manufactured in one location, one manufacturing site, and then they are distributed globally. Gone are the days when the cost of transportation of goods from one geographic location to another exceeded the decision around manufacturing and determined where that manufacturing site would be.
Today, a Canadian company is competing directly with a U.S. company for a contract to manufacture product that will be exported globally. That’s a really important aspect to understand because, as Joy alluded to, when we start looking at things like cost of labour, manufacturing cost, energy cost, cost of goods, for us to continue to compete in a global environment managed under that business model, we need to be competitive with our global trading partners and the manufacturing sites in those countries, in all of those categories, in order for us to be able to manufacture goods in Canada and export them to the United States or other countries around the world.
We have seen in the past few years that Canadian companies increasingly are struggling to be competitive. We’ve seen that a number of large multinational companies have closed their manufacturing facilities in Canada, moved those jobs to the United States and manufacturing is now happening in the United States in lieu of happening in Canada, and those goods are being exported back into Canada and to other markets around the world that previously Canadian companies had access to.
That’s one aspect of consideration I’d provide. The other speaks more specifically to things like beef and other commodities. Canada is well positioned and we have had a policy in the agriculture world to manufacture commodities, export those commodities from Canada to other countries around the world where those countries invest in the labour and the manufacturing of goods to produce value-added products.
I think if we look at our export statistics around commodities, we see that over the course of time, those commodity exports have increased. However, our value-added product exports have either maintained current levels or are decreasing. We are becoming a net importer of manufactured food items into Canada.
Senator Maltais: I completely agree with you with regard to the closure of multinationals. We saw what Heinz did in Ontario. It’s a good example of a company that no longer deserves the trust of Canadians.
I’ve said it openly before and I will say it again: they have betrayed the trust of Canadians, and then they come back to sell their products to us in Canada. There should be a special 80 per cent Heinz tax like what Mr. Trump is proposing for Canadian products. That should fix the problem.
At the end of the day, you are ambassadors for Canada. You represent exporters and importers. You are in the best position to know exactly how we can increase exports and reduce imports of our prime quality products, and to guide processors. I would like to hear your point of view on the matter, as this is a very important sector.
Ms. Nott: I think the question is the crux of this entire study: How do we, in the 21st century, preserve Canadian jobs and leverage all we have working for us as Canadians and stop the slide Keith was talking about? To your point, Heinz closed. Campbell’s Soup in Etobicoke closed a facility and Kellogg’s is closing a facility. It’s a trend and not a positive one. How do we turn that around?
As I said in my opening remarks, we need to stand back and take a look at why these things are happening. Keith alluded to a lot of it. He talked about the fact these decisions are made at the global level. Manufacturing hubs are put in place, and they’re going to put those manufacturing hubs in the region that meets the maximum number of things on the checklist: cost of labour, cost of energy, the tax environment and transportation infrastructure.
We need to look at what on that list we’re failing at. Why are those companies looking at doing this? They set up here initially years ago, and now they’re determining it’s no longer attractive to be here. In each circumstance, from every decision maker, you’ll potentially get a slightly different answer, but there’s a trend. The trend is that we adopt this protectionist attitude about things that might be hurting us now. We need to reconsider whether that protectionist attitude in these specific niche areas needs to be readdressed.
Keith, I’ll turn it to you to see if you have any specific examples or want to add to that, the question, of course, being what can we do to grow the number of Canadian jobs and to stop the trend such as what we saw with Heinz?
Mr. Mussar: Thank you very much. It’s a very complex question, and the answer has a number of aspects to it. I’ll try to describe and share from my perspective and experiences some of the things I think are important to consider.
First, it’s important to understand and appreciate the decisions being made, at least when it comes to multinational companies, are being made by corporate infrastructures that already exist outside of Canada. They have no affinity for Canada. Frequently, the people making the decisions are in the United States or Europe. There may be factors playing out in the administration in those countries that are driving repatriation of business, as we’re currently seeing with the administration in the United States.
There’s this overarching environment in which the decision is being in the foreign country that has a vested interest in Canada. That’s one aspect we need to understand more about.
Second, we need to understand what the cost of manufacturing is here in Canada. We need to make sure that Canadian companies have the ability to be able to at least compete when it comes to the cost of manufacturing. There’s a whole host of aspects that go into building a model around cost of manufacturing. We need to understand those and evaluate in a very honest and critical way what that cost is here in Canada.
Also, that cost of manufacturing contributes to a scale of production. There are some companies in Canada who have committed to building their businesses here. A couple of our members are part of that. One of the things they are conscious of is scale of manufacturing. They have to reach a certain scale in order to be competitive globally. We need to understand what those models look like.
I’ll give you an example from my past. I worked for a brewing industry company a number of years ago, and we were very proud in Canada that, over the course of the year, we produced a massive amount of what we thought was an incredibly high-quality beverage that was enjoyed by Canadians. We looked to the south, and the company we were owned by in the United States produced in the course of one week the entire production that six manufacturing facilities produced in Canada. It’s no surprise, in that sector, for instance, manufacturing of those products has left Canada, by and large, and has moved to the United States or other jurisdictions.
There is that cost of manufacture and scale of manufacture that is really important for us to understand; we need to understand the dynamics and sensitivities.
The third thing is picking up on a theme Joy introduced in her opening remarks: the regulatory environment in which we work. The meat flavouring example is excellent but not the only example of a regulatory framework we have here in Canada that makes it difficult, if not impossible, for Canadian companies to obtain the ingredients they need in order to manufacture goods to sell to foreign markets. If Canadian companies cannot access these ingredients, the decision makers in foreign countries have no choice but to move manufacturing from Canada to an alternate location where those ingredients can be obtained. The finished products can then be exported into Canada and meet our market demand.
We have a member in Canada who recently built an extension onto a manufacturing facility here in Canada. They are now in the process of looking at changing a supplier in the United States. Because of our regulatory framework, if they choose to do that for cost efficiencies, they will no longer be able to access the ingredient in Canada that drove the addition of the new manufacturing facility here in Canada. We’ve been told they will then subsequently move that manufacturing from Canada to the United States.
The Chair: We need to move on. I’m sorry, we’re running a little short on time. A number of senators would like to ask questions, but you have given us some great examples there.
Senator Dagenais: I would like to thank the witnesses for being here. You work in a complex and difficult sector which will become even more so with the NAFTA agreement. Now, people are talking about a symbolic agreement and a sunset clause pursuant to which the United States could bring an end to NAFTA in five years. That is concerning.
That said, listening to you, I note that the Canada brand is a good one, but that it also represents significant costs for producers and processors. This could harm the competitiveness of our products as compared to those from America. I believe that we should seek foreign investment.
Are there any sectors where forecasts are slightly more positive, where we could seek foreign investment, in a way that would help our products to be more competitive? Unfortunately, when we cross the border, we have to admit that it is sometimes lower prices that attract consumers to the other side of the border. For example, milk is much cheaper in the United States, but we are told that it is of lesser quality. However, I’ve yet to see an American die after having drunk milk. Are there any sectors in particular where we could seek investments that could be positive for our economy, our importers, and our processors?
Ms. Nott: Thank you for the question. Probably the biggest opportunity we have right now is a leg up on the Americans through the CETA free trade agreement with Europe. I know one of the reasons the Europeans wanted that free trade agreement with Canada was because we have a preferred access through NAFTA to the United States.
To your point, with the NAFTA sunset clause, as far as I’m concerned, if a free trade agreement the size and scope of NAFTA has a sunset clause, the agreement becomes almost null and void at the time of signing. A five-year timeline window is not enough time for any company to consider putting investments in when you have a five-year window. It doesn’t make sense. Companies will just say, “There is no real free trade there.”
But with our opportunity with CETA, I think a lot of European companies are looking to establish a footprint in North America, with the eye on the prize being the U.S. market. Given the fact we have that free trade agreement, there is a tremendous opportunity. Leveraging on what Keith said, we need to get strategic about which ingredients are considered mandatory for us as a country to import, and that global hubs who want to set up manufacturing facilities want those ingredients. What are the ingredients that need to be imported, and why can’t we get strategic about having the opposite of a non-tariff trade barrier? Have an import advantage to importing specific ingredients, which would encourage that foreign investment that you’re talking about.
Specifically we have CPTPP. You’re potentially going to have the Japanese and some other economies in that trade agreement. I know the Europeans are actively looking at how they can leverage CETA to enter the U.S. market. I think if we got strategic about what it is these companies are looking for, what can we do to make this attractive — I’m not talking tax or big dollars spent relative to spending infrastructure. I’m talking about getting strategic about what it is those global manufacturers are looking for and offering them that sweet spot.
Senator Doyle: You mentioned attracting foreign investment to Canada. How do you do that? Does your organization have people on the ground overseas, for instance, seeking opportunities and trying to attract investment, making trade deals and what have you? What is the Government of Canada doing to help you in that regard? Do you have an ongoing dialogue with government on these things that can help you out in some way?
Ms. Nott: We do have an ongoing dialogue with the government through a number of different departments and agencies. The short answer to your question as to whether or not we have people stationed around the world, no, we don’t. All of our staff is in Canada. We work very closely with the Canadian Trade Commissioner Service when specific opportunities come up. In previous Senate testimony at different committees, there something I’d like to leave as a thought: We talk about international trade as though it’s one process because from a business perspective, it is one process.
However, in our Government of Canada, we have a minister of imports and a minister of exports, and they’re two separate agencies and ministries and two separate ministers. Yet we talk about importing and exporting around this table as though it’s breathing, inhaling and exhaling. We have two separate ministers and we don’t necessarily have one comprehensive trade agreement.
The minister of imports is Mr. Goodale, responsible for CBSA, the RCMP, prisons and other portfolios. Of course, the minister of exports is the Minister of International Trade and, when you look at the mandate letter and the traditional setup of Global Affairs and the Minister of International Trade, his focus is exports only.
Senator Doyle: Would it have been better to have that all under one heading?
Ms. Nott: Absolutely. I think that’s one of the points we’re trying to make here today. If we want to attract foreign investment, we need to be clear on what sort of ingredients, what kinds of parts do those global manufacturers need a reason to say, “Canada is a good place.”
First, our currency is lower than the American currency, which is the currency of the world. If we got strategic and said we are going to specifically look at trying to attract certain kinds of manufacturing and then what, from a food perspective — because that’s what we’re talking about here today — do they need? I’ll use that meat flavouring as an example. If we’re causing heartburn because of that meat flavouring, no pun intended, then why can’t we look at it differently, change those regulations and then actively get focused and have an international trade policy where we want to allow the import of meat flavourings because that will produce foreign investment, manufacturing and production jobs in Canada to export the food?
It’s thinking about how we need to allow imports so the manufacturing jobs can be here and we can export. That would require one coordinated view and right now we have two ministries.
Senator Doyle: Are we making any progress at all in the export of more processed agricultural food? We’re not making any progress at all, you feel? We’re not growing?
Ms. Nott: We’re not growing, and in fact some of the things we have in place are irritants to foreign investment. We’re suggesting some of these things need to be looked at. If they’re irritants to foreign investment — whatever protectionist thought was there when we instituted these regulations and did that weighing — what’s better for Canada? Is it to have it as an irritant to foreign investment but we need it because it’s a bigger benefit to the protectionist stance or should we remove it and attract the foreign investment? I don’t think that kind of review is actively being done. By the way, that’s not just on food.
Senator Doyle: It’s not actively being done by government.
Ms. Nott: By government on all products.
Senator Doyle: The government is aware of all this. You have talked to government about this, I would imagine.
Ms. Nott: In some corners there’s still the belief that imports are bad and exports are good. Yet in the 21st century, you need imports in order to produce whatever you’re producing so you can export. It’s one process.
Senator Doyle: That’s too bad.
Senator Oh: I have a quick supplementary question. Talking about the low dollar in the last two and a half years, have exporters taken advantage of this situation? Have you seen exports increase?
Ms. Nott: In some sectors we’ve seen exports increase, but you have to be making it here in order for people to buy it here.The fact we have a low dollar only helps the manufacturers who are here. It doesn’t necessarily help for foreign investment. If you’re looking at setting up a factory because there’s a low dollar so you can produce goods at a lower cost, so to speak. But if you can’t get your ingredients in because of a non-tariff trade barrier, having a lower dollar doesn’t help.
Senator Oh: Currency exports? Do they increase because of the low Canadian dollar?
Ms. Nott: I’m going to say with very specific companies maybe, but overall flat, because you have to be making it here before you can export it.
The Chair: I’m going to ask for shorter, concise answers. It’s great information, but we won’t get through everybody.
Senator Marwah: I think it’s fair to say we all agree that free trade is imperative, particularly for Canada, and in the world of globalization. And protectionism is a bright spot.
We’ve done many free trade agreements. Leave CETA and NAFTA out of it. CETA is too new and NAFTA is a unique animal. Take the others we’ve done, such as Korea, Peru and Colombia. Looking at the track record since the other agreements were signed, the other countries seem to have benefited more than we have.
Yes, our exports have gone up but imports have gone up from those countries by a substantially larger margin in some cases. What is it that prevents our exports? Is it that we are too timid? Non-tariff barriers? What makes them less aggressive in attacking those markets than the importers seem to be attacking ours?
Ms. Nott: I think you’ve pretty much hit on the list. For a lot of small- to mid-sized companies, when we talk about going abroad to export other than the United States, there is an intimidation factor.
If you look at Canada’s tourist statistics and where Canadians go on vacation, you’ll see that those are the countries, for the most part, we’re comfortable exporting to. If you feel you know the market and culture, and have at least some cursory contacts there, you’ll feel more comfortable exporting there. Some of it is about being timid.
A lot of it, however, are non-tariff barriers. We work with Global Affairs to identify those and try to get them removed in the foreign country preventing our exports. Again, and I hate to sound like I’m repeating myself, you have to make it here before you export it. In order to make it here, you have to attract foreign investment to increase the number of things to export aside from just beef, pork and some of the products we’re very famous for exporting. If we want to increase exports, we need to increase the basket of goods we have available to export, which means attracting foreign investment.
Senator Gagné: You said that markets change very rapidly and that public policy has not been updated to reflect these changes.
I am going to put my consumer hat on. As a consumer, I have noted that I can buy food products online more and more. We know that Amazon recently purchased Whole Foods, that Sobeys has also announced investments to launch an online service, and that Loblaws will invest in a home delivery service. Inevitably, this will generate price competition.
How will this globalization of online food products change the food processing market, and how could this potentially impact imports and exports in Canada?
Ms. Nott: Thank you, Senator Gagné, for the question. You’ve probably hit on the number one risk overall to health and safety.
The question, Keith, is about online shopping, e-commerce and price wars, because the trend is definitely towards e-commerce.
There’s definitely a risk there, because you’re right. I’ll use a Heinz ketchup bottle, because a previous senator happened to mention them. If you know Heinz ketchup as a product and you can buy it online at 75 cents cheaper than somewhere else, you know what you’re buying. It’s going to arrive via the mail or courier, and it’s going to be Heinz ketchup.
That speaks to what Keith was talking about earlier. That is the nature of globalization. You mentioned that Amazon bought Whole Foods. Walmart is also looking at online groceries, and that’s a big one. These things are becoming true commodities. Processed foods are becoming commodities, and that potentially leads to health, safety and security issues. If it is manufactured somewhere else and coming through the mail, a lot of checks and balances may not be in place to make sure what comes into Canada is safe. Inspections that take place at the border don’t take place at the post office when it’s a single bottle of ketchup in a box. There’s a risk there.
That’s part of the opportunity. Part of the opportunity is asking ourselves why can’t we be seen as trying to own the podium by saying that we can be not only the manufacturers, potentially, but also distribution hubs for North America. If you look at where we are located on the planet, from a logistics standpoint, we have Prince Rupert as a deep ocean port. It’s faster to sail around the north of the globe than the centre. We have a lot of things going for us relative to where we are and our infrastructure.
That’s part of the opportunity we have to get a piece of that e-commerce pie. We need to decide strategically what we want. Do we want to be manufacturers? Do we want to be distributors? Do we want to be the logistics hub? What do we want? Focus, and go after it.
Sorry, Keith, I don’t know if there was anything you wanted to add.
Mr. Mussar: I’ll be brief and leave you with a couple of thoughts. First, to Senator Gagné’s point, we’re going to see greater centralization and global distribution of food products — greater manufacturing in centralized locations.
There’s also an opportunity, if we take advantage of it, that will help small- and mid-sized companies in Canada. Not only is the opportunity for foreign manufacturers to sell goods to the Canadian market, but through this globalization and Internet sales, there’s a greater opportunity and ease for Canadian companies to sell our goods in the international market. I’m sure there is work that needs to be done in helping Canadian companies understand how to better do that and provide them the right tools.
Senator Petitclerc: I’m going to try to phrase my question in order to make sure I provide you with the opportunity to answer, but it could be a very long answer. You’ve mentioned on the podium a couple times, and that speaks to me greatly.
What I hear is the first time we’re hearing it this way. It’s more than trade agreements, transport or infrastructure; it’s really about a big change or shift in commercial philosophy, competitive culture and mindset. It looks a lot like what happened when we hosted in Vancouver. They called it “Own The Podium.” Everybody, all of a sudden, coaches and athletes, decided we cannot only be good, but we can be great and win medals. That’s what you’re talking about.
I know we don’t have a lot of time and it could be a long conversation, but is it something stakeholders buy into? Are you isolated in that conversation? Is it happening?
Ms. Nott: In a single word, we need focus. For a lot of small- to medium-sized companies in Canada — looking at Senator Gagné — e-commerce is happening, and it’s very hard to focus on something that’s a mile wide and 10 miles high. How do you focus on that?
The Canadian government could really assist by reaching out to those stakeholders and picking a few things, because people are looking for something to focus on. If we, as a country, can get together; put that strategy in place; and give them something to focus on, like “own the podium,” I think you will see a lot of those small- and medium-sized enterprises gravitating toward that, because that’s what they’re looking for.
It’s a big, scary world out there. It’s changing so quickly that if there’s something they feel they’re walking towards, they would buy into it. I’m confident of that.
The Chair: Thank you. I have one quick question: What are the top one or two things the government can do in dealing with non-tariff trade barriers?
Ms. Nott: Keith, do you want to handle that one, or do you want me to?
Mr. Mussar: I’d be more than happy to handle it.
First, we’ve been involved with government departments to move away from some our non-tariff trade barriers. If we put forward an earnest commitment, and it’s got to be led by our government, to remove non-tariff trade barriers, we will achieve and make it easier for Canadian companies to get the ingredients they need in order to be able to manufacture goods here in Canada. That’s the first thing.
Second, we tangibly have an opportunity right now and that has been going on for a number of years called the Regulatory Cooperation Council. It’s a forum between Canada and the United States. We’ve been able to make some progress, but not as much progress as industry would like. We need to continue to commit to that forum. Also, as we explore trade opportunities with countries such as the European Union, we need to develop a similar type of fora that will allow us to remove trade barriers between our two nations as we progress these trade agreements.
Ms. Nott: If I can add one comment, Global Affairs keeps a spreadsheet of the non-tariff barriers that exist in other countries. If we were to do the same exercise and turn it inwards, make a spreadsheet, talk to stakeholders and find out from the decision makers not building factories here, what are the non-tariff trade barriers here preventing you from expanding and putting your foreign investment here, we can create that inventory to start that critical view to say, “Do we still need this? Should it be changed, enlarged, eradicated?”
We don’t really have that inventory right now. We have the outbound inventory, but we’re not looking at ourselves. That would be a concrete example of what we need to do to address the non-tariff trade barriers. First, we need to identify them.
The Chair: That’s a great answer to my question. I appreciate that. We have one appeal for a question at second round.
Senator Doyle: You talked about greater centralization of food distribution and that kind of thing. What does it do to price with a consumer? Does it lead to higher or lower prices for the consumer the more you centralize in distribution et cetera? How does that affect my pocket?
Ms. Nott: Generally speaking, when things are centralized, efficiencies are put in place that outweigh the cost of transportation. When you are able to centralize distribution hubs, which is why you see so much of it happening, it reduces the cost. Then, of course, depending on what the commodity is, if they can keep the price high on the shelf to you and your pocketbook, it increases the profitability.
Globally right now, things are becoming a commodity, and as Senator Gagné has said, price wars are starting to erupt because of e-commerce, and that’s a trend that’s going to continue. That’s not going to slow down anytime soon. I can compare prices on two products very quickly by doing a Google search. I can tell you it’s for sale here for this much and for sale here at that much. That information is instantly available.
By centralizing, it will actually have the opportunity to lower the cost to the consumer. But we’re sort of in the middle of a transition right now, so what I just said is not always true. If I’m used to paying $3.29 for a particular product and there’s a large profit margin, those margins are starting to be squeezed because e-commerce is starting to have that impact. I hope that answers your question.
Senator Doyle: Yes, it does.
The Chair: I’d like to thank the panellists for being here today. It was a very interesting discussion, as you can see by the questions that were asked.