THE STANDING SENATE COMMITTEE ON AGRICULTURE AND FORESTRY
EVIDENCE
OTTAWA, Tuesday, October 16, 2018
The Standing Senate Committee on Agriculture and Forestry met this day at 6 p.m. to study how the value-added food sector can be more competitive in global markets.
Senator Diane F. Griffin (Chair) in the chair.
[English]
The Chair: Good evening. I am Senator Diane Griffin from Prince Edward Island and chair of the committee. Today the committee is continuing its study on how the value-added food sector can be more competitive in global markets.
But before we hear from our witnesses today, I ask the senators who are present to introduce themselves. We’ll start with the deputy chair.
[Translation]
Senator Maltais: Senator Maltais from Quebec.
Senator Dagenais: Senator Dagenais from Quebec.
[English]
Senator Doyle: Norman Doyle from Newfoundland and Labrador.
Senator Oh: Victor Oh from Ontario.
[Translation]
Senator Miville-Dechêne: Julie Miville-Dechêne from Quebec.
[English]
The Chair: Thank you very much.
Today, for our first panel, we have with us, from CropLife Canada, Mr. Dennis Prouse, Vice-President of Government Affairs; and Mr. Ian Affleck, Vice-President, Plant Biotechnology. And from BIOTECanada, we have Mr. Andrew Casey, President and Chief Executive Officer.
Thank you for accepting our invitation to be here this evening. We’ll ask you to make your presentations and then we’ll have questions afterwards. We will start with CropLife Canada.
Dennis Prouse, Vice-President, Government Affairs, CropLife Canada: Thank you. I very much appreciate the invitation to be here with honourable senators today. With me is my colleague, Ian Affleck, a proud son of a Prince Edward Island potato farmer. He gets to answer all the hard questions afterwards.
CropLife Canada is the trade association that represents the manufacturers, developers and distributors of plant science innovations, including pest control products and products of modern plant breeding for use in agriculture, urban and public health settings.
Our mission is to enable the plant science industry to bring the benefits of its technologies to farmers and the public. Those benefits manifest themselves in many different forms, including driving agricultural exports, high-skill job creation, strengthening the Canadian economy, increased tax revenue for governments, improving environmental sustainability and increasing access to safe and affordable food for Canadians.
We’re pleased to see the committee undertake this study, as agriculture is often unfairly left behind when discussion of value-added exports take place. The truth is that agriculture and agri-food are sectors that have been revolutionized by technological change and represent one of Canada’s best options for encouraging innovation and growth.
This renewed focus on value-added exports in agriculture is timely in light of the Advisory Council on Economic Growth’s report to the government and the just-released report from the Economic Strategy Table on Agri-Food, as commissioned by the Department of Innovation, Science and Economic Development. The recommendations of both reports are clear — excessive and duplicative regulation is providing a drag on innovation and competitiveness in Canadian agriculture and the prescription is regulatory reform.
The Agri-Food Economic Strategy Table recommends that we modernize Canada’s regulatory approach for new technologies with particular focus on precision breeding techniques to ensure it continues to provide an efficient and predictable pathway to commercialization. This will be achieved by improving guidance and clarity for product developers on the interpretation of Canada’s novelty based regulatory trigger. They also recommend streamlining data requirements for assessment of bio-similar products, undertaking greater cooperation with key trading partners, especially the United States, to reduce overlap and maximize efficiency. They also recommended identifying efficiencies and enhanced coordination of requirements across three separate safety assessments — human food, animal feed and environmental safety — for novel products of biotechnology.
For its part, the Barton report highlights the agri-food sector as an important area of potential growth for the Canadian economy and says that innovation is the key to unleashing agriculture’s potential. No surprise there. Canada, however, is not the only country pursuing innovations in agriculture. And as others pursue advancements in data analytics, automation and genomics, Canada must act quickly or risk being left behind.
The Barton report identifies several barriers to success for Canada’s agri-food sector, one of which is increasing productivity. Agriculture must continue to adopt new technologies and innovations to increase productivity.
We believe that there are many opportunities when it comes to products of modern plant breeding and pesticides to modernize and streamline regulatory approaches to drive greater innovation while still protecting human health and safety. We would very much like to discuss that with the committee today.
Canada’s regulators cannot be divorced from the broader Government of Canada objective to innovate our way to $75 billion annually in agri-food exports. They need the help of parliamentarians to help deflect the inevitable criticism from our detractors at the slightest mention of economic considerations.
We believe government policy on building agriculture exports and promoting innovation should help build and on our accomplishments to date and recognize how far we’ve come. Let’s look at some of the innovations that are on the market right now, achieving the goal of value-added products.
We have modified oil, profile soybeans and canola, which have better processing quality and health benefits in the finished product. These are products of plant biotechnology. We also have the Arctic apple, a Canadian innovation that provides many new processing opportunities due to the fact that it does not turn brown. Processors can make clear apple juice that you can put in anything, apple smoothies that are not rust brown and dried apple snacks. Unfortunately, the Arctic apple was invented in Canada, but first approved in the United States and is subsequently being grown there.
The Simplot non-browning potato provides better production efficiency in the processing plant due to less waste, which means fewer greenhouse gas emissions. It means that farmers lose less crop and use less energy per pound of final product.
If we have the right innovation climate, Canada can benefit from the research of more products like these with the advent of new tools like CRISPR. This is gene editing, where researchers are able to enhance the gene itself rather than needing to introduce genes from another plant. GMOs are a 25-year-old technology, frankly. Gene editing is where the future is heading, and it is heading there with or without Canada on board.
Here are just a couple of the opportunities that Canada has missed due to a needlessly complex regulatory system.
Limagrain, which just built a research centre in Saskatoon, has a high-fibre wheat that allows for more efficient milling and a healthier final product processing. Unfortunately, our complex regulatory framework means it is commercialized in the United States, unregulated this year, and will be for over three years before it comes to Canada. U.S. farmers will grow it first, U.S. millers will mill it first, and the finished product processing plants will be built south of the border first.
Calyxt, a plant breeding company in the U.S., has developed healthier profile oil soybeans through gene editing. They have commercialized 18,000 acres in the United States this year, but none in Canada due to our more complex regulatory programs.
Those are just two examples, but more are on the way. Nuseed has an omega-3 canola showing the potential delivery of as much omega-3 in one hectare as in 10,000 pounds of fish. This would provide finished product opportunities, safeguard fish stocks and reduce greenhouse gas emissions due to efficiencies. This product has already been approved in the United States. Calyxt also has a low-gluten wheat in the pipeline in direct response to consumer demands for value-added finished products.
To conclude, Madam Chair, the possibilities are endless if we have a regulatory environment that brings these critical products to Canadian farms, which in turn will aid the value-added economy in Canada. Let’s be clear, though. This requires looking at the Canadian regulatory system through an entirely different lens, one that has an aim to improving commercialization and competitiveness. Without significant changes to our regulatory system that directly supports these goals, Canada will continue to fall behind our global competitors, and any talk of us becoming a significant player in the value-added sector will be just that, talk.
We believe that Canadians deserve better and that Canada can and should be a global player in innovation and value-added.
Thank you for your time. We would appreciate any questions that senators may have afterwards.
The Chair: You can be sure we will have questions. We always do. We’re a very keen bunch.
We’ll move on to our next presenter, from BIOTECanada.
[Translation]
Andrew Casey, President and Chief Executive Officer, BIOTECanada: Honourable senators, on behalf of the members of BIOTECanada, thank you very much for this opportunity to appear today on this very important topic.
[English]
Thank you very much, on behalf of the members of BIOTECanada, for this opportunity today.
By way of introduction, BIOTECanada is the national trade association that represents our biotechnology industry in Canada. Our members, some 217, are from coast to coast, and they cover off a number of different important categories. Health, industrial, agricultural and environmental biotechnology are the main areas that our member companies are in.
We’re going to focus today on the agricultural and, to a certain extent, industrial and environmental biotech companies in our membership and in this country.
It’s important to identify what we’re solving as an industry. Biotechnology is essentially taking living organisms and creating useful things.
What’s the challenge we’re addressing as an industry? When you look at the world and its population growth, we’re sitting at around 7 billion people right now and moving rapidly towards 9 billion, maybe even 10 billion, over the next 20 to 30 years. That will require a fundamental change by society in terms of how we live our lives, grow our food and manufacture our goods. We cannot continue to go the way we have. The climate has changed and is changing, so we have to both mitigate and adapt to a changed environment.
Therein lies a huge challenge for society, but therein also lies what our industry sees as an enormous opportunity for the biotechnology sector because the biotechnology industry is developing solutions to address those challenges.
Certainly in the agricultural, industrial and environmental space, Canada has been well positioned for many years with its enormous strategic strengths, particularly in the agricultural sector. We also have a world-renowned expertise in science, research and development, and commercialization of innovation. But — this is an important “but,” and Mr. Prouse alluded to this earlier — the rest of the world has figured out the economic opportunity that lies there in addressing the challenges of going to 9 billion or 10 billion people. They’re moving rapidly to also develop their innovations and support their industries that are developing the innovations.
Canada has to keep pace; it’s imperative that we do so. Thankfully, when we look at our space, we have some natural advantages. We now have an innovation agenda that was developed a couple of years ago by the government. Out of that has flowed the Economic Strategy Tables that were referred to by my colleague. There’s a health one, an agri-food one, and there’s also a resources one that crosses into our membership a little bit.
I find it encouraging to see the commonality between those reports. They’ve identified a couple of key areas that Canada has to be better at. One is attracting investment. A second is attracting talent that we can use to commercialize these innovations.
One of the important areas we know we have to be more competitive at, and globally competitive in that respect, is our regulatory system. Our regulatory system has to be as competitive as possible, because that will influence how effective and successful we are at attracting the investment and talent we need to commercialize these great innovations.
The problem we, as BIOTECanada, and our members have is that for some of the sectors, they too have to attract investment. So if you look at agriculture, forestry, mining and oil and gas, they all have to attract investors. If they’re unable to attract investors to Canada, they have to leave what they have where it is. You can’t take a forest or a mine and move it to where the investors are.
In biotechnology, what we’re talking about, particularly in the context of value-added, are good ideas. They sit on laptops, and they can be commercialized anywhere in the world. So if we’re not good at attracting the investment and talent we need to commercialize those innovations here, we will lose the innovations to where the investment dollars are.
We will eventually get the finished product back in some form, but we will have missed out on all the economic benefits of commercializing that idea here in Canada. We’re phenomenally good at it. We have fantastic universities and research institutes. It would be a shame if we missed out on the enormous opportunity that is before our economy right now.
In the interest of time, I will say thank you, and I look forward to questions from the senators.
The Chair: Thank you. Those were two very interesting presentations.
[Translation]
Senator Maltais: Gentlemen, thank you for your very interesting presentations. They are in line with the purpose of our study.
You both raised two points in common, one about regulations and the other about low speed. High speed has not reached the levels prescribed by regulations. This is a completely unacceptable irritant for you. It is not enough to talk about innovation. If the regulations do not follow or precede, you do not move forward. You say you are concerned and I am well aware of that.
I’ll proceed quickly, because I have two questions, one for Mr. Prouse and one for Mr. Casey.
In your opinion, how would it be possible to limit or expedite the regulations, Mr. Prouse?
[English]
Mr. Prouse: I’m going to turn this over to my colleague Mr. Affleck, who has been living this file for the last few years.
Ian Affleck, Vice-President, Plant Biotechnology, CropLife Canada: Thank you. What’s important to look at is that Canada was a leader in this regulatory space 20 years ago when we put our regulations in place. We had the flagship regulatory process in the world, and it was more responsive than most countries. But we’ve rested on our laurels a bit, and we haven’t modernized it in 20 years.
To make it more responsive and better suited for industry and able to attract that investment, it’s not necessarily less regulation that is required but efficient regulation. Also needed are appropriate resources for the regulator and a focus on risk so that not all products are treated the same in one large black box of regulation, that takes two to three years.
For things we know a lot about, things we have experience with, where the valid safety scientific rationale is there, I think you would adopt that and tighten up the time frames for granting approval.
Mr. Prouse: The time frame we’re talking about is that, on average, it takes two years to get a new trait approved in Canada. Why does it take two years? We’re not sure, other than that seemed like a nice round number, and there’s no service standard attached to that. So it took two years.
We don’t see any reason why it should take any longer than a year, especially when we have a global competitor in Brazil that is now doing approvals in much less than a year. Canada needs to be a leader in that speed because that’s a competitive advantage.
[Translation]
Senator Maltais: In some areas of agriculture, regulations are progressing more quickly. That is the case for cannabis.
Mr. Casey, you talked about the challenges of changing the culture. We have been talking about it for seven years. Senator Mercer and I have been saying this for seven years. Canada must change to meet new international challenges. The committee has travelled to China; we have been all over Canada, and we know that, in 10 to 20 years, we will have to double production. How can this be done in a safe and competitive way for our farmers? Basically, they are the cornerstone of this. You represent biotechnology, but those with their feet on the ground are the farmers. How can they adapt to the changes to keep up with this new pace? We also have problems with farm transfers. Young people are less inclined to take over. How will you address this challenge and keep Canada competitive?
Mr. Casey: I want to be very clear, so if I may, I will answer in English.
[English]
It’s an excellent question, and it certainly ties in with the question you asked earlier. Biotechnology is a way for Canadian producers to become far more competitive and, in particular, to add value. As an agricultural industry, we are extraordinarily competitive worldwide. I think that’s well known. How do we take it to the next level? That’s the ultimate question, because exporting pure canola crop is probably not in our best interest when we can take it and turn it into something unique and special.
I’ll give you one great example of a crop that’s developed by a company called Agrisoma. It’s a genetically modified mustard seed that a farmer can grow in any field. If the field is in fallow, they can use it to replace the nutrients in the soil. If there are fields without enough nutrients, moisture or sunlight, it can be used in those areas as well, because it’s extraordinarily resilient due to its modification. They take the seed, crush it, extract the oil and turn the oil into jet fuel, without adding any fossil fuel to the mix. The fuel goes into the airplanes without modifying the engine in any way, shape or form.
The original plane that flew was the National Research Council plane, which sits out at the Ottawa airport. They send up that jet and a sniffer plane afterward to see what comes out. Because there’s no fossil fuel in the mix, as you would expect, the emissions come right down.
This is not just a pipe dream, either. There have been two flights: United Airlines went from San Francisco to Zurich back in September, and earlier this year, one went from Los Angeles to Melbourne using 30 or 40 per cent of their fuel in the mix. It’s become a commercial reality.
That’s the type of value added I think Canada can be extraordinary at.
To your earlier question, what’s the challenge there? When it comes to regulatory capacity and the ability of our government to look at that crop and make sure it’s safe and efficacious, this is where some of the stuff gets gummed up in the works. We have to be better at that to allow for the commercial element to come through.
I would maybe make one note of caution. In phrasing your question, the reduction of regulatory capacity is probably not the objective; it’s to make it, to use your words, more efficacious. That’s the most important objective, because a strong, efficacious regulatory system can actually act as a great competitive advantage for our country.
But we do have to get it right. It has to be science-based and able to adapt to the rapid changes we’re seeing. The innovations coming, from a biological standpoint, are extremely quick and very complex. Keeping pace with that change has to be a paramount objective for our regulatory system.
[Translation]
Senator Maltais: I understand you, but regulations should not be a barrier to innovation. They must be a support.
[English]
Senator Miville-Dechêne: What is the name of this company?
Mr. Casey: Agrisoma.
[Translation]
They are in Saskatchewan and the head office is in Quebec.
[English]
Senator Doyle: I want to follow up on the questions from Senator Maltais. You mentioned Canada’s regulatory system is complex, inefficient and what have you. How is the U.S. regulatory process different? What are they doing that we’re not doing? Do they have a more efficient group of people doing their regulation? What can we learn from them? They’re quicker, obviously. They’re more efficient. Why are they more efficient than we are? Can’t we see it? Can’t we learn from it? What can we do?
Mr. Prouse: I’ll let my colleague, Ian, fill in some of the blanks, but fundamentally, moving forward, the U.S. has said they are not going to be regulating CRISPR-Cas9. That is, they will not be regulating gene editing at all because they don’t view it in the same fashion as traditional GMOs. So if you’re a company that wants to bring in a new product of gene editing, you now face no significant regulatory barriers to commercialization in the United States.
What has happened in Canada? Ian will correct me if I’m wrong, but I believe Canada has said they’re going to look at these and on a case-by-case basis. “Case-by-case basis” doesn’t inspire a lot of investor confidence. No barriers to commercialization inspire investor confidence.
Canada needs to have a clear approach on these new breeding techniques that will revolutionize the space in which our members operate and in which Andrew’s members operate. That’s the game going forward, because this has now changed everything. Gene editing is now revolutionizing the process. The number of products and trades coming on stream is going to increase exponentially going forward. Ian, I’m sure I missed some key details.
Mr. Affleck: No, those are the generalities of it. When I said earlier that the regulatory framework we built 20 years ago in Canada was a brilliant approach to regulation, that foundation remains. What other countries are doing faster than us is the policy research on these new technologies as they come forward, and they’re making broad policy statements underneath the regulatory framework. In their cases, they actually have to change their regulation in order to accommodate their policy goal. We’ve already created a great foundation for regulation, so we should be ahead of them, because all we had to do was have the policy discussion. But we haven’t had those discussions and made those statements.
The U.S. Secretary of Agriculture can come out and say, “We’ve done the safety assessments and the checking. We will not regulate gene editing in this bucket. We’re going to look at it this way. That’s a much lower version of overview, because we’ve done our work.” In Canada, we’re saying, “We’re not sure. It’s case-by-case.” If you’re a researcher, you can say, “I know I can go there because I have a certainty of outcome. In Canada, maybe it will be fine, maybe it won’t. We’re not really sure.” We need to have our policy discussions, do our research and adopt the correct policies underneath our framework to allow these products to come forward.
We feel that 90 per cent of the work that needs to be done doesn’t require regulatory change. It just requires foresight in policy development and then the implementation of those policies efficiently, as per Senator Maltais’s comments, within the regulatory system.
Senator Doyle: What you’re saying is that we’re outdated, old-fashioned and we can’t seem to get on our feet, whereas the U.S. is going great guns and we can’t keep up. In that regard, you really haven’t answered the question as to why we are the way we are.
Mr. Affleck: We got comfortable in having the best car on the road, and it’s getting rusty. It was always the best. We still think it’s the best and we need to look at it. We’re too comfortable.
Senator Doyle: A lot of people have to be fired, I guess.
Mr. Affleck: One the biggest things we feel would help change that — and we feel we’re right on the edge of it with the Economic Strategy Tables, the regulatory review by Treasury Board — is when someone like Sonny Purdue can say, “This is how we’re going to do it, so, regulators, figure it out,” they’ve got the policy direction in which to do it.
Our government needs to provide our regulators with the policy cover by which to go and do this work and say, “Yes, this is on your work plan, prioritize this, go figure it out.” We have good regulators and great scientists within our government. They just need to focus on this and do it.
The Chair: Mr. Casey, do you have any comments?
Mr. Casey: I think it’s a great question. I think we have to accept that some of it is probably cultural to a certain extent.
I’ll use the example of the Arctic apple that Dennis talked a bit about earlier. The Arctic apple is out in the Okanagan. It’s from a company called Okanagan Speciality Fruits. Essentially they figured out which gene to turn on or off — I forget which one — to stop an apple from turning brown. The first apple was the Fuji. They put it down in the U.S. first to get through the regulatory process. They received it pretty quickly and were selling commercially while Canada was still struggling with it. They finally approved it. Then they applied the exact same technology to another variety of apple. The only thing that changed was the apple, but the technology was the same switch that they turned off.
When they put that through the U.S. process, it was on automatic. If it’s the same technology, the same outcome, go get it. I don’t know how long the timeline was, but when it went through Canadian regulatory approval, it had to go all the way back to the beginning and go through the entire process again. So you have that part. Let’s say that’s the efficiency component.
The other challenge we’ve got is transparency. I think everybody is fine with a thorough regulatory overview of a new product, particularly when you’re dealing with gene editing and other things going on that create concern. I think that makes sense. However, the process should be transparent. If a company is bringing something in and it gets jammed up in the regulatory process, there should be avenues for the company to find out what more information the regulators need to keep the process moving forward. That is lacking.
Maybe the advantage we have by coming late to the party is we can learn from other jurisdictions and apply best practices elsewhere. Let’s maybe look at that as the glass half full and that’s the way to go. Certainly the Economic Strategy Tables are identifying some of those ways forward.
Senator Doyle: Thank you.
Senator R. Black: I apologize, Mr. Prouse, that I came in late. You talked about the GMO process being a 25 years old and then the CRISPR technology. Certainly there’s a group of individuals who are concerned about GMOs, and we acknowledge that up front.
Does that same group or another group have concerns about CRISPR technology? If so, do you anticipate the same body or do we know yet?
Mr. Prouse: Over the last few years, we have seen public confidence improve on biotechnology writ large as the safety record becomes clear. People are more comfortable with it. This is a technology that has a 25-year unblemished safety record. At some stage, you have to recognize that the safety record is there.
We’re in the early days of gene editing, so is public confidence different on that? I don’t think we’ve seen enough research to show. One can reasonably anticipate that public confidence is going to slowly, but surely, improve. That’s what we’ve seen, just a very slow, steady climb in public approval of that.
We also feel that our regulators have a role to play in that. We like it when the Canadian Food Inspection Agency is out there explaining what they do and their processes. I think that leads to increased public confidence. We have always spent our time beseeching our regulators to do more of that, to keep explaining their role and how they regulate because I think that plays a huge part in public confidence.
Mr. Affleck: Another element that I think will add to public confidence is that in this new wave of innovation, a lot more small- and medium-sized companies can get in on the ground floor because these technologies are more affordable. The large regulatory barriers we’ve had for the last number of years made it such that only large companies could afford to get into this game. They were companies focused on providing solutions to farmers, so they made farmer-focused products.
When you get small and medium-sized enterprises, they’re looking at the consumer-focused products like the Arctic apple, like high-fibre wheat or more healthy oils. Once a consumer can put the product in their hand and take a bite out of it, you get a lot more comfortable with the technology. When the technology has a benefit for you, you’re much more willing to learn about it and become comfortable. When the technology has a benefit for a farmer and you may never have a chance to visit a farm, you may say, “I don’t really know what it is, so why I should be comfortable with it?” When you can put an Arctic apple in your hand and cut it for your children’s lunches, leave it in the fridge for three days and put them out and they don’t turn that ugly brown, now you get it; you see the value.
I think this new wave of consumer-focused innovation is going to really help consumers feel more comfortable with the technology.
Senator R. Black: I have a supplementary before I have a question for Mr. Casey.
Am I to understand that the CRISPR technology is different in that it doesn’t — and help me if I’m wrong — introduce anything from another species, as you might in the GMO technology? Am I correct on that?
Mr. Affleck: That’s typically how it’s used. I’ll be overly complex. You could bring something from somewhere else in with it, but that’s really not the point. The point is, it gives you the ability to do what you said, which is to change what’s already there. That’s how people are using it.
Senator R. Black: Thanks.
Mr. Casey, I was involved in a program years ago called the Ontario Research and Development Challenge Fund, a funding program to move research from the bench to the consumer and the market. There were grants, loans and leveraging of funds. It was a $500 million program.
Is there anything like that now to help researchers get things to market quicker? And if so, is it enough and is it working? If not, why not and might it be a good thing?
Mr. Casey: You may know that space a bit better. I’m aware of some early-stage funding from governments at different levels to support that early-stage development.
I think where you get into a critical juncture is when you really start to ramp up towards actual application commercialization. That’s when you require very significant dollars. The challenge with that is timelines are long and the risk is high. It’s not your normal investor that you’re looking for. You’re looking for somebody who really understands the science and has the patience to wait out the process.
There’s not enough of that investment dollar in Canada on its own. There is some, but not enough. You’re looking for venture capital and partnerships from some of the large multinational corporations, that ecosystem you’re looking for, so we have to go outside of our borders to do that.
The problem we have is investors are like tourists. Globally they’re moving around the world, looking for places to rest their head and their money. Canada has to treat itself like a hotel does. When you think of a hotel, it gives you free Wi-Fi, chocolate on the pillow, nice sheets, whatever it is to attract the tourist. We have to do likewise, so our welcome mat has to be as attractive as possible. That’s when you get into the tax policy, the regulatory policy, the access to talent and the security of the intellectual property. All of those things will help attract those big investors. We’ve got the innovations and the capacity to really grow those companies and to commercialize them. There’s no question about that, but attracting those investors is the key challenge for the industry and for this country.
Senator Mercer: Senator Maltais and I have been around this table for a long time and have listened to the issues of the regulatory system as being slow and cumbersome. You’ve talked about two years for approval in Canada and less than a year in Brazil. You talked about Sonny Perdue’s action in the United States. I still want to put my faith in the Canadian people who are doing this work, and I want to put my faith in Lawrence MacAulay, not in Sonny Perdue. I know Lawrence MacAulay and trust him, and I don’t necessarily trust Sonny Perdue. No offence to Mr. Perdue.
However, you’ve made a point and we’ve heard this discussion around this table many times: We were told that within the Canadian Food Inspection Agency and Agriculture Canada, one person was holding things up.
Then there was a change in personnel about five years ago. I don’t have my records in front of me, but I recall somebody from the agency or the department sat at this table and said, “We’ve made a change.” They didn’t tell us what change they made when the cameras were on, but privately, when we had a brief discussion afterwards, we discovered it was a personnel change; someone was no longer there and someone else was there. They said, “Things are going to be different.” And suddenly we didn’t hear many complaints because that person, whoever he or she was, came in, started to make decisions, move the puck forward, and did what needed to be done.
We then came up against the wall regarding the fact that we insist on double testing everything. If it is tested and approved in the United States, when it gets here we’re going to start all over again. I don’t think we should accept the United States’ or any other country’s testing without questioning it, but we need to find a way to speed this up.
Is it a personnel problem? You don’t represent the department or the agency, but you’re the victims of the work that they do or don’t do. Is it a personnel issue? I understand that this risks offending those people.
Mr. Casey: You make a couple of important points. One is the brand of Canada which was your earlier point. A product comes through the Brazilian process in one year and one that gets through Canada in two years. I venture a guess that the product that gets through Canada may be a bit delayed but probably has a better chance in the marketplace because of the regulatory stamp and the brand that Canada has. It’s important that we maintain that expertise and that brand.
I’m not so sure it’s an individual person or a particular bottleneck. The reality is that this technology is so new and advanced that it’s probably a general capacity of government to deal with it. It’s expertise in a department to address all these fundamental challenges. We need scientists, biologists, biochemists, some very talented people. Of course, the government is competing against the industry for the same people, so there are some challenges there.
Is there a personnel issue? It’s more in our capacity and the scope and breadth of our departments as opposed to individuals.
Senator Mercer: Historically, Agriculture and Agri-Food Canada with its research stations across the country and through the experimental farm has led the world in many things. We’ve invented stuff which is commonplace now. We’ve changed how certain things are done. Actually, this Senate committee, many years ago, changed how people treat the earth. A senator from Saskatchewan, who was on this committee, was world famous because of his innovations on the health of your earth.
Where does the change have to happen? Is it at the CFIA? Is it at Agriculture Canada? Where do you see the need for the change, or is it both?
Mr. Prouse: For us, senator, it’s in the health portfolio broadly. It starts with accepting the fact that Health Canada also has an economic mandate. Right now, there’s a thought that they purely have a health and safety mandate. The reality is that any innovations that come forward have to pass through regulatory bodies under the purview of Health Canada. Like it or not, Health Canada has an economic mandate. Health and safety must be number one; Canadians insist it’s number one. We support that. However, there must be an acceptance and an embracing of the fact that they also have an economic mandate.
It’s a cultural change. That’s what’s needed. It’s not personnel. It’s a cultural change at the agency. If they have clear political direction that there is an economic lens to be applied and that they have a mandate to encourage innovation and export, then that should be enough to cause it; for example, setting service standards. There ought to be a clear service standard on commercializing a new trade. At present it’s very difficult to get that. That’s what we’re talking about. It’s a cultural change and they need clear political direction in order to implement it.
Senator Mercer: The problem is the majority of Canadians don’t care unless there’s a problem. They care if there’s a problem. They want a reasonable price and want to know that it’s safe. All that stuff behind the scenes is extremely important. The world doesn’t know how we’re going to feed 9.7 billion people in 2050. How are we going to feed these people? Nobody is talking about this. All of the things that you’re talking about and all of the changes that we can make are pieces of that puzzle which will allow us to produce a product that will last longer, be easier to ship, and produce more to feed a growing population around the world. Because, guess what? Hungry people are angry people. It’s not going to be a nice world. I have two grandchildren who will be around in 2050. I want the place to be a little safer than I envisage now with a couple of billion hungry people in the world.
Maybe I’m testifying.
The Chair: I’m going to accept that as a comment rather than a question.
Senator Mercer: It seems that we’d better do something quickly.
[Translation]
Senator Dagenais: My thanks to our guests. My first question is for Mr. Prouse. On a few occasions, you mentioned new Canadian products where we were outperformed by American production. What have been the industrial and financial consequences for Canadian producers?
[English]
Mr. Prouse: The consequences that we see are, first of all, the investment isn’t taking place in Canada. We want innovation in Canada. We want a knowledge-based economy here. When those products are commercialized first to the United States, that’s where the research is taking place.
The other element of this is access to innovation for Canadian farmers. It’s a point I wanted to make earlier. Canadian farmers are very fast at taking up new technology. They are one of the best in the world at that. When new seeds and new traits are available, Canadian farmers are very anxious to have them. However, when the research is taking place first in the United States, and when it’s first commercialized in the United States, that means American farmers will be growing a crop two to three years ahead of their Canadian counterparts. That’s what we are fighting against.
[Translation]
Senator Dagenais: I have a second question for Mr. Casey. Mr. Prouse, as you mentioned, it’s an investment issue. In fact, the American tax system is much more favourable to investors right now. To what extent can we say that the Canadian tax system is responsible for the lack of investors?
[English]
Mr. Casey: What you’re getting at is our competitiveness as a country in terms of attracting investors. It’s not just that one area; it’s a number of areas that we have to be competitive in. I think in many respects we are, but as I said earlier, the world is moving very quickly. To Senator Mercer’s point, understanding the economic opportunity before us, this is a world going to 9 billion or 10 billion people, and we have to find ways to address those emerging challenges. For us, as a country, that is a huge economic opportunity, but we do need to find the investment money to do it.
So it’s being as competitive as possible in a number of areas. It’s not just our fiscal side of things, but certainly taxation. It is about how we treat immigration, because we don’t have enough talent here on its own, and how we treat intellectual property. All of those are contributing factors. Our tax incentives, of course, are a big factor. We have the SR&ED tax credit and the IRAP programs out of the NRC. All of those are important contributors to an overall basket that makes it an attractive place for investors to be.
[Translation]
Senator Dagenais: Given that there is no carbon tax in the United States, but that there is one in several Canadian provinces, do you think this is not helping to attract investors because it makes Canada less competitive than our neighbours to the south?
[English]
Mr. Casey: Yes and no. Take my example of the Agrisoma company, who are developing a jet fuel for airplanes. When you have a carbon tax, that makes fossil fuel less competitive, so if airlines are looking for ways to reduce their carbon footprint from a corporate social responsibility standpoint, but also from an economic standpoint because they’re going to get taxed on it, one of the ways to do that is through something like the Agrisoma technology.
So, yes, I agree that in some parts it may make us less competitive. But I think that in the biotechnology space, and the solutions that they’re bringing, they’re addressing just that: allowing companies to avoid the tax by providing them the technology to get their emissions down.
Senator Miville-Dechêne: I’m not as knowledgable as my colleagues on these topics, being a new senator on this committee.
We have often compared our situation to the U.S. Could we talk about Europe? If you compare our norms and our policies, as opposed to those of Europe, are we as backwards as we are with the U.S.? Obviously, the U.S. in general is a society where there are fewer rules, for the better or worse, depending on what we’re talking about, such as health. We can discuss the importance of regulation. But if we stick to the CRISPR technology, what are they doing in Europe, and are they better than us? And if so, why?
Mr. Prouse: No. Ian can fill in the blank.
Mr. Affleck: There are two jurisdictions in the world we are definitely doing better than: Europe is one and China is the other.
Senator Miville-Dechêne: For different reasons?
Mr. Affleck: Both of those systems are broken for wildly different reasons in wildly different directions, but we are doing better than them, absolutely.
The European situation is they are even more opaque with how they are going to manage these new technologies. They have a Court of Justice decision that’s very burdensome on these technologies and they haven’t made policy behind those decisions. That policy won’t come for another year-and-a-half. In the meantime, the research is just not happening.
However, the opportunity is that there’s an estimated $20 billion of research exiting the European Union right now because of that ambiguity and it’s looking for a home. In Australia, there is clear policy guidance and policy statements on how to handle it — not as clear as in the U.S., but very clear.
I think what’s important is Canada might have a unique approach in how it chooses to regulate or not regulate. The clarity of that approach is extremely important because even if one jurisdiction is slightly more expensive, let’s call it, because of regulation, if you can pencil in exactly what that number is and you have a service standard and know when your product will get approved, then you can plan and calculate for it. You can budget for that and get that stamp of approval that Andrew was talking about in the value of the Canadian brand. So we don’t have to be harmonized with the U.S., but we must be clear and continue to be better than Europe.
Mr. Prouse: In blunt terms, there’s an irrational allergy to biotechnology in the European Union, in our view. That makes Canadian exports very challenging. But to Ian’s point, there’s a tremendous opportunity right now to make Canada an attractive place for investment for biotech going forward.
That’s why we want to seize that opportunity, because the Europeans are not seizing it and are unlikely to do so any time soon. We have the ability to go get some of those investment dollars that are leaving Europe in the biotech space, but we have to act.
Senator Bernard: My apologies for being late. I missed one presentation and arrived in the middle of another.
You may have already talked about this, but I think in some responses to my colleagues’ questions, the issue of labour shortage came up. How does a labour shortage impact your industry, your sectors, and is the sector relying on temporary foreign workers in any way to address a labour shortage, if there is one?
Mr. Casey: Yes, there are two key components for our member companies. One is the investment dollar, and we’ve talked a lot about that. One of the trends we’ve seen over the years, which I find encouraging, is that companies are growing. They have great science, the investors are coming and they are ready to really ramp up and become commercial. One of the hurdles still in their way is access to talent, or the availability of talent, which may be a better way of putting that.
Again, like investment, we are competing against the world for the same talent. You’re talking about scientists with great educational backgrounds. Canada has a lot of that expertise, but even Canadian students graduating from our universities are not necessarily going to stay in Canada. If the dollar is more attractive to go down to the States or Europe or Brazil, they’re going to go where the money is, especially if they’re young. So just like we’re trying to attract investment, we have to be as competitive as possible in terms of attracting talent.
I’m not sure the temporary foreign worker concept applies as much to our sector. That tends to be a short-term solution and doesn’t usually provide the type of talent you need with the educational expertise and scientific background.
We have to look at something that’s a bit further reaching. I’m pleased to see that the Economic Strategy Tables recognize the need to attract talent as an important objective for moving the industry forward. I think that is fundamental for Canada if we’re going to do this successfully.
The Chair: I would like to thank our panel for being here this evening. Senators, we have a second panel that will be coming on in a few minutes, and then I want to have an in-camera session afterwards, the one that we talked about the week before last that we would have this week.
So, panel, thank you very much. Your presentations were concise and you answered the questions as presented to you. We really appreciate that. It was great to have you here.
On behalf of the committee, I welcome our new panellists for our second panel of the evening. We have with us, from the Dairy Processors Association of Canada, Mr. Mathieu Frigon, President and Chief Executive Officer; and Mr. Dominique Benoit, Member of the Board of Directors.
I thought we had a third person, but we don’t.
Thank you for accepting our invitation to appear before our committee. I’ll call upon you now to make your presentation, and then we’ll move on with questions from the senators.
[Translation]
Dominique Benoit, Member of the Board of Directors, Dairy Processors Association of Canada: Good evening, Madam Chair. On behalf of the Dairy Processors Association of Canada, I would like to thank you for the invitation to appear today to discuss the ways in which the value-added food sector can be more competitive. My name is Dominique Benoit, I am treasurer and member of the executive of the DairyProcessors Association of Canada board of directors and senior vice-president of Institutional Affairs and Communications with Agropur Dairy Cooperative. With me is the president and CEO of the Dairy Processors Association of Canada, Mathieu Frigon.
We will provide an overview of Canada’s dairy processing industry and the recent challenges which have arisen, and are keeping it from reaching its true potential. I will give the floor to Mr. Frigon.
[English]
Mathieu Frigon, President and Chief Executive Officer, Dairy Processors Association of Canada: I’ll make my remarks in English.
Dairy processing contributes more than $18 billion to Canada’s national economy annually and is one of the largest food processing industries in Canada, second only to meat processing in terms of annual shipments. Dairy processors directly employ 24,000 Canadians in 471 facilities across the country, with an aggregate payroll of $1.2 billion.
We’re proud of our roots in rural Canada. Dairy processing facilities are major employers in rural communities and support the production of Canada’s 11,000 dairy farms.
Canada’s dairy processing industry has seen a steady growth of its real gross domestic product in the last five years. It has grown by 12.7 per cent since 2013, while the broader manufacturing industry has seen its GDP contributions increase by 8.6 per cent over the same period.
This has had a trickle-down impact throughout the broader dairy sector. Dairy processors have increased their purchase of Canadian milk by more than 1.2 billion litres in the last five years. This is a 15 per cent increase over a five-year period, which has had considerable benefits for Canada’s dairy farmers.
You might be wondering why the sudden surge in growth.
First, Canadians’ renewed taste for wholesome dairy products such as cream, butter and cheese has, undoubtedly, been an important factor. This growth has also been fuelled by the $7.5 billion invested by dairy processors in their businesses over the past decade.
All those investments have had an impact on productivity; dairy has been a stalwart sector in terms of labour productivity in the manufacturing sector. Labour productivity increased by 38 per cent from 2012 to 2017, compared to 31 per cent for food manufacturing as a whole and only 8 per cent for the entire Canadian manufacturing sector. Total compensation per hour worked in dairy manufacturing is $45 per hour, which is 35 per cent higher than in food manufacturing as a whole and 22 per cent higher than in the manufacturing sector. Consumers have benefited from the important productivity gains in the dairy processing industry. Retail prices of dairy products have decreased by 1.7 per cent over the last five years, which compares to an increase of 7.9 per cent for the retail price of all food items and an overall inflation rate of 7.1 per cent in the economy over the same period.
Dairy processors have been motivated to move the industry, and Canada, forward. However, a number of recent government actions have the potential to unravel progress the dairy processing industry has made in recent years. This makes us question whether or not the government shares our belief that a strong dairy sector is good for Canada.
A number of issues have the potential to seriously undermine the competitiveness of the dairy processing industry. I will let my colleague go through each of these to provide you with greater detail of the implications of government action.
[Translation]
Mr. Benoit: As you know, the United States-Mexico-Canada Agreement (USMCA) will give the United States an additional 4% access to Canada’s domesticdairy market over the next six years. This in itself will be harmful, but equally harmful will be the impact that concessions made with regard to domestic dairy policies, notably export levies and pricing. What Canada has agreed to will impact its sovereignty to set domestic dairy policy. It will have a significant impact on Canadian dairy processors, and will potentially jeopardize past and planned investments.
However, you cannot view the impacts of the USMCA in isolation. They must be considered within the context of broader Canadian trade policy and alongside the market access concessions made via both CETA and CPTPP which allow more than 4% access to the cheese market and 3.25% access to the overall dairy market, respectively. The Dairy Processors Association of Canada estimates that the combined losses from CETA, CPTPP and USMCA market access commitments will be more than $2 billion over the course of implementation. The Dairy Processors Association of Canada has been firm in its belief that the outcomes ofany trade agreements must contribute to the continued growth of the dairy sector. This includes both its dairy processors and dairy farmers. However, what Canada has agreed to with CETA, CPTPP and USMCA provides no opportunities for its domestic dairy sector.
There is an incongruence between the government’s public statements of “support for the dairy sector and supply management” and constantly using the domestic dairy sector as a bargaining chip in trade negotiations.
What Canada has agreed to in these agreements will curb innovation, stunt market growth, and create additional losses for dairy processors who have made very substantial investments in recent years to improve Canada’s domestic processing capacity. Thus, there is an urgent need for the government to develop, in partnership with dairy farmers and processors, a long-term vision for the dairy sector. We need to clearly define Canada’s goals and set an action plan to move forward.
While we are not happy with the outcomes of any of these deals — to say the least — we can understand that the dynamics of trade agreements are such that governments must work with partners and cannot solely dictate the outcome of negotiations. However, we are concerned by a number of recent decisions which have the potential to further hinder dairy market growth, where the government has been the sole decision-maker, and has, so to speak, both hands on the wheel.
The first of these harmful government decisions is the allocation of the tariff-rate quota associated with market access under trade agreements. Tariff-rate quota are the licences that allow the importation of products into Canada duty-free. The Dairy Processors Association of Canada has been adamant that these tariff-rate quota should be considered a key component of any compensation for dairy processors’ losses resulting from trade agreements.
The government decision to allocate CETA dairy tariff-rate quota to other stakeholders has undermined the business models of dairy processors and deterred future investments in manufacturing capacity.
As Canada continues to expand trade, this will continue to be an issue. It is an issue right now with CPTPP and we suspect that it will be an issue again with the USMCA. The federal government cannot continue to compensate industries that are not negatively impacted by these trade deals and unfairly treat a key industry — Canada’s dairy processors — that has helped strengthen and grow Canada’s domestic dairy market over the last 10 years.
Thus, our association asks the government to learn from this mistake and allocate all tariff-rate quota associated within CPTPP to dairy processors. Our members have the expertise to import a wide variety of dairy products in a way that won’t upset Canada’s domestic dairy market and bring benefit from everyone from the farmer to the consumer.
I will let Mr. Frigon continue his presentation.
[English]
Mr. Frigon: Beyond trade agreements, dairy processors have been dealing with the potential implications of proposed government regulations on front-of-package labelling which, if implemented, may require 90 per cent of dairy products to carry a health warning label. DPAC is of the view that the proposed front-of-package labels are an oversimplification of what makes a product healthy. They will not help Canadians make informed choices for themselves and their families and can have serious unintended consequences.
What are these unintended consequences? Nutrient-dense products like dairy will be vilified while empty-calorie snack foods will be given the green light. For example, cheese will be required to carry a warning label while a bag of smoky bacon or jalapeno and cheddar chips will not. A container of 2 per cent calcium-enriched milk beverages will be required to carry a warning label while diet cola, sugar-free energy drinks and beer will not have to carry such labels. As another example, straight sugar and salt would be exempted while butter and cream will be required to carry a warning label.
It is anticipated that dairy products will account for 50 per cent of all products that will be required to carry a front-of-package health warning. The proposed regulations will harm the dairy processing industry more than any other food-processing industry. Further, it will not improve the health of Canadians, which is, and should be, the overarching objective of the Canadian government’s Healthy Eating Strategy.
DPAC wholeheartedly agrees with that objective, but the regulations for front-of-package labelling, as currently proposed by the government, will not help achieve this objective. Rather, it may do the opposite.
I’ll let my colleague, Dominique Benoit, conclude our presentation.
[Translation]
Mr. Benoit: As I stated earlier, dairy processors have been motivated to see our industry grow. As an industry, we have invested a great deal to spur significant growth over the past decade and would like to see the industry continue along this path. The dairy processing industry has been everything a government would typically wish for in the last five years: GDP growth, productivity growth, and much higher paying jobs than in other manufacturing sectors.
However, we need the government to understand that its recent actions have created instability in the business environment. It is important for the government to now evaluate what actions can be taken to create the stability and predictability that is required to encourage further investment and growth. More immediately this includes: the allocation of all available CPTPP dairy tariff-rate quota to dairy processors, not retailers and brokers; the review of CETA cheese tariff-rate quota currently held by retailers and brokers and reallocation to dairy processors; the postponement of proposed front-of-package labelling regulations to allow for further review of the evidence used to support their implementation.
Finally, there is an urgent need for the government to develop, in partnership with industry, a long-term vision for the sector, which includes clearly defined goals and action plans. Only through such a visioning exercise could dairy processors and producers finally envision the future with renewed confidence and enthusiasm.
I thank you for your time and we welcome any questions you may have.
[English]
The Chair: That will give us a lot to chew on. Great presentations.
[Translation]
Senator Maltais: Gentlemen, thank you for your excellent presentation. It is very clear. You have put a lot of effort into preparing this brief, which reflects the reality of dairy producers right now. When you say that the various treaties will result in a loss of $2 billion out of $18 billion, that is a significant dollar amount. This jeopardizes many agricultural organizations.
Since the signing of the United States-Mexico-Canada Agreement, there has been a craze in the press for promoting American products. To my knowledge, Canada is one of the best dairy producers in the world. Many people in the world, especially in Europe, have told us this. We are getting American products that Canadians are not familiar with. As for the advertising that goes with this, it is a big challenge, but we have to convince consumers. Let me give you the example of Fairlife that you can see on television and in some stores. Fairlife is apparently the eighth wonder of the world. Consumers need to know about this product, where it comes from, how it is made, and its effects on consumers.
Finally, I don’t think the compensation system in other countries is entirely honest. They say that the best income for U.S. farmers is in the mailbox, where the government cheques come. We do not have that in Canada. Is that right, Senator Mercer? This information comes from Senator Mercer. I can quote Victor Hugo, but I can also quote Senator Mercer from time to time.
That type of compensation is becoming a major problem for you. How can the federal and provincial governments work with you to avoid this imbalance between farmers and dairy producers? How can we provide compensation and keep our dairy production healthy?
Mr. Benoit: Thank you for this multi-pronged question. You have put your finger on an important issue. You mentioned Fairlife. The government seems to be obsessed with foreign investment. In this case, it offered import permits to this company, which now has a significant competitive advantage in bringing its product to market because the government wanted to attract investment.
As mentioned in the presentation, Canadian companies invest heavily, with little or no support in most cases. This is a reality that we denounce. Canadian companies that invest here in Canada create jobs here in Canada. Once again, the government, obsessed with attracting foreign investment, is prepared to do much more to attract that investment than to support Canadian companies. We are very concerned about that.
Canadian companies are paid for the cost of production. This is not the case in other countries, as you mentioned. Dairy production is subsidized in many ways in other countries. This is the case in the United States and Europe. We have to compete with that. When the Canadian government gives a company the opportunity to import its products into Canada, it also gives it a competitive advantage.
At the beginning of your speech, you talked about the impact of the $2 billion out of the $18 billion from Canada’s dairy economy. In fact, under all three agreements, Canada has allocated almost 10 per cent of its market to foreign imports. When we add up CETA, CPTPP and USMCA, almost 10 per cent of our market will be given to foreigners. We believe in the Canadian market — I’m not just talking about Agropur, but all processors. We are investing in Canada and our growth in the coming years will be going to foreign producers and processors.
One way to support us would be to allocate import quotas to allow us to import those products. This is a form of compensation because if those quotas are granted to the processing industry, they can continue to grow in Canada in order to offer consumers products that complement Canadian products, which will benefit processors and consumers.
Senator Maltais: You are not asking for financial assistance, but rather for export quotas so that you can make up for the part you have lost, if I understand correctly.
Mr. Frigon: There are two main components to mitigation programs resulting from free trade agreements like the three with which we are concerned at the moment. First, there are the tariff quotas that must be allocated to dairy processors.Second, there are assistance programs for investing in innovation in order to continue to increase the productivity of the companies, to put the processing sector and the entire dairy sector, into a better position, and to compete in the medium term.
Senator Maltais: Thank you. The best of luck to my colleagues.
[English]
The Chair: I think you’ve hit on some of the questions that others may have had, Senator Maltais.
[Translation]
Senator Miville-Dechêne: Thank you very much for your very clear presentation. Here we are with another difficult crisis for the sector.
Last week, I met with a dozen or so dairy producers. I am not talking about processors, I mean farm producers. Some of your remarks interested me. They were very concerned about the upcoming negotiations with processors for the sale of their products. You are going to find yourselves in an extremely difficult position, as you are already, with products coming from the United States. Some of your ingredients, which are cheaper, I imagine, come from the United States and are used to make cheese or other products.
How do you see the situation? Class 7 is gone, as we know. The negotiations are going to have to start all over again. You are saying that you buy a lot of milk and I have no doubt that you do. However, you are going to have to remain competitive. But some products come from elsewhere and the ingredients are cheaper.
My second question is about this darned compensation. The producers have told us that the program for innovation in investment is structured in such a way that it affects very few people. It’s first come, first served. Now they are talking about a lottery, which does not meet their needs. In the first stage of compensation, have you been offered investments? Does it match what you need?
There are two big questions for you.
Mr. Benoit: Agropur is a cooperative. The producers you met may be members or owners in our company. I believe that producers are right to be concerned with the current situation, in which a major part of their market will, in the future, go to milk producers outside Canada. They will be producing butter, cheese and milk for import into Canada.
So there is great concern. It is a little premature to talk about class 7, because we have not yet seen the text of the final agreement. We do not know exactly what commitments Canada has made. However, it is clear that class 7 is going to disappear. But what will happen with it? Class 7 was important because it allowed us to manage our surplus non-fat solids in Canada. Like every country in the world, we have surplus milk proteins or non-fat solids. Class 7 allowed us to manage those non-fat solids. It also allowed processors access to Canadian raw materials at a competitive price.
So there is a big question mark at the moment and I have no answer. We do not know what will happen. It’s still early and we do not know all the texts.
In our industry, supply management provides us with the opportunity to have a system that gives us a regulatory framework and allows both producers and processors to operate. It provides consumers with quality products at a reasonable price. With these three agreements, including the last one, a part of that sovereignty has been given away to others. For the industry, that does us no favours.
I do not know whether I have answered your question.
Senator Miville-Dechêne: Could you add your comments about the matter of compensation?
Mr. Frigon: If we use the example of the Canada-Europe free trade agreement, we actually received $100 million, which is clearly not enough.
Senator Miville-Dechêne: That is for the processors?
Mr. Frigon: Yes. But the total losses have been estimated, conservatively, as was done at the time, at more than $700 million. When the $100 million was announced, we estimated that it would cover only 15 per cent of the losses. Tariff quotas had to be allocated to processors in order to compensate for a part of the 65 per cent we have recently lost. Unfortunately, we have been allocated less than 50 per cent of the tariff quotas. So we were bitterly disappointed with that decision.
Let me repeat, the issue of allocating tariff quotas is an integral part of any compensation program. It is not just a matter of compensation. Compensation is very important but we must also minimize the impact, in terms of the loss of jobs and the closing of production lines. Dairy processors are interested in importing products that are going to add to the domestic supply rather than to take its place.If we just replace the supply on the domestic market, production lines will close and there will be losses.
Senator Miville-Dechêne: I would like to stay with the issue of tariff quotas. On which kinds of cheese, from France, for example, do you want to have a monopoly so that there is no competition with the same cheeses produced in Quebec? Is that what you are talking about?
Mr. Benoit: Let’s look at the Canada-Europe trade agreement. The Europeans were given a certain volume of cheese; 17,500 tonnes of cheese have to be imported into Canada, actually. The issue, which is in the hands of the federal government, becomes who will have the authority to import that cheese into Canada? That means bringing it to Canada and distributing it to the market in Canada. By tariff quotas, we mean the method of allocating and marketing the imported cheese in Canada. As Mathieu mentioned, in the Canada-Europe agreement, about 45 per cent of the import quota has been allocated to Agropur and to other processors. The rest has been allocated to other Canadian companies who are not processors. In our opinion, those companies will get the benefits without having suffered the negative effects of the agreement.
As processors, we are going to suffer all the negative effects. One way of supporting the industry would be to give those import rights to the Canadian manufacturers who have been impacted by the agreement in order to reduce that impact. Once a company like Agropur has that right, imports will be done with strategies designed to complement what we manufacture in Canada, not to destroy what we manufacture in Canada
[English]
Senator Mercer: I’ve been on this committee for almost 15 years. This is the first time I’ve had dairy farmers in front of me and we’re going to disagree. I have been the most vocal supporter of supply management on this committee. I’ve argued with Conservatives at this committee, during the Harper days, about supply management, and I’ve tried to teach people about the value of supply management. I am a huge supporter of the system.
I live in a province that your co-op serves and serves well.
The deals are done. We’re not going to change those three trade deals, so let’s talk about the opportunities here.
In terms of labour productivity in the manufacturing sector, you told us labour productivity has increased by 38 per cent from 2012 to 2017 in the dairy processing industry. That’s a huge positive. I’d rather see us concentrate on that. I would agree with you 100 per cent that the government should step in and say cut out this foolishness about labelling dairy products as not healthy.
How many of us around here were pushed by our mothers to drink our milk? I’m 71 years old and I bet you if I had not been a big milk drinker, I wouldn’t be here today. If I had stopped some other things, I would probably be in better health.
However, I think there are opportunities here. Let’s talk about the good things. We’re not going to change the deals. It’s just not going to happen. So let’s talk about the fact that you have this productivity. Let’s talk about changing the labels on the packaging and stop talking about milk products not being healthy. They have been healthy for hundreds of years. Nothing has changed. There is probably something wrong with an apple or if you eat too many carrots. I eat a lot of carrots here around the table. But let’s talk about the positive.
The Europeans are going to be hard to compete with on the cheese front because cheese is a big deal in Europe and they think they make the best cheese in the world. I disagree. I think the best cheese in the world is made right here in Canada.
We now have the trade deal with Asian countries. There’s an opportunity to create a whole new market for our products there. With production at the level that it’s at, you’re efficient. You’ve consolidated —Agropur, for example — by bringing Farmers Dairy from Halifax into the process. Let’s talk about the opportunities here.
This will be my last comment. To talk about the $100 million and be disappointed with it, I understand. But for years and years, when people argued about supply management, I said to them, “Find me a line in the Canadian budget about money going to farmers for subsidies,” and they couldn’t find one. Guess what? We’re now going to find one. And if you study the history of the New Zealand supply management system, what killed it and what nearly killed the country were the subsidies to the farmers.
Let’s get the positive here. We have very efficient farmers and producers, and there’s a market out there. There will be 9.7 billion people on this planet in 2050.
And thank you for the comparison to Victor Hugo as well, Senator Maltais. I wish my mother was still alive. I’d love to go home and tell her that I’ve been compared to Victor Hugo.
Anyway, there are big markets out there, and some of them are associated not with the American market but the Asian market. Let’s talk about how we can capitalize. What can we do and what can government do? One thing is getting rid of the labels on the front of the package. I’m with you there. But what else can we do to make selling Canadian dairy products worldwide, more efficient and easier to do?
The Chair: Unfortunately, Senator Mercer has used up his five minutes.
Senator Doyle: I am a bit confused about page 9. You talk about labelling. It’s anticipated that dairy products account for 50 per cent of all SKUs that will be required to carry front-of-package nutritional labels. Could you expand on why that’s happening? And you’re looking for the postponement of proposed front-of-package labelling regulations. How are you doing with that, by the way? Is government listening to that? Do you want a further review of the evidence to support the implementation of this labelling business? Everyone seems to be talking about labelling. Are you making any headway on that?
Mr. Frigon: Regarding the government’s approach to labelling, in our view it’s much too simplistic. It focuses on only three nutrients for the front-of-package labelling: saturated fat, sugar and salt. Since dairy products are nutrient-rich, providing nutrients like vitamins A and D and calcium, et cetera, they are often captured and will have to carry front-of-package health warning on the front of the package. Actually, 90 per cent of dairy products will have to carry front-of-package health warnings.
Many other products that are highly processed, with a long list of ingredients, have more room for reformulation and, as such, would get away with the proposed regulation. When you look at all the food products you find on the grocery shelves, dairy products represent 50 per cent of the products that will have to carry a health warning. We are looking at it from the original intent of the government regulations, which is to improve the health of Canadians. We’re saying this objective will not be met because it will completely and unfairly target dairy products because dairy products are wholesome products that are rich in nutrients.
Because dairy products are wholesome, the possibility for reformulation is limited compared to products that have a very long list of ingredients. This would allow more possibilities to reformulate such products below the allowable thresholds for saturated fats, salts and sugar.
Senator Doyle: Is this any indication from government that these changes are coming to help you out at any point in the future? Are you confident you can pull it off, so to speak?
Mr. Frigon: It’s fair to say we are receiving mixed signals right now. We’re continuing our efforts because it’s highly worrisome for us. It will have a huge impact on the dairy sector. So yes, we’re receiving mixed signals but we’ll continue to work on this.
Mr. Benoit: And we need your help.
Senator Doyle: How does the U.S. compare in their labelling of dairy products? Are they doing anything comparable to what Canada is doing? They are pretty well silent on that maybe.
Mr. Frigon: They don’t have mandatory health warnings. Chile has mandatory front-of-package labelling, but it’s a completely different scheme than what is proposed in Canada. Chile was targeting ultra-processed foods, meaning they were targeting saturated fats, sugar and salts that were added, not the saturated fats or sugars that are naturally occurring.
What is naturally occurring sugar? For example, lactose is one of them in milk, but also sugar we find in fruit — 100 per cent fruit juice.
In terms of mandatory front-of-package labelling, Chile is one example. I’m not aware of other examples. And it’s a completely different example.
Senator Oh: Thank you, gentlemen.
Americans are so good at anti-dumping. Anything that comes into the U.S. higher than what they are selling locally, they say that’s dumping, or heavily subsidized by foreign governments. With the Canadian dollar so low now and with the U.S. coming in to compete with our dairy products, how are they going to compete if they are not subsidized? Our cows and their cows are the same. How much can you milk? There’s no magic. So how does this price factor? Is there American dumping into our market?
Mr. Benoit: First, yes, they are subsidized. They’re able to sell in Canada at a much better price than we can, because their farm production is subsidized. Second, I think we have made a decision in Canada many years ago — a societal choice — to have supply management and to compensate farmers for what it costs to produce milk.
In the U.S., a producer receives two cheques, one from the processor and one from the government. In Canada we decided to have the family farm, a fair-sized farm that allows the family to live on this farm. In the United States, you will find 3,000-, 5,000-, 10,000-cattle farms and all the issues that come with mega-industrial farms. It’s not to say it’s wrong or good, but there are different systems in which the two countries operate. In Canada we made a choice to operate under a system that has a processor group we support. As a cooperative, we are in full support of it, but the reality, from a competition perspective, is that we need the support of our government.
With the trade agreement, the government is saying, “We don’t support you that much.”
Senator Oh: In the USMCA, the new agreement, do they have any anti-dumping clause in there for dairy products? Do you know?
Mr. Frigon: The Canadian text hasn’t been published yet, so we are careful in our comments in terms of accessing the precise implication. We’re awaiting the Canadian text because the wording is important. Then we’ll be in a position to better assess.
Senator Oh: That’s important. With the Canadian dollar so low, if they come in and compete with us, you have to make a profit. Thank you.
[Translation]
Senator Dagenais: My thanks to our guests.
I don’t know if this will make you feel any better, but they were saying today that the accord will not be signed before the American mid-term elections and that the new senators will have to study it again. So that will not happen before next year, but the problem remains.
I would like to go back to the matter of labelling, because that way of getting a regulation passed seems a little strange to me.
You mentioned earlier that the Americans can get around the labelling requirement. However, I do not understand the logic of labelling. We are told that products have to be labelled in order to protect the health of Canadians. However, if I understand correctly, the officials responsible for the program seem to have decided that a can of Coke and a bag of chips are less harmful for the health than a pint of milk. In fact, there is not a lot of information on the label of a can of Coke and a bag of chips.
What led to these strange decisions? The decisions will harm your products. If there is no requirement to label a Coke or a bag of chips, why label a pint of milk?
I understand that, sometimes, the government and its officials are bad at signing agreements, but they may be bad at labelling too. If you are going to be bad, you might as well be bad at everything.
Mr. Frigon: That is a very good question. There certainly were major problems and shortcomings with the consultation process and with considering all the available scientific studies, especially the most recent ones, which reflect well on dairy products.
Certainly, there were problems with the process of getting to this point. It all started with a noble and quite commendable objective of improving the health of Canadians. But the proposal before us will not achieve that objective at all. It is a symptom of a serious problem with the consultation process when a tool is proposed that does not achieve the original objective that the government set.
Senator Dagenais: What is the concern in this new agreement? Is it that it will allow more imports of diafiltered milk into Canada?
We know that a lot of people consume diafiltered milk—we won’t name the company that produces it, because everyone knows it—but can it have harmful consequences? We know that diafiltered milk is moving through customs pretty well.
Mr. Benoit: At the moment, that is somewhat of an unknown variable. That is why we said earlier that we do not know the full extent of the situation. We know that there are commitments with a view to eliminating the good old class 7. Now, what the government committed to by eliminating class 7 is an unknown variable at the moment. We are waiting to see the final texts so that we can see the issue more clearly.
There are two major reasons for class 7. First, to give us a tool to manage our surplus non-fat solids, and second, to give us a tool to compete against the imports of diafiltered milk, and other ingredients. Without that tool, we are left for now with many more questions than answers.
Senator Dagenais: While negotiating the new agreements between Canada, the United States and Mexico, do dairy producers participate in the discussions? Are you consulted? Normally, the government says that it consults, that it asks questions, and that it goes out to see Canadians. Does it consult you and bring you to the table? Someone has to listen to you from time to time.
Mr. Benoit: I believe that the negotiators, the Government of Canada, did hold consultations. However, they make the decisions. It was certainly not the industry that proposed opening up market access, eliminating class 7, and giving up our sovereignty to the Americans in a new Canadian dairy policy. Clearly not.
Senator Dagenais: In other words, you are consulted but not listened to.
Mr. Benoit: With all respect for our negotiators who worked very hard—there is no doubt about that—the Government of Canada conceded a lot to the Trump administration.
Senator Dagenais: Perhaps to benefit other things. Thank you very much.
[English]
The Chair: Thank you, folks. We’ve had a great panel discussion here this evening. It’s a very hot topic. With that, I thank our panellists for being here with us. You’ve been on the hot seat for an hour.
(The committee continued in camera.)