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OTTAWA, Thursday, October 25, 2018

The Standing Senate Committee on Agriculture and Forestry met this day at 8 a.m. to study on how the value-added food sector can be more competitive in global markets.

Senator Diane F. Griffin (Chair) in the chair.


The Chair: Good morning. I’m Senator Diane Griffin from Prince Edward Island. We’ll start on my left with Senator Mercer.

Senator Mercer: Terry Mercer from Nova Scotia.

Senator R. Black: Senator Robert Black from Ontario.


Senator Miville-Dechêne: Senator Julie Miville-Dechêne from Quebec.


Senator Bernard: Wanda Bernard, Nova Scotia.

Senator Oh: Victor Oh, Ontario.

Senator D. Black: Doug Black, Alberta.

Senator Martin: Yonah Martin, British Columbia.

Senator Ataullahjan: Salma Ataullahjan, Ontario.

The Chair: Thank you. As you will have noticed when went around the table, we have two Senators Black with us, one from Ontario, one from Alberta.

Senator R. Black, you have your hand up.

Senator R. Black: I apologize for taking a few minutes. In light of recent trade agreements that have taken place in Canada, I think it’s incumbent upon this committee to delve deeper into the supply management support and compensation factors for Canada’s supply management sector.

I have a motion I would like to put forward:

That, pursuant to the order adopted by the Senate on March 1, 2018, authorizing the Standing Senate Committee on Agriculture and Forestry to examine and report on such issues as may arise from time to time related to agriculture and forestry, the committee undertake a study related to the support and compensation for supply-managed agricultural sectors in relation to the USMCA, CPTPP and CETA trade agreements as soon as practicable; and

That the Subcommittee on Agenda and Procedure be instructed to develop a work plan accordingly; and

That the committee submit its report for this study to the Senate no later than December 6, 2018.

I think it’s important that we hear from the supply management sector on the trade deals and what their thinking is. I do know that the Minister of Agriculture and Agri-Food has struck a working group to discuss compensation packages, but I think we can continue to do the good work that our committee does on emerging issues. Given that this is a very tight timeline and because there may be an impact on next year’s budget, I think we should get something done.

The Chair: Senator Mercer wanted to speak. I’m hoping to deal with this quickly because we have a panel here.

Senator Mercer: My exact point, chair. It has been the tradition in the 15 years or so that I’ve been on the committee that if anybody has a suggestion for steering, pass it on. Steering always addresses it and can report.

But to do it today, we have two panels of witnesses who have come and we have one witness tied up on a teleconference. I have never seen this even on very political debates of things that we have done. The Conservative representative on steering is not here because he is occupied with other business.

My thoughts are that steering will certainly examine any suggestions anybody has, as they always have. But to stop the proceedings this morning to have a discussion about this motion, I have never seen a motion, even in the most political times on political legislation, where someone has moved to direct steering to do anything.

Steering has always been composed of cooperative leadership of the various groups. They’ll get together and discuss the agenda, and anybody who wants to have input can have input. That’s always the way I have seen it, so I’m not sure why we’re interrupting a process now.

Particularly, when you talk about reporting, the likelihood of our sitting anytime in the fall of 2019 is remote. The election is in October. The campaign will be in full bloom in September, so I suspect that we’ll not be sitting in September, even though we produced an agenda that does say we’ll sit in September. We’re certainly not going to sit in October, because that’s the month of the election itself. And, depending on the results of the election, we don’t know exactly when. If the Liberals were to be re-elected, we could probably meet in early November. If the Conservatives were to get elected, I would suspect they would have to wait until December, because they have to retool, get a cabinet in place, et cetera.

So I think this is a bit premature, including the fact that we have no data on the effect because the agreements haven’t come into effect.

I’m frustrated.

The Chair: As the senator just pointed out, the motion is actually calling for 2018 — in other words, this December. One of our spot studies is what you’re asking for?

Senator Mercer: We’re not going to have any data. This is October. Where are you going to get the data to talk about stuff between now and December? What you’re going to get is a bunch of speculation. You are going to get people who are going to react to media stories and emotions because it is a very emotional thing, particularly for dairy farmers and other supply-managed products as well.

What are we going to say? We’ll say, “We hear you, but we don’t know what the effect of anything is because it hasn’t come into effect yet.” We’re probably going to pass the Pacific partnership sometime this week, or certainly next week, and then it may come into effect, but we still have no data.

The Chair: Thank you, senator.

Senator Miville-Dechêne: I will second the motion of my colleague Senator Black because, on the contrary, I find it’s timely. We cannot wait for the treaty to be passed to discuss compensation here because everything will be done and inked before we have a chance to talk about it. The idea is that the first compensation package offered was very low compared to the cost. It was on a first come, first serve basis, so what the government has done up until now can be criticized; let’s put it that way.

By having a spot study, we can have not only the farmers but the officials here and try to have some influence on the design of those compensation plans, which are, for many farmers, a question of life and death. If we wait one year or for everybody to be back from travelling to decide on this issue, which I have raised a couple of times, as you know, I think we will miss it. We have to wait for the Canadian text. It’s going to arrive soon, and I would be in favour of having a spot study as soon as we can.

The Chair: Senator Black, Alberta?

Senator D. Black: May I direct a couple of questions to my colleagues?

The Chair: Yes, go ahead.

Senator D. Black: Thank you very much.

The Chair: We need to be prompt about this. We have a panel.

Senator D. Black: My question will be prompt.

I’m interested in what you’re hoping the outcome will be, apart from applying political pressure, for which we can discuss whether this is an appropriate forum. What do you hope to obtain from this? If it’s just political pressure, tell us that too.

Senator Miville-Dechêne: No, I think to have transparency in how the compensation process will be discussed is of interest to us and to the public. I don’t think it’s purely political pressure. We can say that of anything we do in the Senate.

Senator D. Black: I’m not judging; I just want to understand your point of view.

Senator Miville-Dechêne: There is an element of political pressure. There is in everything we do in the Senate; we are in politics. But I think it’s the proper forum to discuss those things openly, because what is happening now is behind closed doors. Those programs are decided, and it seems that the reasoning and the way they are doing it is pretty strange considering that it has been said that the compensation will be fair. And there have been some promises.

Senator D. Black: What do you say to Senator Mercer’s point that there is a process that we always follow: that it goes to the steering committee, and the steering committee does their thing and then moves it?

Senator Miville-Dechêne: I cannot address that.

Senator R. Black: I would move forward in this regard because I would like to see it move forward quickly. We don’t have a lot of time. I think we can actually request the text as well, so I think we should get down to business with a spot study and potentially come up with recommendations that we can send forward.

Senator D. Black: Thank you.

Senator Ataullahjan: I tend to agree with you. I think it’s very timely. I know it’s not the way it’s done, Senator Mercer, but we could seek the indulgence of the committee this one time.

The Chair: Do we have a general consensus here? Do we need a vote? We probably should, because it’s a motion.

Senator Mercer: The steering committee is going to be together all week next week, because we’re travelling.

The Chair: Yes. Senator Black will be with us, too.

Senator Mercer: We can find time over a cup of coffee in British Columbia or Manitoba to sit down and discuss future business. It seems to me that we can, whether it’s Senator Black’s motion, or someone else’s idea for future study.

The Chair: Senator Black, you look like you’re ready to make a comment.

Senator R. Black: No, but there is a motion on the floor.

The Chair: There is a motion on the floor that we will address. Whether the motion passes or not, as Senator Mercer has already pointed out, the steering committee will be together, along with some of the rest of you, on a fact-finding trip next week and we can discuss this no matter what.

I would like to put the motion. All those in favour of the motion, raise your hands? All those opposed? The motion is carried.

Senator D. Black: One abstention.

The Chair: Sorry, I should have asked; one abstention. Thank you. The motion is carried.

We’re going back to our business as per the agenda. We have a panel in front of us waiting to make their presentations and we also have a panellist online.

This is part of our study related to value-added for the agriculture and food sector and how it can be more competitive in global markets.

I would like to introduce the panellists. On the video screen, we have Mr. David Przednowek, Director of Grain Marketing, CN. With us in the room we have Mr. Robert Taylor, Assistant Vice President, North American Advocacy, Canadian Pacific; and Naomi Iwashita, Manager, Temperature Control Solutions Intermodal, Canadian Pacific.

We’ll ask our guest by video conference to go first in making his presentation. The floor is yours, sir.

David Przednowek, Director of Grain Marketing, CN: Thank you, and good morning. Madam Chair, on behalf of CN, I would like to thank you for the invitation to appear today. As was stated, my name is David Przednowek. I’m proud to have come from a grain and livestock farm northeast of Beausejour, Manitoba; I have been involved in the grain industry for my entire career.

Given that this is the first time CN has appeared before your committee in the current parliamentary session, I would like to provide you some background on CN and our grain and agri-food business.

CN will be celebrating its one-hundredth anniversary in 2019. We were fully privatized by the Government of Canada in 1995. We operate a rail network that in Canada stretches from the Atlantic to the Pacific and through the United States all the way to the Gulf of Mexico. We serve 10 Canadian ports directly and several more through connecting carriers as well as several ports on the U.S. Gulf Coast.

Thirty-three per cent of our business is trans-border with the United States while 26 per cent moves to or from the Asia-Pacific region through the B.C. ports.

CN’s business is very diversified and we are not overly dependent on any single commodity. Our biggest area of business is intermodal, that is, the movement of goods and containers which make up 24 per cent of our traffic. Grain and fertilizer make up 17 per cent of our business.

As you likely know, among the provisions of Bill C-49, which passed earlier this year, CN and CP were required to file an annual grain plan to explain how we intend to move this year’s crop from Western Canada. To develop our plan, CN collaborated and consulted with key stakeholders across Western Canada seeking their input. To ensure public accountability and performance the plan is updated on a monthly basis to reflect how we’re doing in meeting our commitments.

You’ll see in this grain plan that to address the capacity challenges we faced last year, CN has undertaken a $3.5 billion capital program for 2018. It’s the largest in our history. The measures include the acquisition of 1,000 new high-capacity hopper cars; the acquisition of 260 new locomotives over the next three years, with 60 to be delivered before the end of 2018; the hiring of 1,250 new qualified locomotive conductors; and capacity upgrades, such as line improvements and double tracking, of which over two thirds are completed and in service in time for the coming winter.

The act also requires us to file a winter plan by October 1 outlining the measures we have put in place to minimize the impact of winter operations on the movement of our customers’ goods. My colleagues in the room have copies of both of these plans for your information.

We recognize that CN is a critical piece of the supply chain, not just for Canadian farmers, but also for processors and manufacturers who rely on us for both their raw materials and to move their products across Canada and to the world.

We agree with the Prime Minister’s Advisory Council on Economic Growth, which cited agriculture as a sector well positioned to be a major driver of the Canadian economy and of Canadian trade in the years ahead.

The sort of growth the council envisions cannot be achieved by moving raw grain, oilseeds and specialty crops alone. It clearly requires an increase in the production of value-added products from all regions of the country. Much of the world is looking to consume more protein and Canada should be a preferred supplier. Whether it is meat, fish or pulse crops, CN is involved in the transportation.

In Western Canada, the highest profile and most successful value-added production has occurred with canola. CN has worked closely with the canola industry in the development of plant infrastructure to facilitate the movement of canola oil and meal from processing plants primarily in Western Canada. In some instances, we have improved infrastructure and the capacity of CN yards serving canola crush facilities. In the case of the Yorkton and Camrose subdivisions, we upgraded track infrastructure to support new plants that have come into production.

Other areas where we have been involved include the movement of commodities such as pulse crops coming out of the Prairies, some of which is bagged and table-ready products. Rather than moving that in hopper cars, bagged and table-ready products generally move in containers. In the 2017-18 crop year, CN shipped more than 1 million tonnes of grain and processed grain products from Western Canada to export destinations and beyond.

Traditionally, most agricultural products were loaded into containers at the port. To improve system performance, CN has taken the lead in working in close collaboration with both steamship lines and customers who have built their own container loading facilities to provide a readily available source of containers inland.

With our very strong pipeline of container traffic to the United States, through both Prince Rupert and Vancouver, CN has been able to help ensure a steady supply of empty containers on the Prairies for the return trip to Asia and other destinations.

In terms of grain movement, the ability of customers to secure supply of hopper cars in Western Canada has evolved dramatically in the years following the end of the Canadian Wheat Board monopoly on export grain sales. We are now offering customers a number of innovative new ways to contract for priority car supply. This means that even those customers who don’t own their own loading facilities in Western Canada can access their own car supply, giving them more direct control over the supply chain.

Wheat millers, canola crushers and barley maltsters are among those who have used these new products to attain more control of their supply chains. This model is not just aimed at the large processing customers either. It can be used by small customers seeking as few as 10 hopper cars at a time.

CN has been at the forefront of innovation in the movement of refrigerated containers. We have worked with the Port of Halifax to increase their capacity to handle refrigerated containers and turn it into a major area of growth for the port.

We have also introduced new technologies to allow us to track shipments door-to-door using the latest tracking technology, including the ability to change the temperature remotely, when required. As the vice president, international sales, at Maple Leaf Foods said, “CN’s transportation leadership and expertise give us peace of mind knowing that our products will make it to our customers nationally and internationally, safely and on time.”

Everything that we do within the cold supply chain or temperature-controlled segment is to enforce food security, which is the core of our program. We will continue to invest, innovate and collaborate within this segment to help our customers and producers win in local and global markets.

CN has seen an encouraging increase in the movement of value-added agricultural products in recent years. We have worked with customers to find innovative ways to help them move new products and reach new markets. We encourage regulators to continue to support policies that incentivize value-added opportunities, particularly in regions close to where the products are grown. We see value-added agricultural production as an area of growth for us and for our customers, and will continue to invest and work with our customers to grow this traffic.

The Chair: Thank you for your presentation. The changes that happened in the years since we were discussing Bill C-49 are very impressive, and things have happened at CN.

Now we are ready to hear from Canadian Pacific.

Robert Taylor, Assistant Vice President, North American Advocacy, Canadian Pacific: It is our pleasure to be here today. I am Robert Taylor and I’m in charge of government affairs for CP for North America. I’m joined by Naomi Iwashita, our Intermodal Manager for Temperature Control Solutions. We will focus on niche things we’re doing at CP related to the value-added space. We are very large in canola crush. We’re a major mover of pulses as well, but we have decided to focus on fairly innovative, high-value-added products and services.

You have a pretty good sense of our network. We’re critical to Canada’s supply chain. About 66 per cent of our traffic touches a border or a port, very similar to CN. That’s not just Asia-focused but also European-focused. In terms of trade agreements, we’re pretty excited about the future going forward, the new U.S.-Mexico-Canada agreement. We are also investing significantly in our network, not only to enhance capacity but also to drive safety. Since 2012, we have invested about $9.5 billion in our network. That’s a big number. This year alone, we’re going to invest about $1.6 billion, so we recognize that there is the need to invest in capacity to grow the business. We’re very bullish right now on traffic, not only on the ag side but also right across the franchise. We’re still waiting for the harvest to be complete. Alberta has been slow, as Senator Black from Alberta would appreciate. I think good progress has been made in the last couple of weeks, but it is one of the latest harvests in a long time in Alberta because of weather.

We, too, are going to spend a lot of money. We have a plan to purchase about 6,000 new high-capacity covered hoppers. These hoppers are much more efficient. They are shorter. They don’t cube out. They have three pockets versus us four, so they are easier to unload. Our current hopper car fleet, somewhere around 15,000 hopper cars, are getting old, are in bad order, and really need to be replaced. The new hopper cars are being built in Canada, Ontario, which is a good story as well.

Those new hoppers will allow us to handle about 15 per cent greater volume, right off the get-go,because of the car design, and about 10 per cent greater load weight. They are a 286 car not a 263 car. And they are shorter, so even with our same train design length, we can have more products in a train of equal length, which enables greater efficiency in terms of our customers, because they have a finite amount of track capacity through their facility. It allows for more throughput at ports because they have finite track capacity and also allows us to cycle more products in our existing footprint.

We also plan to move to a new 8,500-foot train model, so that train will haul 20 per cent more grain than our current train model. If I put together the new car and the new train product, that’s nearly a 44 per cent lift in capacity that we’re deploying over the next three or four years in the grain space. We’re very bullish on grain. It’s 23 or 24 per cent of our revenue as a company. We have seen growth over the last number of years — we have talked about this to the committee before — and we’re going to see growth in grain, and we’re preparing to move grain.

Now I’m going to turn it over to my colleague. She will talk more specifically about the study that your committee is undertaking.

Naomi Iwashita, Manager, Temperature Control Solutions Intermodal, Canadian Pacific: In February, CP launched a brand new service offering called CP TempPro for customers shipping perishable products, as part of our total transportation product. This offering allows CP to grow the company’s book of business with perishable product protective service, which we call PPS for short, for that group of customers. Focused on transporting products that require strict temperature settings, CP’s growing fleet of PPS is one of the largest and most advanced in the industry. CP TempPro ensures that customers’ products are transported in a reliable, fuel-efficient, temperature-controlled environment.

In 2017, CP invested in the purchase of 41 gensets to better serve its international customer base. Gensets are 40-foot containers that have been retrofitted with two generators able to power up to 17 international refrigerated containers as they travel on the rail. The purchase of these units was due to expected growth in the international movement of goods requiring temperature control, such as food. These gensets also supported CP’s new referred Domestic Repositioning Program, DRP, where domestic shippers can utilize an international shipping line’s container which would have otherwise moved empty to an export market. This creates new shipping options for our domestic shippers and provides improved round trip economics for our international shippers.

In 2018, we also complemented this offering by investing in a small fleet of genset chassis, which allows these units to move powered over the road. It provides a door-to-door product for our domestic shippers.

In 2018, we invested in over 400 new 53-foot SlimLine refrigerated containers, supporting the growing domestic temperature control market. The SlimLine utilizes a greener refrigerant, R-452A, which decreases global warming potential over its predecessor, R-404A.

In addition, CP purchased over 350 53-foot heated units. These specialized containers keep shippers’ freight from freezing during our cold winter months in Canada.

Combined, these investments support CP TemPro. CP has prioritized the safety of customers’ shipments as they move across our network by investing in the latest telematics technology. One hundred per cent of CP’s 53-foot refrigerated containers are equipped with telematics, providing real-time data on key shipment metrics, such as temperature within the container, engine status and fuel levels, which allow CP’s reefer team to monitor all shipments, no matter where they are on our network.

This data allow us to ensure that the containers are moved as planned and act quickly if there are any indications that a load is in distress.

Our 41 new gensets are also equipped with the latest technology. Previously, genset monitoring had been at a system level, but the new telematics installed now monitor individual plugs that these 17 international reefers would be plugged into, and it allows us to see that we are providing power to each unit and that the unit is drawing power. This unit-by-unit view is a much more customer-focused view that we have enabled.

Thank you for the opportunity to be here this morning.

The Chair: Thank you to both CN and CP for their presentations. We have nine senators in the room and half an hour left. Assuming at some point everyone will want to ask a question — don’t check by math here — we have about four minutes each for the question and answer.

We will start with Senator Bernard.

Senator Bernard: My first question is for our CN representative. You mentioned hiring over 1,200 new conductors to assist with the work you are doing. I am wondering whether CN has an equity hiring policy, and I am wondering about the diversity of these new hires.

Mr. Przednowek: From a director of marketing for grain perspective, it is tough to answer that question, but thank you, senator, for that.

Like many large companies in Canada, CN is definitely encouraging respect to diversity in the workplace. I can’t speak specifically to those 1,250 new conductors, many of which are situated primarily in Western Canada where most of the growth in our business has been. Sorry that I can’t provide further detail on that.

Senator Bernard: I would be interested in a follow-up response to that question and wondering if there is anything specific that could be sent to the committee. Is that okay?

Mr. Przednowek: Yes, very much so. We will follow up on that and revert to you on that. No problem.

Senator Bernard: Thank you.

The Chair: You have to get it from the other company, too.

Mr. Taylor: Quickly, not to use much of your time, we now have a full-time diversity person at CP, and we are bolstering our policy on diversity. We are hiring about 700 running-trades employees and about 1,200 total employees, hopefully on boarded over the next year or so. We are very focused on diversity. It is a little harder with running-trades employees, a bit more of a challenge than some other areas of our business, but we are definitely focused on it.

Senator Bernard: Thank you. You all talked about investment in research and development. Are you connected at all with universities in terms of innovative research that is happening?

Mr. Taylor: Yes. The primary university in Canada is out of the University of Alberta, and CaRRL is the acronym. I will not stumble through exactly what the acronym is. We have a partnership with both railroads in Canada, CN and CP, where we provided funding. One area we are specifically working on now with the University of Alberta is winter operations.

As this committee would know, railroads have unique challenges in winter. A lot relates to basic technology. That is an area that we have decided as an industry needs focus, so we are partnering there.

We also have, through the other five large railroads in the U.S., a research and development facility with Pueblo, the Transportation Technology Centre, Inc., TTCI. They partner with other esteemed institutions as well.

Senator Oh: Thank you, panellists, for your presentations.

I want to talk about Bill C-49, the Transportation Modernization Act. It has been in effect for almost half a year now. Can you update us on U.S. company’s expanded reach in the Canadian system?

Mr. Taylor: We were concerned about the long haul interswitching provision and the ability for the U.S. roads to take Canadian traffic into their supply chain versus our supply chain. But the reality since the bill has become law is we have not seen a lot of those movements. We have not seen a lot of applications to the agency for LHI.

I could speculate why, but I don’t want to use up too much of your time. To answer your question directly, no, we have not seen a lot of changes.

Senator Oh: CN?

Mr. Przednowek: It is very early days. It is too soon to judge the impact of the measures in Bill C-49. The requirement of the grain plan and the winter plan has definitely led to more direct engagement with the key stakeholders in the agriculture industry, especially in Western Canada. That’s a good thing. As someone from the farm, I appreciate that.

With respect to LHI, it is up to customers to decide if LHI is to their advantage. There are other remedies available to them under the provisions of Bill C-49 as well as other provisions on the books. For the time being, no, with respect to long-haul interswitching, it has been very quiet on that front so far.

Senator Oh: You talked earlier about the new refrigerator containers that your company is using. What kinds of products do they ship? Before they probably shipped as cargo, but they are now coming to you. What do you ship?

Mr. Taylor: What do we ship?

Senator Oh: Yes.

Ms. Iwashita: We ship so many things. When you think about the major grocery retailers in Canada, a lot of those products come in by rail. Whether it is confectionery, frozen dinner, frozen pizzas, ice cream, dairy products and yogurt, a lot of those things will move containerized. I am speaking domestically right now.

Senator Oh: Anything for export?

Ms. Iwashita: In export, the protein market is big. A lot of beef and pork would go to Asia.

Mr. Taylor: Chilled beef, fresh chilled, is a growing niche. With the telematics, which give the customer the confidence that the product will arrive properly chilled, and it has to be properly chilled the entire time. The combination of the genset makes it robust because just one of those gensets is 17 containers. That is two generators connected to 17 containers. It is more robust, and with just-in-time scheduling, which is deployed on both railroads — we have two precision railroads in Canada — plus the telematics, allow us to be competitive in that market.

Ms. Iwashita would know more than me, but going back a number of years, I don’t think we would have been very competitive in that market.

Ms. Iwashita would know more than me, but going back a number of years I don’t think that would have been a market they would have been competitive in.

Ms. Iwashita: No, probably not.

Senator Oh: This is a new emerging market?

Mr. Taylor: Yes. That is why we are focused on it today, senator.

Senator Oh: Good. What about CN?

Mr. Przednowek: I would say we have a similar mix of products moving, such as the CargoCool product we rolled out a couple of years ago, responding to customers’ changing needs. We have been growing the size of that fleet over time but, again, it is a mix of domestic and export markets, a similar product mix to what CP described. We see a lot of growth in that business on a go-forward basis.

Senator Mercer: Witnesses, thank you for being here. CP has told us they have 6,000 new hopper cars and that they are being built in Canada. CN made reference to new hopper cars, but you didn’t tell us where they are being built and how many jobs are being created by the construction of those new cars.

Mr. Przednowek: Thank you for the question, senator. Again, the 1,000 CN hopper cars are being built at National Steel Car in Ontario. So it is similar; most of these new-generation hopper cars in Canada are being produced in the same location.

Senator Mercer: You are only building 1,000 and CP is building 6,000. I thought the numbers would have been closer and that CN would be building more than 1,000 cars if CP is building 6,000.

Mr. Przednowek: Well, senator, again, there is a mix of different components that go into the overall fleet. The number of Government of Canada hopper cars that CN has running in its service is considerably lower than that of CP, so that is one consideration. Two is the overall fleet size. CN’s overall fleet between Canada and the U.S. is around 13,500 cars. I think Robert from CP mentioned their fleet is somewhere north of 15,000.

Three, it is a mix of cars that CN leases, cars that CN owns and, of course, we mentioned the 1,000 cars we are building. There is also a growing and significant segment of hopper cars that constitute CN’s fleet, which are supplied by customers. They are large, high-capacity jumbo hopper cars that CN integrates into its common pool, and then high end, value-added producers such as maltsters, oat processors and wheat millers can participate in this segment end of the business and supply their own cars. They don’t have assets in Western Canada that they control, but they can control more of their own hopper car supply.

Finally, the number of customer-controlled private cars moving bulk and processed grain products is increasing significantly. On CN, it has over the past number of years. To give you a bit of context for bulk grain movement, four or five years ago we were moving maybe 20 to 30 cars per week in customer-supplied and controlled private equipment. Today in Western Canada, that is 300 to 500 per week and something we expect to increase considerably.

Customers are also making the decisions in controlling a greater part of their own supply chain to also invest in their own equipment so they can have rolling stock in Western Canada and have more certainty around priority car supply.

Senator Mercer: You indicated you put some refrigerated units in the Port of Halifax. How many cars are we talking about and how does that compare with the national number?

CP talked about an 8,500-foot train. How do you feel that will be able to operate in the winter and how many engines do you have on an 8,500-foot train?

Perhaps CN can talk about the refrigerated units first.

Mr. Przednowek: Thank you, senator. Again, that is something that we can provide more specific data on, if you would allow that. I’m not sure as to the specific number of refrigerated units we have been running in that service, but we can provide that information shortly.

Senator Mercer: Please. Mr. Taylor?

Mr. Taylor: That is a good question, senator. As you know, because you are knowledgeable on these matters, train length is one of the challenges we have in extreme cold temperatures. When I referenced the research we are doing with the University of Alberta, one piece of that research is around the rubber component of the gladhands which connect the cars and leak when it gets really cold, because it is rubber. We are trying to fix that.

We will also be deploying more distributed power. We have a system called TrAM, which is a program that will determine, based upon the geography that a train is moving over and the weight of the train, where we distribute the locomotives. I can’t always say three or four, or end, middle, front or two fronts, because it depends on the track geometry and the grades you have to go through — if you are going through the mountains versus the Prairies, it will be different — plus the curvature. A long train will create significant train forces on tight curves.

That is all done by a computer, essentially, but my guess would be three or four locomotives and more locomotives under DP in winter. We use the DP because you have to have the same amount of air at the head end of the train and the tail end of the train. You have to have 90 pounds of pressure equal, tail and head; if there is any difference, the brakes won’t release, and the brakes need to release.

What we do is put more locomotives in the middle of the train to rebuild air pressure so the brakes will release, but that is a good question and something we are focused on in winter.

One point I would like to make is the severity of winter is always different in Canada. The more severe, the tougher it is to operate a railroad. Averages can sometimes hide data, but on average, we do more work in the winter than we do in the summer, so we have gotten better at operating in the winter. There is no doubt about it. I can show you the data that is in our winter plan. I gave the clerk a copy.

Let us hope we don’t have a really severe winter this time, because it does impact our operation like it impacts Pearson, Vancouver and all other elements in the supply chain.

Sorry for the long answer, but that was a good question.

Senator D. Black: Let me first say how appreciative I am to both CN and CP for the work that you do in keeping this country moving. You get a lot of criticism because you touch so many people and businesses, but from where I sit as an Alberta senator, I see how extraordinarily important you are to the Canadian economy and, certainly, the Alberta economy. I am pleased, of course, that CP’s corporate head office is in Calgary, and CN has a major corporate office in Edmonton, which doesn’t escape my attention, either.

I want to talk about your challenges going forward. As we have greater pressure on the railways to carry oil, pulse crops, grains, canola and other products in the hopes of the successful opening of other markets, how will you meet those challenges over the next two or three years?

Mr. Taylor: We have robust plans to invest. We recognize we have a lot of traffic coming at us, so we are hiring 1,250 people at CP. We are investing, as I mentioned. We are getting more locomotives and rail cars. We are deploying more track capacity, as well. At CP, because we have deployed a fair amount of track, we are now in pretty good shape. But going forward we will have to build more.

In the medium term, we have good visibility on it. In the longer term, senator, we remain concerned about encroachment, proximity, crossings and the ability to grow within our footprint. CN is a bit larger, but CP is mostly single track with sidings. We extend sidings, build more sidings and then start connecting sidings and go to double track. Right now, we have a lot of room to grow within our network if we are not encumbered by more crossings, level crossings and proximity issues.

That is something we have been working on with the FCM over the last few years to try to make progress in terms of having more of a corridor approach rather than individual crossings. You can’t put a siding where you have a level crossing. You can’t park a train where you have a crossing because you will have other issues.

The other important issue for the country is Vancouver. We still have West Coast Express commuter rail service on our network, peak time, for one third of our operating time. They come on our network just when all the grain terminals are getting going because most of the grain terminals aren’t 24-7. We are engaged in discussions to try and get West Coast express to be off CP. In Vancouver, we are pleased to see the NTCF funding. Vancouver continues to be a difficult place to operate.

If you look at ag and forest products, too, which are relevant commodities for this committee, a lot of that stuff wants to move through Vancouver. What we see in the grain space, over the last few years, is an increased reliance on Vancouver. We need to think about Vancouver and how we can coordinate and leverage public investment to help us do private investment, because we are a significant investor. We could talk about that longer, but I am cognizant of your time.

The Chair: What about CN?

Mr. Przednowek: Thank you for the question, senator. CN is working to get ahead of the demand curve, especially with this record $3.5 billion capital program. Starting in 2017, we saw a large surge in growth across multiple commodity segments. This year, the heaviest emphasis on our investment is in Western Canada: in the Winnipeg to Chicago corridor; Winnipeg to Edmonton; and Edmonton to Prince Rupert and Vancouver. There is a strong demand for traffic to both Vancouver and Prince Rupert, CN being the sole carrier serving that port. That is an area we would like to see more growth in traffic and have the resources to manage that traffic.

It has been interesting with respect to the value-added segment of the business. Ray-Mont Logistics recently opened a container stuffing facility last year in the Port of Prince Rupert where they are able to receive unit-trained quantities, that is, 100 cars or more, of processed products as well as bulk grain. That is another innovation in the supply chain that has seen a growth in traffic moving to the Port of Prince Rupert.

Again, we will be putting in 60 miles of double track this year, adding sidings, increasing yard capacity to meet growth, not only in grain and processed grain products but other commodities such as fertilizer, coal, crude, right across the board. This is an export-oriented economy and we are definitely investing to meet that projected growth and demand over time.

Senator R. Black: With increased car capacity and train length capacity, will that impact this year’s crop? That is easily a yes or no question potentially.

We have heard a lot about labour issues on the ag side of things. You are hiring 1,250 folks and CN is as well. Are you able to find the labour for those positions?

Mr. Taylor: To your first question, yes, it will impact. We are taking those cars online now and we are getting locomotives and people in. It will have an impact, and it will grow over the next three years.

We are pretty good in terms of finding people. Most of those people are already on board. It takes us a while to get them trained and fully on-the-job ready. It takes about six months from the time you hire someone, especially for running-trades employees. Then you have to make sure they are familiarized and comfortable with the territory can go out and run trains and be safe because safety is our number one priority. That is all in flow right now.

My sense is we can attract people. We pay well. Coming out of high school, we will train you as a conductor. You will start at $70,000 or $80,000 a year and you will have a full package of benefits. In this day and age, that is attractive. We can find people.

Mr. Przednowek: From CN’s perspective, we have been in a strong hiring pace. We have our centre in Winnipeg running double shifts to accommodate the strong influx of conductors that are training. However, there are some remote areas in parts of Western Canada where conductors are deployed. Sometimes that can be a challenge with respect to retaining employees. That is a consideration.

As to the fleet, the new builds that we are adding to our fleet will start coming online in January. At the same time, some of the other car programs that I mentioned, which customers have been taking us up on, will also be a source of increased capacity to move this year’s crop. Right now, we are in the process of taking on hundreds of additional cars, supplied by customers, to integrate into our common pool of assets to move more grain at peak period demand.

Senator Ataullahjan: My question is similar to that of Senator Black. Rail traffic congestion is easing. Are we prepared if we have bumper crops? Will we be prepared for that?

Out of a matter of interest, I would like to know about the winter months. What plans do you have? Sometimes in the city, the snowplows come out and everything is cleaned. Since the rails go to some remote regions, as a matter of interest, what plan is put into motion when there is a huge storm forecast?

Mr. Przednowek: I will start first. Thank you, senator.

With respect to bumper crops, crop production, particularly in Western Canada, has increased about 40 per cent since 2005. We used to talk about a 50-million-tonne crop; now we talk about a 70-million-tonne crop. This year’s crop has had some challenges with dryness early on and now harvest weather challenges. Some of that has been improving.

In the industry you will hear us talk about the “new normal,” which is driven by genetic potential as well as improved crop management technologies.

In the fall and winter period when grain demands are the strongest, over that same period of time, the size of the program that we have been able to deliver in the fall and winter, as to a spotting program in Vancouver, has increased on a percentage basis as much or greater. The crop can’t all move in the fall or winter period when demand for movement is strongest. As part of our grain and winter plan, we send a signal well in advance of the harvest to the industry as to what the maximum sustainable capacity of the grain supply chain is with respect to CN. That takes into the end-to-end supply chain, not just considerations for CN in deploying and utilizing assets. It is 5,500 hoppers per week of CN-supplied equipment, private equipment being on top of that in the fall or outside of winter and 4,000 per week within winter. Customers have a long lead time signal in order to be able to plan for the size of the program that the supply chain can deliver.

With respect to the winter specifically, what steps we go through is well illustrated in our winter plan, in terms of assessing the demand we have to move and deploying resources. Copies have been distributed. Major challenges are, as Mr. Taylor spoke to, the running of shorter trains due to needing to run safely to maintain air pressure in trains.

One innovative aspect that I didn’t get a chance to touch on earlier is that aside from the use of distributed power, CN also deploys air repeater cars primarily in service in Western Canada. That is like putting a large air compressor in a box car, in the middle of the train. It is similar to putting a locomotive in the middle of the train to maintain air pressure. We are tripling the size of the air repeater car fleet this upcoming winter to run on the main line, principally in Western Canada, to maintain or improve the average train length and mitigate the impacts of winter.

Mr. Taylor: There is more capacity now, senator. All elements of the supply chain have invested. There is a lot more investment in Vancouver, we have invested, CN has invested. The increased reliance on Vancouver as an outlet for Canadian grain has had some impact on the resilience. We have to recognize that the grain wants to move through a peak. It wants to move from generally, depending on the timing, from October to March or April. Then after March or April, there is generally excess supply chain capacity. We are parking hopper cars. That peak can be more pronounced, depending on what prices look like when people want to ship. Plus, we have to take the grain from the Prairies, go through the mountains in the wintertime, which is more of an operating challenge, plus you lose Thunder Bay.

So if there is going to be a good crop this year, a three- to five-year average, 70-odd million tonnes, there is a fair amount of carry-in. So carry-in is fairly large this year. I think we’re well positioned to move it. But there are still some challenges trying to move that much grain in the wintertime. You have to think about the size of it, too. Our grain exports are huge because we export a lot of our grain. We don’t have a huge amount of domestic consumption, and it depends on the rail supply chain because you cannot truck grain from the Prairies to Vancouver and be competitive.

We’re moving a tonne of grain, between $35 and $40 a tonne from the Prairies to Vancouver. We’re competing successfully with Australian grain that is virtually at tidewater in markets in China, India, Japan, so the efficiency of the system is something that is important.

In terms of the winter plan, we have spent more money. We’re getting better at it. We’re still not perfect. We have much better forecasting now. I don’t want to jinx ourselves of what this winter will look like. I want to keep it to myself. We do deploy equipment in specific locations for winter, because we know where the most snow is going to be. We have better use of contractors as well. We have a contractor network. We talked about use of distributed power.

We are more sophisticated in terms of avalanche control. In the Rockies, we have huge snowfalls and then you get into avalanche prevention. So we’re partnering with Parks Canada and B.C. Ministry of Transportation and Infrastructure on avalanche control. The railway and the highway are next to each other going through most of those mountain passes, so we have to work together. I think we have gotten better at it.

There is more of a focus on drainage, and that is a part of that winter plan too. All of that moisture melts. The railroad is almost like a dam, a natural barrier. We have more of a robust approach on how to deal with drainage. We have operations centre readiness now for winter, so a guy responsible for reacting to forecasts, better forecasts. We have a team of people that are identified as part of the winter plan right across different subdivisions to be able to respond like the city responds.

The Chair: Mr. Taylor, I have to cut you off there. It’s fascinating. I love hearing about it.

We have one last questioner, Senator Martin.

Senator Martin: I’m not a regular member. This is very interesting to me because I live in Burnaby now, and I can see the railway line from my condo tower, and we have a crossing about a block away. There are many more towers going up in my area.

My question is regarding your urban plan and the safety around that. I’m happy we have emerging markets where we can build greater capacity, but as a city dweller, I live with the sound and it’s music to my ears now. I know that we’re moving product and have a robust system, but at the crossing near my home for several months there were loose parts, and I saw the tanker trucks and buses.

I’m in a very busy area, and I was curious about the density of the cities, and especially through Vancouver, with building the capacity and us wanting to build greater infrastructure and move our products to market. Would you talk a bit about your city plan, the safety measures that are your preoccupation? Also, your discussions with some of the city officials through which you go?

We did have recent elections. There are two new mayors in Burnaby and Vancouver, so there are some concerns I have about some of those changes and how this will affect what we’re talking about. I would love to hear about your urban plan.

Mr. Taylor: Yes. It’s a really good question. You have hit on a significant challenge for us. You have this natural push and pull in Vancouver about industrial lands, industrial uses of lands, plus condo and other developments. It’s not unique to Vancouver. We have it in many other jurisdictions across the country, where they would love to get the railroad out of the city, which is a very expensive, complicated proposition. There is always the question of who is going to pay for it because you’re talking tens of billions of dollars.

We have a plan in terms of what we would like to do in Vancouver. The port is quite progressive in terms of working with CN, CP and other stakeholders on their plan, because you have the inner harbour, the north shore, the south shore, Roberts Bank, Deltaport and Fraser Surrey Docks — a bunch of different activities going on.

There are plans for a lot of that to grow. There is a big outlet of Canadian grain on the north shore where most of the terminals are. We have the largest terminal, Cascadia, on the south shore.

There are plans to grow. There is a new grain terminal being built, and it is almost complete on the north shore right now, the G3 Terminal Vancouver. We have a suite of projects that we are trying to work together, collaboratively, with the other stakeholders to deploy. However, like I said earlier, we are bumping up against a different perspective from some other stakeholders in terms of being able to grow that infrastructure.

In terms of the crossing, I need to know more detail. The crossings are a shared responsibility between the road authority and the railway. If there is anything related to the railway that’s not 100 per cent safe, we will deal with it. But I can’t speak to it if it’s a road issue because it is a joint responsibility. The CTA will deal with any disputes.

I think we could have deeper, better engagement with Vancouver. We look forward to sitting down with the new leadership there, especially with the leadership of the port and other stakeholders, because it’s not just about the railroad. It’s about the supply chain and the long-term plans to grow that terminal.

The Chair: I’m assuming the answer would be very similar for CN on this. With that, I’m noting that we have run out of time. I would like to thank our panellists. As you can see, there is a lot of interest. As already noted, we went through the passage of Bill C-49 and transportation and rail was such a huge part of that. That’s why there is so much interest in the committee, and things that go beyond the value-added to the food sector.

Thank you panellists. We will reconvene with our next panel.

With now us we have Bruno Larue. He’s a professor in the Faculty of Agricultural and Food Sciences at Laval University. By video conference from Winnipeg, we have Derek Brewin, professor in the Faculty of Agricultural and Food Sciences at the University of Manitoba.

Thank you to both of you gentlemen for accepting our invitation to appear here today. We’ll start with Mr. Brewin first by video conference. The floor is yours, sir.

Derek Brewin, Professor, Faculty of Agricultural and Food Sciences, University of Manitoba, as an individual: Thank you to the chair and the senators for this invitation. It’s an honour to be invited to present my thoughts on your study into Canada’s value-added food sector.

Before I move into my response to your main questions, I would like to put a plug in for my faculty. The Faculty of Agriculture and Food Sciences at the University of Manitoba has a storied history of helping to develop canola as a viable crop, including the quality of the oil for food and nutrition. We have been part of the debates on the performance of the grain transportation system and the Canadian Wheat Board. Our bench scientists have attacked all kinds of difficult problems related to agriculture and food production from crop pathogens, emerging weeds to the nutritional benefits of plant sterols. But I think you’ll be able to follow up with that when you meet with our faculty next Thursday.

Also, I would like to tell you a bit about myself. I am an associate professor. I’m the head of the Agribusiness and Ag Economics Department at the University of Manitoba. I’ve been with that department for 15 years. I teach courses in risk management and agricultural marketing. From 2004 to 2014, I was part of several policy research networks sponsored by Agriculture and Agri-Food Canada. One network looked at agriculture innovation and regulation, one looked at farm-level policy impacts and one, led by Dr. Larue, looked at the structure and performance of agriculture and the agri-food product sector.

Relevant to your study, I have worked on research related innovation within the food processing sector, the economics of crop breeding, rail transportation and the optimal location of canola and malting plants.

Let me address each topic your committee has been authorized to examine. The first was the comparative advantage of the Canadian value-added food sector. I feel the major comparative advantage of the sector is a robust primary agriculture sector linked to our endowment of arable land relative to our population. Given that endowment, we have a huge excess supply of primary agriculture goods, and that has led to large direct exports of major crops: 75 per cent of our wheat; 50 per cent of our canola; 25 per cent of our live beef cows; and 21 per cent of our live hogs are exported directly. That large excess supply can also give us advantages when we have processing that facilitates that trade. So we export 90 per cent of our canola oil, half of our beef, a third of our pork.

Our comparative advantage in canola oil and meat processing is tied to the economics of processing crops and livestock close to where they are produced, but those economics can change dramatically as markets evolve. I have looked at the canola crushing plants, and just locating two crushing plants within an interior catchment area can make both of them less profitable than a new processing plant much closer to the consumer. Consumers of canola oil are in short supply in Canada compared to our production.

I believe it is in our country’s interest to support the work of processing research, like the work done in our own food science departments and at the Canadian International Grains Institute, to search for ways to process our abundant crops into higher-value products. Much of that processing may end up happening in regions with lower labour costs and closer to the final consumer, depending on the business case for storing and moving those processed products.

This brings me to your second challenge, the sector’s capacity to generate value-added products in order to meet the global consumer demand. In previous presentations, I feel you have heard a lot about secure market access, fair and harmonized regulatory regimes, and competitive tax policy. I think Dr. Larue knows more about trade matters than I do, so I will talk about research.

I would generally support public investments in agriculture research, where spillovers and weakly held property rates have led to underinvestment. The evidence on returns to agricultural research has been estimated at 40 to 1. I caution, though, against government investments in areas where the private sector is already present as this may crowd out private sector competition or simply paying firms to do what they are already doing.

We need means tests to identify worthy research projects, and that can be a very complex task when it comes to sorting through research priorities. For instance, within the area of plant breeding, where there is some public investment and private investment, the presence of the hybrid crops like corn and canola can generate huge private sector investment, but that system is not transferable to open pollinated crops like wheat and barley. Large areas of science — agronomy, wheat science and nutrient management — do not have incentives for investment from the private sector. They need public funds, or a mechanism like end-use royalties, to support needed research for the sector. Setting the priorities for that support needs to be linked to potential economic gain.

I have already started to talk about the third issue you wished to examine, the support that should be provided to the industry stakeholders. My first response is research. Research funding for institutions, like our Richardson Centre for Functional Foods and Nutraceuticals, the Canadian International Grains Institute, the whole research branch of Agriculture and Agri-Food Canada and agriculture and food science faculties in universities across the country.

Let me make my final pitch of support for data collection and sharing. We generally do not have enough information on the food side of the agri-food sector. Nothing close to the data we have on the farm sector. This jeopardizes our ability to assess the competitiveness of various agri-food supply chains. These supply chains have considerable concentration and data is needed to assess the competition within a supply chain and inform policy and investments.

One of the key factors to assessing rail transportation was the collection and publication of supply chain data by Quorum Corporation. We need that data across the sector. I think I have used that most of my time so I’ll stop there. Thank you very much.

The Chair: Thank you for your presentation. I will now move on to Dr. Larue.

Bruno Larue, Full Professor, Faculty of Agricultural and Food Sciences, Université de Laval, as an individual: Thank you for the invitation. It’s always a pleasure to be here to talk to you.

Some of the things I’ll say go in the same direction as what Derek has been saying. When we’re talking about comparative advantage, the idea is, basically, that when we’re doing trade in goods, implicitly we’re trading resources. So countries that are well endowed in land and fresh water, for example, tend to be natural exporters of agricultural products.

I had some slides for you and I’m not sure if they have been photocopied, but basically when we were looking at crop export by province, it’s not surprising to see that Saskatchewan is on top, and by a lot, because they are extremely well endowed in land. Then we have Alberta, Manitoba and Manitoba. Crop exports from Quebec have been rising fairly rapidly, but we are not nearly as well endowed in land so we’re not exporting nearly as much. That’s essentially the gist of comparative advantage.

It is quite different when we’re looking at trade and food, because food production can source primary products locally. Derek talked about canola, but the Quebec hog industry is a good example because of the way hogs are marketed in Quebec. All of the hogs produced in Quebec have to be slaughtered provincially. Contrast that against, for example, to what is going on in Western Canada or even in Ontario, Quebec exports only meat, not piglets, not pigs, only meat. The value-added stays in Quebec because of the way hogs are being marketed and we are probably exporting 60 per cent of what we produce.

Another successful supply chain based in Quebec is the chocolate supply chain. None of the primary inputs are grown locally and that’s the second most important export from Quebec, chocolate products. It’s done by multinational Barry Callebaut, based in St. Hyacinthe, and they source their inputs from mostly from Africa, Ivory Coast. Essentially, most of what they are producing is exported to the U.S. To do food manufacturing, you don’t necessarily have to be a powerhouse in primary product.

When I was talking about comparative advantage, if you look at most commodities, usually the top five exporting countries account for at least 70 per cent of world exports. For some commodities it’s even higher. With soy beans, for example, it’s basically a game between the U.S. and Brazil. Canada has been exporting more and more because soy beans prices have been high. But we’re very small in that market. So it’s essentially like a duopoly. We have a monopoly, for example, in maple syrup. Why? Production can only be done in a certain area, so it’s us, Eastern Ontario, part of New Brunswick, and the northern states of the United States.

When we’re looking at statistics for food exports, what we see is that it’s concentrated in the east, in Ontario and Quebec. Those are the provinces that export the most. Those are also provinces that import a lot. When we’re looking at trade balance, for example, even though Ontario is the lead exporter of manufactured food, it’s also a huge importer. Ontario is a negative trade balance.

When we look at food manufacturing, when we look at the data, we find there are a lot of small firms and a few big ones. With the small firms, maybe 10 per cent of them export. All the others cater to the domestic market. There is also a turnover. Some survive, some don’t. We see that there is less and less space, it seems, for mid-sized firms. When small firms become more successful, they gain in size. Then they become targets for larger ones.

For most of these sectors and food manufacturing there is a huge concentration. For example, in dairy, Saputo, and Agropur are the two big companies. In pork processing, Olymel is the big guy with Maple Leaf. But it’s like that in a lot of sectors. If we look at the beer business, there is Molson Coors and InBev. InBev purchased SABMiller, the second-largest manufacturer of beer in the word, a few years back for over $100 billion. We are talking huge money, so that’s essentially the way it goes.

If we look at export, the small firms account for very little. The ones that do most of the exporting are firms that export several products towards several destinations. Most firms, when we look at individual firms, export to one place — I’m talking about Canadian firms — and it is to the U.S., of course. It is close by.

We are very lucky. People sometimes say, “We’re over reliant on the U.S.,” but actually we’re extremely lucky to be this close to the U.S., and to have had that access we have had in that market. There are a lot of countries that would be happy to be in our position. Having said that, there are a lot of issues, a lot of problems, especially in recent years, but overall it’s a tremendous opportunity.

It helps us when things get difficult. For example, when there was the Russian embargo. Russia was the second-largest market for frozen pork. What did we do? We essentially transferred the meat that was supposed to go to Russia and we sent it to the U.S., because in the U.S., it was like a drop in the ocean. So we didn’t suffer price reductions or anything like that. We were lucky; the exchange rate was favourable at that point and time, so we were extremely lucky.

Derek talked about innovation. It’s extremely important. Most of the firms that export are the ones that innovate somehow, that invest in R&D activities. Whatever we can do to encourage firms to engage in R&D, that’s certainly a positive.

The other point I would like to mention is that to cater to foreign markets, firms can export, but it can also make foreign direct investment in some sectors. That’s essentially what we do. For example, in the dairy sector, it’s not that Saputo is looking elsewhere, they are elsewhere. They are the largest dairy entity in Australia. I think they are the second largest in the United States and they are the largest in Canada. So instead of exporting, they are doing it through foreign direct investment. Agropur is doing the same thing.

In terms of exports, we export a lot of baked goods, beef, pork, vegetables, canola oil and chocolate products. These are Canada’s main exports. It is amazing, because vegetables are also a main import, so we are doing two-way trade for different reasons. We are not exporting the same vegetables we are importing. Sometimes we are doing the same fruits, for example strawberries; we export them starting in June all the way to November, but we also import strawberries during the rest of the year, so seasonality is an important component.

Things to watch for are U.S. trade disputes, not only with us but with other countries. For example, when the U.S. fights with China, they have problems selling their goods to China. What does that mean? Probably more goods stay in the U.S., which makes it harder for Canadian companies to be competitive with companies in the U.S., because there are more U.S. goods in the U.S. market.

There is also the threat of U.S. safeguards based on national security. There is not a lot we can do about that. The dispute settlement mechanism we have in the USMCA trade deal, for example, does not prevent the U.S. from doing this sort of thing.

There is also the fact that if U.S. firms are not exporting as much to the rest of the world, for instance, to Europe and China because they are fighting with them, then the demand for primary inputs will go down from Canada.

There is the implementation of recent regional trade agreements; we have several new trade agreements being implemented right now.

In terms of overall trends, the talk is about the meat industry mostly. Aging consumers are not eating as much meat. There are consumer trends that favour the substitution of meat by other types of foods. At the same time, population growth and GDP growth in low-income countries will increase demand for Canadian meat.

You have heard all about transport infrastructure. That is extremely important for trade.

The other main issues I am concerned with are interprovincial barriers that make our industry less competitive. Some of our agriculture policies also need to be revised.

Other trends that are important in the sector are mergers and acquisitions — I talked a bit about that — and concentration in retail. When we are talking about concentration in retail, sometimes we think the retailers are trying to get higher margins from consumers, but it is actually the other way around: they are trying to squeeze the processors. That is where they make most of their margin. For the processing industry, that is a concern.

The Chair: We are getting short on time.

Mr. Larue: I will end with that.

The Chair: Thank you to both presenters. We will start with questions.


Senator Miville-Dechêne: Thank you very much. Mr. Larue, we just did a small tour of Quebec and I learned that about 60 to 70 per cent of the crop produced in Quebec is processed in Quebec. That seemed to me to be a fairly positive figure, except that I was told that there are also regulations that require processors to buy, first and foremost, Quebec products, such as potatoes. Is this system, which is like supply management — but not quite, it probably has a different name — the same across all the provinces in Canada or is it specific to Quebec?

Mr. Larue: This system is not specific to Quebec. In most sectors, we have marketing boards, which ensure that each province operates in a certain way, sort of like a small country. Agriculture has evolved a great deal over the past 40 and 50 years. When we came up with this vision of marketing boards, there were many, many players. There were many more farms and buyers. In the hog industry, concentration has meant that the way the product is marketed had to change. For a while, we had auctions. Those work well if there are a number of bidders who will bid and compete with each other. The problem in most processing sectors is that there are...

Senator Miville-Dechêne: No more players.

Mr. Larue: Or not many. So in Quebec, there is Olymel and five or six other packing plants. Olymel slaughters about 75 per cent of the hogs. We can’t have auctions under those circumstances. However, if we opened our markets to Ontario and potentially New Brunswick, if our vision was slightly more geared toward the regions rather than the provinces, it would help. Sectors would be more competitive. This is true in the case of hogs. It is true in a number of areas. Clearly, in the case of supply management, it is very true because there are constraints.

Senator Miville-Dechêne: You talked about the future. How do you see the future of small farms? You say that the tastes of consumers are changing. We want organic products, we want traceability. Is all this a way forward when we talk about added value in agriculture or exporting small quantities? We can only talk about internal markets.

Mr. Larue: These markets are expanding more and more. Now, there are some quite sizeable players who are interested. I gave the example of the duBreton company, which produces organic pork. This company has developed that sort of niche. It’s going very well for them and it’s not a small business. You see a lot of vertical integration in organic value chains. It starts with retailers who want the products on their shelves, and then they make...

Senator Miville-Dechêne: Demands.

Mr. Larue: Contractual agreements with different suppliers. It is already very well integrated and it is a growing sector. Players in the industry try to follow trends to make more profits. So, if there’s money to be made with that, they’ll go ahead with it. There are some strong trends, here in Canada and around the world.

Senator Miville-Dechêne: Thank you.


The Chair: Dr. Brewin, do you have any comments with respect to the last question?

Mr. Brewin: Yes. I agree with the points but I would like to say that not every province is its own little island. In the west, there is quite a lot of trade across borders and that is a successful model for the pork plants in Alberta and Manitoba. They use a lot of Saskatchewan-grown pork.

Because we have concentration in some of the processing centres, there are cases for farmers to get together to make deals. I think that voluntary type of cooperative action is fine, but we have seen that compelled marketing boards tend to be big beasts that are hard to shut down. It is much better to use voluntary systems.

The organic market is fine as a viable business sector the way it is. We do not need to force more types of organic processes within the system. Consumers should be able to pay for processes that are more expensive.

As we go down this line, one of the areas is the demand for local. It would be devastating to agriculture in Canada if the entire market was local. We would have this huge endowment of land that would be a waste if we could not export to far places. So local, unless we greatly increase the population of Canada, would not be a great move for Canadian agriculture and food.

Senator R. Black: I have a question directed at Dr. Brewin. A witness earlier in this testimony, on a previous day, suggested that we should develop value-added food processing opportunities closer to the grower. Did I hear you say you have data that would suggest that should be closer to the consumer? I think the rationale was there would be fewer transportation issues and things like that. I want to hear more. You said you had data that would suggest otherwise.

Mr. Brewin: I have modelled the location of canola plants. If you look at the current canola plant structure, we have a bunch of canola plants between the Saskatchewan and Manitoba borders, and within 100 or 200 kilometres we have 4 million tonnes worth of canola processing.

Canola processing plants in Harrowby, Manitoba, and in Clavet, Yorkton and Nipawin, Saskatchewan, take up what used to be two thirds of the entire canola sector. If you put another 1-million-tonne canola plant into that catchment area, they would all have to expand their catchment further out to get enough canola to attract the canola to their system. Toward the outer edges of the growing area, they are competing strongly with rich export markets. That next plant would not be profitable because the entire group would have to start spending so much to attract grains.

My point, there, is I think there is a business case for processing close to where it’s grown up to a certain level, but I don’t think we should force it onto a system willy-nilly. I think there are business cases where it can actually, as Bruno pointed out, be profitable to make chocolate anywhere. I think for certain types of processing, it is very tricky where the next plant is located.

I think there are excess live animals in the west, but the next processing plant might not be that viable because it will have to compete in an integrated North American market and we have concerns at the border that make it a risky investment.

Senator Ataullahjan: We have certain food trends. How does that impact food manufacturing? A couple of years ago, everyone was running around eating pomegranates and certain grains that were priced out of the reach of ordinary people because they became trendy. Do food manufacturers keep an eye on those trends? If so, how do they respond to them?

Mr. Larue: They respond to these trends by investing. As Derek said, any investment is risky so they will think about it twice. They will try to find out if it is a strong trend. Derek talked about local food. What is a local food? If it is made in Quebec, is it local everywhere? Is an Ottawa food local, then, from the point of view of Gatineau consumers?

By and large, the trends are important and the food manufacturers will respond to them. If it is a new ingredient, for example, they will try to use it and promote it. Of course, there are regulations about what you can say on labels. That is a big issue for them. In some cases they will invest more heavily. Sometimes, it is a trend in a different country, so they will make an investment.

One of the things we notice when we are looking at trade is that fixed export costs are extremely important. They decide whether a firm enters a country. What we see is that if there is a critical mass of consumers, then food manufacturers will be more inclined to go. For Canadian firms, we are looking at what is going on in the U.S. and trying to capitalize on it. But we also look elsewhere.

I was talking about the meat processors. They are certainly aware of the trends in low-income countries. As they become wealthier, they want diets that look more like ours. They want more meat, so they are getting ready. They have started investing more in distant markets knowing that, in Canada, for example, with the aging of the population, people are eating less red meat, a bit more white meat and, increasingly, more fruits and vegetables.

The domestic market will not grow as fast as it once did. It is a matter of making investments. There are firms that will go further. As I said, they will invest in products without antibiotics and they advertise that, but that means they have to have their supply chain coordinated. If we are talking about pork processors, they have to convince farmers to raise pork and hogs in a certain way. That is how it is done.

There is a fair amount of coordination involved. You have to have contracts with primary producers to do things in a certain way. You have to give them a premium for that.

Mr. Brewin: I don’t have much more to add on that.

Senator Ataullahjan: I don’t know if you will be able to answer this question. Talking about meat and meat processing, why has Canada missed out on the Halal food market? It is a huge market and Australia and New Zealand seem to have filled in all the demand when you go to the Middle East. Why has Canadian beef missed out on that?

Mr. Larue: Probably, because we have traditional markets that work well for us. If we are looking at the pork industry, our traditional markets have been the U.S. and Japan. These have been lucrative markets.

When I was a young assistant professor, I remember meeting with a VP at the company now known as Olymel. He said some different markets look interesting but there are issues. Sometimes there are things that people don’t think about, like what happens if you don’t get paid.

For the U.S., it is easy. There are courts and companies usually don’t have any issues. It is the same with Japan. In Japan, the inspectors will come here and they are extremely thorough. They are very picky, but they are willing to pay.

In the case of Canada versus some other markets, I think it was mostly that we would have had to have made an investment, starting with small export shipments at first, to test the water. We probably would have lost money for a couple of years before making a go of it. Because we had these strong markets in the U.S. and Japan, this was less of an inviting proposition than other countries with smaller markets.

For the beef industry, we are exporting mostly live animals so it is the U.S. that does the slaughtering. It is a different industry.

Senator Ataullahjan: In Edmonton, they are selling halal lamb from New Zealand. I was just wondering because there is a huge market.

I am on the international trade committee also and we keep hearing how Canadian businesses are risk-averse, and I think that is a good point.

Mr. Larue: Well, there is an issue when you do specialty markets as you have to change your line of operations. If it is not big enough, it’s not worth the investment. For killing plants, is the halal market sufficient to bring workers one day to do just that? I’m not sure. These plants make money by working at full capacity. They have to have throughput. They have to make sure they are working at maximum capacity. When you change a line to satisfy a market, then it slows down operations. Unless you can get a sufficient premium, it’s not worth it.

In the case of this market, I think it was probably too small and they were not willing to invest at that point because they had other opportunities.

Senator Ataullahjan: It is a huge market.

Mr. Larue: Well, it is a growing market, I agree. The potential is there. Again, because we had this easy sell in the U.S. and Japan because we have been there for years and years. So the prospects were less interesting for us than for other countries.

Senator Ataullahjan: Thank you.

The Chair: Dr. Brewin, would you answer that question, too?

Mr. Brewin: Yes. I think there are small halal plants all over Canada. The reason that New Zealand would have an advantage in the Middle Eastern market — and maybe got to know Middle Eastern customers and have economies of scale — is because they are closer to the Middle East in terms of shipping frozen meat than we are. We would have to go through the Suez Canal or all across the Pacific.

What Bruno is talking about in economies of scale for halal meat, especially lamb, is that we don’t have a huge surplus of lamb in Canada and they probably do in New Zealand. There might be a good business case for halal meat processing in New Zealand that is not a good business case for Canada.

I think if the consumer is willing to pay for it, those market chains will develop. I think specialty markets, especially if there is a demand for local food, entrepreneurs will start to fill that. It looks like it is a small player when you compare it to Cargill and Brooks JBS processors. They are huge compared to what is going on in a butcher shop in Toronto, but that butcher shop in Toronto might be doing very well.

Senator Bernard: In follow-up to Senator Ataullahjan’s question, I wonder if there’s a possibility that unconscious bias may have an impact on how those markets are developed. Are there assumptions being made about that market for halal products?

Mr. Larue: Do you want to go ahead, Derek?

Mr. Brewin: One of the things that I think is a problem with the centre that I mentioned is that we don’t have great data on whether or not this is a wise investment in Canada. If I am selling into the Middle East, where almost all the consumers are halal, I have an idea of the size of the market. But within Canada, I don’t think we could tell you the price of halal versus the price of regular meat. I don’t think we could tell you the size of the market because we don’t have very much data on those markets.

So I make another pitch for data. I don’t think it’s really fair to say to the investor he is not taking risks when we don’t give them very much information to make a decision.

Senator Bernard: So that was my real question, about the data gaps.

The Chair: We have a supplemental here, too.

Senator Ataullahjan: Thank you, Senator Bernard. I think there is a need for data. I know that in Toronto there are certain malls where the food courts will only serve halal meat because the clientele is there. So actually this is a really good suggestion to collect the data and see. We are looking at, what, 1.5 or 2 million people who eat halal? I myself was very surprised when I walked into these malls and in all the food courts the meat is halal. So there is certainly demand for it, but I think maybe if someone does the work of collecting the data and seeing how much demand there is. Good point you raised. Thank you.

Senator Bernard: My question is also for Dr. Brewin. You mentioned the data gaps. In an ideal world, how would you address those data gaps? What would you be recommending?

Mr. Brewin: I think the type of surveys that farmers have to fill out on their farms. I think it would be fair to ask, especially the concentrated processing sector, very similar questions. What are your costs? What is the size of your operation? Are you charging oppressively low prices to the producers and capturing high prices from the consumer?

I think what Bruno said is that the retail sector is policing the entire supply chain. There is some evidence that that’s true. There has been a very good study by Richard Sexton in California that talks about that. The retail sector and contracting back down all the way to the farmer is quite competitive and so we don’t need to worry. I would really like data to prove that. I think that means we need some prices up the entire supply chain so that everyone knows that everyone within the supply chain is playing fair.

The other thing is that if there is a challenge to the supply chain, it is very good for everyone within the supply chain to know it is there and respond. What the value-added roundtables have done is let everyone within the supply chain talk about what is going on in a sector and if there is a challenge to gather their resources and research ways to solve that challenge.

The direct answer to your point, I think all those processing plants should fill out as much information as a farmer has to.

Senator Bernard: Thank you.

Mr. Larue: May I add something?

The Chair: Go ahead, definitely.

Mr. Larue: I think it is an important issue. Even at the farm, I think you will agree with me, Derek, we have little information about input prices.

Mr. Brewin: Yes.

Mr. Larue: Feed costs, for example, are extremely important in the livestock industry. There is anecdotal evidence that there is quite a bit of variation. If you are a small farmer versus a large farmer, how much do you pay for your feed?

A study done in France showed that that was a source of economies of scale, that large farmers were able to bargain and get better prices for feed than small farmers. We cannot test this sort of thing in Canada because the data is simply not available.

There are obviously data gaps at the processing level about the costs of production of plants and that sort of thing. That is true, also, at the retail level. Stats Canada will say it’s because it’s heavily concentrated, therefore information about the industry would become too sensitive because we would be able to infer the prices paid or received by individual firms. That is a concern. At the same time, I think there are probably ways of getting around some of those confidentiality issues and give a stronger mandate to Stats Canada.

The last household consumption survey in Canada goes back, I think, to 2001. Your colleague, Ryan Caldwell, did a study on the demand for chicken and other supply-managed commodities. That was published not so long ago and it used data from 2001. So we’re in need of better data about household consumption. We need to give more money to Statistics Canada to do these sorts of surveys again.

My last point is about retail power. Again, it’s sort of anecdotal, but a few years ago, Sobeys sent a letter to all its suppliers asking them to cut their prices by 3 per cent or else they would no longer be doing business with Sobey’s. That sort of directive is quite telling about where the market power lies.

The Chair: Okay. I have a question in regard to our value-added study. I want to know, from both of our panellists, what is the most important thing that we could recommend to the Government of Canada in terms of encouraging more value-added in the agri-food sector?

The first panellist, Mr. Brewin, said don’t do it in a way that it would already damage people in the business. Mr. Brewin, since you started on this issue, can I ask you to address that question first? What is the most important thing we could possibly recommend to the Government of Canada in terms of improving our value-added in Canada?

Mr. Brewin: I do think that market access and trade is the most important thing, in terms of our country and in fostering strength in our sector. Maintaining good trade relations is probably the most important thing, but I want to give you something more. Research and the budgets and payoffs for research are there, but once we say we’re in favour of agriculture research, where we spend that money is very important. And honestly, it’s not something that we have spent enough time on for me to say, “You should spend it here.”

I feel very confident that you would get a really good return on plant breeding. If you increased plant production across Canada, you would increase the supply for all those goods that it makes sense to process in Canada. But I don’t know the returns to research in food processing as well, although I know that investments in the food science side helped the canola sector get started. I’m just not as much of an expert in that area. However, that might be the place where you would get a really good bang for your buck.

The Chair: Okay.

Mr. Larue: I’m pretty much in agreement with Derek. R&D is extremely important. The firms that innovate tend to be more productive so whatever incentive we can give to firms to do that should help.

The other point about a stable environment is also key. It was important to finally secure this trade agreement with the United States because it gives firms an idea of what the investment situation is going to be in the next 20 years or so. Otherwise, when there is uncertainty, there were already firms wondering, “Well, should we stay in Canada or just move to the U.S.?” That was actually quite important.

The other thing is macroeconomic stability. As long as interest rates do not increase too rapidly. It’s okay if they increase to maintain inflation low, but as long as it’s done in a predictable sort of manner, that will facilitate the planning for firms to make investment decisions.

That’s the main thing. If there is money to be made, firms will try to make the right sort of investment. I was talking about the chocolate business. Now there are Quebec firms that are trying to imitate Barry Callebaut and trying to get into the chocolate business. If there is money to be made, there will be entries. Some will be successful, others won’t be successful. But we also have to be in a frame of mind that when business fails, it’s not necessarily such a bad thing. If they fail, there is a reason for the failure. Usually, their market share is reallocated toward more productive firms. This sort of churning, for politicians, is kind of scary because there are people that lose their jobs, but it’s actually a good thing in the long run because that’s how we keep productivity in check.

The recent work on international trade shows that this is perhaps the biggest source of trade gains, this reallocation of shares within the industry, not only between the industries but within. When I was saying that perhaps there is no more room for the medium-sized enterprises, that’s essentially what I’m getting at. There are a bunch of little start-ups, but then there are these huge firms that operate at a totally different scale, different level. They are the ones that are the most involved in international trade.

We don’t have to be worried about foreign direct investment where some of our firms are purchased by other firms. Most of the time, the foreign firms buy Canadian firms because they want to make a go here. That’s not a bad thing. We have to be open to that, just like it’s a good thing when our firms buy foreign interests. We have to keep this sort of thing open because that’s the way the world works.

The Chair: I would like to thank both our panellists. I know it’s difficult to be in a video conference, but you coped very well with it, so thank you.

(The committee adjourned.)