Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 55 - Evidence - Meeting of September 25, 2018
OTTAWA, Tuesday, September 25, 2018
The Standing Senate Committee on Agriculture and Forestry met this day at 6:25 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: Honourable senators, I declare the meeting in session. I’m Senator Diane Griffin from Prince Edward Island. I chair this Standing Senate Committee on Agriculture and Forestry.
Today the committee is continuing its study on how the value-added food sector can be more competitive in global markets.
Before we hear from our witness, I would like to ask the senators to introduce themselves and then we’ll move on to our guest.
Senator Maltais: Ghislain Maltais, Quebec.
Senator Doyle: Norman Doyle, Newfoundland and Labrador.
Senator Oh: Victor Oh, Ontario.
Senator Mercer: Terry Mercer, Nova Scotia.
The Chair: With us today is a guest and expert witness we have representing the Cavendish Farms Corporation, Daniel A. Richard, Senior Corporate Counsel and Director of Government Relations, J. D. Irving Ltd.
Thank you for accepting our invitation to appear here this evening. We will ask you to make your presentation, and then we’ll have questions for you afterward. The floor is yours.
Daniel A. Richard, Senior Corporate Counsel and Director of Government Relations, J. D. Irving Ltd., Cavendish Farms Corporation: Thank you. Honourable senators, good evening and thank you for inviting me to participate in this committee’s important work.
I’m Daniel Richard, as you said. I have been with the Irving family, the Irving group of companies for eight years now. Cavendish Farms is a family-owned Canadian farmer and frozen potato producer. It’s part of the J.D. Irving group of companies, which began in 1882 and now has over 15,000 employees in Canada and the United States.
Cavendish Farms started in 1980 with one plant in Prince Edward Island and has grown to become the fourth largest frozen potato producer in North America with three frozen potato plants and one frozen appetizer plant in Canada as well as one frozen potato plant in North Dakota. The company continues investing and growing. We are currently in the midst of constructing a new frozen potato plant in Lethbridge, Alberta. In addition to having a major retail french fry brand, Cavendish also supplies french fries to many national and international food service customers.
Looking at this committee’s work, for a frozen potato producer trying to compete internationally Canada does have some relative advantages. We have a respected sanitary regime, good farmers and clean environment, good potato-growing climate, although that’s becoming more uncertain lately. We have easy access to shipping ports on the East Coast. We have access to a large and prosperous market to the south.
However, these advantages are also balanced with challenges. Some challenges are beyond this committee’s scope of consideration. Recently we have been having supply issues in Prince Edward Island, which is further complicated by climate change and affecting rainfall distribution. We are also competing with American producers in Washington, who have easier access to the Asian market, but that’s just geography.
Some obstacles are either caused by the government or are within the government’s capacity to address. I will list them and then go more into detail.
One of them is the tax rate and tax system. There is also the cost of supply-managed commodities. There is the impending carbon cost scheme. There is an increasing regulatory burden. And there is the issue of access to NAFTA, access to markets.
When Cavendish began in 1980, most potatoes were grown and consumed in Europe, North America and countries of the Soviet Union. Since then there’s been a dramatic increase in potato production and demand in Asia, Africa and Latin America. China now is by far the world’s largest producer. It produces more than a quarter of the world’s potatoes.
Canada is now the eighteenth largest potato producer in the world. However, we are among the world’s largest potato exporters, especially frozen potato products. Less than 50 per cent of potatoes are consumed fresh, the rest being processed into mostly french fries but also chips and other products like starch and so on. As the international middle class grows, especially in Asia, the consumption of processed versus fresh increases. This is a growing market that Cavendish wishes to seize. This is a potential growth market for Cavendish and for other Canadian producers.
However, as briefly mentioned in my introduction, Canadian producers competing internationally face multiple hurdles, some of which I wish to raise today.
The recent tax reform in the United States has seriously hampered Canada’s tax competitiveness. Taking into account state income tax rates and the combined U.S. federal-state corporate income tax rate is slightly lower than the Canadian federal-provincial corporate income tax rate. Furthermore, U.S. businesses are now able to fully write off machinery and equipment costs from profits rather than depreciating them. These are significant business tax changes that affect the relative price of labour and capital in both countries and the return on investments. If Canada wishes to support the competitiveness of value-addedagri-food industries, there must be a policy response to the United States tax reform.
Cavendish’s plants in Prince Edward Island, Ontario and Alberta are also facing uncertain but material costs based on carbon use. Without questioning the laudable objectives of any environmental protection scheme, none of our competitors in the United States produce their fries in jurisdictions that have any costs associated with carbon use. When we are competing, we are competing with an extra cost that they don’t have. We therefore ask that careful consideration be given on the impact on international competitiveness when any environmental protection regime is enacted.
Another significant hurdle to the export success of Cavendish’s appetizer plant — we have one in Ontario where we process and make appetizers sold around the world, including restaurants. For that plant, a major hurdle is the cost of supply managed commodities. Of course the issue of supply managed commodities is a charged one, especially recently. We are not going to jump into that pool today. The fact is the cost of supply managed commodities prevent Cavendish from supplying numerous products our American and international customers are requesting. Cavendish believes that deferring duties on commodities imported to re-export would allow the growth of export value-addedagri-food without harming Canada’s supply management system.
The regulatory burden for Canadian producers continues to grow, whereas the opposite is true in the United States. We are going in completely different directions on the regulatory front right now. One that I want to raise today is the Front-of-Package Labelling Initiative, which this committee is likely familiar with. This Front-of-Package Labelling Initiative is contrary to this committee’s efforts to improve Canada’s economic competitiveness by improving our regulatory alignment with our NAFTA trading partners. The proposed Front-of-Packaging Labelling would create confusion for consumers while making Canada less attractive for agri-food investment. Furthermore, the proposed Front-of-Package Labelling Initiative appears, for any perspective importer, as a protective trade barrier. Cavendish believes in free trade. We do not want our trading partners to erect non-tariff trade barriers, and nor should Canada.
The most important issue the Canadian government can address to support the growth of value-addedagri-food exports by Canadian producers is the securing of NAFTA, and to a lesser extent other free trade agreements. To be able to compete on the world stage, Canadian producers need to scale production to a degree only possible with access to the North American home market. Investments in value-addedagri-food is also dependent on duty-free access to the best production equipment wherever it may come from. We request every effort be made to secure the ratification of NAFTA as soon as possible.
On that note, I conclude my comments and I am ready to take your questions.
The Chair: We are ready with questions.
[Translation]
Senator Maltais: Mr. Richard, you still speak French very well.
Mr. Richard: Albeit Acadian French.
Senator Maltais: It’s lovely. First of all, thank you for joining us this evening. Five or six years ago, Senator Mercer and I went to Cavendish. I must congratulate you. Your plant is very beautiful and very clean. I had the opportunity to go down to the floor and talk to the ladies working there. They had not seen a senator since the dawn of time. We talked with them and we were able to see the products you make. So how many plants do you have in Canada?
Mr. Richard: We have three plants for fries and one for appetizers, as we call them. We are in the process of building a new plant in Alberta.
Senator Maltais: You have one plant on Prince Edward Island. Where are the other two?
Mr. Richard: We have two plants on Prince Edward Island; the appetizer plant is in Wheatley, Ontario.
Senator Maltais: Do fast-food restaurants get their supplies from you?
Mr. Richard: They are our biggest clients.
Senator Maltais: They are buying Canadian products, so that’s great. In terms of value-added products, what exactly do you add?
Mr. Richard: With potatoes, there is not much. Fries really are our specialty. With vegetables, mostly at our Ontario plant, there is no limit to what we can do. We can prepare practically any meal in advance and ship it out. With products like cheese and chicken, even though they are competitive nationally — because everyone is subject to supply management — the cost of dairy products and poultry is such that it is impossible to be competitive internationally.
Senator Maltais: I have one last quick question. Does the carbon tax concern you?
Mr. Richard: A very great deal.
Senator Maltais: Rightly so.
How about NAFTA?
Mr. Richard: A very great deal.
Senator Maltais: Your Prince Edward Island plants are at a bit of a disadvantage because of the toll bridge, right?
Mr. Richard: Yes.
Senator Maltais: It costs you a bit more, compared to other Canadians. I find that unfair, but it is the reality.
In terms of NAFTA, we share your opinion. We hope that it will be settled soon. There are major impacts, not only for your plants but also for all plants in the Maritimes that process chicken, potatoes, blueberries, or whatever. If I have one wish for you, it’s that the Canada-Europe agreement will open up opportunities that the others have not. They do a lot, but there are things they do not do. That is a solution we could look at in the years to come, I believe.
Mr. Richard: Certainly. That is how we see it. We want to do business everywhere in the world. We also want to import equipment. The Europeans — Germany and the Netherlands — manufacture potato-processing equipment. We want to be able to import that equipment without having to pay Canadian customs duties. That would support our export capacity. The NAFTA agreement has become existential for all Irving companies.
Senator Maltais: Does the Cavendish program that was designed to assist young producers with farm succession on Prince Edward Island still exist? At one time, you partnered with owners to transfer farms to their children, did you not? It seems to me that you provided them with financial assistance.
Mr. Richard: I can find out. Succession is a source of concern for us because, unfortunately, the new generation seems less attracted to life on the farm. We consider our farmers as partners. We have a number of programs like that. I can follow up on it, if you would like.
Senator Maltais: Thank you. That’s very kind.
[English]
Senator Doyle: Thank you for being here.
It must be very difficult and very complex trying to access markets today. Do you find that the Government of Canada’s programs are useful in helping you develop new products and to get into new markets and enter into new export markets today?
Mr. Richard: They are, but other countries also have their programs. The United States, for example, has a program where they will support companies from the United States and marketing efforts in their jurisdictions. We don’t have anything similar. We have trade missions, of course, but at the size of our operations I think we don’t necessarily follow these trade missions.
It also causes problems for us. We have seriously been hit by the Saudi Arabia situation. We have had ships on the water that we weren’t sure whether they would be turned around. Because of that, we have lost significant business relationships.
I’ll also say one thing about the diplomatic corps: it’s excellent. Wherever we go, the Canadian diplomats are an excellent resource. They will help us; it’s wonderful.
Then we have issues like with Saudi Arabia where politics seem to enter into our business.
Senator Doyle: You mentioned carbon tax a few minutes ago. How detrimental can the carbon tax be to your business competitively when you’re exporting to a country that doesn’t have a carbon tax? Is that going to place you in a less competitive position with these people?
Mr. Richard: At various stages, we have been apoplectic about it. Of course, we are selling french fries. The next guy’s french fries are essentially — we’re using the same potatoes. We’re selling a commodity. Essentially, our customers are basing their purchasing on a low-cost, high-volume product. It’s all price driven. Usually a contract like McDonald’s, Burger King or Wendy’s is based on pennies per pound. If you are including the cost of carbon where your competitors don’t, especially if you take into consideration that your tax regime is also less favourable to new investments, it all adds up to a point where you feel like you’re fighting with one hand behind your back in the international market.
In the domestic market, we’re all playing under the same rules.
Senator Doyle: You wake up tomorrow morning, and there is no NAFTA. What happens to your industry? How detrimental would it be to your industry if we don’t have a NAFTA?
Mr. Richard: We are producing more fries in Canada than Canada consumes. We export the vast majority of our product to the United States.
These french fries were not tariffed prior to NAFTA. That doesn’t mean they now won’t be tariffed. Right now, the tariffs are being circulated around for the auto sector. If that were to happen to us, then we would not be in business. It’s a simple calculus where you are selling the same product as your competitors. If you can’t sell at the same price, nobody is going to be buying.
Senator Oh: Thank you for being here. You mentioned in your opening remarks you were worried about the tax reform in the U.S. There is so much incentive. Have you seen the government doing anything to help you? What would you suggest the government do, because it’s coming quickly and fast?
Mr. Richard: It is coming very quickly and very fast. If I get my way, lower the tax rate, of course.
I don’t mean to presume I have answers for the government. This is obviously a complex situation. Whereas we used to have a beneficial tax regime compared to the U.S., our regime is now a competitive disadvantage. We already have disadvantages. We’re further north. We have to access their market. We have enough challenges that we don’t need our tax regime causing us difficulties compared to our competitors. Right now, if you have to decide where to build your plant, I mean, if it’s your money, I don’t want to say it, but —
Senator Oh: Say it; it’s okay.
Mr. Richard: If I’m using my money — I’m not going to say the Irvings’ money — if I’m using my money, I’m investing in the United States. You have security of market and you have a beneficial tax regime that will allow you to expense your investments. It’s almost at a point where now it’s a no-brainer.
Senator Oh: What is your suggestion? Have you spoken to the Minister of Finance or any department that you could ask for help? As you said earlier, they are now not using the depreciation.
Mr. Richard: That’s right. They are using expensing of profits. We have had these conversations, but, frankly, right now we are more interested and preoccupied with the situation with NAFTA and the tariffs. We have also been captured by Canada’s retaliatory tariffs, which are an impediment to our business, especially where we’re building a plant using steel. We have been facing a lot of headwinds.
We have had conversations with anybody willing to listen. We haven’t heard anything that gives us comfort of an imminent solution.
Senator Mercer: Thank you for being here. Senator Maltais mentioned we visited Cavendish a number of years ago when we were visiting other production plants as well. Senator Maltais and I learn things every time we travel.
Mr. Richard: You’re always invited if you want to come again.
Senator Mercer: We continue to learn. In the french fry business, we learned it’s much more specialized than it looks to the consumer. The size, colour and thickness of the fry are all calculated, and it’s customer demand. If the customer demands a fry of a certain length, thickness and colour, then you’re able to produce that. Or if you can’t produce it, you’re not going to make the sale.
You made reference several times in your presentation to supply management and that the cost of supply-managed products were a hindrance. Which supply-managed products? I assume eggs, butter and probably chicken.
Mr. Richard: This doesn’t factor as much in our french fry operation. It enters more into our appetizer business where you would want to use eggs, cheese and poultry. Our customers like to buy a portfolio from us. They will buy French fries but they will want to buy, if they can, appetizers and the like.
We just can’t compete with our non-Canadian competitors on any product that has one of these supply-managed inputs. You can’t convince an American to buy our product when you factor in the price of Canadian cheese.
This is a policy position we respect. The government can decide how it manages the domestic supply. It’s a problem when you are trying to compete. We think there is a reasonable solution if you would allow the import of these supply-managed commodities without duties to the extent that it’s just for re-export, so it doesn’t enter into the domestic market. It’s not in any way affecting the domestic supply or consumption. We believe that allows Canadians to compete on an equal footing with our international competitors.
Senator Mercer: Of course, we have the ongoing situation with spent fowl that does get imported from the United States. We have managed to be able to buy more than 125 per cent of the spent fowl produced in the United States, which is a pretty interesting mathematical impossibility, another debate we have had around this table many times.
Are you suggesting that we have two regimes, that we continue with our supply-managed domestic market and, for an export market we find a way to allow someone like Cavendish to import large amounts of chicken, for example, and to use some processing to sell the product back to our American friends?
Mr. Richard: That is what I’m saying. I’m not necessarily saying that I want to maintain the supply; I’m saying we’re agnostic about what you do.
Senator Mercer: I want to maintain supply management.
Mr. Richard: I am saying keep your supply management system, but let us, to the extent that we’re playing in the international market, use international markets to supply us. It wouldn’t in any way affect Canadian farmers.
Senator Mercer: Our supply management system is very efficient. That’s one of the reasons it works. It doesn’t take a single dollar out of the Treasury of Canada. As I continue to say here, and my colleagues get tired of hearing it, the most important piece of equipment on an American farm is a mailbox.
Mr. Richard: Right.
Senator Mercer: That’s where the cheques, the subsidies come in from the government.
With a market that is as good as Cavendish Farms and our other producers of frozen foods, if they were to talk to the chicken producers, the egg producers, et cetera, and say, “Here is a market, and we need X amount of product. Can you give us a price?” They are in the business of selling.
Mr. Richard: I’ll tell you that if we could we would. We’re in the business of trying to make money. We have explored many ways of trying to satisfy our customers. We always ended up where we needed to import some products from international markets.
I’m not challenging you on that. I’m just saying we found, especially with the dairy products, that it has been a problem to supply for the international market. For the domestic Canadian market, everybody is playing by the same rules. There is no problem. On the international market, I have seen some numbers that support what you’re saying, that there is a market that kind of matches ours. It has not been our experience.
[Translation]
Senator Gagné: Mr. Richard, thank you for your presentation. We are well aware that innovation is one of the main sources of added value in food processing.
Could you tell us about the investments your company makes in innovation?
Mr. Richard: Our product itself is certainly not the most innovative. The innovation comes rather with the processing. Our processes allow us to use less water and less electricity, to recycle our waste products more, and to recover energy to make biogas, for example.
In our plants on Prince Edward Island, we recover the pieces of potato that we do not use, microbes and all, and we produce biogas that fuels our plants.
One new technology allows us to spend less to heat our potatoes before we cut them. With a very innovative electric process, we cut our potatoes without having to heat them. This greatly reduces the energy used in the potato plants. This technology will be installed in all our plants.
Not counting the new recipes, we have a number of innovative things we are doing to process our products more economically and more ecologically.
As we are farmers too, new technologies in potato production are allowing us to reduce our use of water. Some new agricultural practices are more ecological in that they require less fertilizer, which helps not only our farmers but the environment too.
I am not sure if that answers your question adequately.
Senator Gagné: Yes, absolutely. Do you any proposals for the government that could support small- and medium-sized businesses in this area?
Mr. Richard: Nothing comes to mind at the moment. If I may, I will do some consultation when I am back in the office. I will then be able to give you an answer.
Senator Gagné: Do you have plants in other countries?
Mr. Richard: Our plants are all in North America. We have a Cavendish fries plant in North Dakota. We also have farms in Minnesota and North Dakota. The Irving family operates plants all over the United States. They can be seen on both sides of the border, so to speak.
Senator Gagné: So you are concentrated in Canada and the United States. Are there potential markets elsewhere?
Mr. Richard: Yes, but the Irving family is really is a Canadian family. They see themselves as Canadians through and through. Our preference is to operate our businesses from North America and export from here. We do business in more than 100 countries around the world.
Senator Gagné: Thank you, Mr. Richard.
Senator Dagenais: I read that you had to close one of your plants last July 30, because of a shortage of potatoes. What do you plan to do to avoid closing a packing plant?
Mr. Richard: We have a huge problem on Prince Edward Island in terms of our capacity to supply our plants with potatoes. There are a number of problems that are provincial in nature rather than federal. Prince Edward Island is the only jurisdiction in North America with no irrigation. We have an industry worth more than a billion dollars a year that is entirely dependent on rain. There has not been a lot of rain in the last few years.
The effects of climate change are also hurting potato cultivation on Prince Edward Island.
Solutions have to be found to support the potato industry on Prince Edward Island. We will have to have irrigation and perhaps even fumigation. Last year, the problem forced us to bring in potatoes from Alberta in order to supply our plant on Prince Edward Island. It will probably be the same story this year.
At the moment, our plants in Prince Edward Island are short of potatoes. We had to close our fresh potato plant so that we did not cannibalize our fries plant.
Senator Dagenais: I would like to go back to that good old carbon tax. In your industry, how do you see your costs of production increasing? I imagine that the carbon tax will come at a cost. Sooner or later, that means a burden for the consumer. How do you see it?
Mr. Richard: That is another problem to which we have not yet found a solution. On Prince Edward Island, we have already been investing heavily with a view to reducing our ecological footprint. In our plants on the island we have already fulfilled our commitments. We have reduced our greenhouse gas emissions considerably. We have met the requirements of the province of Prince Edward Island under the Kyoto accord.
We are not sure that we will be able to reduce our use of carbon enough to avoid costs. Nor will we really be able to pass the costs on, because we have to take world prices for our products, which are basically commodities. So, if our competitors sell their products at a certain price, we cannot sell ours at a higher price.
When I say that it is an existential problem, it is not far from the truth. We have not found a solution yet and we do not know whether we will be able to take advantage of any accommodation measures. This is because our company is exposed to imports, or to competition that is not subject to the same things.
Senator Dagenais: The committee will be submitting a report. What would you like us to recommend in terms of tax policies? You never know, perhaps there will be a change of government next year for one that will abolish the carbon tax. That would solve a part of your problems.
Let me go back to tax policies. What changes do you see that would make your exports more competitive?
Mr. Richard: The more competitive you are, the more money you make. In business, you always have to be optimizing your operations in order to be as competitive as possible. From a tax point of view, if we could be at the same level as the United States for investments, it would help us to expand. Also, the business tax level needs to be reduced to the same as it is for American companies. In the agri-food sector, we must not be handicapped if we want to face the competition.
Senator Dagenais: So you want all new equipment to be tax deductible. That is what the Americans are doing.
Mr. Richard: That would make a big difference. We are in a difficult position. We are building a plant in Alberta knowing full well that our competitors, who are building a plant in Washington, will be paying no taxes for some time.
Senator Dagenais: Thank you very much, Mr. Richard.
[English]
Senator Woo: Thank you, Mr. Richard. I want to ask about value-added products for nontraditional markets. You talked a bit about the importance of the growing middle class in the emerging markets, particularly Asia, and how there is great interest in those markets for French fries and traditional products you have sold in North America. You are absolutely right that young Chinese, Indians and South Asians are eating French fries in quantities not known before. By the same token, their parents are cautioning them to go easy on French fries.
Many of these markets have traditional recipes and dishes that use potatoes in combination with other ingredients and spices that I would have thought might present a whole different kind of opportunity for a potato-producing company such as yours. What are you doing to try and address so-called ethnic markets, first of all, in Canada but then globally where the size of the markets are so much larger?
Mr. Richard: So far, we have not gone that approach. We have followed the North American diet around the world as it has expanded. So far that has worked to our benefit. We have been using all the potatoes we can produce. There is still a lot of potential for potato growth in Manitoba and Alberta, especially. These are growing areas that can still expand as we decide to pursue international markets.
We are very aware there are markets we are not tapping. Right now, we have an office in Japan; we have always had an office in Japan. Now, we have opened a new office in Singapore. Part of that is gathering intelligence. It’s always easier to sell what you are already making. As the world becomes more competitive, and right now, our industry has been in an expansion mode — there is a lot of new capacity coming online — so there will be more competition. I suspect innovation in the product and how we can satisfy our customers’ needs will become more important.
Senator Woo: I will make an additional comment or question. It’s on the issue of investing in other jurisdictions, which you have portrayed as detrimental to Canadian interests. Certainly if the investment in another jurisdiction is at the expense of an investment in Canada, then we lose out, so to speak, because of the jobs and so on. I’m not the kind of person who discourages a business from investing overseas if it is part of an overall globalization strategy that makes a company stronger, that allows you to innovate, tap into new markets and ultimately plow the profits back to the head office where you can use those revenues to pay for so-calledhigher-end jobs, such as research, development, innovation and so on.
Can you talk about that part of strategy and how you might be pursuing it?
Mr. Richard: I’m not sure if I can answer your question at the strategic level. Maybe I should. When I was answering the earlier question I meant that the objective of this committee is likely more to develop the Canadian industry. As a company, if we make money from our plants in North Dakota or from Alberta, we are still happy. We are a proud Canadian company. We want our domestic market to thrive. It’s important, because that’s where the base is.
We tend to grow where our customers are asking us to grow. For example, for our tissue business, we are building a plant in Georgia, because we tend to grow from our home bases. We follow our customers. The same strategy is used in Asia where we have international customers that operate in Asia: We have followed them there. As they ask for new products, we will try to satisfy them.
The strategy is we are still a Canadian company. We try to participate in the international economy from our base, and that’s still the strategy so far. The domestic market is a very important market. Although we have tended to see North America as our home as a one until now because of NAFTA. We have scaled our businesses so they depend on a North American economy. I don’t think it would work in a Canadian domestic economy by itself.
Senator Woo: Thank you.
The Chair: I have a couple of questions, and then we have three people on the list for the second round.
You’ve mentioned environmental challenges such as global warming and lack of rain. You mentioned some regulatory challenges. You also mentioned tax advantages certain other countries have. It sounds like there are a lot of challenges.
Mr. Richard: There are. I can give you more. Human resources — it’s hard to find people to work. There are more challenges if you want a longer list.
The Chair: We have heard some of those — for instance, the slowness in getting temporary foreign workers into our country. We’re going to do a special project on that.
I think Senator Doyle or Senator Dagenais asked about competitiveness and what would help your company become more competitive. Then you referred back to some of the challenges and overcoming those. I want to just jump ahead a bit further. What would your recommendations be as to how the government could help value-added production?
Mr. Richard: If you want to have value-added production, it means necessary capital investment. For us, anything that supports investment — if it’s expensing or preferential tax treatment — anything that supports the use of capital in this jurisdiction as opposed to another jurisdiction, that is what you need. If you are adding value, then you have to use capital.
The Chair: How would you see that being used? Would you see it as being a subsidy? Would you see it as being incentives for research and development?
Mr. Richard: For us, what we would like to see is if the tax — I think I missed the last portion of your question.
The Chair: Would you see it also as an incentive for research and development?
Mr. Richard: That’s right; incentives for research and development, and incentives for investments. We have benefited in the past from government support of projects that needed infrastructure. That is beneficial.
Certainly we don’t seek subsidies. Subsidies tend to come with a lot of baggage if you are trading internationally. Certainly what we would want is something that is more broadly focused to the whole Canadian economy. Anything that will support investments in the industry is good. If you can expense investments and lower the tax base, not asking the government to pick and choose who should be the winner.
[Translation]
Senator Maltais: Mr. Richard, in 2009, you opened a biogas plant on Prince Edward Island that allowed you to reduce greenhouse gas emissions by 35 per cent or 40 per cent. You were the envy of a lot of people with that move.
Mr. Richard: Yes.
Senator Maltais: Have you installed the same device in your other plants outside Prince Edward Island, or do you plan to do so?
Mr. Richard: There are a number of reasons why it was particularly advantageous on Prince Edward Island, where the people eat potatoes in huge quantities. So we have a lot of the raw material. Together, our two plants process 1.5 billion pounds of potatoes annually. That generates a lot of waste. Then, there is no natural gas supply on Prince Edward Island. So we have to bring in our own. We get natural gas in New Brunswick, we compress it in our own trucks and we drive it to Prince Edward Island.
In other places, where natural gas is less expensive than on Prince Edward Island, fewer economic forces motivate us to use biogas. But we are still thinking about it. In general, the problem is having the raw material, because there is a demand for our waste products too. Farmers use them to feed their cattle. Prince Edward Island does not have enough cattle to eat all our potatoes. A number of factors must be considered in the equation to make it viable.
Senator Maltais: On the other hand, it is great for marketing. You are able to say that Cavendish potatoes from Prince Edward Island are greener. The environmentalists will buy more of them.
Mr. Richard: Yes, we are always looking for more environmentally friendly ways of doing things. Our customers are very demanding about that. The large fast-food chains want to be able to tell their customers that they are using a product with a smaller environmental footprint. We get a lot of pressure to provide environmentally friendly products.
Senator Maltais: Thank you very much, Mr. Richard.
Senator Gagné: One question came to my mind just now: Do you work with universities or research establishments?
Mr. Richard: Yes.
Senator Gagné: How does that work?
Mr. Richard: It is very important in terms of innovation. Even for farmers — who have been working their farms for centuries, so it may seem simple — there are always ways of improving their practices. In Alberta, for example, we work with the University of Lethbridge. On Prince Edward Island, we have an institute where new recipes are developed. We have worked closely with a college there. One major part of our innovation efforts is in establishing associations with other institutions. With our activities in forestry, we work with the University of New Brunswick. A major part of our innovation comes from our relationships with universities.
[English]
The Chair: Thank you.
Senator Mercer, you get the last word. One question, please.
Senator Mercer: It’s a rare thing around here for me to get the last word.
It’s a very simple question: You work for Cavendish Farms and for the Irving organization. We have heard your opinion. You buy all your potatoes from farmers who grow them on their farms. What is their big need in this mix? What is the thing they need to help them increase production and to keep costs at a level where they can make a profit?
Mr. Richard: The answer will vary depending on which farmer you are talking to. If you are a farmer in P.E.I., right now your biggest concern is having to deal with a climate that is less and less kind to you. Because of global warming and climate change, rainfall is unpredictable and doesn’t tend to fall when you need it. Even the heat, the hot summer nights, is not ideal for a potato. A potato wants cool nights and some rain. Farmers want to be able to irrigate. They want to be able to invest in technology that will be expensive for them, but it will pay off in the long term. Right now the government is paying these farmers every year in crop insurance because they have failed crops. I think most farmers would prefer to earn money by selling their crop rather than through insurance.
It is the same thing in Alberta and Manitoba. Potato farmers don’t have quite the same issues because they have irrigation; it is well supported. I suspect what they care more is storage facilities, which are major investments for any farmer. If you want to be innovative and have the best storage, it seems simple. There is a lot of technology in a storage facility. If you want to store potatoes for 12 months, you have to invest in a lot of technology that is expensive. There again, if you want to invest in innovation, you have to treat that in a way where the tax regime might be helping them.
Senator Mercer: Thank you very much.
The Chair: I’d like to thank our guest for the very interesting discussion here this evening. There were great questions from the senators.
(The committee continued in camera.)