Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 55 - Evidence - Meeting of September 27, 2018
OTTAWA, Thursday, September 27, 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: Honourable senators, I am Senator Diane Griffin from Prince Edward Island. I am Chair of the Standing Senate Committee on Agriculture and Forestry. I would ask each of the senators to introduce themselves, starting with the deputy chair.
Senator Maltais: Senator Ghislain Maltais from Quebec.
Senator Dagenais: Senator Jean-Guy Dagenais from Quebec.
Senator Petitclerc: Senator Chantal Petitclerc from Quebec.
Senator Woo: Good morning. Yuen Pau Woo, British Columbia.
Senator R. Black: Rob Black, Ontario.
The Chair: Thank you.
For our first panel today, we have, from the Food Processors of Canada, Ms. Denise Allen, President and Chief Executive Officer; from Concord Premium Meats Ltd., Irv Teper, Chief Executive Officer; and from Bonduelle Americas, Mark McNeil, Chief Executive Officer, and Jean-Pierre Haché, Vice President Quality Assurance and Health and Safety.
Denise Allen, President and Chief Executive Officer, Food Processors of Canada: Good morning. Thank you for the invitation and opportunity to appear before the Senate Standing Committee to express our views on how the value-added food sector can be more competitive in global markets.
Since 1989, Food Processors of Canada has been the recognized and respected national voice for the Canadian leaders, owners and investors in food processing companies. FPC is pleased to appear with Irv Teper, CEO of Concord Premium Meats Ltd. and an executive board committee member of FPC. Mr. Teper is a business owner and is a subject-matter expert on the Duties Relief Program or DRP. Mr. Teper will offer testimony on the value and importance of this program as it relates to the value-added food sector’s ability to remain competitive in global markets.
I look forward to introducing Mr. Teper at the Standing Senate Committee here this morning, which we are doing. On behalf of the board of directors and myself, again thank you for the opportunity to appear and offer this valuable testimony.
Irv Teper, Chief Executive Officer, Concord Premium Meats Ltd.: Thank you, Madam Chair, senators. On behalf of Concord, we are appearing on this very important issue.
When the study was launched, the committee’s April 17, 2018 news release included the following statement from Deputy Chair Maltais:
Canada exports approximately half of its farm produce. There is a tremendous opportunity to add further value to Canada’s farm output by turning it into finished, ready-to-eat products that people in other countries are eager to buy. It makes great business sense to do that work right here in Canada.
We agree that it makes great business sense to promote value-added production and exports here in Canada. We wish to appear this morning before the committee to explain the importance of the Duties Relief Program to our ability to continue to develop further value-added products and export them from Canada to the United States.
Our submissions are presented under the headings of, one, who we are; two, we cannot make major investments and create jobs in Canada without our poultry exports; and, three, we cannot export without the Government of Canada’s existing duty relief program.
Concord was founded in 1993. I’m one of the co-founders. It’s a value-added further processor of meat. Our products are marketed in Canada and the United States, including our MarcAngelo brand. We employ over 600 people in the Greater Toronto Area and in Saint-Eustache, Quebec, just north of Montreal, where we produce ready-to-eat and ready-to-cook meat products, including poultry products. Poultry products, as you know, are subject to supply management, which prevents us from using Canadian chicken to process into competitively priced export products. Luckily for us, there is a program that currently exists called the Duty Deferral Program.
As a Canadian further poultry processor and exporter, we have a direct interest in enhancing the competitiveness of the value-added food sector in global markets.
To compete in Canadian and global markets, Concord must constantly invest and upgrade our facilities in Ontario and Quebec. We cannot rely solely on the limited Canadian domestic market to justify this investment. With the scale of Canada being 30 million people, it’s very hard to invest in major equipment without being able to sell a broader range of products.
So, we cannot compete solely on the Canadian domestic market. To invest, grow and move forward, we must continue to increase our exports to the United States and develop markets in Asia and elsewhere. Without export products, the value-added Canadian poultry further processing industry, we believe, cannot succeed in the 21st century.
We cannot export without Canada’s Duty Relief Program. Under Canada’s supply management system, chicken purchased in Canada has a much higher price than chicken processed in the United States. So for our American exports, we need the Duty Relief Program to allow us to bring American chicken into Canada, process it and export the chicken. Now, what comes in goes out kilo for kilo, plus or minus waste and yield loss, but “no American chicken” is getting diverted into the Canadian market.
Canadian chicken farmers are unable to supply us with chicken that can compete in global markets. The fixed price of domestic poultry inputs is too high to be competitive in international markets for processed poultry products. The only cost-effective program we can use to export is the Duty Relief Program. Canada’s Duty Relief Program relieves the payment of duties at the time of importation on imported processed goods as long as they are re-exported back from Canada. For more information on this program, I’ve referenced in my documentation a website.
The Duty Relief Program enables Concord to import competitively priced poultry imports to manufacture value-added products, like ready-to-cook chicken kebabs which we export to the United States. Given the importance of the Duty Relief Program to Canada’s value-added food sector, we are concerned that some of the press we have seen — 2,800 farmers represented by the Chicken Farmers of Canada — continue to lobby against this important program.
For example, on February 25, 2016, the Chicken Farmers of Canada appeared before the House of Commons Standing Committee on International Trade, referred to a Harper government 2015 election announcement and testified:
Three specific measures were announced by the government when the TPP was signed on October 5, 2015. It’s critical that the government implement these, without delay. They were announced with the TPP, but they’re not tied to the TPP.
This is not me speaking. It is the Chicken Farmers of Canada.
The first is to exclude chicken from the duties relief program. This is a Canada Border Services Agency program that allows companies to import chicken, keep that chicken in Canada for four years — not sure what it’s like after four years — potentially substitute it for lower-value products and re-export it. We see it as a fraudulent way to circumvent the import controls that we currently have.
Back to me. I am not aware of the evidence that the CFC has provided to support its claim of substitution and fraudulent circumvention. I can say with perfect clarity: none of that goes on in my organization.
Concord strongly disagrees with the CFC’s lobby campaign and testimony for the following four reasons: First, with respect to what we import, Concord does not substitute it for lower-valued products and re-export. Instead, we manufacture value-added products here in Canada.
Second, we use the Duty Relief Program to create jobs in Canada and expand our exports and not as a fraudulent way to circumvent the import controls that we have.
Third, the CFC testimony makes no mention of the fact that the Canada Border Services Agency, CBSA, enforces and maintains the integrity of the Duty Relief Program.
Finally, the CFC also claims that the Duty Relief Program duplicates Canada’s Import for Re-export Program. We strongly disagree with this claim.
Concord has used IREP, the Import for Re-export Program, in the past and found its cumbersome rules prevented us from aggressively competing in export markets. The CFC’s 2017 data booklet shows the use of the IREP program has been in steady decline for over five years, falling from 81.5 million eviscerated weight kilos in 2011 to 13.8 million in 2016.
In conclusion, by reason of the foregoing, we asked to appear before this committee to set the record straight on the Duty Deferral Program and to explain its critical role in making Canada’s value-added food sector more competitive in global markets. If we cannot use the DRP, we cannot use our Canadian manufacturing facilities to produce competitive exports. Like other Canadian poultry further processors who have already stopped investing in Canada, we will be forced to invest outside of Canada to produce our export products. Since we want to continue to invest and create jobs here at home, we respectfully request this committee recommend the Government of Canada to preserve the Duties Relief Program.
We thank the committee for this opportunity to provide submissions on your very important study. We are here to answer any questions you may have.
The Chair: Thank you for your presentation. I will go on to the next presentation, and when we’re finished, the senators will have a chance to ask questions of all of you. Mr. McNeil.
Mark McNeil, Chief Executive Officer, Bonduelle Americas: Good morning, Madam Chair and senators. After spending the last 10 years south of the border, it really feels good to be home. The opportunity to present in front of this prestigious group is just one in a long list of reasons why I am thrilled to be back in Canada.
My name is Mark McNeil, and I am the CEO of Bonduelle Americas, a $900 million plant-based-foods transformation company based in Montreal, Quebec. I have been in this role for less than three months. As a result, I am joined by Jean-Pierre Haché, Vice President Quality Assurance and Health and Safety, Project Management Office, in case there are any really tough questions.
As I mentioned, Bonduelle Americas is a $900 million processor of primarily canned and frozen vegetables. We are by far the largest vegetable processor in Canada, and, thanks to a few recent acquisitions, we are well on our way to extend that leadership position into the United States. Our parent company, Group Bonduelle, headquartered in Lille, France, is the global leader in plant-based food space with more than 55 manufacturing facilities globally employing more than 10,000 employees with an annual revenue in excess of $3.5 billion. Within Canada our operation consists of eight manufacturing facilities across three growing regions, Ontario, Quebec, and Alberta, with more than 2,200 dedicated employees and 725 farming partners growing vegetables across more than 80,000 acres of beautiful Canadian land.
You may know us for brands like Arctic Gardens and Del Monte. However, we are also the proud primary supplier of private-label programs across Canada, including the likes of Loblaws, Metro, Sobeys, Walmart and Costco.
I have essentially spent the last eight weeks on the road, getting out to see all of our regions and facilities, visiting the heartbeat of our business, the growers and our manufacturing facilities. Every plant visit starts the day with a presentation about the facility. Size, employees, production capabilities, volume, waste, water usage, et cetera.
Every presentation then moves on to the risks and opportunities stage. I was pleasantly surprised that every plant had significantly more opportunities than risks. However, the consistency in the risk column was concerning. Labour, automation, and innovation, the top three concerns facing every facility and our business today.
The topic of today is how to make the value-added food sector more competitive in global markets. After three months, I’ve concluded our short-term focus must be on protecting Bonduelle’s ability to remain competitive in an increasingly challenged marketplace while, at the same time, resolve operational challenges to support and protect the business we have today.
From a labour perspective, our business right now is significantly challenged. As a seasonal business, we produce essentially 90 per cent of our annual volume in a four-month window. Thus the need for qualified and capable seasonal workers is critical.
Our business model requires approximately 1,000 seasonal workers every year. This year alone, more than 350 positions were filled using the Temporary Foreign Worker Program. To put the domestic labour shortage problem in perspective, 1,722 local candidates were identified and scheduled for interviews for these positions. Of the 1,722 local candidates, 42 showed up for the interview. Forty-two were offered positions. However, the gap is scary.
The need for a more efficient and effective TFW program for our business is more important now than ever before. Since our workers are no longer eligible for SAWP, Seasonal Agricultural Worker Program, the need for the TFWP to be more flexible, faster and cost efficient is critical. Bonduelle has been working across multiple agencies to identify concerns and more importantly to provide solutions. Our areas of concerns include: A $1,000 application fee despite the fact workers are required for only five to seven months. Limitations of 10 per cent of workforce if we employ for more than six months. Using job bank median wage rate does not reflect the local agricultural nature of our business in local regions. The 180-day cap for the TFWP is restrictive and poses ongoing labour challenges. And the continued requirement for companies like Bonduelle on an annual basis to incur the cost of market surveys knowing full well the employment is just not there in the marketplace.
Despite all these efforts, as of today we currently have 137 vacant positions and 158 vacant seasonal positions. Combined, this vacancy rate is almost 15 per cent and creates a significant operational and supply challenge that must be resolved in order for us to remain competitive and viable for future capital investment decisions. By the way, we are accepting applications if anyone is interested.
The Chair: We are on television.
Mr. McNeil: From an innovation and automation perspective, both are equally important to Bonduelle Canada to remain at the forefront in what is becoming a truly global competitive landscape. The continued pressure on lower prices combined with a challenging labour market have forced us to accelerate investment in automation across all of our facilities. There are a number of factors about the Canadian landscape that make major investments a challenge.
First, amortization across assets that only operate four months of the year stretches payback hurdles to unattractive timelines. Second, the size and growth rates of the Canadian marketplace unfortunately make other regions like the United States a more attractive return.
Third, many, if not all, the federal assistance programs are structured primarily as loans and in many cases are tied to job creation, which is contrary to one of our objectives when it comes to automation.
Bonduelle Canada needs to fight internally within the Group Bonduelle with other divisions for capital investment. Unfortunately, it seems lately that other divisions appear to be getting some of what should be Canada’s share of those investments.
We feel there is tremendous opportunity for industry and government to work together to position companies like Bonduelle on a global stage when it comes to product differentiation using transformative technologies.
Our most recent launch, InFlavor, was a textbook example of how government and business can and should work together. With a strong partnership with another innovative Canadian company, Vancouver-based EnWave, we have developed dehydration technology that allows us to bring fresh-quality vegetables to the frozen category. This technology removes moisture from high-water-content vegetables like peppers, onions, mushrooms and thus prevents them from being damaged by the freezing process, allowing frozen vegetables to be used in applications where fresh could only be considered in the past.
These applications include salad bars, prepared meals, sandwiches, breads and pastries without the waste of seasonal challenges and health and safety issues that come with fresh vegetables.
After years of R&D, the product is officially, as of three weeks ago, in the market, and already our French, Brazilian and Russian affiliates are showing interest in this game-changing technology.
Pure innovation like InFlavour, however, does not come cheap. Collectively, Bonduelle and the federal government have invested in excess of $5 million to bring this product to market. However, we now have exclusive competitive advantage on a global scale as we believe this is truly disruptive and uniquely Canadian. At Bonduelle, “La nature, notre futur” is more than just a slogan. It’s in our DNA.
Unfortunately, vegetables do not grow in major metropolitan areas nor do they grow in the snow and ice. Our plants and offices are near our fields and growers. Our plants are extensions of the family farm. In some cases, we employ as many people as there are residents in small villages where we are.
Finding and keeping employees for short periods of time in these regions is a significant challenge that can prevent us from achieving our full potential domestically or on a global scale. Unfortunately this may lead to corporate investments elsewhere.
To compensate for this recruiting difficulty we face, we need to innovate in our products, manufacturing processes, technologies and go-to-market strategies. Together, we have work to create success. If we can make it easier and faster, we can become a world reference in well living through plant-based foods with a uniquely Canadian lens.
We look forward to working together to make this happen. Thank you for your time.
The Chair: Thank you to the panel for your presentations. We’ll now move to questions.
Senator Maltais: Welcome, ladies and gentlemen. Thank you for your outstanding presentations. I’m going to start with Mr. Teper. You talked about relief for countervailing duties. When you import poultry from the U.S., I believe you pay a tax. Do you understand what I mean? When you process the poultry in Canada and sell it back to the U.S., you pay an additional tax. You call it the in and out tax, isn’t that right?
Mr. Teper: Thank you, senator, for your question. The Duties Relief Program works when we import poultry for further processing, and as long as we re-export it there are no duties. The poultry comes in duty-free, as long as the product does not remain in Canada.
Senator Maltais: Thank you for clarifying that. When you import U.S. poultry, is it spent fowl or poultry for immediate consumption?
Mr. Teper: I’m sorry, sir. I do not understand that question.
Senator Maltais: When you import poultry from the U.S., is it spent fowl or is it ready for consumption in the Canadian market?
Mr. Teper: It is not spent chicken. It is roaster chicken. It is the chicken that is subject to duties. Spent chicken fowl, otherwise known as fowl, is not subject to duties. We are not talking about spent chicken.
Senator Maltais: I see. Thank you. Obviously, under supply management, it’s more expensive for you to buy Canadian poultry than for your competitors to buy poultry. When you buy Canadian poultry for processing in Canada and sale abroad, you are at a disadvantage compared with the U.S. and Mexico, which are not subject to supply management. Is that correct? Supply management disadvantages your business in some ways.
Mr. Teper: Yes, it’s true. It’s not a subtle difference. The current market difference in buying imported U.S. chicken, I can buy it today for $2.80 per kilo. Domestic chicken is in excess of $7 per kilo. We’re talking a factor of 100 per cent difference. It’s not a subtle 10 or 15 cents. It’s not about trying to get competitively priced inputs on a minor basis. It’s not about trying to make 1 or 2 per cent margin. It’s the difference between being able to be in business or being unable to be in business.
For us, it’s not about supply management. We have no negative feelings towards supply management. We understand the reason for it. We’re proud Canadians, and whatever the government decides, we will abide. This difficulty makes being in Canada and having export markets absolutely impossible because of the order of magnitude. Because of $2.80 chicken and $7 chicken, you can’t be in business. It’s not a subtle difference; it’s go or no-go.
Senator Maltais: I’d like to come back to the topic of processing. You process the poultry and other meats that you sell to international markets in a number of ways. Does the Canada-Europe trade agreement offer you any market opportunities? Will the Transpacific Partnership agreement be good for business once it’s ratified?
Mr. Teper: I believe, senator, that it will take some time to develop those markets. I’m also not certain we will be able to have the advantage of importing chicken priced appropriately in the market we are exporting to. To use my example of $7 chicken, to sell it to Europe, I’m not sure there’s a market there. There is an everyday ready market of Americans who want to consume products that we manufacture. We have invested probably $5 million in robotic technology that gives us an absolute distinct advantage in how we process the chicken. What we want to do is keep the jobs here in Canada.
It’s true that we will be able to explore foreign markets. Here is a ready market willing to take $100 million or $200 million of Canadian products. They’re eager for it. We own proprietary technology that enables us to process this chicken very affordably, but without the Duties Relief Program, that market will be shut down to us.
Senator Woo: I have questions for both presenters, starting with Mr. Teper.
You mentioned there’s another program called the Import for Re-export Program, which sounds very much like the Duties Relief Program. Can you tell us the difference?
Mr. Teper: Yes. Thank you, senator. The primary difference between the two programs is timeline. The Import for Re-export Program requires you to have the product from the date of entry to the date of exit at 90 days or less.
The Duties Relief Program applies to many products, not just agricultural products. That’s why it has the four-year rule. We typically use about nine to 15 months of it because chicken is cyclical in pricing. If you’re able to buy chicken now—we’re loading up on chicken right now — and process it and sell it in the spring when the raw material price is high, you have a business.
If you have to buy when chicken is scarce, supply is low, price and demand are high, you are not competitive.
Just that 90-day rule prevents us from being in business. Plus, the manufacturing process sometimes takes longer than 90 days.
Senator Woo: Under IREP, do you have to pay a duty and then get a rebate after the re-export?
Mr. Teper: No, it’s the same. You have complete relief.
Senator Woo: Okay.
Mr. Teper: We used to be in IREP. The restrictions inherent in the program prevent us to being able to be competitive in the marketplace.
Senator Woo: I can see with the longer time frame that duty relief would be much more advantageous. I can’t see why anyone would want to go for the IREP program when there is a duty relief program. I understand your preference for that choice.
Are there other inputs in your production process that are also subject to duty relief or which you would like to see eligible for duty relief because it is a key component for your production needs?
Mr. Teper: We have a relatively clean label product. It is mostly chicken, a bit of spice, a lot of human beings and a lot of machinery. That is the recipe. There is nothing else restricting us. It is the raw material, and chicken is by far the largest raw material. I don’t have my recipe with me, but I would guess you are probably talking about 90 or 95 per cent.
Senator Woo: On the proprietary technology, presumably you are referring to the robotics in your processing line. Can you talk a bit about how this technology was developed and whether there are any lessons in the development of that technology that could be applied to other parts of Canada’s food processing industry as a way to increase innovation in our industry as a whole?
Mr. Teper: That is timely. I just returned yesterday afternoon from six days in Italy where I have some business partners. One of those partners is a co-creator of the robotics technology. To see what you see in Italy now and in Europe is absolutely mind-boggling. After I got off the plane, I got home for dinner and jumped on a plane to come here. I was telling my wife we were walking through a plant, and there were two little robots. They looked to be about 3 metres long by 1 metre wide. They were moving through the plant with no wires, nothing; nobody was directing them. They had embedded in the factory floor control lines for these things. These plants were moving equipment efficiently, quietly, with no risk of damage to other employees, and they were working 24 hours, after the plant has closed and the workers have left.
The robots have load scales on them. They lift up the rack, weigh it and put the load down. Then they can know the yield loss. This was a salami-manufacturing plant. That was some of the technology we saw.
Our technology took probably three years and $5 million to develop. It improves food safety and efficiency, because people aren’t handling everything by hand. The more you handle it, the warmer it gets and the more susceptible it is for bacteria and things like that.
It is important for the Government of Canada and for Canadian entrepreneurs to look to the future. It does help. We certainly want to employ people, but we want to employ them doing interesting things and employing exciting skills. We don’t want them doing simple repetitive tasks. I think Mark would probably feel the same way. To the extent we can have the government assist us and redeploy resources toward technology, that is the future.
Senator Woo: I have a similar question for Mr. McNeil. Should I wait for the second round?
The Chair: Yes, if you would. On the second round, we will come back again.
Senator R. Black: I would like to expand on the labour issues. Thank you, Mr. McNeil, for the information you provided to us.
I would like to hear if you have any recommendations around the foreign worker program and any other things to do with labour. From Mr. Teper, are there similar labour issues? You didn’t touch on that, I don’t believe. Again, from you, do you have any recommendations?
Mr. Teper: I will let Mr. McNeil go first.
Mr. McNeil: I might get some of the sequencing incorrect, but when you look at TFW versus what was SAWP, SAWP allowed us more flexibility, given the unique nature of our business being highly seasonal. We require flexibility, given real-time conditions like weather, and supply and demand.
One of the barriers we see from a TFW standpoint, first and foremost, is that it is expensive. It is $1,000 per application. I believe the equivalent number of SAWP was $50. It is expensive.
There is a time delay. To put it into perspective, if we want to hire seasonal workers who start with the harvest in June, we need to start the process in October. To try to locally recruit in October for a job in June is a challenge. There is a time element.
Impacting both time and cost is that every year, despite the numbers I referenced — 1,700 local applicants and 42 show up for an interview — every year, we have to do a market survey in order to validate that fact. There is a cost and time element. We are desperate for employees.
The other unique challenge is we use a median salary calculation when it comes to establishing the wage rate. The median salary calculation takes industries in a region and sets that rate. Based on that, we could be bringing temporary foreign workers into a facility who are not only above minimum wage but higher than folks who have been there working for 15 to 20 years.
We don’t have that same challenge, ironically enough, in our unionized facilities. It is only in our non-union facilities. That provides a unique dilemma, because in a unionized facility, it defaults to the collective agreement.
The other challenge we had this year, because of the fee for application, if it doesn’t work out halfway through a season, we cannot replace an employee under that application. We have to start the process all over. It is another $1,000. We say it is $1,000, but it is $500,000 a year for our business.
Expense, speed and capping numbers of potential employees allowed under TFW are our biggest challenges. We have been participating in a number of different environments to put forward what we believe would be some form of a hybrid between what was working for our business under SAWP and also embed some of those, given the uniqueness of our business, in TFW.
Mr. Teper: We have a slightly different business model than Mr. McNeil. Our processing centres are located in large cities. However, a vast majority of employees are new Canadians. You can work in our facility and get some experience with no Canadian-relevant experience. You can work with English being your second language or not even having a strong sense of English. We hire line supervisors who speak the language of a lot of the new Canadians we have. We are blessed by the fact that Canada has a strong immigration policy and that we are located in two areas which immigrants like, around Toronto and Montreal.
We don’t have the same temporary foreign worker requirement. We offer steady employment to new Canadians. That is important. But that is only by virtue of the fact that we have, on purpose, located our plants farther from the chicken but closer to the people. If we were in a small farming community — we employ 600 up to 800 or 900 employees. You don’t have that number of people.
Mr. McNeil: That is the opposite for us. We have to be, and we are close to the farm, which puts us in small regions. To try and attract folks from 40 to 50 kilometres is a challenge for us.
Senator R. Black: Thank you.
Senator Oh: Thank you, panel, for your presentations. It is very interesting.
I want to touch a bit on your labour shortage problem. We now have lots of illegal immigrants. There are a lot coming over the border. Are you not able to tap into some of those sources? They are already here and you want to pay them well, but they still don’t come? Why do you have so many problems tapping into the temporary workers? There is a big shortage. You talked about new Canadians. These are all new Canadians coming over the border. Can you tell us why the government is not helping you? What do you hear from the government side?
Mr. McNeil: If you don’t mind, I will let JP earn his trip here.
Jean-Pierre Haché, Vice President Quality Assurance and Health and Safety, Bonduelle Americas: Thank you for your question. The main challenge we have is the fact that we are rural. It is getting them to the plants. If they are all in the Montreal area or Toronto, for example, our closest plant to Montreal is about a 45-minute drive away. These people often don’t have vehicles or means of transportation to get to our facility. That is our largest challenge. If we could use them, we would, but it is getting them to the facilities in the areas where we are. That is really the challenge.
Mr. McNeil: To add to that, from a cost perspective for our business, temporary foreign workers are — round numbers — $4 an hour more expensive because of applications, travel, housing. We provide housing; we have to find housing. We have to buy properties. We do our best to create a community for these temporary foreign workers so they feel part of our business and they return.
In the United States, for similar numbers, the majority of those jobs are filled by Puerto Ricans. It is the same thing with temporary housing. We have some that have been with us for 30 years. They return year after year and are an extension of our business. However, there is a cost associated to it and it is significant.
The challenge, to JP’s point, is getting those potential employees — and I am not sure how to comment on the legal or illegal — and my sense is we want to strive to focus on the legal means to bring talent to our organization. That is the problem.
Senator Oh: We have a big problem here because there is an accommodation shortage in Montreal and Toronto for all the immigrants coming across the border. You provide housing. That would be a great help to the government, right?
Mr. McNeil: Yes.
Senator Oh: You just said that you provide housing. That is a great help to release the pressure from Toronto and Montreal.
The Chair: I think that is a comment as opposed to a question on the last item.
Mr. Haché: The biggest difference between temporary foreign workers and the immigrants is that immigrants come with families. Temporary foreign workers will come and reside in residences. They are alone. They are all males also. Having families move, they have to move to the community with their families, with their children and with their spouses. That is where the challenge is — very different from the temporary foreign workers.
The Chair: Thank you for that clarification.
We are getting short on time. We have about 13 minutes left. Panellists, I remind you to keep your answers short. Senators, keep the questions short.
Senator Dagenais: I’d like to thank our witnesses. My first question is for Mr. McNeil. I found what you had to say about foreign workers very interesting. Bureaucracy can be a barrier to efficiency. When you pay $1,000 per worker, who does the money go to? What do you get in return? Is the money you’re spending worth it, or is it really just a tax grab?
Mr. McNeil: I’ll tell you what I think, and then, if Mr. Haché has anything to add, he can. It’s a form of tax: a $1,000 administrative fee to initiate the employment of a new worker. It’s incredibly expensive and not at all competitive. As I mentioned, the equivalent fee under the Seasonal Agricultural Worker Program was $50. We recognize that there is a cost attached, but since the fee is $1,000 and it’s attached to a person rather than a job opportunity, especially when you take turnover into account, it should be somewhere between $50 and $1,000. Yes, it’s an administrative fee, but it should be closer to $50 than $1,000.
Senator Dagenais: We’re talking about a tax grab. No one has mentioned the carbon tax. Mr. Teper, will the carbon tax affect your ability to compete? You talked about the U.S., which doesn’t have this infamous tax. I’d like to hear your thoughts on that. I imagine it affects you or will affect you in the future.
Mr. Teper: I think you are right; they will get us eventually.
The carbon tax, on a day-to-day basis, is almost invisible but very noticeable. It takes the form of increased expenses for transportation and other things caught by the carbon tax legislation. We haven’t seen or felt it. It is in its infancy right now. Anything that makes us less competitive on a global platform is not a good thing.
Senator Dagenais: We heard from one witness that farmers and producers in the U.S. who invest in reducing their greenhouse gas emissions are entitled to a tax deduction. When they upgrade their equipment, it’s tax-deductible. It targets farmers directly and contributes to the reduction of greenhouse gases. Do you think we should do the same thing in Canada? Instead of imposing a carbon tax to reduce greenhouse gas emissions, the government could encourage the industry to make equipment upgrades that would reduce greenhouse gases, like the U.S. does. Would you be in favour of that? We could take note of it in our report.
Mr. Teper: In the efforts to be brief, I wholeheartedly agree with that approach. Anything that helps us invest in things that are more carbon neutral or carbon negative we approve of.
Senator Petitclerc: I will take you in a completely different direction. This may involve a short answer. Given the specifics of your companies and sector, I assume you have been following, as I have, the development of the new food guide. I am thinking about front-of-package labelling. I have been following that closely. I am not necessarily looking into whether you think it is a good approach or not. I am interested in knowing how that will affect your sector in terms of cost.
Do you feel you have enough transition time? Will that force you into a different line of products, whether domestic or global? What kind of impact will that have? I am looking at everyone. I don’t know if you have considered that, and who wants to answer first.
Mr. Teper: Specifically, this question is not relevant to the point we are talking about, duty deferral, because this is about selling products into the United States and we have to comply with their labelling requirements. However, it does put us at a disadvantage. Canadian products outside of duty deferred, out of supply managed products, when you are competing head-to-head, if another jurisdiction has different rules it has to be a level playing field. I will defer this question to Ms. Allen because on this she is a bit of an expert.
Ms. Allen: Thank you, senator, for your question. When I look at the totality and why we are here today, in terms of answering what we can do to become more globally competitive, front-of-pack labelling represents a disadvantage first and foremost in the incremental investment our members would have to make in implementing the policy, over and above the existing nutrition label. It also puts us at a disadvantage when we are competing for shelf space against our largest trading partner, the U.S., which obviously will not have the same requirement to import goods into Canada.
Also, we should be seeking ways to reduce non-tariff trade barriers and harmonize policies that relate to food labelling. This represents one of the most challenging policy harmonization issues that we have. It is one of those incremental investments that will represent an opportunity cost. If our members are looking at having to comply with a new labelling requirement, that may come at the expense of incremental investment elsewhere in their businesses. It will also put them at a disadvantage when competing and exporting products into the United States. Overall, our goal should be reducing non-tariff trade barriers and increasing harmonization of labelling requirements.
Mr. McNeil: I was fortunate enough to be part of the grocery manufacturers association board as we were trying to shepherd through H.R. resolution 1599 in the United States about nutritional and GMO labelling. I witnessed that. I could answer in a lot of detail about what we did with our U.S. business.
My belief is using smart technology, whether it is a smart label or some form of a QR code. Today, tomorrow and more than ever, technology use as an entryway to having complete transparency to consumers about where their product comes from, what is in it and where it was grown — that to me is the future, rather than the six square inches of real estate where we are attempting to communicate a whole bunch of different messages on a front-of-pack panel. As long as part of the solution is technology, that gives manufacturers like us the bandwidth to communicate what consumers are looking for. I think that is huge.
Senator Ataullahjan: My question is for you, Mr. McNeil. You mentioned that your organization needs about 1,000 seasonal workers and it is hard to fill these needs locally. What percentage of your seasonal employment needs are met every year? What does this mean in terms of productivity in dollar amounts?
Mr. McNeil: In ballpark numbers, half are met locally, half are some degree of foreign workers or, as I stated in the opening, void. If we require 1,000 seasonal workers, about 500 come locally and we need another 500 temporary foreign workers. Last year we had 350 and we have vacancies for another 150 or 200. That is the math.
The cost to our business impacts us in overtime. We are operating a facility and we are at the height of our pack season and we are down 15 per cent of the employees required. Whatever business you are in, or however you want to apply that to your life, if tomorrow you had 15 per cent fewer resources to do a task, it is a challenge. Over time, productivity reduction, slowdowns, supply concerns, it splinters throughout our business.
The second portion of that, which I have not spoken about today, which is as concerning, is skilled labour. That is, mechanics and forklift drivers. I mentioned more labour, but from a skilled positions standpoint, we have a tremendous issue attracting talent in these local areas. We need to find a solution. The solution will be a combination of automation as well as, hopefully, some flexibility, speed and efficiency within TFW.
Senator Ataullahjan: Thank you.
The Chair: One quick question, and panel, quick answers.
Senator Maltais: Very quickly, could you tell us whether your businesses will be at the Salon International de l’Alimentation food exhibition in Paris? Will you be there? Thank you.
Mr. McNeil: Yes, we will be.
The Chair: Yes, you will be — all of you? We won’t be there, unfortunately.
Senator Maltais: I will be there.
Senator Woo: To pick up on the InFlavor innovation of your company: tell us if there are any lessons from the partnerships, the innovation model, that can perhaps be replicated so that other areas of industry can also come up with such interesting proprietary technologies that benefit Canada.
Mr. Haché: I think there was collaboration from the start and a belief in the project. The best way to replicate this would be to do it on a smaller scale. This was a large project, a large investment. It took over five years to bring this to market. A lot of the innovation we have is smaller innovation that still requires investment. If we could get attention and attractiveness to smaller projects to bring products to market faster. This is what the market is doing, especially with the new technologies and the Internet. We need to go faster, not necessarily bigger.
Senator Woo: Who were the partners?
Mr. Haché: There was InFlavor, the federal government through different programs, some from the Quebec government, and EnWave, which is our partner in Vancouver.
Senator Woo: Different companies came together working with federal and provincial governments?
Mr. Haché: Yes. They had the technology. We adapted it to vegetables with the help of federal programs.
The Chair: That sounds like a great example.
I would like to thank our panellists. This has been an interesting discussion. I know we could have gone on longer but we have another panel coming. With that I will ask them to come to the table.
The Chair: For our second panel of the day, we have with us a former colleague and former member of this particular committee, the Honourable JoAnne Buth. Thank you for being here. Right now she is with the Canadian International Grains Institute. She will be speaking on behalf of Protein Industries Canada. And from the Barley Council of Canada, we have Mr. Phil de Kemp, Executive Director.
Thank you both for accepting our invitation and being here. We’re looking forward to your presentations, which, of course, will be followed by questions.
Hon. JoAnne Buth, Chief Executive Officer, Canadian International Grains Institute: Good morning, honourable senators. It is a pleasure to be here with you today. I would like to talk to you about two initiatives organizations within the agriculture industry.
The first is the one I’m CEO of, which is the Canadian International Grains Institute, commonly known as CIGI. It’s a not-for-profit institute providing technical support for the Canadian grain sector. We were formed in 1972 and work with international customers that buy Canadian wheat. We have considerable expertise in milling wheat and analyzing flour and wheat for their characteristics in baking and making noodles and pasta. We do not have a lot of experience in making Canadian products because we focus on making the products that our international customers are making.
For the last 10 years, however, we have also been working on pulses, milling and incorporating them into wheat-based products, breads, breakfast cereals, pasta and snack foods. Of course, you know that Canada is world renowned for its high-quality wheat. Wheat is Canada’s largest crop. We are the fifth-largest exporter of wheat in the world. We produce primarily high protein milling wheat.
In 2017, Canada produced more than 29 million tonnes of wheat, including durum wheat, and we exported 22 million tonnes. Canadian common wheat, including the Canadian Western Hard Red Spring class, is prized for its cleanliness, consistency and gluten quality, which are very important to the production of many products such as the high-volume pan breads consumed in many markets.
Canadian durum wheat is world renowned for its superior bright yellow colour and semolina yield, important factors in the production of pasta and couscous of the highest quality.
The top eight Canadian wheat export markets are Indonesia, Japan, the U.S., Peru, Nigeria, Mexico, Colombia and Bangladesh. Our wheat goes to many different countries around the world.
Of course, this wheat is being exported with limited value added. It would be difficult for Canada to mill all of its wheat to meet the export specifications of the hundreds of customers that are buying Canadian wheat. Our domestic industry is the largest user of Canadian wheat, taking 2 to 3 million tonnes every year. There are about 50 commercial wheat, oat and corn mills from coast to coast in seven provinces. Canadian mills ship ingredients to a wide variety of markets from local niche customers to large domestic and international buyers.
I think you’ve all heard about the predictions of the tremendous growth expected in the global population to close to 10 billion people by the year 2050. With that comes an increasing middle class and more demand for animal protein, which is going to mean more animal feed is needed. There is a growing demand for plant-based protein, and numerous products on the grocery shelves today touting increased protein levels.
I want to mention a company we’ve been working with to increase the protein content in their bakery products in the U.K. Warburtons has the largest share of retail baked goods in the U.K. They have been contracting Canadian wheat for 25 years. Now they are also importing pulse flour from Canada. Warburtons has partnered with CIGI with funding primarily from the Saskatchewan Pulse Growers Association, among others, to increase the protein content in a variety of products by adding pulse ingredients.
The partnership has led to the launch of five new Warburtons products onto grocery shelves in the U.K. I have brought you samples today. I brought bread and high-protein thin bagels. I didn’t bring the toaster but you’re welcome to sample the products. These came from the U.K. most recently and they’ve been frozen since then. They’re still fresh.
There are many roadblocks when you try to add pulse ingredients into baked goods. Which pulses are you going to add: peas, beans, lentils or fava beans? What amounts are you going to use? What type of milling is required? How do you reduce any flavours? The yellow pea is the largest pulse produced on the prairies but no one wants to taste yellow peas when you bite into your toast.
That is one the initiatives I wanted to talk about.
The other is a fairly large initiative. It is the formation of a large pan-prairie cluster called Protein Industries Canada. This cluster is an industry-led consortium of small-to medium-to large-sized enterprises involved in food and food ingredient manufacturing, agriculture and food-related services. This activity includes research and development, technology, economic development, finance and investment, education and training. We are focused on developing the potential of plant-based proteins from a variety of crops such as pulses, hemp, oats, wheat, canola, and flax.
Protein Industries Canada successfully competed for and was awarded federal Innovation, Science and Economic Development Innovation Superclusters Initiative funding of approximately $150 million. We think this initiative will help industry make Canada the place to go for novel protein and co-products, fractions, ingredients, food, feed products and technologies.
Our expectation is the organizations in the cluster will cooperate to develop a new range of plant-derived foods, ingredients and feedstuffs by manufacturing crop proteins and other crop ingredients like fibre, starch, carbohydrates and natural health products by using these proteins and ingredients in food, beverages, personal care and natural health products, pet food, fish food, livestock feed and nonfood materials. We believe the supercluster initiative is what the industry needs to capitalize on opportunities, to add value to Canada’s agricultural crops and develop markets around the world.
Phil de Kemp, Executive Director, Barley Council of Canada: Good morning, Madam Chair and members of the committee. My name is Phil de Kemp, President of the Barley Council of Canada and also the Malting Industry Association of Canada. Thank you for the invitation today to talk about how barley, malt and the beer industry can be more competitive in global markets.
The Barley Council of Canada is Canada’s national voice for barley. Our board of directors include representatives from coast to coast and throughout the barley value chain, including the provincial barley farm producer commissions, all of Canada’s brewers and the malting industry, the feed and livestock industry, some grain-exporting companies and the barley research and seed community.
We’re the third-largest producers of barley in the world. Canada produces about 8.5 million tonnes each year for use in animal feed, malt and food. This includes two million tons of malting barley used to make malt for use in beer, whisky and vodka production, as well as an additive in the flavouring of food.
Canadian malters purchase about 60 per cent of all the malting barley produced in Canada for domestic and international brewers. Canada is the second-largest exporter of malt in the world. Our value-added malt production goes to the United States, Japan, South Korea, Mexico and China just to name a few.
I was invited here today to talk about how the value-added food sector in Canada can be more competitive in global markets. I’d like to refer to the three Ts, which are important not just for value-added industries, but also for barley and grain producers in general. Those three Ts are trade, transportation and taxation.
Trade and trade agreements are critical to remain competitive in our global and domestic North American markets. One of our highest priorities for the barley industry — and I think some of you have met some of us as far as the Canadian Agri-food Trade Alliance — is the need for the ratification of the CPTPP which cleared the house and will probably go to the Senate sometime next week. We hope that will clear the Senate and become law by the end of the year. That is extremely important for all of us in the industry; barley going through a hog or beef cow or certainly malt because of the significant reductions in tariffs, markups and country-specific quotas. Canada probably has the opportunity for an additional 300,000 or 400,000 tonnes of barley going as value-added malt or through a beef cow or pork for processing to Japan.
During this time of historic North American economic instability and uncertainty, we also need a modernized North American Free Trade Agreement. This must be done in addition to pursuing an aggressive strategy in all markets for trade agreements, particularly in China. We must emphasize to all of our trading partners we are open for business and ready to bring our world-class food products to market.
It goes without saying that any disruption in trade will have significant consequences for our farmers and for our value-added industries; certainly as we’ve just seen here recently with the announcement with respect to Saudi Arabia.
While increasing agri-food exports in global markets is a major priority in terms of competitiveness, we cannot do so I unless we also have a responsive, transparent and reliable transportation network. This is the second T. Our council is hopeful the newly minted Bill C-49 will accomplish these goals, not just for grain, but also for our value-added industries such as malt. However, as a multi-billion dollar industry dependent on trade, we cannot simply hope for timely and dependable transportation. Our council, and all the members on it, are quite thankful the federal government, Minister Garneau, Minister MacAulay and the Senate, as far as passing the bill, have thus far listened to the needs of producers and value-added processors and are following through with a promise to improve transportation in Canada. We ask that, going forward, improving our rail service with an eye towards further reliability remains a point of emphasis.
Part of Bill C-49 was that the railways had to announce their lineup and contingency plans for this fall. There was a meeting a couple of weeks ago. One of the things they could provide up to 11,000 railcars. The capacity for the transportation network for elevators is they can do about 18,750 cars a week. We’re in the northern hemisphere. When our production comes off the field, we can move a lot more grain and farmers can get a lot better prices a lot quicker over that six-month period when we’re harvesting and delivering and we’re still waiting for the crop to come out of Australia, Argentina and Brazil. We have a lot of capacity we can use to be more competitive and capture a higher price in those markets during that time of the year. I thought I would highlight that for you.
I want to address the third T, which is taxation. Canadian value-added food industries operate in a highly competitive, domestic North American market. The recently announced Tax Cuts and Jobs Act in the United States will put additional competitive pressure on the North American trade environment. In particular, U.S. processors will now have the ability to depreciate their capital investments and equipment over the span of just one year. Meanwhile Canadian processors have a longer depreciation schedule; 3, 10 up to 20 years depending on the equipment.
In a domestic, North American market, we also have the carbon tax imposed on the food manufacturers and our farmers while our friends south of the border do not. This adds another layer of cost to our entire food supply chain. At this time, no definitive answer has yet been given by the government as to what the financial implication of these increased costs will be for Canadian families.
Finally, in 2017, the federal government introduced legislation to increase the tax on beer every year automatically forever. We call this the escalator tax. This escalator mechanism that allows the government increase taxes on Canadians without annual parliamentary oversight is like a never-ending tax hike on beer which hurts Canadian beer drinkers, brewers, and ultimately Canadian barley growers.
This new tax policy on beer is in stark contrast to the direction the U.S. is going. The U.S. Tax Cuts and Jobs Act cut the federal tax on beer for American brewers, which means the U.S. is setting up its brewers to win, while in Canada’s case, we’re going in the opposite direction.
The government’s new tax policy is not consistent with its desire to encourage Canada’s agri-food industry to grow and be internationally competitive.
Some of you may have heard this from me before: I think it is worth repeating with respect to taxation. In Canada, about $75 million of barley is bought from farmers. That produces about 250,000 tonnes of malt which is just made to sell to the Canadian domestic beer industry.
That $75 million of barley to make 250,000 tonnes of malt, when it goes into a beer bottle that generates $5.4 billion in tax revenue federally and provincially just at the cash register. When you buy a case of beer, almost 50 per cent is tax. For every $1 of barley bought is $72 in tax revenue just at the cash register and that’s from the Conference Board of Canada. There is no other sector in Canada that will get you that kind of tax revenue at all.
To put it in perspective, in the province of Alberta the royalties annually on just oil, bitumen and natural gas is $2.35 billion. We think we’re doing our share here as far as barley farmers, the malt industry and the value-added beer industry.
Certainly the numbers don’t lie. Canada’s beer, barley and malt sector support about 149,000 jobs, and provides about $13.6 billion to our national GDP. Barley and beer’s contribution to Canada should be commended and acknowledged. I will announce here for the first time today, the Barley Council, in partnership with Beer Canada, Canada’s national beer industry, will plan at some point over the coming months to formally ask the Government of Canada that we recognize through an act of Parliament each Wednesday before Thanksgiving as Canada’s national beer day to celebrate the unique and unparallelled impact that the barley and beer sector has on Canada’s identity.
Certainly we all know Canadian beer is woven into our national fabric. It has a longer, more beneficial impact on our national identity than almost any other sector, perhaps say the fur industry 300 years ago. Two of the oldest companies in Canada: We have Molson Breweries, which was established in 1786; we have Labatt Brewing, which was established in 1847, date back far before Confederation.
Finally, Madam Chair, from hockey games and holidays with family to curling rinks and cold winter nights, beer and, by extension, our barley industry and our value-added chain in the barley industry is synonymous with authentically Canadian activities that bring us all together. That’s why we’re going to be asking for recognition of National Beer Day.
Madam Chair, I thank you for the opportunity. If you have questions with respect to capacity utilization, market development activities, and help from the Federal Government or any of those things, I would be more than happy to answer those. Thank you.
The Chair: Okay. We have eight senators present. We have a little over 35 minutes. I know you’re going to criticize my math on this but we have a maximum of five minutes each. We’ll start with the deputy chair, Senator Maltais.
Senator Maltais: Welcome to the Honourable JoAnne Buth.
A while back, we were on this committee together for two years. Today, you are here as a witness, and it’s a real pleasure to have you.
Mr. de Kemp, I wanted to mention that beer has been brewed in Quebec and in Canada since 1632. The Voûtes Talon, in Quebec City, has been around since 1632. The vaults are no longer used to brew beer, but keep in mind that the Dow company — the biggest beer company in Quebec before Molson and Labatt came along — brewed its beer in the Talon vaults in Quebec City.
That said, Ms. Buth, we’ve lost a big customer in the wheat market: Italy. What happened there? It was one of Canada’s major customers for years and, then, it just walked away. Do you know what happened?
Ms. Buth: Thank you, senator, for the question. Italy has always been a market where the farmers have tried to protect their own market, I think as most farmers do across the world. The farm groups there have been always looking for opportunities to stop imports. They believe the product coming in essentially is competition for them, which clearly it is. Especially with Canadian durum, because of the high quality, the millers and the pasta makers in Italy always wanted good Canadian durum with that bright yellow colour.
Over the years, the farmers have looked for a variety of issues to try and block Canada out of the market. For a while it was some mycotoxin issues, and most recently they have targeted use of the herbicide glyphosate and the potential residues that can be found in durum wheat. It’s commonly known as Roundup, although it’s in other products as well.
As a result, the pressure put on the Italian government has essentially resulted in them placing a non-tariff trade barrier on Canadian durum by requiring zero residues. We all know the difficulty in reaching zero these days. The technology in terms of science is that we can find parts per billion, which is one second in 32 years, if you can find a part per billion. Essentially, we won’t be able to reach zero.
As a result, the pasta makers have been reluctant and have not been purchasing Canadian durum. That’s the situation we face right now.
Senator Maltais: Bear in mind that, after the Second World War, Italy was less reluctant to purchase Canadian wheat exports. Back then, under the Marshall Plan, it was being given away. I’m sure you recall.
Mr. de Kemp, you’re a big exporter of barley and malt for beer making. Do you think the free trade agreement between Canada and Europe will help or hurt your barley and malt exports?
Mr. de Kemp: With respect to CETA, the term I use is it’s like bringing coal to Newcastle. Europe produces about 50 million tonnes of barley a year and they are the largest exporters of malt. There isn’t going to be any opportunity really; there may be niche spots for some craft brewers, but that’s about it. It’s not a market that is going to be of any consequence at all, regardless of the agreement.
Senator Maltais: Will the Transpacific Partnership deal bring you more opportunity?
Mr. de Kemp: As far as the TPP, absolutely, two places. With respect to Japan, we are the largest exporter of value-added malt. We are doing about 160-, 165,000 metric tonnes of malt. We locked in a quota of 89,000, which we will get regardless. We’ve locked that in. It was more symbolic than anything. With respect to the tariff reductions for feed barley, tariff reductions going to zero on malting barley in Vietnam, absolutely. More importantly, it’s going to be the significant reduction in tariffs on Canadian processed beef and pork. The U.S. knows this. We are going to have a significant advantage on that; and as a result, that means there’s going to be more barley in Western Canada that’s going to stay here and going to go through a hog or a cow and processed here to go to Japan. We’re thinking it’s going to be at least 3- to 400,000 metric tonnes of additional barley grown for value added.
The Chair: We will put you on second round, senator.
Senator Ataullahjan: I’m going to come back to my colleague, Senator JoAnne Buth.
I have a two-part question. One is that Saudi Arabia stopped buying Canadian wheat and barley. We are at loggerheads. They are upset about what Canada said about human rights and Canada is refusing to back down. Apparently it was a bad year for crops with the weather in Russia. You could have had an increase in trade, especially where barley was concerned. How much impact will that have if they are not buying any of our grains? Were they a big market? Could we have seen an increase in that market?
Mr. de Kemp: I will answer for barley. JoAnne can answer for wheat.
Saudi Arabia, up until a year ago, was the largest buyer of barley in the world. China is replacing that, but it is still significant. The principal markets that Saudi Arabia imports from is the Black Sea, which is primarily Ukraine, Australia, and Canada when we are competitive because we are farther from the market.
Some years we are in there; some years we are out. Last year, one or two Panamax sold 60 to 120,000 tonnes. This year there could have been an opportunity because of the weather conditions in Australia and the Black Sea. We have had challenges in southern parts of Alberta. For lack of a better term, Twitter diplomacy hurt us. It absolutely hurt farmers for barley.
I have said this before. I said this yesterday and earlier in the week when we were meeting with members of Parliament with respect to trade agreements and future ones: I think we have to separate what we are looking for in trade agreements and stick to the issues of trade and not bring an awful lot of other things into the mix to try to get a trade agreement. We had an opportunity and now it is gone.
Ms. Buth: Thank you for the question, senator. The loss of any market is serious. Saudi Arabia was not a huge market for us. They would be in and out of the market, depending on Black Sea production, primarily from the Black Sea and Russia.
Canadian wheat is primarily blended internationally to improve the quality of other wheat that does not have as good protein content or gluten strength. Saudi Arabia would be in the market anywhere from 250,000 tonnes up to a maximum of around 800,000 tonnes in a year. Will Canadian wheat still get moved and out the door? Of course. The exporters and grain companies will find markets. Usually the entire crop of wheat that is available for export will be moved.
Senator Maltais mentioned Italy, and then you look at Saudi Arabia and then you look at SPS issues, like Vietnam and thistle seeds.
There are issues in all parts of the world where we are facing non-tariff trade barriers and exclusion of markets. Every loss in the market will impact us in the long term.
Senator Ataullahjan: We export pulses to India. There have been issues with regulations. Last year in the fall, if I remember correctly, there was an incident where we had two shipments en route to India and they increased tariffs as much as 60 per cent. I know one ship was then directed to China; one ship went to Pakistan. What is happening there? Has there been any movement? I think it was something to do with fumigation. Is there the same issue cropping up now with Pakistan, where most of our pulses and chickpeas and all are sent to?
Ms. Buth: I am not an expert in pulses. I think you had Gordon Bacon from Pulse Canada. I am not sure if he addressed those issues. It had an impact on the pulse industry when the tariffs were put on. There are two issues: the tariffs and the fumigation issue.
As far as I know — and I will send a note to the committee if I am not — neither of those issues have been resolved. The fumigation issue became irrelevant when the tariffs essentially shut Canada out of the markets.
I don’t know what the state of the pulse crop is in India. If they are short of pulses that is when the tariffs can be lowered. I guess that goes again to the issues that we have because we are exporting raw products around the world.
If you look at what we are trying to do with pulses, we are trying to mill pulses and fractionate them. We are trying to incorporate them into other ingredients, especially on the protein and fibre side. We also have to deal with the starch. There is plenty of work to do in order to take something like a pulse or even wheat, such as canola, flax or hemp, and use all of the products and create as much value as possible in all of those products.
I think it goes to the support for R&D. We talk a lot about this valley of death between R&D and commercialization. We struggle with that a lot. I know this committee has looked at that in previous years. The issue seems to be that Canadian industry might find some opportunities, and, of course, you heard from the previous panel about some of those opportunities. There really needs to be a partnership between our Canadian research institutions and industry. If you look at what Protein Industries Canada is trying to do with the supercluster, it is bringing those groups together.
The interesting thing with the supercluster is that is industry led. The universities and other institutions may have thought, “Great, here is $150 million that will go into research.” Well, it will go into research that is industry driven. Industry will come forward with projects and issues they want to address. I think there is truly an opportunity there.
We had a workshop on superclusters. There is no other example in the world where the government has put the amount of money it has into the formation of superclusters. Superclusters typically form organically when you have industry and researchers all working closely geographically. This is a bit of an experiment. We applaud the government for taking this initiative. It goes in balance with the trade issues, though. As Mr. de Kemp said, we have to put additional resources on to the trade issues that we need to resolve.
Senator Woo: Thank you, witnesses.
I want to pick up on the last part of your answer, which gets to the core of how we develop new value-added products. Of course, I understand market conditions are essential for the functioning of the industry in general. Trade is important, transportation networks are important and competitiveness of tax regimes are important. I want to get at the core issue of what the industry is doing to innovate, to develop new value-added products which can then enter existing and new markets.
Ms. Buth, you told us a bit about the Warburtons example. I would love to hear about how that came about. What were the conditions that allowed for a British company, the largest market share of bread in the U.K., to partner with a Canadian entity to develop innovation and draw on Canadian expertise. How can we replicate these kinds of conditions so that we develop more value-added products?
Mr. de Kemp, we didn’t hear anything, I don’t think, from you on what kind of innovation is going on in the barley industry. We heard a lot about the problems of competitiveness and the need to ensure we reduce barriers in Asia and Europe and so on. We can reduce all the barriers we want, but if we are not competitive because of fundamental resource endowments — and these are commodities, we all know that — we will lose out to other suppliers.
The objective of this study is to look at how we move up the value chain. I hope to hear more from both of you on that specific subject.
Ms. Buth: Thank you, senator. You asked about the partnership with Warburtons. Warburtons came to Canada about 25 years ago. Their company is truly focused on quality. They saw an opportunity to incorporate Canadian wheat on an identity-preserved basis, specific varieties to put into their baked goods.
We got involved with them when they started doing testing for the Canadian wheat that was being shipped over. They eventually partnered with us so we could do the testing with them.
It is a partnership of trust and negotiation. It is a partnership where both parties can sit down and ask, “What is the best that we can do here?” It takes a champion within industry to look at specific issues they are facing. What do they want to meet consumer demands? It is a partnership with an applied research organization that will truly work in partnership with them.
Part of it is the relationship. I’m hoping with Protein Industries Canada, we will see those relationships form. It truly takes champions.
If you look at something like canola, where you have 42 per cent of it is oil and the rest is essentially going into feed. It is going into feed because we haven’t determined how the to use it for human consumption. One of the projects within Protein Industries Canada is to look at that. How do we take a look at canola meal? We are a great producer of it, we do value add in Canada in terms of crushing for the oil and about half the crop essentially goes for a crush. Then what do we do with the meal? It is great for livestock, especially for dairy cows. There are other opportunities on the food side. We expect that one of those projects will happen.
It would be a partnership between several companies, including Corteva Agriscience, some smaller companies and the National Research Council. There is a champion there. If we can help identify champions in certain areas, there might be a greater opportunity for success. The champion needs to come from industry, I think.
Mr. de Kemp: With respect to innovations in the barley, malt or beer industry, let’s talk about malt and beer first. Fermentation is probably one of the oldest chemical processes of the last few thousand years, making wine and beer. That does not change very much. Two things have changed, one of which is recognition as far as climate change. There have been innovations and acknowledgement by companies as far as heat and water recapture and reuse, and reducing the footprint.
There aren’t really new technologies out there, except for some of the processors and the kilning. The value add for barley — and you will see this and probably have the discussion here in the next year or so as far as end point royalties on seed or what-have-you. In the barley and the wheat industries, but more in barley, farmers get to use their seed again. The innovations we have will be in research and, more important, increasing the yields on the limited land we have.
It is not just on yields, particularly for malt and beer; it is the increases in malt extract you can get from a kernel. The more extract you can get, maybe the higher price you can get and the better the beta glucan or enzyme packages. That is where the innovation will be, although it’s not innovation in the sense of nuts and bolts.
What is interesting — and I suspect this is the same for the wheat industry, and JoAnne can correct me on this — when we sell malt or malting barley around the world — not the feed — we are not the low-price sellers. We are the highest-priced sellers. We get a premium. There is a reason for that: They blend up. I refer to malting barley as almost like a cooking sherry. It goes well with everything. JoAnne alluded earlier, too, that it is the same with our hard red spring wheat. We get a premium because of its quality, its characteristics and how they will use that.
That ability on the varietals gives us a bit of a leg up, but that is all we can do.
Feed barley — innovative technologies? No. Where the government has been good — and we haven’t talked about this and we should — is with these new research clusters — the next five-year program. We have one on barley. The Barley Council of Canada will manage it. I can’t mention what the number is yet, because it hasn’t been announced. It has been approved. We haven’t read the contracts, and the minister hasn’t — It is significant and it helps.
That is a partnership between growers, the government and other organizations that have put money forward with respect to research and varietal development. That has been helpful, certainly on market development activities, as far as the old Growing Forward 1 and 2 programs, and the new program announced with respect to generic market promotion. On innovative technologies and the fermentation process, that ship sailed about 1,000 years ago. It is all on research.
Senator Oh: Welcome back. You are two important people. You make a lot of families happy with a healthy lifestyle. I went to Tsingtao beer for a visit. They have one section that is a showcase of Canadian products. All your products are there. The beer is made from Canadian grains and wheat.
Canada and Italy are already involved in a series of trade disputes surrounding our exports of durum wheat — the discriminatory country-of-origin labelling that Italy has imposed. Will you urge the government to make an appeal to the World Trade Organization? Should the Government of Canada launch a challenge against Italy’s labelling rules to the WTO?
Ms. Buth: Thank you for the question, senator. The industry would appreciate the Canadian government taking a lead role in terms of resolving this issue. If you take a look at CETA and what it is supposed to be able to do for us, what Italy has done goes against what the purpose of CETA is. It is really bringing in a nontariff barrier it terms of the country-of-origin labelling and also setting glyphosate residues at zero.
Our partnership is with Cereals Canada. I know they have appeared before the committee. I am confident the message from them is for the government to take an active role to resolve this issue.
Senator Dagenais: It’s a pleasure to see Senator Buth again. With all the trade deals being signed on both sides, is the grain base price likely to increase or will the survival of Canada’s industry rest solely on export volume?
Ms. Buth: I want to clarify the question, senator. Are you asking that through agreements like CETA and TPP what the impact might have in terms of the industry?
Senator Dagenais: Yes.
Ms. Buth: I don’t have those numbers exactly. We know there are opportunities of market access into the EU in terms of what would be lifted in terms of their controls over importing high protein wheat. We know for that there may be opportunities within CETA.
I’m not familiar with what might be happening under the TPP. In some cases, it might be additional market access which, of course, we need, because we have talked about the limitations of countries like Saudi Arabia, Italy, Vietnam, et cetera. I don’t see that it would be an increase in price unless there was a tremendous increase in terms of the export opportunity, which would essentially put Canadian wheat in a more competitive basis around the world.
As Mr. de Kemp said, we are primarily — and I mentioned this earlier — a blending wheat. In terms of prices, yes, there are times when we do get a premium because of that.
The world wheat market is so competitive now, especially with the increased production in Russia, that Canadian wheat is maintaining its market share, not necessarily always trading at a higher price.
I hope that answered your question.
Senator Dagenais: Thank you very much, Ms. Buth.
Mr. de Kemp, you mentioned this, and it’s something that always strikes me. It costs me double to buy a case of beer in Quebec than it does in the United States. Can you tell us more about the infamous escalator tax imposed on beer? How did the tax come about, and how does it affect the cost of the products on shelves? It’s practically 50 per cent to 60 per cent. How did it come about?
Mr. de Kemp: To start with, Canada exports quite a bit of malt to the U.S. beer breweries. In terms of price of the actual ingredient, it is about the same that goes into a can of beer whether it is Canada or the United States. That is the first thing.
The second thing right now, before I answer the question, is also because of what is going on with the aluminum tariff. We have a tariff on aluminum going south and then a tariff on the aluminum can coming back. It is a double whammy, and we are getting more and more people buying cans as opposed to glass beer.
As far as the escalator tax, with Beer Canada leading that last year, if it goes before the budget committee and as far as the budget every year, at least parliamentarians have a chance to discuss it. It is like low-hanging fruit; it is the first thing you will tax.
To give you an example, if you think of where it is now, 47 per cent of a case of beer is taxed. That will go up by the cost of living every year, so 2 per cent. That is just there. Then you have the provincial tax on top of that. Do the math over the next 10 years. That means you are killing the goose that lays the golden egg. There has to be at some point a way to say, “Wait a second here.” As far as farmers, maltsters and the beer industry, I think we are the second highest taxed country in the world as far as beer. I wish I had Beer Canada here. I think we are number two. That is where we derive a lot of our taxes, on the so-called sin taxes. It is significant, as you well know. Just do the math. Two per cent over 10 years plus on top of that the provincial — cases of beer will be $60 or $70 in 10 or 12 years. Beer consumption is reduced. We all advertise and work with our associates on drinking responsibly. We have good corporate programs and public programs with Beer Canada on that. We are losing our competitiveness as a result of that. There are a lot of beers made in the United States and shipped up here. Coors Banquet is not made here. It is made in Colorado and shipped. There is a reason for that.
Senator Dagenais: What you’re telling me, then, is that more tax than beer goes into a glass of beer!
Mr. de Kemp: Absolutely. Right now, 47 per cent is just tax. That does not include the cost of the beer going into the can, the cost of the can, package and transportation. That 47 per cent is just the tax alone. A lot of people don’t realize that. That is why we are trying to raise awareness and hopefully ask for a national beer day. That is more because of the fabric of Canada; beer has been part of our celebration in everything we do that is synonymous with being Canadian.
When you pay those kinds of taxes, again, that is just at the cash register. That’s not the T4s off the employees or the corporate or municipal tax. That is just at the cash register. At some point, we hope enough is enough or just some consideration that at some time you will start not pricing yourself out of the market, but if a plant closed down or we don’t sell as much malt or our farmers don’t get enough premium for it, there will be a reason for it, and it will be because of the tax. It is as simple as that.
Senator Dagenais: Thank you very much, Mr. de Kemp.
Senator Gagné: It’s clear that the tax doesn’t add value to your beer.
But that is not my question. I would like to come back to the research and development. You both applauded the government’s decision to invest in superclusters. I think you will benefit from these superclusters. Do you think R&D investments are adequate to support the growth of the agri-food sector? What else could be done?
Ms. Buth: You are asking an organization that does applied research. There is never a case where someone would answer they have enough.
We are talking about superclusters. Mr. de Kemp was talking about the science clusters under Agriculture Canada.
What I found under Agriculture Canada clusters is the focus is more on farm and production and not as much on the food side, innovation and value-added. I think there is definitely an opportunity to put federal dollars into that area.
In terms of the superclusters, of course, that is the purpose of the Protein Industries Canada supercluster. Is $150 million enough? We don’t know yet. We don’t have a contribution agreement. We are almost there. We haven’t moved the first tranche of dollars essentially into projects.
I think within a couple of years we might be able to see something within the superclusters. We are starting to see products that may be able to come to market. That is our goal in the superclusters, namely, to try to move things along and pick the low-hanging fruit that is out there right now and move it.
I think there is also an opportunity for better coordination amongst research institutes on the food side. The food development centres across the country do come together in terms of their areas of expertise and look for opportunities to ensure that you don’t have fractionation across the Prairies. You have that expertise in Edmonton at their food centre, and you have a different set of expertise in Winnipeg, et cetera. There is always more opportunity for collaboration. What I would stress is that we don’t need another institute out there trying to coordinate. There needs to be better coordination on an organic basis to try to make sure resources are being used properly.
Mr. de Kemp: As far as research and development, I think we can always use more funding on research for agronomics. Certainly, with the last five-year program as far as barley and varietal development and so on, the split was 70 per cent federal, 30 per cent by producers and organizations. I can tell you that will go lower. I can’t tell you what it is because we haven’t signed the agreements and that is frustrating, but it is lower.
I am just talking about the agronomics for research on barley. Because it is only 8.5 million tonnes, there isn’t any money in it for seed companies to develop seed because farmers can use their seed every one, two or three years in a row out of their bin, with the exception for malts. For beer, a certain malt company says they want new certified seed every two years and you have to show your tags for that. That helps with trying to develop further research.
We are a small industry but a huge impact on taxes. Sometimes we would like a bit of help, if we ask for a bit more money, which is statistically insignificant, knowing what the program will be. We could always use more on research.
With respect to market development, as far as the malt industry, the Barley Council of Canada and the programs we are looking at in China right now, we have been happy with the funding we have had. Again, it is on a 50/50 cost share, as it should be, in my view. That has been very helpful.
What I alluded to in the beginning of the presentation was on the taxation side, as far as enabling further research. If there is new carbon footprinting, capturing of water or heat or whatever, if it’s on malt or something on beer, you can write that down and depreciate it a lot quicker than in the States. Their corporate taxes are just about where we’re going to be.
The only thing we have left is either going to be on the exchange rate, and you should never have to depend on competitiveness based on exchange rate but we’re fortunate we have that right now. But on agronomics and on market development, we’re so far so good.
The Chair: I have one quick question.
Madam Buth, in your presentation you mentioned the growing market demand for protein, especially plant protein. Who is driving this? Is it the millennials or is it the population in general?
Ms. Buth: I don’t have market research numbers. I think it’s across the demographics. If you think about the boomers, they’re looking for healthier products to continue their longevity. The millennials and generation Z are looking, I think, in terms of environmental sustainability. That works well in terms of using pulse products to increase protein. I think it’s being driven across the board.
It was interesting with Warburtons, when they went into the market with their protein claims on these new products. They were actually bringing people back to using bread. It was new customers that were coming in to pick up their seed breads and their increased protein. It wasn’t expanding market share within a certain demographic. It was bringing in new customers who were looking for healthier products.
I think there are opportunities to increase value-added sales of some of these products.
The Chair: We have one final second round question.
Senator Maltais: My question will be very brief. Are you taking part in the Salon International de l’Alimentation food exhibition in Paris?
Ms. Buth: No.
Mr. de Kemp: No.
The Chair: That was a short question and answer.
I would like to thank our panel. It was a very interesting discussion. Obviously we could have gone on much longer. I greatly appreciate your input today and help with our study.