Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 6 - Evidence - Meeting of November 29, 2011


OTTAWA, Tuesday, November 29, 2011

The Standing Senate Committee on Agriculture and Forestry met this day 5:56 p.m. to examine and report on research and innovation efforts in the agricultural sector (topic: innovation in the agriculture and agri-food sector from the producers' perspective).

Senator Percy Mockler (Chair) in the chair.

[English]

The Chair: I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. Mr. Harford, thank you for accepting our invitation. We want you to share your vision and information, and also your recommendations with our Standing Senate Committee on Agriculture and Forestry, which is continuing its study on agriculture.

I am Percy Mockler, the chair of the committee and a senator from New Brunswick. Before we move on to your presentation, Mr. Harford, we will ask the senators to identify themselves.

Senator Mercer: I am Senator Terry Mercer from Nova Scotia.

Senator Peterson: Senator Bob Peterson from Saskatchewan.

[Translation]

Senator Robichaud: Fernand Robichaud from New Brunswick.

[English]

Senator Fairbairn: Joyce Fairbairn, from Lethbridge Alberta.

Senator Plett: Don Plett from Manitoba.

Senator Ogilvie: Kelvin Ogilvie from Nova Scotia.

Senator Eaton: Nicky Eaton from the great wine producing province in Canada, Ontario.

Senator Duffy: Mike Duffy from the burgeoning wine producing province of P.E.I.

[Translation]

Senator Rivard: Senator Michel Rivard from Les Laurentides, Quebec.

[English]

The Chair: To the witness, the committee is continuing its study on research and innovation efforts in the agricultural sector. You are an important stakeholder, so thank you for officially accepting our invitation as we focus on understanding innovation in the agriculture and agri-food sector from the producers' perspective.

Honourable senators, Mr. Harford is Vice President of Economics and Government Relations for the Canadian Vintners Association.

I will share a few interesting facts with you.

[Translation]

The members of the Canadian Vintners Association are responsible for 90 per cent of Canada's wine production.

[English]

That is 90 per cent of Canada's wine production. On that note, we would ask the witness to make his presentation and it will be followed with questions from the senators. The floor is yours.

Luke Harford, Vice President, Economics and Government Relations, Canadian Vintners Association: Thank you, Mr. Chair and honourable senators for the invitation to speak today about the Canadian wine industry's efforts to develop new markets, to enhance agricultural sustainability and to improve food diversity.

In fact, wine is a food. It is regulated as a food and it is consumed as a food.

The Canadian Vintners Association, which I will refer to as the CVA, is the national association of the Canadian wine producing industry. We represent wineries across Canada responsible for more than 90 per cent of annual wine production. CVA members are engaged in the entire wine value chain, from grape growing, farm management, harvesting, wine production, bottling, research, retail sales to tourism. The wineries in this country are vertically integrated operations for the most part.

Our industry is growing. There is a lot of excitement in the industry about our growth prospects and a lot of change is taking place on a global scale in grape growing, wine production, wine marketing, and certainly consumer tastes and trends. Our members have made significant long-term investments that are inherently tied to the land that their wineries are on — what we call terroir. Newly planted vineyards need at least four years before they can produce a harvest that they can use for the production of wine. Unlike most other manufacturing business, once the vineyard is planted and the winery tied to the vineyard, it cannot easily be dismantled and moved to another country. Today, we have more than 400 grape based wineries producing wine in six provinces. These wineries support 1,000 grape growers and 1,500 Canadian jobs. Canada is a fast growing wine market with total annual sales of 460 million litres valued at $6 billion. Since 2003, per capita consumption has grown by 40 per cent and is now 16.2 litres per person, which is about 20 bottles of wine per person.

On the topic of developing new markets domestically and internationally, we have a few important priorities. The future of the Canadian wine industry depends in large part on continuously adapting to changing domestic and global markets. Twenty years ago, in response to foreign competition and the signing of the Canada-U.S. Free Trade Agreement, Canadian winemakers made significant ambitious innovative changes. They pulled out all the vines that they had planted and replaced them with higher quality grape vines; established vintner quality assurance standards and met them; developed a wine country tourism, which we call agri-tourism; and promoted icewine and made Canada well known globally for its icewine.

Increased foreign competition transformed the Canadian wine industry and enhanced its competitiveness, but it did not come without a cost. Today, foreign competition has reduced Canadian wine sales from 49 per cent market share in 1987 — before free trade — to its current level of 32 per cent market. It remains an industry goal to once again command 50 per cent or more of total wine sales by the year 2020. While innovation will continue to be a critical driver behind our success, our immediate challenge is to improve access to domestic and international markets, grow our consumer base and provide our winemakers with the same tools and approval processes to match those of our international competitors. One strategic priority for domestic market development is the establishment of direct-to- consumer wine delivery. It is a key priority for the industry to remove restrictions to interprovincial trade that prohibit the movement of wine. Interprovincial barriers to wine trade impede the industry's ability to build a strong internal market. It is illegal today to deliver or ship wine across provincial borders due to federal legislation known as the Importation of Intoxicating Liquors Act, which was enacted in 1928.

Canadian consumers today expect to be able to purchase wines in the manner of their own choosing, whether retail, a tasting room, a wine club or even online. Today's consumers want convenience and a greater choice of Canadian wines. Savvy consumers are part of a rapidly growing interactive social network. Social media offers wineries an effective tool for achieving their e-commerce goals. Yet, our ability to leverage these modern marketing tools is held back by the Importation of Intoxicating Liquors Act.

It was not the intent 80 years ago of federal law to discourage interprovincial trade, impede Canada's competitiveness and restrict market growth. Yet, the consequence today is that an out-of-province Canadian tourist cannot visit a winery and take wine home with them and an out-of-province consumer cannot order wine directly from their home. It is vital that the IILA be sufficiently amended with the goal of establishing a reasonable personal exemption to permit Canadian wine consumers to order and have wine shipped directly to their residences from an out- of-province winery. Consumer interest and exposure to Canadian wines would stimulate new sales, new tourism opportunities and create increased opportunities for jobs, economic growth and additional federal and provincial tax revenues.

Dan Albas, Member of Parliament for Okanagan—Coquihalla, has Bill C-311, a private member's bill, before the House of Commons that will allow, if enacted, Canadians to import wine from out of province. The bill is at second reading in the legislative process and is expected to reach the Senate in the spring of 2012. The support of the Standing Senate Committee on Agriculture and Forestry would be greatly appreciated by the many Canadian wineries looking to build a strong internal market for their brands, while facilitating consumer choice for the growing number of consumers across Canada with an interest in Canadian wine products.

The second priority is on an international scale and has a domestic component. The Canadian wine industry has benefited from Agriculture and Agri-Food Canada's AgriMarketing Program, known as AMP, and its predecessor program dating back to 2000. AMP activities have supported participation in prestigious international wine competitions and the development of promotional materials, and have attracted respected influencers, including foreign wine writers and sommeliers to experience Canada's wine and wine regions. AMP has also supported the Canadian wine industry's engagement in international trade policy discussions. These efforts have helped to support harmonization of national and international standards and the elimination of barriers to trade, and to promote the sharing of information to ensure science-based decision making. In addition, AMP has helped to improve market share in traditional markets, expand exports into emerging markets, promote Canadian wines in Canadian embassies and consulates around the world and provide a brand exposure to elevate our international sales profile.

In light of fierce global competition, the government must continue to support AMP through a well funded, timely and business-friendly program. Foreign wine producers around the world, including Australia, the United States, New Zealand, France, Italy and others, are financially supported by their national and regional governments for both export and domestic market programming to support wine sales and economic development. For example, EU wine reform dedicated $1.2 billion to support the marketing of wine between 2008 and 2012.

These are our competitors who have access to government funding for their marketing efforts in Canada. Annually, wine producing nations hold country-specific wine tastings in major centres across Canada, building brand equity and country exposure. These successful foreign wine ventures have resulted in market share growth and development of relationships with key retailers in Canada.

To help the Canadian wine industry cultivate a strong internal market, we recommend that the government officially proclaim the week leading up to Thanksgiving as national wine and food week. This would provide the impetus for farm producers, industry associations, communities, retailers and restaurants to go local and take notice of the excellent wine and food that farm businesses across Canada have to offer. This will open the door to new domestic sales opportunities and generate greater demand for homegrown products with significant economic spinoffs for local businesses in rural communities.

To move to a different topic, enhancing agricultural sustainability, I reference Budget 2006 which exempted all Canadian wineries from paying excise tax on wine produced and packaged in Canada from 100 per cent Canadian- grown agricultural products.

The same budget increased the excise duty by 21.2 per cent on all other wines sold in Canada, including domestic, blended wine products. As a result, Canadian blended wine producers, which represent currently 82 per cent of domestically produced wines sold in Canada, have paid an extra 10.78 cents per litre, amounting to approximately $60 million in additional excise duty payments to the federal government over the past five years.

To ensure the competitiveness of all wines produced in Canada and support both domestic, blended wine producers and Canadian grape growers, the CVA recommends the creation of a federally funded program equivalent to the excise duty paid on the Canadian content in blended wines. It is estimated that the federal cost of such a program would be approximately $7 million per year, but it would encourage more Canadian content in blended wines and continued growth in Canadian wine sales and reinvestment into new equipment, technology, vineyards, wine tourism and jobs.

Finally, for international equivalencies, Canada has strengthened its relationship with key international partners and continues to harmonize technical requirements and standards. Additives and processing aids are a critical part of the Canadian wine industry's future competitiveness, and the government must consider opportunities to revise its current approval process to allow for international equivalencies based on sound science.

This is particularly true for wine additives or processing aids not approved for use by Canadian winemakers but are permitted for use in wines sold in Canada but produced outside of Canada.

The federal government needs to identify and track where Canada is behind other wine-producing countries and dedicate resources toward greater harmonization in support of competitiveness and job creation.

Thank you for giving me the time to give that probably too-long presentation, and I welcome your questions and comments.

The Chair: It was very informative.

Senator Plett: Thank you for a great presentation. I had a few questions ready, and you answered them in your presentation. I think we all had at least somewhat the same questions, and that was around the interprovincial barriers we have.

Further to that, this is a law that was enacted in 1928. Understanding that maybe we are playing catch-up with our wines, I find it strange that we would not have been able to change this earlier. A member Parliament has sponsored a private member's bill. I know we are being televised here and I do not want to give away what we do in our spare time, but I have the feeling that senators around the table will all be very supportive if that bill comes to the Senate. I think we would all agree that it is time we make some changes here.

I had a bottle of wine last night — not a bottle, a glass — and it was a Canadian wine. For the life of me I cannot think of the name, and I guess it is somewhat irrelevant, but it was a Canadian wine and it was absolutely superb. I believe it was from Ontario.

I, for one, have not been somebody who has really been going after Canadian wines. I like Italian and Australian wines, but Canada has great wines.

I find it strange that we have a law here since 1928, and that has not been changed until now. Could you comment?

Mr. Harford: I think prior to free trade, the industry was somewhat sheltered from having to look for ways to improve quality or to sustain a strong consumer following. There was no real demand, prior to 1987, to strengthen the internal market. We were satisfied with the way things were, wherever we were located.

The world has completely changed now. The industry has reinvented itself. It is a very young industry in Canada, and there is still that perception out there that Canada is not a big wine-producing country. However, we are an industry that punches way above our weight in a number of table wines but also, obviously, icewine. I think this is our quest to achieve interprovincial opportunities to develop wine clubs, to be able to have followings from other provinces and build on that. It is something that has stemmed from the competitiveness that we were forced to acquire internally back in the early 1990s when free trade came and basically put us on an even footing with our much bigger foreign competitors.

Senator Plett: You mentioned icewines. The only icewine I have ever had is icewine from the Okanagan. Do all six provinces that you list here have icewines?

Mr. Harford: Certainly Ontario has icewine. There are wineries in Quebec that are also producing icewines. Some of them are producing it in an internationally recognized fashion. There are others, because of the structure of their vineyards, where they have to actually clip the grapes and hang them in nets rather than allow the grapes to freeze on the wine and clip them right off the vine once they have been frozen for a period of time.

Senator Plett: When making your own wine, you cannot transport a finished bottle of wine, but would you be allowed to transport the ingredients from one province to another to make your own wine? Would that be legal?

Mr. Harford: If you wanted to carry your grapes, yeast and bottles separately from one province into another? There would be no restrictions unless the grapes started to ferment. Then you would have excise after you, I guess.

[Translation]

Senator Robichaud: At the very beginning of your presentation, you talked about the fact that your association's member companies are engaged in the entire wine value chain, and you talked about research. Could you tell us about the research being conducted and about which areas require more effort in terms of research?

[English]

Mr. Harford: Thank you, and that is a very important question. There are things happening at the actual wineries or in the vineyards. At Château des Charmes, Paul Bosc, who is one of the fathers of the modern Canadian wine industry, still has plots of land that he uses to do research, and he has some very unique vines. If you want to try his Gamay Noir ``Droit,'' he has a patent on a type of vine that he is growing in his vineyard.

There is the Vineland Research Station, and there is research being done out of Brock University. There is a lot of coordination between those organizations in terms of the innovation they need for Canada.

The CVA itself does not have a mandate to secure research or innovation dollars, but we do support those organizations through facilitation of communication with our members.

Senator Robichaud: Is the research done at the expense of the person who does the research? Do you receive help from the provincial or federal governments?

Mr. Harford: I would have to follow up with you on that. I can give you specifics on the financial arrangement that has been made for some of the research stations that are doing work with grapes and the wine industry, but I am not familiar enough with it to really comment appropriately. I can certainly follow up with that.

Senator Eaton: This is a fascinating subject.

Let us suppose that the private member's bill receives Royal Assent, is made into law and barriers drop interprovincially. You pointed out to us that icewine has now both national and international recognition. Are there other wines that you try? With our terroir and our climate, will we ever produce a Bordeaux that is as great or interesting or complex, or will we specialize and make ourselves into a niche that agrees with our climate or terroir? Is it anything goes?

Mr. Harford: That is an excellent question. We look at what New Zealand did. They specialize in specific wines.

Senator Eaton: It was zins and shirazes?

Mr. Harford: I thought there was a Chardonnay or perhaps a Sauvignon Blanc, but that is what they did. That was their focus. In Canada we are taking more of a ``let us see what the market will bear'' approach. There is no real coordination. On the export side, it is probably something that should be carefully considered.

Senator Eaton: Obviously, if the barriers come down, it will not be that hard to convince Canadians to eat locally; more restaurants will tell you where the ingredients are coming from. They will start matching them with reds from British Columbia, whites here, rosés from Quebec. I was asking the question more internationally, how will you begin to brand us apart from our icewines? What is your strategy?

Mr. Harford: Right now, our focus on the export market for the most part is icewine. There are some vintners, especially out West, that are very interested in developing their table wine export markets as well.

Senator Eaton: What do you mean by table wine?

Mr. Harford: I mean a still wine.

Senator Eaton: Do you mean a regular drinking, mid-priced wine?

Mr. Harford: It could be a Cabernet Franc or a Chardonnay, but it is one that you would consume with a meal. It is not a bubbly or sparkling wine.

Senator Eaton: It is not considered a great wine or one you put away; it is considered off the shelf. Is that what you mean?

Mr. Harford: Those are specific to certain companies. I do not know.

Senator Eaton: I do not want to get you distracted. That is not important. My marketing question is this: How will you strategize to market us internationally?

Mr. Harford: Right now, the focus is on and we work with the people at Janet Dorozynski's group at Foreign Affairs to open doors in international markets that we have selected as good targets for us, where Canadian wine, both icewines and table wines, are underrepresented and where there is a good culture for us to gain access to.

Right now we are organizing an inbound mission where we are bringing buyers and sommeliers in from New York and the United Kingdom to Canada to visit Niagara and the Okanagan during our icewine festivals. That is to provide our wineries with an opportunity to develop relationships and open channels to those markets.

Senator Eaton: Do our embassies serve Canadian wine?

Mr. Harford: Right now, the Canadian wine initiative is run by the Department of Foreign Affairs. They have a wine tasting that Canadian wineries are invited to. It is May 28 here in Ottawa. They bring their price list with them and get to meet the ambassadors before they go away on their posting. The posts, as they call them, can then order wine through an Internet portal that they have. The CVA supports that initiative by putting money against the consolidation of those orders here in Canada and they get shipped to the embassies.

Senator Eaton: Educate me. When you say a blended wine, do they have certain percentages? Are they the same for every blended wine?

Mr. Harford: In Ontario, there is the Wine Content Act, which requires blended wine producers to use 40 per cent Canadian content.

That piece of legislation will expire in 2014. The blended wine producers have committed, for a certain period of time, to continue to use at least 25 per cent Canadian content in their wines.

Senator Eaton: Even with 25 per cent or 5 per cent, will it still be sold as a Canadian wine?

Mr. Harford: It will be called a Canadian and international blend.

Senator Eaton: What does VQA mean?

Mr. Harford: Vintner Quality Assurance is a standard. It is a regulated standard. It is like what has been done in other parts of the world. It is an appellation system. If you want to call your wine a VQA wine from the Niagara Peninsula, you have to have all your grapes grown in the Niagara Peninsula.

Senator Eaton: If I order a VQA, I know it is local.

Mr. Harford: Yes, it is an appellation wine. It also has to meet certain quality standards and it has to be packaged in a certain way.

They have a relationship with the Liquor Control Board of Ontario where they put their wines up for taste testing. They have to meet certain quality criteria in order to be sold as a VQA wine.

Senator Peterson: In this matter of control and sale of liquors, is that not a provincial control issue? Do they not control it?

Mr. Harford: There is the federal law that bestows upon the provinces the responsibility for controlling alcohol, but it starts at the federal level. Dan Albas's bill is going to take the federal government's control over interprovincial trade out of the equation. Right now, the provinces have control within their province, but anything crossing a provincial border or an international border still falls under federal law.

Senator Peterson: If I go to a liquor store in Saskatchewan I can order a case of wine from B.C. and they will bring it in, as long as it is a case. All they want is their pound of flesh. We had trouble because Alberta has no sales tax. People were going there and loading up three-quarter tonnes with a significant amount of wine, far beyond personal consumption. The issue you are dealing with here is who gets the tax money.

I talked to a vintner in B.C., and he said no, he can do that. All he does is go through the liquor store. He discounts the B.C. tax, takes it off, and then he comes to Saskatchewan, where they tack it back on and they have it.

I think this can be done. It is probably good to have it changed since 1928, but when you say allow Canadians to import wines from out of province, you will deal with the tax issue. You may as well face that. If it is liquor stores bringing in liquor from out of province, there is no trouble because they control it.

The word ``Canadians'' to import, I think you have to change that or you will run into problems.

On competition and competing, Chile has some great wines. Their Cabernet Sauvignon wines are full-bodied and robust and they are under $12. How would that compete with an Ontario wine of similar quality, price wise? Are the taxes an issue or could you compete with that?

Mr. Harford: Is this in relationship to direct to consumer delivery?

Senator Peterson: Going to the liquor store and buying a bottle here in Ottawa, you can get a bottle of Chilean wine for $11.92.

Mr. Harford: Interestingly enough, it could also be a blended wine and contain 25 per cent non-Chilean wine and still be called a Chilean wine, because the Canadian content rules are different than our agreement at an international level. That is something that we are working with the departments to correct, so that we are both on the same footing.

In terms of competition, it is very difficult to compete with the likes of the Chileans or Argentineans because their governments will do things that will induce them to become mass exporters. We cannot compete with that kind of a system.

There was a very good example in The Economist magazine back in September about Argentina telling a luxury car importer that they would not be able to bring their cars in until they used the land they had with vines on it to produce a mass market wine and export it. They had to export an equivalent amount in value terms of wine before they could bring in their luxury car goods. Those are the types of factors that we have to deal with in the marketplace.

To your question on getting wines from the liquor boards that are from out of province, it is true that, like here in Ontario, they have a private ordering window that you can go through; there is a minimum amount that you can order. It is not their core business.

We have undertaken exercises to see how long it would take for us to get a box of wine shipped from B.C. to Ontario, and it was in excess of three months to get it done. If you are planning a barbecue or something like that, you have to have it well thought out before you can do that. Right now, it is not their core business.

We could see a role that they could play in the future of this, and we have certainly presented some options to them. However, at the end of the day, right now you have a pretty serious under-representation of Canadian VQA wines in most provinces outside of Ontario and British Columbia. Even in Quebec, where you have some great wineries, they are selling mostly out of their winery. They are not well represented in the SAQ in that province.

What we are looking for is an opportunity for a winery to engage with their customer and extend that relationship to the future. I can give you an example.

If someone comes from Calgary and visits the wine region in Ontario, and he says to the winery owner that he would like to buy a case of wine, the owner will likely ask if he is going to carry that on the plane with him because it is pretty bulky. If the customer says all right, then ship it to me, the owner will reply, sorry, I cannot ship it to you. You will have to come back next year.

That is the type of thing where we want to be able to put up a sign that says shipping to Alberta is $25 and there you go.

Senator Ogilvie: I, too, read your submission and I thought it laid out a lot of the issues of the industry very clearly. I appreciated it.

I have a couple of comments. First, with regard to icewine, Canada has a clear success in that area. There was a wine expert on the radio on the weekend who indicated this is one of those cases where climate happens to be in our favour. If I am not mistaken, this expert said we are the largest single country of production in that area.

Second, with regard to the idea of branding, Nova Scotia this summer brought out the Tidal Bay label, which is white. All the major vineyards in Nova Scotia — or at least seven or eight of them — have agreed to produce a white wine within a certain character range. From what I understand, it has been a real success.

Mr. Harford: Yes.

Senator Ogilvie: I have tried all of them. They vary in quality, but I would say four of them were excellent overall. I think that is the kind of thing that will help us moving forward — to be known as something you can get in a given region, and so on.

I want to make a larger comment with regard to the issue of the Balkanization of this country into provincial boundaries that create the difficulties you have indicated with regard to interprovincial trade. It is not just in the wine area; it is in a lot of areas. It has always astounded me that we can trade much more easily with international countries than we can with other provinces in terms of regulations and restrictions.

Yes, it is possible for an individual to go to exceptional lengths to get wine from not just another province but another country that is not on the provincial label and bring it in. You can do that, but you have to be really determined to do that. It is not like dropping into the local dispensary and picking up something you see and have heard of. It is a very different kind of concept.

Yes, we have private vendors in most provinces today who are authorized under the provincial labels and they can bring in certain products; but, of course, they choose what they think their particular clientele will deal with.

The issues that we have here with regard to the legislation that originates from 1928 create this difficulty in the individual Canadian purchasing wine — and more important, the individual vineyard easily distributing its wares across the provinces. Provinces will still do whatever they can to be protective.

However, under the free trade act, they are again limited to some degree once we remove the 1928 act. Provinces cannot simply put barriers and protection — whether it is steel or anything else produced in their provinces — and find themselves within the free trade act.

I do not really have a question for you because I agree with most of the things you said, and you articulated them very well in your written report, which I have read. I do want to go on record as arguing strongly that the way we will be competitive internationally is to have a larger domestic market for each producer and to have them survive on the basis of quality production. The first phase, as you indicated, was what it took to move from the old stock into the current era. Now we have to give our producers an opportunity to be more successful by being able to compete favourably within their own country.

I want to congratulate the wine industry in Canada for the distance it has come. I think it is another example where an industry has partnered with our agricultural research centres, and especially the federal research laboratories — the one in Annapolis Valley in Kentville, Nova Scotia, which has had a real impact in that area and the ones you already mentioned. It is a growing success story, based on knowledge, competitive industries and people who understand you have to spend money to make money.

Thank you for being here.

Mr. Harford: It is refreshing to hear all those positive comments.

I studied economics in university and wrote a number of papers on the interprovincial barriers to trade in Canada and what they do to limit our effectiveness as a country. Certainly, I am really excited about working in an industry that is looking to make a significant change and grow its internal market, as well as its external market. You are absolutely right: Government has been there in lockstep with us to help us make the transition from being a coddled, protected industry to one that has to compete and go toe-to-toe with some significant international competitors.

Senator Mercer: I agree with most things in your report, but I want to go back to the purpose of why we are here, which is to talk about research and innovation in the agricultural sector. Something in your report is important to reiterate. You said that 20 years ago, growers tore out their vines and planted better-quality vines. We have been lucky because if I understand correctly, we have not had any major diseases in those new vines. In California, where they had to take similar action, they ended up with some diseases that likely came in the root stock they imported. I will not bother saying where they imported from. Taking an industry from a quality of wine that was not looked upon favourably by either the domestic market or the international market and turning it around is a big risk.

Today, does anyone, either farmers across the country or researchers somewhere, look at the improvement of the quality of the grapes and the vines that we are using? If so, does that vary from region to region? Growing grapes in British Columbia, Ontario, Nova Scotia and Quebec is different in each region. Even in British Columbia, there are different growing environments. Vancouver Island and the Okanagan Valley are entirely different.

Mr. Harford: As Senator Ogilvie pointed out, some research centres have applied to receive federal and provincial funding to continue their research. The industry contributes a significant amount to those organizations and schools. Within the wine industry, I have come to appreciate that there is a real desire and appetite to cultivate mentorship programs and bestow the knowledge from the visionaries that set us on the current course back in the 1960s to where we are today. Many young faces in the wine industry are applying their trade and learning as much as they can from those people that set us on our path.

Certainly, there is more capacity in Canada to produce wine than is currently realized. Although I might have my numbers wrong, the Niagara region is basically the size of Napa Valley, and we are using about 25 per cent of it. That area could certainly be expanded. Various reasons, such as cost of land and protected green belt areas, prevent it from being utilized. However, the potential for this industry is significant, and it will take fortitude and some government funding to act on that vision.

Senator Mercer: We know that small wineries in particular do not make all their money from the wine they sell. It is the value added that helps their bottom line, such as a restaurant, gift shop, tours, et cetera. Has the association done a study to indicate what percentage that breaks down to? In the Niagara region, there have been special efforts to link the wine industry closely to the tourism industry. Is there a measurement that tells you that wineries are making a certain percentage of their money from the value-added as opposed to the sale of wine?

Mr. Harford: I do not know exactly what the breakdown is, but the agri-tourism aspect of it is a significant part of their value proposition, especially in the Okanagan and Niagara areas, which are being incented to put up hospitality areas, restaurants and boutique shops. There has been some support at the provincial level to engage in those businesses.

We lobbied for this. The industry feels it needs the value of their land to be appreciated so they can write off more of that in respect of the taxes they have to pay. Currently, the maximum exemption is based on 1994 and needs to be indexed to inflation so they can have their current asset base and pay a lower tax.

Senator Duffy: Mr. Harford, I applaud your industry for taking it from not very good to, many would argue, great. I am intrigued by your reference to the 1928 IIL Act. As Senator Peterson and others have mentioned, there is a problem with the provinces. In another life, I went every year to the provincial premiers' conference, which was held in July/August. Have you and your group made an effort to lobby the provinces? Even if we change that federal law, the provinces have found more ways to provide protectionism, whether in trucking or any other interprovincial commerce. The provinces have been difficult to get into the game. Has your group in the past lobbied the provinces on this interprovincial trade issue?

Mr. Harford: We certainly have done that. Thank you very much for the question. We did not go this route but our MP, Dan Albas, went the private member's route with proposed legislative change. In 2009, we presented what essentially amounted to a permit and reporting system to the liquor boards. The boards could act for the wine industry like an Amazon.com. The order would go through the liquor board, which would register it, and then the wine would go directly to the consumer placing the order.

At the end of the day, we are dealing with government monopolies that feel pretty good about their ability to execute on their mandate and do not really see the need for any added competition. They turned our request down. After that, we started working with several departments in Ottawa to see what we could do to amend the IILA so that we can remove at least that federal barrier to the financial transaction.

Senator Duffy: I am not sure if it would be industry or finance. This strikes me as a kind of productivity issue. There is a barrier to allowing industries to become more productive because they are not able to get the volumes they need because of these blockages.

Mr. Harford: You are absolutely right. A boutique winery cannot afford to have a sales force in every province or agents working in every province, so they are underrepresented in those provinces.

If you have someone come and visit your winery, has a great experience and then goes back home to whatever province, Alberta or Saskatchewan, and wants to relive that experience that they had in Niagara, the Okanagan or the Annapolis area, they should be able to put in that order and have it directly delivered to them.

Senator Duffy: I think you need a big federal champion to put the pressure on the provinces. It is one thing for the liquor boards, but it is another thing for the provincial premiers. They need a lot from the federal government. Whichever ministry it would be that would be looking at interprovincial trade, I think your group would be well advised to try to find a champion so that everyone in Ottawa gets onside. I think you see the mood here is that we need to open this up.

Mr. Harford: You are absolutely right. It will require both leadership at the provincial level, but also Canadians in a certain way have a hard time getting excited about these kinds of things. We are trying to generate some consumer excitement around the possibilities of opening up direct consumer sales. It is something we are trying to work on.

There is a website called Free My Grapes, started by the Alliance of Canadian Wine Consumers, and they have a certain following. They are trying to get the grassroots support for that.

[Translation]

Senator Rivard: I have three short questions about the environment. As we all know, wine is made from grapes. If it is not, it cannot be called wine. Once the grapes have been pressed, what happens to the residue? Some three or four decades ago, it was thrown out. Is there any waste reclamation being done nowadays? Is the residue being used for farming? Is it burned? What do you do with pressed grape residue?

[English]

Mr. Harford: Today, farmers are much better at it than they were 30 or 40 years ago. Every part of the process has a market. The skins have a market, whatever it is, the stocks have a market. Farmers are very creative in ensuring that they extract every bit of value out of what comes off their land in order to help their bottom line. I would be happy to follow up with you on exactly what they do with the skins that are left over. Everything else gets used. I am not aware of what that is, but I am certain that if there is a market for it, they have found it.

[Translation]

Senator Rivard: In the beer industry, there has been a deposit on bottles for some 20 years, and governments have obligated brewers to have standardized bottles, meaning that the bottles are of the same shape and contain the same volume. I think that, at some point, I read that a bottle of beer can be reused about 20 times before it is recycled into broken glass to make new bottles. If a deposit was imposed on wine bottles, how would wine producers react? Would it really be a disastrous change for you? They are currently being thrown out, but what are your thoughts on the recycling of wine bottles?

[English]

Mr. Harford: I am actually intimately familiar with how the beer industry works because I was with them for 10 years and ran that standard bottle agreement that the industry has.

As for deposits on wine bottles, there is, in almost every province, a deposit and there is a return mechanism. If you look at, for instance, New Brunswick, they have the redemption centres. Bottles go back, the consumer gets half their deposit value back, and then the redemption centre consolidates those returns and ships them back to a crusher or to the glass manufacturer.

The deposit system is certainly one that is valuable because it takes the cost away from having to source new glass all the time, but even where there is not a deposit, but a blue box system, the glass will get back into the glass manufacturing process.

I have some very good friends at Owens-Illinois, one of the largest glass manufacturers in North America, certainly here in Canada. They love to get crushed glass because it lowers their costs. They can use blends of up to 80 per cent cullet into new glass bottles at 45 to 50 per cent reduction in energy requirements, so they like to get the glass cullet.

I would say the Canadian wine industry is not opposed to deposit programs, certainly not opposed to anything that leads to a smaller footprint on our environment. We are certainly supportive of that.

I would say that, different from the wine industry, our consumers do not want to be purchasing a 15- or 20-dollar bottle of wine that has scuff marks on it and looks like it has been used. The pristine image is something we are after. Most of our product is sold as individual bottles rather than in a case. With beer you are buying a case, the case is always new. The bottles may look old, but you do not notice it when you are having that transaction.

[Translation]

Senator Rivard: About 20 years ago, all wine bottles were sealed with cork. Today, more and more wine bottles, even those worth $15 to $20, are sealed with metal twist-off caps. Is that done for economic reasons? Is the taste less affected that way? Why is this market constantly changing these days?

[English]

Mr. Harford: That is perception. There is a perception that, if it has a cork in it, it is a premium product. However, the closures that they have today, the screw-cap closures, are actually often superior.

I think the cork industry has done a really good job at improving the quality of the cork that wine producers are able to access to use in the bottles that they cork, but there was an issue with what they call wine that has been corked. It affects the taste of the wine, whereas a screw cap is a perfect seal.

For myself, I would not hesitate to pay $15 or $20 for wine with a screw cap, because the technology is such that it protects the quality of the wine in a way that the cork may, 99 per cent of the time it does, but there is that 1 per cent that it may not. I would not hesitate to buy a screw cap. However, it is a perception with a lot of consumers that a screw cap is an inferior-quality wine.

[Translation]

Senator Rivard: In terms of the environment, metal caps, just like all metal, can be recycled. However, cork ends up in the garbage, or it is buried or burned. Today, the environment is of the outmost importance. Are metal caps not more environmentally friendly if we take their recycling value into consideration?

[English]

Mr. Harford: I will say no because cork is a natural product. It is like a wood chip. I do not think it would affect the environment, even if it ended up in a waste dump or whatever. It is an organic material. I do not think that it would be a big issue for the environment.

Metal caps, yes, can be recycled along with aluminum cans, which there are many of, but a metal cap is transferring minerals from one area to another where that mineral may not be present. That would be more of an environmental issue than cork, which is almost like a wood product.

If you put deposits on cork, maybe we could reuse them.

Senator Fairbairn: It is a very interesting picture, from one end to the other and in the centre. It is quite glorious and beautiful.

In the work that you are involved in, I am wondering what you would like to do with the mountains, the rivers and everything in Alberta, and Southern Alberta particularly. Every time I see someone coming here, I hope that there would be some interest in using that area. I think you mentioned that they were interesting and exciting, and they are. They would be with you and I was wondering whether you will take a good look at Alberta.

Mr. Harford: Are you referring to developing a wine industry in Alberta? I brought a magazine with me called the Canadian Wine Annual, which catalogues all the wineries in the country by province. There is a small wine industry in Alberta now. It is entirely possible that with the excitement around Canadian wines, with the network of winemakers that are starting to establish some roots here in Canada and expand their influence, you could see someone moving to Alberta and enjoying the majestic scenery and saying, ``I would love to develop my wine business here.'' It is certainly possible, but we need to keep on the track we are on now in terms of cultivating a rather young industry and give it the legs to start running on.

Senator Fairbairn: You are doing a splendid job. As you are still on the road, I hope you come into Alberta, because there are so many different places there that would be more than happy to be in that kind of business. I know people would be very interested in listening to what you are saying and trying to work with you.

Mr. Harford: Certainly, Alberta has a very young population as well, and one that is adventurous and entrepreneurial. It is a ripe environment for that type of innovation.

Senator Eaton: You have been very generous and very polite about every province in this country.

Senator Plett: He never mentioned Manitoba.

Senator Eaton: Thank God for that. Manitoba has many wonderful qualities.

Because we are a young industry, you do not have unlimited funds or trained people. Should we not take two or three areas and concentrate on those?

Do we know that some areas have a better terroir for wine than others? I am an old gardener. I could probably grow anything; give me enough fertilizer and I can grow things, but it does not mean they are right or natural.

Have you determined what are naturally productive terroirs for wine in this country?

Mr. Harford: Certainly in the Niagara and the Okanagan areas they know what they can do really well. We are talking about an industry that in the late 1960s and early 1970s was so far behind the rest of the world in terms of the wines they were producing. It was really the result of a couple of brave visionaries that led to putting Canada on the map for wines. There are some things that still need to be explored and sorted out, but I think as a country it would make some sense to put money behind what types of varieties we will be so exceptional at that we can continue to punch way above our weight in the global scheme.

Senator Eaton: In the report we are writing we are looking at increasing market share and diversifying the farm basket. It would only be fair to the Minister of Agriculture if we came back in the report and narrowed down on one or two varietals. We will never have unlimited money. I am thinking not to be too loosey-goosey in the report. To gain some traction, what would you recommend? If you had the Minister of Agriculture sitting here and he was going to do one or two things for you, what would you ask him to do?

Mr. Harford: I would prefer to defer to my colleagues at one of the research stations to give a more fulsome overview on what Canada can do and can do really well.

From a market development standpoint, I can speak to the issues that I have presented here, but in terms of consolidating efforts towards a specific type of wine or vine or vines, and suggest that what has been planted get transferred over to something that we are better at, I would have to defer to the scientists, which I am happy to refer to the committee. I can put them in touch with you. However, I do not feel qualified to say that the industry should put a lot of money behind certain things when I know the vintners that I speak to feel very confident with what they have in their vineyards and what they are producing.

Senator Eaton: You mentioned the Okanagan Valley and Niagara. You have not mentioned Prince Edward County. Are there certain areas in the country that should be more encouraged than others, or do you think that is a bad idea; just let it all happen?

Mr. Harford: I will not say that it is not a bad idea. You always want to focus the limited dollars that you have into the areas that you will be successful at. I am saying that I do not feel qualified to make that statement. I would prefer to put the committee in touch with people who are more qualified to speak to those issues.

Senator Eaton: Fair enough. What about education? Brock University has an excellent wine program, does it not?

Mr. Harford: Yes.

Senator Eaton: Are there others? If I was a young person looking at some form of agricultural life and thinking about wine or was interested in wine, what would I do?

Mr. Harford: I will have to defer on that question. I am not familiar with all the educational programs that are available in Canada, but I can certainly follow up with you as to what is available today. I know that Niagara College also has a program, but I am not sure if it is more associated with wine production of food — I am not 100 per cent sure.

Senator Plett: In your presentation, you did talk about federal support, and Senator Eaton already touched on it. I am not sure that she got the answer she wanted and maybe I will not get the one I want.

My back always goes up a little bit when somebody wants the government to pay. I believe people need to raise their own monies. Having said that, there are certain places for government to help.

How does federal government funding fit with, first, other sources of financial support for research and innovation in your industry; and what percentage of research funding in your industry is provided by private sources?

Mr. Harford: Do you mean specific to those programs that are being run at those universities, how much money is being donated?

Senator Plett: Generally, what financial support for research and innovation do you get from government right now and how much is done privately?

Mr. Harford: For research and innovation into different varieties or that kind of thing?

Senator Plett: Whatever research the wine industry needs to do.

Mr. Harford: Again, I cannot answer that question appropriately, so I would have to get back to you with an answer on that.

Senator Plett: If you could, I would certainly appreciate that. Let me take it off in a bit of a different direction.

From your perspective — and this is not about funding — do federal regulations help or hinder the innovation of your industry?

Mr. Harford: I would say they do both. I will say that the speed at which we can accommodate the changes that are happening in our industry is somewhat limited. I can give you an example of what I was speaking to in my presentation about harmonization with our international competitors.

There are, for instance, 78 additives and processing aids available to winemakers in the European Union. In Canada, we have 49; so there are 30 additives and processing aids that are not available to Canadian wine producers.

What those processing aids and additives do is affect the taste of wines. If you have foreign wines that have 70 per cent of market share, they obviously affect the taste profile that the consumer expects. What we are looking for is a way for Canada to very quickly get up to speed on the tools that are available to our competitors in other countries.

[Translation]

Senator Rivard: Does your Canadian Vintners Association have any member companies that produce alcoholic apple cider? We know that product is sold in Quebec by the SAQ because of its nature.

[English]

Mr. Harford: The Canadian Vintners Association represents wineries that produce from grapes. Some of our members may produce ciders as well as grape-based wines, but it is not a cider organization.

[Translation]

Senator Rivard: You said that you had worked in the beer industry in the past, but do you have any idea of how the apple cider industry is doing? Is that industry gaining ground or losing it?

[English]

Mr. Harford: I can tell you with certainty that the cider market is not in decline; it is one that is of growing interest among consumers and we have some excellent cider producers in the country.

[Translation]

Senator Rivard: A few years ago, I was lucky enough to visit the Napa and Sonoma valleys in California. I was extremely surprised to see French Chandon champagne in Robert Mondavi Wines, for instance, and even in another company. Of course, that was not really champagne because champagne is a controlled designation, but it was a sparkling wine of the same quality. I am convinced that, in a blind taste test, it would be difficult to distinguish the American product from the French one. Is the success of Californian grape growers due to the climate and/or land quality, or rather to their sizeable market of 200 million people? We know that Americans are very protectionist. They prefer to buy Californian wine at the same price or even at a different price. Do you have an opinion on why the Californian wine is so successful?

[English]

Mr. Harford: I think that American culture around their wine industry has followed somewhat the same path that we have here in Canada. I think that there were some exceptional visionaries in the California area that decided that they were going to go toe to toe with the Old World wine producing countries and they were very successful at it.

As to your comment on champagne, the Europeans are very interested in protecting geographic indicators. Canada has signed on to the Canada-EU Wine and Spirits Agreement, which means that we cannot use the term ``champagne'' here in Canada or abroad. We will stop being able to use the terms ``sherry'' and ``port'' within the next 18 months as part of that agreement as well. We have to come up with some new names for those products because they are geographic indicators that are protected under the agreement.

The Chair: Mr. Harford, thank you very much for sharing your information with us from your industry. In the event as we progress toward the end of our report before it is tabled, if you want to add to it, please feel free. We will probably have additional questions in talking to researchers; we could send you a letter to ask you to respond on certain questions.

(The committee adjourned.)