Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 2 - Evidence - Meeting of February 18, 2016
OTTAWA, Thursday, February 18, 2016
The Standing Senate Committee on Agriculture and Forestry met this day at 8 a.m. to study international market access priorities for the Canadian agricultural and agri-food sector.
Senator Donald Neil Plett (Acting Chair) in the chair.
[English]
Mark Palmer, Acting Clerk of the Committee: Honourable senators, we have a quorum. As acting clerk of your committee, it is my duty to inform you of the unavoidable absence of the chair and deputy chair and to preside over the election of an acting chair.
I am ready to receive a motion to that effect.
[Translation]
Senator Dagenais: I nominate Senator Plett to chair the meeting.
[English]
Mr. Palmer: It is moved by the Honourable Senator Dagenais that Senator Plett do take the chair of this committee. It is your pleasure, honourable senators, to adopt the motion?
Hon. Senators: Agreed.
Mr. Palmer: I declare the motion carried.
Senator Donald Neil Plett (Acting Chair) in the chair.
The Acting Chair: I want to welcome you all to this meeting of the Standing Senate Committee on Agriculture and Forestry. I'm Don Plett from Manitoba, and I will be acting as your chair for at least part of this morning. I will start by asking all senators to introduce themselves.
Senator Moore: Wilfred Moore from Nova Scotia.
Senator Merchant: Pana Merchant, Saskatchewan.
Senator Beyak: Lynn Beyak, Ontario.
Senator Oh: Victor Oh, Ontario.
[Translation]
Senator Dagenais: Senator Jean-Guy Dagenais from Quebec.
[English]
Senator McIntyre: Paul McIntyre, New Brunswick.
Senator Unger: Betty Unger, Alberta.
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
The Acting Chair: Today the committee is continuing its study from the last Parliament on international market access priorities for the Canadian agricultural and agri-food sector.
Canada's agricultural and agri-food sector is an important part of the country's economy. In 2013, the sector accounted for one in eight jobs in Canada, employing over 2.2 million people and accounting for close to 6.7 per cent of Canada's gross domestic product. Internationally, the Canadian agriculture and agri-food sector was responsible for 3.6 per cent of global exports of agri-food products in 2014. In 2014, Canada was the fifth largest exporter of agri-food products globally.
Canada is engaged in several free trade agreements. To date, 11 FTAs are in force. The Canada-European Comprehensive Economic and Trade Agreement, the Trans-Pacific Partnership and the Canada-Ukraine free trade agreement have been concluded and eight FTA negotiations are ongoing. The federal government is undertaking four exploratory trade discussions with Turkey, Thailand, Philippines and members of Mercusor — Argentina, Brazil, Paraguay and Uruguay.
We welcome our first witnesses: from the Canadian Poultry and Egg Processors Council, Robin Horel, President and CEO; and from the Further Poultry Processors Association of Canada, Robert DeValk, Executive Director, and Ian Hesketh, Vice-Chair.
I thank you for accepting to appear, and I will now ask the witnesses to make their presentations. I would ask them to keep their presentations sharp and to the point and senators to keep their questions that way as well.
The floor is yours.
Robin Horel, President and CEO, Canadian Poultry and Egg Processors Council: Thank you very much for the invitation.
The Canadian Poultry and Egg Processors Council is the national trade organization for Canadian chicken and turkey processors, hatcheries for day-old broiler chicks, egg-laying chicks and turkey poults, egg graders and egg processors. Now in our sixty-sixth year, our council has company members in every province of Canada.
In addition to representing the interests of more than 170 Canadian poultry processors, egg graders and processors and hatcheries, our membership includes over 50 national and international industry partners who have joined us as associate members. Representing some of the largest agri-food corporations in Canada, our member companies process over 90 per cent of Canada's chicken, turkey, eggs and hatching eggs. This economic activity generates over $5 billion in annual retail sales, and to accomplish this, our members have invested $1.5 billion in plants and equipment and directly employ more than 20,000 Canadian workers.
With regard to the supply management system for poultry and eggs, CPEPC's members work within the supply- managed system for chicken, turkey, eggs and broiler hatching eggs. CPEPC and our members support the system, and we are "committed to building the long-term competitiveness of the Canadian poultry industry. A foremost priority is to modernize the supply management system to ensure continued broad consumer support, mitigate processor risk and to better respond to market pressures and the competitive environment.'' That's from our strategic plan.
Exports and imports are both very critical components of the supply management system for poultry and eggs in Canada. This is the same message we imparted to members of this committee in December 2014.
In chicken, the Canadian consumer preference for breast meat and wings is met by importing additional breasts and wings over and above what is produced in Canada through TRQs. In addition, export programs in the chicken sector result in the export of surplus legs and drums.
In turkey, we see a similar consumer preference. In addition, more than half of the turkey market is for the processed products. The vast majority of these use breast meat. In turkey, almost all of our imports are breast meat, while most of our exports are residuals: drums wings, tails, frames, et cetera.
In eggs, our imports are used primarily to balance the market during periods of increased demand or lower production. We are net importers of shell eggs and are both importers and exporters of processed egg products.
In broiler hatching eggs, similar to table eggs, we use our imports to balance the market during periods of increased domestic need or lower domestic production. Our international commitment on broiler hatching eggs means that we import approximately 20 per cent of our requirements, which makes us a large net importer.
In addition, CPEPC's membership includes some primary breeding genetics companies. In the turkey and layer business, these companies supply product to the domestic market but also export eggs or day-old chicks / poults to a number of countries. For these companies, exports are the largest part of their business and are critical. They would not be in business in Canada without these exports.
The major points to note from these high-level snapshots of imports and exports in the commodities that CPEPC member companies work in include the following: First, although we are a net importer in the sectors in which we operate, with the exceptions of turkey, where we are a net exporter by volume but a net importer by value, and processed eggs, where we are a net exporter but for eggs in total we are a net importer, exports are important to the sectors in general and to CPEPC member companies in particular.
Second, both exports and imports are critical components of the supply-managed systems for poultry and eggs. They are used to balance the domestic market to meet Canadian consumer preferences and to fill periods of increased demand or lower production
Exports of some products like eggs or day-old birds from genetics companies, or processed egg product from some of our egg processors, are not residual products but are important value-added products.
That was really a minute snapshot of what I mentioned back in December 2014, but there have been a number of developments in the Canadian poultry and egg industry since our last appearance before the committee. Today, I want to focus on the conclusion of the Trans-Pacific Partnership, as that is probably the most serious development in the last 14 months.
Canadian chicken, turkey and egg processors, egg graders and hatcheries will all be impacted by the additional market access granted as a result of this agreement if it is adopted by Canada. Nevertheless, CPEPC recognizes the importance of this agreement to the overall Canadian economy. CPEPC attended the TPP trade talks toward the end of the process and appreciated the support of the Canadian government and the negotiators in concluding the negotiations. It will provide clarity around the future of supply management.
Since then, we have met with government officials to discuss both the mitigation measures in the form of border controls and the programs to support processors that were announced along with the details of the TPP agreement. Both of these are very important to the Canadian industry and critical to CPEPC members.
With regard to mitigation measures, in announcing the TPP agreement, the government committed to intensifying "ongoing anti-circumvention measures that will enhance our border controls. These measures include requiring certification for spent fowl, preventing importers from circumventing import quotas by adding sauce packets to chicken products, and excluding supply-managed products from the Government of Canada's Duties Relief Program.'' CPEPC and our member companies support all three of these announced "mitigation measures'' and in recent meetings with government officials have noted our support and the need to move as quickly as possible.
For their part, government officials acknowledge that these measures can be put into place prior to the TPP being adopted. I understand that these programs have been discussed by this committee and previous witnesses, so for the sake of brevity I will not outline the details associated with each of them, but I am happy to answer questions about any of them.
In terms of processor programs, with the announcement of Canada agreeing to the TPP in Atlanta, the Canadian government noted some additional proposed programs for both farmers and processors in the supply-managed industries.
There were two programs announced for processors: the Processor Modernization Program, $450 million to ". . . provide processors with support to increase competitiveness through capital investments and technical and management capacity.''
The second one is the Market Development Initiative, $15 million ". . . to help the supply-managed sector to maintain, develop and expand their Canadian and international market share.''
The CPEPC has had an opportunity to consult with government officials concerning these proposed programs at a staff level, and recently AAFC officials met with our chicken, turkey and egg members during our sectoral meetings to outline the intent of the proposed programs and answer all the questions that they were able to at this time.
We understand that the programs, if adopted, will be available to processors in dairy, chicken, turkey and eggs, and we are currently in discussion with Agriculture Canada concerning the applicability for hatcheries to access these programs. We also understand that while programs for producers are based on compensation, programs for processors are based on adjustment.
CPEPC and our members are pleased with the announcement of these programs for processors, and if adopted by the current government, will request that proportional consideration be given to applications from the poultry and egg sectors.
In conclusion, our members operate within supply-managed value chains. These systems have benefits and our members support them with the understanding that we need to look for efficiencies where possible and strive for competitiveness. Imports and exports are important to the maintenance of the systems and to our members. Canadian poultry processors, egg graders, processors and hatcheries would not be competitive internationally if open access to the Canadian market was granted without structural realignment of the system.
CPEPC and our members need the Canadian government to continue to champion rules-based trade agreements. CPEPC and our members are on record as supporting the Trans-Pacific Partnership agreement, provided the mitigation measures and the programs for processors announced in conjunction with the details of the TPP agreement by the Canadian government are put in place as quickly and efficiently as possible.
I'm happy to answer any questions at the appropriate time.
Robert DeValk, Executive Director, Further Poultry Processors Association of Canada: Good morning, senators. I am glad to be here again representing our association on this important topic. Last week we were at another meeting in Ottawa where we were trying to discuss, as a food industry in Canada, how we can get government to appreciate the importance of our sector, as opposed to some of the other sectors that get a lot of attention, such as auto, lumber and the aerospace industry. Somehow food gets missed, and I'm happy that here in the Senate you are trying to raise that profile and do good work in terms of the priorities we need to set. So we appreciate the opportunity to be here.
I'm the general manager of FPPAC, and I will try and put some ideas before you to consider. I brought with me Ian Hesketh, our vice-chair, and he is a real further processor in the sense he is out in the field. I tend to sit in the administrative end, but he's out there every day exporting and importing and dealing with the day-to-day fires and issues that people have in business. Hopefully he can answer some questions about those activities, because when it gets down to what we should do and what are the priorities and how governments should improve the environment for the foods industry, it's the real people who often have the answers to those questions.
FPPAC is a little different from Mr. Horel's group. We were created because of supply management. Supply management, as you may have guessed through the presentation you heard, has supply challenges. As a result, further processors need the supply that Mr. Horel's members create. We need that supply to make further processed products, and those products are things like chicken Kiev and chicken dinners. It is products that are processed; in other words, something is done to them other than simply taking the feathers off and eviscerating them. What we are doing is boning them — and that's a liberal interpretation of what "further processing'' is — marinating them, sizing them and making it so that consumers can take it home and consume it readily without too much additional work. That often is where the growth area is. Consumers are time-starved and they like convenience, and we certainly have responded to that as an industry by creating those products that are ready to eat and ready to use very quickly.
There is a wide range of those products, and it keeps getting bigger and bigger. This is why it gets interesting on the supply side because you need more wings than we produce in Canada. This is where our trading patterns are very important.
Further processors are participants in the supply-setting process in Canada under supply management because we are members of their board. We are members of the chicken board and directors. As a matter of fact, Mr. Hesketh is a director at the chicken level. At the turkey level, we are also a director and sit on the advisory committee for hatching eggs. We are also on the advisory committee of the Minister of Global Affairs Canada; we advise the minister on import administration.
One of the interesting things about the recent TPP agreement is that the chapter on import administration was drafted by Canada. We're very happy about that because what we're doing is putting out on the international stage for adoption rules that we feel have worked very well in Canada. Because Canada has such a unique history in import administration, the other countries said that you have the experience; you write it.
A lot of the things that we, through the advisory committee, put forward have now been proposed in the TPP chapter. We would recommend that you review that chapter on TRQs because it has a lot of good stuff that Canada has found worked well.
We're encouraged by this aspect of it because, as Mr. Horel said, we like a rules-based approach internationally. When it comes to TRQs, more and more countries are adopting those things. If they can adopt the approaches we use, the world becomes friendlier for us. That's important.
We need access, too. Mr. Horel mentioned that trade is important to our sector. For further processors, often we cannot make our equipment pay for itself unless we have additional volumes, and they are not achievable in the Canadian market. The Canadian market tends to be too small. I'm sure that's something you hear from time to time. We need the additional economies of scale that we can gain through the export markets and through doing additional work here in Canada. The import-export programs are very important to us in terms of achieving economies of scale.
We like the additional access that the TPP gives us. As you know, the market is changing rapidly — antibiotic-free and other concerns are out there. Because the market changes rapidly, we need additional imports from time to time to provide some of these changes that the consumer has and then build our own industry's capacity to respond to that. Imports can be very helpful in dealing with changing markets. That additional access that the TPP provides us over a period of 18 years will be very important for further processors.
You will note that the government, in its wisdom, has negotiated the additional access with a clause that says 10 per cent should be set aside for scarcity. That is based on experience that the government has had with the global quota system that we have under the GATT, and that 10 per cent is there to deal with the type of thing I'm talking about. When something gets scarce in Canada, the minister doesn't have to make that difficult decision of whether to issue a supplementary import permit because he has additional quota in his pocket.
As further processors, we will be very interested, to say the least, in how that is dealt with, and we feel it's definitely something that our sector needs to take into account. So we would not be happy, for example — as you may have heard already — that producers, in some way, direct where those additional imports go. We don't think that's a good way to handle that. It should be the industry, as it is today, with global imports. The industry should be accessing those imports.
You'll notice, also, in the TPP that in the administrative procedure there is a clear statement that producers should not have access to import quota. It's right in there. Canada proposed that, so I think it's important to take that into account.
In terms of access, you've also heard from previous witnesses that there are some commitments made with the TPP that the government will improve some things at the border. We agree with some of that, but we also disagree strongly with some of the suggestions being made. I want to explain that to you, because that's very important.
The Acting Chair: It will have to be brief because we have a list of senators wanting to ask questions.
Mr. DeValk: Sure.
The three items that you've heard about are the specially defined mixture, the export programs of duty deferral and fowl meat. On fowl meat we agree: There are things going on there that need to be fixed up. Broiler meat may be coming in disguised as fowl meat, and we have worked with the U.S. industry to put in place a registration or verification system that now can be used and accessed by the Canadian government to ensure that it's really fowl coming in. We think that is the best way to deal with that particular problem, and we fully support that. We can get into further discussions about how that might work.
On the SDM, or specially defined mixture, there is a suggestion that we adopt the WTO approach as opposed to the current approach in chapter 16. I have provided both of those for you in the speaking notes. You can see the difference, but there are some very serious issues by changing that definition to the WTO's. We don't think it will be consistent with our international obligations to do so, and we fully do not support that kind of change. We think that will make us more uncompetitive.
On the Duties Relief Program, we think the current programs — those are import to re-export that's available under Global Affairs, and we have duty relief available through CBSA and Finance Canada. That last one works well for a lot of our members, and they have asked for verification from the department on how that program should be administered, because the accusation is that you can somehow substitute Canadian product for the imported product. That is not the case; the department administers it in such a way that that can't be done.
Therefore, there are a lot of jobs at stake. If you were to, for example, recommend that the Duty Deferral Program be made non-accessible to supply-managed commodities, you would be impacting jobs at the further processing level, and that's a real concern to us.
Thank you.
The Acting Chair: Thank you.
I will now begin with questions. Please, senators, keep your questions brief, and I will ask the witnesses to keep their answers as succinct as possible. We are running a little over our time.
Senator Unger: I listened to your presentations, and I honestly get more confused. My questions are around the issue that we seem to import a lot of chicken. If we are an exporting country, why don't our producers produce more, export more and import less chicken?
As a supplementary question, can you tell me the total government cost for supply management? There are all sorts of figures here about what our exports total, and imports, but what does the supply management system cost the government?
Mr. Horel: With regard to the first question on imports versus exports and why can't we export more and maybe import less, for the sake of brevity, as suggested, it really is a function of the supply management system — that and the commodities that we're in. For example, it's very difficult to export shell eggs anywhere other than somewhere very close. Egg exports, for the most part, are going to be processed. Our imports of shell eggs are all going to come from the United States. Even though, with this agreement, if it's signed by everyone, eggs could theoretically come from 12 different countries, they are going to come from the United States because of the proximity.
The United States is a less expense country to produce in due to some geographical issues and weather, but also due to the supply management system. It makes product in Canada at the farm gate more expensive than product at the farm gate in U.S., Brazil and other countries. That's not just for eggs, but for chicken, turkey, et cetera.
So if we are going to have a supply management system in Canada to guarantee producers a reasonable income over time, unless there are anomalies in the market, we will not be low-cost producers on a world stage. That's the program we supported for 40 years as Canada. That's the program that my members support as long as it works for processors as well.
The bottom line is that we will export and it's important — I want to stress that it's important — to balance the market for some value-added products that we make. We are getting better at those. We will look at the new countries and the new opportunities that come from this.
Eighty per cent of further processed products in chicken and turkey are produced by CCPEC members, the big integrators. We are big producers of further processed products as well, and we will look at those markets. If we can get to some of them, we will, but as long as we have supply management, we will likely be net importers for chicken and turkey.
On your second question about the total government cost, it will depend on how you want to measure or define it. The answer you would hear from my supply-managed "brothers'' is that there is no cost; the consumers pay the cost. It is true that the consumers pay the cost through the cost of the food; there are no subsidies or government costs.
I'm not sure if that answers your question, or if there is more to it than that.
Senator Unger: I don't like the answer that consumers pay more of the costs. That just explains why people who live along the border will go south to buy things like that.
Mr. Horel: But to be fair, in many other jurisdictions in the world, including the U.S., consumers are paying the costs there as well. It's just coming from a different avenue. So if there is subsidized feed going to produce poultry products, there is a cost that someone is paying. If there is a school lunch program, there is a cost for government. It's going to be paid.
Senator Unger: In Alberta, we've had many challenges. Oil prices have gone down, and our focus in government is not to do more for us but to remove market barriers. We have no income protection, so we must aggressively pursue efficiencies.
Do you think ratifying the TPP agreement will serve as an opportunity for Canadian farms to become more efficient and cut production costs in order to support Canada's competitiveness?
Mr. Horel: I don't want to monopolize this — I want the FPPAC folks to speak as well — but I absolutely think that, of course, it will give us an opportunity to increase production somewhat, notwithstanding the discussion we just had about imports versus exports.
I think the other thing it does, though, is that it gives us certainty for a period of time — a decade. I have heard some people say a generation. That might be a little long, but it gives us some certainty.
Once in a while, over the past number of years — you've witnessed this — supply management has been accused of being a barrier to negotiating trade agreements, et cetera. Whether that has been true or not — personally, I don't think it has — now that should go away. Now there should be no issue with that. The agreements are signed, assuming the TPP is signed. There are no barriers here. This should be good for all Canadians, but certainly for Albertans.
Mr. DeValk: One of the things that is interesting and doesn't get discussed a lot is that if you look at the TPP agreement, it appears as though Mexico will be open to the Canadian poultry industry. Currently, the Mexican market is not available to us because we did not negotiate declining tariffs or a reduction in tariffs at the time of the 1995 NAFTA agreement. Canada left that alone. The Mexican market has been a great growth opportunity for the U.S. poultry industry.
With the TPP, it looks like Mexico could be fully open to us, and Mexico is interested in trading with us as well. That could open up a market as big as Canada, if not bigger, to our poultry industry. We certainly, as further processors, are asking the government to take a hard look at that and make sure that that is the case and remove any remaining non-trade barriers so that we can access it. That could mean that we could double turkey production in Canada. That's a possibility. We should look at it and not shy away from it.
Senator Oh: Do you believe that the great distance between Canada and some TPP countries restricts the export of fresh products to these countries? The main exports to Asian markets are low value-added frozen products. Do you agree that the distance of the region is an obstacle to exporting Canadian value-added products? And how will your sectors overcome this challenge and benefit from the TPP markets?
Mr. Horel: Distance is certainly an issue for fresh. I just mention shell eggs because I think it is such an obvious example, but distance is an issue for fresh chicken, fresh turkey. So distance and fresh don't go together well.
As to your question about low value and your follow-up question about how we overcome in further processed products, distance becomes less and less of a factor when you have further processed products, higher value. The freight component does not have to be that big an issue in the final equation. If we are innovative, if we find some good niches — we have a very good reputation around the world for quality — there is no reason, other than basic costs, which I discussed with Senator Unger, why we can't export more value-added products, and we will. Distance is less of an issue, I would suggest, for value-added than it is for fresh. For fresh, it is just obvious.
[Translation]
Senator Dagenais: I would like to thank the witnesses for agreeing to appear before the committee today. I want to come back to the Trans-Pacific Partnership. The agreement will open up additional opportunities for the Canadian market. It will also give member countries access to our products. Mr. Horel, does your industry anticipate implementing measures to promote access to the Trans-Pacific market? I assume you would be able to increase production, that way.
[English]
Mr. Horel: We are looking forward to the signing and to having more opportunities for sales of our products. It will depend a bit on the commodity.
For chicken, frankly, I think that if the three mitigation measures that the government has promised to put in place are put in place, there is more potential gain from those three measures in the Canadian market than I see in the short term from the potential for increased exports. I think that will buoy the domestic market and overcome the additional access that we are going to put in multiple-fold. There is more value there.
For egg products, there could be more opportunity for export of further processed products. We are not going to export shell eggs; we are going to continue to import shell eggs.
So, Senator Dagenais, it really depends on the commodity.
The Acting Chair: I'll just ask Mr. DeValk if he has something to add.
Mr. DeValk: Again, we already have significant trade internationally in some products. As a matter of fact, Canada is bringing in cooked meat from Thailand on a regular basis for further processors to use. There are a lot of examples around the world that demonstrate that the poultry industry can engage in international trade and overcome some of these distance issues that Senator Oh has mentioned.
Canada is no different. Canada has a competitive advantage in grain. We are definitely one of the few countries in the world that can produce more food than we can eat. That is the case for poultry and eggs. We can produce more than we can consume. We need to take advantage of that. The TPP builds an opportunity for us to do that.
How quickly we can increase production will depend very much on whether Robin and I can demonstrate, through our associations, confidence that the markets we can tap into internationally, whether Mexico or others, are markets that we can count on so that when we increase production in Canada, we don't end up like the hog and beef industry. Often, you find that you increase production and have to decrease it again because something happens in the international market. We are going to have to convince the supply-managed industry that there are real opportunities, sustainable opportunities, out there. I think the TPP lays the groundwork for that.
[Translation]
Senator Dagenais: When they appeared before the committee last week, some chicken farmers pointed out that imports of spent fowl meat from the United States exceeded U.S. production, which has an impact on their market. I'd like to hear your thoughts on the situation, as it seems to be affecting our market. The North American market, for its part, is quite aggressive and occasionally exceeds exports.
[English]
Mr. DeValk: Thank you for that question. That is something that is on a lot of people's minds.
The first point is that in Canada, because spent fowl has not been on the import control list, there has been free trade. As further processors, we have developed expertise in using fowl meat to deliver cheaper chicken products to Canadians. We couldn't do that with the regular poultry, but because the fowl meat had a less expensive profile cost- wise, we developed a lot of products like nuggets and soups. We have become experts in the world. We have become so good at it that we now export fowl products to 34 different countries. Canada is the only country where fowl per capita consumption is going up. Fowl meat is a very important and critical part of the supply situation in terms of Canada.
Some people have used that fowl situation to their advantage by bringing in broiler meat and calling it fowl. We categorically feel that is definitely wrong and it hurts our industry. It was dealt with, and there have been some investigations. The RCMP, we understand, has looked at some of this. We don't have the details on this because the government keeps that quiet.
Our market last year was very good. We produced more chicken than ever before for higher prices than ever before. We think some of that was mitigated — it was reduced because of the activity. Nevertheless, we think some of that's still going on.
We have gone to the U.S. and set up a surveillance system in terms of a method where the U.S. Department of Agriculture has worked with our department and has said, "We will develop for you a verification system for fowl so that you can have confidence when it is delivered at the border that it is fowl.'' That is available to us on a voluntary basis so that we, as purchasers, can ask for that AMS verification and present it at the border.
We can ask our government to set up a NEXUS type of approach where we say, "If you present a load of fowl at the border and you have that certificate from the United States to show that it came from a fowl situation in the United States, then we have confidence that it's okay and we'll let the load in. If you don't have that certificate, hang on because we'll have to hold that load for a minute as we will need more information.'' We could use the approach of the Chicken Farmers of Canada in terms of DNA testing, which I think is a viable option.
The Acting Chair: I apologize, but we are short of time. We have three senators wanting to ask questions and we have another panel coming. We will have to move along.
Senator McIntyre: Thank you, gentlemen, for your presentations.
Mr. Horel, I draw your attention to page 4 of your brief, in which you address the issue of processor programs. As you indicated, if the TPP agreement is ratified, processors will receive $450 million over seven years through the Processor Modernization Program to help them increase their competitiveness.
As I understand from your presentation, this type of program is justified. Do you think this is enough funding? And aside from the federal proposals to assist the supply management sector, what other type of assistance would you like to receive?
Mr. Horel: We are very happy, obviously, with the announcement of the Processor Modernization Program. We were very happy to have officials come last week to our meetings to talk to our members about that. There is a lot of excitement behind the scenes. Members have some very interesting projects in mind that will help not only with efficiency and yield but also with animal welfare concerns and others that will keep us on the forefront.
Is it enough? That is a really hard question to answer. I think it will be enough. It's a generous offer, provided we make sure that all sectors get some. For example, it cannot all go to dairy, as it needs to go to all the different commodities.
I think that answers your question.
Mr. DeValk: I have a quick addition to that. In our sector, one of our challenges is that our further processing industry is not fully able to produce cooked products. Some of our members do not yet have cooking facilities. One thing we can do, if capital is made available, is use that capital to develop cooking facilities. That would be very helpful.
Senator Beyak: Thank you, gentlemen. Most of my complicated questions have been answered in our presentations and your responses to the other senators.
My question now is purely practical for the many viewers who watch these committee hearings; it's about the chicken wing industry. Can you tell me whether it is a good or a bad thing for Canada and how? It has grown so much in the last few years, and have we been able to take advantage of that?
Mr. Horel: It's a great thing. I'm getting a lot of gray hair. I used to be a salesman for Canada Packers, the forerunner of Maple Leaf Poultry, and I remember when chicken wings were the cheapest thing on my sales list. Now, there are times of the year when chicken wings are a higher price at the wholesale level than boneless chicken breasts, which amazes me. It's an example of one idea somewhere, the Buffalo wing in this case, can change an industry. Like chicken nuggets changed the industry, Buffalo wings changed the industry.
I know this doesn't exactly answer your question, but it goes back to some previous questions: If a Canadian somewhere can figure out that next new innovation, this TPP opens up whatever opportunities to take advantage of that. It's nothing but a good thing — it's a great thing.
Mr. DeValk: It's been fantastic for our further processing sector and our food service industry, no doubt about it.
However, it's interesting because when looking at the wing story you can also demonstrate how it is very useful to have a balance in your market in terms of import quota and production. In the U.S., if they want more wings they have to produce a whole new bird. In Canada, because we have the import controls, we can just bring in a whole load of wings and balance the market that way. We haven't restricted consumer demand for wings in any way, but we've been able to do it in such a way that our average wholesale pricing in Canada has been higher while still being able to deal with this challenge. It's been fantastic.
Senator Moore: Thank you, witnesses, for being here.
One of you gentlemen talked about the opportunity now with Mexico. Do we have the capacity to produce what you see as being increased export opportunities for us?
Mr. DeValk: As I indicated earlier, Canada is one of the countries in the world where we can produce more food than we can eat. That is the case for chicken, turkey, eggs and dairy. We can produce more in this country, but the idea of just producing more to satisfy an order that we get for one week is not the way we operate in Canada. We tend to produce more only if we have a sustainable market that we can see.
As I said, our challenge here is not, "Can we do it?'' The answer to that is, "Yes we can.'' We have the feed, the infrastructure, the knowledge and the technology. The question is, can we obtain market access and sustainable markets in places like Mexico and then put in place the capacity to grow that additional chicken and export it?
Senator Moore: You will have to build up more capacity in Canada to meet it.
Mr. DeValk: That is right, yes.
Senator Moore: Mr. Horel, do you want to say something?
Mr. Horel: Briefly, we have the capacity. We have lots of space and lots of natural resources, although we would have to build for some; but we have capacity. However, we need to be realistic. It will be an opportunity that our member companies will go after as hard as they can.
The biggest exporter of turkey to Mexico is the United States, by far. In fact, Mexico is the United States' biggest turkey customer, so the market will be competitive and price sensitive. We'll need to be realistic about this.
Senator Moore: In the processor programs like the one with regard to modernization of $450 million, does the TPP say somewhere that we will not be subject to a claim under NAFTA for the government subsidizing these enhanced processing facilities with that $450 million? Is that written in the document?
Mr. Horel: I have not looked for that written in the document. My assumption, and "assumption'' is a bad word, is that it has to have been covered off. It is a trade document that will be signed by 13 countries. With NAFTA including Mexico and the U.S., who are in that same trade document, I can't imagine it being challenged.
Senator Moore: We thought that about some other products, too. I would make sure it is in there.
Mr. Horel: We'll check.
Mr. DeValk: I did discover one interesting aspect in the TPP where it said if you want to access the dispute settlement mechanism, you have to make up your mind as a country whether you will use the NAFTA one or the TPP one. You can't use both or use one against the other. I think they have covered it off in one way or another.
Senator Moore: Mr. DeValk, I think you said 10 per cent quota was set aside for scarcity situations. And then you said industry — yourselves — and not producers should have access to this quota. Who are the producers? Who are those people?
Mr. DeValk: The producers are farmers, and in the case of supply management, they would be the national agencies.
Senator Moore: You are strictly marketeers? I am confused as to the producers. I thought some of you people were producers as well.
Mr. DeValk: No. We are called stakeholders beyond the farm gate.
Senator Moore: Yes. You are the marketing body.
Mr. DeValk: Yes.
Senator Moore: So you don't want the farmers to have any part of that, even though they are the guys who will have to increase their capacity to produce. I am a little confused by that.
Mr. Horel: I think the easiest way to explain our spot in the supply chain is that there are the farmers, who I know were visiting you a week and a half ago — chicken farmers, turkey farmers, egg farmers, and in our case, broiler hatching egg producers — my members, and then the primary processors buy the products off the farm from those folks and turn them into fresh products and further processed products. Some of the fresh products we sell to some of Robert's members who also turn them into further processed products. Processors and producers in Canada in supply management mean farmers.
I understand the question; I go to an international poultry council meeting. Producers in the rest of the world are producers because it is integrated from the farm right up through to the processor. But for us, producers are farmers, and processors and further processors are the next step in the chain.
The Acting Chair: I was so harsh on everyone that we have a couple of minutes, so I will have one last question for Senator Unger on the second round.
Senator Unger: Mr. Horel, in your presentation you said:
. . . CPEPC's membership includes some primary breeding genetics companies. In the turkey and layer business, these companies supply product to the domestic market but also export eggs or day-old chicks / poults to a number of countries.
Can you tell me what we are exporting here and which countries buy those products?
Mr. Horel: Thank you for the question, Senator Unger.
Primary genetics companies in our industry include companies like Hybrid Turkeys, and Lowman for egg companies. They are at the top of the genetic pyramid and they are the ones that produce the product that is sent out as hatching eggs that are then hatched and turned into breeder turkeys, which then produce more turkeys, which are then the ones on the farm. It is primary genetics, and then multiplier breeders, and then finally we get to the product that comes to us.
The primary genetics companies export either hatching eggs or they can export day-olds. The difference between chicks and poults is that a day-old turkey for some reason is called a poult and a day-old chicken is called a chick.
Those companies export around the world, but they have multiple locations. They have locations in Canada, but they also have locations in other countries. They will decide which countries are going to export to which other countries. They spread their risk. They have locations in Canada and in other countries, and on other continents, so that if there are avian influenza or animal health issues, or other trade barriers, they are not completely shut out of a market. Where they export to from the Canadian perspective will change depending on the conditions and animal health issues.
Senator Unger: These are like super turkeys?
Mr. Horel: These are the great-great-great-grandparents. How is that?
The Acting Chair: Mr. Hesketh, did you want to make a final comment?
Ian Hesketh, Vice-Chair, Further Poultry Processors Association of Canada: With respect to that question, we also have a secondary industry which is based in the London area. We are one of the largest international exporters of day- old poults for commercial operations; Robert didn't mention that. That industry operates and thrives on a very competitive basis with all countries in the world that produce hatching eggs for commercial operations. We not only have the primary genetic model running over here but the multiplier model running very effectively in a competitive environment based in Ontario.
The Acting Chair: Gentlemen, on behalf of the committee I want to thank you very much for taking the time this morning for coming here and making great presentations. We appreciate that.
We will now hear our next witnesses: Mr. James Laws, Executive Director of the Canadian Meat Council; and, in a few minutes, Troy Warren, Vice President - Business Optimization - Red Meats from Maple Leaf Consumer Foods. He is in a cab. As we know, the streets out there aren't great right now, but he should be here momentarily.
We thank you for accepting our invitation to appear before our committee today. I will invite Mr. Laws to make his presentation. Hopefully the other witness, Mr. Warren, will be here before you are done. That doesn't necessarily obligate you to continue speaking until he arrives, but if we have to improvise, we will.
[Translation]
James Laws, Executive Director, Canadian Meat Council: Good morning. My name is James Laws, and I am the executive director of the Canadian Meat Council, whose office is here, in Ottawa. The Canadian Meat Council is the national association representing Canada's federally registered meat packers and processors. With 50 regular members and 90 associate members, the Canadian Meat Council has been the voice of Canada's meat industry since 1919.
[English]
Thank you for the opportunity to present a meat industry perspective on your study on international market access priorities for the Canadian agriculture and agri-food sector. The meat industry is by far the largest component of Canada's agri-food processing sector, accounting for $23.6 billion in sales, $5.6 billion in exports, and providing 65,000 jobs and economic development in urban and rural communities across Canada.
It is absolutely essential that the Canadian livestock and meat sector be present in international markets. The stark reality for livestock producers, as well as meat packers and processors, is that the Canadian beef and pork industries would be decimated in the absence of export markets. Export sales account for more than 50 per cent of Canadian beef production and for more than 60 per cent of Canadian pork production. In addition, the livestock and meat sector constitutes a vital market for Canadian grain farmers.
Canada's meat exports have grown significantly in the past 15 years. Exports of beef have risen from 100,000 tonnes in 1990 to almost 322,000 tonnes, valued at $2.2 billion, in 2015. Exports of pork have increased from 200,000 tonnes in 1990 to 1.17 million tonnes, valued at $3.2 billion, in 2015.
Clearly, we are proponents of free and open international trade. We welcome all government initiatives to negotiating free trade agreements.
Our neighbour to the south remains our most important market, with $1.49 billion of pork and $1.57 billion of beef exported to the United States from Canada in 2015. We were very excited four years ago when Canada and the United States announced the joint Regulatory Cooperation Council and the Beyond the Border initiatives to better align our regulatory systems and boost North American trade and competitiveness.
However, we remain frustrated that the pilot project for preclearance of meat shipments to the United States that was supposed to have begun in September 2012 was blocked by U.S. protectionist lobbyists. There are, on average, 77 truckloads of Canadian meat that cross into the U.S.A. each and every day of the year. All of those trucks crossing the U.S. border are first screened by border security officials, as every truck is, but after that, they must report to one of only 10 USDA inspection centres along the Canada-U.S. border prior to their final destination. This takes a lot of extra time, costs more in extra fees imposed by these USDA inspection houses, causes Canadian product to be unnecessarily held up at the U.S. border, and frustrates our U.S. customers when product cannot be delivered on time.
Canada does not treat imported U.S. meat in the same fashion. All trucks containing U.S. meat — and there are approximately 50 on average per day, every day of the year, crossing the Canadian border — are first screened by Canadian border officials. At that time, they are told if they are one the 10 per cent subject to further inspection. This is not done at the border but at one of the 125 Canadian Food Inspection Agency registered establishments inland approved to do this.
It is our hope that the Government of Canada, and in particular our new Minister of Agriculture and our new Minister of International Trade, will be much more engaged and take a leadership role in fixing the various technical barriers and regulatory differences that undermine a level playing field in meat trade with the United States. It is time for our countries to adopt the same rules and regulations, just as Australia and New Zealand have done when it comes to meat.
We are very pleased by the conclusion in 2014 of the negotiations of the Canada-European Union Comprehensive Economic and Trade Agreement, CETA. Access to Europe for Canadian beef and pork has been very limited to date, and CETA will offer significant new opportunities for Canadian meat processors. When fully implemented, CETA could allow for the export of $1 billion of beef, veal, pork and horse meat to Europe.
But of greater importance to the meat industry is the accompanying side agreement on sanitary measures. They were intended to ensure that the Canadian and European meat inspection systems and meat processing technologies are accepted as equivalent. Japan, the United States, Mexico, Korea, Australia, New Zealand, Chile, Colombia and dozens of other countries already accept our meat inspection system and processes of sanitation and pathogen control as safe and based on sound science.
So should the Europeans. We are worried that despite many meetings between government officials that meat equivalence will not be granted by the Europeans. We will need equivalence to get meaningful commercial access into Europe before the agreement is put into force.
Now that Canada has signed the Trans-Pacific Partnership agreement, we must get on with ratifying it in Parliament and getting it into force. The Trans-Pacific Partnership agreement will allow Canada's meat industry to maintain market access parity with other signatories and will allow the livestock and meat sector to expand production and profitability for Canadian farmers. It will strengthen exports and international competitiveness for the meat industry, and increase jobs and economic growth for Canadians.
The TPP includes 12 countries and represents a market of nearly 800 million consumers, with a combined GDP of $28.5 trillion. Not only do these nations already account for 40 per cent of the world's economic output, they represent 77 per cent of Canadian meat exports.
Other countries are expected to join the TPP in the future. The terms and conditions of accession will be established by the initial TPP members, including Canada. So, for instance, if South Korea were to join, Canada could insist that they accelerate their tariff reduction schedule under the Canada-Korea FTA to match that currently in place under the Korea-U.S.A. FTA. That would immediately resolve our huge problem of being years behind the U.S. in getting an FTA with that country.
The deal provides TPP members, including Canada, with preferential market access for pork, beef and poultry products to Japan, one of the most important and valuable markets, on fully competitive terms with the U.S., our most important competitor in that market. Japan is the world's most important importer of pork, as well as the third-largest importer of beef. Last year, Canadian exports of meat products to Japan were valued at $1.1 billion. Japan was Canada's second most important foreign customer for pork after only United States and fourth largest international destination for beef after the United States, China and Mexico.
Had Canada not signed on to the TPP agreement, the loss of competitive access to the critical Japanese market would be devastating for farmers, meat packers, workers and rural communities from coast to coast across Canada. Canada will now gain significant market access advantages selling into Japan over pork exporters outside the TPP, such as the European Union and Brazil.
Japan is not the only TPP country of importance to the Canadian livestock and meat sector. Last year, Canadian exports of meat products to Malaysia, Singapore and Vietnam totaled 2.2 million, 8.5 million and 1.7 million respectively. As is the case for Japan, it is anticipated that Canadian meat exports to these countries will also grow significantly following the implementation of a Trans-Pacific Partnership free trade agreement. Vietnam, with a population of over 90 million, has agreed to phase out its tariffs on beef, pork and poultry to zero over a period of two, nine and twelve years respectively.
Now, I will hand it over to my colleague who is probably very close.
The Acting Chair: Thank you very much for your presentation, Mr. Laws. We may interrupt the questioning to allow Mr. Warren a few minutes when he arrives.
I do want to take the opportunity to introduce two colleagues that had to be at a different meeting, presenting on behalf of this committee, earlier this morning, and that is the regular chair, Senator Maltais from Quebec, and the deputy chair, Senator Mercer from Nova Scotia. So they are here and we appreciate that.
I will start the questioning with the deputy chair of the committee, Senator Mercer.
Senator Mercer: Mr. Laws, thank you very much for being here, and I look forward to hearing Mr. Warren if he fights the Ottawa traffic and taxi woes that happen periodically in this city.
Those were impressive numbers that you gave earlier. When you were talking about billions in terms of pork, I actually had to ask my colleague if I'd heard you correctly, and I gather I did.
Can you explain to the committee why that rather sudden increase in pork exports?
Mr. Laws: There was, over 15 years, a large increase in pork exports, a very concerted effort in many parts of Canada. Look at Manitoba and Saskatchewan. Quebec is a large pork producer, Ontario as well, and a lot of barns were built a decade ago or 12 years ago. So we have a very good opportunity in Canada. We can put barns in isolated areas to keep them disease free. There is lots of grain in Canada, lots of feed. Canada definitely has a competitive advantage in growing pork and beef as well, and so we definitely have a very good, strong opportunity to grow even further.
Senator Mercer: The risk of all this is a phrase that you just threw in there, "disease free,'' which we are all very conscious of and want to have, obviously.
One of the problems that Canadians have is that we are painfully honest in many ways. If we go back to the BSE crisis we had a number of years ago, the reporting of the BSE caused us untold difficulties, particularly if you were a beef producer or trying to market beef. If I recall at the time, Premier Klein, in Alberta, had the famous saying that probably would have worked if we had followed it: "Shoot, shovel and shut up.'' But that's not what we do in Canada. What we do in Canada is we follow the rules, sometimes to our detriment.
I'm really happy that you and others are anxious for the TPP to go ahead and that you see the opportunities for expanding our beef and pork markets in particular, but I am concerned. Are you convinced or comfortable with the fact that we can maintain our level of health security, the quality of the product and the health of the animals to meet these international standards?
We know the whims of some of our customers. Our best customer sometimes conveniently becomes very concerned about the health of our products when, indeed, many of our products are their products as well.
Mr. Laws: Thank you for the question.
Yes, we are very confident that we can manage through the situation, and one of the reasons why we have so many different international clients is in case someone does shut the border. You'll recall a couple of years ago when Russia, in the middle of 2014, shut its border. That was for political reasons. In that year, that was likely to be a $500 million market. We were very fortunate that we were able to divert those many containers that were on the water, in ports in Europe. I believe there were estimated to be over 500 containers of product stuck on the way there. We worked very closely with the Government of Canada to redirect them. Luckily, there was a lot of demand at that time for pork around the world. That's part of it, making sure you have a lot of different customers and diversify your clients.
In terms of disease control, we've learned a lot. We have all of the barns. In pork in particular, most of them are shower in and shower out, so very good disease control measures are in these facilities.
Senator Mercer: Who in the TPP will be our main competitors in pork, in beef too, but pork in particular.
Mr. Laws: In pork, the main competitor will be the United States.
Senator Mercer: Do they have the capacity to respond to a significant increase in demand?
Mr. Laws: They have very good capacity as well. The fortunate thing, in many ways, is that we are competitors, but we do work in North America in many ways. Animals and meat flow across the borders duty free, so we can work together with them as well on providing new markets.
With regard to some of the markets that will open up under the TPP, Vietnam could be a huge market. They are going to drop their tariffs considerably, so I think there is lots of room for Canada and the United States to supply those growing markets.
Senator Mercer: We continue to talk about exporting beef and pork, et cetera, but we don't spend a lot of time talking about processing. You're talking about non-processed meat, I assume, or are you talking about processed meat? Because the processed meat means many more jobs off the farm, and that's good news for Canadians in places like Winnipeg where there is processing.
Mr. Laws: These deals do include processed meat as well, not just meat that is intact, muscle cut. The deal with Europe will see the chapter 16 products, all the processed meat products, be duty free. With the Trans-Pacific Partnership agreement, there will be opportunities for that to happen as well.
[Translation]
Senator Dagenais: During committee meetings, some witnesses indicated that there was a shortage of skilled labour to work in meat-packing plants. With the Trans-Pacific Partnership, you said there was a steady increase. Has the problem been resolved, or is it still tough to find skilled labour to work in Canada's meat-packing plants?
Mr. Laws: That's a good question, and my colleague will speak to that. Yes, that remains a challenge for Canada's meat industry. We hire 65,000 employees every year. If you go to the government's job website, you will see that we have about 1,000 job postings for positions in meat-packing and processing plants all over the country, especially in meat-packing plants in rural areas, as opposed to those in big cities.
So, yes, it's still a challenge for us. It involves physically demanding work in a cold environment, and it's not easy to find people to fill those positions.
Senator Dagenais: I used to live in a rural area, near a meat-packing plant, and I noticed that many of the workers were foreign. Is there anything the government could do? I imagine you also hire foreign workers. Could the government help by facilitating access to foreign labour, given how difficult it is to find workers in Canada? I don't know why, but sometimes it's necessary to look outside the country for workers. Are there measures the government could put in place to facilitate foreign workers' entry to Canada?
Mr. Laws: Absolutely. We expressed our disappointment with the changes made to the Temporary Foreign Worker Program. Before, we could bring in temporary workers for a period of two years. They could then obtain immigrant status in Canada or return to their home countries. The initiative was very successful. Then, the government stated that many young people were unemployed and that it was necessary to draw on the pool of available Canadians to fill positions. We gave a presentation as part of the Governor General's forum on welcoming refugees to Canada. We talked about the employment opportunities. In our view, providing full-time, permanent jobs is the best way to help refugees integrate into Canada.
Senator Dagenais: Let's hope things improve.
Mr. Laws: Let's hope.
[English]
The Acting Chair: I would like to ask one supplementary question to what Senator Dagenais asked.
In Manitoba we have a great Manitoba-Canadian processing company called HyLife. A lot of people from the Philippines work there. I gather this is not just because they can't get Canadian workers. Many of these foreign workers bring a certain expertise. Would you comment on that?
Mr. Laws: Yes, that's true. That is a very good example. HyLife is an excellent company that owns the farms and the processing facility. They even have some farms in China, where they export meat to as well. You're quite right in that they bring in people with skills. At the same time, the meat industry will also offer on-the-job training and move people up in positions, and hopefully they will stay long enough.
We really don't want temporary foreign workers; we want permanent workers, people who will stay and make a career out of this because it's not seasonal work. It operates 52 weeks out of the year.
The Acting Chair: The company has done a great job, and these people who come in have made the town of Neepawa largely what it is today.
Senator McIntyre: Thank you, Mr. Laws, for your presentation.
We all know that once the TPP agreement is ratified, anything can happen, such as border closures and disease outbreaks. In the case of disease outbreaks, the one that comes to mind involved Canada-Korea in February 2015. As we recall, the Canada-Korea Free Trade Agreement came into force in January 2015. South Korea suspended imports of Canadian beef in February following the discovery of BSE. South Korea then lifted its temporary ban in December 2015.
In your opinion to what extent will free trade agreements protect continuing trade in the face of disease outbreaks? And to what extent is the trade in agri-food products vulnerable to border closures, despite the existence of free trade agreements?
Mr. Laws: Those are very good questions.
Our view is that we need to be in an agreement, and we need to set the framework that has the tariff reduction schedule. On top of that, these new agreements can often refer to international standards of trade through the international animal health group to tie people to a common set of international rules for animal health.
In the case of Korea, it was particularly unusual because the conditions imposed by Korea are much stricter than the international rules in that case. They went beyond what they really should have done in that case.
That's what Canada needs to do. Canada is a relatively small country in terms of global activity, but if we can always refer to the international bodies, then we can help to resolve stuff. Unfortunately, some of those things take time.
Getting back to what I said before, we need to have a lot of markets open so we can redirect product and not rely on only a few customers.
Senator McIntyre: The situation involving Korea, as I understand, was a rather minor matter involving a cow with BSE. They made big news out of it that caused some problems with the Canadian beef industry.
Mr. Laws: I recall that. I was in Korea when the Minister of International Trade took a delegation to celebrate the coming into force of the trade agreement. When I flew back to Canada, I got off the plane and learned that that had happened.
Senator Oh: My question was asked by Senator McIntyre. I believe that the TPP market is huge, and Canadian products earn a good reputation in the ASEAN countries as well as China, Korea and Japan. It's a big opportunity to take advantage of and export to Asia.
Mr. Laws: Absolutely. When my colleague arrives, he'll comment on how we believe that Canada should enter into free trade discussions with China. For beef last year, China was an important market. The Australian's now have an agreement with China, and we need to be in that market because the opportunities are quite enormous.
Senator Unger: Mr. Laws, thank you for your information.
I wonder if you would comment about Alberta. I know that we had a large processing plant that eventually left Alberta. I don't know if we still have any processing plants. I would think there would be no labour shortages, given what's happening with our primary resource.
Earlier you talked about the regulatory differences between Canada and the States. Are those differences in the process of being resolved? Will they ever be resolved? Why does this keep happening?
Lastly, can you tell me whether country-of-origin labelling, COOL, has been totally removed with all its tentacles and, if so, whether our beef will be able to move now?
Mr. Laws: Thank you for the questions.
First, yes, we have large processing facilities in Alberta. A company called JBS, headquartered out of Brazil, purchased XL Foods in Brooks, Alberta, where they're doing a really good job with a lot of international expertise. They process cattle with capacity for 3,500 animals per day. There is another beef processing facility south of Calgary in High River, Alberta, which is another excellent facility. There's also a large Olymel pork processing facility in Red Deer. Maple Leaf has a hog processing facility in Lethbridge. There's a smaller beef processing facility in Lacombe and other federally registered meat processors across Alberta. Yes, it's good news that we still have that capacity.
In terms of our regulations and those of the United States, we were really excited when President Obama and then Prime Minister Harper stood together and announced that this would happen. However, we have not found the required push to really get serious about making certain regulations the same. We really shouldn't have to move forward.
There were a couple of opportunities, for instance, when Canada moved forward with some regulations or even nutrition labelling. We thought, "Wow, this is one really good opportunity for the countries to work together,'' so we need leadership again at a very senior level in Canada to push the Americans to get going.
In terms of country-of-origin labelling, yes, they have removed the law. Despite all those years of working hard, it was a rather uneventful day when it happened, but, yes, now the rules are not in effect. There is no longer a requirement at retail for them to identify where the meat came from, where the animal was born, raised and slaughtered. That is gone.
Senator Unger: That is with regard to processed meat as well?
Mr. Laws: Not processed meats, but that was a rule that affected pork meat and beef, and poultry and lamb, sold at retail across the United States.
Senator Unger: Thank you.
The Acting Chair: Mr. Troy Warren has arrived.
We know, sir, that there were obviously issues in the last few days with the roads. I was looking at taxi lines. We certainly acknowledge the issues you faced this morning. We thank you for being here.
Mr. Warren is from Maple Leaf Consumer Foods.
Mr. Warren, if you want to take four or five minutes to do a very brief presentation, we will then go back into the questioning, if that is acceptable.
Troy Warren, Vice President - Business Optimization - Red Meats, Maple Leaf Consumer Foods: Terrific. Thank you. Please accept my apologies. I have seen parts of Ottawa that I haven't seen before with my taxi driver this morning. He, I think, just made the situation worse, not better, versus following the normal route into the city. You certainly have a lot of snow, and the side streets have not been plowed properly.
Thank you for allowing Jim and me to come and speak to you today.
My name is Troy Warren. I am First Vice President and Treasurer of the Canadian Meat Council. I am Vice President of Business Optimization at Maple Leaf Consumer Foods.
Maple Leaf, as probably many of you know, is Canada's leading consumer packaged meats company, headquartered in Toronto, Ontario. We are a publicly traded company on the Toronto Stock Exchange. We make high-quality, great-tasting, nutritious and innovative food products under leading brands such as Maple Leaf, Maple Leaf Prime, Maple Leaf Natural Selections and our popular sister brands that include Schneiders, Schneiders Country Naturals and Mina.
We have 19 meat processing facilities and three cold storage facilities in Canada, and we export our high-quality protein products to more than 20 global markets, including the U.S. and Asia.
We employ approximately 12,000 Canadians, and in 2014 we had pork and processed meat sales of around $634 million that we exported to 24 countries.
I updated our numbers for 2015. Our international sales would have been $670 million, again to 24 countries.
We are fully supportive of the Canadian Meat Council's objective of competitive access for Canadian meat to every country in the world. We are particularly pleased to see a report published in the last month by the Business Council of Canada that concludes that negotiating a Canada-China free trade agreement would increase investment, spur exports and create high-value Canadian jobs. China, with a population of 1.38 billion people, has a growing middle class and a growing demand for meat in their diet.
The study points out that Australia, which has a resource-based economy similar to Canada's, launched free trade talks in 2005, culminating in an agreement that took effect just last year, December 20, 2015. The pact will eliminate 95 per cent of the tariffs between the two countries over the next decade and is projected to generate 18 billion Aussie dollars in additional economic activity in Australia.
Canada cannot be left behind in a key developing agriculture export market like China. However, a new trade agreement, even ones that give us potentially a first-mover advantage, like CETA or a China FTA, are only part of the equation of a long-term successful trading agreement for Canadian agriculture. For business, this means competitive supply chains, including modern, world-scale plants, innovative products and services, the availability of labour and semi-skilled labour, globally oriented financial institutions and so on.
In the government sector, it means highly competent trade institutions working very closely with domestic, economic and regulatory industries whose daily decisions impact Canada's trade and investment potential. It means modern transportation and telecommunications infrastructure and labour to operate those reliably, and it means export market promotion and financing programs that at least match those of our competitors.
One of the greatest threats to the future of Canada's livestock and meat sector is a severe shortage of butchers and meat cutters in our industry. The first choice for Canadian meat processors is to hire Canadians, including, among those, the unemployed, youth, new immigrants, First Nations and refugees.
Canadian meat processors recruit aggressively and persistently in every region in this country. Our member companies pay higher wages than our U.S. counterparts and offer substantial union-negotiated benefits, invest heavily in training and offer financial support for relocation.
All of these efforts still are not enough. There are more than 1,000 jobs today in Canada's meat industry that need to be filled. Day after day, Employment and Social Development Canada's Job Bank lists page after page of employers seeking butchers and meat cutters. A single employer in our organization may seek up to 100, 200, even 250 workers that we need to find to fill our plants.
I can speak specifically to our operation in Brandon. We are seeking 100 to about 150 qualified butchers today.
Jobs in the meat processing plants are full-time, not temporary. The absence of sufficient butchers and meat cutters in this country is resulting in meat processors foregoing opportunities for production of profitable value-added products, thereby reducing our volume of exports and losing crucial profitability, competitiveness and business sustainability. As a result, fewer Canadian livestock is being processed here in Canada, and we are seeing jobs, livestock and economic activity being exported out of this country, mainly to the U.S.
The Canadian meat industry must be permitted, where and when necessary, to supplement the Canadian workforce with foreign workers. We believe that the Express Entry program that Citizenship and Immigration Canada put in place, effective January 1, 2015, should not be restricted to only highly skilled jobs but also to important jobs like butchers and meat cutters so that we can fill our job vacancies.
In terms of sustainability, our Canadian farmers and food industry are well positioned to meet the growing global population. We are a food exporting nation. We have a large amount of arable land. We employ sophisticated technology and have scale-farming techniques. These are our best allies in the quest to combat climate change and also provide us with a significant competitive advantage. Scale agriculture, which efficiently converts feed into animal protein, is the path for feeding more people while reducing our environmental impact, but we have to be better, be smarter and do more.
At Maple Leaf, we are committed to reducing our environmental footprint by 50 per cent by 2025. We believe that it is one of the most ambitious goals of any food company in North America. It encompasses three areas where we have the most material environmental impact: our climate change impact, water usage and waste generation.
We have recently completed comprehensive utility and water usage audits across our 13 facilities, with the balance to be completed this year. What we've found, which is common when you dig into energy and water consumption, is that there are material financial as well as environmental gains to be had from increasing our efficiency and reducing waste. What is good for the environment is also good for business.
In terms of competitiveness and profitability, there are some structural challenges that continue to beset us. It is a simple telling fact that it still costs more to produce a pound of pork in Canada than it does in the U.S. Our labour, construction, utility costs and wastewater are all higher. We are subject to greater regulatory costs and, because of our size, our transportation costs are also higher.
We are working with an aging infrastructure. There have been fewer barns built in Canada over the last few years, and most of our existing barns, particularly in Western Canada, will soon need to be replaced. By comparison, there were more barns built in the states of Minnesota and Iowa in this past year than there likely have been in the last five in all of Western Canada.
While our Brandon, Manitoba, operation is a scale facility and technologically advanced, it is underutilized today compared to the U.S. This is driven by the consequence of diminishing hog supplies in Western Canada, driven by environmental regulations that put our industry at a disadvantage to our U.S. competitors. The playing field needs to be level for all parts of our operations for our meat industry to grow and thrive.
But there have been factors working in our favour in the past 12 months. We are experiencing a bit of a roller coaster ride with the Canadian dollar dropping to a six-year low. Hopefully for us it is not expected to rise any time soon, with the Governor of the Bank of Canada suggesting that the dollar will remain persistently low. As our industry exports over half of what we produce, with the majority being old to the U.S., we should continue to benefit from a low Canadian dollar. It is a big advantage that Maple Leaf is leveraging. We are landing new U.S. business and aggressively seeking new opportunities.
Canada has a natural environmental advantage that reduces animal disease which, combined with advanced animal husbandry, is propelling our progress in reducing and eliminating the use of antibiotics. Again, it is another growing opportunity for Maple Leaf. We have been working closely with our producer partners and now are the largest producer of raised-without-antibiotic pork in North America. This is an area where our country can develop a competitive advantage.
Lastly, "100 per cent raised by Canadian farmers'' is now an increasing important proof point for Canadian menus. There is a welcome trend to purchase Canadian-grown products and to repatriate pork produced in the U.S. and sold in Canada back to Canada. We have the quality, the food safety, the environment and the strict regulatory requirements to make this a strong differentiator.
Thank you.
The Acting Chair: Thank you, Mr. Warren. Being from Manitoba, I am well aware of what Maple Leaf does in our province. We certainly appreciate a great company there, both in Brandon as well as many of the barns in southeastern Manitoba, where I am from.
We will now continue the questioning.
Senator Ogilvie: Mr. Warren, in your last comment you touched on the basis of my question. I was waiting for you to arrive because I wanted to ask both of you about this issue.
The reality of the world today is that we are entering a post-antibiotic era. The WHO has declared it a global pandemic in terms of the growing ineffectiveness of existing antibiotics to deal with bacterial infections around the world. We have discussed largely today the stage from primary production to transformation and then on to market. As a consequence of that, you have the greatest potential impact of any organization with regard to the habits of the primary producer.
I would like you to expand on the one example you gave, Mr. Warren, in the pork production industry. What roles are you taking to eliminate the indiscriminate and wholesale use of antibiotics in primary meat production and to revert to a purely veterinary-required use of antibiotics? I am not suggesting for a moment that antibiotics are not important in the health of animals, but I am trying to distinguish between the necessary use for actual heath issues as opposed to the indiscriminate use, which over time has been one of the contributors to where we are today overall. Could you respond?
Mr. Warren: I can speak specifically to Maple Leaf operations. We have eliminated the use of sub-therapeutic antibiotics across our operations. That is something we control in terms of the standards we set.
We are engaged with the industry on addressing, I believe we say, the four categories of antibiotic use in terms of their importance to humans. Today, the pork industry uses one antibiotic at the critical level — the number one category. As an industry, we need to come up with a solution for how we will phase out that antibiotic use in our pig production.
We don't have all the answers, but we're moving to sub-therapeutic use, which we've done internally. We will look at pushing that into our contract producers, which we do not own and operate, as a standard. We have been pushing aggressively the expansion of simply no antibiotic use, period. Ultimately, animals get sick. Animal welfare, in our case, still trumps a program to produce antibiotic-free pork. If an animal is sick, we will pull it aside and treat it.
As I mentioned in my comments, we have some great advantage in Canada because of the density of our animals and also our climate. The cold is actually an advantage, particularly in Western Canada, in producing this type of pork. As an industry, we can differentiate ourselves across the globe as a leader in this space.
I would suggest that we don't have all the answers today, but we are starting down the path. We know that we have to get in front of this issue and significantly reduce the use of antibiotics on farms.
The Acting Chair: We still have a few questions to ask and answer, so let's keep them short and to the point.
[Translation]
Senator Maltais: I would like to talk briefly about China. The Chinese market holds new opportunities and a vast number of consumers. Senator Oh and I met with Canadian exporters, including Canada Beef. We weren't impressed with their presentation, because they represent a high-end market: prepared meats sold in gourmet food shops. Those products aren't accessible to everyone. They focused on high-end products, which is a good market, in and of itself.
As far as pork is concerned, Mr. Warren, if you plan to break into the Chinese market, are you going to focus on high-end products or on prepared meats that are accessible to the entire Chinese population?
[English]
Mr. Warren: Both, probably.
Like all parts of the world, there is a difference in terms of what people can afford to pay. Certainly, there are premium markets that we seek as a company domestically within our fresh pork and processed meats. Then there is still a large segment of the population that has more budgetary constraints, so we produce a more generic, commodity- type pork.
We are starting to market in China our raised-without-antibiotic pork. It costs more but a segment of that population is prepared to pay the premium. In China, there is still a large consumer base prepared to pay only a basic price for the product.
The industry has an opportunity to brand itself in China because Canada has a great image across the world in terms of being clean and wholesome, and producing high quality. In a market like China, our product can sell at a premium in this marketplace, even just our generic product, because of Canadian standards and consumers' trust and faith in Canadian pork versus, in some cases, their domestic product.
Senator Maltais: Good luck.
Senator Merchant: I will touch on the Chinese issue because Senator Oh and I are just back from China. The Chinese mention quite frequently that they have trade agreements with Australia and that they are doing a lot of business, and why is Canada not in that playing field? How do you feel about that? Is that important to your industry?
Mr. Warren: Absolutely. It would be a significant advantage for us. The two markets we compete with going into China presently are the U.S. and the EU. If we were to have an agreement and have a first mover advantage, against those two primary pork producing regions, it would be a significant help to our industry in terms of creating more value for the primary processors, which would ultimately trickle down to the farmers. It would be of absolute high importance to us as an industry for sure.
Senator Beyak: Thank you, gentlemen. Those were excellent presentations.
You mentioned the frustration of the border lineups — I appreciate that very much — and that it has been looked at for a long time but with no resolution. Who were you speaking with, and is there anything our Senate committee can do to help in our report?
Mr. Warren, there is turkey and breast in prepackaged Maple Leaf Prime, but I get questions locally as to why there isn't pork and beef and if it's just our location, between Thunder Bay and Winnipeg on the Trans-Canada Highway, or if you don't have that yet? Is it a good export product?
Mr. Laws: I will start.
We definitely have been speaking with our Canadian reps at the embassy in Washington. We have been to meetings where high government-level people have presented joint work plans on regulatory cooperation beyond the border. They know our concerns. We have been on CBC "Power and Politics'' to debate the issue with our U.S. counterparts. We are not advocating for no inspection; just move it away beyond the border. That is what it is called, "Beyond the Border.'' It is really quite frustrating.
Mr. Warren: I echo Jim's comments. It is very frustrating shipping pork into our largest free trade partner; it is not easy to ship into the U.S. anymore. The inspection houses, in particular, seem to have ramped up the inspection of our product going in, even though we're supposed to be working on equivalency between our two countries. We don't reciprocate it as their product comes north, and there is a lot of cost to us as an industry in both beef and pork that the Americans are not subjected to coming north of the border.
As for Prime pork, we have attempted a few times in retail to develop our Prime pork brand. Unfortunately, we haven't had the same level of success that we have had on our poultry side between chicken and turkey.
For the most part, our operations support our customer brand. We would be a supplier to the likes of virtually every Canadian retailer: Loblaws, Sobeys, Walmart now, Federated Co-op across Western Canada, Safeway and the like. For the most part, it goes under their brand. They haven't been as accommodating to listing our fresh pork Prime brand as we would like, but we understand.
Part of the reason is that the chicken category in terms of the amount of consumption in this country is much larger and can afford to have more choices. Pork consumption, for the most part, is the smallest of the three categories today at retail. Hence, they don't have a significant selection for the consumer.
We don't have any beef production. I think both Cargill and now JBS probably wouldn't support me developing a brand with their product. They have their own same kind of agenda to develop their brand, so it wouldn't work. I appreciate your support, though.
Senator Moore: Thank you, gentlemen, for being here. I want to pick up on Senator Beyak and Senator Unger's questions with regard to our relationship with the U.S.
I think, Mr. Laws, you said that there are 10 checkpoints for Canadian products going to the U.S., and 125 similar facilities in Canada to receive their goods coming into Canada; is that right?
Mr. Laws: Yes, that is correct. In fact, a lot of the Canadian federally registered establishments, the processing facilities themselves, are approved to be inspection points. We believe the Americans should do exactly the same thing that we do.
Senator Moore: With regard to COOL and the U.S. legislation that was passed last December to eliminate it, we met, a previous year, with the secretary to the chair of the U.S. agricultural committee in the House of Representatives. He made it very clear that that legislation wouldn't come forward unless Canada had a list of retaliatory items. They would understand that and react to it. Is there any thought to that kind of a process in what you are dealing with here?
Mr. Laws: That's a good question.
Senator Moore: Would it be hurtful, or would it be to our advantage? We are doing a lot of trading day in and day out. So how do you squeeze them to get reciprocity?
Mr. Laws: It's a good question. We actually have approached the Department of Foreign Affairs, now Global Affairs Canada, and asked them that exact same question: Can we not get more teeth to the North American Free Trade Agreement and point out this issue that they are imposing these extra restraints on us that they shouldn't be? We have yet to get a full answer from the department on that.
We even went to the Americans and said, "You guys are faced with such incredible budgetary constraints. Why would you not want to move inspection beyond the border and have the inspectors who are already there in your other meat processing facilities that receive our Canadian meat do the job?'' But their union is quite strong.
We also suggested, at the meetings down in Washington, why not do as we do in Ottawa and have preclearance? Why not embed a USDA inspector at large facilities like in Brandon — we will pay for it — and have a USDA inspector look at it, or why not look at what one of our companies in Neepawa, Manitoba, suggested? With the technology we have, if a company agrees, why not have a webcam? We will give you access to the webcam. You can watch us all the time. We have nothing to hide. Why don't you do that?
We are trying to push the boundaries. They should be focusing on a lot more important areas other than re- inspecting meat in a box in a truck. It makes no sense.
Senator Moore: Our Canada-U.S. Interparliamentary Group is scheduled to make a congressional visit to Washington in March, where we will knock on the doors of people who we think can help our relationship. If there are persons that you think might be helpful for us to go to speak with, you should let us know. We usually have a briefing at the embassy, and then we go out and do our work for a number of days. It worked with COOL. It really did, and it may work in this.
Mr. Laws: Thank you very much. We will take you up on that offer.
The Acting Chair: I am going to ask Senator Mercer for some closing comments here in a second, but I want to personally thank you for being here this morning.
Mr. Warren, I know you had a lot of difficulties, but we appreciate that you could come.
Senators, thank you very much for your cooperation.
I will turn the floor over to Senator Mercer.
Senator Mercer: Mr. Warren, next week, you are at Disneyland. This week it was the Ottawa transportation system. Perhaps you could do a review of both, and perhaps the City of Ottawa should be marketing the crazy transportation system in the city as an entertainment process.
Why I wanted the floor was because I wanted to move that for the next two meetings, on Tuesday, February 23 and on Thursday, February 25, Senator Plett remain in the chair. Senator Maltais and I will both be absent on other parliamentary business. We are travelling.
Senator Ogilvie: To Disneyland?
Senator Mercer: Well, actually, it is not quite Disneyland, but it will be interesting. Senator Maltais and I have already agreed that we will have some discussions on agriculture ourselves while we're away.
If I could move that motion, chair, that will facilitate smooth operation of the committee. I came back from our earlier meeting so that I could monitor Senator Plett's work to make sure that he was up to the job, and I think we will agree that he can muddle through two meetings on our behalf.
The Acting Chair: Agreed?
Hon. Senators: Agreed.
The Acting Chair: Thank you all.
(The committee adjourned.)