Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 3 - Evidence - Meeting of February 23, 2016
OTTAWA, Tuesday, February 23, 2016
The Standing Senate Committee on Agriculture and Forestry met this day at 5 p.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]
The Acting Chair: I welcome you to the meeting of the Standing Senate Committee on Agriculture and Forestry.
My name is Senator Don Plett. I'm from Manitoba, and the acting chair of the committee.
I will start by asking the rest of the senators to introduce themselves, starting on my left.
Senator Tardif: My name is Claudette Tardif, and I'm from the province of Alberta.
Senator Beyak: Lynn Beyak from Ontario.
Senator Merchant: Pana Merchant from Saskatchewan.
Senator Oh: Victor Oh from Ontario.
Senator Unger: Betty Unger from Alberta.
Senator McIntyre: Paul McIntyre from New Brunswick.
Senator Ogilvie: Kenneth Ogilvie from Nova Scotia.
The Acting Chair: Today the committee is continuing its study on the international market access priorities for the Canadian agriculture and agri-food sector. Canada's agriculture and agri-food sector is an important part of the country's economy.
In 2013, the sector accounted for 1 in 8 jobs in Canada, employing over 2.2 million people, and contributing 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 free trade agreements are in force. The Canada- European Union 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 also undertaking four exploratory trade discussions with Turkey, Thailand, the Philippines, and member states of Mercosur: Argentina, Brazil, Paraguay and Uruguay.
Our first witnesses tonight, and we welcome them, from the Dairy Farmers of Canada, are Mr. Wally Smith, President, and Caroline Émond, Executive Director.
We thank you for accepting our invitation to appear. I am from a large dairy-producing area in Manitoba, so I'm certainly personally looking forward to hearing your presentation.
Following the presentation, we will have questions from the senators. We have only one set of witnesses on this panel, so we should have adequate time, but nevertheless try to keep our questions and answers concise so we can perhaps have two rounds of questions.
With that, Mr. Smith, the floor is yours.
Wally Smith, President, Dairy Farmers of Canada: Thank you, honourable chair, and thank you to the members of the committee for having us here today to make a presentation on the impact of the free trade agreements on our industry: the dairy sector in Canada. We are delighted to be here and to participate in the Standing Senate Committee on Agriculture and Forestry's study on international market access priorities for the Canadian agriculture and agri- food sector.
Our position is well known, as the Canadian dairy sector is mainly focused on producing for the Canadian market. Our export opportunities are mostly related to fine cheeses and valorization of skim milk powder. Our domestic market for dairy products is, however, the target of countries like the U.S., New Zealand, Australia, and the European Union, who see opportunity to export here.
Dairy Farmers of Canada is the voice of Canadian dairy farmers, fostering a strong and united support of farmers at the grassroots level for a national system of supply management or regulated marketing. We are the national lobby, policy and marketing organization representing all dairy farmers living on Canada's 11,350 dairy farms. Our organization strives to create stable conditions for the Canadian dairy industry today and into the future, for next generations. We work to maintain policies that foster the viability of Canadian dairy farmers and promote Canadian dairy products and their health benefits.
We care deeply about our country and we strive to be active participants in our local communities. A vibrant dairy industry means more jobs, improved access to infrastructure, and additional economic benefits passed on to other industries, ranging from banking, feed companies, parts and machinery sales, veterinarians and many, many more. We believe it is important to reiterate the positive contribution of the Canadian dairy sector to the Canadian economy.
We are one of the top two agricultural sectors in seven of ten provinces; we contribute $18.9 billion a year to Canada's GDP; we sustain approximately 215,000 full-time equivalent jobs across Canada; we remit $3.6 billion per year in taxes; and finally, we do not depend on direct government subsidy. No cash payments are made to Dairy Farmers of Canada.
We are socially responsive and care about our animals and the environment, which is why we are committed to setting and driving sustainability standards and demonstrating industry best practices through our proAction Initiative.
DFC leads the generic dairy market investment in Canada with an annual marketing budget of over $80 million, which is collected from dairy farmers across Canada. That represents about two thirds of Canadian dairy farmers' investments in marketing and nutrition, totalling approximately $120 million. As mentioned before this committee in November 2014, an important share of our strategic investments aims to grow the Canadian cheese market, a market which will be amputated by an additional 16,500 tonnes of cheese as a result of the Trans-Pacific Partnership, or TPP, over and above the 17,700 tonnes of cheese conceded in the Comprehensive Economic and Trade Agreement, or CETA.
In addition to cheese, the TPP agreement includes concessions for all other dairy products. DFC estimates the combined impacts arising from both CETA and TPP to be between 4.85 per cent and 5.8 per cent of the 2016 milk production forecast by Agriculture and Agri-Food Canada, representing between $282 million and $357 million in lost revenue. To this day, the dairy sector has been extremely proud to state that it does not receive any direct payments from the Canadian government.
Unfortunately, the combined effects of both these trade agreements will seriously impact Canadian dairy farmers' bottom lines year after year after year. These are perpetual losses that cannot be substituted through exports. While we are working vigorously on strategies to take advantage of some export opportunities, these remain limited as a result of the WTO panel loss in 2002, which essentially concluded that any export sale at below domestic prices constitutes an export subsidy.
The government made concessions on dairy to secure the TPP trade agreement. We consider, therefore, that in offering new access to dairy in exchange for greater export opportunities for other products from Canada in order to sign both of these agreements, the compensation to dairy farmers for revenues lost is a part of the compromise the Canadian government was willing to make.
DFC is supportive of trade agreements. Let me repeat that: We are supportive of trade agreements, as long as there is no negative impact on dairy farmers, because Canadian dairy farmers should not bear that cost. Considering that these markets will be lost in perpetuity, it is clear that the amount announced as part of the Income Guarantee Program, which covers the five supply-managed sectors for TPP as well as for CETA, isn't sufficient to compensate for lost markets.
We also wish to draw your attention to the Quota Value Guarantee Program. Dairy industry stakeholders believe that this program is not likely to yield any payment. The Canadian government has an opportunity to make a strong statement by repurposing the money devoted to this program so that it can instead be invested towards the goal of helping Canadian dairy farmers better prepare for increased competition. For example, a portion of these funds could be used instead for infrastructure and to invest in our proAction Initiative, as previously requested by DFC.
We are seeking from the Canadian government a commitment to invest, at minimum, the $4.3 billion envelope in the dairy and supply-managed sectors. Notwithstanding the negative impacts resulting from the recently negotiated trade agreements, we are pleased that the uncertainty related to these negotiations is now behind us. We hope the economic environment will allow supply management to thrive.
However, contrary to the claims that trade agreements have helped to shape a better world market environment, it is difficult for us in the dairy farmer industry to conclude that after 20 years of WTO the world marketplace is indeed a friendlier place for farmers. When we appeared before the Senate committee in November 2014, we told members that the world dairy market was essentially a dumping ground. Unfortunately, the situation remains the same.
The situation, as we see it, is disastrous. Looking at the International Farm Comparison Network price indicators, we see that prices have decreased from $56 per 100 kilograms of milk in February 2014, to $33 in November 2014, and stood at $25 a hundredweight in January 2016. And we don't think we've found the bottom. At this price, none of the world milk production can cover its cost of production.
Let's not forget that dairy is not a sector where trading is defining the industry. As a matter of fact, only 9 per cent of dairy production is traded on the world market. Dairy around the world is mostly produced for domestic and local needs.
The trade agreements open the door to products from dairy industries that are highly subsidized in both the U.S. and the European Union, putting Canadian dairy farmers at a disadvantage in our own market. Even New Zealand's products currently would enter the Canadian market at dumping price because 80 per cent of New Zealand dairy farmers today cannot cover their cost of production with the market price they are getting; and their main co-op, Fonterra, is helping to offset some of this impact.
In 1966, Canada decided to support its dairy farmers by voting into law the Canadian Dairy Commission Act, with a mandate to "provide efficient producers of milk and cream with the opportunity of obtaining a fair return for their labour and investment." Since then, Canada has been fulfilling its promise to its farmers. We hope it continues. This is why Dairy Farmers of Canada strongly believes that supply management works.
We wish to reiterate that DFC is not opposed to pursuing export opportunities. However, we are facing higher costs of production at the farm level as well as in the processing chain in Canada. For example, Canadian processor margins here are almost double what they are in the European Union, suggesting that export opportunities are limited. These export opportunities must return adequate profits to both farmers and processors. The promotion of export activities and export strategies can only succeed if they are jointly developed through a strong producer/processor partnership in collaboration with the government.
To be successful on the world markets, the Canadian dairy industry must target specific niche markets as opposed to commodities. There is a real interest in exploring and developing beneficial and smart export activities, and we can assure you that we are engaged in a dialogue with processors and government stakeholders in finding ways to help sustain and grow the sector.
To discuss export opportunities in the dairy industry, we recommend that members of this committee invite Semex to appear before them. Semex is not only one of our export jewels but also world renowned for delivering high-quality bovine genetics. They have been solving problems for producers for over 35 years, yet they still experience export issues.
As you know, to export semen or embryos, Canada and the receiving country must both have a health charter. In Canada, when a problem occurs, the government sends a fax. By comparison, in the U.S. they hop on a plane. So you can appreciate how long it can take to solve a problem in Canada. The CFIA, the agency responsible for the health charter, lacks sufficient staffing to be able to accomplish their mandate.
In conclusion, DFC is looking forward to working with the government, which has reiterated its support for supply management, and working collaboratively to find solutions to the challenges we face. We want to ensure that farmers will continue to make an adequate income from the marketplace, while adequately compensating farmers and processors for the negative impacts accruing from both the TPP and the CETA.
Thank you very much.
The Acting Chair: Thank you, Mr. Smith.
We will start the questioning with Senator Oh, to be followed by Senator Tardif.
Senator Oh: Thank you for coming before the Senate committee.
A number of our 11,350 dairy farmers fear that a massive influx of foreign dairy products into the Canadian market will threaten the future of family farms. Indeed, the sales of foreign products on the Canadian market could lower prices and, consequently, farm income. Could you describe how our dairy business is performing right now in the Canadian market?
Mr. Smith: That's a really good question. In today's international situation with low prices all around the world and farmers not meeting their costs of production hardly anywhere, we are the shining example of how regulated marketing works. The Canadian Dairy Commission is still fulfilling the mandate that we are a viable economic driver and profitable business throughout rural Canada.
Senator Oh: How can the Canadian dairy business adapt to this new competition in the Canadian market as the whole world is joining in more and more free trade agreements? How do we adapt to this? What can the farmers and the governments do?
[Translation]
Caroline Émond, Executive Director, Dairy Farmers of Canada: Your question is interesting because, indeed, what we hear from consumers is that they trust the Dairy Farmers of Canada. They recognize the quality of products that are made in Canada, the standards we respect, and the commitments we have made. In the flyers we gave you, you can read about our commitment to sustainable development, environmental regulations and animal welfare regulations. Canadian consumers trust our products and want to buy Canadian products.
We give them tools. Earlier, Mr. Smith talked about the investments we make to increase the consumption of dairy products in Canada, the work we do with nutritionists throughout the country to encourage people to respect Canada's food guide, but also to give consumers as much information as possible. Labelling is one way, and we also have marketing tools. For instance, we have a logo that lets consumers know that a product is made with 100 per cent Canadian milk. Various tools allow us to position ourselves, as well as our products, so that consumers can tell the difference between our products and imported products. This is a factor that allows us to influence consumers so that they can find our products when they look for them on the Internet.
[English]
Senator Tardif: Welcome, Mr. Smith.
[Translation]
Ms. Émond, thank you for being here and for your excellent presentation.
[English]
There seems to be a broad consensus emerging in the agri-food industry, from production to transformation, in support of the TPP agreement. However, a few sectors, such as dairy, while generally supportive of the TPP, seem much more concerned about the agreement, in particular producers from Eastern Canada in Quebec and Ontario. Do you feel that your industry can fully or partially offset the expected increase in dairy imports — and I believe we're talking about 3.25 per cent of the Canadian market — by increasing exports to Asia, for example, particularly processed and further processed milk products?
Mr. Smith: I referred to the panel decision in my presentation. Because Canada, with its regulated marketing system, is deemed to be cross-subsidized by its domestic price if we're exporting into the international market at world price, we have been deprived of that opportunity by the WTO panel. We're allowed to export when it comes to our domestic price. If we're exporting at our domestic price, there's no problem. We are looking for opportunities in that regard, but those remain niche opportunities.
When we're talking about international traded dairy products, we're talking about the commoditization of the milk products that remain in the residual part of manufacturing, of processing, and that fetches a very low price. It's not a market that we're very interested in.
The 3.25 per cent, or whatever the number might be, is something that we've lost domestically in perpetuity. We, in Canada, have a supply management system designed to provide production to domestic requirements. One of the pillars of supply management is disciplined production. When the market grows, farmers are allocated more quota to be able to meet that domestic demand by ways of production. But when the market shrinks, the farmer also loses the opportunity to produce that milk because the market requires less product.
I'm proud to say that our members are very disciplined by managing that pillar so that, with any kind of market fluctuation, they adjust their production. Having said that, the amount of production that is traded away in terms of market access is a loss to Canadian farmers forever. That can never be brought back. And, of course, we're looking at ways and strategies to try to mitigate that.
We are certainly actively looking at export opportunities where it's all right to do so and where it's compliant with the WTO. The WTO does not only introduce trade rules that affect Canada; for every member country, they manage a system of international trade for everyone to make sure that everyone lives up to the letter of the law within the WTO agreement. So we have to be careful how we do that.
I have always said that Canada as a whole needs to be in the TPP. Canada cannot be outside of the agreement looking in because there would be trade disadvantages. I've said to my members that a good, strong, robust economy, if the trade deals deliver that, is good indirectly for Canadian producers because if we have a strong economy, we have a growing market and consumers who can spend their disposable income. That means if we are going to be providing for the domestic market, the domestic market is growing and there is that opportunity.
I also said in the presentation that the clouds basically have been lifted from supply management. We've been playing in a defensive mode for the last decade. That's behind us, so we can look forward now and say that the system was preserved. It's not just about access. The pillars of the system have been preserved. We're counting on government to help us enforce the pillars of the system. Therefore, we're looking for a secure future.
The government of the day also committed, when we were in these discussions, that the compensation for expropriating an asset from supply managed sectors in order to land this great, big international deal was very important in allowing us to "keep whole," as the government of the day used to say. And we believe we've been kept whole.
Senator Tardif: So you judge that the compensation offered was adequate.
What specific niche markets are you speaking of when you're talking about exporting?
Mr. Smith: We're looking at niche markets in fine cheeses because Canadian cheeses, if you've had a chance out here to sample them, are some of the best in the world. We're very proud of those and we think that we need to start telling our story internationally.
As far as compensation goes, it's never enough. You get economists in the room, and I've never understood economists very well. They always have different interpretations of numbers that seem really simple to me. One plus one is two and somehow they can make it look like anything between two and three.
In terms of the compensation, we're satisfied that it's okay, but we're using stats from Agriculture and Agri-Food Canada. It looks like our numbers may be a little bit elevated from those. However, I'm trusting that with the commitment I've heard from the minister of the new government in the last few months, the government will stand firmly behind the numbers that have been presented to us in the deal.
Senator Ogilvie: Mr. Smith, when I came here this evening, I had in mind how impressed I am with the modern dairy industry. I had a chance to go through a very modern barn in Berwick, Nova Scotia, this summer. Within the barn there were roughly 300 head of cattle. They were virtually free range within that barn. It was self-cleaning, with robots doing this and that, animals wandering around and getting scratched when they wanted to, and so on. It was very impressive.
And then you handed this document out from the Dairy Farmers of Canada. I am fortunately a fast reader, and on page 21, I came across some remarkable statements about the amount of sugar and the fact that the sugar in chocolate milk is not an issue and we shouldn't be concerned about that. It shocked me, quite frankly, because sugar is a serious contributor to the obesity problem that we have in Canada and around the world.
To take a quick example, a 250-millilitre glass — that's one quarter of a litre, for those of you who want to follow this — of 1 per cent chocolate milk has 160 calories and contains 25 grams of sugar. A glass of Coca-Cola of about the same size is 100 calories and 26 grams of sugar.
Now I understand there are other things in the glass of chocolate milk, but the idea that you can state unequivocally in here that there should be no concern whatsoever about the sugar in chocolate milk astounds me. It would take an ordinary person in ordinary exercise approximately an hour and a half to work off that many calories. It would take a vigorous workout to do it in half an hour. The issue is not just the amount of calories; it is in fact the amount of sugar. They are empty calories; they are high calories and they contribute negatively to health overall.
I was startled to see that. I happen to like chocolate milk, by the way. I had never seen a statement such as that, and I'd like your reaction.
Ms. Émond: Thank you.
The point that our nutritionists are making is in this whole debate about sugar is that in the past it was fat, then salt and now we're after sugar. What's important to raise in the discussion, and you just mentioned it, is empty food versus food that actually has nutrients and that is really feeding people. By putting every product on the sugar base level in the same category and saying those products are bad gives the impression that actually drinking Coke or chocolate milk is the same thing. It's not.
If you have to make a choice with your kids and it's either one or the other, you would prefer your child is drinking milk. At least it has nutrients. It's not an empty food compared to a food that is totally empty.
The discussion about sugar is something we want to put in context. We realize that there's a difference between added sugar and natural sugar in the product. That discussion is part of the labelling issue right now: that we make sure we don't label nutritious food as being at the same level as a food that is empty. That's why we're making that reference, so that people don't misunderstand there is a difference in the nutrition of the food.
Senator Ogilvie: You have spoken very well to obfuscate the issue, and I congratulate you on that.
In basic white milk there is far less sugar, so you actually have significant added sugar in here, and it is the added sugars, absolutely, that are the very serious issue. Many of the nutrients that you're referring to are probably micronutrients, and they can easily be picked up elsewhere.
Ms. Émond: A lot of research is being done by processors to find ways to develop products, because obviously we don't develop products; we produce milk. Research is being done by processors to find ways to make products with that consideration in mind — reducing the sugar level in chocolate milk. We just want to make sure it's not put in the same basket.
I'm sure you've seen that we position chocolate milk as a sport recovery beverage. It's a great positioning and it works well with athletes and sporting people who are using chocolate milk as a recovery beverage instead of energy drinks, which are, again, empty calories. We try to position the product in the best possible light, but I understand your concern.
Senator Ogilvie: Chair, I would like to pursue that last angle, but I know you don't have time. There is a very significant argument against what she said.
The Acting Chair: We might want to have an hour debate on that at some point, but we do have to move on. Thank you very much.
Next is Senator Unger.
Senator Unger: Thank you, Mr. Smith and Ms. Émond, for your presentation.
I have a different perspective. I'll preface it by saying that last year on July 27, the National Post published an editorial entitled, "Supply management must die." In part, they said the following:
Supply management is harmful to consumers, who pay two to three times the market price to shield a few thousand farmers from greater competition. It is no less harmful to enterprising farmers, who must pay hundreds of thousands of dollars for quotas for the privilege of producing for a small domestic market, rather than more lucrative markets abroad.
It's not an unusual view point, and I think it's becoming a more common viewpoint.
Mr. Smith, from your comments, I think that you would agree with what this article in the National Post said. You say that Canada needs to be in the TPP, and that there are payments being made to farmers to help them cushion the shock of being forced to compete more. Do you understand this viewpoint?
Mr. Smith: I understand the viewpoint and I vehemently disagree with the viewpoint. There have been many journalists who have had the freedom to write and opine their position on all kinds of matters, including supply management. At the end of the day, it proved wrong. The government decided that supply management is worth preserving because of all the economic activity that is generated in rural economies right across the country.
There's no basis whatsoever for their allegation that consumers in Canada pay a higher price for dairy products here under a regulated marketing scheme than anywhere else in the world. We have evidence that in New Zealand, where they did deregulate, consumers are paying more now in the so-called "free market" than they've ever done before, and farmers are making less than they have ever done before, or going out of business, because they can't meet their costs of production.
I vehemently disagree with that comment. We got used to it after a while, all these journalists writing their articles about how everybody would be better off.
We have a very good example. You may have remembered the mad cow scare in Canada. Farmers were getting almost nothing for their cows that were being sent to market. Dairy cows that were spent and no longer good in the production line were getting nothing. Yet the price of ground beef, because consumers were standing firm behind Canadian farmers, actually went up. Using that example, why would it be any different with deregulating Canada's dairy sector? We believe that it's proven already that those arguments made in the urban media are dead wrong.
Senator Unger: I know many people who live close to the border, particularly in White Rock and further in towards Vancouver, who all drive across the border. They will put up with the lineups and buy dairy products and bring them back home because they're much cheaper.
Back to these sentiments about supply management and the ongoing move toward freer trade, would you agree with some commentators that the future of supply management is facing serious challenges? What are you doing to prepare for these challenges? You certainly sounded as if you're very open to TPP, and you're taking steps to prepare.
Mr. Smith: Well, first of all, regarding your comments about the U.S. prices, as I said in my presentation, U.S. farmers are heavily subsidized, so they do not get their income from the marketplace. Canadian dairy farmers' only source of income is from the marketplace, and yet when you look at the food price index of inflation in foodstuffs in the last year, products of the regulated marketing sectors have shown the least amount of increase. While the rest of food costs were going higher and higher, dairy and poultry were staying stable, so consumers benefited.
As far as the comment about people going across the line and buying their product at Costco in Linden, today it does not happen so much anymore. It's not the supply management sector that is facing huge challenges. The whole world economy is facing huge challenges. I'm proud to be a producer — a farmer in Canada — who is profitable under a supply-management system that is innovative and modern, as we just heard from the senator next to you, in terms of our production systems. It's time that our processing sector starts to invest to the same degree that farmers have in technology, innovation and advancement so that they, too, can be more competitive, because today they are not as competitive, perhaps, as some of their counterparts.
I'd like to finish off by saying that we have Shoppers Drug Mart, Costco and Walmart, all of whom carry milk and put it on sale from time to time as loss-leaders to attract customers to come into their stores — because it is a staple item — in the hopes that they will not only buy milk for the cheap price, but that they will also buy other foodstuffs and items they are going to make more profit on.
So the loss leader isn't true to Canadian grocery stores and retailers. It's also very true about the Costco stores across the line. I can tell you clearly that when I go further into the States, beyond 100 miles from the border, that often I am paying higher prices for dairy products that are usually a little inferior in quality. I'll take my Canadian cheese any day of the week, thank you very much.
[Translation]
Senator McIntyre: My question is about diafiltered milk, milk protein substances, and customs duties. Ms. Émond, I understand that the Producteurs de lait du Québec, the milk producers of Quebec, have already spoken out against, and continue to denounce, the massive imports of diafiltered milk from the United States.
As you know, this diafiltered milk enters Canada duty free from the United States. However, milk protein is subject to tariff quotas.
My question is the following: can you explain the difference to us, if there is one, between diafiltered milk and the protein substances in milk? Since protein substances are subject to tariff quotas, why is it that diafiltered milk from the United States comes in duty free? Are there clear import regulations for each of these products?
Ms. Émond: Now we are certainly going to need an additional hour.
Senator McIntyre: Very briefly.
Ms. Émond: We may have the opportunity to discuss some details if you wish. What is important to know about that situation is this: we spoke earlier about the three pillars of supply management. Border controls are one of those pillars. Since we discipline production, we have to know what is imported into Canada under trade agreements. We have to be aware of what comes in so that we can adjust our production.
A lot of people have creative minds and attempt to find ways to bring products into Canada while getting around tariffs and quotas. We have seen many examples of this in the past. Among others, there was a butter oil mix. Someone is always trying to get around the rules.
We are wrestling with this situation which has gone on for a number of years, and we have been sounding the alarm on it for several years. Some people have found a way of classifying a product in a category that is not subject to tariffs, for the purpose of getting it into Canada. This problem has degenerated mostly because there are two government agencies that function with different definitions. For instance, a product arrives at the border and people say that it contains such and such an ingredient, which means you can import as much as you like without paying tariffs. On the other hand, the Canadian Food Inspection Agency may state that, finally, even if the ingredient came in under such and such a name, it may be used, for instance as milk in the composition of cheese.
So there are two agencies that treat the same product differently. The product does not change between the moment it comes into the country and the moment it is used in the plant. This situation has allowed the use of this product to spread in Canada and to replace Canadian milk which is no longer being used to make cheese.
The reaction of our producers, as you saw earlier, has been to say that we must put an end to this situation, which makes no sense whatsoever. People are being allowed to bring in a product without tariffs and then to use it in another way.
There has been a lot of bungling in this file, which has dragged on for years. The minister sent us a very clear message that he intends to settle this matter.
This is an extremely important issue for us, because it has a direct impact on production in Canada.
Senator McIntyre: I would like to raise another point. In order to rectify this situation, I understand that Ontario dairy farmers have announced their intention to produce milk protein concentrate at the international price. I also understand that this new measure will come into effect on April 1 of this year.
Ms. Émond: For a few months now there have been discussions between the processors and producers in Canada to facilitate the production of ingredients in Canada. This work is being done behind closed doors. The negotiations are confidential. One province among others has announced its own approach, but there is in fact work being done on different fronts in order to find ways of producing this type of product in Canada, which could generate a certain interest, and especially to have it used or recognized by the different agencies in the proper way.
Senator Dagenais: Thank you to our witnesses. I would like to go back to the Trans-Pacific Partnership. You are probably aware that in June 2015, dairy producers had to get rid of their skim milk because they could not sell it on the Canadian market. Correct me if I am mistaken, but I believe this situation was related to the fact that there was a high demand for butter and cream. There was also insufficient processing capacity, as well as a weak demand for fluid milk. Since we now know that the Trans-Pacific Partnership will be signed and that Canadian dairy products will be given access to the markets of other countries, do you think the agreement will give your sector the opportunity of opening new markets and thus avoiding overproduction situations?
Ms. Émond: Thank you very much, senator, for that question. First, it gives me an opportunity to clarify a point raised earlier by Senator Unger.
I would like things to be clear. The Dairy Farmers of Canada are not asking for anything in the TPP file. As we said earlier, we are not opposed to the Canadian government's strategy of going after foreign markets for its activity sectors. Later you will hear from representatives of the pork sector who are looking for exports for the survival of their industry. And so we do not oppose the government's strategy.
However, we have never been in the supplicant's bench. These agreements are not negotiated for the benefit of dairy producers. As we indicated earlier, our export capacity is limited because of production costs in Canada. Production costs are 23 per cent higher in Canada than in the United States. That is linked to a series of factors, social legislation among others. The cost of raw materials is not the issue; there are different reasons.
In the TPP file, as with CETA, the dairy sector is in something of a hostage situation in these discussions. As we said before, our market is an attractive one. Producers throughout the world are looking for markets. As you know, New Zealand exports 96 per cent of its dairy production. As a small country, it needs markets, and it has chosen ours. That does not mean that New Zealand producers should be better protected than Canadian ones. Governments understand that the economic advantages generated by Canadian dairy farmers and their impact on communities are such that we want to maintain this sector in Canada. That is why when we received requests in the framework of CETA and the TPP, the government committed every time to compensating the dairy sector if it had to be penalized for the agreement to go through.
We were asked earlier whether it would be possible to offset market losses by finding new markets elsewhere. The answer is no. We are going to try to find some. We are dynamic people and we are going to find options. However, we are facing a permanent loss of production. For people who focus on the domestic market, there will be no equality.
Our system is complex. We talked about all of the impacts that could make a system somewhat less regulated — you talked about the skim milk powder situation. Imports will undoubtedly have an impact on production levels. Does this mean a drop in production, if we cannot develop domestic markets and a few external markets for some new products or ingredients we could produce in Canada?
[English]
Senator Merchant: You mentioned CETA earlier. You may recall the protection of geographical indications when it was negotiated. I believe that is also in the TPP. Given such product names as feta or parmesan, how will that affect your products if it goes through under the TPP?
[Translation]
Ms. Émond: What I understand is that generally, there is an acquired rights clause that will allow us to keep certain trade names. The cheeses we make here, under certain trade names, are less threatened. In other words, the cheeses that will be exported, if we do export some, will be fine cheeses, very specialized, and will use their own trade names, because the protected names are not always camembert or other such recognized cheeses sold under protected names.
As for the promotion of products at the distribution level, I don't think that is a big problem, as the topic was not raised often during the TPP discussions. At the CETA talks it was more critical, but in the context of the TPP, it did not emerge as a problem.
[English]
The Acting Chair: I have a couple of questions, and I will ask them in sequence and you can answer. I think we'll have time for at least one other senator to ask a question.
Mr. Smith, in your presentation or maybe it was in one of your answers, you talked about spent dairy cows not being worth anything for a period of time. I don't know many dairy farmers who have dairy cows because of the price of the cow; it is the quota that the cow brings with it. When that cow has finished producing, has that spent cow ever been worth very much?
Mr. Smith: The point I was trying to make, Mr. Chair, was that the example of when the floor drops out of the price of what that cow should be worth, that doesn't necessarily translate into a change of the price at the retail level.
The Acting Chair: But in fairness, no dairy producer is buying cows because he wants to make money on the cow at the end. He buys a cow because he has a quota and he will make his money on that cow during the life of that cow producing milk.
Mr. Smith: There is still a percentage of income, though, that is derived from the secondary beef market that we are involved in, selling our culled cows into the hamburger market in Canada.
The Acting Chair: I appreciate your answer. I would question that, though.
In Manitoba, at least, I have not seen many dairy producers go broke. I have seen quotas increasing in value. In most of my lifetime quotas have increased in value.
I, for one, Mr. Smith, are largely supportive of supply management because I agree with your answer to Senator Unger that we either have supply management or we have subsidies. So if we have to have one or the other, I think this is better than what the Americans have.
Nevertheless, quotas have increased in value for most of my life. Have they not increased in value for most of yours?
Mr. Smith: Well, again, I think most everything in our lives has increased in value, whether it is quotas or cars or cows.
The Acting Chair: Now you're talking inflation. Certainly everything increases because of inflation. That's not the reason quotas have increased.
Mr. Smith: The price of quota, as in any other commodity basically, is market driven.
You say you hail from Manitoba, and I can tell you that Manitoba has had their price of market quota go up and down. It doesn't always increase and it doesn't always decrease.
Is it more valuable today than it was 20 years ago? Absolutely, but I think just about everything is more valuable today than it was 20 years ago.
The Acting Chair: Fair enough. With things more valuable today than 20 years ago, most of the people aren't asking for more. Anyway, we'll leave that there.
You talked about the value of our product versus the value of product across the line. Again, being from Manitoba, I can say we have wonderful cheese. There is a cheese factory called Bothwell Cheese and I think it's the best cheese in the world. Certainly there are many cheeses in Quebec that are also wonderful. I would support cheese.
I would also on occasion, having a cottage at the border, have to drive cross the line to buy my dairy products. We buy our milk there, not because it's cheaper there but because that's where it is. I cannot taste the difference from one kind of milk to the next. Should I?
Mr. Smith: It's a matter of the eyes of the beholder, I imagine. Some people can tell the difference in how red wine tastes. I can't find the different flavours that people talk about, but I can tell you two things: No hormones are used in the production of milk in Canada, unlike in the United States. I think that's very critical to people who consume milk in Canada. They want to know that it's an unadulterated food, and in Canada we can say completely that it is.
I also want to share with you your enthusiasm for the New Bothwell cheese company. I'm actually having lunch with the president next week because we fly together from time to time. He lives on Vancouver Island, and we were discussing just yesterday morning, in between our airport layover, about how can we, between the Dairy Farmers of Canada and in this case Bothwell Cheese, work on innovation, work on increased capacity and processing, because as you know, Bothwell Cheese makes cheese only from fluid milk. They are one of the last companies in the country that don't use modified milk ingredients. Those are the companies we want to support as dairy farmers because they are true to what they believe in terms of values, supporting Canadian farmers and providing a product to consumers that is as pure as pure can be.
I got an email this morning. Some of the suggestions I was making to him don't necessarily fall into his business plan, but he said he was going to talk to his brother about some of the ideas I had raised with him, and now he wants to follow those up. I'm pumped. I'm thinking this is good, because this is a mid-sized cheese maker, not one of the big ones. I said to him, "You're using 100 per cent Canadian milk in making your cheese, and you're making money?" Because I hear from the great big multinationals that if they didn't do this and they didn't do that to compromise their production chain, they wouldn't be able to make money.
When this guy says, "I don't print money but I believe in the product that I sell, and this is what my consumers who are buying my product want from me," then I am going to support him as best I can as far as the Dairy Farmers of Canada is concerned.
The Acting Chair: Well, I'm certainly glad I got in a good commercial here for Bothwell Cheese. You can tell him that we're disappointed he's living on Vancouver Island. He should be living near his cheese factory.
Thank you very much for attending. On behalf of the committee, I sincerely thank you and wish you well.
I want to welcome our second panel here this evening on our study of market access. For our next set of witnesses, we have, from the Canadian Pork Council, Rick Bergmann, Chair; and Gary Stordy, Manager. From Canada Pork International, we have Mr. Jacques Pomerleau, President. And from the Canadian Cattlemen's Association, we have Mr. John Masswohl, Director of Government and International Relations.
Thank you, gentlemen, for accepting our invitation. I will invite you to make your presentations. I will ask that you be very concise because we have a lot of senators who want to ask questions. I actually allowed fair bit of latitude in the first meeting because we only had two witnesses. I will not be quite as lenient this time around. Please keep that in mind.
With that, Mr. Pomerleau, the floor is yours.
Jacques Pomerleau, President, Canada Pork International: If you don't mind, I'll do my presentation in French.
[Translation]
Thank you for inviting Canada Pork International to appear before this committee to discuss your study on international market access priorities. CPI is the export market development agency of the Canadian pork industry. Established in 1991, it is a joint initiative of the Canadian Pork Council and of the Canadian Meat Council. Our organization deals primarily with market access issues, the promotion of Canadian pork abroad, providing market intelligence, as well as working on other significant export-related issues.
Although Canada has been exporting pork for over 100 years, Canadian pork exports have grown considerably in the last 25 years. From 250,000 tonnes worth $600 million and shipped to 54 countries in 1991, they grew to more than 1.1 million tonnes, worth $3.2 billion shipped to 95 countries in 2015. With close to 20 per cent of the total world's pork trade, Canada is the third largest pork exporter behind the United States and the European Union. More than 65 per cent of Canadian pork production is exported, which makes our industry very dependent on exports.
Our overall export success would not have been possible if it had not been for the very close working relationship our industry has developed with the Canadian Food Inspection Agency, with the Market Access Secretariat of Agriculture and Agri-Food Canada, and with the Department of Global Affairs.
We should never forget that in order to maintain or improve access to existing foreign markets and to access new ones, the Canadian pork industry has to completely rely on the Canadian government, which has the exclusive mandate to negotiate not only bilateral and multilateral trade agreements but also the veterinary and sanitary agreements required to be able to export to any given market.
Bilateral and multilateral trade agreements maintain or improve the competitiveness of our products with those of our competitors by reducing or eliminating tariffs. Keeping in mind that our most serious competitors are the U.S. and the E.U., we could support any trade agreement, especially with emerging markets such as China and India that will provide us with a competitive advantage.
The trading environment has evolved in the last few years. Meat and meat products are already among the most regulated products in the world. Still, veterinary and sanitary import requirements set by major trading partners such as Russia, China, the E.U., the Philippines, and by potential markets such as India, are getting more and more difficult to deal with as they require us to develop new production and certification programs at both farm and plant levels. It is definitely expected that it will not get any easier, given that many countries will continue to implement new technical measures in an attempt to limit their imports.
A growing concern is the loss of expertise and the lack of resources allocated to meat exports at the CFIA. The expertise required is very specialized and cannot be easily replaced. The lack of resources is already resulting in delays that have proven to be costly when dealing with pressing issues. From what we can see, the situation does not seem to be improving. Not only are there fewer people who have the expertise and skills, but we have not been made aware of any initiatives to train new personnel. This situation needs to be looked at very quickly, as it has the potential to become another impediment to further expanding our exports.
It is definitely not in our interest to question the CFIA's primary mandate, which is to assure Canadian and foreign consumers that our food products are safe, since the very credibility of our export certification system depends on it. However, meat export is an important economic factor for Canada, and the federal government should take that into account when allocating resources.
It should also be realized that this problem is not specific to the meat sector. With the new CFIA structure, it will also have an impact on all the other exported food products and commodities.
Thank you for your attention. It will be my pleasure to answer any questions you may have, be it in English or in French.
[English]
The Acting Chair: Thank you very much, Mr. Pomerleau.
Rick Bergmann, Chair, Canadian Pork Council: Good evening, everyone. I'm a hog producer from Steinbach, Manitoba, and Chair of the Canadian Pork Council Board of Directors.
I'd first like to thank you for the invitation to appear before the members of the Standing Senate Committee on Agriculture and Forestry of the Senate of Canada to discuss and study the international market access priorities for the Canadian agricultural and agri-food sector.
As you are aware, our sector relies on exports. In fact, more than two thirds of the hogs produced in Canada are exported either as live hogs or as pork products. Market access is not only vital to our industry but a fact of life. We live by it; we die by it.
It's important to point out that our success in accessing existing foreign markets is linked directly to the level of cooperation between government and industry. If we work as a team, we can accomplish much, as we have seen in the last years. Opening or maintaining market access is never easy. It has to be a priority for government departments like Global Affairs Canada, Agriculture Canada and CFIA. These departments need the flexibility and full team with financial backing for market access issues.
Together, our industry produces more than 25.5 million animals every year. We create 31,000 on-farm jobs, which in turn contribute to 103 direct, indirect and induced jobs across the country. Those jobs generate $23.8 billion when farm inputs and processing of pork exports are factored in. The swine industry is the fourth largest commodity source of farm cash receipts in 2014, accounting for 9.2 per cent of Canada's farm cash receipts from the marketplace. Our focus is to provide consumers with a healthy, safe and affordable food supply. World population is increasing, and we have to be ready for that opportunity.
I understand that this committee is studying the competitiveness and profitability of Canada's agriculture sector. This is very timely, since the five-year Growing Forward 2 programs will expire in 2018. Some of the changes made to the key programs in GF 2 have significantly reduced the capacity to assist the hog industry. Both federal and provincial governments need to improve programs and seek new and novel approaches to risk-management tools. Producers need a variety of tools, like mortality insurance and hedging, to find the best options for their operations.
The repercussion of several years of difficulty in the hog sector is the availability of credit. Federal programs, such as the Advance Payments Program, will help but not with regard to construction or improvement to buildings. Building structures are aging across the country, and the industry is in need of significant reinvestment to ensure continued efficiencies. A modified program under the CALA loan program would be extremely helpful in this regard.
A continuing concern is labour availability for Canadian farms and slaughter plants. The Canadian pork industry needs sustainable and growing labour supply. Without adequate labour, we are unable to produce pork to take advantage of more and more export opportunities.
Last year we were encouraged by the government to make sure Canada was part of the Trans-Pacific Partnership, and we were pleased to see Canada sign the agreement in February. However, we will watch closely and remain engaged as the Liberal government has publicly stated that signing the deal does not equal ratification. They continue to follow up on their election promise through a wide-ranging consultation group.
Other trade negotiations like the Canada-European Union Comprehensive Economic and Trade Agreement, also known as CETA, continue to be in our sights. CETA is currently targeted for implementation in 2017. It is hoped that around mid-2016, the document will go to the EU council before moving on to the union's Parliament.
Through all trade negotiations, the Canadian Pork Council maintains that Canada needs to be at the negotiating table, especially with high-value markets in Asia. Countries like Japan and the ever-growing demand of food imports from China present a significant opportunity for Canadian pork producers. It's important for Canada to take every opportunity to secure favourable terms of access to foreign markets, including through new or expanded existing trade agreements.
Canada's herd health status is a huge strength for our industry, and we are a model to others in terms of overall swine herd health. We're looked at in favour around the world because of this.
The appearance of porcine epidemic diarrhea virus, PEDV, in the United States, which is now endemic, affected those herds in May 2013. It has fundamentally changed how Canadian pig farms approach herd biosecurity. The potential deaths of all baby pigs on farms for weeks has driven producers to embrace very high levels of transport sanitation and strict attention to pig movement to prevent PEDV infection of their herds.
CFIA has a regulation that requires transport vehicles returning from delivering pigs to U.S. slaughter plants to scrape out prior to entering Canada — no washing is needed. On the other hand, trucks returning to Canada from unloading at a U.S. farm are required to do a full wash and to disinfect before crossing the border. This regulatory anomaly makes absolutely no sense. The industry is waiting for CFIA to modernize this very old regulation.
In conclusion, I'd like to thank the committee for the opportunity to present here today.
The Chair: Thank you, Mr. Bergmann.
John Masswohl, Director of Government and International Relations, Canadian Cattlemen's Association: Good evening, Mr. Chair and senators. Thank you again for the invitation to appear before the committee this evening and for your continued attention to international market access for Canadian agriculture. It was in November 2014 that I was here last. I'm very pleased to come again today and update you on some of the market access successes since the last time I was here.
It's no secret that for many years our top market access priority was the country-of-origin labelling dispute with the United States. I'm very pleased to report that this long-standing issue was resolved shortly before Christmas when the United States repealed the offending legislation. This result was possible through the joint efforts of the Canadian beef and pork sectors together and the Government of Canada to litigate the issue at the World Trade Organization to obtain the WTO's authorization to impose retaliatory tariffs, and to deliver a clear message to the United States that Canada fully intended to impose tariffs on strategically determined U.S. products without delay.
That issue was pursued for over seven years, and we have a lot of people to thank. It starts with the officials who argued the case, those who worked on the strategy and those who undertook the advocacy both in the departments and through the consulates and the embassy in the United States. There was a long-time commitment by the previous government. Former Ministers Gerry Ritz and Ed Fast worked tirelessly on this issue. As soon as the new government was sworn in, Ministers Lawrence MacAulay and Chrystia Freeland both stepped up and assured their U.S. counterparts that Canada had no intention of compromising. In the face of this strong position and imminent retaliation, the U.S. finally repealed the legislation on December 18.
We are very satisfied with that result. Nevertheless, we believe it is vital for Canada to retain indefinitely the authorization from the WTO to retaliate. If the U.S. ever recreates the COOL discriminatory effect, Canada can quickly act on retaliation without having to go through another lengthy WTO process if we retain that authorization.
Establishment of new market access through trade agreements is now our new top priority. It was very high on our list before, but now it's at the top. Specifically, we seek new access to Europe through the CETA and improved access to Japan through the Trans-Pacific Partnership.
Canadian beef farmers are strongly supportive of the TPP. We achieved our primary objective in the TPP, which was to re-level the playing field for Canadian beef in the Japanese market.
In 2014, we exported nearly 19,000 tonnes of Canadian beef to Japan worth $103 million. In 2015, we sold only 14,000 tonnes for $93 million. From 2014 to 2015, that's a drop of 9.3 per cent in value, but nearly a 24 per cent drop in tonnage.
We haven't seen the worst of that yet without the TPP, because even though we had a declining Canadian dollar which partly mitigated the impact, we are currently slipping into a competitive disadvantage with Australia, as Australian beef already benefits from a free trade agreement with Japan.
Right now, Canadian beef is still subject to a 38.5 per cent tariff in Japan. Australian beef is already down to 28.5 per cent tariff and continuing to drop every year. Once the TPP is implemented, the Japanese tariff on Canadian beef will immediately drop to the same rate that Australian beef enjoys and then continue to decrease down to 9 per cent over a 15-year period.
Without the TPP or a bilateral agreement with Japan, Canada will likely lose around 80 per cent of the value of our beef exports to Japan. With TPP, we feel we can double or even triple our performance to the Japanese market.
For us it's obvious. For Canadian beef exports to Japan, there is no status quo. Either we implement the agreement and reap the benefits, or we do not implement and we can say goodbye to nearly all of our existing exports to Japan.
We are very pleased that the Canada-Korea Free Trade Agreement was implemented last year, and we've had the first 2 of 15 tariff cuts. The United States is three years ahead of us. Australian beef is one year ahead of us. Eventually we'll all get down to a zero per cent duty-free access into the market but at different time phases.
We believe the TPP can be a tool to speed up the tariff phase-out with Korea. That's because Korea has already signalled its interest in joining the TPP. At the CCA we believe that Korea's price of admission should include accelerating its tariff elimination on Canadian beef to match the rate that U.S. beef enjoys.
With respect to Europe, we continue to believe that CETA provides great potential for Canadian beef exports to the European market. The CETA agreement contains a commitment that will remove the European tariff for a significant quantity of Canadian beef. But that's only half the task to make the CETA work for the Canadian beef sector. Resolution of the technical conditions that beef processing facilities must operate under to export to Europe is absolutely essential if that work remains pending.
The most significant remaining BSE restrictions continue to be in China, where the next step is to achieve access for bone-in beef, and with Mexico, where we need to achieve access for beef from cattle over 30 months old.
Unfortunately, we did discover another BSE case in Alberta in February 2015. A few, not many, markets did temporarily close and place trade restrictions as a result of that. Most of those were temporary and have been removed, such as Korea, but Taiwan remains closed and has not imported any Canadian beef for over a year now. Indonesia was also an important market for some rendered by-products but has also been closed for a year.
We've made some trade-related requests in the federal budget. We asked that the agriculture Market Access Secretariat be fully funded to carry out its work. We also asked that the Government of Canada be funded to undertake and host incoming inspection missions by foreign governments to observe the Canadian federal meat inspection system in action.
Lastly, I want to wrap up by updating you a bit on cattle prices. When I was last here we were seeing record prices. The selling price of a 1,200-pound steer was in the neighbourhood of over $2,100. We peaked in mid-2015 at over $2,400 for that size of an animal. Prices currently have backed off a little bit. Right now we're between $2,000 and $2,100 for that 1,200-pound steer, but that's still historically a high price.
Over the last 10 years, the export value per head, we estimate at $510 per animal. In the last two years the export value has contributed between $700 and $900 per animal. So we're hopeful that these high prices and open markets will encourage beef farmers to expand their herds. More cattle means keeping more jobs in Canada and better prices for Canadian consumers. With international market access, we can maximize the value of each animal and motivate growth to continue.
I will leave it at that and be pleased to answers any questions.
The Chair: Thank you very much for those presentations.
Senator Ogilvie: The gaining and maintaining of market access for end products is absolutely critical to the producer industries, and you have all discussed that. As you likely know, the world is facing a post-antibiotic era with regard to enormous negative impact potential on human health around the world. The wholesale use of antibiotics in animal production is considered as one of the possible contributors to the development of resistance in bacteria to antibiotics. This obviously is starting to affect markets and high-value end products in certain areas.
What are your producers doing to eliminate the wholesale use of antibiotics in feed? I'm not referring to the totally correct use of veterinary-prescribed antibiotics in maintaining animal health. I'm talking about the wholesale use of antibiotics in feed.
Mr. Bergmann: As you mentioned, we have a very strong vet oversight here in Canada. As time goes on, we recognize that there's more and more pressure to do more and more things. In regard to antibiotic use, we recognize that we need to use it as a tool. It needs to be monitored, as it is now. Often we get a lot of opinions on and concepts of where the industry is via areas where people might not have the knowledge of our industry by referring to the Internet.
That said, we are sensitive to the fact that the environment is changing. Again, I would defend our industry by saying that there is strong vet oversight. In regard to products that are coming in by inappropriate means, we have no time for that. We don't agree with that at all. Through the Canadian Quality Assurance program, and other programs like that, producers are bound to follow the focus on the different aspects of those programs.
Mr. Masswohl: We'd agree this is a hugely serious issue for human health and the resistance to antibiotics. It's an area that we've been conducting a lot of research and surveillance into for many years.
You used the word "wholesale" three times there. I'm not sure if you're referring to the price we pay for the drugs, because we do pay retail. If you meant the other use, I would object to the use of that word in the context because we use them in a stringent manner and according to regulations.
We're very much aware that not all antibiotics are created equally. There are antibiotics that are extremely important and critical for use in human medicine, and these are not used in livestock production. The bulk of the antimicrobial products used in livestock production are not important for human health, or largely ionophores. There are some others.
We've been working with Health Canada. They have announced some changes in terms of the structure, and we're supportive of those changes moving forward.
Senator Ogilvie: I chaired a committee in the Senate that studied this area and I'm aware of what's actually happening out there. I will not get into it any further tonight. Thank you.
Senator McIntyre: I'd like to go back to the issue of tariffs. As you have indicated, under the TPP agreement, both Japan and Vietnam would reduce their tariffs on the meat sector over different time frames. Does the meat factor, both beef and pork, have the necessary infrastructure to meet the increase in demand that would result from the elimination of these tariffs, and what strategies will you adopt to take advantage of the opening of TPP markets?
Mr. Masswohl: Infrastructure, again, is another huge issue for us that we're concerned about. We look at the infrastructure of the packing sector: the people who take the live animals and turn them into meat. There is a lot of overcapacity in Canada right now.
In the feeding sector, there is overcapacity. On the beef cattle side, our herd has contracted from its high point in 2006. We're down about a million mother beef cows in Canada. We are looking for the opportunities that these high prices and open markets present to send a signal to cattle producers to expand their herds and to raise more cattle so that we don't lose the infrastructure that we have, because once we lose that, it's hard to get it back.
We think we're well positioned to get these markets back. It's getting that market signal to encourage and motivate cattle producers to add additional cows.
Senator McIntyre: Would the pork people wish to elaborate?
Mr. Bergmann: Certainly.
Our industry exports over two thirds of what we produce. So we live and die by the export market. If markets do open up, we would welcome that.
Are we able to have the product and the infrastructure? As mentioned in my presentation, some of the bricks and mortar of the industry are aging, so we need to revive some of that.
When I look at the labour issues on our farms and plants, there is a big concern because that's a key component of the export. We need that labour power to be able to capture that. If we can capture that, that's a wonderful thing.
In our business here in Canada, we've got 1.2 million sows. For every 11 sows on every farm, one job is created in one way or another. We look at it as a huge economic engine that we are part of. As more doors open up to us for our products around the world, we do have the infrastructure because we've done it enough so that we know how to do it in the future, although things always change. The infrastructure is there for us to be able to carry on.
Senator McIntyre: Mr. Pomerleau, do you want to add anything?
Mr. Pomerleau: Yes.
Marketing wise, I think we're well positioned in Japan already. You will find Canadian pork in 25 per cent of all supermarkets in Japan. We are the only exporting country to Japan that has been growing at the expense of the Americans in the last two years. As a matter of fact, two thirds of our exports are to Japan, which is a total of 200,000 tonnes per year. It is what we call chilled pork, which is long shelf-life, vacuum packed, fresh pork. Marketing wise we're already there. Also, most of our packers are equipped to do more chilled pork to Japan. In that sense, we're well positioned.
What will hurt us is not being able to have the same treatment as the Americans. Then we will be in deep trouble.
[Translation]
Senator Tardif: My question is for Mr. Pomerleau. Some witnesses told us when they appeared before our committee that the existence of non-tariff barriers can impede the trade of agri-food products, even if the tariffs have already been removed. I am thinking of the situation involving the sale of pork to European countries that may not have had tariffs at the time, but that nevertheless refused to take Canadian pork because of regulatory differences in terms of the use of animal health products, for example.
Do you believe the CETA could remedy that situation?
Mr. Pomerleau: I could give you a very long list of regulatory barriers, including those from China, as there are many of them. I should point out that, under the agreement with the European Union, not only products are used, even though the problem is more in the beef sector than the pork sector. It should be noted that plants must make significant investments to comply with the European regulations. Those investments can amount to $5 million or $10 million per plant.
We already have three or four EU-approved plants. However, will the quantity covered by the quota we have negotiated encourage other meat-packing plants to comply? I am not sure. We are talking about 80,000 tonnes a year. That's not a huge quantity across industry, but for some plants, adapting may give them access to an attractive market.
Senator Tardif: You said in your presentation that, because of the veterinary and sanitary import requirements set by our main trading partners such as Russia, China, the European Union and the Philippines, or by potential markets such as India, we need new production and certification programs, and that we are at risk, as we are not making the investments needed to ensure that our products will comply with that certification. Did I understand your presentation correctly?
Mr. Pomerleau: What I meant to say is that, whether we are talking about Russia, China or the European Union, when a country bans the use of ractopamine, for example, the industry can turn around fairly quickly, in less than a year, and develop a program to certify ractopamine-free products at all levels — be it at feed mills, swine barns or meat-packing plants. That was the kind of program I was alluding to.
We are currently developing another program for certifying trichinae-free pork. We do not have any trichinae in our commercial herd, but we have to convince other countries of it. That requires fairly long and active negotiations, and that is where we are saying the agency is lacking resources. We have to ensure to have a sufficient number of experts who have the knowledge that enables them to negotiate acceptable agreements with other countries.
Russia is not an easy country to negotiate with. The same goes for China, and the European Union can be fairly stubborn. So we have to take all that into account, but the agency needs additional resources to enable us to finalize all of our files.
Senator Tardif: Are you concerned about a shortcoming in this area?
Mr. Pomerleau: I can give you a figure. Three or four years ago, there were seven or eight experts on meat, and we are now left with only one such expert. If that person is sick or goes on vacation, we could be in trouble.
Senator Tardif: Mr. Masswohl, do you agree?
[English]
The Chair: I'm sorry, but we have to move on.
Senator Oh: Gentlemen, I would like to know what the TPP effect would be on the Chinese market. I've been to China. I went to some of your shows in Shanghai and the food shows in the big pavilion. Canadian pork and beef products are very popular and are considered safe, quality products for overseas.
With the low Canadian dollar now, are you taking advantage of this in exports to China?
Mr. Masswohl: Well, China is a huge potential. There is enough for everyone in there — for beef, for pork, for producers from different countries. The potential that's there is mind boggling.
I have some statistics in front of me for China. China became our number two beef export market in 2015. Five years ago, we exported nothing to China. We did 4.7 million in 2012. We did 27 million in 2013, 40 million in 2014 and 255 million in 2015.
There's a bit of smoke and mirrors with those numbers, because if you look at Asia as a whole, we've seen just in this last year that we're sending so much into China, China is willing to pay for the product, and there is almost a balancing decrease of what we export to Hong Kong, Japan, Korea and Taiwan. So China is taking it all.
The challenge there is how do we take advantage of the opportunity and potential that's there? How do we solidify and have secure market access in some form of an agreement without becoming wholesale dependent on the Chinese market and then have some kind of trade barrier happen?
We want to be cautious but absolutely the potential is there. We are interested in exploring how we can move forward with some sort of agreement or new relationship with China.
Mr. Pomerleau: In our case, we are already in China, but the TPP has not much of an impact, because we're talking about two completely different markets in terms of products. So what we sell to Japan is not what we are selling to China. We need both.
China has just become our third-largest export market, by the way.
Senator Oh: You mentioned you are opening an office soon in China.
Mr. Pomerleau: We will be opening an office in Shanghai this summer. Canada Beef already has one.
[Translation]
Senator Dagenais: I would like to come back to the Trans-Pacific Partnership. We know that agreement will help open up a large market to exporters. However, we know that the Americans, as well as EU producers, are heavily subsidized. Do you think that could cause problems for you? If so, what would you recommend to try to resolve the problem?
[English]
Mr. Masswohl: For us on the beef side, subsidies in the United States are not really an issue. We have free and open trade largely with the United States, but we had an issue there with the country-of-origin labelling, which was discriminatory and impacted our sales to the United State, but we are glad to see that is resolved.
With Europe, we're more on the SPS side — sanitary the phytosanitary. Europe has a belt-and-suspenders approach to keep products out. The belt is the very high tariffs and the suspenders are the technical barriers.
The CETA has dealt with the tariffs — or will deal with the tariffs when the CETA comes into effect — but we still have very significant technical barriers that have to be resolved. Until they are, it's hard to see how we're going to be able to take advantage of the potential of the CETA. So there is a lot of important work to be done there.
[Translation]
Senator Dagenais: Thank you very much. Mr. Pomerleau, do you want to add anything?
Mr. Pomerleau: Our situation is basically the same. There is no issue for us in terms of the TPP. What we want is to avoid falling behind the Americans.
[English]
Senator Merchant: In the event of an outbreak similar to the one that you mentioned that happened in 2015, does having these trade agreements protect us in any way in doing commerce? I think it took about 10 months before Japan reopened their markets, and we did have a trade agreement with them. But we don't have a trade agreement with Indonesia, for instance, and you say that market is still closed.
I just wondered whether having these trade agreements facilitates the speed of reopening the market.
Mr. Masswohl: I would say having agreements does help. It's still complicated, and it's a little different with each country. So for BSE, for example, we have an international code at the World Animal Health Organization, the OIE, and we have a BSE risk status in Canada. We're called a controlled-risk country. That means we are entitled to export beef of any cattle of any age to any market as long as we are undertaking certain controls here in Canada, which we are.
The problem is that not all countries are honouring that code, and then how do you follow up with it? You have to follow up. As Jacques was saying, they used to have many more officials working at the department and at CFIA to do this. Now we're down to one. This is really at the crux of it.
I mentioned that we had a request for the federal budget that was to fully fund the agriculture Market Access Secretariat. That is the role of the agriculture Market Access Secretariat when there are all these non-tariff barriers and countries are not living up to the agreements. It's very technical. You have to provide a lot of scientific information to them, and there need to be people to do that. So it really comes down to a funding issue and getting the people in the departments to do it.
Senator Beyak: All of my technical questions have been answered, but I had some practical ones last week for the Maple Leaf people that were here for our discussion about turkey and chicken, and they told me to save the questions for you.
I'm in a very agricultural riding, and we get chicken and turkey from Maple Leaf, thick-sliced in packages for sandwiches. We don't get pork and beef. From an overseas marketing angle, you talked about the raw pork you send over, but have you considered pork tenderloin in thick slices, cooked and vacuum packed, as well as beef tenderloin in thick slices for export? We love it in our area.
Mr. Pomerleau: Each market is different, so we have to cater to what they have or what they are looking for.
CPI is also in charge of the national marketing strategy, and I can tell you that you are about to see in Canada a verified Canadian pork logo that talks about safety, trust and animal welfare. We'll start to use that as well outside of Canada; Japan will be the first place.
The product we do for Canada does not really work in export markets, so we have to cater to different markets and needs. The Japanese love a very small package, for instance. Instead of six slices, they will ask for one. The flavouring is different as well. We have to listen to exactly what they're looking for.
Mr. Masswohl: I'm going to take the opportunity to make a pitch to invite the committee. When you're in Calgary next, either individually or as a group, let me know. I'd love to arrange a visit for you to the Canadian Beef Centre of Excellence in our offices in Calgary. What they do there is sort of in two parts. They work with the companies that produce beef. They have some experimental kitchens, but they also have the facilities to bring in customers and clients, either from restaurant chains or food service within Canada, but from abroad as well.
They'll bring in buyers and say, "What is it that is unique or underserved in your market, and maybe we can develop a product here?" They do a bit of experimentation.
That may be a good idea. I don't know specifically where they are with that product, but maybe they've tried it. Maybe they've developed it; maybe they have tried it and seen it doesn't work. I don't know, but I'd love to have the opportunity to show you what happens there.
Senator Beyak: I appreciate that very much, because where I live, people do watch these Senate hearings. It's gratifying to see how many Canadians tune into these hearings. Food is obviously important to all of us.
Mr. Pomerleau: We are also trying to get Canadian retailers to advertise the Canadian origin at the counter. Right now you hardly see it; you never know if it's American or Canadian. That's something we're working on.
Senator Unger: Thank you, gentlemen, for your very interesting presentations.
My question is secondary, but Mr. Bergmann, you mentioned labour issues. I'm from Alberta, so if Albertans don't want to go to Manitoba, they should.
The Acting Chair: Most of them came from there.
Senator Unger: True. If these labour issues persist and it's impacting your businesses, what recommendations do you have? What would you expect the government to do about it?
Mr. Bergmann: I think we all agree that the labour issue is certainly a concern in the city I'm near. When I go through the paper, every week — and I've been watching — I see the same company, and others, always have a big ad looking for labour. It's a huge issue.
As mentioned, I'm from Manitoba. West of where we are by a few hours is a processing plant in Brandon, Maple Leaf. They need workers. What are they going to do when I need to send my product there for processing if they don't have people to look after it? It's a thin-ice scenario, because, ultimately, if I can't find a market for my animal, then I'm out of business.
Some of the things we can do collectively with respect to the programs available for getting workers into our country is ensure that we really do our due diligence on that to ensure that the needs of Canadian businesses are met and be able to pursue immigrant work, people coming into Canada.
It's interesting, actually, in the pork industry how many people a generation ago weren't Canadians; they came in and now they're part of our industry. I'm a first-generation Canadian, so me and many others, not only in the province I'm from but across the country, have come from other areas of the world, and they've made our industry a better one. We need to use the programs that we have and make sure they're functioning in a proper way.
Mr. Masswohl: Often when we meet with senators and members of Parliament, they ask us why agriculture sectors can't come together and agree on things. The labour issue is that issue; we are all on the same page. We are short labour in all sectors of agriculture and processing.
About three years ago we created an agriculture labour task force to look at the whole structure and make recommendations. There is a report. It has about 27-some recommendations. We can find the report and submit it to the committee, if you'd be interested. It refers to aspects of training, labour mobility and why more Canadians don't want to take these jobs.
There's no way of getting around the fact that we need workable immigration programs as a vital portion of an agriculture labour strategy.
The Acting Chair: I would like to again take the opportunity to ask the last question.
As a matter of full disclosure, Mr. Bergmann is from very close to where I grew up, the village of Landmark, so we have known each other well for some time. I have worked with Mr. Bergmann and others in the hog industry on an issue that he briefly touched on, and that is the washing of trucks when they come back from the United States.
I think it would be appropriate, Mr. Bergmann, if you would share with us some of the issues that we saw as being certainly not proper, what they wanted you to do with the trucks coming across, and where we are at this point with that issue.
Mr. Bergmann: Thanks for the opportunity.
If you look at the clothes you're wearing, they're not from 30 years ago. If you look at the technology you have in your home, it's not from 30 years ago. So why are we bound by regulation from 30 years ago? We have to review that. That's the problem that needs to be fixed. What happens at the grassroots level when old regulation is enforced to an industry that is state-of-the-art, there is major conflict.
With the situation of transport and transport vehicles, if we are required to wash our vehicles in the United States before they come into Canada, our trucks and trailers, it creates a tremendous amount of time delay. What that creates on farm is nothing good because we have constant movement. It's not like we have an awful lot of extra space or days.
On my farm, when we wean the piglets, that same day, within a few hours, they get put on the trailer and go. If that gets delayed, then what happens on my farm and farms across the country? That delay creates on-farm havoc and we want to avoid that.
When we look at the regulation, there is an anomaly. A trailer will go to a slaughtering plant that receives hundreds and hundreds of different trailers on a daily basis. That trailer coming into Canada can scrape out the bedding and just roll back into our country. However, when I hire a transport company to take my stock to a U.S. farm that has washed and disinfected his facility, now I'm bound to do something that is a time delay and an extra cost.
It actually creates more of a problem because a lot of the wash bays in the United States — as I mentioned earlier, PEDV is endemic there, so it's hard to control. They can't control it. It's really tough. When we go into the wash bays in the United States, by virtue of the process of washing the trailers, they become infected because of the footwear and the environment that they're in. In that regard, I really believe that we could do way better than we have.
In the province where I'm from, there was a pilot project where the trailers were actually sealed. After they were sealed, they were allowed to come into the country. They would go directly to a wash bay where there would be certain protocols on proper procedures that were authorized and blessed by the veterinary community.
I'll highlight Western Canada because the Emerson crossing in Manitoba, for the most part, looks after the vast majority of the transportation there. It's a testament to the abilities of our industry through this pilot project, which no longer is available, that we kept the disease down to a non-existent level, for the most part. There were a few breaks, and they were well managed, so it wasn't a concern.
We need the tools to do our job, folks. We've got producers across the country that wake up every morning and their focus is herd health and ensuring that the animals are looked after well and that the product is of quality from farm to plate. If we don't have the tools to do that, then it really handcuffs and binds us from performing the best management practices.
Mr. Chair, that would be one of the things that really needs to be addressed sooner rather than later.
We've been given extensions, and the latest communication is that the last extension is now until May 2. So May 2 is coming.
I've got an opportunity to meet with some of the regulatory folks tomorrow. We're hoping that ears will be open and doors as well to really look at modernization and best management practices of regulations so that we can actually have those same processes on our farms.
The Acting Chair: Thank you very much, gentlemen, for appearing before us. It has been certainly very productive.
Senators, our next meeting is Thursday at eight 8 a.m.
(The committee adjourned.)