Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 6 - Evidence - Meeting of March 22, 2016
OTTAWA, Tuesday, March 22, 2016
The Standing Senate Committee on Agriculture and Forestry met this day at 5:01 p.m. to study international market access priorities for the Canadian agricultural and agri-food sector.
Senator Ghislain Maltais (Chair) in the chair.
[Français]
The Chair: Good afternoon, everyone. I am Senator Maltais from Quebec, and I am the chair of this committee. I would like to start by asking senators to introduce themselves.
Senator Merchant: Pana Merchant from Saskatchewan.
[Traduction]
[Senator Tardif: Good afternoon; my name is Claudette Tardif, and I am a senator from Alberta.
[Français]
Senator Plett: Don Plett, and I'm just down the road from Gimli, Manitoba.
Senator Oh: Victor Oh from Ontario.
Senator McIntyre: Paul McIntyre from New Brunswick.
[Traduction]
Senator Dagenais: Good afternoon; I am Jean-Guy Dagenais, a senator from Quebec and a lover of whisky.
[Français]
Senator Ogilvie: Kelvin Ogilvie from Nova Scotia.
[Traduction]
The Chair: Senator Lynn Beyak, from Ontario.
[Français]
Today the committee is continuing its study on international market access priorities for the Canadian agricultural and agri-food sector. Canada's agriculture and agri-food sector is an important part of the country's economy.
[Traduction]
Today we welcome Mr. CJ Hélie, Executive Vice-President of Spirits Canada. Welcome to our committee. I am certain that this exercise will be useful when we draft our report, which must be tabled by June 30.
I would like to point out that the shorter the presentations, the more time senators will have to put questions to you.
CJ Hélie, Executive Vice-President, Spirits Canada: Thank you, Mr. Chair. I will be brief.
[Français]
My name is CJ Hélie, and I am the Executive Vice-President of Spirits Canada, the national trade association representing Canadian spirits manufacturers. We appreciate the opportunity to meet with you once again today to discuss international trade priorities for Canadian spirits manufacturers.
The association represents primary manufacturers. That is to say, we take rather modest cereal grains, like these rye grains that you see here in front of me and these corn seeds, and we transform them through magic and a bit of science to amongst the highest value-added branded goods within the broader agri-food processing sector, as demonstrated by some of these fine products. This is the famous Crown Royal Northern Harvest Rye, named Whisky of the Year by the esteemed Jim Murray's Whisky Bible, made in Gimli, Manitoba, created in the laboratories of LaSalle, Quebec, and bottled in Amherstburg, Ontario. It is a pan-Canadian enterprise.
We also have the winner of the Canadian Whisky of the Year in the Canadian Whisky Awards, where an expert panel blind tasting over 50 whiskies came up with Corby's Lot 40. These are just two examples of some of the amazing innovation and great products being made from Canadian cereals today in Canada.
Canadian spirits manufacturing sustains over 8,500 full-time jobs across Canada, contributes nearly $6 billion to Canada's GDP and sources virtually 100 per cent of our grain from Canadian farmers, and we are proud to do so. We also annually export over $600 million of spirits around the globe, more than the value of beer, cider and wine combined.
In terms of the industry's international trade priorities, I would like to start with a few words on the World Trade Organization. For our industry, the WTO remains a critical vehicle to ensure that trade is not impaired by various measures whose effect, whether intentional or not, is to impede access to foreign markets. Beverage alcohol issues are routinely discussed at the WTO's Committee on Technical Barriers to Trade and Committee on Sanitary and Phytosanitary Measures, for example.
I'd like to take this opportunity to extend the industry's great appreciation for the work undertaken by the Canadian mission in Geneva, guided and supported by Ottawa-based officials at Global Affairs Canada, to push other WTO members to fulfil all of their trade obligations. Members of the committee may be aware that Canada has joined formal dispute settlement consultations between the European Union and Colombia to resolve WTO-inconsistent measures by Colombia related to spirits taxation and market access.
Unfortunately, in bilateral discussions between Canada and Colombia these discriminatory provisions were to be eliminated within two years of coming into force of the Canada-Colombia FTA. That has not happened, and thus we have embarked on consultations under the auspices of the WTO formal dispute settlement provisions to help resolve the matter. Hopefully, the Government of Colombia will pass the necessary and promised-again-and-again legislation during this congressional session, which ends in June. If not, we know Canada's interests will be well represented through any formal dispute process under the exceptional leadership of Ambassador Fried at the Canadian Mission in Geneva.
In terms of breadth and scope, there are not many initiatives more important than the recently concluded Trans- Pacific Partnership. I think you have heard that in other testimony over the last several weeks. The industry urges all signatories of the agreement to move ahead as quickly as possible to ratification. I will not go through all the benefits of the TPP, but I would like to highlight a few key elements of it for Canadian spirits manufacturers.
First, we were able to gain formal recognition by Australia, New Zealand, Japan and Vietnam of "Canadian Whisky'' and "Canadian Rye Whisky'' as either "distinctive products of Canada'' or "geographical indications of Canada.'' Second, we succeeded in having key import tariff elimination for Canadian whisky, including the elimination of Vietnam's prohibitive 55 per cent import tariff, within 11 years of coming into force; Australia's immediate elimination of its 5 per cent import tariff; and Malaysia's elimination of its 58 ringgit per litre import tariff. It is my understanding that this is the first time Malaysia has agreed to include alcohol in any of their free trade agreements, so well done.
Third is the adoption of a specific annex to the Technical Barriers to Trade chapter of the agreement dealing with wine and spirits labeling and standards issues; fourth, additional disciplines on state-owned enterprises; and fifth, a robust dispute settlement provision. These are all important gains for Canadian exporters — gains expertly negotiated by Canadian trade officials; hats off to our team as they did a wonderful job. These gains will move from the theoretical to the realizable only after ratification.
Speaking of ratification, we continue to recommend that Canada and the EU move forward with ratification of the CETA. That agreement was announced in principle back in August 2014. A final legal text was agreed to on the last day in February 2016. We should not lose any momentum and move quickly to translation and then ratification. It's important for the spirits industry that CETA will both update and incorporate the Canada-EU 2004 Wine and Spirits Agreement fully within the text of the TPP agreement. We are certainly gratified by recent statements by Ministers Freeland and MacAulay, amongst others, of their strong support of the implementation of CETA, so I think we're on a good track.
In closing, I would like to make a link between Canada's international trade priorities and objectives and those of interprovincial trade here at home.
Canadian trade officials are working hard here in Ottawa and overseas to ensure Canadian agri-food exports in general, and beverage alcohol in particular, are treated fairly and equally with locally produced goods, while at the same time new discriminatory measures are erected by some Canadian provinces that impede national trade.
What's the link? The implications of these provincial discriminatory measures are twofold. First, they may impair the ability of the Government of Canada to forcefully advocate for the dismantling of a foreign measure where a similar obstacle to trade is in place in a Canadian province. Second, they all add significant costs to selling across Canada, making businesses less productive and diminishing the resources available to develop and open new foreign markets.
Opening new foreign markets is risky and expensive, and the Canadian market is already small enough. We need to be as efficient as possible within the market size.
Thank you for your attention, and I would be pleased to answer any questions you may have.
[Traduction]
The Chair: Mr. Hélie, thank you very much for respecting the time you were given. At the request of Senator Plett, we are going to depart somewhat from our usual practice. Since you are from the same province and he has to leave the meeting a bit early, he is going to ask the first question.
[Français]
Senator Plett: Welcome and thank you for your presentation. I have a few questions.
One of them is this: Out of the 8,500 people you employ, how many do you employ in the province of Manitoba?
Mr. Hélie: About 350.
Senator Plett: The vast majority are where?
Mr. Hélie: We are primarily an Ontario-based industry. Most of our manufacturing occurs here. Right behind Ontario would be Alberta, then Quebec, then Manitoba. Those are the four provinces where we have significant investments and facilities.
Senator Plett: Certainly I've seen the investment in Gimli.
How much of your grain do you purchase in the province of Manitoba? You say almost 100 per cent of it is purchased in Canada.
Mr. Hélie: We source 100 per cent of our corn and about 70 per cent of our rye in Manitoba. The remaining rye comes from Saskatchewan.
Senator Plett: The majority is certainly from Manitoba then.
It indeed was an exciting year for Spirits Canada, and I want to congratulate you on having been named the world's best whisky.
Being called the world's best whisky, do you get into any type of debates with the people in Scotland who say the only whisky in fact comes from Scotland? And one bottle from Cape Breton, Glen Breton whisky, a wonderful Scotch whisky, I guess. Do you have debates over rye being called whisky?
Mr. Hélie: Every day. To be honest, we are both colleagues and competitors. On many issues we see eye to eye, and we will fight together to break down barriers for whisky access, so in Colombia, for instance, we are arm in arm. However, we do have a very different tradition in how we make our whisky. Scots have a traditional method that is pretty restrictive. Canada, as a much more open society, took motivation from lots of different places, and we have a much broader scope of products within our Canadian whisky family, which we believe gives us a tremendous competitive advantage because we can produce a broader range of tastes for a broader range of uses.
A very limited amount of whisky is consumed neat or without anything else. We are in a hot cocktail craze, and whisky-based cocktails are on fire. There is no better base for a whisky cocktail than a Canadian whisky.
Senator Plett: Good. I do not know if this is to be the case, but you will let us know. I have heard that this product is more readily available for purchase in the United States than it is in Ontario and maybe even other provinces — and I want you to talk about other provinces — because U.S. liquor stores are willing to pay fair market price for the product, while the LCBO in Ontario is willing to pay only half that price at about $5 a unit, while selling it, apparently, at about $35 a unit.
Will you comment on this and on the idea that markets outside Canada are more easily able to access imported Canadian product at a more competitive price than we are because of provincial liquor control boards marketing at the expense of the Canadian consumer?
Mr. Hélie: That is a broad question, and I will split it into two parts. One is the question of the price. Canada has imposed amongst the highest taxes on spirits in the world. Most of that is at the provincial level, but certainly federal excise is not excluded from that equation. That means that the high fiscal load on our products suppresses the price suppliers can reasonably expect to get in the market. If we were getting the fair value for one of these premium products I showed you earlier, the retail price would be $70, $80, $90. Canadian consumers would not be willing to pay that, so our price into every Canadian market is much below our world price. That's a problem for our industry because our home base does not generate enough returns to sustain a viable industry in the long term. That's on the price side.
In terms of the retail access, liquor boards have a range of performance in how much and how well they present Canadian spirits in general and Canadian whisky in particular. We are working hard to get them to up their game to catch up with consumers' interests in Canadian whisky. I would say we're making small progress, but we should be ashamed of the small size of Canadian whisky sections in most liquor board stores across Canada. If you go across the border, a whisky shop in Buffalo will have three times the presence of Canadian whisky than we have in our stores. Part of that is the fault of liquor boards, and part is provincial government interference.
When a provincial minister phones up the local liquor board and says, "We need you to help our local winery or our craft brewer,'' they fall all over themselves to take space away from what's there today, which pays the freight, spirits, and they make room for some of these smaller niche products.
Senator Plett: Why would they do that?
Mr. Hélie: Because they are creatures of government. If the minister is being influenced by whatever they are being influenced by and makes that call, they react to it.
Senator Plett: The problem that I cited in Ontario, is that a problem that is across the country in all the provinces?
Mr. Hélie: Pretty much. Alberta is by far the best because of its acceptance of its strong spirits manufacturing base and the fact that they have privatized the retail side of it. They still have full control on the importation side, but on the retail side it's market rules, and whatever the consumer wants drives the decisions.
In Quebec, the SAQ was so far behind. Over the last five years, under the new leadership, they have really upped their game, but they have a long way to catch up. They're doing well.
Manitoba, which has a great, beautiful spirits plant, still doesn't make that connection. In their last tax changes a couple of years ago, they gave no recognition to the fact that the whisky is being made in the province, and instead they gave preferential treatment to wine. Why wine? I don't know. There are no vineyards in Manitoba. Presumably it was because somebody in the category management department liked wine.
Senator Plett: Hopefully we can change that in Manitoba on April 19.
The Chair: Thank you, Mr. Hélie and Senator Plett. Before giving Senator Mercer a turn, permit me to present to you Senator Wilfred Moore from Nova Scotia. Thank you, Senator Mercer, for your concession.
Senator Mercer: I think it is recognized that around this table we have some people with a keen interest in the subject of this witness and some who maybe are experts in one way or another. I'll leave it at that.
I only have a couple of questions. You raised the issue of the Canada-Colombia Free Trade Agreement and that, after two years, there is the provision to have these discriminatory provisions eliminated. I don't expect an answer from you, but I raise this to remind my colleagues, as we continue to discuss other free trade agreements, that this stuff does happen.
You say that in terms of the breadth and scope of the TPP, there are not many initiatives more important than that. I wouldn't disagree with you. However, you had a term in your first point that I didn't quite understand, that you were asking for formal recognition by Australia, New Zealand, Japan and Vietnam, of "Canadian Whisky'' and "Canadian Rye Whisky'' as either distinct products or geographical indications of Canada. The term is already protected in Chile, Mexico and Peru. What does that mean, "geographical indications of Canada?''
Mr. Hélie: Another term that some people may be more familiar with is appellation contrôlée, like Bordeaux and Champagne. What it means is that those products can only be made in those regions, and you cannot use that term on a label. You can't, for instance, call something "Canadian whisky-style'' or "like a Canadian whisky'' if it is protected as a GI or a distinct product.
Senator Mercer: Okay. Then that is a good thing. I didn't quite understand it.
I was quite surprised at the 55 per cent import tariff in Vietnam. That is a pretty startling thing.
You also say that the implications of these discriminatory measures are twofold; first, they may impair the ability of the Government of Canada to forcefully advocate for the dismantling of a foreign measure where a similar obstacle to trade is in place in a Canadian province.
These are the provincial problems. Can you give us a practical example of that?
Mr. Hélie: Certainly. Systembolaget, which is the Swedish import monopoly, has proposed a special duty on glass bottles over a certain weight, an arbitrary set weight limit. That, we believe, would be an impediment to trade because a premium whisky bottle wants to have something substantive as its vessel. It is more than just a container; it is part of the brand image. That measure would be problematic for us.
A couple of provinces' liquor boards had looked at a similar type of provision. So, if the provision is already in place in Canada, there is no ability of the Government of Canada to go to Sweden or the EU — in this circumstance, the commission — and say, "You can't do that because it is an impediment to trade.'' They wouldn't be able to say that if a similar measure was invoked in a Canadian province. They'd be seen as two-faced if they tried to do that.
Senator Mercer: The CETA agreement is an important one for Canadians. We recognize that. You have commented about what you perceive may be a bit of a prejudice by certain provincial liquor regulators to wine. That goes in my province. In Nova Scotia, we're a big wine producer and have a number of wineries and certainly a lot of grapes being grown. It would seem to me that those ministries are protecting their agricultural products plus the wine production.
Do you see the opportunity — not perhaps in the CETA, but maybe in the TPP — for us to export more wine as opposed to being importers?
Mr. Hélie: The Government of Canada and a number of provincial governments have spent the last 25, 30 years trying to increase wine exports. They have done a fair job, I would say. However, the reality is that the global beverage alcohol market is extremely competitive. You need to be at a very high level in terms of the quality, which both the Canadian wine and spirits are, I'd say, but then there is a value equation. What is your price point? Are you competitive on a price-point basis? The unintended consequences of some of the Canadian measures for wine have made the price uncompetitive globally.
Senator Mercer: I gather that would apply particularly to British Columbia wines. They are very high quality and at a higher price. The other issue is the decision not to produce in as large quantities as our major competitors. If you look at British Columbia wineries, it is good-quality wine. Those of us in the east complain we can't get enough British Columbia wine. That is because they don't make enough, so, by the time they start selling it east, there is not a lot left by the time you get to Nova Scotia.
Mr. Hélie: There is little motivation for most small to medium-size Canadian wineries to sell outside their province. The provincial governments have made it very lucrative to sell within their own province their own wines. They have essentially exempted them from all markup, so their gross margin on their sales within their own province, in the case of Ontario, would be 85 per cent of the selling price. So if you bought a bottle of VQO wine in a store for $15, 85 per cent of that would be pocketed by the winery. If it were sold in any other store across Canada — and essentially, in any developed market — the gross margin would be 35 cents average. A winery that built its business plan on an 85 per cent gross margin can't survive on 35 cents.
Senator Mercer: Thank you; I appreciate it. This is a much more important industry than Canadians give it credit for because they also have to remember where the raw products come from. A lot of it comes from Canadian farms.
[Traduction]
The Chair: I sense that we are going to drink in the words of the next senator who has the floor.
Senator Dagenais: Mr. Hélie, you are correct when you speak about the display racks in the SAQs in Quebec. Unfortunately, you do not have much space there. However, the SAQ makes a lot of room for wine, which it sells to us for $3 more per bottle than it costs in Ontario. I take the opportunity of purchasing wine at the LCBO before I go back to Quebec.
That said, I go to the United States on a regular basis and I have noticed that in liquor stores there you are very well represented, to the extent that one has to look for wine, because one only sees whisky. I am happy to report this.
I would like to get back to the TPP Agreement. When the agreement is signed with Australia and the Asian countries, will customs tariffs be lower than they are today?
Mr. Hélie: Australia's tariff is really a nuisance tariff, because 5 per cent is not really a commercial tariff. However, if you take Vietnam as an example, where tariffs are 55 per cent, today we export almost nothing to Vietnam because of that high tariff. It will be much better after the accord is signed.
Senator Dagenais: After the TPP goes through, do you expect the 55 per cent tariff to go down?
Mr. Hélie: The tariff will go from 55 per cent to zero in 11 years.
Senator Dagenais: That is very good. Correct me if I am mistaken, but are there barriers to the circulation of Canadian products among the provinces? I think you mentioned it in passing. There is a movement to get this issue resolved. But I think there are still barriers from one province to the other, and in my opinion this is not normal. In Canada, such barriers should not exist between the provinces. The Canadian market is for everyone. I would like to hear your opinion on this.
Mr. Hélie: There are barriers, and we see more of them every day. The provinces watch each other and each one tries to do what the others are doing. There is Bill 88 in Quebec, and the minister said: "I have had representations from European countries, and I told them that the situation is not as serious in Quebec as in Ontario or in British Columbia, so leave me alone.''
Senator Dagenais: This means that goods do not circulate freely. Will the Trans-Pacific Partnership Agreement allow for better circulation among the partner countries than among the Canadian provinces?
Mr. Hélie: Yes, it will.
Senator Dagenais: Perhaps the provinces should conclude an agreement like the TPP.
Mr. Hélie: Yes, exactly.
The Chair: Mr. Hélie, for your information, the Standing Committee on Banking is currently examining ways to abolish tariff barriers in Canada. The issue has bedeviled us for years, and it interferes with internal trade. We conclude free trade agreements with other countries, but we erect barriers in our own country.
[Français]
Senator Merchant: Welcome. As I said to you when I was introduced, I'm from Saskatchewan. From what I've heard from you, we're wedged between Manitoba and Alberta. This is the Agriculture Committee. I know that you're here on behalf of the spirits manufacturers, but first of all I'm trying to understand something. When I drink a glass of orange juice, I am told that is the equivalent of squeezing nine oranges into the glass. When I have a drink of whisky, how much rye — the stuff that maybe you're buying from Saskatchewan — is actually in the drink vis-à-vis the contribution that you make to the economy? I understand that maybe you have a lot of employees, and there are other issues that come into play, but I'm only looking at it from the agricultural perspective. What's in it for Saskatchewan?
Mr. Hélie: Our principal purchase of agricultural products in Saskatchewan would be rye grains. As I mentioned earlier, rye whiskies are on fire. Some of the products I mentioned earlier that are very much in vogue today, like this Lot 40, is 100 per cent rye. The Northern Harvest Rye was 90 per cent rye. Both our Alberta and Manitoba plants would source a good portion of their rye from Saskatchewan. I would say our total purchases of rye are in the area of 80 thousand tonnes per year. Our distillery in Alberta is the largest single rye purchaser in Canada, just as an example. We are a large-scale purchaser. We have close relationships with individual farmers, some of them for 40, 50, 60 years. We're intrinsically linked with local farmers.
Senator Merchant: I was mentioning to you earlier that we did have a rye that was made in Saskatchewan some years ago, called Number 1 Hard. What happened? The distillery was in Saskatchewan, I think.
Mr. Hélie: I'm not familiar with that brand.
Senator Merchant: We have the rye. I just wondered why, then —
Mr. Hélie: The Canadian whisky manufacturing footprint continues to get smaller and smaller. Why is that? As I mentioned earlier, we have the highest taxes in the world. Whenever there's a tax increase, the manufacturers look to cut costs. It's almost a 1:1 ratio: You take one more dollar in tax, we have to find one dollar in savings. One of the ways, but not the only way, that has happened, or shown itself, has been consolidation: You close plants and you consolidate. You have to get higher throughputs and better productivity. We closed our last remaining plants that were operating in Saskatchewan, B.C. and Nova Scotia as part of those cost-cutting measures.
In good news, as always happens as the big get bigger and consolidate and try to get more efficient, export and focus internationally, you see a new group of entrepreneurs coming in at the lower end to start what are called small distillers, and you're seeing that in Saskatchewan. There are, I think, three new licensed distilleries in Saskatchewan sourcing most of their agriculture products locally in Saskatchewan.
Senator McIntyre: Thank you, Mr. Hélie, for your presentation. I note that you annually export more whisky than beer, cider and wine combined. That's quite amazing.
In your oral and written presentation, you urge the federal government to ratify the CETA and TPP agreements. I know you've already answered Senator Dagenais on this question, but it seems to me that there will be strong competition on the Canadian market from countries like the United States, Scotland and Mexico. Very briefly, are you really worried about this competition? Will you be able to deal with it?
Mr. Hélie: We're willing to compete with anybody. We make as good a product as anybody in the world. Within the Canadian market context, we're already a very open market. We don't foresee any particular changes.
The prize, if you will, are places like Vietnam and Malaysia, where if for whatever reason the TPP went forward without Canada, we would forever foreclose the opportunity to compete in those markets. It's what we saw in South Korea, where we had a very healthy Canadian whisky export business. Both the EU and the U.S. were able to conclude their free trade agreements before Canada's. The local distributor of beverage alcohol in Seoul and across the country of Korea said: "Oh, my God. For the next five years, I can make so much more money selling a scotch or a bourbon than a Canadian whisky because of the preferential duty rate applied to those products. I'm going to stop ordering Canadian whisky, and I'm going to load up on scotch and bourbon.''
It's so hard and so expensive to reclaim that market share.
Senator McIntyre: What do we find in a bottle of whisky? Rye and corn?
Mr. Hélie: We have four principal grains: corn, rye, wheat and barley. In Eastern Canada, our manufacturing plants in — sorry, Manitoba, I'll put you in the east — Manitoba, Ontario and Quebec principally make corn-based products, and Alberta's is principally rye-based, but we make mostly blended whiskies. That means that, unlike the scotch, we do a mash. We have different distillates: a little bit of corn, rye, wheat and barley, and depending on the brand, we will adjust the ratios. But again, in the east, it would be mostly corn-based, with rye as the principal flavour. Out west, it's principally rye-based with the others as a little bit of extra depth to the flavour.
Senator McIntyre: So these are cereals, corn and rye, and there are fluctuations in cereal prices. How do fluctuations in cereal prices affect the competitiveness in Canadian distillery operations on international markets?
Mr. Hélie: We, as the association, get complaints on prices every year across almost every input into our business. The sole exception is in our cereal grains. We'll get complaints about when electricity or transportation costs go up, but on cereal grains, our master distillers are willing to pay the highest price for the best inputs, and we do not worry about that so much. We pay a premium. If you look at the Chatham silo price for corn, we're paying 20 to 25 per cent higher than that. We're buying the best of the best that's coming out of the farms, so while the price is a factor, we don't begrudge the farmers getting full value for their inputs, because as every master distiller we've ever talked to has told us, every Canadian whisky starts with a great cereal grain.
[Traduction]
Senator Tardif: Thank you for your very instructive presentation, Mr. Hélie. Your association indicated that the Indian market has great potential for your members, but that the import tariffs and tariffs on internal trade in that country are a serious obstacle. What is the situation today? Has there been any progress?
Mr. Hélie: Not at all; the tariff is still around 150 per cent and the measures are the same. So there has not been any progress.
Senator Tardif: Is that market still a target, in that case? Do you still hope to have access to that market despite the exorbitant tariff?
Mr. Hélie: Not in the medium term. We think that other more promising markets will be accessible in the near future.
Senator Tardif: So you are mostly concentrating on TPP member countries?
Mr. Hélie: Yes; the United States is still a huge market. We are beginning to export to Columbia and to countries in Eastern Europe. Lithuania, Latvia and Serbia are beginning to show progress, and are switching from Russian vodka to spirits such as Canadian whisky.
Senator Tardif: What percentage of your production do you export?
Mr. Hélie: Seventy per cent of our whisky and sixty per cent of all of our production.
Senator Tardif: That is considerable.
Mr. Hélie: Yes, it is.
Senator Tardif: Your volume of export sales is higher than your volume of domestic sales?
Mr. Hélie: Indeed.
Senator Tardif: And is it your ambition to maintain this level of export growth?
Mr. Hélie: We are a bit disappointed that Irish whisky passed us two years ago in the value of its international exports. That is really unfortunate. We now have to work even harder in our markets outside of Canada.
Senator Tardif: Thank you.
The Chair: I have a brief question for you, Mr. Hélie. Senator Mercer and I went to Scotland, and people explained to us that the quality of the water was in large part responsible for the quality of the scotch, since the great scotches always come from rivers in Scotland. Where does your water come from? The Great Lakes?
Mr. Hélie: It all depends on the plant. In the case of Gimli whisky, the water comes from Lake Manitoba, and for Collingwood whisky, the water comes from Georgian Bay. All of the plants that manufacture our spirits are located close to a source of water that is perfect for making spirits.
The Chair: So the water from Georgian Bay is excellent for making scotch.
Mr. Hélie: For whisky; it is even better than scotch.
[Français]
Senator Oh: Thank you, Mr. Hélie, for your presentation. My question has to do with Canadian spirits contributing $6 billion to Canada's GDP. Has that been on the increase, or on the decrease?
Mr. Hélie: Modest increase. We are not on fire. We are struggling. Notwithstanding the consumer interest in our products, we continue to just hang on primarily because of the fiscal burden on our operations here in Canada.
Senator Oh: Can you tell us a little bit about TPP's article on intellectual property pertaining to Canadian whiskies and Canadian rye whisky, as they are all Canadian signature products?
Mr. Hélie: Thank you. That's a very important point. The idea of geographical indications or distinctive products was one of the most contentious issues in the TPP negotiations. Lots of the Asian countries just weren't familiar enough with the concept and therefore did not want it in the agreement whatsoever, so we pleaded with Global Affairs Canada to come up with some innovative solutions. What we ended up with were side letters with the markets that we identified as the most important to us for that protection and, again, miraculously, Canadian trade officials were able to get those side letters from the key countries I've identified in our brief to recognize and protect both Canadian whisky and Canadian rye whisky. We're extremely pleased with that protection.
What that protection does is give us the comfort of our investment. To go into a new market and introduce a consumer group to a whole new category is very expensive, and what you don't want to do is have that investment undermined by ersatz products.
Senator Oh: So, you are looking forward to the Malaysian market opening up under the TPP?
Mr. Hélie: Yes. Malaysia, I would say, is a little bit further down the road. It's a market that we don't understand very well yet. Before you put money in, you really have to understand who the consumer is and what the market is. We have a lot of work to do before we can exploit that, which is why we are not particularly displeased with the 15-year phase-out of their import tariff. That gives us the benchmark of when we need to be competitive and allows our members to plan ahead over that 15-year horizon to get it right the first time.
Senator Moore: Thank you, Mr. Hélie, for being here.
In the 65.1 per cent of distilled products that are exported, what about the boutique distilleries? Do they make up much of a part of that? Is it noticeable?
Mr. Hélie: Less than that 0.1 per cent.
Senator Moore: My office is in Lunenburg, Nova Scotia, where we have a distillery called Ironworks Distillery. Pursuant to your discussion with Senator Plett about upping the game, you may not know about this, but in Nova Scotia that Ironworks Distillery has worked with the provincial authority and is now in the process of building an outlet in the Halifax Stanfield International Airport after security. It's called Liquid Assets. It's going to feature Nova Scotia distilled products, and you can go in after you have gone through security, buy something and take it on the plane with you. If you're not aware of that, you can encourage your colleagues within your organization to think about that. I think it's a great model to take a look at in upping the game and showing different ways of putting good products forward.
Mr. Hélie: Why every provincial board hasn't done the same is beyond us. We've been suggesting that across the country. It's a brilliant idea, absolutely, because you can't bring liquid through security anymore, so you need to buy it post-security. How difficult is that?
[Traduction]
The Chair: Thank you for those explanations. They have shed light on a topic we do not know very well. What do you make aside from whisky and scotch? Do you make other spirits?
Mr. Hélie: Yes. We export 100 million dollars' worth of our spirits. That is more than wine! All of the Smirnoff vodka you buy in Canada is made in Valleyfield with grain from Quebec. We sell the whole range of spirits, including gin and vodka.
The Chair: Do you also make Tanqueray?
Mr. Hélie: Not Tanqueray, but we make Gordon's and Gilbey's.
The Chair: Thank you for these explanations.
Ladies and gentlemen, senators, the meeting will continue in camera for a few minutes.
(The committee continued in camera.)
(The committee adjourned.)