Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 7 - Evidence - Meeting of April 12, 2016
OTTAWA, Tuesday, April 12, 2016
The Standing Senate Committee on Agriculture and Forestry met this day at 5:07 p.m. to study international market access priorities for the Canadian agricultural and agri-food sector.
Senator Terry M. Mercer (Deputy Chair) in the chair.
[English]
The Deputy Chair: Honourable senators, I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. I'm Senator Terry Mercer from Nova Scotia, deputy chairman of the committee. On behalf of our chairman, I would like to welcome everyone here. I will start by asking senators to introduce themselves.
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
[Translation]
Senator Dagenais: Jean-Guy Dagenais, from Quebec.
[English]
Senator Unger: Betty Unger from Edmonton.
The Deputy Chair: Thank you. There will be other senators joining us as they finish their trip across the street.
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. In 2013, the sector accounted for one in eight jobs in Canada, employing over 2.2 million people, and close to 6.7 per cent of Canada's gross domestic product. Internationally, the Canadian agriculture and agri-food sector has responsibility 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 free trade agreement negotiations are ongoing. The federal government is also undertaking four extraordinary trade discussions with Turkey, Thailand, the Philippines and members of Mercosur, which is Argentina, Brazil, Paraguay and Uruguay.
As our witness today, we welcome Mr. Dan Paszkowski, President and CEO of the Canadian Vintners Association; and from the Canadian Beverage Association, Mr. Jim Goetz, chair. Thank you for accepting our invitation to appear. I would also like to welcome Senator Tardif from Alberta. I invite the witnesses to make their presentations. Following the presentations by witnesses, a question and answer session will take place. Each senator will be given five minutes to ask questions before another senator is recognized. There will be as many rounds of questions as time will allow so senators do not need to feel required to ask all their questions at once. During the question and answer session, I will ask senators to be succinct and to the point. I would ask that the witnesses do the same when answering. We will now begin with Mr. Goetz.
Jim Goetz, Chair, Canadian Beverage Association: It is an honour to be here today and to have the opportunity to make a presentation and behalf of Canada's non-alcoholic beverage industry. We are the national voice of more than 60 brands of juice, bottled water, sports drinks, ready-to-serve iced teas and coffees, enhanced beverages, carbonated soft drinks, energy drinks and other non-alcoholic beverages. In addition, among our association members are not only beverage makers themselves but Canada's suppliers of 100 per cent recyclable packaging both produced and used by our member companies.
The beverage industry plays a significant role in Canada's economy, contributing $6.5 billion to Canada's gross domestic product and directly employing more than 20,000 Canadians in more than 220 production facilities, office and distribution centres across Canada. That number grows to 60,000 when you include indirect jobs such as fleet repair, facility maintenance and new technology suppliers. Our sector generates approximately $500 million in tax revenue for the federal government and, in total, the impact of beverage industry operations amounts to approximately $900 million in government revenues every year.
We also help support tens of thousands of more jobs across Canada through industries such as packaging and agriculture, creating demand for homegrown crops and made-in-Canada products. The sale of our members' products through grocery, retail, food service and convenience channels supports thousands of independent businesses and tens of thousands of retail and food services jobs in cities, towns, villages and rural regions.
In terms of our industry's export markets, the United States is by far our largest and most important market. Therefore, our priorities in terms of international market access primarily focus on the continual refinement of Canada's trade relationship with the United States as well as maintaining the competitiveness of our industry, particularly here in Canada.
Our industry exports to the United States are relatively competitive due to our geographic proximity to the U.S. border and the general similarity in our food and beverage regulation regimes. That being said, the federal government plays an important role in creating and maintaining a regulatory and trade regime that continues to promote Canadian products abroad.
To this end, we encourage the government to continue its engagement with the United States to further align regulatory approaches. In particular, we support our ongoing efforts by the United States Food and Drug Administration and the Canadian Food Inspection Agency to identify strategies to reduce barriers toward greater cooperation and alignment on food safety. On this note, we applaud the announcement by Prime Minister Trudeau during his recent visit to Washington to form a joint Canada-U.S. secretariat. Our industry looks forward to working with this body in the near future.
Beyond regulatory alignment, easing truck cargo congestion at border crossings would help to increase our industry's ease of access to the U.S. market and increase productivity. We are supportive of the government's efforts to facilitate the preclearance of truck cargo and would encourage them to introduce legislation this spring to implement the Canada-U.S. agreement on land, rail, marine and air transport preclearance to further expand our opportunities for preclearance.
Ultimately, increasing the Canadian beverage industry's access to international markets begins with strengthening its competitiveness here at home. Across Canada, our industry faces increased costs at both the federal and provincial level due to inefficient and outdated regulations, new regulatory burdens and, in particular — like all manufacturing and food processing — rising electricity costs. These increased costs directly affect our industry's ability to innovate and bring to market new products for export.
Closer to home, I'd like to address a recent Senate report by the Standing Senate Committee on Social Affairs, Science and Technology suggesting that our industry should be subject to a special and specific sugar-sweetened beverage tax. I cannot overstate the potential damage that such a narrow and ineffective tax could have on our economic presence here in Canada. In many of the jurisdictions where these taxes have been considered or introduced, a loss of economic presence and jobs has occurred.
Denmark and Mexico have both experimented with this type of tax, and the results have been clear. There have been zero positive health outcomes. A recent study by a supporter of the tax measure in Mexico, again, a supporter of the tax, was referenced in the recent Senate obesity report and concluded that, at most, since the implementation, there has been a five to seven calorie reduction in an average 3,000 calorie diet. The study did not look at any kind of substitution for those calories at all.
A recent study out of Nuevo León University in Mexico, however, has also cited 10,000 job losses in Mexico since the implementation of that tax. Furthermore, after 18 months of implementation in Denmark, they eliminated their fat tax and stopped the process of implementing a further sugar tax, citing administrative burden, 1,200 job losses and no measurable positive health outcomes.
It should also be noted that the Mexico tax, which is held up as a shining success, is not simply a beverage tax but a tax that applies to numerous food products as well. This is a grocery cart tax, a fact often conveniently forgotten. This type of regressive, job-killing tax is the last thing our industry needs in Canada as we look to climb out of a current precarious economic situation.
Applying a tax to only one product to address concerns about a complicated issue like obesity could prove crippling for our industry and the well-paid, pensioned beverage jobs in every region across this country.
In conclusion, while further work is required to reduce our regulatory burden and increase our economic competitiveness here in Canada, we appreciate recent efforts by the federal government to improve and refine our trading relationship with the United States. We look forward to trying to grow our industry here in Canada for future exports.
I look forward to responding to your questions. Thank you for the opportunity to present.
The Deputy Chair: Thank you, Mr. Goetz. Mr. Paszkowski.
Dan Paszkowski, President and CEO, Canadian Vintners Association: Thank you, Mr. Chair, and good afternoon. I am the president and CEO of the Canadian Vintners Association, better known as the CVA.
As the national voice of the Canadian wine industry, our members represent 90 per cent of all Canadian wine production and are engaged in the entire value chain, including grape growing, farm management, grape harvesting, wine production, bottling, retail sales, research and tourism.
Most of you have heard the wine industry's great success story of surviving and thriving after NAFTA. There were many who said the Canada-U.S. free trade agreement would be our demise, but it was industry leadership and the government's support that ensured the wine industry's ability to transition and build resilience in a changing marketplace. That was 25-plus years ago, when there were approximately 50 Canadian wineries. Today, there are 671 grape wineries operating across Canada,and our future success in a global market remains intricately tied to our growth and success at home.
Canada is a premium global wine producer, producing high-quality, award-winning table wine, sparkling wine and icewine. The industry contributes $6.8 billion to the national economy, supporting 31,000 jobs and attracting more than 3 million tourist visitors each year. Canadian vintners are also actively engaged in the global economy, with $74 million in export sales shipped to 40 countries in 2015, up from $20 million a decade ago.
We have a national export strategy that recognizes the opportunities for Canadian wine in global markets. Most recently, we had 22 wineries from Nova Scotia, Ontario and British Columbia exhibiting under the Wines of Canada banner in Germany at ProWein, the world's most important wine show, which was a significant success.
It's accurate to state that vintners from coast to coast support a competitive and fair global trading environment, recognizing the numerous benefits to industry, consumers and the greater economy. Under the Canada-EU trade agreement, better known as CETA, and the Trans-Pacific Partnership agreement, the TPP, the Canadian wine industry widely anticipates developing preferential relationships with our largest trading partners, providing enhanced access to 1.3 billion consumers.
CETA and TPP member countries are responsible for 98 per cent of Canada's current wine export volume, in part because Canada already appreciates tariff-free access with the United States, Mexico, Chile and Peru, but there is room to grow.
While we currently export very little to the European Union, it is an important and prestigious market for our industry. Unlike other agricultural sectors, Canada signed the Canada-EU wine and spirits agreement in 2004, which has been incorporated as a separate chapter within CETA. Due to the prior negotiation of this 2004 agreement, the majority of trade issues had already been addressed prior to the launch of CETA negotiations, including mutual recognition of winemaking practices, the protection of geographic indications and terms, and a common definition of "icewine.'' Therefore, the impact of CETA is largely about wine tariff reductions.
TPP will offer many more immediate and tangible benefits to the Canadian wine industry, reducing costly tariffs, providing greater protection for authentic icewine and streamlining complex technical administrative barriers to trade. Roughly 96 per cent of our TPP wine export value is destined for the United States. However, Asia-Pacific consumers are rapidly increasing their interest and demand for premium wines, providing important new market potential for Canadian vintners.
If Canada were excluded from the TPP, the sole benefit of those negotiations would go to some of the world's most ambitious wine-exporting countries — Australia, Chile, New Zealand and the United States — leaving Canadian vintners significantly disadvantaged.
It is important to realize that CETA and TPP countries are eager to gain greater Canadian market share. They already own the great majority of their home markets and must expand significantly to move supply.
All eyes are on Canada. Canada is the second-fastest-growing wine market in the world, with wine consumption growing three times faster than the global average. We are the sixth-largest wine importer in the world, and over the last decade, imports have captured 75 per cent of Canada's 150-million-litre wine sales growth. Looking ahead, Canadian wine demand is expected to grow by 50 million litres, or 11 per cent, by 2018, making our country increasingly attractive to our import competition.
For the Canadian wine industry to reach its full potential, decision-makers and political leaders must recognize that CETA countries represent 43 per cent of wine volume imported to Canada and TPP countries represent 46 per cent, for a total of 89 per cent of all wine imports to Canada.
Our competitors are investing millions annually to market their products in provincial liquor boards. Recently, The Globe and Mail reported that New Zealand wine export sales to Canada were up 18 per cent in 2015 alone, surpassing $92 million in value. This is before the full elimination of the import tariffs when the TPP enters into force.
In contrast, the Canadian wine industry's domestic market share is a mere 32 per cent — 10 to 11 per cent for our premium wines, the lowest of any wine-producing region in the world. This needs to significantly increase in order to allow us to further invest in export development and leverage the new free-trade agreements.
The Canadian wine industry applauds the removal of tariff and non-tariff barriers to trade, but given the front-end competitive benefits these agreements offer to our competitors, ratification must include federal support to help the Canadian wine sector adjust, take advantage of and prepare for the implementation of these major free-trade agreements.
Our strong recommendation is for a competitive tax system that supports and encourages private infrastructure investment, as well as federal leadership, improving domestic market access by modernizing the agreement on internal trade and removing interprovincial barriers to wine trade. Together, these measures will stimulate innovation and business investment, enhance our competitive position, capture greater domestic market share and enable our sector to take advantage of these emerging export opportunities.
Thank you very much.
The Deputy Chair: Thank you both, gentlemen. Before I start the questions, I should bring you up to date: I want to welcome Senator Merchant from Saskatchewan, Senator Plett from Manitoba, Senator Oh from Ontario, Senator Beyak from Ontario and Senator Tardif from Alberta.
I have two quick questions, and these will be my only questions of the evening.
Mr. Paszkowski, we've seen in recent years disagreements on interprovincial liquor trade and transport. Some provinces have laws in place preventing interprovincial purchase and transport of liquor. Some provinces allow residents to order Canadian wine directly from wineries across Canada and have those products delivered to their homes.
I will ask both questions at the same time. Do you have a sense of how this is going? What changes are being made and are in the process of being made, and what impact do you see such regulations have on the ability to promote and sell our own products to our own market, before we talk about the international market?
The second question is for Mr. Goetz, and you'll never guess what it's about. With respect to your comments on the report of the Standing Senate Committee on Social Affairs, Science and Technology, the chair of that committee is with us this evening, so I will leave the details to him. But have you analyzed what the bottom-line impact will be in your industry and in others like you, not only for local trade but for international trade as well? What impact would such a tax have on your ability to promote and sell your products in the market, and what has been the impact, if any, on such a tax in other jurisdictions? You gave us one example. Are there others?
Mr. Paszkowski: As all of you know, in 2012, Bill C-311 passed, and the federal government amended the Importation of Intoxicating Liquors Act. It was the first time that act was touched in over 80 years. It had unanimous passage in both houses.
Since that time, three governments have acted. Manitoba, British Columbia, and Nova Scotia just this past summer opened up its borders to allow for the direct delivery of wine from one province into those specific provinces, with no strings attached. None of the other provinces have made that move at this point in time. Most of them have put in place either an amendment in regulation or a policy to allow for their residents to bring one case of wine back into their home province, as long as that wine is transported on their person.
As far as I'm concerned, that's not enough. Even though I'm in the wine industry and I have a big representation in British Columbia, I get to British Columbia maybe twice per year, which means I have access to two cases of wine from B.C. every year. I believe I'm much more fortunate than most Canadians.
It is problematic for us, because it is the only way we're able to market our products to consumers and build consumer loyalty across this country. Nova Scotia, being a case in point, given the population and a growing wine industry in that province — and many consumers like rum — it is a problem for them. Their industry can't grow if they can't sell their product. The only option they have is to sell to the million-plus consumers who reside in the province of Nova Scotia or export their product. They can't build that loyalty across the country, unless another liquor board decides to market the product for them. Our premium wines in liquor boards across the country have a 6-per-cent market share — yes, 6 per cent.
The Deputy Chair: Some of us Nova Scotia rum drinkers drink a fair amount of wine, as well.
Mr. Goetz, your answer to my other question, please?
Mr. Goetz: This concept of beverage taxes is a fairly new one, so it has only been tried in a couple of jurisdictions. Those are the ones I can speak to — the two examples I gave. The most recent one is in Mexico, which, again, is not just a tax on beverages but a tax on snack food as well and a whole variety of grocery cart items.
The initial studies we have, some industry-funded, some independent, as well as one from someone who helped design the tax regime in Mexico, have shown that there have been absolutely no health outcomes from the tax. At most, there has been a five- to seven-calorie decrease in average caloric intake of an average Mexican citizen. That's the one part that the tax was supposed to address, and it is clearly not doing that.
On the job side, however, we have early indications that there have been significant job losses in the beverage sector in Mexico. Again, the study that I cited was from the University of Nuevo León. At the low end, they have said that there have been approximately 10,800 job losses, and that's in the early days of the implementation of the tax.
Denmark — and this is well-documented, because they had a longer run at it — first introduced a "fat tax'' that applied to products containing saturated fat. They were then going to increase that tax and have it also apply to products that have sugar in them as well.
The "fat tax'' part of it, which contributes far more calories to Denmark diets than, for example, sugars-sweetened beverages, caused 1,200 job losses. It resulted in cross-border shopping to a serious extent and it was administratively very hard to put in place. They were arguing about a can of herring and, if it was packed in oil, it would be taxed. If the paper that covered the herring had oil, it would be taxed and others wouldn't. It was very administratively burdensome. There were, again, 1,200 job losses there. That was before the tax was fully implemented. It was repealed by an almost unanimous vote in Parliament 18 months later, and then the sugar part of it was obviously abandoned as well because that was going to take it even one step further. Those are the early examples.
This again is an industry where we have seen calories decrease as far as consumption. The calories Canadians have consumed over the past 10 years from beverages have declined by 20 per cent. That is fact. That is Stats Canada data. At the same time, obesity rates have continued to rise. The chart goes like this, as far as consumption versus obesity rates. It's very clear.
We have very significant front-line, full-time, pensioned, mostly unionized jobs in this industry, and to put that at risk on a tax experiment that has been proven ineffective at best is risky for our industry.
Senator Plett: My main question has really been answered, but let's pursue it a little further.
As the chair pointed out, I am from Manitoba. I don't think it was a hard decision for Manitoba to open borders to wine coming in because we are not really known for a whole lot of good wines. It was a pretty easy decision. I don't think that would necessarily be the same for people in British Columbia and certainly Ontario. What do you think are the chances of getting these provinces to move?
I'm going to continue along that line a little bit. How much would that help you? You listed a number of problems. You listed problems with Australian and New Zealand wines coming in. I am fond of some Australian wines, but I am also certainly fond of some of B.C.'s wines. I think the Okanagan has some of the best wines around, and I think we can compete. So why are Australian wines more popular in Canada than our wines? Is it simply because people in Ontario can't get wine from the Okanagan, or what's the reason for that?
Mr. Paszkowski: I think that's a large part of it. We're not afraid to compete. As I mentioned in my presentation, a lot of people felt that our industry would fall apart after the free trade agreement and that we'd never be able to compete. We invested in research, in quality and in the VQA system. We slowly grew our industry to produce award- winning wines, and not just icewines. Sparkling and table wines around the world are winning awards.
The challenge that we have is twofold. Number one, we haven't had a great opportunity for liquor boards to champion our products outside of Ontario and British Columbia and increasingly in Nova Scotia, which really focus on the wines that they sell there. Most of the provinces across Canada have less than a 3 percent market share for our VQA wines or 100 per cent Canadian wines, so the opportunity hasn't been there.
In part, that's a problem of the industry. We haven't been a strong industry with a lot of funds behind it compared to the billions of dollars in third market promotion that the Europeans, Australians or New Zealanders put out, and liquor boards love having this money. If you can provide liquor boards with money to do marketing and shelf talkers and advertisements, they're going to pick it up. We've never had that level of funding. On average, our federal funding has been around $200,000 or $300,000 per year. That increased in December when we received funding in the area of about $1.7 million matched by industry over the next two years, so we're going to be able to do a little bit more, going out there doing white tablecloth tastings to promote our products and to give the liquor boards the types of things they want to ensure they can sell our product. We recognize the fact they don't want our wines sitting on their shelf collecting dust. They want to move that product. We're going to be able to do a little bit more with some of the federal funding we've received.
We also attract 3 million tourists per year. When a tourist comes to our winery and would like to purchase a case of wine and have it shipped back home by courier because they are travelling on a motorbike or with their family or great distances and the wine will be vinegar by the time they get back home, we don't have the opportunity to do that, with the exception of those three provinces. That is our biggest opportunity. LCBO studies will tell you that if a consumer has visited a winery, the chance of them going back and purchasing local products increases significantly.
It's important for two reasons. We have to be able to access our consumers, but we also have the ability to sell them something. You can buy anything on the Internet today, but you can't buy a bottle of wine. We can't even have a wine club in Ontario with wine club members in let's say Alberta because that would be illegal.
Senator Plett: On that particular issue, I think you are preaching to the choir here, because as you said yourself, both houses here unanimously passed a bill that our government brought forward. I think it may have been a private member's bill, I'm not sure, but nevertheless, we passed it unanimously in both houses because we agree with you. But what can we do to convince the provinces?
You said third party funding. Is that federal government funding?
Mr. Paszkowski: I said third country funding. The Europeans and the Australians provide funding to their industry to build markets outside of Australia or outside of the European Union. Hundreds of millions of dollars are being spent by those countries in Canada.
Senator Plett: Is your biggest problem the interprovincial barriers as opposed to you selling out to other countries? I do travel. Many of us do. We travel around the world. When I walk into a wine store in another country — maybe I'm not looking properly — I'm usually choosing somebody else's wine than Canadian wines. Do we not have them on the shelves there?
Mr. Paszkowski: I think it's a big part of success. You have to win at home. Every wine-producing country has won at home before they have made it big into the export market. Spain has 90 per cent of their domestic market, and they are one of the largest exporters in the world. Direct consumer delivery is going to put us in contact with our consumers at home. We'll become more profitable at home. When we're more profitable at home, we'll be able to export.
Let's use the United States as an example. In 2005, the Supreme Court ruled that it was unconstitutional if they didn't allow direct consumer delivery of wine. Forty-eight states have now opened it up. Small wineries in the United States represent 5 per cent of production. They represent 51 per cent of direct consumer delivery, shipping from California to New York state or elsewhere. As those small wineries become more and more profitable, where are they going to start shipping next? They are going to start shipping to one of the most attractive wine markets in the world, which is Canada.
Unless we can solve the Agreement on Internal Trade and allow our wineries to be able to ship to consumers that want to drink local products, we have two hands tied behind our back.
Senator Ogilvie: Mr. Goetz, as you would guess, I have a very different view of the issue than you do. I certainly recognize that you have a very successful and aggressive industry, and that is your right and indeed your responsibility to your shareholders.
With regard to the examples in Denmark that you used, I would certainly agree that's not a good example either way with regard to the issue of sugar tax. It was brought in in a very ill-conceived manner, as you identify, with regard to lipids, which have nothing to do with the issue of sugar directly, and they didn't get it extended in any meaningful way to sugar products whatsoever. So it's not an example relative to the success or failure of a sugar tax. It may be an example of a very unsuccessful and ill-conceived tax measure, but not with regard to sugar.
You didn't mention Hungary in your list of countries. Could you tell me what you know about sugar tax application in Hungary?
Mr. Goetz: I certainly can. The sugar tax in Hungary certainly goes far beyond anything that was recommended in your report. If that's something we want to talk about and consider here for Canada, that's an even broader argument and should not be compared to what has gone on in Mexico or —
Senator Ogilvie: How do you mean it's broader?
Mr. Goetz: It applies to lots of food and beverage products.
Senator Ogilvie: With regard to soda pop itself.
Mr. Goetz: That is absolutely captured under that tax, but so are honey and jam. In the Canadian context, maple syrup would be captured under that tax.
Senator Ogilvie: With soda pop, what is the increase in tax that they applied?
Mr. Goetz: I don't have the rate for Hungary right now.
Senator Ogilvie: It was roughly 27 per cent, and they have seen a 29 per cent reduction in consumption of soda pop. They have seen the suppliers create a number of new products that meet the requirements without the sugar content.
Are you aware of what's going on in the U.K. at the moment in their legislature?
Mr. Goetz: They are going to be introducing one, and there's a two-year time frame on that.
Senator Ogilvie: That's correct.
Mr. Goetz: To get back to the question about Hungary, I'd like to talk about Canadian stats for the Canadian industry, which is different than Hungary, for example.
Almost 50 per cent —
Senator Ogilvie: You introduced Denmark and Mexico as examples against the Canadian tax. Therefore, it is appropriate to use any country where there is a tax in this area.
Mr. Goetz: Absolutely.
Senator Ogilvie: And there's only a few of them so far.
Mr. Goetz: Just to clarify, Hungary is a very broad tax. It is absolutely a grocery cart tax. If that's an example of something we want to implement here in Canada, we need to be straight with what is actually taxed there.
Senator Ogilvie: In our report, which you have criticized, we are referring only to a tax on your products, not the broad spectrum. Therefore, we are interested in the testimony with regard to the application of the tax on your products and the impact it had on consumption of your products. In that regard, it has had a very dramatic impact in Hungary.
The issue as well is this: Can you tell me the food value of a soda pop?
Mr. Goetz: As far as nutrients, it's not a surprise that there are not a lot of nutrients per se in a soda pop. It is used for enjoyment. Lots of people find various products tasty, not just always for their nutrient profile.
We always talk about not overconsuming any product, including our own products, which is also why, to stick to the Canadian context, almost 50 per cent of our products on the shelf are low or no-cal products that contain either under 50 or 60 calories or no calories at all.
The interesting thing about the report that was tabled was that the sugar tax would apply to products that have no sugar in them or no calories in them. This beverage sitting right here beside me is a carbonated beverage. It contains no sugar and no calories —
Senator Ogilvie: I am the author of that report, and what you said is fundamentally incorrect. We are recommending a tax on sugar beverages, the soda pop beverages, and it was directly related to sugar.
Each 250 to 300 glass of the sugar pops we considered contained 22 to 30 grams of sugar. Sugar is one of the major contributors to the obesity epidemic which has occurred in the last 30 years. There has not been a reduction in obesity and overweight in Canada. In fact, in children, it has increased three-fold over the last 20 years.
Sugar is one of the major impacts. There are many factors that impact obesity. I would like to be able to blame you for it all, but in fact I can't. The issue is both diet and exercise. We recognize all those factors.
Our study focused on one of the major unessential components of consumption.
The Deputy Chair: Senator Ogilvie, I need a question. We can't redo the Social Affairs, Science and Technology Committee reports and/or discussions here. Do you have a question?
Senator Ogilvie: I've asked him a number of questions, and he skirted around them. That's why I went this way, chair. Not wanting to pursue this, under your direction, I will cease. I would like him to read the report in its accuracy because we only recommend a tax on sugar beverages. We do not recommend a tax on any other issue.
The Deputy Chair: That's fine. I know Mr. Goetz has the report. I assume he's read it in detail. It is an excellent report.
[Translation]
Senator Dagenais: My first question will be for Mr. Goetz, and my second one for Mr. Paszkowski.
Mr. Goetz, we know that transportation is an important factor in the exporting of your products. Is there a lot of potential in the Asian market for your industry? In what sector would you say the potential is the highest?
[English]
Mr. Goetz: The great thing about the non-alcoholic beverage industry — and I certainly don't mean to not answer your question — is that it is more of a local and domestic industry. With beverages, aside from some of the alcoholic beverages, it's very expensive to transport around. Liquid is heavy. In an industry where, like most groceries, most food and beverage, it's more of a pennies industry, our real market potential is a little bit closer to home, and that's in the United States. That is why I talked about the preclearance issue earlier as something that is a priority for us in our exports.
[Translation]
Senator Dagenais: Mr. Pazkowski, is the Canadian wine industry's production capacity currently large enough to lead to significant exports?
[English]
Mr. Paszkowski: We are a small exporter compared to most countries in the world. We will always be a relatively small wine-exporting country because we have restrictions in terms of productive agricultural land and climate. We don't have a lengthy growing season here to produce some of the types of wines that you might be able to produce in Australia or Spain. Unless the temperature increases a little bit in wine-producing parts of Canada, we will always be restricted in terms of how much we can produce.
In certain parts, it would be more helpful for us in Canada. For wine production in Spain or Australia, they're now looking at producing grapes at higher altitudes to get cooler climate.
With more heat comes more alcohol, so certain wines become less enjoyable with higher alcohol content. Canadian wines are from a cool climate part of the country. They're very food-friendly wines. We're recognized for having very food-friendly products.
[Translation]
Senator Dagenais: In response to Ontario's decision to sell beer in grocery stores and supermarkets, the Ontario government decided to also allow the sale of wine in more than 300 commercial establishments. Are you in favour of that development?
Can you tell us whether any other provinces might follow Ontario's example? For instance, in Quebec, we can buy wine at Maxi, Provigo or IGA, and there is plenty of beer in all corner stores. However, I do not think that is the case in all the provinces.
Do you think other provinces could follow Ontario's example?
[English]
Mr. Paszkowski: You are correct. It's a long time coming. The opportunity to get our products in front of consumers on a more daily basis has been very positive. We think it will promote the attraction to local products, so we are excited about that, as long as grocery stores recognize that they have to have the same social responsibility criteria in place as the liquor boards have had.
British Columbia has also moved towards selling wine in grocery. It has been extremely successful in the four or five stores that are currently selling B.C. VQA wines. The new Saskatchewan government is going to be privatizing some of its retail liquor boards to the private sector, I believe over 40 of them across the province as a start. Alberta has already gone in that direction, and you're finding a few in Nova Scotia. In Quebec, there's a bill before the legislature right now to allow for different Quebec-produced wines to be sold in grocery, which currently isn't permitted. There are changes taking place in the industry. It clearly has to adapt, but I view most of it as being positive.
[Translation]
Senator Dagenais: I will wrap up with a bit of humour. Last week, I was at a grocery store in the U.S. with my wife, and I wanted to buy wine at 11 a.m. on a Sunday. However, I was told that wine could not be bought before noon. I was surprised to hear that, and I don't know whether we have that kind of a law in Canada.
[English]
Senator Tardif: My question is for Mr. Paszkowski. You mentioned in your presentation that some of your competitors have very aggressive marketing techniques, and you mentioned New Zealand, in particular, whose sales have gone up, I believe you said, by 18 per cent in 2015. I've had the opportunity to visit a few of the wine-growing regions in New Zealand, and I know that they are very aggressive in their marketing techniques. I think we've all seen the large newspaper ads in several of our national newspapers in regard to New Zealand wines.
As well, I noticed when I was in New Zealand that their production capacity seems to be much larger than most of the wineries in Canada. Maybe I just visited some of the larger wineries. Is the relatively small size of Canadian wineries an advantage or liability when it comes to competitiveness?
Mr. Paszkowski: That's a good question. There are economies of scale to wine production. To be able to be profitable in the wine industry, typically you have to be a certain size. Wineries do start off with a smaller footprint, and they grow over time. I don't have the number before me, but everybody is familiar in the wine industry as to what your production levels have to be at various price points to be competitive. All wineries tend to move in that direction.
We're young, so we've had a real influx of wineries over the past number of years, millions of dollars of investment in the past 10 years. Since the elimination of the excise tax on 100 per cent Canadian wines, 265 wineries have opened. That's 62 cents per litre, which is what the excise tax was. That provides you with a bit of uplift at the bottom end to get going, which is what the industry needed.
I think it was a success on behalf of the government, with 265 wineries, millions of dollars of investment, and it created $1.7 billion in economic impact per year, every year now going out, at a loss of excise revenue of about $250 million over a decade. Sometimes taxation by government is not the best measure. Elimination of taxation, reduction of taxation, could stimulate investment as well, which was the case here.
In New Zealand, you do have some bigger wineries, but you do have an equivalent number of very small wineries. The New Zealand wine industry about 20 years ago was the same size as the Canadian wine industry. In the 15 or 20 years that have passed, they have done significant research as well into Sauvignon Blanc and Pinot Noir, but they have a very small population and they can only sell their products to one or two grocery stores in the country. The margins are so low that they've had to put a significant amount of investment into exporting their products to higher margin countries such as Canada. Tthey make more money selling it in Canada than they do selling it in New Zealand, which is why they have grown so successfully.
Senator Tardif: What does the elimination of import tariffs when the TPP comes into effect mean for your industry?
Mr. Paszkowski: It will definitely help our industry. Let's use Japan, for example, in the TPP. They have a 15 per cent value-added tariff in place. Chile and Australia have signed free trade agreements with Japan. With a bottle of wine that we sell into Japan, we're at a 15 per cent ad valorem tax disadvantage to those countries. The ability to remove that tariff over time puts us on the same footing as our competition. We're not taking a 15 per cent haircut every time we sell into Japan.
In terms of the other way around, our tariffs in Canada are relatively low. We're looking at about 1.5 to 4 cents per litre. If you think of Australia and New Zealand together, that's about 315 million litres of wine. That's about $7 million in tariffs that the government will give up. That's $7 million in tariffs that the Australians and New Zealanders will use towards investing in Canada to promote their products. That's why we are arguing that.
We support the agreements. We just need some front-end support because our competition is getting a better deal out of the agreements at the front end than we are because we still have to grow more market share domestically so that we can take advantage of the export opportunities by being profitable at home and being able to export. Currently only about 50 wineries are in a position to export.
Senator Tardif: The wine seems to be, in some cases, more expensive in Canada than wine you could get from Chile, Argentina or Australia.
Mr. Paszkowski: Absolutely. Our costs are higher to produce. We're a cooler climate, so it is more challenging for us in Canada to produce the wines, and we produce them at a higher cost.
Our super premium wines were also picked grape by grape, whereas in Chile you're going to have a mechanized system of cultivation there to pick their grapes. So they are producing large volumes and they are the large wineries that you were talking about, not the very small hands-on experiences that you'll find in Canada. But our costs are higher.
I've used examples in Argentina where we couldn't even put juice into the bottle at the cost that the Argentinians are able to export to Canada. We have no idea how they do it, let alone buying the bottle, the cork, the cap and the sleeve that goes on it. We couldn't even put wine into that bottle at the same price that the Argentinians sell it here in Canada.
There's always going to be that issue. What we do have is a quality product that's very unique and small-scale and a growing interest in our products. We just have some barriers in place domestically that are restricting most Canadians from having the opportunity to taste it.
Senator Unger: Thank you, gentlemen, for your interesting presentations. A couple of my questions have already been asked. In Alberta, we have our liquor control board and they are very controlling, as far as I'm concerned, but I don't know why the reluctance to allow interprovincial trade with regard to wine and, for that matter, anything. Are you the people who call on the provinces to try to get them to drop that, and what are the barriers?
Mr. Paszkowski: Alberta was an interesting story because we assumed that when the bill passed, being a Conservative government at the time, which is very pro-business, and not under a liquor control model in the Province of Alberta, that it would be fine. They did have the regulations in place that would allow for wine to be exported from British Columbia into Alberta. I think it's roughly two years ago that Alberta changed its regulations, just prior to the NDP government coming into place, and allowed a consumer to travel to British Columbia or Ontario from Alberta and bring an tractor-trailer load of wine back with them. But you can't ship one bottle by courier. So they amended their regulations to disallow courier delivery and, therefore, that takes away the benefit of direct consumer delivery to their consumers.
My belief is that they have a private system with private retailers. They have a strong association group that's responsible throughout the alcohol and retail industry in the Province of Alberta who has lobbied the Alberta government heavily to disallow courier delivery of wine in fear that that may displace some sales for them.
We've learned from Manitoba, British Columbia and Nova Scotia. It has always been argued by the liquor retailers and liquor boards that if we allow direct-to-consumer delivery, it will displace the sales at their stores. That has not happened in any of those three provinces. Their sales have actually increased. Educating your consumers and allowing them access to more Canadian product increases their interest in wine. They not only buy more Canadian wine but they are buying more wines from different parts of the world.
Senator Unger: You talk about the wine industry being a $6.8 billion a year industry, and yet exports are only $74 million. You've talked about that quite a bit. Are there any one or two specific things that would increase your ability to export more?
Mr. Paszkowski: Yes. There are two critical factors that we need to take advantage of what the trade agreements are offering us, and one is to address the interprovincial trade issue, so to address the Agreement on Internal Trade. We're hopeful that the federal and provincial ministers who are tackling this right now will finally amend the AIT to allow for interprovincial delivery of wine, which will be very helpful.
If that doesn't happen, I'm hopeful that given the number of Liberal governments across this country, and a Liberal federal government, that there may be some pressure amongst Liberals to actually liberalize, because the key wine- producing jurisdictions such as Nova Scotia, Ontario, Quebec and British Columbia are all Liberal governments. I think it's absolutely unfair for the British Columbia government to have opened up its market to all 100 per cent Canadian wines to be shipped there, yet not one bottle of B.C. wine can be shipped to Ontario or Quebec. That's not fair.
The second issue in terms of taking advantage would be to support us in terms of some immediate capital infrastructure investment so we can further improve the quality of our wines and make the much-needed investments that we need to be able to grow our local opportunities.
As I mentioned, 3 million tourists come through our wineries every year. That's $1.2 billion in economic impact for the economy. We can't afford for our wineries to start falling apart or not have the most modern technology to develop the types of wines as the Bordeaux or Burgundy. We really need that help as our competitors are receiving help from their governments.
We believe that with those two measures, we can compete and we can take advantage, and over a 10-year period we will be exporting a lot more than we are right now and we're going to have more than a 32 per cent market share in this country. It will be closer to 50 per cent, which is where we were prior to the free trade agreement being signed in 1988.
Senator Merchant: I'll start with Mr. Goetz. Maybe you feel a little bit left out.
Mr. Goetz: Wine is an exciting topic; I enjoy it as well.
Senator Merchant: Your association launched the balanced calories initiative in 2015.
Mr. Goetz: Yes, we did.
Senator Merchant: Could you explain to us what the driver behind that was, the purpose, and how this will affect exports of your products and if so why?
Mr. Goetz: I don't know if I can tie that back to exports. I'll try. I'll leave that to the end though because I have to think about that for a second. But thank you for asking about that.
In 2015, major beverage producers in Canada, in partnership with the Conference Board of Canada, made a commitment at one of their food summits to work towards in the next 10 years a decrease in all non-alcoholic beverages, non-dairy, to reduce the calories in the Canadian portfolio by 20 per cent.
In my exchange with Senator Ogilvie, what I tried to say was that beverage consumption of full-calorie beverages has dropped by almost 18 per cent in the last 10 years. At the same time, calories in the Canadian portfolio that Canadians are consuming has also dropped by 20 per cent. A lot of that has to do with the popularity of water products, bottled water, water with a little bit of flavour in it, but that growth in that market cannot continue so we're not going to see that continued drop in calories.
Our industry, which makes up only 5 per cent of all the calories that Canadians consume, far less than my friend in the wine sector, may make up a small portion of the calorie portfolio in Canada, but we still want to do our part. That's our commitment to work toward that aspirational goal.
The Conference Board of Canada will be monitoring and reporting on our progress. They will be issuing a benchmark report shortly just to make sure we all know where we're starting from as far as calorie consumption from non-alcoholic beverages and continue to drive those calories down.
You can do this in three ways: Introduction of new products, of low and no-calorie products; smaller package sizes. In the grocery stores, you may have seen the mini cans that many of our members are using now. Also, we are leveraging our marketing dollars promoting those low and no-calorie beverages as well to further drive that.
It's a proposal that will be measurable. We hope we can get to 20 per cent. We may not, but we're going to work to get there.
Senator Merchant: Good. I wish you luck because it will be good for you and it will be good for us too.
I hate to do this because we have Senator Oh here and he's the expert in the Chinese markets. We were in China not too long ago. The Chinese do drink wine, but I don't think Canadian wines have penetrated the Chinese market. At this moment, they will not be signing the Trans-Pacific Partnership. What are your plans then for penetrating that market, because the Chinese market is a huge market?
Mr. Paszkowski: It is our seconder largest export market, and it is a growing market. It takes time to penetrate the market but we do have a number of wineries that have spent a significant amount of time in China. I can mention Pillitteri Winery in Ontario. Pelee Island in Ontario has actual stores in China where they're selling their products. They have reached the next level of retailing.
In terms of our sweet wines and icewines, it is an extremely attractive marketplace for us for those premium wines receiving premium price points, but more increasingly, as there is a growing interest in wine, as you mentioned, our table wines and our sparkling wines are doing well also.
We participated in what is known as the World Wine Trade Group for the past 20-something years. It is a group made up of a number of countries, Canada, U.S., Australia, Chile, Argentina, New Zealand, South Africa and the Republic of Georgia, to develop agreements on labelling, on winemaking practices, to harmonize regulations across those countries to support trade so that when I'm shipping into one of those countries, I don't have to re-sticker my label to meet the requirements of that country. We mutually accept each other's labelling standards.
We're working to try and get China to join the World Wine Trade Group as well to ease the export of those products into that very important and lucrative market for us. If we can do that, we can eliminate some of the obstacles and make it even more profitable.
It is one of our key markets and part of our wine export strategy to grow into China at a higher level, so we were thrilled to hear in the budget and prior to that the government does have an interest in signing a free trade agreement with China.
Senator Mercer: Thank you, and speaking of China, Senator Oh.
Senator Oh: My question refers to our wine tourism industry in Canada. As you know, Canadian icewine has a great reputation in China, and 90 per cent of Chinese visitors purchased icewine following winery tours. That's a value of $6.7 million in 2014. Can you tell us more about the case study that you conducted on Chinese visitors and icewine tourism?
Mr. Paszkowski: We know it's extremely important, and we have buses coming through our wineries on a daily basis. They have a significant interest in icewine. They do purchase icewine mainly for gifting when they go back. One of my members, Summerhill Pyramid, for example, in the Okanagan, has actually created a warehouse in China so that when the tourists come to their winery, they can purchase the wine and don't have to bring it back with them. It will be waiting in China and delivered to their doorstep once they arrive there.
We have also worked with the Chinese government in terms of educating them on our icewine standards, because icewine can be produced in China. We want to make sure that if it is produced, it is produced with internationally accepted vinological practices.
But we also have a problem in China with counterfeit icewine. It has been identified that roughly 50 per cent of all icewine sold in China is counterfeit, and that has been a significant challenge for us.
We have invested in trademarking VQA in China. Interestingly enough, when I did start that process, it took me almost seven years. When we put in our application to trademark VQA, we found out there were three Chinese nationals ahead of us in a trademark line trying to trademark VQA as well. We beat all of them, and now we have it.
It is a slower process, but we believe it is extremely worthwhile because we see great opportunities in that marketplace, as has been experienced by countries like Australia. Australia signed a free-trade agreement with China. We are taking a look at the wine chapter in that agreement to see if Canada and China are interested in pursuing an agreement and if we can follow the same mechanisms with tariff reductions, vinological practices, et cetera.
Senator Oh: Do you think our embassy and trade office in China give you enough support in promoting the icewine and any other wine markets in China?
Mr. Paszkowski: I think we are getting very good support from the post in China. We just had a sweet wine event in Chengdu. The Canadian ambassador was at our booth, supporting us there. It is a recognized opportunity for the Canadian wine industry, and we are getting good support, both from the ambassador and his staff. I know that B.C.'s representative in Beijing is the brother of my chairman, Tony Stewart, the owner of Quails' Gate in B.C., who is working very hard on behalf of the B.C. government to open up the Chinese marketplace for Canadian wines.
Senator Oh: Two years ago, I was in Beijing, and they brought me to help launch the Pelee Island wine in Beijing.
Senator Plett: A short supplementary: How do you make a counterfeit wine?
Mr. Paszkowski: Sugar and water, or worse.
Senator Plett: What does it taste like? Obviously, people would not be buying it if it didn't taste like icewine, would they?
Mr. Paszkowski: In many cases in the Chinese marketplace, the product is purchased for gifting. So you'd purchase the product in an icewine bottle with a Canadian flag on it. Toronto icewine, Whistler icewine — I have seen all kinds of variations. It's never consumed. It goes into a cabinet. You know, "My son bought me a bottle of icewine,'' so it may not be consumed.
Our biggest fear is from a food and safety perspective. If it isn't following the international standards for icewine, we don't know what is in the product. If someone does consume that product, which isn't a legitimate icewine, and gets sick or, worse, dies, that's not exactly the best reputation for icewine that we want. With social media, it would go around the world in seconds.
We are watching closely. We are just negotiating an information-sharing agreement with the World Wine Trade Group on counterfeit wine products, with icewine being one of the key ones. It's not just icewine, but all wines. It's not only a loss of revenue; it's the potential that someone could get seriously ill, because we don't know what is in the bottle.
Senator Beyak: Mr. Paszkowski, I sit on Standing Senate Committee on Banking, Trade and Commerce as a replacement — it's not one of my regular committees — and they are talking about provincial trade barriers right now. Have you presented to them? Wine hasn't come up in the meetings I've gone to, but they are concerned with solving the problem that's been going on for 30 years.
Mr. Paszkowski: I believe I was invited yesterday to present at the committee in a couple of weeks, so it will be addressed. We are excited with the opportunity. If the agreement on internal trade can be amended, finally the barriers will come down. I think the political will is there.
There has been a lot of pressure from the liquor boards not to make any change. Underneath the current agreement on internal trade, you need absolute consensus. So there might be some provinces in favour of making an amendment, but unless there is 100 per cent consensus, there can be no change to the AIT.
Senator Beyak: My second question is for Mr. Goetz. I guess you probably know that Senate committee reports are renowned around the world. I sat as a replacement on Senator Ogilvie's a few times, but I share your concerns. As a small-business owner all of my life, the less government in my life, the happier I am in the regulations camp. My concern is the same as yours: Although we only recommended sugar beverages — and I don't even agree with that part, personally — I wanted to make about the Hungary tax. You mentioned maple sugar, jam and honey, all important products to Canada. In their zeal to comply to reports, governments often go too far. If you could finish what you were saying about Hungary, I'd appreciate it.
Mr. Goetz: I don't know the full rate on all of the tax applied to all the products. I believe it varies. It includes sugar- sweetened beverages but a lot of other products as well.
Our concern is that the report recommended just a tax on sugar-sweetened beverages and then makes a wider reference to some of these other jurisdictions that have put tax regimes in place that are not at all reflective of just taxing one product. Hungary is a very wide tax, as I mentioned.
Again, I would have to look at the sugar contents, but if jams and honey are taxed in Hungary and that model were brought here, obviously sugar-sweetened beverages would fall under that but so would maple syrup. That really is a grocery cart tax.
Sugar-sweetened beverages represent only 5 per cent of the caloric intake of Canadians. That consumption has been falling steadily. I'm not sure what data has being referenced that it's increasing, because it's not, and we rely on publicly available data. So that tax would certainly not do what some of the advocates say it would do, and it would specifically target one industry — that, again, has almost 50 per cent of our products on the shelf that are low- or no- calorie — and is adopting and bringing new products to market.
At the same time, as we are here at this committee promoting agriculture and agri-food industries in Canada, it's endangering good-paying jobs across the country. It's not just large multinational companies. We are talking about Browning Harvey in Newfoundland, which does bottling there. We are talking about Gaspé Beverages, Cape Breton Beverages, Arctic Beverages in Manitoba. There is a 100-year-old family business in Quebec that is adapting and wants to continue to employ people there.
Obesity is an important issue. We want to do our part of the 5 per cent of calories we represent, but to just single out one industry for a special form of punitive taxation will hurt our economic presence here and will not move the needle on obesity.
The Deputy Chair: Thank you, gentlemen, for appearing today.
I want to remind everybody that we will be meeting Thursday morning as well. You should stay tuned for a more exciting meeting, because the sugar beet people will be here on Thursday, and I hope Senator Ogilvie will be here as well.
Thank you. This has been a very important debate that was held.
Honourable senators, before we conclude this evening, I would also remind you of the committee's plan to travel to Calgary from Tuesday, May 17 to Friday, May 20. All members of the committee should have confirmed with the clerk if they are able to participate. Please get a hold of Kevin and let him know. The more people who can go, the better the meetings will be. I know that when we go to Calgary, the Alberta members will treat us in a very special way and that we will, as always, have a wonderful time in Alberta.
With that, we stand adjourned until Thursday morning.
(The committee adjourned.)