Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 7 - Evidence - Meeting of April 14, 2016
OTTAWA, Thursday, April 14, 2016
The Standing Senate Committee on Agriculture and Forestry met this day at 8 a.m., to study international market access priorities for the Canadian agricultural and agri-food sector.
Senator 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. I'm deputy chair of the committee. I would ask senators to introduce themselves.
Senator Tardif: Good morning, Senator Claudette Tardif from Alberta.
Senator Beyak: Good morning, gentlemen. Senator Lynn Beyak from Ontario.
Senator Plett: Don Plett, and I'm from the fine agricultural area of Landmark, Manitoba.
Senator Unger: Betty Unger, and I'm from the finer agricultural area of Alberta.
[Translation]
Senator Dagenais: Jean-Guy Dagenais from Quebec, which produces the best maple syrup.
[English]
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
The Deputy Chair: Senator Ogilvie does live in the agricultural centre of the universe, the Annapolis Valley.
Senator Ogilvie: I didn't need to point that out because I thought it was self-evident.
The Deputy Chair: I thought so too, but the viewers on television they may not have known that. That is down the road from where I live.
Today the committee is continuing its study on international market access priorities for the Canadian agriculture and agri-food sector, which is an important part of the country's economy. In 2013 the sector accounted for 1 in 8 jobs in Canada, employing over 2.2 million people, and close to 6.7 per cent of Canada's gross domestic product. Internationally, the Canadian agriculture and agri-food sector was responsible for 3.6 per cent of global exports of agri-food products, and 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 and 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 exploratory trade discussions with Turkey, Thailand, the Philippines and the member states of Mercosur, which are Argentina, Brazil, Paraguay and Uruguay.
Our first witnesses this morning are, from Gay Lea Foods Co-operative Limited, Michael Barrett, President and CEO; from Amalgamated Dairies Limited, Jim Bradley, CEO and General Manager. Thank you for accepting our invitation to appear, and I invite the witnesses to make their presentations. Following the presentations the witnesses can anticipate questions from senators.
Jim Bradley, CEO and General Manager, Amalgamated Dairies Limited (ADL): Good morning. Thank you for the opportunity to appear before the committee. The P.E.I. dairy industry is very important to our local economy, accounting for $90 million of farm gate cash receipts, creating an estimated 3,100 jobs with a payroll value of approximately $120 million to our province.
Amalgamated Dairies Limited, or ADL, was formed as a cooperative in 1953, and all dairy producers in P.E.I. are members. We speak for the farmer owners and for the industry collectively in the province. The company is a great source of pride for our members, who are highly engaged and rely on the united voice to promote both dairy producers and the processing industry's cause.
Our provincial milk production in 2016 will approach approximately 110 million litres, which is a 10 per cent increase from industry size in 2013. About 70 per cent of this volume in the province goes to the production of cheeses and 20 per cent goes to the production of evaporated milk.
We hold a strong presence in the evaporated milk industry, accounting for approximately 50 per cent of the $60 million evaporated milk market in Canada. We're also a major producer in the cheese processing sector when you exclude the large three multinationals from the equation. We operate the only commercial-scale cheese facility in the Atlantic region. Our plant is one of the most diversified plants in Canada, producing nearly 30 varieties of cheese, using only 100 per cent Canadian milk. Our employees have won many national and international awards for a number of cheeses that we continue to make using traditional cheese-making techniques.
ADL and Gay Lea Foods together launched the Co-operative Dairy Alliance in January of this year. It is a new model of sustainability and growth for dairy cooperatives. The model is based on the principles of cooperation among cooperatives and the sharing of resources, training, research and development and the connection to the community.
We realize that cooperatives such as ours have a role to play in strengthening the economy, while at the same time providing growth and jobs in rural and regional Canada. A small population base has meant that ADL has always been heavily reliant on exports outside of P.E.I. We see the Co-operative Dairy Alliance as a natural progression to grow our exports in an increasingly competitive marketplace.
Trade agreements such as the TPP and CETA will impact the markets that our cooperatives currently service. The cause of some of that industry apprehension includes how will new TRQ import volumes be administered? When will the uncertainty around TRQ policy be addressed? Will there be sufficient support programs and initiatives to help companies like ADL become export and import educated? Lastly, can the dairy cooperatives be recognized for the role they play in supporting their members when it comes to developing rules for TRQ administration?
As cooperatives, we are certainly supportive of supply management. However, as processors, we recognize the system has not done an adequate job of creating a strong climate of investment. We now find the industry in a position where major investments in technology and capacity are required to catch up.
Access to appropriate investment programs and industry modernization initiatives are important for the transition to a more open trade and export environment. There's a lot of work and cooperation needed to ensure the supply management system continues in a viable, sustainable state. This work will be needed to sustain farm revenues, to modernize processing technologies and provide a secure platform of industry capacity for the farm community.
Thank you for the time to present these thoughts. I look forward to our question-and-answer session.
Michael Barrett, President and CEO, Gay Lea Foods Co-operative Limited: Thank you for the opportunity to appear today. We certainly appreciate smaller cooperatives within Canada being able to make a presentation.
Gay Lea Foods Co-operative Limited is 100 per cent Canadian owned and operated. We are the largest dairy cooperative in Ontario, and our owners are dairy farmers from over 1,240 farms that produce one third of Ontario's cow milk. We have a talented and stable workforce of over 900 employees in 8 plants across Ontario, and we process a wide selection of retail and food service goods, while also producing dairy ingredients that provide additional value into the Ontario and Canadian economies.
Gay Lea Foods is the first Canadian cooperative, and indeed the first North American cooperative, that has opened membership to both licensed dairy cow and goat members. We presently manage approximately 40 per cent of the goat milk produced in Ontario through brokering and processing initiatives.
Our objective as a cooperative is to transform more milk from Ontario dairy cow and goat farms by growing an innovative and market-driven dairy business. Trade agreements such as CETA and TPP, as well as the recent WTO Ministerial Decision on the elimination of export subsidies for dairy by 2020 are adding additional pressures onto a sector that is already trying to establish a modernization plan that delivers fair returns for farmers and competitive market opportunities for dairy processors.
The current drying capacity in the Canadian dairy industry is rapidly aging and has limited functionality and adaptability, but there is great news in dairy. There is a growing, insatiable demand for butter, but this has consequences in the industry. The Canadian market requires more butter fat, yet the lack of ability to process the associated skim milk solids results in a crippling reality that limits the market for domestic ingredients and increases processor reliance on imports to serve the domestic marketplace.
Further investment in our industry would provide new, high-skilled jobs at the processing level, growth opportunities at the farm gate and the related spinoffs and research partnerships at universities and colleges, industry suppliers, on-farm supports and local business.
Conversely, the lack of opportunity at the farm gate and minimal investment at the processing level with growth expansion opportunities take place outside of Canada. This would further place downward pressure at the farm gate and a lack of competitive advantage to sustain and grow the processing sector. This is not an option.
That is why the Dairy Farmers of Ontario have been working with the two butter powder processors in Ontario to develop an ingredients strategy to make the dairy component skim solids competitive and, in doing so, establish a market environment that provides stimulus for industry investment and growth.
Growth in the Canadian industry requires continuous research and development. At Gay Lea Foods, we're driven by innovation and growing the market for Canadian milk. Our products include the consumer favourites and award- winning Spreadables, which is butter, and North America's first smooth cottage cheese. We've also launched the innovative snack made with 100 per cent cheese, which is Nothing but Cheese.
I'm pleased to announce that this week we've received two nominations for innovation in the Retail Council Grand Prix for our smooth cottage cheese and Nothing but Cheese. Innovation is what's going to capture this marketplace, and that's an important piece.
As a cooperative, it is important for our members that supply management was maintained in both CETA and TPP. There remains a lot of work to do before CETA is ratified.
As Jim mentioned, there's a lot of interest in the dairy industry on how Global Affairs Canada intends to administer and allocate the new import quotas for cheese from Europe. We would like to work with the government to ensure that the process and the TRQ allocation do not cause instability and unpredictability in the marketplace, or inhibit our ability to grow the domestic market. We will need to be competitive with the new cheese imports coming from Europe.
In addition to the recommendations put forward by Jim, I'd underscore that the dairy industry needs predictability in the marketplace, as well as flexibility to innovate and develop new products for various markets.
As a team of cooperatives, we certainly are very positive about the dairy industry, recognizing there's a need for change and to enforce and support supply management but, like Jim, we recognize that there's a need to be able to modify and enhance in order to be able to ensure rural sustainability through our dairy and goat farms as well.
Again, thank you for this opportunity.
The Deputy Chair: Thank you, Mr. Barrett. We appreciate both of your presentations. We will now go to the senators. I remind you that we want to give everybody an opportunity in the limited time that we have.
Senator Plett: Thank you to both the witnesses. Mr. Bradley, I'll start with you with a very simple question. How did you increase production by 10 per cent in 3 years? That sounds pretty significant.
Mr. Bradley: There have been quota increases awarded to dairy producers from the Canadian Dairy Commission, which manages supply management system in the country. As well, we were at a position in the province where our producers, for a couple of years, have been under-producing their quota allotment, so there was some encouragement on farm programs to increase that level of production back up to fill the provincial capacity that was allotted to them from supply management.
Senator Plett: I know you come from only one part of the country, but is that somewhat the same across the country?
Mr. Bradley: In some areas, particularly in Atlantic Canada, the growth has been somewhere in the 6 to 8 per cent range — in New Brunswick and Nova Scotia.
Senator Plett: How will the TPP agreement affect further increases or lack of?
Mr. Bradley: With the TPP agreement it's going to be our objective to make sure that our facilities and company continue to be able to process and have markets for the local producers' milk production. We're going to have to use import quotas as part of our arsenal, I guess, to try and create more market room with growth in the Canadian dairy sector.
Senator Plett: Do you see any reason why that can't happen?
Mr. Bradley: It's going to be a struggle. Small cooperatives like ours are going to have to be innovative. We're going to have to put together a pretty aggressive business plan.
I think our alliance that we announced earlier this year with Gay Lea will allow us to better access more markets in those areas of the country where there is a higher population in order to give us better access to logistics, warehousing and consumers.
Senator Plett: Thank you.
Mr. Barrett, I would like you to further elaborate on the one comment from your presentation: "The current drying capacity in the Canadian dairy industry is rapidly aging, and it has limited functionality and adaptability.'' Would you explain that statement for me, please?
Mr. Barrett: Certainly. As you're probably well aware, in any system that attempts to balance the milk supply, there needs to be a drying capacity in order to take the highs and manage the lows. In Canada, like any other country in the world, it's managed through drying facilities.
The Canadian market has long used skim milk powder as the balancing product of choice. However, skim milk powder is rapidly becoming a commodity. Therefore, what is trading globally — and skim milk powder still trades globally, and there's still an important market for it — all of our dryers in Canada are pretty well one-trick ponies where they only produce skim milk powder.
Because of the system that we have, there has not been a lot of investment in drying capacity. Gay Lea Foods was the last major builder of a drying facility, which we have in Guelph. It's approximately 13 years old. But if you look at the other drying capacity within Canada, they are 30 and 40 years old and the technology, as you can imagine, has improved greatly. We're all driving Pintos, and everybody else is driving Maseratis. We're behind the market.
So there's a need, in order to be able to satisfy what's happening in Canada and globally, to ensure that drying facilities have the capacity for doing MPIs or MPCs, milk-protein concentrates; and blends, MPC 85s and MPC 70s. Unfortunately, our drying capacity across Canada doesn't have that ability. There's a need to be able to reinvest in that infrastructure in order to better compete within Canada domestically and also to take any opportunities there are in order to be able to compete globally, as well.
We have an aging infrastructure that needs massive investment in order to ready the Canadian dairy industry for what TPP offers us as challenges and opportunities.
Senator Plett: Whose responsibility is it to do that?
Mr. Barrett: The processors, in part, because we're member-owned. We're looking for a desire to be able to partner with potential funding, either from provincial or federal governments, in order to be able to invest in that infrastructure and make us ready to compete globally as the opportunities arise in TPP.
Senator Plett: Thank you. I'll go on a second round, chair.
[Translation]
Senator Dagenais: My first question is for Mr. Barrett. We have heard a lot lately about the large-scale importing of diafiltered milk from the United States. It was even mentioned yesterday. What is your opinion of the large volume of diafiltered milk being imported from the United States? What recommendations should we make in our report about that? I will then have a second question.
[English]
Mr. Barrett: As you are well aware, there has been considerable controversy over the last months and years with regard to the importation of diafiltered milk. The easy solution for the concerns around what's happening in the dairy industry today is to be able to block the importation of diafiltered milk. We at Gay Lea Foods would probably suggest that all of that might be the easiest solution, but we're not so sure that such action will be trade compliant. In fact, we have heard from our trading partner south of the border that if that action did take place there would be a trade challenge to that action.
So we are suggesting that if that is a methodology by which to solve the issue, we would have to be absolutely sure that it's going to be trade compliant. After attending a conference in California last week, where it was made very clear that they believe it is not trade compliant, that would also be our position. Therefore, we have to look at alternative solutions to a situation that might not offer us the solution that everybody is looking for.
[Translation]
Senator Dagenais: In Quebec, the Saputo company is in favour of the large-scale importing of diafiltered milk. We shall see.
I have a second question for Mr. Bradley or Mr. Barrett. You mentioned potential exports if investments were made in your industries. What would the extent of the exports be if investments were made? Which sectors would have to be included to make those investments effective in increasing your exports?
[English]
Mr. Bradley: We have a long-standing relationship with a Danish dairy cooperative that is currently the seventh- largest processor in the world in terms of dairy standing.
In terms of the trade agreements, we are looking forward to a certain aspect of the trade agreement that may allow us, here in Canada, to set up reciprocal business arrangements with European cheese manufacturers with which we have relationships. This would allow us to import European product that they are interested in sending to Canada but perhaps don't understand the marketplace here and help them introduce that and market it here, and help Canada live up to its trade agreement import volumes. On the opposite side of that, in exchange for working to bring imports in we would want to develop with them export opportunities for Canadian dairy products to go into the European market, because they understand more about the European marketplace than we do.
I mentioned in one of the points during the presentation that some of the support programs that we think is critical as we ready the industry for these trade agreements are initiatives that would help small- and medium-sized cheese players, such as us, to become better educated in how to operate in export and also in the import market business. One of the things besides supply management's impact on investment in plants is that it has meant that the industry has been more domestic-focused, or inward-looking rather than outward-looking, and we need to understand the international marketplace.
The Deputy Chair: Your mention of the trade challenge, Mr. Barrett, raises the hair on the backs of a number of our necks here, because this is also the forestry committee. Of course, when we hear challenges from Americans we automatically think of softwood lumber. It costs a lot of money to fight this battle, but sometimes the battle is worth fighting and the money is worth spending.
Senator Unger: Thank you, gentlemen. I've learned a lot in a short period of time.
You are a cooperative as opposed to being supply management. I have a hard time understanding supply management. I don't agree with it. So why a cooperative and not a supply management organization?
Mr. Bradley: Our member owners are allocated their production volumes through the Canadian Dairy Commission as part of the supply management system. If we go back to 1953 in our province, our farmer members found that there were no large processors who were interested in coming to our region to invest money in a small industry with a small number of producers to produce product a long distance from the marketplace. So our members found it necessary within their own industry to collectively pool their capital and resources together to also get involved in the processing side of the industry.
The volume of milk and raw material available for them to process is that determined by the supply management system. They're kind of intertwined. The cooperative supports what the supply management system allows the producers to produce. On the other hand, the cooperative looks after and provides a home and a stable processing base for the members' production that's allocated to them through supply management.
Mr. Barrett: If I could add to what Jim has said, as Senator Plett mentioned, they're both intertwined and rest upon each other. If the question is "why a cooperative,'' although we're not quite as old as Jim's — 1958 — the ability for farmers to be able to not only control the on-farm production but also have influence on the processing side is an important element of why a cooperative starts. It allows them to be able to share in the profitability of the processing piece, to be able to influence the market and to ensure there's a growing, stable market for their products.
As a cooperative — I know it's the same with Jim — 40 per cent of our profit go right back to our members. It is reinvested back into the rural community and is spent in the rural community. It's a sustainable element that says the profitability isn't necessarily going offshore; it's going to stay in Ontario, P.E.I. and Canada.
Senator Unger: Thank you.
Mr. Barrett, you also talked about the drying capacity, and you need money to expand that. Is it the government's responsibility? You mentioned that funding would come from processors and the different levels of government.
Is it really government's responsibility to get you better ready to export, in your opinion?
Mr. Barrett: I think there's certainly a partnership between us and the government in looking at how to modernize this industry. This industry is going to rapidly change. With the recent agreements — CETA, TPP and the WTO 2020 — there's a great deal of change and flux that's going to take place.
It's not only the capital investment but also methodologies by which Global Affairs Canada can help us in the sense of being able to ensure there's a fair playing ground in the export of dairy products, and of being able to ensure an opportunity for consistent standards of identity on both sides of the borders.
So it's more than just the dollars, but I certainly see it as a partnership between industry and the government in order to be able to help us transform an industry for which the wheels are starting to move on transformation. We see it as a partnership.
We're not here today to hold out the platter and ask you to pile cash on it. As successful cooperatives our members are prepared to make that investment for a long-term sustainable dairy industry, but we recognize very clearly there has to be a dovetailing of initiatives between us and government. It's more than just dollars that need to be invested.
Mr. Bradley: Just to follow up on what Michael has said, one thing that government could do would be to create an investment or a climate around investment where there is stability, so that when small- and medium-sized cooperatives such as ours are prepared to make an investment in infrastructure, the rules around imports under the trade agreements, the rules around exports and the rules around the amount of production that's going to be produced at the farm gate are known.
That, in combination with some of the other initiatives that are in place, will make a package, and I think you will see processors stepping up to the plate and making those investments.
It's not about making a bag of government money available for processors to dip into; it's about creating a climate where people are comfortable that they want to proceed and invest.
Senator Tardif: Thank you for being here today. Mr. Barrett, you've mentioned in your presentation that there was a demand for butterfat, that the Canadian market required more butterfat, but that there was a lack of ability to process the associated skim-milk solids. What's the problem?
Mr. Barrett: There has been a growth in the demand for butter in Canada. As the premier butter producer in Ontario and one of the largest butter producers across Canada, we've seen incredible growth as there is a return back to natural. A butter ingredient deck is simple: cream and salt — or unsalted, depending on your desire.
But the issue we're having is that, as the fat is consumed in Canada, you have this offsetting skim milk powder you have to deal with. Back to capacity in the marketplace: If you only turned it into skim milk powder, you don't have a market for that; there is not enough of a market in Canada to be able to absorb this.
That is why we are looking at being able to expand the capacity across Canada in order to dry other goods with the residual so you can utilize those products.
What you have is a desire not to import butter and not to satisfy the marketplace. We are working closely with the proper places within the government in order to be able to work on being able to import — very helpful partnership — but we're having difficulty getting CDC, for example, to recognize that there is a shortage of butterfat in Canada.
Senator Tardif: What is the CDC?
Mr. Barrett: It is the Canadian Dairy Commission.
I'm shorting customers today. I'm telling customers, "I'm sorry. I have no butter for you.'' We are slowing the one area of dairy that is growing by 2 or 3 per cent a year in this country.
We need to have the yin with the yang; we need the butterfat, but we also need to develop different markets, technologies and products to be able to satisfy this.
When you separate the milk and take the fat, you have to deal with this piece. That's what supply management is all about, but with the growth of fat you are getting more and more of this skim that you have to deal with. We need to create different products in order to be able to deal with this. We can't dry it on our Pintos; I need a Maserati in order to take it to the next level.
Senator Tardif: Do you need more processing plants, or is it a question of developing new products to accommodate the skim milk?
Mr. Barrett: I believe the products necessary through our expertise are there already. They define what's needed, whether nutraceuticals, milk-protein isolates or milk-protein concentrates, the global market is there. What we need are new processing plants to be able to do this, because our plants only dry one product: skim milk powder.
Senator Tardif: How many plants do you have?
Mr. Barrett: I have eight.
Mr. Bradley: Four.
Mr. Barrett: We have two dryers: one is 50 years old and one that is 13 years old, but that was built to satisfy a market that is rapidly changing, globally.
Senator Tardif: So, could you convert the older plants and make them more usable, or is it a question of building new plants?
Mr. Barrett: Building new plants. The technology is different today, you would have to go to a greenfield approach in order to build a drying and ingredients plant capacity that would indeed give you the ability to innovate and to satisfy that market demand, in Canada and outside.
Senator Tardif: What is the approximate cost of building a new plant?
Mr. Barrett: A greenfield plant would cost you — depending on the scope of the products — anywhere from $160 million to $210 million.
Senator Tardif: So, a considerable investment
Mr. Barrett: It's considerable.
Like we said, in 2003, we were the latest ones to build one. It cost us $40 million at that point. It was a considerable investment for our cooperative, and it serves the Canadian market today. I just keep hoping the Canadian dollar continues to recover, because that also helps me in the cost of building that plant.
Senator Tardif: Yes, of course.
Innovation was a key word in both of your presentations, but you also mentioned, Mr. Barrett, that you needed more flexibility. Could you expand on that?
Mr. Barrett: If I look at our current drying capacity located in Guelph today, it only produces one product. You need to be able to dry multiple products, but you also need to blend. You need to be able to add vitamin D or other elements into your powder in order to satisfy nutraceutical business. So you cannot just keep producing it in 100- or 500-kilogram totes; you need to be able to blend it, fortify it and make sure you're meeting the customers' demand. Today, we can't do that based upon our current capacities.
Senator Tardif: Because of the plant issue?
Mr. Barrett: That's right.
Senator Oh: I happen to be from Mississauga. I still love your ice-cream cake, the log one, since 40 years ago.
Canada recently concluded a free-trade deal, CETA, which follows the European system of protecting geographical indications, the GIs. In Canada we tend to talk about trademarks. Despite the lowering of the tariff barriers, do you think that the European system of GI-protected products, such as cheese, might harm trade between Canada and EU- member countries?
Mr. Bradley: We have received some indications from Global Affairs Canada that there have been some concessions made toward the use of geographic indicators in Canada for European-style cheese. Currently, we are one of the larger feta cheese producers in Canada, and feta cheese was one of those geographic indicators that the Europeans were interested in protecting.
The information we received was that current volumes produced in Canada at the time of the trade agreement coming into place would still be allowed to be produced within Canada. So we've got some comfort in that aspect.
I believe there was some work done by Canada to try and work with getting some of the Canadian names registered or recognized in Europe as geographically sensitive as well. I'm not sure whether there was anything in dairy that was successful or not.
Senator Oh: So is the federal government helping out on this issue?
Mr. Bradley: We were concerned when the discussions and the information came around first about the approach the Europeans were taking to the use of the feta name. We were quite pleased to see that our trade negotiators were able to get some concessions and continue to allow that name to be used in Canada, at least at the historical volumes that were being produced. We had considerable comfort from that. On that particular cheese side we're pleased with the government's response.
Senator Oh: Recently we travelled to Asia, including China, and Australia and New Zealand, smaller countries, have exported a lot of dairy products, including milk powders and all this, to China. Are you looking to the emerging markets of the Asia-Pacific?
Mr. Bradley: We are casting our net wherever we see opportunities. Again, part of my comments earlier was about learning or getting assistance to become fluent in how to operate in the international trade environment. That is one of our key desires.
Where we are situated in Atlantic Canada, being an island, we are probably one of the few jurisdictions in Canada that can state that we can guarantee there will be no American milk or milk components showing up in P.E.I.- produced dairy product. We are hoping that there may be an opportunity for those types of statements to be used to open some markets, either in Europe, Asia or some other countries where purity and your ability to guarantee what is in a product is important to the marketplace. If you look at the size of our industry, you don't need a large market in order for it to be a significant opportunity for us.
We've looked at CETA, and we've looked at the TPP, not necessarily just from the dark side of the cloud; we have looked at it from the opposite side and in terms of asking ourselves if there were opportunities there, particularly for our province where it is essentially a closed or more controlled market. All of the producers in the province are members of our co-op. So they understand that being able to attach their farm and production methodology to the finished product could likely have value.
We need to know how to get out into the world market to sell that and leverage that aspect of our product.
Mr. Barrett: We would be the same. Certainly at Gay Lea Foods, I have travelled to China, met with partners and had discussions. We're working with Canadian partners in order to be able to look at that market, understanding that Canada, and Gay Lea Foods in particular, may have opportunities in the emerging markets as well. We've had conversations with Rabobank and a number of other conversations on what opportunities we could develop with Asian markets as well. We sit in a good place and we have to compete with strong global competitors.
Senator Oh: We would love to help any time.
Senator Beyak: Thank you very much, gentlemen. It doesn't matter how many witnesses we have; I always learn something new. As Senator Tardif and Chairman Mercer said, there are many Canadians who watch this committee and I think it's because agriculture and forestry are so practical and essential to all of our lives.
The two things I learned today that I wondered if you would elaborate on, are the large amount of evaporated milk processing in your area, and also smooth cottage cheese. I've had people ask for that for years. They like the texture of yogurt better but want the taste of cottage cheese.
Also, I love your little cow with the Canadian flag. I hope that's on everything you send out.
Mr. Bradley: Regarding evaporated milk, in some of the larger provinces, as was addressed in Michael's response earlier this morning, they have had capacity in those provinces to make skim milk powder or to dry powder down, the milk that's left over after the cream has been separated.
In our particular province, energy costs are quite prohibitive to that technology, so we went down the road and invested in the evaporated milk technology. We have been successful in reaching agreements with a number of large retail players in the country and have packing arrangements with them.
As other facilities within the country become aged and close down — or look to close down — we presented an opportunity to those plants to transfer their production to our province.
Gradually over the years we have become a significant player in that market, and in terms of retail canned evaporated milk now, we own one of only two facilities in Canada that are operating. The other main product in that area is the sweetened condensed milk, or the baking milk you would use mostly around Christmas when doing your sweets. We are one of three plants in Canada that makes that product as well.
Being a small player, where we are, we have had to focus on that which we can do, and we try to do it really well. We leave some of the bigger powder plants and, as Michael indicated, the amount of investment that's involved in a powder plant is certainly much larger than what our group of farmers could invest in.
Mr. Barrett: I was going to say, similarly to Jim, we innovate in those areas where we lead, and that's certainly in cottage cheese. I would like to think I'm personally responsible for smooth cottage cheese, because 50 per cent of the population will not eat it because of the mouth feel. I was one of that 50 per cent and I said, "If you take the lumps out, I'll eat it.'' They took the lumps out, and I'm eating it. Try the smooth kind; it really does change the whole dining experience.
Senator Tardif: Senator Beyak just brought up an important point of how interesting this packaging is. This is the first time I've seen it. Are these products shipped, for example, to Alberta? Could I get something like this in Alberta?
Mr. Barrett: We are just starting; we have just launched this product. It is primarily in convenience stores that we are launching it into, like the serve-and-go, the gas stations, et cetera. It is really a snack food is what we're looking at. It is just starting to be introduced. It is in the Ontario market and you will see it in Alberta.
This is an interesting note: it's not only good for humans, but if you love your dog, they love this too. I'm just saying.
Senator Plett: I really enjoyed this until that last comment about sharing this with my dog.
First of all, I was going to give you a chance to do a bit of advertisement on it and you just did, so I'll leave it at that. I think I'm the only one who sampled this during the meeting, and I certainly very much enjoyed it. I'm going to, later on, ask Dr. Ogilvie if this is healthy; he's the expert on health food here, and I'm to ask him whether it's okay for me to continue eating this. Nevertheless, I enjoyed it.
Even though we are in the same parties, many times we are not entirely on the same page. I am a proponent of supply management, maybe not to the extent that some are, but certainly I am. I think it has served our country well and will continue to do so.
At the same time I am very much a free enterpriser, and when we talk processing plants and so on, I think there comes a time when the private investment has to kick in. In another agricultural industries — pork, beef and so forth — it's basically private investment, possibly with the help of some government resources, that builds processing plants. I believe in trying to draw a line.
We've had a change in government. We had a government for nine years that was working with the dairy industry. We've had dairy people come to Ottawa quite regularly, and certainly the ones in Manitoba that I've met with — although they always had a wish list, and there is nothing wrong with that — for the best part kept on saying that as long as they have the status quo, they are happy.
We have a new government now, so they will be looking at this. Would you agree, basically, with the assessment that the status quo has been serving your industry fairly well? Or is there a specific thing that you would ask of this new government on which they need to do more than the other one did?
Mr. Barrett: To put my comment into context, just last weekend I was invited to an invitational cooperative conference of 25 cooperatives around North America. Gay Lea was fortunate enough to be invited because of some of the innovation and leadership we are doing. I sat across the table from a number of dairy farmers and large cooperatives — we're talking billions of dollars — who said to me, "Mike, if I was in Canada — if I were you — I would be defending supply management with my last breath.''
As we've seen the turmoil that's been caused not only in dairy, but in agriculture globally, dairy farmers and farmers are not making money, they're going out of business and the supply system is being threatened. Certainly, the supply management system is a cornerstone, but we also agree that supply management system needs to be modified, as Jim referenced, because there are some elements.
We are experiencing today, with the butter-fat shortage, an element that says there needs to be some reform in supply management in order to make sure that we balance. Therefore, supply management is the underpinning but we recognize that there maybe has to be some reform to better serve not only the farmers but consumers as well. We have to modernize this dairy industry.
We are not looking for a handout; we're looking for a hand up because there is a broader connotation to the altering of something in place since 1965. I won't speak for Jim but I'm sure that we're aligned in that we will continue to work with any government in order to be able to ensure a sustainable agricultural industry, with dairy obviously being very close to our own hearts.
Mr. Bradley: I think, as Michael has mentioned, we are certainly very supportive of supply management. I recognize the statement you make, that oftentimes you hear that the status quo was is okay if we can hold on to it.
The problem with the status quo is that it instills a sense of complacency. The rest of the world is moving around you and it's not very often you get the luxury to continue to reside in your place of complacency or the status quo.
The investment climate that's been created by the status quo has not been healthy for the industry, particularly from the processing side. The industry is rapidly coming to the realization that not making the investments that were required got to the point where it became critical to the success of the industry for some of those investments to be made.
In our particular region, if we left it up to the large players to come to Atlantic Canada to invest in processing capacity, it quite likely won't be done because we just don't have enough mass or enough critical supply in order to justify a $200 million investment in plants. We do have enough critical mass there, through our cooperative alliance, to look at investing in adequate processing capacity, modernizing that processing capacity and creating an environment where the dairy industry can continue to survive in the region with some tweaks on the supply side in terms of recognizing that the market has changed with respect to what consumers want, whether it be the product you have in front of you today or meeting the demand for increased butter fat. We are looking at changes now. The consumers who used to buy evaporated milk are looking for different applications for that milk. We may have to make changes in the ingredients in that.
We have to be prepared to invest but we also need a platform from which to make that investment, and that's stable policy around trade and around production.
Senator Plett: It may be going that from a Pinto to a Buick might be sufficient as opposed to going all the way to a Maserati.
The Deputy Chair: As soon as this meeting is over I'm ordering a printed transcript of this meeting because I want to highlight the statement of Senator Plett about his support of supply management. I may even pin it on my wall.
Senator Plett: I will even sign that for you, senator.
The Deputy Chair: I appreciate it, as do the farmers.
Senator Unger: Mr. Bradley, you mentioned that all dairy farmers are members of ADL. Does this indicate 100 per cent support or is membership mandatory?
Mr. Bradley: Membership is not mandatory. Membership is certainly voluntary. I look back on our organization, and 15 years ago we probably had 75 per cent of the producers in the province as members. Gradually, as members began to see the benefit of belonging to the cooperative, we were able to reach 100 per cent membership in March of 2015. Membership is completely voluntary. We don't force anyone.
Senator Unger: You said you operate the only cheese processing facility in the region. Is that due to the fact that the only supply comes from your members?
Mr. Bradley: No. We have arrangements in the province with small cottage-sized or farm-based or home-based processors. We make milk available to them to whatever level or volume they wish. There is an agreement within the province that will see product being made available to them.
Senator Unger: Mr. Barrett, what products do you currently export?
Mr. Barrett: We export powder through the auspices of supply management, through CDC. We also export cheese. We have an export cheese market that we use based on the subsidies of 2020, so that will dramatically change with the elimination of those tariffs. We also export goat milk, because goat milk is not trade regulated so it can move across the border without tariffs. We are also the aerosol whipped cream producer in Canada and we export non-dairy whipped product into the United States as well, because we have the only whipped cream facility in Canada.
Those are our primary products, but we are looking to expand that range through the ingredients piece we talked about earlier.
Senator Unger: What is so special about goat's milk?
Mr. Barrett: Goat's milk is not a supply-managed system so it has not been regulated. We export a considerable amount of goat milk produced in Ontario to the United States because there are no tariffs.
Senator Unger: Approximately what is the value of your exports?
Mr. Barrett: Through the CDC I would suggest we're approximately $700 million. I would suggest it would be in the neighbourhood of $100 or $105 million, so maybe one seventh, something like that.
Senator Unger: Thank you both. It is very interesting.
The Deputy Chair: Mr. Barrett and Mr. Bradley, thank you very much for your presentation. You have generated a fair amount of discussion, as you saw around the table, which indicates the interest not only in your industry but also in your presentation. We appreciate that. As always, we appreciate your willingness to come and share your time with us.
I want to take time to give you a paid announcement here. For those of you who have nothing to do later this morning, across the hall the Standing Senate Committee on Banking, Trade and Commerce will be meeting. A witness that we thought you would be interested in is Mr. Frédéric Seppey, Chief Agriculture Negotiator with trade agreements and negotiations from Agri-food and Agriculture Canada. The subject of their study pertains to internal barriers to trade.
The committee will now hear from our next witness. From the Ontario Sugar Beet Growers' Association, Mark Lumley, Chair. Thank you for accepting our invitation to appear. As per the last panel, we will continue with the same rules for question and answer afterward.
We'll begin with a presentation from you, Mr. Lumley. Thank you for being here.
Mark Lumley, Chair, Ontario Sugar Beet Growers' Association: Thank you all for inviting me here. I appreciate being able to share our story.
I am the Chair of the Ontario Sugar Beet Growers' Association. I'm actually a musician by training and trade. I was a professional musician for 10 years before my upbringing on the farm drew me back. I am now a full-time farmer. I farm about 5,000 acres in Sarnia, Ontario, growing corn, soybeans, wheat and sugar beet, in about an equal rotation there. I have a degree from the University of Western Ontario in music, as well as an MBA from the University of Guelph.
It's an interesting story I'd like to tell you today that I'm sure some of you may intuitively know, although you might not know some of it. It may be a good-news story, followed by a bit of a bad-news story, followed by some hope, a really good-news story and, I hope for the future, a great-news story.
I went through your terms of reference and the four points that you would like me to talk about. I believe this story addresses all of those points, and I think this would be a great opportunity for Canada and for sugar in our nation.
I'll talk to you about the story that started with good news. We had an excellent and vibrant sugar industry in Canada for a good chunk, or first three-quarters of the 20th century. We relied across the nation on sugar beets for our sugar in those days.
Around 1968 the import restrictions were relaxed. I've had a hard time understanding exactly how that happened. That was the year I was born. From what I understand, those import restrictions were relaxed, and essentially the Canadian sugar beet industry was decimated. All of the plants closed, with the exception of one small plant in Taber, Alberta. We went from thousands of acres and relying on our own food security, down to about 30,000 at the most in Taber. Currently, we're at about the 18,000-acre range in Alberta. That's it.
I just told you I grow sugar beets. That's the good news part again. In 1997, Michigan Sugar Company was having difficulty in securing acres for their four factories in the lower part and the "thumb'' of Michigan.
They were having difficulty finding enough sugar beets for throughput in their factories. They drew a circle around one of their factories in Croswell, Michigan and realized it was half a circle, the other half being in Canada, and "why should we allow something like the St. Clair River to stand in the way of growing sugar beets?'' They approached us in 1997.
I was on a small task force that was invited to try to grow sugar beets and figure out how to import those into Michigan. We were successful with 400 acres in that year.
Shortly after that, in 2003, we participated with our colleagues in Michigan and purchased Michigan Sugar Company, a 165,000-acre company; 10,000 acres of those were grown in Ontario and still are. We are capped at that, mostly for logistical reasons but also for political ones.
I am personally involved in the American Sugarbeet Growers Association as well, to make sure that we cooperate together. As you might know, the U.S. has a tightly held sugar policy, and they don't like extra sugar coming into their market, which is essentially like our supply management for dairy and other things. However, they like our sugar beets, and they like us, but only to the tune of 10,000 acres. That is partly logistics as well, because sugar beets are heavy and bulky, so freight-wise it doesn't make sense to go much farther away from the border than we currently are.
So that's a good-news story, but it's only good news for about 10,000 acres, and about 100 of us in Ontario, and we were not selling any of that sugar into Canada.
In 2010, I participated in a hearing before the Canadian International Trade Tribunal, the CITT. We were trying to have access back into Ontario for our sugar. Essentially, we grow the beets, Michigan toll-processes those beets and that is now our amount of sugar, but we're not allowed to bring that back into Canada because that's still deemed to be U.S. sugar, by definition.
We currently are not selling any Canadian sugar in Canada with the exception of those 30,000 — which is now about 18,000 — acres in Alberta. That's the bad-news story again.
The good-news story is I'm currently working on an NSERC grant studying the re-establishment of a sugar industry, starting in Sarnia.
Sarnia is a bio-innovation centre. We have Bioindustrial Innovation Canada that works with the University of Western Ontario research park; We also have the Bio-industrial Process Research Centre, BPRC, which is working in collaboration with Lambton College. You may know that Sarnia has been known as a petrochemical centre. We are changing and rebranding that, and have come a long way in Sarnia now to call that the green energy centre and the bio-industrial centre. We currently have BioAmber there, which uses bioproducts, essentially corn sweeteners, right now for their feedstock instead of petrochemicals for producing the succinic acid that's required for making plastics.
The good news is we're in the middle of a technical grant, or a technical study, that's going to look at the feasibilities of a sugar factory. That factory would be making not only sugar, but also bioindustrial products, such as the feed stock for succinic acid and ethanol additives, which are good for making jet fuel and biodiesel. We also have hydrogen available in Sarnia, which is key for that.
I believe that within four or five years, and perhaps with the federal government's help, we will be able to make sugar again.
Before I let you guys ask me some question, I would like to say that you may or may not realize that Canada is the only developed nation that is not in charge of its own food security for sugar. It's not because we don't have the capability. The world is split about 50-50 between cane and sugar beets for the feedstock in sugar. The tropical climates, of course, use sugar cane. The U.S. is about 50-50 as well in its own production, between the south making the cane and the north — Minnesota and North Dakota, especially — growing sugar beets.
Canada is very good at growing sugar beets. Sugar beets provide an economic stimulus of about $500 per acre over the competitive crops in a corn-soybean rotation. In other words, if we could expand the sugarbeet growing area in corn-soybean, like in my area, the economic impact would be $500 per acre of benefit to the area over those other crops, based on current prices.
The other nice thing about sugar beets is that we generally operate as a cooperative, so the prices remain stable for both the farmer and the processor. We are working as well with New Brunswick; there's a task force that's also working on a sugar factory there. There's a small pilot plant in Prince Edward Island where they're currently making sugar beets into alcohol on a pilot plant scale. We are also working with the growers of Alberta to re-establish their industry for more than just the small number of acres that they're growing for Lantic.
I believe we can do this and that Canada is capable of growing all of its own sugar needs. Right now we use about 1.1 million metric tonnes of sugar: 50,000 of those come from Albert and the rest comes from mostly Guatemala and Brazil into Redpath in Toronto, or Lantic in Vancouver and Montreal, and that's it. That's the Canadian sugar industry.
The Canadian Sugar Institute does really great work on lobbying and advocating for Canadian sugar but, unfortunately, it's not Canadian sugar at all.
I was in Atlanta for the TPP talks helping our agriculture negotiator Frédéric Seppey understand that when he's negotiating for Canadian agricultural products that that sugar really isn't something that's Canadian agriculture at all. No Canadian farmer ever touched a grain of that sugar. I have don't want to disrespect those guys. It's a good industry and we all need sugar, as my friend here reminded me at the beginning.
I guess that's a good enough background for now. If you have any questions, I'd like to help you understand the issue better.
The Deputy Chair: Thank you, Mr. Lumley. Before we start the questions, I should draw your attention, colleagues, to some guests who have joined us in the gallery: people from the Parliamentary Officers' Study Program who are here visiting and will be observing for a while. Welcome, and thank you for coming.
We'll now start with questions.
Senator Oh: Thank you for a very interesting presentation about sugar beets up here. This is solely for export to the U.S., except Edmonton and P.E.I.?
Mr. Lumley: Right now we don't produce sugar so we have nothing to export. We produce sugar beets in Ontario — that's what I do — and those sugar beets are 100 per cent exported and the sugar doesn't come back. The sugar produced in Taber, Alberta, mostly stays in Alberta and Saskatchewan.
Senator Oh: So, the TPP and CETA don't affect your business to the U.S.?
Mr. Lumley: They don't affect the export of the sugar beets, because they are considered a vegetable and do not fall under the sugar policies. The only part that does affect us, I suppose, is that we are actually paid under the U.S. sugar program right now in Ontario, and the leakage of sugar into their market affects our prices. Again, this is a very small amount, these 10,000 acres in Ontario.
Also, more importantly, it's not really a sugar industry. It's a little sort of lucky caveat that we have. The idea would be to have in-house sugar in Canada and be able to supply our domestic market, first of all, without having imports. As opposed to the future goal of exporting, I think reducing the amount of imports would be the number one goal.
Senator Oh: You say the sugar is not allowed to come back, but does the U.S. company send that back to Canada?
Mr. Lumley: No, none of that sugar really comes back into Canada.
Senator Oh: Not through any other channels?
Mr. Lumley: There may be small bits in sugar-containing products but, essentially, no.
Senator Plett: Thank you very much, Mr. Lumley, for your presentation. I vividly remember when we stopped growing sugar beets. I'm from southeastern Manitoba, and there were many sugar beets grown there, right in my own little village. There were large sugar beet farms, and it was kind of sad to see that happen.
I'm sorry if I missed, at the beginning of your presentation, your explanation of the exact reason for all of this stopping. If I did, I apologize for asking you to repeat it, but I would like to hear a brief version of why we stopped growing them at that time.
Mr. Lumley: What I said was that I'm not exactly sure. It was the year I was born. What I understand from the reading that I've done is that the import restrictions — basically the dumping import restrictions — were relaxed to the point where they could import world sugar into Toronto, for example, for way less than the domestic cost of production.
Senator Plett: That's no longer the case?
Mr. Lumley: They can still import it for less than the domestic cost of production, but then they retail it way higher now because they have no competition. Redpath and Lantic kind of work together as a duopoly here in Canada, and they set the price of domestic sugar wherever they want it to be because there's no competition. They import world raw at about 16 cents a pound and retail it for 30 to 35 cents with no competition. The study we're doing now at Lambton College indicates that we can probably make sugar for about 20 cents from sugar beets in Sarnia. We could compete very strongly, then, with Redpath.
Senator Plett: Our farmers in Canada, I think, are very astute business people. I'm sure there hasn't been an epiphany in the last years that they could make, as you suggested, $500 per acre more growing sugar beets than soybeans. I'm not sure if that's exactly what you said, but it's very close.
In your presentation you also said that one of the reasons this was happening is that it is capped for political reasons. Political reasons on which side of the border?
Mr. Lumley: The U.S., for political and freight reasons. In other words, the U.S. is allowing us to bring a bit of sugar beets into the U.S. to help out a U.S. company, but they don't want to get too carried away.
For example, in Manitoba, the Red River Valley has a hugely successful sugar beet industry in the U.S., and that leaks up into the Red River Valley in Manitoba. I don't think they want to set precedent in Manitoba by sending beets down into their factories as well. They kind of keep it quiet. It helps the U.S. industry in Michigan. We're all friends there, so it's fine. That's not a method for expansion. For expansion, we need to be growing Canadian sugar for Canadians.
Senator Plett: In a short, abbreviated version here, what can our federal government do to help both you and the farmers who would like to make $500 an acre more money on their fields? What can we do in our report to possibly move that along?
Mr. Lumley: That's an excellent question, and I thank you for asking it.
First, we're already embarking on the most important thing. The reason that we're not growing sugar beets for $500 extra is a whole bunch of research and commercialization work has to be done to build a $200 million factory and other $200 million factories across the country. That takes money that nobody has yet. As farmers, we collectively do have the availability for capital but we need to do the study.
Again, the NSERC grant is the first step. That's excellent. Bioindustrial Innovation Canada as well has secured some federal grants for science, research and commercialization. That's all good. Those are things we need to continue to be able to do.
Following that, I think the best thing to do is to make sure we protect the domestic sugar industry once we get one so that we protect against dumping so the same thing doesn't happen as before. As the world price of sugar goes up and down, we need to be protected against subsidized imports, essentially.
It's my understanding that the definition of "dumping'' is to sell something that's imported for lower than the domestic cost of production. Currently, we don't know what the domestic cost of production is per se, because we don't have one. Once we do have it, we need it to be protected. We won't be able to finally commercialize a plant without those guarantees at some point.
Senator Plett: You said Ontario is sending their sugar beets to Michigan, I think. I know there is a processor in Minnesota, just across the line from Manitoba.
Mr. Lumley: Absolutely.
Senator Plett: Would it not make sense, at least to start with, to have those processors process the sugar beets and then bring that sugar into Manitoba? At least then we don't need to immediately invest the $200 million.
Mr. Lumley: You would think, except the CITT says "no.'' They say that sugar, even though it's made from sugar beets that are Canadian, once it goes across the border — to Minnesota in that case, or to Michigan in our case — it becomes American sugar and that American sugar falls under the American sugar policy. Yes, you would think that.
However, processing capacity limitations would also limit that. Realistically, $200 million is a drop in the bucket compared to the economic benefit to our community. I'm not worried about $200 million. We can come up with that through commercial partners and farmers through a grow-our-own cooperative model. That's no problem. What we need are research and innovation grants so that we can continue to do our work with the academic side to make sure this will work, and of course we need protection so we are protected against unfair imports and dumping.
Senator Plett: Very informative. Thank you.
Senator Oh: You are an expert on sugar beets. If you set up a big factory and grow more in Ontario, can we compete in the world or international market for sugar prices?
Mr. Lumley: Absolutely. First, most of the U.S. sugar beet factories are over 100 years old. They're using old but updated technologies, and there are a lot of inefficiencies because of history.
When we re-established the industry in Ontario we started from scratch. Most of the old guys who used to grow beets remember it, but the technology changed so they weren't stuck growing that.
The amazing thing is, when our little 100-grower, 10,000 acres operation in Ontario began, we completely revitalized the whole North American sugar beet industry all across the U.S. because we didn't have a "Well, that's the way my grandpa used to do it'' mentality they used to have. We had a fresh outlook. We were the first ones to do self-propelled harvesters; to do direct delivery; to use European planting technology; and to do innovative field piling. All of those things have slowly caught on across the whole U.S. because we had the innovation and opportunity to start from scratch.
Transfer that to the sugar factories that we will produce. First of all, Sarnia is a bioinnovation centre. As you guys know, cap and trade is coming. We have petrochemical industries that have waste heat. We boil water. A sugar beet factory boils a lot of water, essentially. We could take that waste heat from a petrochemical industry and use that to boil water. There are so many synergies there, that we can produce beets for about three quarters or less the price of what they're doing in the U.S. Right now the U.S. sugar beet farmers are making a lot of money, and they're easily the most efficient in the world besides us, and I believe we are way better. We can compete with anybody.
Senator Oh: Have you ever compared sugar cane and sugar beet?
Mr. Lumley: They do it in the U.S. all the time. It's hard to compare because land values are so different. In the sugar beet area in the Red River Valley, they don't have a lot of competitive crops or high-value crops like vegetables and some of that. Compared to the other crops it's extremely efficient, but overall the U.S. considers it to be about 50- 50.
[Translation]
Senator Dagenais: Thank you for your presentation, Mr. Lumley. You mentioned that sugar beets are a profitable crop. What would be the most attractive export markets for sugar beets, in light of the various international agreements that have been signed recently, including the TPP? I would like to hear your views on that.
[English]
Mr. Lumley: Again, right now we import about 98 per cent of our sugar into Canada. I believe it would be a long time before the sugar beet industry would be able to put a big enough dent in that to even satisfy the appetites of our chair and his friends. We use, as I said, about 1.1 million metric tonnes of sugar already in Canada. I believe that it would be a lofty goal to even be able to supply our own domestic needs, which would be wonderful.
I'm talking more not about the opportunity of export but the opportunity of reducing our imports, especially taking back control of our own food systems.
[Translation]
Senator Dagenais: You would rather reduce imports to ensure profitability?
[English]
Mr. Lumley: I guess I don't know the answer to that question. There are bioindustrial products at play here as well, so we may not even go all the way to sugar. It could be that we process sugar beets for bioindustrial uses, such as succinic acid for plastics, ethanol and those kinds of things, and then continue to eat imported sugar from Redpath and Lantic. The economy will figure that out.
The Deputy Chair: Sugar beets are being used — or at least sugar beet molasses — in de-icing products. One thing we do have in Canada is ice and a lot on roads.
Mr. Lumley: Again, we are getting that stuff from Michigan, my beets from Michigan, because we don't have it.
The Deputy Chair: It is another opportunity: rather than eating it, it goes on the roads.
Senator Tardif: Thank you, Mr. Lumley, for your very interesting presentation, and congratulations on your success. What an interesting journey you have had.
I'm from Alberta, and so I'm interested in what is happening in Taber. I know that we had a very thriving sugar beet industry in southern Alberta. If I understand correctly, Taber has 18,000 acres at present. None of the sugar produced from the sugar beets in Taber can be exported to U.S.; is that correct?
Mr. Lumley: They have an import tariff rate quota system. There is a small amount, just negotiated in Atlanta. Whether that is ratified is another matter.
Already there is a small amount of sugar coming from Canada and going into the U.S. under that TRQ program, but most of that is actually the stuff that comes from Guatemala and Brazil. I'm friends with most of the growers in Alberta, and nobody even knows for sure. Once Lantic has that sugar, sugar is a commodity and moves all over the place.
Essentially, the amount we are allowed to export into the U.S. comes from wherever is convenient, and not necessarily Alberta.
Senator Tardif: So the sugar produced in Taber would be for the Alberta and Saskatchewan market, basically?
Mr. Lumley: Essentially. That would make the most sense, but weird stuff happens with sugar; it moves all over the place.
Senator Tardif: Taber and Ontario are then the 2 per cent? You said we import 98 per cent of our sugar, so the 2 per cent comes from Alberta?
Mr. Lumley: Just Alberta, because ours don't count.
Senator Tardif: That's right: just from Alberta.
What is the plant processing capacity in Taber? Is it an old plant? Does it need new infrastructure? Could it produce more?
Mr. Lumley: It's a strange thing. It has the capacity to produce more than twice what they do, but Lantic uses that facility as a bit of a political thing. It's the only sugar factory and sugar-growing area in North America that's not owned by the growers. Everywhere else in North America and most of Europe, the growers own the sugar factory.
I own our sugar factory: I'm 1 of 1,000 growers that own Michigan Sugar. I personally have 800 shares in that 165,000-acre company. With those shares, I have the right, which is awesome — that's why I do it — but also the obligation to deliver 1 acre of sugar beets per share.
So the unique thing about that is it guarantees throughput and exactly what the company is able to produce. Our board of directors decides every year exactly how many acres we will grow. This coming year, because yields are going up, I'm actually only allowed to grow 96 per cent of an acre for my one-acre share. So, instead of 165,000 acres going into the factory, they're getting about 150,000 acres going in this year, exactly, because we have to. That's key.
In Alberta, Lantic tells the growers what they want, and they tell them, "This is what you're getting paid whether you like it or not, and if you don't want to grow it, fine — we don't care.'' But they always try to keep enough so that they have the Canadian sugar industry, because now Lantic in Montreal and Vancouver can have a little more flexibility politically, because they have Canadian sugar still, even though it's a drop in the bucket. It's a very inefficient thing down there.
The Alberta growers want to build their own factory. Again, Lantic has told them that they'd burn it down before selling it to the growers. That's just the truth.
So the growers there would need to build a factory and be efficient like the rest of the North American industry.
Senator Tardif: That doesn't sound like a pretty picture.
Mr. Lumley: I'm not trying to be jaded. It's just a fact. I don't want to speak ill of any company or anything else. It's just the way they do business, and good on them.
Senator Tardif: It's often what happens when you have large corporations that come in and take over our resources.
Mr. Lumley: Yes.
Senator Unger: I have a short question about a statement that you made regarding sugar beets. Would you describe the European planting system?
Mr. Lumley: Sure. It's pretty farmer-technical, but essentially sugar beet seeds are really small, and the depth of seed, consistency of depth of seed and seed spacing is very important. The North Americans kind of just — I'll talk like a farmer — they just jam them in the ground and hope for the best.
There is a more precise way of doing things. The European systems have a shorter seed drop, so the seed doesn't slide down a tube as far and bounce around. It is way more precise. When you get a more precise seeding depth space and consistency of depth, you get more even emergence. A sugar beet seed is the size of a peppercorn, and a sugar beet ends up being two to three kilos, like big. They're not like red beets at all.
Again, the harvesting technology now has been completely revolutionized, thanks to our Ontario growers. I don't think we're necessarily smarter than everyone else, although we tend to be an innovative bunch. Also, the benefits we had by being able to start from scratch really helped.
Senator Unger: I know the system of planting beets where you don't carefully place each seed. I didn't know that sugar beets grew to be such a size, so they are quite different from the typical vegetable.
Mr. Lumley: From vegetable beets, yes. They are white instead of red, and they are pointy like a giant carrot. They're not like a turnip, which are round, but they are about the size.
Senator Unger: There are white beets that are table beets as well, and I think yellow ones.
Senator Ogilvie: This has been one of the more fascinating presentations I have had the pleasure to listen to. I'm particularly impressed by your focus on innovation and your analysis of the industry as a whole and the use of sugar as a chemical feedstock. It's a complex organic molecule, and there's great potential in the synergy between the waste energy. It's very impressive overall.
My question is just one of practicality, based on something you said about the innovation that occurred once the Canadian industry began to be re-established. You mentioned the harvesting. I want to ask this question because a few years ago, in the Annapolis Valley of Nova Scotia, or in the area around it where there was some marginal farmland, there was a thought by some locals of growing sugar beets. One of the issues I remember being discussed was the impact on the land of harvesting sugar beets in a humid climate such as that of Nova Scotia. As I recall, the concepts involved some impact on the nature of the land — not destruction of soil but difficulties in the way the soil would look afterward and so on.
Did your innovative developments with regard to harvesting mitigate a lot of traditional problems with harvesting?
Mr. Lumley: Yes, completely. First of all, Lambton County is mostly a clay loam — heavy on the clay, light on the loam — and that land is highly susceptible to compaction issues. That is one the negative things about the way they used to harvest sugar beets. Through the mud, as you suggested, you would be dragging a semi-truck beside the harvester with a big four-wheel-drive tractor, making an awful mess.
We weren't the ones who were innovative. The innovative part was going to Germany and buying a ROPA Tiger, which is a sugar beet self-propelled harvester that not only defoliates, lifts and stores the sugar beets all on its own, alleviating the need for trucks in the field, but it also has massive amounts of rubber on it — much more than a tractor. It is as wide as this conference table, and the whole thing is rubber, so the compaction is very light. It puts two to three pounds per square inch of pressure on the ground. It's that machine that we started using right away.
The other principle that I actually have been a champion of since the beginning is to keep farm equipment on the farm and road equipment — i.e., the trucks — on the road.
The other piece of machinery involved in that is called a Maus. We have a Tiger and a Maus; these are names that they came up with in Germany. Essentially, the Tiger dumps the beets at the headland and the Maus picks them back up, cleans them and loads them with a conveyor over the road allowance onto the trucks that stay on the road. The mud stays in the field and the trucks stay on the road. We were the first ones in North America to try that — my farm and a few of my neighbours — and now there are 75 Tigers across the U.S. and 130 Maus machines, and the numbers are growing massively. I would say that within the next 10 years you won't find a pull-type harvester anywhere in North America.
Senator Ogilvie: Thank you for an impressive presentation.
Senator Beyak: Thank you. I'm right across the river from the Minnesota facilities, like Senator Plett in Manitoba and Senator Tardif in Alberta, so we have a great interest, agriculturally, in good uses for sugar.
I wanted to thank you for that and to ask if the study you are doing — the grant you are seeking — will show sugar's good uses as well as the villainous side in a balanced way.
Mr. Lumley: It's a good question. Right now most of the studies are around the feasibility of the economics of it: How much would it cost to process those sugar beets? We know what it costs to grow them — we do it in Alberta and Ontario — but we are determining what it would cost to process those sugar beets either into bioindustrial feedstocks or sugar. We are looking at the markets. For example, I mentioned BioAmber, which uses sugar for succinic acid production.
We have two things: they're will to pay X for the feedstock that they're looking for, which would be like a thin sugar juice; and we are able to produce it for Y and hopefully Y is less than X and we can make money. That's what we are doing now. What we do with the end product is the next stage, I suppose. Again, we do lobby heavily, mostly through the American Sugarbeet Growers Association, for the healthy use of sugar — the natural fact of sugar itself — and also lobby against anti-GMO sentiments.
I didn't mention is, but sugar beets are now herbicide-tolerant, and because of that they get picked on a little bit. Even though sugar itself is C12H22O11, and there is no protein or DNA. There is nothing in sugar but carbon, hydrogen and oxygen, and yet some people say, "Well, that's derived from a herbicide-tolerant plant,'' which is ridiculous. We're also countering that in a number of ways. We advocate very strongly for the truth in science and for healthy eating.
The Deputy Chair: Mr. Lumley, thank you very much for your presentation. It has been very informative, as my colleagues have already said, and your style of presentation made it enjoyable as well.
I think you have opened our eyes to an industry that we haven't spent a lot of time talking about, and we do appreciate that and hopefully it will be reflected in our report.
(The committee adjourned.)