Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 10 - Evidence - Meeting of May 10, 2016
OTTAWA, Tuesday, May 10, 2016
The Standing Senate Committee on Agriculture and Forestry met this day at 5:32 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 see we have quorum. I declare the meeting in session. I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. I'm Senator Terry Mercer from Nova Scotia, deputy chair of the committee, and I'd like to start by asking the senators to introduce themselves.
Senator Merchant: Pana Merchant, Saskatchewan.
Senator Tardif: Claudette Tardif, Alberta.
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
The Deputy Chair: 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 was responsible for 3.6 per cent of global exports of agri-food products in 2014. In 2014, Canada was the fifth-largest exporter of agri-food products globally.
Canada is engaged in several free trade agreements. To date, 11 free trade agreements are in force, the Canada- European Union Comprehensive Economic and Trade Agreement, the Trans-Pacific Partnership and the Canada- Ukraine Free Trade Agreement have concluded, and eight free trade negotiations are ongoing. The federal government is also undertaking four exploratory trade discussions with Turkey, Thailand, Philippines and the member states of Mercosur: Argentina, Brazil, Paraguay and Uruguay.
Today we welcome Peter Gould, General Manager and CEO of the Dairy Farmers of Ontario; Scott Graham, Chair of the Egg Farmers of Ontario; and Harry Pelissero, General Manager of the Egg Farmers of Ontario.
Thank you for accepting our invitation to appear.
I would now invite the witnesses to make their presentations. Following the presentations, a question-and-answer session will take place, and each senator will be given five minutes to ask questions before the chair recognizes another senator. There will be as many rounds of questions as time will allow, so senators do not need to ask all their questions at once.
During the question-and-answer session, I would ask senators to be succinct and get to the point when asking your questions, and I will ask the witnesses to do the same in answering.
Peter Gould, General Manager and CEO, Dairy Farmers of Ontario: Let me begin by thanking the chair and members of the committee for inviting me to make a presentation to the Standing Senate Committee on Agriculture and Forestry.
My name is Peter Gould and I'm the CEO and General Manager of the Dairy Farmers of Ontario.
Dairy Farmers of Ontario is the provincial marketing organization representing approximately 3,800 dairy farms. Dairy Farmers of Ontario has the exclusive responsibility for marketing milk in the province of Ontario and sells milk to about 60 processing facilities located throughout the province, from the Quebec border in the east to Windsor in the west and as far north and west as Thunder Bay.
The committee's work could not be timelier. The dairy industry has thrived in Ontario and Canada for the past 50 years; however, we find ourselves on the brink of change. The status quo is not an option. Doing nothing is not an option.
In the absence of a well-thought-out strategy and a plan to go along with it, we could well face a future of a shrinking industry, divestment and more dependence on imports, all with a devastating impact on rural Ontario and rural Canada, affecting rural communities and rural infrastructures, all of which are heavily dependent on a strong dairy industry in many parts of Canada.
What is needed are those very things that define modernization, investment, jobs and economic activity, growth and export opportunities.
Today my remarks will focus mostly on sustainable improvements to the production capabilities of the supply chain. I will also have some comments on the competitiveness and profitability of Canada's agriculture and agri-food sector.
I'm going to take a few minutes to describe the shape of the dairy industry today. It's not a pretty picture.
Let's talk about animal feed for a second. Every year perfectly good food-grade skim milk powder ends up as animal feed, tens of millions of kilograms, and the number is growing. This year it will likely be in excess of 50 million kilograms. Animal feed is the lowest-priced market by far.
At the same time, we see growing demand for butterfat. Perceptions about the health benefits of butterfat have changed dramatically just in the last three or four years. Demand has grown, and in fact the industry cannot keep up with the growing demand for butter and butterfat.
We anticipate there will also be significant growth in butterfat in the years ahead, but by definition we cannot meet that growth. We can look at other countries and observe growth in butterfat demand in other developed countries, and we can see in our own country of Canada increased levels of imports, some of which are legal and some of which are not.
One of the most significant factors affecting all of this is what I'll call dryer capacity, the plants that make skim milk powder. So you have skim milk and you take the water out. Those are the dryers. There are 12 dryers in Canada. As of right now, every single one of those dryers has reached its capacity, meaning those plants cannot receive or process more milk.
Milk itself is separated into cream and skim milk. The cream is made into butter; the skim milk is dried and made into powder. When the dryer is at capacity, there is a limiting factor of being able to process and produce more butter.
Another factor along with the dryers being at capacity is the age of those dryers. Out of the 12, 10 are over 40 years old. Only two are less than that. For all practical purposes, they have outlived their useful life. In fact, any one of those dryers can fail at any time. Failure means decommissioning due to physical failure or no longer being able to meet a quality standard required by the companies that buy the skim milk products. Those old dryers cannot make the products that are demanded in the market as well today.
What has happened recently, starting about a year ago, is we disposed of skim milk, and I'll explain why we do that. Virtually every day we need to do that. As I said, starting exactly one year ago in Eastern Canada, that's Ontario in the east, Quebec and the Maritimes, all those five provinces, Prince Edward Island, Nova Scotia, New Brunswick, Quebec and Ontario, reached their collective capacity for drying skim milk powder. We have been disposing of skim milk almost every day since.
That milk is produced to make sure we can meet as much of the butterfat demand as possible, but because we can't dry the skim milk it has to be handled in another manner. That will likely continue until there is both new and additional drying capacity built in this country.
In addition to that, business is being turned away. We don't know how much business is being turned away, but I'll give you some examples, one being that there are a number of large food service companies who have made the decision that they want to switch making their baked goods with vegetable oil to using butter. The simple answer is that when they go looking for a supply of butter to do that, the answer is no. It's not no for today or tomorrow, it's no for the foreseeable future. Those are incremental markets. They're not keeping up with normal demand; they're just brand new markets that are very difficult to service.
Those companies do have choices, one of which is to not switch from vegetable oil to butter. They can import their baked goods from the United States, and in some cases there are examples where those baked goods companies have relocated to the U.S.
Will we ever be able to recapture those lost opportunities? That's the real question. We want to get to the point where we have the capability to produce enough butter to meet the total demand in the market, but during that period of time when we're not able to, those markets are certainly temporarily lost, and the question is whether we will ever be able to replace them.
I think you're all aware we have two new trade agreements that are about to become a significant factor in the Canadian landscape. One is the CETA, the deal with the European Union, and that has a particularly significant impact on the dairy industry, as it allows 17,000 new tonnes of cheese imports. The TPP has not yet been ratified, but as part of that trade agreement, there will be new imports and tariff rate quotas for virtually every dairy product, and for cheese and butter the quantities are certainly quite significant.
What do we need? The only way out is to have a strategy and a plan. There is no sustainable future in the Canadian dairy industry without major new investments in ingredient facilities, not only in Ontario but throughout Canada.
Ingredient facilities are moving away from the traditional skim milk powder dryer. We have to be able to make a range of products from skim milk solids, and new dryers are needed to replace old dryers and old technology. New technology will produce products that are wanted in the market, and those range from liquid proteins to various powder that can be customized to meet customer needs.
But new is not enough. Facilities have to be much bigger than they are today, and we estimate that to begin with we need at least twice as much capacity as what is being replaced. That's to meet the pent-up demand as well as to be in a position to satisfy growth for the next 15 to 20 years.
One of the challenges that the industry faces is that from the day a decision is made to make the investment in a new ingredient facility, it takes approximately three years until the facility is fully operational. When we started taking a serious look at this in the fall of 2015, it was three years from October 2015 until we would have had a new ingredient facility. I'll share with you that no major decisions have been made as of today, so that timeline is still three years from May 10, 2016. No company has yet made a decision to make that investment.
I will qualify that by saying that a large butter powder processor in Ontario is taking an interim step. It's not the full ingredient facility that we're looking for, but it will address the issue to some extent in the short term. That's an important thing to note.
What is an ingredient strategy? I think many of you know, but if not, you can ask me questions about it. The Dairy Farmers of Ontario introduced an ingredient strategy effective April 1, 2016. We're literally one month into it, so it's a little early to tell whether or how it's working, but we're both confident and optimistic that it's a move in the right direction.
An ingredient strategy is fairly simple. It is a plan to create a class that includes all skim solids and products made from skim solids, and price them at what I call a competitive price. In other words, to create an environment that is conducive for new investment, one far simpler than the current system and that offers potential for growth and return on investment to those companies that choose to make the investment.
One thing that is very important to us as dairy farmers collectively, and as the Dairy Farmers of Ontario, is that the processors have to make the investment. The question that is sometimes, if not often, asked is, why are producers supporting processors? Some would say, and have said, that helping processors is not what producer organizations do.
DFO, Dairy Farmers of Ontario, actually takes the opposite view. The only way for producers to succeed is through investment in new processor infrastructure. We need to transition from where we are to being able to service the market and supply the products in the forms and the types that are in demand. That means processors processing more milk, producing more milk on farms and putting quota in the hands of producers.
I'll point out that when there is growth, quota is distributed on a pro rata basis, and it doesn't cost the farmers anything. It's important when we get growth at the farm level and dairy farms have access to quota that three very important things happen.
One is that some existing producers will expand or modernize. Another is it will also be easier for new farms to start and enter the industry. The third thing, which we see some of today, is that the more quota that's available, the fewer farms will exit the industry. All the way around, there is a lot of positive impact.
I think what's important for the committee to appreciate is that this all generates economic activity, growth and investment. When farmers have larger operations, they spend a lot of money in rural communities in the countryside, and that leads to a more vibrant rural economy, and not only in Ontario; the same thing happens in all provinces across the country.
We do have a specific ask, and I can share with you that Dairy Farmers of Ontario works closely with our processor partners. We have had and will continue to have meetings with government representatives to pursue the objective of securing investments in these new ingredient facilities, but I will share with you that the cost of those new facilities is very high. To literally modernize the Canadian dairy industry, we need to bring it into the 21st century.
When I talk about industry, the processors do need some financial support from the federal government because it is a partnership for the future. It is a way to share the risk, and it's the best way to both stimulate and ensure a strong and healthy rural economy in Ontario and in Canada. Thank you.
The Deputy Chair: Thank you, Mr. Gould. Before I move on to the next presenter, I should introduce senators who have joined us since you started. We have Senator Moore from Nova Scotia, which completes the quota of Nova Scotians that we need to conduct this meeting properly. From Ontario, we have Senators Oh and Beyak, and from Alberta, Senator Unger.
Now, we'll switch to Mr. Graham, who is from the Egg Farmers of Ontario, for his presentation.
Scott Graham, Chair, Egg Farmers of Ontario: Thank you, Mr. Chair. It's a pleasure to be here on behalf of the Egg Farmers of Ontario. My name is Scott Graham. I'm a second-generation egg farmer from St. Mary's, which is down between Stratford and London. The third generation is looking after things as I'm here today, and does so most other days I'm away. I'm very proud of the fact that our farm has moved on to a third generation.
As a matter of interest, our family landed here in the Ottawa area in the 1820s. The original farm, which may be of interest to some of you, was a 300-acre parcel of land where the Bayshore Shopping Centre is now, which went from the junction of Highways 417 and 416 right back to the river. It goes back a long way. Our family has been in agriculture for pretty much the last seven generations.
On behalf of Saskatchewan, too, I have a beef farm in the southern part of that province, which I'm very proud of. It's nice to have gotten to know those people and see how they conduct themselves out in the Prairies. From my standpoint, I do see both sides of this issue of trade. I also chair the Presidents' Council, which is a coalition of all the commodity groups and some of the organizations that represent agriculture in Ontario. I try to take a balanced view of all of this.
I'd like to thank the committee for the opportunity to participate in this effort to study international market access priorities for the Canadian agricultural and agri-food sector.
Ontario's 330 egg farms produce about 40 per cent of Canada's egg supply under a successful marketing system that means farmers can provide consumers with a supply of high-quality eggs while receiving fair farm prices within a national supply management system.
While trade agreements focus on international market access, it is critical to understand egg production and consumption in the right context within the very different international trade realities for the egg market.
About 95 per cent of global egg production is consumed in the same country where it is produced. Against this reality, almost all developed countries implemented different systems to manage and stabilize these markets, often with a complex web of subsidies, government buyback programs, price supports and many others in countless combinations.
Our subsidy-free policy is focused on the Canadian market providing domestic market stability and food security for an indispensable staple in consumer diets while other agricultural producers with greater export potential can pursue opportunities in international markets. As I say, I'm quite aware of that. There are certainly different markets for my eggs in comparison to the beef that I produce in Saskatchewan.
This committee is examining this topic in the context of four specific areas outlined in the invitation from the committee, and I have structured my comments to follow this format.
Number one: the expectations and concerns of stakeholders from the agricultural and agri-food sector. We appreciate the support of the government and the ability of negotiators, civil servants and elected officials to optimize conditions for poultry and dairy farmers and to expand trade opportunities for agricultural industries with greater export potential within the Trans-Pacific Partnership, the TPP agreement.
The long-term commitment in the deal shows the government clearly understands the importance of supply- managed poultry and dairy farms in rural Canada and the economic activity and jobs that they generate. These views are shared by all federal parties.
The TPP comes with significant impact for Canada's egg sector. Canada will need to import an additional 19 million dozen eggs per year once the agreement is ratified and fully implemented after 18 years.
When ratified, the TPP increases in egg market access are permanent reductions in production for egg farmers coming out of future market growth. The scale of these losses are generally considered manageable by stakeholders, considering the phase-in provisions and the balance that Canada struck in the negotiations to maintain our unsubsidized fair market pricing model under a viable and long-term commitment to Canada's supply management system.
While manageable, these are significant permanent income losses for egg farmers and the economy that Canada made to achieve the deal. When fully implemented, the import of 19 million dozen eggs represents $33 million in 2015 dollars, which represents more than $100 million in foregone economic activity when all supplier and employment impacts are considered.
No one likes to permanently give up market access and income, but this deal does maintain the fundamental elements of fair farm pricing for consumers and farmers within our supply management system and, by setting out access commitments until 2038, may actually give egg farmers more certainty and a more stable trade environment than we've had for many years.
One specific area of concern for egg farmers is the need for more detail and clarification about administrative application of one provision within the appendix to the tariff schedule of Canada. The provision in question is in Section A: General Provisions, 3(d) and reads:
Canada reserves the right to allocate any TRQ or portion of a TRQ through auctioning for no more than the first seven quota years after entry into force of the Agreement for Canada.
I'll let Harry explain that more at the end of my presentation.
Clarification of the meaning of this section is important so that the stability and market impact of this provision can be managed for farmers, egg graders, retailers and consumers.
Number two: the sustainable improvements to the production capabilities of the supply chain. The stable operating returns for egg farmers provided by fair farm pricing under supply management have created an environment where constant innovation and investment have resulted in dramatic improvements in sustainability measures within the egg supply chain.
For example, over the past 50 years, egg production in Canada has increased 50 per cent while its environmental footprint has decreased by almost 50 per cent. That 50 per cent increase in egg production is achieved using 81 per cent less land, 41 per cent less energy and 69 per cent less water. The 50 per cent increase in production is also achieved with vastly reduced emissions: a 61 per cent reduction in emissions causing acid rain, 68 per cent less emissions of nitrogen and phosphorus and 72 per cent less greenhouse gas emissions.
While there have been a lot of headlines about hen housing recently, anti-animal agriculture extremists don't talk about the 50 per cent improvement in egg production per hen or the 75 per cent reduction in laying hen mortality that has been achieved by Canadian egg farmers who care for their hens, or the dramatic impact this has had on food affordability for consumers.
Number three: diversity, food security and traceability. We produce eggs affordably by matching domestic supply to consumer demand while meeting or exceeding many of the farming practices used around the world. We also have our excellent animal care programs and our Start Clean-Stay Clean program, which relates to food quality and food safety.
We were spared the horrendous losses during the 2015 avian influenza outbreak compared to the U.S. in part due to the higher levels of biosecurity on Canadian poultry farms, excellent emergency preparedness and centralized digital farm location information shared with government responders. It was also aided by the geographic diversity of our production across Canada on more than a thousand layer farms that average 22,000 hens in comparison to an average U.S. layer flock that's about 1.5 million birds.
Our U.S. counterparts are still recovering from avian influenza losses that destroyed 36 million laying hens or about 10 per cent of U.S. flocks and had an extreme effect on egg prices and supplies.
The break we had in Ontario in Oxford County, it was two different locations affected. I believe 100,000 turkeys, probably 50,000 broiler breeders, no effect on the egg layers in Ontario.
Again, as a feather industry, we're very proud of how we were able to handle that break that was so horrendous in the United States.
Meanwhile, our system allowed Canadian egg farmers to take quick action in 2015 to prevent damage to the further processed egg industry in Canada. We set up a program that saw Canadian egg markets normally tied to U.S. breaker prices sheltered by farmer-funded pricing stability to protect the jobs and companies exposed to this risk. Consumers were also protected by this approach.
Just to give you some idea, the U.S. price topped out at about $2.88 last year and presently has gone right down to 50 or 60 cents on an earner basis. Again, it had real effect on consumers. It had real effect on the people that process eggs, use them in baking products. Some of those products were no longer used. They changed out some of the ingredients and put in different things. Some of those eggs have not been replaced in some of those baking products and that type of thing. Again our processing industry was subsidized when the price went high. They paid a certain amount. Now that it's lower, they are paying us back. There is a lot of value in that further processed industry across Canada.
Number four: the competitiveness and profitability of Canada's agriculture and agri-food sector, including processors and producers. Egg production contributes $1.4 million annually to the Canadian economy, and creates more than 16,000 jobs, including an efficient egg grading and processing sector across the country. It's interesting that living in the country as I do, there are a lot of dairy farms around St. Mary's. It is interesting to hear Peter's report. One of the things that Peter mentioned is capacity in the dairy business. Capacity in our business is not an issue. We have enough capacity to grade and process all the eggs we can produce. Right now, we are just trying to keep up to the great demand we have for eggs across the country. Because egg farming is viable and sustainable, one in five egg farmers are new to the industry, and 30 per cent of egg farmers are under the age of 45.
The Egg Farmers of Ontario has a board of 11. We had a meeting with the Egg Farmers of Canada last week. There were 15 of us around the table. Approximately 12 or 13 people sitting around that table had somebody the next generation coming into the egg business.
The conclusion of the TPP is important in providing predictability. Certainly that is crucial to the long-term investment environment that will allow Canadian egg farmers and processors the ability to continue to invest in farm and processing technologies and remain world leaders in egg production.
One example of the type of advancement achieved that will boost the competitive and profitability of the farm hatchery and processing level with flow-through benefits to consumers is new Canadian technology that allows sexing of pre-incubation eggs. This means only female chicks would be hatched for layer production. The gains from this technology will essentially double hatchery productivity and end the debate on culling male chicks in the layer industry. The industry is clamouring for this technology worldwide. It does represent a real export market for Canadian hatchery equipment manufacturers.
Another significant advantage for Canada's egg sector competitiveness is the high level of coordination between egg farming stakeholders, which gives Canada unparalleled levels of readiness to develop contingency responses for current emerging food safety, animal health, and welfare incidents by proactively working with regulators, producer agencies, customers and consumers.
While trade deals are often viewed in the context of winners and losers, the important aspect of the TPP for Canadian egg farmers and processors is the predictability and manageability of a known level of egg imports into the Canadian market. It would serve Canadian interests if the committee could put stakes in the ground that would allow the relative success of the agreement to be gauged in reviews of predicted gains and market changes compared to actual results across different commodities under the agreement. These assessments could take place perhaps at the midpoint and the end of implementation period, and would provide guidance which could be used in future negotiations.
Again I thank you for the opportunity to make this presentation. I would be happy to entertain any questions. Thank you.
The Deputy Chair: Thank you Mr. Graham. I appreciate it.
Senator Ogilvie: Thank you. Mr. Gould, you spent a fair amount of time in your presentation on the amount of skim milk available and the drying it into milk powder. I'd like to get just a little clearer sense of the dairy industry. You presented that on behalf of the dairy farmers. Now, a dairy farmer has a quota. That quota is picked up on a regular basis from the farm. It then goes to another entity. Is that entity separately owned from the farmer?
Mr. Gould: Yes, you are absolutely right. Each farmer holds an amount of quota which determines how much milk they produce. Dairy Farmers of Ontario organizes all the transportation. Every other day, a truck goes to that farm, picks up the milk, and delivers it to a processing plant.
Senator Ogilvie: The processing plant is separately owned from the farmer?
Mr. Gould: Completely separate.
Senator Ogilvie: Then they process it and distribute it to the next users who would be packaging it into milk cartons of various percentages of fat, into butter, cheese, and in the case you focused on, into the powder.
Mr. Gould: The processor is the entity that makes it into fluid milk, cheese, ice cream, butter.
Senator Ogilvie: So the processor handles that whole end of the issue?
Mr. Gould: Correct.
Senator Ogilvie: In general, do the dairy farmers themselves, the primary producer, own part of the processing industry?
Mr. Gould: No, not in general. We have a combination of privately owned companies as well as co-operatives. Agropur is out of Quebec.
Senator Ogilvie: You indicated that some of these drying plants are 40 years old, well past their natural lifetime. In most industries, there would be a replacement plan over time and a modernization scheme. This is a base industry. It started out from individual producers producing all those things on their own, butter, cream, and so on. Why have we reached this point today where we have got all of this skim milk that needs to be dried going to plants that are beyond their normal life expectancy? A replacement plan hasn't existed. Now we're looking for somebody else to put up the cash to modernize these plants and to be able to handle the excess capacity you're generating on an annual basis?
Mr. Gould: Thank you. The problem has fairly deep roots and a long history. I say it goes back to 2006. There have been attempts by the industry, producers and processors, sometimes with the help of government participation in the discussions, to try and figure out what needs to be done to create the right circumstances, which include pricing of the product, to allow for those investments. There was an attempt in 2006; it failed. In 2006, there was still time. We got back together in 2012. The same thing happened. Now we find ourselves 2015-16, where in effect we have run out of time.
There was a comment about looking for support. When I talk about financial assistance, it's for a portion of the investments, not the whole investment. The industry is looking for partnership, not just with the federal government, but also the provincial government. It's an investment in the future of the dairy industry, which generates a lot of economic activity in total as well as being very important for rural Ontario and Canada.
Senator Ogilvie: Mr. Chair, I'm kind of surprised by this. This is a supply-managed industry which reached this particular situation. So I'll leave it at that. Thank you very much, Mr. Gould.
The Deputy Chair: I share your concern, Senator Ogilvie. I'm a little surprised at those statistics as well. I'm a huge supply management supporter. I certainly brag about the ability of Canadians to produce good-quality products without any government subsidies and supply management. Now we're in a situation where if one or two plants were to go down in the country, we would be in deep trouble in our ability to produce and process the product.
You mentioned 2006 was a critical year. What happened in 2006?
Mr. Gould: Yes, I'll try and keep it brief. There is a connection to the beginning of the Doha Round of the WTO negotiations where they were dealing with a number of issues like the elimination of export subsidies, and Canada does export a certain amount of dairy products, including skim milk powder, using export subsidies. That's one of the things that drew attention to the issue at the time.
I don't think they were thinking about either the capacity or the age of the dryers, and there was the dairy industry working group made up of producers, processors and government. For about a year, they attempted to find an accommodation that would redefine the stage for the future. As I said, at that time they couldn't know at some point down the road we would run out of time, that it was really important to find a solution. Six years later, in 2012, the dairy industry producers, processors and government got back together again in something called the Dairy Industry Producer-Processor Dialogue. Again, it attempted to do the same thing that we're trying to do today, what we call an ingredient strategy.
The Deputy Chair: It doesn't seem to be a big stretch to realize that if it didn't work in 2006, then when you get to 2012 the situation is going to be worse. We're starting to get to the critical stage in 2016.
Senator Tardif: Thank you for your informative presentation. You have indicated that consumer demand has increased for butter and butterfat as well as demand from the food production companies, but you can't meet the demand for butterfat, if I understand correctly. There is not enough Canadian butterfat. How much butterfat are you importing? Where are you importing it from? How can you avoid situations in which you have to import?
Mr. Gould: Thank you, senator. You are correct. We are not meeting the current demand for butterfat. As I said, the limiting factor is our ability to produce milk and have it produced in a butter powder plant. Through previous trade agreements, Canada is obligated to import under a tariff rate quota of approximately 3,000 tonnes. In the dairy years, 2015-16, August to July, we have already imported an additional 4,000 tonnes, and permits have been issued.
The Canadian Dairy Commission is the federal agency responsible for importing butter. They have been issued permits to import up to another 4,000 tonnes. That hasn't been imported yet. So 3,000 has come in; 4,000 has come in; and there are permits for 4,000, but hasn't been imported yet.
Senator Tardif: That request had to be made by the Canadian Dairy Commission, on your behalf?
Mr. Gould: The requests go to Global Affairs Canada, but if they agree to those import permits, it's the Canadian Dairy Commission which is the —
Senator Tardif: Is that one year at a time?
Mr. Gould: Not necessarily one year. The roughly 3,000 tonnes that is TRQ is on an annual basis. When they apply for the first 4,000 tonnes, they can bring that in at any time, which they did. Then they went back and asked for an additional 4,000 tonnes.
Senator Tardif: Mr. Graham, you have spoken about the competitiveness and profitability of the Canadian egg industry. If we're talking about research and innovation, what two areas would you work on if you were to improve the Canadian egg industry, depending on research and innovation?
Harry Pelissero, General Manager, Egg Farmers of Ontario: Gender identification.
Mr. Graham: I would have to go to what I mentioned was this gender identification, where we're just in the process of trying to come up with a way. We have the technology to differentiate between a male and a female egg. This is technology that was developed between Quebec and Ontario, where we have been looking at how you would set this up in an actual hatchery. It's a huge welfare issue to dispose of these male chicks when they are hatched and a day old.
The whole world, as I mention, is clamouring to find something that we can do to avoid this. It also increases the production capacity of these hatcheries because rather than putting two eggs in to get one female chick, a greater percentage of your chicks will be female laying chicks.
We're working on some of the other uses for eggs. We have something in the works right now trying to work with a company that is trying to come up with an egg that has been incubated for a certain time period that would be used in the drug business, especially for mental health. They do have some really good information, and they are just in the process of getting in the second round of trials on that type of thing; so that would be huge. It falls right into everything with the gender identification, because those eggs could be diverted to that program.
We have left a lot of things as far as innovation goes, obviously, around the technologies we use around the barn. Again, I would really commend the geneticists that do the work on the birds, because they are an amazing little creature that produces these eggs on so much less feed than they used to use. Again, even the temperament of the bird is much better than it was five, ten years ago that allows them to adapt to whatever environment they are in much better than they used to.
Senator Merchant: With both eggs and butter, you are at the mercy of the vagaries of the eating preferences that sometimes seem to go in cycles. I'm not sure if this is something that goes on in every country, but certainly in North America.
There is a move now to eat butter again. For some years, people were avoiding butter because of what they deemed to be health issues. With eggs, too, there seemed to be a time when people were not eating eggs. It varies from time to time. With milk, too, there are some notions that drinking milk may or may not be ideal for you. Does that matter when people look to the future and try to make investments in your industry?
Mr. Gould: There is a common theme between eggs and milk, and it's cholesterol. I don't want to get into whether it's serum or dietary cholesterol, but through social media, consumers certainly throughout North America and most of Europe have accepted that animal fat, in general, but dairy in particular, and the same is true with eggs, not only are they not unhealthy, but in most cases they are good for you. The evidence is clear in the growth and demand. Obviously, a real growth product was yogurt, which typically is low fat, high protein, and the dairy industry has had to rely on those products for many years. But using butter as an example, the consumption of butter had decreased steadily year over year from the 1960s through until 2012 when it bottomed out, and now we're seeing significant increases. That's the same in the United States and Western Europe.
Whipped cream, those types of products, more cream in coffee may not be relevant in this committee, but dairy fat tastes good and has a good mouth feel. If consumers don't perceive it to be an unhealthy product, it's a natural choice. We see that continuing for the foreseeable future, and the opportunities for growth look like they are long term.
Mr. Graham: In terms of the egg business, we have been very fortunate over the last 10 years. Over the last nine years, we have had a 22.2 per cent increase in egg consumption across the country, probably because it's such an affordable protein and is so flexible that you can use it in many different ways. This took place after we dispelled some of the myths about cholesterol, as Peter mentioned. I think people see eggs as being a healthy food product.
When we talk about investment as we go ahead, obviously the way those eggs are produced is certainly at the forefront for us right now, the different housing systems and that type of thing. It's really important for us, as we keep saying around our board table and across the country, that we need to tell our story. We need to tell it better than we have in the past. We're attempting to do that. Sometimes it's somewhat difficult because of some of the forces coming at us. We really believe what we are doing is right, and we're responsible with the management of our birds and producing the eggs that people want to buy.
Senator Merchant: I thank you for that. I wonder if there was any relationship in the reluctance of the industry to make investments along the line — if there was a demand there, perhaps they were a little reluctant to invest the money in it. Or maybe that wasn't a big enough factor to have influenced that at all.
Mr. Gould: That's a really good question. As we talked about, dairy is a whole range of products. As the demand for butterfat in various forms was going down, mostly because of health concerns, at the same time we saw increased consumption in products that were either low in butterfat or balanced, obviously yogurt being one of the prime examples. There are also cheeses, in general, where you have a nice combination of both butterfat and protein.
It was probably a factor. People are going to invest where they see growth opportunities, but I don't think it was just that. The conditions, the way we price the product, the skim solids weren't conducive to investments.
Senator Merchant: I'll go on second round.
Senator Unger: Thank you. I have just a couple of short questions.
First of all, Mr. Gould, when you're talking about the dryers and infrastructure and all of that, how was the existing infrastructure that now needs replacement acquired in the first place?
Mr. Gould: Well, it's owned by different companies, so the major processors in Canada — Agropur, Saputo, Parmalat along with Gay Lea in Ontario — own most of the dryers in the country. If you go back, I said they are between 40 and 50 years old, so sometime in the early to late 1960s those dryers were built.
Senator Unger: Essentially, was it public or private money that helped to —
Mr. Gould: That is before my time. I would suggest it was probably mostly private money.
Senator Unger: Private. If it was private and they invested, then why is there a need for federal money now?
Mr. Gould: I appreciate the question. I don't think it was planned. It's unfortunate, but we're at a crisis. It's a crossroads. If we want not only to maintain the health of the sector but also to create those opportunities for growth and a stronger dairy industry, there is an immediate need to do something. I think the industry is looking for a private- public partnership to make that happen. It's not just for the benefit of the private companies but for Canada in general, certainly rural parts of the country.
Senator Unger: Thank you. Mr. Graham, you talked about a new Canadian technology. I'm wondering, specifically who is that developed by?
Mr. Graham: I'll let Harry answer that, if you don't mind.
Mr. Pelissero: In Ontario there is the Poultry Industry Council, which is a collaboration of the four feather boards through a direction in research. It was a project that was undertaken about four or five years ago with a professor at McGill University. Originally the professor came back and said, "I think I can identify which eggs are fertile and which eggs are non-fertile.'' For every 12 eggs that come in from the farm, probably 10 are fertile and one or two aren't. If you're able to identify which eggs are and you're putting all fertile eggs in, it means that hatchery capacity is greater.
About two or three years ago, we went back to the professor and said, "Okay, can you identify the difference between male and female eggs?'' Fifty thousand dollars later, he came back and said, "Yes.''
We have patented that technology. We're in the process of working with a company to build a machine to put on a trial basis in Belleville. We have the accuracy at about 95 per cent now. We would like to have it at 98 or 99 per cent. Again, you're diverting — I'll give you a number. In Canada we have roughly 22 million laying hens. In order to get 22 million laying hens, you would have needed originally to incubate 50 million eggs. Now if you only need to incubate 22 million eggs, you're doubling the hatchery capacity.
The other project that my chair talked about was using fertile eggs in the development of an anti-depression medication, so we would be able to divert those eggs there or to other markets.
So literally the International Egg Commission, the international scene, is waiting for us to take this to commercialization level.
Senator Unger: Specifically, who owns the patent?
Mr. Pelissero: There's an egg research development foundation in Ontario, which is a subsidiary of the Egg Farmers of Ontario.
Senator Unger: Your statement that the industry is clamouring for this technology, someone is presumably going to make a lot of money.
Mr. Pelissero: The idea in pricing it is to make it very attractive to the hatcheries so that they receive income from the eggs that aren't going into the hatchery. They won't have to clean up from that. There will not be any employee reduction as a result of that.
We're trying to do it for a nickel per egg. That makes a big difference in terms of countries such as Holland, where they said as soon as the technology becomes available, thou shalt implement it. We think a nickel per egg is reasonable. Obviously that nickel will be split among the manufacturer, the researcher, the Egg Farmers of Ontario and the research development fund.
Senator Unger: What was the cost per egg before this technology?
Mr. Pelissero: Basically, you would end up having to incubate twice as many eggs. We haven't done an energy component in terms of increasing hatchery capacity. That's our next stage. For energy use, if somebody has four incubators, you only need to run two for this in order to give you the same number of female birds out the other end.
In our business, we take a day-old chick to 19 weeks before it starts laying eggs, which is different than the chicken industry such as Kentucky Fried Chicken, et cetera; they will take a chicken to four or five weeks of age, and then it goes to either Kentucky Fried Chicken, Sobeys or Swiss Chalet.
Senator Beyak: Thank you, gentlemen, for your presentations. They are always so informative.
Mr. Gould, I was a little late so you may have said, did we put a dollar figure on what it would cost you to modernize the Canadian dairy industry? Assuming it wasn't planned to be in this predicament right now, if you want to call it that, is there a model working somewhere in the world that we could emulate? Do we know the rough cost?
I think a private partnership sounds great. It could be the best in the world.
Mr. Gould: Let me try those one at a time. Maybe I should have answered this earlier.
As part of the announcement following the signing of the TPP, the government did put forward some ideas for compensation. One of them is a $450 million fund for investment in modernizing the processing sector. Really what we are doing here is just advocating that that is a good idea.
Because this is being televised, I'll manage my comments. The drying sector, or the butter powder sector, is very old. Is there another model like that? Probably not. Can we look around the world to other countries to see what is available? Absolutely.
The type of dryer that we have makes skim milk powder, period. Skim milk powder is a product that is still in demand, but you need a dryer where you can manage the time, temperature and moisture. Every company, every food producer, says, "I want my skim milk powder in this form.'' We can't do that. We need to be able to do that.
You also need to be able to segregate all the milk fractions. There are many parts — protein and other solids, minerals, vitamins and those sorts of things — and you don't want that to go out in the waste product or the by- product. You want to recapture those, add value to them. You create products then that if you didn't produce them here, you would be importing them. If you do produce them here, there's export potential.
In terms of cost, there's a big difference between a greenfield, where I just buy a piece of land and build a plant. In that example, you're probably looking at something in the $200 million range. There are facilities in Canada where you don't need a greenfield. You can use an existing facility, put in the modern technology, and it would be somewhere in the $60 million to $70 million range.
Senator Beyak: Mr. Graham, I wanted to tell you what a wonderful breakfast we had, first of all, with the egg farmers here on the Hill. There are so many young people involved. It was very gratifying to see that they're taking over their dads' farms, that there are so many new people coming in and that eggs are good and production is going up.
This is not a negative exactly, but the new Bill C-246 will be concerned with animal rights and that animals are people too. I know those who draft these kinds of bills are well intentioned, but I wonder how that kind of censure affects the good farmers who are doing the right things, treating their animals and chickens very well, when we put all this onerous legislation onto you.
Mr. Graham: I'm not familiar with the bill. I probably should be. I know where it's coming from and that type of thing.
All I can say is that farmers, in general, and as an egg farmer, take the care of that bird very seriously. It is very important. The better we look after our livestock, no matter what it is, the better it will be for everybody. It's better for the bird and better for us. Unfortunately, I think there are a lot of misconceptions out there as to how these birds are being managed and that type of thing.
Some interesting research has been done recently that shows some of the benefits of the way we've been producing eggs up to this point in a caged system. Through the whole process right now, we're trying to evolve to an enriched system which has some of the furnishings that allows that bird to have a nest to lay its egg in, and it has the ability to perch and scratch and gives it more room to live its life and that type of thing. Unfortunately, sometimes when you go beyond that system and go back to some of the new non-caged systems, you get into some situations where you do compromise the bird's welfare.
Obviously it's a big concern for us as egg farmers that we're digressing back to a point that we made some improvements on a number of years ago. Again, there are a lot of studies. There are going to be more and more of these studies taking place that hopefully will bring the truth to the surface.
I think it's important for people to be informed about food choices. We're all about choice for the consumer. I think you have to balance that with the ability to feed a country and the ability to be able to look after that bird and manage it in the right way.
Senator Moore: Thank you, witnesses, for being here.
Mr. Gould, on page 3 of your brief, at the second bullet you talked about growth and demand for butterfat. You said that ". . . by definition, we cannot meet growth. We can observe growth in other developed countries; we can see the increased level of imports here, legal and illegal.''
The "illegal,'' what is that?
Mr. Gould: "Illegal'' means that milk and/or cream is coming across the border without being properly declared. That does happen. It becomes a challenge for the Canada Border Services Agency.
I will say that the Canada Border Services Agency does a good job. I know they have identified a number of cases where they have determined that the product declared at the border was not the product that was being imported, and they follow that up with appropriate action.
Senator Moore: Is this a matter of labelling, or what does that mean? It's pretty obvious what milk is. I don't understand that.
Mr. Gould: It's coming across in tanker trucks, and there's a bill of landing. It's declared improperly.
Senator Moore: What does it say, for example?
Mr. Gould: It would be "food ingredient'' or "food preparation,'' which would come across tariff-free, when, in fact, it's essentially milk or cream.
Senator Moore: How often does that happen? Do you know? Is it a daily occurrence?
Mr. Gould: I'm going to stay that in the last several years it has happened far too often.
Senator Moore: Since when? Since before 2006 or after?
Mr. Gould: I don't have a clear line of sight to what happens at the border, but the information that we have would suggest it's much more recent than that, so the last two or three years versus the last 10 years.
Senator Moore: There are 12 dryers in the country, and 10 are over 40 years old. How old are the two that are younger than that, and where are they?
Mr. Gould: One is the Gay Lea dryer in Guelph. Don't quote me on this: I think it's 15 or 16 years old. The other one is out west.
Senator Moore: Where is that?
Mr. Gould: I can't tell you that.
Senator Moore: You just don't know?
Mr. Gould: I just don't know.
Senator Moore: Did I understand you to say that a new dryer costs $200 million versus $60 million to $70 million to upgrade an existing one?
Mr. Gould: No. If you were to build a brand-new ingredient facility, which is much more than a dryer, it would have capabilities of making liquid proteins, for example, converting the lactose into a value-added product, taking all the fractions of milk.
It's also a question of capacity. We would be talking a much larger facility than what exists right now. That could be in the $200 million range, versus if we were to upgrade and modify an existing plant where you don't have to buy the land and you're not building from scratch. It's probably a $60 million to $80 million investment. It may not increase capacity as much, but I think it will be a choice some companies make.
Senator Moore: So $60 million to $80 million. Is that for a new dryer, or is that for taking an existing dryer and upgrading?
Mr. Gould: That's a good question. No, these dryers are beyond being upgraded.
Senator Moore: So this is $60 million to $80 million for a new dryer?
Mr. Gould: A new dryer.
Senator Moore: If you had to build a whole new building and all the other stuff, it's $200 million?
Mr. Gould: Correct.
Senator Moore: Mr. Graham, one specific area of concern is the appendix to the Tariff Schedule of Canada for the tariff rate quotas. You go on to say the provision in question is in section A, and you quote it. You said the first five years.
Mr. Pelissero: It is seven.
Senator Moore: I wanted to clarify that. You said clarification of the meaning of this section is important. Could you explain that to the committee? I didn't understand what that meant.
Mr. Graham: I'll let Harry expand on it, but it's about being the first receiver of eggs coming into this country. There are people who bring eggs in and take advantage of that price differential, and sometimes it doesn't come back to the producer.
Mr. Pelissero: Under trade agreements we currently have in place, 4.5 per cent of eggs come in under what they call global permits. When we're short, that comes in as supplements. The 2.5 per cent roughly represented by the TPP agreement will increase that 4.5 roughly to 7 per cent. Within the document, there is the ability for the Government of Canada to hold an auction for that extra 2.5 per cent. In other words, if you want the right to send eggs into Canada, you may have to pay for it.
These are the questions: What does that look like? Who will get the money for it? And will that be used to offset potentially any losses in the egg industry? We've identified that 19 million dozen eggs over a period of time roughly represents X millions of dollars on an annual basis. That's what we mean by trying to further clarify that.
Senator Moore: So the 2.5 per cent is set out, I presume, in the TPP?
Mr. Pelissero: Correct.
Senator Moore: And it's under the control of the federal government as to who gets to use it?
Mr. Pelissero: That's correct.
Senator Moore: And through an auction? How?
Mr. Pelissero: I don't know. That's what we're looking for clarification on from the federal government. Those are the negotiator's terms of reference.
Senator Moore: We don't know that?
Mr. Pelissero: We don't know that. That's why we're asking for clarification on that.
Senator Moore: Let's make a recommendation, chair, from these gentlemen.
The Deputy Chair: That will come back and we'll talk about that in the future. Thank you.
Gentlemen, thank you very much for your presentations. We appreciate the work you do.
Mr. Gould, you've told me some things I didn't know about the dairy industry. Unfortunately, they haven't made me feel as good as most presentations from the dairy industry, but we'll survive, and hopefully somebody will be able to solve the problem.
Mr. Gould: If I could just react to that, I didn't get a chance to tell you what I say to everybody: I think we're on the verge of a period in the dairy industry that is going to be better than it ever has been. We just need to find the bridge from here to there.
The Deputy Chair: I'd like to thank you for ending on that optimism. That's what we need.
Honourable senators, next we have, from the Coop fédérée, Ghislain Gervais, Chair; and Jean-François Harel, Secretary General. Welcome. Thank you for accepting our invitation to appear. I'm going to invite you to make a presentation in a moment. We hope you keep your presentations down to 10 minutes, and following those, a question- and-answer session will take place, and each senator will be given five minutes to ask questions before the chair recognizes another senator. There will be as many rounds of questions as time will allow, so senators do not need to ask all of their questions at once. I will ask senators to be succinct and to the point when asking questions, and I would ask that the witnesses do the same in answering.
Mr. Gervais, the floor is yours.
Ghislain Gervais, Chair, Coop fédérée: I would like to take a moment to introduce myself to you. I am a farmer in Saint-Guillaume, in the centre of Quebec, with my wife and brother. We farm 1,200 acres, and we have two chicken barns. We are on a no-till system, and our main crops are corn, soybeans, wheat and oats.
I began my involvement in the co-op RÉSEAU in 2000 when I replaced my father on the board of the local co-op. I was elected president in 2001, and I stayed in that role until 2015. In 2011, I was elected to the board of the Coop fédérée; in 2013 I was named to the executive committee, and in 2014 I became the vice-president. Since February 26, I have been the president of the board of Coop fédérée and Olymel.
[Translation]
I would first like to thank the members of the Standing Senate Committee on Agriculture and Forestry for inviting La Coop fédérée to present its views on the issue of international market access.
Please note that we do not claim to have a comprehensive or complete vision for such a complex issue. However, we hope in the short time allotted to provide some interesting and useful insight and to help you reflect on some aspects of the issue.
Let me start with a brief overview of La Coop fédérée. We are a federation of Canadian agriculture and agri-food co-operatives. We have 116 member co-ops, which together have nearly 90,000 members. Currently, La Coop fédérée is the second largest agricultural group in Canada, and the 24th largest agri-food co-op in the world.
La Coop fédérée and its network of affiliated co-ops have revenues of over $9.6 billion, provide jobs for nearly 18,000 people and operate in most Canadian provinces. Our member co-operatives are primarily located in Quebec, New Brunswick and Ontario, but through our subsidiaries Olymel, Agrico Canada, Agronomy Company of Canada and Atlantic Farm Services, we have operations in the Maritimes, Ontario and the western provinces. We also have sales offices in Asia and Australia.
La Coop fédérée and its affiliate co-ops operate mainly in the farm input supply, hardware distribution and petroleum products sectors. La Coop fédérée and some of its member co-operatives are also involved in the food processing sector, and a number of our member co-ops are active in food distribution.
La Coop fédérée is therefore at the heart of an organizational model that includes agricultural producers, consumers, food distributors and food processors. I believe this gives us a unique perspective on the agriculture and agri-food sector.
La Coop fédérée's operations are organized into three large divisions: agricultural sectors, retail businesses and meat processing. The issue of international market access concerns two of La Coop fédérée's divisions: the meat processing division through its limited partnership, Olymel, which makes it one of the largest pork exporters in Canada, and the agricultural division, which also exports grain.
To successfully manage its meat processing operations and promote their growth, La Coop fédérée has joined with a number of partners and competitors in the Olymel limited partnership, which slaughters, processes and markets pork and poultry.
Last year, Olymel had revenues of $2.8 billion and employed nearly 10,000 people. In the pork sector alone, Olymel exported over $1 billion of pork to some 50 countries. Our grain export operations had more modest sales of $21 million.
La Coop fédérée's agricultural operations are spread over three divisions: livestock production, crop production and grain marketing. This sector accounts for about one third of La Coop fédérée's operations by revenue, at a little over $1.7 billion in 2015.
Regarding grain exports, it is important to note that grain usually enjoys a special status when it comes to tariffs. Unlike most other agri-food sectors, grain is often free of customs duties in foreign markets given its fundamental role in the development of the agriculture and agri-food value chain in importing nations. This reality enables Canada's output to compete with that of other countries on a level playing field when our grain arrives in a foreign port.
However, the grain sector could still benefit from refinements in some tools to enable its export sector to maximize its opportunities and spinoffs.
We believe it would be in the best interest of Canadian grain exporters to review the fees charged for the Canadian Grain Commission's oversight in order to make Canadian grain more competitive internationally. These fees have remained at $1.50 per ton, even though several years ago private exporters obtained permission to do grain quality assurance themselves, without using the commission as an intermediary.
La Coop fédérée also believes the federal government should examine the issue of the rates the rail companies charge to ship grain. We have noticed that eastern Canada and its export markets are being put at an increasing disadvantage compared with western markets because of the high rail freight rates for moving grain east. From a business standpoint, it currently costs less to transport grain over long distances to our port facilities in eastern Canada by truck than it does by rail.
Without wanting to recreate the Crow's Nest Pass Agreement, we believe the federal government should consider the tools it could use to break the quasi-monopoly in the rail sector in order to encourage eastward rail transport of grain. Correcting this problem would, in our view, be consistent with some of the government's road safety, greenhouse gas emissions and road infrastructure longevity objectives.
Our final comment about the grain sector concerns the data under the control of Canadian authorities. At present, the statistical information analyzed and distributed by Statistics Canada and the Canadian Grain Commission almost entirely concerns the production and marketing of grain in western Canada — from Manitoba to British Columbia.
Although the western provinces account for 80 per cent of Canada's grain exports, Ontario, Quebec and, to a lesser extent, the maritime provinces produce significant volumes of grain. La Coop fédérée believes it would be appropriate to make some adjustments to ensure all provinces benefit from the same statistical attention.
If the country's grain authorities had a more rapid and agile statistical mechanism — and one that better reflected the economic realities of the eastern provinces — these data would provide more value to grain export and marketing stakeholders.
As for the meat sector, Canada has signed about 15 free trade agreements involving many countries, but most would agree that the three most important are the North American Free Trade Agreement, which came into force in 1994, the Comprehensive Economic and Trade Agreement with the European Union, which was signed in 2014 and is subject to ratification before being implemented, and the Trans-Pacific Partnership, finalized in 2015 and also subject to ratification before implementation.
To illustrate how important free trade agreements are to maintaining the competitiveness of Canada's agri-food businesses, I will use the South Korean example.
South Korea was once Olymel's third largest export market after the United States and Japan. It was also one of Olymel's most lucrative markets. The free trade agreement between the United States and Korea, which took effect in 2012, quickly showed what can happen when Canada has no such agreement with South Korea. In only three years, our sales in that country plunged from $66 million in 2011 to $39 million in 2013 as the tariff barriers to American pork gradually came down.
The new agreement between Canada and South Korea, signed in January 2015, should allow us to substantially catch up to the United States. We are already seeing a significant increase in our sales on that market, which totalled $58 million last year.
This clearly shows how important future and current agreements — such as the Trans-Pacific Partnership or the Comprehensive Economic and Trade Agreement with the European Union — are to an exporting country like Canada.
In both cases, we have done fairly well in defining and ensuring trade conditions that benefit Canada. In the case of agri-food under the TPP, the key issue was obtaining the same or similar conditions to what the United States have in our principal Asian markets, particularly in Japan, while protecting our supply managed sectors as much as possible. While this agreement has not yet been ratified by the various nations involved, I believe that we can already conclude, based on the information we have, that this has been achieved.
The Comprehensive Economic and Trade Agreement with the European Union is a different story. Canada obtained new access for 75,000 tonnes in carcass weight, which is clearly insignificant and equal to less than three tenths of one per cent (0.3 per cent) of the total market.
In return, we agreed to provide unlimited access to our market for European pork products, and we still have no agreement to recognize certification equivalence for our processing plants, which would enable us to truly take advantage of the lucrative European export market. This means that we need to make major investments to have plants and processes set up according to European Union principles in order to have them certified for export. For us, the equivalence principle set out in the agreement meant mutual recognition of the two parties' systems. Yet, the EU expects us to justify our practices when they differ from theirs.
While the work of the technical committee established to address this issue is proceeding, we are concerned that, at the rate this work is progressing, the terms and conditions to be placed on the meat industry will still not be defined when the CETA is scheduled to take effect in 2017.
We are also concerned that the EU appears to be treating Canada differently from the United States on this issue in their ongoing negotiations with the latter. Any differences would constitute a non-tariff barrier for our industry.
Furthermore, international market access cannot be fully examined without looking at the access granted to other countries, either formally through trade agreements or informally through lax enforcement of these agreements.
The news in recent weeks has shown us the impact of this lax enforcement through the issue of imports of diafiltered milk. Dairy industry representatives put the losses from diafiltered milk imports at $220 million in 2015, when these imports amounted to 32,000 tonnes, up from about 21,000 tonnes the year before.
Considered milk by the Canadian Food Inspection Agency (CFIA), diafiltered milk is mainly used to make cheese and is treated as an ingredient at the border, enabling it to escape the customs tariffs on milk, eggs and poultry.
The same kind of loophole exists in the poultry sector, where Canadian processors use various tricks to greatly exceed the levels of imports permitted under NAFTA, sometimes even to the detriment of our American neighbours.
These methods of circumventing tariffs include abusing programs such as Global Affairs Canada's Import for Re- Export Program and the Duties Relief Program, importing spent fowl that are not subject to import quotas and importing finished products with added ingredients (e.g. sauces, rice and marinades) that account for more than 13 per cent of the packaged product.
For Canada, these measures translate into major job losses across the poultry sector, which Chicken Farmers of Canada puts at close to 9,000. The volume of poultry imported in excess of the NAFTA limits is estimated at 10 per cent to 15 per cent of total Canadian poultry output. Addressing this problem would create new jobs without requiring government assistance while protecting our supply management systems.
By completing the free trade agreements with Europe and the Asia-Pacific nations, Canada is well-positioned to make the most of its competitive advantages with its trading partners.
For the Canadian agri-food sector, access to export markets is a vital issue, given the modest size of Canada's population. We need agreements that provide access and tariff rates that are competitive with and comparable to those obtained by the other agri-food powers.
However, foreign market access must not make us lose sight of the importance of protecting our local markets within the legal framework of these free trade agreements. Addressing the recent years of lax protection of our border with our main competitor and neighbour could by itself compensate for the concessions granted under the CETA and TPP.
Moreover, looking to the future, we encourage the Government of Canada to quickly position itself to sign free trade agreements with China. For the pork sector, the Chinese market size and high consumption makes it a prime target for future Canadian free trade agreements. Thank you for your attention.
The Deputy Chair: Thank you for your presentation.
[English]
You have raised an awful lot of important questions.
[Translation]
Senator Tardif: As the chair mentioned, you have raised many important points. I would like to clarify two questions with respect to your presentation, particularly concerning the agricultural sector. In your opinion, the fees charged by the Canadian Grain Commission should be reviewed. Do you believe that the fees set by the Canadian Grain Commission are too high?
Mr. Gervais: I will ask Mr. Harel to answer your question.
Jean-François Harel, Secretary General, La Coop fédérée: The fee has remained the same, even though the nature of the services is not the same. Quality assurance is often carried out by companies, but the commission is charging the same fees. Since the services have decreased, the costs should also be decreased.
Senator Tardif: With respect to the transportation of grain to eastern Canada, you indicated that the fees are very high for rail transportation. Does the same situation exist for grain transportation to western Canada?
Mr. Harel: We export mainly to eastern Canada. We operate mainly in Quebec. I assume that the fees are the same in eastern Canada and western Canada, but they are indeed very high. Currently, transportation by truck is more affordable than rail transportation, which is somewhat illogical, given the commitments to reduce greenhouse gases. The government should study the issue, at the very least. The rail transportation situation is a near-monopoly. The government should determine whether these fees are competitive.
Senator Tardif: Have you had discussions with the rail industry about this situation?
Mr. Harel: Yes. We have shared our concerns with them. The entire industry is suffering from this situation.
Senator Tardif: Has the industry undergone changes in recent years because of the transportation of other products?
Mr. Harel: The transportation of petroleum products has increased significantly. A few years ago, there was a propane supply crisis because there was not enough distribution to meet supply and demand.
Senator Tardif: You suffered when the government required that grain be transported by train.
Mr. Harel: By all accounts, the strong demand for rail transportation is increasing the prices of all commodities, grain included. Unlike for other commodities, the profit margins are not the same. Because the situation is a near monopoly, we are asking the government to pay particular attention to it to avoid disadvantages between eastern and western Canada, without bringing back the Crow's Nest Pass Agreement, which was called into question in the 1990s.
[English]
The Deputy Chair: When you're moving grain east, you're moving from central Quebec east. Are you moving it to the Port of Halifax?
Mr. Gervais: Quebec City, Montreal.
The Deputy Chair: That's fine. I'm from Halifax, so I'm always anxious to promote Halifax.
Senator Unger: Thank you, chair. I would like to continue on this topic. I'm from Alberta, and you're saying Western provinces account for 80 per cent of Canada's grain production, with the other 20 per cent coming from Ontario, Quebec and the Maritime provinces. Yet you think it would be appropriate to make some adjustments to ensure all provinces benefit from the same statistical attention. Would you explain that?
[Translation]
Mr. Harel: Currently, our commercialization officers do not have access to information concerning the goods that are being transported and produced in the east, given the sources of information at the Canadian Grain Commission and Statistics Canada.
The current system focuses its resources based on volume, and it focuses in a very pronounced fashion on grain produced in the west. The lack of information on everything that is produced in the east can harm commercialization. If we do not know the volumes that are available on the market at the same time as we receive information from the west, it makes access to certain markets more difficult. According to our commercialization officers, there is a double standard for information.
[English]
Senator Unger: In the next paragraph you say that if the country's grain authorities had a rapid, more agile statistical mechanism and one that better reflected the economic realities of the Eastern provinces, these data would provide more value to grain export and marketing stakeholders. Would you elaborate on that?
Is this all about better reflecting the economic realities of the Eastern provinces versus the Western provinces? I'm not sure what you're saying.
[Translation]
Mr. Harel: For the eastern provinces, effectively, it would be to obtain more correct information. Currently, it is not collected in the same way as for western grain. Access to more accurate information in real time would allow our officers to have a real overview of what is marketable on the markets, it would allow them to know what can be purchased or sold. For now, because this information on the eastern provinces is less readily available in the government's information system, there is a lower value, and, I would say, a less relevant interpretation of the market by our commercialization officers. They tell us that the overrepresentation of western grain in the system means that they are having a less accurate read of the market, therefore less access to the information required to conduct their work.
[English]
Senator Unger: Why can't you get this vital information that is being withheld? What is the holdup?
[Translation]
Mr. Harel: That's a good question. Industry in Quebec has made representations, that is well known. The Canadian Grain Commission has an overrepresentation right now from the West, where most of the volume comes from. When we think about grain marketing in Canada, we think mainly about the western provinces. In the eastern provinces, much of the production is for domestic use. That said, some of it is exported. What we wanted to emphasize for the Senate committee is that it should pay particular attention to this and ask the Canadian Grain Commission about it.
[English]
Senator Unger: Respectfully, I don't really understand, but I think I disagree.
The Deputy Chair: Your presentation has raised quite a few questions. One of them is on the Canadian Grain Commission. We haven't had the Grain Commission before us on this study as yet. However, we'll put them on the list of people we want to see, and when they are here, on your behalf we will ask this question; I will in particular, and I'm sure others will ask this question.
I have a question I wanted to pose. In your presentation you mention that your member cooperatives are primarily located in Quebec and Ontario but through your subsidies. You also have sales offices in Asia and Australia.
Does this position you better than many others in the sector for the signing of the TPP? If you have sales agents on the ground in the Asian market, should you not be able to capitalize better on the TPP?
[Translation]
Mr. Gervais: I think so. Those in the sales office talk regularly with our buyers in those markets. We keep abreast of market signals through our subsidiary, Olymel. Since we have these two sales offices abroad, we are in a good position to take advantage of the TPP.
[English]
The Deputy Chair: You have the good news and bad news of South Korea. The good news is you have a very solid market. The bad news is it dropped when they signed their agreement with the U.S. But it's coming back, and the new agreement between Canada and South Korea signed in 2015 should allow you to build that back up because you have the reputation of delivering quality products in a timely fashion.
[Translation]
Mr. Harel: With respect to South Korea, the agreement signed with Canada is in force. Tariffs are rebalanced over a five-year period. Already, thanks to this tariff rebalancing and the exchange rate, we are regaining our share of the market. Our message regarding free trade agreements is that we tend to be supportive of the TPP. We are less keen on the agreement with Europe, but we do support it. Agri-food is one sector, but we understand that Canada also has other issues.
The main thing when it comes to free trade agreements is that we need to have the same competitive conditions as our American neighbours. They are our main competitors. The example of South Korea shows very well what the effect is when one country has an advantage. For three years, the United States had access to a tariff reduction that we did not have. As a result, we were pushed out of the market. The South Koreans love our pork, since they have similar genetics to ours. It is apparent to us, given how quickly we are regaining this market, that they prefer Canadian pork.
[English]
The Deputy Chair: Our pork industry has suffered significantly over the past number of years, but you are part of the good news story in pork in that you have developed a good market in Asia.
Assuming the TPP and CETA agreements are signed, is the market for pork there? Can we and should we expand our pork production to meet that demand?
Mr. Gervais: Yes. The markets are there. We just have to take it.
The Deputy Chair: Okay.
Senator Beyak: I have just a short question. First I wanted to tell you what an impressive booklet this is and your industry. Those are amazing figures, which we should all be proud of in Canada.
Also, what we're hearing at our committee from witnesses across Canada are the same concerns, so hopefully our Senate report will be able to consolidate all the concerns we are hearing, take them forward, and something will be done.
Are you satisfied with the groups you're talking to within the government?
[Translation]
Mr. Harel: It is often the industry that makes these representations. On the grain issue, the representations made to us indicate that problems are being raised by our marketing agents. Up to now, there has not been any openness to these concerns.
With respect to free trade agreements, as we have said, we support the ones that have been signed. However, when it comes to protecting domestic markets, since you are in Ottawa you know that diafiltered milk is the hot topic in the House of Commons. There is also the issue of spent hens, for which no solution has been forthcoming to this point. You know what the solutions are and they are fairly simple. If they were implemented, the TPP would have a much smaller impact. The concessions we had to make on supply management would be largely compensated for just by enforcing the existing regulations.
[English]
Senator Moore: Thank you, witnesses, for being here. I just want to clarify. I think the chair asked this. You talked about how it currently costs less to transport grain over long distances to our port facilities by truck than it does by rail. You said Eastern Canada, but you meant just to Quebec City, did you?
[Translation]
Mr. Harel: No. Right now, the grain is transported by truck from the western provinces to Quebec. So I am talking about Montreal and the Montreal region. They sometimes go as far as Quebec City, but that is for the purpose of getting the grain to export markets going east rather than going west. We have port facilities all along the St. Lawrence River.
[English]
Senator Moore: So when you talked about the port facilities in Eastern Canada, you meant along the St. Lawrence?
Mr. Gervais: Yes.
Senator Moore: Montreal, Quebec.
[Translation]
Mr. Harel: Montreal, Sorel, but mainly Montreal.
[English]
Senator Moore: So when you talk about being able to have access to the Western figures, data, and you talk about the Eastern provinces, again you mean from Ontario to the Atlantic, do you? It's the whole from the Manitoba- Ontario border east. You talk about Ontario, Quebec and the Maritimes?
Mr. Gervais: Yes.
Senator Moore: I just wanted to know that, chair. Thank you.
The Deputy Chair: Thank you. Gentlemen, first of all, thank you for an excellent presentation. Probably one of the best presentations we have had because you have covered the subject matter thoroughly, and you covered a whole range of issues. Also I would like thank you for your understanding about the delay in starting.
Mr. Gervais: No problem.
The Deputy Chair: Unlike the House of Commons, our committees don't meet when we're in session. It means we want more senators participating in the debate here, so we have to wait until the chamber finishes, until people stop talking there so that we can start talking here. We do appreciate your patience, and merci beaucoup, bonsoir.
Mr. Gervais: Thank you very much.
(The committee adjourned.)