Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 52 - Evidence - Meeting of May 24, 2018
OTTAWA, Thursday, May 24, 2018
The Standing Senate Committee on Agriculture and Forestry met this day at 8 a.m. to study how the value-added food sector can be more competitive in global markets; and in camera, for the consideration of a draft report.
Senator Diane F. Griffin (Chair) in the chair.
[English]
The Chair: Good morning, senators. I am Diane Griffin, chair of the committee and a senator from Prince Edward Island. I’ll ask the senators around the table to introduce themselves.
[Translation]
Senator Maltais: Senator Maltais from Quebec. Welcome.
Senator Dagenais: Senator Dagenais from Quebec.
[English]
Senator Doyle: Norman Doyle, Newfoundland and Labrador.
Senator Oh: Victor Oh, Ontario.
[Translation]
Senator Petitclerc: Chantal Petitclerc from Quebec.
[English]
Senator Marwah: Sabi Marwah, Ontario.
Senator R. Black: Robert Black, Ontario.
[Translation]
Senator Gagné: aymonde Gagné from Manitoba.
[English]
Senator Mercer: Terry Mercer, Nova Scotia.
The Chair: Thank you, everybody.
Today we’re doing more hearings regarding our agriculture value-added study and how it can be more competitive in global markets. For our panel, we have from Cereals Canada, Mr. Cam Dahl, President; and from Soy Canada, Mr. Ron Davidson, Executive Director.
Welcome, gentlemen, and thank you for accepting our invitation to appear today.
We’ll start with Mr. Dahl and then Mr. Davidson will follow. Then we’ll have a series of questions.
Cam Dahl, President, Cereals Canada: Thank you, chair and senators. It’s a real privilege to be in front of this committee again.
My name is Cam Dahl, and I am the President of Cereals Canada. In the interest of time, I am not going to go through the background of Cereals Canada. I think you have a brief that has been circulated. I would be happy to answer any questions.
Before I get into discussions on the value-added presentation, I do want to do a bit of an aside. Yesterday Bill C-49 received Royal Assent. This is a critically important bill for agriculture and I wanted to thank all of you for your work and the Senate for the work on that particular bill.
The retail value of Canada’s domestic baked goods, pasta and noodles was over $8.6 billion in 2017. The sector’s value is larger when considering goods produced for export to international markets. Canada’s domestic exports of value-added cereal products were over $4.2 billion in 2007. This is a very large industry.
We gain from value-added processing in export markets as well. Canada’s wheat is regularly exported over 65 countries with annual exports exceeding $6.5 billion. Beyond wheat, this important economic value is also reflected in other cereal crops, such as oats and barley.
We believe there are significant opportunities to capture more of this value at home and build competitiveness abroad. I will focus on five key areas: research and innovation, trade policy, regulatory burden, regulatory cooperation and touch on the national food policy.
To start with research and innovation, Canada’s ability to commercialize and adopt new technologies is highly impacted by regulatory constraints as well as consumer demands, both in Canada and abroad. Without science and risk-based rules of trade, our farmers and processors become subject to the whims of the latest Internet fad.
Canada must show international leadership by supporting a positive framework for the adoption of innovation both by governments and consumers. This includes playing a leadership role in international standard-setting bodies as well as the promotion and enforcement of science-based trading rules.
Canadian provinces also have an important role to play. Internal fragmentation creates added costs and barriers for agri-food businesses. In cases where Canadian provinces have deviated from science-based regulatory decisions, such as Ontario’s ban on neonicotinoids, the outcomes have been counterproductive to Canada’s value-added processing and our export interests.
There is a need for a coordinated approach to research, driven by public-private partnerships. This is becoming more important over time. Cereals Canada is leading a national wheat research priority-setting process in collaboration with Agriculture and Agri-Food Canada. This process has brought together the entire value chain to align research efforts around strategic priorities. We believe these efforts will improve the food sector’s capability to generate value-added products while ensuring that all research stakeholders are responsive to global consumer demand.
To touch on trade policy, Cereals Canada strongly supports the Government of Canada’s trade liberalization efforts. Trade agreements such as the CPTPP and CETA offer stronger science-based trading rules while also reducing tariff escalation and value-added products. The Government of Canada should promptly ratify the CPTPP to lock in potential gains. Cereals Canada strongly encourages this committee to recommend that Canada be among the first countries to ratify the CPTPP. This soon requires the introduction of legislation.
It’s not good enough to simply sign trade agreements. These agreements must also be enforced. Since the signing of CETA, or CETA’s entry into force, Canada’s single largest export to Italy — single largest to Europe — durum wheat has fallen from about 1 million tonnes a year to nothing. This is a result of protectionist country-of-origin labelling regulations combined with an anti-Canadian campaign by the Italian farmers union.
A public and assertive response from the Government of Canada is urgently needed. If Canada neglects to respond, the value of trade agreements such as CETA will be called into question. And quite rightfully so. Unwillingness to take action would encourage other jurisdictions to follow Italy’s lead, causing protectionist practices to spill over.
I ask this committee to recommend aggressive enforcement of trading rules when protectionist actions block trade.
To touch on the regulatory burden, regulatory costs and a fragmented internal market are inhibiting investment in Canadian value-added processing. For example, the agri-food sector will have to spend more than $2 billion to comply with new labelling requirements. This is $2 billion that could have been invested in innovation, new technology and plant upgrades. This is a cost that makes Canada a less attractive place to invest.
I’m going to deviate from my notes a little bit to bring up another subject that I just learned about yesterday. Bill S-228 originated in this place, and with all good intent to protect marketing of food products harmful to children. Sometimes that good intent can be lost in the regulatory setting process. I just learned yesterday that all bread is going to be on the list of products that are unhealthy. It’s another example of where the regulation setting process can move off track from what the original intent of the legislation was and severely inhibit Canadian food industries and value-added processing. That is another ongoing example of where the regulatory environment can inhibit value-added processing.
Creating a regulatory environment that fosters growth of our value-added sector requires modernization of the Food and Drugs Act to match the modernization of food safety and inspection. When the Food and Drugs Act was written, we couldn’t test in parts per billion or parts per trillion.
Reform is also needed to establish regulatory consistency between different government agencies. For example, the tolerances established by the Canadian Grain Commission for fusarium-damaged kernels — fusarium is the bacteria that creates deoxynivalenol — are not consistent with the Canadian Food Inspection Agency’s regulatory approach to deoxynivalenol or DON. Again, we stress the need for consistent risk and science-based regulations across the industry and the nation.
To touch on regulatory co-operation, CETA creates opportunities for regulatory co-operation between Canada and Europe. Canada must take full advantage of this forum. Canada and the U.S. have also established similar efforts for co-operation through the Regulatory Co-operation Council. While the RCC may have stalled in recent years, it does provide a model worth reviewing. I think this can and should be an outcome of the ongoing NAFTA negotiations.
These efforts are required to build a cohesive regulatory environment and minimize red tape while setting examples for our partners on the international stage.
Finally, I would like to touch a little bit on the national food policy. Cereals Canada does support the efforts of the Government of Canada to develop a comprehensive national food policy. We believe taking the time necessary to get this policy right is far more important than meeting any artificial deadlines.
We must construct a process that recognizes Canadian strengths and is based on sound risk and science-based regulations. Modern Canadian agriculture can meet these challenges but not if policies are developed through a lens that views Old McDonald’s Farm as the ideal outcome.
The first step in getting this process right is the development of a strong and effective governance that will drive the process forward to consensus. I have outlined our proposals for governance in the brief before you. Cereals Canada asks the committee to make recommendations regarding the structure and governance of a potential national food policy council.
Thank you. That is a summary of the brief, and I look forward to your questions and our discussion.
Ron Davidson, Executive Director, Soy Canada: Good morning. I come from Old McDonald’s Farm many decades ago.
Soy Canada is the industry organization that represents the soybean sector value chain, including seed companies, producers, processors and exporters.
Thank you for the opportunity to comment on prospects for enhancing the competitiveness of the Canadian value-added food sector in global markets.
References to value-added are often limited to consideration of the prospects for additional further processing in Canada. This is not the only manner by which value can be added to the agriculture and agri-food sector.
The very existence of the soybean sector in this country is a Canadian value-added success story. Soybeans are not native to Canada. The first report by Statistics Canada of commercially significant soybean production was in Ontario in 1941. Between 1941 and 2017, soybean production expanded from 5,900 tonnes on 10,900 acres in one province to 7.7 million tonnes on 7.3 million acres in eight provinces, all the way from Nova Scotia and Prince Edward Island to Alberta. Furthermore, soybean production is projected to double yet again during the next decade.
At the same time, the average yield increased from 19.9 bushels per acre in 1941 to 44 bushels per acre in 2016. Stated differently, while extending constantly into new production frontiers, there has been an increase of 121 per cent in yield value per acre.
The primary catalyst for the sustained growth of the sector is the fact that soybean production is adding value throughout the value chain. The following are five examples of factors that, collectively, are contributing to this ongoing value-added success story.
The first is high-quality and high-demand products. Soybeans provide a complete protein that includes all the essentially amino acids in amounts required for human health. In addition, soy is an excellent source of minerals such as calcium and iron. Soy oil contains primarily good fat — monounsaturated and polyunsaturated fats — including omega-3 fatty acids and no cholesterol. The oil characteristics make it a desirable ingredient for a broad variety of applications, from margarine and shortening, to mayonnaise, salad dressings, frozen foods, imitation dairy and meat products, and commercially baked goods.
The second example is committed public and private sector research scientists. Crop science has been the primary enabler of soybean production in Canada, and crop science, including conventional breeding techniques, genetic modification technology, plant breeding innovations such as gene editing and pest control, must continue to provide the foundational cornerstone for the continued expansion of the sector. Researchers are developing high-yield, early-maturing varieties adapted to regions with cooler and drier summers.
The third example is innovative Canadian farmers. Farmers welcome a new, high-value, nitrogen-fixing option that benefits their entire crop rotations. The most sophisticated technology in the world, including precision agriculture, is allowing farmers to become even better stewards of the land, while also increasing efficiencies through new research, technologies and equipment.
The fourth example: Canada produces both genetically modified and non-genetically modified varieties. Canada has one of, if not the best, system in the world for segregating non-genetically modified and genetically modified soybeans.
The Canadian Identity Preserved Recognition System, which is managed by the Canadian Grain Commission, allows Canada to stand out in foreign markets. Canada is the only country to have a national government-based traceability system for food-grade soybeans that is recognized around the world.
The fifth example is international competitiveness. The Canadian soybean sector is export-oriented and internationally competitive. In 2017, Canada exported 5 million tonnes of soybean seeds, identity-preserved soybeans, organic soybeans, soybeans for crushing, soybean meal and soybean oil valued at $2.7 billion to a total of 71 countries. The primary destinations were China, the EU, the United States and Japan.
However, although much has been achieved, opportunities abound to do better.
The first: international trade agreements. The soy sector strongly supports the negotiation of international trade agreements, including the now-implemented Canada-Europe Comprehensive Economic Trade Agreement and the long-pending Comprehensive and Progressive Trans-Pacific Partnership. In 2017, approximately 22 per cent and 15 per cent of Canadian soybean exports were shipped to CETA and CPTPP countries, respectively.
Another forum in which we would welcome more rapid progress is the Canada-China negotiations. China is, by far, the single largest importer of soybeans in the world, accounting for two thirds of global trade and one third of Canadian exports. Progress with China, our single largest export customer, could reduce the risk of Canadian soybean exports becoming subject to the negative side effects of managed trade.
Second: foreign market access. Negotiations pertaining to the removal of technical market access barriers such as the approval of traits, maximum residue limits, low level presence and labelling is an exclusive mandate of government. While we applaud the fact the government has invested substantially in international trade agreements, we regret the chronic and serious underfunding of government agencies which negotiate the removal of policy and technical barriers to market access. The absence of a coherence within government is a significant factor in limiting the achievement of the government’s stated jobs and exports objectives.
Third: domestic crushing capacity. Although Manitoba and Saskatchewan produced 2.7 million tonnes, accounting for 35 per cent of total Canadian soybean production in 2017, Western Canada lacks a soybean crushing facility. The impact is at least three-fold: First, Western Canada is not benefiting from the value added that a local crushing facility would provide; second, soybeans must compete with other grains for rail transportation to export positions; and third, livestock producers are paying higher transportation costs for imported soybean meal, thereby reducing Canadian export market opportunities for meat. Although a group of regional private-sector representatives has been promoting the construction of a soybean crushing facility in Western Canada, there has not yet been any public confirmation of an intent to proceed.
Fourth: protein content. Protein content is a prime determinant of the value of soybeans. Typically, soybeans produced in Western Canada have a lower protein content than those produced in Eastern Canada. Although the average variance in 2016 was 1.6 per cent, the difference jumped to 2.5 per cent in 2017. In addition to impacting producer revenues, some samples tested fell below the minimum protein content acceptable to some foreign buyers. Preliminary discussions have been initiated on the significance of protein content for producer incomes and purchaser acceptability, as well as varietal and agronomic initiatives that could enhance protein.
In closing, I wish to thank senators for your support of the soybean sector during the consideration of Bill C-49. We are very pleased the eventual outcome of this debate was a decision to treat all Western crops and farmers equally.
Thank you for your invitation to be present today.
The Chair: Thank you. Those were great presentations. We have a number of senators lined up to ask questions.
[Translation]
Senator Maltais: Welcome, gentlemen, and thank you for giving us your very interesting and instructive presentations.
Mr. Dahl, if I understand correctly, your companies do business of around $12 billion, which is actually a significant part of Canadian agriculture.
You especially mentioned a support framework for exports. Could you tell us how you would like that export framework to work?
[English]
Mr. Dahl: I think the most important part, senator — and it’s not just an export framework; it’s a seamless framework between our exports as well as our domestic market. Most important are predictable risk and science-based regulations.
We see in parts of the world — and Europe is an example — they are moving away from risk-based assessment. That’s something Canada needs to lead on, ensuring that our rules of trade are based on sound science-based and risk-based assessment.
That doesn’t only apply internationally. That also applies within Canada as well to ensure we don’t see a fragmentation of the Canadian market and we don’t see a fragmentation of Canadian regulations. For example, we see independent provincial responses to some pesticides that are not based on risk and science-based assessments.
To me, the most important framework is that strong, science-based and predictable regulatory framework.
[Translation]
Senator Maltais: You talked a lot about the Trans-Pacific Partnership agreement, not only in terms of it being signed, but also its implementation and regulation.
How about CETA? What doors does that open for you?
[English]
Mr. Dahl: CETA is a tremendous opportunity. There are 500 million consumers, I think, in the countries that are part of Europe. From my perspective it’s not just about signing agreements. It’s also about enforcing them when we find our trading partners are going offside of what we’ve agreed to.
Since we have signed CETA, the Canadian durum exports, which are worth about $500 million — this is not a minor export — have fallen to nothing. That’s happened in less than a year. That’s due to one particular government, Italy, taking protectionist measures that, in my view, are completely outside of our trade agreements.
The agreement itself presents tremendous opportunity. It’s very important. Signing it and ratifying it is not the end. We also have to move to have those agreements enforced, followed and the Government of Canada plays a significant role. That is the role of the Government of Canada, to see we have those trade agreements enforced.
Mr. Davidson: I could respond briefly.
In the case of Europe, our concern really is the non-tariff barriers and the nonscientific non-tariff barriers we face across the agriculture sector. I don’t think that’s unique to any particular product.
The long delays — very long delays — we have in obtaining approval of traits and the problems we have, the nonscientific response to genetically modified crops, pesticide limits, there’s a long list of non-tariff barriers.
When I reference the lack of resources in the government to respond fully to all the countries around the world, and the EU is primary among them, that impose technical barriers, it is a problem for us.
In the case of the CPTPP, we are already exporting to most of those CPTPP countries. The difference that the CPTPP will make is twofold. It will remove the tariffs on value-added products. As the Canadian soybean industry continues to grow we expect to have more value-added product, including oil, to export to those countries. Secondly, the fact we have a trade agreement, I think, facilitates discussions we have around technical barriers. It doesn’t resolve them, but it certainly provides a framework and I think gives us a better advantage to discuss them.
[Translation]
Senator Maltais: Mr. Davidson, you mentioned that you have no crushing plant in the west, which requires you to ship your products by train by rail or by water, depending on whether it is for the East Coast or the West Coast. Since Central Canada is still one of the largest soy producers, why do you not have a crushing plant? It would avoid you having to ship the raw product, which would turn out to be a second added value.
[English]
Mr. Davidson: I think for a couple of reasons. First, historical. Soybeans only became a substantive product in Western Canada since the year 2000. Really it was the early 2000s that Manitoba in particular became a big producer. Last year there was a major increase in Saskatchewan and this year Alberta has just joined Soy Canada because of the expansion of interest in soybean production into other Western provinces.
There was not a strong historical base. I think companies, to some extent, have been waiting to see the crop build up to a volume which is enticing. There is enough volume there now.
The next question becomes: What are the conditions of investment? There seems to be some reticence by companies with respect to the cost of doing business in Canada versus on the other side of the border.
For example, Manitoba, and to some extent Saskatchewan also, are huge producers of pork, which are major consumers of soybean meal. According to the Manitoba pork producers, they believe they’re paying about $40 a tonne for importing meal from the United States and that they could have that much cheaper if they were able to source it locally. That would then make pork more competitive in the international markets which they export to.
I think history and the investment conditions at the moment haven’t enticed private investors but we are confident as soybean production continues to expand, someone will either construct a new plant or convert an old plant to do both canola and soy.
Senator R. Black: Cam, you threw out some numbers: retail value of the domestic baked goods, et cetera, $8.6 billion; domestic exports, $4.2 billion; 65 countries, annual exports exceeding $6.5 billion. Those numbers, are they growable? Do we have the capacity, the research, the producers to grow those things?
Mr. Dahl: That’s a really good question. The short answer is yes. The longer answer is, of course, more difficult.
Again, I’m going to repeat the comments on the need for a strong risk-based regulatory framework. That is the most important part of setting an environment that encourages investment in research and development. That is the foundation for attracting investment into Canada — a predictable framework based on science and risk.
There are the comments that, well, whose science? When the Food and Drugs Act was first written, we couldn’t test the parts per billion or parts per trillion. A part per trillion is one second in 32,000 years. It’s a really small number. When the Food and Drugs Act was first written, if you could detect something that might be harmful, it probably posed a risk because that’s where our testing levels were at, but our ability to test has proceeded far beyond.
We need to move to a regulatory environment that matches our modern technical abilities.
Senator R. Black: You mentioned CETA coming into force and the durum wheat issue. That wasn’t the first time you’ve told us. I mean, this isn’t the first time you mentioned that. Are you hearing from government that they’re doing anything? What are you hearing?
Mr. Dahl: We have very strong diplomatic support.
At the diplomatic level, between Canadian and European ministers, with our post in Rome and our post in Brussels with the EU, the ministers are well informed of the issue. We see a much more nationalistic bent in Europe, Italy in particular. Quiet diplomacy is not going to solve this problem. We have reached the stage where we need to take a much more aggressive response.
Senator R. Black: Do you see that happening?
Mr. Dahl: We are not seeing it today.
Senator R. Black: Thank you.
I have a final question for Mr. Davidson. I wasn’t aware that Western Canada and Eastern Canada had a different protein content. What is that due to?
Mr. Davidson: A major factor is climate. Because of the warmer conditions around the Great Lakes, where soybeans first came into Canada, that does assist substantially in increasing the protein content. It does vary by variety. We’ve started discussions in the industry about making producers aware in Western Canada of how much it is costing them because of lower protein content and different ways of responding to that including, for example, publishing a unique list of protein content of the different available varieties and encouraging the companies doing the research to place a higher emphasis on protein. Until now, the real focus has been on yield. There have been tremendous increases in yield but less of a focus on protein.
Senator R. Black: Do we have the capacity in Canada with soybeans to grow, excluding the crushing plant issue in the west. Is there capacity, research, producers and interest?
Mr. Davidson: Absolutely and unconditionally, yes. In fact, I have been talking a lot to the seed companies, because that really is the linchpin to the anticipated doubling of expansion into increasingly new areas, which are even cooler summers and drier areas. It will be in Western Canada. There is room to grow in Eastern Canada but the rotations are pretty stable in Eastern Canada. There is still a lot of opportunity to move into regions in Western Canada and that’s the focus.
[Translation]
Senator Gagné: Thank you for your presentations.
[English]
Mr. Dahl, you mentioned in your presentation that Cereals Canada has been leading a national wheat research priority-setting process in collaboration with Agriculture and Agri-food Canada. I was wondering what Cereals Canada’s research priorities are for the next five years.
Mr. Dahl: That’s a very good question. In fact, the starting point to setting national research priorities is to fundamentally ask that question about what our customers want both here at home as well as internationally. What are the particular traits that our customers are looking for? The second question: Is that what our research is focused on?
There are a lot of silos in research. Every commodity wants to be doing all their own research and every province wants to be doing their own research. Different universities all want to be doing their own research, and there ends up being lots of duplication. We can fix that and have much greater focus.
As well, there isn’t always that link to the marketplace on that question of what customers are willing to pay for. That gets to Senator Black’s question about growth.
Just as an example about what we’re competing with — this isn’t value-added — but 10 or 12 years ago, the Black Sea countrieswere exporting about 4 or 5 million tonnes of wheat. They’re now going to be exporting 50 million tonnes of wheat this year. Those are our competitors. How does Canada compete with that? We compete in innovation and research. We have to be nimble, we have to be focused on customers’ needs and we also have to include the private sector because this isn’t something government can fund alone. Developing a framework for public-private partnerships is very important. We’re not quite there yet. That’s something else we’re working on.
As to the specific priorities, we have a report and I can send that to you because it lists all the very specific research priorities and measurements as well.
Senator Gagné: Could you benefit from a national research strategy?
Mr. Dahl: That’s really what this is; it is the development of a national research strategy and ensuring funds are going to those areas our customers are looking for, both on the public as well as the private side, the federal and provincial side. This is really a national research strategy for wheat.
Senator Gagné: I imagine a very robust knowledge transfer plan.
Mr. Dahl: Yes, that is critically important. It is very much part of the strategy.
Senator Gagné: Thank you. One thing I find frustrating is shopping for bread. When I do shop for bread, you have breakfast bread, dinner bread. You name it, you’ve got it.
Coming back to labelling, you have healthy bread and not very healthy bread. I think the industry would not like to have bread labelled as unhealthy. In the batch of breads available on the market, there are unhealthy breads.
Mr. Dahl: From what I read yesterday, the proposals from Health Canada don’t make any of those distinctions. It’s just bread, and that’s not —
Senator Gagné: The label will let you know the ingredients in the bread.
Mr. Dahl: Again, I’m going to get back to the comments about the need to have a very strong risk and science-based process for making these decisions. This also applies to what companies put on their labels. The example I’m using is going to be off topic, but you can buy pink Himalayan salt that is GMO-free. Well, no kidding. There’s nothing organic about it, so yes, there are no modified organisms in there. We need to have that truth in labelling. We also need to be careful.
Again, I’ve spent some time on the European pasta question. I saw a picture of a label on pasta in Europe and the label covered both sides of that package. There were two ingredients — durum semolina and salt — and the label covered both sides of that package. That’s not providing information. We need to do this in a smarter way. We need to do this in a way that gives information to consumers. It also needs to be based on strong science and not just what the latest whim is.
The Chair: Thank you.
Senator Oh: Can I ask a supplementary question?
The Chair: Yes.
Senator Oh: Nowadays, they always ask about whole bread, brown or white. My doctor told me when you go to the supermarket, buy the 100 per cent whole wheat, not the white bread. What does that mean? Is that a consumer technique of selling, getting into a consumer’s mind?
Mr. Dahl: To use the white bread example, white bread being made from enriched flour is something has significantly reduced the incidence of spina bifida in North America. We actually have research showing that’s coming back up because the use of enriched flour has fallen off.
My response is “balance.” A healthy diet is a balanced diet. Whole grains can contribute. There’s lots of research that shows whole grains contribute to a healthy, balanced diet. That doesn’t mean white bread is unhealthy or that white bread doesn’t provide nutrition and can’t be part of that balanced diet. It’s part of my diet. That doesn’t mean you can live on bread and beer. That’d be an interesting diet for a week. The key is balance.
That gets back to the labelling question as well. We need to keep in mind that balance.
Senator Mercer: I’m not feeling very well now. You just told me that beer and bread aren’t a healthy diet. I do put a couple of other things in there.
Thank you both for being here. It’s been very informative. The discussion of durum wheat in the Italian farmers’ union is fascinating. You said diplomacy is not working now. If it’s not working now, we need to replace it. Do these farmers in Italy who are leading this protest on durum wheat, besides durum wheat, which I assume they grow, do they also grow grapes?
Mr. Dahl: I don’t know if those specific farmers do, but there are a lot of grapes grown in Italy.
Senator Mercer: I apologize to all of my colleagues and to millions of Canadians watching this: maybe we should stop buying Italian wine. That goes directly to reciprocal tariffs or action. If they can go from 1 million tonnes a year to zero, that’s a pretty good organization they’ve got going over there.
Mr. Dahl: Yes. They have been targeting Canadian durum for a long time, and they’ve found things that work in the last couple of years.
I hear what you’re saying. When I go home at night, I tend to agree with that. I don’t buy Italian pasta anymore, I can tell you.
Senator Mercer: I’m not going to, either.
Mr. Dahl: I think getting into a trade war or a trade spat isn’t going to be a good outcome for Canada. We need to find other rules-based ways to solve that. We have been calling for a WTO or CETA challenge to these measures.
Yes, I think there are ways we can retaliate. To me, that would be a very last option. We are better off when we have free-flowing trade between Canada and Europe.
Senator Mercer: We all agree with that, but then Canadians have the reputation of always being the Boy Scout. It’s nice to have the reputation, but we need the jobs that go with agriculture and with value-added.
I want to talk for a minute about soy and the need for a soybean crushing facility. It seems to me if you have this many farmers producing this big a product and there’s a market out there for processing soy, what’s the matter with a good old-fashioned farmers’ co-op getting involved in the crushing facility business? There must be money in it. I’ve never known farmers to be shy about making money or trying to make money, and they’ve been very good at the co-op movement.
Is there no talk about farmers themselves coming together to either build a facility or convert a canola crushing facility?
Mr. Davidson: At this point, I’m not aware of farmers discussing building a crushing facility themselves. We have in Canada very large multinational crushers who are able to compete in Canada, the United States and other countries around the world. I would imagine there is a little bit of reticence at this point to put up an independent crushing plant.
However, if the circumstances continue to modify and production increases, that’s certainly something that might be possible, particularly with the expansion into Saskatchewan and Alberta, it would make it more feasible. Currently, it’s just Manitoba producers who would be involved.
Senator Mercer: I also want to remind you and others who appear in those seats from time to time that when trying to get government to move on this stuff, particularly when we talk about value-added, you need to put it in terms that urban politicians understand. There are more of them than there are rural politicians. We need to convert them, and we need to talk about jobs. I really think you need to talk about jobs created. Yes, jobs are created on the farm, but as we’re talking about value-added, the jobs are created in the value-added, such as the soybean crushing facility, which would create sustainable and probably well-paying jobs.
Mr. Davidson, if there were a soybean crushing facility, would that help solve some of the continuing problems we have with transportation and getting the product to market — if it’s processed locally and we ship the product in a finished condition?
Mr. Davidson: It would help in the following sense: Rather than using transportation equipment to export that volume of soybeans to ports in primarily Western Canada but also potentially to Thunder Bay — that would relieve some transportation requirement. It would also reduce the distance in which we’re transporting American soy meal into Canada now through those Canadian feed plants and Canadian operations.
Yes, it would have some impact. Quite frankly, the size of the transportation challenge in Western Canada isn’t going to be solved by one plant, but it would help. It would certainly make a difference in the soybean industry, which has experienced the same difficulties as everybody else this year in getting product out of the Prairies.
Senator Mercer: We’re now importing soy from the U.S. How much are we importing from the U.S., then?
Mr. Davidson: We export about $5 billion of soy products, and I think we’re importing about $1.5 billion, both meal and oil. Particularly in Manitoba, it’s the meal that’s coming in large quantities for the pork production.
Senator Mercer: I would hope our negotiators who are back and forth to Washington talking about a revised NAFTA have soy on their list of products about which we need to make sure we have a better share of the U.S. and the Mexican markets.
Mr. Davidson: In the ag sector, generally, with a couple of exceptions, we have a pretty common perspective on NAFTA in the ag sectors in Canada and the United States. That goes for soybeans and I believe cereals as well. We do not want problems at the border. The challenge is having the position of the U.S. industry translated into the U.S. negotiating objectives. Some movement is required there yet.
Senator Mercer: Their objectives seem to be a little foggy, vague and will change with tomorrow morning’s tweet.
Thank you.
Senator Oh: Thank you. I just have a follow-up question to Senator Mercer’s.
How much investment are you looking for to start a new crushing facility out West? Of course, it depends on the volume and capacity, but just as a ballpark, what kind of investment amount are you looking at?
Mr. Davidson: I knew that figure, and right now I don’t recall. Maybe Cam can help me. I have the idea in my mind of $150 million or something.
Mr. Dahl: That makes sense to me. I don’t —
Mr. Davidson: I’m guessing $150 million. I know the number. I have it in my office. It has been since November since I looked at it. That would be for 2,500 tonnes a day. Basically, there have been some discussions by an industry group proposing a plant about that size and how much it would cost.
Another option is what happens in Eastern Canada. Existing canola plants could choose to switch to soy as well, a couple of weeks to change the plant equipment, but that happens in Eastern Canada. We have plants in Windsor, Oakville and Becancour, Quebec where they’re capable of doing both.
Senator Oh: I’m a bit surprised to hear Canada’s food exports dropped from third place to fifth place in the world. What are the opportunities and challenges involved in producing and exporting Canadian cereal and soy products regarding technical expertise and targeted training to customers in the new markets around the world?
Mr. Dahl: Ron has mentioned this: One of the things we need is a starting point, which I would suggest — and I agree with Ron’s recommendation for this committee — is to ensure government agencies such as the Canadian Food Inspection Agency or the Market Access Secretariat, those organizations dealing with these technical barriers internationally, have adequate funding.
I would also suggest some agencies, like the Pest Management Regulatory Agency, for example, has a greater understanding of the impact of their decisions on the marketplace. Two areas here in Canada are to ensure those organizations dealing with these technical barriers to trade have adequate funding because they’re going to grow these barriers, and to ensure we have a good understanding of what impact regulatory decisions have on our ability to trade as well as to manufacture food.
Mr. Davidson: To add one thing, I don’t know if other witnesses before this committee at any time have talked about the regulatory environment for new plant breeding technologies, plant innovations. I don’t know if that’s been discussed here. Canada is seriously falling behind in the approval of plant breeding technologies such as gene editing — you’ve heard CRISPR-Cas — to the point where we have traditional breeding, we have GMO, but the new plant breeding innovation offers big opportunity in soybeans and many other crops. There is real uncertainty in the scientific and research communities now as to what kind of regulatory environment those products are going to face.
I think you’ve heard of the Arctic apple developed in Canada, being produced in the U.S. and exported back here. There are other examples like that, where our regulatory system is falling behind and it’s putting at risk the science being done in Canada and the potential for the Canadian agri-food sector to take advantage of that science at an early stage.
That is an area where we have been working collectively with the ag sector including with the Canadian Grains Council. We have been meeting with officials to talk about this. Although people are listening carefully, we certainly haven’t seen any action to address that because we are behind.
Senator Oh: I have one more question. You mentioned earlier that you export 36 per cent of soy to China. That’s a big number. With the trade war going on between the U.S. and China, recently they’re talking about China buying a lot more from the U.S. Are you worried that might affect export to China?
Mr. Davidson: I have a couple answers. In the beginning of April when this became a big issue in the media, I had a whole day of media phone calls. They asked me what I want. I said our preference is that China and the United States work this out because our concern is with the Americans exporting 35 million tonnes, in that order, of soybeans to China each year, if they couldn’t export them to China, where are they going to go? Certainly Canada is probably a place where they would sell even more and it would impact our whole production if the price fell here.
The fact the U.S. can’t export soybeans to China is not positive for us. On the other hand, I made a reference to managed trade when I talked about the international trade agreements, and this is what I was referring to. If China should move away from the market competition determining where they’re going to import from — some kind of managed trade to balance books with somebody else — that would be a serious concern. This is because, as I said, China takes two third of the world trade on soybeans and a third of ours and it would be extremely difficult to find other markets for that product. Yes we are concerned about the potential of side effects.
Senator Oh: Thank you.
[Translation]
Senator Dagenais: My thanks to our guests. I would like to go back to the Trans-Pacific Partnership agreement, the TPP, and to NAFTA. You have probably noticed, as I have, that when the government signs agreements, it leaves some things unresolved, to the detriment of the agricultural sector. I believe that when you sign an agreement like the TPP, you should make sure things are in order, so that you get the full benefit of them as quickly as possible.
In your opinion, what are the obstacles for business, such as financial obstacles, in not having acted to implement the Trans-Pacific Partnership agreement? For example, there were supposed to be compensatory measures for dairy producers, and they have not been implemented.
Has that put any financial obstacles in your way?
[English]
Mr. Dahl: I think there are significant advantages to being an early mover on the CPTPP. Of course, the reverse is true; there are disadvantages if we’re not in that first group of countries, the first six which will bring the agreement into force.
With the U.S. not being in the TPP agreement, we are going to have tariff advantages to some of the big markets in Asia, like Japan, where Canadian products across the board are going to have a tariff advantage over the U.S. That will be very positive. The earlier we can get those advantages, and the longer we can get them, helps us establish a market. There are significant dangers in not being part of that group, but it’s more than just the tariffs.
The early group of countries that ratify the agreement will also be the group of countries that set the terms and conditions for additional members of the CPTPP. Some of those additional members are also significant and potential trading partners with Canada. We need to be at the table when those terms and conditions for new entrants are established.
Mr. Davidson: I agree with Cam. There is a signal other countries pick up on, as to the importance of the relationship; it has some relationship to how quickly you would pass this agreement. In Asia, which is a primary destination for our products, we want to be viewed as a country interested in doing trade with them. There’s a signal there. Particularly, there is the advantage of having an impact on new entrants.
In the case of soybeans specifically, the biggest change is going to be on process product and soybean oil, for example. We already have tariff-free access for the raw beans.
When we are talking about looking forward to the future and looking at processed products, then actually the tariff advantages will come into place.
As I said earlier, the opportunity to discuss non-tariff barriers is better when you have a framework to do it in.
[Translation]
Senator Dagenais: We know that the NAFTA negotiations are taking a long time. This week, we have seen from the American administration that the president prefers to come to agreements with China rather than with Canada.
A rumour is going around that Canada might perhaps be ready to sign a free trade agreement without Mexico being part of it. If Mexico, for whatever reason, were no longer part of NAFTA, what consequences could that have on your industry? Have you examined a situation where there might be a free trade agreement without Mexico’s participation?
[English]
Mr. Dahl: Mr. Davidson has already touched on the very common view of agriculture across all three countries. There are some exceptions. I would label them as minor exceptions. There is extremely strong support for NAFTA within agriculture. That includes the U.S. That includes Mexican producers. It of course includes the export side of Canadian producers. Very, very strong support.
For some products, Mexico is in fact the largest market for many U.S. agriculture products. To Ron’s example, if they can’t ship to Mexico anymore, where is it going to go? We all benefit from the free flow of trade. We all benefit from the inclusion of all three countries in the agreement. That is something virtually universally held by agriculture in all three countries. It’s not just the grain side. It’s agriculture in general in all three countries. Very, very strongly supportive.
[Translation]
Senator Dagenais: Am I to understand that the government, when negotiating for both the Trans-Pacific Partnership and for NAFTA, consults you to find out the advantages and disadvantage they might have for you?
[English]
Mr. Davidson: We, I think, through CAFTA — we both belong to CAFTA — are very appreciative of the opportunities we have to make our position known. We do it regularly and frequently. We believe the government negotiators are doing the best they can to take those recommendations into account at the negotiating table. We won’t know the end result until it’s over. We believe we are being listened to and they are acting on our advice.
Mr. Dahl: I would add that in discussion with colleagues in other countries, they’re often envious of the kind of relationship we have with our ability to talk to our negotiating teams as well as ministers. We have a very open relationship. It goes both ways. There are times when they tell us things that we don’t want to hear, but we do have those conversations.
In fact, it’s a much more open relationship than almost every other country that I know of.
[Translation]
Senator Dagenais: Thank you.
[English]
Senator Marwah: I want to come back to the issue of non-tariff barriers. I think both of you mentioned it. Clearly the situation in Italy with durum wheat appears to be a non-tariff barrier of some kind that has evolved.
How rampant is this, on a scale of one to 10, where 10 is very egregious, where it’s very rampant in many countries, and one where it’s there but not too bad? Where would you place it?
Mr. Dahl: I would place it on the threat scale, very, very high. As we negotiate away traditional barriers to trade, of tariffs, of quotas, protectionist governments are going to look for other tools. Their other tools are these non-tariff trade barriers.
Senator Marwah: Mr. Davidson, would you say very high as well?
Mr. Davidson: Non-tariff barriers are a problem every day and the European Union is a major one because there are so many of them and they take so long to resolve, if ever. It’s not only the European. For example, in China, Canadian crop, Canadian plant breeding companies have a large number of varieties waiting for approval in China, of traits, of new GMO traits.
We have a policy in Canada generally in the ag sector that we aren’t going to start producing these crops, these new varieties, until all of our major markets agree with them. We’re talking about the European Union, the United States, China, in the case of soybeans, and we’re talking about Japan.
When one of those countries holds up the approval of a new trait, we aren’t producing it here. Our producers aren’t getting the advantage of the technology this new variety contains. Yes, there are a lot of them and they do make a difference, a big difference.
Senator Marwah: One of the things you mentioned in your comments is the serious underfunding of government agencies that negotiate the removal policy and technical barriers, which are really non-tariff barriers. What would it take to resolve this? Is this a serious investment by the government, like $5 million, or is it 10 people? What sort of investment is going to be needed so the government has adequate resources to address this?
Mr. Davidson: I don’t know that I can frankly put a dollar number on it. You can actually see it yourself. If you had asked the CFIA, they have a way they categorize, according to their system, the significance or the priority of different market access barriers around the world. One, two, three, four. Their resources are so short they don’t even resolve all of the priority number one list, let alone anybody that happens to be placed on the priority two, three, four list. That’s just one agency.
It’s chronic. It hasn’t happened just recently. We’ve been battling this particularly in the last decade. We hear a lot of positive comments from the CFIA about the priority and the desire to do this. The reality is they don’t have the resources. It’s not just the CFIA but PMRA is another one where, again, the work which they’re doing has an impact on what we can do abroad.
Mr. Dahl: I can’t give you a number either. The only comment I would add is this is a problem growing over time and is going to continue to grow over time. These non-tariff trade barriers are going to be, if they’re not already, the number one issue for our organization.
It’s a much bigger problem now than it was five years ago. That trend is going to continue. I don’t have a number, but ensuring our officials have the resources to deal with these issues when they arise is critical.
Senator Marwah: You mentioned international standard-setting bodies. That’s very important to us because if we play on the innovation and R&D front, the higher the standard, the better it is for Canadians exporters.
How much of a role do we play? Do we play a leadership role? Are we very active? Are we not active? Are we followers rather than leaders in terms of international standards? Do you think we are doing a good enough job in leading rather than following?
Mr. Dahl: I think we are leading, but again, I think we can do a little bit more. Reform of CODEX is an example of areas where I think Canada could be putting in more resources.
We have shown leadership in developing a policy for low-level presence if there’s — will pick some other trait, a cotton trait, that might not be approved in Canada. If there’s a bit of dust in a shipment, that won’t stop the shipment.
Canada has played a leading role in the development of that policy internationally. Again, I think Ron had mentioned as well there are areas where we should be more actively engaged. I would echo his comments about the new plant breeding techniques. We need to be more active internationally.
Senator Marwah: Thank you.
Senator Petitclerc: I’m going to make it short, because the disadvantage, Madam Chair, of raising my hand last is all my questions have been answered. I will just say thank you.
Maybe just a quick question. It’s very ideological. A bit of my concern as a former athlete is that when I see — the world and Canada, when we look at the new food guide being prepared — the world is moving from an animal-based diet to a more Mediterranean maybe for nutritional health and environmental reasons. Is that not going to help? Is it not an opportunity? I would think it would be.
Mr. Dahl: From my perspective, all agriculture in Canada is important. It gets back to the comments about ensuring we’re making fact-based decisions and not just fad-based decisions. Some of the views, for example, on the environmental impact of animal agriculture are not correct. I’m not going to speak for the people in the pork and beef industry, but to base a food guide on things that aren’t really correct is very problematic. It opens up the door to, “What’s the next fad going to be?” The gluten-free fad, fortunately, is fading in Canada. Do we set guidelines around whatever the latest Internet doctor has come up with? That can be very problematic.
Senator Petitclerc: In your specific sector, world trends surely are positive, are they not?
Mr. Dahl: Again, I would be careful. In much of the world, as incomes increase, protein consumption increases. That’s a good thing. This helps with nutrition for many people. I’m not sure that would be a world trend; in fact, the world trend might be going the other way.
Yes, there might be short-term advantages, but what is the next trend going to be? That might be something that’s disadvantageous. Again, it gets back to our framework needs to be based on science, facts and consideration of risk. If you consume too much water, you’ll die. That doesn’t mean water is unhealthy for you. It’s that difference between hazard and risk we really do need to consider.
Senator Petitclerc: Thank you.
Mr. Davidson: If could I add something, I personally have some concern about a lot of the information circulating on the nutritional side and the actual scientific foundation. I was told one day by someone, “I Google something, I look at the first page, and I know everything about it.” Clearly, that is not providing science-based information about where to get nutritional advice. It basically indicates the pages people go to more often or are opened more often — and there’s reasons for that — where you actually are not getting science-based information.
I’ll give you a very specific example. I was listening to CBC Radio 1 morning going to work, and there was someone on from Dieticians of Canada, talking about infant formulas. Mother’s milk is preferred. If you can’t use mother’s milk, then Health Canada and dieticians suggest cow milk. The only other one they would even consider, frankly, is infant’s fortified soy milk as an option. There are other plant-based liquids on the market that don’t have enough protein. It’s been a really serious health problem for some of the infants who have been fed.
I’m very happy that people are using soy milk. They need to know all of the information, because simply saying it’s “plant-based, it’s good” isn’t enough; you have to go further.
The second point I would make as far as the soybean sector specifically, yes, we’re promoting soy protein to consumers, but livestock consume a lot of soybean meal as well. We will let the nutritionists have that debate. We will provide the market to whomever wants it.
Senator Petitclerc: Thank you.
The Chair: My questions are for Mr. Davidson.
In terms of genetically modified organisms, what proportion of the soybean crop now is GMO?
Mr. Davidson: First, let me say that farmers, particularly in Eastern Canada at the moment, because they have the varieties available, will produce whichever is financially the most rewarding. It requires a substantial premium to produce non-GMO. First of all, they have to purchase different seeds, which costs them more, and the agronomic practices are more restrictive.
I was on an international mission with some farmers recently. We had one fellow there who said he needs $150 an acre more to go non-GMO. That’s one issue.
If the premium is there, we will produce it.
Currently, on the basis of the 2017 crop, which showed a substantial increase in production in Western Canada, we would be 20 to 25 per cent non-GMO. That’s a portion of the Eastern Canada production. As production grows more in the West, until we have non-GMO varieties more available out there, the GMO proportion will grow and the non-GMO will go down.
It really is based on the market. We will produce whichever the consumer wants to pay for it, but it’s about 20 to 25 per cent non-GMO right now.
The Chair: That’s interesting.
Have you encountered any buyer resistance? It obviously can’t be too much, because of that proportion of the crop. Buyers are willing to buy it.
What we had run into in Eastern Canada in regards to production of salmon is that the genetically modified salmon were being called “Frankenfish.” They are a lot bigger.
Anyway, have you run into that with soybeans?
Mr. Davidson: Yes, there is major opposition to GMO soybeans around the world. In Europe, China, Japan and Taiwan — there are groups of consumers everywhere who do oppose GMO.
It’s not straightforward. To a significant extent, the GMO is used more in the soy oil and soy meal categories, and the non-GMO goes more into the products like soy milk, tofu, miso, edamame, natto — those kinds of products. That’s a general breakdown as to how the products are differentiated in the markets.
The Chair: Thank you.
Mr. Dahl: I have a small point, because it gets back to some of the other conversation about the need to have a very proactive and engaged government on the new plant breeding techniques. We need to ensure the international regulatory framework for these new techniques don’t have the same problems that GMO had.
The opportunities for growth, investment and development from the new techniques are enormous. If activists convince governments to treat them like they treated GMO, we’re not going to be able to realize those benefits.
We need our government engaged today to ensure we have an international regulatory framework that will allow us to take advantage of the new technology.
The Chair: I’d like to thank the panel. It has been an interesting discussion. We were fortunate not being limited by one hour. We all got to ask our questions.
Thank you for being here with us today. We’re going to take a brief pause and then the committee is going in camera with staff and senators.
(The committee continued in camera.)
(The committee resumed in public.)
The Chair: We’re looking at the budget. We have a motion in regard to the budget for our trip to the exhibition in Paris and our fact-finding trip in the Netherlands.
[Translation]
Senator Gagné: I move:
That the following application for supplementary budget authorization, for the study on how the value-added food sector can be more competitive in global markets, in the amount of $305,956, for the fiscal year ending March 31, 2019, be approved, for submission to the Standing Committee on Internal Economy, Budgets and Administration following a final review by the Senate Administration that will be overseen by the Subcommittee on Agenda and Procedure.
[English]
The Chair: There’s a motion on the floor.
[Translation]
Senator Maltais: I would like us to add to Senator Gagné’s motion that it is about the free trade treaty with Canada and Europe, and deals with the secondary, tertiary and probably quaternary processing of our Canadian products.
[English]
The Chair: Do we need to add that to the motion? I know that’s the purpose of the trip. Do you want to add that to the motion?
The budget goes under the order of reference we already have for the study. I don’t know we need to reiterate all of this in the actual motion. In the order of reference we have for the value-added study, remember we had quite a major discussion at the time and its relationship to various trade agreements. I don’t think we need to put it back in this actual motion. It’s already covered. We will talk about that when we go to the committee.
Is everyone in favour of the motion?
Hon. Senators: Agreed.
The Chair: The motion is carried.
(The committee adjourned.)