Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 53 - Evidence - Meeting of May 31, 2018
OTTAWA, Thursday, May 31, 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.
Senator Diane F. Griffin (Chair) in the chair.
[English]
The Chair: I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. I am Senator Diane Griffin from Prince Edward Island and chair of the committee.
I would like to start out by asking the senators to introduce themselves. We will start with the deputy chair, Senator Maltais.
[Translation]
Senator Maltais: I am Ghislain Maltais from Quebec. Good morning.
Senator Dagenais: I am Jean-Guy Dagenais from Quebec. Welcome to the committee.
[English]
Senator Doyle: Norman Doyle, Newfoundland and Labrador.
Senator R. Black: Rob Black, Ontario.
[Translation]
Senator Gagné: I am Raymonde Gagné from Manitoba.
[English]
Senator Mercer: Terry Mercer, Nova Scotia.
The Chair: Thank you, senators.
Today the committee is continuing its study on the value-added food sector and how it can be more competitive in global markets.
For our panel, we have, from the Southern Potato Company, Mr. Keith Kuhl, President and CEO; and from Canadian Produce Marketing Association, Ms. Jane Proctor, Vice President, Policy and Issues Management.
Thank you for accepting our invitation to be here today. I will ask Jane to start off with the presentation.
Jane Proctor, Vice President, Policy and Issues Management, Canadian Produce Marketing Association: Good morning. Thank you, Madam chair and committee, for inviting us to be here today to speak to you today about the value-added food sector and how it can be more competitive in global markets.
By way of background, in case you don’t know who we are, the Canadian Produce Marketing Association, which is also known as CPMA, represents over 870 companies across the fresh fruit and vegetable supply chain, from farm gate to dinner plate. As an industry, we have an economic impact of $14 billion on Canada’s GDP and support over 181,000 jobs in the country.
We are proud of the role we play in local communities and in providing Canadian consumers with healthy, safe and nutritious fruits and vegetables year-round.
This is an exciting time for the fresh produce industry as we have seen significant growth in the development and sales of value-added products to consumers. From children to millennials to seniors, value-added products have been developed by the fresh produce industry in the hopes of catering to a consumer base that puts a premium on convenience and healthy eating.
Indeed, a 2017 U.S. Department of Agriculture report on food purchasing decisions determined that millennials have a higher preference for convenience than other generations, that the largest share of their food budget goes toward ready-to-eat foods, and that millennials have a stronger preference for fruits and vegetables when purchasing food at home when compared to older generations. Although this is U.S. data, we fully expect this would reflect the millennial preferences here in Canada.
Many of our members are seizing this opportunity by developing products that make it easy to cook at home and eat on the go. Some examples include microwaveable potatoes with seasoning, vegetable pasta, greenhouse-grown tomatoes in snack packaging and many more.
Undoubtedly millennials are a key market for our members, but so, too, are seniors, who are looking for simpler ways of cooking without compromising nutrition in their diet, or children who are curious about the many different flavours, textures and colours offered by fresh produce.
While the U.S. already has a strong focus on value-added products, increasingly our Canadian members are seeing the opportunities in value-added as well and are designing products and packaging that fit the health-conscious, on-the-go consumer. I mention the U.S. because it is our primary trading partner.
Some of our value-added members have seen year-over-year growth of 25 to 30 per cent, with no sign of slowing down. A significant amount of new value-added products can be found on grocery shelves and in the produce aisle, ranging from fresh fruit snack packs for children to vegetable pastas, and that is just the beginning. Indeed, retailers themselves are also seeing the opportunities in value-added products by releasing their own line of private-label products. I am sure many of you have seen those in the stores.
To ensure success, industry must consider many factors, including the need to understand the market. For example, a recent offering of a specialty value-added product did poorly in larger retail formats but sold out in smaller chains. The likely reason is the smaller boutique type of establishments often cater to foodies, which includes consumers willing to pay a higher price point for new innovative products, especially if the product fits their definition of “local.”
Canada is endowed with the natural resources required for us to play a key role in feeding the world. Value-added products will play an important role in that mission. Canada is known internationally for producing high quality, safe and nutritious foods. This is a strong competitive advantage when looking at global markets, particularly as many consumers in countries like China and Japan are willing to pay a premium for the flavour profile Canadian produce items offer and see Canada as a safe source of food, which is a factor of increasing importance for many and in many markets now.
How do we double down on this competitive advantage and ensure that our value-added products are the most desired in the world? For the fresh produce industry, this means continued investment and support by the federal government in research and innovation. Our industry is committed to helping the government achieve its goal of $75 billion annually in agri-food exports by 2025, and we believe that value-added products are an important driver in achieving this goal. To that end, government funding to support research and innovation in packaging, making fresh produce more shelf stable and other areas are essential for the growth of value-added in our industry and in Canada.
Additionally, the government must explore ways to incentivize more companies to finish their value-added product in Canada and then export. To quote one of our members whose company specializes in value-added products, “Far too many natural or unfinished products go South,” of the border, “to be value-added in the U.S. The government should establish incentives for Canadian entrepreneurs to not only export their products but also to establish subsidiaries in the U.S. rather than moving their entire business to the U.S.”
This should be a significant concern for the government and this committee. In order to stop our companies from moving to the U.S., we encourage the government to examine issues that may make us less competitive than or neighbours to the south. To do so, the government must ensure that our industry has competitive wages, appropriate crop inputs and create an economic climate that allows our members to attract experienced food executives to Canada.
We must also be cognizant of the significant challenges posed by labour shortages and our tax system. We are hopeful that the primary agriculture review will yield long-term results that will help address the significant agricultural labour shortages in our country, none greater than in the horticulture sector.
Furthermore, we hope that the government undertakes a comprehensive review of the tax system, with the intention of making Canada one of the most progressive and competitive tax jurisdictions in the world. Changes to the small business deduction for affiliated corporations and the carbon tax are but two of the most recent tax changes that continue to negatively impact our members and potentially stifle growth. Many of these tax changes are developed and implemented independent of each other, but they impact the same taxpayer.
We cannot overstate the impact our tax system has on our members, especially when compared to the recent tax changes in the U.S. and the tax incentives offered to companies by different states to open up new facilities, which some of our Canadian companies have taken advantage of.
In closing, I would like to thank the committee again for inviting me to speak today. CPMA is committed to working with the government on all of these issues to ensure our fresh fruit and vegetable industry remains productive and competitive for generations to come.
I would be pleased to answer the committee’s questions after my esteemed colleague Keith. Thank you.
The Chair: Thank you for your presentation. We will now hear from Mr. Kuhl.
Keith Kuhl, President and CEO, Southern Potato Company: Thank you, Madam Chair and committee members, for inviting me to speak to you today about the value-added food sector and how we can be more competitive in global markets.
Together with my sons, I own and operate Southern Potato Company located in Winkler, Manitoba. This company was started by my father in 1960 on land that he had purchased from his father. I am currently transitioning the farm to the fourth generation, my sons. The fifth generation, my grandchildren, are already involved in the operation as well.
Southern operates about 6,500 acres, which includes annual production of 2,000 acres of potatoes. The balance of the farm is cropped with wheat, corn, canola and soybeans.
The potato production includes fresh-market potatoes, chipping potatoes contracted and supplied to Old Dutch Foods in Winnipeg, and seed potatoes that are marketed across Canada and the U.S.
Our fresh-market potatoes include red-skinned white flesh, which is the primary area of production. We also produce white-skinned yellow flesh, which has been a significant growth market over the last decade. Over the last five to six years, we have started producing more specialty potatoes. Specialty potatoes is the area that I would speak to you today on value-added.
Over the past years, we have continued to increase our production of specialty potatoes. This includes creamer-size and fingerling potatoes, which we grow in a variety of colours. The creamer-size potatoes are the little ones that you will often get in the restaurants, and the fingerlings are shaped like your thumb. A lot of these potatoes are used by the food service sector, restaurants, et cetera, but they are also more and more common on the grocery shelf for people wanting to cook at home.
The cost of production of specialty potatoes is between three and four times the cost as compared to regular fresh-market potatoes. Specialty potatoes generally demand a price between five to eight times what regular fresh-market potatoes would demand.
In terms of some of the challenges in production of specialty potatoes, yields are generally lower; cost of production, as noted, is significantly higher; specialized equipment is needed, which incurs significant capital expense or outlay; research is required to ensure that we have the best varieties and knowledge of the best production methods, and most of this research is done on our own farm.
We must have highly productive land for specialty potato production. The land must be drain tiled and irrigated to compensate for the increased cost of production. This requires that we own the land and then invest in drain-tile and irrigation infrastructure.
Our cost of land, including improvements, is approximately $15,000 per acre. The cost of production of specialty potatoes can be as high as $9,000 per acre.
In terms of access to capital, as we continue to invest in land, irrigation, drain tile, specialized equipment, specialized storage, packing facilities and marketing, we have surpassed the taxable capital limit of $15 million. The result is that we are now taxed at the high rate on every dollar of profit. The first dollar of profit that we show is taxed.
We are not eligible for the $500,000 small business deduction. In 1974, the small business tax exemption was set at $500,000 for businesses who remain under the $15 million of taxable capital. The $15-million limit has never been indexed for inflation. If it were to be indexed, the limit today would be $80 million. That calculation is done using the government’s inflation index calculator.
The government, in 1974, realized that providing tax relief would encourage businesses to reinvest profits in their business to provide growth. The current tax system penalizes companies for being aggressive in growth. The current tax structure reduces our ability to meet our value-added goals.
Business Risk Management programs through Agriculture and Agri-Food Canada: Farms that produce high-value crops must be aggressive at identifying and mitigating risks. Programs offered under the Business Risk Management suite do not recognize risk identification and mitigation. This results in farms such as ours not being eligible for government programs such as AgriStability and AgriInsurance, and we get minimal value out of a program like AgriInvest.
The Business Risk Management programs should encourage and reward farms who identify and mitigate risk. Efforts to date to encourage Agriculture and Agri-Food Canada to consider change have not been accepted.
In terms of collection of accounts receivable, as the value of product that we market increases, our exposure for accounts receivable increases as well. For decades, the Canadian produce industry has been working with the Canadian government to seek financial protection in the case of customer bankruptcy and insolvency, similar to the United States’ Perishable Agricultural Commodities Act, better known at PACA.
I would urge government to work with the leaders of the national produce organizations, such as the Canadian Produce Marketing Association and the Canadian Horticultural Council, to find a solution to the financial risk protection for the produce industry.
With regard to access to labour, since 2012, the Value Chain Roundtables, as part of Agriculture and Agri-Food Canada, have identified access to labour as the number one issue for agriculture and value-added agriculture. If government wants industry to achieve $75 billion in agricultural export sales by 2025, they must ensure that the current barriers regarding access to temporary foreign workers are resolved.
We farm within one mile of the U.S. border. We export about 30 per cent of our production to the U.S. As we continue to expand and increase the value of the product that we grow, we also look at where to locate the expansion. With the changes that the U.S. government is making to the business tax, it becomes more tempting to consider expansion of the farm into the U.S. Government needs to ensure that we remain competitive in the global marketplace.
I would be pleased to answer any questions from the committee. Again, thank you for the opportunity to present to you today.
The Chair: Thank you. We have just had two very comprehensive presentations, and we have people lined up here to ask questions. We will start with the deputy chair, Senator Maltais.
[Translation]
Senator Maltais: Ms. Proctor and Mr. Kuhl, welcome to the committee and congratulations on your family business, which is practically ancestral at this point. I see that you are at an age where you are passing on the farm to the next generation, and that’s wonderful. Congratulations on your business.
Mr. Kuhl, You said the tax system put you at a disadvantage. Could you kindly explain exactly how the current tax structure is hurting your business in relation to second and tertiary processing?
[English]
Mr. Kuhl: Yes. As indicated, in 1974, when the government set the small business tax exemption at $500,000, it meant that in Manitoba, the first $500,000 profit that you make, if you are eligible, is not taxable. I believe the federal government just decreased the tax under the small business tax exemption to 9 per cent. However, because I am not eligible for that, I pay the maximum tax on every dollar earned. That makes it much more difficult for me to continue to invest and grow the company.
As indicated in my presentation, my father started the company in 1960. Of course, there have been transitions in ownership of the company, but as you transition the ownership of the company, it requires significant capital to do so. That capital comes either from use of retained earnings in the company or borrowed money.
The taxable capital limit of $15 million is generally determined by your retained earnings and your total debt within the company. As you are trying to transition the farm and maintain the farm within the family, you are also basically cutting your own throat because you will end up losing your small tax business limit since that $15 million has never been indexed for inflation.
[Translation]
Senator Maltais: If I understand correctly, then, if the government does not make changes to the current tax system, your business will not be able to grow at an R & D level or buy new equipment that will help it compete. Competitiveness is always a consideration. You aren’t considered an agricultural enterprise; instead, you’re treated as a small- or medium-sized business and, therefore, the current tax structure isn’t to your benefit. I completely understand your position, so what, specifically, do you recommend we do?
[English]
Mr. Kuhl: Again, thank you for the question. Personally, I believe that the solution is to take the $15 million of taxable capital that was set in 1974 and index that to inflation, which would mean that my limit today would be $80 million; either that, or exempt all of agriculture and make all of agriculture eligible for the small business tax limit.
Senator Mercer: Thank you both for being here. I have a question for both of you, and I will try to be concise.
Ms. Proctor, I noticed that you used U.S. data. Do we not collect Canadian data so it will be more pertinent to the discussion? As well, when you collect that data, can you separate it by food production, farming, and the value-added shops?
I continue to try to emphasize with witnesses and the public here that there is a difference between urban and rural. There are more urban politicians than there are rural ones, so it is an ongoing mission of the rest of us to educate those urban politicians about the importance of the rural industry. That is why I ask the question.
At the same time, how do you guarantee quality assurance? How does that happen, Ms. Proctor?
Ms. Proctor: The quick answer to your first question is that Canadian data is very difficult to get. I suppose it is a reality of the size of the U.S. market and the amount of money that they put into data collection in the government there. Unfortunately, we don’t have access to the same kind of data here, so we are always struggling to try to find data that can help support the knowledge within the industry. In fact, we are working with CFIA right now — I will not get into the technicalities — on the coding that is used to identify product so that we can potentially try to capture more detailed data. But it is a big struggle.
Honestly, in many cases, we’re reliant on using U.S. data and extrapolating. Frankly, even for our own import or export information to the U.S., we get better data sometimes from the U.S. because they are collecting that kind of thing from Canada and into Canada. That is a challenge and continues to be a challenge. Data is always a challenge for us.
In terms of the quality assurance piece, quality and safety are two things that are certainly mentioned and talked about a lot within our sector. Our sector puts a great deal of emphasis on this, right through the whole supply chain. I know that Keith will speak to this.
For example, here in Canada we have our own homegrown CanadaGAP, which is a comprehensive food safety system that has been developed here in Canada but is benchmarked to the Global Food Safety Initiative, which is very important — not just for the growers but all the way through the supply chain to the buyers, because they are always looking to have that assurance of the safety of the food.
Of course, each company will have their own quality assurance people within their operations and their larger buying organizations. Keith can jump in here, because he experiences this. He is actually in the industry. They have quality assurance people in their organizations.
All the way through the supply chain, quality assurance people exist so that they are constantly looking at this. Obviously, when you start changing product from primary to a value-add, you have to be cognizant of any changes and what that can do to quality or food safety, if that is applicable.
Senator Mercer: Mr. Kuhl, you explained that, because of your success, you are ineligible for the taxable capital limit incentive. Should it be raised, and what should it be raised to?
Mr. Kuhl: In part, it is due to our success, and in part, it is due to the fact that we have tended to leave most of the profits in our company to allow for growth rather than taking it out to allow for luxurious lifestyles.
Senator Mercer: I thought all farmers had luxurious lifestyles.
Mr. Kuhl: Of course we do.
As indicated, the basic rules around the small business tax have never been changed since 1974. In 1974, I was buying farmland for $200 an acre. I just bought another piece of farmland for $11,500 per acre. So I need those retained earnings and I need the bank’s support to be able to grow the company. However, currently I am paying a significant portion, so 28 per cent of my profit goes directly to tax.
Senator Doyle: The growing number of trade agreements that we’ve become involved in over the years — the free trade agreement and all of the others that we are thinking about getting into — when you look back, have they had any great discernible impact on the export of potatoes and other agricultural products?
Mr. Kuhl: Probably other agricultural products more so than potatoes. Of course, from our farm, because we are located in central North America, trying to get into foreign markets other than the U.S. is almost cost prohibitive, just because of transportation costs.
As many of you know, provinces like Prince Edward Island and New Brunswick also grow significant acres of potatoes. If there are market opportunities for them in foreign markets, it decreases the available product in North America, which allows me to command a higher price, so the foreign trade agreements are extremely important for us.
Of course, once an agreement is in place, that is when the actual work begins. The services from the Market Access Secretariat, which allow us to gather information on all of the foreign markets, is an extremely important part of the government’s services. The other one is the work that CFIA does in identifying and dealing with sanitary and phytosanitary issues in the foreign markets to ensure that, as we are moving into those markets, we know what the rules and expectations are; but then also, as product is coming into Canada, to ensure that our national biosecurity continues to be protected.
Senator Doyle: Looking through the notes here, you said in 2014 the U.S. revoked our access to their payment protection system, the perishable agricultural goods. Are we too competitive in their market and so we incur their wrath?
Mr. Kuhl: No. I believe the PACA trust provisions were put into U.S. legislation or law in 1984. When the law was put into place, Canada was given preferential treatment. We were the only country in the world that was provided the exact same protection in the U.S. marketplace that U.S. producers had. The expectation and the agreement at the time was that Canada would, over time, develop a similar protection for the industry and offer that same protection to the U.S. sellers in our marketplace.
Between 1984 and 2014, CPMA and farms like ours have worked with government over this whole period of time trying to convince them to come true to the commitment that was made in 1984. In 2014, the U.S. said, “Canada is obviously not going to come through and follow their commitment,” so in 2014, they revoked the special privilege that we had in their marketplace.
That was a huge barrier for us because, as all of you know, the U.S. continues to be our number one global export market.
Senator Doyle: Thank you.
[Translation]
Senator Gagné: Welcome to the committee, and thank you for your presentations.
[English]
Mr. Kuhl, you mentioned the challenge of access to labour. We heard from other witnesses that this is a challenge for the industry. We heard that the current program attempts to fit a variety of industries and sectors into kind of a one-size-fits-all design. What types of changes would you like to see in the program to suit your industry’s needs?
I just want to add that we heard that even when workers have vital experience and on-the-job training, it’s very difficult to retain workers. I’d like your comments on that, please.
Mr. Kuhl: As I’m sure many of you know, part of the challenge is that Canada is continuing to become more and more of an urban society. A huge portion of the population lives in cities, and that makes it difficult for farms to access labour because the labour is too far away.
I’ve been very involved with the Canadian Produce Marketing Association and the Canadian Horticultural Council. A lot of the labour that’s needed in horticultural production is manual labour. They’re stooped over a lot of time trying to pick the crops.
While my farm has been able to continue to operate without the use of the Temporary Foreign Worker Program, I foresee that in the future, we may need this. It seems to me that there is an inherent mistrust between government and the farms, so services like Employment and Social Development Canada and Service Canada continue to make it more and more difficult for farms to actually access the offshore labour that they need.
In my mind, it’s really a very sad reflection on Canadian society. Government should be working hat in hand with producers to ensure that they’re a success. They shouldn’t be creating barriers for their producers. I really believe that there needs to be an open dialogue on this and solutions need to be found.
Because I travel a fair bit, I always have a NEXUS card. That means that I’m a trusted traveller. For employers who have been bringing in temporary foreign workers for decades and have established relationships, these employers should have a NEXUS card. There should be a level of trust, because they’ve already been doing the documentation with the government for decades, but every year the government says, “No. You’re a totally new person. We have no trust in you. We will force you to do everything over again.”
Senator Gagné: Thank you. That’s a very good point. Do you have any comments, Ms. Proctor?
Ms. Proctor: We’ve been meeting, of course, with government about this, and there have been a lot of round tables. We are seeing more of a commitment by the various government departments to work with industry.
One thing that speaks to that trust piece — it’s that lowest common denominator — people are very concerned — I won’t say specifically who in government — because, of course, if there’s an incident and it’s in the media, that reflects poorly. Canadians, in general, are very concerned about this, which we understand. But that is such a tiny percentage of the farmers who, unfortunately, may not be operating the way they should. Yet it seems like that distrust is right across all. That’s so unfair.
There are trusted importer programs. There are all these frameworks that exist. There’s a precedent for it in government, especially when you have people who have been continuously and repetitively adhering to government regulations, upholding standards and providing better opportunities for people coming into our country and who then go back to their own countries and improve their own lives. It’s such a shame it’s always that lowest common denominator that we hear about. It seems as though that’s what everyone is working towards.
As is always a requirement for government, when there are good sound policies in place and when industry or Canadians, in general, are adhering to them, there has to be a demonstrated commitment from government to support that, to be vocal about that and say these people are upholding. They’re doing what they need to do, and providing all these benefits. That spreads, as I said, to many different government departments and programs.
Senator Oh: Thank you, witnesses. Mr. Kuhl, I want to congratulate you for your fourth generation of farming. I hope there is another fourth generation coming.
I’m a bit concerned. You mentioned earlier about the taxes, including investment between here and the U.S. We are almost at a crossroads, where the U.S. is reducing taxes and attracting investment and we are going a different way. Carbon tax, labour problems, all kinds of things are going up. What do you foresee? I’m kind of worried for your next fourth generation.
Mr. Kuhl: Thank you for the question. The change in the U.S. tax policy to reduce taxes for business, in the articles I’ve read, the indication is that it basically allows businesses to continue to reinvest in their companies and in the people who work with them, and through that to continue to increase the sales within their companies. If I can increase my sales by 10 per cent per year and I have a reasonable tax level, the total taxes that I pay are going to be exactly the same.
So either government has realistic tax levels for businesses to allow the businesses to continue to put the profits back into the company, or our governments have exorbitant taxes in place that reduce the ability of the businesses to grow. That will then reduce the ability for our total economy to grow in the long term.
Senator Oh: Have you or your association voiced your concerns about this? The new administration is going one way, and we are going in the opposite direction. It’s very important. Now maybe nothing is happening, but within the next two or three years, once you change it and go there, it has to come back.
Mr. Kuhl: Yes. I’ve been very vocal on this point. One of the things that I considered as I’ve been looking at the succession plan to transition the farm from my generation to my children was whether I should have my two sons totally separate and create two separate companies, with the hope that through doing that they would be able to again access the small business tax level. There are also efficiencies in operation and working together. For families who have for decades worked together to suddenly say, “We’re now going to separate,” in my mind is just wrong. We shouldn’t force families to separate; we should encourage families to stay together in business.
Senator Oh: Thank you.
Senator Woo: Thanks for your testimony. The heart of the question we’re trying to address in this study is how we can improve, strengthen and expand the value-added sector in this country, so I really want to focus on that question.
There are many things we can do to improve the competitiveness of the agri-food industry in general, including the tax regime and so on and so forth. My sense of what I heard, from Ms. Proctor in particular, is that while there has been a lot of increase in value-added products, we’re still behind some countries. I got that impression from you.
Could you paint a picture, first of all, of what the landscape is in Canada when it comes to research, incentives, industry support and so on for a concentrated effort in coming up with value-added products, and what are the obstacles to further development of the value-added sector?
Just set aside the tax issue for now. I think we’ve heard that, and we really understand that problem. What I’m trying to say is even if we solve the tax problem, if we don’t have the right ecosystem, incentives or culture, we’ll still be selling lightly processed products around the world without much value added.
Ms. Proctor: Thank you for that. Of course, I’d encourage Keith to add on to this.
We are indeed behind some countries, and some countries have been kind of forcing the value-added because of packaging, et cetera. It’s just the way consumers have demanded products.
It’s certainly no surprise we referenced the U.S. In the U.S., we started to see this value-added many years ago, but I don’t want to leave the committee with the impression that our growers, packers and shippers here in Canada aren’t doing innovative things. There are some extremely innovative products coming out of Canada. We’ve just had our convention and trade show, and we have a new product showcase where everyone can show their new products. A great deal of it was value-added.
Frankly, that’s where the opportunity for growth is. We’ve seen government programs. Certainly our current federal government is very committed to innovation. I think sometimes the requirements are that maybe it’s spread a little more broadly than just going to very large — there’s a reason, of course, that the really big clusters were developed and a lot of money went there. It’s important for government programs to continue to support and allow industry to do that research.
Under past governments, we saw closure and less funding going to research stations. These research stations across Canada are excellent. We have a fantastic one not too far from here in Vineland. They’re doing amazing things there. They’re helping the industry develop new products and grow them in new conditions. There’s all this opportunity.
It’s important that government continues those investments and helps not just the research stations but other areas — there is agricultural research in universities and colleges — and that they continue to support that.
Honestly, often industry can do things if they are given that first financial and research help. They can take that and go with it. Industry is not looking for handouts. What they’re looking for is the opportunity to learn.
The food industry is very complex now. It’s not just about how you develop new products. It’s how do you ensure the safety of them? How do you make sure that packaging continues to preserve the quality of the product? Those things are so important when you get into value-added, because as soon as you start doing anything to the product, unless you’re doing it in your store and selling it bulk — but even that is very unusual. You need to be focused on those things.
Continuing to invest in the research that supports changes in packaging, changes in ensuring the quality and food safety, which Senator Mercer asked about, those things are so important. As I said, I don’t think industry is looking for everything to be fully funded. They’re just looking for that base to help them.
I don’t know, Keith, if you want to add anything to that. You’re doing value-added.
Mr. Kuhl: Yes. As I indicated, for close to a decade now, we’ve been working on specialty potato production. You have to set your goals and then take the steps needed in order to achieve the goal. There’s no point in putting together a large marketing plan or value-added plan until you can produce the product.
We’ve now gotten to the point where we have the confidence that we can produce a product and we’re growing about 200 acres of specialty potatoes, but until now, most of our product has been shipped to repackers either in Ontario or a lot of it into the U.S. in large bags that would hold 2,600 pounds, for example. Our next step is to try to go into the marketplace with the small one- and two-pound bags, because that will add greater value to the product and allow us to demand that higher price.
Of course, doing that, putting together the marketing plan and getting the brand recognition, putting together the infrastructure, the equipment that’s needed to put that packaging in place, all requires significant capital. We have to plan it out very carefully to ensure that we preserve the success of the operation.
Senator R. Black: My question is centred around research, and Senator Woo asked my question, pretty much. But we did hear a recommendation from Mr. Kuhl about what he’d like to see in our final report around the tax issue. Ms. Proctor, if you had the opportunity to put one recommendation in our report, what would that be?
Ms. Proctor: I know we’ve talked about the tax and labour issues, but we cannot stop talking about how fundamentally important those are. We have to stop exporting our increased capital, our knowledge, our industry, into the U.S. We have to make it a better environment here in Canada.
Taxes are one thing. The PACA-like trust model and the labour issues, all of those things contribute, but so does the regulatory environment. We’re now seeing massive changes coming under the new safe food for Canadians regulations, and that’s going to hopefully address a lot of things.
I think as you’re putting in regulations, it’s important for all the reasons that they’re doing that, but as associations and as the industry, we’re constantly challenging when things are put in place for reasons that may seem to be very good but impede the growth of the industry. It more or less becomes a technical barrier.
I couldn’t help thinking about Keith talking about the different sized packaging. It’s a really good example where we have very strict requirements in Canada, for good reason, around new product introduction in terms of what the packaging sizes can be, et cetera. We’re trying to encourage innovation in new products. We have to careful that the new regulations, with the best of intention, don’t stifle that.
I don’t know if there’s anything else, Keith, that you can add on that. I know the new packaging size can be tricky.
Mr. Kuhl: Yes. Both you and I referred to the government goal of increasing export sales to $75 billion by 2025. From an industry standpoint, I can assure you that that is not an issue. We are geared and ready to go on that one. What we need is for government to ensure that the policies they have in place complement that growth and make it as easy as possible for us to achieve that growth. All of the issues that Ms. Proctor talked about, the PACA-like trust, the labour issues, the tax issues, they basically all go hand in hand. The philosophy of government should be: What can we do to make it as easy as possible for business to succeed?
The Chair: Okay. Thank you. We have 10 minutes left and we have two people plus myself on the first round, and then we have three people on the second round, so if the witnesses could also keep their answers shorter.
[Translation]
Senator Dagenais: I would like to thank both of the witnesses. My first question is for Ms. Proctor. You talked about processing that was being done in the United States, as it may be more cost-effective to do it there. Do you have any financial data that could help us with our report recommendations in terms of how things work when your products are processed in the U.S.?
[English]
Ms. Proctor: Thank you. I wouldn’t want to leave you with the impression that it’s just the processing. Unfortunately, it’s also the growing. A lot of the growing of produce is moving to the U.S. because the tax situation there and the incentives offered, particularly at the state level, are just so attractive. We know of members of ours that have moved significant operations to the U.S. for those reasons.
I don’t have the financials. As I said, unfortunately the data side is very tricky in Canada. What we can do is some research with our members. We can reach out to some of those that we know have operations in the U.S. We have these problems when we’re trying to get data. We can give you some case studies or examples in place now of the operations in Canada and how much of their business from percentage in dollar values has moved to the U.S. Hopefully that will help. It’s impossible in our current data collection environment for us to get something comprehensive, but hopefully that’s the kind of information where you can determine, for example, that this greenhouse operator now has a massive greenhouse operation that they’ve moved from Canada to the U.S. Hopefully that will help. If it would, we’d be happy to try to get that information. I’m sure we can get it.
[Translation]
Senator Dagenais: My next question is for Mr. Kuhl. You talked a lot about the tax system in Canada and the assistance the government could provide. We are, after all, talking about a multi-billion-dollar industry that creates a lot of jobs. You also mentioned the much talked-about carbon tax, saying that it could cause you trouble, as opposed to helping you. You are someone who works in an industry that generates billions of dollars and numerous jobs, so I would like to know whether you participated in any government consultations following the decision to impose the carbon tax? Were you consulted?
[English]
Mr. Kuhl: First of all, thank you for the question. I really appreciate it.
No, government did not consult. No, I have not seen any study that has been done to try to determine what is the investment that business has already made to reduce the amount of carbon fuels that we use. If I look at my farm, the equipment that we have today is much more efficient than it has been in the past. We’ve put systems in place to reduce the amount of hydro or electricity that we use. Government never looked at this.
In my mind, if government would come up with a system that rewarded business for being innovative and changing rather than a system that just penalized them with another tax, it would make it much easier and more favourable for business to continue to develop and change.
[Translation]
Senator Dagenais: Thank you very much, Mr. Kuhl. That’s an excellent answer.
[English]
Ms. Proctor: Very quickly, one of the things we’re working on as an industry now is trying to get some consistency from the government around the definition of “farming.” In the current carbon tax legislation, greenhouses have been excluded because of the definition of farming. This is a systemic problem, I think. I work a lot on global standards, and it’s a little bit shocking that the Canadian government doesn’t have consistency in their definitions from department to department. That would be a nice recommendation, I think, from all departments.
[Translation]
Senator Dagenais: That was an excellent answer, Ms. Proctor.
[English]
Senator Petitclerc: My question will be quick. I’m trying to understand the role or importance of the CanadaGAP certification, if any, in the context of value-added. You will need to enlighten me. I’m not sure. Is it voluntary? I understand it’s a certification. I want to have an idea of the role it plays in this context.
Ms. Proctor: CanadaGAP is, as I said, a benchmark program. Basically, food safety benchmarking, the whole creation of the standards, and then the auditing to standards, which is a critical part of it, is all voluntary. We have regulations in Canada that require that consumers be provided with safe food, but how industry does that is kind of left to their discretion. There are checklists, et cetera, that the government has, but industry, frankly, goes beyond that.
Is CanadaGAP required from a legislative policy? No, it’s not. But, if I could say, it is a self-imposed requirement within the industry to have either CanadaGAP in place or some other GFSI, Global Food Safety Initiative,, benchmark program. This goes beyond what government requirements are around safe food. So indeed, it is very important and it is a requirement of doing business, if you will. Hopefully that answers your question.
Senator Petitclerc: It does. It’s making you more competitive in the market?
Ms. Proctor: Absolutely. In fact, in the global market, for most retailers or food service buyers, if you do not have one of these GFSI benchmark programs in place — and there are many of them around the globe, but it’s a difficult and rigorous process to get benchmarked. If you don’t, then the reality is that most buyers will not buy from you. That’s becoming increasingly important, especially in these vast emerging markets that we are now getting access to, like China and India, where food safety is a big issue. So it is critically important for our industry and I think for any industry to have a food safety program in place, to be audited and to be able to demonstrate that.
Mr. Kuhl: Basically, without programs like CanadaGAP, we will never be able to achieve the goal of $75 billion by 2025. It’s absolutely crucial in the global marketplace.
Senator Petitclerc: Thank you.
The Chair: Okay, folks, time for one very quick question, because there is another panel to follow.
[Translation]
Senator Maltais: I will be very quick. It is true that our mandate is to study secondary and tertiary processing. It doesn’t take an economist to know that taxation is at the core of any business. Mr. Kuhl, I’d like to know how you go about transferring your business from one generation to the next. Is it through the sale of shares, in which case, the seller is taxed and the purchaser has trouble? How does it work in a family business like yours, Mr. Kuhl?
[English]
Mr. Kuhl: I faced a problem — not a problem, I guess, but a scenario. I have one daughter and two sons. My daughter chose not to remain on the farm, for which I bless her in her life. So what I did is I separated my asset company from my operational companies so that my sons long term can own the operational company and the whole family will continue to own the assets.
Basically, part of a succession plan within a family operation relies on mom and dad eventually passing on and leaving most of the assets to the children. Fortunately, so far, I can leave my agricultural assets to the next generation without them being forced to pay huge taxes. If that were ever to change, that would totally wipe out most of agriculture.
[Translation]
Senator Maltais: Hence the importance of a sound tax regime. Thank you, Mr. Kuhl.
[English]
The Chair: Thank you, panel. It’s been interesting. I know we could stay here longer, but we do have another group coming in the next panel, so thank you.
We now have our second panel with us. From Sunterra Farms Limited, we have Ray Price, President; and from the Canada Organic Trade Association, we have Tia Loftsgard, Executive Director.
Thank you very much for agreeing to appear here today. We will ask Mr. Price to make his presentation first.
Ray Price, President, Sunterra Farms Ltd.: Thank you very much. I appreciate the opportunity to give a presentation to the committee.
As background on Sunterra, we are a family-owned farming company. That’s where we started. We are based in Alberta but we have operations in Ontario, South Dakota and Iowa. We farm about 4,000 acres of land in Alberta and produce about 450,000 pigs a year. We also have a meat-processing facility in Alberta. We export 75 to 80 per cent of our production to Japan, mostly, but we are also building a market in China. We also have nine retail stores in Calgary and Edmonton. We have gone to a diversified operation that is family owned.
In no particular order, here are a few of the points that I think are necessary to be made as far as impediments to the value-added food sector, because I understand that is what the committee is looking for.
There is a lack of capital for medium-sized companies. We feel we are medium-sized, but in the food industry we are small. The funding institutions are difficult to concentrate on agriculture and, in particular, value-added, especially in Western Canada.
It is critical that we access markets. On the pork side, as an industry, we export over 60 per cent of our production, so it is critical that we continue to get good access to markets. One of the things we need to do is ratify the CPTPP as quickly as we possibly can so we are among the first countries in on accessing that agreement that will be positive for our industry for both beef and pork.
I understand there has been debate around rail transportation issues in the house and the Senate. A critical part from our perspective is more value-added means fewer commodities on rail, which means it takes less rail traffic. We obviously need a pipeline so we don’t put oil on the trains and can get more access to put other products on the rail. Farmers are getting better and better at producing. In our case, we produce canola as one of our crops. We probably produce 100 per cent more per acre than we did 10 years ago. We will just get better and better at producing more volume. I don’t believe we will be able to twin the rail to Vancouver in any reasonable length of time. We will be constrained long-term, so more value-added, high-value products leaving the country on rail would be better than the commodities.
Lastly, I know part of the discussion with the previous panel was about labour. In rural Canada and rural Alberta in particular, we have used the TFW, or temporary foreign worker, program, which we call the transitional foreign worker program. About 90 per cent of the people who come to us under that program we transition into Canadian citizens or landed immigrants. It has been a tremendous help for us, but we are now impeded in that. Our meat processing plant has about 150 staff. We need 50 more and we cannot get them. That means about $15 million in lost export sales by not being able to have labour. For us, the temporary foreign worker program is not temporary. We train them. It takes about six to eight months to train the staff. We pay well, usually in the $20 to $30/hour range. In small-town Alberta, we think that is a pretty good wage. I think a lot of the negative attributes around the temporary foreign worker program are wrong. We use it as a pathway to immigration, and we need something like that. If we don’t have an effective temporary foreign worker program that leads to immigration, we need something on the immigration side so we can bring in people. They can be trained, get a skill and make good wages, especially in rural Canada, where I think the bulk of value-added agriculture should and will be generated.
That is all I have. I hope there will be questions. Thanks.
The Chair: Thank you for your presentation.
Tia Loftsgard, Executive Director, Canada Organic Trade Association: Hello, honourable members of the Standing Senate Committee on Agriculture and Forestry. I thank you for the invitation and welcome the opportunity to present, on behalf of the Organics Value Chain Roundtable, our comments on the competitiveness of the organic value-added sector in Canada.
I am the executive director of the Canada Organic Trade Association, which is an umbrella organization representing the industry, with an afilliate connection to our U.S. organic trade association, making us the largest industry voice in organic in North America.
North America, on an organic scale, is 50 per cent consumer demand right here in North America. The demand worldwide and competitiveness of the organic sector is a timely one in light of our global trade and ongoing free trade agreement negotiations with our trading partners.
On an organic scale in primary production, we are above the global average of 1.5 per cent. We hold the position on primary production of 2.2 per cent. Yet, when it comes to value-added production, we are losing ground. We only have 884 organic food processors out of the near 5,000 organic operations happening in Canada, yet this represents $1.6 billion in sales of the $5.4 billion of overall organic sales in Canada.
Ontario, Quebec and British Columbia are the drivers of this multi-ingredient and regional specialty production. Operators in Canada are a mixed bag. We have multinationals such as General Mills, WhiteWave/Danone, Saputo, Mondelez as well as family-owned small to medium enterprises such as Nature’s Path, Clif Bar, Fruit d’Or and Manitoba Harvest that are leaders in their own sectors.
All of these companies hold a position as organic pioneers and leaders in value-added manufacturing in Canada, surpassing the challenges I will highlight and allowing themselves to gain the reputation of trust and contribute massive amounts to the economy as food manufactures with a balanced approach ensuring that the environment and consumers will trust that they are producing the best possible products for their health and environment.
Here are the trends amongst the operators in organic for value-added operators: It is 10 per cent growth across the board. Many are higher than that, but the global average in Canada is 10 per cent. Export Development Canada’s chief economist has compared organic and conventional. This includes agriculture and value-added. Organic is growing at 15 per cent, whereas the conventional market is growing at 4 per cent. This is the highest growth sector for us to pay great attention to.
It is great news that these organic innovators are attracting new interest from new companies to be involved with organic as an option. Organic pioneers have frequently not allowed the obstacles to stop them and they have become a driver for innovation within the organic sector, considering environmental commitments such as carbon neutral, innovations in packaging to ensure the shelf life preservation is maintained, as well as no use of GE crops and sustainable packaging options.
The studies that have been conducted suggest that these companies have multiple commitments beyond organic to broader sustainability and corporate social responsibility objectives. Many are Fair Trade, B Corp, non-GMO certified, as well.
What are the obstacles to these operations staying in Canada? Unfortunately, I have heard of many successful companies moving their operations to the U.S. because their major market demand is in the U.S., so from a shipping and manufacturing perspective, it makes sense to be located there to mitigate the currency fluctuations, which is a major factor for those sourcing their ingredients and they want to ensure that they are closer to mitigate those currency fluctuation risks.
Please note that several of these manufacturers source actual Canadian products that are being processed in the United States. It is actually Canadian-made products that are having to be shipped across the border to be processed. It would be a major barrier to reimport them and keep their operations in Canada.
For Canadian operators sourcing organic, the costs can sometimes be two to three times those of conventional due to the additional factors of sourcing smaller volumes which are not readily available in Canada; currency fluctuations due to sourcing outside of Canada; shipping and duty costs due to importing and sourcing from other regions far from their manufacturing operations; the cost of inventorying ingredients and the risk of spoilage if the sales trends are not as anticipated; the cost of segregated manufacturing runs, as you need to do an organic wipe down, especially if conventional and organic is happening in that manufacturing facility; and subcontracted facilities frequently charge higher prices to small and medium enterprises in order to do those production runs, and they sometimes force the brand to pay the organic certification costs.
Besides all these hurdles of the sourcing and finding of adequate processing and manufacturing facilities, companies continue to innovate as the global demand for organic screams for more organic products, and this promises a premium to those involved in its innovation. Organic standards prohibit the use of many processing aids, food additives, dyes, preservatives, GMO ingredients and packaging made with GMO ingredients. Therefore, this sector is constantly the leaders in innovation.
Thankfully, with demand comes innovation at a manufacturing level, and more organic options of food colourants, yeasts and enzymes have become available to assist organic operators to innovate and offer these organic alternatives.
As mentioned, there are lots of risks, yet people are innovating, creating their own technology and machines in order to continue to meet this market demand. Several manufacturers have been able to innovate and be trailblazers, to take advantage of this 50 per cent organic market right at our doorstep. The other 50 per cent is the EU and Asia, in which Canada’s organics brands are in high demand.
The first of the top three things we will recommend to assist value-added organic manufacturing in Canada is creating incentives to keep value-added manufacturing in Canada to mitigate the currency risks and reduce barriers to imported organic ingredients being cost-prohibitive to import when used in value-added manufacturing. One example that the U.S. has done is they have created a specialty sugar classification for organic cane sugar, which is duty-exempt for importers.
Number two is to increase domestic production incentives and value-added processing for products that can be processed here in Canada. For example, many grains are cleaned and processed in the United States, despite the plethora of facilities available in Canada, leaving us at a disadvantage that the final product is ending up in the United States.
Number three is the tracking of import and export flows of organic products through the creation of a national database in collaboration with the CFIA, CBSA, Agriculture Canada and Statistics Canada to better understand the flow of organic goods. Right now, many our product categories are coded as conventional. We need to understand the lost opportunity that is occurring within our Canadian economy.
Thank you to the committee for taking the time to consider our recommendations and the impact that your recommendations will have on our industry.
The Chair: Thank you both for your concise and meaty presentations. I always like seeing definite recommendations. That gives us something to work with. We will begin questions with the deputy chair.
[Translation]
Senator Maltais: Ms. Loftsgard and Mr. Price, welcome to the Standing Senate Committee on Agriculture and Forestry. We are glad to be hearing from you.
Mr. Price, you have a business in Manitoba. What percentage of products sold in Manitoba are organic?
[English]
Mr. Price: Our farming is in Alberta and in the United States. We are not involved in organic at all.
[Translation]
Senator Maltais: Ms. Loftsgard, in order to keep value-added processing in Canada, you made some very specific recommendations. What would you say is needed: government assistance, better tax treatment or a carbon tax exemption? Which of those options do you prefer?
[English]
Ms. Loftsgard: I think government assistance is needed. We have been putting forth several recommendations with respect to creating incentive programs like they have in the United States, such as a certification cost-share program to incentivize and reduce some of the on-costs. When producers and manufacturers have to get certified, of course, there are additional costs with regard to sourcing, et cetera. Some of the ideas that we have thrown out there are needed from a government level. I think the industry is doing everything it can without government assistance and it is lagging behind, but we are seeing the U.S. take off because they are doing many interesting programs.
[Translation]
Senator Maltais: Does NAFTA set out any special conditions as far as your products are concerned?
[English]
Ms. Loftsgard: No. We do have equivalency arrangements with 90 per cent of our trading partners worldwide. It is not part of a formal trade agreement. It is a handshake between the USDA and CFIA so that we have equivalency acknowledgement of each other’s certification procedures. We work strongly with CFIA on that. That was a critical point in time when the world basically was going to cut Canada out of global trade unless we actually became regulated by CFIA. This was one of the key components that came out of it, namely, these equivalency arrangements. It was not to do with NAFTA, although we are just like any other industry in that NAFTA is extremely important to us.
Senator Doyle: Mr. Price, you mentioned having an operation of 450,000 pigs. That is quite a huge operation. Do you generate energy or fertilizers from the hog manure by-product and cut back on your costs in any way? Is it something that you do, or are you looking at that as a way to have a more modern facility even?
Mr. Price: We have done a lot of work over the last 30 years on improving the utilization of hog manure. We inject it directly into the soil. In the area where we farm, the 4,000 acres, generally speaking, we use only chemical fertilizers to balance. Sometimes we need to add a little phosphate or something like that to get the right balance for the crops we use. Effectively, we believe about $100 per acre value of manure goes back into the land, which reduces the amount of chemical fertilizer required.
Also, because we farm in Alberta, Ontario and the U.S., certainly South Dakota and Iowa understand that process a lot better than we do here and value it higher than we do in Alberta or Ontario. The access to capital there allows for individual farmers to build barns that utilize our pigs and pig manure on their land. They will spot the barns around so they can utilize the manure on their land without having to buy chemical fertilizer as much. It is a good synergistic approach.
Senator Doyle: Regarding organics, there was a time we paid premium prices for certain organic produce items, and only the most dedicated environmentalists would go for it because it had a much higher price. Are times changing to any great degree? I would imagine they are. You mentioned that you would now be in good competition with the mainstream farm production people.
Ms. Loftsgard: I wouldn’t say it is in competition. I would say that most farmers I know want to look at environmental solutions for soil health. We are seeing a lot of conventional producers using organic techniques, and I would encourage anyone who wants to get the premium to seek full certification.
With consumer demand, 80 per cent of Canadians are buying it on a weekly basis now. This document, which I will be happy to share with the committee, details all of the sales statistics and consumer demand that is happening.
I think it is a weakness of the sector that we don’t have this data like the conventional sector does. We, as industry, have to pool this information. We are working with Stats Canada to get more robust questions on the census to understand farm-gate income, but I can tell you that there is very interesting research going on right now in regard to the return on investment not only for farmers but also for consumers investing. Millennials are our biggest consumer group. We know that by 2020, they are outpacing the baby boomers. So it’s here to stay.
Senator Doyle: Are organic products running into non-tariff barriers in foreign markets? Is that a factor?
Ms. Loftsgard: Absolutely. I did a presentation to the standing committee last year in regard to our challenges. There are still issues of contamination. Glyphosate is a big issue for us in the EU right now. They are flagging it. We have to ensure we do double or triple testing of products before they go. Those are, of course, additional costs.
The key recommendations we have is we need more crop insurance happening for organic producers. We only have it in a handful of provinces. We need more risk-mitigation techniques that exist to ensure that the premiums for producing it organically, we can actually sell it organically in these foreign markets.
Senator Oh: Thank you for being here to give us a lot of information.
For the Canada Organic Trade Association, how many members do you have?
Ms. Loftsgard: Across North America, over 9,000 members.
Senator Oh: Nine thousand across America?
Ms. Loftsgard: Across North America, in conjunction with our U.S. division.
Senator Oh: Talking about international, you mentioned your trade was at $1.6 billion.
Ms. Loftsgard: Yes.
Senator Oh: You also spoke about international trade. Are your members exporting to Asia, China and Japan? The middle-class population has exploded there, and they are going for safe, quality products from Canada or the U.S. Do you export a lot of organic food over there? How are they doing?
Ms. Loftsgard: Yes. They are doing very well. We work with them. We lead the export missions. I was at the flagship show with Foodex Japan. Canadian pork is actually being prioritized by all of Costco Japan, that they will source that first, which is amazing. China has now surpassed Canada now on the consumer demand for organic. The huge organic demand is, of course, helping our Canadian products get into the export market.
I did a presentation which is fed into the Economic Roundtable with respect to the export goals we have of $75 billion. Organic probably can bring us closer to the $9 billion gap that they are talking about. There is about $3 billion that we anticipate that organic could be filing the needs if we have the right assistance to get us there, and also to track it. Right now, we are not tracking it properly. We only have 12 export codes.
Senator Oh: Do you have any idea under your organization how big employment will be coming from organic trade?
Ms. Loftsgard: I am going to be doing a study on that with CARC, I hope, because there has not been any broken-out statistics on that to date.
However, when we look at farmers, it is young women and millennials that are attracted to sustainable production. As we see older farmers leaving, the new entrants are mainly going for sustainable production methods.
I am sure we have labour issues as well, and it requires more labour to do organic production. It is an area that I would love to get back to you on when I have that full study.
Senator Oh: It would be nice to know the total number of people being employed under this sector. That is important.
Ms. Loftsgard: I would agree.
Senator Oh: Thank you.
Senator Petitclerc: Ms. Loftsgard, I am interested in the organic sector. I don’t have numbers or even names, but I think I see a trend of small businesses or small names and specific products that eventually are absorbed by big, conventional food chains. As a consumer, sometimes that surprises me because I think I am buying that, but in the end, it belongs to a multinational that is not specifically organic. In the context of value-added, is that good or bad, unavoidable? Is it welcomed by small companies that start niche organic products? Is it that they don’t have a choice, or is it a business opportunity? I want to have the picture with that. Maybe it is not even a trend.
Ms. Loftsgard: I think it is a trend. I think the larger organizations have seen the opportunity and that those brands have so much cachet that they want to add that to their portfolio.
I used to run a small enterprise. I no longer work there, but I can tell you that there are more and more of those companies coming out every year. Our largest trade show, Natural Products Expo, is in Anaheim. They have to move it to Las Vegas because there are thousands of new brands coming onto the market every single year. It is the hot innovation area.
I think we will continue to see the trends. Campbells Soup just bought Pacific; Annie’s was bought by General Mills. We’re seeing it more and more. I think it’s each individual organization’s business opportunity or not. Clif Bar has rejected that for many years, and they are independent.
Senator Petitclerc: So you don’t see it as necessarily negative? It’s a case-by-case scenario?
Ms. Loftsgard: I think it’s case by case, yes. I think it’s positive to see more products available. I see Loblaws has 250 private-label products right now in rural communities, and it may be more accessible in price. More availability is great.
Senator Petitclerc: Thank you.
Mr. Price, I have a general question. I’m on your website right now, and I see that while you have a big enterprise, you also make it clear that you want quality and you want to offer good conditions for your employees. On top of products, there are a lot of values that seem to be important to you. I guess my question is just very general, but when it comes to regulation, certification or funding for businesses like you, with that kind of profile, do you have barriers or challenges maybe that other companies would not have? Are we helping you as a country or making it more difficult, I guess is my question.
Mr. Price: Well, Canada is the best country in the world, so I’m biased there for sure, and I think Alberta is actually a pretty good place in Canada. That’s inherent in what we do.
We are definitely becoming less competitive worldwide, especially with the U.S., Australia and New Zealand, when it comes to value-added agriculture. Part of it is the taxation policy, and I know you spent quite a bit of time with the previous panel on taxation, but it certainly has an effect. I can give you an example. In our operations in South Dakota, the tax rate is 40 per cent below what it is in our operation in Alberta and about the same as in Ontario, so certainly that plays a factor.
We also have a lot of regulation. In South Dakota, we can organize a barn to be built in about three to four months. Anywhere else in Canada, particularly in Alberta and Ontario, where I know most, we’re six to 12 months, so it becomes more difficult.
At the same time, there are a lot of U.S. banks that are willing to do agriculture and agri-food. Here, really the focus is only FCC, which does a great job, but they’re limited. The big banks tend not to worry about agriculture. The portfolio relative to the big banks is small. They’re sporadic. They will lend to land, but to lend to value-added agriculture is difficult.
So we have a lot of small barriers that add up that make it difficult to grow. We believe in Canada, and Alberta in particular, despite that because we think it’s a great place to live and we want to provide our staff with opportunities. Our biggest risk, I think, is that we can’t get enough people to continue to grow and be effective. Without that, it puts at risk everybody else. For us, we know we’re losing out on export sales currently because we don’t have enough staff in rural Alberta. We can get it in the large cities, but certainly in rural Alberta it’s a difficult challenge for us to continue to get staffing for the operations that we have.
In addition, I just want to say with the organic portion, we have the nine retail food stores. We do sell organics through the stores. We sell both conventional and organic. It’s a market consumer demand thing, and certainly there’s more of a trend to organic, recognizing that our agricultural value-added industry sells billions of dollars in export markets. I think where organics can contribute, the mainstay of science, technology and agriculture — we’ve been very good at adapting science and technology. If we’re going to reach the $75 billion mark, some of it is going to be organics, but the bulk is going to be, in my view, meat, canola oil, soy oil, those types of things.
I think for sure we want to be able to balance it, but for us we really believe that Canada is in a place where we should be feeding the world. Somebody coined us a food superpower, and we should be that. We’ve got land and water, and we should produce a lot of food for the world. I think we have some impediments and barriers holding us back, and we need to move on.
[Translation]
Senator Dagenais: I would like to thank our witnesses. I have a number of questions for you, but I will start with Mr. Price. You just said that banks in Canada were not interested in agriculture, unlike those in the U.S. If American banks see the benefit in lending to farmers, why don’t Canadian banks?
[English]
Mr. Price: Our banking structure in Canada is quite different than the U.S. banking structure. A few years ago, we were rated as the best banking system in the world because none of the banks failed. In my view, that’s not necessarily the best banking system because if no one ever fails, then that means they’re not taking enough risks in some cases. Every other industry and every other business has some failures.
What happened was, in my view, the Canadian banks became more conservative during that time frame, whereas the American banks continued to lend sometimes on a little bit higher risk, and competitiveness. We probably have access to 10 or 12 agricultural-based banks in the United States, and that’s all they do, agriculture and agri-food. When I say agriculture, I mean value-added agriculture right to the consumer. They will lend to processing companies and to farms.
Out here, especially in the West, what I’ve seen, if you’re an agricultural producer, you’ll get money for land, no problem, from the big banks, but FCC is really the only one interested in value-added in any reasonable way.
I can give you a little comparison. In the United States, we can get maybe 75 per cent debt versus equity on a construction. In Alberta, we’re looking at 50 per cent or less debt to equity, so it just means that it’s much more difficult to expand and grow because it takes much more income, revenue and cash flow to be able to reinvest and build.
I don’t blame the big banks directly because their main business and their main profit centres are not agriculture. Therefore, in my view, they want it to be relatively easy, where agriculture, agri-food and value-added is complicated. It’s more difficult to understand.
Therefore, especially in the West where we haven’t had value-added — Ontario has more and Quebec has more, so I think it’s better known. But certainly in the West, I think it’s a barrier to people saying, “Let’s go and make it happen.”
If I can provide just one more example, we’re actually doing a $15 million value-added Italian cured meat plant in Alberta now. We have Italian partners, 50-50 with us, a family from Italy who has the technology there. Sunterra has just about a 50-year history, and even there, we were only able to get 50 per cent debt equity financing in a plant that we think has a great potential on value adds.
[Translation]
Senator Dagenais: You talked about the U.S., so I’d like to discuss the NAFTA issue. As you know, Minister Freeland came back from the U.S. empty-handed. In the meantime, there are no rules for NAFTA. A rumour was going around that Mexico might pull out of the agreement or be excluded from it. If, for some reason, Mexico were to pull out of NAFTA, what would that mean for Canada’s agricultural sector?
[English]
Mr. Price: Really good question. I don’t know. I think that NAFTA, and before it the U.S.-Canada Free Trade Agreement, really helped agriculture in our sector for sure because it gave us a set of rules under which, if the Americans put on tariffs or countervail or something like that, we had an appeal mechanism to be able to settle those. We used them numerous times in the pork and beef sectors. It took too long to resolve, but at least we got it resolved. You may remember that country-of-origin labelling was one of those things that took years to get rid of, but it certainly gave us a mechanism to do that. So the risk of NAFTA falling apart or Mexico leaving and therefore having a difficult situation puts that whole investment again at risk on how the operational side of it works.
NAFTA is very important. We still have to look to our other agreements and be able to diversify from an agricultural perspective. That’s why I think the CPTPP is very important to be able to have an alternative market. If we don’t get it passed in the same time frame, we’ll be behind again. Then the CETA agreement is also an important opportunity for us to capitalize, but there are a lot of non-tariff barriers the Europeans put on that make it very difficult to trade into Europe.
To me, it’s a three-pronged approach. Let’s get NAFTA done if we possibly can, but at the same time, let’s make sure our other markets are accessible so that if something does break down, we have other alternatives where we can send our products.
[Translation]
Senator Dagenais: I have a quick question about rail transportation. A strike was avoided at Canadian Pacific, a strike that would have been detrimental to everyone. The issue is nevertheless problematic. Rail transportation is essential. Have you identified any problems in that regard, or do you have any recommendations on how the situation might be improved?
[English]
Mr. Price: Yes, I think there are real transportation bottlenecks that we see every year, especially in a cold winter, from a commodity perspective. In our case, we aren’t confident enough in the rail system that we’ll send fresh meat that goes to Japan. It will go by truck rather than rail. In our small business, it’s important that we have the highest level of service to our Japanese customers, and that means hitting every date that we possibly can. So certainly, rail in Canada is a difficult process.
The Vancouver dock disruptions have also been an issue. We’ve ended up sending over 100 tons of pork by air to be able to meet our commitments, which is an expensive proposition, but we needed to make sure our customers were covered.
Any of those disruptions make it very difficult to be a reliable supplier. I know from commodities like canola oil, soya oil and wheat, if we don’t have the ability to deliver to the customers, we become unreliable, and they look to reliability in a lot of ways. It’s a sector that we have to have reliability in and recognize that we only really have one option to Vancouver. Hopefully we can get Rupert more ships going through it, especially containers. For us, it’s a critical piece to be able to rely on given that the bulk of the grain-growing area in Western Canada is obviously a long way from a port.
One of the things I’d like to see is more pigs, more cattle, more pasta and more value add so that what we’re putting on rail and the system is of a higher value and denser, if that’s the right way of describing it, from a commodity perspective. It takes about 10 bushels of wheat or barley to produce a pig, and we can send 40 kilos of that pork over to Asia. That really condenses the amount of commodity that we put on the rails if we’re able to do that in Western Canada.
[Translation]
Senator Dagenais: Thank you.
[English]
Senator R. Black: With respect to the Temporary Foreign Worker Program, does it, in general terms, need to be updated, changed or scrapped and redone? Just expand a little bit more about that, please.
Mr. Price: In our view, the Temporary Foreign Worker Program works in different ways for different parts of agriculture. In our case, we would rather not have temporary foreign workers. We’d rather have permanent workers. We think that many Canadians would prefer to live and work in the cities and have different jobs than what we would have on the farm. There are lots of people in the world who would really like to come to Canada. Given that we all came to Canada at some point, it gives us an opportunity to develop those workers.
We can’t get rid of the Temporary Foreign Worker Program for a segment of agriculture and value-added. I’d like to see a pathway to immigration that is predictable.
I think the temporary foreign worker, if we changed it, like I said before, to a transitional foreign worker program that allows us to bring in and effectively sponsor for two years a temporary foreign worker that we want to have become a Canadian citizen or landed immigrant, it gives us all the ability — Canada, our companies and the employee — to find out whether they like it here, whether they like the work and provide meaningful employment so that the day they land, they’ve got a job. To me, the day they land, they’re starting to work, they pay taxes and they do all the things that we want them to do. If we can transition them into a permanent workforce, especially in rural Canada, it’s a benefit to the Canadian economy both in terms of their contribution but also in taxes in rural communities.
Our plant is in Trochu, Alberta. It’s about 1,100 people. It’s one of the few rural areas that has renovated their school because the population in the town has gone up, partly because we’re having fewer kids but people from other countries have more kids. There are more kids in the school, so they’ve updated the school. Trochu itself is excited about the opportunity of having more people come to their town. It’s about 110 miles away from Calgary, so it’s a bit out of the way, but it’s an effective way of doing it.
We need a pathway to immigration, and if the Temporary Foreign Worker Program is it, that’s fine. Ninety per cent of the temporary foreign workers that come into our system in the meat industry transition to landed immigrants, and the average length of time they stay with the company is 10 years, which is much longer than what we normally see out of non-temporary foreign workers.
Senator R. Black: Thank you.
Ms. Loftsgard, can you expand on the need for data? Your last points talked about the need for data. For what purpose? What is the frequency and the need? Can you expand a little bit more on that?
Ms. Loftsgard: Sure. In the HS codes that exist on tracking trade data, we are lumped in with conventionals. When we are looking at the question from Senator Oh, we can only tell you that we have $607 million in exports, which is absolutely incorrect. We track no value-added goods. It’s only on raw commodities.
Senator R. Black: “We” being Canada?
Ms. Loftsgard: Yes, the collective “we.” When we look at how important the organic sector is, it’s hard for us to understand what we’re achieving on the export side, but also what displaced opportunities we have because we’re importing these products.
When I mentioned the $1.6 billion in value-added products in Canada, I can guarantee you that half of that or more is definitely not created in Canada. It’s imported goods, but I couldn’t confirm because I have no data.
Just to highlight, also, on the Mexico question that came earlier, we do have some HS codes from Mexico, and we have $55 million worth of imports and we only export $23.4 million to them. When it comes to these trade relations, and we’re right now negotiating an equivalency arrangement with Mexico, these pieces of data are extremely important for us to understand whether we should enter into these equivalency arrangements, which is the responsibility of CFIA.
Senator R. Black: Thank you. That’s all.
[Translation]
Senator Gagné: Thank you for your presentation, Mr. Price.
[English]
Could you speak to research activities that support the pork industry? Have there been any national research priorities identified for the industry? Is it a multidisciplinary, multi-institutional process? Is the research coordinated among the universities, research communities and industry? I’d like your comments on that.
Mr. Price: Sure. I appreciate the question. I’ve sat on a few research and innovation boards. I think the pork industry, because it has consolidated quite a lot, has become pretty focused on the research activities and working with universities, the Government of Canada and the provincial governments to try to focus on effective research, and I think it has done a pretty good job in terms of deciding on what priorities there are.
Pork is a worldwide industry. It is the most widely consumed meat in the world. China is the largest consumer and producer of pork. The Canadian pork industry is owned, both at the farming level and the processing level, by Canadian companies and mostly family enterprises. I think it’s a tight-knit community that is actually pretty good at directing research.
There’s been lots of research done on meat quality and differential meat quality, which I think is an important thing, because it’s about consumers. We’ve looked at disease retention and the ability to react to it. Certainly, we’ve had very good success working together on keeping some diseases out of the country and being known worldwide for high-quality food safety and pork health safety, as well. Yes, I think it has been effective.
Senator Gagné: Genetics, I imagine.
Mr. Price: Genetics has been left mostly to private companies because they are worldwide companies. Certainly there have been bits and pieces, but I think that’s a more effective place because we’re now in a zone where they can afford to spend the money and are ahead of government institutions because they hold the genetic seed stock.
Very few research stations can have the size of herd that it takes to do genetic evaluations. It’s better in the private hands, but I think that has been a good transition. I’d rather the industry work on meat and meat quality than genetics, for example.
Senator Gagné: Thank you.
The Chair: I have a question for Ms. Loftsgard. It’s great to hear that millennials are so interested in consuming organically grown food. We heard from the last panel that they’re also very interested in fruits and vegetables in general, but they want them at a more prepared stage when they buy them. My concern would be that this probably means an increased use of packaging, so therefore more garbage. How is the industry dealing with the packaging issue?
Ms. Loftsgard: We’ve just done a food service study to look at grab and go and ready to eat. I’d be happy to send that along to you because I think a lot of it is becoming more available in a Starbucks environment, and that’s where the millennials are shopping. I don’t think they’re going for the pre-packaged foods because they are environmentally conscious as well.
On the packaging side, I can tell you that there are requirements within the organic standards with regard to using at least products that will not contaminate the organic state. There could be corn-based packaging or beet sugar packaging. Those things are disallowed under the organic standards, but I think it would be interesting to do a study of packaging brands and whether it’s any different from other sectors. I don’t think we have robust data on that, besides the food service study, which I would be happy to share.
The Chair: Can you send it to the clerk so everyone gets it?
Ms. Loftsgard: I will.
The Chair: Thank you. That would be great.
[Translation]
Senator Maltais: I have a very quick question. Are your products competitive in terms of Canadian grocery stores?
[English]
Mr. Price: Yes, our products are worldwide competitive. We export 80 per cent of our production to Asia, and Japan is the most competitive market in the world. China is becoming very competitive and we are building our sales there. So from our perspective, it’s very important to be worldwide competitive. Both beef and pork are. In our retail stores, we also think that we’re bringing products from, in general, local production that is very competitive with anybody else. It’s great that we can be competitive. I think there are things around the edges that make it difficult, but fundamentally we have to be competitive in order to be able to sell products around the world.
[Translation]
Senator Maltais: Thank you.
[English]
Senator Oh: When you say that you export to China, Shanghai has major agri-food exhibitions. Do you participate in those exhibitions?
Mr. Price: Yes. Canada Pork International is the association that handles export activities, so they will have a booth in the Shanghai food and hotel association show and the industry will be part of that booth. In the last two years we’ve been there, in Guangzhou and Beijing. We are getting to be more well known.
Canadian pork in Canada, in general, is very good. We’ve just received permission to send a pilot project of chilled pork to China, so that will be the start of an experiment to provide high-quality Canadian pork into the Chinese market.
Senator Oh: It’s a huge market.
Mr. Price: It’s the biggest in the world. It’s going to be the most competitive, but it’s the largest in the world and we have to be very good at it. We’re up for the challenge.
Senator Oh: Thank you.
[Translation]
Senator Dagenais: Mr. Price, I wanted to pick up on the challenge of moving grain out west. Perhaps, in our report, we could recommend that the Canadian government buy a pipeline to transport canola oil out west. It was just a comment, Madam Chair.
Senator Gagné: I thought you had a question.
Senator Dagenais: No, just a comment. Thank you very much, Mr. Price.
[English]
The Chair: With that quick comment at the end, I would like to thank our panellists. It has been a very interesting morning and we were pleased to have you here today. There were a lot of great recommendations and good conversation.
(The committee adjourned.)