THE STANDING SENATE COMMITTEE ON AGRICULTURE AND FORESTRY
EVIDENCE
OTTAWA, Tuesday, February 19, 2019
The Standing Senate Committee on Agriculture and Forestry met this day at 6 p.m. to examine and report on issues relating to agriculture and forestry generally (topic: support and compensation for supply managed agricultural sectors in relation to the USMCA, CPTPP and CETA Trade Agreements).
Senator Diane F. Griffin (Chair) in the chair.
[English]
The Chair: Honourable senators, I call the meeting to order. I’m senator Diane Griffin from Prince Edward Island, chair of the committee. Today the committee is looking at support and compensation for supply managed agricultural sectors in relation to the CUSMA, CPTPP and CETA trade agreements.
Before we hear from the witnesses, I would like to start by asking the senators to introduce themselves.
Senator Doyle: Norman Doyle, Newfoundland and Labrador.
[Translation]
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Ravalia: Mohamed Ravalia, Newfoundland and Labrador.
Senator Oh: Victor Oh, Ontario.
Senator R. Black: Robert Black, Ontario.
Senator Gagné: Raymonde Gagné, Manitoba.
Senator Mercer: Terry Mercer, Nova Scotia.
The Chair: Thank you. I would like to thank the panel for being here and officially apologize. We were tied up in the Senate. I’m very pleased you waited for us because we are very much looking forward to hearing from you. For our first panel we have Mike Pickard, Vice-Chairman, Farm Products Council of Canada; Carole Gendron, Director of Regulatory & Sectoral Affairs, Farm Products Council of Canada; Serge Riendeau, Chief Executive Officer, Canadian Dairy Commission; and Benoît Basillais, Director, Policy and Economics, Canadian Dairy Commission.
Mike Pickard, Vice-Chairman, Farm Products Council of Canada: Thank you very much. I’m pleased to have accepted on behalf of the Farm Products Council the invitation extended by your committee to appear here this evening.
As Madam Chair said, I’m Mike Pickard. I am Vice-Chairman of Farm Products Council of Canada. I have with me Carole Gendron, the Director of Regulatory & Sectoral Affairs.
I had a conversation with my chair last week and he personally sends his regrets to yourself and council members as he had a prior engagement and could not attend.
The Farm Products Council of Canada works on behalf of the Government of Canada to help all Canadians have affordable and continuous access to poultry and eggs while maintaining a fair return for the farmer.
Our head office is located in the National Capital Region on the Central Experimental Farm in Ottawa, with a complement of 16 full-time employees. The council is governed by no fewer than three members, or not more than seven members, appointed by the Governor-in-Council. Including our chairman, Brian Douglas, the council currently has four appointed members with the chair being the only full-time member.
FPCC’s role is to act as a public oversight body reporting to the Parliament of Canada through the Minister of Agriculture and Agri-Food.
The FPCC administers two federal laws, the Farm Products Agencies Act, FPAA and, through an agreement with the Department of Agriculture and Agri-Food, the Agricultural Products Marketing Act, the APMA.
The Farm Products Agencies Act provides for the creation of marketing as well as promotion and research agencies. There are currently four marketing agencies and one research and promotion agency.
The marketing agencies are Egg Farmers of Canada, Turkey Farmers of Canada, Chicken Farmers of Canada and Canadian Hatching Egg Producers, which operate under supply management. The promotion and research agency is the Canadian Beef Check-Off Agency.
I believe the four marketing agencies presented to this committee yesterday morning.
Specifically, FPCC oversees the operations of national supply management, as well as promotion and research agencies, to ensure that they comply with the objectives set out in the FPAA. This is aided by working with national agencies to promote more effective marketing of farm products, maintaining relationships with federal governments and provincial supervisory boards and advising and informing the minister on all matters regarding the creation and operation of national agencies.
FPCC’s other responsibilities include, but are not limited to: Investigating and taking action within its powers on any complaint in relation to national agency decisions; holding public hearings when deemed necessary; collaborating with provincial supervisory boards; and administering the Agricultural Products Marketing Act on behalf of AAFC.
The Agricultural Products Marketing Act authorizes the delegation of federal authorities over interprovincial and export trade to provincial commodity boards. FPCC’s role under this act is to work collaboratively with AAFC to manage federal oversight and the administration of delegated authorities under this act. Regarding the compensation to supply managed agricultural sectors under — I’ll state what you didn’t Madam Chair — all these trade acts, the Canada-United States-Mexico Agreement, the CPTPP, the Canada-EU Comprehensive Economic Trade Agreement and in light of FPCC’s statutory responsibilities, FPCC’s role in this regard will remain limited.
Our role is to oversee that agencies are able to manage the changing import access in determining production quotas to ensure supply and market stability.
Considering FPCC’s technical expertise and industry perspective, FPCC is pleased to participate in the poultry and egg sectors working group.
At these sessions, discussions to date have focused on mitigating the impact of trade agreements on poultry and egg supply managed sectors. Members of this group are working closely with colleagues in the department and with industry partners, ensuring discussions are held in an open and frank manner.
Thank you for your time and allowing us to present today. It will be our pleasure to answer any committee questions.
The Chair: Thank you very much. We’ll get to the questions, but it will be after the next presentation.
[Translation]
Serge Riendeau, Chief Executive Officer, Canadian Dairy Commission: Madam Chair, my colleague, Benoît Basillais, Director of Policy and Economics, and I are honoured by the invitation that you extended to the Canadian Dairy Commission.
The Canadian Dairy Commission is a Crown corporation with 72 employees, governed by a board of three directors appointed by the Governor in Council. For more than 50 years, the CDC has supported Canada’s dairy industry by overseeing two key elements of supply management in this sector, namely the price of milk at the farm gate, and national milk quotas.
To manage prices at the farm gate, each year the Canadian Dairy Commission conducts a study on the costs of milk production. Provincial marketing boards use the findings of this study in a mathematical formula to adjust the price of milk on February 1 of each year. This formula also takes inflation into account. In specific, exceptional circumstances and at the industry’s request, the Canadian Dairy Commission consults with stakeholders before deciding on the price of milk at the farm level.
For milk quotas, the Canadian Dairy Commission monitors and forecasts demand for dairy products in Canada and notifies provincial marketing boards of the producer quota adjustments required to align milk production with demand and avoid a shortage or surplus. This way, the supply management system meets demand in a timely manner.
The CDC also provides other services to the dairy industry. It ensures storage of butter inventories to offset production and consumption seasonality, it performs compliance audits to enforce dairy system rules, administers some industry decision-making committees, and provides them with secretariat services and technical expertise, in addition to administering programs on behalf of the industry.
More specifically, the issue of compensation for supply-managed agricultural sectors in relation to the CUSMA, CPTPP and CETA agreements is an important issue. Access to the Canadian market given to foreign dairy products is estimated at 35 million kilograms of butterfat for the country. Access as a result of CUSMA alone represents 16 million kilograms of butterfat.
To examine the impact of the two agreements, CUSMA and CPTPP, the Canadian Dairy Commission was invited to participate in the Agriculture and Agri-Food Canada Mitigation Working Group for offsetting the impact of trade agreements on the dairy industry. We used this opportunity to collaborate with our colleagues in the department and with industry partners through open, frank discussions. Our participation allowed us to provide our expertise to the working group.
The Mitigation Working Group should present industry’s recommendations to the Minister of Agriculture shortly; perhaps they have already been presented. Other industry consultations are planned after that date, including through the strategic working group. The Government of Canada plans to review industry recommendations and respond to them in due course.
We will be pleased to answer questions from the committee.
[English]
The Chair: Thank you very much. That’s great.
Senator Doyle: Thank you for your presentations.
I’m looking at some Library of Parliament notes. It says the European, U.S. and Pacific trade agreements will open up about 18 per cent of our dairy market to foreign competition. Can your industry sustain itself under that kind of an attack?
Benoît Basillais, Director, Policy and Economics, Canadian Dairy Commission: The 18 per cent that you have read, I’m going to go the other way around. The Canadian Dairy Commission will look at serving the market in terms of butterfat. We only looked at the impact in terms of butterfat. It’s about 8 per cent to 10 per cent, depending on the calculation. It’s exactly 35 million kilograms, depending on the method you use. You will get anywhere between 8 per cent to 10 per cent. That’s maybe why you have seen the numbers.
Some other groups have looked at overall impacts, not only on butterfat but all of the other components when we produce milk — butterfat and other solids — and came up with the number of 18 per cent when you account for the others. That’s their calculation, the Dairy Farmers of Canada. I will let them explain that in more detail.
In terms of quotas, it’s 35 million kilograms after the full implementation. Basically after 19 years, depending on which agreement you talk about, and as a comparison the total requirements today, the market is 370 today. It’s still a very important impact even though it’s not the 18 per cent.
Senator Doyle: I believe the federal government allocated a few hundred million dollars to help our dairy farmers deal with CETA. Are these funds being taken advantage of, and is that enough funding given the other trade deals that are coming on? Will you be needing additional funding to stay in business?
[Translation]
Mr. Riendeau: Our work has focused on assessing the impact of the amounts of butterfat entering our market.
As I said in my presentation, the Canadian Dairy Commission’s job is to ensure that there is enough production to meet the demand for dairy products in Canada. This requires considering the entry of products in relation to negotiated agreements. First, we must consider the entry of products from outside; second, we must consider the total demand for Canadian dairy products. This will determine the level of production that Canada’s dairy farmers will have to produce.
We have done the math to find out the quantities of butterfat that must enter our market and we are letting the producers calculate the financial impact and the impact of the demands that will follow.
[English]
Senator Doyle: Every now and then, of course, you hear some unfair criticism of supply management. Satisfy my curiosity here: If Canada got rid of the supply management system completely, how much of the Canadian dairy industry would survive? Would it be completely wiped out? Would we be able to compete without supply management? No, we couldn’t, I guess; is that fair to say? Do you have any comment on that?
I know Australia and New Zealand have gotten rid of supply management. Is much of their domestic industry still left? Do they have a neighbouring major competitor in the way that we have the Americans on our doorstep?
[Translation]
Mr. Riendeau: First, the Canadian government has never mentioned that it wanted to eliminate supply management. The Canadian government has always talked about protecting supply management and has always supported it. Your question is once again hypothetical, and it would have to be transposed to a situation of change in our system to figure out how the dairy industry or agriculture would be encouraged to remain competitive with other countries. Each country has its own way of doing things with its agriculture, so I find it a little awkward to answer a hypothetical question.
[English]
Senator Doyle: The Canadian industry, the Canadian government supports supply management. I guess it’s fair to say we support supply management also, all of us. But I was wondering what kind of state we’d be in if we didn’t have supply management, given what Australia and New Zealand have done. I’m wondering what our domestic industry would be like if that happened.
Thank you for your comments.
Senator Mercer: I want to go to something Senator Doyle said. We’ve got viewers watching this, and I don’t want to confuse them.
Supply management in New Zealand is no comparison to supply management in Canada. New Zealand almost went broke because of supply management, because they were paying money directly to farmers. The Government of New Zealand was giving farmers money.
Supply management in Canada, as I’ve said time and again since I’ve been in this spot, I can never find a line in the Canadian budget that shows money coming from the Government of Canada to support supply management.
Supply management is managed by the suppliers and the farmers themselves.
I want to clarify that confusion. New Zealand and Australia are not good comparisons, because supply management — it was called supply management — anyway, I want to get on to my questions.
We have several new agreements in place, plus a rewritten one with the Americans. Which one of these agreements, in your estimation, will have the biggest impact? Do you have a way to measure it at this point — very early? After the agreements are in effect for a few years, you’ll be able to tell more exactly. Do you have a prediction?
Mr. Basillais: The three agreements all have very specific — the CETA is about the cheese market. We’re starting to see the impact right now. The cheese-processing industry will be the one most impacted. Depending on the type of cheese that will be impacted — we’re still struggling to get through that. CETA is very specific about cheese.
The CPTPP — the Asia Pacific — has 16 TRQ. It’s not only cheese; it’s all the other ones. This time, in terms of impact, the CETA is about 5 million KG. The CPTPP is about 12 million KG. In terms of global impact, it is bigger and it will be spread over more products. It’s difficult to see which type of products will be imported to see what the impact will be.
The U.S. agreement is about 14 million KG. It’s slightly bigger than the CPTPP in terms of overall impact, and it covers 16 TRQ. It is pretty much the same as CPTPP in terms of market access. It’s wider: It’s milk, cream, butter, cheese and a series of similar products.
The challenge with this is they all come one after the other. They will be implemented on an incremental basis. Over the next six years, they will come one after the other by one fifth or one sixth at a time. There will be an accompanying effect for the next five years.
Senator Mercer: I have asked this question of every witness since we started this discussion. You have talked about the negative aspects of these agreements on the industry. I want to talk about the positive effects and the opportunities. Canadian farmers are some of the most innovative farmers in the world, growing what we grow in the harsh environment we live in. It’s miraculous in many ways.
What are we are not talking about that these agreements have provided our agricultural sector with opportunities?
[Translation]
Mr. Riendeau: Earlier in my speech, I mentioned that, when the three agreements come into effect, 35 million kilograms of butterfat will enter Canada annually and in the long term. Canada will need to grow a lot to accommodate it. Over the five to six years following the coming into force of the agreements, if growth continues at this rate, it will have to accommodate the equivalent of all the dairy products coming in from outside. Despite all that, milk entering from outside Canada will no longer be produced or processed in Canada.
The Canadian dairy system has always been innovative and has always done well. We have major Canadian processors here and major European processors in our own market. We have innovative product lines. Investments are made when there is growth. For the coming years, we must take these agreements into account and we must find ways to continue to innovate and develop. Under these agreements, certain products will never be produced or processed here again.
[English]
Senator Mercer: Mr. Pickard, in your presentation, under the FPCC’s other responsibilities, but not limited to, you talked about collaborating with provincial supervisory boards. Can you give us an example of how that has worked in the past — or present?
Mr. Pickard: We have an organization called NAASA, the National Association of Agri-Food Supervisory Agencies. The supervisory agency in each province gets together twice a year, at least, and feel out everybody’s concerns and what the problems are in one area. Maybe another province has a solution. It’s a sounding board that has been very effective. With our new chair coming on, he’s taking a head-on role, saying, “Let’s put a little more substance into it, so we can really make this a powerful organization.” That’s the heart of it.
Senator Mercer: I wish him well.
[Translation]
Senator Gagné: Thank you for your understanding and presentations. My question is for the Canadian Dairy Commission and deals specifically with the processing of dairy products. You mentioned that you have major processors here in Canada. There is still a challenge. Those products are sold and processed mainly in the Canadian market. What are the export opportunities for that processing, given the agreements that have been negotiated? Do you think the supply management system limits innovation in terms of our ability to diversify our dairy products to increase our chances of selling them outside Canada?
Mr. Riendeau: Let me clarify something. I mentioned that we have major dairy processors in Canada from here or from Europe. We also have a number of small dairy processors who ensure diversity and offer a range of exceptional products. In fact, if you read our annual report, you will find some very relevant information. Canada produces 1,050 different cheeses. We have no reason to envy Europe or other countries in the world. We have a great diversity, which is proof of our character and our innovative abilities, showing the possibilities that milk can offer. It is a noble product. It is a healthy product. You were talking about exports, but you have to understand that the supply management system, at its core, is not designed to export, but to meet the needs of Canadian demand.
I talked about how we ensure that our milk production is sufficient to meet consumer needs. Calculations are made to anticipate growth. However, basically, our system is not designed for exports really. Since our system is based on the demand for butterfat — as Mr. Basillais explained — protein comes with fat. There are also other non-fat solids. Therefore, surplus milk protein is used in another form in Canada or is used in the export market. However, the quantities are small.
Mr. Basillais: To add to what Mr. Riendeau just said, with supply management, nothing prevents exports; there is no prohibition. The system is not designed with that in mind, but rather to serve the Canadian market. We are enjoying some fine growth at the moment. As Mr. Riendeau said, milk is a noble product. The butter market is growing, the cheese market is also constantly growing at 2, 3, 4 or 5 per cent per year. The priority has always been to serve the Canadian market, to push innovation further; there are increasingly more types of cheese on the market. It started in Quebec and spread across Canada. Supply management provides stability, predictability that has made it possible to provide milk to processors who wanted to launch new products. There are benefits to that. The system was never designed for exports, but nothing is preventing it from doing that. I think that’s the way to put it.
Senator Gagné: What changes would you propose to allow for more exports of our Canadian products?
Mr. Riendeau: I would say that we must take into account the countries that benefit from access to the Canadian market. Canadian dairy processors should be able to benefit from the same tools and advantages as their competitors. The dairy system models of our neighbours to the south, in Europe and elsewhere are different from ours. So, to be competitive, we would have to be on a level playing field.
In some countries, the dairy market is heavily subsidized. As your colleague mentioned earlier, dairy farmers in Canada are not subsidized. In some countries, consumers pay for their milk at the grocery store and also through their taxes.
Senator Gagné: Thank you.
[English]
Senator Oh: Thank you, witnesses, for your very thorough information.
My question will go back a little bit more to Senator Mercer’s. When the USMCA and CPTPP are implemented, how much international market access will your sector gain?
Mr. Basillais: I’m not a trade expert, but we gain reciprocal access. The market access that Canada conceded to the U.S., the U.S. conceded it to Canada as well. It’s the same; I have a blank with CETA, but it’s pretty much the same everywhere. We can technically do that. Will it happen? That’s another story.
Mr. Pickard: As far as the poultry and egg, we are still doing some factoring but each industry is affected differently by each trade. You heard yesterday that the turkeys seem to get hit a little bit harder than the chicken guys. It’s complex. They have people working on that but as far as I know, it’s detrimental to some effect.
Senator Oh: In terms of market competitiveness and product quality compared to the U.S., Mexico or countries under CPTPP, are we okay? The competitiveness when you go in?
Mr. Basillais: Your question is whether we can compete with the U.S. and Mexicans My answer would be, as Mr. Riendeau said, same tools, same advantages. We don’t have the same tools. I think Canada has a lot of advantage. We produce high quality products. It’s worldwide renowned for the quality milk products. We have a lot of expertise.
We have never gone into the exports so as a potential maybe, but it would be a long stretch for Canada. We need to develop the expertise. And in terms of costs of production, we are not going to compete with California. They have huge farms. We have family farms in Canada. We have weather-related issues — but I still believe that we have some opportunity and some niche markets. If you look at the mass market and you look at the price there, it’s very low. I think I’m going a little bit off topic here, but you could ask the processor that’s going to come and see you to give you further information on that. It will probably be better.
Mr. Pickard: According to what everybody heard the industry say yesterday, it’s comparing apples and oranges. The cost inputs in certain regions are different. Byway of the Canadian industry competing, it is putting out the brand that Canada produces a better, safer product. I think that’s one of things that they are going to try and move forward with. I think we heard yesterday that competition is fine now but too much more and it’s the finger in the dam, once you pull the plug out.
Senator Oh: According to the Government of Canada, the CPTPP, all these new agreements implemented were securing new market access for Canadian products. With the government helping the farmers to develop the new market, how do they export to CPTPP, which is in Asia and others? What assistance does the government give to help the farmers?
Mr. Basillais: The Government of Canada has created two working groups, one to deal with mitigation that’s about to have completed their work. The next step is strategic long-term planning. That’s where the discussion will take place. This committee has not been created yet. We are at the stage right now where we are all trying to understand what happens and trying to figure out how it will work. It’s a bit premature to look into the future. That’s definitely something I’m hoping and expecting will be on the agenda of the strategic planning. How can we optimize or make the best of what happened? I suspect that is where it will take place. That’s as far as I can go today.
Senator Oh: At the moment, there are no plans or footprints on it?
Mr. Basillais: Not that I’m aware. The industry has been through a lot of changes recently. It is coping with all the changes. We implemented class 7 with the treatments, evolution of the system. By the time it was implemented almost implemented, the CUSMA came in and we have to change it again. At this stage, it is more making it work for the next few years and then how can we go further. The dairy industry has always been able to recover from issues. It’s not the first time.
Carole Gendron, Director of Regulatory & Sectoral Affairs, Farm Products Council of Canada: Regarding the poultry and egg industry, the focus is really, like dairy said before, it’s really to supply the domestic market. There is no real appetite for export or increasing the export market.
As Benoit said, we are also part of a working group committee with AAFC to see how the industry can be compensated and that the trade aspect can be mitigated.
Senator Oh: Thank you.
Senator R. Black: Thank you very much.
Under the recent agreements, the increased market access will be phased in over between five and 19 years. Is that phase-in period enough time to give Canadian producers time to adjust and innovate as may be necessary?
[Translation]
Mr. Riendeau: I would say that the Canadian dairy industry is booming. Will the industry adapt? We understand that working groups are talking about compensation, a group that will work on the future of the dairy industry. Those situations are positive if the agreements have been signed between countries or are about to be signed.
However, if Canada had not given access to its market, the dynamic would be the same in terms of growth and innovation. However, we must work with products that will come from outside and destabilize the Canadian market, at the very least. That’s where the complexity lies, for the moment, in terms of seeing exactly the impacts as the products are introduced, year after year, mainly over a period of six years, which could go up to 19 years.
Producers and processors are in the best position to assess the impacts that are coming to them. Of course, the world will not stop turning, but there will be an impact.
[English]
Senator R. Black: If you can tell us, were FPCC and CDC consulted appropriately during the trade negotiations?
Mr. Pickard: As far as FPCC is concerned, that’s not in our mandate whatsoever in our oversight role. We would just hear from the four national agencies because we do keep abreast with them on their concerns, but to the depth of any trade negotiations, that’s not our mandate.
[Translation]
Mr. Riendeau: For our part, since we report to Agriculture and Agri-Food Canada, we had good discussions with our colleagues in the department during the negotiations. The Canadian Dairy Commission worked with them to provide as much information as possible so that Canada can reach a good agreement. Yes, we were consulted and we provided our expertise at that time.
[English]
Senator R. Black: In last week’s Ontario Farmer, it says dairy farmers should be advised to prepare for the Nairobi declaration. Based on the three trade agreements and this new undertaking that we have to be on the lookout for in 2021, can you comment on whether this will be another hit in a year-and-a-half’s time?
Mr. Basillais: The Nairobi agreement is basically the end of all export subsidies. It’s not more market access. We will not be able to export products for which there is a deemed subsidy.
Over the last few years, there were several changes made to the industry to anticipate some of that. The CDC used to buy surplus skim milk powder and export it. We no longer do that. The class 7 was an attempt to address that and so this is adding, too. It was on the radar before. We tried to do it with class 7; the industry collectively did it. Now, with the agreement on class 7 the industry will have to comply with this new agreement. We will have to find a solution to that effect as well.
Senator R. Black: Thank you.
[Translation]
Senator Dagenais: Thank you to our guests. My first question is for Mr. Pickard. I listened to your presentation and all the things that your organization had to do.
What’s sort of surprising to me is that you have an organization of 16 people, only one of whom — the president — works full-time. How do you manage to be effective, considering all that those people have to do?
[English]
Mr. Pickard: To clarify, we have 16 full-time staff. Of the four, of the council members there will only be one full-time member, which will be the chair. At present we have four council members and if we have seven, the chair is the only one who is full-time. We have 16 full-time staff on the farm.
[Translation]
Senator Dagenais: So 17 full-time people. That’s why you’re so effective.
Mr. Riendeau, could you give us an idea of the variation in milk quotas. Over a 10-year period, for example, what kind of production have we had annually? Has it increased? Has it decreased? Has it varied? If so, what does it depend on?
Mr. Riendeau: I will let Mr. Basillais answer your question.
Mr. Basillais: We can divide that 10-year period in two. Over the past five years, there has been a strong and steady growth in demand, whereas, in the previous five years, the growth was more moderate, ranging from 1 to 2 per cent. Over the past five years, we have been in the 3 to 4 per cent range. We produce what consumers want. Consumers decide what they want, the CDC does the math, and each province manages everything optimally. So, in terms of annual quotas, the growth has been steady. With the agreements, as imports will replace Canadian products, some of the growth will be absorbed.
The growth is therefore steady. I’m not sure whether I answered your question.
Senator Dagenais: Last week, while I was in the United States, I listened to the U.S. president’s state of the union address, and I was eager to hear him talk about the Canada-U.S.-Mexico Agreement. Mr. Trump said that it was an excellent agreement for the United States.
Do you think it is an excellent agreement for Canada?
Mr. Riendeau: We should ask Mr. Trudeau.
Senator Dagenais: He would tell you that it is a very good agreement.
Mr. Riendeau: Since that is a comment from Mr. Trump, I guess it would be up to his counterpart to answer your question.
Senator Dagenais: Do you prefer to let Mr. Trudeau answer?
Mr. Riendeau: Yes.
Senator Dagenais: Could you give us some idea and tell us whether you are comfortable with the agreement? Because the agreement will have an impact.
Mr. Riendeau: I cannot talk about the parts of the agreement that do not concern us, but I can talk about the one that does. The reason why the government has set up committees to talk about mediation and compensation is that there is an impact on the Canadian dairy sector or on sectors that are under the supply management system.
Senator Dagenais: I assume that the organizations concerned will evaluate the compensation to be received?
Mr. Riendeau: We have assessed the impact of the amount of butterfat that foreign countries will be allowed under those agreements. Producers and processors will be able to assess the real impact it will have on them.
Senator Dagenais: To date, no amount of money has been paid in compensation. Everything is on hold.
Mr. Riendeau: Yes, it is.
Senator Dagenais: Thank you very much.
[English]
Senator Ravalia: Thank you for your presentations. My first question is for Mr. Pickard. You mentioned that one of your responsibilities is investigating and taking action within your powers on any complaints in relation to the decisions you make. What are the most common complaints you get and how do you respond?
Mr. Pickard: I wouldn’t say there is a common complaint. I think we had one that we just ruled on in November, the one prior to that was a year and a half ago. Sometimes a province will launch a complaint against the federal agency. Their first thing is to come to us and try and work it out and if not the complaint process continues. There is no common complaint. Every once in a while something comes up and that’s part of our role.
Senator Ravalia: In general, are you able to reach resolution amicably or can it be a drawn-out process?
Mr. Pickard: The last one was drawn out. Sometimes parties will meet with the chair and talk it out and it disappears. That happens sometimes too. There are timelines for a complaint. It can only take so long, and then it’s decided by a committee. Then the committee makes a recommendation to the council.
Senator Ravalia: Thank you. My second question is for Mr. Riendeau. Do the trade deals that we’ve struck have the potential to adversely affect particular regions or provinces, commercial versus family farms? Or do we expect if there is adverse effect it will be uniform across the country? My own concern is for my province of Newfoundland and Labrador, smaller farms, many family-owned businesses, where we sense there may be a greater vulnerability.
Mr. Basillais: I will start and give you some details and Mr. Riendeau can add to that. In terms of the way the system works at the farm level, at the producer level, the loss of production of the product will be spread fairly equally across all producers in Canada. Everybody will lose 8 per cent of future growth. Fairly and equitably traded, that’s the principle of supply management and quota. Everybody has a share of the market and everybody suffers or gains the benefit on a proportional basis. On the farm level it will be like that. On the processing side it will depend who gets affected and by where. That may be different. It’s very difficult to say if one region will be impacted more than others. It will vary depending on the processor’s ability to adjust to this new reality. So it will depend. On the producer’s side it will be shared.
Senator Ravalia: Do you think that smaller processors will be more vulnerable in this situation if they have less inventory, less capital?
Mr. Basillais: It’s a tough question to answer because everybody will suffer one way or the other. It’s difficult to say. Yes, if I’m a cheese processor I do a very specific cheese, if I have one or two lines and overnight it gets imported, I’m going to have to adjust and it will be tough. If I’m a big processor, my losses are big too.
Senator Mercer: Again, I’m disappointed that we don’t have an aggressive attitude towards making it work. We have the deal and we will have to work with it. I want to ask specifically about dairy. Is there not a consolidation in the co-op dairy market? I know in my province the largest co-op dairy farmers in Halifax is now part of a co-op in Quebec and expanding their market. Does that consolidation not insulate them against the changes and present them with more opportunities to increase market, not just in Canada but if there is export opportunity to do that?
[Translation]
Mr. Riendeau: I think the choice rests with the corporate system in those provinces. Producers who are business owners have made this choice precisely to face the future. As they are larger, they are better able to cope with change, no matter what happens. I believe that these choices were made mainly in your provinces.
It is not up to me to say whether it’s a good thing or a bad thing. It is their choice. In any case, what matters is that there be production and processing across Canada, in all regions. Agriculture is an economic driver for the regions. It is therefore important for the momentum to continue in all the regions of Canada. I think it must be maintained.
[English]
The Chair: Thank you.
With that I would like to thank our panel. It was a great discussion, lots of questions. We could have kept going for longer I’m sure. Thank you for being here this evening.
In our next panel of expert witnesses with us this evening are Sylvain Charlebois, Professor in Food Distribution and Policy, Faculty of Agriculture, Dalhousie University — he has been here before; Martha Hall Findlay, President and Chief Executive Officer of the Canada West Foundation; and Al Mussell, Research Lead for Agri-Food Economic Systems.
Welcome, folks. I understand you’re going in the order in which I read off your names. Dr. Charlebois, please go ahead.
Sylvain Charlebois, Professor in Food Distribution and Policy, Faculty of Agriculture, Dalhousie University, as an individual: Good evening, chair, honourable members of the committee and guests. I feel honoured and privileged to be invited back to speak to you about the future of our agricultural policies and, more specifically, the future of our dairy sector.
During my opening remarks, I intend to address four specific issues: the scope of a new reform, the optimal dairy farm, processing and innovation, and governance.
First, it is important to recognize that dairy farmers are resilient entrepreneurs. They are proud, but they also recognize that their macroeconomic environment is shifting rapidly. Many see how current limitations to our systems are becoming a challenge for an open economy. After talking to many of them over the last few weeks, there is one thing that has become quite clear: Any solution should be sustainable and should not be considered as a compensation, with a short-term view on the industry.
To maintain a reasonable level of domestic production in our country, especially for under-served regions like the Atlantic, the Prairies or even the North, it is critical that we keep dairy farms in operation throughout the country and not just in Quebec and Ontario. But at this pace, due to our lack of competitiveness, we could lose half of the 11,000 dairy farms we have left by 2030, even if the system remains unchanged at its core. For the last 20 years or so, this situation has been highly predictable, while recent trade agreements will only accelerate the process of eroding the sector’s economic influence.
Second, a reform should define what the optimal dairy farm should look like. In the grain sector, for example, based on several studies, the optimal size for a Canadian farm, and mostly in the Quebec region, given our climate, is about 3,000 acres. Less than that, and families must seek a secondary income by working off the farm. The operation can rely on economies of scale and heightened efficiencies. For dairy, the current average size of a farm is smaller than the global average. If you look at appendix A of the document I sent you, you will find all the average size of farms in most industrialized countries around the world.
The figure in appendix B is from a seminal study by Hemme et al., published in 2014. It shows how uncompetitive our dairy sector actually is compared to other countries. The world’s highest cost of milk production was found in Switzerland. The second was Canada. Armenia is the least competitive in the survey of 46 different countries.
An optimal model for Canada would need to look at many factors. Based on the results of this study, it may conclude that feed, labour, and operating costs, factors of production and quota costs are highly relevant when considering strategies to reduce the overall costs of operations.
Given how volatile the dairy market is globally, especially currently, a Canadian model would need to strike an appropriate balance between quota costs and opportunity costs while considering our own Nordic climate.
My third point is about processing and innovation. One main problem with a supply management system is that it traditionally has not allowed for product diversity. New innovative products that use dairy has been an issue in our country. We have come up with novel products but only for ourselves and not to offer to the rest of the world. Any new model would need to better support our dairy processing industry, which would allow for more innovation and trades to occur so high-quality Canadian milk and dairy products can be showcased around the world.
Right now, we needed Fairlife, owned by Coca-Cola, a brand that is the foreign to our country, to show us how we should innovate. Fairlife should have been ours. They are now building a plant in Peterborough, Ontario, creating 75 jobs. That’s innovation, lactose-free milk, but it came from an American-owned company.
By creating a task force that would look at competitiveness in the dairy sector, industry experts can work together to design and deliver practical and sustainable solutions that can help our dairy farmers, processors and grocers, the entire supply chain, to ensure our dairy industry remains strong for the future.
[Translation]
Finally, I would like to discuss interest groups and producers, the governance of the sector in general.
As a researcher, I’m urging the Senate of Canada to pay particular attention to the dairy farmers themselves and to give them a chance to express themselves, not only through the groups that represent them or that try to represent the interests of a group of producers. Over the years, these groups have become political machines that defend the current system at all costs, despite its shortcomings. By talking to producers, we see how some of their comments do not reflect the reality of the groups that represent them.
It is therefore important for the committee to hear from those who work on the ground, not just those who defend a system that is clearly leading us to an economic dead end.
Thank you very much.
[English]
The Chair: Thank you for your presentation.
Next we will have Martha Hall Findlay.
Martha Hall Findlay, President and Chief Executive Officer, Canada West Foundation: Apologies to the translators that I did not send my material in advance. Thank you for your patience.
I am indeed the president and CEO of Canada West Foundation. It is a nonpartisan evidence-based think tank doing research, analysis and recommendations on public policy. Although we tend to have a western Canadian focus, much of our work is really on what is in the best interest of Canada as a whole. We have three policy centres: natural resources, and some of you might be familiar with our extensive body of work on Bill C-69; human capital; and relevant today, trade and investment.
I am also here in my capacity as a trade expert. My early years of practising law were focused on international business and trade law. I dealt with trade issues on a regular basis. When I was here in Ottawa as a member of Parliament, I served as the international trade critic for the then official opposition.
I have also been a member, and still am, of the Minister of International Trade’s trade expert advisory council for the last two years. As you can imagine, the NAFTA renegotiations were —
The Chair: Could I ask you to slow down a little bit?
Ms. Hall Findlay: Sorry.
As a member of the minister’s advisory council, needless to say the NAFTA renegotiations were a main focus.
Some of you also know that I have done a lot of work on the issue of supply management. I will not be talking about whether I support or do not support the concept of supply management. The purpose of these discussions, and I commend the Senate and your committee for looking into the issue, is given that we have this system what should be done to compensate those in the supply managed sectors in the event they suffer losses due to the increased access to the Canadian market provided under trade agreements to producers or processors from other countries?
I also wish to stress that even in our overall work on supply management, we have never said that people should not be compensated for losses beyond their control. We are both compassionate and an affluent country. We therefore have both the will and the way to help when called for. Other examples of trade-related compensation and transition assistance include softwood lumber, the wine industry during the original free trade negotiations with the United States, and there are a number of others.
My comments will cover several points. Should there even be compensation? If so, how should it be calculated? By whom? How should it be provided and to whom? Who should pay for it? Should new opportunities be factored in? For example, potential opportunities with CETA or because of the operations of the co-op Agropur in the United States. And if there is time, I have a few notes on each of the agreements in turn and perhaps even a couple of notes on Brexit.
First, in terms of compensation, should there be compensation? The basic principle, in our view, although somewhat harder to determine in practice, is that there must be evidence of actual loss suffered. There is too much discussion and it’s not just dairy; it’s not just this sector, but too often there is too much discussion of what will the loss be? Our view is there has to be very strong evidence of what is actually suffered in order to determine compensation.
Another question has to be: Was it the governments’ fault? For example, was it like an expropriation based on a promise? In a system that establishes quotas and the value of quotas, if the government turns around and does something to take away that value, then one might argue it’s more akin to an expropriation and therefore has a different context in terms of compensation.
Or was it just due to the losses due to bad business decisions? Although not necessarily trade related, we can look at past history in terms of General Motors and Chrysler as Canadian taxpayers were still very much in the hole in terms of support. I’m not saying it was the right thing or not, but there are different contexts for compensation or not.
Other examples outside of trade agreements include compensation and transition for tobacco farmers in Ontario or cod fishermen on the East Coast. The issue of compensation comes up in Canada in a lot of different circumstances. We have some opportunities in this country to really put forward some policy reforms on how to deal with these instead of on an ad hoc basis every time.
How should it be calculated? It should be based on factual evidence of loss suffered, not anticipated loss of income, loss of asset value or other losses suffered. It should not be based on hypotheticals or assumptions.
By whom? By whom should the calculation be made is what I mean by that. It is very important, when the government is going to be paying compensation or transition assistance to any group or organization, that it also has in mind the responsibility to taxpayers. And so we are of the view that whenever any calculation is to be made, it should be made at arm’s length by people who are engaged in an objective way and not necessarily with a conflict of interest. Of course, you have to have people involved in the industries provide input, but calculations need to be done by independent and objective people.
This is another challenge. Again, we are reacting. We do a trade deal and then we react to a particular interest group or organization.
I have to say, bragging a bit, we at the Canada West Foundation working as I speak on some major proposals for Canada to change how we approach this entire issue of disruptive loss, whether due to trade agreements or otherwise, to take the decisions on whether, how much and when out of the lobbying and political realm and base it on clear principles of fairness and compensation. Due to time limits, we’ll have to wait and talk about that at another time.
Then, of course, there are questions of how it should be provided and to whom.
In some cases, the right answer is, if there are corporate losses, to provide assistance to a corporate entity in order for the corporation to keep jobs. But in a circumstance like this, the people to whom compensation would likely be paid would be more likely individual farmers, on the assumption it should happen, and we can agree to disagree on whether that should happen.
Again, it needs to be objective. In terms of how and to whom, according to the OECD, there’s been a fair bit of work done on compensation for agricultural reform and it should be directly targeted to the affected groups. It should be tailored to the objectives of the policy. Whether it is a larger reform of the dairy system or a larger reform of what we do in terms of dairy production, whatever the compensation or transition assistance, should keep that particular policy direction in mind.
It is also important to ensure that the adjustment that is done subsequently to the reform — and by reform, here, of course, we are talking about changes because of a trade agreement — not be impeded by distortions in input or output markets. There is a strong suggestion that, where you can actually calculate loss, compensation be done in a lump sum.
Transition assistance is, of course, different. That means it should only be payable to those willing to transition, whether that’s to continue in the business or transition to a more competitive, more productive environment, for example, or transition to something else. The details of that, therefore, would be much more case specific.
How does it get paid for? I’m not recommending the Australian dairy system, but the system they used to establish compensation was extremely innovative in putting in a levy of 11 cents per litre of milk for eight years. It was actually paid for by consumers but it allowed the government to, in fact, fund lump sum payments at the beginning that they knew that needed to be incorporated.
I would also like to ask whether new opportunities should be factored in. There were a couple of questions earlier about the export opportunities. As it is now, as you heard, supply management is not set up to provide export opportunities. That doesn’t mean that there might not be some in the future. CETA actually was reciprocal. It provided significant access to our dairy into the European market. That was negotiated because no one thought Canada would want to bother exporting to Europe, or that under other WTO rules, we could, or that we would ever be productive enough to be cost effective. But that doesn’t mean that those opportunities are not there. The CETA deal provides terrific access, if we can, as a country and as an industry, decide that’s something that we want to do.
Do you subtract the opportunities from the losses? Another one is, Agropur is owned by about a third of Canadian dairy farmers. It is a cooperative. Interestingly, however, Agropur now processes, through its U.S. operations, more U.S. milk than Canadian milk. So Agropur, owned by over 3,000 dairy Canadian dairy farmers, now actually arguably supports more U.S. dairy farmers. If the U.S. dairy market is able to benefit from the CUSMA and if Agropur stands to benefit from that kind of access, do we subtract the benefit that, as owners of Agropur, the Quebec dairy farmers have?
I’m not saying that that should happen. It is more a principled question: Should we make sure, when we are talking about compensation and transition, that we make sure we calculate not just the losses but also the opportunities? That would also speak to making sure you don’t base it on hypotheticals and that you actually have an opportunity to look.
I would like to talk a little bit about the percentages that were being discussed earlier. I would like to stress that when we say that two to three per cent of the cheese market has opened up to European competitors, the TPP/CPTPP would be giving up to 3.25 per cent of the more complete market, with the CUSMA opening up access to up to 3.6 per cent of the dairy, poultry and egg markets. I would like to stress that’s not giving that market away. That’s merely opening up those percentages of the market to competitors.
We are not necessarily as productive. I think there is a strong argument to be made that the Americans are certainly in a much better position to take advantage, especially in fluid milk. But there was a recent study in the United States on what the CUSMA will mean to U.S. dairy and they figure that it is only about $280 million — U.S., mind you — but only about $280 million of benefit to them through this access to the Canadian market.
In calculating whether compensation should be made, it is another reason why those calculations should be objective. They should have taken into consideration the other calculations that have been made on what people think the value of the Canadian market is.
Madam chair, I fear I have gone past my time. I tried to speak slowly. Other comments on some of the deals and, perhaps, Brexit may be in the questions.
The Chair: I’m sure they will be.
Mr. Mussell, we are ready for your presentation.
Al Mussell, Research Lead, Agri-Food Economic Systems: Madam chair and honourable senators, thank you for the opportunity to speak with you today. I am an agricultural researcher with experience and expertise in agricultural policy, trade and market regulation. Based on my work, I will speak on my understanding of the situation concerning recent trade agreements in supply-managed industries with a focus on dairy and drawing from a short paper that my colleague, Douglas Hedley, and I prepared for this committee.
Canada entered into the Comprehensive and Economic Trade Agreement, or CETA, in 2017, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, on December 30, 2018, and completed negotiations on the Canada-United States-Mexico Agreement, or CUSMA, on September 30, 2018, which has yet to be ratified.
CETA resulted in tariff rate quotas, or TRQs, available to the European Union for 16,000 tonnes of cheese and 1,700 tonnes of industrial cheese phased in over six years, in addition to existing cheese access of 20,412 tonnes under WTO, 66 per cent of which is already allocated to EU countries.
CPTPP has been ratified by seven member countries and has only been in force for a matter of weeks. It incorporates the increased dairy market access for a broad range of dairy products originally agreed to by Canada in the Trans-Pacific Partnership. CUSMA provides the U.S. with increased market access for milk, cream and dairy products available for U.S. export to Canada under tariff rate quotas. The additional dairy market access in CUSMA, for the most part, reflects the volume set forth in the TPP, from which the U.S. withdrew in 2017, with the exception that it contains a much larger TRQ for cream.
CUSMA also provides for increased Canadian access to the U.S. dairy market. However, my expectation is that this will likely be of only modest benefit to Canada.
Also under CUSMA, Canada agreed that milk classes six and seven must be terminated no later than six months following the coming into force of this agreement. Furthermore, Canada accepted two constraints on exports of skim milk powder and milk protein concentrates taken together, and infant formula.
First was a minimum pricing formula for milk to make these products marketed in domestic and export markets based on USDA-reported prices in commercial U.S. markets.
Second was the volume constraints on exports within this pricing structure for the three commodities. Exports beyond these thresholds will face a significant surcharge. However, the volume restraints specified exceed Canada’s WTO-subsidized export caps, effectively acknowledging, at least on behalf of the United States, that Canada can have non-subsidized dairy exports, at least for the named products.
These are significant, because, under milk supply management, in meeting the Canadian demand for butterfat, skim milk is produced in surplus. Facilitating market clearing in the skim market has been a challenge as Canada’s dairy exports are deemed subsidized. Class 7 allowed for pricing of skim milk in either the domestic or export market at world price. In turn, this allows Canada to declare exports of products made from class 7 as non-subsidized and not subject to WTO export caps, and allows Canadian milk production to better meet domestic butter fat demand.
Moreover, the WTO Nairobi Declaration of 2015 committed countries to eliminate subsidized exports. As a signatory, as of January 1, 2021, Canada will be entirely out of the market for dairy exports with the exception of products it declares as free of subsidy.
The combined effects of — access allowed by Canada under the trade agreements and anticipated small effects of reciprocal access are expected to be significant. For example, on cheese, we expect that, when fully phased in, the access could represent around nine per cent of domestic cheese consumption. This represents a significant loss to dairy producers and processors.
At the same time, the matter is complex. The Canadian dairy market is growing, which will act to dampen losses due to market access. The specific refinements necessary to accommodate CUSMA and the removal of class seven are unclear at this time. There are other refinements in milk supply management that could potentially improve Canada’s dairy competitiveness in the face of increased competition from imports.
With this in mind, based on my work as a researcher, my view is that a full estimate and assessment of losses due to trade agreements are necessary prior to any fulsome discussion of compensation to the industry. I note that compensation associated with CETA has already occurred.
The discussion of dairy policy evolution and the potential role for compensation should be discussed in its full context, including the Nairobi Declaration, the need for industry growth and industry investment over time.
Finally, it is my view that evolution in milk supply management will be complex and perhaps difficult. However, we have no responsibility or realistic alternative but to engage it. Abandoning our system of milk supply management in the face of trade pressure will invite the malaise affecting other dairy industries and the need for stabilization and domestic support will likely meet with trade challenges from others. Moreover, elimination of production quotas that support milk supply management would destroy an immense amount of policy-created asset value, inviting massive compensation demands from producers and seriously financially weakening the dairy sector, some lenders and some input suppliers. Rather, the relevant task and opportunity is to improve and retool our milk supply management system. Thank you.
Senator Oh: Thank you, for the very important information. From the tone of all three of you, you have some kind of reservation on the coming agreement. Some argue that the incomes of European and American producers are heavily subsidized by their governments. Given the increase in import of dairy products from the EU and the U.S., can Canadian dairy and cheese producers be competing in the same term over there? In the export market?
Mr. Charlebois: We are not competitive. We have to be honest with ourselves. I know, in the former session, I believe it was Senator Doyle who mentioned that the Canadian government does actually support supply management and therefore the Senate supports supply management. I actually don’t see much evidence in the last few years that the Canadian government supports supply management. It says it does, but I don’t see any evidence. We are signing trade deals around the world assuming we are competitive. We are not. We are allowing more products in. We are not hard-wired to think about exports.
Look at CETA right now. We are importing more than we are selling to them or we are allowed to sell to them. That needs to change. Look at the food guide. Supply management is designed to produce what we need. Apparently Health Canada believes that we need less dairy products. That’s fine — it is science-based, but what happens to our quota system?
The hypocrisy that has contaminated all of our discussions on supply management and the future of our dairy sector in particular, has really created a roadblock for change. That would be a starting point. We need to be honest and say we need a different formula. Once we do that, then we will be able to compete and open our borders. Right now, we are just not ready.
Ms. Hall Findlay: I have to disagree with my old friend Senator Mercer on one point. I agree completely that there is no budget line that provides a subsidy to dairy, poultry or egg farmers. But the system of supply management is widely regarded as a significant subsidy to the industry. The OECD, the WTO, the Nairobi deal will actually be very difficult. If our system in Canada — we are satisfied with a system that does not export. If we are satisfied with a system that is only there for our domestic market, then we have to get a better understanding of the trade deals that we have.
We hear people asking, what are the opportunities — what are the global opportunities? I happen to think that there are. When I look at how much of New Zealand’s production is exported around the world. We make good milk, we make good cheese and I think we should be selling. I think it is a terrific opportunity. We will not be able to do so. One, because of the level of support that supply management gives to the system. That’s not me saying this, that’s international trade authorities. That would be one that would prevent us from doing it. The other is, we are not competitive, and our pricing, even if we had no other restriction, we are just really expensive and so we won’t go flooding the European market because our stuff is too expensive.
I would like it to be different. If, as a country and as a sector, that’s a decision we have made, then we need to make different decisions. We can’t talk about both. There is a Boston Consulting report that was done for Agropur that has interesting numbers about our efficiency, our productivity, and we don’t compare well. Absent anything else, it suggests that the Americans will be able to take significant advantage of the market here for those reasons.
Senator Oh: You don’t think that we don’t have the volume big enough to compete with —
Ms. Hall Findlay: It is not just our volume. We are tiny. 36 million people. We are not a big market. We don’t have the economy of scale. We have some multiple-thousand-head farms, some very big farms, but the average farm in Canada is quite small and they are not productive and we’re not competing in that sense because we’ve chosen not to.
Mr. Mussell: Thank you, Senator Oh. You made reference to reservations on the agreements. We are here to talk about supply management industries and frankly focusing doesn’t matter on CUSMA in particular, but also on CPTPP. There are not a lot of winds for supply management in these trade agreements.
Starting first with CUSMA. On most farm products, food products, we already have free trade with the United States. Really, the excluded commodities are poultry, eggs and dairy products, and on the U.S. side, sugar. Of course, we are not major sugar producers, so there is relatively little for us there. We default somewhat, again in consideration of supply management, to the defensive side. Subsidies are technical, and, I think, over-simplified matters in my understanding as it pertains to dairy products. Our counterparts in the EU make use of single-farm payment subsidies. We know based on a recent study completed for the EU Parliament that 70 per cent of dairy farm income, and somewhere in the range of 100 per cent of cattle farm income in the EU countries comes from those single-farm payment subsidies. On the U.S. side it’s a little bit more complicated and it can be quite technical.
In my understanding of it, though, I would say that a lot of the subsidy-type protections offered in the U.S. comes through their classified milk pricing system, which is not unlike ours in many respects.
I think we have to note here, when my colleagues on the panel make reference to competitiveness, our raw milk price is relatively high, and that’s by design. We do that because it is geared around costs of production. That has created some limitations for us. In particular, we deal with our exports as being deemed subsidized. We’ve had to engineer around them.
The fact remains this is not an export-driven system. Dairy producers, in particular, don’t feel strongly about exporting; they are much more domestically oriented.
Maybe I will stop there.
The Chair: Senators will have one question each, so come up with your best question.
Senator R. Black: Dr. Charlebois, the second committee that has been struck but hasn’t started meeting I don’t think, do you have any confidence in that committee in making the reforms you are proposing, or are they not going to be that farsighted? It is not my one question but —
Mr. Charlebois: Senator, it is a fair question. I think the scope of the mandate is limited.
Senator R. Black: Of that second committee?
Mr. Charlebois: That’s right. Of the second committee. The conversation we are having right now should have happened 20 years ago at the very least. This was highly predictable. When we look around the world, different systems — when we talk about countries that actually ended their own supply management scheme, there is Australia, New Zealand, Korea, U.K., Europe in 2015. I was there for years, studying how they actually reformed their system there.
Canada is unique. I’ve never met a dairy farmer who was against the system. There are no levies. It is a very good system for them, not for the entire economy. Especially for rural economies, we can do better. That should be how the mandate is framed: How do you look at supply management 2.0? What I’m hearing from dairy farmers is that we have a system that has changed but not nearly enough to accommodate all the treaties we recently signed and the others that are coming.
The Chair: Are there any other comments from the panel?
Ms. Hall Findlay: I agree completely that this discussion should have happened a long time ago. As I said in my opening remarks, this country reacts rather than plans. That’s whether it is dairy or all supply-managed sectors, whether it is the auto sector or anybody. As a country, we tend to react as opposed to plan for things.
We tend to react to — and not to pick on anybody in this particular sector, but there are a number of sectors in the country that have strong lobbies with an awful lot of money to have more power and influence, politically. We should have a system in Canada that does not react but that uses the system — for example, the Canadian International Trade Tribunal. When there is an allegation of dumping or countervailing duties that need to be applied or not — the details of it — objective analyses are done in terms of economic harm, and people are compensated. We already have a system in this country to do that, but we don’t use that approach when we are doing something like this.
My preference would be, instead of having this one-off every time there is an issue, whether it is a trade agreement, downturn or other disruption, we as a country should get a lot better at determining when we compensate, for what reasons and how do we decide.
Mr. Mussell: Senator Black, I don’t think I’ve seen the terms of reference for the working group to deal with strategy or the future.
One thing that I think one or more of my colleagues brought up had to do with the dialogue within the industry. Maybe we called it governance, but it is kind of the same issue. In my understanding of it, I feel strongly that we have to find a way to consult people. We have to find ways to work together. Producers can splinter apart on this, whether they are provinces, smaller versus larger, producers versus processors.
I worry that many of our provincial organizations have fallen into something of a trap in terms of being so strongly defensive of their system that it would appear to be omnipotent. Now, when we have to go back to people and say, “Look, we have trade agreements. That creates some weaknesses we need to be able to address through policy changes.” If everybody had been educated and communicated with in such a way that they believe everything is infallible and it would never have to change, it is hard to go back now and say, “Wait a minute here.”
We are talking primarily about CPTPP and CUSMA, but we have Nairobi coming. That’s a big change for us. We have to be able to engage that.
Senator Ravalia: Thank you for your insightful remarks.
I will refer to something you talked about earlier: the recent changes to the Canadian food guide with the de-emphasis on dairy products. Do you think there are potential long-term impacts of consumption of dairy in this country and the added strain that may place on producers and the potential long-term negative economic output or outcome?
Mr. Charlebois: It is a fair question. We are conducting a study on this issue at Dalhousie, in partnership with University of Guelph. We are doing two things: We are conducting a cost analysis of the new guide to assess whether Canadian families are more or less food secure. Second, we are looking at how the new guide will influence behaviour and choices. It is assumed right now that dairy will be affected as a result. Given how supply management is designed to serve the domestic market, one can only conclude that the industry will retract. With beef — I’ve met a lot of cattle producers, over the last few months. They are less concerned because they can grow their business outside the country. That’s not the case with dairy.
Senator Ravalia: Right.
Ms. Hall Findlay: The United States has increased its global exports of dairy fourfold in the last 10 years. They have recognized at government level or producer level — there are two real streams of production in the United States. There are the big farms that are very productive, very cost competitive and feed about 50 per cent of the American market, but they are only 3 or 4 per cent of the number of farms. Then 96 per cent of the farms, in terms of numbers, are relatively small; you might call them family farms.
Those exports have been a big issue for the American industry. We can’t do that, so we are stuck. We are stuck with a growing population, but when the world’s population is expected to be into the 6 and 7 billion, those markets are massive. There are people who are going to need to eat. Canada grows from 36 million to what — 38, 49 or 40.
You can probably tell my bias. I think it’s a shame that our industry isn’t poised to take advantage of that. The discussions need to be held with the producers, not just the organizers. There are producers who are very interested in exporting and growing and in those opportunities, but they don’t have a voice.
Mr. Mussell: You raised the issue of the food guide and maybe I’ll focus on the domestic market implications. When we created a category, which we will probably call protein-rich foods, I don’t think people go to the grocery store to buy protein. They go to buy cheese or beef, pork or chicken, what have you. This by itself is disruptive, likely from a consumer perspective.
Second, food manufacturers build product offerings, whether the thinking is that a lot of people eat precisely by the food guide; I doubt if many do. The way we think about our food is likely fragmented in that way, and food companies construct their product offerings appropriately. Now we have reclassified this after 40 or 50 years under a previous model so it’s disruptive.
How disruptive and how costly it will be in the long term, I don’t know. I suspect that food manufacturers can probably reorient how they position things and people who are inclined to follow this closely will figure it out. But it could create a lot of confusion and greater costs as we get to that point.
Senator Ravalia: Thank you.
[Translation]
Senator Dagenais: Mr. Charlebois, allow me to congratulate you. I have seen you on the television and heard you on the radio in the Montreal area and your explanations are always clear, to the point, and specific. I just had to mention that.
You have told us that we have to listen to farmers. I am not certain that farmers would take the liberty of criticizing or contradicting their associations. You know how that works. We have not mentioned the associations by name, but we know them very well.
I would like to go back to the lack of competition in the dairy sector. Certain factors have definitely made farmers less competitive. Something has killed competition, I guess, but where are the solutions now?
Mr. Charlebois: We first have to accept the fact that the spirit of entrepreneurship has been killed. For 50 years, the legacy of supply management has been to kill the spirit of entrepreneurship in the sector. Practically none is left. The concept of market dynamics is not understood. We do not have the people we need in order to export, in order to think about the consumers, and so on. It is not the farmers’ fault. It is how the supply management system works. The legacy of supply management is to have produced 11,000 dairy farmers who know how to manage their costs. They manage their costs very well. They don’t think about the market. That has to change. That’s the first thing.
The second thing is the performance of the farms.
The Canadian Dairy Commission is represented here in this room. I would tell them to change the compensation formula, as has been done in other countries when a supply management system was brought to an end. In some American states, there is a supply management system, by the way, including California. There’s a reference price that encourages farmers to be much more efficient and competitive. Basically, it’s benchmarking. We do it a little here in Canada but not enough to raise the bar.
The last thing I would do is to create a new quota system for exports using new people, new blood, which would allow the dairy sector to expand.
Senator Dagenais: Thank you. Any other comments?
Ms. Hall Findlay: I agree.
Senator Dagenais: Good comment.
Ms. Hall Findlay: We do not always agree, but one way to help the sector is to create opportunities for young people. As I have said, some farmers want to expand. They want to be part of global markets. They really want to become entrepreneurs, but, at the moment, we are stuck with this system. As we have heard, the system works for the reasons why it was created, but it does not work for Canadian consumers and for those who want to export and be part of markets that are larger than the market in Canada.
Senator Dagenais: So we can say that the family farm does not necessarily guarantee an income. In other words, we can conclude that supply management guarantees an income but it does not make us competitive.
Ms. Hall Findlay: Absolutely.
Mr. Charlebois: In my opening statement, I talked about the optimal farm. If we want to put our faith in the family farm and keep people on farms, we have to define the optimal size of a dairy farm. We don’t have an answer to that at the moment.
That would be a start, to do the calculations we need, not to keep looking for a model that allows family farms to survive and prosper.
Senator Dagenais: Thank you very much.
[English]
Senator Mercer: I’m the longest-serving member on this committee. I haven’t used these words in all those years on this committee, but this is a lot of BS. We continue to act as boy scouts of the world. We don’t subsidize our agricultural process. The European Union spends over 30 per cent of their budget on agricultural subsidies. The most important piece of equipment on the American farm is the mailbox when the cheques come in.
We continue to compare ourselves to people who do not play the game fairly. Are we playing the game fairly? We are honest about the game. We don’t subsidize our agriculture, but we get in a grievance and we have a system of supply management that provides food for Canadians. This reminds me of the oil and gas sector where we continue to sell gas to the Americans at west Texas crude prices instead of world prices. When will we learn to stop this? It is either that or get into the business of subsidizing agriculture. Our farmers can compete with anyone in the world, but not when European farmers are being subsidized and when the 30 per cent of budget is on agricultural subsidies. The Americans hide half of their subsidies but when the cheque comes in, it’s the most exciting day for the American farmers. I would say that it drives me to drink, but I already do that.
That’s also another issue. I’m going to go home this evening and have a glass of wine. I do not know what kind of wine it is, but if I have French wine, its subsidized.
Mr. Charlebois: You should have Nova Scotia wine.
Senator Mercer: I should, but I can’t buy it here. We are the boy scouts of the world but we end up paying the price because we don’t subsidize our agricultural products. And there are subsidies flying all over the world, but the Canadian farmers — you can criticize supply management all you want. But it provides the products that they manage and it provides it at a price that Canadians can afford, it employs Canadians. Yes. Should it be more efficient, should we be more aggressive?
The thing I’m most disappointed with in this round of discussion, not this panel in particular, but every time we’ve had a discussion since these agreements have been signed, I’ve asked the question: “What are the opportunities?” All I hear are what the problems are. I don’t see anybody grabbing the industry by the seat of pants and saying, “Let’s get out there.”
We can produce products that we can market around the world if we get our act together. I don’t know how we are going to get our act together when everybody seems to only be sitting here complaining about the things that have gone wrong. Well, guess what? You are not going to get it right if you continue to sit and talk about it.
I’m sorry, that was a rant, but go ahead.
The Chair: There may be a question, if you choose to perceive a question. Would anyone like to comment on the comment?
Mr. Charlebois: It might not have been a question, but we certainly have an answer.
Mr. Mussell: I think I have a response to your comments, Senator Mercer. Actually, it ties back to the previous question asked by Senator Dagenais.
To some extent we need to get real here. The reality is, when we’re talking about the dairy industry, this is the industry that is the subject of the most government intervention of any industry anywhere in the world. There is no question. It doesn’t matter where you go.
It’s usually New Zealand that’s trotted out as the Boy Scout. They are undergoing an experience right now where they are having a regulatory review of an organization that has been alleged for some time to be a state trading enterprise, and I think that will probably be revealed more deeply than has already been considered.
To what extent does this influence innovation? Well, the first part of innovation, it seems to me, is co-operation among producers and processors. In my understanding, I think that compared with where we were 10 or 20 years ago, that’s going much better. The fact that we managed to get a producer-processor agreement to arrive at a class 7 was really quite an accomplishment. Some years ago, I doubt very much it could have happened.
In terms of innovation, I look at a producer cooperative in Canada that, to the best I my knowledge, developed the first new yogurt brand in I don’t know how many years. Certainly 10 years, if not much longer. That’s the result of people working together.
I’m not so sure we are quite as lacking in competitiveness or innovation as some of my colleagues are, but we also have to get real here. There is no farm product more subject to innovation globally than dairy. There is no question about it.
Ms. Hall Findlay: Senator, I think it’s really important to stop saying “Canadian agriculture” in the same breath as dairy, poultry and eggs. Canadian agriculture is well poised to benefit from all of these trade agreements. We are doing some talk about innovation, plant-based protein stuff, in the Prairies; fantastic.
These trade deals are really good for the majority of Canadian agriculture. They are seeing those opportunities and are ready to seize them.
The supply managed sectors in Canada made a decision a long time ago that they were not building their system for export. We heard it in the earlier testimony.
We’re not whining about it. I may disagree with it, but that’s the system we have. If you ask what the opportunities for the dairy, poultry and egg sectors with the trade agreements are, they’re not much. Even if the CETA deal provides access, which it does, the system we have does not allow us to capitalize on those opportunities.
I personally would love to see us being able to do that. We will not do it unless we figure out some kind of reform, whether it’s Professor Charlebois or Mr. Mussell.
There is a lot of good thinking going on out there. Not all of it is in agreement, but if there can be an honest discussion about if these three industries, not all of Canadian agriculture, because it’s not right to lump them together, if the sectors want to take opportunities, then there will need to be some serious and honest discussions with producers as well as their organizations.
Mr. Charlebois: We have to give a lot of credit to the Dairy Farmers of Ontario because they are starting to understand that something is happening. In 2013 in Kingston, Chobani wanted to invest millions of dollars and create 1,000 jobs to make yogurt and couldn’t make a deal, couldn’t get the right price for the milk to become competitive. That’s a lost opportunity.
You move forward a few years and Coca-Cola happened. Seventy-five jobs lost, but it happened. Class 7 happened.
They are feeling the pressure. I think in Ontario there is something on there, a positive thing. We are recognizing opportunities. The problem is it’s not happening in Quebec or Nova Scotia, and it’s not happening in many parts of country.
We need to recognize the opportunities and make changes as soon as possible.
The Chair: What was the amount you said that they were willing to invest?
Mr. Charlebois: I don’t know the exact amount, but the project allowed for the creation of about 1,000 jobs. That was back in 2013. I suspect Senator Black would probably remember.
The Chair: On behalf of all of us, I would like to thank the panel. It was a very interesting discussion. As you can tell, we could have gone on for a while. Thank you for being here this evening.
(The committee adjourned.)