THE STANDING SENATE COMMITTEE ON AGRICULTURE AND FORESTRY
EVIDENCE
OTTAWA, Tuesday, February 26, 2019
The Standing Senate Committee on Agriculture and Forestry met this day at 6:30 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: Good evening. I’m Senator Diane Griffin from Prince Edward Island and chair of the committee.
Today the committee is looking at support and compensation for supply managed agricultural sectors in relation to the USMCA, CPTPP and the CETA.
Before we hear from our guests, the witnesses, I would like to start by asking senators to introduce themselves.
Senator Doyle: Norman Doyle, Newfoundland and Labrador.
[Translation]
Senator Dagenais: Jean-Guy Dagenais, from Quebec.
[English]
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Kutcher: Stan Kutcher, Nova Scotia.
[Translation]
Senator Miville-Dechêne: Julie Miville-Dechêne, from Quebec.
[English]
Senator Duffy: Mike Duffy, Prince Edward Island.
Senator Moodie: Rosemary Moodie, Ontario.
The Chair: We have a few vacancies. People will join us as they are able. We’re in a new building, and it’s taking a while to find the place.
We have two new senators joining our committee. They will be with us permanently. They’re here tonight for the first meeting, and I welcome Senator Moodie from Ontario and Senator Kutcher from Nova Scotia, my neighbouring province.
Today, as a panel, we have Alain Bourbeau, Director General, Les Producteurs de lait du Québec; Murray Sherk, Chair, from the Dairy Farmers of Ontario; and we have Pierre Lampron, President; David Wiens, Vice-President; and Mr. Dykstra from Dairy Farmers of Canada. We have all the heavy hitters here from the Dairy Farmers of Canada and two provincial associations.
Before we hear from the witnesses, I want to indicate that we have two presenters and then the senators will ask questions. We’ll see how we’re doing time-wise, but we will move along as promptly as we can. Mr. Lampron will lead off, and Mr. Wiens is taking over. The floor is yours.
[Translation]
Pierre Lampron, President, Dairy Farmers of Canada: Thank you, and good evening. On behalf of all the members of Dairy Farmers of Canada, we are pleased to provide our point of view on the support and compensation for supply managed sectors following the recent trade agreements.
As many of you know, the dairy sector provides an unflagging contribution to the Canadian economy. In 2015, the sector’s contribution to the GDP was $19.9 billion, together with $3.8 billion in tax revenues. Moreover, the dairy sector provides some 221,000 full-time jobs, while providing Canadians with a stable supply of fresh, nutritious and high-quality products.
It would be hard to overstate the value of the dairy sector for rural Canada. Indeed, producers and processors are the pillars of their communities and of job creation. The federal government recognized their importance by creating the Department of Rural Economic Development. The dairy sector is well positioned to further the government’s objectives. The government wants Canadians to benefit from the enormous opportunities dynamic rural communities and their economies provide. Our sector has always been characterized by its competitiveness and willingness to embrace innovation.
As for prices, I want to point out that contrary to what some previous witnesses have claimed, consumers in many other countries, including the United States and members of the European Union pay for their milk twice : they pay once in subsidies and pay again at the cash register. Although export markets seem attractive, these support measures in other countries mean that the rules of the game place our products at a disadvantage. In Canada, supply management allows producers to derive relatively stable incomes from the domestic market without direct government subsidies.
For a long time, our industry has embraced innovation. The knowledge and new technology derived from our research has improved productivity and shrunk our sector’s environmental footprint. According to a recent study, between 2011 and 2016, the average production of a Canadian cow increased by 12.8 per cent. We expect that productivity to continue to increase. During the same period, the improvement in productivity and animal feed reduced our carbon footprint by 7 per cent, and it was already one of the smallest on the planet.
Dairy producers remain deeply attached to this culture of innovation. They are ready to continue on this path through the increased use of new technologies like robotics, drones and all of the new developments in genetics. However, access to those innovations is costly and will require support from the financial sector. The uncertainty created by recent trade agreements, together with the fear of new concessions, makes lenders hesitate. All in all, we have a system that works and deserves to be protected for the good of all Canadians, but the concessions granted in recent trade agreements have put a large dent in the system.
[English]
David Wiens, Vice-President, Dairy Farmers of Canada: Since 2016, Canada has negotiated three international trade agreements that included concessions on the dairy sector: CETA, CPTPP and, most recently CUSMA. Although CUSMA has not yet been ratified, each of these agreements could enter into force concurrently and, of course, have a severe impact on the Canadian dairy sector.
These agreements will inhibit not only the sector’s ability to grow but also to maintain current market share. This is especially true during the first six years of implementation, where the vast majority of the market access concessions will be implemented and impact both domestic production and expected income levels. This is eroding dairy farmers’ confidence in the future of our sector, particularly for our young farmers, and also lenders who invested in assuming market growth.
DFC estimates that the combined market access granted under CETA, CPTPP and CUSMA represents an annual loss equivalent to 8.4 per cent of milk production in Canada. This translates to an estimated average annual loss of $450 million to farmers’ revenues. When combined with the existing access under the WTO, by 2024, an estimated 18 per cent of Canada’s domestic dairy market will be filled by imported products entering our country tariff-free.
Additional concessions under CUSMA, including the removal of Class 7 and the imposition of a surcharge on exports of skim milk powder, milk protein concentrate and infant formula exceeding a predetermined threshold are of great concern to our industry.
Full and fair compensation, as committed by the federal government, is key to sustaining the dairy sector following concessions made in recent trade agreements. Maintaining previous import levels was the objective of dairy farmers. Compensation is the government’s response to the concessions in the trade agreements impacting the dairy sector.
Agriculture and Agri-Food Canada announced the formation of a mitigation working group for the dairy sector as part of the government’s commitment to providing full and fair compensation for the impact of recent trade agreements. Discussions to address this in Budget 2019 are continuing, and the results have not yet been made public.
[Translation]
Mr. Lampron: As to the impact of the trade agreements, we have three comments to make. First, any compensation for producers losses must be made in the form of direct payments to producers. These payments should be made in the first six years of implementation when the repercussions of the new trade agreements will be felt more acutely.
Secondly, regarding the CUSMA, the additional impact of the abolition of class 7 and the imposition of a surtax on certain exports are more difficult to assess, and could be mitigated in part by other measures, notably by developing markets, tax incentives, and so on. Rather than hypothesizing about potential losses, producers prefer to create a new working group. It will take a closer look at government measures and the implementation of trade measures once CUSMA has been ratified.
Finally, in light of the expected increase in imports due to these trade agreements, it will be essential to provide sufficient resources to the Canada Border Services Agency (CBSA) and to the Canadian Food Inspection Agency (CFIA) to properly apply Canadian regulations and standards on imported dairy products. It will also be essential that imports be correctly labelled so that Canadian consumers can choose their dairy products in keeping with their expectations.
Thank you for your interest. We hope that we can count on your support.
Senator Maltais: Welcome, gentlemen. Welcome Mr. Lampron. I am pleased to see you here. We cannot ask all of the questions we’d like, so I will limit myself to two brief paragraphs.
As you clearly explained, the losses are difficult to calculate. So you would like a producers’ committee to calculate the compensation amounts. I think that was your third recommendation?
Mr. Lampron: I would like to be more precise about what we are requesting. A committee was created and it made a recommendation that was sent to the Minister of Agriculture. However, this concerns the consequences related to class 7, that is the ceilings on imports and all of those details we do not yet know. We don’t know what the impacts will be on producers. We want to structure the industry to minimize those impacts.
Senator Maltais: Very well. Next, I want to talk about Canada’s Food Guide. I fell off my chair when I learned that Canada’s Food Guide was being “twinned” with Bill S-228. This was like a direct body blow to dairy producers. From one day to the next, Canada’s Food Guide tells us—I am of the generation that grew up eating cheese and drinking milk and I’m doing rather well; I will soon be 75—that these products are not healthy and that we can replace them with whole grains. My grandchildren grew up eating dairy products. Today we can add yogurt and other milk-based products. I don’t know why Health Canada did not go further in its consultations. The department has no doubt consulted eminent specialists. However, are these specialists aware of the connection between Canadian culture and dairy products? I wonder. The issue is Bill S-228, which says dairy products are bad for your health. There are limits. From the beginning of time, milk has been used to feed human beings. I think you are quite right to say that that should be removed from dairy product labels. I think your position is quite clear. It should in fact be firmer, because Canadians are not aware of the repercussions. If people see that something is “bad for your health” they will avoid consuming dairy products. We have to be more aggressive and inform Canadians about the fact that milk and milk-derived products are excellent for their health. That is what I wanted to say. I look forward to your comments.
Mr. Lampron: Thank you very much for your support. For our part, of course we believe in our dairy products deeply. An increasing body of research proves the benefits of dairy products and its fats. We will continue those efforts. The guide does leave some room for dairy protein. We will work on that aspect as much as possible.
Senator Maltais: Do you still produce a lot of powdered milk in Quebec?
Alain Bourbeau, Director General, Les Producteurs de lait du Québec: Yes, Quebec still produces what we call skim milk powder. It is also produced throughout Canada.
Senator Maltais: Canada exports $28 million of powdered milk to Algeria. Is it only powdered milk, or does it also include other milk-based products?
Mr. Lampron: The main dairy sector export product is certainly skim milk powder.
Senator Maltais: Thank you very much for the information.
[English]
Senator Doyle: You mentioned in your presentation that the European, U.S. and Pacific trade agreements will open up about 18 per cent of the dairy market to foreign competition. How difficult is it going to be for the industry to sustain itself against that kind of three-pronged attack? Do you have a long-term plan in mind as to what exactly you intend to do? We do have additional trade agreements coming on. What happens if you’re exposed even further? Could it become 20 or 25 per cent? Can you cope with that? What is the long-term solution or plan from your point of view?
Mr. Wiens: I can start off by saying that with the expected 18 per cent opening to imported dairy products by 2024, it will have a major impact on our industry. Of course, we’re still projecting domestic growth, but we’re only going to be able to have a small portion of that where all of this other product is going to be imported. The question becomes, when do we finally reach a tipping point? That’s the thing that we really struggle with. Of course, part of the commitment from the government is to have this visioning group that looks into the future, how we can best prepare for the future with the access that has been committed. Certainly we’re of the view that it becomes dangerous to simply concede further access in future trade negotiations, and that remains a concern of ours.
Murray Sherk, Chair, Dairy Farmers of Ontario: Thank you for the question. Your question leads into whether there are alternatives to a supply-managed system that works well in the world, and the answer unequivocally is no. We look at the American and EU systems, and chronic overproduction is a problem worldwide. Typically, it works out poorly for independent farm producers, and they’re suffering from low returns. I’ve spoken eight times in the U.S. in the last year to American dairy farmers who are interested in alternative systems.
We in Canada have a system that balances supply and demand and provides stable, quality products to Canadian consumers at reasonable prices and provides fair returns to farmers. We think it’s a system that works well. Certainly, as our market gets eroded by trade agreements, it is very frustrating because, at the end of the day, as Pierre said earlier, consumers only pay for our products once. There aren’t subsidies or other forms of stabilization provided to the dairy industry. That’s why we have a system that we think works well.
In fact, we did sort of reinvent our system in the last few years with the ingredient strategy in order to make us a more sustainable system. We have been able to do that and will continue to see how we can evolve to meet the needs of Canadians.
Senator Doyle: Now, the federal government allocated about $250 million to help dairy farmers when CETA came along. Are these funds being taken advantage of? You get the impression that there are widespread farm subsidies in the United States over and above the free trade compensation packages that they have. Do you need something along those lines as well, not only farm subsidies but maybe over and above the free trade compensation that you have right now, not to a great extent? Do you know where I’m coming from?
Reint-Jan Dykstra, Vice-President, Dairy Farmers of Canada: Thank you for that great question. The reality is we don’t want subsidies; we want market-driven economies. That’s what we want. But when government gives up this much, then, of course, there are going to be ramifications.
I’ve been walking around with this answer for some time, ever since CETA was started. When the concessions of CETA were given, it was the equivalency of production of New Brunswick and Newfoundland together. CPTPP basically followed quickly after that, and it was equivalent to Nova Scotia and P.E.I.’s production. Now CUSMA followed suit and has the equivalence of Saskatchewan’s production. In the order of 1,000 producers is what we have lost to the competition. There is no replacement for it.
In that respect, we are not looking for subsidies; we are looking for mitigation. That is what we are all talking about. We are not talking about subsidies for a long period of time, forever and a day. We are looking for something short term to basically mitigate what has been inflicted upon us.
[Translation]
Mr. Bourbeau: I would like to point out that the subsidy approach in the United States is really the method they have chosen. You have to understand that all developed countries have different agricultural policies. The United States intervenes in the agricultural sector through the Farm Bill, the European Union does so through its common agricultural policy, and Canada does so through supply management and other policies. The Americans have chosen to use subsidies. However, that is not what we want. The subsidies which were granted for the projects are directly related to a concession our country chose to make in its agricultural policy. Overall, that agricultural policy remains viable in the circumstances.
I would like to go back to your question on plan B, because it’s a question we hear often. What would happen to the dairy sector without supply management? We have to understand that agriculture is a societal choice. We need all of the agricultural production in the world to feed the planet. Supply management is a relevant policy in the Canadian context. In Canada we have our own climate, a population and Canadians values. That policy is consistent with the choices we have made over the years. If we chose to abolish it, another societal choice would be necessary: would we agree to be fed by another agriculture than the Canadian one, or not? Other countries have their own agricultural policies. If their products are coming here, if it is because their agricultural policies are more competitive than ours. It is a societal choice we are going to have to make if we are confronted with plan B.
Senator Miville-Dechêne: Thank for being here today, gentlemen. I am going to ask some more specific questions. I’m curious to know what an eventual agreement with the federal government would look like. You spoke of $450 million in losses annually for the dairy industry. Is that what you are requesting in direct annual payments to producers? How would you like those payments to be made? Are we talking about payments proportional to the size of the farms and the milk quotas? I imagine that you have already divided up that figure by province, according to the size of the industry. I’d like to hear more details about what you are requesting.
Mr. Bourbeau: You asked two questions. The first concerns the $450 million. That is not what we are talking about. As we mentioned, our request is more nuanced. As to the first question on the amounts, we are not going to discuss that this evening. However, we do mention payment modalities in our presentation. For this compensation to reach all Canadian producers, the fairest way is to base it on production quotas, and that is already being done. In that way the method would be fair to the various parts of the country and to all of the producers, and direct payment measures can eventually be put in place.
Senator Miville-Dechêne: So it would be more equitable than investment. I would like to know if you have a series of principles to guide us in this matter of compensations. We heard from egg, chicken and turkey producers. They had developed some basic principles as to the direction they intend to take. One of their assistance requests concerned market development.
I’d like to know whether, beyond direct compensation to producers, you have developed criteria or principles to help guide the government in providing what has been called just compensation, as promised by the Prime Minister.
Mr. Lampron: The assistance is comprised of two parts. We feel that one part should be made in the form of direct compensation to producers. We don’t want any investment program or things like that. Producers have invested over the past years and some of them are preparing to do so. Producers know what to do with the money and they will know how to spend it wisely. Some of them will choose to reduce their debts. Every Canadian producer must be compensated fairly. We mentioned another working group where mitigation measures will be discussed. You know, we have a large dairy industry in Canada and the amounts involved are large. We want to find solutions.
We briefly referred to tax credits. We also need to strengthen our borders, and we need workers. There are several topics we want to discuss in that working group.
Senator Miville-Dechêne: Senator Maltais referred to Canada’s Food Guide. My reaction was a bit different in that I found your moderate response—rather than rending your garments in public—appropriate and welcome. There was one pot of yogurt, and yes that is less than before, but I found your reaction in keeping with the fact that society is changing. Animal and plant proteins have to share the plate.
I would like to know how you came to develop your reaction. I would also like to hear your comments on the indications that for older people, animal protein, according to some dietitians, is more important than for other groups. That might be one avenue dairy producers could explore.
Mr. Lampron: I will start to answer, and my colleagues may want to add their comments on the food guide. We have our products and our production. We believe in them, and we work hard to offer quality products. So we should let the experts talk. We did some research, and the approach we decided to adopt was to let the specialists speak. However, in this case we are both judge and party to some degree. Of course, I have a bias toward our products because I believe in them. What you mentioned with regard to the elderly is increasingly being supported by research. Science will back those arguments. We have to make sure that consumers are made more aware of those studies. Our work will be to emphasize the value of our products.
Mr. Bourbeau: Indeed, a variety of nutrients are available, given the various food cultures that are joining us. Education and understanding what one eats is very important. All proteins are not interchangeable. Protein from dairy products is much more complete in terms of the amino acids that are needed for the renewal of human tissue. That type of thing is a bit technical, but it’s important that the population understand it too. There is room for other products, but dairy protein stands out favourably in many respects.
Milk is a product nature has designed to nourish life. It is full of nutrients that also have effects when they interact. We can’t look at food with three pairs of glasses and say it contains fat, salt and sugar. That is a very reductionist way of looking at things. There are synergetic effects that have to be taken into account. The current approach that is put forward, with its warnings, has set aside that more comprehensive perspective. That vision has to be readjusted.
[English]
Mr. Sherk: In simplistic terms, I think as a society we’re trying to make complex things very simple, and labelling would be an example of that to make certain things a villain — and not that they necessarily are or are not. But in milk, for example, we have a host of nutrients that work together to make a very nutritious package in a dense form that is easy to take in. That’s a challenge. It’s not just with the food guide but in general, in society, where there’s so much information out there, we’re trying to make things simple, and sometimes things like the goodness of dairy get lost along the way.
The Chair: Thank you.
Senator C. Deacon: Thanks for the presentation. I think I beat Senator Maltais in terms of the amount of dairy I like to consume. I’m a big fan of dairy and can’t imagine a day without having a lot of different forms of it.
I want to be clear that Bill S-228 is not about labelling anything as unhealthy but about restricting advertising, just to be clear on that. That’s an important thing to remember, and that gets misunderstood quite a bit. There is a lot of misinformation about it.
We have got a lot to learn, and I think Mr. Dykstra knows this as much as anybody, about food security, a lot of lessons to learn about from the Dutch. It’s an important thing to think about when it comes to these trade agreements.
I’m interested in the types of compensation, building off my colleague Senator Miville-Dechêne. Direct payments to producers was the point you made. I come from the technology startup world, where innovation has changed how we do things, how effectively and cost efficiently we can do things, and what we do, entirely. I am a big believer in investments and innovation, so I want to hear you speak to that, and I want to understand the Class 7 removal issue as it relates to new products and innovation. Perhaps you can help us with that. That’s one very specific point.
I want to reach beyond the possibility of just payments to producers to see how we can bring security to the industry. We need to have healthy, happy, food producers in this country. It’s essential to our vibrancy, and so I want to be looking at it that way. Are there places where we can get market growth where we haven’t got it, out of new products or anything else? I want to look at investment and sustainability in the industry, not just compensating farmers for the loss of market. I feel that’s a short-term thing. It reminds me of giving your provincial citizens a $1,000 cheque versus investing in something that can have rewards over many years.
Could you speak to that a bit? That part concerns me, and I would like to understand the Class 7 situation around innovation and new products.
[Translation]
Mr. Lampron: Yes, there is compensation, but that is not all producers want. After three trade agreements in a row, producers have had enough. I agree with you. As president, I need to give people hope and energize them. There has been a lot of innovation in dairy production, and considerable investment over the past years, to meet demand and to take animal well-being into account.
[English]
Mr. Sherk: I will pick up on the innovation piece and have Alain answer the Class 7 piece. To clarify again, the stability that our system offers enables producers to adopt innovation. When you go to a bank for a loan and they need a forecasted cash flow or budget and there is some certainty to that budget, then you can get a loan in order to invest in things. And that’s what our system provides, where if you look at many other places in the world with huge price fluctuations, there is a lot of waste or lack of innovation because of cash flow uncertainty. That’s sort of the basis for our system.
If you would look at Canada as an example, compared to the United States, we have far more automated milking systems installed, as a percentage, than they do in the United States. Part of that is that there is some certainty of returns in order that we can invest.
Mr. Wiens: Obviously, innovation is very important. It is happening on farms across the country. Class 7 did spur innovation, as well, at the processing level.
When it comes down to it, every country that is going to meet its market requirements for dairy products in terms of butter fat produced is going to produce a surplus of SNF or protein. It doesn’t matter where you are; any dairy producer in the country is in a similar situation.
Class 7 spurred on that opportunity to allow processors to pursue some of those markets, but that also meant that there would be investment on the part of processors, which there was. Now, it’s a little bit of a wait and see to see how we’re going to move forward under this new world.
But certainly innovation happens, and has been happening, in many areas. If you want to talk about what the genetic side of the industry has done, the top 10 of the sires have come from Canada. That tells you something about what’s been happening here for many years.
Part of that is that we had a strong base to begin with. Farmers could pursue those genetics and create that kind of an industry. It was kind of a sideline industry, but we’re very much complementary to each other. We hope to see that in other areas as well.
As has been said, the investment that has been happening on farms — there’s the automated milking — the robotic milking keeps coming up. In my province of Manitoba, for example, it’s on over 30 per cent of farms already. You see this all over Canada and in many different areas on the farm. Now we’d like to see that at the processing level more, too.
One of the challenges we have is that every farm is in a different part of its life cycle. You have a young farmer coming on. They’re struggling to get going, and it takes them a few years. So one farmer has just made a major investment on the farm, and now debt becomes a factor. Others are thinking of making those kinds of investments. So to treat every farmer exactly the same simply won’t work for everyone because of those life cycles that happen throughout the country.
Senator C. Deacon: I’m wondering about what you think will be allowed. I’m very proud of Canadian dairy products and the quality of our industry. I love the commercials you have out right now that bring humour to that. I’m wondering about the opportunities to really work with distinctive labelling that differentiates products from Canada and products from the rest of the world. To me, Canadians knowing that they’re buying a Canadian dairy product is a very important thing. They want that very clear. It’s important when they know they’re buying an American dairy product that they know that and it’s very clear. Do you have concerns there? Is there enough ability to differentiate?
[Translation]
Mr. Bourbeau: There are certain measures regarding labelling. At this time, there are no obligatory measures to indicate the provenance of dairy ingredients. There are no regulations that force anyone to indicate where ingredients come from. When we import a product, we have a responsibility to inform the consumer. However, when a product contains imported ingredients, the consumer is not necessarily informed. We want consumers to be informed about the origin of ingredients and about the conditions in which products are made, so that they can make informed decisions. It’s not about protection, it is about information. If a consumer decides to choose a product that is produced with domestic ingredients because the production system aligns with his values, that is an advantage for the agricultural sector.
[English]
Senator C. Deacon: Thank you very much for the clarification and clarity on that. I appreciate it.
[Translation]
Senator Dagenais: Thank you to our guests. Mr. Lampron, according to a witness who appeared before the committee last week, some of the elements of supply management in Canada have a negative effect on the agricultural industry, and have an adverse effect on the competitiveness that is necessary to an industry that wants to innovate. I’d like to hear your comments on that. Do you have any thoughts to share about that statement?
Mr. Lampron: That comment was surely made by someone who does not live in the country. There are a lot of new, innovative products. The new class 7 is an admirable innovation that encourages the industry to find new products. Producers on the ground, in the field, have to be able to depend on supply management. Mr. Sherk explained this earlier. You need stability to be able to innovate. There are a host of examples. Alain, I think you examined that matter. There has been a lot of innovation in the dairy industry over the past years. We want to continue that thrust, with robotics particularly.
Mr. Bourbeau: I had an opportunity to share a forum with the witness in question and to discuss ideas with him. When asked to tell us more to substantiate his claims, unfortunately, he was unable to support them with concrete examples. If our industry could not innovate, we would not be among world leaders in several areas. For example, Canada produces 1 per cent to 2 per cent of the world’s dairy production. We have about 20 per cent of the global genetic market, and that did not happen by accident. We do genetic selection more quickly, with better strategies. We have better teams. If our producers can continue to improve their results with genetics, it is because there is a predictable horizon in terms of revenues and stability. That allows them to plan better and to invest in technology for the longer term. The example of genetics shows how much progress our industry can make. When you give that kind of example, the witness in question does not have much to say.
Senator Dagenais: If it makes you feel any better, he’s not a farmer.
Now let’s discuss U.S. access to the Canadian market under the USMCA. Mr. Trump calls it a good deal, and Mr. Trudeau claims that Canada didn’t lose anything under the deal. I’m not so sure. Can you list some of the key American products that will be available to Canadian consumers? Could you also tell us why Canadians might choose them over comparable Canadian products?
Mr. Lampron: As you said, Mr. Trudeau calls it’s a good deal, but one sector was sacrificed, the dairy sector. Many U.S. products in a range of classes are coming in, and that’s why we are calling for clear labelling and want to promote the blue cow logo. We talked about marketing earlier. We want to make sure consumers are able to identify Canadian products. That’s something our committee will be working on in the next little while. We can’t be sure that consumers want to buy U.S. products, so they need to be easily identifiable. That falls under mitigation measures. If consumers can’t find the information, if it’s hidden here and there and everywhere, we will be hit harder.
Mr. Bourbeau: Under provisions of the agreement, many of the imported products—some 15 have been designated—can be used for secondary processing. They, themselves, won’t be available on store shelves, but they will be used in the making of other products, hence the importance of what I was just saying. If we want Canadians to know what they’re buying, they need to know where the ingredients in the food they’re buying come from.
Senator Dagenais: Mr. Lampron, at the beginning of your remarks, you said the dairy sector had been sacrificed to save other sectors. Are you referring to the auto sector?
Mr. Lampron: I don’t want to wade into that debate.
Senator Dagenais: I was merely suggesting it.
Mr. Lampron: All I know is that we were impacted. The other sectors can stand up for themselves.
Senator Dagenais: Keep in mind I was the one who put it out there.
Mr. Bourbeau: It’s the entire Canadian economy.
[English]
Mr. Dykstra: I will follow up on one of the questions asked regarding the labelling. It’s one of the things we asked in the comments that Pierre and Dave made about CFIA and the CBSA, that they need proper funding. We have been fighting — CFIA and CBSA — for years and years when stuff was coming across the border sight unseen. When I go to the U.S., I have to drop an apple, an orange that was grown in the U.S., and I have to drop it on the Canadian side because they will not allow it back in. But we don’t do anything when it comes from there to here, and that’s why we need CFIA properly funded. The CBSA need to have proper authorities so they can check the loads that are coming across.
Senator Mercer: On the issue of CFIA that was just discussed, all one has to do is look at the spent fowl issue. The Americans managed to export 125 or 135 per cent of their production of spent fowl. It is a pretty good deal when you can do that.
I’ve been a big supporter of supply management all along, and very vocal about it. I’m concerned that we’re now at this stage where these agreements have hived off some of your market.
But I want to talk about the opportunities. We sit around and complain about what has happened, but let’s talk about the opportunities. Are there not some opportunities in the open market that has been created by these agreements? The New Zealanders have been making a good living for years by certainly not consuming all the milk they produce, but by exporting the milk powder they have been producing. Shouldn’t we be working on that?
I suspect that some American farmers look at the success of supply management and the overproduction that’s happening in certain parts of the United States now where they are dumping milk because they can’t sell it because they produce too much, and they would love to have a supply management system in place. As we know, the Americans don’t necessarily tell us the truth with respect to farm subsidies. As I say time and time again, the most important piece of equipment on the American farm is the mail box. That’s where the cheques come in from the government.
Recently, we had witnesses here who were talking about the European Commission, and they tell us that over 30 per cent of the EU budget is spent on agricultural subsidies — 30 per cent plus. That’s not just on dairy. That includes everything from the glass of wine you will have later on tonight. If it is French wine or Italian wine, it’s subsidized through the European Commission.
We’ve got this all stacked against us, but what we also have on our side are some of the best farmers in the world, who have been resilient and are able to develop a system that works for us and that dairy farmers have done well by.
What are the opportunities here? Are there opportunities for us to be pursuing? If there are, are there things that the government needs to be doing to either help market these opportunities or get the heck out of the way? We talked about CFIA’s ability not to make sure that they’re policing the system. By giving up a percentage of our market, I worry about who will measure that percentage. If they can’t figure out that the Americans are selling 125 per cent of spent fowl, how will we know they are not shipping more milk products across the border than this agreement allows?
Mr. Wiens: I will begin by putting world trade into context in terms of dairy. There is 8 per cent of the milk produced in the world that is actually exported, so it’s international. Most countries are exporting that last 7, 8 or 10 per cent of their production. New Zealand is the only country that would be the reverse of that. I think that’s one of the unfortunate things about the export market, because you have the players like the U.S. and the EU who have so many programs that support prices. The world price is not a true reflection of what the cost of that production was. Somehow, as long as that prevails, it’s going to be extremely difficult.
What we had found with exporting the protein, in the competitive protein classes, was that there were some opportunities that processors were finding in other markets, and particularly into the future, I think there will be more of a future in the very specialized milk components, maybe not so much the dairy products as we know them today but more the components of the milk. I think we’re going to see some opportunity there in the future.
Mr. Sherk: There is a lot that I would agree with in what you said, but in regard to what we are going to do about it, the trade deals are what they are. Governments can help and we can all work together by partnering with processors, producers and governments to try to figure out how do we create innovative products? How do we have processing across the country? How do we have production across the country? Maybe it’s not even funding, but maybe it’s coordinating innovation, taking those ideas and getting them to market. There are lots of them out there that are happening, and certainly we need to be positive about the future and discover the opportunities that are there.
[Translation]
Mr. Bourbeau: I want to point out that we are milk producers, not processors. The milk we produce, however, does meet different specifications. We produce milk that complies with organic requirements, in terms of grass feed, and it fits various dairy profiles. The potential for innovation exists on that front as well. If the demand is there, we are perfectly capable of making adjustments to meet the demand. We already do that. There again, the potential exists. We produce milk; we aren’t dairy processors. The next panel appearing before the committee will certainly be able to speak to those issues.
[English]
Senator Kutcher: Thank you very much for your clear and very thoughtful presentation. I certainly hear a desire to build on current successes and move that to a new dimension.
I have two very quick questions, one based on the comments that Mr. Lampron made and partly answered by Mr. Sherk. What factors, not details but factors, have driven the innovations that the industry has made in the past decade? I heard stability is an important one. What other factors have driven the innovation?
Mr. Sherk: This is where it’s good that our processing partners are coming behind us. Working together as an industry is what has driven and will drive the whole Class 7 initiative, called the ingredient strategy, sitting down with processors and producers saying, “What can we do to better the industry?” We need that all the way through to the consumer base as well.
Mr. Dykstra: One other thing that is usually forgotten in supply management is competitiveness. The producers are highly competitive. It is not that we all sit on our thumbs and hope for the best. No, we are fighting one another tooth and nail, going to the coffee shop during the day together and then we fight one another again in the bind because that’s where it happens. That’s usually overlooked. It is always seen that when you have a quota, it is all set in stone. No, it’s not. If I can do it 5 cents cheaper than the next-door neighbour, I’d be better off. That’s how this industry sustains itself and that is the innovation of the industry as a whole.
[Translation]
Mr. Bourbeau: As milk producers, we represent thousands of very small operations. Within the industry, the activities of a single business will include R & D, scaling-up and marketing. Our individual farms aren’t big enough to access those tools. What has made innovation more accessible are the resources the government has given us to support technology transfer and research. Research is a high-risk endeavour. Something may or may not come of it.
The focus on balancing the budget over the past decade greatly diminished the capacity of farms to engage in basic research and technology transfer. Two factors that have encouraged innovation and greater productivity are centres of expertise like the ones in Quebec and the public education efforts of professionals who are not input suppliers and thus neutral. Three areas that are very important are research support, technology transfer support, and training and education.
[English]
Senator Kutcher: Thank you for that. I appreciate it.
Senator Moodie: Thank you for your very clear presentations and for stimulating our thought this evening.
My question digs a little deeper on the research side. Full disclosure, I’m a physician. I’m a pediatrician, so I know about the body of scientific research that exists that raises a concern about milk products in young children. That is real and, if anything, it’s just building.
There is also, as you pointed out, a shift in societal preference that we’re looking at and that you’re dealing with as well. Not only are there the external challenges — market share issues, international agreement issues and so on — that are chipping away, but you also have the appetite of your population that is shifting. Health care providers are suggesting it’s not the best food, and Canada’s Food Guide is there, so there is an increasing challenge for you.
As I listen to the challenge and your discussions, I’m hearing that the innovation discussion has been a significant possible answer here. I’m wondering, as you talk about the solutions — subsidies and other things — where is the effort that you are putting as an industry to raise the support for research? That financial support you talk about is diminishing. Is that something you’re considering as an industry, to lobby for and to reach out? Is that a significant part of this ask? Some of the systemic challenges you have may be bigger than just competition among your providers and your industry players.
[Translation]
Mr. Lampron: We are certainly going to focus on research and innovation, which we already do quite a bit. Keep in mind that a lot of the work is done by the various dairy clusters, both nationally and provincially. As a supply managed group, we try to coordinate all those efforts.
[English]
Senator Moodie: Could you repeat that? We didn’t hear much.
Mr. Lampron: I can ask my colleague David to talk about this.
Mr. Wiens: Yes, thank you. We are already investing millions in research every year, both in terms of human health and nutrition and also on-farm milk production research. We continue to do that. We realize that is extremely important for our future. That happens at the national and provincial levels.
When we talked about innovation before, it was driven by the research. It starts off with curiosity about how can we do things better, whether it comes to on-farm or the productivity of the cows, both in terms of their diets as well as genetics. From an equipment perspective, how can we improve the comfort, for example, of the cows? All of these things actually contribute towards better production.
There’s a huge focus on the human health nutrition too. There is promising research there. It’s not only the work being done in Canada. We also look at what’s happening around the globe in terms of the research and the results. We’re not simply trying to replicate what’s been done somewhere else. Rather, you build on that. We do find that it is extremely important, and we will continue to do that research, if anything, at an elevated level, because I think things are moving faster today than ever before.
Senator Moodie: Is it research linked to innovation that is your focus now, new products and new ways? I know you said you’re not processors. That may be the future. I just want to understand where the thinking is.
Mr. Sherk: Recently there’s been a lot of research on consumer attitudes and trends, what their needs are, their desires and wants. I think we need to continue to do more than that.
One of the advantages of the Canadian dairy system, because we collectively market milk, we collect a research checkoff from every litre of milk that is produced and sold, so we have the ability to drive research and drive dollars to research, where in many countries that are fragmented, it’s difficult to get a general collection of funds in order to do that.
Senator C. Deacon: Could I ask one question that could be potentially done as a follow-up piece of information?
The Chair: Okay.
Senator C. Deacon: I appreciate that. Is it possible for you to provide us with an estimate of the value of the quota that has been given away in these trade deals? Not now, because there is no time, but could you provide it to the clerk, Kevin? Just your arguments and how you’ve done that, potentially, and the logic behind it all, please.
The Chair: Thank you. We’ve run out of time. I had a brilliant question, but Senator Mercer already asked it, so you’re off the hook.
I’d like to thank the panel. It has been a very interesting discussion. As you can tell, we could have gone on for some time.
For our second panel today, I’m very pleased to welcome our guests. From the Dairy Processors Association of Canada, we have Dominique Benoit, Member of the Executive Council and Treasurer; and Mathieu Frigon, President and Chief Executive Officer. From Parmalat Canada, we have Mark Taylor, Chief Executive Officer; and Anita Jarjour, Director, Government and Industry Relations. By video conferencing from Prince Edward Island, from Amalgamated Dairies Limited, we have Chad Mann, Chief Executive Officer.
We will start with Mr. Benoit.
[Translation]
Dominique Benoit, Executive Member and Treasurer, Dairy Processors Association of Canada: Good evening. My colleague and I will be alternating between English and French. I will go first.
Good evening, Madam Chair and committee members. On behalf of the Dairy Processors Association of Canada, I would like to thank you for the invitation to appear today to discuss the impacts on Canada’s dairy processing industry of the Canada-United States-Mexico Agreement, known as CUSMA, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, known as CPTPP.
As you will recall, the Dairy Processors Association of Canada, or DPAC for short, touched on the subject in its appearance last October. However, now that we have the details of CUSMA, we will be able to provide a more in-depth analysis of the impacts that CUSMA, CPTPP and the Canada-European Union Comprehensive Economic and Trade Agreement, or CETA, will have on the Canadian dairy sector. We now also have a better sense of the measures required to mitigate the impacts of these three agreements.
[English]
Mathieu Frigon, President and Chief Executive Officer, Dairy Processors Association of Canada: I will first provide an overview of the dairy processing industry. As the second-largest food processing industry in Canada, dairy processing contributes more than $18 billion annually to the country’s national economy. Dairy processors directly employ 24,000 Canadians in 471 facilities across the country, with an aggregate payroll of $1.2 billion.
Our industry is a major employer in rural communities, providing good jobs to middle-class Canadians. Total compensation per hour worked in dairy manufacturing is $45 per hour. This is 35 per cent higher than food manufacturing as a whole and 22 per cent higher than the entire manufacturing sector.
Dairy processors have invested $7.5 billion in their businesses over the past decade. This includes capital investments to both expand and update existing facilities and build new ones to support increased production, as well as research and development to spur innovation and bring new products to the market. Over the last five years, these investments have increased the industry’s labour productivity by 38 per cent and contributed to a 12.7 per cent growth in its real GDP. On both fronts, dairy processing has outpaced the food manufacturing and general manufacturing sectors as a whole in terms of those two metrics.
These improvements have allowed dairy processors to increase their purchase of Canadian milk by more than 1.2 billion litres in the last five years. This 15 per cent increase has benefited Canada’s 11,000 dairy farmers. In this same period, in the last five years, consumers have also seen benefits as the prices of dairy products have decreased by 1.7 per cent while the general retail price of food has increased by 7.9 per cent.
As we have previously stated to this committee, dairy processors have been motivated to continue the pattern of growth and move the industry, and Canada, forward. However, recent trade agreements threaten to curb this growth and diminish the long-term competitiveness of the Canadian dairy processing industry.
In terms of the impact of trade agreements, at full implementation, access granted under CUSMA, CPTPP and CETA will capture close to 10 per cent of the Canadian market, which is in addition to the 8 per cent already conceded in the context of previous trade agreements. At full implementation, we estimate that the market access granted under CETA, CPTPP and CUSMA will have a $320 million annual impact on net margins in the dairy processing industry. Further compounding this will be the additional $60 million in annual losses that will be incurred due to the export restrictions imposed on dairy as part of the CUSMA agreement. This pressure will act as a strong disincentive for investment and could stall current growth rates.
This begs the question: how can we adequately support our dairy processing industry, its investments and its jobs, to allow it to pursue its growth?
[Translation]
Mr. Benoit: To do this, DPAC proposes a three-pronged approach: the allocation of dairy import licences to dairy processors, a program of mitigation measures and the development of a long-term vision and strategy for the dairy sector.
DPAC has long advocated for all possible dairy import licences, known as tariff-rate quotas, or TRQs, to be allocated to dairy processors as a key solution to mitigating the negative impacts of trade deals. Allocation of TRQs to dairy processors is a fiscally responsible mitigation measure as it comes at no cost to the government. We can imagine that this is attractive to those working on behalf of the Canadian taxpayer.
But beyond fiscal responsibility, there is a practical reason to consider allocating TRQs to dairy processors. We possess the expertise to import a wide variety of dairy products in a way that will be the least destructive to Canada’s domestic dairy market.
To illustrate our thinking, we would like to go back to the government’s 2017 decision to allocate less than half of CETA cheese TRQs to dairy processors. Other types of stakeholders who received TRQs did not have a vested interest in importing cheeses that would minimize the impact on existing production lines and manufacturing platforms in Canada. This resulted in substitution. As of last fall, the vast majority of TRQs were used to import products that are already made here at home: Parmesan, cheddar and feta cheeses. This did not minimize the impact on existing product lines or Canadian dairy processing jobs, and provided little benefit to Canadian consumers, who saw minimal increase in variety at the retail level. Unfortunately, it seems the only beneficiaries of the government’s decision were retailers, further processors and brokers, who effectively received compensation despite not having been negatively impacted by CETA.
DPAC firmly believes that, by allocating TRQs to any other stakeholders, the government fails to recognize dairy processors’ contributions to strengthening and growing the domestic dairy market. This undermines our business models, deters future investments in manufacturing capacity and results in the loss of high-paying jobs here at home.
As such, we welcomed the announcement this past November that 80 per cent to 85 per cent of CPTPP dairy TRQs would be available exclusively for dairy processors on an interim basis. That was a smart decision. As part of this announcement, the government also committed to review the allocation of World Trade Organization, CETA, CPTPP and CUSMA TRQs in the coming year. We await further information on how the government will choose to allocate the CUSMA TRQs.
However, we hope the CPTPP announcement is a signal that the government now understands the importance of allocating dairy TRQs to dairy processors. However, we must caution that a one-size-fits-all approach will not work when it comes to mitigation. The dairy processing industry is made up of organizations of various sizes and product mixes, all of which will experience the impacts of these trade agreements in different ways. While TRQ allocation may do the heavy lifting when it comes to mitigation for some processors, it may not provide much relief for others. For those processors not receiving import licences, a support program should be designed for their needs to offset major impacts.
DPAC recommends that, to offset impacts of CETA, CPTPP and CUSMA, the government create a program with a mix of components aimed at mitigating impacts and creating jobs. This program could include interest-free loans or loan guarantees, refundable tax credits, non-repayable contributions for investments and government programs aimed at supporting investment in innovation, automation, robotics, AI and marketing initiatives to explore market diversification. This could also include funding to educational institutions to support and expand dairy processing skills capacity.
The CETA mitigation package announced in the fall of 2016 included a $100-million investment package for dairy processors. This amount fell short of providing long-term support for dairy processors as it covered just two years of CETA losses.
Thus, we would like to recommend that CETA, CPTPP and CUSMA mitigation programs be regrouped as one program that is widely available to all dairy processors and retroactive 6 to 12 months.
The government should aim to minimize red tape, and provide clear and transparent information on funding allocation. This funding must account for each processor’s respective size, product mix and TRQ allocations. Alongside TRQ allocation, these programs will help the dairy processing industry in the coming years.
However, we should be looking beyond just the coming years to better position Canada’s dairy sector for long-term success. This brings us to the third and final component of mitigation measures. With impending implementation of CPTPP and CUSMA, as well as other Government of Canada initiatives that threaten to undermine domestic dairy consumption, the coming years will be difficult ones for the dairy sector.
The time is right for the government to develop, in cooperation with the dairy sector, a long-term vision for the sector that identifies goals and possible plans of action. Thus, we welcomed the government’s decision to create a strategic working group, alongside its mitigation working group, following the conclusion of CUSMA negotiations. It is our hope that this working group will start its work in short order.
[English]
The Chair: We will move on to Mr. Taylor.
Mr. Frigon: We’re not done.
The Chair: You’re not done? What else do you have to say that you can say in one minute? Can you take one more minute, the maximum, please?
Mr. Benoit: I will go to the conclusion and hopefully the questions will come back on the food guide and other stuff we wanted to cover.
The Chair: We have two other speakers, but also there will be questions, so you may get a chance to get those answers.
[Translation]
Mr. Benoit: Last October, Minister Freeland stated, “Compensation for the dairy sector, for the supply managed sector, is fair and justified and there will be full compensation.” What we have outlined today—the allocation of TRQs to dairy processors, a program of mitigation measures and a long-term strategy for the dairy sector—is what DPAC considers to be full compensation for Canada’s dairy processing sector. In doing this together, we should be able to adequately safeguard the investments, jobs and growth of Canada’s dairy processing industry from the negative impacts of these trade agreements. Thank you.
[English]
The Chair: Thank you. I know it’s a hard topic to condense, but thank you for doing that.
Mr. Taylor, please proceed.
Mark Taylor, Chief Executive Officer, Parmalat Canada: Good evening everyone, and thank you very much for the invitation to come here today. I’m pleased to be speaking on behalf of Parmalat Canada and its parent, the Lactalis Group.
Parmalat Canada has a rich 138-year history, and you probably recognize a number of our brands like Balderson, Lactantia, Beatrice, Black Diamond and Astro. These are family favourites, favourites and industry leaders. The dairy category is the largest in grocery, touching many consumers every day, and these brands are staples in households, restaurants and institutions across the country.
As I said, Parmalat Canada is part of the group Lactalis, a family-owned private company employing more than 83,000 people at 250 production sites in 50 countries around the world.
In Canada, we employ close to 3,000 people in various communities, in 16 processing plants as well as various other facilities, and we have an R&D centre as well as distribution locations. We’re the third largest dairy processor in the country.
As you may know, we’re in the process of acquiring the natural cheese division of Kraft Heinz in Canada. It’s a transaction with a value of $1.62 billion and huge votes of confidence in Canada and the Canadian dairy sector. The transaction, if approved, would mean the long-term stewardship of iconic brands like Cracker Barrel, P’tit Quebec and aMOOza! passing over to Parmalat Canada. It’s an exciting opportunity for our company and great news for our consumers, employees, farmers, retailers and various other customers in the communities where we operate. It provides a platform for further growth and investment in Canada, and we look forward to welcoming the nearly 400 employees currently involved in the business to our organization.
I would like to start by addressing the trade issues in the dairy industry. Parmalat Canada commends the Government of Canada for successfully concluding negotiations with the United States, our most important trading partner, and Mexico within the new trade agreement between our countries. As I’m sure you’re aware, the trade agreements recently signed by Canada, CETA, CPTPP and CUSMA, will have a significant impact on the Canadian dairy industry, including the processing sector, in the years ahead. Those impacts, namely, sales losses of dairy processors, are estimated to be in excess of $1 billion annually from these agreements after the full six-year implementation. The annual cost to the dairy sector of export restrictions could well be in the region of $60 million annually as well. These agreements are challenging the core reasons for supply management in the Canadian dairy sector, which are predictability and stability.
In order to address these challenges, it’s important that the Canadian government uphold the commitment made by Minister Freeland to fully and fairly compensate the dairy sector, including processors, for losses resulting from these trade agreements. This is a critical transition measure to enable our sector to compete in this changed marketplace.
We understand that Global Affairs Canada, GAC, will be conducting a comprehensive review of the milk tariff rate quota, TRQ, allocation, in 2019. In this context, Parmalat Canada would like to reiterate that all TRQs should be allocated to those who are most affected by these trade agreements — dairy processors, not retailers, distributors or brokers who have no skin in the game.
The various types and amounts of access granted to other countries to the Canadian dairy markets exert substantial downward pressure on margins in the domestic dairy processing industry, which in turn acts as a strong disincentive for investment in the sector. In line with the Dairy Processors Association of Canada and their request, Parmalat Canada seeks an annual compensation to offset the impact of the three trade agreements on dairy processors over each year of the coming six years in the form of non-repayable contributions, tax credits, investment incentives or a combination thereof, to improve the competitiveness of the dairy processing sector in this industry.
In addition, trade-compliant payment programs should be developed in order to fully offset the negative impact of the Canada-U.S.-Mexico agreement, CUSMA. Export restrictions on skim milk powder and milk protein concentrate should also be considered.
Parmalat Canada will continue to take a leadership role in helping to grow the Canadian dairy industry, having recently participated in the Agriculture and Agri-Food Canada working group. We will also be an active participant in the upcoming AAFC strategic working group that will establish a path for the future of the dairy industry.
As we are speaking about the impact of trade on the sector, I would like to take this opportunity to share some concerns related to the Canadian grocery retail sector, which, if not curbed, will, in combination with the pressures brought about by the new trade agreements, squeeze processors unsustainably and have a negative impact on consumers as well as on the long-term health of the Canadian dairy industry. In Canada, the top five retailers will account for something like more than 80 per cent of total grocery sales, and that proportion is growing. This concentration of sales among a small group provides an opportunity for a few players to leverage their significant market power to the detriment of our industry. In fairness to consumers and the industry, we urge the government to look at additional oversight of the grocery industry to prevent practices that unfairly squeeze processors, forcing consolidation; reduce investment in infrastructure, R&D and other elements that support Canada’s competitive capability; reduce innovation and consumer choice; and raise prices for Canadians.
At the end of the day, uncompetitive practices from the grocery industry will serve only to decrease competition, the number of processors, and increase costs in the dairy processing sector. Competitiveness is a fundamental requirement for a healthy industry. We need government to take the opportunity to provide oversight and governance and be a moderating influence that supports and guides a focus on end-to-end supply chain efficiency and development rather than allowing the current sharp practices to escalate, which only serves to distract the industry from striving to improve its competitiveness, reducing total costs from farm to fork and increasing investment to guarantee the future of this industry.
To do so, we direct the committee’s attention to examples like those in the United Kingdom where the creation of the Groceries Supply Code of Practice sets guidelines that hold both processors and retailers to account. The groceries code adjudicator was empowered by the government in the U.K. to enforce the code, ensuring that consumers receive a fair deal by incentivizing the kind of healthy competition that drives both quality and lower costs. Since its introduction in 2013, the code has resulted in increased investment in the total U.K. grocery sector, increased processor confidence and certainty with end-to-end supply chain efficiency gains and has driven that increased investment. Retailer profits have been unaffected, and consumer prices have subsequently continued to fall.
In conclusion, I would like to thank you very much for your invitation and for your time. We appreciate the opportunity provided today to share our perspective on how Canada can help the dairy sector remain strong and competitive. Thank you.
The Chair: Thank you for your presentation. Before we move to our third presentation, I’ll give the senators an update. There is a vote at nine o’clock. We’re in a one-hour bell, so no rush.
Chad Mann, Chief Executive Officer, Amalgamated Dairies Limited (ADL): Good evening. On behalf of Amalgamated Dairies Limited and our board of directors, I would like to thank you for the opportunity to discuss the impacts of recent trade agreements announced by the Canadian government. I’m pleased to provide an East Coast perspective on the impacts related to CUSMA, CPTPP and CETA on the Canadian dairy industry, specifically on small- and medium-sized cheese processors such as ADL.
ADL is owned by 165 Prince Edward Island dairy farms and is the largest independent dairy processor in Atlantic Canada. We take great pride in being nationally recognized as a processor of specialty and fine cheese products, canned evaporated milk and a staple of traditional fluid milk products, butter and even ice cream. In 2018, ADL processed 120 million litres of milk, and 70 per cent of that went into cheese production. Our clients stretch from coast to coast, from Newfoundland to B.C., and we have a select international client market that we service. ADL operates five dairy processing plants on Prince Edward Island with a very diversified product range for a small regional company.
ADL and the Canadian dairy industry have benefited from strong cheese and butter consumption in the last five to ten years. We should focus on that because we have had a really good thing going on here in the Canadian marketplace for the last number of years, especially when it comes to looking at butter trends and the sales of butter. When you line that up with specialty cheese and cheese sales, the growth has been running from 1 to 3 per cent a year, which is a decent number.
Dairy processors such as ADL have invested more than $7.5 billion in new plants, processing capacity and innovation in the past decade. ADL just completed our largest expansion in our company’s history. In 2018, we added 35 per cent capacity to our Summerside cheese plant. Investment has also occurred at the farm level here on P.E.I. When you look at our producer levels, we’ve invested close to the $100 million mark over the last five years here on P.E.I. at the farm level. That has been on farm equipment, land and on increasing herd size. These investments have allowed companies such as ADL to process more milk from Canadian farms. This creates more jobs at the farm level, it creates more jobs at the plant level, it creates more jobs at the distribution level and it creates more jobs in agri-food processing in Canada.
When I get to the impacts of CUSMA, CPTPP and CETA, we’re jeopardizing this good trend we have been on in the last number of years in agri-food and dairy processing in Canada. These three agreements are coming in at a compressed time frame over the next five to six years. There is combined market access under these three new agreements of about 10 per cent. If you add that to the current WTO commitments, we’re at an 18 per cent surrender of domestic market share to foreign competitors.
Small- and medium-sized processors such as ADL are extremely concerned with the cheese imports under these agreements. These new agreements, specifically CETA, are focused on cheese and fine cheese such as ADL makes. Under CUSMA and TPP, there is an additional level of cheese that will come in. For small- to medium-sized cheese processors, such as ADL, that service mainly the domestic markets, this is a very substantial threat.
Under the CUSMA, there are additional restrictions on certain dairy exports that will handcuff Canadian processors in the future. Under the CUSMA deal specifically, there is definitely an extra level of concern added because of restrictions to the industry on potential imports and exports in the future.
ADL and other Canadian dairy processors are part of a growing agri-food processing economy and a pillar for the rural community and development this past decade. We need to find ways to keep this growth in place and mitigate the disruption that these new trade agreements will have. I will walk through some of these mitigation channels that we’ve identified and start off with one that has been brought up already today, and that is on the dairy import licences to dairy processors.
ADL has been a vocal advocate for the development of licence allocation methodologies with market mitigation focus. What I mean by that is that mitigation to processors most impacted. This model would be the lowest cost to the consumer, the least expensive option for the taxpayer and an effective compensation for the impact to processors. It would also be the least disruptive to the marketplace.
Canada is implementing three new trade agreements with a significant impact on the Canadian dairy industry. Effective TRQ allocation policies would help reduce the potential disruption to this marketplace. A flawed TRQ allocation policy will be very disruptive and would cause undue harm, specifically to small- and medium-sized processors such as ADL. The CETA TRQ allocation model has been a complete failure for companies like ADL. The allocation of TRQs under CETA undermined our specialty cheese business and benefited organizations without ownership or stake in the Canadian dairy industry. Effective TRQ allocation can be a useful tool to encourage processor-to-processor relationships and help develop reciprocal trade, which our government wants to encourage processors to do.
The recent announcement on the CPTPP TRQ allocation methodology was a step in the right direction for the industry. This methodology should be applied in the future to further trade agreements, and also retroactively to CETA. ADL recommends the government create a program specific to dairy processing with various initiatives to signal its support for Canadian dairy. This program could encompass interest-free loans, refundable tax credits, non-repayable contributions, marketing support, training and equipment upgrades. ADL further recommends funds have a reciprocal component to ensure P.E.I. and Atlantic Canada receive proportionate funding levels to encourage milk processing in the region.
The programming funding should be bundled to cover all aspects of CETA, CPTPP and CUSMA. The funding must be adequate to reflect the impact of granting market access and other concessions imposed on the dairy sector to secure recent trade agreements. We further welcome the opportunity to participate in the strategic working group to develop a unified vision of how the industry can navigate these challenges and other recent domestic initiatives that threaten to undermine the future of dairy consumption in Canada.
I would like to add, while I have the time here, some recent issues that are on the radar of the industry. The first one is the Canadian food guide. The recent announcement of the Canadian food guide was a further detrimental action to the industry here in Canada. Our government needs to be putting policies in place to grow dairy consumption in Canada. We have a very good track record in the last ten years of creating economic benefits in rural Canadian landscapes and communities. We need to keep that going. We punch well above our weight when it comes to the economic output we generate through food processing and on-farm milk processing.
We cannot be limited on trade deals and further limited with respect to initiatives from Health Canada on Canada’s Food Guide and front-of-label packaging. The front-of-label packaging poses serious risk to Canadian food processors in general, and specifically Canadian dairy processors. The concept of front-of-label packaging as communicated to ADL would result in a drastic packaging cost increase to our company, restricted marketing activity and massive dairy consumption losses by confusing consumers in the marketplace.
In 2017, the government requested that dairy processors increase vitamin D in our products, since Health Canada was noticing a deficiency in certain consumer groups. These same products being used as a nutrient-rich source could have front-of-label warning symbols on them. The confusion created within the marketplace and mixed messaging around health would be a marketing nightmare for our industry.
The new trade agreements, food guide and front-of-package labelling combined to be devastating for our sector. We need to develop programs to increase domestic consumption to help offset increased levels of imports, not find ways to reduce it.
At ADL, we are committed to continued investment and innovation that will assure the dairy industry on P.E.I. and Atlantic Canada remains strong. Working with the federal government as a partner will be paramount in the years ahead. We have a historic opportunity to ensure programs and policies support small- and medium-sized processors, of which many are cooperatives and farmer-owned, such as Amalgamated Dairies Limited. We have a chance to get this right. We made some bad decisions recently, but there is a chance to grow this industry. It would be sad to lose that by making further mistakes with regard to dairy industry policy in Canada.
Thank you or your time, consideration and for having the East Coast sign in tonight and present to the committee.
The Chair: Thank you to all the presenters.
Senator C. Deacon: Thank you for the presentations. Chad, you and Summerside have won the prize for not confusing Bill S-228 with front-of-package labelling. They are separate issues. Well done.
I’m really interested in exploring the differences in how it works for farmers when they sell to major multinational milk processors and when they work with more of a cooperative arrangement with a farmer-owned processor like ADL. I’m quite interested in the differences between that. So I’d like to have a little bit of a discussion around that.
The other thing I’d like to have a conversation about is the idea of using TRQ allocated from the foreign, raw product used for Canadian processing. Would that be labelled as a foreign product processed in Canada? To go back to the conversation we just had with the previous panel, I think Canadians like to know that their milk products come from Canada. I think they value Canadian dairy farmers. I personally value the need to help our farmers create and keep and deliver as much value to consumers and keep as much of it on the farm as possible.
Those are the two things I would like to have a conversation about.
Mr. Mann: Thank you for the question. I’ll start with the aspect of farmer-owned dairy co-ops. We have about 11,000 dairy producers across the country, and I believe about 4,000 to 5,000 would belong to member-owned farmer dairy co-ops, which is a pretty decent number.
From ADL’s perspective, I answer to 165 dairy producers here on P.E.I. Their main concern day-to-day is having their milk efficiently processed in valuable products, getting it to market and making a return on it. I suspect our colleagues from Agropur would be in line with that. I will let Parmalat answer on the private sector.
Mr. Taylor: I guess the question is what are the key differences between a co-op model and the various other company structures you can have in place, whether it be privately owned or listed? I think we’re all driven by the same imperative, which is to make returns that are sufficient to allow us to continue to invest in our business and its infrastructure, brands and in innovation to drive value. We should all be led by the consumer. Another key stakeholder in that relationship is the farmer. We have to be able to deliver sustainable returns to allow farmers to continue to invest. Otherwise, the whole thing collapses. These are just different models. None are better or worse than the other. They are different models. I have worked with all of those models in my 35-year career, as a farmer initially and now as somebody who is leading a processing business.
Mr. Benoit: I am in total agreement with both of my colleagues. In Canada, we all pay the same price for milk as processors. We’re not competing in Canada on prices that we pay to the producers. The big difference for co-ops is the profit we generate for our business is owned by the members. I will put on my hat as an Agropur representative and also as a DPAC representative. As Agropur, we share our profits with our members, the 3,000 dairy farmers across Ontario, east, in the Maritimes and Quebec. Obviously, our members see the benefit of being members of a large organization like ours.
With regard to the second question that you asked, I think historically what you’ve seen and what we have right now in the market is that when we import dairy products, we have to label them as imported dairy products. The industry today has no choice other than to label their imported dairy products as imported dairy products. In the future, I think the regulation will remain the same. The issue with the ingredients may be a little different, but from a global perspective we definitely have to abide by the rules in place today.
Senator C. Deacon: It sounds like the highest margin, highest value-added products from our dairy processors, are cheeses. That’s what I pick up from the conversation.
Mr. Taylor: That would vary depending on what you’re talking about. Innovation generally delivers more value-added. But there is no doubt that purely because of the density of the product, the amount of milk that cheese consumes by weight puts it in that category.
Senator C. Deacon: Has giving that up in CETA to a higher proportion had a higher relative effect, potentially?
Mr. Taylor: I think that would be a fair assumption.
[Translation]
Senator Maltais: I’ll be very quick. I have two points to raise. Mr. Benoit, at the beginning of your brief, DPAC estimates the losses at $320 million, plus an additional $60 million for other things. Is that per year or a one-time loss, after which, the industry would stabilize? Are we talking annual losses?
Mr. Benoit: Thank you for the question. According to DPAC’s estimates, the $320 million in losses is on an annual basis, because the imports are permanent. Our plants will lose that processing for good. The $60 million is tied to class 7 and the reductions in dairy exports, which will also be permanent.
Senator Maltais: I’d like to come back quickly to the import licences. I can’t imagine why they would be given to anyone other than dairy processors. If I have to replace a window on my house, I’m not going to have a mechanic do it. I’m going to hire a carpenter. Who are those people, and what are they doing in your industry? Do they buy dairy products from farmers, or are they merely brokers trying to benefit in your market?
Mr. Benoit: I think we are in the same place, and we’re just as surprised as you. As processors, we can’t wrap our heads around it. That’s why processors maintain that TRQs should be allocated to the processing sector, which is going to feel the impact of the trade agreements.
Senator Maltais: Yes, because you are the ones who process Canadian dairy products and market them at home and abroad. If dairy products are going to come in, as I see it, you’re the only ones in a position to know how the process should work, to determine quantity, quality and so forth. We don’t know these players. How do we ensure traceability? Are they buying dairy products from Canadian farmers, or are they simply brokers?
Mr. Benoit: We don’t want to point fingers, but a hard look at the situation clearly shows they won’t be suffering any losses under the trade agreements. Dairy processors and producers are the ones who will be worse off. Allocating import licences to processors is a way to reduce the losses we will experience because of the trade agreements.
Senator Maltais: My last question concerns all 10 provinces. Do you do business with small processors, family-run operations that produce things like sheep’s milk cheese in very small quantities? Are they affected by this? How does that work? Do you buy or distribute their products?
Mr. Benoit: We work with the small players. We have good business relationships with some small players. Now, the small players and big players don’t have the same reality. We acknowledge this in the brief. For smaller players that, for example, have little capacity to manage import quotas, we’re saying that they need programs adapted to their situation. We made this point in the brief. The whole industry recognizes that we have great products made by small artisanal producers. We must support these people.
Senator Maltais: Thank you. Madam Chair, we’ll give others time.
Senator Miville-Dechêne: I gather that you estimate the losses at about $380 million a year? You have many mitigation measures. Are you asking that these measures amount to $380 million a year?
I understand that your losses aren’t only for one year. Are you asking for this over 5, 10, 15 years? What exactly are you asking for in terms of the amount and number of years?
Mr. Frigon: The $320 million is per year, when the agreement has been fully implemented. The agreement will be implemented over 19 years, but will be fully implemented in about the sixth year. To answer your question, the allocation of tariff rate quotas is one of the mitigation measures. This measure will depend on the amount that we ask for and the government’s decision in this regard. As my colleague said, it’s true that we provide examples of programs, but it’s not “one size fits all.” For example, a program component could specifically address the needs of small artisanal producers that don’t have a tariff rate quota because they don’t have the capacity to manage it.
Senator Miville-Dechêne: I have a question about these import quotas. I must admit that I can’t understand the logic. If you grant exclusivity for cheese import quotas, for example, you alone will choose which cheeses enter Canada according to a single criterion. This criterion is the competition with your own cheeses. Doesn’t that strengthen a monopoly situation? I understand what you’re saying about the mitigation measure, but the perception that there are a few major players—you’re not alone—controlling which cheese will be imported and the price... I understand, for example, that you don’t want to bring in Camembert for one euro, because you think that it will compete with Canadian cheeses. However, we mustn’t forget the consumer. I want you to explain this, because it’s not particularly clear to me.
Mr. Benoit: I’ll go back in time. I think that history is on our side. The processors owned a significant share of WTO import quotas. These imports were managed in conjunction with Canadian production. Look at how Canadian production has exploded in terms of the quality and supply of differentiated Canadian products from both artisanal producers and major players such as Agropur and Parmalat. History is on our side. We rely heavily on our experience to continue to offer Canadian consumers a wide range of cheeses to meet their needs. At the end of the day, we’re producers. Our goal is to meet the needs of consumers, but in an intelligent way and in conjunction with what we’re doing here, in Canada.
[English]
Mr. Taylor: I would agree with those comments. I think it’s really important that we are led by the consumer and go wherever that takes us. I come back to the point I made earlier. We also have an important gatekeeper in that relationship in over 80 per cent of the market. Practices like listing fees don’t always mean the decisions, in my opinion, are being driven solely by the consumer. I think that’s something that would concern me. Beyond that, I think we’re aligned.
[Translation]
Senator Miville-Dechêne: Have you been forced to discontinue any cheeses as a result of competition? Have we already reached this point? Can you no longer produce certain types of products as a result of foreign competition?
Mr. Benoit: We’ve really had a first full year with European import quotas. The year 2018 was the first full year of imports, and we’re really seeing the impact. We can’t say today that we’ve stopped making certain products. However, I can tell you that Canadian production has been affected. Some products have been discontinued, since the Canadian volumes have been reduced.
Senator Miville-Dechêne: Which products?
Mr. Benoit: Products made here in Canada. I want to keep a small commercial supply, but I think that all the processors have felt the first concrete effects this year. This year, we were supposed to introduce 5,800 tonnes of European cheeses to the Canadian market. What I say “we,” I mean the industry and retailers. This can’t be done without affecting the existing products, because the fine cheese market is relatively small in Canada. The import of 5,000 or 6,000 tonnes of cheese in 2018 significantly affected our sales, prices and domestic products.
[English]
The Chair: Thank you.
We’re going to run into a time crunch here, folks. We’re going to have to be out of here in 10 to 12 minutes in order to get down to the chamber in time for the vote, which is at 9:01. I’d ask the questioners to be very succinct in their questions and the responders to be equally succinct.
Senator Oh: Thank you, witnesses. I’m just following up on the same questions. Some sources are saying that with Canada’s recent trade agreement of CETA and the other two, we are going to open up a total of 18 per cent of market share to foreign competition. How are you handling this 18 per cent influx here? You just mentioned cheese and other products. Can we compete with the products coming in? Are these products heavily subsidized by their countries of origin? Is it fair competition?
Mr. Taylor: It concerns us deeply. It’s a huge potential issue for us. Full disclosure: I’m relatively new in Canada but have worked in the dairy industry for a very long time. The cost base here is significantly higher than other countries where I’ve been involved in the dairy industry. One of the reasons why a lot of countries are eyeing this market is because of the value they can potentially garner by selling products into it. That’s a significant risk for us, which concerns us.
Mr. Benoit: I totally agree with the comments made. I would complete it by saying that our situation is that the Canadian dairy industry is not subsidized, so what the consumer pays is what it costs to make product here in Canada. We heard from the people here before us tonight. They’re saying — and it’s true — the American industry is subsidized through the Farm Bill. The European producers are subsidized through the common agriculture policy. So products come in at a fairly lower price than Canadian-made products.
Senator Oh: So now we’re talking about 18 per cent. When the year goes down, will they be larger than 18 per cent? How does this affect the rural areas of Canada?
Mr. Benoit: Those imports will come in. There’s no doubt. Those imports will come in, because the economics tell us they will come. They will have an impact on rural Canada everywhere. That’s why we’re saying we need support. Canada signed trade agreements, and we understand why, but we’re paying for this, and we need support in order to alleviate those impacts.
Senator Oh: Any comments from P.E.I.?
Mr. Mann: I would echo the comments from both Mr. Benoit and Parmalat. Here at ADL, being a small processor, our cost structure just does not compete with the scope and scale of companies from Europe and specifically from the U.S. Europe makes a very good-quality product. The cost is much lower than in Canada, so you have good quality at a reasonable cost. The U.S. makes a good-quality product. The scary thought there is that the U.S. is only a few miles away from our southern border, so there is a little bit of a distance.
A year up makes it a little bit of a barrier, but the U.S., with the size of the industry down there — two or three of the largest cheese plants in the U.S. make the Canadian production. When you look at that economy of scale and look at a market that’s evolved in Canada here to service 37 million, and then you throw it against a market that’s servicing 350 million — and in Europe, you have a market of 550 million people — it’s just different industries.
We’re being asked to compete at a very aggressive timeline, and there are going to be casualties, definitely. We’re here today to talk about how to mitigate those casualties, and how can we carve out a future ahead?
There are opportunities. In my presentation, I talked about potential international markets but very select international markets. The need for developing trade and reciprocal trade goes hand in hand with TRQs. My best ability to compete — to selling cheese outside of our country — is having a TRQ for importing cheese into the country. I can develop processor-to-processor relationships with that tool, but competing on price is going to be difficult. I’ll leave it at that. Competing on price is going to be difficult.
Senator Oh: Thank you.
The Chair: Senator Duffy, was yours a supplemental question?
Senator Duffy: Yes, it was.
The Chair: Go ahead.
Senator Duffy: Mr. Mann, you know all us Islanders are so proud of what ADL has done. I’m reminded on this export market side of things that when we brought in free trade years ago, people predicted that a single big brewery in Dayton would supply all the beer for Canada. Now we’ve seen that the public taste has changed, and there are tonnes of microbreweries and niche marketing. Surely ADL, with the fabulous products you have, will be penetrating those markets with our fantastic cheese.
Mr. Mann: We’re there now with some cheese products, but when I look at our price structure and the volume, it is a very niche market that we nibble on. We’ve got to be very careful that we don’t get hung up in this glamorous export market and find out it’s not all as big and profitable as we’re told.
The European Union dismantled discipline on production because they were sold this big song and dance that Asia was going to take up most or all of their dairy production. The U.S. has been on a big kick of growing their milk and dairy exports, but it’s at a subsidized level. There’s a taxpayer cost to that.
I don’t want to give the committee the impression that we can go after export markets and not end up being a ward of the states. We have a good thing going on here in the Canadian dairy industry. If we start chasing these fancy markets that lured other sectors to dismantle supply discipline, I’ll call it, then we could end up in a very chaotic situation, similar to what we see in other parts of the world with regard to dairy.
The Chair: We have three minutes maximum for Senator Dagenais. Sorry about that, senator. The floor is yours.
[Translation]
Senator Dagenais: Mr. Frigon, in the previous panel, Mr. Bourbeau, from the Producteurs de lait du Québec, said that most American dairy products that enter Canada will be used for processing. Which Canadian processors are likely to use these products?
Mr. Frigon: It depends. It’s related to the allocation of import quotas. We want these quotas allocated to dairy processors. The goal of this mitigation measure is also to minimize the impact on the rural economy in terms of national production lines. Dairy processors have a strong interest in importing different types of cheeses that will complement the current domestic market supply rather than compete with that supply.
Senator Dagenais: The Canadian government has created committees to establish compensation programs. Are the discussions only about money, or have you had the chance to address the labelling issue? With regard to labelling, do you feel that you’re being heard? I imagine that the products arriving from the United States will be labelled differently. Consumers may need to be informed.
Mr. Frigon: Two working groups have been established. One group will look at mitigation and the other group will look at the long-term strategy. The goal is to examine all the components that affect consumer demand in the long term, including Canada’s Food Guide. We talked earlier about the bill and labelling on the packages.
Senator Dagenais: In the United States, the American flag appears on their dairy products. If the products are found here, the consumers may choose the Canadian product, which is better. Labelling is important.
Mr. Frigon: Certainly.
Senator Dagenais: I understand that, if you want to win the vote, we’ll need to go vote.
[English]
Senator Duffy: Mr. Mann, the government set up industry working groups. Do you happen to know who the representative is for P.E.I. in those industry working groups?
Mr. Mann: Yes, I do. Ken Smith is part of two working groups. I will be part of the strategic working group.
Senator Duffy: Thank you.
The Chair: Thank you to the panel. We’re sorry to rush away, but we have to go vote.
(The committee adjourned.)