Agriculture Committee on Nov. 23rd, 2006

[The Chair, Conservative, Gerry Ritz]

Good morning, everyone. Welcome to this meeting of the Standing Committee on Agriculture and Agri-Food.

With us for the first portion of the meeting—don't let the timeframe scare you, we had to put something down on paper—we have with us, from the Fédération des producteurs de porcs du Québec, Jean-Philippe Wilkins, communication adviser, and Lise Grenier-Audet, vice-president; from the Canadian Pork Council—and I apologize for the mispronunciation—Clare Schlegel, president, and Jean-Guy Vincent, second vice-president; with Olymel we have Paul Beauchamp, vice-president of supply and corporate affairs; and from Maple Leaf Foods Inc. we have Rory McAlpine, vice-president of government and industry relations, and Don Davidson, vice-president of business development, government and industry relations.

Those are fancy titles, guys. Great. I'm sure the discussion will hit those heights as well.

Welcome this morning. We're going to have a good, open, and frank discussion on the present, past, and future of the pork industry in this country.

I will start with the Quebec producers for a ten-minute presentation, folks, if you can try to condense your topics to that. We'll try to hold you to that. I'll give you a one-minute warning.

Who will be presenting for the Quebec pork producers?

Madame?

[Lise Grenier-Audet, Vice-President, Fédération des producteurs de porcs du Québec]

Good morning, ladies and gentlemen, members of the committee.

As Vice-President of the Fédération des producteurs de porcs du Québec, I would like to thank the members of the Standing Committee on Agriculture and Agri-Food for this invitation.

In view of the economic importance of pork production in Quebec and the extent of the current crisis, you'll understand why the federation readily accepted your invitation. We will take advantage of this forum to provide as accurate a picture as possible of the situation in the pork industry and at the time try to offer some potential solutions to this problematic situation for pork producers.

Our presentation will be divided into two parts. The first will concern the health crisis in the hog sector, and the second the structural crisis of the hog industry in Quebec.

The first part is the health crisis. Since 2004, Quebec hog producers have seen an unprecedented increase in the hog mortality rate, which has virtually doubled. This increase is attributable in large part to the disease caused by circovirus, which unexpectedly broke out in 2005 and killed 270,000 animals.

An investigation conducted by the Association des vétérinaires en industrie animale showed that nearly one out of two herds was affected by this disease in 2004 and 2005. The extent of the impact can obviously vary from one business to another, but the study provides alarming findings: 450 farms have mortality rates of 20 percent or more.

To illustrate the problem, let's take the example of a family farm with 250 feeder hogs. This mortality rate, that is to say 20 percent, represents 648 fewer hogs that will go to market every year. Since a producer invests $94 per dead animal, that family business will lose $61,000 in a single year. In this situation, the very survival of the business is at stake. Very often, a producer has no choice but to borrow in order to avoid bankruptcy for his business. He has to go into considerable debt.

When such a major crisis arises, government support becomes essential, and government programs made available to producers must be effective. Unfortunately, this is not the case of the CAIS program. We are in a position to observe that this program is not suited to the present health problem. The federal government's CAIS program covers declining margins. It is effective for some farm businesses, but totally ineffective, and especially unfair, for others, particularly for diversified businesses involved in livestock production.

This deficiency may be explained by the fact that there is no livestock production insurance program. For example, a farm business that has more than one commodity is at a disadvantage compared to a single-commodity farm business in terms of compensation following a disaster.

Let's take the example of a farm that markets hogs and grain and that sees the hog mortality rate increase significantly due to circovirus. If the price of grain increases during the same period in relation to historical prices, the CAIS compensation to which this farm could be entitled is reduced, because the gains realized through grain production offset the losses realized in hog production. Conversely, a hog farm faced with a disease of the same magnitude but which does not grow grain would receive higher compensation from the CAIS.

The federation would like the government to restore equity between businesses, by avoiding interference between the various programs. To do this, the federation requests, in the short term, that all cases involving hog operations which were the victims of a disaster during the 2004, 2005 and 2006 participation years, those cases be reprocessed by isolating the eligible revenues and expenditures related to hog production to calculate the CAIS compensation.

In addition to seeking such a case review, the federation is of the view that the federal government should learn lessons from this crisis and shoulder its responsibilities by developing a livestock mortality insurance program adapted to the situation of hog producers. Work is currently being done by an advisory committee at the federal level, but the federation wishes to emphasize that the only definition of insurable disease accepted by that committee is not adapted to the hog sector.

This proposal specifies that losses resulting from diseases which the insured knew were present before the contract took effect are not covered. Although logical from a strict insurance perspective, this condition makes it difficult for the hog sector to obtain access to the insurance program because hog production is characterized by the presence of certain pathogens in serological tests of a large majority of herds, but without any clinical signs.

Health status is controlled by a series of biosafety measures, and several years may pass before the herd suffers significant losses. Several farms thus have herds that are in good health even though they are said to be positive for certain pathogens. The current herd health crisis is a good example. Circovirus was already present in herds before clinical signs appeared and the epidemic began to spread. Consequently, the federation hopes that the federal government will require that the provinces apply a livestock production insurance program that reflects the special conditions of the hog sector, so that diseases present in the herd but controlled by the producer's good herd management practices are covered when appropriate biosafety measures are applied.

Now I'm going to talk about the structural crisis. While the health crisis is decimating our herds, the Quebec hog industry is experiencing a structural problem. Olymel, which is the main player in the hog slaughtering and processing sector in Quebec, is experiencing difficulties similar to those of Maple Leaf, which recently announced a restructuring plan that will necessarily have a major impact on hog production in Canada. For these two strongly export-oriented companies, the rise of the Canadian dollar and intensified competition in the international market for convenience pork products weigh heavily on corporate margins.

In addition, the sector relies on too many small and under-mechanized slaughter plants. To stay competitive, Quebec slaughterhouses will have to have the same attention as the federal government gave the cattle sector when it funded various initiatives designed to solve problems which were exposed during a BSE case in May 2003. Consequently, it is our view that the processing sector must be supported by the federal government, based on strategies for repositioning the industry with the aid of specific funding to reduce slaughtering costs and create value-added products.

In conclusion, on behalf of the Fédération des producteurs de porcs du Québec, I want to thank the members of the Standing Committee on Agriculture and Agri-Food once again for this invitation. We hope that it will be able to draw the necessary conclusions. The Quebec and Canadian hog industry is experiencing tough times and must be supported by the federal government so that it can regain the vigour and vitality that have made its reputation for many years.

Thank you.

[The Chair, Conservative, Gerry Ritz]

Merci, Madame.

Next on our list will be the Canadian Pork Council. Who's presenting?

Mr. Schlegel.

[Clare Schlegel, President, Canadian Pork Council]

Thank you.

We each will present part of our presentation, and I'm assuming you each have a copy of our presentation that you can follow along, because there is a graph or two in there we'd like to refer to.

Thank you very much for the opportunity to present our concerns and discuss with you the issues facing Canada's 13,000 hog producers.

The Pork Council is a federation of the provincial hog farmers associations operating in each of the nine provinces, from the west coast through to the maritime provinces. You've just heard from the FPPQ. They're appearing along side us here today, and they're obviously one of our members from the province of Quebec.

I'm going to deviate slightly from the text, and I want to be very clear and very, very straightforward. This industry is in the early stages of crisis, and it's going to get worse before it gets better. You're aware of some of the processors' announcements, and they're going to be appearing here with us today as well. I can tell you that producers have been shielded slightly from a price perspective only because of the price cycle, and you're aware of the disease problems in Ontario and Quebec. We are entering a crisis stage.

The hog industry is one of Canada's most important agricultural sectors, accounting for almost $4 billion in farm cash receipts in 2005, representing more than $1 in every $10 of total farm-gate revenues across this great country of ours. Swine production has accounted for an increasing share of Canada's total farm income due to its rapid growth over the past decade and a half, and it's certainly been a success story over that period of time. Over that decade we have seen Canada grow to be a vital and thriving pork export business. We now ship to over 100 countries around the world, and in 2005 we set a new record, selling over one million tonnes of pork outside of our country, with a value of $2.8 billion. But in 2006, year to date, we have actually decreased exports slightly, while the United States has continued to grow at a very rapid pace. That's a concern.

As can be seen in the illustration--and it's in your presentation--Canadian pork exports are much more diversified geographically and far less focused on the United States market than was the case years ago. We attribute this to a number of factors. Two primary ones that we want to highlight are the increased opportunities that were the result made available from trade liberalizing agreements, particularly the WTO deal from the Uruguay Round, and the Canadian pork industry's collective determination to pursue export diversification and the creation of our export market development arm, Canada Pork International.

If you look at the graph, you can see that in 1990, 90% of our exports went to Japan and the United States. Today, they're at 77%, and there was even a potential that Japan could overtake the U.S. as our number one destination, although I don't believe that's happened this year yet.

As can be seen from the next chart, exports now exceed domestic sales of pork, and again, I'll repeat that: exports exceed domestic sales of pork. We crossed over in about 2002. That shows you how much we benefit the Canadian economy. Canada, with a relatively small and aging population, cannot provide sufficient demand to sustain the Canadian pork industry. Thus, as is the case for much of Canada's economy for which exports are of vital importance, it's absolutely vital that Canada pursue all avenues to obtain favourable terms of access to foreign markets.

This includes multilateral arrangements through the WTO and through regional and bilateral deals. The Canadian Pork Council urges that Canada continue current initiatives such as the new G-6, towards reviving--and I understand it is revived--the Doha Round negotiations. We must also significantly ramp up efforts to complete bilateral negotiations begun several years ago, with Singapore and Central American countries being notable examples, and to achieve some new agreements that will reverse the deterioration in our industry's relative access that will occur if we do not do some catching up with the United States, Chile, and several other pork-exporting countries that have implemented or completed negotiations on an enormous number of regional and bilateral trade deals, giving them preferential access.

In addition to pursuing trade liberalization agreements with the Andean countries, Japan, India, and China, the CPC strongly supports a Canadian free trade deal with Korea, provided, of course, that pork is included in the tariff reduction package, and pork needs to be included in that tariff reduction package. As the chart shows, Korea has been one of Canada's most important growth markets for pork exports. However, our future access to Korea is threatened by advantages that some of our competitors are obtaining, or hoping to obtain, through their own bilateral deals.

Having covered the importance of trade and export access, we now want to turn to significant economic challenges facing our industry and a few of the areas that CPC feels will require immediate attention in order to remain competitive in the future. Again, we're only in the early stages of crisis.

The rapid appreciation of the Canadian dollar has had a wrenching impact on the hog and pork industry. A simple illustration of how the rise of our currency has affected us is to compare hog prices today in Canada and the United States versus 2002, before the Canadian dollar began its rapid upward climb.

If you look at that chart, I would like to add a third column. In 2002, the U.S. price of $53.57 with today's currency exchange, is $1.08. The 2006 number, at $68...if you turn that back to 2002, with the currency back then, that would have netted us over $2 a kilo. So in currency alone, it has cost us between $30 and $40 a pig.

Hog production has gone into decline for the first time in a dozen years. Major packers have announced their intention to significantly downsize or restructure their operations. That's a huge concern for hog producers, but more than that, it's a huge concern for the hundreds of communities and thousands of workers across Canada who depend on the industry for their livelihood.

Hog producers everywhere are considering the conditions under which they can continue to raise pigs and the processing sector can successfully continue to operate. Competitiveness is a focal point of virtually every industry meeting taking place now and in the next few months. CPC and its provincial members want to secure conditions for the long term that will allow us to continue to have the vast majority of pigs born in Canada, to be raised in Canada, as well as processed in this country. We cannot otherwise have the value-added activity and the pork export sales that this country has enjoyed in the past.

Thus, we are making every effort to pursue a forward-thinking approach in the Canadian hog sector that will enable us to continue our role as global leaders in this pork industry.

[The Chair, Conservative, Gerry Ritz]

Mr. Vincent.

[Jean-Guy Vincent, Second Vice-President, Canadian Pork Council]

However, the Canadian Pork Council is also looking for supporting policies and programs at the federal level to enable us to hold our own in the international pork business. These include the following.

Export market development support, including personnel in our embassies and programs that assist industry in breaking into new markets and projecting our Canadian quality image to consumers abroad, need to be comparable to those available to our competitors, such as the United States.

We need a world-class veterinary product review and registration process similar to what's being done elsewhere in the world. Producers use veterinary pharmaceuticals judiciously to ensure the health and productivity of their animals, but the removal from sale of some older products and the emergence of new strains of disease necessitate timely access to safe, cost-effective pharmaceuticals.

According to work done by the George Morris Centre, an economic research firm in Guelph, Ontario, the average veterinary pharmaceutical review in Canada requires 1,200 days, whereas regulatory review in the U.S. is completed in fewer than 200 days. In Australia, the turnaround is well under 300 days. The time required for licensing veterinary drugs in Canada has, in many instances, been unacceptable.

Canada needs to have a comprehensive and coordinated national approach to dealing with animal health that engages both industry and governments, federal and provincial. The CPC shares with many other animal industry sectors a desire to have animal health more explicitly covered in the next Agricultural Policy Framework, APF II. Breeders are demanding public funding to ensure animal health protection and avoidance of foreign animal diseases. These measures will clearly be cost-effective, having regard to the enormous costs associated with the consequences of these diseases.

The Canadian Pork Council supports many of the changes that have occurred in the Canadian Agricultural Income Stabilization Program over the past year. However, hog producers remain vulnerable to asset losses that are beyond their control, most particularly those related to diseases. Hog producers do not have access to production insurance, in the way that many crop producers do. Currently, production insurance is a provincial responsibility. But we need clear federal government leadership to put in place an approach that provides a level playing field across the country, and in as trade neutral a manner as possible. Also, a clear catastrophic disaster program is needed, to provide assurances to producers when markets collapse as a result of a catastrophe — be it foreign animal disease that closes a border or a natural disaster.

Industry needs a regulatory environment at all levels of government — federal, provincial and municipal — which utilizes sound scientific information and, wherever possible, takes into account industry programs with complementary objectives. Examples include on-farm food safety, environmental compliance and animal health and welfare.

[Clare Schlegel]

CPC is pleased to see biofuels emerge as an important additional opportunity for revenue generating for our grains and oilseeds producers, a sector that had serious income challenges in recent years and whose economic health is crucial to the long-run viability of our industry.

CPC only asks that policies designed to encourage the production of biofuels in Canada do not operate to disadvantage the international competitiveness of our pork industry. The pork council also asks that there be a federal research focus on maximizing opportunities for feeding by-products to swine in the emerging industry.

It's not in your package, but we want to comment on labour, recognizing that labour is a crucial limiting factor right now for our hog processors, in particular, and also for hog producers.

We think there are some immediate changes that could happen to various programs, for example, by extending the one-year limit for unskilled labour to two years.

Thank you once again for this opportunity to discuss pork sector issues with you. We look forward to addressing any and all of your questions.

Thank you.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Schlegel.

We'll move to Mr. Beauchamp, from Olymel.

[Paul Beauchamp, Principal Vice-President, Supply and Corporate Affairs, Olymel]

Thank you, Mr. Chair.

Good morning ladies and gentlemen members of the committee. First of all, I'd like to thank you, on behalf of Olymel, for this opportunity to present our views on the crisis — because there is a crisis — currently raging in the pork industry. It isn't being experienced in the same way in the production and processing fields. It may be latent in some regions of Canada, but that doesn't prevent the fact that there is currently a crisis.

First of all, I'd like to introduce Olymel in a few words. The corporation may not be well known here, around this table. Olymel is a young company, founded in 1992, and is the result of numerous mergers, acquisitions and partnerships. It is owned by three shareholders: the Coopérative fédérée du Québec, an organization belonging to Quebec producers and holding 60 percent of the shares; the Brochu Group, in the agricultural sector, and the Société générale de financement du Québec, a Quebec Crown corporation.

Olymel and Maple Leaf are currently vying for the title of leader in the pork and poultry slaughtering, processing and distribution sectors. Olymel's pork operations represent approximately 80 percent of our sales, which total more than $2.5 billion. Olymel is a major player in Quebec. In all, we operate 22 businesses in Canada, mainly in Quebec, but also in Ontario and Alberta.

Olymel exports nearly 50 percent of its pork around the world. We have offices in Tokyo, Seoul and Sydney. We have an international presence and, in that capacity, play a major role in moving Canadian pork production, whether it be in the east or west of the country.

Olymel has been much in the news in recent weeks, indeed in recent months, regarding the restructuring program it set up early this year. We aren't the only ones in this situation. My colleagues from Maple Leaf will no doubt tell you about the announcements they've recently made. One thing is certain: it appears that both of us view the current crisis in the same way. Both seem to want to make major changes to our processing structures. Both feel that, if appropriate action is not taken, the impact on production in Canada could be significant.

Our industry has been struck by various problems. I could say that some of them don't stem from either our industry or Canada. The fact that our currency has appreciated so much and so quickly over the past three years has caused a very serious shortfall at Olymel. Depending how you interpret the exchange rate this morning, that figure stands somewhere between $85 and $100 million.

The fact that our dollar was at 68¢ caused a lack of reaction to productivity issues. That situation effectively concealed our weaknesses in that area. We have to recognize that fact and accept our responsibility for it. However, it must also be recognized that no business or industry, whether on the farm or in the processing sector, could have reacted as quickly to counter the changes in the exchange rate that we've just experienced.

Moreover, the Americans are both our main market and, internationally, our main competitor. However, their exports have increased significantly in recent years. A number of international markets that we consider somewhat as our natural markets — let's take Japan, for example — have seen the Americans enter aggressively. Their devalued dollar has made them even more competitive. Our margins have therefore been tightened. The meshing on international markets, although the markets still exist, has tightened as well.

In addition, the exchange rate has had a harmful effect, in that our American competitors are now increasingly aggressive in our own market.

We thought that, since we exported 50 percent of our production, the Canadian market was ours; that's now a thing of the past.

From 2001 to 2005, the Americans doubled their exports to Canada. That growth has exceeded 30 or 40 percent this year. In other words, the Americans now consider Canada an integral part of their pork market.

Our competitors, who in the early 1980s were still our U.S. competitors and operated small plants without too much concern for the quality of meat delivered, have changed their way of doing things. They now operate global plants that have a slaughtering capacity in the order of 90,000 hogs a week. Currently, the Red Deer plant alone has the necessary potential to slaughter as many hogs starting tomorrow. The Maple Leaf plant in Brandon also has that potential, although with a slight delay; that plant has announced that it will be starting a second shift.

In Canada, the average number of hogs slaughtered per facility is 13,000, whereas it's 85,000 in the United States. No plant in Canada is that size. This loss of competitiveness is having major consequences for our industry.

That leads me to the differences that can exist between the east and the west. In addition to structural problems, the west is also facing labour problems. In November of last year, Olymel started up its second shift and had to stop it in April for lack of employees. We've previously had more than 1,800 workers, but that figure is now 1,300. The labour issue has become more important than the exchange rate and hog availability.

I invite you to consider measures to support our manufacturing sector and other sectors experiencing the same situation in western Canada. For example, we could adopt slightly more “liberal” measures to facilitate access to foreign labour. The term of permits granted by the federal government is 12 months; we invite it to extend that term to 24 months.

We have to stabilize the manufacturing sector in the west, particularly the pork processing sector. A withdrawal from that sector would have incredible consequences upstream. Imagine if Olymel withdrew from western Canada as a result of Maple Leaf's announcements that it's withdrawing from Saskatchewan. That's one possible scenario. We won't be able to operate that plant for lack of labour.

Apart from the economic situation for which we're asking you to intervene and support the industry, it must be kept in mind that, without labour to operate our facilities, there won't be any processing in Canada or, if there is, it will be extremely difficult. It's not only the agricultural sector that's threatened; it's all manufacturing sectors in western Canada. It's threatened to such a degree that one wonders whether the traditional manufacturing sectors have a future in western Canada.

In Quebec in particular, the industry is experiencing other structural problems, which are distinctly more fragmented. Eleven slaughterhouses deliver an average of 130,000 hogs. In the U.S. model, one and a half slaughterhouses would be necessary to deliver the same number.

The federation has asked you to support measures to rationalize the processing sector as you've done for other agricultural production sectors, beef in particular. When that sector needed support for both its production and processing operations, the government agreed to help it.

We're asking you to help us so that we can get through the present crisis and restructure.

I'd like to draw your attention to another argument that is definitely gaining ground in Canada, the one concerning the risks that hog farms represent for the environment. As you know, a moratorium was called in Quebec in 2002 and subsequently lifted, but its effects remain. A moratorium has been declared on production in Manitoba. One may think that there might be other moratoria in other provinces.

While being extremely respectful of the environment, we hope — and that's what I heard from other people earlier — that scientific evidence is clearly established before we can reduce or limit production operations. The consequences of hasty decisions for the future of production and processing are really major.

Mr. Chair, I'll be available to answer your questions. I would like to summarize my remarks by saying that the hog breeding sector needs your help, as you have offered it to other sectors, the beef sector in particular, to support investment, rationalize the industry and permit risk-sharing. Producers could partner with processing businesses to develop a new way of addressing the industry's future.

I would also like to ask you, with regard to the labour problems, to take action to make foreign labour accessible to us, if only in the short term, in order to address the specific situation affecting western Canada.

Thank you, Mr. Chair.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Beauchamp.

Maple Leaf Foods, Mr. McAlpine or Mr. Davidson.

[Rory McAlpine, Vice-President, Government and Industry Relations, Maple Leaf Foods Inc.]

Thank you, Mr. Chairman.

Thanks to the committee for inviting us today to explain how we at Maple Leaf Foods are trying to address the challenges facing the pork industry in Canada.

My colleague, Don Davidson, represents our fresh foods business and will be able to help me answer any questions.

I've circulated a document that has some facts and figures, several of which have already been mentioned.

On slide 2, you see a description of the evolution of the Canadian pork industry. Prior to the early 1990s, it was a stagnant and uncompetitive industry, with a rapid change in the late 1990s and early 2000s. Of course, there are a number of reasons for that, including the elimination of the Crow benefit in western Canada, deregulation, rapid improvements in genetics, and the competitive position we had, thanks to a relatively weak Canadian dollar. Beginning in 2003, the situation changed dramatically as a result of the currency appreciation.

On slide 3 you'll note the rise in the Canadian dollar, with a 40% appreciation. The point is that this has had a profound impact, not just on the value of exports, but it's impacted the cost of Canadian feed grains significantly and raised the cost of production. It's hit the profitability of hog production, and as an integrated producer-processor, Maple Leaf has felt this at the hog production level as well. Export margins on fresh meat have been seriously compromised, not just in the U.S. but particularly in Japan, due also to the weakening of the Japanese yen.

The domestic margins on fresh meat have been squeezed as a result of the much more competitive import product that is now available to our customers. As I mentioned, export margins on processed meat and factory utilization have been lost due to loss of export business. As we've discussed, the loss of the utilization of capacity has a serious consequence. For Maple Leaf, we have estimated that the impact on our earning situation solely from these currency-related changes has been $100 million a year for the last three years.

On slide 4 you see the issues that impact, and I think several of these have already been referred to. The animal disease issue is profoundly important and needs to be addressed through a much more comprehensive national strategy. Productivity and efficiency have been compromised.

The lack of scale, which my colleague from Olymel mentioned, is a serious challenge to the competitiveness of our industry relative to the United States. The emergence of countries such as Chile, Brazil, and China as growing and successful pork producers and exporters has started to impact trade issues, market access, and trade barriers, which we have faced in key markets and most recently regarding the pause or the failure to progress in the WTO.

The point for us is expressed well on slide 5. The former chair of IBM said there are no prizes for predicting rain; prizes are only for building arks. It's certainly our view that this is a time to build arks, and that's exactly what Maple Leaf is doing.

Approximately four or five weeks ago, Maple Leaf announced a new business model for our protein value chain. Our new vision is that Maple Leaf is an organization of passionate people who are passionate about food. One of our pillars will be to become a globally admired value-added meats and meals company. This is an important focus, because no longer will we be focused on producing pork for the world. Now our focus is solely on the production of value-added meats and meals for domestic and global markets.

On slide 7 you see a description of this new business alignment. All of the component parts of the Maple Leaf system—rendering, feed, hogs, and primary processing—will now be aligned to supply the inputs to our further added processing activities. This means that whether those activities relate to production or the purchase of inputs, the system will be aligned in this fashion. We will remain a producer of commodity pork, but we will process fewer hogs and produce much less commodity pork, with the focus being on the input to our value-added activities across the country. This is a significant change that will not be accomplished quickly. It's going to take us two to three years to move in this direction, but the process begins now. A key reason is to achieve processor optimization.

On slide 8 you see a graphic to illustrate the point colleagues have made about the need to achieve scale-level plants. We note here how the capacity utilization or capacity throughput of plants in the U.S., based on this general idea, achieves a much lower cost per unit.

The next slide provides a much more detailed breakdown of capacity utilization in North American hog processing plants, U.S. and Canada. You can see here how significantly Canadian assets are underutilized relative to the U.S. competition. The consequences of that in terms of efficiency and profitability are now becoming extremely important as we face the appreciation of the Canadian dollar.

What are the specific implications for Maple Leaf? On slide 10 we have listed them. These are the short-term implications that I know will be of interest to the members of this committee.

The first is that we will double-shift our Brandon plant as quickly as possible. That process has begun. It's vital that we consolidate slaughter at that plant and achieve an efficiency through double-shifting.

We are closing the Saskatoon 11th Street plant and will not proceed to build a new slaughter facility in Saskatoon, as we had hoped.

The plants in Burlington and Lethbridge will be sold, with a view to maximizing their value to the business and maintaining them in a viable condition for the future.

There will be no further slaughter at the Winnipeg plant as we move to the double shift in Brandon. We will review the future of the Berwick, Nova Scotia, plant, recognizing that it combines both primary and secondary processing.

Our Elite Swine hog production business will produce fewer hogs, but the ownership of those hogs will be 100%. The variety of hog contracts or ownership models that we had will be reduced and we will focus on a smaller number of hogs owned 100% by Maple Leaf.

The business value of our animal feeds business, Maple Leaf Animal Nutrition, will be maximized through sale, again reducing those assets to bring them in line solely with what we need as a company focused on value-added meats and meals production.

Let me conclude with five areas where I believe government can be helpful. Industry has to make the first move, and that's what we're doing. We're building our ark. We're going to be more competitive and succeed on that basis, but government can do a great deal to help to create the business climate that allows us to make the decisions we need to make.

The first is to move on smart regulations. It's time to fulfil the promise of smart regulations and improve the federal-provincial coordination of regulation across our sector at every level of the value chain.

This does not mean simply harmonizing unilaterally with the United States. There are many ways we need to improve our regulatory environment. There are some aspects of it that need to involve better harmonization. The reference has been made to veterinary drugs, as an example, but we have to be strategic about it.

Second, we need enhanced trade access. We have seen too many trade actions, particularly by the United States, that have harmed our industry, but there are all kinds of technical trade barriers that have compromised our success in markets like Russia, Australia, the European Union.

We need more bilateral trade agreements. As well, we need better infrastructure--border infrastructure, port infrastructure, and the Asia-Pacific gateway are critical.

Labour market flexibility has been mentioned, and for a large national employer like Maple Leaf, we feel this every day. The variability in labour legislation province by province and the different terms and conditions we have to operate under are problematic. We need better access to the foreign worker program, particularly in western Canada.

We need more support for science and innovation. We need a focus that goes beyond primary agriculture, up the value chain, supporting innovation and with a particular focus on animal disease prevention. We are exposed to such tremendous risk. In our case, particularly now with a singular focus on value-added production, any major animal disease incursion would be disastrous.

Finally, we need stable and effective farm support programming at the national level that is equitable and ensures that we have a level playing field. We can't have provinces imposing or allowing different levels of farm support. The problem continues to be the risk we run of countervail when we get into that sort of situation. We need to ensure that we approach this from a national equitable perspective.

Those are our comments.

Thank you very much, and we welcome questions.

[The Chair, Conservative, Gerry Ritz]

Thank you, ladies and gentlemen, for that opening round. We'll now move to questions.

I just have one point to make, Mr. McAlpine. As you talk about rationalization of your company, do you feel you'll qualify for CAIS payouts at some point along there, as the Saskatchewan Wheat Pool did?

[Rory McAlpine]

Sorry, Mr. Chairman, are you referring to payments to hog producers--

[The Chair, Conservative, Gerry Ritz]

No, payments to your company under the CAIS program. The Sask Wheat Pool qualified for $4.3 million or something as they reworked their enterprise and sold off portions of it.

Do you feel that Maple Leaf will qualify?

[Rory McAlpine]

Well, certainly at present, producers who participate in the elite swine program and our contract partners are eligible under CAIS, but a wide degree of business models apply, and the eligibility would certainly be in play for any producer who is currently in the CAIS program in our system.

[The Chair, Conservative, Gerry Ritz]

Okay, thank you.

Mr. Thibault, seven minutes, please.

[Robert Thibault, Liberal, West Nova, NS]

Mr. Chair, I'd like to thank all the people who have made these excellent presentations.

I'd like to start by asking a couple of questions of Maple Leaf.

What we've heard is that we're advancing toward a state of crisis in the pork industry in Canada. I think if you look at the question of Nova Scotia you'll see we're in the third stage of that crisis situation. It's very worrying. You mentioned in your documents the Berwick plant. Without the Berwick plant, the hog industry in western Nova Scotia, in the Annapolis Valley, is dead. It's very difficult to see how it would survive, how Olymel or anybody else could take over that amount of production at a price that would permit them to operate in that area.

I understand the challenges you have, and I also understand the efficiencies in that plant in secondary production, that it's currently underutilized. Can you give some assurance or some indication to the farmers of the Annapolis Valley as to the probability of that plant operating in the future and to the timing of your decisions on this facility?

[Rory McAlpine]

Thank you for the question.

Mr. Chairman, we can't be specific. We've indicated in this presentation that the future of the plant is under review. It is a plant that combines primary and secondary processing, and it plays an important role in supplying product to our Moncton facility. On the timeline for decision-making, all of these decisions that Maple Leaf has announced are going to be implemented over a three-year timeframe.

We are very sensitive to and well aware of the importance of that plant and the importance of the business partnership we have with producers in Atlantic Canada. It's not, in fact, just confined to an impact on the province of Nova Scotia. So we're well aware of that. We're very concerned. We will continue to work on a very transparent basis as decisions are made and options are considered, in terms of our communications both with producers and with the governments in Atlantic Canada.

That's pretty much all I can really say at this point.

[Robert Thibault, Liberal, West Nova, NS]

Or you could say, “Yes, we'll keep it open.” That would be very good.

Mr. Beauchamp, based on your experience, considering the competitiveness of the Canadian industry, the potential of the export markets and the expansion of those markets, how do you view the future of the pork industry in Canada, and in competition with other countries? Is there overproduction? Is there potential for expanding production? Will we be seeing any major adjustments in the industry or closures in certain regions?

I'm putting these questions to you, but perhaps someone else would like to answer.

We also know that Maple Leaf Foods Inc. has announced the closing or sale of its plants. Will that cause major changes in the industry?

[Paul Beauchamp]

Thank you for your question.

I believe you want to know whether we have a solution to get us through this crisis. We have to establish parameters together, that is everyone around this table. As we speak, there is a farm income crisis that has been exacerbated by the health question, particularly in the east and perhaps somewhat in central Canada. I believe we should give our support to the farms, but I see that more as a matter of economic circumstances.

In structural terms, Canada has to establish infrastructures, particularly in order to compete with our major competitors, the Americans. I mentioned that there were few international scale infrastructures in Canada. We have our facility in Red Deer, but we have to address the labour issue. At that plant, we've previously slaughtered as many as 60,000 hogs. We had to lower that figure to 45,000 for lack of labour. We'd like to return to 60,000 and 90,000 hogs. We believe that, with a fully efficient, well-stocked plant, we'd be able to meet the competition.

My colleagues from Maple Leaf Foods have a strategy for central Canada and Manitoba. It remains for us to restructure central Canada and Quebec. The federation described the situation in Quebec. We have begun the restructuring process and we're trying to create large-scale infrastructure that will enable us to be competitive.

To answer your question, once these issues are settled — we're also working with workers to adjust our compensation to that of our international competitors — if we put the necessary infrastructure in place, together, we hope, with the producers, in a new risk-sharing approach, there will be a future. We still believe in the future of the pork industry, but we have to restructure it now, all together.

[Robert Thibault, Liberal, West Nova, NS]

Perhaps I could clarify my question.

We're talking about restructuring so that our slaughtering plants are competitive and reach 90,000 or 100,000 hogs a week. Will that mean there will be fewer such plants? Will the primary producers have to be nearby? Will we see a large reduction in primary production in certain regions of the country? Do you anticipate that?

[Paul Beauchamp]

No. In production, there's still a limit because of transportation costs, but the benefits generated by large-scale businesses can offset additional transportation.

However, unless we manage to find a niche for each facility and each specific product... You don't develop an industry just with specific products. We're in a commodities market, so we need international operations. I think we're going to see large establishments: one in the west and one in central Canada. Will central Canada be defined as Manitoba, Ontario? I don't really know, but Quebec will definitely be there. I'm not saying there won't be any room for smaller facilities that could be strictly based on value-added or for niche markets, like organic pork. If we want to take part in the international pork market, we have to establish infrastructures the size of those of our competitors.

[Robert Thibault, Liberal, West Nova, NS]

If there's time left, I'd like to hear from the Canadian Pork Council on that same question.

[Clare Schlegel]

Thank you for the interesting question.

I want to be simple and I want to be clear. The future can be bright or it can be pessimistic. We can either maintain our industry, we can rebuild and move forward, or we can spin ourselves into a period of decline. I think those are the two choices.

The game is very tough right now, but with a level playing field and the appropriate reaction, we probably can compete. It's not going to be as much fun as it was in the past ten years, but we have to respond, and we have to make some strategic decisions.

Canada has about 22% of the world pork trade. The world pork trade is increasing, not decreasing. Our domestic consumption is not increasing. So if we want to protect the livelihoods and the rural communities out there, I think we need to respond. You've heard a number of the different aspects from a Pork Council perspective and a producer perspective. We are still examining some other issues, what it means. We know it requires regulatory reform. We know it involves international marketing. We know it involves reducing input costs wherever we can, restructuring and becoming more efficient.

When you look at Canada as a whole, we're one of those sectors that is resource rich. We're export dependent, not unlike beef, not unlike grains and oilseeds, not unlike softwood lumber, not unlike a number of others. We're all struggling and reacting to the currency, and we all need to make the adjustments we need to do. Maybe 75% of the response needs to be from us, industry, but I think government is a portion of the solution.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Thibault.

Madame.