Thank you, Mr. Chairman.
Thank you, honourable members, for the opportunity to be here today.
I want to start with two statements. One is that I work all over Canada with farmers and input suppliers through processors and so forth, and I've come to the conclusion over the last number of years that in the market that I think is opening up for us in the future, Canadian agriculture and agrifood has the ability, the resources, and the people to lead the world in innovation and prosperity.
The second statement is that I got the opportunity back in the late 1980s and 1990s to lead the competitiveness task force and council under two federal governments, and one of the things we did was to try to define the word “competitiveness”. We came to the conclusion that an appropriate definition is that competiveness is the sustainability to profitably gain or maintain market share. You've heard two or three people talk about the fact that we're losing market share in a couple of areas already. If we look across all of the data, we are generally losing market share in Canada despite the resources, people, and ability that we have. This definition is measurable. We've been working for some time to show competitiveness in the food processing industry.
Today, I have some data trying to get at it to a certain extent in farming. In the food industry labour productivity in Canada measured as value added per dollar of wage expenditure lags the U.S., and the lag is getting worse. Essentially, in the U.S. the food industry in general has about $5 of value-added generated per dollar of labour, and in Canada we're at about $3. If you decompose the data on the food industry in general into specifics, it's the same for almost every industry in Canada as well as for manufacturing in general in Canada. This has made worse and I think it adds to a second set of data that says that in the Canadian food industry in seven of the last nine years we have had investment that is less than depreciation. In other words, our food industry capital base is declining. In that same period of time, the worst year for the U.S. is 1.2. That is, in the worst year they invested 20% more than the depreciation in their food industry. What this means is that we are not getting innovation. I talk about labour productivity, but really this is about investment in capital, because almost all investment in capital increases labour productivity. We are simply not getting new investment. That drives up costs in Canada relative to our competitors. It drives down the ability of our processors to be able to buy products from farmers in Canada and so forth.
If I look at the primary agriculture component, we've got two measures that we're talking about today. Actually, this is the first time we've talked about this publicly. We've tried to look at the relative competitiveness of farms in Canada, and that's relative to farms of similar sizes and types in the U.S. We're using very large databases to do this. We're measuring two variables in the information that I want to talk about today. The first is earnings before interest, taxes, and depreciation--EBITD, as it's often referred to in the vernacular--as a ratio of operating income. That tells you what percentage of operating income--this is total farm income--is cash before paying interest, depreciation, taxes, and so forth. The second one is earnings before interest, taxes, depreciation, and amortization as a percentage of assets. This is an attempt to get at a rough measure of return on capital.
The data we have generated.... This is done over a number of years, and we've shown it by industry type and farm sizes from $250,000 to $500,000 in gross farm income, $500,000 to $1 million, and $1 million and up. The result we get is that grain and oilseed farms in general in the U.S. led on both measures. In the last couple of years of the data Canada caught up a bit, but in general the U.S. has led.
In beef farms, the U.S. has led on the first measure—that is, earnings as a percentage of sales in general—and on the second measure for smaller farms, but Canada led on larger farms. For hogs, the U.S. leads on both measures—that is, the U.S. is in fact far in excess of Canada on both measures.
Interestingly, on dairy, Canada led on small and medium farms for the first measure—that is, the earnings as a percentage of total revenue—but Canadian farms above $1 million in sales led on the second measure, and the U.S. in fact had higher returns against the total assets than did Canadian farms.
So there's some really worrying data in there that suggest we're kind of lagging behind the U.S. in those measures, pretty much across the board.
There are some other data that I would say are more anecdotal. The two previous speakers both referred to wheat; I keep looking at barley. I happen to have data on Alberta, but it doesn't matter whether you use Alberta, Saskatchewan, or Manitoba; you get the same result. U.S. corn yields from 1985 to 2007 increased from 2.75 tonnes per hectare to 4.35 tonnes per hectare. During the same period of time, Alberta barley yields rose from 1.2 tonnes per hectare to 1.4 tonnes per hectare—in other words, it hardly changed. You have to look closely to see the trend line on the barley graph.
That's an important piece of information, I think, because it not only affects the grain industry but it has major implications for the livestock industry down the road. Obviously, in the grain industry, if you actually look at data from Brazil and Argentina, you'll see the same kind of trend the U.S. has. That means their costs can go down, their per unit can go down because their yields are going up, even if input prices rise—or they can stay the same—whereas for Canadian farmers, who are stuck with a flat yield trend, as input prices rise it means their costs are going up. It has huge implications down the road for livestock producers, because, as Kurt said, one of the reasons we expanded livestock production in western Canada is that we had a huge feed grain base. If that feed grain base doesn't continue to grow, we lose cost competitiveness on livestock really quickly, and I think that's part of the reason we're now having trouble with the hog sector, which I talked about before.
Another anecdotal piece—and I don't have data in my notes about the horticulture industry—is that we just did a study for a group in Ontario that suggested Ontario's tree fruit industry is losing market share in Ontario relative to its U.S. and Chilean competitors. There are all sorts of very interesting reasons for that.
What is in the way? What's causing us to be less competitive over time? I think there are many things, but since I only have ten minutes, I'm going to focus on three.
One of the most difficult problems we face in Canada, and both of these fellows have talked about it, is the regulatory system. We released a study last Tuesday here in Ottawa, sponsored by the FCPC—whatever that stands for—that did an analysis of the food regulatory aspects of Health Canada. We did 12 case studies, and the very quick summary is that those 12 case studies say that Canadian processors and farmers, because of the opportunities they lost, lost about $400 million that could have been available to them.
We simply are slow and we are not tough. We make decisions very, very slowly on the same basis as everybody else, but everybody else gets the product registered. There are so many examples of new innovative products that are developed in Canada, but they can't be used in Canada because they can't be registered in Canada, so they go to the U.S. and the U.S. gets the economic benefit from them.
That's the same example or the same conclusion we've come to when we look at PMRA, which is the regulatory body in Health Canada that is supposed to register new health products, and the veterinary drug directorate for livestock health products. We've done the same studies as Kurt has on the CFIA and the grain industry. We get the same results back as he does.
In addition, we have very poor value chain management. And for much of the industry, because we are so export-oriented, one of the biggest problems we face is lack of market access. The beef and pork industry faces roughly 70% tariffs in trying to export into the rest of the world, not to mention a number of non-tariff barriers.
What to do about it? I have five suggestions.
First, reform the regulatory system. Make it tough but fast, and orient it toward encouraging our competitiveness, as well as giving us proper protection.
Second, invest heavily in research and development.
Third, invest heavily in training.
Fourth, enhance international market access.
Fifth, reform tax policy to encourage new investment at both the farm and the food-processing levels, which we've done a fair amount of already in the last two or three years, at least at the federal level.
Thank you.
