Agriculture Committee on Dec. 4th, 2012

[The Chair, Conservative, Merv Tweed]

I'm sure you did.

[Blake Richards, Conservative, Wild Rose, AB]

All right. Thanks for that.

[The Chair, Conservative, Merv Tweed]

We are going to recess for our next guests to join us.

Thank you for joining us today. We appreciate your input and your being here. Thank you very much.

We will have a two-minute recess.

[The Chair, Conservative, Merv Tweed]

Welcome back to part two.

Joining us now from the Canadian National Millers Association is Gordon Harrison, president, and from the Malting Industry Association of Canada, we have Philip de Kemp, president.

Welcome. I'm pretty sure you know the drill. I'll let you open with some comments, and then we'll move to questions.

Please begin.

[Philip de Kemp, President, Malting Industry Association of Canada]

Good morning, Mr. Chairman, and ladies and gentlemen of the committee.

For those of you who are unfamiliar with the economic contribution our industry provides to both farmers and the economy, let me first describe to you who we are and what we do. I'll give a brief historical perspective of the evolution of our industry and explain why, in our view, the future prosperity of Canada's malting industry is critically important to all our partners in the barley value chain, particularly our brewing customers and, most importantly, our Canadian malting barley producers in western Canada.

Canada's malting industry is composed of four companies, and they include Canada Malting Company, which has plants in Calgary, Thunder Bay, and Montreal. We have Prairie Malt Limited, which is located in rural Saskatchewan in a small town called Biggar, which is approximately one hour west of Saskatoon. We have Rahr Malting, which is situated in a small rural Alberta community located northeast of Red Deer in a town called Alix. Finally we have Malteurop, located in Winnipeg.

Canada's malt industry is the second-largest world exporter of malt. We are second only to the European Union. Almost two-thirds of our value-added production goes into the highly competitive export market, destined to brewers in over 20 countries. We are the largest customer for Canadian malting barley and had historically purchased approximately 1.1 million metric tonnes annually from farmers via the CWB.

Historically our industry accounts for almost 60% of all malting barley sold by farmers each and every year. Today, approximately 70% to 75% of all barley grown in western Canada is composed of malting barley varieties, with selections and quality parameters greatly influenced by seasonal weather conditions.

Malting barley is a specialty crop and provides significant economic returns to Canadian barley farmers. In most years, it is the highest net return to farmers on a per acre basis. Between 1985 and 1995, our industry invested over $300 million in building two new plants and greatly increasing capacity at several others. We went from exporting just 40,000 tonnes in 1985 to almost 600,000 tonnes 10 years later, in 1995.

Today the industry purchases over $350 million of malting barley from farmers annually, and through the value-added processing of this barley into malt, our annual sales to brewers both domestically and around the world total over $600 million.

We are recognized internationally for our commitment to quality and to customer service. Our reputation is based on this foundation, and we make every effort to ensure all our customers have security of supply, a very important factor in our business relationships.

Our key messages to you today are to highlight briefly what federal initiatives have helped our ability to operate more responsibly and responsively in the global marketplace and what still needs to be done in terms of Canada's international trading agenda and priorities, as well as issues that policy-makers need to be gently reminded of and the consequential impacts to all export-dependent industries.

Finally, we would like to put on your radar what I think would be a common, unified theme among all stakeholders in the barley industry in the years ahead and the need for future government partnership.

On the domestic front, the removal of the CWB monopoly for barley, for our industry and for the vast majority of barley producers that we have had long-standing commercial relationships with, has created three major positive outcomes. They are open daily market price transparency, the ability to operate in a global market-responsive manner, and the ability to operate in an open and commercially predictable environment—no surprises, no changing of the rules, no moving of the goalposts, so to speak.

This domestic policy is a good first step in what we hope will continue on other fronts in order to provide the tools and the economic conditions necessary to allow further expansion and prosperity for all our stakeholders in the barley industry.

Everyone here recognizes that we are a trading nation. Our economic prosperity lies in our ability to produce, manufacture, and export our products around the globe. Canada's export success and future prosperity are contingent upon the government's recognition and vigilance in ensuring Canadian export interests are not put at a disadvantage vis-à-vis our competing suppliers, such as the EU, the United States, and Australia.

We need continued expansion of fair and equitable trade rules and economic partnership agreements with a whole host of countries. We need a successful conclusion to the Korean negotiations. We need a meaningful partnership agreement with Japan. We need an open and fair trade agreement within the trans-Pacific partnership countries. We need to expand our commercial interests and negotiate agreements with other Asian, Latin, South American, and African countries, principally China, Malaysia, Thailand, Singapore, Vietnam, Brazil, and South Africa.

Quite simply, in terms of value-added for our industry, we need to aggressively expand meaningful bilateral trade agreements since all countries have not, over the past 10 years or more, found a way to come to a successful conclusion of the new WTO agreement.

Some of our major export competitors, most notably Australia, the U.S., and the EU, have been very aggressive and very successful in securing bilateral trade agreements in some very important markets such as Korea, Thailand, and other Pacific Rim countries. These preferential trade agreements will impact on our future ability to remain competitive. In our industry environment, where margins continue to be narrowed, any competitive disadvantage puts our industry at further risk.

I referred earlier to issues of consequential impacts and the need to be cognizant of their importance and their impacts. Simply all that we want to highlight for you today is the importance of delivering on our export commitments in a safe, secure, timely, and reliable manner. Labour disruptions in any sector that impede our ability to move our product into offshore markets have a detrimental and significant impact on our reputation as reliable and timely suppliers and create significant economic losses and hardships for all those in the barley value-added chain that rely on our ability to market our product. Timely and reliable railway service is critical to our ability to move our products to export positions.

Finally, in terms of future domestic policy initiatives, my sense is that at least in barley, you will certainly see the creation of new provincial barley commissions and a national barley council, which I suspect will have one underlying or overriding common objective: the need to stimulate significant increases in barley research and varietal development through multi-stakeholder partnership throughout the barley value chain and an enhanced commitment from both federal and provincial governments. Certainly the current resources allocated to barley research and varietal development, in our view, are not sufficient to provide the incentives required as a commercially attractive investment.

In closing, it is important to remember that Canada's malt industry and malt exports are the main key driver of value for our barley production and our barley exports, particularly in western Canada. We need to ensure that we protect and enhance our barley value-chain industry for the benefit of all stakeholders in the Canadian barley industry.

Thank you, Mr. Chairman and everyone, for your time and consideration today.

[The Chair, Conservative, Merv Tweed]

Thank you.

Go ahead, Mr. Harrison.

[Gordon Harrison, President, Canadian National Millers Association]

Good morning. Thank you very much for this invitation to appear and discuss aspects of the supply chain.

The Canadian National Millers Association is a national industry association representing millers of wheat, rye, and oats, principally, with small quantities of other cereal grains processed and handled by our members.

You have one page, I believe, that was distributed. It is a schematic of the supply chain as we have portrayed it. Our perspective of the supply chain is what you have there, and I'll speak to it in a minute.

I think our key theme today is the importance of the evolving regulatory framework and how it affects the entire supply chain. Our domestic regulatory framework is what I'm speaking about principally, and much as Philip has talked about the influence of trade agreements and international trade factors, our members and the customer industries of our members—the further processing sectors—are being heavily influenced by regulatory influence outside of the country, in particular the European Commission regulations and those adopted by EU member states. I'm going to speak about that.

I would like to say at the outset that I think this committee would benefit from spending additional time talking about and studying the influence of regulation on the whole supply chain, because what we're experiencing in our community, which is captured by the membership of the Canada Grains Council and also by the Grains Innovation Roundtable , is that things that are happening right at retail level are trickling all the way back down the supply chain. That is the key theme and invitation that I would like to leave with the committee.

We see the supply chain as you see it on that schematic. We and our little logo, the Canadian National Millers Association, are right in the middle. We have inputs. We have producers, marketers, handlers, and transportation services. We consider and describe ourselves in our charter as being primary processors of cereal grains. We sell to further processors and food service organizations, and of course to retailers through various channels. That's the entire supply chain, which ends, of course, with the consumer.

In the case of the cereal grains supply chain, it's characterized by many grain producers. There are 325,000 farms in Canada producing field crops; 82,000 farms have their primary source of income in grain production, as opposed to other commodities. The total number of farms contributing to our supply chain is over 100,000.

In terms of grain production in Canada, we have 75 million tonnes of all crops combined. Our industry is national in scope, and cereal grains account for, historically, something close to 70% of all commodity production. Wheat and oats would together contribute more than 30 million tonnes of production.

Why do I touch on that? Well, cereal grain production is still a major contributor to farm income and a major export activity for producers in the whole supply chain.

When we think of the grain supply chain as we manage regulatory issues, we also think in terms of the infrastructure and what its implications are for meeting regulatory requirements as well as market requirements.

We have 600,000-plus storage bins on farms, and other storage structures as well. We actually have 300-plus country elevators in western Canada. In Ontario there are 264 licensed grain dealers, 337 elevators, seven terminal elevators, and five transfer elevators. As grain finds its way to us, we have 20,000 hopper cars in the fleet, and 150,000 trucks and bulk trailers. We have cereal grain deliveries to about 40 Canadian mills that exceed 90,000 in number annually.

Those are some numbers to indicate to you the complexity of the supply chain, particularly as that complexity is altered and affected by regulatory change and things we're trying to do differently at the far end of the supply chain, at retail level.

We have, therefore, a shared storage, handling, and transportation system, all the way up to the receiving pit of mills.

What I'd like to speak to briefly is the following. In the context of Canada and the United States being the principal markets, the North American market for the products produced by our member companies and to a great extent by the further processors--bakers, biscuit manufacturers, cereal, confectionery--we have what would amount to a regulatory disconnect between the Canada Grain Act and regulations and the Food and Drugs Act.

There has been a great deal of attention paid to Bill S-11—appropriately, as it is a very important piece of legislation, which we advocated and supported—but I think what is lost on most people is that in the case of our grain milling industry, the products produced from our industry and sold into other industries are being sold to industries that are in fact subject principally to the Food and Drugs Act and regulations. Therefore, while Bill S-11 is going along swimmingly and we're going to have a great deal of progress under the bill, we're going to be continually challenged by the provisions of the Food and Drugs Act.

I prepared a submission to this committee, as well as to the Senate committee on Bill S-11, highlighting the importance of a certain amendment to the Food and Drugs Act. I won't go there, but it is very important to note that we're subject to the Food and Drug Regulations. Those regulations are being driven by international regulations, including the European Union's. What we're proposing to do in Canada, which affects us and the whole grain supply chain, is out of step with what's going on in the United States.

That's very important. Phil talked about the importance of trade alignment and market access. We are increasingly moving out of step with the U.S. regulatory environment with the path that we are on with substances in grains.

I must emphasize that we really have to get regulation right. This has been our key message to Health Canada and the Canadian Food Inspection Agency. These changes that are upon us have nothing to do with marketing regulations. These changes that are upon us and in process are profound, and they affect the whole supply chain. We have to get them right the first time, because we can't do them twice.

I think this committee would benefit from further study of some of those regulatory issues and their importance.

Thank you.

[The Chair, Conservative, Merv Tweed]

We have notification of a vote in the House. It's standard that we shut the meeting down until the vote takes place.

The votes are at 10:30. Is it the will of the committee to come back for questions afterwards?

[Pierre Lemieux, Glengarry--Prescott--Russell, CPC]

I don't think we'll have enough time.

[The Chair, Conservative, Merv Tweed]

Then I'm going to thank our guests and apologize for the interruption.

Your comments are on the record, and I'm sure there will be questions coming forward after this meeting, so thank you.

The meeting is adjourned.