Agriculture Committee on Dec. 10th, 2013

[The Chair, Conservative, Bev Shipley]

Thank you very much, Madam Brosseau.

Five minutes for Mr. Harris, please.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Thank you very much.

I can assure you, Dan, that since recently moving to the wine capital of Canada, which is the southern B.C. Okanagan area, my wife and I are not only drinking better, but we are drinking more. We hope that is a help to your industry.

[Voices]

Oh, oh!

[A voice]

You're bucking the trend,

[Dick Harris, Conservative, Cariboo—Prince George, BC]

We're bucking the trend; that's for sure.

I just want to go to Ruth for a moment. It appears to me that since the day I arrived here about 20 years ago, it's been a constant battle to get the regulations adjusted so that the aquaculture industry could in fact grow to its potential, which we all know is huge, given the opportunity. It must be frustrating to be in that industry and see a market of 500 million new customers opening up but not being able to take advantage of that because you can't grow fast enough to take advantage of it.

Is that pretty much it?

[Ruth Salmon]

Yes, exactly.

Many of our members invest globally in aquaculture. When they're sitting around the boardroom tables and everyone is talking about what investment is happening in Chile and other countries, Canada is getting maintenance dollars because there's no growth. I think it's very frustrating for the companies that see the potential here and see it not being realized.

We have so many biophysical advantages to grow fish in Canada and we're closest to one of the major markets, the U.S. We have so many advantages but we just can't sort of see that growth. Our members are committed to farming in Canada, but at the same time they are very frustrated.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

I would hope that our government, being responsible for this new incredible trade deal that we're about to sign, will have a look at all of the industries in Canada, all of the sectors, and do whatever we can to ensure that they can take advantage of the huge opportunities that are being presented. Maybe we can revive that effort a bit.

[Ruth Salmon]

That would be very much appreciated.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

I'm sure my colleagues and others will want to help out on that.

Dan, you don't have to sell me on wine, but I've often wondered this. Our Canadian wineries make incredible wines. They can compete with anybody in the world, but we seem to have such a small share of the domestic market in comparison with what comes in from other countries around the world.

Is the U.S. the biggest exporter into Canada of wines?

[Dan Paszkowski]

No. It would be Italy.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Italy is. Okay.

I know there are different kinds of wine and we don't make all of them in Canada, but we're sure good at making wine. Is it all about promotion and marketing to build our domestic wine market? We certainly have the product. What do we have to do to increase our domestic market share?

[Dan Paszkowski]

Promotion is a big part of it. Obviously profitability is a big part of it. A big part is having the right tax structure in place and having a quality product in place through research and development. We are never going to be the largest producer in the world, because we are captive in terms of our geography, in terms of our climate, and in terms of our growing areas, so that's always going to be a hindrance to the industry. But promotion is a big part of it in Canadian wine, and in any wine.

Wine is about the story. That really helps sell a bottle of wine above and beyond the fact that it's fantastic and people want to come back to it. If we don't have the ability to promote our product the way our competition is promoting its product in every jurisdiction across this country, that puts us at somewhat of a disadvantage.

We are now growing. British Columbia, which you're very familiar with, typically sold within its borders, with a little bit of sales around the periphery. It's now grown to the point where it is looking more into the export market and selling its product across the country. But there has to be a familiarity with the product, so promotion has a big part to play.

If the liquor boards are getting hundreds of thousands of dollars from other countries to do advertisements and specials in their newsletters or their magazines and Canadian industry can't do that, they're going to sell the product of the competition.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

That's what I was looking for.

[The Chair, Conservative, Bev Shipley]

Thank you, Mr. Harris.

We'll now move to Mr. Allen.

[Malcolm Allen, NDP, Welland, ON]

I actually thought Dick had moved to Niagara and hadn't told me, when he talked about going to a great wine-growing area.

I'll follow up on where Mr. Harris was going: promotion. For those who don't live in Ontario, perhaps you could talk about the LCBO magazine, the Liquor Control Board of Ontario's magazine that many of us are familiar with here. What kind of marketing piece is it? I know exactly what it is. It also includes spirits, by the way, Mr. Westcott. I'll ask you to comment on the magazine as a promotional instrument, remembering that it's not exclusively Canadian in its product listing.

[Dan Paszkowski]

It's one of the highest quality magazines you'll find in Canada, and it's all paid for by industry advertisements. It's a food and wine magazine, a food and beverage magazine. It caters to all the different beverages. It matches food with wines, and provides recipes. It's one of the hottest magazines on the shelf. If you're not there on the day that it's released, you're not going to get a copy of it.

It's a pay-to-play situation. If you want to promote your wines, you have to put the money on the table. Quite often, what you will find in those magazines at the very bottom corner will be a note that it's supported by the European Commission. That is part of the $34 million per year they get to support their industry in third country markets, and Canada is one of the largest.

[Malcolm Allen, NDP, Welland, ON]

I don't know if you had a comment to make about that particular marketing piece, Mr. Westcott.

[Jan Westcott]

It's very good. It's very high end. It leads Canada and probably North America in focusing consumers.

We can't lose sight of the fact that Canada is an exporting country. At the end of the day, we're an exporting country. We don't have a big enough population to sustain the lifestyle we have if we don't export.

The corollary to that is that Canadians are very outward looking. They like to buy products from all over the world. They like that. So competition is where we meet. When we go to other countries to sell our whisky, there is no program for us. We don't have the kinds of things that Scotch whiskey has.

Those are just things which, in part, have to do with the size of our country and what we are. To expect that Canadians will simply support Canadian products because they're Canadian is unrealistic. They will support Canadian products if they meet the quality standards, and generally they do. We have 62% of the spirits market in Canada, but you have to earn that by producing really high-quality goods, and they have to be competitively priced. Dan alluded to margins. You have to be prepared to roll up your sleeves and work hard to get your products in front of consumers.

It's not easy. It's why we're in business. The successful guys make it and the less successful guys don't. There has to be a recognition that Canadians are going to be very aggressive in seeking out what they think are the best products and the best values. We have to be careful that government doesn't play an unwarranted role in trying to steer them, because I think that doesn't work.

[Malcolm Allen, NDP, Welland, ON]

I understand what you're saying. You're right that Canadian consumers are a pretty savvy bunch. They're not going to buy just because it has a maple leaf on the front of it. I don't know what that says to Toronto Maple Leafs fans, but that's a different issue. Me, I'll stay neutral on it myself.

Mr. Paszkowski, what you're telling me is that if the Europeans are going to come here and market in our backyard, as we are going to try to do in theirs, we ought to have a level playing field in our own backyard. It has to be a quality product. If it's not a quality product, I'm not buying it. Sorry, but I'm not going to. I'm particular about wines. I must admit, Mr. Harris, I have bought the odd bottle from B.C., but I primarily buy Niagara stuff and usually go VQA.

The sense I get is that you just want a level playing field when it comes to that end of marketing our products, so that Canadians can choose. If they choose to give you extra market share, perfect. If they don't, that's because you don't have a quality product. It's not because you couldn't tell folks to store it. Is that the sense I get from you?

[Dan Paszkowski]

That's absolutely correct.

The funding that the European wine industry gets supports the promotion of their products in Canada, but it also supports promotion of their products in Europe against Canadian wines, American wines, and Australian wines. It is a level playing field. We have to produce a product that consumers want, at a price they can afford, with a quality that they can anticipate is equivalent to or better than that of our competition. That's a job we have to do to succeed, and I'd say we've been doing an excellent job at it. Unfortunately, not enough Canadians know about it.

[The Chair, Conservative, Bev Shipley]

We will now go to Mr. Payne, for five minutes, please.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you, Chair.

Thank you, witnesses, for coming today.

We're studying this very important agreement. I have a few questions for all of you, and hopefully we can get through them.

Mr. Westcott, in your presentation you talked about a recall for the committee; the Canadian spirits industry requesting a dollar per litre absolute alcohol reduction in spirits and excise duty. Can you go over that again for us, because I'm not sure we have all the same members on the committee when you presented the last time. What does that mean for your industry? Give us some insight there. Thank you.

[Jan Westcott]

In our business in Canada, our gross margins, all the money we get for every dollar of sales, is about 18¢. If I'm a Scotch whiskey producer in the United Kingdom, my gross margin is around 32%. If I'm a bourbon producer in the United States it would be around 29%.

We're a global business. We have a unique franchise called Canadian whisky that cannot be made anywhere else. We're competing with other high-quality whiskies from around the world. When those companies go to their capex meetings, whether they're in Paris, London, or Louisville, Kentucky, their division of the Canadian companies says they would like some capital dollars to put into the Canadian whisky sector or into Wiser's Deluxe or into Crown Royal. They say it's a great product and it's done very well, but they have a fiduciary responsibility and if they invest in the Scotch or the bourbon business, the margins are a lot better than if they invest in the Canadian business. That's a real challenge.

We've been talking about the dollars that are available. When we made this request a number of years ago, we made a public commitment to turn those dollars into active support to drive the business. We have been one of the foremost advocates of the government's trade agenda, of more open trade, because 70% of what we make is exported, but you've got to have the bucks in your pockets to be able to do that. That's really the issue.

For 60 or 70 years we have been the leading-selling whisky in the United States. We have been the number one whisky In the biggest alcohol market in the world, outselling bourbon, Irish whiskey, and Scotch combined, by a wide margin. It wasn't Prohibition that made us; it was the Civil War. That's when we really made inroads into the United States. Prohibition helped a little.

Last year, for the first time in 60 years, we slipped to number two. We were neck and neck with Jack Daniel's. A big part of that, to Jack Daniel's' credit, which is the same company that owns Canadian Mist, which produces Canadian Mist in Collingwood, Ontario.... Part of the reason for that is they pumped a lot of promotional dollars into Jack Daniel's to drive that share. We are on a campaign to reclaim what I would call our natural position in the United States, of being the leading whisky that Americans turn to, but you've got to have the bucks to be able to do that.

I think, as Dan would attest, the government granted some relief to the wine industry in 2006, and that has been very advantageous to the industry. I think the industry has put those dollars to work. We've seen great growth.

We're saying we're a little different in the spirits business because unlike wine, which is very focused in the Okanagan and in the Niagara Peninsula and a few other emerging regions, our farm suppliers are spread all over the place. They're very diverse. Whether it's in Alberta, Saskatchewan, Manitoba, Ontario, or Quebec, you don't see.... We literally buy from everywhere. I can look around the table and say that we buy corn in your riding, we buy grain in your riding. It doesn't come to mind the same way, but we also are attached to agriculture.

[LaVar Payne, Conservative, Medicine Hat, AB]

Would that dollar in reduction go into promotion? Would that be for reinvestment?

[Jan Westcott]

Every company would do different things with it.

Some companies would use it to create new export markets. We are on the cusp of going into Colombia. Canada has signed a free trade agreement with Colombia. We have products that are just about to go into Colombia. That's a secret, so don't let that get out anywhere until it's announced. It takes a lot of money to go into those markets. Some would put it into refurbishing their facilities here so that we're completely competitive. We need to make environmental improvements.

Innovation and new products are really critical to interest the consumer. We now have flavoured whiskies, such as the Crown Royal Maple, or the one made in Lethbridge, Black Velvet Toasted Caramel. They're not maybe going to appeal to traditional whisky drinkers, but it's important to open up the category to new consumers who may not have been whisky drinkers.

Every company will have a strategy for how they deploy those dollars to drive the business forward. Every one of them is a critical piece, but the idea is that you can generate a lot more sales and a lot more growth, and we've seen that. We're buying more grain than we've ever bought, and in the last couple of years at pretty good prices, too.