Agriculture Committee on Feb. 24th, 2015

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Welcome, witnesses. I have a couple of questions.

You stated in your submission that two provinces have VQA market sales shares greater than 10%. I'm assuming those are Ontario and B.C.

[Dan Paszkowski]

That would be correct.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

The conundrum here is that boutique wineries, which have the greatest potential to gain from interprovincial sales, are also the wineries that most provinces are trying to support, quite frankly, to get started because they're start-up businesses, yet the same province, through its liquor board, is preventing that winery from actually being able to grow. It's a very, very strange situation. I don't think the provinces have ever sat down, beyond talking to their liquor boards, and looked at the business side.

Dan, have you ever put numbers from the Canadian Vintners Association to paper and gone to the provinces and said, “This is what we expect you could actually gain in this area”?

[Dan Paszkowski]

We have been in discussions with the provinces dating back to 2009. Our view was to talk to liquor boards first, follow up with the provinces, and if that all fails, then go to the federal government. We ended up failing on the first two counts and we came to the federal government, and the provinces still haven't delivered.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

We're starting to make some headway. At least we had the bill passed, and we got the legislation in place. It appears to me—and I'm not trying to oversimplify this—that the last party to talk to is probably the monopoly, because it doesn't want to talk, and it's only going to move when it's forced to move. I hate to say this, because the last thing you want to do is litigate, but have you considered actually going to court over it? The same thing happened in the U.S.

[Dan Paszkowski]

No, we haven't considered that. We have only one place to sell our product in this country, and we do have a reasonably good relationship with all the liquor boards across the country, except on this particular issue.

We have talked to the provinces in terms of what we believe the impacts would be, because they would be minor. We've explained to them that if you put in place a direct-to-consumer system, all taxes could be collected through a permitting system, which would actually grow revenues for them, including in non-wine producing jurisdictions. We haven't been successful. We've even used the United States as an example. We're not looking at 50% of sales; we're looking at 1% to 2% of sales. British Columbia and Manitoba have two years' experience now. Sales have increased in both of those jurisdictions and tax revenues have increased in both of those jurisdictions, and they allow for direct-to-consumer delivery of wine.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

You're preaching to the converted around the table here, but obviously that message is still not getting across to the provinces. So, I'm going to go back to my original statement. It looks to me as though it really is a problem with the monopoly and not with the province. Probably, at the end of the day, the liquor boards are going to take direction only from their provincial masters. They're not going to be convinced because you've put the business case to them, and I think there is a business case to be made. I'll go back to the discussion about free trade with the European Union and the fromageries and the cheese industry. There are only four small fromageries in Nova Scotia. All of them were interviewed when we were negotiating the CETA with the European Union, and all of them said that more cheese on the market is better—every single one of them. They said that the more competition they get and the more cheese there is on the market, the better their industry does, because if someone tries that cheese from Luxembourg or Switzerland or France, they're going to say, “Wait a minute. There's a little fromagerie down the road, and they make a similar product. I'll try theirs as well”. Their sales go up every time there's more variety.

[Dan Paszkowski]

Our revenue officials here at the federal level would be more than happy to sit down with each of the provinces, if they were invited, to explain how a tax collection system can be put in place to reduce cost simplification. Maybe the federal government can collect the taxes on behalf of all the provinces to make it easier on wineries. They do it on gasoline and other products.

We're halfway through Growing Forward 2; maybe as discussions start being ramped up on Growing Forward 3, direct-to-consumer delivery and other agricultural products and wine should be put on the table as a sweetener.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Keddy.

I want to thank our witnesses, Patty Townsend, Dan Paszkowski, and Beth McMahon, for taking the time to be a part of this.

I'm not sure that any of us had a full understanding of the impact these interprovincial barriers are having on our growth, particularly on the value chain of commodities that take it right from top to bottom. I'm getting a sense that it's protectionism on steroids in particular areas. We do appreciate all the input you have.

Mr. Paszkowski.

[Dan Paszkowski]

I have one final point, and it relates to earlier comments. When I mentioned close to 300 new wineries and over $1 billion invested over the past decade, most of these wineries don't have the volume that's required to enter the liquor board system. Most of these wineries don't have the distribution to leave the province that they currently operate in, and most of these wineries at the front end don't have the ability to sell their wines to a liquor board and pay that markup and lose the margin on those sales. So direct-to-consumer delivery really is an impetus to incubate these small wineries, allow them to grow, and be able to access the liquor board system with products that the liquor boards would be proud to sell.

[The Chair, Conservative, Bev Shipley]

Thank you for your final comment.

We will break for a couple of minutes until we get our next witness.

[The Chair, Conservative, Bev Shipley]

I'd like to call the committee back, please.

In the last three-quarters of an hour or a little less, bells will be going at 5:15, so the meeting will be a little short. In the last hour we have only one witness. One wasn't able to attend and is still looking for another date to come.

This is not going to be a video; it's going to be a teleconference. Somehow it's going to come through on our speakers here.

Colleagues, Debbie Zimmerman is the chief executive officer of the Grape Growers of Ontario. She's in St. Catharines.

Welcome, Debbie. Would you open with a statement for 10 minutes, please.

[Debbie Zimmerman, Chief Executive Officer, Grape Growers of Ontario]

Thank you for the opportunity to present the views of the Grape Growers of Ontario on, hopefully, promoting growth and reducing interprovincial barriers.

My comments today are on behalf of the Grape Growers of Ontario, which represents more than 500 growers on 17,000 acres of vineyards in three different designated viticultural areas in Ontario.

Our association works as an advocate for all processing grape growers in the province and works on their behalf to ensure their needs are met. Our vision is to see that the markets for Ontario grapes and wines expand domestically and internationally on a continuous basis. We're always working on finding new markets for our products.

Ontario-grown grape products, hopefully, in the future will be demanded at home and internationally recognized for many of the great wines we produce.

I'll give you a quick snapshot of where we are despite the cold weather. In 2013, Ontario had one of the largest grape harvests. It was recorded at over 80,000 tonnes. Our farm gate, just at the farm level, was $100 million. Ninety-six per cent of the grapes grown in Ontario are vinifera and hybrid wine grapes. However, due to the extreme cold last year, our grape harvest was much smaller at about 52,000 tonnes and valued at just over $62 million.

From our perspective, we know that grape growers in Ontario have a collective legacy of about $684 million of investment in the land, which contributes to the community's landscape. Obviously, that intrinsic value dividend can't really be measured, but we know the economic value of the wine regions in this country would not exist without our growers.

In 2013, Ontario grape growers contributed over $100 million directly and indirectly to Ontario's gross domestic product. As for labour income, over $40 million was paid to labour related to grape growing in the province.

What we know is, and I'm sure you've heard this already from CVA, that 60% of the wines sold in Canada are imported. The other 30% is comprised of 100% VQA and what we call international-Canadian blend wine, which is made up of domestic and, in part, imported bulk product. Canada has to own 50% of its market share in the future, which is considerably low even compared to other competing international wine regions which hold shares upwards of 70% in their domestic market. Australia is 90%. California is 63%. New Zealand is 57%.

A 2012 report that CVA produced also talks about how countries like Australia, the United States, New Zealand, France, and Italy are financially supported by their national and regional governments for both export and domestic markets to encourage wine sales. Grape growers in this country should not have to compete with the treasuries of foreign countries.

In 2013, Ontario's wineries brought home over 214 medals from international competitions. We have an excellent reputation. I think most people know that. The problem is we're not buying our wine in Canada; we're buying wine from other countries, and that is a huge concern.

It should not be easier to ship from a winery in Ontario to Memphis in the United States than it is to Montreal. Market access in Canada is one of the main impediments to domestic growth.

I need to pause here.

We did not agree explicitly with Bill C-311, because we had hoped that would have applied only to Canadian wines to be able to travel freely among the provinces. We have accepted the fact that Canadians themselves are not buying a lot of Canadian wine. We know wine consumption in Canada has increased 30% over the last five years; therefore, it's not surprising that Canada was the sixth largest importer of wine in 2014. We know that exporters have prioritized Canada's competitive pricing growth and prospects as a great target market.

We know that in 2014 alone, total importation of table wine into Canada increased by 3.9% to 291 million litres. We know that Canada's national grape and wine industry is fragmented and faces numerous challenges, including the current legislation, but we're not happy with the fact that Bill C-311 did not apply to domestic. We thought that was a good place to start and we had hoped the liquor boards would have bought into that concept. However, the bill has passed and now also applies to foreign wine to be able to travel freely among the provinces.

Vinexpo recently released its 12th study of the world wine and spirits market with an outlook into 2018, and quite frankly, if you're a wine exporter, particularly to Canada, you have a lot to celebrate. As I have already stated, this is not good news for Canadian wineries.

We think that we need to do a couple of things. We know the industry contributes $6.8 billion in total economic impact to the country. That has been proven over and over again, and I don't think I need to repeat these statistics. I've appeared before the Standing Committee on Agriculture and Agri-Food many times and talked about the economic value of a bottle of wine that is grown in Canada compared to a bottle of wine imported into Canada. We believe we have a great opportunity to grow, but we need Canadians to understand that there is an opportunity to buy Canadian wine.

The Canadian Vintners Association, in a 2013 presentation to this committee, noted that for every $1 million increase in Canadian wine sales, it leads to a $3.1 million increase in gross output: revenues, taxes, jobs, and wages—the value chain. It's a good investment for our economy.

With regard to Canada's domestic grape and wine industry, our industry alone generates $1.2 billion nationally in tax revenue and markups across the wine-growing provinces. We need a reinvestment of some of these moneys into the domestic market across Canada to build an awareness of Canadian wine.

We certainly support the idea that every wine region in the world has support from its home market first. Our country would benefit from policies that promote Canadian-grown wine, everything from putting wine on our national airlines, to promotion through any events that the Canadian tourism associations hold. It's pretty basic stuff. We need long-term, dedicated market funding from the federal government, hopefully to support marketing initiatives that grow the domestic market for Canadian products.

The Grape Growers of Ontario are fully in support of reducing interprovincial trade barriers and retaining the role of the provincial liquor boards. We want to see, though, that support 100% Canadian-grown wine. We think that is important for everybody across Canada. But we need the federal government's support to expand cultivation and the use of Canadian wine grapes through marketing initiatives. We need the government to help us build consumer demand at home. If we had just another 2% of consumer demand at home, we would certainly have a continuing growing region in Ontario, B.C., Quebec, and Nova Scotia. We think that's the best value for our wineries and our grape growers.

We want to build on that consumer awareness, and we want to build our domestic market, which is dismal, at 30%, to at least 50%.

I look forward to any of your questions. Thank you.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Ms. Zimmerman.

Now we'll go to our colleagues, and we'll start with Mr. Allen of the NDP, for five minutes, please.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Debbie, for your comments.

Perhaps you could expand a little on them. I have a couple of questions.

Do we export any grapes out of Ontario to anywhere else to be processed? With regard to small wineries having the ability to ship wine via the Internet as a direct sale, what kind of impact do you see that having for growers, whether they be here...? Let's just keep it to Ontario since you only speak for Ontario growers, rather than B.C. and Nova Scotia.

[Debbie Zimmerman]

First of all, I would say that grapes are a perishable product, so they're pretty tough to export.

We do a bit of export to the United States in terms of juice grapes, but not wine grapes. The demand is really not there because it's a perishable product.

We would certainly love to see our market share for our domestic products grow right now. However, when I cited some of the importation rates, 68% of the wines sold in Canada are imported.

Everywhere we turn, we seem to be limited by the fact that we can't expand our market, either at home—I think first and foremost that the liquor boards are a great marketer of our product; there's no doubt about it—with the limitation factor, or with all of the barriers that seem to be put in front of us to be able to expand, either in another market or another province.

We agree that there are interprovincial trade barriers. We had always hoped the bill would focus on our domestic product first, but obviously the bill has been passed in a different format. I think that's where the wedge is in that the liquor boards have yet to adopt a barrier-free process for Ontario or other wines.

[Malcolm Allen, NDP, Welland, ON]

You're right that the bill has passed, so the issue now is this: do you see some sense of a government marketing piece where the government would put some money in? The CVA was here earlier, and Dan was talking about how wineries are interested in putting up some money as well.

[Debbie Zimmerman]

Absolutely. I think even with interprovincial trade barriers, the big thing that we think we need to focus on is getting Canadians to purchase Ontario wine. I agree that we can eliminate one thing called interprovincial trade barriers, but we need a marketing strategy that promotes Canadian wines across Canada.

We're competing with 68% in foreign imports today. I think for the amount of revenue—we talked about the $6.8 billion in economic impact of our industry—the federal government should be taking some of that money and putting it back into a marketing strategy that hopefully opens the opportunity for us to access some dollars to promote our product across Canada. That, in fact, is one of the barriers: we could in fact encourage, through other avenues, liquor boards to buy into it as well and have these cross-promotions, whether it's B.C., Ontario, Nova Scotia, or Quebec.

[Malcolm Allen, NDP, Welland, ON]

Can you give the committee a sense, if indeed we do grow the internal content of wine sold in this country to 50%, of whether we have the capacity inside the grape industry to actually fulfill that?

[Debbie Zimmerman]

Absolutely. I think what you're seeing is an emerging of different wine regions. Who would have thought we would even grow vinifera grapes in the north compared to California, say, or other countries? We have the capacity. We have the land base. We're in a protected greenbelt here in Niagara, for example, so the land is dedicated. Our tender fruit lands are the best in the world. We're dedicated to growing grapes or fruit.

There is that opportunity, notwithstanding this current weather situation that happens once every 10 years. We've invested in technology like wind machines, not wind turbines—I don't want you to think they're wind turbines—to ensure that crops in these cold weather events will be sustainable in the long term.

[Malcolm Allen, NDP, Welland, ON]

The wind machines are slightly smaller than the turbines in Wainfleet; that's for sure, Debbie.

[Debbie Zimmerman]

Yes, they are.

[Malcolm Allen, NDP, Welland, ON]

They're somewhat less onerous politically, as well.

[Debbie Zimmerman]

They don't operate all the time. It's only when we get cold weather.

[Malcolm Allen, NDP, Welland, ON]

How much time do I have left, Mr. Chair?