Good morning, and thank you for your invitation to present this morning.
I'm a faculty member at the University of Saskatchewan. I'm an agricultural economist. My research area includes food supply chains, traceability, and the economics of food safety and quality, so I'll be speaking to you from this perspective.
In addressing the issue of “Product of Canada” claims on food products, l'd like to make three key points to you quickly here this morning. First, I'm going to put into perspective the purpose of a label: what does labelling do and what can it not do; I want to consider the implications of increasing the stringency of “Product of Canada” labelling; and then I want to stress the importance of considering the costs and the benefits of a change in “Product of Canada” labelling regulations.
Let's take my first point, the purpose of a label. Simply put, a label can provide information to consumers on the characteristics or attributes of a product. Many of these are what economists call “credence” attributes. What does that mean? Well, a “search” attribute is something that's evident to a consumer before purchase--the colour of a product. We don't need to label that, but in the case of credence attributes, without labelling, consumers can't identify that attribute even after they've purchased it, even after they consume it.
Clearly, country of origin is one of these credence attributes. So is production method, such as organic. We know that, increasingly, many consumers are interested in these credence attributes in food products. So there is a role for labelling to identify credence attributes to consumers.
Why do we then regulate some kinds of labelling? Usually it's to inform consumers about potential hazards—for example, requirements for labelling the presence of allergens—or to allow more informed healthy eating choices, such as requirements for standardized nutrition content labelling.
In those situations, we're basically saying, left to its own devices, the market may under-provide this information. Implicitly, therefore, we're also saying the benefits to society of having this information outweigh the cost to provide it. There is a rationale to regulate labelling.
There are also numerous examples of the private sector voluntarily identifying credence attributes in a food product label when there is a strong market incentive to do so from consumers. l've already provided the example of organic, and of course there are many others.
So where does “Product of Canada” labelling fit? l believe it would be a mistake to see this as a food safety issue. We deal with food safety through our food safety regulations and inspection system, not through labelling the country of origin. Simply knowing where the product comes from doesn't really tell the consumer anything about how that specific product was produced. It doesn't really tell the consumer anything about the safety of that specific product. So if there is a food safety concern, then deal with it through the food safety system and, if necessary, through increasing resources to the CFIA in conducting risk assessments and monitoring the safety of food imports.
In my opinion, labelling is simply too blunt an instrument to address food safety and food quality issues. We address these through other mechanisms. So if there is not a strong food safety or health rationale for “Product of Canada” labelling, why do we use origin labels? Well, clearly knowing where the food came from may be of value, in and of itself, to some—not necessarily all, but to some—consumers. So to the extent that consumers value this information, there is indeed a market incentive for the private sector to provide it.
This sounds fairly simple. The reality, of course, is much more complicated, and in particular, as you've been discussing in these committee hearings, determining what “Product of Canada” actually means.
That leads to my second point: what are the implications of increasing the stringency behind “Product of Canada” labelling? My third point is related: why is it important for a full cost-benefit analysis of any regulatory change?
It seems to me a really key question is, where do you draw the line? Currently it is drawn at 51% of the costs of the economic activity of the product. Perhaps it should be higher, and I think that's a very important conversation. I believe some people have suggested to you, in previous testimony, 75% or 80%. It seems to me the percentage, to some extent, is arbitrary, except that most people would probably agree that 100% is likely unobtainable or not economically feasible. So how do you determine the appropriate percentage of Canadian content or value?
We can only answer that question through research and analysis that takes into account the increased costs to the agricultural and food sector of a more stringent Canadian content rule versus the benefits to the consumers and to the agricultural sector as well. So let's take a look at those two things very quickly.
What would be the key costs? Primarily, it would be identifying and, if necessary, tracking and tracing Canadian food ingredients. This might be relatively simple for some products—apples, for example—but clearly the costs would quickly escalate for further processed food products with multiple ingredients.
Take frozen pizza as an example. Would a manufacturer have to show that the cheese was produced in Canada, or the salami, the tomatoes, mushrooms, peppers, the flour and margarine in the base, and so on? I think as you've heard before, that becomes more complicated.
Who would incur these costs? The onus or burden of proof will be on Canadian firms wishing to identify Canadian products. If the costs of doing so are too high because the rules become overly complex, it may become uneconomic to use voluntary “Product of Canada” labels. So, paradoxically, you could have less information, not more, available to consumers.
The point is that where you set the bar in terms of Canadian content and how much information you require are critically important decisions, and they require a thorough review of potential costs to the Canadian agricultural food sector.
How would any additional costs be distributed across the food sector? Would the food processing sector simply absorb these higher costs? I would argue that it would probably not. I think some of that cost burden would likely be pushed back to suppliers of raw agricultural products--farmers--in the form of lower bid prices for their products. Some of that cost burden would likely be pushed forward to consumers, resulting in higher food prices.
Clearly for those consumers who value the identity of the Canadian attribute and are willing to pay a little extra for this information, that might be okay. For other consumers who don't have strong preferences about that issue or, more importantly, don't have the means to pay higher food prices--consumers on lower incomes--this is going to be detrimental.
Again, it comes down to weighing the benefits and costs to society and the distribution of those benefits and costs across groups.
I talked a lot about costs. What would be the key benefits of increasing the stringency behind “Product of Canada” labelling? Clearly some consumers value this information, and the credibility of the current labelling rules has been called into question. There is considerable confusion, apparently, among consumers about what this label really means on a food product.
So providing clear information will benefit those consumers who value knowing that the product is Canadian and therefore would be willing to pay more for an assurance of origin. We can use economic analysis to measure the value of this attribute to consumers, just as we can for other credence attributes like organic, pesticide-free and so on, through so-called willingness-to-pay studies.
So measuring the benefits, I would argue, is equally as important as measuring the costs. Otherwise you're not going to fully account for the potential benefits of that labelling information.
We should remember that labelling information generates a benefit to consumers only if it's credible. So an important piece of this puzzle will be ensuring that “Product of Canada” or a voluntary “Grown in Canada” label is credible. Third-party verification is one way of enhancing the credibility of labelling information, so in the case of a voluntary “Grown in Canada” standard, I would expect that third-party verification would have an important role to play in that regard.
Credibility extends not only to knowing that a food product really is Canadian but to maintaining a strong food safety regulatory system and having effective private sector quality assurance programs, which will also be important in protecting the reputation of the “Product of Canada” label.
In closing, just to reiterate, “Product of Canada” labelling, in essence, should be a mechanism for identifying Canadian products to consumers who wish to make purchase decisions based on knowing where the product came from--no more and no less.
What a “Product of Canada” label does not do by itself is assure food safety. Our food safety standards and enforcement mechanisms should do that. So a decision to change the threshold or the rules of evidence to assure “Product of Canada” should take into consideration both the cost and the benefits to the agricultural and food sector and to society as a whole.
Thank you.