Agriculture Committee on June 18th, 2009

[The Chair, Conservative, Larry Miller]

Your time is up, Mr. Valeriote.

Mr. Bellavance, you have seven minutes.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

I would like to thank you all for your testimony.

Mr. Read, my first question is for you.

On April 15, I had an opportunity, with my leader, Mr. Gilles Duceppe, and the member for Drummond, Roger Pomerleau, to visit your facilities in St-Cyrille-de-Wendover, the Levinoff-Colbex slaughterhouse. On behalf of my leader and Mr. Pomerleau, I would like to congratulate you on the high calibre of your facilities. This was the first time that I had ever visited a cattle slaughterhouse. I had already visited a hog slaughterhouse; I believe that Mr. Laws was there. I'm going to make a pun, but I do not know how it will translate into English: holy cow, was I ever impressed. It was very interesting.

I would like to know where things stand with respect to your new facilities, your proposed $19-million cutting room. We know that the federal government announced a $50 million program over three years in order to improve slaughter capacity. We asked the minister many questions here, in the committee, and at the House of Commons. I know that, on your side, you are also working with Minister Ritz's office or with Minister Blackburn's office on this issue. On June 5, there was a government press release which repeated the announcement made in the last budget, but we still do not know what the criteria will be. We are starting to find out, because it has been repeated on numerous occasions that this will not be a subsidy but will instead be a loan.

I would like to know, obviously if you can share this information with us, if you have made any progress with this file. Have you had any confirmation from the minister's office about whether or not you will be eligible? Will this be a loan or a subsidy? Do you know the criteria to have access to this program? I would like you to provide us with a small summary of the situation.

[Brian Read]

I can catch up to date.

I guess I missed that in my opening statement. I apologize, I didn't catch the name of the person who was asking Mr. Nilsson the questions.

Now that you've toured our facility and you see the effort that goes into processing to get a pound of meat, I think it would be nice...and I make that offer to everybody in this room, because I think you're going to have time shortly to visit the Colbex-Levinoff facilities, so that you understand that we might not be that big boy trying to put the producers out of this country. Without them, we can't operate.

We've been living under that since BSE. I think it's time we realize and open our eyes up to this environment, that our capacity is disappearing. Maybe it's not important. And that's why building that fab room is critical to our competitiveness. We talked about global production. We want to compete. Do we want to compete globally? Maybe the globe is Canada, but this room has to decide. If that's the case, then we'd reduce this herd by 60% and we wouldn't have to worry about issues around the world; we'd only feed our country. We should decide what we want to do. To always be under the gun that we're trying to pick off the producer is completely wrong. We're trying to stay in business. We employ a lot of people.

To come back to your question, I thank you for visiting us. It's much appreciated.

We plan on moving forward with that. We think it's a necessity. The board is meeting today. We do have some guidelines, but they're vague guidelines on the money. I think the industry would be kind of naive to say we're upset that it's a loan. There will be some people in the room that maybe think it should be, when we thought it was a grant, so maybe we are disappointed there. Again, that decision is unfolding as we speak. We're only now getting the final cost to it, about how much it really is to put that building on with all the permits and the engineering costs, etc. But to maintain a good viable operation for the future, it should happen.

Does that answer your question, André?

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

I would like to know whether or not you are confident and whether you have any information which indicates, at present, that you have had confirmation from the department that you will in fact be able to be eligible for the announced program.

Are you hopeful that the facilities will be set up soon? The agri-food sector in Quebec has been waiting for this facility for a very long time. I would like to know whether you could give us a picture of the situation today.

[Brian Read]

I don't have a black and white answer, to answer your question.

The answer is that we don't have clear direction yet from the government, so the answer today would be no. I mean, we are proceeding with the intent, but the actual answer would be no.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

For the information of the committee, I would like you to remind us of what this project is about exactly. It is a cutting room that will enable you to slaughter 4,000 steers. At present, these steers are slaughtered outside of Quebec. With this facility, you will have the capacity to do this in Quebec. I would like you to describe the exact scope of the project and what impact it will have on the sector's competitiveness, since this is the issue we are examining.

[Brian Read]

I guess you're looking for what we currently do. We currently slaughter in establishment 53, which is in Saint-Cyrville-De-Wendover, east of Drummondville. Then we transport the carcasses in quarters by truck to Montreal for fabbing. That process has been effective and efficient in the past. It has capacity for about 4,500 a week currently. That's the new hot boxes that were built through the BSE crisis, to maintain the quality of production and all the food safety interventions.

When you look downstream, where you have to be for tomorrow and your competitive advantage in the marketplace--because that's really what we do to try to solve niches to make a buck--we would look at relocating that fab operation directly off the kill floor and remove the cost of transportation. You're probably looking at an added-value program. I'll use the grinder as an example. We would increase capacity from 4,000 to 5,000 cattle per week in a five-day working period. We would probably look at fat cattle as well, the steer business. That would be like a phase two.

Job one is to make this operation efficient. In yesterday's world it was, but today it's not.

Thank you, André, for the questions.

[The Chair, Conservative, Larry Miller]

Thank you, Mr. Read.

We'll now move to Mr. Allen, for seven minutes.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Mr. Chair.

Thank you, gentlemen.

I was interested in a statement you made, Mr. Read, about a fundamental question that perhaps we should ask ourselves: what does this market look like? Does it look like a Canadian one? Does it look like a global one? How should we do that? I think that is the challenge, to be honest, and the real question we should ask ourselves. We should basically communicate that to the producers and to those of you in the processing end of the business so you know where you're at. Otherwise, we're asking you to shoot at a dartboard with perhaps no darts to throw.

Based on that, from your perspective, I hear you saying you're doing the things you believe you need to do to be competitive. But how do we solve the juxtaposition between the primary producer, who we've heard from in numerous cases and who's saying that if he is asked to produce more cows or if he simply has more cows, he's not making any more money, and the producers, who are kind of stuck between the consumer, if you will...? How do we manage to get a price point that actually satisfies the processors and the producers at the same time? How do we break through that logjam?

I understand that it's an extremely difficult question. I hate to challenge all of you with that, but somehow we need to get away from this idea that food should be cheap, to the point where the lowest person on the totem pole, which is always the producer, gets less and in some cases is going out of existence. As Mr. Nilsson said, the herd is reducing itself not because folks necessarily want to, but because they say they can't afford to keep it. It's just too expensive.

I realize that's a very broad statement, Mr. Read, but you did challenge us with a fundamental question. I think we need to hear from you what your thoughts are around those fundamental questions.

I'll start with Mr. Read and maybe work down to Mr. Nilsson.

[Brian Read]

I'd like to share this with Brian, if I could.

[Malcolm Allen, NDP, Welland, ON]

Absolutely.

[Brian Read]

It's a broad question, but I've always been a believer in the fact that markets will find themselves without intervention. All I'm asking for is that we're on an equal playing field so we can evaluate without grey zones. The minute you throw grey zones into it, you start to distort the actual fundamentals of the market. We haven't put the dollar exchange in there, and let's not cloud your question with that, but I think markets do find themselves. I think they will. They always have.

But we need to make sure that we're kept at an even playing field. When you disadvantage either sector, that's when we come looking for interventions.

I'll turn the rest of it over to Brian.

[Brian Nilsson]

I would probably epitomize someone who believes in a free market. I think the cattle population, other than in the period of BSE when it was abnormally forced to increase, will find its level. We are firm believers that we are actually, over the next five or ten years, going to return to some very profitable periods for the producers.

One of the true tragedies of BSE was that it was in a period that would have been a good period for the Canadian producers. Because of BSE and the restrictions we had on meat exports and all that entailed, we had tough times.

In the long term, we believe we should be moving into better pricing as some of the liquidation moves forward. I'm a firm believer that the market does do this. There are market cycles. We had a disruption in this one, and that has caused tremendous harm for our producers, but those market cycles will dictate that prices recover. We're seeing a contraction in the cattle herd and I believe the long-term consequence of that will be improved pricing.

I think if we want to prejudge how many cattle we should have in the country, we're wrong. I think this is something that the collective of all the producers will decide in regard to how much they want to be in the business, and that is the proper judge of it.

[Malcolm Allen, NDP, Welland, ON]

Thank you both.

It is a challenge, obviously, that we all will have to deal with when it comes to policy. My sense, in hearing from large and small producers, is that perhaps the policy will have to be somewhat encompassing in the sense that, as Mr. Read has pointed out, to paraphrase your words, I'm not necessarily the biggest guy on the street. We need to have a policy that actually speaks to the fact that not everyone is the biggest guy on the street, and we find that with producers as well, so that will be a challenge.

Mr. Boyle, you mentioned COOL, and that is obviously a topic that all of us have been concerned with here. I think the position here is that we'd like to see it not be there. You may take that as a position, but I think what you were articulating earlier is that you don't necessarily see it going away. So if it's not going to go away, albeit we would love to see it go away, and challenges take a long time--no matter how good the challenge may be, they take an extensive period of time to work themselves through--how do you see your advocacy there in helping to minimize the repercussions on our producers here?

[J. Patrick Boyle]

Well, in some regard, I think we were partly successful in doing that through the statutory language that was passed by Congress and the regulation that USDA implemented. We were actively engaged in both of those processes. As burdensome and disruptive as COOL has been since it went into effect in September of last year, and then under a final regulation this past March, it could have been a lot worse. It could have been a lot more expensive. It could have been a lot more disruptive. It could have further reduced any incentive to import livestock from Canada and Mexico.

I made passing reference to two of the recommendations that Secretary Vilsack conveyed to me in a meeting back in March in Washington. Those would be examples of how a bad situation could be made worse. So under difficult circumstances, I think the resulting law on regulation was probably about as good as we could hope for.

[The Chair, Conservative, Larry Miller]

Thank you, Mr. Allen. Your time has expired.

I'll now move to Mr. Storseth for seven minutes.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

Thank you very much, Mr. Chair, and I'd like to thank each one of you gentlemen for appearing before us today.

Mr. Laws, we've seen you so much in the last little while. I think people are starting to wonder if we're dating on the side.

Mr. Read, I think what we've seen here is an example of what can happen when you become frustrated at committee, and I want to make sure I give you an opportunity to address the issue in the way I think I hear from you that you would like the issue addressed. We have to make sure we're careful that your comments aren't taken out of context, because I'm sure you didn't get into this industry hoping to have a captive market and simply only have Canada to sell to and compete with people like XL only.

I do know we have you and Mr. Nilsson, who's from my area originally, here as examples of Canadian companies that can compete with the biggest and best in the world, if they're given the opportunity to compete on a level playing field, and that's one of our problems.

You brought up SRM removal. It is something that the industry did push on us when we did get up here, but not in the exact form that it has taken. I believe one of the problems that you would agree with on SRM removals--and probably around the table--is that we've gone much farther than the U.S. has gone. Even though they said they were going to catch up, the U.S. has yet to catch up. There are other examples of regulatory burden that we put on our producers and our processors that the United States doesn't have. Is this what you would see as one of the biggest factors in moving forward with the competitiveness of our industry?

[Brian Read]

I didn't mean to get frustrated with the group.

Yes, to answer your question, competition is good. Good competition is even better, and that's what we have in this country, whether it be for livestock in both Canada and the United States.... We see them as good competitors as well. We have a border that should move freely, that gets bumps and puts not protectionist but food safety issues in place, and that affects our industry. We just need an equal playing field, and that's all I'm asking for.

As I say, you probably have two people in this room who supported the current SRM policy but who realize we can't afford it.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

Of course, in the United States it's not the producers or the processors that bear that cost; it's the taxpayers, as a whole, through the government, and I think that's something we have to seriously look at. I think that's the recommendations we need to draw out of your testimony and not any kind of talk about supply management to our cattle system, because that is not what my producers want and that's not what our processors want.

[Brian Read]

And I don't want that either, believe me.

We've worked hard over the last years. Brian has alluded to the three-ton truck. He and I have both had a long time in this meat industry. We enjoy growing. We've seen major growth in our industry and we sure don't want to go backwards, because we do what is right. That's really where it's got us.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

Yes, absolutely.

Mr. Nilsson, I'd like to ask you a couple of questions.

First, just off the top of my head, in your comments it seems as though you're not necessarily anti-COOL—and I could be mistaken here. But do you think there have been some benefits for western Canada out of this COOL legislation?

[Brian Nilsson]

No. What I would say is that I, for sure, want to express that I do not support COOL. Absolutely, I would like it to go away.

One of the things I wanted to point out is that I think we are not having the consequences to western Canada that were initially perceived. A lot of that, again, is just because of the cattle population being smaller and being more aggressive in the packing side. So it was more that. But no, absolutely, removing COOL is one of the key objectives we would support.

I'd like to touch on what Patrick said about the initial letter that Secretary Vilsack sent out. That would be the bad side of COOL. That would affect meat sales. It would create burdens in the packing industry in the United States. It would be very intense when you talk about segregation costs.

That enhanced COOL they've talked about would be really a bad thing. I'm saying we can work through our present form of COOL. Depending on where our cattle population settles out and where we are, you know, I firmly want to process all the cattle here, so then I think the U.S. packers should be irrelevant in this discussion.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

There's one thing. Mr. Nilsson, as a successful businessman who is very aggressive, you're far too humble when you talk about your business and your successes.

One of the things I note about your company is that you've always been able to find the competitive advantages. As a country, I mean, one of the things I firmly believe—and our side firmly believes—is that we need to open up new markets to give ourselves more choices, to give our industry more choices. You talked about South Korea as being a key factor in some of the offal and other aspects of the product we sell. What are some of the changes or markets you foresee we should be going after, as a government, to help create that competitive advantage for the Canadian industry?

[Brian Nilsson]

Well, I believe right now we've started our WTO challenge with Korea. That's a very progressive step. I would say Korea is one of the markets that would have a definite help, if you want to say. It would increase pricing for all sectors of our industry. Currently, the United States is moving forward, as well as Canada, on trying to get under-30-month cattle into Japan. I believe that would be a positive move for us.

You will find, first and foremost, that as a company we are really strong believers in the Canadian domestic marketplace. I believe sometimes we think the export market is how we build an industry, but we're real believers that you need to be very strong domestically. Sometimes when we worry about the costs of SRM and some of these inequities, it's because we sit here and watch U.S. meat being shipped from a competitor in the United States into our domestic marketplace. That's what I want to counteract. I want to keep the cattle here. I want to make sure we service the Canadian market and we sell parts we really don't use.

The biggest bonus to the export market is selling for very good value all the parts that are not really usable here. It's that combination that creates the value that works for everybody.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

The last question I'd like to ask both you and Mr. Read is a short one.

You both talked about the contraction of the herd size we have right now. Unfortunately, in many cases, that also means contraction of the number of farms we have. You also talk about how, when that happens, prices go up. That's the natural market side of things. I want to make sure we don't leave it at that.

After, as the prices go up, what's the next step? Do you think there will be an expansion of the herd size to a degree, as most market flows--not to give you the answer to your question, but just to not leave it that there's going to be a contraction and then that's the end of it and it's a negative story for our industry? Could you just take it the next step further, as to how you see it's going to go forward?