Agriculture Committee on Nov. 3rd, 2009

[The Vice-Chair, Liberal, Mark Eyking]

Good afternoon, everybody. Welcome.

Our chair, Larry, is not here today, so I'm filling in for him. Hopefully we can have a very productive and informative meeting.

I see we have five witnesses from the red meat sector. Welcome. If you can, keep your presentations to maybe five to seven minutes. That will give us half the time on the other end for questions, and we can have a productive meeting.

I will go by the list and start off with the Canadian Cattlemen's Association. The floor is yours, Brad.

[Brad Wildeman, President, Canadian Cattlemen's Association]

Thank you, Mr. Chairman.

I am Brad Wildeman, president of the Canadian Cattlemen's Association. Thanks for the opportunity to appear here this afternoon to share our perspectives on the impact of the SRM regulations that came into effect in the summer of 2007.

In a nutshell, the cost of removing and disposing of SRM is one of the greatest threats to the long-term sustainability of the beef and cattle industry in Canada.

Since we compete in a North American cattle and beef market, it is not sustainable for the Canadian industry to incur costs that the U.S. does not. As long as this imbalance exists, a growing percentage of Canadian cattlemen will seek higher prices in U.S. slaughter facilities. We are already experiencing this movement, and we have seen many plants closed or bankrupted because of their inability to compete with our U.S. competitors. At the same time, a growing percentage of the beef offered by Canadian retailers and food services is now being imported from the U.S. and elsewhere.

In other words, we may have an extremely effective set of BSE eradication policies in Canada, but it really will be of little benefit to either the Canadian industry or Canadian consumers if Canadian beef is either not available or priced out of the domestic market.

Furthermore, the costs are the highest in the smallest federally and provincially inspected plants, resulting in a number of closures or decisions not to process these cattle that are over 30 months. These operations are critical to the local rural economy and offer a nearby outlet to sell cattle that cannot stand the rigours of long-distance transportation to market.

Our long-term hope, obviously, is that the Canadian and U.S. regulatory officials will be able to harmonize policies and costs within North America. Several positive actions, both from a trade and regulatory perspective, can be taken to lessen the variance between costs in Canada and the U.S. We are working with officials to achieve this harmonization, but clearly we're talking about years here. It's obvious that while the policy track works toward restoring a competitive balance, immediate financial assistance is vital.

Given the differences in marketing and processing cattle under 30 months versus cattle over 30 months, we believe different approaches are required for these two cattle populations.

For cattle under 30 months, we are working with government officials to identify an appropriate vehicle to provide the relief needed, but for today we would like to focus on the situation of those over 30 months, where we are seeking an immediate payment of $31.70 per head to be made to the abattoir, regardless of whether it is a federally or provincially inspected facility. For the cattle over 30 months, since dairy cattle are affected as well as beef cattle, we have come together with our colleagues, among them, Dairy Farmers of Canada and the Canadian Federation of Agriculture, to submit a joint request to Minister Ritz in a letter dated October 27, 2009--and I believe copies have been passed around.

This letter is self-explanatory, and my time is limited, so I will leave it for the question period if there any questions to be answered.

On another topic, I was also asked to update the committee on the country-of-origin labelling situation with the U.S. COOL continues to be a significant problem for livestock producers, if not so much on the meat side of the industry, certainly on the cattle side. The costs of handling Canadian versus U.S. cattle by U.S. feeders and packers has been researched and documented by the Canadian Cattlemen's Association and government officials working closely together. As these numbers are central to Canada's WTO case that will be proceeding, we are not willing to share those in a public forum at this time, if possible.

On that front, the Canadian and Mexican governments made their requests for WTO panels to be established on October 23 at the dispute settlement body. As expected, the U.S. exercised its right to block that appeal. We are expecting the Government of Canada will make a second request on November 19, and that panel will be established at that time.

From there, we expect an initial decision from WTO by late spring or early summer, and there is likely to be an appeal either way. We understand the appeal decision could come around the end of 2010 or 2011. Assuming it's in our favour, the U.S. would have to declare whether or not it intends to comply. If they do, there will be negotiations for some period of time as well, and if they don't, obviously we will hit on a retaliation path. We know this isn't a quick solution, but we believe it was the most prudent and only solution we had at that time.

With that, I'll turn the microphone over to you, Mr. Chair.

Thank you.

[The Vice-Chair, Liberal, Mark Eyking]

Thank you, Brad.

We're going to go to the Canadian Renderers Association.

[Graham Clarke, Government Liaison, Canadian Renderers Association]

I'd like to thank you for the opportunity to express the views of the rendering industry to this committee. My name is Graham Clarke, and I'm an independent consultant who represents the Canadian Renderers Association in Ottawa. With me I have Mr. André Couture, the chairman of the board of Sanimax.

The membership of the Canadian Renderers Association is composed of the three major independent renderers in Canada. They are Sanimax, which has operations in Quebec, Ontario, Alberta, and the United States; Rothsay, which is part of Maple Leaf Foods and has operations in Nova Scotia, Quebec, Ontario, and Manitoba; and West Coast Reduction, which is based in Vancouver and has operations in British Columbia, Alberta, and Saskatchewan. Between them, these three companies transport, process, and dispose of almost all the specified risk material, SRM, produced in this country by the packing industry and the producers of livestock/deadstock.

As for the independent roles of the three companies, both West Coast Reduction and Sanimax have dedicated operations to process on independent lines with specified risk material. Rothsay does not process specified risk material, but it does transport the raw material, either for rendering or to landfill.

I should point out that the rendering industry is ultimately a service industry. The major customers are the livestock producers and the packing industry. The rendering industry will do what it can to service these industries in the best way possible. In the past, they have pointed out some of the issues with the feed ban rules.

As to the economics of specified risk material, there are about 240,000 metric tonnes of this material generated every year in Canada by the packing industry. When this material is rendered, you end up with steam, which is the moisture content recycled for energy; you end up with fat, the tallow, which is a saleable commodity; and you end up with about 60,000 metric tonnes of meat and bone meal. This is the protein portion that would contain the infected agent, should any animals be infected with bovine spongiform encephalopathy. That material must be destroyed.

Before the BSE crisis in 2003, the 60,000 tonnes of meat and bone meal represented by the SRM was a marketable commodity. It was valued at around $250 to $400 a tonne, depending on market conditions. This material now has no value and must be destroyed at a cost of about $60 a tonne, because landfill is the preferred method at the present time. The reality is, the loss to the livestock value chain in the beef industry is between $310 and $460 a tonne, which on an annual basis would be the equivalent of $18.6 million to $27.6 million, depending on market conditions. Before BSE, the rendering industry was able to pay for this material, but now that it's of no value, to cover the costs, they charge to collect it, render it, and dispose of it.

This raises two key issues. The first one is the environmental issue. The current situation requires all this material—60,000 metric tonnes—to be put into landfill. The main issue is with the deadstock, because bovine deadstock by definition contains SRM. The amount of deadstock being collected has dropped by 30% to 60%, depending on the part of the country we're talking about, from pre-BSE times. This raw material, the deadstock, is now being buried on the farm, composted, incinerated, or, in some cases, left to decompose in the environment. This is clearly not a satisfactory situation, but economically it's unfortunate that the farmers are no longer able to pay for collection. The other environmental impact of this applies to all deadstock. When you lose the volume of bovine deadstock, which constitutes a large volume, it is no longer economical to run trucks along the trucking routes to pick up this material. Consequently, the impact of losing the bovine deadstock also has effects on small stock such as hogs and sheep. You have environmental issues that are somewhat undesirable.

The second issue that I'd like to raise is the business risk associated with the current regulations. It is no longer possible to obtain insurance for any industrial problems relating to BSE. Small packers, who are under a lot of economic stress, face a significant challenge: although the rendering industry will pay for non-SRM, which still has value, it now charges to pick up the SRM, which is divided by the packer. It is a big risk that a packer could either accidentally or perhaps deliberately put the SRM material in with the non-SRM material, and if that were to occur, you would have the potential for a major recall throughout the feed chain when this is processed into animal feed, costing many millions of dollars.

This is not an unfounded fear; this has in fact happened. It happened in western Canada early this year. This was not a small packer involved, but a large one, where accidentally SRM material was put into the ruminant material with the SRM removed. This resulted in a major recall of feed throughout western Canada, and it cost a large amount of money. So clearly this is a major issue and a big problem for the rendering industry.

Certainly from the point of view of the customers, there's a clear cost discrepancy between the U.S. and Canada due to the different regulations. The CRA membership does indeed support the efforts of the customers in the beef processing industry and the cattle producers to seek additional support until such time as this discrepancy is removed, through either harmonization with the U.S. regulations or by some other means.

At this point, I will turn the microphone over to André to ask if he has any other further comments.

[André Couture, Chairman of the Board, Sanimax, Canadian Renderers Association]

I'll wait for the question period, if there are questions regarding rendering.

[The Vice-Chair, Liberal, Mark Eyking]

Thank you, Mr. Clarke.

We're now going to move to the Canadian Federation of Agriculture.

Mr. Pellerin.

[Laurent Pellerin, President, Canadian Federation of Agriculture]

Good afternoon to you all. Thank you for your invitation to participate in this meeting of the Standing Committee on Agriculture and Agri-Food, which is studying the issue of residual material. This is a topic which, in my opinion, we have talked about for far too long, without ever coming up with a permanent solution to the problem.

The Canadian Federation of Agriculture represents, through our general producer organizations in each of the provinces, a very significant number of beef and hog producers who use the dead stock recovery services and who are affected by the increase in slaughterhouse operating costs as a result of the specific risk material regulations in Canada.

The agricultural media and government officials often tell us, and repeatedly so, that we need to be competitive. Canadian producers are being asked to be competitive everywhere. Having travelled just about everywhere in Canada, in the United States and elsewhere in the world, I can tell you that Canadian producers have no problems competing with any other producer in the world. We do our job, and I think that we do it very well, thank you very much.

However, we cannot be competitive if the government regulations are different from those applicable to our competitors. I am here therefore to ask the Canadian government to be competitive with respect to regulations and our competitors.

Actually, we are out of the market because of the Canadian regulations. It's not our job as farmers to solve that problem. It's your job and it has been for years now. This cost is very important because the meat market is a sector where 1¢ per pound is a large amount of money, so $31 per animal is something that we cannot face. We need and we want an urgent answer to that problem.

We are fully supportive of the figures in the studies conducted on this subject. We participated in a joint letter, and it's not very often that we have in Canada as large a consensus as the one on this subject. We'd better use that consensus now. I don't know if you are aware, but we are at risk of losing this industry in this country.

In certain slaughter plants, the critical mass of the slaughter numbers are gone. Those plants will have difficulty continuing their business. If you don't change the rules or cover the costs, this country risks losing its animal killing capacity. This is not a dream that something will happen in the future; it's here. Plants have already closed. In eastern Canada it's finished. In Quebec it's tough. In Ontario they reduced volume. Elsewhere in Canada they have reduced volume. More and more livestock are going to the U.S. to be killed and processed. The joke is that our own product is coming to our market by following the U.S. road.

So you have no choice but to regulate something somewhere, to change those market rules. If you do not act, we are at risk of completely losing this production, this processing, this value-added within this country. With all of those processing plants in Canada, we cannot transport livestock to the U.S. forever. Yes, some farmers will continue to do that, especially in the cull cow market. We have to act very rapidly.

On top of that, at the farm gate, as it was mentioned before, we have a problem with dead animals. I don't know any farmer who is able to pay $100 for the recovery of a dead cow. The service is no longer available because there is no value in the byproduct. That's the reality at the farm gate. A lot of farmers have to compost or find other solutions to get rid of that stock. We have to look at that very closely before some accident happens.

In conclusion, if you want a competitive sector in Canada, don't ask only the farmer to be competitive. Ask the government. Ask the person who regulates to be competitive with the market we have to face. Anyone in Canada who thinks that the U.S. will move towards our regulations is being unrealistic. Years ago, a staff person from the government said there was no problem with the high regulations in Canada, that it was only a matter of time before the U.S. joined in. They will never come to our long list. So you'd better be prepared to look at the short list or be prepared to pay the bills, because I don't think this industry is able to do more than what we have done in the last couple of years. I've been there for years now. We were quite certain a couple of months ago that it would solve the problem, but we are in November now and we are still discussing the opportunity, or not, to cover that cost or to change the regulations. So we urge you to do something as soon as possible.

[The Vice-Chair, Liberal, Mark Eyking]

Thank you very much, Mr. Pellerin.

We're now going to go to the Fédération des producteurs de bovins du Québec. I think we have Monsieur Cola or Monsieur Dessureault.

[Michel Dessureault, Chairman, Fédération des producteurs de bovins du Québec]

I would like to thank the committee for inviting us to express our concerns. My name is Michel Dessureault. I am accompanied by Mr. Philip Cola, Director General of Levinoff-Colbex. I am the Chairman of the Fédération des producteurs de bovins du Québec, which is the main shareholder in Levinoff-Colbex.

SRMs, for Quebec's beef producers—I will not repeat what Mr. Pellerin said—is a reality on the farm. It is also a reality in the industry. The costs associated with Canadian regulations on SRM are quickly destroying the Canadian slaughter industry. Over the past few years, we have seen a large slaughterhouse shut down in Ontario, the Gencor slaughterhouse, and right now we are witnessing the same situation in Saskatchewan, with the closure of XL Foods.

These regulations appear necessary, given the importance for Canada to obtain a BSE-controlled risk status. Although without financial compensation for operational costs, damage caused by the Canadian SRM regulations has been accumulating for more than two years, making the situation increasingly difficult and rendering the slaughter industry in eastern Canada even more vulnerable.

It would be a huge mistake for everybody to go back to the situation that prevailed before the BSE crisis hit in May 2003. In a recent letter sent to Mr. Ritz, and to which Mr. Pellerin alluded, slaughter industry producers and renderers came to a consensus, for the first time, in order to request the Canadian government to quickly implement an assistance program for the industry, based on the needs of the industry, to help it cover the cost of $31.70 per head. Why $31.70? This amount was taken from an exhaustive study undertaken by the Canadian Meat Council and it is the result of the competitive gap with the United States.

The situation is somewhat particular in eastern Canada. As far as slaughter capacity is concerned, it is focused almost entirely on call cows, and the American buyers are very active in our market. So just imagine a market with a $31 differential per head; that is enough to create an exodus of animals from Quebec, Ontario and the Maritimes, animals that will then find their way back on our markets as meat. It is incomprehensible why in Canada, we have not yet managed to harmonize our prices. We do understand that this harmonization must and can be done, but this will take years, and until this time, the Canadian government must help and support the industry so that it is not completely altered here, in Canada.

Levinoff-Colbex is in a unique situation. We are totally dependent on rendering plants. We do have a good rendering service in Quebec, however, naturally, the costs of these services are making us uncompetitive. People do take our material and try to add as much value as it is possible to the products. However, as Mr. Clarke told you previously, there are costs associated with the disposal of the material that they cannot bear and these are passed on completely to the industry.

The other aspect that we wanted to discuss is the infamous COOL legislation, the American legislation on imports. The complexity of country of origin labelling regulations is preventing the United States from reaching its objectives in an effective manor and has resulted in some perverse effects. Our company has lost clients in the United States, because the legislation requires those companies that purchase Canadian livestock to carry out a great deal of segregation, making them uncompetitive because of the additional production chains, additional costs.

The sharp decline in the number of feeder calves which are normally exported to the United States in the fall continues to cost the industry a great deal of money, and these animals will remain in Canada. There will probably be a glut in our market, at one point, which will be very expensive for the Canadian industry.

The Fédération des producteurs de bovins supports the actions taken by the Government of Canada to defend itself against these regulations, both at the political and legal levels. Thank you.

[The Vice-Chair, Liberal, Mark Eyking]

Thank you very much, Mr. Dessureault.

We're going to go to the Canadian Meat Council. I think we have Mr. Brian Read with us from...is it XL Foods?

[Brian Read, Vice-President, Non-Fed Sales and Government Relations for XL Foods Inc., Canadian Meat Council]

That's right.

[The Vice-Chair, Liberal, Mark Eyking]

It's nice to see you here again, Brian.

[Brian Read]

Thank you very much, sir. I always find this a humbling experience.

The only thing I will capture and start off promptly with is that this is an urgent issue, and we sure appreciate you seeing us in a prompt and expedient manner. It's important that this moves along and very quickly. The last time we were here, we guaranteed you this study, the actual cost and the damages. You now have that in front of you. I think you'll want to go to the last page for questions, and I'll be prepared to answer those.

I think what I want to do, Mr. Chair, is leave it open for questions.

The other issue I will bring to you is that in here you have cost per head of $31.70 for OTM product in Canada, and really that's what we're here to focus on. You'll find that in the United States—I just got the numbers, as I work for XL Foods and there are two cow plants in the United States owned by the Nilsson brothers. Their cost of disposal is 8¢. There are no hidden costs, no permits, nothing; it's 8¢ to landfill, the closest landfill available. That's what we're dealing with, and that brings the urgency to the floor.

The nice part about being last is that most people have stated the same thing I was going to state, so I'm not going to repeat it. I'd sooner answer your questions.

I don't want to leave here with any grey zones about, “What if you're paying a little less for the cows in Canada versus the United States?” Let's ask those questions, please, because there is no grey zone. This is urgent, right across this country.

On country-of-origin labelling, I was in Chicago last week and happened to walk through the trade show, the world's food show in Chicago. I just happened to capture the fridge magnet and I ran copies off for you—those are in front of you.

COOL is not going away. So we do support the government and its initiative on the second challenge, and we expect that to be resolved rapidly.

With that, I'm going to stop and just open myself up for criticism or questions. Either/or, we'll take it.

[The Vice-Chair, Liberal, Mark Eyking]

Brian, could you explain a little bit what that page is about?

[Brian Read]

Which one, sir?

[The Vice-Chair, Liberal, Mark Eyking]

I think it's the one where you were talking about the cost difference between government estimate versus industry actual. Just take a couple of minutes and explain what you mean there.

[Brian Read]

I think what you'll see is that the total government cost estimate based on 2008 was $9,461,000. Those were all estimated numbers, and they stopped at the plant door, because we didn't want to respond for the rendering industry. All we could do was capture what we feel the loss would be internally.

The difference between $9 million to an actual cost of $35 million is reality. That's the environmental pressures, the tipping fees, etc., for which we bear the cost. The bills are all coming back, as the renderers commented on. Graham mentioned that the bills flow back to the packer. So that's where the difference is. That's why you see a shortfall of $26,205,000. This study was actual true cost. Previously, it was all estimated.

[The Vice-Chair, Liberal, Mark Eyking]

It's not necessarily a mistake; it's that numbers weren't put in.

[Brian Read]

Exactly.

Do you know what? One thing that I do want to say to everybody in this room is that we're not in a position to blame anybody, whether it be regulatory or government. We did what we thought was best. We anticipated that by putting this in place we would get a jump on our trading partner. We anticipated that they'd have to come along. That did not happen and is not going to happen.

Their SRM rule took effect at the end of last week. There was not even a ripple down there. Nothing changed. So that's where we're hooked.

We actually thought it would be to our advantage to jump the gun. We might get market access—we “might” get it. But we all assumed. If you put a business model behind it, it looked right, but the best-laid plan was none.

[The Vice-Chair, Liberal, Mark Eyking]

Thank you very much, Mr. Read, and thank you, witnesses.

We're going to go to questioning now, starting with the Liberals.

Mr. Easter, you have seven minutes.

[Wayne Easter, Liberal, Malpeque, PE]

Thanks, Mr. Chair.

Thanks, folks, for coming. In beginning, I might congratulate you on this mix of organizations and segments of the industry coming together on this letter. That's a little bit unique in this industry; all too unique, I might add.

So that it's on the record, Mr. Chair, I think the presenters did a great job of outlining the costs and the difficulty we have with being competitive with policy in other areas of the country. The stark reality on the ground at the producer level.... I have a producer who calls me about every two weeks, and on average he ships about 35 to 45 cattle a week. Five years ago he was averaging $1,500 back to him; six weeks ago he was averaging $1,176; and two weeks ago he was averaging $970, and that $970 was in 42 cattle, all of them triple A but one. I think that's the reality in the industry. Someone said--I believe you, Laurent--that the industry can't survive this. We're at risk of losing the industry, and we are. That's the reality. We're seeing so many small producers go out, cow-calf operators and so on.

I guess my first question is to both Mr. Pellerin and Mr. Dessureault--my English is not good, let alone my French. You said the product comes back to Canada. Meaning what? Are you saying that SRM said because they have a different policy in the United States where it can be put into fertilizer, that it comes back to Canada in that way? Is that what you're saying? What's the bottom line here?

[Laurent Pellerin]

Meat is coming back, with the USDA stamp. Where is the original coming from? Is it the U.S., Canada, Mexico, somewhere else?

[Wayne Easter, Liberal, Malpeque, PE]

Okay, that's good. Did you mean the same thing as well, Michel, that it was the meat coming back to Canada?

[Michel Dessureault]

Exactly.

[Wayne Easter, Liberal, Malpeque, PE]

When you look at the SRM removal, in the United States they can actually put in other products, but we're not allowed to. So you have a double loss here and you have less of a loss there.

On the competitive side, then, you're saying in your presentation that it is $31.70 per head. What timeframe? Are you saying that the government implement it effective November 1? Are you asking them to go back to January 1? What timeframe are we expected to be asking the government to be doing this for?