I guess so.
First of all, thank you, Mr. Chairman, for the invitation. And congratulations on your appointment, and to all members of the committee.
We greatly appreciate the fact that you are looking at competitiveness. We feel that's obviously an important thrust.
The past few times we've been in front of the committee we have talked about business risk management issues. They're still very real. It's not our intent to get into that today, but if there are questions we'd be happy to answer.
As we speak, there will be an announcement in Saskatchewan. We were just informed of a $40-per-head payout there, which in our mind continues to indicate that there are still deficiencies in that area that we need to address nationally so we don't end up with a proliferation of provincial programs. To us, a national approach is always the most important way to address these issues, and we'll continue to say that.
We do intend to talk a bit about country-of-origin labelling. It is very fresh and a very significant issue impacting our industry and the pork industry. And we agree it would have been ideal to have had the pork producers here with us. We work very closely with them.
When we speak about competitiveness—and I had the opportunity a number of years ago to help chair part of a working group on the competitiveness council that existed—it really is a combination of what it costs to produce a product and what type of value we can generate from the markets around the world.
We're an export-oriented industry. We export, and have traditionally exported, to close to 60 countries around the world. That access remains impaired, but nevertheless it remains very important to us.
On the customer perception point of view, Canadian beef is well respected around the world. And we have an excellent reputation. We are the largest exporter of grain-fed beef in the world. I want to emphasize that that is our strength: producing high-quality beef. We're not going to compete on a cost basis with South America. South America has been growing. They're traditionally and typically now servicing markets like Russia and Europe in a very significant way.
We are building on our reputation. We have a global marketing strategy where we're looking at different markets around the world. And when we talk about the significance, I'll come back to why getting certain products to certain customers becomes extremely important to the bottom line, not just of the beef industry, but to every cattle producer in this country.
Our beef advantage initiative, which, again, we'd be happy to answer questions about, is really a main thrust of our global marketing strategy. We can circulate copies of a very comprehensive document on that. We're building on that reputation and intend to be a leader in quality, service, safety, and animal health. And certainly Canada has a reputation for veterinary infrastructure. While we've had challenges with BSE and getting markets open, in virtually every market that has reopened we've exceeded pre-BSE sales into those markets, with the exception of Japan, where simply the age requirement is so restrictive that it impairs our ability to produce enough cattle to satisfy the demand that exists there. We're hoping to see progress to move that to an age level that will allow us to move considerably more product to that market.
As we take a look at the future, one thing I will say is that virtually every study we've seen, including a recently released report by Gira, a group out of Paris that looks at the world, and a number of other international studies, are predicting growth in beef consumption between now and 2015. At the same time, we're seeing countries, including Canada, reduce their production. We know there is an opportunity that will exist out there, and as economies improve, we believe we have a real opportunity to serve and satisfy those markets. The question is, what will it take to be profitable to do that? What will it take to get to that point where we see demand start to improve again?
One thing we do want to talk about is our regulatory environment. There are a number of issues there that have continued to impact our ability to compete. We believe we should be looking at that differently.
One of the things that comes up, as a regulator--and you've talked about it--is how you address the balance between an independent regulator tasked with food safety, which you've heard about, and at the same an industry that's trying to sell and base its reputation on quality and safety.
In our view, the most successful countries around the world have been those that are export-based. They're not just producing product that meets their domestic standards. We're meeting the standards of 50 or 60 different countries out there, and we're particularly aware of the scrutiny you face going into those countries. We believe in a solution-based approach to how we move forward. It's a collaboration between industry and government that creates the highest level of food safety. You cannot inspect yourself purely to a high level of food safety. It's the systems. It's how you work together. It's how you find solutions together that create a competitive and effective industry that will be well respected around the world for that.
We have made some progress. We've seen the backlog reduced, for instance, on the approval of pharmaceuticals, but to some degree part of that is the result of fewer people applying. We have other concerns we've identified through the beef value chain round table, and that was the major thrust of our previous meeting in terms of how we can start to build on what have been a number of regulatory thrusts to make our system more efficient. You know, it's interesting that after there was a listeria issue, we suddenly had a number of products approved fairly quickly. If they had been approved before that, it would have been a useful tool to have had. We've had an irradiation petition in front of the government since 1998—it's one of the most effective technologies that could be used out there—and we're still waiting for a response on that. It's a clear indication that industry is equally as interested in finding solutions as governments are, and preferably before problems arise.
One of the things we have found with our feed ban, which becomes a challenge when we work together, is the regulatory approach and how people view tolerances. We know when the feed ban was put in place.... You take a look at the difference between a 99.5% and a 100% tolerance. There's no statistical difference in the impact of the effectiveness of that ban, but it makes the policy and the cost of implementing that a multitude of times higher when you approach it that way. You end up making industries less competitive in comparison to our U.S. counterparts in particular.
Bear in mind, in our industry, every time an animal is put up for bid, there are Canadian and U.S. packers bidding if we're going to have a robust competitive bidding system. When we create a much higher cost structure in Canada, it puts our processors at a disadvantage, and over time it will cause less and less processing to be done in this country and more to move south of the border.
When you take a look at what realistic tolerances are—how you sit down and work together on a solution-based approach—we believe we both share the objective of achieving that high level of quality and safety, and we believe there are opportunities to work more effectively together. But it comes back to a cultural shift where we see the opportunity and benefit of approaching it that way. We know through the meeting of the all chairs round table that the rest of the round tables are very interested in sitting down, looking at the whole regulatory approach, and we'd encourage the committee to support a re-examination of that entire area, in a very constructive way. How do we look at taking, for example, the Canadian Food Inspection Agency or other elements—it could be environment—and working forward in a positive manner? We can come up with creative solutions that are effective.
We're also looking at how we can become more efficient. One thing we saw a year and a half ago when we went back up to par and grain costs increased quite dramatically—a fair amount, quite frankly, artificially driven by policies related to ethanol and bio-diesel around the world.... We clearly saw a number of deficiencies in terms of our system and how we had lagged behind in the adoption of certain new varieties of grain and why we hadn't seen the same level of yield improvement we had seen south of the border and why companies hadn't registered products and varieties in Canada. We completed a fairly extensive study that took a look at a number of reasons why. We're the only country that uses “novel” in its definition for approval of products.
For instance, we had one that would have been quite useful for reducing the phosphate in barley, but unfortunately we weren't able to get that approved in Canada in time because of the “novel”. It got approved and used in the United States, and it was a variety we developed in Saskatchewan. So in working around that, it's not just creating the environment for research, it's also the environment to be able to use it first in Canada that becomes quite important.
Again, going back to a solution-based approach, we're not the largest market. So when you start to find more resistance or difficulty in Canada, are you going to go to a larger market if you're in that industry and trying to commercialize product? It really compels us to try to create a culture where we work with companies and find ways to get these products moving forward and registered.
I will also say that when we take a look at the approval of products, that's not just simply the answer; there's competitive pricing. We know there are certain pharmaceuticals today and there are identical products that can be bought for 25% of the cost in the United States. So continuing to allow access to bring those products into Canada is very important to competitive pricing and the ability to produce the various...whether it's beef cattle or hogs in Canada, it remains very important.
We raised issues about our feed ban that I mentioned earlier. Now it's clear the U.S. is taking a different approach, what's referred to as a short list. They're removing the brain and spinal cord, where you remove everything. They're allowed to use the product for fertilizer. We're essentially mandated to put it to destruction, so there's no beneficial use. And to be candid, we have not seen any new markets open up because of that since it was introduced in 2007. We'll certainly accept the importance of having a feed ban to maintain our controlled risk status. The day before that rule came into effect we were exporting meat and bone meal to a number of countries around the world. We removed the specified risk material out of it, and we were no longer allowed to export it the following day--even though it's perfectly safe to feed in Canada; it's by far the safest meat and bone meal we've ever produced in this country.
But we're, again, at a further competitive disadvantage as a result of a policy that was supposed to improve market access around the world for our country. We've tried to address those issues, but as you can tell, we're a bit frustrated with the lack of progress on them.
When we have impaired ability to market all our products around the world, it impacts the cut-out of every single animal we process. Let me give you an example of a number of things that are impacted by that. We estimate there's easily $82 a head that we can gain by improved market access. For instance, Egypt is the highest market in the world for hearts. You can sell lungs to Indonesia. Currently, if the market's not very good, we end up rendering those products. There's long-cut feet that goes to Korea. Japan is the highest market in the world for short plates, and Cargill High River was their largest supplier previously. Liver went to Russia. All of those tongues into Japan all command a significant premium, and a lot of times they end up getting rendered or going into a grind in Canada at a significantly discounted value.
We strongly support the announcement to move ahead of the trade secretariat, and we encourage a lot of energy and effort in going in. We strongly support the recent emphasis on trade missions to reopen markets around the world, and we strongly commend the minister for the efforts he's making. If anything, we feel even more effort could be made. We've suggested possibly the appointment of a beef envoy at a cabinet level, because when you're meeting with other governments, it is significant in terms of the status of the individuals who attend meetings and participate with them. That's not in any way critical of the work of the minister; it's just simply the number of markets we have to work with in the schedule, which the minister also has to follow more or less to work in support of what he's doing.
We've also suggested recognizing that there is a delicate balance in Parliament. It may be sensible to have a number of the opposition parties participate in those missions and work in support of those efforts. We believe that's one of the most important things that can happen for our long-term viability and competitiveness.
There are other issues. For instance, a number of plants in the U.S. don't process Canadian cattle because we're not open to Korea. They'll start processing once we open to Korea, but right now the Koreans won't allow any Canadian product in those packing plants. So again, that directly impacts on our price and on what we refer to as the basis.
There are issues going into the United States. It is the largest beef market in the world. It is also expected to have significant growth because of population growth between now and 2015, at the same time that their supply is reducing. So we know that's going to be an important market for us.
Whenever we end up with additional costs going into the market.... Of course, our U.S. competitors don't have that because they don't have to go into the U.S. market; they're already there. So anything we can do to reduce those cross-border costs is extraordinarily important to the price that will be paid every single day of the year to our producers.
The country-of-origin labelling is one we remain very concerned about. We were very pleased when the government announced the WTO consultations last fall. We saw, as a result of that, a negotiation to create more flexibility in the rule. And while we were encouraged by that, once the new administration came into effect and began reviewing it, the secretary unfortunately announced what he referred to as “voluntary guidelines”. There's also a proviso that if he found the industry wasn't complying with that, he would look into introducing a new rule to force compliance with the voluntary guidelines--which in our view is a de facto rule.
We're not sure how the industry is going to respond to that, but we remain deeply concerned. What he is proposing is worse than what was put in place last fall. So we're looking for a strong response from the Government of Canada to make sure that doesn't happen, and we have suggested that if it starts to happen, that is abrogating the agreement that was reached and we should be right back to the WTO again. We're working with our Mexican counterparts as well.
There is a lot more on the regulatory side that I would like to talk about in terms of different areas where I think we clearly could improve our ability to compete. We feel strongly that there are opportunities out there. If you take a look at some of the inherent strengths in Canada.... Just look at what's happening today in California with water. Canada has 10% of the world's fresh water supply. The interesting thing about our river systems is that most of them flow away from the population, whereas in most of the rest of the world the rivers flow into population. That suggests to us that this is going to be an increasing advantage as we move forward. We have one of the largest agricultural land bases in the world. If we are able to work effectively and open markets, we believe Canada will remain one of the most important food producers in the world and that our industry will be an important part of that group.
Thank you, Mr. Chairman.