Good morning, Mr. Miller.
Mr. Chairman and members of the committee, I would like to begin by thanking you for this opportunity to dialogue and share with you our understanding of certain Canadian realities while, at the same time, making you aware of our needs, in terms of retaining high quality slaughterhouses in Canada, and Quebec in particular.
I would like to quickly address the COOL program. I share the views of my colleagues from the other federations. The Fédération des producteurs de bovins supports the principle of legislation dealing with country-of-origin labelling. That is what consumers are demanding. So, we cannot object to that. However, we would like to see Canada pass its own regulations in that regard. At the present time, Canada has regulations dealing with cattle identification, but they do not go so far as to identify the product on the store shelves. If, because of our Canadian vision of beef production, foreign consumers are interested in the Canadian Beef Advantage label, why not offer that same benefit to Canadian consumers here in our own country?
The problem with the U.S. COOL labelling program is that there are too many categories. What the consumer wants to know is whether it is an American product sold in the United States. So, there could be one category for U.S. products—in other words, animals that are born, raised and slaughtered in the United States—and a second category which would include all other products imported from Canada and other countries.
The other point I wanted to make concerns obstacles to the Canadian beef industry's competitiveness. One of the major obstacles to our competitive position are the infamous SRM regulations. This is a major handicap for all Canadian beef slaughterhouses. Managing compliance with those regulations is extremely costly, at least in the East. In our company, it costs between $30 and $40 a head just to comply with Canadian regulations. Therefore, it is critical that cattle producers and the Canadian beef industry have access to phytosanitary products, an ISO sanitary safety standard and veterinarian services at competitive prices. In Canada, studies show that we still have a long way to go in that respect.
I would now like to address environmental rules. All across Canada, environmental rules are in effect. I see that as a positive thing. At the same time, however, we need to ensure there is reciprocity in terms of the rules that apply to products entering Canada and that the latter are subject to related—I am not saying similar—rules that provide the same safety assurances for Canadian consumers. That lack of reciprocity with respect to imported products is a major issue in terms of developing the beef industry in Canada, in my view. Furthermore, at the Round Table on the Beef Industry Value Chain, we talked about the lack of a single window approach in Canada for beef product exports. In Canada, things are complicated. Several departments are involved. There are countries who have successful models for exporting their goods, but it is always a fairly short process then in terms of export administration. They do not have to deal with several different departments in order to access the main decision maker and finalize the sale. The same applies to export firms. Major exporting countries are not about to destroy each other in the countries where they have a market. They work together. So, the industry has some work to do. There is a need for dialogue, so that we can find a way to work together.
I would now like to talk about the Levinoff-Colbex case. Levinoff-Colbex is a company that has been owned by Quebec producers since 2006. In the wake of the BSE crisis that began in 2003, producers had a lot of concerns. That crisis left its mark in the public mind and considerably weakened the beef industry in Quebec and Canada. This difficult ordeal for our sector highlighted two structural weaknesses in the Canadian beef industry: its dependency on packers and the U.S. market, as well as a serious imbalance in the relative strength of the different links in the chain, producers still being the weakest link, even as we speak.
Given the circumstances, Quebec's beef producers have been proactive. Since 2006, the Fédération des producteurs de bovins du Québec, which represents some 24,300 beef producers in Quebec across 14,300 companies, has been the sole shareholder of Levinoff-Colbex S.E.C.
I would like to talk about its strategic importance. Levinoff-Colbex is the only cull cattle slaughterhouse in Eastern Canada with a slaughter capacity of more than 4,000 head a week. Levinoff-Colbex S.E.C. plays a critical role in ensuring the marketing of cull cattle and maintaining genuine competition in markets in Eastern Canada. Indeed, it was for those two reasons that producers, working through the Federation, decided to inject a total of $36 million in the company, including $30 million last December. That major investment demonstrates the producers' commitment to the company and their determination to keep it operating in Eastern Canada.
Levinoff-Colbex obtains its supply throughout Eastern Canada, with 51 per cent of its cattle coming from Quebec; that represents 94 per cent of available cattle in Quebec. There is a strict supply arrangement in place between producers and the slaughterhouse that guarantees them a minimum slaughter volume of 80 per cent. It is important for a slaughterhouse, to have that kind of supply. Five per cent of supply comes from the Atlantic provinces, and 10 per cent comes from Western Canada, including Manitoba, Saskatchewan and Alberta.
Levinoff-Colbex slaughtered 154,000 cull cattle in 2008. Other than Riding-Regency in Ontario, Levinoff-Colbex' competitors are two American slaughterhouses located in Pennsylvania, Taylor Packing—or Cargill—and Moyer JBS, which is also located in Souderton, Pennsylvania. In 2006, the company realized an operating profit of a little more than $6 million. In 2007 and 2008, however, it recorded losses of $2.4 million and $5.1 million, respectively. At the same time, the company generated positive earnings before interest, taxes and amortization of $2.6 million in 2008, and $5 million in 2007. It had sales last year of $139 million. Financial results for 2007 and 2008 go a long way towards explaining lower inputs than expected, due to the situation in the Canadian dairy sector. The business is currently operating at 70 per cent of its capacity.
At the present time, there are two major factors that have a negative impact on the company's competitive position in relation to its competitors: Canadian SRM regulations, which cost $30 to $40 per head, or between $4.5 and $6 million a year, and the fact that its main competitors operate integrated plants, which is not our case. In order to ensure the company's long term profitability in the North American context, Levinoff-Colbex is proposing to build a cutting room that would be integrated with the slaughterhouse, and equipped with the very latest technology. The new facilities will also have secondary processing equipment that will enable the company to add value to its products.
For the expansion of the plant, the additional building and equipment costs are estimated at $18.1 million and $1 million, respectively. Construction of the integrated cutting room will be spread over an 18-month period and will create 145 jobs. An integrated cutting room, once it is up and running, will allow the company to increase its profit margins by between $4 and $5 million per year, compared to currently. The improved profit margin will result from lower operating costs and the creation of added value through secondary meat processing. In addition, the new cutting room gives Levinoff-Colbex an opportunity to cut steers. Diversification of the company's activities will enable it to operate at full capacity, complementing the supply of cull cattle with steers.
It is in relation to the new federal program announced in the budget by the current government—assistance of $50 million for the beef slaughtering industry—that we are making our current request. We are very favourable to that program and we fully support it.
However, a program implemented with federal money could only be genuinely supportive if, for example, it provides capital payments, as opposed to business loans, given that businesses in the industry no longer have any borrowing capacity; gives preference primarily to projects supported collectively and directly by producer groups; extends support on a priority basis to companies whose competitiveness has been most affected by the SRM regulations; and, benefits, on a priority basis, those companies that play a critical strategic role in the red meat sector.
Levinoff-Colbex meets each and every one of the above criteria. The Levinoff-Colbex plan is cost-effective, and the company must go through with it in order to ensure its survival. However, producers recently invested $30 million in Levinoff-Colbex. That significant contribution must be recognized under the federal program as a private sector contribution. Producers do not have the ability to re-invest in order to carry out this project. A capital injection of $19 million from the Canadian government is therefore needed to ensure that this important project can go ahead.
This would also help the slaughter steer industry in Quebec. There is currently no slaughter steer facility operating in Eastern Canada.
Thank you.