Evidence of meeting #22 for Agriculture and Agri-Food in the 41st Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was market.
A recording is available from Parliament.
Conservative
The Chair Conservative Larry Miller
I call this meeting to order.
I'd like to welcome our witnesses. Thank you for coming. Please try to keep your presentations to 10 minutes or less, and we'll open up for questions after that.
First of all, from the University of Alberta, we have Mr. James Rude.
Dr. James Rude Professor, Department of Resource Economics and Environmental Sociology, University of Alberta
Thank you very much. It's an honour to be asked to appear before you.
I'm going to limit my comments to two main areas: the effectiveness of current trade promotion programs and the necessary condition for improved market access. I'll deal with trade promotion first.
Before I even address the issue, I think I have to ask a more fundamental question: should trade promoters be asking what products and attributes are demanded in foreign markets and then providing advice as to how to meet that demand, or should they be promoting existing products? I would argue for the former.
Trade promotion ranges from efforts to increase demand to technical assistance. In terms of technical assistance, the types of things provided are information about foreign markets, dealing with logistics, and general questions of distribution channels.
The government's focus has shifted to an industry-led market promotion scheme. The programs are built around the Canada brand and the provision of market information and intelligence.
The market information and export capacity-building components of Growing Forward involved $21.2 million in 2009 and $26.4 million in 2010. Measuring the effectiveness of this money is, to say the least, fraught with problems. In terms of promoting demand, the measurement problem is determining what would have happened in any event.
Canadian advertising and promotion has focused on the Canada brand. This brand is intended to identify the product with the attributes and values of Canada. Once a country has become known as an exporter of quality products, presumably it raises the level of all products.
With product brands, companies are free to change their advertising strategy as consumer demand changes. Countries, however, are in a more limited situation as to what they can change with respect to the perception of the country. One sector's quality problems can quickly tarnish a national reputation.
National branding as an instrument of export promotion involves a number of problems: a lack of unity of purpose, difficulty in establishing actionable and measurable objectives, and a lack of influence over inputs and control over outputs. Empirical evidence about the effectiveness of things like country of origin labelling is mixed.
In terms of the provision of market information, the main body is the Agri-Food Trade Service of Agriculture and Agri-Food Canada. The ATS mandate is to provide analysis of domestic and international market demand, consumer trends, and opportunities. The ATS maintains an extensive website that contains market analysis, trade statistics, and other information about trade events and programs. However, much of this information is available through other agencies, such as the Foreign Agricultural Service of the USDA, and in fact many of their reports are drawn from attaché reports.
The ATS AgriMarketing program serves small and medium-sized enterprises by cost sharing for market development and promotion. Most of these activities involve trade shows, advertising, and export marketing activities, but what it doesn't involve to a great extent is technical training. There is some, but probably not as much as you might wish. They provide advice with respect to tariffs, customs procedures, labelling, protocols, and even some information on available distribution channels, but here's where they come up short.
A study by DFAIT found that in terms of the trade commissioner service, the firms that took advantage of the service tended to export about 18% more than comparable firms that did not.
In summary, trade promotion activities are often targeted simultaneously to a large number of disparate markets. Poor performance is often blamed on a lack of critical mass, and there is no correspondence between what exporters say is important and what they actually do.
Performance ultimately depends on credibility, and this depends on the resources available.
I'll switch to market access. For the most part, market access is not part of Growing Forward. However, effective market access is a necessary condition for trade promotion to work. You can't sell something where you don’t have access to a market.
Market access works both ways: it includes exports and imports as well. Imports are necessary for downstream industries and consumers. They offer a greater variety of choice, and ultimately they provide discipline to domestic firms that must prepare themselves to compete in international markets. All of these things increase the welfare of the country.
Improved market access includes reducing tariffs and reducing import quotas, but increasingly it also depends on non-tariff barriers such as sanitary and phytosanitary measures as well as technical barriers to trade. The preferred method of liberalization has always been a multilateral approach through the WTO. Multilateralism protects the interests of medium-sized countries such as Canada, while checking the ambitions of the larger players and offering a larger menu of trade-offs to achieve gains from trade.
The problem with the WTO Doha development agenda is that the talks have stalled, and there's no end in sight. Furthermore, our largest trading partner, the U.S., is on a course of negotiating regional trade agreements that may result in a relative loss of the preferential access we gained through NAFTA. Although Canada and the U.S. have negotiated bilateral agreements with common countries such as Chile, there are important exceptions, such as the U.S.-Korea FTA. Even with the reopening of Korean beef markets, we are at a disadvantage without an FTA.
Canada is undertaking a number of regional negotiations, such as the Canada-EU comprehensive economic and trade agreement, but the benefits appear to be limited. Some sectors, such as the EU beef sector, will remain protected because of a ban on hormone-treated beef. Likewise, Canada’s supply-managed systems probably will remain protected. The EU wants to continue to exclude our genetically modified products from its markets, while wanting Canada to recognize geographic indicators for a wide assortment of products. Canada is also moving towards preferential trade agreements with a number of countries, including India, while the U.S. is focusing on the trans-Pacific partnership.
While regional and bilateral agreements have advantages--they are possibly easier to negotiate and may contain provisions that cannot be negotiated in multilateral arenas--there are a number of downsides. Preferential agreements create a discriminatory environment for non-members, and this creates inefficiencies in that imports are bought from less competitive sources. Furthermore, restrictive rules of origin can cause exporters to use the original multilateral or MFN tariffs, rather than the preferential rates negotiated. The proliferation of regional trade agreements can greatly complicate the trading environment and create a spaghetti bowl of regulations.
Most non-tariff barriers relate to technical and sanitary, or phytosanitary, regulations. In these cases the standard-setting bodies are international organizations separate from the WTO. Moreover, our exporters face a growing number of private standards. The U.S. Food Safety Modernization Act became law in January 2011; this act could adversely affect the competitiveness of Canadian exports and add to the transaction costs of Canadian-origin supply chains.
Many of the increased costs relate to monitoring activities. The U.S. Food and Drug Administration has been given the power to require import certification that attests that the food was produced in compliance with U.S. laws and regulations. This certification process would require HACCP and traceability to be applied. This is probably a bigger issue for the grains and horticulture sectors than for the livestock sector, where HACCP, though not mandatory, is a fact of life. Canada is well positioned to meet and influence international standard-setting bodies, and we should continue to do so.
Ultimately it's firms that trade, not countries. All governments can do is establish the necessary conditions for trade. The most fundamental of these are the conditions for reliable market access. These conditions require sufficient resources to analyze markets, to promote trade, and to negotiate agreements.
With that, I thank you.
Conservative
The Chair Conservative Larry Miller
Thank you.
Now we'll move to Mr. Raizada, from the University of Guelph. You have ten minutes, please.
I believe you appeared before the committee at the university a year or so ago. It's good to see you again.
Dr. Manish N. Raizada Associate Professor, International Relations Officer, Department of Plant Agriculture, University of Guelph
That's correct.
Thank you for the invitation.
First I have to confess that I had hernia surgery on Thursday and I'm on a lot of painkillers, so if my testimony is kind of loopy....
Associate Professor, International Relations Officer, Department of Plant Agriculture, University of Guelph
Actually, there are a lot of jokes here, because I've seen loopy discussions in the House of Commons--
Associate Professor, International Relations Officer, Department of Plant Agriculture, University of Guelph
The focus of my presentation will be on how to create Canadian jobs by expanding export markets internationally.
As primary producers represent only 2% of Canada's jobs, I'm going to suggest not only that we should help Canadian ag producers directly but also that we should create new rural and urban jobs by combining agriculture with other sectors of the economy that could employ many more people, a strategy that I will call “ag plus”. Examples could be ag plus natural gas, ag plus mining, ag plus manufacturing, etc. Using ag plus, I will also suggest how we can help the world's poorest one billion farmers and create Canadian jobs simultaneously.
I have broken down my presentation into three topics: food, inputs for food production, and post-farm opportunities.
Let me start with food as a commodity. In order to know what our producers should be growing for export, we should look at what the rest of the world is importing. United Nations FAO data show that Asia imports $25 billion worth of soybeans, $15 billion in wheat, $10 billion in corn, and $7 billion in chicken, cattle, and pork. Demand for food by Asia will increase by 50% in the next 30 years, so stimulating production of these commodities is a good bet. India alone also imports $600 million in peas and $220 million in lentils. Combined, South America, Africa, and the Caribbean import $11.5 billion in wheat and $4 billion in corn. You see, many post-colonial nations originally colonized by Europe love European breads and pastries but cannot grow wheat, so wheat will always be an excellent export commodity for Canada.
How can we help Canadian producers effectively compete for these foreign markets? We must help producers reduce costs. Fifty percent of the cost of grain production is for tractor fuel and fertilizer, with the most costly fertilizer input being nitrogen fertilizer. Considerable dollars have been invested into turning crop biomass into biofuel. A far greater investment that would actually help producers, in my opinion, would be turning crop biomass into nitrogen fertilizer. Specifically, we need to fund research into microbes that convert atmospheric nitrogen gas into ammonia fertilizer, and microbes in other organisms that make high-value compost. These technologies are called biological nitrogen fixation. Canada could be a world leader in this area, because no one is. We already have good companies that sell microbes to farmers as a base to build upon.
We also need investments into improved agronomic recommendations for farmers. Should growers add additional fertilizer after planting or not? For corn, which is a crop I work on, only 50% of the nitrogen fertilizer added is actually taken up by the plant. That's a huge wasted expense, potentially thousands of dollars to an individual grower. How can this be improved?
Let me switch to the next topic of farm inputs, the related topic. We view farm input costs as a burden on the Canadian economy, but let's view it as an opportunity to create jobs, because the rest of the world needs the same inputs and we have what it takes to produce them.
First let me continue to discuss fertilizer, a commodity worth hundreds of billions of dollars globally. We all know that Canada is the world's leader in potash--potassium--but this is only one of the approximately 10 minerals required to make crop fertilizer.
As I noted, nitrogen fertilizer is the most valuable fertilizer. Currently, the process to make synthetic nitrogen fertilizer consumes huge amounts of oil and natural gas. Twenty percent of India's domestic natural gas consumption goes towards making nitrogen fertilizer. As the world's soils continue to degrade, the world will need more nitrogen fertilizer. Canada has huge reserves of oil and natural gas. Furthermore, the nitrogen itself is not mined from the soil, but is abundant in our air. Thus, rather than just focusing on selling crude oil or natural gas, Canada should be making nitrogen fertilizer, combining it with potash, phosphate, and other minerals, and exporting high-value fertilizer around the world.
Alberta, Saskatchewan, and Newfoundland should have fertilizer factories next to oil refineries.
By focusing on fertilizer inputs using organic, synthetic, and improved agronomic processes—all of the above—we will help our farmers produce more food and simultaneously add jobs to the oil and natural gas, mining, and high-tech chemistry industries.
A delegation from China approached me last year to help them develop a new slow-release fertilizer, as this would help to solve the 50% fertilizer loss problem for corn, which I discussed earlier. Canada should be making such a fertilizer, not China, since we, not China, have the raw commodities needed. That's one “ag plus” opportunity.
Another input required for farmers around the world is farm machinery. Canada was a leader in farm equipment. Remember Massey Ferguson? Massey tractors that are 50 to 60 years old are still working in Africa and India. I've seem them first-hand. In fact, Indian farmers don't know that they're Canadian.
Today, half a billion to a billion of the world’s 1.2 billion farmers are smallholder farmers in developing nations who need appropriate farm equipment valued at $10 to $1,000. You might be surprised to know that China, India, and certainly Africa have done a poor job in engineering and building such appropriate equipment. Poor farmers need weeding equipment, since poor women farmers spend 50% of their time removing weeds. Canada has an irrigation company called iDE, here in Ottawa, whose cheapest product is a five-dollar irrigation kit for poor farmers. Farmers also need simple tractors, no-till seed drills, other tools that promote conservation farming, seed cleaning equipment, and food milling equipment.
Tropical nations are looking for simple mesh greenhouses to keep insects out and cheap equipment for plant tissue culture. After harvest, low-cost, fuel-efficient cooking stoves are needed for two billion people, as there is a shortage of wood. After they digest food, a new generation of toilets will be needed for three billion people, along with the microbes to process human waste into fertilizer.
These are enormous market opportunities. Canada should more effectively use part of its foreign aid budget to develop collaborative partnerships to help develop these industries, simultaneously help the Canadian steel and manufacturing industries, and help the world’s poorest people. That's another “ag plus” opportunity.
Finally, let me switch to the topic of post-farm food processing. UN FAO data show that the three largest food imports around the world are for cooking oils, such as palm oil, canola oil, or soy oil. Asia alone imported $14 billion in palm oil in 2009. Africa imported $1.4 billion in canola seed. You see, frying foods dramatically reduces the time and energy required to cook food, so cooking oil will always be in demand. Growing Forward 2 should make opportunities for processing cooking oil for the world, building upon canola oil.
UN FAO data also show that China imported $800 million in distilled alcohol, which is the only drug I'm not on currently. Europe imported $16 billion in wine. The United States imported $12 billion in alcohol, wine, and beer. Building upon our brand labels, Canada should not be selling barley, but beer.
UN FAO data also show that processed food is huge. China’s importation of infant food formula is $650 million, greater than its $570 million importation of wheat. Europe imports $20 billion in processed food, so building upon Maple Leaf Foods, Saputo, and others, Canada continues to have growth opportunities here.
I realize that health food experts will cringe at what I’m saying in promoting fried foods, alcohol, and processed foods, but what I am telling you here are opportunities that exist.
The other major food processing opportunity is livestock feed and pet food. As the world continues to eat more meat, it needs more high-quality feed. With Canada’s expertise in the livestock, poultry, and fish industries, we have a real opportunity, another “ag plus” opportunity. Again, our farmers shouldn’t be selling corn or soybeans, but higher-value feed made from corn and beans.
Furthermore, we can benefit our mining industry by adding high-value minerals to animal feed. Did you know that Canadians import half a billion dollars in pet food? That pet food should be produced in Canada.
My suggestion is that Growing Forward should focus on food exports, on reducing farm inputs while exporting farm inputs around the world, and on selling processed food, alcohol, cooking oil, and animal feed.
What are the policies needed to make all this happen? I think in very simple ways, so let me suggest a couple of simple and cost-effective options.
First of all, every few years Canadian farmers face drought or low commodity prices. Governments rush in with hundreds of millions of dollars, sometimes billions, in aid. Though science and infrastructure investments can partially help, their impact will always be limited. What is needed is for Canadian producers to own a stake in a post-farm industry that is largely independent of commodity or climate shocks.
What are these industries? They are essentially all the industries I have already discussed: industries related to agriculture that farmers understand and have a stake in seeing succeed.
I propose a government savings, investment, or tax rebate strategy through which every dollar invested by a Canadian producer would be matched singly or doubly by the government, and the money would be used as capital to build the industries I've discussed. I'm talking about a major investment strategy that provides a second source of income for our producers and buffers them against income shocks.
What I’m going to say next is controversial. I care a great deal about developing countries, but I also recommend diverting $1 billion or $2 billion in CIDA funding annually to develop bilateral programs in farm machinery, toilets, fertilizer and food processing. I believe such programs will help the world’s poorest people and build local tax bases more effectively than continuous handouts have done.
I also suggest a number of simple ideas to bring stakeholders together for these and other purposes. Examples could include one-week paid internship programs to enable scientists to spend a week at companies or on farms, fourth-year undergraduate design projects for agriculture students, and money for student contests to solve on-farm problems. I suggest funding co-op programs for general B.Sc. and B.Eng. students to bring them into agriculture and into “ag plus” sectors. I suggest pairing new immigrants who have an agricultural food background with farmer associations and food processing companies in paid internships. I recommend the creation of a Canada food ambassadors program, consisting of Canadian celebrities who grew up on farms; first nations peoples, who continue to fascinate the world; farmers who grow the food; scientists; and relevant first-generation Canadians, all of whom would travel on trade missions and host parties at Canadian embassies and consulates. I also recommend agricultural attachés embedded in the Canadian military, as poor nations are often 80% to 90% agricultural--
Associate Professor, International Relations Officer, Department of Plant Agriculture, University of Guelph
Okay. Actually, I'm at the last sentence.
I'll be happy to discuss “ag plus” or anything else I've mentioned.
Thank you.
Conservative
The Chair Conservative Larry Miller
Thanks very much.
Next is Mr. Yada, also from the University of Guelph. You also have 10 minutes, please.
Dr. Rickey Yada Professor, Department of Food Science, University of Guelph
Good afternoon, Mr. Chair and honourable members of the committee. Thank you for the opportunity to address you on the issue of marketing and trade.
My name is Rickey Yada. I'm a professor in the department of food science at the University of Guelph and the scientific director of the Advanced Foods and Materials Network, which up until last March 31 was funded through the networks of centres of excellence program. As a network, AFMNet established an infrastructure of approximately 25 universities across Canada, involving 75 researchers and over 100 highly qualified personnel and partnering with industry, government, NGOs, and 18 other global research networks. AFMNet had a mandate to produce commercially viable, socially acceptable, value-added products and processes for the benefit of Canadians in the agrifood space.
Having been with the network, I've had the unique opportunity to observe various challenges and opportunities, from researcher to consumer, in moving products and technologies forward. Core to the network was the ability to attempt to take a good idea and transform it into a product or a technology that was taken and used, i.e., innovation. The issue of trade and marketing is moot if there are no products or technologies.
In addressing the committee today, I bring forth my personal comments as well as those of parties ranging from researchers to consultants, commercialization organizations, small Canadian SMEs, a Canadian subsidiary of a multinational, a Canadian food company, and a food author.
From an AFMNet point of view, several recurrent issues have come up, which you will hear from many of the people I interviewed. Canada is blessed with very creative and innovative researchers in the agrifood area, but many academic researchers are naive about intellectual property and commercialization. We need a forum to bring producers, researchers, industry, government, funders, and consumers together to discuss needs and priorities to facilitate changing good ideas into products and technology.
There is a definite lack of funding to support proof-of-concept funding. Most food companies are reluctant to invest in research, wanting to buy a technology or a product. The regulatory approval process is often considered a big challenge in moving good ideas forward. Trade commission officers funded though Agriculture Canada and DFAIT are an excellent avenue for connecting researchers with foreign industries, identifying potential users. AFMNet had a wonderful experience with a major company in the Minneapolis area.
There is still a disconnect between industry and academic or government research labs. Industry is looking for a solution to a problem, while researchers have a solution and are looking for a question. The food processing industry in Canada is very fragmented. A major challenge for us in the agrifood industry is to make agrifood a priority area in Canada's S and T plan, since it can address all three pillars: entrepreneurial advantage, knowledge advantage, and people advantage.
Next are some comments from some of my colleagues. Rotimi Aluko is a faculty member at the University of Manitoba who has made some interesting discoveries and was funded through the network. I quote:
I think there is the need to emphasize that there is currently limited funding available for food research in Canada.
The regulatory process for novel foods needs to be revised to allow approvals based on solid scientific publications in peer-reviewed journals. It is unfortunate that sometimes grant review panels are composed of personnel that are ignorant about novel foods and their potential health benefits.... It might be necessary in funding programs that involve technology transfer or marketing of new or novel food products for the review committee to be appointed after the applications have been received to ensure that experts for food-related applications are appointed.
Commercialization grants should be available to researchers if they can find an industrial partner that is willing to translate the technology into marketable products.
One of the main impediments to technology transfer in Canada is the strict requirement for cash from industry partners. This is especially difficult and in most cases impossible for small-scale businesses that are looking for growth opportunities through adopting new technologies from university researchers. For example, part of the current Growing Forward program requires 25% cash input from industry partners. My research group developed a very good technology for converting hemp seed proteins into blood pressure-lowering protein hydrolysate, but we needed to test to the product in animal models. When I approached the hemp seed processing plants in Manitoba to sponsor our application for the Growing Forward program, none was ready to part with cash but some were willing to give in-kind donations. Canada does not have a very many strong multinational or even large companies that can put up a lot of cash for technology development and innovative research activities.
Alejandro Marangoni is a faculty member in my department who spun out a company called Coasun, which looks at trans fat substitutes. His message is that we must have market pull. He says the best way to do this is to work with small and medium-sized companies that already have some market presence, and help them develop and protect their technology.
He also indicated that we need an organization that oversees this, much like AFMNet, to bring researchers, government, and industry together. We need it more in the commercialization area.
Tim Durance is a faculty member at the University of British Columbia, but he has also spun out a company. He's the director, chairman, and co-chief executive officer of a company called EnWave. It is a Vancouver-based industrial technology company developing a new industrial standard for the dehydration of food.
In talking about this issue, Tim identified some programs that he's tapped into, such as international business development programs through foreign affairs trade commissioners. I've heard about using their trade offices from many of my colleagues.
He says Export Development Canada provides a useful service in taking some of the final risk out of large sales, for example, of equipment to foreign customers. EnWave hasn't used them, but he suspects it won't be too long before they do.
He also talked about the SR and ED credit:
This is fairly useless to a company like EnWave because, being publicly traded, we only get tax credits. Since we don't yet make a profit, we aren't paying taxes yet anyway. By the time we have taxable income, we won't really need the support, so the SR&ED support is focused on the wrong stage of company development, at least for public start-ups.
EnWave's business model depends on collecting royalties on the use of its patented IP and know-how. One constraint for us in many international jurisdictions is our understanding of local legal systems. We regularly turn down offers of business because we fear international partners may refuse to pay their royalties...
On university spin-off creation, he says, “As you can imagine, I think there is a huge amount of unrealized business potential in our universities.” Again he advocates for the need to have a forum where business, university, and government can come together.
Sylvain Charlebois is the acting dean of the College of Management and Economics at the University of Guelph. He says:
Most Canadians are not aware that our country is addicted to cartels--sort of. Our infatuation with managing the supply of commodities has made our country trade-inept. We have adopted highly protectionist policies to support our milk, poultry, eggs and turkey production and for the distribution of other commodities as well
Dave Sparling is someone you have probably had before this committee. He's a faculty member at the Richard Ivey School of Business, and along with a colleague in Saskatchewan he has produced a report. I've spoken to the clerk of this committee and I will send you this report, because I believe Dave has made some really cogent arguments.
The report is called “Market Development and Promotion by Agricultural Commodity Boards and Organizations in Canada: State of the Industry and Evidence of Best Practices”. Dave Sparling and Shelley Thompson, the co-authors, have identified a number of important points: they say that government funding is a fundamental foundation for market development, that supporting connections with customers and fully developing high-value markets is a critical aspect, and that trade missions should be continued to provide a more coordinated and supported approach to key trade shows around the world.
As well, they say enablers matter, and in this aspect they talk about continued support for key enablers, such as the Canadian International Grains Institute. They say that market intelligence should be supported, that knowledge and promotion partnerships should be expanded, and that market pull product development and broader activity focus by innovation organizations should be supported.
Another recurrent theme is to reduce overhead and uncertainty around government programs. Finally, domestic marketing should be supported, particularly for import replacement.
The next comment comes from Rory McAlpine, the vice-president of government and industry relations at Maple Leaf Foods. Rory emphasizes the need to fix the ancient, broken legislative and regulatory framework around our industry.
Citing a report of the National Millers Association entitled “An Enabling Food Legislative and Regulatory Modernization Initiative for Canada: The Way Forward to 2015”, he quotes:
While Canada has enjoyed an enviable reputation as a producer and exporter of food commodities and processed foods that are safe and of high quality, Canada is the last among its industrialized trading partners to modernize legislation and regulations that are the foundation of food safety and healthy eating.
That's another recurrent message around a regulatory process.
Professor, Department of Food Science, University of Guelph
Yes.
Finally, Dave Smardon and Doug Knox from BioEnterprise Corporation, a commercialization firm, have identified again that we need to consolidate.
My last comment is from Anita Stewart, a food author and food activist. She also talks about collaboration.
Mr. Chair, there are a number of recurrent messages that I uphold from the constituents, and hopefully they are of value to this committee.
Thank you.
Conservative
The Chair Conservative Larry Miller
Thank you very much.
Last but not least, we have Mr. Brewin from the University of Manitoba.
Dr. Derek Brewin Associate Professor, Department of Agribusiness and Agricultural Economics, University of Manitoba
Thank you very much for the invitation to the committee, and to the members who invited me.
I think one of the reasons we're here is the strength of Canada's agriculture and food sector. Canada has a massive endowment of agricultural assets. We have more arable land per capita than any advanced economy in the world except Australia. That makes the effective marketing of our agricultural goods and trade relations with our foreign buyers very important.
The first part of marketing is the assessment of a market to see if you can produce something you know consumers want at a price that makes you some money. We know the world wants our commodities. We're at historically low stocks in both grains and oilseeds, and prices have risen to reflect that situation.
The marketing challenges for our commodities focus on meeting the needs of our buyers with efficient chains of transportation, storage, and quality assurance at prevailing world prices. The role of the government includes the policing of private firms in the supply chain, and to some extent supporting the primary producer with effective risk, research, extension, and promotion programs.
A significant portion of Canada's agriculture and food GDP is generated after the farm gate. The marketing needs of these industries are different than the commodity-based handling and transportation concerns. As food gets closer to the consumer, we need to provide assurance of food safety and quality. We're also developing new products that the consumer has not heard of before, so we need market assessment of those new products.
I think the investments that the Growing Forward marketing programs have made are well spent. There has been a review of beef marketing investments from the beef check-off by John Cranfield from Guelph, who said that the benefit-to-cost ratio of marketing investments was 7.6:1, which is pretty good, but the returns for the research category of those check-off dollars was 46:1. I haven't seen anything that comes close to that in business risk management returns.
It seems to me that food safety and quality are the key challenges to the processing and retailing members of the supply chain, and there are some trends in concentration that should be monitored by the Competition Bureau. The information needed for that monitoring would be invaluable to the whole sector, including to us as researchers of agricultural markets.
As for the commodity sector, there are a few key things I want to bring to your attention. I think they relate to the way we think about our future programming.
The first is the shocking rise of ethanol production. It's not a shock to the committee, I'm sure, but the size of it is amazing. I think it's had the biggest impact on grain stocks since 1929.
The new demand, which is forecast to be 40% of the total corn crop in the United States next year, has come on us in only eight years. That's meant an incredible change on the demand for energy and feedstocks, and I think it's had a negative effect on the demand for protein. Feed barley, which used to trade at a premium above corn, now trades at a discount because the protein that was in the barley is now cheaply available in DDGs. Hard red spring wheat still has a premium because of the gluten form of its protein, but other protein sources are getting pretty cheap.
I haven't done a detailed review of all of the non-BRM Growing Forward programs, but they appear well suited to the things I see as a concern, especially in the supply chain further up from farmers.
I know of two programs in some detail because of my own involvement. I was a board member of the Manitoba Rural Adaptation Council, MRAC, for two years, and witnessed their project reviews for funding under the Canadian agricultural adaptation program, and I hope they didn't say no to some of your programs, Rickey.
However, they do try to apply due diligence when they're reviewing projects. They're experts in the area, so they aren't quite a flexible type of program delivery.
The other program I was involved with was enabling policy research for competitive agriculture, ERCA. The networks fostered research on strategic policy topics, including agricultural trade, innovation and regulation, the environment, consumers, and market structure. Graduate students funded under ERCA have gone on to be key analysts in Agriculture and Agri-Food Canada and industry, and most of my colleagues in agricultural economics in Canadian universities are members of one of these five policy networks.
Actually, Shelley and David got funding for the paper you quoted under the innovation network.
The ERCA networks can be found by searching ERCA on the AAFC main website.
One last program I want to support here is the value chain roundtables. I believe our agricultural sector can address a number of broad challenges only by looking at the whole supply chain. Consumers' concerns need to be reflected along the supply chain and addressed in the most efficient way possible. Individuals, firms, and agencies that jeopardize the Canadian brand need to be held accountable.
There were two main shifts in policy that were related to commodities. Ethanol was the first one, and I've gone through that. The second one is the major change facing the commodities sector, which is the new environment for marketing barley and wheat. The way the sector is getting together, the initial offerings from grain companies and the new ICE wheat contracts seem to be signalling they're going to manage the sector a lot like canola. I think that's a logical way forward and will probably work in the long run, but I just want to point out three significant differences in those two commodities.
The first major difference is the market for seed. With hybrid varieties and technical use agreements, TUAs, there is a lot of funding coming from the seed sales to private sectors, so it's a viable private industry. Canola seed production is a viable seed industry, and that's led the private sector to solving some of the supply chains, even in terms of pests. However, consumers don't want GM wheat right now—at least, it's not a viable option anywhere that I've seen—so technical use agreement funding is not going to be part of the wheat supply chain, and we haven’t figured out a way to commercially produce hybrid wheats yet. Both of those things mean that we're going to need either some high level of public breeding in wheat or a producer check-off.
The second key difference between wheat and canola is the quality variation. Canola has essentially two grades. Wheat grades currently posted by the CWB total 14, and there are 47 protein categories and another 10 classes of eastern wheat. In North Dakota, researchers have explored the risk in durum wheat: 62% of the durum crop does not make number one hard amber durum, and the discounts farmers face for failing to meet that grade reach as high as $4 a bushel, more than half their current price. Therefore, I'd like to see the Canadian Grain Commission reviewing quality discounts and posting those discounts in the same way that they post elevator tariffs.
Finally, the domestic processing of wheat may not be as profitable as the domestic processing of canola. Around the world, wheat milling tends to happen closer to the final consumer. The quantity of world flour exports is roughly 8% of the wheat exports. The quantity of canola oil exports is 28% of canola seed, and there are meal exports on top of that, so we have to be careful where we locate some of that processing, because the consumer must tell us where it's most viable.
In conclusion, the Growing Forward programs seem well suited to increasing innovation, addressing some food safety and environmental concerns, and reducing farm production and income risks. What I'm more concerned about is the evolving structure of our major commodity markets and the power of monitoring agencies to police us from unfair practices.
The growing concentration of sectors such as farm inputs, food processing, retail, rail transportation, and grain handling is troubling. It may be caused by efficiency and scale economies that have the potential to make our sector more competitive, but when there are only a few firms, there will be a temptation to extract excessive fees. That's the concern of a theoretical economist, but we can test these things if we get enough data. I think that's one of the most important things that we can do in government for the next period: to diligently monitor our sector for concentration and make sure that consumers' demands are reflected right down to the farmer.
Conservative
The Chair Conservative Larry Miller
Thank you very much.
We'll now go to questions.
Go ahead, Mr. Allen, for five minutes.
NDP
Malcolm Allen NDP Welland, ON
Thank you, Chair.
Thank you to all of our presenters.
Mr. Rude, if I can start with you, in your paper I notice the comment you make on page 2 about agreements that limit some sectors, in the sense of constraints that are not tariff-related, if you will, but that may have other pieces to them. You indicate that the EU wants to continue to exclude GM products and to protect its beef sector with a ban on hormone-treated beef. You also mentioned that the EU is looking at us in the supply-managed area.
From your perspective, what should we be doing with these trade irritants, if I can use the term? I don't want to put words in your mouth. I will allow you to tell me, rather than saying anything more.
Professor, Department of Resource Economics and Environmental Sociology, University of Alberta
Since all your examples have to do with the EU, let's talk about it and talk about the current negotiations that are going on. The most basic way is to have the negotiators sit down and try to bang heads over what is feasible and what isn't.
In terms of access for some of their markets and some of our markets, we are never going to have a situation in which we completely open up the markets. They have things that are very sensitive. GM is really more of a consumer issue in the European Union than an issue of protecting producer interests. As long as that is a major issue, they're not going to back off. It is just as it was with the hormone beef, which was also a consumer issue: even though the WTO ruled against them, they ultimately paid the concession so that they did not have to back off. We have to recognize that.
I think we can get access on certain issues, even on non-hormone-treated beef or bison, by attempting to negotiate expansions to the tariff rate quotas currently in place. The U.S. used to share something known as the Hilton quota with us, which limited imports of beef to 117,000 tonnes; they've managed to negotiate considerable access beyond that.
There are a number of avenues we can negotiate, but we have to respect the fact that both sides have sensitivities, and in terms of these negotiations, we're never going to get something that approximates free trade.
NDP
Malcolm Allen NDP Welland, ON
I think you're probably right, sir. Nonetheless, on the whole issue of the market and marketing, it's interesting that when you talk about the EU specifically, you're talking about the sense that the non-tariff barriers are actually driven by consumers who say, “No, thank you very much” about certain types of things, whether GM or hormone-treated beef or whatever else. It doesn't really matter, to quote my friends across the way, what the science says: the consumers are saying, “No, thank you”, which ultimately means no sale.
NDP
Malcolm Allen NDP Welland, ON
Mr. Raizada, you talked about the “ag plus” piece, which I found fascinating. We'll take out the alcohol part, although maybe you would prefer to have some, given your most recent surgeries.
However, you did say that public health experts may not like what you're saying. Is there a way to start thinking about how public health experts would like what you're saying, especially in developed countries specifically? That's not to give the same advantages to less developed countries, but developed countries already understand that they're on the verge of an epidemic of diabetes, which is a huge public health issue and has a huge cost as well. One of the things we're hearing is whether we can afford to pay these health costs. Do you see anything in your “ag plus” crystal ball, if I can use that term, as a way to try to help drive that as an “ag plus” piece to actually enhance livability and deal with the chronic disease that's upon us?
Associate Professor, International Relations Officer, Department of Plant Agriculture, University of Guelph
Obviously I was partially joking in what I was saying.
I'll give you a concrete example. When it comes to cooking oil or stoves, both of these benefit women considerably. If you've ever been to a rural area in Africa or South Asia, what you find are women who are breathing in smoke, a lot of smoke, at these open stoves. It contributes to emphysema, lung cancer, terrible diseases. The use of cooking oil or improved stoves--closed stoves, efficient stoves—actually improves the health of women. That's one example.
NDP
Malcolm Allen NDP Welland, ON
I've actually been in Mozambique, so I know of what you speak. You're absolutely right.