Thank you very much, Mr. Chair.
Good morning, honourable committee members.
On behalf of the 25 brewing members that the Brewers Association of Canada represents, I would like to thank the committee for inviting me to appear today to discuss some of the supply chain challenges confronting Canada’s brewers.
There are three items that I will cover this morning. The first is establishing an import maximum residue limit for hops similar to that set in the United States. The second is investing in malt barley through Growing Forward 2. The third is modernizing the compositional standard for beer under the food and drug regulations.
I would like to begin, though, with highlighting beer’s place in the social and economic fabric of Canada. Beer has a long history in Canada, which in part explains why it remains the most popular alcoholic beverage consumed by Canadians today.
The first brewery was opened by Jean Talon in Quebec City in 1668. John Molson started his brewery in Montreal in 1786. Alexander Keith's brewery was founded in Halifax in 1820. John Labatt started his brewery in London, Ontario, in 1847. John H. Sleeman started his Guelph brewery in 1851. And Moosehead traces its roots back to 1867, to a brewery founded by Susannah Oland in Halifax. Before even becoming a country, beer had been a part of life in Canada. It continues to be enjoyed daily by millions of Canadians, with their dinner, after a round of golf, after or during a hockey game, or while socializing with friends at the local pub.
The brewing industry in Canada today employs 13,000 Canadians. These are direct jobs, good-paying jobs, that include manufacturing, quality assurance, research, innovation, marketing, sales, legal, transportation, and even retail. The production, distribution, and sale of beer made in Canada also impacts allied industries, such as farming, malting, packaging, and food services. When all the allied and spinoff effects are accounted for, beer generates full-time employment for 205,000 Canadians.
It will be of interest to the honourable members of this committee to know that domestic beer production represents 12% of the gross domestic product generated by the entire Canadian food manufacturing industry. Canada is the tenth largest beer exporter in the world. It will also be of interest to know that tax is a substantial burden on the brewing industry, to a much greater extent than it is on any other food manufacturing industry. The federal excise duty on beer is $31.22 per hectolitre, which works out to 10.6¢ per bottle of beer. Excise duty is a production tax, and it is the first of many taxes. By the time beer is sold to the consumer, 50% or more of the retail price is tax—the second highest tax rate in the world.
Specific to the supply chain issues at hand, the first one I would like to touch on pertains to hops. Hops are the female flowers of a species called Humulus lupulus. Hops are an essential ingredient in beer. The hop plant is a climbing perennial vine, most often trained to grow up a wire to a height of between 7 and 30 feet, and sometimes even 50 feet. Hops impart bitterness, flavour, and aroma to beer.
Canada had a commercial hop industry until the early 1990s, when pests, pricing, and consolidation made hop farming in Canada unviable. While there are a handful of small Canadian hop farms today that are supplying small local brewers, commercial Canadian beer production is reliant on imported hops for domestic beer production. In 2012, Canadian brewers imported $14 million worth of hops to produce 23 million hectolitres of beer. The United States is our biggest supplier of hops, accounting for 72% of hop imports in 2012, followed by Germany, which is the second largest, accounting for 18%.
Because Canada does not have a commercial hop industry, the pest management tools approved for use on hops have not kept pace with innovations and technological advancements made in the hop-producing countries. A consequence of this is that maximum residue limits, measured in parts per million, have not been established in Canada in many cases. The result is higher sourcing and compliance costs for Canada's brewers relative to that of their counterparts in other beer-producing countries.
The Pest Management Regulatory Agency is working with the United States Environmental Protection Agency and industry to address the situation. But understandably domestically we are focused on domestic registrations of pest management products to support the competitiveness of Canada’s producers. Without a domestic commercial hop industry, the process and cost of domestic registration is excessive and uneconomical in many cases. As such, we are seeking the committee’s support for establishing import MRLs at levels similar to those in the United States. Such MRLs will ensure that Canada's brewers have a steady and competitively priced supply of hops.
The second supply chain challenge for Canada’s brewers that I will present today relates to malt barley, which, like hops, is an essential ingredient for making beer. Malt barley is a cereal grain that, after being harvested by the farmer, is enzymatically brought to life by the maltster for just the right amount of time to start converting the starches and proteins inside the kernel into fermentable sugars and protein fractions for brewing. What is then called malt is shipped to the brewer, who mills and completes the conversion of the malt to create a sugary solution called wort. This is followed by fermentation, during which yeast feeds on the sugars in the wort, naturally producing CO2 and alcohol in the process.
Not all malting barley production gets selected for malt. Brewers have exacting standards and require incoming malts to be consistent in their specification. Aside from specialty malts not produced or processed domestically, Canada’s brewers source all their malt barley from Canadian producers indirectly through their maltster. On an annual basis, Canadian brewers purchase approximately 350,000 metric tonnes of malting barley equivalent from a harvest that typically is between 2.2 million and 2.5 million metric tonnes. The proximity to a secure, high-quality malt barley supply is a key competitive advantage for the Canadian brewing industry.
Brewers and maltsters collaborate through the Brewing and Malting Barley Research Institute and the Canadian Malting Barley Technical Centre to ensure that Canadian malting barley retains its prominence. As with any crop, investment in new production tools and techniques as well as in new varieties is a must for our growers and our industry to remain competitive.
Canada’s brewers have noted that barley acres have been in decline since the late 1990s. This is a concern, and we ask that the government commit to ensuring malt barley remains a viable and competitive crop for growers. Through BMBRI, Canada’s brewers are working in partnership with grower agencies to provide industry funding toward breeding and research programs for such barley improvement.
An application has been submitted by this grower-industry partnership for matching federal funds under the Agriculture and Agri-Food Canada Growing Forward 2 program. It is very important for Canada’s brewing industry that federal funding for malting barley breeding and development programs be provided and remain in place over the long term, as cereal breeding is a multi-year process.
Finally, the last supply chain issue I'd like to raise today pertains specifically to beer. Any product imported or shipped between provinces that is labelled as a beer must meet the compositional standard of identity for beer as stipulated under the food and drug regulations, part B, division 2.
The beer standard, as it is called, has not been updated since the late 1980s and has fallen out of sync with developments in the beer category within which Canadian brewers produce a multitude of different beer styles, some of which have been around for hundreds of years but are new on the shelves here in Canada. The standard has become too prescriptive in some ways and obsolete in others. It has begun to cause problems with label approvals and even product development. Modernizing the beer standard is essential to ensuring that brewers can continue to innovate within the beer category and remain competitive in the marketplace.
The Brewers Association of Canada has taken the initiative of drafting a new beer standard, one that stays true to what beer is, while making it simpler for brewers, consumers, and regulators to understand. We are currently undertaking consultations with the appropriate government officials to get the necessary regulatory amendment under way. The challenge we expect to run into is that the beer standard is not the only one that needs to be updated, and that there will be a desire to wait to deal with beer along with all the others.
We would ask the members of the Standing Committee on Agriculture and Agri-Food to support Canada’s brewers by acknowledging the need for the beer standard to be modernized in the near term.
In closing, brewing is something Canada is good at. Canada has many strategic advantages in making beer. We have a skilled labour force, lots of brewing expertise, clean sources of fresh water, and proximity to malt barley, to name just a few.
We need to ensure that we are competitive in our ability to source hops, an essential brewing ingredient for which we rely on imports. We can better ensure this by establishing import MRLs that are aligned with those of the United States. We need to continue to invest in our malt barley varieties and the agronomic tools available to malt barley growers. Canada has a reputation for producing high-quality malt barley, and this can only be maintained through ongoing joint investment among industry, growers, and the government.
The federal definition of beer under the food and drug regulations needs to be modernized to ensure regulatory coherence, continued innovation, and Canada’s competitiveness in the global marketplace.
Thank you very much. I would be happy to take any questions.
