Evidence of meeting #75 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 ontario.
A recording is available from Parliament.
Conservative
The Chair Conservative Merv Tweed
Thank you, and good morning everyone. Welcome to the Standing Committee on Agriculture and Agri-Food, meeting number 75.
Our orders of the day, pursuant to Standing Order 108(2) and the motion adopted by the Committee on Thursday, January 31, 2013, are for the study of the agricultural and agrifood products supply chain (beverage sector).
Joining us today from the Ontario Fruit and Vegetable Growers' Association....
Were you at the convention this past weekend?
Arthur Smith Chief Executive Officer, Ontario Fruit and Vegetable Growers' Association
In Toronto?
Chief Executive Officer, Ontario Fruit and Vegetable Growers' Association
I was there, but not on the weekend. I was there for a couple of—
Conservative
The Chair Conservative Merv Tweed
All right.
We have Arthur Smith, chief executive officer. And joining us by video conference from Penticton, British Columbia, is Hans Buchler, chair of the British Columbia Wine Grape Council.
Welcome. I'm sure you know that you're going to be giving a brief presentation. Then we'll move to questions and answers.
Hans, do you want to start?
Hans Buchler Chair, British Columbia Wine Grape Council
Yes, sure. No problem.
Thanks very much for inviting me to this hearing.
First of all, I'll just give you a brief background on the British Columbia wine and grape industry. Then I'll go into a little bit more detailed analysis of the impact of research on the well-being of the wine and grape sectors.
The British Columbia Wine Grape Council was formed in 2006. It was a reinvention of the former research committee of the B.C. Wine Institute. It's now an independent body established under the British Columbia Farming and Fishing Industries Development Act.
The British Columbia grape and wine sectors have gone through quite substantial changes since 1989, mostly due to the signing of the free trade agreement. Before the free trade agreement, the grape sector was a fairly highly regulated industry. After the free trade agreement it became a fairly integrated, open-market system. That has really benefited the industry to a very large extent. We have moved from pretty low quality bulk wine production to high quality—although a little bit expensive—production of wine. Approximately 60% of the grapes processed into wine now in British Columbia are produced by wineries. We have about, I think, 214 or 215 wineries right now that are processing grapes and, except for one, they are actually also growing their own grapes beyond buying some on the open market.
You might have seen the recent study on the economic contribution of the wine sectors in Canada. In British Columbia, the contribution is estimated at around $2 billion, which, from our point of view, is quite substantial. I think there are about 10,000 jobs that are linked to the wine and grape sectors. There is also a fairly substantial impact on tourism, especially in the Okanagan, but also on the islands and in the lower mainland, to some degree.
Due to the very radical change in 1989 and 1990, the British Columbia grape and wine sector has made a full-out change in attitude to move from quantity production to high quality and environmentally sustainable production. One of the issues we have in this sector is that the cost of production is very high. Typically, if you are buying raw land now that's suitable for grape production in the Okanagan, the land itself costs between $100,000 and $150,000 an acre. That is already a very substantial investment. Planting grapes and investing in a winery is a very large investment. As well, labour costs are fairly high in British Columbia, typically around $13 to $15 an hour, although the minimum wage is around $10.50. We clearly cannot compete in the bulk market wine for a low-priced product. We do focus on higher quality, the high-end, or at least middle-end product in order to be able to remain profitable.
One of the impacts of moving to quality is that we have to reduce yields. In general, industry has embraced this approach quite willingly. If you look at average production, it's between three-and-a-half to four tonnes to the acre in British Columbia, which is probably quite a bit below the global average. This is, to some degree, necessary because of the climatic challenges we face. In order to make that transition to high quality and environmental sustainability, research has played a critical role. Since the late 1990s, we have been very involved in research, mostly through the Summerland research station—the federal Pacific Agri-Food Research Centre in Summerland—and also lately through some projects at various universities.
Our partnership with the Summerland research station has proven to be very beneficial. We have a continuous research project going on there. All the researchers involved in the grape and wine research understand the direction that the industry is going in and are very supportive of this.
To give a few examples, we work quite a bit on novel approaches to pest and disease control. We are using things like vegetation management for insect control. To some degree there are a few success stories that have really changed the approach that growers are taking to the practice of viticulture. To some degree that also applies to wine research. In wine research the focus is very much on how to improve quality. But much of the wine research in the end also links back to the origin of the product, the grape. Most of the winemakers really believe the quality of the wine depends almost entirely on the quality of the grape.
In the last few years under Growing Forward 1 we have had a fairly large research project called the developing innovative agriculture products program. That was very beneficial for our industry. We have just applied for funding to the follow-up program to this, under Growing Forward 2, which is the agri-innovation program. We really like these programs because matching criteria are very generous from our point of view. If there is one criticism I have it's that these are five-year programs that are based on a first-come, first-served approach. If you miss the first run through the track, so to say, you might be out of luck for the coming five years.
Before Growing Forward 1 we were using the matching investment initiative program through the Summerland research station. It had its flaws, but one of the positive approaches on this was that one could apply on a yearly basis for funding. Eventually, it might be beneficial to return to a similar approach on Growing Forward 3.
I mentioned that we also do research through academic institutions, and to some degree that has worked out quite well. Most of the research we do through universities is ad hoc, very specific projects. So far we have not really been able to develop an ongoing program, a research program relationship with our academic institutions.
Things are changing, and maybe this will improve over time. But I would have to say that for us, the federally funded research station is really the best option we have, mostly, as I mentioned, because of the continuity of the research. That is really critical. You can build on past accomplishments instead of always trying to reinvent the wheel and starting from scratch. So it is beneficial to us, but I think it is also more efficient in terms of the spending of the research dollars, because you're not going back, re-evaluating, and revalidating past data that has already been collected.
I'll just very briefly touch on some of the future challenges. Because the B.C. wine and grape sector is relatively successful, we do see a lot of transition from the tree fruit industry to grapes. This has caused a little bit of a problem, because production has increased quite dramatically over the past few years. We now have over 10,000 acres in the ground, and every year there are close to 1,000 acres coming in.
This causes problems on two fronts. The wineries are working hard at catching up in the expanding markets. In British Columbia, I wouldn't say the market is saturated, but I don't think there is a lot of growth left in it. We've expanded our markets into Alberta and we are trying to expand into the other prairie provinces. We hope that eventually we'll get into central Canada.
A very small amount of product is being exported. These are more niche markets, really. I don't think that we will, in the long run, develop a very large export market. For one thing, we do not produce enough product to put a lot of dollars behind export market development, plus our wines are relatively expensive. Typically, in the export market cheaper wines do really well.
In terms of volume and price points sold in British Columbia, the B.C. VQA in the British Columbia market covers almost 19% of the consumption of wine by value. In volume, this is 13.3%, so you can see that there is quite a bit of a discrepancy toward the average.
In B.C, the “Cellared in Canada” product line is similar to the one in Ontario, except that in B.C. the content is not mandated, so many of these products do not actually contain B.C. grapes. The value in the B.C. marketplace of that segment is 24%, and the volume is almost 37%, so there is a really huge difference in pricing between these two segments.
We really do not see how we could possibly compete in the low-price category. It is simply not feasible with the cost of production and the size of the industry.
Some of the challenges we are facing are related to climate. These last three years, including this year, we have had late-starting springs and very late falls, which is sort of a godsend and has helped us along quite a bit, although there is a bit of uncertainty. We are really on the very edge, climatically speaking, of where growing grapes is feasible.
One of the advantages to this is that quality parameters are very good in years where everything goes right, but there is the odd year where yields drop substantially and quality doesn't quite reach the expected values.
Other challenges relate to water. We are in a very dry, semi-arid climate in the Okanagan, and there is more and more competition for a very limited amount of water, although the grape sector is very good at efficiently using water. We use a lot less than the actual evapotranspiration, so environmentally speaking, we are making a lot of progress, and we are planning to sell this as a value to our product in the marketplace eventually.
Chair, British Columbia Wine Grape Council
Just to finish, our options are to build more and more consumer loyalty, based on the bylaw codes of B.C. or the Canadian product approach. We are hoping to continue our research efforts to support the ever-increasing demand for higher quality. Also, there is always a changing consumer attitude regarding what they would like to see in the marketplace.
That pretty much concludes my initial remarks. If you have any questions, I'm quite happy to answer.
Conservative
The Chair Conservative Merv Tweed
Thank you very much.
We'll go to Mr. Smith for his presentation, and then we'll move to questions.
Chief Executive Officer, Ontario Fruit and Vegetable Growers' Association
Good morning and thank you very much for the invitation.
My name is Art Smith. I'm the CEO of the Ontario Fruit and Vegetable Growers' Association, and we are one of Canada's oldest farm organizations, at somewhere over 150 years. I think this is our 155th year.
We represent about 7,500 fruit and vegetable producers in the province. Our sector creates and supports about 30,000 or more arm's-length on-farm jobs, and another 8,000 or so in the food processing sector specific to fruits and vegetables.
In addition, in Ontario—you'll see this in my brief—we are very, very diverse as a grower sector. We produce over 125 different crops, some for processing, some mostly for fresh, and of that, Norfolk county is the most diverse and is the largest producer of many crops, such as sour cherries, asparagus, squash, strawberries, etc.
At your invitation, I'm here today to talk about the issues facing the fruit-based beverage industry in Canada, and I can assure you the issues are not unique just to this sector.
The Canadian juice industry faces a very competitive environment. This is due to the expanding global fruit production, consolidation of the manufacturing and retail sectors, more stringent bio-requirements, and increased foreign competition. There are also challenges stemming from high production costs and competition from other drink categories, such as sports and energy drinks.
The last two decades have been marked by a decline in the number of juice processors in Canada. Our sole processor of juice grapes closed its operations in the late 2000s, leaving no market for Concord and Niagara juice grapes. Tomato producers used to have four large juice processors in the province and now have only one. Ontario apple growers have been reduced from having six significant juice processors to only one.
Before 1980 there were 30,000 acres of apples grown in Ontario, with 25% of those destined for the juice market. Ontario growers also shipped juice apples to markets in neighbouring Quebec and New York State. Today there are approximately 16,000 acres of apples remaining in Ontario and the juice market is one for low-value products only that do not meet the fresh market standards.
The average price for juice apples is approximately $110 per tonne, and much of the juice that we get in Canada today is shipped from China. Many tomatoes continue to be grown specifically for juice at an average price of approximately $105 a tonne. It is, however, a stagnant market.
Red Concord and white Niagara juice grapes have all but disappeared from Ontario due to the loss of the only processor. At its peak, grape juice production represented over $6.5 million in annual farm gate sales. As well, farmers incurred costs for approximately an additional $12 million to physically remove the grapevines as a direct result of having lost that processor.
On the alcoholic fruit-based beverage front, Ontario's industry struggles with distribution and labelling issues. The removal of protections for domestic grape production through the introduction of the Canada-U.S. free trade agreement brought significant changes to the Ontario grape industry. Wine grape production in the province declined—it has since rebuilt—leading to the removal of approximately half of the wine grapes in the province in the early 1990s.
Prior to 1990, “Product of Canada” wine required a minimum of 70% domestically grown grapes. After the free trade agreement was implemented, a short-term adjustment was made so that as little as 30% Canadian grown grapes could be used and the wine could still be classified as a “`Product of Canada”. By 2000, following a decade of transition, it was meant to revert to its original standard of 70% minimum Canadian content, and a maximum 30% foreign. This did not happen.
The “Cellared in Canada” category today is an official category and foreign wine content in this category, at least in Ontario, has ranged anywhere from 70% to 99%. Unfortunately, the use of the label is grossly misleading to consumers who see the terminology and assume they are buying Canadian wine, when the majority of their product was only blended here. This remains a contentious issue in the Ontario grape and wine industry.
It is worth noting that Canada is the only wine producing country to allow wine with less than 75% domestic content be considered a product of Canada.
Outside the several designated viticulture areas in Ontario, farmers are limited to fruit wine production and there are restrictions regarding how much of the total grape production on their farms can be used in alcoholic beverage production.
In addition, distribution is a key problem for fruit wineries. Fruit wines are not distributed through the LCBO, which controls the sale of wine and spirits in Ontario and is one of the largest single purchasers of beverage alcohol in the world. Farmers are also not allowed to sell their fruit wines or other alcoholic fruit beverages, like cider, at farmers' markets, so their only outlet is from their licensed facility or premise.
Like many western countries, Canada is a high-cost producer. Over time, the spread between the production costs and the price of the finished product has increased significantly and has eaten away at the juice market.
Processors, if they are still in business, are importing juice concentrate from countries that can produce it at a far lower cost than here in Canada. This is typically based on fewer regulations, lower labour costs, as well as yield in those supply countries. As well, buying concentrate eliminates the need to pay for shipping water as a principal ingredient in juice and containers such as cans or glass.
Domestic fruit and vegetable production profitability has also decreased. The loss of this domestic juice market has meant lost revenue to farmers as there is no alternate market for less than perfect produce.
As I mentioned earlier, Canadian fruit and vegetables and products derived from them are being priced out of the market.
This is partially due to today’s global marketplace, where prices for fruit and vegetables are set on the world market based on the lowest cost. This makes Canadian farmers price takers and not price setters. It is also partly attributable to government regulations in areas such as labour, food safety, and the environment, which have downloaded additional costs onto Ontario farmers, and this would hold true across Canada, costs which are not recoverable from the marketplace.
The only growth sector is the niche or the specialty fruit and vegetable juice blends that we see in the marketplace. These are higher-priced specialty drinks, such as those produced by Arthur's in Toronto. While they are blended and bottled in Canada, they are primarily a foreign product. I am referring here specifically to the non-alcoholic.
Looking to the future, there are ways the government could assist in rejuvenating the fruit-based drink industry and, as I said, this would also help other sectors as well.
Changing the Canadian content of the main fruit ingredient in fruit-based beverages is one such example. In the past, “made in Canada” claims could be made as long as 51% of the total product costs were incurred here in Canada. This resulted in many products being labelled as Canadian when they contained mostly foreign ingredients. This was changed around 2008.
The new “Product of Canada” labelling guidelines introduced several years ago require 98% of the product’s ingredients to be of Canadian origin. That sounds good in terms of that product, but many food products require not only fruit and vegetable ingredients that can be grown here, but also ingredients like sugar and spices that cannot. This was deemed to unfairly exclude too many legitimate Canadian food products. To give you an example, if you had a can of peaches and it contained all Canadian-grown peaches but had foreign sugar in it because we don't grow sugar here, that wouldn't meet the 98% rule. That would disqualify it as a product of Canada.
A level somewhere between the two extremes would provide new opportunities to farmers and food processors to take advantage of the growing demand for local food products. A change as simple as requiring 90% of the named main fruit or vegetable ingredients in a beverage to be grown in Canada to qualify as a product of Canada would give consumers a clearer understanding to make an informed choice.
Revising labelling laws for Canadian wines would make it easier for consumers to understand what they are buying. It is easy for people who are not familiar with the industry to misinterpret “Cellared in Canada” and equate it with “Product of Canada”, resulting in assumptions that they're buying locally grown product when in fact they are not.
We also recommend maintaining the standard containers act. The standard containers act allows goods to move across borders only if they are in a standard container. The standard container is what CFIA regulates and classifies it as.
Removing this act would allow foreign product to come into Canada more easily than it currently does, creating further pressure and increased competition for processors. Keeping the act would keep Canadian processors in business longer and protect producers and small Canadian processors as well. As an example of this, the Americans had typically had different sized containers than we have had, and the cost of adapting and changing processing lines to our processors would be very large. The concern that a number have expressed is that the international—the head plant in the States, for example—will simply say they can now move that product in here, that they don't need to have two processing plants. It could cost them that.
We recommend harmonization of crop protection materials. Canadian farmers currently pay 56% more for the same products farmers in the United States are using, even when we're allowed to use them here. That is the difference on the U.S.-Canadian side. Harmonization of crop protection products would mean having the same products at the same cost, available on both sides of the border. This would lower production costs and put Canadian farmers on a more equal playing field with those in the U.S.
We recommend the establishment of a PACA-like trust. Some of you may have heard of this. In the United States, it is the Perishable Agricultural Commodities Act, or PACA. It licenses buyers of produce, whether for fresh or processing markets, to ensure that those who sell produce are paid in a timely fashion. We have been lobbying for the establishment of a made in Canada PACA-like program that extends the same benefits to the Canadian produce industry as in the U.S. Timely payment guarantees by PACA would provide additional stability and security to the fruit and vegetable sector, allowing both producers and processors to have confidence in the business process.
I'd like to conclude by saying that the local food movement continues to gain strength in Ontario and across all of Canada as consumers look for ways to reduce their environmental footprint and support local farmers by buying homegrown fruits, vegetables, green meat, and dairy products, etc.
Our climate makes it challenging to enjoy most Ontario produce on a year-round basis without it being processed in some way. As well, in addition to crops grown specifically for processing, food and juice processors represent a valuable market for fruits and vegetables that don't quite meet the high standards of perfection consumers and retailers in the fresh market have come to expect. As we have experienced over the past two decades, when those markets disappear, jobs are lost, farmers must alter what they grow—which can also affect jobs—and consumers lose yet another chance to buy locally grown produce.
Thank you for your attention, and I would welcome any questions at this point.
NDP
Malcolm Allen NDP Welland, ON
Thank you, Chair, and thank you to you both for being with us today.
I was interested in your comments, Mr. Smith. Obviously when you're referring to the grape juice industry, my neck of the woods in the Niagara Peninsula was a place hard hit by that. In fact, I know the Wiley brothers really well, who suffered a significant impact when that happened to them as well.
We know what happened when Cadbury Schweppes packed up and moved and when CanGro also left, what that meant to the fruit industry—primarily in the peninsula—when the last processor of fruits east of the Rocky Mountains decided to leave.
There was a two-year deal, if I remember correctly, for those who grew Concords and Niagaras. They could take them across to the U.S., but that ended. There was no subsequent deal, if memory serves me correctly. And we're now down to.... Basically, if you want Canadian-grown grape juice, you go to a farmer's market to buy it from an individual farmer who still may have a few acres left over and who didn't get into the pull-out program, which was few and far between.
I'm interested in this because of the processing that we've seen leave the peninsula and what that's meant for clingstone peaches, which got hauled out, and Niagaras and Concords, which got hauled out, where you've got a farmer who goes back into something else. That doesn't happen overnight. As you and I are aware, if you replant, you're talking years before there's a yield.
I want to have you talk to us about the importance of the processor. What does it mean for local producers? What impact do the changes to the container sizes have on those processors?
What it ultimately means is that it daisy chains all the way back down to the primary producer. What I heard in Southwestern Ontario two weeks ago was that this industry would be decimated, that it would be the fruit and veg industry down that way that would be decimated, if these container sizes change.
Is there truth in that, or is this somebody just saying it because they're nervous? Is it true?
Chief Executive Officer, Ontario Fruit and Vegetable Growers' Association
No, it's absolutely true. Typically there's been a difference between Canadian product and American product in terms of retail container sizes. We also have containers for raw products. That standard container was put in place to really protect growers from low-priced product being dumped into the Canadian market. Now that is currently being threatened as well.
As far as the processors are concerned, if you're a multinational and you have a plant in Ohio and one in Leamington, that's a no-brainer. You just supply the Canadian market from the U.S. side. So they're very concerned about that, because they're not going to retool those shops in Canada at huge expense unless there is a profitability factor, but if you're a multinational, that's not going to happen.
For a smaller processor, we do have higher costs of production in this country, and we have to recognize that. If it's now going to come out of the U.S. at a reduced price, the competition for the Canadian processor is that much greater, and it's that much more difficult for them to stay in business.
NDP
Malcolm Allen NDP Welland, ON
Mr. Buchler, do you see any issue with changes to container size for the B.C. wine industry? I know here in Ontario they've made it very clear that they see a significant impact on them. Would there be an impact on the B.C. industry?
Chair, British Columbia Wine Grape Council
This is hard to say. There are a few wineries that are actually calling for changes in container regulation under the VQA system, who would like to put a bag in a box and have other more environmentally friendly containers on the market for VQA product.
I think this is not an enormous issue right now. Eventually, things will be able to be negotiated.
NDP
Malcolm Allen NDP Welland, ON
Fair enough. The industry in B.C. is slightly different from the one in Ontario, because we see bag-in-box here now in Ontario. I recognize it's a provincial issue.
Mr. Smith.
Chief Executive Officer, Ontario Fruit and Vegetable Growers' Association
It is a different issue. In Ontario, that's a VQA standard. It's not necessarily a legislated standard. So when you see bag-in-box, which we do have—and, Hans, you could disagree with me, because it may be different in B.C.—that was the regulation, if you will, of VQA Ontario. It was like the cork in the bottle versus a twist cap.
NDP
Malcolm Allen NDP Welland, ON
The changes in the wine industry, as Mr. Buchler knows, and I know Mr. Smith knows, are quite significant—whether we need a cork or whether we're going to use a screw-top or whether we can put it in a bag. There's the whole issue about how we like things to be done based on historical pieces that go on.
NDP
Conservative
Bob Zimmer Conservative Prince George—Peace River, BC
Thanks, gentlemen, for appearing at our committee today.
Mr. Buchler, I'm from northern B.C. We have a lot of agriculture up there, but we don't grow a lot of grapes, I will say. It's nice to hear you mention some positives about the research programs such as Growing Forward 2 and how they positively affect the industry.
I did hear concerns previously from more Ontario growers and vintners about limited shelf space at the local wine store. I know you're a grape guy, but I'm sure you said a lot of the grape growers produce wine too. Have you seen this as an issue across Canada, or is it just an Ontario issue? Have you seen this in B.C. as well? Can you comment on that?
Chair, British Columbia Wine Grape Council
Thank you.
B.C. is a little bit different. I think in the B.C. liquor distribution system, in the LDB stores, the B.C. VQA and non-VQA wines do get a fairly substantial amount of shelf space. We also have, I think, about 30 VQA-specific stores in B.C. that sell only VQA wines, no imports at all. That system was established with the B.C. Wine Institute. It has been very beneficial for the distribution of VQA wines.
We have a growing number of private liquor distribution outlets that maybe are in competition with the B.C. Liquor Distribution Branch, but many of them stock very large amounts of B.C. products. It depends where you are. Maybe in northern B.C. it might be a little bit different, but in southern mainland B.C., you do see many private liquor outlets with a very good selection of our local products.
Conservative
Bob Zimmer Conservative Prince George—Peace River, BC
Thanks for that.
We like what the industry is doing. The legislation of a colleague of mine, Dan Albas, allowing for the interprovincial transport of wines was recently passed. It has been a definite positive. But what are some of the risks to the industry that you see—and this is why we have you here—from your B.C. perspective? We see that it's doing well, but we want to keep it doing well. What do you see as some possible things that we can do to help that continue, and some risks?
Chair, British Columbia Wine Grape Council
Thanks. Certainly that legislation was a great step forward. The problem is in the implementation. The provinces seem to be relatively slow in jumping on board. There are still quite a few barriers in place.
The market expansion in Alberta is working fairly well. There's a fairly good relationship between B.C. and Alberta in this regard. But in terms of other provinces, I think this is going to take quite a bit of work. I'm not sure if it's just a matter of time. It might just take time and fairly intensive negotiations to come to some agreements. But it's not really all that easy to ship B.C. wine into some of the other prairie provinces, not to mention Quebec and Ontario. Eventually, I hope this will change.
One aspect that might actually be beneficial in the future would be an expansion of direct delivery from B.C. into other provinces to act directly to the consumer. I'm not sure how easy it will be to implement this, but it would be great progress. We are facing, potentially, issues of overproduction if we are not able to expand our market within Canada.