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.