Agriculture Committee on April 25th, 2013

[Jan Westcott]

Yes, absolutely. It seems to take government—not this government in particular, but governments everywhere—a long time to get abreast of changes in the marketplace. You're correct in that many of the rules that impact our business are old, and it takes a great deal of effort to change.

To be fair, many of them are well founded, but the world has changed, right? Think of telecommunications. The rules around communications today are not the same rules we had in 1940, yet we're still bound by many of the same rules. Certainly, in terms of tax thinking, we are at a hundred years ago. I tend to think of the worst ones as being kind of like accidents of history. If we were doing it today, we absolutely wouldn't do it, because it makes no sense, and it's counterproductive.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

What is the cost to your industry?

[Jan Westcott]

As I said, I would say that we're more successful in other countries than we are in our own country. We have had some fortunate history on our side. Canadian whisky really was introduced to Americans for the first time during the American Civil War. All their distilleries were closed and we were the suppliers, so Americans started drinking it. Prohibition provided another boost for Canadian whisky and introduced it to a lot of people.

That's not likely going to happen in India. That's not likely going to happen in China. We need a robust domestic market that's generating enough return on investment such that we can spend that money to develop those new markets, because the U.S., as I said, is a mature market.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

Your industry has been very successful, which is something that we as Canadians should be very proud of in regard to the success of your industry in going into other markets as you've had access, like the United States market.

What is the cost of your ask of government?

[Jan Westcott]

I would say that it's about $60 million. Our excise duties are $11.69 per proof litre—so that's a litre of actual alcohol. That went up by 60¢ in 2006. We're asking the government to reduce that by a dollar. I mentioned that a glass of wine, a bottle of beer, and a mixed drink with an ounce and a half of spirits at 40% all contain the same amount of alcohol. That would take the 20¢ of excise down to about 18.5¢, so it's a pretty modest reduction.

On that revenue coming back in, we've committed to the government publicly that we would spend all of that money in reinvesting in business in Canada, behind Canadian brands. We need to innovate and create new products. We need to make sure that our plants are efficient and environmentally sound. What is critically important is that we need to spend money going into new foreign markets that are being opened up by Canada to make trade more possible.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

In terms of jobs, would this be an increase in Canadian jobs?

[Jan Westcott]

Well, as I said, we're exporting about $500-million worth of product from Canada right now. I think Alberta alone does about $50 million. If you could grow that even by 10%, which is a pretty modest target, if we could take that to $550 million, that's a lot more material that we buy from the farmers, that's a lot more throughput in our plants, more bottles that we buy, and on and on. So, absolutely, it's more jobs.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

How much time do I have, Mr. Chair?

[The Chair, Conservative, Merv Tweed]

You have no time left. Thank you.

Ms. Raynault, go ahead.

[Francine Raynault, NDP, Joliette, QC]

Thank you, Mr. Chair. I will share my floor time with my colleague.

My question is for the Spirits Canada representatives .

Your industry lost about 3% of its revenue annually between 2001 and 2010. In your brief, you blame taxes, energy costs and exchange rates.

Do you think the trend towards other alcoholic beverages has put spirits at a competitive disadvantage?

[Jan Westcott]

Absolutely. Let me say right from the start that we believe in competition. Competition makes things better. It serves consumers well. It stimulates businesses to be innovative. It pushes people to try to lower costs. It has a very positive effect on the business. When government comes in and does this over here or that over there, it disrupts that ability to compete.

I worked in the wine business for seven years. I ran the beer industry association for 11 years. We all know that we compete with each other for adult consumption occasions. The old days, when a person drank only one thing, are gone. People today, if they drink—some people don't, and fair enough—they drink everything. It depends on where you are, what's available, what the circumstances are. So if you go to a ball game, I'm likely to have a beer. If I'm socializing at a reception, I may have a glass of wine. I might have a cocktail. If I'm having dinner with my wife, we're probably drinking wine. People drink everything. There has to be an ability for each of us to compete fairly on a level playing field for that business.

[Francine Raynault, NDP, Joliette, QC]

How do you think the government could help you increase consumer demand for your products?

[Jan Westcott]

One of the things that we've seen in the last 15 years is that the world has changed, whether because of health reasons or.... People want to be more fit and are just more aware that if they overconsume it has undesirable consequences. We want people to use our products properly. We invest a lot of money. We invest a lot of marketing dollars to attract you to our products and to get you to be a repeat consumer. If I have any one of you as my consumer, if you turn around and use my product improperly—you drink too much, or you binge drink, or you have way too many drinks on Saturday night, and you injure yourself or you hurt yourself or you hurt somebody else—that makes me a stupid businessman because I've just blown my investment. I'd like to think we're not stupid. I think one of the things we're seeing is consumption going up modestly, but the population's been growing. What really has been happening is that people are saying, “Okay, I'm going to drink, but I'm not going to drink as much. I'm going to drink better product. I want higher quality. I want the wine that I'm drinking to be better wine”.

You can't sell whisky in Canada unless it's been in a barrel for three years. There's not much three-year whisky left. The consumer's tastes and palate have moved up. If it's not a four- or five- or six-year whisky, the consumer is starting to say, “I'm not going to drink that; there's better stuff out there”. So what we're seeing is modest growth in consumption, but really it's about better quality products. We win because there tends to be more margin opportunity if people value the brand and the product that they're buying more than before.

[Francine Raynault, NDP, Joliette, QC]

Thank you.

[The Chair, Conservative, Merv Tweed]

Ms. Sitsabaiesan.

[Rathika Sitsabaiesan, NDP, Scarborough—Rouge River, ON]

I agree with you that consumers, in general, are maturing in Canada. You mentioned earlier, Mr. Westcott, that you need a strong, healthy home industry in order to be able to sustain an international market, and then to be able to grow our market share. With the amount of excise tax on the spirits industry...if I'm reading this correctly, the spirits industry represents less than 30% of the alcohol beverage market share, but brings in 45% of all excise revenue.

I think in response to Mr. Storseth's question you alluded to a one-dollar reduction in your excise tax. Have you crunched any numbers as to how much that dollar value is? And how would that transform into numbers with respect to jobs or increases in purchases from farmers?

[Jan Westcott]

One thing we do know is that as we look out around the world, Canada has the lowest average gross margins available to people who make spirits. When we sell our product to one of the liquor boards, what we get back is about 18¢ of the retail dollar. For everything we do, from buying the grain, to making it, to aging it, to marketing it, everything, we get 18¢.

In Europe, where we have significant competitors in the Scotch whisky industry and the Irish whisky industry, their gross margins are around 30%. In America, where they make bourbon, and Tennessee whisky and straight whiskies, their margins are even a little bit higher. Their gross margins are about 32%.

We're a global industry. The spirits industry has been a global industry since the 1960s. The beer industry in Canada is global industry today, with the three large brewers. The wine industry is a global business. The largest winery in Canada, Vincor, is owned by one of my member companies. We're all global players.

You're sitting at the table, and you have the Scotch whisky guy from a company, and you have the Irish guy from the same company, and you have the Canadian whisky guy, and the bourbon guy, and you're trying to allocate where you're going to invest to grow your business. Canada is losing right now because the return on that investment is just not there. It makes more sense, if you're that company, to put that money behind Scotch whisky, or Irish whisky, or bourbon, than it does to put in behind Canadian whisky. We need to fix that.

One of the biggest hurdles we're facing is the ability to attract investment from the global community behind Canadian whisky. We're so lucky. We're a small country that has one of the four uniquely recognized whiskies in the world, but we have our hands tied behind our back, and we need to fix that.

[Rathika Sitsabaiesan, NDP, Scarborough—Rouge River, ON]

Is that burden because of the excise duty, or because of the change not coming with legislation with respect to the change in the dollar value?

[Jan Westcott]

It has a whole bunch of aspects, but I would say that one of the most critical is the excise tax. As I said, we're all becoming smarter and more sophisticated. The days when somebody looked at a bottle of our product and failed to recognize that the alcohol in there was the same as the alcohol in wine or the same as alcohol in beer, those are long gone. People don't drink out of our bottles. They have it in a mixed drink, usually with one-and-a-half ounces—you'd be lucky in most bars today if they get one-and-a-half ounces. We're more sophisticated, and the tax regime has to reflect that.

As I said, the Government of Canada made a decision in 2006 to make an investment in the wine industry, and they made a similar investment in the beer industry. What we're saying is to please give us some consideration.

We've seen the successes in the wine business, clearly. I came out of that business. It's fair to say that it's on fire. We need a little bit of help, and it's at a critical time, to be able to ignite the same kind of activity, economically, around spirits.

We're all in a similar business. Our base happens to be grain as opposed to grapes, but we're virtually doing similar things.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Richards, last comment.

[Blake Richards, Conservative, Wild Rose, AB]

Thank you.

Most of my questions are for you, Mr. Westcott, but I'm going to start with you, Ms. George. I have one question I want to ask you.

I know that you were very clear in your opening remarks about your support for the private member's bill that my Conservative colleague, Dan Albas, passed last year—of course, that was following up on the good work of my other colleague Ron Cannan, who was the initiator—and how important that change was for you. You were also very clear about your disappointment in the slowness of some provinces to allow that bill to really have its full effect. My home province of Alberta was the one you singled out. Certainly I've heard that concern before. As a lover of Canadian wines myself, I wish you very good luck in your quest to lobby the provinces to come on board and allow the full effect of that to take place.

I want to ask quickly if there were any other specific regulation, federally, that you could point to that you might see.... As a Conservative, I'm always looking at ways to reduce regulatory barriers and burdens. Is there one specific example of a regulatory barrier or burden that you think we could look at that would help the wine industry in Canada to continue to grow?

[Shirley-Ann George]

I am perhaps not the right person to answer that question, because I don't represent the industry and don't have the broader perspective.

I do believe, as I mentioned, that if Parliament were to even consider looking again at the IILA, for example.... There are a lot of small breweries and specialty spirit makers who would like to be able to ship their products across provincial borders as well. So if you were to consider opening it beyond wine and at same time were to remove that loophole, that would make a real difference for small Canadian wineries.

[Blake Richards, Conservative, Wild Rose, AB]

Okay, I appreciate that.

Mr. Westcott, first, I have just a couple of background questions. For spirits, what percentage of our production here in Canada is for our domestic market and what percentage is exported? As well, can you tell me the rough value of those?

[Jan Westcott]

About 70% of what we make leaves the country. So the domestic business is 30%. We actually produce in four provinces: this is produced in Alberta; this is produced in Manitoba; these three are produced in Ontario; and this is produced in Quebec.

[Blake Richards, Conservative, Wild Rose, AB]

What are some of the key markets? Obviously, the U.S. would be one of them, but what are some of the key markets we're exporting to?