Agriculture Committee on Nov. 5th, 2013

[The Chair, Conservative, Bev Shipley]

I'd like to call to order meeting three of the Standing Committee on Agriculture and Agri-Food.

According to our agenda, we have three witnesses today. They are now in front of us. Their appearance will take us right through to about 5:10 p.m. Then we will have some committee business before we wrap things up for the day.

I want to welcome our first group of witnesses as we do a study on the Canada-EU trade agreement, CETA.

From the Canadian Meat Council, we have James Laws, executive director; from the Canadian Cattlemen's Association, we have the director of government and international relations, John Masswohl; and from the Canadian Agri-Food Trade Alliance, we have the executive director, Kathleen Sullivan.

I welcome all of you to the committee. The program has been that you have ten minutes. Then there will be a round of questions from the committee members, at five minutes each.

Mr. Laws, I'd ask if you would be interested in starting. Or if you've made other arrangements....

What gentlemen in agriculture, who will always let a lady go first.

Kathleen.

[Kathleen Sullivan, Executive Director, Canadian Agri-Food Trade Alliance]

Thank you very much, and good afternoon.

I appreciate the opportunity to speak to you today about the impact of the Canada-EU free trade agreement on Canada's agri-food sector.

CAFTA, as many of you know, is a coalition of national and regional producer groups and industry associations that support an open and transparent international trading environment for our agri-food products. Collectively, CAFTA members, which include the Canadian Meat Council and the Canadian Cattlemen's Association, export about 80% of Canada's annual agri-food exports.

On October 18 of this year Prime Minister Harper and European Commission president Barroso announced that they had reached, after five years, an agreement in principle on the CETA. This is welcome news to Canada's agri-food exporters.

The Canada-EU CETA, when implemented, will be Canada's most significant free trade initiative since the NAFTA. The CETA is the broadest trade negotiation Canada has ever undertaken. It covers a significant range of issues, including tariffs, non-tariff barriers, services and investment, financial services, government procurement, and much more. As well, for the first time in the history of Canada's trade deals, the CETA covers issues that fall within the jurisdiction of provincial governments, leading to Canada's 13 provinces and territories having played a significant and important role during the negotiation process.

The CETA offers tremendous potential for Canadian agriculture producers and food processors. Today Canada ships just $2.4 billion in agriculture and food products to the EU's 28 member states. While $2.4 billion may seem like a big number, given Canada's expertise and standing in agriculture and food production and given the EU's standing, with 500 million people, as one of the largest consumer markets in the world, Canada's exports really should be much higher.

We believe the CETA, when completely implemented, could result in $1.5 billion in new Canadian agri-food exports to the EU. This will include $600 million in new beef exports, $400 million in new pork exports, $100 million in grains and oilseeds, $100 million in sugar-containing products, and a further $300 million in processed foods, fruits and vegetables, and biofuels products.

When it is implemented the CETA will eliminate immediately tariffs on almost 94% of Canada's agri-food exports to the EU, and over time will eliminate tariffs on virtually all products except beef and pork. For some grain products where tariffs are not immediately eliminated, they will be phased out over a period of about seven years, and in the case of beef and pork, which are particularly sensitive to the EU, Canada will be granted duty-free import quotas that provide Canada with preferential access over its competitors.

Contributing to the CETA's value, the negotiations have gone beyond tariffs, taking on a wide range of non-tariff issues critical to Canada's agriculture and food exporters. The CETA has included discussion in areas such as technical barriers to trade, sanitary and phytosanitary issues, regulatory cooperation, and export subsidies. These issues can be the most significant barriers facing agriculture and food exporters today, and until now have significantly impacted exports of Canadian agri-food products into the European market.

The CETA has established mechanisms that will promote cooperation and discussion on regulatory issues and non-tariff barriers that impede trade. Through the CETA, Canada and the EU have also committed to work together to advance a number of non-tariff issues, including approval of meat processing facilities and timely approval of biotech traits. These and other issues still need to be more fully resolved before the CETA is implemented, but we are confident that the Canadian government is committed to doing that.

CAFTA and its members have worked very hard to encourage the federal and provincial governments to negotiate a trade deal that benefits Canada's agri-food sectors. We believe the CETA is that deal. The CETA secures real and substantial access to one of the world's few billion-dollar export markets, and it does so ahead of our major competitors.

Through the CETA, Canada has confirmed its support for farmers and for food processors, and Canada has let the world know that we are serious about trade.

There are many details to be sorted out before the CETA is signed, and CAFTA will continue to support the federal and provincial governments as they work on these and bring this deal to a close.

Thank you very much.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Ms. Sullivan.

I would ask Mr. Masswohl to present next.

[John Masswohl, Director, Government and International Relations, Canadian Cattlemen's Association]

Thank you, Mr. Chairman, for the opportunity to appear here before you again. We've waited a long time to be able to talk with you about a successful Canada-Europe trade agreement. I can't tell you how pleased we are to be here today talking about having a successful agreement. We're very much supportive of it.

Of course, the Canadian Cattlemen's Association hasn't only been waiting passively for the CETA to be achieved. We have been actively engaged throughout the negotiations. We have engaged closely with the Canadian negotiators to provide advice and feedback during the negotiations. We have also met frequently with the EU negotiators and with representatives of the member states. We've also met with members of the European Parliament. We've made those efforts both here in Canada and in Brussels.

Last, but also very important, the Canadian Cattlemen's Association has also engaged with cattle producer groups in Europe. We've travelled to France, Spain, England, and Ireland, some of the main cattle-producing countries in Europe, to reach out to our counterparts in those countries, establish relationships with them, and engage in dialogue.

We feel that this has really been very helpful in overcoming some sensitivities that might have otherwise prevented us from reaching a successful conclusion for the beef sector. We are going to continue to work hard to build on these relationships as we move forward now into the implementation phase of the CETA.

But really what did we get in the agreement? Of course, I assume you all have the document that was tabled in Parliament, and at the bottom of page 9 is the summary of what was achieved in the beef agreement. As far as we're concerned, that does provide an accurate account of what our understanding of the agreement is.

With respect to beef products, there are four quotas. First of all, there is 35,000 tonnes carcass weight that will be duty-free fresh beef. The second is 15,000 tonnes carcass weight duty-free frozen beef. Those first two are new quotas that will be for any grade of beef, including veal, and available for Canada only.

The third is the existing Hilton quota that is for high grading beef, and that currently has a 20% rate of duty that Canada shares with the United States. On day one of the CETA, when it's implemented, the duty rate for Canada will drop to 0%, while U.S. beef will continue to pay the 20% duty. So that quota, the Hilton quota, is 11,500 tonnes product weight or 14,950 tonnes carcass weight. I'm going to leave it to one of you to ask me what the difference between carcass and product weight is.

The fourth is also an existing quota that was provided a few years ago as compensation for the hormone dispute. It currently provides 48,200 tonnes product weight of duty-free access for high-quality beef. That quota is available on a most-favoured nation basis, MFN, meaning that it's shared amongst several countries. During the CETA negotiations, Canada agreed to take its 3,200 tonnes out of this MFN quota and in return we secured a higher quantity in the new quota just for Canada. As a result, the current 48,200 MFN quantity will drop to 45,000 tonnes when the CETA is implemented. That's always the trickiest one that I explain to folks.

Also, there are several other products, edible offals, tallow, rendered products, processed beef, hides, and skins that will all gain unlimited duty-free access into the EU under the CETA.

As I said earlier, we were closely consulted on every one of these decisions during the negotiations and we are very pleased with the outcome and strongly support this agreement going forward.

We estimate that fresh beef exports to the EU will be worth approximately $11 per kilo and the frozen approximately $6 per kilo. On that basis we bring the potential value of the CETA to over $600 million for the beef sector.

On previous appearances at this committee, I stressed the importance of dealing with both the tariffs and the technical access barriers.

On the cattle production side, we know that the cattle have to be raised according to the EU protocols. That means no growth-enhancing products, no hormone implants, no beta-agonists. Despite those products being safe and approved for use in Canada, the EU simply refuses to allow them. Fortunately, we feel that the value of the EU beef market is high enough that many Canadian producers will elect to incur the additional cost of raising cattle without those products.

We always said we would be pragmatic about this issue and that if the access was worth our while we would accept that condition. We feel that we received a result that makes it worthwhile. We estimate that Canada would need to produce approximately 500,000 head of cattle annually to meet the access under the EU protocol. Clearly, we don't need every producer to make the decision to raise cattle under the EU protocol, but we feel that enough will.

On the processing side, Jim Laws is going to speak in more detail about the technical issues for the processing sector. I'm going to agree with him in advance that it's vitally important that we complete the work to ensure the beef slaughter facilities and processing facilities across Canada are approved to export to the EU. This is the key to making this agreement work for us. Currently we have only two very small facilities approved to export to the EU, and they're both in Alberta. If you're a cattle producer in Nova Scotia or Ontario and you're already producing cattle in a manner that would be acceptable to the EU, you still need EU-approved facilities in geographic proximity to you in order to access the EU with that beef. By the same token, if you're a large operator in Alberta or Saskatchewan, you're going to need those large processing facilities in High River and Brooks to be able to compete for those EU-eligible animals.

We understand that a one-year deadline was established to resolve those outstanding technical issues. Once those plant approvals are achieved, we can start making better use of the quotas that already exist, the pre-existing quotas that have been underutilized.

This is the natural point to turn it over to Jim.

I'll look forward to your questions afterwards.

[The Chair, Conservative, Bev Shipley]

Thank you, Mr. Masswohl.

I turn it over now to Mr. Law.

[James Laws, Executive Director, Canadian Meat Council]

Good afternoon, everyone.

I'm the executive director of the Canadian Meat Council, based here in Ottawa. Thank you for inviting me here to speak about your study on the Canada-EU Comprehensive Economic and Trade Agreement and the effects it will have on Canadian agriculture.

Canada's meat processing industry adds value to the live animals born and raised on Canadian farms, providing a critical market outlet and supporting the viability of thousands of livestock farmers. With annual sales of $24 billion, beef exports of $1.2 billion, pork exports of $3.2 billion, horsemeat exports of $90 million, bison exports of $5.7 million and 68,500 jobs, the Canadian meat industry is the largest component of this country's food processing sector. We believe that when implemented the CETA will permit a major increase in Canadian meat exports to the European Union.

The 28-country European Union, with a population of 500 million people, is the world's largest import market for agricultural commodities and food. However, a number of consumer-oriented products, including meat, face significant tariff and non-tariff barriers into the EU. We do recognize and greatly appreciate the steadfast and unwavering effort that was invested by Canada's negotiators in their endeavour to ensure a commercially viable outcome for Canada's meat industry. We would ask that the Canadian and European governments move forward quickly and simultaneously on both the ratification of the agreement and the prerequisite resolution of the outstanding technical barriers to trade.

When fully implemented, the agreement provides for duty-free access of 81,000 tonnes of Canadian pork, 65,000 tonnes of Canadian beef and veal, 3,000 tonnes of Canadian bison, and unlimited duty-free access of Canadian horsemeat and Canadian prepared meats into the European Union. In return, the European Union will retain duty-free unlimited access to the Canadian market for pork, they will obtain duty-free unlimited access for beef into Canada, and receive reciprocal unlimited duty-free access for prepared red meat products covered under chapters 16 and 19 of the Customs Tariff — Schedule. In addition to the agreement on import quotas and tariffs, the CETA outcomes include a critically vital commitment to resolve technical barriers.

While our initial hope for completely open, duty-free, and unlimited trade in meat products between Canada and the EU was not achieved, the CETA does represent a very substantive, valuable, and most welcome movement in that direction. Compared to an average value of only $54 million of meat exports to the EU during the past three years, the results of the CETA negotiations will offer export opportunities, with a potential annual sales value of up to $1 billion for Canadian processors of meat.

Although we have not yet seen the text of the agreement, we understand that it changes the nature of the currently protected trademarked names. Three companies currently own trademarks for meats in Canada: Parma design with the crown, San Daniele, and Szegedi Salami. These companies may lose the exclusive right to use their trademarks and would have to coexist with European meat. We strongly urge the government to address this issue in the context of the final technical discussions of the agreement.

Canadian manufacturers of prepared meats are concerned with the concessions on geographical indications given to the EU and they’re concerned that there may have been no reciprocity in the generic and trademarked geographical indications. We understand, for instance, that Canadian negotiators rejected protection of the Czech term for Budweiser beer because of the conflict with the existing trademark.

It is important for the Canadian meat industry to be informed of the specific wording related to geographical indications before the agreement is finalized. We particularly want to ensure that European-origin products cannot be marketed as superior to existing Canadian products solely by virtue of their European origin. EU exporters should be restricted from predatory marketing that would undermine consumer confidence in Canadian products that for generations have used common descriptors, whether generic or trademarked.

The federal government has committed to monitor impacts of the CETA on Canada's dairy industry and, if needed, provide compensation should a negative impact be observed.

These meat companies may lose their trademarks for products estimated to have an annual retail sales value of over $25 million. However, of greatest importance to us as meat processors is the so-called Exchange of Letters between Canada and the European Union concerning meat issues. In that document, Canada and the European Union share a commitment to the determination of equivalence of their respective sanitary measures and stress the importance of finalizing negotiations to facilitate trade in meat and meat products. Both sides agree to review progress made after one year. For example, the European Food Safety Authority published its opinion in July 2011 that it was safe to use 2% to 5% lactic acid as a beef carcass rinse at temperatures of up to 55 degrees Celsius. It took the European Commission until February 2013 to approve its use. We in North America have been using these lactic acid rinses on beef carcasses, now to control E. coli O157:H7, for many years. Beef processing facilities can't risk turning off their food safety interventions.

Another issue, yet unresolved, is the use of recycled hot water. As an example, the European Food Safety Authority published its opinion three years ago that recycled hot water is, indeed, a suitable decontamination technique under certain conditions. Many meat processing facilities in Canada do recycle and filter their water for reuse for good environmental and energy conserving reasons. We hope that issue will soon be also resolved and approved in Europe.

Finally, only establishments listed by the EU may export edible meat and meat products to the European Union. The product must be kept at all times in an EU-approved establishment in order to maintain its eligibility to be exported to the European Union. And there are several conditions that the EU places on meat establishments that are different from Canada. For instance, wooden pallets may only be used in areas of the establishment where products are fully packaged. The use of wooden pallets in rooms where exposed meat is present must be phased out. Exposed meat must be stored in a separate room from packaged meat, unless stored at different times. And for pork, for instance, skeletal meat must be tested for Trichinella in a certified laboratory, adding great expense to a virtually non-existent problem here in Canada.

That's why we recommended to the House of Commons Standing Committee on Finance, in their pre-budget consultations for 2013, that Canada should create a new five-year, $10-million CETA meat program to help Canada's meat-processing industry comply with the European Union's meat import requirements, which are onerous and prescriptive. A CETA meat program to help Canada's meat-processing industry comply with the European Union's third-country meat directives could be funded through Agriculture Canada's Growing Forward 2 program.

That, indeed, would really help us to be ready to grasp this incredible opportunity that certainly has been described as a once-in-a-lifetime opportunity.

Thank you very much.

[The Chair, Conservative, Bev Shipley]

Thank you, Mr. Laws.

I would appreciate each of you being time-conscious.

We will start now with our rounds of five minutes each, beginning with the New Democratic Party, Mr. Allen.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Mr. Chair.

And thank you to our witnesses today.

Perhaps I could start with Ms. Sullivan. You talked about the potential of the EU trade agreement, the CETA, being about $1.5 billion, in general. According to Statistics Canada, we have a net trade imbalance with them to the tune of minus 1.4, so if they don't send us one other product, we actually just catch up. In a net trade perspective, if they send us anything additional, how much potential have we opened up for them? We're in a deficit now, we're in a trade balance in agri-food products with the EU, and we're only going to catch up based on your numbers, then where do we see this? It's a benefit clearly, there's no disputing that, but how do we actually balance that trade balance? How do we make a trade balance out of this? How do we take it higher?

[Kathleen Sullivan]

I think that's the nature of trade. The European economy is clearly much larger than the Canadian economy. If you look at the benefits on a GDP basis, the studies have shown that Canada is actually going to fare better than Europe will in terms of reciprocal trade.

Ultimately, from a Canadian perspective and an agrifood perspective, we have to open up markets around the world. We have a real expertise in producing agricultural products and in producing food products and doing food processing.

In terms of the European Union, we have a real opportunity here to increase our shipments of beef and pork. That really helps to adjust an imbalance that currently exists. The Europeans now have full access to the Canadian market for pork. Our ability to start shipping 81,000 tonnes to them really starts to address that imbalance. Certainly from a beef standpoint—and John will probably want to talk to this—just given the situation with the European industry and the difficulties they have shipping to North America, I think we have a good chance of coming out ahead of them in this case.

There are also other opportunities. The Europeans right now, although they are large producers of grain, have, in fact, a grain deficit when it comes to feedstock both for livestock and for their biofuels industry. We really have an opportunity there to start shipping those products to them in far greater numbers than they ship to us, and that is the nature of trade. You specialize in the products you're particularly good at and particularly efficient at; you ship those to other countries, and they, in turn, ship products to you for which they have economies of scale or better efficiencies. I think that is what we're going to see as a result of the CETA.

[Malcolm Allen, NDP, Welland, ON]

I don't disagree that when you bargain for something, you get some and you lose some, but you obviously try to get to a balance. I don't see the balance, to be honest, at this point in net trade figures, but I hear what you're saying about the size piece.

Let me move on.

It was interesting to hear Mr. Masswohl and Mr. Laws talking about one side, because I think there's a lot of meat around here. We don't actually export in the beef sector what we could based on the allowable amount we have now. I think we all agree on that, and there are a number of reasons. One is, obviously, whether we should do hormone-free beef. But let me sort of hone in on this one piece.

Mr. Masswohl, you talked about how we didn't convince the Europeans that what we do presently in the cattle sector is okay, in the sense that it's safe, and it's a good practice, because we consume it here in this country. We believe that to be true, but we didn't win that argument. Mr. Laws has raised some issues—and I'll let either of you decide who wants to answer this—about how we fix some of the issues that are outstanding around the sanitary—because they're not fixed yet; they're not decided upon—and some of the other issues about whether, indeed, your industry, Mr. Laws, can actually meet the challenges, because you've asked for government assistance.

We have an opening. Is somebody going to run through this opening or is it just going to be an opening?

[John Masswohl]

Absolutely. I've been taking a lot of calls from cattle producers with questions over these last few weeks. They want to know if we will produce these cattle. As I talk about the opportunities and what's there and we talk about the cost and how it has to be produced without growth enhancers, a lot of them say, “You know what? I think this can pencil out”. We don't need everybody to make that decision. We need enough people to do it, and I think they will.

With regard to us not getting rid of that restriction or that prohibition, the answer to that really is that we decided early on that we'd been having that battle with Europe for close to 20 years and we'd gone to the WTO and gotten a decision. We had retaliation in place for a number of years and finally they decided they would compensate us. So we settled that argument. We decided already going into this negotiation that we weren't going to continue pressing on that any more. We decided up front that we could live with that rule and get everything else set up to make it worthwhile, and we think that's what we've achieved.

[The Chair, Conservative, Bev Shipley]

Thank you, Mr. Allen.

Mr. Payne, go ahead for five minutes, please.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you, Mr. Chair.

Thank you, witnesses, for coming.

I've talked to a number of ranchers and some pork producers and I haven't seen that big a smile on their faces in a long time, so I think this is a really positive agreement. Certainly it took some time and—you know what?—anything good takes some time. My feeling is that we're way ahead of the U.S., and I'm just wondering if one of you or all of you could sort of say what being way ahead of the U.S. means for Canada and how long you think it would take them to get an agreement with the EU.

[James Laws]

I will just agree with you that if we look at the situation right now with Korea, the Americans have a free trade agreement with Korea. We were sending a lot of meat to Korea; now we're not. It has virtually dropped to nothing because of the preferential tariff access they have—better tariff rates. That's a problem for us.

But I think it's important to realize that what this agreement does for beef as well....

I want to expand on the question Mr. Allen asked. There are 500,000 culled beef cows every year in Canada. Those animals will all be eligible. Our current access to Europe is very specific. It prescribes how many days the beef animals must be on grain, for instance; it's a very restrictive one. This, as far as we know, covers all beef—all those culled beef cattle, all culled dairy cattle, all veal calves. So this really does offer quite an opportunity that we currently do not have into Europe, under the access of the so-called high-quality, grain-fed animals.

[LaVar Payne, Conservative, Medicine Hat, AB]

John or Kathleen, do you want to make some comments?

[John Masswohl]

I was going to mention Korea as well. In other scenarios where we have gotten in first—I can think of the time after BSE, with Hong Kong and China—we have gotten in ahead of the Americans and have done well in those markets. Getting in first is a big advantage.

To your other point, about the smiles on people's faces, it's fair to say, if I go out on a limb, that we have a few skeptics in our sector about things—guys who are hard to convince. They've asked a lot of questions about this, and many of those who have looked at it have said that this is a really great deal. It's like that old commercial: if Mikey likes it, it must be a pretty good deal.

[LaVar Payne, Conservative, Medicine Hat, AB]

Speaking to that comment, I would add that there were many skeptics about the Wheat Board issue. I've talked to many farmers in my riding who are absolutely delighted that they can now sell their product everywhere.

I noticed that you were supportive, John, as you spoke in your comments, and you have read that the removal of long-standing barriers, such as the high tariffs, finally enables producers to benefit from the high values that you're getting.

Do you have anything else you want to add, by which you can tell us in detail how this works for the cattlemen?

[John Masswohl]

I guess the main thing that we still need to find out is when: we're all still trying to anticipate when this agreement will be implemented. Will it be in 2016? Maybe 2015 is a little too soon. We know that the European Parliament is going to have its elections in 2014; that is a challenge.

We look at it in terms that most calves in Canada are born in February and March, so that as producers go through the winter, they are going to wonder whether to start documenting those cattle that are born late this winter or early next spring. That's for individual producers to decide. Hopefully, by the time we get there we may know a little bit more about what implementation date we're shooting for. That would be useful to know.

Another thing that also still has to be negotiated is the phase-ins. We understand that the new quota, the 35,000 tonnes, will be phased in over a number of years, but we don't yet know how many years. Certainly, we would encourage that it be as quickly as possible. On the other hand, we have the existing 45,000 tonnes in place, so perhaps we can manage the phase-in period with the existing quotas.

[LaVar Payne, Conservative, Medicine Hat, AB]

John, you talked about the plants in Brooks. I'm wondering what your thoughts are around what this means for those kinds of facilities here in Canada being able to ship to the EU.

[John Masswohl]

This is related a bit more to Jim's sector, but from the cattle producers' perspective, you want to have a packing plant as close to your operation as possible so that your shipping distances are reasonable.

With the lower cattle numbers we've had in Canada these last few years, we have been concerned about overcapacity in both the packing sector and the cattle feeding sector. Anything we can do to have more market signals to cattle producers to increase the number of cattle they produce is going to help maintain the infrastructure that we have.

[LaVar Payne, Conservative, Medicine Hat, AB]

Jim, do you want to make any comments on that?

[The Chair, Conservative, Bev Shipley]

Go quickly, please.

[James Laws]

I think it boils down to their knowing that there's a big enough potential for them to run through animals that are dedicated to that specific market. If this had not been as big a deal as it is, then there would not be the interest there is. It is critical to make sure....

But as I mentioned before, we're pleased that Canada has a veterinarian over in Brussels now. She has been there for a couple of months. She'll be working very hard to make sure that things move forward at the Canada-EU discussions to resolve these technical issues, because our members at the same time don't want to risk any E. coli events, and it's important to maintain the interventions that we use to kill off that organism.

Definitely, people are—

[The Chair, Conservative, Bev Shipley]

We're going to move on now.

Mr. Eyking, you can maybe expand on that.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Thank you, Chair.

Thank you, witnesses, for coming.

It's great to see your enthusiastic and optimistic view of what's going to be taking place here. The reality is that the beef industry has been dropping in the last five or six years. I think the numbers are down 20%. What's happening in the U.S. lately, with the whole thing around COOL, is not very good news. We've got a couple of years to fill this hole, but we've still got a lot of live cattle that are going to need a home.

I've got two questions for you first, John, and then two for you, James.

You mentioned those four quota numbers: one was for fresh, one was for frozen, and one was for high-grade. I think the fourth one was 40,000 tonnes. What kind of beef was that?