Agriculture Committee on Nov. 19th, 2013

[The Chair, Conservative, Bev Shipley]

I would like to call the fifth meeting of the Standing Committee on Agriculture and Agri-Food to order, please.

Pursuant to Standing Order 108(2), we are doing a study of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the effects of it on the Canadian agriculture sector.

Today we have witnesses, and they're split into two groups. The first group will be for the first hour, from 3:30 p.m. to 4:30 p.m. That includes the National Cattle Feeders' Association: Mr. Bryan Walton, general manager, and Mr. André Roy, member and executive director

of la Fédération des producteurs de bovins du Québec.

Then we also have a video conference with the Alberta Pork Producers Development Corporation. Mr. Darcy Fitzgerald, executive director, joins us by video conference from Saskatoon, Saskatchewan.

Welcome to our witnesses. You each have 10 minutes to give opening remarks. I will turn it over to the National Cattle Feeders' Association.

[Bryan Walton, General Manager, National Cattle Feeders' Association]

Mr. Chairman, committee members, I am pleased to be here. You all have our speaking notes, that were presented earlier, with some background information.

Just by way of introduction, the National Cattle Feeders' Association was established in 2007 to represent Canadian cattle feeders on national issues, and to work in collaboration with other cattle organizations across the country. Our key areas of focus include improving industry competitiveness, increasing domestic value-added production, expanding markets for Canadian beef, and reducing the regulatory burden for our sector. The members of the National Cattle Feeders' Association are: the BC Association of Cattle Feeders, the Alberta Cattle Feeders' Association, the Saskatchewan Cattle Feeders' Association, the Manitoba Beef Producers Association, the Ontario Cattle Feeders' Association, and la Fédération des producteurs de bovins du Québec.

The National Cattle Feeders' Association supports the CETA and expressed this directly and via our membership in the Canadian Agri-Food Trade Alliance, otherwise known as CAFTA.

CAFTA 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 sectors. Collectively, CAFTA members represent about 80% of Canada's $42 billion in annual agri-food exports. For the NCFA and other CAFTA members, this deal holds real promise for the agri-food sector with an estimated increase of $1.5 billion in new agri-food exports each year.

The government's trade agenda is in keeping with the National Cattle Feeders' Association priorities of expanding markets for Canadian beef. The CETA will bring upwards of $600 million in added value to the beef sector, which translates into roughly 500,000 head per year.

There are some other benefits of the CETA, which my colleague will address.

[André Roy, Executive Director of the Fédération des producteurs de bovins du Québec and Member, National Cattle Feeders' Association]

I will continue in French.

Good afternoon, everyone.

The agreement with the European Union will allow us to invest in harvesting more cattle in Canada since we will have access to the European Union that other countries do not have. Clearly, we must understand that the converse is also true: without the agreement, other countries could invest to their advantage. This is why that particular element is important for us.

Canada will have duty-free import quotas for beef. We must remember that one of the current quotas, for 11,500 metric tons, is supposed to carry a 20% duty, but that will no longer be the case. These are the advantages of the agreement. If we come to an understanding with Europe on the economic agreement, it will be possible to develop a stable, commercially viable market on a long-term basis. Stimulating investments in a sector that will allow it to develop requires an economic environment that will allow investors to see their profits extending into the long term.

The deal precedes negotiations with the European Union that the United States has just started. Canada is well-positioned. Judging by the other agreements in the works, this is promising. I repeat that, if an investor, in a packing plant, for example, wants to invest in Canada, that investor must have access to other markets. If the United States has access to 20 countries, for example, but Canada has access to 40, the investor will choose Canada. The converse is also true, and that would then become a disadvantage.

Over to you, Bryan.

[Bryan Walton]

The other thing the CETA does for us is reduce our reliance on the United States, which has been a good market but is now in jeopardy on account of mandatory country-of-origin labelling. This arrangement with Europe could represent up to 30% of the historic value of the U.S. market for live beef and beef in the box. The CETA also provides us with a forum to settle non-tariff issues. This is an important aspect of the agreement.

I might just say with regard to mCOOL that one of its impacts can be seen in the example of Tyson Foods, historically one of the strong buyers of Canadian cattle. They have explained to their suppliers, the cattle feeders in Canada—their intention was made clear in October—that they would no longer be taking Canadian-fed cattle in their plants in Joslin, Illinois; Lexington, Nebraska; and Pasco, Washington. That's about 180,000 head of cattle a year that will no longer be moving to the United States.

While they're trying to find ways to get Canadian cattle, the reason that this total of 180,000 head is important is that some Canadian plants, new plants.... There's one in particular that I will mention in Balzac, Alberta, which is the Harmony Beef plant that was mothballed in 2007. It will reopen. It has the capability of taking all of the cattle that were going to Pasco, Washington. In addition, we understand that there is another plant that is considering reopening in Qu'Appelle, Saskatchewan. These plants, particularly the Balzac plant of Harmony Beef, have expressed their desire to target the European market.

What does this mean? What does the CETA mean for our sector and our processors? It's about investment, it's about jobs, and it's about increased trade.

Thank you, Mr. Chairman.

[The Chair, Conservative, Bev Shipley]

Thank you very much.

Now I would move to Mr. Fitzgerald, the executive director of Alberta Pork.

You have 10 minutes, sir.

[Darcy Fitzgerald, Executive Director, Alberta Pork Producers Development Corporation]

Thank you very much for this opportunity. I certainly do appreciate it.

One of the things to bear in mind is that, as mentioned earlier, I'm here representing the Alberta Pork Producers Development Corporation, which is made up of 350 producers in Alberta who also belong to the Canadian Pork Council and Canada Pork International. I believe they will be speaking to you later this afternoon.

We've had a lot of years—the last five to seven years—of quite volatile pricing, high feed costs, and some very questionable trading practices from others that have really affected our industry, which most people who know anything about the pork industry have seen. Those lean years have taken a toll on our industry. One of the things that we see as perhaps addressing some of that is access to various markets for our product. Currently we're in about 100 different countries and any time we can find another marketplace, it's very positive for us. Some of the tolls we've taken in the past were related to the rapid devaluation of the Canadian dollar; H1N1, which was wrongfully associated with the swine industry; U.S. drought; trade issues of COOL; free trade agreements with South Korea that haven't materialized; or recently some trade issues with the Russians. Over and over again, it comes back to the issues of acquiring trade and finding more access to more markets.

In the last decade or so we've really seen a decrease in our industry. About 70% of our producers have left the industry. We saw about a 25% reduction in our production. But with all that said, and all that volatility, there's still great opportunity for us, and we see that especially through negotiations that have gone on with the CETA and where that can take us. Any time we can make an improvement and access a marketplace with 28 countries, I think that's a very significant move for us. We take a lot of pride in the product we have, and I think others around the world would as well. Certainly, securing marketplaces that are less volatile would be very preferential to us and a great benefit.

Just to give you an indication of the size of our marketplace, so far in the last year we saw about 1.2 million tonnes of fresh, frozen, and processed product valued at about $3.2 billion being shipped to approximately 100 countries. As we see that, it starts to represent about 64% of our production leaving the country and going into other markets. Alberta itself ships just over 50% out of the country, and we also have a significant portion of our products going into neighbouring provinces for further processing, some of which is then shipped to other countries. Looking at that, Alberta feels that with having 10% of our $4 billion cash farm receipts for the country, there's great opportunity for us to see more growth and more opportunity for ourselves.

Again, looking at the processing industry that we have in our country, there are shifts. We would like to see more opportunities for us in Asia, as others, perhaps in eastern Canada, make up the difference with what could go into Europe, which is positive as well.

With this trade agreement we're of the understanding and hope that we'd see somewhere in the neighbourhood of 80,000 tonnes of duty-free access into the EU, and that represents about $400 million in annual sales if projected into the future when everything is up and running. Part of that enthusiasm that we see really comes down to the fact that this marketplace represents about 500 million people. They have a consumption of somewhere around 20 million tonnes of pork a year, and that's about 30 times the consumption that Canada has. Despite this, we're only actually seeing about 0.2% of their domestic consumption coming from imports. That in itself, given the opportunity to have this type of negotiation agreement in place, would certainly give us an opportunity to change that balance, and put more Canadian product in there for the benefit of Canadian producers, processors, and also European consumers. We see that as a great opportunity. Having this trade negotiation continue on and providing those opportunities really is something we see as an opportunity to put more demand on our products.

We are in a marketplace, especially in Western Canada, in which we have little competition, and these are the types of things that actually drive price. We're very hopeful that as things continue along, they will help our producers and our industry.

With that said, I would also like to say thank you very much to the Canadian government. I think our industry in particular is very grateful for all the work that's been done so far to bring this agreement to where it is. We certainly look forward to the positives and the benefits that will come to us.

Thank you again for the opportunity to be here.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Fitzgerald.

Now we will go to our rounds.

We'll start off with Madame Brosseau.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Thank you, Mr. Chair.

I would like to thank all our witnesses. I recognize how important it is to hear their testimony and to analyze CETA in depth. I have three questions for the representatives of the National Cattle Feeders' Association.

First, I would like to know more about the strategy that you are planning to use to take full advantage of CETA.

Second, can you tell us about the non-tariff barriers you may face in your sector?

Finally, can you tell us how you are going to adapt, given that the European Union bans hormone use? Can you tell us about the costs associated with that?

[André Roy]

Do you want us to answer right now?

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Yes. Thank you very much.

[André Roy]

I am sorry. I am not used to this.

To your first question, which was about the strategy that we are planning to use to take advantage of the agreement, I would say that each province may have a different approach, depending on the access to meat-packing plants. To be able to take advantage of the agreement, people are certainly going to want to see the packing plants to determine which ones are in compliance. To be able to sell products to the European Union, the producers must be accredited, but so must the packing plants. So the process of accrediting packing plants is one of the steps. As Mr. Walton mentioned, we already have an accredited plant in western Canada. In the east, there are probably one or two that are almost accredited.

In terms of the non-tariff barriers to the agreement, one of the little-known aspects is that producing for American certification requires an approved inspection. That is done by veterinarians. Clearly, the costs of the services of those veterinarians must be borne entirely by the producers. Those costs can certainly be quite limiting. I would categorize it as a non-tariff cost because, basically, it is related to the certification. When we produce for Canada, we do not have to pay certification fees or inspection fees to the Canadian Food Inspection Agency.

There are also some technical issues, which have more to do with the packing plants. I do not want to go into the details of each of those issues. Some of them have been settled, like the ones dealing with carcass wash and packaging.

As for producing without hormones, in itself, it is not a problem for producers. It is just a question of finding a packing plant that is interested and then getting the production process going. Since, under the agreement with the European Union, the requirements start when the animal is born, and the animal is not ready for consumption for 20 months, you kind of have to work for at least that amount of time. That is why producers need a stable environment. If they decide to produce according to precise standards today, they have to be sure that the person who said that he wanted to buy the product still wants to buy it in 20 months. it is a problem, but it is far from being insurmountable.

Does that answer your questions?

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Yes. Thank you.

[The Chair, Conservative, Bev Shipley]

Thank you, Ms. Brosseau.

I'll go to Mr. Hoback.

Before we do, Guy Caron is filling in today. Welcome.

Mr. Hoback.

[Randy Hoback, Conservative, Prince Albert, SK]

What a nice chair.

Gentlemen, it's great to have you here, and of course my colleague, the witness from Saskatoon.

I notice you're not wearing your Roughrider jersey yet, just kind of hanging cool right now and waiting for the weekend?

Mr. Walton, you talked about the Cattle Feeders' Association and the impact and potential of this type of volume going to Europe. Have you looked at what it's going to do to the packing sector in western Canada now that we're looking at packaged beef going into Europe?

[Bryan Walton]

This is a bit of a tie-in to the previous question about the viability of that market. We know it's viable. We have a small federally inspected processor that's EU approved in Lacombe, Alberta, that's shipping to Europe. Three containers went last month. It's a small organization but the market demand is not the question. It's the ability to have the desire to line up supply to adhere to the European requirements. That's being done right now. The viability of the market is there by the size alone.

As I mentioned earlier, the largest EU-approved plant in Canada is the one in Balzac, just north of Calgary. That plant has the ability to kill 700 to 800 cattle a day on a single shift. There are 275 employed at that plant. The purchaser of that plant has worked for large companies in the past. He understands the opportunities this plant provides as a niche processor. He's pretty convinced about that but Europe isn't the only market that's having requirements with regard to production technology. There is also Russia, China, and Taiwan. From that standpoint that plant is well situated. The gentleman who will own that plant has worked in larger plants and understands what it's like to be in the commodity business that the two big plants are in.

[Randy Hoback, Conservative, Prince Albert, SK]

Coming back down the chain and back to the farm gate again, have you looked at what you're going to do to help educate farmers on the changes in production styles and the use of hormones, for example?

Have you figured out of an angle of attack on that?

[Bryan Walton]

This relates to Mr. Roy's comments earlier.

Now that we have what is a grade agreement, and it's a solid agreement, decisions about investments can be made. That was a factor in Rich Vesta's decision to purchase the Harmony Beef plant. There's a large feedlot in northern Alberta that's got a significant number of cattle on feed right now that will be so-called natural, not conventional.

[Randy Hoback, Conservative, Prince Albert, SK]

Do we need to be providing more research into that area of production?

[Bryan Walton]

Innovation is important. That's why some of the modern production technology should be available. This is another option. I think it's giving producers options, whether it is to market the product or what they use to produce products that are safe and well tested and have been, in some cases, used for decades and are not at all harmful. But it's the customer in this case who's deciding and the producer has to decide whether they're willing to and if the economics pencil out.

[Randy Hoback, Conservative, Prince Albert, SK]

Mr. Fitzgerald, you talked about the $400 million a year in sales in the hog sector.

Can you elaborate on that? Where do you see that actually coming from and how will that offset what you've lost in the U.S? Maybe a better question to ask is if we would have had those sales in place now what would the pork sector have looked like in the last four or five years, if we would have had access to that market?

[Darcy Fitzgerald]

I'm sorry, Mr. Chairman. I'm having a hard time hearing the question.

[Randy Hoback, Conservative, Prince Albert, SK]

I'm just looking at a scenario and it's maybe a little speculative in its nature. If we would have had access to the European market over the last four or five years, how would the pork sector look compared to how it looked last year or the year before?

[Darcy Fitzgerald]

If we'd had those markets open and we had somewhere around 30,000 tonnes available to us—in 2011 we only shipped about 415 tonnes—that difference would have moved that product quite nicely for us. Again, the COOL issue we're facing now also affects live hogs, and it likely wouldn't have been an issue for us to transfer those. But further processing could have gotten us the meat products into the European market and maybe made up that difference that we saw in the somewhere around $2 billion loss so far.

[Randy Hoback, Conservative, Prince Albert, SK]

It would have definitely helped you weather the storm in the last few years, for sure, if you'd had that access.

[Darcy Fitzgerald]

Absolutely. Yes, that would have been quite helpful, I think, any time you can find those extra markets when one market shifts and pushes you out of that marketplace, to have those extra opportunities...to be able to go into the EU with 28 countries. I know we're very optimistic ourselves about the opportunity to move hams into that marketplace at a significant level. Likewise, if we look at this and say there's a potential for $400 million to move into that marketplace, that really almost cancels our loss that we're seeing right now in South Korea where we don't have a free trade agreement. That might have been an easy shift, to put more energy into that marketplace and push those products into that market.