Agriculture Committee on Feb. 19th, 2015

[The Chair, Conservative, Bev Shipley]

I'd like to call the meeting to order, please.

I want to welcome witnesses who are with us today and my colleagues as members of the committee. As you know we're looking at promoting domestic trade of agriculture and agrifood products by reducing interprovincial barriers. We're trying to gather some feedback and certainly some direction from our witnesses.

On Tuesday we met with department heads and we got a good outline from the ministry's perspective and CFIA. Today, we have two sessions. In the first hour, I want to welcome from the Canadian Pork Council, Martin Rice, the executive director, and Catherine Scovil, associate executive director. I also want to welcome from Spirits Canada, Jan Westcott, president and CEO, and also C.J. Helie, executive vice-president. They are appearing via video conference.

Folks, sometimes technical issues can show up, so we will start with our witnesses from Spirits Canada.

Mr. Westcott, I turn the floor over to you for 10 minutes, please.

[Jan Westcott, President and Chief Executive Officer, Spirits Canada]

Thank you, Mr. Chairman.

My name is Jan Westcott, and I'm the president and CEO of Spirits Canada. Joining me, as the chair said, is my colleague C.J. Helie. We're pleased to share our industry's perspective on how to promote domestic trade of agricultural and agrifood products by reducing interprovincial barriers.

The disappointing news is that, 20 years after the coming into force of Canada's AIT, Agreement on Internal Trade, there are more provincial protectionist measures regarding the sale and distribution of beverage alcohol than ever before. The damage to the economy from these measures is enormous, with the misallocation of financial resources, market inefficiencies, reduced consumer choice, depressed international exports, and frankly, missed growth opportunities.

Canadian spirits manufacturers source local cereal grains, whether barley, corn, rye, or wheat, virtually entirely from Canadian farms, and we transform these into world-class spirits brands that are enjoyed by adults around the world.

I'm going to give you one simple example that typifies the difficulty of access to our own internal market. I'm going to use an Alberta distiller who buys rye from a family farm up the road in Alberta and produces from that a Canadian rye whisky. That manufacturer can ship to a private retailer in Washington state but cannot ship that same brand to a private retailer right next door in British Columbia.

Why not? Only distillers licensed in and physically situated in British Columbia, not those located in other provinces, are allowed to ship directly to private retailers. The objective of the B.C. direct shipping policy is not health and safety. It's not even revenue or tax collection. It's simply to provide support, assistance, and protection for local producers.

This is one simple example, and B.C. is far from the only province with similar alcohol policies. We have catalogued a very long list of provincial alcohol measures that provide beneficial support to local producers.

Many provinces wish to support their local alcohol producers, and almost inevitably the mechanism includes discriminating against producers located in other provinces. A wine-producing region, for example, develops myriad support programs designed to assist its local wineries and provide a competitive advantage versus other beverage alcohol products and categories produced in other regions of the country. These measures can generally be classified into two categories: either preferential market access or reduced provincial markups, fees, or taxes for local manufacturers. In many cases, it's a combination of both.

ln reality, the AIT has been an abject failure in addressing interprovincial barriers in the sale and distribution of alcohol. As John Manley of the Canadian Council of Chief Executives pointed out:

It makes no sense for Canada to provide greater benefits to our trading partners than to companies, workers and consumers within our country.

Yet a spirits manufacturer domiciled outside of any given province has no real mechanism to gain equal market access to that province comparable to that provided to an in-province producer of beer, wine, cider, or spirits. At the same time, all of these products are in direct competition with each other for a fair share of mouth and a place in today's consumers' diverse drinks portfolio.

The example I gave earlier, in regard to the ability to ship directly to private retailers located in Washington state, illustrates this point very clearly. As some of you may know, Washington state privatized its liquor system some time ago. Originally, right after Washington state privatized its liquor operations, Canadian distillers were not granted the same opportunity for direct delivery in Washington state as was provided to American distillers. Only through invoking our rights under NAFTA, and with the help of federal government international trade officials, did the State of Washington change its rules and provide equal treatment for Canadian distillers.

None of these tools or levers are available to us when it is a Canadian province that discriminates against a manufacturer in another province. We believe that, in order to address current internal barriers and to ensure the barrage of new barriers is stopped in its tracks, three key steps have to be taken.

First, Canada must adopt a robust independent dispute settlement process that provides a time-certain resolution to grievances. Second, investor protection standards must be extended to Canadian companies that are at least equivalent to those available to foreign corporate entities under NAFTA, and now included in CETA. Third, there has be a genuine commitment from both the federal and provincial governments to eliminate all discriminatory measures that provide support and protection to local in-province alcohol manufacturers.

Given the disperse geographic nature of the Canadian distilling business, it's our sector that is least likely to benefit from provincial protection and is in fact the most harmed by these different measures across the country. Provincial policies that are designed to protect local producers, and to be frank, are most generally for the benefit of wineries and smaller producers, are a key factor in depressing domestic spirits sales in Canada. By our calculation, domestic spirits market share is depressed by some five to six percentage points because of this. We believe that a very large reason for this fact is the range of provincial support programs for local chosen producers. This depressed share strips Canadian spirits manufacturers of over $150 million each year in gross margin revenues that could be better deployed in bringing the industry's production facilities up to best-in-class standards and more fully develop newly opened export markets.

I’m going to stop there.

Thank you for the opportunity to address you today. I’d be pleased to answer any questions that people may have.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Westcott.

Now we'll move to the Canadian Pork Council.

Mr. Rice, please, you have 10 minutes.

[Martin Rice, Executive Director, Canadian Pork Council]

Thank you very much.

I wish to thank the committee for inviting us here this afternoon to discuss our perspectives on this study of promoting the domestic trade of agricultural and agrifood products by reducing interprovincial barriers. The Canadian Pork Council serves as the national voice for hog producers in Canada. We're a federation of nine provincial pork producer associations, and our purpose is to play a leadership role in achieving a dynamic and prosperous Canadian pork sector.

Pork is a key component of Canada's agrifood sector and provincial agricultural economies right across the country. The industry's made up of just over 7,000 hog farms. Our cash receipts are in the area of $4 billion, and we account for 8% of farm cash receipts, which is the fifth-largest source of farm income in the country.

Canadian hog production this past year was just slightly over 25 million, of which about five million were exported to the United States as live pigs where they were finished for marketing, or in some cases for immediate slaughter. The rest were processed here in Canada. Of that total just over 96% were processed in federally inspected plants with a little under 4% going through provincially inspected plants.

The federal meat inspection system goes back over 100 years. lt has served us very well, providing both a high level of confidence for consumers in Canada as well as in our export markets. lt's a solid system based on continual review and improvements based on science and also scrutiny by export markets. This makes our federal system, in our view, incredibly robust and globally accepted.

Hog farmers are a key part of the production of safe food. They are committed to providing excellent care and raising healthy hogs. Through our council, the on-farm program for food safety has been in operation since 1998. lt is a national, HACCP-based approach, designed to match systems within federally inspected plants and now considered a condition of sale for federal plants. Farmers' paramount interest is seeing that the animals they raise produce safe pork.

The Canadian Pork Council is keenly interested in additional marketing opportunities that could become available to our pork farmers, and supports efforts to reduce barriers to trade and commerce. Much of the work we do is devoted to this very issue, although our focus has been with export markets. Over 60% of pork production is exported, and this is dependent on the confidence the governments in these export markets have in our food safety system. In this, Canada has been very successful. Pork is exported to over 100 countries, each one having reviewed and accepted our federal inspection system.

lt is vital both for maintaining Canadians' confidence in their domestic food supply, and for retaining our access to export markets, that Canada's high national food safety standards not be compromised. The CPC views any changes to the current system as acceptable only under conditions where a formalized and validated equivalency of standards exists, which ensures Canada continues to maintain a single, world-recognized meat safety standard both for international and interprovincial trade in meat products.

lt is also critically important to confirm that this standard applies to imports as well. While we are a major exporter, we also import roughly a quarter of the pork consumed in Canada. These imports originate from countries whose inspection systems have been examined by the Canadian Food Inspection Agency and are deemed to be equivalent to our federal meat inspection standards. Our WTO international trade obligations require that imports are subject to no less favourable treatment than our own domestic requirements. Changes should not be made that would permit imports to be measured to a different, lesser standard than the one currently in place.

ln an age of instant global communications, any domestic food safety crisis, regardless of the cause, can create a loss of credibility both domestically and internationally, and this is a reason to ensure the maintenance of consistent, high food safety standards across the country that apply equally to all food producers and processors.

Overall, hog producers support a strong, clear, and transparent meat inspection process that provides a consistent level of safety for all.

We look forward to answering questions. Thank you again for inviting us to appear before you today.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Rice.

We'll now go to our rounds and we'll start off with Madam Brosseau for five minutes, please.

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

Thank you, Mr. Chair.

I'd like to thank everyone who appeared before the committee today on this important issue.

This week, the committee began its study on interprovincial trade. We've heard from officials from the Department of Agriculture and Agri-Food.

They told us they actually could not estimate the cost of losses due to interprovincial trade barriers in the agriculture and agrifood sector. I was just wondering if maybe the two groups here could comment if there are any losses that they were able to identify due to interprovincial trade barriers?

We could start with—

[The Chair, Conservative, Bev Shipley]

We have one on video conference, so you'll have to identify.

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

Yes, sorry. We'll start with spirits, and then we'll go to Canadian pork.

[The Chair, Conservative, Bev Shipley]

Mr. Westcott, please.

[Jan Westcott]

The depressing effect it has is about 5% to 6% of the market in Canada. We interpret this to mean that there is about $150 million annually in gross margin that is unavailable to the spirits industry because we can't take advantage of the opportunities, the real market opportunities, that exist in each province. So the inability to access that basically deprives the industry of critical investment to expand, to innovate, to make sure its plants are modern and competitive, and perhaps most important of all, to expand our export markets.

We are a significant exporter. Eighty per cent of what we produce in this country leaves Canada as a finished product with a tremendous amount of value-add. We now have all of these different opportunities in front of us for new markets that are becoming available and we don't have the resources available to the industry to go in and effectively tap those markets. Every time we build our business, whether it's inside Canada or it's in foreign markets, it means that we're buying more grain from farmers, we're employing more people, we're buying more ancillary services and goods, and we're growing the economy in Canada.

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

The Canadian Pork Council, please.

[Martin Rice]

Because over 96% of our product goes through federally inspected plants, and the amount that's not going through federal plants is really more for local consumption, we couldn't really point to any losses that would be material. Live swine move quite frequently between provinces and there's no system of production allocation quotas, for example, that would restrain movement of live animals. It has certainly not been something that our membership has been raising with us.

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

I know in the province of Quebec 71% of the pork products are actually sold internationally. In the riding I represent, Berthier—Maskinongé, we do have two transformation abattoirs and quite a few hog farmers. Are there any issues with transporting live animals from province to province?

[Martin Rice]

In terms of transporters, for example, being licensed to move between provinces...?

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

Yes, because I know sometimes when truckers are going from province to province, maybe they will have to unload and reload because there are different regulations on how you can have hay in your truck or something like that. I know there are some issues, but is there a problem with animals being transported from province to province?

[Martin Rice]

The only case I can think of, and I don't know how significant it is really, is the case of Prince Edward Island, which, because of a provincial health status they acquired, would restrict any live pigs coming into the province without a permit and without a health certificate of some kind. But because Prince Edward Island is a significant surplus producer of pigs, it had really no material effect, I think. There was never any significant movement of market pigs into Prince Edward Island, for example.

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

In your presentation, there were some recommendations that you made to the committee.

Spirits Canada, you said there are three key steps. I wrote down the first two, but I am wondering if you could go over them once again. I know the first one was to adopt a robust dispute settlement process, the second one was investment protections, and the third one was....

Could you maybe go over the three steps and go into a bit of detail on what they are? Also, if you have any suggestions for the committee, any issues you want to bring up that we should look into more, and maybe—

[The Chair, Conservative, Bev Shipley]

Our committee members have become really good at being able to ask short questions that extend into long answers.

Mr. Westcott, could you just touch on that third one, please?

[Jan Westcott]

Internationally, the world has developed very clear rules around trade, and that goes to our first one. You do need to have a clear, independent, and robust dispute mechanism because there are always going to be disputes about whether you're being treated fairly or not. Without that, whatever agreement there may be is ineffective because nobody is going to pay attention to it; there's no way to sort out disputes. I may not be happy with the treatment I'm getting, so you need to have some mechanism.

Secondly, when we go into a marketplace, whether it's a province in Canada or another country, we invest money to interest consumers in our brands, to educate them to do things. If we can't get equal treatment in that particular marketplace, then that investment is wasted and it's an invalid investment. Without some means of making sure that when we make those investments to grow our business they have a fair opportunity of success, people won't make those investments, the market is not well served, and our ability to grow our business is restricted.

Third, while I appreciate that every province and region wants to help to promote its own local producers, it's myopic when they don't understand that giving them advantages that are intended to help them, in many cases hurts them. There are some provinces that extend so much benefit to their local producers that it discourages them from ever thinking about selling their products outside of that province. That damages the business inside of Canada.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Westcott.

Now we'll go to Mr. Keddy for five minutes, please.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you, Mr. Chair. Welcome to our witnesses.

My first question is for Mr. Westcott.

On the three points you laid out, you said, first of all, that Canada must adopt a robust, independent dispute settlement process that provides a time-certain resolution to grievances. Quite frankly, that's very much like what we have on the export side for international trade relations. I think most of us around the table would agree with that.

What you've not talked about is how you would enforce that, and if there would be a penalty system put in place in order to have proper enforcement.

[Jan Westcott]

If you don't mind, I'd like my colleague, C.J. Helie, to comment on that.

[C.J. Helie, Executive Vice-President, Spirits Canada]

The most egregious difference between the commitments under the AIT and most of our international agreements is the binding nature of panel reports under our international agreements and the “normally conform” kind of language used within the AIT. You go through this much longer process under the AIT, and at the end of the day you're not even sure that the panel finding will be implemented at all.

[Jan Westcott]

Without some form of enforcement, which may include some type of penalty, we're not going to make any progress.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

That was my point, that your industry recognizes there's a serious problem here, and in order to have enforcement there has to be some type of penalty system put in place.