Agriculture Committee on Feb. 19th, 2015

[Jan Westcott]

It needs to be something that sends a message to individual provinces that if they do certain things, there is a cost to it. I mean, ultimately it stops people from investing in markets in Canada, which is damaging to the business fabric and limits growth across the country. Since our business is fundamentally based on agricultural products, it's harmful to agriculture.

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

I want to pick up a little bit on the point you previously made, your estimate that there's approximately $150 million lost in gross revenue sales in the spirits industry annually in Canada, and that this is money that would be put back into the industry, either to help modernize systems and plants or to reinvest back into advertising domestically.

Have you looked at what that loss also means to us internationally, or is it the case that you mentioned earlier when you used the word “myopic”? That is, people are just looking at what's in their province and their area, and they're not taking their products to the international marketplace.

[Jan Westcott]

Canada is a trading nation. We exist and our lifestyle and our way of life is based on the fact that we are successful at selling many Canadian products outside of Canada. We only have 30 million people. We need people to think about selling outside the country. If we only look at selling to ourselves, we will have a much diminished economic climate in this country.

Canada just concluded a free trade agreement with Korea. We're very excited about that. Korea is the seventh-largest whisky market in the world. In the year that the United States signed its free trade agreement—it had a bit of a head start on Canada—we lost 50% of our sales to Korea. It's great news that Canada has reached a trade agreement with Korea that's going to bring us back to a level playing field, but we have to go back into Korea and spend money and invest to make sure Korean consumers will again give Canadian whisky and Canadian spirits products a chance. If you don't have that money in your jeans, you're just not going to be successful. It's an opportunity that will go by us if we don't have the resources necessary to fully develop and tap into those new foreign markets that the Government of Canada is bringing forward.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Keddy.

I'll now move to Mr. Eyking for five minutes, please.

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

Thank you, Mr. Chair. Thank you, guests, for coming here today.

My first question will be to you, Mr. Westcott. As everybody knows, we have a constitution in this country. A lot of these barriers are set up provincially. One would almost have to change the constitution to get this changed. There's no doubt that the federal government can take a lead to set up some sort of blueprint. But at the end of the day you need all the premiers and the territorial leaders to sit down and say that, okay, this is kind of nuts that we can't be moving wine from province to province.

What is stopping it? If that were number one on the agenda at the premiers' meeting, what is stopping it? Is it their own bureaucrats who are getting a little extra money in their coffers? Is it the bureaucracy and these liquor boards? Where is the push-back? Because it's not from the consumer and it's not from the producers of wines and many spirits, so it has to be within those provincial governments that they're safeguarding something. You mentioned a $150 million loss. Somebody else must be making a pile of money on this because of protecting turf.

Can you explain that one a little bit?

[Jan Westcott]

The short answer is politics.

You have local producers and you have governments wanting to keep local producers happy and wanting to see those local producers prosper. I think part of it comes from a limited understanding of how the business works. In their desire to help their local people, which in some respects is a positive desire, they are failing to understand that we live in a global marketplace and that we succeed by being able to compete effectively with products from everywhere. When we shelter our own industries, we are actually harming them because we're shielding them from competition, which at some point is going to come along and harm you if you can't compete.

I wouldn't blame the bureaucracies, although definitely they have a hand in it. I wouldn't necessarily blame the liquor boards. The liquor boards are tools of the provincial governments. I think politics is the short answer, combined with not a broad enough understanding of the opportunities that really exist if Canada could open up its internal borders and improve all of its producers by making sure they are world class and making sure they are truly competitive.

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

As you're well aware, during the whole NAFTA thing many years ago, our wine producers especially figured they were going to go under in opening up to the U.S. market, but there was some money put on the table to help them get their better varieties, and look, they have a stronger, better wine industry now than they ever did because of NAFTA.

So it's the same kind of philosophy I guess. If you give them the tools to compete across the country, they become stronger and open to a bigger market.

[Jan Westcott]

It's interesting. I was the president of the Canadian Wine Institute through the years leading up to that as well as the Wine Council of Ontario and the British Columbia Wine Grape Council, and you're right. Many people feared it would be the death of the wine industry in Canada, and in fact with the new competition it actually forced the Canadian industry to produce better-quality products and to re-evaluate what their opportunities were. It has changed the industry dramatically. That simply is one of the benefits of competition.

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

My last question is to the Pork Council, and it's still with the interprovincial. You alluded to how there's really not much restriction.

Recently we had a disease outbreak for small piglets, I think it's BED, but the provinces played a big role in containing it and in phytosanitary measures.

Is it important that provinces have some sort of say and restriction in helping track livestock movement and being part of that? Is that something your association thinks the provinces should keep doing, or do you think the federal government should be playing a bigger role in that, and the provinces shouldn't have to carry the ball on it?

[Martin Rice]

We would certainly want to see the provinces maintain their current level of engagement unless the federal government saw a significant increase in its resources because it really depends on the provinces to do a lot of that on-the-ground early response. They have all the laboratory capacity.

Until it's an actual foreign animal disease, which thank goodness we haven't had in Canada for 50 years for swine, really the provinces are the first to react. Then CFIA and the federal government's responsibility, one of them, is to make sure there is a coordinated effort between the provinces such that we don't have varying levels of protection, varying levels of efforts to contain disease.

But provinces have a critical role, and we certainly wouldn't want to see that be diminished.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Eyking.

I'll now go to Mr. Payne, for five minutes, please.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you, Chair, and thanks to the witnesses for coming today.

My first questions would be to Jan from Spirits Canada.

One of our colleagues, Dan Albas, had a bill to allow wine to move across the country. I know there were a number of provinces that signed on to this, but could you tell us, Jan, if some of them haven't, and which ones have not signed on?

[Jan Westcott]

I think most have.

Sorry, C.J. Go ahead.

[C.J. Helie]

There were two types of amendments in the Importation of Intoxicating Liquors Act. The first dealt with wine, and the second with beer and spirits.

All federal impediments on the interprovincial direct shipping of all alcohol have been removed. No province allows any spirits to be shipped directly from a manufacturer to a resident in another province. The only provinces that allow direct shipping of some wines are B.C. and Manitoba. Manitoba does so because they did not have the legal wherewithal to regulate it. B.C. limits it to only wines made from 100% locally produced fruits.

The real problem is that the provinces have no mechanism at the moment to collect the commodity taxes that are applied on those products that are sold through all other sales channels. They are developing a mechanism to be able to collect the taxes that would otherwise apply to that product. Saskatchewan and B.C., for instance, have a framework agreement where they would regulate and tax those products, and facilitate those products, both wine and spirits.

[LaVar Payne, Conservative, Medicine Hat, AB]

Jan, you talked about investors, some of the problems of ensuring that investor standards are protected, and a loss of revenue because of not being able to invest and ship across the country into the various provinces.

Do you have any examples where investment has left Canada, or is looking at leaving Canada to be invested in other countries for production and marketing purposes?

[Jan Westcott]

Yes. If you don't mind, I'm going to use Alberta as an example. We have three good-sized distilleries in Alberta.

[LaVar Payne, Conservative, Medicine Hat, AB]

That's perfect.

[Jan Westcott]

Right now in North America and in many parts of the world, consumers are extremely interested in and excited by rye whisky. We have a plant in Calgary that sources its grain entirely in Canada, makes tremendous rye whiskies, and it's winning awards all over the place. They have produced some tremendous new brands in the last several years. One of them is called Alberta Premium Dark Horse.

Normally what happens when you have a huge success is that one or two or three years later you start working on the next one. Guess what? That next one isn't in the pipeline because moving that Alberta Premium Dark Horse into British Columbia or into some of the other provinces is very difficult, so the company that owns that brand just won't make the investment to bring in another one of those innovative products.

That's an example of that investment.

We're a global business. That investment then goes to that firm's bourbon business in the United States or that firm's Scotch brand in Scotland or Ireland or wherever they may have similar whisky production around the world. It doesn't come to Canada because we're not able to exploit that to the extent that it would attract that additional investment.

[LaVar Payne, Conservative, Medicine Hat, AB]

That really means that investment is obviously going around the world and potentially creating all kinds of jobs in other countries, and certainly taxes in those other countries when it could be to the benefit of Canadians across the country, and certainly for provincial and federal revenues, I'm sure, as well as having hundreds of employees employed in these organizations. It's a real tragedy that the provinces can't seem to get on board to make sure this investment happens here in Canada.

[Jan Westcott]

I think you've summed that up very well. I think that's exactly the case.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Payne. You're right on time.

Now I will go to Madam Raynault, please, for five minutes.

[Francine Raynault, NDP, Joliette, QC]

Thank you, Mr. Chair.

I'd like to thank the witnesses for joining us on this bitterly cold Ottawa day.

Mr. Wescott, in your brief, you say,

The disappointing news is that 20 years after the coming into force of Canada's Agreement on Internal Trade (the AIT), 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, marketing inefficiencies, reduced consumer choice, depressed international exports and missed growth opportunities.

Would you mind elaborating on that statement, to help enlighten the committee members and those who are watching us on CPAC?

[Jan Westcott]

We have a very large distillery in Quebec, in Valleyfield. Virtually 100% of the grain that's used in that distillery to produce vodka, liqueurs, whisky, a range of spirits products, are very high quality, all are exported and sold around the world and are well respected. When the company that produces in Quebec tries to send those whiskies to some other provinces they don't get the same opportunity to sell to the consumer. They don't have the same tax. They have a much higher tax rate than the local producer.

The fellow who is running that distillery in Valleyfield says to himself that he has to find money to keep his plant modern, and he has to find money to innovate because you have to bring new products and new ideas to the marketplace. When he sees his ability to ship Seagram's 83 or VO into another province but he's going into that marketplace with one hand effectively tied behind his back because he can only sell to liquor boards while other people he competes with can sell in private locations or in farmers' markets or wherever, it discourages that company from making those investments in their Quebec business in the brands that are produced in Quebec and they send that money someplace else. That's really what happens.

[Francine Raynault, NDP, Joliette, QC]

Thank you.

You talked a lot about British Columbia in your presentation. You said the objective of the province's direct shipping policy was not health and safety, or even revenue and tax collection, but simply to provide support, assistance and protection for local producers.

Would you kindly tell us more about that?

[Jan Westcott]

British Columbia has a successful and a vibrant wine industry.

When we did the FTA and the NAFTA, the Government of Canada and the Government of British Columbia put some measures in place to assist the domestic wine industry in British Columbia to change its game, improve itself, and become competitive. Most of those measures were supposed to last seven, eight, or eleven years, the typical thing you see when we sign trade agreements to give your own domestic industry a chance to make changes to be able to compete.

Here we are, almost 30 or 35 years later, not only are those things still in place but they've been added to dramatically. These are not nascent industries anymore. These are successful, competitive businesses. By continuing to load different kinds of advantages onto them in their local marketplace, that damages people who try to go into British Columbia, for example, and compete and try to win consumers' attention. We don't have distilleries in British Columbia. They have a wine industry so they are very focused on the wine industry.