Agriculture Committee on Feb. 24th, 2015

[The Chair, Conservative, Bev Shipley]

Good afternoon, ladies and gentlemen.

Committee members, welcome back. As you know we're doing a study on domestic trade in agriculture and agrifood products, and we are looking at interprovincial barriers to that. We've had a number of guests as witnesses. Today we have with us, in the first hour, from Canadian Vintners Association, Dan Paszkowski, who is president and CEO, and Beth McMahon, who is vice-president of government and public affairs. From the Canadian Seed Trade Association, we have Patty Townsend, CEO.

Welcome to all of you. I'm going to ask Mr. Paszkowski if he will start the presentation by the Canadian Vintners Association, and then we'll move on to Patty Townsend.

Mr. Paszkowski, go ahead, please, for 10 minutes.

[Dan Paszkowski, President and Chief Executive Officer, Canadian Vintners Association]

Good afternoon, everybody.

Thank you for the invitation to provide the Canadian wine industry’s perspective on ways to promote growth and boost competitiveness by reducing interprovincial barriers. The CVA is the national voice of the Canadian wine industry. Our membership represents more than 90% of the wine produced and sold in Canadian and international markets. Our industry is made up of 500 grape wineries and 1,300 independent grape growers, contributing $6.8 billion to the national economy. We produce two types of products: premium 100% Canadian wines, representing a $3.7 billion economic impact, and value-priced international-Canadian blended, better known as ICB, wines made from imported and domestic content, representing a $3.1 billion contribution.

Grapes and wine are a prime example of success for Canada’s value-added agrifood industry. From vineyard development and grape cultivation to winemaking and bottling, our compounded impact extends well beyond cellar door sales and employment, with strong linkages to tourism, retail sales, bars and restaurants across Canada. As a result, the domestic wine industry helps support more than 31,000 jobs and is motivation for more than three million tourists to visit Canadian wineries each year.

The authority to operate provincial liquor boards is based on the federal Importation of Intoxicating Liquors Act, IILA, which requires that all liquor be purchased by, or on behalf of, the provincial government. Until recently, this federal law banned all shipments of wine, beer, and distilled spirits across provincial borders unless the importation was authorized by the receiving province's liquor board.

June 28, 2012 marked the first time in 84 years that the IILA was amended, following royal assent being given to Dan Albas’ Bill C-311, which received unanimous support in both the House of Commons and the Senate. The federal amendments exempt consumers from having to consign wine to the provincial liquor authority when bringing wine, or causing wine to be brought into the province for personal consumption. The exemption did not diminish a province’s control over wine within its jurisdictional borders; it simply provided the province with the right to permit a consumer to bring wine into the province for personal use. The amended legislation removed the federal government's barrier to shipping wine directly to consumers who reside out of province. As a result, most provinces and provincial liquor boards have elected to do the bare minimum. Today, 32 months after Bill C-311 was passed, interprovincial barriers to trade continue to impede the Canadian wine industry’s ability to grow and fully benefit from wine country tourism.

Since the passage of Bill C-311 the following provincial actions have been taken: Manitoba and British Columbia immediately opened their borders and allowed for the interprovincial shipment of wine for personal use. Nova Scotia announced that it will adopt regulations in 2015 to allow interprovincial winery-to-consumer sales. Saskatchewan, Ontario, Quebec, Nova Scotia, and P.E.I. bypassed the spirit of Bill C-311 by making regulatory or policy amendments to avoid direct delivery, allowing their respective residents to transport one case of wine per trip as long as the wine is transported on their person. New Brunswick and Newfoundland continue to restrict residents from bringing wine into the province with an existing exemption of one bottle for New Brunswick and 1.14 litres for Newfoundland and Labrador, which isn't even a wine container's worth. Recently, New Brunswick announced that it is going to make some changes which, we believe, means it will join the above provinces in allowing one case of wine to be directly delivered into the province on one's person.

In February 2014, we were disappointed to learn that Alberta had amended its laws to eliminate courier delivery of wine from another province, while allowing its residents to continue to transport unrestricted volumes on their person, thus invalidating the foundation of direct-to-consumer delivery.

In May 2014, FedEx was charged under the Newfoundland Liquor Control Act for allegedly transporting a case of wine ordered by a local consumer from a British Columbia winery. This so-called contraband liquor case will be heard in provincial court in June 2015.

Most recently, Saskatchewan and British Columbia launched discussions on a bilateral reciprocity agreement that will support the interprovincial direct delivery of locally produced wine and spirits between residents of those two jurisdictions.

Thus, despite widespread support for expanding consumer choice in wine, most consumers across Canada are prohibited from purchasing the wines they desire directly from an out-of-province winery.

At the CVA, we recognize the frustration of an industry that wants to grow and has the capacity to do so, but faces so many obstacles. The Canadian wine industry accounts for just 30% of annual wine sales volume, the lowest market share of any wine-producing country in the world. We have set a strategic goal of commanding 50% of the domestic market by 2020; however, to achieve this goal, we must secure additional opportunities for wineries to access Canadian consumers across the country.

Over the past decade, 300 new wineries have opened across Canada, stimulating more than $1 billion in capital investment. These wineries are predominantly small businesses focused on premium wines, and each year a greater volume of high-quality wine is produced, yet our premium VQA wines represent a mere 6% market sales share across Canada.

Provincial liquor boards are under no obligation to carry Canadian wines, yet our industry continues to work hard to grow sales within the established retail system, with limited success. Only two provinces have a VQA market sales share greater than 10%. The remaining eight provinces have a VQA market sales share of less than 4%. Of these, three provinces have a VQA market sales share below 1%, which is unacceptable.

Direct delivery provides consumers with an alternative to access our award-winning Canadian wineries, which can also relieve the mounting pressure on brick-and-mortar liquor boards with limited shelf space. We know from the experience in the U.S., Manitoba, and British Columbia that the amount of wine that will be shipped through interprovincial direct sales is limited. With a shipping cost of $3 to $4 per bottle, consumers will first check the availability of a sought-after Canadian wine in their home province or local retail outlet before ordering from a winery.

The reality is that wine is becoming the beverage of choice in Canada and presently accounts for 30% of the beverage alcohol market, up from 18% in 1995, making Canada among the fastest growing wine markets in the world. All major wine-producing countries are investing tens of millions of dollars into Canada to build their brand presence and sales opportunities. Combined with the reduction and elimination of import tariffs, wine imports have garnished 80% of total wine sales growth in Canada over the past decade.

Canadian wineries believe that direct delivery will stimulate more wine sales, drive tourism, and support greater investment and job creation in wine regions across Canada. This is good for Canada, as we know that every $1 increase in Canadian wine sales stimulates a $3 increase in gross output along the value chain.

The removal of internal barriers to wine trade would ensure that consumers have increased choice with access to a wider range of Canadian wine products; that wineries will maintain and expand market opportunities and build relationships, awareness, and consumer loyalty; and that provincial governments will continue to earn taxes, levies, and related costs based on services provided.

Since 2006 Canada has concluded free trade agreements with nine countries. Competition from imports is growing, and import tariff relief provided to the U.S., Chile, the EU, and soon to the Trans-Pacific Partnership countries has created and will create new competitive challenges, which demands that we secure free trade in our own market. This is the most important catalyst for growth both at home and abroad.

To achieve our goal of growing the Canadian wine industry from a $6.8-billion sector to a $10-billion sector over the next five years, we recommend the following: enhance federal engagement with provincial governments to remove interprovincial barriers to wine trade; create an expert intergovernmental working group to facilitate an interprovincial direct-to-consumer alternative for Canadian consumers; implement a priority pilot project to remove interprovincial barriers to wine trade under the auspices of the Agreement on Internal Trade; and establish a multi-year federal funding program for Canadian domestic wine market development to grow wine country tourism and domestic market share for Canadian wines.

Once again, thank you for your ongoing support of the Canadian wine industry and for your efforts to remove internal barriers to trade.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Paszkowski.

Now I will turn it over to Ms. Townsend, please, from the Canadian Seed Trade Association.

You have 10 minutes.

[Patty Townsend, Chief Executive Officer, Canadian Seed Trade Association]

Thank you very much, Mr. Chairman and committee members, for giving me the opportunity to offer the seed industry's perspective on barriers to domestic trade.

As Mr. Shipley said, my name is Patty Townsend, and I'm the CEO of the Canadian Seed Trade Association, or CSTA.

The CSTA is the national voice for the seed industry in Canada. Our association represents 130 companies involved in all aspects of the seed industry. They're engaged in all production systems: conventional, organic, and systems that use modern biotechnology. We work with over 50 different crops, and our members range from small family-owned companies to large multinational companies. Our sector in 2012 contributed $5.61 billion directly to the Canadian economy.

The CSTA's mission is to foster seed industry innovation and trade. We work to create a regulatory and trade environment that encourages investment and provides opportunities for our members to conduct their businesses domestically and internationally. We focus a lot on international barriers to the trade of seed, but it's also important to look in our own backyard. We appreciate the fact that you've undertaken this study.

Generally speaking, unlike the wine industry, seed trades pretty freely across provincial boundaries. However, the barriers that we do have or that we face are potentially very negative for our industry. We have a robust and internationally respected science-based federal regulatory system in Canada, overseen by the Canadian Food Inspection Agency, Agriculture and Agri-Food Canada, Environment Canada, and Health Canada. These regulatory bodies have the jurisdiction, the expertise, and the resources to create regulations, provide oversight, and enforce the regulations when they're required. However, there are some provinces that have implemented or are planning to implement additional provincial regulations that are not in step with other provinces. They run contrary to federal regulations and they're not based on science. Most of this presentation is going to focus on science.

One major issue for the seed industry for over a decade now has been dealing with the Province of Alberta's strict regulations on fusarium graminearum, which is a fungal pathogen, mostly of cereal crops. As you heard earlier from Cereals Canada, in 2002 the Alberta government, believing that Alberta was free of fusarium, launched by regulation an enforceable management plan in an effort to prevent its establishment. Now, more than 10 years later, fusarium is present and well established in Alberta, despite the existence of the management plan. It's being found increasingly in wheat, durum, and barley in widespread areas of the province.

The current fusarium management plan requires that in order for farmers to have access to seed, the seed must be tested and found to be “non-detect”. Given the presence of fusarium in other provinces and in the United States, it is difficult to source higher generation pedigreed seed from which seed growers in Alberta and elsewhere can produce seed for Alberta farmers. In addition, seed produced in Alberta that presents even with extremely low levels of fusarium needs to be moved out of the province and sold as grain instead of seed, at much lower prices.

Recent scientific reviews concluded that tolerance levels for seed with up to 5% fusarium could protect those areas in Alberta that are relatively free of fusarium. Tolerances of up to 10% would not affect the infection levels in those areas where fusarium is already established, yet despite the science, the non-detect requirement remains.

A rough analysis by CSTA members indicates that retail prices for wheat seed in Alberta range from 12% to 19% higher than in Saskatchewan and Manitoba. There are cases where the inability to source seed of new varieties has meant that Alberta farmers don't have access to those new varieties, and they're at a comparative disadvantage to farmers in Saskatchewan and Manitoba.

In keeping with the need to base decisions on science, I need to state again that in order to be successful and to remain competitive as an industry, we rely on government and regulators at every level to make sound decisions based on reputable science. Sound scientific principles are measurable, reproducible, and predictable, and they apply equally to all stakeholders. Regulatory assessments and approval processes based on science ensure that all products are assessed consistently, giving confidence to consumers and to the developers of innovation.

Health Canada, specifically the Pest Management Regulatory Agency, or PMRA, is charged with evaluating, approving, and then cyclically re-evaluating crop protection products to ensure that they meet health, safety, and environmental standards using strict science. The PMRA has the mandate, the expertise, and the resources to carry out this work.

However, there is a growing trend among some provinces that feel that they require additional regulations that don't conform to science-based approaches and rather loosely apply their own interpretation of the precautionary principle. Practically ignoring the federal regulatory processes, provinces can create and are creating their own regulations, resulting in a regulatory patchwork that puts seed companies and growers at a competitive disadvantage compared to not only other provinces but also the United States.

CSTA seed company members invested $110 million in plant breeding and variety development in Canada in 2012. In order to continue to expand that investment, all plant breeders, public and private, need clear, transparent and uniform regulatory systems.

With few exceptions, seed may not be sold in Canada unless it's of a registered variety. Variety registration is overseen by the Canadian Food Inspection Agency, but recommendations for registration are made by committees that are provincially or regionally based. That means that varieties can be registered for sale in some regions and not in others. This situation combined with the Canadian Grain Commission's listing of varieties eligible for classes creates a tremendous amount of confusion and makes for a less transparent system for variety developers and for farmers.

For example, of the 144 varieties listed in the Grain Commission's Canada Eastern Red Spring wheat class, 45 are not registered in Quebec, 23 are not registered in Ontario, and 17 are not registered in either province. Many others are not registered in Atlantic provinces.

If we look at the Canadian Food Inspection Agency's list of registered varieties of spring wheat, things get even more complicated, because 46 spring wheat varieties are registered only in western Canada, four are registered only in Quebec, and two are registered only in Ontario. Bringing Atlantic Canada into the mix once again just increases the confusion.

It's not legal to sell seed of unregistered varieties. CSTA is hopeful that the modernization of Canada's variety registration system will address this situation and reduce the confusion and the cloudiness in the system.

I'm probably pretty close to my time, so I'll stop here. I look forward to questions.

[The Chair, Conservative, Bev Shipley]

Thanks a lot, Ms. Townsend.

Actually, both of you did very well in terms of your timing.

I'll turn to the committee members.

We'll start with my colleague Mr. Allen for five minutes.

[Malcolm Allen, NDP, Welland, ON]

Thank you, folks, for being with us.

Mr. Paszkowski, page 8 of your brief talks about the domestic wine industry and CVA's winning at home strategy. Could you go through it for me? I believe I have the picture, but I want to make sure I actually do.

It outlines, as you said, that $6.8 billion is the total industry now. You've broken it down. It seems $3.7 billion is what we call Canadian wine, or 100% Canadian grape in the bottle, if I can use that term loosely. We have a VQA thing for it, but let's just say 100% grape in the bottle.

The lesser amount, $3.1 billion, is from international-Canadian blends, or Canadian grapes blended with grapes from somewhere else.

Is that fair to say? Are those accurate numbers?

[Dan Paszkowski]

Yes.

That's blended in Canada but—

[Malcolm Allen, NDP, Welland, ON]

Clearly the domestic content as a dollar value is greater than the blended piece that we see.

When I get to the bottom part of that, the winning at home strategy, am I reading this right in the sense that you believe you can increase the Canadian portion of $3.1 billion at an 11% rate versus increasing the continental blended portion at a 4% rate? Is that the sense I'm taking from this? Obviously it means a heck of a lot to farmers if it's 100% content in that bottle versus a percentage, when it comes to a grape farmer in the country as the primary producer. Is that the sense that I'm seeing there or am I missing a piece of it?

[Dan Paszkowski]

No, you're getting the sense of it. The 100% Canadian component is slightly larger than the blended component in terms of contribution to the economy, because there is a significant amount of tourism that is included in the premium side of the business. Tourists are going to visit our 100% Canadian wineries but not necessarily our blending facilities.

Through our economic study we've identified an opportunity for growth in both categories if some steps are taken. We believe we could grow revenue sales for the blended category by 4% if we were supported with an excise exemption for the Canadian content in those wines. We believe we could grow the 100% Canadian side, our premium wines from Ontario, Nova Scotia, Quebec, and British Columbia, if we were provided with some funding to do some domestic market promotion.

If we could educate Canadian consumers, we are confident that we would be able to grow the business by 11% per year on the premium side and 4% per year on the blended side.

[Malcolm Allen, NDP, Welland, ON]

The economic impact of the numbers you're showing is rather staggering: 14,500 direct and indirect jobs, $119 million to federal tax revenues, and a $2.58 billion impact on the economy.

If we can find a way for non-producing provinces that don't actually make any wine.... I mean, Saskatchewan makes fruit wine. I've met the owners and they're doing a great job, but they don't make traditional wine. With the greatest of respect to my friends in Saskatchewan, they don't really grow grapes there. There might be some wild stuff that the birds eat, but they don't make wine.

They're not known for making wine in New Brunswick yet. They're making some wine there now, so there's finally a small industry there. But clearly there are some areas in this country where there is no wine industry.

From your perspective, because your group has been at this for a long time—this is not a new phenomenon—do you get a sense of what the reluctance is, in the sense of how we can do this?

As you pointed out in your earlier comments, we all supported Dan Albas' bill. We were very supportive of it; in fact, we all voted for it. We thought that was going to get us somewhere. It got us a little bit, but it didn't get us where we all thought it was going to go.

Do you have any sense of why the provinces sort of dig in their heels on this?

[Dan Paszkowski]

Largely it's a revenue issue. The provinces are concerned that allowing direct-to-consumer delivery will displace sales at their stores and they'll receive no revenue, so there will be a revenue loss.

We believe that the amount of wine that will be shipped will be relatively small. I think we're looking at something like 60,000 litres per year that will be direct delivered. These are going to be our most premium wines. The average price of wine being shipped in the United States is $38.00 per bottle, so it's a very unique clientele who would be purchasing these wines. However, that provides a very important sales channel for some of the smaller producers to enter into, and they're going to be the major beneficiaries of direct consumer delivery.

It is largely a revenue issue and opens that door even slightly to the monopoly system that currently exists in this country. But if you put in place an appropriate—

[The Chair, Conservative, Bev Shipley]

I'm going to have to ask you to shorten it. We're well over time.

[Dan Paszkowski]

Okay. I'm sorry.

If you put in place a direct-to-consumer system, taxes can be paid. Provincial taxes should be paid, as well as the levies on that direct-to-consumer shipment. The difference is the markup that's charged by the liquor boards for the services they provide. If they're not providing any service or they're providing limited service, they shouldn't receive full markup, because the winery is doing the work.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Allen.

We'll now move to Mr. Dreeshen, for five minutes, please.

[Earl Dreeshen, Conservative, Red Deer, AB]

I'm glad to be able to speak with you folks today.

Patty, I'd like to focus on some of the things you were speaking about. As a grain grower in Alberta, I do understand the situation as far as fusarium is concerned and the fact that you have to have it tested. Obviously you can't take it into any commercial seed-cleaning plants if that is the case, so there are restrictions there. As you said, it limits the opportunity to be able to bring it in from other provinces where they don't have the same rigorous testing regime.

You were also speaking about low-level presence, and that's always an issue that we hear, even when we're talking internationally about certain types of things. You said that 5% should be a target area that wouldn't be affected as far as certain areas are concerned when you go to reseed it.

I want to talk about the science aspect of it. People can throw any number there and you don't know where it's going to land. I wonder if you can expand upon that a little so we can check that part out.

You were stopped a little early, as well, and I think you may have had some other issues in some of the other provinces. Since we have to look at the whole country and some of the issues there, I wonder if you could expand on that as well.

[Patty Townsend]

Sure. Starting out with the fusarium one, about five years ago, when this became.... Well, it's been an issue for a long time. It started out in corn, and now it's more in other cereals that we're seeing the issue. A number of years ago when this became a really big issue, we actually asked the Minister of Agriculture in Alberta to do a scientific review of the situation of fusarium, because all of our members and farm organizations in that area were telling us that areas of the province did have fusarium in fairly substantial occurrences. He did launch that study. It was done by Dr. Andy Tekauz, and I can actually send a copy of that study to the clerk, if you wish. It was that study which concluded that there are areas that still have very minimal levels of fusarium, and in those areas, that's where he said you could actually ship seed in containing a maximum of 5% and you would still maintain those very low levels in those areas.

There was another scientific study done at the same time, and the two names totally escape my brain right now; I'm getting old. They are the ones that concluded that in the areas where it is prevalent, the 10% level could work.

They were both scientific studies. I have copies of both, which I can forward to the clerk.

What we're saying at CSTA and what we've been saying all along is we certainly don't want to have a negative impact on those areas that have low levels of fusarium. It's a very significant issue. It causes some very substantial problems in the feed sector and other things. We also think that you don't have to have a one-size-fits-all policy, so you don't need zero for everybody if you have the evidence in those areas. That's why we're suggesting that perhaps there could be some zones that would accept seed at a higher level than in others, and that's what we're exploring right now. Unfortunately, since those scientific studies were done and the fusarium management task force or committee looked at them, we haven't seen any movement.

[Earl Dreeshen, Conservative, Red Deer, AB]

In a case like that then, provincial movement of seed, after it has been grown, the expectation would be that you'd have to know what zones they were in because you'd have the same kind of issue except more at a provincial level.

[Patty Townsend]

You would, and seed produced in Alberta in those areas...so if you produced seed in that lower zone area and it had higher than that level, you'd still have to take it out of the province and probably sell it as grain.

[Earl Dreeshen, Conservative, Red Deer, AB]

We've kept the rats out, but we may not be able to keep the fusarium out of Alberta.

Let's go back, then, to other provinces and perhaps some of the issues you see as an association.

[Patty Townsend]

I think that's more along the lines.... Because agriculture is a shared jurisdiction and for the most part so is environment, you see a lot of things happening, for example, urban pesticide bans where provinces have chosen to ban the use of crop protection materials in certain areas. We have a problem in Ontario right now with the Ontario government deciding it's going to impose regulations on the use of insecticide-treated seed. There are other provinces that are looking at things like bans on planting genetically modified organisms. We see that all the time, those things coming up, like mandatory labelling in different areas. There are a lot of things that our industry comes up against on a regular basis, because we share jurisdictions federally and provincially in agriculture and environment.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Dreeshen.

We'll go to Mr. Eyking for five minutes, please.

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

Thank you, guests, for coming.

Patty, I'll start off with you. This last year, our committee went through the new legislation and the UPOV and how that was so beneficial to the seed industry, especially new varieties, and helped us on the international scene. Now we're embarking on what's happening within our own borders, and because of our constitution, the provinces still have a lot of say. We, as a federal government, should take the lead in helping foster more interprovincial trade and movement.

You mentioned that some of the provinces are more restrictive than others for letting seed varieties come in. Right?

[Patty Townsend]

It's an interesting situation. I'm assuming you're talking about variety registration. Theoretically, when you register a variety in Canada, it's supposed to be a national registration. Provinces again—Ontario is a big one; Quebec is a big one—have big concerns around things like fusarium, as Alberta does, and they actually restrict registrations. If I develop a variety in Saskatchewan and register it through the western committee, theoretically it's supposed to have a national registration but very, very seldom does it. What that means is that seed can't be sold in those provinces where it's not registered.

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

If I'm growing winter wheat in Nova Scotia and I have a grower who's growing seed grain in Saskatchewan, I have to go through a process. I can't just pick up the phone and say I need so many tonnes of this seed grain.

[Patty Townsend]

No, they cannot sell that variety in Nova Scotia unless it's registered by the Atlantic committee.