Agriculture Committee on March 10th, 2015

[The Chair, Conservative, Bev Shipley]

Colleagues, I'd like to call this meeting to order.

First of all, I would like to introduce our witnesses today. In the first hour we have Food Processors of Canada and the Canadian Canola Growers Association.

Because of a conference, there won't be witnesses in the second hour. There's a convention and some had to pull back, but we'll be back here after the break and we have a full schedule ahead of us.

From the Food Processors of Canada, we have Christopher Kyte, president. Via video conference from Winnipeg, Manitoba, from the Canadian Canola Growers Association, we have Rick White, the CEO. Welcome to both of you.

What I wouldn't mind doing, just because technology works most of the time, is to move down to the second on the list.

We'll start with you, Mr. White, for 10 minutes, please.

[Rick White, Chief Executive Officer, Canadian Canola Growers Association]

Mr. Chair, thank you for the opportunity to testify on your study on promoting domestic trade by reducing interprovincial trade barriers.

The Canadian Canola Growers Association represents 43,000 canola farmers from Ontario west to B.C. on issues that affect the profitability of canola. A key tenet of our work is to ensure open trade for canola and canola products domestically and internationally. Our sector has set an industry goal of producing 26 million tonnes of product by the year 2025 and a strong domestic market is important for realizing this goal.

We would like to extend support for Industry Canada's initiative to modernize internal trade in Canada and specifically to the committee for its study on barriers to agriculture and agrifood trade. A transparent, well-functioning, and predictable internal market is important to ensuring a healthy growing agriculture sector and one where investors are encouraged to locate.

A predictable, barrier-free market has the potential to generate new opportunities within Canada. Eliminating trade barriers, whether domestic or international, is key to farmers' success.

As Canada seeks to expand our international trade agreements, we also need to make sure that our internal markets are as barrier free as our international markets. Open markets foster competitiveness, growth, and jobs.

There are a few key areas where we see that a stronger Agreement on Internal Trade could resolve internal disputes and interprovincial irritants and make Canada a more attractive place to invest.

One area that needs attention is the dispute mechanism of the Agreement on Internal Trade. Stronger language, similar to the binding commitments we make when signing international agreements, and more certain timelines for the resolution of disputes, would bring more certainty to the process.

The case involving Quebec’s Food Products Act that was brought forward under the agreement by the Government of Saskatchewan and supported by Manitoba, Alberta, and British Columbia, is a case in point. Although the case was eventually won, last week an appeal panel under the Agreement on Internal Trade upheld the 2014 ruling that Quebec’s Food Products Act did in fact restrict the sale and marketing of vegetable oil-based dairy blends, including canola. The timeline between when the case was brought and until it was resolved was long.

Together with a similar dispute and ruling in Ontario in 2011, it took close to five years to secure access for western Canadian vegetable oils in Ontario and Quebec. That timeline is too long to provide industry participants with incentive to invest and innovate. A dispute settlement mechanism and compliance mechanism similar to those in the WTO or NAFTA should be considered as a key part of a modern AIT.

To illustrate the positive impact such changes could lead to, we can look at the opportunities in Ontario and Quebec. These provinces represent two-thirds of the Canadian food market and represent a significant market for growth in food products. As a result of the ruling, there are now new opportunities for marketing and processing of Canadian-grown canola. Increased domestic sales diversify our customer base and keep the economic benefits at home in terms of increased value-added manufacturing and job creation. Equally important, Canadians are increasingly looking for healthier food options, which canola can provide through butter-oil blends and alternative new products.

Another irritant currently faced by canola farmers that could be addressed by an expanded AIT is the growing patchwork of provincial and municipal non-scientific regulatory or quasi-regulatory restrictions. For some time we have seen a move by other jurisdictions away from a science-based approach and guidance provided by expert national regulators. This has resulted in inequities among industry participants, including growers, depending on where they live in Canada. Provinces and municipalities can take decisions of a regulatory nature that are directly contrary to scientific evidence provided by national regulators whose job it is to set standards and safeguard Canada's food and environmental safety.

Measures restricting the use of neonicotinoids, enacting cosmetic pesticide bans, or proposing local bans on genetically modified foods have been taken contrary to evidence provided by national regulators. They are serious impediments to a well-functioning and coherent internal market and send mixed signals to investors, creating uncertainty that leads to underinvestment and a lack of innovation.

A good recent example are the proposed Ontario restrictions on the use of neonicotinoid seed treatments. If this proposal is implemented, it will result in Ontario canola farmers no longer having access to the same pest control alternatives as their counterparts in the rest of Canada or their competitors south of the border. This impacts both Canada’s exports, but also the intraprovincial trade in crop protection products and seeds. It is estimated by the Grain Farmers of Ontario that, if adopted as proposed, this regulatory change would cost Ontario farmers $630 million. It would discourage investment in the province and encourage production and investment to move elsewhere.

More broadly, such initiatives undermine the general public’s confidence in the federal regulatory infrastructure and in Canada’s food system. It has also had an adverse impact on investment in Canada. Investors are looking for stability and uniformity when calculating their return on investment and determining whether to invest.

An enhanced AIT could be a place where, if agreed to by provinces and territories, disputes could be resolved with a view to making our internal and external agreements work together seamlessly.

The last point I’d like to raise with the committee is the lack of consistency between Canada’s international free trade agreements and the Agreement on Internal Trade.

The federal government has worked diligently to secure and open international markets for agriculture and agrifood, and as such, it only makes sense that intraprovincial trade occurs on equal or better terms than those extended through the most ambitious of Canada’s free trade obligations. As the vegetable oil industry has recently experienced with its AIT panel ruling, the dispute settlement mechanism process should be made more robust and align with those extended under our other key trade agreements like NAFTA and the WTO. An updated process would assist in reducing domestic barriers to trade and strengthen Canada’s ability to compete internationally.

Thank you again for your invitation. I’d be happy to take any questions when the time comes.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. White.

We'll now move to Mr. Kyte for 10 minutes.

[Christopher Kyte, President, Food Processors of Canada]

Mr. Chairman and committee members, thank you for inviting me to make a presentation.

Food Processors of Canada is an association representing investors whose companies make such products as pizzas, dinners, entrees; they're all further processed products. We ship interprovincially and internationally. My members range from very small companies that are family run to larger companies, but none of them are publicly owned. They're all privately owned.

Our members' food is certainly blessed with a strong regulatory framework that facilitates and allows us to trade interprovincially and internationally. The rules support the categories so that we don't have problems from one province to another. There's a federal inspection system that is augmented both by retailer and customer inspections, certain audits, and of course in many of our plants, foreign countries come in and inspect as well.

Government standards from our point of view are minimum standards; they are certainly not maximums. Most companies exceed those. When they don't exceed those as a culture, you sometimes read about them in the newspapers. We can't afford that. We don't want to lose the trust of our customers, the retailers—they're unforgiving, as they should be—and more important, our consumers. We know that when companies breach the national regulations and something nasty happens, the whole category will certainly take a big hit and stay a low-profile category for consumers for months, such as we saw with listeria and sandwich meats. The market really holds everyone to account.

The government standards protect consumers and business, so it's important to have strong national standards. All of our regulations are NAFTA and WTO compatible. Imports are supposed to meet the same regulations that Canadian companies do. These set the rules for competition and consumer protection so that a processor knows that his competitor is playing by the same rules. Equal and consistent enforcement provides predictability and it supports investment.

This is kind of an interesting statistic. The Canadian Agri-Food Policy Institute said that on average, further processors buy 38% of farm produce. In Ontario and Quebec they purchase up to 70%. Any time the further processor gets hit in the marketplace, certainly if he has a fairly sizeable market, so do his producers.

From our point of view, if companies say that they can't grow their business because the processed product regulations or the meat regulations are too stringent, I think that if provincial governments feel that those companies are winners, then they should do what other companies have done and invest in their infrastructure and their food safety systems so that they could comply with national and international rules. What we would encourage is, if there are companies that are in a particular region and they can't seem to move to the next level, if provincial governments have faith in those companies, they should invest in those companies. That's one way to get around interprovincial trade barriers.

We certainly do not want to see a lowering of standards because that applies right across the board. Whatever standards we apply domestically, we apply internationally in packaged goods.

There is one thing that I would suggest, and it's a bit of an Achilles heel; it's a bit of a job killer. I think that the Canadian Food Inspection Agency does a good job of how it spends its money internally in regulating and auditing plants, but I don't think that it does a good job at how it protects consumers at the border. There's a large number of incidents of mislabelled, illegal products coming into this country, and that steals jobs from Canadians. If there was one shortfall in our regulatory framework, it would certainly be at the borders.

Mr. Chairman, that ends my presentation. I sent a fuller presentation. I'm willing to take questions at any point.

Thank you.

[The Chair, Conservative, Bev Shipley]

Thank you very much.

Madam Raynault, for five minutes.

[Francine Raynault, NDP, Joliette, QC]

Thank you, Mr. Chair.

I would like to thank both the witnesses for being here today to answer our questions. It's a pleasure to have you here.

Mr. White, one witness told us that the agrimarketing program was not adequate for businesses that want to expand locally, given that the program is focused on access to national and international markets.

How would you like us to improve the agrimarketing program to foster the expansion of your business? Mr. Kyte can also answer, if he wishes.

[Rick White]

Basically, from our perspective, with a substantial crop like canola that we grow, basically we rely heavily not so much on the agrimarketing program but on open and free trade. We need those barriers down whether domestically or internationally. We need tariff and non-tariff barriers reduced. There may be other organizations that use that program. I'm sure it's very valuable to them, but we don't actually do the marketing ourselves, so I'm not in a position to comment on it directly.

[The Chair, Conservative, Bev Shipley]

Mr. Kyte.

[Christopher Kyte]

We don't use the program either. We really don't need any programs to support our businesses domestically.

[Francine Raynault, NDP, Joliette, QC]

Okay.

Mr. Kyte, in your presentation, you said that over 150 food processing plants have closed their doors in Canada. The American multinationals have moved their facilities to the United States. So we are facing a trade loss of $7 billion.

What would you recommend to reduce this deficit and save jobs in Canada?

[Christopher Kyte]

I think what we've lost already, we've lost. We're not going to reclaim those jobs. We're not going to reclaim those businesses. We've seen a lot of American multinationals shift the production into the United States. Quite frankly, I expect that the last few will probably disappear over time. It's important to look at the Canadian food industry to see what policies and programs we can put together to nail that investment, keep that investment in this country.

We had a campaign about three years ago. In that campaign we really learned how important a food processor is in any given community. If you look at Leahy Orchards in Franklin Centre, Sun-Brite in Kingsville, or the companies that are around Leamington, those companies are so important not only because they provide jobs, but because they also take in, in Ontario certainly, 70% of the produce. So it's devastating.

What you want to do is you want to grow those companies. What we need as a country is a plan, an industrial strategy that says what it is we need going forward.

The competition for investment is getting more fierce. As the United States gets more competitive, the States are putting together programs to try to attract our investments into the U.S. very actively. About 50% of my board of directors have now either expanded into the United States or are considering expanding into the United States because the cost of production is lower.

We're not saying we have to get ahead on the backs of our labour or on the backs of our farmers. We require that labour, we require those farmers. They're our partners. But there are things we can do in this country to stabilize that investment and drive our costs down other ways.

[Francine Raynault, NDP, Joliette, QC]

You are saying that we shouldn't cut back on the working conditions of farmers.

As a farmer myself, I know that farmers must do a significant amount of work to meet demand and provide a quality product to processing plants.

Mr. White, can you provide us with figures on the losses associated with the interprovincial barriers? Do you have any data on that?

[Rick White]

No, I don't have any dollar values. We looked at the restrictions on Ontario and the Quebec milk act, which eliminated the possibility of getting a butter-vegetable oil blend or dairy analogs into the market. Between those two markets, they represent, I believe, about 75% of the food demand in Canada. If you can't get into those two markets domestically, the food manufacturers probably aren't going to develop products for the other parts of Canada with lower populations. When it came to that challenge, we had to get the Ontario and Quebec markets opened up so that those food manufacturers had a sizeable market to go after to develop those products in the future.

Now I guess it's been resolved. We expect that manufacturers will be in a much better place now to offer consumers in those provinces, and in Canada as a whole, more healthy options for consumers to pick and choose as they please from the grocery shelves.

[The Chair, Conservative, Bev Shipley]

Thank you, Mr. White.

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

[Earl Dreeshen, Conservative, Red Deer, AB]

I'd like to start off with you, Mr. Kyte.

In the presentation you gave us, you talked about the rules, tools and access agenda. When you were talking about the access agenda, you were saying that processors need access to competitively priced inputs like those available to their competitors.

I wonder if you could flesh that out a bit so that we have an idea if there are interprovincial barriers that cause that, as our study is in that regard. I know that in some of the other things you were saying it's an international issue you're dealing with, but could you focus on what the interprovincial barriers are for your processors?

[Christopher Kyte]

We don't really have interprovincial trade barriers in that area.

Supply management is certainly managed provincially, but that isn't an impediment for us. When I make the observation that we need predictable access to competitively priced inputs, we get it, say, in poultry, because there is a program set up so that we can get chicken so that we can compete against imports.

Some chemicals we can't.... Some chemicals that we could use in the cornfields or wherever are used in the United States, but not in Canada, so both we and our growers are at a disadvantage. We need parity on that front.

For dairy there are premiums between 20% and 30% or 40% that we pay on dinners, entrees, and pizzas that our competitors don't pay. If you look at Delissio pizza which comes in from the United States, 43% of the cost of the pizza is the cheese. The United States is subsidized differently and we pay a premium for that. We have to take that out of other areas in our businesses.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you.

I think the point you mentioned about chemicals as far as corn growers are concerned maybe ties into the point I want to talk to Rick about. It has to do with one of the comments you had made with regard to restriction of use—neonicotinoids, cosmetic and pesticide bans, and proposed local bans on genetically modified foods—and taking a look at canola and recognizing what this Cinderella crop has meant for Canada and the world. I think that ties into some of the discussions that we have.

I know there have been people who have worked hard to try to make sure the scientific aspect of this is being presented. I wonder if you can take this opportunity, Rick, to help those people know where this is going and the strength we have behind the science aspect of this crop.

[Rick White]

Right, thank you. It is a very serious issue.

We have the federal authorities in place that do very rigorous testing, monitoring, and assessments before any of these products are released for commercial use. Those tools, like pesticides for example, are used by farmers. That's what helps them to grow these crops we make food from.

With all the science-based backing of all the approval process we have, Canada is a first-rate nation when it comes to relying on that at the national level. What we're worried about is that we see an undermining of that occurring at the provincial level when local pesticide bans are put on for no good reason in terms of science. If there is a problem, everyone is aware of it and more studies kick in. What we're finding is happening more and more is the politicization at the provincial level or the municipal level to go against the science and put a ban in place where there is no scientific rationale for it.

What we're worried about is that it's starting to undermine the credibility of our federal science-based system, and that's the wrong direction to be going.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you.

Another question is on the other point you were talking about in the Agreement on Internal Trade. You were talking about the language that this required. Your concern was the length of time that it takes for provinces to sort out the issues they have, even compared to what we would see in an international agreement.

Can you give us an idea of what you feel the timeline should be in order to match up? Also, do you think there are ways in which your organization perhaps can work its way into the communication between the different provinces?

[Rick White]

Right. Well, in terms of timeline, it depends on the issue, but what we really need are clarity, certainty, and predictability through the process. One or two years should be more than sufficient to come to a decision and a binding resolution on the issue at hand. This five-year stuff takes a lot of time, a lot of lawyers, and a lot of money to go through, and at every step of the way there's uncertainty.

Instead of the ad hoc panel approach under which the AIT currently is set up, we'd like to see a more permanent tribunal set up so you don't have to draw in a new panel every time there's an issue and get them up to speed with the issue. Some of those things really drag out the timelines. If we were to have a permanent tribunal in place, with the expertise of that tribunal available for complaints that may come forward, complaints that are not only government to government, but industry to government or individuals to government, whatever the case may be....

We think a more permanent fixture like a tribunal, emulating our experiences at the international level, should be replicated at an internal level through the AIT. It would be more predictable and would have more certainty with regard to the process involved. We think a more permanent tribunal would be a good fix.

[The Chair, Conservative, Bev Shipley]

Thank you, Mr. Dreeshen.

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

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

Thanks to our guests. Your organizations represent a lot of food production and food that's growing. You're from different sectors in the food industry, and I guess it gives us a good overall snapshot.

My first question is for you, Mr. Kyte.

You alluded to the CFIA and how they do an adequate job here in this country, but there are a lot of these products coming into our country that they're not really dealing with at the border. I think the United States probably does a more vigorous job with stuff coming in. Can you give us examples of some of the products and what the United States does compared to Canada? If you were in charge of the budget at the CFIA, how would you go about restructuring it?

[Christopher Kyte]

Mr. Chairman, I'm sure there's somebody here with a tape recorder.

[Voices]

Oh, oh!

[Christopher Kyte]

I'll be welcomed back any time.

Listen, there are a couple of things.

Number one, I think probably they get graded more on how they inspect plants than they do on putting people at the border.

You can monitor the border in a lot of ways. One is if you license the importers. We've been a big advocate of this for years. If you license importers, then you have some control mechanism over what they do and how they do it.

We have found a number of companies that buy product in the grey market in the United States. What happens is that then they don't want to bugger up the American market, so they ship it into Canada. Well, by the time you get it out of the country, it's been sold. We do have some of those high-profile cases. You have a lot of companies that are discounters, and the products just leach into these discounters all the time. It's taking away jobs.

The other thing is that because the dollar has now gone to about 80¢, many companies shipping into Canada won't do it on a full margin, right? It's fully absorbed cost, so they dump it. Now, you need to have a 38% market share and a lot of time to take these people to court, but there are other ways. You can take a good look at their labels and find infractions easily, especially if they're unilingual.

There are a lot of things, but it's an attitude thing too. The CFIA recently I think changed its mandate, because they used to be the cornerstone for our competitiveness as well. They ensure the marketability of our food, and if our food isn't of high quality and we don't have the right systems in place, we can't ship it anywhere. There should be some quid pro quo.

You're right. The United States is very aggressive. For my guys, if those labels aren't correct, that food comes right back.