Thank you, Mr. Chairman.
I also want to thank the committee members.
It's an honour to present to you on your important topic of internal trade barriers and the link to growth and competitiveness in the Canadian agrifood industry.
Let me start with a word that sometimes makes Canadians a little uncomfortable, but it's crucial to making Canadian agrifood businesses become or remain globally competitive. That word is “scale”. Of course, the economic concept is simple and well understood, I think, and it's relevant regardless of the starting point, meaning that I think we see many cases of small Canadian food companies that are very innovative and have a great product, but they fail to become medium-sized businesses with a competitive cost structure, because they don't succeed in scaling up.
You may know that it was back in 2006 that Maple Leaf Foods was losing a significant amount of money when it first announced its major new business model for our protein operations, with the goal of changing our cost structure, reducing exposure to commodity markets, and modernizing our plants. Unlike many other companies, we decided to maximize our scale on this side of the Canada-U.S. border. The journey since then has been tumultuous, but we've stuck to the plan, and we have now basically completed the journey of investing over $1 billion in meat processing centres of excellence in Canada.
All of these productivity-enhancing investments and restructuring activities have been carefully calculated to achieve a competitive return on investment. That return is, in almost every case, scale dependent. Unless we achieve per-unit manufacturing and distribution costs, SKU by SKU operating overheads, and plant capacity utilization on par with our domestic, U.S., and global competitors, we would have little future as a proud Canadian-owned company.
The question becomes what governments can do to help and how that links to the theme of your study. I believe the federal government is well aware of the need to close Canada's productivity gap with the U.S. There's lots of evidence in the action plans of government to make clear that the government is trying to solve this, but we never seem to close the productivity gap, even though we are often rated as a top destination for foreign investment. As the Institute For Competitiveness and Prosperity often reminds us, a productivity gap is also a prosperity gap.
So what's the solution? We believe it is to create conditions that allow investors, be they domestic or foreign, to achieve world-class scale. To do so, we must first accept that, frankly, Canada is a sub-scale country, but secondly, we should resist scale phobia. Scale is not a win-lose proposition in an open globalized market economy like Canada's, especially in agrifood. Farms and firms of all sizes and in all sectors can thrive, and many smaller input suppliers will grow in the wake of larger firms with leading brands.
In meat products, while Maple Leaf Foods enjoys leading market shares in certain categories, hundreds of other nimble companies and importers are thriving, constantly innovating and meeting the ever-changing consumer preferences. Sometimes, they even steal our employees.
However, if we are achieving cost competitive scale in sectors like autos, aerospace, and information technology, why not agrifood? Think about Heineken, Unilever, Danish Crown, Godiva, Carlsberg, and the tiny countries that they call home: the Netherlands, Denmark, and Belgium. But with 143 food plant closures in Canada in the past 8 years, and with a rising number of food imports from such global multinationals, it would seem that we need a new strategy with a central goal of scaling up in food as much as we have in many primary commodities.
Of course, scale doesn't come naturally in our large, diverse country. The impediments are great and the case for inducement is high, but surely we can build economic policies that also help our homegrown enterprises that, while large in a domestic context, need to be urgently scaled up to be truly globally competitive.
If any of you are thinking that is an easy statement for a big company like Maple Leaf Foods, I would just simply note that Maple Leaf is only the 17th largest meat processor in North America. We are dwarfed by global players like JBS, Tyson, and Cargill, with whom we compete at home and abroad.
So what are some of the obstacles firstly that government can remove to overcome some of the disadvantages that Canadian companies naturally face in our domestic market? Let me run through just some of them.
Firstly, there are various federal grant, loan, and tax programs. Such programs nearly always favour support to enterprises, foreign investors in particular being the real prize, locating in a rural or high unemployment area with job creation targets, but rarely with a real test to ensure that they achieve the scale and productivity necessary to be globally competitive. Often firms with 50 employees or more can't even apply for such support.
On the other hand, when it comes to supporting large manufacturers in their drive for scale and technology, it seems the majority of that support nearly always goes to the auto and aerospace sectors. Of course, there are very many provincial subsidy programs as well, which again often favour investments in rural locations. But in the meat industry, for example, we often see provinces supporting small regional slaughter plants that, if they are provincially licensed, cannot ship their products interprovincially, and so they struggle to achieve scale efficiencies.
There's also the question of Canadian competition and foreign investment policies, which, obviously, in certain sectors are very restrictive, but not so in agriculture and food. However, I would note that even when it comes to reviewing mergers and acquisitions, our experience at Maple Leaf in acquiring Schneider Foods in 2004 caused the bureau to undertake an investigation of the concentration in the Ontario market for bacon, of course a commodity that is freely traded throughout North America.
With respect to tax policy, we've seen many positive things in Canada with the reduction of corporate taxes, the elimination of capital taxes, the maintenance of the accelerated capital cost allowance, but we also of course have a high degree of variability in tax structures across Canada. There's a lack of a uniform, harmonized sales tax. We have a bewildering array of tax credit programs, which are often designed to favour small firms, and numerous job-killing payroll taxes, all of which increase accounting and tax-compliant costs for larger firms that operate across the country.
Then, of course, there's the regulatory environment. The first area there that I might mention would be regulated marketing, which is obviously an issue we're all familiar with. But regulated marketing and supply-managed commodities have a knock-on effect on processors. A good example would be the Ontario poultry processing industry, a $2.5 billion industry that is characterized by many subscale, inefficient plants, largely a result of the allocation policies that are the essence of supply management.
Food safety regulations are another example where there is a great deal of federal-provincial disconnect or lack of harmonization. However, I would say that at the federal level, the new regulations that we expect soon under the Safe Food for Canadians Act, coupled with inspection modernization, are very welcome. We would urge provinces to align with this federal example.
There are lots of municipal issues, including restrictive zoning and planning bylaws, which generally discourage or create a great deal of difficulty for the establishment of scale manufacturing industries, particularly in more traditional industries that are perceived to be sources of pollution, noise, or odour.
Then there are all the environmental regulatory issues that are very complex and often duplicative between different levels of government. As one example, we see this with the blue box recycling programs across Canada in the food industry, every one of them different, all highly fragmented, costly, and inefficient.
Of course, we need to encourage the removal of interprovincial trade barriers, but most often these arise not from explicit barriers, but rather are related to the consequences of provincial standards, regulations, licensing, procurement policies, and so on. All of these differences add to administrative costs for national firms. In the area of labour and pension regulation, every province is different. Maple Leaf has 19 collective agreements in its operations in Canada, every one subject to a different provincial labour law.
Finally, what are the inducements, then? If those are some of the obstacles, there are probably four main areas to consider in how we work to address the issue of stimulating corporate investment in scale and productivity. One would be to continue the accelerated depreciation of plant and equipment under tax policy. This has been very effective, but it's only being renewed two years at a time. It takes much longer than two years to move from the conceptualization through to the budget and approval of a major capital investment, so the ACCA should be made permanent.
Targeted loan and grant programs have an important role to play, but they should not discriminate according to rural or urban location, industry sector, skilled versus unskilled job creation, or firm size.
We certainly appreciate the Canada jobs grant, but we have a problem with a shortage of skills and availability of labour, which has been compounded in our industry by the overreaching reforms to the temporary foreign worker program.
Infrastructure needs to be built at scale. For example, the Asia-Pacific gateway, critical to growing our exports to Asia, is a great investment, but has been very slow to come to fruition because of all of the delays in getting individual projects approved.
Finally, we would encourage a national approach to facilitating investment attraction. We recently located our big new prepared meats plant in Hamilton and learned how difficult it is, when you're trying to get support from all of the different economic development agencies in different provinces in Canada, how little coordination there is. This is much different from other competitor countries.
In conclusion, from our perspective your committee is tackling a very important issue. In the current economic environment, food processors must close the competitiveness gap through restructuring and productivity-enhancing investments. However, the the ability to achieve this requires our industry to leverage production capacity and increase the scale of operations. It's only on this basis that we can defend our small home market from nearby U.S. multinationals that enjoy major scale advantages, let alone tackle the booming international markets.
Of course, if we had a small primary agriculture sector, with limited resources—
