Agriculture Committee on April 2nd, 2019

[The Chair, Liberal, Pat Finnigan]

Welcome, everyone, to our meeting. Pursuant to Standing Order 108(2), we are studying the official notice of non-compliance from China for the export of Canadian canola seed.

Today we have several new participants in our committee—Mr. Hoback, Mr. Dreeshen, Mr. Shipley, Mr. Maguire, Mr. Erin Weir—and I think we're all good on our side.

We also had a request from Mr. Weir, if it's unanimous, that he would be provided some time at the end for questioning. Being from Saskatchewan, he wanted to know if he had some time.

Are we in agreement to give the member some time at the end to ask questions?

[Some hon. members]

Agreed.

[The Chair, Liberal, Pat Finnigan]

Okay, thank you.

With us this morning we have, from the Canadian Canola Growers Association, Mr. Rick White, chief executive officer. Welcome, Mr. White, to our committee.

From the Canola Council of Canada, we have Mr. Jim Everson, president. Mr. Everson, welcome to our committee.

From Richardson International Limited, we have Curt Vossen, president and chief executive officer.

Is he on video? They're not here. Maybe they went to the wrong room.

[Randy Hoback, Conservative, Prince Albert, SK]

Francis and I went to the other room because that's where we thought the meeting was.

[Lloyd Longfield, Liberal, Guelph, ON]

There's a red notice on the screen.

[The Chair, Liberal, Pat Finnigan]

Maybe we can send somebody to make sure they're not wandering in the hall. We can start. We'll save them for the end. Hopefully, they'll be back before the end.

With Mr. Curt Vossen, we have Mr. Jean-Marc Ruest, senior vice-president, corporate affairs and general counsel.

From Viterra, by video conference, we have Kyle Jeworski, president and chief executive officer.

Also by video conference, we have Dean McQueen, vice-president, merchandising and transportation.

Good morning and welcome to our committee.

We'll start with opening statements of six minutes.

Mr. White, would you lead the way. Thank you.

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

Thank you very much for the invitation to be here today with you to provide a canola farmer's perspective on the market access challenges with canola seed exports to China. China's decision to suspend Richardson International's and Viterra's registration, and its move to stop buying our canola seed has created significant concern and uncertainty throughout the canola value chain and particularly for canola farmers.

CCGA represents 43,000 canola farmers from Ontario west to British Columbia. We are also a member of the Canola Council of Canada and are working with them on a science-based resolution and a resumption of trade as quickly as possible. We welcome the government's announcement yesterday of a working group of farmers, industry and government, and the message by Minister Bibeau and Minister Carr that a resolution is a top priority for Canada. CCGA looks forward to participating in this group.

I cannot overstate the importance of this issue to canola farmers and the uncertainty cast over the 2019 production season. With 90% of our canola exported as seed, oil or meal, canola farmers rely heavily on international trade for their farm's viability. The loss of any market is a concern. The loss of our largest market based on actions that appear to have little in the way of scientific backing is of particular concern. In 2018, China purchased $2.7 billion of canola seed or roughly half of our seed exports.

Farmers are now weeks away from planting the 2019 crop. Seed and fertilizer are already purchased and crop production plans are set. Farmers plan months in advance and consider a variety of factors such as healthy crop rotations, disease pressures, crops in the bin, price and risk management and marketing strategies. All these factors are limiting their ability to change their plans so close to seeding. For example, in central Saskatchewan, seed, chemical and fertilizer costs alone are roughly $215 an acre for canola. With 1,500 acres, this means just over $322,000 to put the crop in the ground and get it growing. That's just one crop for one farmer.

Many farmers choose to grow canola for its stable returns. This year we expect another 23 million acres of canola will be planted. That production will be added to an estimated 10 million tonnes of last year's crop currently remaining in on-farm storage. This will create cash flow challenges for farmers still needing to sell. Delivery and price options will be affected until the market in China reopens or new customers are found. Situations vary by farm, but it is normal practice to sell some grain in the spring to generate cash flow to cover their short-term expenses.

As the government reviews options to assist farmers, cash flow, market diversification and price uncertainty are top of mind for canola farmers. Following are some options to consider.

One is to increase the advance payments program limits. This program provides farmers access to short-term financing at competitive interest rates. An increase in the APP limit beyond the current $400,000 maximum would provide farmers more flexibility to manage their cash flow and prepare for the upcoming production season. We have been asking for this change for quite a few years now, and now is the time to do it.

Agri-stability and agri-invest could be used to help farmers manage income and margin declines. Consideration should be given to how enrolment in agri-stability can be increased and adjustments to these programs can be made to make them more responsive to the current situation.

Initiatives to diversify the canola market, such as increasing the existing biodiesel mandate of the renewable fuels regulations from 2% to 5%, would allow for more canola to be utilized in Canada. Currently the Canadian fuel market uses about 500,000 tonnes of canola annually. At a 5% blend, it would take about 1.3 million tonnes of canola.

Grain and oilseed farms are family-owned small businesses that depend on trade. They are the backbone of thousands of communities throughout Canada. With little warning, they saw the rules of trade practically change overnight without a solution for the foreseeable future. These businesses are now ready to begin a new production season without certainty of market, delivery or price options. Their experience highlights the importance of stable market access and predictable, science-based rules of trade for all Canadian businesses to succeed around the world regardless of the industry.

The longer this blockage persists, the harder it will be for farmers, the agriculture industry and Canada to manage and absorb the negative impact. Canola farmers are confident in the quality of their canola and they need a science-based solution and resumption of trade as soon as possible. Government leadership is critical. We look forward to finding a resolution.

Thank you, and I look forward to your questions.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. White.

Now we have Mr. Everson for the Canola Council. You have six minutes.

[Jim Everson, President, Canola Council of Canada]

Thank you very much, Mr. Chair.

Thank you to the committee for having the Canola Council here today.

The council, for those who don't know, is a value chain organization. It represents the 43,000 canola growers, the seed developers, the processors who turn canola seed into oil for humans and meal for livestock, as well as the exporters who export canola for processing at its destination.

Canola is a Canadian-made crop. The industry supports 250,000 jobs. It's the largest source of farm cash receipts for any commodity in Canada, and it's Canada's number one export to China. Today we're here to discuss a very significant market access issue that the industry and producers face with regard to China.

Market access is critical to our industry, as more than 90% of canola grown in Canada is exported as seed, oil or meal. We are here because two exporters of canola seed have had their licences to export canola seed to China suspended. We're here because all Canadian exporters have indicated that Chinese importers are not currently purchasing canola seed, despite market conditions that would normally lead to a brisk business.

I should point out that while we have the two most historically significant canola seed exporters to China here, there are six or seven other exporters who are members of the Canola Council of Canada who are also, with their employees and the producers that deliver to those companies, similarly affected in the sense that seed isn't moving. They haven't had this regulatory interference from China, but they are not able to market seed either.

The lost market for canola seed to China is a major concern for the canola industry. China is a huge market for canola, taking 40% of the canola we export each year. It's a concern, because Chinese demand has been strong. In fact, our 2018 exports to China set records for seed, oil and meal. For canola seed in particular, it is a very large market, demanding more canola seed than our next three major markets combined.

It's a concern because our industry has been growing and investing to feed strong consumer demand in China. We are very perplexed at why there suddenly are concerns being raised by the Chinese government. We're perplexed about why these concerns have resulted in our seed exports being stopped, injecting significant instability in the industry.

Our top-quality canola consistently meets the requirements of countries around the world. We have quality assurance systems throughout the value chain. For example, our variety registration system ensures that only varieties resistant to blackleg are grown in Canada. Our industry's policy on seed innovation means we grow only biotechnology traits that have been approved in our major markets, including China. Our exporters all have their own stringent quality assurance and testing systems to meet customer requirements. Additionally, the Canadian Food Inspection Agency tests each shipment to verify that it meets phytosanitary requirements of the importing country. Our industry takes quality concerns based on science very seriously, and we have demonstrated this commitment in our actions.

Stable market access is essential for the canola industry as we export more than 90% of the production. We've grown our production to meet demand for high-quality, healthy oil for people and valuable protein for livestock in countries such as the U.S., Japan and Mexico, based on stable market access. Uncertainty hurts both the Canadian industry and our customers.

Stable market access and rules-based trade go hand in hand. It is imperative that we find a science-based solution to the concerns raised by China and that we resume trade as quickly as possible. Technical discussions with China are required to resolve the issues they have raised. Decisions based on other considerations may change from day to day and do not provide the certainty needed for either our industry or our customers. Decisions not supported by science are a major challenge for the canola value chain and for the whole agri-food sector. Unfortunately, they are becoming more common. This underscores the importance of Canada leading international efforts to support rules-based trade.

I'd like to conclude with the following recommendations: The first is that the committee recommend the federal government utilize all means at its disposal to resolve market access issues affecting canola seed to China. This includes sending a high-level delegation to Beijing as soon as possible. The second is to ensure our embassy in Beijing has all of the necessary resources to represent Canada on this issue, including the appointment of an ambassador to China. The third is that the government commit its most senior officials to support the new working group announced by the ministers yesterday, with the objective of resuming trade and ensuring measures are in place to support producers through this uncertainty.

In closing, the Chinese seed market is very important to the Canadian canola industry. Our industry is confident of the quality of canola we provide to markets around the world. We must work quickly to resolve concerns based on science.

Thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Everson.

Now we'll go to Richardson International Limited. You have six minutes for your presentation.

[Curt Vossen, President and Chief Executive Officer, Richardson International Limited]

Thank you.

Good morning, Mr. Chair and members of the standing committee.

My name is Curt Vossen, and I'm the president and CEO of Richardson International Limited, which is based in Winnipeg. Accompanying me today is Jean-Marc Ruest, who is our senior vice-president, corporate affairs and general counsel.

I thank you for inviting our company to give our perspective on the current trade disruption of canola seed exports to China.

Richardson International is one of Canada's leading agribusinesses. Our company was founded in 1857 by the Richardson family and continues to be privately held by the fifth, and soon to be the sixth, generation of the Richardson family. We are involved in the sale of crop inputs to producers, in the handling and export of Canadian grains, oilseeds and pulses, the processing of canola and oats on a large-scale basis, and the manufacturing of canola oil into products such as bottled oil for retail, for food service, for industrial purposes, and for shortening and margarines.

We have a very long history with China dating back over 100 years. We were among the very first Canadian companies to export grain to China and have developed a deep and meaningful relationship with our Chinese customers. While our relationship with China has grown over a century, the importance of the Chinese market to the Canadian grains, oilseeds and pulses exports has become particularly evident over the last several years.

In 2018, the grain sector represented just under 30% of all goods sold to China by Canada. Of the top 25 products exported to China, seven grain and oilseed products appear on the list, totalling $4.8 billion. Canola seed was, of course, the single largest export from Canada to China in 2018 at $2.72 billion Canadian. Canola products alone represented just over 15% of all of Canada's exports to China. If we look at the top five products sent to China last year, which include canola seed, wood pulp, canola oil, soybeans and lumber, grains and oilseeds accounted for just over 60% of the value of those cumulative exports.

To say that canola is important to Canada's trading relationship with China would be a gross understatement. Canola, and indeed the entire grains and oilseeds complex, is the foundation of Canada's trading relationship with China.

As you are aware, China began raising allegations over the last few months that Canadian canola shipments, including those from Richardson, were non-compliant with Chinese phytosanitary requirements due to the alleged presence of prohibited weed seeds and fungal disease. Our internal testing at the time of loading, testing conducted by the Canadian Food Inspection Agency at the time of loading and subsequent to the complaints being advanced by the Chinese authorities were unable to detect the presence of the alleged weed seeds or disease. In fact, several of the weed seeds alleged to have been in our shipments have not been found in any Canadian shipments over the last decade.

Notwithstanding these results, China chose to abruptly suspend our company's licence to export canola seed on March 1 of this year based on those allegations. You can appreciate that such a course of action was alarming and upsetting, given Richardson's long-standing relationship with China—an unblemished relationship with China—and the importance of the Chinese market for Canadian grain and oilseed exports. We are particularly upset by the fact that Richardson was singled out.

The fact that a single commodity, namely canola, has been targeted and individual Canadian exporters singled out by the Chinese government in response to a claimed industry-wide issue is troubling. These issues need to be addressed by our country—our government—immediately.

While we understand and agree that technical discussions between the regulatory subject-matter experts must be allowed to occur to either address or dispel the quality issues that have been raised, we cannot emphasize enough the importance of expediting this process.

[The Chair, Liberal, Pat Finnigan]

Mr. Vossen, we have technical difficulties. We will suspend briefly to correct that.

[The Chair, Liberal, Pat Finnigan]

We're back. We lost about six minutes. If it's okay with everyone, we might extend the meeting by six minutes at the second hour.

[An hon. member]

How about an hour?

[The Chair, Liberal, Pat Finnigan]

Well, QP would be in the way.

Mr. Vossen, I'm sorry about that. We can keep going.

Thank you.

[Curt Vossen]

I'll recommence about a sentence or so back.

While we understand and agree that the technical discussions between regulatory subject-matter experts must be allowed to occur to either address or dispel these quality issues that have been raised, we cannot emphasize enough the importance of expediting this process. The current state of uncertainty is creating significant distress among all industry stakeholders and, in particular, producers who are currently making spring seeding decisions. The decisions they are presently facing are extremely difficult and have a very material effect on their success or failure in 2019 in terms of their crop production and their cash flows.

ln the case of exporters like Richardson, if the current disruption continues over the longer term, we will have no choice but to find other markets for Canadian canola seed. However, doing so will be no easy task and can only occur over a longer period of time, given the magnitude of the Chinese market today. This past year, China accounted for over 30% of all Canadian grain and oilseed exports, having grown from just over 20% in prior years. While we are confident that we can eventually find other markets, it will not be a painless exercise.

As it develops its response plan, the Government of Canada should take note that China is not the only country where Canada's grain and oilseed sector has experienced significant market access problems. The closure of the pea and lentil market to India, as well as the durum wheat market to Italy have also been difficult and costly challenges for our industry in the recent past. Possible trade disruptions in several other countries and the spectre of a non-risk-based regulation in the European Union have formed a veritable cocktail of trade disruption for Canada's grains, oilseeds and pulses industry. The Government of Canada must become both involved and more aggressive in defending these sectors' interests from technical barriers to trade in our various export markets. lt should, in fact, be the number one concern of our government for the majority of our bilateral trading relationships where grain sectors figure prominently.

ln closing, we would like to thank the government and its officials for their stated commitment to finding a solution to the current challenge. Given the significance of this issue and the consequences that will flow to our industry and the entire Canadian economy, we trust that the Government of Canada will commit all available resources and expertise to its resolution. ln that respect, Richardson International will at all times be ready, willing and able to lend its assistance if required.

Thank you for this opportunity, and we'll be happy to answer questions at the appropriate time.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Vossen.

We'll move to Mr. Jeworski from Viterra.

[Kyle Jeworski, President and Chief Executive Officer, Viterra]

Thank you very much for allowing us to address you today on this matter that is concerning our industry and the Canadian economy as a whole.

By way of background, Viterra is one of Canada's grain industry leaders. Our company has operations across the country, with over 100 locations made up of port facilities, inland country elevators, oilseed processing facilities and special crops processing facilities.

Viterra is owned 50% by Glencore Agriculture, a global market leader in originating, handling, processing and marketing agricultural commodities. The other 50% is owned by two major Canadian pension funds: Canada Pension Plan Investment Board and British Columbia Investment Management Corporation.

We have a long and very proud history of working with Canadian farmers that goes back well over 100 years. We connect their production to markets across the world. In fact, over 90% of Canada's farmers depend on world markets for their livelihoods.

Over the last several years, China has become an increasingly important market for Viterra and the thousands of farmers we serve. We export several different commodities to China annually, including a significant amount of canola. Additional commodities that go into China include malt barley, feed barley, flax, soybeans and wheat, so it is a very important market for our agricultural space.

On March 26, 2019, Viterra received notice suspending our licence to import canola into China. As China is one of our major customers, the decision is having a profound impact on our industry and will continue to have a major ramification the longer it continues.

We have been actively exploring various mitigation strategies and assessing the short- and long-term impacts this will have on the fluidity of the entire pipeline. We are working to manage disruptions with our farmer customers in terms of their deliveries into the system and sales into our facilities. As well, we are working with our railway partners to manage the disruptions.

As a company and as an industry, we've been very clear on our position. All of our exported products are rigorously tested to ensure they meet specific import specifications.

We take very seriously and have high pride in a sound, science-based approach to the testing of our products. This is what gives Canada its excellent reputation for being a safe and reliable supplier of food ingredients and makes companies such as Viterra a preferred supplier to many destinations around the world.

We appreciate the fact that the federal government has been engaged with our industry from the beginning to gather information and understand the situation. We are committed to continue working closely with you and actively participating throughout the process.

Looking ahead, we need to continue working with a sense of urgency and take concrete actions towards solving this matter. For example, we need to continue to push for a science-based resolution that supports a long-term trading relationship with China, and we need to ensure that our two governments are engaging at the highest levels and openly communicating about how to settle this very important issue.

Market access issues such as this one hurt our company, our farmers and our economy as a whole. We need to work together and act swiftly to restore access to this very important market.

Thank you again for allowing us to present today. We look forward to your questions.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Jeworski.

I may have jumped over Mr. Sopuck and Monsieur Hébert. I forgot to welcome you, so welcome to our committee.

Now we'll start our question round. Just to make sure, MP Weir had asked to have a question at the end, so if it's all good....

[Some hon. members]

Agreed.

[The Chair, Liberal, Pat Finnigan]

Okay.

Mr. Berthold, you have the floor for six minutes.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Thank you, Mr. Chair.

I sincerely thank all of the witnesses for being here today.

For our part, we understand that the situation is urgent and requires a rapid resolution.

In short, Mr. Vossen, you said you received the notice from China on March 1 indicating that exports to that country were closed. On March 5, the official opposition asked that an emergency meeting be held about this. We learned that on March 26 the Viterra company was also affected by the situation. We saw from the beginning that this crisis was going to severely affect the canola producers of Canada and we wanted to take steps as quickly as possible.

I also want to remind members of the committee that we asked that ministers come to testify here. Unfortunately, our Liberal colleagues' response was negative. I again want to remind everyone of the importance of beginning discussions at the highest possible level. The highest possible level for us means that the ministers should come before the Standing Committee on Agriculture and Agri-Food to share the position of the government, of the cabinet, as to how they are going to deal with this affair. Press points alone do not answer members' questions and will not allow the parties to work together to solve this problem. Unfortunately the government seems to want to work alone and wait—too long—to resolve the situation. That is totally unacceptable, in my opinion.

I also want to underscore that for the second time in two days, we asked that an emergency debate be held in the House. Unfortunately, the Liberals used procedural means to prevent me from tabling the request for that emergency debate. It is important to give the floor to canola producers and their MPs so that they can speak to the urgency of this crisis, as you did this morning.

Once again, I thank you for being here with us today. I have two questions.

Mr. Vossen, you have already encountered similar restrictions in other countries, haven't you? Since you have been in this position—and I know it has been some time now—to your knowledge, has the quality of Canadian canola exported to other countries ever been called into question?

[Curt Vossen]

No, I can't say that I can recall something specifically as it relates to canola, or rapeseed as it's called in other parts of the world, as an export commodity. I'm sure there are other circumstances with other grains and oilseed export products where these sorts of quality concerns were raised.

Normally, and I think this is the important issue here, there is a protocol, a standard approach to dealing with issues related to concerns about food safety, concerns about product quality that are outside the agreed upon standards and tolerances.

The frustration here, of course, is that there has been limited follow-up by those making their concerns known, i.e., the regulatory agencies in China, to explain their position and to engage in this process.

I know that our regulatory authorities have made a number of connections or reached out in many circumstances to the authorities in China with some limited success. I think that in this circumstance, as a country we have to deal with these claims as best we can in terms of comparing what we know, our science, our protocols and those agreed upon protocols with those of their agency, and lay that issue to rest, which we believe will happen upon further analysis and conversation.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Mr. Jeworski, you talked about the urgency of the situation. What could happen to Canadian canola growers if we do not find an urgent solution to this crisis?

[Kyle Jeworski]

I think if you look at this issue, as we talk about a science-based approach, sometimes there's a reference to the longer-term solution. I think we have to look at this from a two-pronged approach, the immediate need and the long-term solution.

Immediately, we have farmers who have product sold for cash flow needs, which they cannot deliver into the system because we can no longer export that product out of Canada. That affects the entire pipeline within Canada, from the farmer to the country grain elevators to the rail service provider to the port facilities to the service providers within the ports.

One is the urgency around existing contracts in place that are no longer able to be met because we can no longer export to China. One is the immediate need for those who have product contracted. Also, there are immediate implications in terms of farmer income and contracting options. As a result of such an important export market being lost, the price of canola for the Canadian farmer has dropped substantially. The price signals that the farmers are seeing as they're moving into a critical time, around spring seeding, have been dramatically reduced.

One is the short-term sense of urgency, but there is also the long-term solution in terms of finding a science-based approach. We need a solution, not a memorandum of understanding. We need something that is substantial.