Agriculture Committee on Nov. 1st, 2016

[Hans Kristensen, Board of Directors, Canadian Pork Council]

Good morning. My name is Hans Kristensen. I'm a producer from New Canaan, New Brunswick, and the maritime representative on the Canadian Pork Council board of directors. I'm joined today by Gary Stordy, the Canadian Pork Council's manager of government and public relations.

I would first like to thank the members of the House of Commons Standing Committee on Agriculture and Agri-Food for the invitation to appear before you this morning to discuss the next agricultural policy framework.

In the time allotted for my testimony this morning, I will outline some of the opportunities in the domestic and export markets, business risk management tools, and animal health.

However, I would like to take a moment to thank Prime Minister Trudeau and the Minister of International Trade, Chrystia Freeland, for their commitment to signing CETA. This historic trade agreement, initiated seven years ago under the previous government, is certainly something that we can all celebrate.

The Canadian and EU markets for pork complement each other. While this relationship holds great promise, we look forward to the government officials resolving the outstanding technical barriers that limit our ability to fully capitalize on what was achieved. Our industry was very pleased to see markets and trades highlighted in the July 2016 Calgary Statement following the meeting of the federal, provincial, and territorial ministers. In fact, CPC's priorities align closely with the areas identified in this statement.

There is tremendous opportunity for Canada's pork producers. Canadian consumers include pork as part of a healthy diet, and there is a growing export demand, fuelled both by population and by income growth worldwide. This demand will be strengthened once the CETA and TPP agreements are successfully implemented. Further growth is possible in China, the ASEAN group, and India, all of which are Government of Canada priorities.

Our industry recognizes that opening or maintaining market access is never easy; however, it has to remain a priority for government departments such as Global Affairs Canada, Agriculture and Agri-Food Canada, and the CFIA. These departments need the flexibility and a full team with the financial backing to efficiently address market access issues.

There is work to be done to better capitalize on existing access. While we appreciate the efforts of the market access secretariat, CFIA's comparative lack of attention to export issues versus other domestic priorities is detrimental to efforts to address the needs of a global market.

Producers work hard to increase the demand for Canadian pork in domestic and export markets through CPC's on-farm programs, such as Canadian Pork Excellence, and each producer has a role to play in supporting the larger infrastructure of processing and trade. This is why producers support a core BRM suite of programs that can help manage market risk.

Risk management is a fundamental cornerstone in any business venture with volatility in revenues and costs—exactly like the Canadian pork sector. However, some of the changes made to key programs under GF2 have significantly reduced the capacity to assist the hog industry. Both the federal and the provincial governments need to improve programs and seek new and novel approaches to risk management.

AgriStability has been the most useful program to the sector in the past. However, its effectiveness in managing a significant price drop declined substantially with the reduction of positive margin coverage from 85% to 70%. At 70%, the program provides at best minimal protection in an extreme decline, but little else. The program needs to return to the 85% level to be effective.

In addition to this, we must also address the dual problem of the complexity and unpredictability inherent in the current AgriStability program structure. In order to be truly effective, any BRM program must be both predictable and responsive in a timely manner to ensure producers can make decisions to react to market conditions today with the confidence and the future protection provided to them through the existing suite of BRM programs.

The AgriInsurance and AgriInvest programs have proven to be of limited value to our members in their current state.

The AgriInvest program has not been effective in helping hog producers manage the short-term drops that are no longer covered by AgriStability. It is not effective in helping producers make investments to manage risk or improve market income. Even small income drops in commercial-sized operations are not addressed by a maximum government contribution of $15,000 per year. This level does not reflect the economic realities and scale of production of current production practices in Canada.

Producers need a variety of tools such as mortality insurance and a hedging program to find the best options for their operations. Currently, a significant percentage of government expenditures dedicated to business risk management is dedicated to production insurance. Unlike crop producers, however, those involved in livestock production do not have access to a production insurance program. Other initiatives, such as price insurance, do not work for hog producers.

For the past decade, there have been ongoing efforts to develop mortality insurance or a production insurance type of program for livestock. Issues around coverage, the cost-sharing of administration, and premium costs have proven difficult to overcome. Industry and governments need to recommit to developing an effective, affordable program for implementation by a 2018 target.

On AgriRisk, initiatives have enabled the sector to explore options from approved access to hedging programs. Currently, many Canadian pork producers are unable to take advantage of this useful management tool due to the fact that they would be financially unable to provide the large cash injections that may be required through margin calls in the open market. Without a range of risk management tools and strategies, hog producers face a combination of production, market, and financial risk that can undermine the success of a farm. Pork producers need a program to mitigate the risk of margin calls so that hedging becomes a useful and used business risk management tool

To seize the opportunity in the marketplace due to industry branding or trade deals, reinvestment is required. Infrastructure, especially the hog barns themselves, must be renewed. The Canadian Agricultural Loans Act program, designed to increase the availability of loans to farmers, can be a mechanism to further strengthen the hog industry. However, the program's utility is limited, and as a result it has not been useful to producers.

While producers have benefited for the past 18 months from a fair market return, that does not erase several years of sustained losses by our industry. The fact is that financial institutions' confidence has not yet returned to the industry in terms of allowing us to reinvest in the industry and borrow for barns and access capital. We are also in a situation where it's much more difficult to access capital to reinvest in an existing structure than it is to enhance or expand structures.

The current limitations to loans are constricting and unreflective of current farm business practices. An updated program should reflect commercial farm sizes and more complex farm structures. The maximum loan limit needs to increase dramatically and expand in scope.

The pork industry remains focused on the issues of disease prevention. Nothing is more foundational to our success as an industry and an exporter than animal health. In recent years, we have learned some powerful lessons in this regard, through outbreaks of circovirus, H1N1, and PEDv in hogs. We believe that Canada now faces an opportunity to build a robust national animal health strategy that will better prepare us for the risks of the future. A number of initiatives are ongoing through the National Farmed Animal Health and Welfare Council and a livestock market interruption strategy. That should continue.

We also believe that initiatives such as traceability, on-farm biosecurity, surveillance, and diagnostic capacity-building should be priorities in the next agricultural policy framework. Much was accomplished under past frameworks, and much remains to be done with the new policy framework.

The Canadian Pork Council looks forward to joining with its industry and government partners to ensure that together we can capitalize on the strength of Canada's agriculture and agrifood industry and realize its full potential in helping to build and enhance the economy of Canada.

I'd like to thank the members of the standing committee for giving me the opportunity to present here this morning.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Kristensen.

Now we'll begin our second round of questioning, with six minutes per questioner.

Mr. Gourde, you have the floor.

[Jacques Gourde, Conservative, Lévis—Lotbinière, QC]

Thank you, Mr. Chair.

I would like to thank the witnesses for being here with us this morning.

With respect to meat, you have two sectors that are very competitive internationally. The positioning of Canadian producers—to refer to the many pork producers in my riding—is changing every year. There appears to be some integration with big producers that offer certain services to small producers, such as feed and piglets. Producers then specialize in feedlots.

Is that a model that in the medium or long term will enable the Canadian pork industry to stand up to international competition? In your opinion, how will the industry be able to survive? The industry has had good prices in the last few years, but we seem to be headed for two or three years of prices that will be very difficult for producers. How do you see your industry in this regard?

[Hans Kristensen]

Thank you. It's a very good question.

As we've experienced in the past, international competition on a direct bottom line can sometimes be an insurmountable problem for Canadian pork producers. That is why the Canadian pork industry has been and will continue to be focused on branding and added value. We need to position Canada as a premium pork product worldwide and enhance our value and our choice. We do not want to place Canada or our industry in a situation where it's simply a race to the bottom and whoever produces the cheapest product will sell it to the person with the most efficient buying power.

At the Canadian Pork Council, we have worked very hard, along with other industry stakeholders, to brand our product internationally as a premium product and a safe product. Branding, country recognition, and food safety initiatives with the government and the CFIA will be the best things that we can do to brand us internationally and protect those export markets. We need to make sure that we create a product that other countries want to buy, not just the cheapest commodity product on the worldwide stage.

[Jacques Gourde, Conservative, Lévis—Lotbinière, QC]

The next strategic framework should make it possible for young people to have a farm and fulfill their dream of living there for the next 30 or 40 years. Given the economic situation in the meat sector, however, this does not appear to be the case.

Pork producers in my riding are about 60 years old on average and no one is interested in taking over their farms. For the next ten years, they will be breeding animals in buildings that are about 30 years old. There is hardly any new construction. In my riding in the past five years, there is just one pig farm that has added new buildings.

Have we reached the point where we have to reinvest in infrastructure in order to keep animals? In my riding, the situation of pork producers is very negative right now.

[Hans Kristensen]

Yes, absolutely.

If you look at the rate of capital reinvestment in our industry over the last 15 years, it has declined significantly. It's declined for many reasons, mostly due to the economic hard times around 2008-09 and the recovery it took in our industry.

The level of reinvestment has been at a critical low, and it needs to change and to be ramped up. Access to capital remains a challenge for both existing producers and new producers coming in. The harsh economic reality that we face as producers is that we live in a very capital-intensive industry. In order to be competitive, you need to be of a certain scale of size. In commercial operation today, that requires an investment of millions of dollars in capital, and it also requires that this capital be reinvested on a periodic and timely basis to ensure that our facilities are up to date and modern, and that they meet the ever-evolving needs of animal welfare and safety standards.

It's imperative in our industry that producers have access to capital. A program is needed desperately in our industry to allow young producers and existing producers to reach that goal. If we're not able to reinvest in our infrastructure, we will reach a critical mass point in the next four to seven years, when a lot of our buildings will have to be retired and we'll be unable to have access to capital in order to reinvest in them.

We need to come up with innovative programs for capital investment that can maybe be set aside and converted to interest-only payments during economic downturns. We need to come up with ways that will continually enhance the value of our product and ensure that primary producers are getting a full share of the total market value of their product so that young people can invest with confidence, knowing that over the long term, 20 or 30 years, that their investment will pay off and that they made a wise decision. We need to increase access to capital. We need to also increase the value of our product to make it a wise decision. We need to work on ensuring that the primary producer is getting an adequate share of the value-added chain.

[The Chair, Liberal, Pat Finnigan]

Mr. Gourde, you have 45 seconds left.

[Jacques Gourde, Conservative, Lévis—Lotbinière, QC]

Ms. Patterson, you talked about your concerns for young people in the future. I think you didn't have the time to finish what you wanted to say about programs. How should programs be designed to help the next generation?

[Corlena Patterson]

The question was alluding to suggestions for program design.

I spoke a bit about the limitations that we have in terms of the industry cash contribution to those projects. For smaller industries like ourselves, industry groups have to support multiple projects, but we work on shoestring budgets to begin with. It makes it difficult to access the funding that we need. We find that the approval times in those projects is long. It can take a year for a project to be approved, so in a five-year funding structure, you've lost a year in terms of being able to deliver projects and develop them.

[The Chair, Liberal, Pat Finnigan]

Thank you, Ms. Patterson. I'm sorry to have to cut you off again, but I'm sure you'll have another opportunity.

Mr. Longfield, you have six minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Thanks, Mr. Chair, and thanks, Mr. Gourde, for bringing us towards this area of discussion.

I'm going to continue with that discussion around investment. You were talking about traceability, how we apply data to manage the flock, and medicines.

Could you continue to expand on that?

[Corlena Patterson]

Traceability has been a bit of a bumpy road of late in our industry. We've had a national ID program for 12 years. Producers have been paying for their portion of traceability for over a decade now. What we lack to make that system effective in our sector, and I think in all but the hog sector...in the pork industry they have a full traceability system, but four of our species groups that will be regulated to it have yet to complete that list.

It requires a database to manage the information, primarily, because traceability is all about information management. We see some challenges in being able to keep that infrastructure in place. In addition to having supported the cost of the producers' portion of traceability, there's an expectation, at least in what we've seen in the traceability negotiations so far, that the producers have to support the full cost of traceability. That means data management, and that means managing the information and ensuring those databases are in place. That's a very costly venture.

As an example, in the sheep sector, aside from the price of tags, aside from a producer's time to report information and manage the information on a farm, and aside from all the other stakeholders' investments in time and reporting capacity, the database is expected to cost just our sector in excess of $130,000 annually. For an industry of 11,000 producers, that's a significant cost.

When we talk about traceability models and the gold standard of what a traceability program looks like, we often refer to countries like Australia and the system they have. We also know that their government funds that database management, that very costly portion of it. There are some security risks to be had with privatizing that information, first and foremost, and then there's a concern over what that increased cost means for a producer's cost of production on an animal and whether producers can sustain that in the long term. If they can't support the cost of it, then there isn't a program when the federal government isn't supporting it, at least in some capacity.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you for that detail. That's going to help our study.

It's good to have Guelph in the house. I should have said that right off the bat, with your organization being centred in my riding.

The University of Guelph has just received $77 million in funding to look at food. One of their partners is IBM. The University of Guelph is developing a data network with IBM. Is that something that you're looking at leveraging?

[Corlena Patterson]

No, not specifically. In working with TraceCanada, which of course has kind of gone by the wayside in the past few years, we had talked about integrating the food sector and the livestock sector and about managing that data to provide some continuity of information from farm to fork or from farm to plate. When we talk about traceability in the livestock sector, and I may be alone in this, we're really looking at the portion until the animal has been dispatched, until the slaughterhouse. So far, I don't think we've looked at a system that bridges that gap.

We have the food data management component and the animal management component. At some point, to create the system that the consumer is expecting, there has to be a way to bridge those two, but we haven't got to managing the livestock information yet in all sectors.

[Lloyd Longfield, Liberal, Guelph, ON]

The Calgary Statement might indicate that's an opportunity if we look at innovation and how we bridge industry-academic collaborations.

[Corlena Patterson]

Yes, absolutely.

[Lloyd Longfield, Liberal, Guelph, ON]

On the hog front, I've heard some great things coming out of New Brunswick around the management of the hog industry. Could you comment on some of that?

I'm leaving that fairly wide open. There's some significant progress there.

[Hans Kristensen]

We like to think there is, yes. Producers in New Brunswick will take credit for that.

Both the province of New Brunswick and the hog industry suffered a severe setback some years ago with the closure of the only federally inspected processing plant in New Brunswick, which at the time put the industry in severe distress. A lot of people thought it provided us with a death sentence.

What happened instead was that the remaining producers in New Brunswick got together. We did a really hard and comprehensive review of our industry and where we were at, and we looked at our strengths and weaknesses as an industry. We figured out that up to the point of weaning a piglet, we were very competitive and had done well. Past that, our geographical location, now coupled with our lack of processing facilities, eroded that advantage.

We evolved our industry to handle two types of production.

One is simply SEW production, which was exporting SEW piglets to be finished in the U.S. They were still owned by the Canadian producer, but in U.S. contract facilities. They were also going into Quebec to support finishing facilities in partnership with processors in Quebec, as part of an integrated value chain.

The other model was that we used our isolation and biosecurity programs to produce specialty pork. We were producing antibiotic-free pork and pork raised in stall-free environments and cage-free environments. Both of these have proven successful, and they have allowed us to sustain a production in New Brunswick. While production is now less in pounds of pork, because we're not finishing or providing them, we have increased the total number of animals now being produced in the province of New Brunswick, as of the day the plants were closed. It was just a matter of adaptability.

[Lloyd Longfield, Liberal, Guelph, ON]

I think I'm out of time, but thank you for that example.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Longfield. Thank you, Mr. Kristensen.

Ms. Moore, you have the floor and you have six minutes.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

First, I would like to talk to the pork producers' representatives, and then Ms. Patterson can finish her answer.

In my riding, we have pig nurseries. Other projects are in the works as well. A number of locations in my riding have been chosen because of their distance from other farms, in order to prevent the spread of illness. Unfortunately, setting up a nursery far from major centres sometimes means that certain services are not available.

I would like to hear your thoughts on access to veterinarians. Many livestock producers in my riding have raised the problem and complain that it is very difficult to get access to a veterinarian. Increasingly, new veterinarians are specializing in family pets. As a result, there is a significant lack of young people becoming veterinarians for farm animals.

[Hans Kristensen]

Thank you.

That's a very good question and a very complex issue. Again, we'll go to innovation here.

I can only speak about my personal experiences in Atlantic Canada, but we are in exactly the position you just described. We're a geographically isolated area which affords us biosecurity and disease-free status. It makes us an excellent area for housing farrowing facilities. However, it does limit our access to resources such as veterinary services, along with many others.

What we've had to do as producers is become more self-reliant and more resilient. We've had to take more of an in-house approach to animal health and animal health programs. We do have regional veterinary services in Atlantic Canada. However, we do not have access to a swine specialist vet in our province. We use one out of Nova Scotia. It limits the availability of that person on our site to approximately two times a year. What we have done, though, is we've adapted and we use today's technology. We do video conferencing with our vet. We literally will send pictures back and forth. We'll send samples to the lab. The results will go to the vet. We'll do phone conferencing. It is a challenge in being geographically isolated, but it's one that we accept and adapt to in order to maintain the biosecurity and the enhancement.

There's an inherent advantage to that, in a way that's sort of an offset. It is that every time someone accesses my facility, whether it's an industry expert or a veterinarian or a sales professional, there's an inherent risk to my biosecurity and protocols have to be followed.

By becoming more resilient, using technology—the Internet, teleconferencing, video conferencing—to try to follow some of those programs, we can maintain the advantage of biosecurity and isolation and overcome the lack of resources available on a farm.

[Corlena Patterson]

Thank you.

It is a great question, because it is definitely an infrastructure challenge in our sector specifically, and it's more widespread. It's not necessarily a case of being geographically distinguished or separate.

We have in our industry a very limited access to competent, experienced, and willing small ruminant veterinarians across the country, and it does make it a challenge to ensure that we're having validations for different insurance programs.

When we see regulations change to further limit access to antimicrobials and veterinary drugs and to require veterinarian-client-patient relationships, or VCPRs, whereby drugs have to be administered only under one of those and you have to have an attending veterinarian come on farm and validate the issue and the correct treatment, that becomes an increasing problem.

When we've been part of the discussions on regulations with respect to vet drugs and how they change, we need to keep in mind that it is a challenge to access competent veterinarians who are willing to make the farm visits and to do so economically for producers. When a vet fee is $100 and the animal is worth $100, we don't want to leave producers where they have to make a choice between animal welfare and bottom line.

I don't know how this next agricultural policy framework manages that infrastructure challenge, but I do like the ideas that Hans brought up, which were video conferencing and remote access to veterinarians. I think we're going to need to see some flexibility within the veterinary practices to understand those limitations to access and to provide some creative ways to create these relationships that allow producers to have access to treatment and medications in a responsible manner that respects the proper and sustainable use of veterinary drugs.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

In the strategic framework, it might be helpful to track the current number of veterinarians in Canada as compared to the needs and the number of people retiring. Veterinary training is quite lengthy and at present it is only offered at five universities in Canada. So it is not even offered in every province.

We have to ensure that the needs of the agri-food sector, in terms of access to a veterinarian, can be met in the future and that action is taken if the shortage is getting worse.

[Corlena Patterson]

Yes, and if I may say so, that would be a worthy undertaking.

At the same time, I think we need to look at creative and innovative ways of capitalizing on the resources that we do have in using the technology as it advances in other sectors and applying it on the farm in terms of veterinary access as well. A combination of those two would be very helpful.