Thank you, Mr. Chair.
I think I can safely say that my colleague Paul Mayers is just as happy as I am to be here today to give you a brief overview of the agriculture and agri-food sector.
What we propose is that I first make a presentation and we then show a video about the Canadian Food Inspection Agency.
I assume that will be okay.
I will take very little time to leave opportunity for members of the committee to pose questions.
For those of you who are new, I think it is very useful to have a bit of a tour d'horizon of the sector. I notice there are a number of members who are veterans in the business, and they can add to and supplement what Mr. Mayers and I have to say. That's the purpose of my presentation.
I do want to lay some context for members beforehand. The sector is a concurrent jurisdiction, meaning that in the constitution, both the federal government and the provincial and territorial governments have responsibilities for agriculture. Hence the sector's best interests are watched out for by governments working in close alignment, which we do in a fairly systematic way. It's a very intensive engagement with provinces and territories, and at the end of the day, it's one that works on behalf of producers.
Contrary to the perception that many in the country have about agriculture, modern agriculture in Canada is very sophisticated. It's very dependent on capital and knowledge, dependent on science, research and development, and dependent on the capacity of tens of thousands of entrepreneurs to innovate, adapt, and compete. It's globally competitive, very dependent on exports, and a very dynamic sector. I'm sure that the finance minister is busy, but I can assure you that the agriculture minister touches on almost every imaginable portfolio that a government deals with. From a trade policy perspective, the government is very involved, as is the agriculture minister. From the point of view of social policy and ensuring jobs and employment and growth, the minister is very busy.
From the point of view of science, our department is very intensely focused on research and development. The sector, in its various incarnations across the country, presents a vast array of interests and a vast array of issues for a minister to deal with.
Just by way of giving you some context, I'll tell you that the economic importance of the sector is significant. It contributes almost $110 billion to GDP. That includes the primary sector, the processing sector, input suppliers, and others. It accounts for about one in eight jobs in the country. As you can see, it's a very significant player in terms of the economy and jobs across the country. It's also a significant player in virtually every province, although the intensity with which a province is dependent on agriculture for its economic growth varies across the country. You can see that provinces from Quebec west rely a little more heavily on agriculture as a contributor to their economy than do the eastern provinces. What we'll see later is that from an employment point of view, there's a very significant reliance on agriculture and food processing.
This graph reflects the diversity of agriculture across Canada. There are some areas like western Canada and central Canada where beef production is prevalent. Hog and pig farming tends to be focused in Manitoba and Quebec, with a great deal in Ontario as well. Right across the country, dairy is an important sector, but very much so in Ontario and Quebec.
Large grains and oilseeds operations obviously predominate in the west. Horticulture operations are more common in B.C. and central Canada, but are actually common everywhere.
In Atlantic Canada you'll see a significant horticulture presence, including in potatoes and other vegetables. You'll see a significant presence for supply-managed industries as well. Virtually every province has a major stake in the health of the agriculture sector.
I mentioned to you that the sector is very knowledge intensive. A study that we did from 2011 to 2013 showed that nearly half of Canadian farms had implemented some form of significant innovation. That has to do with production practices such as improved agronomics, improved genetics for livestock and crops, and managing with more sophisticated business tools and business models. I should add that innovation really is the source of our competitive advantage worldwide.
We have a significant number of competitors. We're the fifth-largest exporter of agriculture and food in the world, but in the beef sector, for example, Brazil is a very productive country. We compete with their beef production on the basis of quality, not quantity.
We have significant competitors all around the world in major grains and oilseeds. Emerging economies, such as the Kazakhstani, Russian, and Ukrainian food belt, are very highly productive. That area has very rich soils and has the potential to be a significant competitor for Canada. Our ability to stay ahead of them will depend on innovation alone, because our agronomic practices are just about as sophisticated as they can be.
I would like to take you through a bit of history, and I know that this is always a sensitive issue for decision-makers and policy-makers. The number of farms is declining, while the average farm size is increasing fairly significantly. That generally says to people that the small family farm is being threatened.
To that, I would just add a couple of nuances. One is that the attrition that we see is not from small family farms going out of business or being bought up by big farms. It's more the medium-sized businesses, those in the $100-thousand-plus range of annual revenue, that are seeing some consolidation and growth into larger farms.
The other thing I would underscore is that most farms really remain family owned. They take on different business models or different business structures, such as partnerships, but you'll very often see families owning corporations that are “the family farm”. Families, as an ownership entity, are very predominant. The majority of farms are family owned and are not owned by some third party corporate entity, even though their business structures might be slightly different.
As I indicated, farming across the country is very diversified.
Another reflection of that is where farms earn their money, which is predominantly in grains and oilseeds and in red meat, namely pork and beef production. At least a third of market receipts in primary farm commodities are earned by those two sectors.
Supply management, which is of great importance across the country, represents about one-fifth, or 20%, of farm market receipts. Other significant sectors are fruits and vegetables and special crops, which are growing in importance. Special crops, including pulses and what used to be other smaller marginal crops are growing into major crops now.
The farm sector has been growing fairly significantly over the past 10 years. Grains and oilseed receipts have almost tripled, despite significant challenges with respect to weather. Red meat has grown at a slightly more moderate pace, but has pulled away from the doldrums that producers were experiencing in the 2008-2009 period. They have seen some significant growth in price and market growth.
As I just mentioned, special crops, including such crops as pulses, have grown significantly as well, reaching almost 15% over the past decade.
Farmers are generally doing very well. They have a net worth, on average, of nearly $2.5 million in assets after debt, which is higher than that of the average Canadian family. Net cash income has been very high. It is expected to reach a record once all the numbers are in for 2015, and it was at near-record highs in 2014.
Most recently, the sector has experienced some pressure on major commodity prices globally, but a couple of macroeconomic issues have intervened in favour of farmers and their income. One is the state of the dollar. The falling dollar has meant that exports from Canada are more competitive, and that's a bonus for farmers, as difficult as it is for our manufacturing sector. The cost of inputs, the cost of running a farm, is significantly dependent on energy costs, so the more affordable energy situation, especially with respect to oil, is advantageous from a farmer's point of view.
Nevertheless the confluence of high demand, extremely efficient farming, and those macroeconomic conditions have conspired to make farmers fairly successful in the past little while. I've already shown you that net worth has been increasing, so that's a very strong, positive issue. The concern for the department with respect to the growth in assets on the farm is how it is financed. A large part of it is financed by debt. We've done some stress testing on the amount of debt that Canadian farms have—what-if scenarios, such as “what if interest rates were to rise significantly”—and we found that given the productivity that Canadian farms demonstrate, most would be in a fairly stable position to service debt.
I can tell you that banks, the FCC, and credit unions across the country do the same kind of work with farmers just to ensure that their debt load doesn't overcome income and cash flow.
Looking to the future, some major trends are affecting what we think will be continued commodity growth. I'll dwell on this for one minute.
Some of the major drivers for change—I'll show you a bit later—are in the developing world. We see continued demand for red meat. A population graduating into the middle-income group ends up changing diets in favour of Canadian-based types of commodities. Globally we see steady but slow growth in the developed world in commodity consumption, but real growth in the developing world.
I will briefly turn to the food and beverage processing side. Food and beverage processing is a major employer across the country in virtually every province. It's also the consumer of at least a third of the primary production in any given commodity, and in many smaller local or regional areas, it's well more than half. Therefore, the processing sector is an anchor consumer for the primary sector, and the relationship between the two is very significantly tied to the ability of primary producers to earn an income and the ability of food and beverage processors to stay competitive.
Food and beverage processing is the single largest manufacturing sector measured by employment. A graph here shows you the presence of food and beverage processing plants across the country. As I mentioned, they play a significant role in the economy of virtually every province; in the territories, their role is slightly less.
The contribution of food processing to provincial GDP varies, even though it's an important employer. It's about 2% across all the provinces. It's highest in P.E.I., where there's a reliance on potato farming and some supply management, and it's lowest in Alberta. That's probably changed, by the way, with the recent restructuring that the Alberta economy is undergoing.
A wide variety of products is produced by the Canadian food and beverage processing sector. Meat, dairy, and beverages contribute about half of the total value of shipments of our food and beverage processing of about $103 billion. Those particular sectors are quite significant contributors to provincial economies.
The challenge for Canada is that the majority of our food and beverage processing plants are small. The majority of output is driven by large firms, but the majority of operations are small. That means small to medium-sized enterprises and it means entrepreneurs creating jobs for Canadians in an industry that can be quite challenging from a competitive point of view.
The challenge for governments, of course, is that in addressing this sector and in trying to ensure growth and economic competitiveness, there's a wide diversity of challenges, ranging from the size of the operation to the commodity that's being processed.
I'll skip the related slide in the interest of time and go to slide 19.
I mentioned earlier that this sector is very trade dependent. More than half of our production is exported, and in some commodities upwards of 85% to 90% of Canadian domestic production is exported abroad. It's very significant for many commodities, and, as I mentioned, we're the fifth-largest exporter of agricultural and agri-food products in the world.
The U.S. is still our most dependent destination. In other words, we're the most dependent upon the U.S. for about half of our production, but what I would add by way of context is that in comparison with other sectors, we're actually far more diversified. Canada's export performance depends upon the sector, but on average it's around 75% or 76% dependent upon the U.S. market, whereas the Canadian sector is considerably more diversified.
I mentioned earlier that the developing world is the source of most of the forecast growth for the future. What we've put on slide 21 is an infographic describing where the middle class currently is located. Each one of those person-like figures represents $1 trillion U.S. of consumptive capacity. You can see where they're currently located. You can see that today a relatively small proportion of the middle class and of middle-class buying power is located in the developing world, which would include Southeast Asia, Africa, and some of the Middle East.
Compare that with 2030, when two-thirds of the global middle class will be in the Asia Pacific region. In fact, if you drew a circle—you could imagine the area—encompassing southern China and a bit of India and Indonesia, there are more people living in that area now than in the rest of the world.
Those markets are quite critical for Canadian exports of agricultural and agri-food products. When more disposable income is available to middle-class income-earners, their diets change. Their proteins change towards meats and their consumption of oil changes towards healthy oils such as canola, which we ship from Canada, so Canada stands to benefit enormously from the growth in population and wealth in that particular region.
In conclusion, I want to go back to some of my opening remarks. The sector really is populated by tens of thousands of entrepreneurs who are very competitive on a global basis. Their use of very sophisticated business models and very sophisticated technology makes them some of the most productive farmers in the world. We're an important player, and there's a considerable amount of opportunity for future growth.
