Agriculture Committee on June 1st, 2017

[The Chair, Liberal, Pat Finnigan]

Welcome, everyone, to our session this morning. Today we're continuing our study on the non-tariff trade barriers to the sale of agriculture products in relation to free trade agreements.

With us here today we have, from the Agricultural Manufacturers of Canada, Mr. Geof Gray, past chair. Welcome, Mr. Gray. We also have Leah Olson, president.

Hello and welcome, Ms. Olson.

From the Canadian Pork Council, welcome here again, Messrs. Kristensen and Stordy. As I told Ron Bonner the other day, we could have a permanent seat for you guys

We will start with an opening statement, if you wish, of up to 10 minutes.

Ms. Olson.

[Leah Olson, President, Agricultural Manufacturers of Canada]

Good morning, Mr. Chair and committee members.

Hello everyone.

My name is Leah Olson, and I'm president of Agricultural Manufacturers of Canada. I'm pleased to have with me here one of our executive board members, Geof Gray, who will help answer questions and provide insight during the Q and A session.

In addition to his role on the AMC board, Geof is president and CEO of Salford Industries, a key manufacturer in southwestern Ontario offering a full line of tillage and seeding equipment, as well as fertilizer applicators. Salford has six manufacturing plants: two in Ontario, one in Manitoba, one in Iowa, one in Russia, and one in Georgia.

Agricultural Manufacturers of Canada is a national member-driven industry association with just under 300 member organizations. Our mission is to foster and promote the growth and development of the agricultural equipment manufacturing industry in Canada. I'm pleased to be here as you study non-tariff trade barriers to the sale of agricultural products in relation to free trade agreements.

In 2016, agricultural equipment manufacturers in Canada exported more than $1.8 billion of implements to more than 150 countries. In the agricultural industry, we are known as the innovative manufacturers, as we are highly specialized, offering farmers a short number of products, hence being called short-line equipment manufacturers. All agricultural equipment manufactured in Canada, except for one facility owned and operated by Case New Holland in Saskatoon, Saskatchewan, is done by a short-line manufacturer.

Your study is an important one, and I want to share with you the critical role that agricultural equipment manufacturers have domestically but also as global leaders of farm equipment. Canadian-made agricultural equipment is among the highest quality and most sought out in the world. Just over 50% of our manufacturing members are located in rural communities of fewer than 10,000 people. Some of our members are located on the family farm or in communities in which the number of people the manufacturer employs is larger than the population of the community it is in.

Despite being in rural locations, more than 80% of our members export. We have two members who export to more than 40 countries per year, a clear demonstration of the demand for Canadian-made farm equipment.

Employing more than 12,000 people across Canada, our member companies provide high-quality and well-paying employment in all realms associated with being a quality manufacturer: finance, marketing, IT, engineering, procurement, etc. Our members are key contributors and a vital part of Canada's agriculture industry and of rural economies.

A key role the government can pursue for agricultural equipment manufacturers is to enable further innovation by providing tax rebates supporting R and D and the commercialization of our products in Canada and globally. Machinery has been at the heart of Canadian agriculture for many years. It shaped agricultural practices and in many respects created the opportunity for rapid European settlement in the late 1800s.

The agricultural equipment manufacturing industry has progressively developed as an entity separate from commercial or industrial manufacturing. Central to this evolution was the need to develop agricultural machinery capable of meeting the challenges of the Canadian climate and our harsh growing conditions. This drive for innovation enabled Canadian farm equipment manufacturers to thus be global leaders in the development and production of high-quality, durable, and innovative machinery.

Innovation is crucial if we want to address global issues such as overpopulation, limited resources, and food production. The agriculture industry will need to produce more with less, and Canadian farmers and short-liners are at the forefront of meeting this challenge. AMC's members continually develop innovative technologies and manufacture products that enable us to be leaders throughout the world. This situation puts us in a very good position to align with the government's growth agenda.

As companies that thrive on exports, our members are enthusiastic supporters of trade agreements that open up increased market opportunities outside Canada. For instance, we wholly support possible action by the federal government to pursue a free trade agreement with China. As you know, however, any trade deal is only as good as the commitment of the participating countries to honour and enforce the agreed-to measures intended to lower both tariff and non-tariff barriers. Our members have found reasonable success in countries in which tariff barriers are low, but we have concerns about certain non-tariff practices, including border security issues, red tape and burdensome customs procedures, and requirements to meet various and different standards.

As one of our members highlights, “The paperwork and different certification rules are a detriment to developing export markets. It is difficult to keep up with the standards and to meet them, especially with 'legacy' products. The biggest obstacles to overcome for us are, first, different criteria for each country and region that can be hard to keep track of, and second, documentation that is applied arbitrarily.”

The recent approval of the Canada-European Union comprehensive economic and trade agreement illustrates this well. There is some confusion, both on the Canadian and European sides, as to whether CE marking certification is required. One of the requirements for exporting to the EU continues to be that of a CE marking certification, yet at this time, there are limited Canadian organizations certified to offer the CE marking certification. For agricultural equipment, this has been a challenge that has delayed exports to the EU.

Different countries require different formats of the same document. What one country accepts may be quite different from what another country accepts. The federal government would be well positioned to support and help harmonize the standardization of documents required.

Last is a lack of protection for intellectual property, including safeguards against the copying and reproduction of Canadian equipment and innovative products.

In this context, I should mention the absolute importance to our members of the support of Export Development Canada, which is vital in taking full advantage of liberalized trade opportunities outside Canada. While a lack of EDC financing is of course not technically a trade barrier, some of our members equate it with a non-trade barrier when such support is not obtainable.

Over the past year, Agricultural Manufacturers of Canada has hosted numerous government representatives at manufacturing facilities and farm shows across Canada. Our priorities moving forward include continuing to inform the federal and provincial governments' public policy agendas. Our goal is to help solidify Canada's role as a global powerhouse of farmers and short-liners feeding the world today, tomorrow, and in another 150 years.

Thank you for the opportunity to take part in your hearings on a subject of great importance to our members, to the wider agricultural sector, and to Canada's future economy.

Thank you very much.

[The Chair, Liberal, Pat Finnigan]

Thank you, Ms. Olson.

Now with the Canadian Pork Council, we have Mr. Kristensen.

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

Good morning.

Thank you for the invitation to appear before the committee and for your continued attention to the international market access for Canadian pork.

My name is Hans Kristensen. I am a producer from New Brunswick and the Maritimes' representative on the Canadian Pork Council's board of directors. As part of my responsibilities as a CPC director, I also sit as a director on Canada Pork International.

The roles and responsibilities between the CPC and Canada Pork International complement each other. Through public policy outreach, the CPC advocates for reasonable legislation and regulations both domestically and internationally to develop market opportunities for Canadian producers. Canada Pork International steps in once market access becomes feasible and promotes Canadian pork in foreign markets.

The last time we were here to discuss debt in the agriculture sector and its effects, we outlined how the pork sector relies on exports and how the relationship between market access and the economic stability of our industry are so closely connected. I'm certain by now you are familiar with the impact the Canadian pork industry has on the Canadian economy. It's a good story that needs to be told. In 2016, we exported over one million tonnes of pork and pork products valued at over $3.2 billion to 90 different countries. The pork sector relies on exports. In fact, more than two-thirds of the hogs produced in Canada are exported. Over the past decade, due to the hard work of the entire industry and this government, we have expanded to become the third largest exporter of pork in the world. This expansion supports not only hog farmers, but also provides thousands of jobs in rural and urban communities alike.

The pork industry has always been interested in eliminating trade barriers to our exports and improving access, whether import barriers, or unfair sanitary or regulatory measures, or legitimate tariffs. We work hard to remove measures that hamper our exports. It should not be surprising, therefore, that the meat sector is an ardent and steadfast supporter of all initiatives that contribute to not only the opening, but equally vital, the maintenance of existing export markets.

The Canadian Pork Council is pleased federal legislation to implement Canada's rights and commitments under the Canada-EU comprehensive economic and trade agreement, Bill C-30, was granted royal assent on May 16. The CPC has followed developments with great interest since the October 2008 Canada-European Union summit to explore an economic partnership. Europe is the last important pork-consuming region in the world to which Canada currently has little effective market access. It is limited by very high tariffs and onerous import administration rules. The EU is one of the world's most protected import markets for meat. The new zero-tariff access for pork granted under CETA and much improved quota administration rules provide unique access for Canada and an advantage in the future over U.S. exports should a deal be worked out between the U.S. and the EU.

One of the non-tariff barriers hampering access for Canadian pork exports to the EU is the requirement that imports of fresh, chilled pork undergo costly and burdensome testing requirements for trichinae. The EU testing requirements are costly and severely limit sales of chilled pork to Europe. The EU also requires that a health mark label be applied to all boxes of meat exported to the EU. The label is intended to ensure traceability of the product to the producing establishment and to provide a visual means of determining if a package has been opened. The Canadian Food Inspection Agency's current interpretation of the EU requirement makes it extraordinarily difficult, if not impossible, for Canadian pork processors to meet this requirement. Over the past two years the industry has raised its ongoing concern about the health mark label with both Canadian and EU officials. Notwithstanding constant assurances that the issue is being worked on by officials in Canada and the EU, it would appear that little if any progress has been made to resolve the issue.

As important as trade agreements are, they constitute only one component of trade in pork products. The removal of import quotas and tariffs is only of value if it is possible to overcome also the myriad of associated technical regulations and requirements. The meat industry works very closely with the market access secretariat of Agriculture and Agri-Food Canada, the CFIA, Health Canada, and Global Affairs Canada on the endless task of addressing these impediments. 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.

When a country places a barrier to trade, our industry has to ask if we can overcome that barrier, and at what cost to our industry. The cost of compliance can sometimes deter operations from implementing the process or technology that allows CFIA to certify that the product or establishment comply for all products destined for the desired market...are erroneously expensive.

However, in some cases, a country's expectation or high barrier for import has benefited our industry, such as with Japan. Pork exports from Canada to Japan have been a major success story, and this has led to a strong trade relationship that has benefited both countries. The Canadian pork sector has a long history of trade with Japan that goes back more than 40 years since the first shipment of pork left Canada destined for Japan.

The Japanese market is very demanding on the safety of products and requires a high level of food safety and certification from its importers. These requirements have enabled the Canadian pork industry to develop some of the highest quality food programs and food safety programs in the world, such as the Canadian quality assurance program. These programs assist the industry in accessing Japan and other international pork markets. It can be said that the Japanese influence on the Canadian industry has also led us to be better producers and better exporters.

I must take a moment to point out that Canada is currently Japan's second largest country supplier of pork after the United States, and we believe there is still room to grow our sales. A trade liberalization agreement between our two nations will provide a big boost for our industry.

Another example where a non-tariff barrier is restrictive and the industry has decided to meet the country's requirement is the use of ractopamine. Ractopamine is a product approved for use in animal feed in over 25 countries, with an additional 75 countries allowing for the importation of pork that has been fed ractopamine, even though it is not allowed to be fed in their domestic herds.

In July 2012, the Codex Alimentarius Commission voted to approve an international standard that set the maximum residue levels of ractopamine as a feed additive, thus recognizing the product as safe for use in pork and beef production, yet markets such as the EU, Russia, China, Taiwan, and Thailand refuse the importation of meat where the product has been in contact with ractopamine.

As a result of this, the Canadian ractopamine-free pork certification program was launched in April 2013. This was in response to Russia's requirements banning the importation of meat from hogs that have been fed or even exposed to ractopamine. The Canadian Pork Council worked closely with the Canadian Meat Council, the Animal Nutrition Association of Canada, Canada Pork International, Elanco, and the CFIA to develop the program. The certification program was implemented throughout the pork value chain, including feed mills, producers, and live animal transporters, as well as slaughter, processing, and storage establishments.

Our industry is forgoing the benefit of using this product and has voluntarily implemented a national program to ensure that pork products meet import requirements of our clients for the ractopamine program. Our industry decided to stop using the product so we can increase the flexibility of accessing markets. That flexibility and that market access comes at a cost, but it also places our industry at risk.

For example, recently, Chinese testing of a shipment of pork from a specific establishment in Canada detected ractopamine residues. Canada's pork industry takes this detection very seriously, and we want to assure our Chinese customers that our country and our industry is dedicated to providing their consumers a ractopamine-free product. The CFIA has suspended exports of pork to China from the establishment. Product en route to the Chinese market from this specific establishment is also being recalled, and the plant involved will not ship until further notice. Our industry partners are working with the establishment involved, as well as with Canadian government officials, to clarify this incident and take the proper corrective actions.

The industry is confident in the integrity of the Canadian ractopamine-free pork certification program. The Canadian pork industry values its relationship with China and looks forward to continuing a strong trading relationship.

I thank you again for the opportunity to speak this morning on behalf of the industry.

[The Chair, Liberal, Pat Finnigan]

Thank you very much, Mr. Kristensen.

Now we'll go to our question round, with Mr. Shipley for six minutes.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you very much.

Mr. Kristensen, I want to go to the ractopamine issue. First of all, I want to congratulate you and your industry on what you have done to promote and actually meet the standards that are required to export to other countries, and in fact, to all our witnesses who recognize that, because of the importance of exports.

On the issue of ractopamine, there doesn't seem to be any area of harmonization of maximum residue levels. Also, you mentioned that they can't be fed or exposed. Can you help us understand what “exposed” means?

[Hans Kristensen]

Feel free to step in, if you want.

The situation we have now in Canada is that we, as an industry, have made a decision to voluntarily remove the use of ractopamine as an additive in our country as a whole. It doesn't matter if it's the domestic, foreign, or export market, we do not use the product in our pork-producing systems.

“Exposed” is the chance that we are subject to, say, some levels of cross-contamination when that product is being used in a feed mill that's manufacturing a product for a different use and that can somehow possibly cause cross-contamination and a risk of us being exposed.

What we have with our export nations is a ractopamine-free certification program. That means we're letting them know that our pork has not been exposed to this product, so our acceptable residue level is essentially zero.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Next, I quickly want to go to the manufacturers.

In your presentation, you listed a number of things. One of the things we recognize in Canada is that we are known for the quality of our products, whether in livestock, genetics, or the equipment we build. Canada is recognized for the quality products we produce. How do we compete and get that to the markets?

You mentioned the requirements to meet various standards that are out there. Where is the biggest impediment? Is it around safety standards that we need to have for equipment when it's entering another market, or is it a design standard that has to be met? Can you tell us where we are, and what we might be able to do to improve the movement forward?

[Leah Olson]

When it comes to safety and the quality of the equipment made in Canada, we recognize.... Many of us are farmers. This is perhaps the first time you have so many farmers here all in suits, but at any rate, we're pleased to be here.

When it comes to our members, because they do so much exporting, they typically meet ISO standards. The Canadian Standards Association operates very well in Canada. Our Canadian standards don't always tend to be aligned with those in the United States which, for agricultural equipment are the ASABE standards, but everybody tries to meet the ISO standard.

When we go into new markets, there might be a big demand for our types of equipment, and the quality of the equipment is definitely a big draw. When it comes to meeting standards and exporting more agricultural equipment, the biggest challenge our industry faces, and Geof can expand on this, is the lack of financing. For example, in Latin America, where we don't see a lot of EDC, that's a challenge. The farmers who want to buy quality equipment are penalized financially, because they have to pay higher prices for Canadian-made equipment based on the taxes and tariffs of their own government.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

You do a lot of the short-lines.

[Leah Olson]

We do all of them, yes.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

The large equipment dealers, though, are mainly from the United States, and we import from there into Canada. Would you see the same issue, then, for the large manufacturers coming into Canada as for these short-lines of ours that are moving out?

[Leah Olson]

The main lines, such as Case IH and AGCO, manufacture from tip to end what a farmer may need. They, too, are meeting the safety standards. When it comes to international standards, the industry is pretty aligned in terms of what's required from a safety perspective.

Geof, do you have any more comments on that?

[Geof Gray, Past Chair, Agricultural Manufacturers of Canada]

The main issue is western Europe. That's the biggest trouble, so we don't even touch western Europe. It's too difficult for us. We don't attend trade shows in western Europe because they've kind of locked themselves out. They have very strict standards that don't match those of the rest of the world. It's not worth it to redesign our equipment. There are a lot of technical requirements to meet: very different road restrictions, braking requirements that are required only in western Europe, and size restrictions for roads. There are also safety certifications required for Europe.

Unless they see it's worthwhile, manufacturers like us just stay out of western Europe. They've created a bit of a barrier for any other manufacturer to get in that region.

[The Chair, Liberal, Pat Finnigan]

Thank you. That will be all, Mr. Shipley.

Now we go to Mr. Longfield, for six minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Thanks, Mr. Chair.

Thanks, everyone, for coming back to this committee.

I want to address some questions particularly to AMC. I really learned a lot at the outdoor farm show last year when I saw the short-line manufacturers and the amount of IP that's included in their machines. One fellow who was making a pond-cleaning machine and shipping it to Russia had three or four patents on the machine. I asked him whether he used the universities or the colleges for the patents, and he kind of laughed at me. He said, “No, I do it myself.” For some manufacturers, getting patents is going to be a bit more difficult. You mentioned financing.

In terms of the non-tariff measures, in the table we have from the United Nations Conference on Trade and Development, section N talks about the intellectual property covering patents. The industry committee just started an IP study this morning. We want to increase our exports to $75 billion in agriculture, and we're hoping a lot of that has to do with machinery.

I want to touch on the IP barriers. How can we improve access for the manufacturers to get their own IP registered, so when they are shipping to Russia we protect Canadian ideas?

[Geof Gray]

Probably the biggest barrier is cost, because you have to register in every country, so as a general rule, our company focuses on the United States and Canada.

The United States probably accounts for 60% of our sales. A standard patent for us costs $25,000. That's what it costs in legal and consulting...to get it through. Then you start to add every country. A simple patent that may be worthless could cost you $100,000 to $150,000 to make it global, because you have to fight each and every country.

You have to do a cost and risk analysis. Maybe we'll get a patent in Canada and the U.S. and not apply in Russia. Then the product starts to sell to Russia, and we say that we should have done that, and the next thing you know, there are people copying our product in Russia, and they have every right because we have no patent.

A lot of it is the cost of registering a patent in every single country. Countries have different legal requirements, and it's very painful and expensive.

[Lloyd Longfield, Liberal, Guelph, ON]

We'll probably try to see if we can get some input on the study of the industry committee on that as well, because small manufacturers are the ones that we hope are going to export. This is going to be a barrier for everybody.

I'm also looking forward to going to the Ag in Motion outdoor farm show in Saskatoon from July 18 to 20, just to put that on the record. I'm sure I'm going to see a lot more good ideas there.

You mentioned the CE. In my experience in getting CE registration for some of the products I used to manufacture in Canada, the CSA played a key role in getting the CE, UL, CSA, and CUL registrations.

Where are we now with CSA in terms of our capacity to handle CE markings to get into Europe? You said that Europe isn't an interesting market, which really makes me want to ask more questions, but we don't have a lot of time.

[Geof Gray]

The requirements in Canada and the U.S. are actually not well enforced at all. It's mostly a general rule of thumb. We don't have much criteria to meet. It's not very well regulated in Canada or the U.S., actually. Europe is where it's tightly regulated, so meeting the requirements there is where it becomes more difficult. In Canada and the U.S. it's not very well regulated at all. It's more self-regulated than anything else.

[Lloyd Longfield, Liberal, Guelph, ON]

I know there's a process to go through to get into Europe. It's a huge market and they have a lot of equipment manufacturers in northern Italy that we could compete against. We have manufacturers, Fendt Tractors that we could compete with, and MacDon. They'll do those things themselves.

Section B of the non-tariff classification is for technical barriers to trade. Are the technical barriers to trade to get into Europe something we need to spend more time on, or to educate your industry on? What could we do to help, or do we just go into other markets?

[Geof Gray]

There are differences of opinion, I guess.

[Lloyd Longfield, Liberal, Guelph, ON]

I guess so.

[Geof Gray]

It depends on whether you see it as a market you can compete in. I look at any market and ask if it is a market that a company can compete in. Europe is quite a bit different from Canada. Canada has a lot of bigger farms, so a lot of the equipment is bigger. You get smaller farms in Ontario and Quebec, so manufacturers that focus on those regions can compete more in Europe.

[Lloyd Longfield, Liberal, Guelph, ON]

When we competed component to component, when I used to supply into that market, Europeans were always expensive. You paid the price for it. They said, “We're high technical.”

I still want to compete in Europe, but I think that's not for this morning.

[Geof Gray]

There are bigger markets to me than Europe.