Agriculture Committee on June 1st, 2017

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[An hon. member]

We're okay.

[Dan Paszkowski]

My name is Dan Paszkowski, and for those who don't know me, I'm the president and CEO of the Canadian Vintners Association, better known as the CVA. As the national voice of the Canadian wine industry, our members represent 90% of all Canadian wine production and are engaged in the entire value chain, from grape growing and wine production to retail sales and tourism. We have more than 700 vertically integrated grape wineries located in six provinces across Canada, with 31,000 acres of vineyards supporting 1,800 grape growers.

As you may know, wine is the highest value-added agrifood product in the world. Unlike the case with other sectors of the economy, once our vines are planted, it's impossible to move our agrifood operation to another jurisdiction. The Canadian wine industry produces high-quality, award-winning wines, contributes more than $9 billion to the national economy, supporting 37,000 jobs, and attracts almost four million tourist visitors to wine country each and every year.

We are the second fastest-growing wine market in the world, with wine consumption growing three times faster than the global average. Over the past decade, per capita wine consumption in Canada has increased by 27%, with by comparison, a drop of 1% for spirits, and a decline of 11% for beer, making wine the beverage of choice in Canada.

This is an opportunity, but it's also a challenge, as Canada is also the sixth largest importer of wine in the world, and the past decade has seen imports capture 75% of the 150 million litres of wine sales growth across Canada. Additionally, legislating the annual indexation of the excise duty on wine to the consumer price index, as proposed in budget 2017, will impact the competitiveness of Canadian wineries, impact demand for grapes, and threaten not only the growth of wine sales in Canada but also our ability to create new export markets.

With a U.S. WTO trade challenge looming over concerns about B.C. policy on grocery wine sales, and an EU notice last week that implementation of the proposed excise duty escalator in the budget implementation act could trigger a new trade challenge, it's clear that the industry is facing many obstacles.

This is all taking place at a time when we face the implementation of CETA and the renegotiation of NAFTA. These two trade agreements include the largest wine-producing countries in the world, representing 61% of total wine imports into Canada. The Canadian wine market is of the utmost importance to both EU member states and U.S. wine-producing states, given that wine is the highest value EU agricultural export to Canada and that this year the U.S. wine industry became the largest exporter of wine to Canada by value.

From Nova Scotia to British Columbia, vintners support a competitive and fair global trading environment, recognizing the numerous benefits to industry, consumers, and the greater economy. Canadian vintners are actively engaged in global trade, with $85 million in export sales shipped to 40 countries in 2016, up from $20 million in 2005; however, it's important to emphasize that our export growth realization is tied to our domestic success. The Canadian wine industry's domestic market share is a mere 32%, the lowest of any wine-producing country in the world. Further, our premium VQA wine sales have less than a 5% market share in eight out of 10 provinces across Canada.

Yet, with the exception of three provinces, I'm sad to say that 81% of Canadians cannot legally have wine delivered to their homes from an out-of-province winery. Clearly, the retail world has changed, and removal of the remaining interprovincial barriers to wine trade would help the Canadian wine sector adjust to, take advantage of, and prepare for a new state of global trade.

We are hopeful that the hearing of the Comeau case at the Supreme Court this year, together with the federal-provincial working group on beverage alcohol to be launched on July 1 under the auspices of the Canadian free trade agreement will help address this barrier to trade.

Globalization is an increasingly important factor affecting producers of all sizes. As Canadian wineries enter the world of international trade, they must manage a myriad of economic costs, ranging from import tariffs to more complex non-tariff trade barriers. Working with Agriculture and Agri-Food Canada and Global Affairs Canada, our industry has been actively addressing non-tariff barriers to trade through our participation in various fora including the World Wine Trade Group and the APEC Wine Regulatory Forum. Through these groups, the CVA works with a number of wine-producing countries to support a climate free of trade-distorting factors, through sound science and the harmonization of regulatory standards covering definitions, labelling, oenological or winemaking practices, and composition.

The harmonization of regulations are crucial, given that winemaking practices are not uniform, vary across jurisdictions, and can create costly barriers to trade. Let me provide you with a few examples.

Geological and other conditions require winemakers around the world to sometimes use different winemaking practices to enhance the stability, longevity, or consumer acceptance of wine. Different approaches are used to define which and how much of an additive or processing aid may be used in the production of wine. Restrictions are implemented on the use of certain pesticides, including differing maximum residue limits for agricultural chemicals.

Multiple export and food safety certificates are often required, even though the food safety risks from wine are miniscule and the wine in question already meets the requirement for sale in Canada. Labelling differences include country of origin, alcohol content, alcohol tolerance, expiration dates, nutrition labels, ingredient labels, health labels and a broad range of other information, often in multiple languages. Packaging differences include lightweight bottles and restrictions on the materials that contact the wine. Environmental issues range from the definition of “sustainability”, to carbon and water footprint and acceptance of organic standards. There are intellectual property restrictions on the use of traditional terms such as “reserve”, “champagne”, “port”, and “sherry”, as well as geographical indicators.

Those are but a few of the issues that create costly non-tariff barriers and complicate trade in wine. Through the World Wine Trade Group and APEC, the CVA has worked hard on adopting mutual acceptance of oenological practices, harmonization of labelling standards, the definition of “icewine”, an agreement on counterfeiting, addressing additives through the Codex Alimentarius Commission, and other efforts in supporting a global wine-growing industry characterized by freedom from trade distortions.

Those intergovernmental efforts have paid dividends through the World Wine Trade Group's endorsement of analytical methodology and regulatory limits, as well as the adoption of a wine annex in the trans-Pacific partnership agreement, which we believe is a crucial standard for inclusion in the negotiation or renegotiation of trade agreements.

The CVA has worked in co-operation with the federal government on a range of groundbreaking principles for nations to use when establishing wine regulations. These harmonization efforts, if adopted, would remove unnecessary obstacles to international wine exports that delay and add to winery costs, resulting in restricted market access and trade.

In conclusion, the regulatory efforts undertaken through the World Wine Trade Group should be advanced by the federal government to facilitate international trade in wine, whether through APEC or bilateral trade agreements with China, Japan, Mercosur, India, and so on, as an important foundation in bringing regulatory coherence with our trading partners.

Thank you. I look forward to answering any questions you might have.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Paszkowski.

We'll start our round of questions.

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

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

Thank you, Mr. Chair.

I would like to thank the witnesses for being here.

Mr. Paszkowski raised an issue that I think is important: interprovincial trade. We sometimes talk about the free trade of agricultural products in other countries; we want to get there and we want a lot of flexibility as to the openness of those markets. There are nonetheless domestic barriers in our own country.

Could we start by improving matters at home and, after setting an example, then ask for greater flexibility elsewhere?

[Dan Paszkowski]

Thank you. That is an excellent starting point.

For the Canadian wine industry to succeed internationally, we have to remove what I view as a non-tariff barrier within our own country, which is the ability to ship a case of wine to a Canadian consumer in another province, which isn't the case, with the exception of three jurisdictions, namely, British Columbia, Manitoba, and Nova Scotia. We are hopeful that will take place.

As you know, five years ago, Bill C-311 was passed. Both the House of Commons and the Senate approved an amendment to the federal Importation of Intoxicating Liquors Act to allow wine at that time, but it now includes beer, to be shipped across provincial borders for personal consumption. However, it was up to the provinces to make amendments to their own laws, which has not taken place. We are now at the point where it might take a Supreme Court ruling or the goodwill of the federal and provincial governments over the course of the next 12 months, beginning July 1, to come to an agreement on how we might be able to allow Canadian wine to be shipped from one province to another without fear of a significant financial penalty, or after three infractions, a significant time in jail, which is what the law says in the provinces that currently disallow trade across interprovincial borders.

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

According to the Canadian Agri-Food Trade Alliance, are there problems with regard to other products—aside from wine and beer—within our own country?

[Brian Innes, President, Canadian Agri-Food Trade Alliance]

Thank you for your question.

For CAFTA members, our focus is on expanding opportunities around the world. Much of our product leaves the country, which is, as Martin said, more than 50% of what we grow. In some cases, for commodities like pulses, canola, and mustard, it's more than 90%. Our focus is really on other countries. For example, with the free trade negotiations with China, we are having a submission deadline for tomorrow, for example, that is of interest to us. When it comes to trade within Canada, it's not a major area of focus for CAFTA because our focus is on markets around the world.

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

We often see the greatest flexibility when global demand for certain products is very high and where needs warrant it.

For producing countries with good harvests, however, or countries with conditions that are favourable to a certain kind of production, meat for instance, it is more difficult for us to export. Is this a trend that recurs cyclically or is it just my impression?

[Martin Rice]

Certainly, there is a cyclical element to it.

My personal experience has been more in the meat sector, but I think it's common throughout agriculture where, if you have an industry that's been used to having protection of some sort and hasn't been world market oriented.... I think those sectors that are used to dealing with the world market understand that prices are going to go up and down and they learn to deal with it in their business planning. Certainly, we do see where there's increased supplies, all of a sudden, there is increased focus on imports and pressures on governments to bring in new measures. I think that's where sometimes we get interesting new technical, supposedly sanitary or phytosanitary, measures being introduced, sometimes with very little notice. That will turn those import opportunities to not being welcome for our products anymore. That is very difficult to plan for and our exporters are already committed to those markets in a major way, so to be pushed out of them is extremely disruptive.

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

I have visited other countries and have promoted beef there, as I was once a farmer. I think beef is in fact a strong trademark for Canada.

Governments, in France in particular, told us that meat consumption was falling because prices were too high. They indirectly refused to import meat from other countries, including Canada. I told them that if they wanted meat to be a bit less expensive, they should try Canadian producers. That might have allowed them to reduce prices, but their attitude was highly protectionist.

What can we do in that kind of situation, which is clearly political?

[Martin Rice]

Maybe I'll start and either Mr. Paszkowski or Mr. Innes can jump in.

A really important aspect of this is the relationship that we have with the governments in those countries, so that we can react at an early stage when we hear of new measures. Usually there is information coming forward in local media and so on, which our embassies need to be keeping track of, before a measure is actually proposed or contemplated in the government. You can't always do that in many cases. In China, it happens sometimes before there's any information in the public, but—

[The Chair, Liberal, Pat Finnigan]

Mr. Rice, I'm going to have to cut it off now. Thank you.

Go ahead, Mr. Peschisolido, for six minutes.

[Joe Peschisolido, Liberal, Steveston—Richmond East, BC]

Mr. Chair, thank you.

Mr. Rice, if you would like to continue with your answer, that would be fine.

[Martin Rice]

I'll just say that I think our eyes and ears in these countries is through the embassies. Their relationship with the governments in those countries is really critical to get in on this before it gets too far.

I don't know if there are any other comments that my colleagues would like to make.

[Joe Peschisolido, Liberal, Steveston—Richmond East, BC]

Mr. Paszkowski, my riding is Steveston—Richmond East, which is in B.C. I had the wonderful opportunity to spend some time in Kelowna, have a bit of wine, and do a bit of a tour. Can you talk a bit, first, about your thoughts on the wine industry in B.C. and how we can expand on it?

[Dan Paszkowski]

The B.C. wine industry is extremely successful. It has grown beyond imagination in the past 20 years, and this year, we are celebrating 20 years of VQA in the province of British Columbia. The number of wineries being built in British Columbia exceeds that in any other area of the country. It has more sunlight hours than California, produces phenomenal wines that are recognized around the world, and has finally reached that stage of maturity where.... When I first started at the Canadian Vintners Association 12 years ago, all the wine produced in British Columbia was consumed in British Columbia. They now have sufficient volume to sell within Canada, and are getting very active in the export market as well.

It's a real success story, and a homegrown one. Unlike in other parts of Canada, the restaurant industry and the bars really took hold of that made-in-Canada, made-in-British Columbia product, and made it a huge success. If you could emulate that across the country, that would be fantastic. As I mentioned, eight of 10 jurisdictions in Canada sell less than 5% VQA wines at their liquor board stores. It's 0.3% in the province of Quebec, which is the largest wine-consuming jurisdiction in the country. Everybody can learn from British Columbia.

[Joe Peschisolido, Liberal, Steveston—Richmond East, BC]

Very good.

Brian, you mentioned earlier our free trade negotiations with China. There's a great deal of interest, not only in my community but all across B.C., in pork and beef, and in your organics sector. There is a premium on Canada products. There are concerns in China about pollution and some other issues. Can you discuss how we can build on organics as a sector, particularly in cattle and pork, between Canada and China, if you believe that's feasible?

[Brian Innes]

Thank you for the question. Certainly in CAFTA's membership, we have producers of beef, pork, many different meats, grains, and oilseeds, some of which would be organic as well. I don't speak specifically for the organic association, but certainly farmers have an interest in providing what the market is interested in and what the market is willing to reward them for either growing or producing, in the case of livestock.

What I know about China, and certainly about CAFTA's members' interest in China when it comes to potential free trade negotiations, is the importance of establishing those terms of trade that enable us to take advantage of opportunities. As you mentioned, organic certification is one of those regulations we would need to meet to expand our growth there.

When we see the opportunity in China, it's very much a priority for our membership to be prepared to send product to that market by having our regulations match or having agreements that allow us to access those markets. In the case of organics, as you describe, it's about that certification, and about the recognition and validity of that certification.

Equally, it's the things that Martin was describing in his presentation. Let's take canola as an example. We need our canola oil to have the required health certification when it reaches Chinese soil, for example. That requires that our regulatory agencies talk to each other. There are many different examples in food and agriculture where it's a highly regulated sector and we need those close regulator-to-regulator ties. Organic is a good example where, if there's an opportunity to meet that, we need to have that alignment between regulators in our countries.

[Joe Peschisolido, Liberal, Steveston—Richmond East, BC]

Mr. Rice, earlier this morning, someone mentioned a country that we don't discuss much here, and that was Brazil. What are your thoughts on the possibility of enhancing our links with Brazil, both on the trade side and on the investment side, and in particular on cattle?

[Martin Rice]

From my time spent in the pork industry, we did have some linkages with Brazil, and in just a few years they became a fairly significant competitor of Canada, particularly in the Russian market. They certainly have some considerable advantages in climate, which allows them to not have to invest as much in the buildings that we have to invest in. On the other hand, we have some advantages in managing animal health issues because of our climate, not moving animals around as much as they do in Brazil. I think Brazil has 13 different countries on its border, so it has some advantages and disadvantages.

In the agrifood industry it is increasingly important to be able to demonstrate the rigour of food inspection systems and so on, and we have had co-operation between Canada and Brazil in that respect. It is still an area Brazil is needing to focus on in maintaining its world access, and perhaps this is an area of advantage for Canada.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Rice.

Thank you, Mr. Peschisolido.

Ms. Brosseau, you have the floor for six minutes.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

I'd like to thank the witnesses for their presentations today and their participation in this study.

We will be winding down the study on non-tariff trade barriers, and I'm really hoping that when we do get together as a committee we can put forward some recommendations and hopefully put some pressure on the government to act and maybe adopt some of these recommendations.

I'll start with Mr. Paszkowski.

I want to talk about the excise tax, which has been talked about quite a bit. The federal budget announced an excise duty increase on wine and spirits, so this will have an impact on the industry, on businesses, restaurants, hotels, a broad range. I wonder if you could talk about the negative impacts of this excise duty on the industry, and maybe make a recommendation to the committee.

[Dan Paszkowski]

We've always paid excise tax on wine. As you may know, it is a flat tax at the front of the pricing chain of 63¢ per litre, but since it is at the front of the pricing chain, it accumulates as it works its way down to the consumer price.

We already add inflation to our producer costs every year. Then you add the excise tax. If that is indexed to inflation on an annual basis, it is then fed into the liquor board markup, which ranges from 70% in Ontario to 160% in Nova Scotia, which then picks up the 5% GST on top of that, which then picks up the 8% PST beyond that. Then it gets to the consumer level. In the case of wine, that increase in excise will double by the time it hits the consumer. Then you have to think about the fact that we have to retail this at the liquor store, and the liquor store typically rounds off the price to the nearest nickel or the nearest dime. It adds a significant cost, which somebody has to take, either the producer or it is shared with the consumer, or it is given completely to the consumer.

The problem we face is we have a 32% market share in this country. We're not the lowest cost producer in the world. We aren't the biggest wineries in the world, so if we do increase the cost and it's passed on to the consumer, the consumer typically has a line in the sand they will not cross. If it's $9 a bottle and they're not crossing $9 a bottle, they'll find an alternative brand, which may be an imported brand. It's a real concern to us.

It's not the fact that government can increase tax. We've faced increases in excise tax in the past, a 125% increase in excise tax over the past 30 years. It's the fact that it is legislated, and inflation is not the only factor we face. Numerous business factors face the industry, and therefore, it's too rigid.

If the government is going to increase the excise tax, it should be increased in the budget every year, or every other year, whenever, and then allow the opportunity to debate that to make sure it doesn't have a negative impact on the industry, especially at a time when we are trying to adjust to the Canada-EU trade agreement when import tariffs will be eliminated. We're about to renegotiate NAFTA. We still don't have interprovincial access across the country. Our only ability to access the export markets is if we can own our own market at home to a larger extent than we do.

We need help to take advantage of these trade agreements to enter into the export market. Annual indexation of the excise tax will not allow us to invest back into the industry, which means we won't be able to expand our export opportunities or our domestic opportunities.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

I cannot wait for the day we move forward on a lot of the barriers we have interprovincially so we could buy wine or other products from across the country. More and more I find Canadians are very proud of the work and the food that is produced here. The quality is known worldwide. It's frustrating to have these barriers in place when it's easier to buy from the United States when we'd love to buy from B.C. and Quebec. I'd love to see that improved one day.

Because it was brought up quite a few times in committee, I want to touch on funding for Global Affairs and CFIA, people on the ground in our embassies, in diplomacy. I would like to get some comments around that.

Also, the Senate committee made a recommendation asking the government to consider establishing a national committee with a mandate to monitor non-tariff barriers faced by the Canadian agriculture and agrifood sector in the international market. I guess that question will go to Mr. Rice or Mr. Innes, too. Could I have your thoughts around the importance of a committee like that? Do you think that is a good suggestion for a way to get rid of or reduce non-tariff trade barriers?