Agriculture Committee on May 27th, 2020

[Kody Blois, Liberal, Kings—Hants, NS]

Thank you, Mr. Forth, and thank you, Chair.

[The Chair, Liberal, Pat Finnigan]

Thank you very much, Mr. Forth and Mr. Blois.

Unfortunately, that is all the time we have for this first panel. I certainly want to thank, from the Canadian Mushroom Growers Association, Ryan Koeslag and Janet Krayden; from the Canadian Agricultural Human Resource Council, Cyr Couturier and Portia MacDonald-Dewhirst; and from Foreign Agricultural Resource Management Services, Ken Forth.

Ms. Williams, our apologies that we could not get you on, but perhaps the next time.

Thank you, all.

We shall suspend for five minutes and have the sound tests for the next panel.

[The Chair, Liberal, Pat Finnigan]

I shall call the meeting to order again. Welcome to our second panel.

For the second hour, we have the Dairy Farmers of Canada.

We have with us Mr. Pierre Lampron, president of Dairy Farmers of Canada.

We also have Mr. David Wiens, vice-president; and Mr. Bobby Matheson, vice-president of advocacy.

As well, we have witnesses from the Dairy Processors Association of Canada.

We have with us Mr. Mathieu Frigon, president and chief executive officer of the Dairy Processors Association of Canada.

We also have Mr. Michael Barrett, chair.

Welcome to all of you. We'll start with a seven-minute opening statement.

Dairy Farmers of Canada, go ahead. You're on.

[Pierre Lampron, President, Dairy Farmers of Canada]

Good evening.

I’m Pierre Lampron, president of the Dairy Farmers of Canada.

I’m here today with David Wiens, vice-president of the board and also chair of Dairy Farmers of Manitoba, as well as with Bobby Matheson, our vice-president, advocacy. On behalf of all Canadian dairy farmers, Dairy Farmers of Canada welcomes the opportunity to offer its perspective on the Canadian response to the COVID-19 pandemic.

Like for many other sectors of the Canadian economy, the COVID-19 pandemic has had negative repercussions on dairy farming. Preliminary estimates indicate that the total monetary impacts of the pandemic on the dairy sector, including farm revenue losses and extraordinary costs, could reach up to $347 million in 2020. Given the unpredictability of the pandemic, DFC continues to monitor these costs closely, and will provide revised estimates if necessary.

The pandemic caused sudden and rapid fluctuations in the demand for milk and dairy products, ranging from an initial period of rushed purchases to a significant drop in demand as consumers adopted new consumption patterns. These unprecedented peaks and troughs were largely due to widespread closures of hotels, restaurants and institutions, which we call the HRI sector.

The exercise of rebalancing production in line with demand has proven to be more complex, since a cow is not like a faucet, we can't just turn it off. In addition, raw milk is highly perishable and cannot be stored.

The financial impact of COVID-19 includes lost revenue and milk disposal costs as well as costs to producers under the Canadian Dairy Commission's (CDC) storage programs, as producers will cover some of the carrying costs under these programs. Dairy Farmers of Canada estimates that disposal costs have already reached $40 million and could reach up to $50 million by the end of the pandemic, when combined with storage costs. Adjustments to the sector have stopped the need to dispose of milk for the time being.

How have dairy farmers adapted to this changing landscape? Marketing boards quickly took action to reduce milk production. They worked with industry players to put in place measures to balance production with the rapidly changing market. This was no small task, as we also had to ensure a continuous supply of safe and nutritious Canadian milk, with a return to normal in a few months.

We also worked with the Canadian Dairy Commission to position its butter and cheese storage programs to help address the problem of milk surpluses. To this end, we would like to take this opportunity to thank the government and the opposition parties for the recent amendments to the Canadian Dairy Commission Act.

While we also welcomed recent announcements that will benefit the entire agricultural sector, some industries have been harder hit than others and require additional government support.

I'm now going to turn the floor over to Mr. David Wiens.

[David Wiens, Vice-President, Dairy Farmers of Canada]

Thanks, Pierre.

Good afternoon.

The question is this: What role does supply management play during the pandemic?

The timelines of the dairy sector's response to the challenges caused by COVID-19 are a testament to the agility and the efficiency of Canada's system of supply management, which has enabled a coordinated response to the impacts of the pandemic throughout the dairy supply chain, while limiting impacts on Canadian consumers.

Let's take a look at what is happening in the dairy sectors in the U.S. and the EU, which, in the absence of supply management, were not well positioned to act quickly or collectively in response to the crisis. As an example, according to Dairy Farmers of America, dairy farmers in the U.S. were forced to dispose of 14 million litres of milk per day at the peak of the crisis. Without any measures on production controls, the European Milk Board, which represents dairy farmers in the EU, asked for funding to help reduce production, while the U.S. government recently announced a $2.9-billion bailout for dairy farmers in that country.

What support does the dairy sector then need from government?

Despite the losses, at this time dairy farmers are not seeking financial support from government to address the impacts of COVID-19. Why? Well, it's because supply management has proven its ability to limit the impacts on our industry compared to other industries and countries. Unfortunately, supply management is not designed to offset the loss of dairy production transferred to dairy farmers in other countries. This is a net loss of market. To be clear, this means that a greater number of dairy products on our shelves will be made from foreign milk. In fact, by 2026, 18% of our Canadian dairy production will have been transferred to imports from abroad.

If you want to support your domestic dairy industry, if you support a safe and secure Canadian dairy supply chain, we ask that you formalize the commitments to mitigate the impacts of trade agreements and announce a schedule for the compensation.

In closing, dairy farmers want to do their share to feed the nation. This is why beyond the existing programs, dairy farmers across the country have donated over $10 million in products to Canadian food banks to support Canadians in need. It's also why we remain hard at work on farms across this great nation producing high-quality, domestic agricultural products that will help cement our food security.

Thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Wiens.

Now we'll move to the Dairy Processors Association, for up to seven minutes.

Whoever wants to go, go ahead.

[Michael Barrett, Chair, Dairy Processors Association of Canada]

Thank you. I'll start.

On behalf of the Dairy Processors Association of Canada, I would like to thank you for the invitation to appear today to discuss the impact of COVID-19 on Canada's dairy processing industry.

I am the chair of the DPAC board, plus I am also the president and CEO of Gay Lea Foods Co-operative, with small and medium-sized enterprise facilities across Canada. Joining me today is Mathieu Frigon, the president and CEO of DPAC.

In these difficult times, DPAC is certainly grateful to those who continue to be able to work diligently to provide Canadians with essential goods and services. Like all Canadians, we are especially thankful for the hard work and dedication of our health workers.

I want to obviously highlight the work done by the dairy sector to ensure continuity of dairy product supply in Canada. These are unprecedented times and dairy producers and processors working together are doing their part. Since the beginning of the COVID-19 crisis, the dairy industry has donated almost five million litres, which has been processed into nutritious dairy products and distributed to food banks across Canada. This speaks to the strong commitment of dairy producers and processors towards their communities.

COVID-19 has put a lot of pressure on all aspects of the country's economic and social infrastructure. Canada's food manufacturers are no exception and diary processors are under tremendous strain today as they adapt to the challenges brought on by COVID-19. Providing Canadians with a continuous and ample supply of nutritious dairy products while protecting employees' health remains a top priority of dairy processors.

Mathieu.

[Mathieu Frigon, President and Chief Executive Officer, Dairy Processors Association of Canada]

On one hand, depending on their product line and the markets they serve, most dairy processors saw their revenues drop between 0% and 50% due to the decline in the food and hospitality market.

On the other hand, dairy processors saw an increase in their costs related to COVID-19, such as increased absenteeism, the cost of personal protective equipment and health screening tools, and increased worker distancing that reduced production capacity.

The combination of declining sales and rising costs means that many dairy processors are under significant financial pressure due to much lower or even negative bottom line results.

We thank the government for agreeing to the industry's request to increase the Canadian Dairy Commission's line of credit to $500 million. We also recognize the emergency support programs announced by the federal government to mitigate the impact of the COVID-19 pandemic.

However, these programs are often insufficient to meet the needs of food processors. Therefore, we recommend the current support programs be expanded in two ways.

First, the $77.5-million emergency processing fund must be increased significantly. It is also important that all food processing sectors be treated equitably when the program funding is allocated.

Second, as it is currently structured, the Canada emergency wage subsidy will leave some food manufacturers without support because revenue declines will not meet the 30% threshold in April and May. We propose that the government make changes to the program by providing a sliding scale of support for income reduction between 10% and 30%.

Now Mr. Barrett will take over.

[Michael Barrett]

We cannot come here today without putting into a broader context the impact of COVID-19 in the dairy sector. At full implementation, when considering the latest three agreements, Canadian dairy processors will lose $320 million per year on their net margin. On top of the market access concessions, CUSMA has a clause that imposes caps on worldwide exports of Canadian milk powder, which will make it increasingly difficult to balance the supply-managed system.

We appreciate the opportunity the government gave to the dairy industry to voice their concerns and work towards a compensation scheme to mitigate the impact of trade agreements through the mitigation working group; however, while dairy processors worked diligently and submitted their mitigation plan in 2019, we haven't yet heard back from the government. This is extremely disappointing.

We trust the government will keep its promises to fully and fairly compensate dairy processors for their losses. As such, we would like to remind the committee of our twofold approach to mitigate the negative impact of trade agreements.

The first is a dairy processor compensation program, which would aim at supporting investment in dairy processing capacity, competitiveness and modernization. That program would include tools such as non-repayable contributions for investments, refundable tax credits, etc.

The second is the allocation of dairy import licences, known as tariff rate quotas, or TRQs for short, to Canadian dairy processors.

[Mathieu Frigon]

I'd like to quickly go back to the point Mr. Barrett just made about the allocation of TRQs. We want to reiterate the importance of allocating dairy TRQs to dairy processors.

Last week, we sent a memo on this subject to several government representatives, pointing out that allocating the vast majority of dairy TRQs to dairy processors would minimize the impact on the Canadian dairy market. Let's be clear: it is the viability of the dairy sector that is at stake when it comes to allocating TRQs.

Dairy processors possess the expertise and the distribution network to import a wide variety of dairy products in a way that will be the least disruptive to Canada's domestic dairy market.

The government must refrain from repeating the mistake it made with the Canada–European Union Comprehensive Economic and Trade Agreement, or CETA, under which, it allocated more than half of the CETA cheese TRQs to non-dairy stakeholders. They do not have a vested interest, like dairy processors do, in importing dairy that would minimize the impact on existing production lines and manufacturing platforms in Canada. In addition, dairy processors continue to innovate, invest, and maintain and generate well-paying jobs across the country. Additional imports that are poorly planned or poorly targeted would undermine the survival of many businesses.

Finally, I would like to remind you that the Canada–United States–Mexico Agreement, or CUSMA, will be implemented on July 1, which leaves very little time for our members—dairy processors—to adjust and plan. It is therefore imperative that both TRQs and export allocations be announced by Global Affairs Canada as soon as possible.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Frigon.

That's all the time you have.

[Michael Barrett]

In conclusion, the pandemic has brought unprecedented changes to the entire Canadian economy.

[The Chair, Liberal, Pat Finnigan]

Sorry. The time is up, Mr. Barrett.

Now we'll start our question round.

Mr. Lehoux, you may go ahead. You have six minutes.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mr. Chair.

I'd like to thank the witnesses for being with us this afternoon.

My first question is for Mr. Lampron, from the Dairy Farmers of Canada.

Mr. Lampron, you explained that producers experienced serious losses because of the pandemic, but that the industry was able to limit the impacts thanks to the flexibility of supply management. Millions of litres of milk had to be discarded at the beginning of the pandemic, but the situation was quickly brought under control.

I'd like to hear your views on the post-COVID-19 landscape. We are in the midst of the pandemic right now, but it's drawing to a close. Several major trade agreements have been signed, including CETA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP.

What are you looking for from the government?

In the last year, the government has promised that it would be putting forward a plan, and right now, we are nowhere near the compensation pledged to farmers for the losses stemming from the market concessions granted to Europe and the countries in the Asia–Pacific region.

[Pierre Lampron]

Thank you very much, Mr. Lehoux, for your question.

COVID-19 is indeed a spontaneous event, and we don't know how long it's going to last. We leveraged supply management tools and we will continue to do so.

We've lowered milk production, and the Canadian Dairy Commission is going to help with storage. However, the market concessions granted under the trade deals mean that imports will make up roughly 18% of Canada's market in 2026, once all the agreements are in effect.

That is a direct attack on the underpinnings of supply management. Products on store shelves will have been produced by farmers in other countries. The supply management system isn't equipped to offset those losses. We did not support the concessions, but they were made, and we were promised compensation.

We received compensation for the first year, but compensation for the following years is outstanding. Not to mention, CUSMA is coming into force soon.

[Richard Lehoux, Conservative, Beauce, QC]

Mr. Lampron, how much of the money pledged by the government to compensate for the agreements with the European Union and the countries in the Asia–Pacific region still has to be paid out?

[Pierre Lampron]

The government promised $1.75 billion. The portion for the first year was paid out, so payments for the subsequent years are outstanding. I don't know the exact figure off the top of my head, but it's a sizable amount, and farmers need it to cope with the market concessions.

[Richard Lehoux, Conservative, Beauce, QC]

Mr. Lampron, has the minister or government notified you as to when those payments would be made? No doubt, that money would help preserve stability in Canada's dairy production.

[Pierre Lampron]

All we were told is that the payments would be made. We'd like more information as well as a formal commitment.

[Richard Lehoux, Conservative, Beauce, QC]

CUSMA is coming into force on July 1, 2020. On that front, the government doesn't have an agreement with dairy farmers either. For the past two and a half months, though, the government has been handing out pretty big sums to different sectors of the economy daily. I have no problem with that, but has the minister or government given you a commitment?

[Pierre Lampron]

We were told that it would be done, but we would really appreciate a more formal commitment. Everyone agrees that farmers should be compensated for the losses they will incur year after year. The government has made promises to our counterparts in all the supply-managed sectors, but what we would like is a concrete commitment.

[Richard Lehoux, Conservative, Beauce, QC]

You stand shoulder to shoulder with your fellow farmers in other supply-managed sectors. The government hasn't signalled anything to them either about possible compensation for the cracks in supply management caused by the agreement.

In your opening statement, you said millions of litres had been sent to the United States, which doesn't have supply management, and Europe. That clearly illustrates how important supply management is to Canada's agricultural system.

Thank you, Mr. Lampron.

Now I'd like to turn to the representatives from the Dairy Processors Association of Canada.

Mr. Frigon, at the end of your opening remarks, you said that the allocation of TRQs would have repercussions. In response to the current COVID-19 crisis, the government announced $77 million in compensation for the processing sector, but that doesn't come close to meeting the need. What's more, the program isn't quite tailored to Canada's dairy processing sector.

Did I get that right?

[Mathieu Frigon]

Actually, the purpose of the program that was announced isn't to compensate dairy processors. It's to address the COVID-19 crisis. The government is making $77.5 million available to all food processors.

The compensation we talked about in our opening statement pertains to the trade agreements. As our dairy farmer friends mentioned, the markets are experiencing significant instability right now.

As for TRQs, the last thing we want is even more market instability. That's why we are calling for TRQs to be allocated to dairy processors.

[Richard Lehoux, Conservative, Beauce, QC]

Mr. Frigon, do you know where the government stands on TRQs?

[Mathieu Frigon]

As I mentioned in my opening remarks, we need the government to announce the details of the export and import components as soon as possible. We've had positive discussions with both politicians and department officials. I know the department is working hard so it can make those announcements soon. That's what we'd like.