Agriculture Committee on Feb. 20th, 2020

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Ms. Proctor, has your group ever applied for protection against delinquent buyers, including for bankruptcy?

I know you were once covered by the American program, but that you were taken out of the program. When we talk about free trade and equal treatment, this is an important issue. Could you tell us about it?

[Jane Proctor]

I did not bring this up, but yes, of course, you're referring to the request for a mechanism to reinstate our preferential treatment under PACA in the U.S., the Perishable Agricultural Commodities Act.

To do that, we have to have a similar mechanism here, which we don't have. We have spent a great deal of industry time and resources over the years to find a mechanism to get that in place. It's a solution that has no cost, or a very low cost, to government. I'm not going to get up on my soapbox, but we feel that it's very achievable, and it's something that can be done outside of CUSMA.

[The Chair, Liberal, Pat Finnigan]

Thank you.

Unfortunately, that's all the time we have.

I want to thank the panel for being here with us today on such short notice. From the Canadian agri-food sector, Madame Claire Citeau and Mr. Brian Innes, thank you. Jane Proctor, give my regards to Ron. Also Mr. Stokke and Ms. Gowriluk, thank you so much.

We shall pause for a minute or two to get the next panel.

We'll suspend.

[The Chair, Liberal, Pat Finnigan]

For the last part of our session on CUSMA, we have with us today Mary Robinson from the Canadian Federation of Agriculture. Welcome, Mary, and thank you for being with us on such short notice. It's good to see you again.

From the Dairy Processors Association of Canada, we have Gilles Froment, secretary; and Michael Barrett, chair. Thanks for being here with us today.

From the Dairy Farmers of Canada, we have Monsieur Jacques Lefebvre, CEO; and Dave Taylor, director.

You have 10 minutes each. Why don't we start with Mr. Barrett and Mr. Froment? You can split the time if you wish.

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

We will split the time.

On behalf of the Dairy Processors Association of Canada, DPAC, I thank you for the invitation to appear today to discuss the CUSMA implementation bill and the impacts it will have on Canada's dairy processing industry.

I'm the chair of the DPAC board, and also the president and CEO of Gay Lea Foods Co-operative Ltd., with multiple-sized facilities across Canada.

With me today is Gilles Froment, DPAC's secretary and senior vice-president with Lactalis Canada.

First, we would like to bring to your attention the harm that CUSMA will cause to our industry, and then focus on the government mitigation measures that would assist industry as we work to mitigate and adjust to the new market environment we are now facing as a result of CUSMA and other trade agreements.

[Gilles Froment, Secretary, Dairy Processors Association of Canada]

As the second-largest food processing industry in Canada, dairy processing contributes more than $14 billion annually to Canada's national economy.

Dairy processors directly employ over 24,000 Canadians in 471 facilities across the country, with a payroll of $1.2 billion. Our industry is a major employer in rural and urban communities and provides good jobs for middle-class Canadians.

Canadian processors have invested approximately $7.5 billion over the past decade. This includes capital investments to expand and modernize existing facilities or to build new ones to support increased production, and research and development to stimulate innovation and bring new products to market.

Dairy processors are committed to continuing to invest in a dynamic industry to support Canadian jobs and the Canadian economy. However, recent trade agreements threaten to curtail this growth and reduce the long-term competitiveness of the Canadian dairy processing industry.

[Michael Barrett]

The full implementation access granted under CUSMA, in addition to existing trade concessions, will represent about 18% of the Canadian market. When considering the latest three trade agreements—CETA, CPTPP and CUSMA—Canadian dairy processors will lose approximately $320 million per year on net margins at full implementation.

On top of the market access concession, CUSMA has a clause that imposes export caps on worldwide Canadian shipments of milk protein concentrates, skim milk powder and infant formula.

For example, for SMP and milk protein concentrate, a cap of 55,000 tonnes is imposed for the first year, and 35,000 tonnes for the second year. After year two, each cap will increase at a rate of 1.2% annually.

Knowing that in the 2017-18 dairy year Canada exported more than 70,000 tonnes of skim milk powder, there is no question that a clause limiting our export worldwide will drastically impact Canadian dairy processors' domestic milk supply requirements from Canadian dairy farms. Indeed, we estimate that the export caps could result in an annual loss of $60 million for dairy processors.

We would also note the extremely peculiar aspect of imposing caps on Canadian exports of the three dairy goods to all countries, including those that are not part of CUSMA. This is a first in a trade agreement and a very dangerous precedent for Canada.

One way for the government to at least try to mitigate the negative impact of the export caps is to ensure that CUSMA enters into force on August 1, 2020 or later, so that the industry operates a full year under a higher export cap of 55,000 tonnes.

[Gilles Froment]

To mitigate the negative impacts of CUSMA, we propose a two-pronged approach: first, the issuance of dairy import licences to Canadian dairy processors; second, an investment program in the dairy processing sector.

With regard to the allocation of quotas, we want to reiterate today that import licences for dairy products, commonly known as dairy import quotas, must be allocated to dairy processors. Processors have the necessary expertise and the distribution network to import a wide variety of dairy products, while ensuring the least possible disruption to the Canadian market.

The government must absolutely refrain from repeating the same mistake it made with the Comprehensive Economic and Trade Agreement, or CETA, when it allocated more than half of the quotas to stakeholders outside the dairy industry, which are retailers and brokers. These non-dairy stakeholders have no vested interest, whereas, on the contrary, dairy processors have a vested interest in importing cheese and minimizing the impact on existing production lines and manufacturing platforms, without displacing the milk produced by Canadian farms. Moreover, Canadian processors continue to innovate, invest and maintain well-paying jobs across the country. Additional imports that are poorly planned or poorly targeted will undermine the survival of many businesses.

With respect to the investment program, which is the second component, the dairy processing industry is made up of organizations of different size and product mix, all of which will be significantly affected by these trade agreements. As such, we recommend that the government create a dairy compensation and investment program to support investments in processing facilities and plants to increase competitiveness and modernize our plants.

This program could include tools such as non-refundable contributions for investments, refundable tax credits, and so on. The program would operate on a matching principle to ensure that funds can be provided if investments are made.

[Michael Barrett]

Last year, recommendations by the mitigation working group that was created by the government in October 2018, in which we have actively participated, were submitted to the Minister of Agri-food on program and financial impact of the dairy processing sector. This is based on the government's commitment to full and fair compensation to the sector producers and processors. We are hopeful that the coming budget will instill much-needed confidence in the future of dairy processing in Canada through an announcement regarding a dairy processing investment program.

Rightly done, these two measures, taken together—TRQ allocation and a processor investment program—could fairly and fully compensate Canada's dairy processing industry. Only through such mitigation measures will the dairy processing industry be able to safeguard existing jobs and investments in Canada while continuing to invest in its future.

We again thank you for your time and consideration on this important topic. We'd certainly welcome any questions at the appropriate time.

[The Chair, Liberal, Pat Finnigan]

Thank you very much, Mr. Barrett and Monsieur Froment.

Now we have Ms. Robinson for the Canadian Federation of Agriculture.

[Mary Robinson, President, Canadian Federation of Agriculture]

Thank you for the opportunity to present today on a trade agreement that is important to the success of Canada's agriculture community and industry.

Agriculture is an essential part of the economic, political and social fabric of Canada and is critical to the well-being of all Canadians. It plays a strategic role in and is the backbone of rural communities. Agriculture and agri-food make a significant contribution to the Canadian economy, directly providing one in eight jobs, employing 2.1 million people in rural and urban Canada and accounting for 6.7% of total GDP.

A significant part of Canadian agriculture and agri-food's growth and success is due to international trade agreements and subsequent export market development and sales. Canada's market is just too small to accommodate the growth potential of what has become a world-renowned, efficient and low-cost agriculture industry.

Currently, the industry relies on export markets for at least 60% of its output. Consequently, the industry is always on the lookout for additional profitable markets and eagerly awaits the outcome and potential opportunities of any and every bilateral or multilateral trade negotiation.

That said, it's equally important to recognize that our supply-managed sectors have built stable and viable industries without reliance on export markets and to ensure that they are not undermined and destabilized in any trade agreements Canada negotiates.

NAFTA has underpinned growth in agriculture production and processing not only in Canada but also in Mexico and the U.S. It creates a market of 449 million consumers and generates agri-food and seafood trade of $289 billion Canadian. The benefits of NAFTA are undisputed and have been since its implementation. Agricultural trade between Canada and its two North American partners has increased significantly since NAFTA, growing to about $66 billion Canadian in reciprocal trade with the U.S. alone and about $5 billion with Mexico.

Nearly 80% of Canada's total processed food exports go to Mexico and the U.S. Canada is the number one supplier of agricultural goods to the U.S., at 19.3%. With the current supply gap of $121.9 billion—the difference between world ag exports to the U.S. and Canadian exports to the U.S.—and Canada's importance as a supplier in at least six of the top 10 U.S. agriculture imports—beef, pork, baked goods, vegetables, canola oil and animal feed—we have considerable potential to increase agriculture trade with the Americans.

The same goes for Mexico, with its growing middle class. There, Canada is the second most important supplier of agricultural goods, with $2.3 billion in exports out of a total of $5 billion Canadian in reciprocal trade.

Furthermore, integration between Canada and the U.S. is such that our respective industries have grown to rely on open borders to strengthen and feed each other.

A state-specific example points us to the $2 billion in trade we do with Iowa. It exports close to $300 million in animal feed to Canada, imports around $170 million in live hogs from Canada, and then turns around and sends us $180 million in fresh and frozen pork. Trade and investment with Canada creates 100,000 jobs in Iowa alone.

From the beginning, CFA has maintained that NAFTA did not need renegotiation, that changes and improvements could well have been made with the agreement already in place. The priority, of course, was to maintain the benefits Canadian agriculture was already enjoying, to ensure that supply-managed sectors would not be undermined through market access concessions, to achieve improved market access for our sugar beet producers and to advance regulatory alignment and domestic support equity.

In reviewing the new CUSMA, it is evident that the open borders and subsequent market benefits from NAFTA remain largely intact. In fact, some additional benefits were achieved, but they came with a very heavy price—too heavy, some may say. It's clear that the Alberta sugar beet producers came away with the biggest gain in this new agreement. Ever since the original CUSFTA, in which the requirement to institutionalize TRQs at historical import levels was ignored by the U.S., our sugar industry has dealt with a very restrictive U.S. TRQ. In CUSMA, our access for sugar beet sugar was more than doubled, with an increase to 20,000 tonnes.

Central to the success of any trade agreement is the ability to reduce non-tariff trade barriers. This includes a process for regulatory transparency, co-operation and alignment.

CFA applauds the efforts made by our government to include the provisions set out in chapter 28 of the agreement, which calls for transparency and a process for communication and co-operation among North American regulatory authorities.

The establishment of a committee on good regulatory practices, composed of government representatives, including from central regulatory agencies, will enhance collaboration with a view to facilitating trade among all parties. Canada tried hard to have the U.S. remove its requirement for Canadian meat imports to be reinspected when they cross the border, but to no avail. That issue should be one of the priorities to go before the committee on good regulatory practices.

Canadian farmers continue to compete against a very high level of supports offered to U.S. producers, and while these domestic subsidies fall within international trade rules, they provide U.S. farmers with an artificial and unfair comparative advantage, even though domestic support is an issue regulated to WTO jurisdiction. It is positive to note that article 3.6 in CUSMA talks about the need to make sure any forms of support are non- or minimally trade-distorting, and if a party has a concern, there is a process to discuss and work toward mitigating trade impact.

Canadian agriculture has built and developed a successful export industry, but its success is contingent on operating within a robust rules-based trading system. An important component to such a system is an effective trade dispute settlement mechanism. For that reason, maintaining chapter 19 was critical and will be an important element in creating a level playing field.

Despite the fact that the open border in agriculture between the U.S. and Canada was never in jeopardy, Canada paid a very high price for the conclusion of the renegotiations by conceding significant dairy, turkey, chicken and table egg market access to the U.S. It's another economic hit in the wake of CPTPP and CETA. With the accumulation of access concessions devastating supply-managed industries, by 2024, for example, the combined market access concessions made by Canada under WTO, CETA, CPTPP and CUSMA will represent 18% of our dairy market.

Supply-managed industries are anxiously waiting for government to fulfill its commitment to quickly and fully mitigate the impacts of these agreements.

As well, every effort needs to be made to eliminate all forms of TRQ circumventions that escalate the volume of imports far beyond the negotiated TRQs.

Two other issues in addition to market access concessions that are a cause for alarm in our industry are the concessions Canada made with respect to policy development and export controls. First, Canada has agreed to consult with the U.S. before making changes to Canadian dairy policies. This is clearly a loss of sovereignty in Canadian policy development, and one that should never, ever have been surrendered.

Second, Canada agrees, in chapter 3, article 3.A.3, to cap dairy sector exports of milk protein concentrate, skim milk and infant formula to CUSMA and non-CUSMA countries, with an applied export charge on exports over the cap. This is disturbing on several fronts. Canada has long argued against the use of export tariffs to regulate trade. It may well be challenged by other WTO countries under GATT, and it sets a dangerous precedent by allowing a regional trade agreement and a party in that agreement to control trade of another party to countries outside of the agreement.

Finally, it's a precedent that may have implications for Canadian export-reliant agricultural sectors. For example, if Canadian exports to other countries out-compete U.S. products, the U.S may try to use CUSMA or some other mechanism to manage or restrict Canadian trade to the rest of the world.

In conclusion, CFA applauds government for its part in consummating an agreement. The importance of profitable markets around the world for Canadian agriculture cannot be overstated. However, CFA would implore government to negotiate successful trade agreements in agriculture without paying the heavy price we have in the past with access concessions in supply-managed domestic markets.

Thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you, Ms. Robinson.

Now we go to Mr. Taylor and Monsieur Lefebvre for 10 minutes.

[Dave Taylor, Member of the Board, Dairy Farmers of Canada]

Thank you, Mr. Chair and members of the committee. It's great to be here with you today.

I am Dave Taylor, a dairy farmer from Vancouver Island.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

He is.

[Voices]

Oh, oh!

[Dave Taylor]

Yes, Alistair and I do know each other.

With me today is Jacques Lefebvre, chief executive officer for Dairy Farmers of Canada.

I'd like to go off script for just a second to say that I think most of you have dairy farmers in your ridings, and they all have a story. We all have a story. As a young kid, I wanted to farm. I've been able to do that, and I appreciate the opportunity I have had. In the late 1970s, my dad had a fairly large dairy operation for Vancouver Island. He expanded into a whole market-garden operation as well. He built greenhouses and a retail store. Of course, in 1982, when interest rates went to the highest levels we've seen, he lost it all. We walked away with 20 cows, 10 heifers, 500 litres of quota, and nothing else. That propelled me to university. I was back and forth to the farm, and in 1995 I was able to jump back into farming. Since that time—this week actually—it's been 25 years that my brother, my dad and I have farmed together. We still farm together. My dad's 81. He is still a part of the farm, along with the next generation, as my son is involved now, too. It's a pleasure farming. There have been great opportunities in the last 25 years, but there have been some real bumps as of late, and I'd like to speak about that a bit in my statement here today.

On behalf of all Canadian dairy farmers—and I feel the weight of that today—I want to thank you for the opportunity to offer our perspective on certain clauses of Bill C-4 and the Canada-United States-Mexico trade agreement. The concessions granted in CUSMA have put Canadian dairy farmers in a vise, on the one hand by outsourcing a portion of our domestic production to foreign dairy farmers. After carving out a part of our domestic production in CETA, and again in CPTPP, you are now asking our farmers to make another sacrifice. To be clear, the total impact of these market access concessions, in addition to those already granted through the WTO, will be—and we've heard it from two speakers already—18% of our production by 2024. The government has once again weakened our Canadian dairy sector.

On the other hand, compounding the impact of market access is the fact that the one significant avenue for the dairy sector to mitigate some of these impacts through exports has been taken away by the imposition of an unprecedented and, may I say, draconian cap on our exports. This is covered under clause 44 of the bill, and it is where I will focus some attention today.

CUSMA requires that any export of skim milk powder, milk protein concentrate and infant formula beyond a predetermined threshold be charged an export charge on each additional kilogram of product exported globally. In other words, although CUSMA is an agreement that should ostensibly be limited to its three signatories, the cap on dairy exports extends to every country in the world. This goes well beyond what would normally be expected in a trade negotiation, and it sets a dangerous precedent for future agreements for all other sectors, I believe. In addition, if the caps come into force before August 1, the beginning of the dairy year, the cap on skim milk powder and milk protein concentrates will drop from 55,000 tonnes to 35,000 tonnes on August 1. That is a drop of about 35% after possibly only one, two or three months; we're not sure at this point. That would be another blow to our dairy market with no time for transitioning.

Hundreds of thousands of Canadians depend upon this sector for their livelihoods. This could have ripple effects in communities across our country. The squeeze will also be felt by Canadian consumers, who can no longer be sure that the milk on their store shelves is produced according to the same high standards as milk produced here at home. For example, use of the artificial growth hormone rbST is banned here in Canada due to concerns over animal welfare, and I believe rightfully so. However, this is not the case in the United States.

Given that we are in a vise, we ask if there is a way to mitigate the impacts through an administrative agreement between Canada and the United States that would not require a reopening of the agreement.

Beyond market access and in addition to the cap on exports, CUSMA also requires Canada to consult with the U.S. on any changes to the administration of our domestic supply management system. This amounts to nothing less than giving the U.S. oversight of the administration of our Canadian dairy system. It puts into question the independence of decision-making in Canada and our sovereignty.

The Prime Minister has repeatedly committed to full and fair compensation for the dairy sector for the total impacts of CETA, CPTPP and CUSMA. Let me be clear: Instead of compensation, Canadian dairy farmers would have strongly preferred to see no dairy concessions in recent trade agreements. I'd like to repeat that: We would have strongly preferred to see no dairy concessions in recent trade agreements. This being said, concessions were made and compensation was promised in return.

Canadian dairy farmers, who are all impacted by recent trade agreements and are best positioned to know their own needs, have indicated that this compensation should come in the form of direct payments. This is consistent with farmers' recommendations from the mitigation working group established by the federal government following the signing of CUSMA and the government's commitment to listen to farmers on how compensation should be paid. Direct compensation is for lost markets. Government programs are to foster growth in an industry. The two should not be confused.

We therefore recommend that the Canadian government fulfill its commitment to fully and fairly compensate dairy farmers to mitigate the impacts of CUSMA, as per the producer recommendations made by the mitigation working group.

Another important point I'd like to make is that the Canada Border Services Agency does not currently have the training, tools or resources to effectively monitor what is coming into Canada. Canadian borders are leaky. This will become even more problematic as imports continue to increase as a result of the concessions granted in these agreements. For Canadian consumers it will be important for the government to ensure at the border that the food coming into Canada has the same food safety and quality, and that Canada has the capacity to police the increased amount of foreign product entering the country as a result of these agreements.

Finally, it is important to note that the impacts of recent trade agreements were not limited to dairy farmers. We therefore strongly encourage the Canadian government to provide full and fair compensation for the impact of recent trade agreements to dairy processors, in addition to Canada's poultry and egg farmers.

In conclusion, I come back to the next generation. My son is expecting his first child. He's 24. He's a full part of our farm now. He asked me, because I do get out to the odd meeting now, “Dad, where are we at? What's the future looking like?” He sees the cuts. He sees the hits we take. He says, “Dad, I could go work in the medical industry. I could go do that.” My wish is that he will stay, that he will be involved and will take the farm to another level altogether, that he will have confidence in Canada's supply-managed system and in a dynamic dairy industry for the future. I hope all of us around the table would believe in that and certainly advance that to the best of our abilities.

Thank you so much.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Taylor. I certainly remember the bad old days of the 1980s and interest rates of 16% or 17%. It was a rough go, but we're glad you're still in it.

With this, we'll move into the question round.

Mr. Barlow, go ahead for six minutes.

[John Barlow, Conservative, Foothills, AB]

Thank you very much, Mr. Chair.

Thanks to our witnesses for being here on very short notice. We certainly appreciate your input and your testimony here.

All of you touched on it, and this is my biggest concern with the signing of the new NAFTA. I can't think of another trade agreement, ever, whereby one country would sign off its sovereignty to another in a specific commodity. We have a cap on those products, whereas the United States does not have a similar cap. It is free to grow its market in milk powder, protein powder and infant formula, whereas now Canada is not. My worry is that we have allowed a foot in the door for other commodities. We've had other stakeholder groups here with us today. My question would be, what's next? If we have allowed this to happen on these products—and Ms. Robinson brought up a good point—now we've set a very dangerous precedent that other products could be up for negotiations in the future.

We had the TPP on the table, ready to be signed after the 2015 election. For all intents and purposes, that was the renegotiation of NAFTA with the United States as part of that agreement. We would not have been giving up this aspect of this or as much access on dairy had the Prime Minister just signed the TPP and not bungled that up so that we are where we are now.

I would just like each of you to comment. How unprecedented is this, to be giving this up in a trade agreement? Were you consulted through this process? Did you know this was going to be part of the new CUSMA, giving up on the milk solids, the protein powder and the infant formula? Were you consulted as part of the process, and did you know this was coming?

Go ahead, Michael.

[Michael Barrett]

I'm recognizing that all three of us are going to speak to this one.

Certainly there was good communication throughout the process of the negotiation of the agreement itself. There was certainly a great deal of dialogue, but we were surprised at the final iteration of the agreement that included the export caps that you have outlined and that we all have outlined. We were certainly surprised with that when it came to the final agreement. It is unprecedented. I'm not a trade expert by any stretch of the imagination, but we quickly become trade experts when we start to understand the ramifications. This was a complete surprise. We would have concerns about whether it serves as a framework for any future agreements, because there are still many agreements to come.

[Mary Robinson]

A bit of background on me: I'm not a dairy farmer and I'm not a dairy processor. I'm from Prince Edward Island, and my family is in horticultural crops. I'm sixth generation on our farm.

With regard to whether we were consulted, we did have updates from trade negotiators from AAFC, who gave us some updates along the way. We had an inkling it was coming, but we didn't think it would happen.

As far as precedent setting, we never saw this coming, so to play the game of what it means and what doors are being opened to future allowances that are not to our advantage is a bit terrifying. I never imagined this would be in our rearview mirror, as it seems to be right now.

[John Barlow, Conservative, Foothills, AB]

Thanks for that.

Mr. Lefebvre, do you have anything to add?

[Jacques Lefebvre, Chief Executive Officer, Dairy Farmers of Canada]

Throughout the process, we were informed by the government as the negotiations were being conducted. As for being consulted, there were some consultations. In regard to the specific caps, in regard to having them apply beyond the signatories and having the oversight by the U.S. over the administration of our dairy system, as Mr. Barrett said, this came as a surprise.

[John Barlow, Conservative, Foothills, AB]

I'm going to relinquish the rest of my time to Mr. Lehoux.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you all for being here. I am very pleased to see you.

I know a little about the dairy sector, because I am one of the fourth generation to operate a dairy business. I am perhaps a little older than you, Mr. Taylor. But I saw what was happening in the 1970s before we had supply management. I am well aware of how things have evolved.

Greetings to the Canadian Federation of Agriculture, because it is a major driver of economic activity. We have to recognize that and make it known, but, with what we have just learned about the new agreement with the United States, we are perhaps going to run into difficulties.

Dairy processors, I understand, have a specific problem as to when the agreement comes into force. If it happens very quickly, the impact will too. It will be a very short year, which will have consequences. That is certainly one of your major concerns, but you also raised the issue of mitigation measures in connection with improving the processes.

[The Chair, Liberal, Pat Finnigan]

I am sorry, your six minutes are up.

Mr. Blois, you have six minutes.