Agriculture Committee on Dec. 3rd, 2020

[The Chair, Liberal, Pat Finnigan]

I call the meeting to order. Welcome, everyone.

As you all know, we had to cut our meeting in half for very important votes in the House, so I'll be very quick and stick to the time.

Welcome to the 10th meeting of the House of Commons Standing Committee on Agriculture and Agri-Food. Pursuant to Standing Order 108(2) and the motion adopted by the committee on October 24, the committee is resuming its study on processing capacity.

The number of witness panels has been reduced to one today due to the votes. Bonduelle Americas and Northern Natural Processing LP will be rescheduled for another meeting.

Today's meeting is in hybrid format, pursuant to the motion adopted by the House on September 23, 2020. The proceedings will be available on the House of Commons website. As a reminder, the webcast will always show the person speaking, rather than the entirety of the committee.

To ensure an orderly meeting, I would like to outline a few rules to follow. Members and witnesses may speak in the official language of their choice. You have the choice, at the bottom of your screen, of either floor, English or French. Before speaking, please wait until I recognize you by name. A reminder that all comments by members and witnesses should be addressed through the chair. Make sure your mic is on mute when you are not speaking.

With that, we are ready to begin.

I welcome our witnesses for this panel.

From Canola Council of Canada, we have Jim Everson, president. Mr. Chris Vervaet, from the Canadian Oilseed Processors Association, is also appearing in support of the Canola Council's testimony.

We also have Sylvie Cloutier, chief executive officer, and Dimitri Fraeys, vice-president, both of the Conseil de la transformation alimentaire du Québec.

We'll start with an opening statement from the Canola Council of Canada.

You have seven and a half minutes. Go ahead.

[Jim Everson, President, Canola Council of Canada]

Mr. Chairman and committee, good afternoon, and thank you very much for having us today.

We're very interested in talking about Canada's value-added canola sector and about increasing processing capacity for our exports of seed, meal and oil, as well as the domestic market through biofuels.

First, as a bit of background about the Canola Council, we represent the whole canola value chain in Canada. That's 43,000 canola growers, seed developers, the processors who crush canola seed into oil for humans and meal for livestock feed, and exporters of raw canola seed.

I hope I'm not speaking too quickly and the translation is keeping up okay.

[The Chair, Liberal, Pat Finnigan]

I believe everything is good.

[Jim Everson]

I am here today with Chris Vervaet, as you mentioned, from the Canadian Oilseed Processors Association. Our two associations work very closely.

Competitiveness in the global export market is critical for the canola industry. We export 90% of what we produce in Canada, so we need to be competitive globally.

There's also a real opportunity for value-added processing in the canola sector. Canola can be exported in raw form as seed to be processed elsewhere, or it can be processed into canola oil and canola meal at Canadian facilities, creating jobs across the country and increasing the value of our product.

Value-added canola processing has been a real engine of growth for Canada's economy in recent years, and we can achieve a lot more. Our world-class canola processing industry has more than doubled in the last decade. More than $1.5 billion has been invested in new and upgraded facilities during this time, and the output from this additional capacity has been for global markets. The question is how to continue that success and continue to increase value-added processing here in Canada.

Our industry has a strategic plan to increase demand for canola oil, meal and seed and to meet that demand with sustainable production and yield improvement. As part of the plan, our industry has set an objective to increase the amount we process here in Canada by 40% from current levels, reaching 14 million tonnes.

Our plan also includes bold sustainability goals to protect more than 2,000 beneficial insects that live in and around canola fields, to reduce our fuel consumption per bushel of production and to reduce greenhouse gas emissions. It's an ambitious but achievable plan, and it will contribute significantly to the government's target of $75 billion in agricultural support through sustainable growth.

Reaching this target for increased value-added processing means that we must compete globally. The committee has asked how we can achieve more value-added processing and what the role of the federal government is. We have four recommendations for the committee to consider.

The first is that we need to create a stable and open trade by investing more resources, particularly in Asia, to prevent and deal with market access issues.

Let me just take a second to explain. We're seeing significant demand for our products in the fast-growing Asian markets, but we're also seeing an increased challenge from trade barriers that limit our access to those markets and make the trade unpredictable. For example, over the last five years our oil exports—our value-added product—to Asia grew by 80%, and our meal exports increased more than tenfold. Over the next five years, we see another 25% in potential growth.

The challenge we're having there is the risk created by unclear and misaligned food and feed safety regulations, fluctuating tariffs and misaligned regulations for crop protection products and seed innovation. These are real barriers to predictable trade.

We recommend that more government resources be assigned to market access issues, particularly in Asia—working in the region, in Asia. We need more regional resources to operate in a strategic and coordinated manner to maintain and build market access for Canada's agricultural products. This means more regulatory experts who can deal with the kinds of science-based issues that become technical barriers to our trade.

Our second issue is about efforts to prevent trade barriers related to seed innovation. We need the federal government to show leadership and create a science-based regulatory environment that encourages new seed innovation here in Canada. It's a very topical debate in this period of time, particularly with the framework for new plant-breeding innovation, such as gene-editing technology, which is critical to the future of our industry and really critical to advancing sustainable agriculture as well.

Third, we recommend the federal government continue to take leadership in maintaining reliable rail transportation. About 90% of canola is exported, and the rail system is critically important to the supply chain in accessing continental and offshore markets.

Competitive and efficient rail logistics are paramount to getting products to market in a timely fashion. We recommend that federal policies and regulations in this area continue to evolve to improve the competitive environment for rail services.

The government also has an important role to play in supporting and investing in key infrastructure access to help ensure reliable supply chains.

Finally, the fourth point and perhaps the one most immediately important to the committee in terms of its timeliness, is that we recommend that the government enable a market in Canada for biofuels that reduce greenhouse gas emissions and support more value-added processing here at home.

Canola-based biofuels already help Canada significantly reduce greenhouse gas emissions by up to 90% compared with conventional petroleum diesel. With a proper regulatory design and recognition of canola's low-carbon advantages, the proposed federal clean fuel standard can spur more demand for canola oil and drive the expansion of a value-added sector. Even a modest level of 5% renewable content in diesel fuel would translate into a domestic market for more than 1.3 million tonnes of canola.

Biofuels are a good example of how canola delivers solutions for our economy and the environment. Canola plants—I don't mean manufacturing plants, but the plant itself—take carbon from the atmosphere and use it to make the world's healthiest oil, and biofuels and protein to feed animals, while at the same time sequestering carbon in the soil. It's a unique product in that way.

On behalf of our industry and the quarter million Canadians whose jobs depend on canola, we thank you for looking at the opportunities to increase processing capacity and competitiveness, and to sustainably increase canola's market access potential both through exports and through biofuels here in Canada.

Chris and I are looking forward to answering your questions, Mr. Chair. Thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Everson. You're right on time.

We'll now go to the Conseil de la transformation alimentaire du Québec.

Ms. Cloutier, you have seven and a half minutes for your opening remarks.

[Sylvie Cloutier, Chief Executive Officer, Conseil de la transformation alimentaire du Québec]

Mr. Chair, members of the committee, thank you for the invitation to appear.

Today I will make my presentation in French.

The Conseil de la transformation alimentaire du Québec, or CTAQ, is the principal body of companies in the food processing sector in Quebec. Its mission is to support entrepreneurs in reaching their full potential to ensure the sustainability of the food industry in Quebec and Canada. CTAQ is a federation of 14 sector associations. It brings together more than 550 member companies that account for 80% of the business volume of a $33 billion industry in Quebec alone.

The food processing sector is facing a number of challenges, including labour shortages, low margins and lack of capital, as well as lagging productivity and innovation, to name a few.

As far as the workforce is concerned, the pandemic has aggravated an already difficult situation. Workers who have tested positive or have symptoms must self-isolate for 14 days. Many employees are no longer available or must stay home to protect their children or parents. The generous CERB program, replaced by employment insurance since September, has encouraged many workers to stay home. It is estimated that 8% to 10% of positions are vacant, or 6,000 to 7,000 positions in Quebec alone.

This crisis has brought to the forefront the issues related to the productivity of food companies. Indeed, automation and digitization are preferred tools to increase productivity and fill labour shortages. Since 2013, food manufacturers' margins have decreased. In 2018, they stood at 7.9% in Canada and 5.7% in Quebec. The ability to invest in productivity and innovation is therefore more difficult. The pandemic has accelerated the deterioration of margins.

Also, in the process of making the shift to industry 4.0, the food processing industry is at 2.7. SMEs must quickly adopt management software packages in order to be able to support the shift towards industry 4.0, the Internet of Things, the connection between equipment and data accumulation, in addition to developing business intelligence and marketing their products online. We must help agri-food SMEs accelerate this shift.

Businesses need programs and financial support for economic recovery. The emergency processing fund, or EPF, has made it possible to reimburse equipment expenses, but has not made it possible to reimburse salaries or additional expenses caused by health regulations, whether it be increased absenteeism, hourly wage premiums or the addition of shifts to respect more physical distance.

Businesses are asking the federal government to increase its offer of quasi-equity financial products or unsecured loans to avoid an increase in the debt ratios associated with their projects. In this recovery period, liquidity remains the crux of the matter. Risk appetite and access to conventional financing will be a challenge for businesses in the coming months. The food industry is asking for a component to be set aside for it in the $70 billion to $100 billion economic stimulus package for 2021. The Barton report positioned the agri-food industry as one of the five pillars of the Canadian economy and society, and a player in creating prosperity for all Canadians.

With respect to temporary foreign workers, businesses have begun to apply for those expected to arrive in April 2021. The industry wants to make sure that all measures are in place to facilitate the arrival of temporary foreign workers, who are essential to maintain supply chains. To facilitate access to foreign labour, the industry is asking that the 10% threshold be raised to 20% in terms of the number of workers per business.

Lastly, as you know, the food retail market in Canada is highly concentrated. In fact, five major banners control over 80% of the grocery market. The major players are consolidating their businesses by acquiring various banners and diversifying their services. These distributors need to renew themselves to attract and keep customers. Each strategy developed by one of them leads its competitor to develop a more persuasive one, creating a spiral that translates into increasingly restrictive, demanding and costly measures for suppliers.

According to a recent report by the Centre for Interuniversity Research and Analysis on Organizations, or CIRANO, in Quebec, market consolidation, asymmetric bargaining power and pressure on margins, combined with the pandemic context, will have a significant impact on food producers and suppliers.

Also, with gross profit margins estimated at 5.7% in Quebec and 7.9% in Canada, it is clear that an increase in the fees charged by certain distributors-retailers is undermining access to the mass distribution market. It will also have a negative impact on the competitiveness of suppliers, who must continually innovate to adapt to changes in food behaviours as well as new environmental and technological standards.

However, supermarkets and other grocery stores show the opposite trend. Despite a slight decline in gross margins in 2012 and 2014, they have been rising steadily since 2014. In the period up to 2018, gross margins for distributors-retailers increased 2.5 percentage points in Quebec and 2.9 percentage points in Canada. As for mass distribution, the CIRANO study stresses the need to ensure that a healthy relationship is maintained in the supply chains between the players in mass distribution, namely, distributors-retailers, and their suppliers, to mitigate the negative effects of asymmetric power that continues to grow in favour of distributors-retailers.

In this sense, a code of good conduct is becoming more and more important. Such a code, which several processor associations and Sobeys, in particular, are calling for, would help to rebalance competitive forces. It would ensure that Canada's share of product purchases, both in-store and online, is maintained.

It also recommends the adoption and development of alternative modes of distribution that would include short channels and emerging online sales platforms. In our view, concerted action towards establishing such mechanisms is required to ensure the sustainability of the agri-food sector in Canada.

Thank you for your attention.

[The Chair, Liberal, Pat Finnigan]

Thank you, Ms. Cloutier. You finished your presentation just in time.

Without further ado, we'll move on to questions.

To lead us off, we have Mr. Warren Steinley for six minutes.

Go ahead, Mr. Steinley.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

Thank you very much.

Colleagues, I'm wearing my yellow tie. It's not just for Saskatchewan; it's also for the canola growers of our province. I come from canola country, and I have a few questions when it comes to some of the recommendations they have made.

The first one I really want to touch on is—and I know these details intimately—is your first recommendation about the opportunities and risks with misaligned food and feed safety regulations in some of our trading partners in Asia.

Can you give a couple of examples to the other members on the committee of where some of our trading partners have found what they thought were some safety irregularities in some products, and have put tariffs on our products that probably shouldn't have been there? Could you share some examples with canola and other products we've exported?

[Jim Everson]

Maybe I can start, and Chris can add a comment too.

What we find, for example, is that there are maximum residue limits on seed and products that are exported from Canada and other markets, which are there to protect animal health and safety in various countries. Canada has a list of its own, so it regulates the chemical residues from crop products that are allowed on seed and other products coming into Canada.

The challenge with it is that every country has a separate list, though we like to think that the science that applies to these products is the same anywhere in the world. It really ought to be, so it's very difficult, because you have different maximum residue levels and, in some cases, some countries don't have residue levels at all. That makes it difficult to know as an exporter whether you can export to that country or whether you're taking a great risk exporting to that country or contracting with importers in those countries.

Our goal is to try to harmonize those regulations internationally based on science.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

Exactly. That was what I was talking about, that sometimes it can be a subjective measurement of the maximum residue, and that's where we get into some trouble in some of the markets that we're trying to access.

You mentioned rail, and I think that some people, whenever they see a train going to the west coast, assume it is petroleum in there, but lots of times there's canola in those cars.

What recommendations could you give on other ways we could transport petroleum that would give us more capacity in transporting canola and canola oil to the west coast? What recommendations could we suggest to make rail transportation more secure for producers of other commodities?

[Jim Everson]

I don't know that I can speak to rail transportation for other commodities. I'll stick to what I know and what Chris knows, which is the grain side of things.

The Canola Council of Canada does market development and relationship work with our major customers around the world. When we have a transportation issue in Canada, we hear about it immediately from our customers. It's absolutely critical to our reputation internationally with large customers like the Japanese and even in the U.S.

To go to the processing sector you're studying, oil is a just-in-time delivery system for canola in North American markets. The companies that use canola oil in their manufacturing process—particularly in the United States, for example—get a car just in time to keep their plant moving. If there's any kind of disruption of rail transportation of canola oil or seed, we hear about it from customers immediately.

What we need to do is be sure we maintain a reputation and keep trains moving in the cold of winter and through the various challenges that come up.

[Chris Vervaet, Executive Director, Canadian Oilseed Processors Association]

I think you're touching on all the key points there, Jim. I'll just add that fluidity is absolutely critical, but so is competition. We need to make sure we operate as shippers in a competitive rail environment.

This past year, the railways have done a very good job in terms of moving grain and our processed products, as well. However, we want to make sure there is always a competitive environment for the shipping community.

In order to do that—as we said in one of our recommendations—the policies and regulations that do maintain that competitiveness between the two major class 1 railways in Canada will continue to be a critical component of making sure we're competitive as well.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

I really appreciate that.

I have time for one last question.

I wanted to touch on the clean fuel standard you mentioned in your fourth recommendation. I would ask both of you this. If there is this clean fuel standard put in place, what is stopping a refinery from bringing up cheaper, subsidized fuel stock from the States? I want to have as many markets as possible for our canola growers, and I'm sure you've heard this from some of your people. How can we ensure that these refineries are using Canadian canola oil and feedstock fuel from Canada and not bringing up cheaper subsidized stuff from the States?

[Jim Everson]

Chris, why don't you go ahead with that one?

[Chris Vervaet]

Sure. Just principally speaking, as a canola industry, we're obviously very supportive of open borders in trade. The trade relationship in biofuels, especially with the U.S., certainly does go both ways.

However, to your specific question with regard to one recommendation we could make to ensure that canola does feature prominently in terms of any possible biofuel investments here in Canada in using canola as the feedstock, it really comes down to the regulation recognizing our low-carbon advantage. If we are deemed to be a very low-carbon footprint commodity—

[The Chair, Liberal, Pat Finnigan]

Thank you.

I'm sorry. I let it go a little bit. We're very tight on time.

Thank you, Mr. Steinley.

Mr. Drouin, you have six minutes.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you very much, Mr. Chair.

It's great to see Jim and Chris in front of this committee. Certainly we've had some conversations over the last few months.

Jim you've mentioned that the goal of the canola processing is to increase that processing capacity by 40% in Canada. When you say “increasing processing capacity by 40%”, are you looking at biofuel as being one potential avenue, or are you mostly looking at crushing more seeds in Canada for oil or for whichever other products that may be available for market?

[Jim Everson]

Thank you for the very good question.

Both, really, is the answer to that. We are currently processing close to 10 million tonnes—or maybe just a little bit over 10 million tonnes of canola—in Canada. Almost half of the crop is now processed in Canada. A few years ago, it would have been a lot less than that, so we have done a lot of value-added expansion in Canada.

In the future, we see more demand for canola oil for human consumption internationally, but we also see a strong demand for biofuels. Potentially, it can make a real difference in Canada, as well.

Chris, do you want to add to that quickly?

[Chris Vervaet]

I think you covered it well, Jim.

We do see the opportunities with the clean fuel standard as a way to grow a market right in our backyard. We really feel that does mitigate some of the risks we do sometimes see on the global marketplace.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Yes. Obviously the policy has to be right for canola producers to be able to take advantage of that. In terms of where we were in June and where we should be soon, I hope we'll be in a good place where we can develop that market and make it even stronger in Canada.

You mentioned transportation as being an important factor in even being able to process more capacity so you can export it if you want. What other barriers do you see within Canada where either the ministry or the Department of Agriculture could be helpful or where we could incentivize even more investments in processing capacity in Canada?

[Jim Everson]

There are two things I would point to. They're both regulatory programs. It is to provide the predictability and the confidence for processors to invest in the Canadian marketplace to grow our processing side.

The first would be, as I mentioned in the brief, regulations around plant-breeding innovation, particularly gene editing. There's new innovation in plant breeding that can unlock so much potential in the crop. It could lead to better environmental outcomes or better health profiles for the product itself. It's all in the seed and the development of the seed that you provide to the farmer to grow. You can make a big difference, and we have, historically, done some amazing things. Canola is all about innovation and science innovation, so making sure there is clarity to the regulatory practices in Canada to facilitate innovation in seed development is number one.

The second would be similarly with the Pest Management Regulatory Agency and making sure that we make science-based decisions there—not decisions based on people's concerns about possible safety but on the real science profiles. Our farmers need to have access to really good products in order to do weed control and manage their crop in a competitive way. We need to absolutely make sure that we have science-based decisions with respect to our crop protection products.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you.

Ms. Cloutier, thank you for being here today.

Having a robust system for foreign workers is indeed important. Something I often ask food processors in my region is whether the system is sustainable in the long term.

What can we do to help food processors implement automation technologies and new processes to offset the labour shortage being felt not just in Canada, but also in the United States and other northern countries?

How can the Government of Canada incentivize agri-food processors to adopt more automation?

[Sylvie Cloutier]

I will go first, and then, I'll let my colleague Mr. Fraeys finish.

To begin with, businesses need capitalization support; they need programs that will help them access automation, robotics and digitization technologies and expertise. Obviously, the current shortage has been compounded by the pandemic. The labour shortage being even more acute, processors have been forced to offer fewer products and SKUs, and to look for foreign workers in other sectors.

It is paramount that the government help the sector by establishing clearly defined funding and capital support programs to help businesses weather this difficult period.

I'll now turn the floor over to Mr. Fraeys, who may have something to add.

[The Chair, Liberal, Pat Finnigan]

Unfortunately, Mr. Drouin's time is up.

Thank you, Mr. Drouin.

Mr. Perron, it is your turn for six minutes.

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

I'd like to give Mr. Fraeys the opportunity to say what he was going to say. It's important that the committee hear his views.