Thank you for the invitation and opportunity to appear before this committee.
Briefly, my background, and the context for my comments today, is the result of 34-plus years working in the agricultural industry. I hold a Bachelor of Science degree in agricultural economics. I spent the first 13 years of my career as an agricultural banker for various lending institutions in five provinces across Canada, and the next five years as an agricultural finance consultant working closely with farmers. I have spent the last 16-plus years as a partner in a large broiler chicken, hatching egg and mink farm, as well as a business executive managing various poultry companies in Nova Scotia and Newfoundland and Labrador.
Based on my experiences over the years, I have the following observations, opinions and recommendations to present to this committee today.
The Canadian supply management system has been, and continues to be, a very positive marketing tool for the agricultural commodities fortunate enough to have this system in place. The ability to control imports and establish domestic production levels, along with the ability to set the producer price at a level that covers all costs and a return to investment, is the envy of many other farmers in Canada and around the world.
The poultry meat processing sector in Canada is generally supportive of supply management. However, there is a need for modernization of the system, as the strategy of supply management is only at the primary producer level. Once the primary production is sold to a processor, there is no supply management at that point and beyond. It is solely free market, driven by supply and demand. This fact has been creating increasing pressure on the stability of supply management over the years and is reaching a tipping point at this juncture. The current COVID-19 pandemic has brought the problem to a new level of importance. Given that producers ultimately control the amount of chicken grown in Canada per year, and processors are ultimately obligated to purchase this volume at a regulated price that guarantees the producer a profitable return regardless of what the consuming marketplace may demand or be willing to pay, it is a serious problem that is getting worse by the day in these COVID times.
As market demand has dropped over the past year, with restaurants being closed due to COVID-19, and the supply has continued to either rise or be maintained by producers, the supply of chicken now well exceeds demand, and the market price received by processors and further processors is at or below cost of production. This market distortion and lack of willingness by producers to react and understand that they are one segment in a much bigger industry is very problematic and troubling. It is extremely difficult for processors to consider existing reinvestment strategies, let alone consider expanding capacity for export under the current circumstances.
In my opinion, and that of many in the processing sector, the powers of the Farm Products Council of Canada need to be enhanced so that they can drive change and modernization of the supply management system.
One quick change that could be made in the case of the chicken sector would be to require the live price paid to producers to include a wholesale price component in the pricing formula. Thus, if the producers realized the negative consequences of oversupply through a reduction in their live price as a result of the low wholesale price, I expect they would be more responsive to establishing the appropriate domestic supply levels.
Another significant problem for processors in certain parts of the country is the fact that producers are free to ship their product to whichever processor they want and there is no system in place to backfill the losing processor with equivalent volume. In some cases, live birds are being transported for 10 to 12 hours to a competing processor instead of being processed at a processor that is minutes away from the farm. This is both a potential animal welfare issue and a major supply risk to the affected processor. How does a processor in this situation view future investment?
Recently, the issue of food security was seriously challenged in the Nova Scotia chicken sector. The only federally inspected poultry processor was shut down for two weeks by the provincial health department due to COVID-19. This put serious pressure on the supply of fresh local chicken. The problem was amplified by the fact that processors in the neighbouring province had limited ability to assist the Nova Scotia plant as their catching and transport systems were not compatible between plants. Fortunately, solutions were found and no birds were euthanized. However, it has highlighted the need for more uniformity between regional plants so that they can help each other in times of need to protect food security and animal welfare. This uniformity will have significant costs associated with it and require co-operation amongst competing processors.
Access to a reliable and reasonably priced labour pool is another limitation of many processors, as well as transportation regulations that are becoming increasingly restrictive on the movement of livestock to regional processors. Compensation for trade deals and assurance that TRQ will remain predominantly in the hands of processors are other factors that will affect processors' willingness and ability to reinvest in their industry or expand for export potential.
Until the supply management system is modernized and many other concerns I have raised are addressed by industry and government, I find it difficult to see major poultry processor investment for export markets. However, if the investment is to be considered, then export markets need to be expanded. The federal government needs to endeavour to increase market access for Canadian agricultural products, and expanded access to the Chinese market would be a good place to start.
You'll note from my comments that I never talked about the need for direct financial investment in industry by government. In my opinion, financial investment with public funds is not the key to increasing processing capacity in Canada. The key is providing the appropriate business-friendly landscape for private investment to occur. There's more than enough private money in the world looking for low- to medium-risk profitable businesses to invest in. However, that same money will also run from high-risk, unprofitable investments just as quickly.
In my opinion, government needs to focus on creating the appropriate environment for business to operate at low risk with stability and predictability. With this environment, entrepreneurs will surface, invest and achieve the goals that the Barton report aspires to.
Examples of changes in the landscape that I believe need to be addressed include easier and more reliable access to year-round foreign labour; more reasonable union laws that are conducive to business while not jeopardizing employee rights; changes to employment insurance guidelines so that employees are encouraged to find full-time year-round employment and to work when work is available, instead of claiming on an open claim; health and safety regulations that are more rational and put the onus on the employee to work safely; more reasonable environmental regulations that still protect the environment while allowing business to operate efficiently and profitably; and a simplified Income Tax Act with more access to investment tax credits to reward investment after it is made and is successful.
With respect to the farming community, I believe many farmers still need to improve their financial acumen. It has improved over the years. However, in my opinion there is more work to be done. Both federal and provincial governments can assist with this initiative. New farmers should be required to prove their understanding of financial statements and business planning principles before having access to credit. Just because a new farmer is the son or daughter of an existing farmer and has lived and worked on the family farm, that does not mean they have the financial skills to manage a for-profit business. I appreciate that farming for many is a lifestyle choice. However, it is also a for-profit business and needs to be operated and managed as such. The financial education should go beyond simply understanding financial statements and business planning. It should include topics such as production economics and supply and demand principles.