Agriculture Committee on Jan. 28th, 2021

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. MacGregor; and thank you, Mr. Sarsfield.

That's all the time we have today. I really want to thank the panel. You guys were awesome. You contributed greatly to our study. Thank you so much for taking the time. We really appreciate it.

Now we'll break to get the new panel on. Colleagues, don't go too far, because we'll be right back.

[The Chair, Liberal, Pat Finnigan]

Welcome back, everyone.

I'd like to make a few comments for the benefit of the new witnesses.

Before speaking, please wait until I recognize you by name. When you are ready to speak, you can click on the microphone icon to activate your mike. I would remind you that all comments should be addressed through the chair. Interpretation in this video conference will work very much like a regular committee meeting. You have the choice at the bottom of your screen of “floor”, “English” or “French”.

When speaking, please do so clearly and slowly. When you are not speaking, please mute your mic.

I would like to welcome our witnesses.

From Pork Nova Scotia, we have Ms. Margaret Lamb, president.

Ms. Lamb, welcome to our committee.

From Benny & Co., we have Nicolas Filiatrault, vice-president of Finance and Administration.

Welcome, Mr. Filiatrault.

You will each have seven and a half minutes for your remarks.

We'll start with Ms. Lamb.

[Margaret Lamb, Chair, Pork Nova Scotia]

Mr. Chair, vice-chairs, members of the Standing Committee on Agriculture and Agri-Food Canada and other invitees, on behalf of Pork Nova Scotia I would like to thank you for the invitation to address this committee in regard to processing capacity as it relates to pork production in Nova Scotia.

I'm Margie Lamb. My late husband and I had a 150-sow farrow-to-finish hog operation, which I am in the process of selling through a shares agreement.

In addition to growing grain and pigs in the late 1990s, we started processing added-value products selling at farm gate, then adding wholesale and catering to our business. When my husband became ill, I took his place on the pork board and have since become the chair of the board. I have come to speak to you today in that capacity.

Prior to Jim’s death, the farm had transitioned many times due to economic pressures in the industry. All producers faced similar economic challenges presented by selling on an open market. The most challenging is prices that are based on the U.S. hog price set weekly, often with large fluctuations and frequently below the cost of production.

Compounded influences over the years from high grain and feed costs, a high U.S. dollar, excess pork on the world market, disease challenges and a loss of infrastructure like feed mills and processing plant relocating—and for us a barn fire—caused many to exit.

Without consistent and certain cash flow, the ability to borrow from banks, Farm Credit Canada and the farm loan boards is often restricted or denied.

In the 1970s, pork production was encouraged by government. The feed freight assistance program, which was seen as a great help in sustaining the industry, was discontinued July 1, 1995.

Over the years, Pork Nova Scotia saw an industry with 225 active farms, with production levels of over 200,000 market hogs, dwindle. There are now eight commercial-sized producers credited with marketing 8,500 market hogs annually, of which 25% are shipped to Quebec for processing. The greatest decline in the industry happened between 2006 and 2009.

Three of the eight producers ship 55,000 to 60,000 isoweans to Quebec and Ontario farms to be grown, which is 98% of the piglets born in Nova Scotia. This almost collapsed this past summer due to COVID.

In the 1990s, all commercial pigs were shipped through the marketing board. Most were shipped into the province to one of four facilities in Nova Scotia, which had an abattoir and further processing capacity.

Presently, between 3% and 4% of the pork sold in Nova Scotia is locally grown. Of that, 97% to 98% is provided by one other producer and me. Even at the peak of production, Nova Scotia only produced 65% of the pork we consumed, making it an importer of pork.

Due to the nature of the hog industry, large processors that purchased plants in the region consolidated and moved their operations, while others closed their abattoir services. A federally inspected abattoir is necessary. It is not inexpensive and is not initially profitable, but it is the infrastructure that is crucial so that producers can increase supply and be profitable.

There also hasn't been an appetite for long-term, low-interest loans from banks, government agencies or investment from related industry to support smaller federally inspected facilities to meet market-sized productions. Presently, government programs look primarily at projections on a spreadsheet to determine the feasibility of a project.

Do not misunderstand me. If something isn’t going to work, one has to change. However, if only financial projections are used to see into the future, they do not tell the whole story. If that were the case, my husband and I should have gone out of business 30 times in the last 30 years. What we did was we changed. We did not get bigger. Our hog numbers are smaller, while our employee numbers are 12 times greater.

The provincial government has supported upgrades to provincial abattoirs, which has taken away some of the immediate and critical concerns of collapse. Work during the past four years on business and marketing plans to access funds for a federally inspected abattoir, while not jeopardizing present abattoirs, found that, of the 22 Nova Scotia provincial abattoirs, 12 process red meat. Of those, all are mixed species, all have increased seasonal demand and all faculties are at capacity. Presently there are also 90 backyard facilities that work on a cash economy.

Strategic investment and access to federally inspected abattoirs would stabilize, maintain and grow our hog production, allow access to diverse market opportunities and build and support government policies and mandates.

What do we have in the province and region to support federal abattoirs? We have access to pigs, and producers who want to transition back to market animals and/or increase their numbers.

There are eight plus small to medium value-added processors. Of those, I am the only one processing and growing my own hogs. Most depend on imported meat for processing.

There is a very strong buy local movement.

Federal inspection is a must, as it allows for exports, sales opportunities into existing processing facilities and large retailers, and sales access to government institutions.

The environmental initiatives can be supported by having abattoirs located closer to production. The carbon footprint of pork in Nova Scotia and the Maritimes would be reduced. Fewer hogs would be exported. A round trip to Quebec consumes 800 litres of fuel. Less meat would be imported back to the Maritimes for meat processing and consumption.

Lack and scarcity of food will cause citizens to panic. Here in Nova Scotia, the Tantramar Marsh is under increased threat of breaching. There is only one land crossing into the province for both rail and trucks to bring human food, animal feed, fuel and goods. Currently we have a maximum of three days' food supply in the province.

Added benefits from having these facilities would be increased food sovereignty, job creation and rural development. This would meet the obligations and food policies set September 26, 2017, which say that it must support the next generation of farmers promoting a diversity of farming practices and sizes, as well as the right to food. This was ratified in 1976.

On animal welfare and transport of animals, there would be less distance, which would mean less stress on our livestock and better mitigation and correction of unforeseen circumstances such as storms, breakdowns and the slowdowns for checkpoints that we saw during COVID. Shorter transport would meet new animal care regulations.

In conclusion, time has been running out for 20 years in my province. Family farms are not run by CEOs. They are run on blood, sweat and integrity, and the one thing 99% of farmers will do is that we will go to our graves to meet our obligations. Your farms are like your homes: not a place to work, but a place to live.

Lastly, in my opinion, projects studied for years amount to inaction and procrastination. Both are actions that result in huge expenditures. We have seen $500,000 of studies with no results. Some of the public will never agree with what you, as leaders, may do. For some of us and our families to come, your recommendations for support make all the difference.

Thank you for your time.

[The Chair, Liberal, Pat Finnigan]

Thank you very much, Ms. Lamb.

I now give the floor to Mr. Filiatrault.

You have up to seven and a half minutes, Mr. Filiatrault. We're listening.

[Nicolas Filiatrault, Vice-President, Finance and Administration, Benny & Co.]

Thank you, Mr. Chair.

Ladies and gentlemen, members of the Standing Committee on Agriculture and Agri-Food, I would like to begin by thanking you for your invitation.

My name is Nicolas Filiatrault, and I am the vice-president of Finance and Administration for the Benny & Co. rotisserie chain. I am pleased to be with you today as part of the committee's study on processing capacity.

Before getting to the heart of the matter, let me introduce our company. Founded in 1960, Benny & Co. is a third-generation family business that has carved out a place for itself in a highly competitive industry by giving priority to a business model that puts local purchasing first. Still 100% owned by members of the Benny family, the chain now employs more than 1,800 people, 36 of whom are family members. Over the past 10 years, the company has grown significantly, from 12 to 64 restaurants, including two in Ontario, and has experienced a 670% increase in sales. Today, Benny & Co. sells more than 10 million roast chicken meals a year.

As part of our operations, we purchase more than four million kilograms of Quebec chicken per year, which represents approximately 50,000 chickens per week. Each year, the company also purchases 500,000 kilograms of all-Canadian secondary processing chicken to supply its rotisseries, as well as 100,000 kilograms of pork. Our rotisserie chain focuses on product quality and proximity, with local sourcing being an integral part of the company's development.

At the beginning of 2021, 85% of the products purchased come from Quebec. When Canadian products such as P.E.I. potatoes and packaging are added to this figure, Canadian sourcing accounts for more than 90% of the chain's total purchases.

As I just mentioned, as major poultry buyers for more than 50 years, we are therefore extremely well placed to observe the pros and cons of supply management in the chicken industry. From the outset, we want to recognize that, for poultry farmers, this model has many advantages, not the least of which is the assurance that they will be able to sell their production at a fair and consistent price.

However, Benny & Co. believes that the principle of supply management shouldn't be extended to processing plants and slaughterhouses through guaranteed supply volume, as this results in additional cost to buyers, primarily those in the food service sector. Indeed, in our opinion, the current management method for allocating slaughterhouse quotas limits competition, innovation and product traceability.

Since the introduction of guaranteed supply volumes in 1994, Benny & Co. has witnessed major changes in the processing sector. When this measure was introduced, it was designed to ensure a volume of supply to slaughterhouses of all sizes, which at first glance seems logical. Unfortunately, since that time, many smaller slaughterhouses have either closed or been bought out by the two largest industry players in Quebec, creating a virtual monopoly of over 95% of the poultry processing market in Quebec.

As in any quasi-monopoly sector, the lack of competitiveness in the poultry processing market negatively affects buyers, including Benny & Co. Indeed, the supply volume system greatly complicates access to slaughter quotas. In this sense, reversing this simple trend is almost impossible without the intervention of legislators and regulatory authorities. Benny & Co. does believe that it is essential to encourage the emergence of medium-sized slaughterhouses. Fostering healthy competition encourages innovation and, more importantly, reduces the risk of breakdowns in the supply chain.

Imagine for a moment that because of the COVID-19 pandemic and outbreaks, the few large slaughterhouses in Quebec are forced to reduce or cease operations. It would have a catastrophic impact on chicken buyers such as Benny & Co. Several times this year, our supply team has had to work extremely hard to ensure that we have enough supply to simply keep our rotisseries running.

The absence of competitiveness in the poultry processing sector has also brought up a major issue for Benny & Co., namely, chicken traceability. Indeed, for our company, being able to determine the origin of the chicken is essential, since it allows us to ensure the quality of our raw material. When the chicken enters the processors premises, we lose track of it. Buyers can't choose their breeders or know where the chicken comes from.

While we know that the chicken we buy comes from Quebec, certain differences in terms of what chickens are fed and how they are raised have a considerable impact on the quality of the product sold to consumers. Contrary to what we might think, it is wrong to believe that all Quebec or Canadian farmers provide exactly the same quality of chicken.

For Benny & Co. and several similar companies, the gradual disappearance of small- and medium-sized slaughterhouses has severed the link with farmers.

Indeed, in the days when small- and medium-sized slaughterhouses were operating on a larger scale, Benny & Co. had the ability to choose the farmers who supplied it. On a large scale, in large slaughterhouses, being able to ensure traceability is an additional operational constraint, so it is obviously not an option for them.

In order to offer exceptional product quality, Benny & Co. carefully selects all the local producers that the company partners with for the purchase of lettuce or cabbage, for example. However, this is impossible for chicken, the most important product on the Benny & Co. menu, due to the refusal of these same large slaughterhouses.

As for secondary processing, we also note a significant consolidation of the market. In this case, there are no barriers to entry, but due to the vertical integration of the production chain, the same two large players find themselves with a very large share of the market. This situation hinders innovation in a sector that is full of opportunities, while there is an increase in demand in the restaurant and retail markets.

In closing, Benny & Co. encourages legislators to put in place measures to promote competitiveness. In our view, we must stop protecting the big players, who don't need additional support or protections. We believe that this is how competitiveness and innovation in the product processing sector will regain importance. It will make the Canadian poultry supply chain more secure and, at the same time, more efficient.

Thank you for your attention. I will be pleased to talk to you in the next few minutes.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Filiatrault.

We'll now go to the rounds of questioning.

We'll start with Mr. Epp for six minutes.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

Thank you, Mr. Chair, and thank you to both of the witnesses for your excellent testimony.

Let me begin with Ms. Lamb. If I understood you correctly, you said that 65% of Nova Scotia's demand was met by the pork production in the province. Is the business case strong enough for the private sector to invest in additional processing capacity there to meet that provincial demand, or would you estimate that it would require ongoing public support to meet that?

[Margaret Lamb]

The 65% was when we had the 225 producers, back when Maple Leaf still had the abattoir and facilities here as well as Larsen Packers.

Right now, all we have in the province that we are processing is 3% to 4% of what we're consuming. The federal inspection just allows more access to sales that we can't access any more. I have only provincial inspection. We only have the provincial abattoirs. We can't even put in to our larger chains, such as Sobeys. We sell basically through our own retail.

The answer to your question is that we need it in order to grow.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

That's in order to grow at the primary level.

I'll redirect my questions now to Monsieur Filiatrault.

Let me begin with a basic question. Across all of your sourcing, what percentage would you be sourcing directly from the manufacturer, and how much would you be sourcing through third party agents, such as food service providers like Gordon Food Service or Sysco?

[Nicolas Filiatrault]

In fact, 100% of our production and orders are direct. Gordon Food Service, our distributor, only distributes the chicken; we don't buy directly from them.

So, 100% of our product is ordered directly from slaughterhouses.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

We've heard a lot of testimony on the need for a grocery retailer code of trade. Your business model is different, and I was wondering if you are buying a significant portion of your inputs through food service suppliers. That might have some of the same dynamics as the retailers have in thrall to that marketplace. I'm hearing “no”. Is that correct?

[Nicolas Filiatrault]

That's right. The majority of our products are directly sourced. Currently, our volume is high enough to have them distributed only by our distributor. Having said that, in terms of contracts, I would say that 95% of what we buy comes directly from producers.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

Thank you.

Specifically to your sourcing model and your desire for more medium-sized processing, what specific changes in the supply-managed sector do you think would be advantageous for the whole sector?

Now we're getting into regulatory changes. What are the specific changes that would allow expanded processing capacity?

[Nicolas Filiatrault]

That's a good question. I would say it's more about stability. The total quantity is sufficient, but as soon as anything happens, our supply is cut off from all sides and we have to call our second supplier, who needs to act quickly to provide us with product.

Besides the need to increase the number of players, it's also difficult to source outside the province, because of the implicit protection that exists. For example, it is extremely difficult for me to go and buy chicken in Ontario unless it's an emergency. It comes back to having more players and being protected that way. That would be the solution for me.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

Thank you.

You mentioned the possibility of interprovincial trade or interprovincial suppliers for yourself. Are there any particular barriers you've experienced that we should be aware of as a committee?

[Nicolas Filiatrault]

As I said, in theory, it is possible. There have been times in the past when our supply has been extremely tight and I have had no choice but to call Maple Leaf in Ontario or Granny's Poultry in Manitoba, for example. As soon as you say you are from out of province, it's extremely difficult to get supply. In the case I am describing, we turned to the United States, and eventually our suppliers agreed to supply us with the raw material, whole round tied chicken. It is a little rarer than trimmed breast—

[The Chair, Liberal, Pat Finnigan]

Sorry to interrupt you, Mr. Filiatrault, but we are running out of time. Thank you.

We go to Mr. Blois for six minutes.

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

Thank you, Mr. Chair.

Thank you to both of our witnesses here today. I'll target my questions towards Ms. Lamb.

Margie, it's great to see you. You spoke with so much passion during your opening remarks. I only have six minutes. I wish I had six hours because I think you have a lot to provide to this committee.

I want to start by trying to give some context to our members on this committee. You're certainly talking from a Nova Scotian perspective, but your story probably applies across Atlantic Canada in the sense that, outside of Atlantic Beef and some of the supply-managed industries where there is processing, there's no federally inspected pork facility in Atlantic Canada.

[Margaret Lamb]

There is none. At one point there was a federal inspection in all of the three provinces.

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

Mr. Epp asked you about the business case that needs to be made. You talked about about the fact that at one time this was a big business. There has been a transition over the last number of decades.

You mentioned the fact that banks are hesitant to loan. I know we've had conversations about Farm Credit Canada. Although they've been praised in other sessions where perhaps there's more security, you've had difficulty with Farm Credit Canada in being able to access enough leverage or credibility on the fiscal side to be able to move projects forward. Is that correct?

[Margaret Lamb]

I'm going to say this about the hog industry: Because we're on an open market and because prices fluctuate so much, it can be dollars within one week. You just cannot say to a bank or any financial institution that I can guarantee to you that I am going to have $2 a pound for my pork from now for the next six years. It just doesn't happen.

As well, because of all the other things that have happened within the industry, first of all, for myself and my operations manager, when the provincial abattoir almost crashed four years ago, after the death of my husband, I went to the provincial government to see about trying to build a very small federal abattoir, saying, “You know what? If we had money, we would not be here to ask.” And why federal? We have provincial, but if you can't get into other market opportunities, you're just investing in the same thing. This would allow other producers.... I process only 40 to 50 hogs a week. I couldn't sustain a federal abattoir. I need to be able to help support growing an industry, and I think you have to start from the ground and come up. We're rebuilding here. We're not up at that level anymore. We have basically eliminated the industry, and now we're right back to where we were in the 1970s of trying to just get some food security and trying to grow an industry here.

I think I got sidetracked.

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

No, and for the benefit of everyone on this committee, for the analysts, it's about having the federally inspected abattoir to allow your producers to have more market opportunities, because right now you're just sending isowean pigs to larger producers and then we're getting the finished product back or processors are importing.

[Margaret Lamb]

When the industry, in 2009, was having difficulty, there was funding put in. I looked it up today. It was a federal program where you could either get out of business or you could transition to something. Some of the farms transitioned to isowean production; some chose to get out of business. At that point, at our farm, Jim had already started transitioning into the direct marketing, so we couldn't access that funding—not that we should have had it, because we were already transitioning.

That's when a lot of that production just left. Because of transportation, some of the isowean producers want to stop having to transport animals. They are selling into farms that, in order to compete, have to increase or grow bigger, so they're building new barns. That means, here, either these isowean producers increase their sow herd and build new barns....

There's just not the money in that, so it's kind of a catch-22.

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

I hear you.

Of course, you work with Linda Best. She's a real champion through FarmWorks in Nova Scotia. Talk to me about what the government can do through its procurement methods. We also have a budget coming up.

There are two things. Obviously needing to be trade compliant, are there ways that the government can support through the procurement power, along with our future budget on relaunching the economy?

Are there temporary measures we can try, to help in the long term?

[Margaret Lamb]

When you're talking about procurement, are you looking at what goes into institutions and that type of thing?