Agriculture Committee on Feb. 2nd, 2021

[The Chair, Liberal, Pat Finnigan]

I'll call this meeting to order.

Welcome to meeting number 15 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, 2020, the committee is resuming its study on processing capacity.

To ensure the smooth running of the meeting, I would like to share some rules with you.

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When you are not speaking, your mike should be on mute.

Now I would like welcome our witnesses for today for the first panel.

We have from Agri-Food Economic Systems, Dr. Al Mussell, research lead.

Welcome, Dr. Mussell.

From the Agri-Food Innovation Council, we have Monsieur Serge Buy, chief executive officer.

Welcome, Mr. Buy.

With that, we'll start with opening statements.

We'll start with Agri-Food Economic Systems. Dr. Mussell, you have the floor for up to seven and a half minutes.

[Dr. Al Mussell, Research Lead, Agri-Food Economic Systems, As an Individual]

Thank you.

Mr. Chair and honourable members, I am pleased to appear before you this afternoon and to provide the insights I have to offer as an independent researcher focused on Canadian agriculture and food.

As a country we take great pride in our agri-food system and its performance. Our point of departure is a position of strength, and the flip side of the challenges that I will raise are opportunities for Canada. I would like to begin my remarks with this important acknowledgement.

I will touch briefly on a number of immediate and tangible challenges to food processing in Canada. These are the challenges of today, impacting the ability of food processing just to be retained in its current state. There are also forthcoming challenges only just beginning to be conceived. Increasingly, the full range of issues that we face in relation to food processing in Canada will not entail a stable solution in which we fix a problem, and the solution endures over time. The environment is more unstable, and maintaining solutions for food processing will require broader, ongoing effort.

Much of the data published by Statistics Canada dealing with capital stocks in food manufacturing was terminated in 2013. Increasingly, we are left to public announcements made by firms investing in new plants for information. That doesn't provide a consistent or satisfactory source of information on processing investment, infrastructure and capacity.

Scale in food processing in Canada faces a number of constraints. From the perspective of product brands and food marketing, Canada is a small market, yet from a geographic and product distribution standpoint, Canada is a very large area to serve and the need for product freshness and distribution can require multiple plants operating throughout the country at a relatively small scale.

The Canadian market is also fragmented provincially through provincial regulation in farm products marketing, under the interpretation of section 121 of the Constitution Act. In effect, the platform through which many processors purchase farm products for processing is provincial in structure, while their primary customers, grocery retail chains and food service distributors, operate at the national level.

The challenges of obtaining and retaining human resources for the needs of the agri-food sector are no doubt well known by the committee. This certainly extends into food processing. Where economics would have dictated that food processing plants be located in rural areas near supplies of farm products for processing, increasingly plants are locating closer to large urban centres as accessing the necessary workforce becomes the key consideration.

For some years now the trends and forecasts documented by Employment and Social Development Canada have pointed to trends in education and training oriented towards professional careers. This risks leaving our sector with a gap.

A recent and troubling development is the erosion of our global trading institutions and a shift toward bilateralism on behalf of large economies with the economic weight to use trade as leverage. Agri-food products are frequently drawn in as an instrument of retaliation in trade disputes, and the resulting injury drives the demand for agricultural support.

For example, the United States has had repeated and highly significant ad hoc farm subsidies in place dating from 2018. These support U.S. production, advantaging U.S. food processors. In addition, support also applies to food processing plant development. For example, in a recent announcement, municipal supports exceeding $1 million U.S. were given for development of a poultry processing plant located in Alabama.

There are also increasing technical challenges to exporting food. The pandemic has elevated these. For example, exports to China have recently become subject to inspections of packaging in food shipments for the COVID-19 virus. This has resulted in suspensions by China of exporters in a number of countries, including Canada. China has also invited countries to self-delist plants in which there have been cases of COVID-19 among employees; however, the process to get re-listed as an exporter to China is not clear. Delisting by China, under either mechanism, could be an overwhelming blow for a food processor leveraged into exports.

In the domestic market, food processors face a customer base of retailers and food service distributors that is highly concentrated. This, by itself, is a concern as the loss of a single retail account could be disastrous. Moreover, the supply chain relations between suppliers and grocery retailers is increasingly seen as fraught in Canada, with concerns regarding involuntary and arbitrary fees levied by retailers and processors, and requirements placed on processors that generally increase uncertainty and inefficiency in the supply chain. This topic occupied considerable discussion at the most recent federal-provincial agricultural ministers conference.

The process of constantly raising the bar on all aspects of food quality and safety and on facilitating innovation is in the interest of all. However, the public process and nature of regulation can undermine this if it is excessively cautious, onerous or creates uncertainty. Regulations need appropriate analysis, consultation and resources behind them, and excessive fees for regulatory approval can form a barrier to new product introductions.

Carbon taxes are recognized as the most efficient instrument for greenhouse gas mitigation; however, the financial magnitude of these costs on the food system are sobering. Without some rationalization about how these costs will be shared, the concern exists that they will end up being allocated by bargaining leverage in supply chains, with the costs rolling back to the food processing and primary production segments.

We are struggling to come to grips with how the economic adversity in Canada fragments itself across the segments of our society, but the effects appear worst in the prairie provinces whose economies are most closely tied to energy. There is a need to replace employment lost and restore economic growth in these provinces. One avenue for doing so is through agriculture and food, with food processing investment as a linchpin. My hope is that new economic development in Canadian food processing can proceed on the basis of competitiveness and efficiency, but this environment is ripe for dangerous provincial economic rivalry.

I have some recommendations.

Evidence-based policy development requires quality data. Improved collection of public statistics that deal with the capital stock for food processing in Canada, with the resources to analyze the data and interpret the results, is necessary.

Many of the challenges that I have identified boil down to inefficiencies in food supply chains. Understanding the causes, the costs of inefficiencies and who is affected can help bring about their resolution and relax barriers to investment in food processing.

Through investments in technology research and development, Canada can redouble its efforts to facilitate improvements in efficiency at smaller scales and address some of the issues with workforce in food processing.

Ongoing work is required on Canada's approaches to regulation of the food system and the provision of public resources to support regulation that is effective for all.

Export market access, and also access to imports, is fundamentally in the interest of food processors. Canada needs to continue its pressure to restore and expand the rules-based trading system. Equally, Canada should explore approaches to trade in processed foods that addresses broad priorities, notably climate change and the facilitation of processed foods featuring a reduced carbon footprint, with protective border measures based on the carbon footprint of the imports. Indeed, missing this point could lead Canada to falling behind.

Investments in food processing can be an important generator of regional economic development and form a portion of the solution for economic recovery. The federal government has a role to play in facilitating recovery through food processing investment, but in a coordinated manner that avoids the pitfalls of provincial rivalry.

Recognizing and addressing our constraints in food processing are critical in advancing the goals in the Barton report, and more fundamentally, having Canadian agri-food play the role that it can in economic development, enhancing food security, and being a resilient food supplier to the world.

[The Chair, Liberal, Pat Finnigan]

Thank you, Dr. Mussell. Unfortunately, we have to cut you off, but there will be a chance to answer some questions.

We'll move to the Agri-food Innovation Council, Mr. Serge Buy, chief executive officer.

Go ahead for up to seven and a half minutes.

[Serge Buy, Chief Executive Officer, Agri-Food Innovation Council]

Thank you, Mr. Finnigan.

Good afternoon, and thank you for giving the Agri-Food Innovation Council a chance to provide recommendations as you study processing capacity in Canada.

The Agri-Food Innovation Council has been in existence since 1920. It is a unifying voice for research and innovation in our country. Our members include research centres, university faculties, producer groups, government entities, and large, medium and small business, all involved in research and innovation on agri-food.

Some of our members are located in your ridings, such as in Mr. Steinley's riding of Regina—Lewvan, with Protein Industries Canada and the Farm Credit Corporation, while others have various connections through agri-food research and innovation, such as the Agriculture and Agri-Food Canada research centres located in the ridings of Madam Bessette and Mr. Blois.

The COVID-19 pandemic has resulted in Canadians being concerned about food safety and security. For some people this was the first time in their lives that they went to the grocery store and couldn't find the products they are used to buying. The problems we are experiencing with processing capacity won't end when the pandemic ends. We require thoughtful action now.

The Agri-Food Innovation Council would like to offer tangible recommendations which, in our opinion, are realistic solutions for some of the ongoing problems. We consulted our membership when preparing this presentation and making our recommendations, and we certainly want to thank them for their input.

I also want to take the time to thank the farmers, the workers in food and beverage manufacturing and processing plants, distributors, retailers and those in food services who enabled Canadians to continue to feed their families even when it meant taking a risk for themselves.

Let me move forward with our recommendations.

The first recommendation is to ask that the government create a funding program to facilitate the adoption of automation technology for food and beverage manufacturers as well as processing plants.

As noted by Food and Beverage Canada and le Conseil de la transformation alimentaire du Québec in previous submissions to this committee, automation in food and beverage manufacturing would help reduce risks for our food systems. Dr. Andrea Brocklebank of the Beef Cattle Research Council, one of our members, also suggested further adoption of automation for repetitive tasks in processing plants. Along with increased efficiencies, this would also reduce risks of worker injury and facilitate the transition of labour to value-added jobs.

We see the lack of capital as one of the key barriers to the adoption of new technologies for food and beverage manufacturing. The government has a role to play. Let's take today's news. The government has announced that it has secured a deal to manufacture vaccines in Canada. It is providing funding for new facilities. That is fantastic. It shows that the government sees a role in making us more independent for the supply of vaccines.

We need to be able to replicate that type of support for food and beverage manufacturing and processing plants. This will strengthen our food security. The development of a funding program to facilitate the adoption of technology for food manufacturers and processing plants would go a long way to support companies with the large capital investments required. Rightfully so, Canadians view food security as a crucial issue. Increased adoption of automation in food and beverage manufacturing as well as in processing plants would help.

Canada is a nation of innovation. However, we have seen an increasing gap between research and commercialization. Incubators and accelerators in agri-food, such as Creative Destruction Lab, Bioenterprise, and the Saskatchewan Food Industry Development Centre, can provide early-stage companies with guidance, cross-sectoral connections, mentorship and access to capital and funding. This leads me to my next point: incubators.

Our second recommendation is that the federal government should incentivize the expansion of incubators and accelerators to stimulate entrepreneurship in agri-food.

Incubators play an important role in bringing together agriculture research with other key sectors, as Dr. Paul Hoekstra of Grain Farmers of Ontario noted to AIC. This is why they're important and the government should play a role in supporting them.

In November and December, AIC held a series of video conferences on the climate for investment in agri-food research and innovation. We had a number of presentations from Canadian organizations, companies, funders and even international organizations, which helped provide comparatives for Canada.

The agri-food research and innovation sector is underserved in terms of private investment.

As Mr. Dave Smardon from Bioenterprise said during our video conference, trying to help agri-food companies find capital for activities such as piloting demonstrations was currently a significant challenge. This is partially an issue of perception and limited knowledge of available opportunities.

Ms. Kelley Fitzpatrick from NutriScience Solutions in Manitoba said that while government funding is generally effective at funding research, more could be done to support agri-food ventures looking to market innovative products and processes.

My final two recommendations further my previous comments. First is that the government collaborate with industry to actively attract private investments in agri-food research and innovation by promoting opportunities, success stories and incentives for investments. Next is for the government to expand NRC's IRAP offering to SMEs looking to commercialize their innovation by making capital costs eligible.

In the not-too-distant past, December 2017, in a report on Canada's economic growth, Dominic Barton highlighted agriculture as a key growth sector. He was right.

There is no question that this pandemic has had a deep impact on all of our society. Stemming from that are new challenges for our economy.

We don't need to see solutions to challenges as being out of reach. Yes, we need to move quicker and smarter. Yes, we need to work better together. Our recommendations don't necessarily mean big programs. They can be implemented and will benefit our country. The government, to its credit, has made more regulatory changes and more developed new programs in the past 10 months than in the past number of years. When there is a crisis, our society rises to the challenge.

In this presentation and in the brief that you should have received, I highlighted four recommendations that either require some investments but would support economic growth for the recovery or have little cost for the government.

We would be pleased to see this committee adopt all or even some of our recommendations as its own and would also want to work with the government on their implementation.

Thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Buy.

Now we'll go to our question round for six minutes.

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

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

Thank you, Mr. Chair.

Let me begin by saying thank you for excellent testimony from both of the witnesses.

I'm going to begin by directing some questions to Dr. Mussell.

Al, it's good to see you again. Your words that we've often shared in conversations, “Dave, the market is always right, even when you think it's wrong,” ring in my head. Here we are trying to enhance the market for processing capacity in Canada. You've given us a lot to unpack.

I had a question prepared around the location specifically of meat slaughtering capacity and the trade-off between economies of scale and nearness to supply or nearness to market. I'm going to expand that because you touched on exactly that but introduced another factor, which was access to labour.

How does access to temporary foreign workers feed into that matrix of economies of scale, access to market or to supply and access to labour? Can you comment further on that?

[Dr. Al Mussell]

It's a bit of a complicated topic, Dave, but thank you for the question.

Based on pure economics and looking at sort of our mid-term history, it's expensive to transport livestock. You tend to want to locate livestock processing facilities in areas where you have production of livestock as opposed to in big cities.

Over time, that reality is still there, but if you're going to have a plant that might employ 1,000 or 1,200 people, employers have to think increasingly where exactly those people are going to come from. Some of the food processing facilities that I'm familiar with, mostly in Ontario, get very innovative. They'll coordinate transportation for employees to get to the plants from urban locations. Increasingly, they are locating right in urban locations. In other words, they'll take on the diseconomies of transporting the livestock in this case, or the farm product more generally, to the plant to take advantage of the economies of having the workforce there.

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

Thank you. I have lots I want to get to.

You talked about the need for more independent third party data so that we could make good decisions. You referenced StatsCan. What would be a mechanism to get that data? Are you talking about compelling disclosure? How do we find that balance?

[Dr. Al Mussell]

Maybe what I can say about it is this, Dave. This information was collected previously. Back in 2013 or in around that period, there were quite a number of datasets being collected that were agricultural statistics. That data collection from Statistics Canada ended.

To be fair, I would want to leave it to Statistics Canada to ask them how they collected the data previously. One would hope that they continue to do that again.

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

You've mentioned the carbon tax and its cascading effect or tendency to be borne by the lower ends of the value chain.

Do you have any mechanisms in mind? Are we talking about just straight exemptions at the lower end to drive that or share that cost? What would be some policy mechanisms?

[Dr. Al Mussell]

In order to be fair, Dave, I think we need to learn a little more about it.

There's some worry that, with carbon taxes coming, you have food packaging, you have the production of the farm product itself, and you have all the transportation and the transformation processes in between. That could be a large burden.

However, if we look at, as I made reference to, the bargaining relations in our food supply chains, the retail segment has been pretty successful in basically pushing that back to the processing and farm level. To some extent, we have regulated marketing in farm products to deal with issues like that.

I worry that the allocation of the carbon tax could follow that same pattern. It could end up residing with the farmer and the processor and not be distributed equitably.

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

You touched on the retailer concentration or the retailer power. From your independent viewpoint, can you make a quick comment on the code of conduct as a policy mechanism to address that?

[Dr. Al Mussell]

It's a real concern. Other countries have taken it on as well.

Perhaps the best way to look at it is as an issue of inefficiencies, what types of inefficiencies create some of the demands on behalf of retailers, and what are some of the demands on behalf of the retail segment from processors that create inefficiencies themselves. Perhaps that should be our best lens in terms of how to attack it.

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

If China is not willing to go down a rules-based world trading order, where should Canada focus? So many of our sectors are export focused.

[Dr. Al Mussell]

I think we've already started the process of working with allies to take on, actually, issues specifically like the COVID-19 swabs on food packaging. My understanding is that Canada has had discussions with Australia, New Zealand, the U.S., probably the EU, and maybe some others, to have a united front on this. This is disguised protection and we can't tolerate it.

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

Thanks.

Let me go to regulation for a bit. You talk about regulatory reform. Other witnesses have talked about the two-edged sword, where particularly in regard to our food safety, the regulations give us a positive international brand, yet there's a cost to regulation borne by industry.

When you look at regulations, what's the yardstick or the external standard you bring in to bring some values around that?

[Dr. Al Mussell]

It's a tough question to tackle, because you're really trying to hit a knife edge with regulation. It's not in anybody's interest to have no regulation. That's part of the credibility of the Canadian product—

[The Chair, Liberal, Pat Finnigan]

Thank you, Dr. Mussell. I'm sorry, but we're out of time.

We'll move to our next questioner.

Mr. Drouin, the floor is yours for six minutes.

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

Thank you, Mr. Chair, and thank you to Mr. Mussell, and to my esteemed constituent Monsieur Buy, if he still lives out in North Glengarry.

Monsieur Buy, it's great to see you. I will get to you. I know you have some members in Mr. Steinley's and Madam Bessette's ridings, but I have the best CEO up here, so there you go.

Mr. Mussell, in terms of the data, you've mentioned the fact that Statistics Canada is no longer keeping track. How are you finding that particular data now? Are you relying on industry surveys, essentially?

[Dr. Al Mussell]

The short answer is that the data doesn't exist. We go back to the survey of manufacturing and logging, which gives us information on the earnings of food processing companies and things like their GDP contribution and some of their major expense items. However, in terms of the capital side, the capital stock that we have and depreciation, and how we relate productivity back to investment in food processing, we don't have that information anymore.

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

You've mentioned access to working capital or to HR. I think it's great that you're mentioning that. I'd be curious to know whether you have found through your studies in other countries that they have filled that gap through automation. Then I will ask Monsieur Buy that same question.

Have you found that automation can fulfill an HR gap in some areas for food processing?

[Dr. Al Mussell]

Maybe I'll say it this way: In my limited study, one example you can look at is Denmark. Denmark has done a very effective job of this. Really, part of that is some of their own technical capability.

Also, the job here is to take individual positions in a plant that historically have been relatively low-level labour jobs and to increase the value of those positions through automation. If we're going to have more of a professional workforce in Canada, which our trends suggest we will, we want to be able to attract those people into food processing.

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

Great. Thank you.

Mr. Buy, thank you for being with us today.

I noted that one of your recommendations was to create a program to facilitate the use of automation technologies. In this regard, did you feel that Innovation, Science and Economic Development Canada was putting up barriers? We are often asked how many jobs will be created before being given access to such a program. Have you noticed this in the field or heard it from your members?

[Serge Buy]

Thank you for your question.

Indeed, we heard from our members that there was a problem. Often, access to funding programs requires job creation. But when we talk about automation, we are not really talking about job creation initially, but probably about new training and changes in duties. It is obvious that automation will make some jobs disappear, which will create a barrier to capital access through financing programs. So this is a problem. In addition, many federal government programs, such as the NRC's Industrial Research Assistance Program, limit access to capital [Editor's Note: Technical Difficulty].

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

In another of your recommendations, you call on the government to work with the private sector to create marketing opportunities and investment incentives. We often hear that there are more venture capitalists in the U.S. than in Canada and that it's easier to raise capital in the U.S., regardless of the sector.

Do you believe that Canada would be better positioned strategically if it were in a position to seek such investments?

In terms of incentives, I know that we have increased the capital cost allowance to promote more investments in equipment.

What other incentives could we present to stimulate these private investments?