Evidence of meeting #6 for Agriculture and Agri-Food in the 43rd Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was capacity.
A recording is available from Parliament.
4:50 p.m.
Liberal
The Chair Liberal Pat Finnigan
Thank you very much, Mr. Graydon.
Mr. Gascon, you have the floor for seven and a half minutes.
4:50 p.m.
Jean-Sébastien Gascon Director General, Boeuf Québec - Société des parcs d'engraissement du Québec
Distinguished parliamentarians, I would like to begin by thanking you for this invitation. I'm honoured, excited even. I love the level of consideration this committee gives to issues. This is the first time I've been invited to appear before a federal committee. It's very exciting for me. I hope my presentation will interest you in some way.
Globalization puts Quebec and Canadian beef production in competition with the world. It's a commercially unstable industry, highly complex and high-risk. This is why the processing sector is concentrated in the hands of a few giants.
I would like to highlight four elements that illustrate the challenges we face.
The free market exposes beef producers and processors to highly volatile prices, and few businesses survive. Several countries have abundant and inexpensive labour, including the United States, Mexico and Brazil. Regulations lack reciprocity. Beef is imported from producers who are subject to production standards that are lower than Quebec's, both in terms of animal health and welfare and the environment. The same is true for producers in the rest of Canada. Finally, several governments support their processing sector financially.
Boeuf Québec is an innovative initiative for the recovery of the industry. Sales are doubling every four to six months, and we hope that this pace will be maintained for the next two years, even though it is still a small industry.
How can the government support the Boeuf Québec program so that we can seize the opportunities? The Boeuf Québec program is simple, and I'll tell you a big secret later. It is based on four key elements to strive for excellence and be among the best in the world. The government assistance announced today must help us innovate to meet these four major challenges. What are they?
First, we need to better respond to consumer demands. Indeed, the consumer is the final arbiter of our project.
Second, there is a need for better vertical coordination from farm to table, because collaboration between the links in the production chain leads to significant gains in productivity and agility. Mr. Graydon pointed out the difficulties of working with distributors and major brands.
Thirdly, we must start the race for greater business productivity. If we want a relaunch, we must seek better value and profitability for all businesses, especially processors, slaughterhouses and producers. In Canada, there is no recovery in the beef industry, and it's even worse in Quebec.
Fourth, we need to increase the competitiveness of the business environment. We need to innovate to better manage risk, better regulate, train the workforce, and foster research, investment and innovation. Government support is an essential lever to offset global disparities. It's clear that we aren't on a level playing field with the rest of the world.
The needs are clearly expressed to accelerate the Partenaires Boeuf Québec program, which takes the same direction as the Canadian Beef program. The challenge of such a program is to make it work on a large scale, and all partners have a stake in making it work.
On a more concrete level, I will now say a few words about productivity.
The key element that will require the most investment over the next few years is productivity. There will be no revival of production and processing in the Boeuf Québec industry without an increase in business profitability. I'm convinced that this is the same challenge across Canada.
As far as producers are concerned, one of Boeuf Québec's objectives is to increase production profitability by 6% by launching a pilot project in 2021. More value must be produced at lower cost. Today, this means innovating, selling better and producing better. That's how we'll get producers to invest and produce more.
As far as slaughterhouses and processors are concerned, we can now turn our weak links into a driving force. We have several slaughterhouses that are federally inspected. Surprisingly, in Quebec, slaughterhouses are constantly being shut down or doing other activities because they can't do it. Some provincially inspected slaughterhouses demonstrated during the pandemic that they have a tremendous capacity for strategic slaughter. Again, if left to their own devices, they won't be able to do it.
We need to make a radical technological shift. Technology allows us to manage the complexity of a project like Boeuf Québec's and allows us to be more productive. We need to make a radical technological shift in production and processing now. This is synonymous with automation, robotization, industry 4.0, blockchain. We have to focus on innovation, otherwise we won't be able to compete on a level playing field with other countries.
We are currently working on a blockchain project that will change the way we produce. We need the government to make this chain a technological leader and to compete with the giants that dominate this industry. You've probably already seen the robots coming into the factories at high speed. In five years, if we haven't innovated, we'll be dead.
I brought a note. Currently, there are two destabilizing issues in the processing sector that need to be seen and understood. The first one is technology—I think I've expressed it pretty well. A comet is coming towards us, and if we don't turn the corner now, I think it'll be too late in five years. The second earthquake came with the pandemic crisis. North America has been undercapacity in slaughter for years.
In “Business Insider” it says:
The era of big beef may be over as Americans turn to small-scale butchers in the pandemic.
The COVID-19 pandemic has exposed the fragile nature of America's meat supply chain as tens of thousands of meat industry workers fell sick, and hundreds died. Small-scale farms have seen a huge spike in demand as consumers search for alternative meat sources. Right now, 80% of the US beef market is controlled by four huge meat producers, and they're the target of a Justice Department antitrust investigation.
The current context is particular. There is an undercapacity in slaughter, and we are faced with the need to make not only a technological shift, but also a shift in relation to the consumer. The consumer is asking more questions and is willing to ask more questions. Demand must be met now.
For years, the beef production sector was viewed as a commodity producing system. In a sense, that era may be coming to an end. That's where we come in, and I go back to the strategic points I mentioned earlier: the consumer, productivity, vertical coordination and competitiveness.
My goal is for us to in some way become the Cirque du Soleil of the beef industry in North America. To do so, we subscribe to a marketing strategy called the “blue ocean”. In my opinion, that's what we're achieving through Boeuf Québec. We want to surprise you.
I, for one, find it quite exciting to have conversations like the one being held today with Canada's leaders in this field. However, I believe that we need to be able to—
5 p.m.
Liberal
The Chair Liberal Pat Finnigan
Thank you, Mr. Gascon. Your time is up. You'll be able to conclude your remarks when you are asked questions.
We'll start the round of questions for second panel, beginning with Mr. Epp for six minutes.
Go ahead, Mr. Epp.
5 p.m.
Conservative
Dave Epp Conservative Chatham-Kent—Leamington, ON
Thank you, Mr. Chair.
I'd like to begin by thanking all of the witnesses for their testimony.
I'd like to focus my questions on one of the barriers that was identified to increasing processing capacity, namely that of retailer concentration, which obviously has been in the news recently. Through you, Mr. Chair, I'd like to direct some questions to Mr. Graydon.
Thank you for your testimony and thank you very much for the very comprehensive briefing note that covered almost all of the questions I had prepared.
I'd like to begin at the end of the value chain with the consumer. Yesterday StatsCan published the last monthly CPI report. It was up again 0.7%. It's up 1% apart from gasoline, and that's being led by rising food prices.
How, though, is the consumer being affected by these trade relationships? How is it possible that the consumer can benefit from the behaviours in the industry if those are corrected between the suppliers and farmers to manufacturers and processors? If they all receive a fairer price for their product, won't that raise prices for consumers?
5 p.m.
Chief Executive Officer, Food, Health and Consumer Products of Canada
I don't believe so. In the work that we've done in analyzing the success of the code in the U.K., consumer pricing went down. We're looking at 3% to 5% food inflation in Canada. In the U.K. they're looking at below 1%.
What happens is that there's a cultural transition where you look from farm gate to shelf collectively and collaboratively to identify efficiencies that can be had and can be translated into cost benefits for the consumer. If we have to continue to pay these outrageous fees to the retailers, then unfortunately those are the sorts of things that do eventually get passed on to the consumer. We just cannot absorb those cost increases any longer.
5 p.m.
Conservative
Dave Epp Conservative Chatham-Kent—Leamington, ON
Thank you.
Some retailers are actually saying that relative to the onset of COVID earlier this year, things are almost back to normal now, yet, of course, the data we're seeing shows that infection rates are rising. We're in the middle of a second wave that actually may be more traumatic than the first.
With the recent announcements of record profits by several of the major retailers and the costs that are being shoved downstream to the suppliers, as well as the loss of pandemic pay to retail workers—all of these capital expansion costs are being pushed down—what are the consequences of this dynamic? Our goal here is to actually increase processing capacity in Canada. That's the direction of the Barton report. That's the goal of this study. Is there actually a risk of contraction, and if so, what could be the implications for rural Canada?
5 p.m.
Chief Executive Officer, Food, Health and Consumer Products of Canada
Yes, there are major opportunities for contraction, unfortunately. Ninety per cent of the food manufacturers in this country are small to medium enterprises that employ fewer than 100 people. They do not have the financial flexibility to continue in this environment. They're vulnerable. They're running, sometimes, at less than a 3% margin. They are very vulnerable. Their ability to sustain business is going to be very difficult.
The large multinationals have other options. They have a much broader portfolio to work with and a lot more power to negotiate. Quite honestly, they have production options, which, fundamentally, are moving or transitioning their manufacturing to the United States and using Canada as a distribution centre.
What happens to agriculture is it loses its key business connection. In the province of Ontario, our industry takes over 60% of the agricultural output, and on average across Canada, 50%. All of a sudden you lose those markets, you lose that opportunity within 100 kilometres of your farm to be able to process that. You become a purveyor of commodities.
I think the margins and the impact on the farm and agriculture will be significant. It will be a cascading effect. There will be lost jobs, and I think, lost profitability, success and sustainability of the strong agriculture we're very proud of here in this country.
5:05 p.m.
Conservative
Dave Epp Conservative Chatham-Kent—Leamington, ON
Thank you.
In some recent discussions I've had with processors about their major concerns, one of them identified the fines both for late and short delivery; another identified the new fees they're facing as of January 4; and another identified the 1.3% cost on all volumes being supplied to a major retailer. What are the effects? Your briefing note was extensive and actually included a litany of unfair practices. I appreciate that. What is the collateral impact on the independent grocers? They're often the only grocers in rural Canada. Can you list the results of this power imbalance on them?
Second, as a corollary to that, in your opinion is it a necessary role of government to address this power imbalance? Is a Canadian study to further this necessary or can we transfer the findings of the U.K. and Australian studies?
5:05 p.m.
Chief Executive Officer, Food, Health and Consumer Products of Canada
I think we can transfer the U.K. studies, but I think we need to take a made-in-Canada approach to it as well.
The independent grocers are impacted quite significantly. Food security is the knock-on effect to the consumer in certain parts of the country where the independent is, in fact, the only solution in regard to grocery retail. If they are negatively impacted and do not have the ability to get the ample allotments of product, then the consumers in those markets end up in a grocery desert.
These fines are impactful. If a manufacturer is dealing with Walmart or Loblaws and they aren't able to fulfill the order, then sometimes the fine is greater than the margin they make on the order itself. What happens is they have to make allocation decisions. Do they send to Walmart and Loblaws or the large grocer and avoid the fine, and minimize the amount—
5:05 p.m.
Liberal
The Chair Liberal Pat Finnigan
Thank you, Mr. Graydon. Sorry, we're out of time.
Now we go to Mr. Blois for six minutes. Go ahead.
5:05 p.m.
Liberal
Kody Blois Liberal Kings—Hants, NS
Thank you, Mr. Chair.
I'd like to start by thanking all of the witnesses for their testimony.
I'll start with Mr. Graydon. You mentioned during your remarks that we need to be more competitive versus other countries internationally. What does that look like? I want to ask a number of questions, so what does that look like in terms of our being more competitive?
5:05 p.m.
Chief Executive Officer, Food, Health and Consumer Products of Canada
It's exercising and utilizing our export capacity. The Barton report, I think, was a wonderful piece of work that identified the opportunity that exists for agri-food and agri-food processing.
5:05 p.m.
Liberal
Kody Blois Liberal Kings—Hants, NS
You mentioned the code of conduct in the United Kingdom. Look, this is something I'm hearing from my agriculture stakeholders in Nova Scotia, as well. I don't know if we actually get to make the connection that the code of conduct in the U.K. led to greater processing capability. Is that something that actually happened? Did the U.K. see a rise in its processing capability as a result of its code of conduct, or just, perhaps, less inflation on its products?
5:05 p.m.
Chief Executive Officer, Food, Health and Consumer Products of Canada
No. It had a very marked impact in regard on manufacturer profitability, which they re-engaged back into capital investment, as it did for retail and consumer price deflation.
5:05 p.m.
Liberal
Kody Blois Liberal Kings—Hants, NS
You might have this data on hand, or you might not. In terms of where Canada ranks internationally on some of its margins for its processors that are selling to retailers, where do we rank in terms of our percentage of margins versus, perhaps, other jurisdictions, particularly in Europe? It seems that Europe is on the cutting edge of automation and advanced processing in the agri-food sector.
5:05 p.m.
Chief Executive Officer, Food, Health and Consumer Products of Canada
Canada is one of the most expensive countries in the world to do business. With the combination of the retailer consolidation and other things, the margin of performance in this country is near the bottom.
5:05 p.m.
Liberal
Kody Blois Liberal Kings—Hants, NS
You mentioned, obviously, the cost of doing business. Some of that can of course be tied to retailers and the concentration that you alluded to in your remarks. Is some of this also tied to regulatory harmonization and the fact that there might be other jurisdictions in the world that are doing a better job on regulatory harmony?
5:05 p.m.
Chief Executive Officer, Food, Health and Consumer Products of Canada
The regulatory burden is a challenge, there's no question about that. It's been very helpful in regard to food safety, but there are many regulations that are adding significant cost. Harmonization, especially in North America, would be very helpful.
5:05 p.m.
Liberal
Kody Blois Liberal Kings—Hants, NS
You mentioned labour. You talked about it's importance and that we do have a chronic labour challenge. For example, in my riding of Kings—Hants, we have Apple Valley Foods, which is Sarsfield family run. It is one of the largest pie manufacturers in North America, which certainly has talked about the challenges they've faced.
How do we encourage more automation? I think, at least anecdotally, that Canada is behind other jurisdictions in the world in using artificial intelligence or automation in its food processing, not only as a way of improving our efficiency but also of ensuring that the chronic labour gaps can be satisfied through some of these techniques.
November 19th, 2020 / 5:10 p.m.
Chief Executive Officer, Food, Health and Consumer Products of Canada
We need to improve the profitability of the industry so that capital investment can be made back into automation, which is going to be, I think, very important for continued success. Any programs the government can provide to assist the industry with regard to that are going to be very much welcome.
5:10 p.m.
Liberal
Kody Blois Liberal Kings—Hants, NS
Obviously, as I mentioned, I'm a member or Parliament from Nova Scotia. In this area, we have seen a big deindustrialization from economies of scale, and we're looking to be globally competitive. I know you represent a vast variety of stakeholders. Do you have any suggestions on the balance of how government can find the way forward to improve regional capacity but also to understand that there still has to be some level of business efficacy and profitability or sustainability? Government can't be providing that regional capacity in all cases if it doesn't still make business sense. Do you have any recommendations or any thoughts from your stakeholders on regional capacity?
5:10 p.m.
Chief Executive Officer, Food, Health and Consumer Products of Canada
Regional capacity works very much in favour of our industry. Land costs in Nova Scotia for building a plant are a lot different from what they are in Toronto, Ontario. I think that if government can work to create...and to remove some of the barriers and inhibitors of success, such as the consolidation of retail and some of the significant challenges we have with regulations, then the industry will be prepared to invest. In many cases, it will also be prepared to diversify regionally across the country and follow where the labour pools are, where the agriculture is, and where the best opportunity for the cost of running your businesses resides.
5:10 p.m.
Liberal
Kody Blois Liberal Kings—Hants, NS
Thank you very much.
I'd like to go to Mr. Gascon.
My French has improved, but it isn't perfect, so I'll ask my question in English.
I'll go back to English.
I did research on your organization, and there are about 70 family farms. You mentioned trying those four competitive mechanisms. Are you finding that consumer trends are changing, or is it still really based on price? Despite the fact that you're trying to create a quality product with those margins, how do you compete when many consumers still base their decisions on the bottom line and therefore the affordability of the product?
5:10 p.m.
Director General, Boeuf Québec - Société des parcs d'engraissement du Québec
The more we advance in this project, actually....
Can I answer in French?
Will you understand if I answer in French?
Okay.
The more this project progresses, the more we discover the margins that are hidden everywhere, all along the value chain. By taking into account all these small margins that are being added and by coordinating the industry more and more closely, we are succeeding in lowering the price to the consumer to make it more competitive.
This is where the importance of vertical coordination must be recognized. With this approach, we get the players working together, and we are then able to offer a price that is almost like a commodity.
We have a choice: compete with the commodity sector or create additional value. It's a very nice choice, honestly, except the difficulty is that no one in this industry gives themselves gifts. I'm using the same direction that Canadian Beef is going in, but we're not doing it right.