Agriculture Committee on Nov. 24th, 2020

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Lewis.

Mr. MacGregor, you have two and a half minutes.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thanks, Chair.

I have a quick question for Ms. Stafford.

In the last Parliament, our committee took a study across Canada and we actually visited some food-processing centres that helped small-scale producers innovate and create new products. Is there any kind of capacity like that close by in our region? Could that be a beneficial targeted investment—making a new product that no one had ever really thought of before and allowing that experimentation in a fully commercial-grade kitchen with all the food safety procedures in place?

[Judy Stafford]

Innovation definitely is a big piece of this new kitchen proposal that we have put together. We do want to look at where there are gaps and what the demands are. Maybe it's not innovative, but trying to get into institutional purchasing has been a nightmare. With a new hospital and a new school, there is so much opportunity to break into the institutional market, and seniors homes. For all of that, again, the regulations are just horrendous.

We definitely have looked at what other supports we can provide to farmers. We're working with Community Futures to do any business incubation. The regional district is putting together a food-processing innovation support service to also work with farmers on coming up with different products, or gaps in demand, and help them through the kitchen, for sure.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you.

Mr. Lewis, the place I was referencing was the Saskatchewan Food Industry Development Centre. We took a tour of the facility. It was really fantastic.

In this last minute, do you have any comments to add about what that centre offers producers in your association and what more you want to add for our committee to take note of?

[Todd Lewis]

I think it's a good example of how to use the university system across this country and support the universities. Put more centres like that at the University of B.C. and in Ontario and at Guelph—all of those. It's an opportunity. If the federal government wants to put money towards the development of processing, that's a great vehicle to do it.

The food-processing facility up in Saskatoon is second to none. It has created all kinds of products that are on grocery store shelves. Within minutes of where I'm speaking, I can go and see literally a hundred Saskatchewan-made products that are on the grocery store shelves.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Yes, and very quickly, the chair was with me, and we got to sample some of those products before they were allowed to go out onto market, so we got a sneak peek at them.

[The Chair, Liberal, Pat Finnigan]

Yes, they were really good.

Thank you, Mr. MacGregor.

Thank you to Mr. Todd Lewis from APAS for being here with us and to the Cowichan Green Community and Judy Stafford. These are certainly two different scales of production, but both of them are important for our producers and for our food security. Thanks again.

We shall suspend and be back ASAP for our second round.

Thanks, all of you.

We shall see our members later.

[The Chair, Liberal, Pat Finnigan]

I think we're ready to resume the meeting.

Let me introduce our witnesses for this second hour. First, from Government of Yukon, we have Matthew Ball, director, energy mines and resources department; and Kirk Price, director, agriculture branch. Welcome to our committee, Mr. Ball and Mr. Price.

From Food Processors of Canada, we have Denise Allen, president and chief executive officer. Welcome, Ms. Allen.

From the Ontario Ministry of Agriculture, Food and Rural Affairs, we have John Kelly, deputy minister; and David Hagarty, assistant deputy minister. Welcome, Mr. Kelly and Mr. Hagarty.

With that, we'll start with the opening statements.

For the Government of Yukon, you have seven and a half minutes. Go ahead. The floor is yours.

[Matthew Ball, Director, Energy Mines and Resources Department, Government of Yukon]

Thank you, Mr. Chair.

I'm speaking to you today on behalf of Deputy Minister Paul Moore. With me today is Kirk Price, our director of agriculture.

We need not take up too much of your time today, but I wanted to ensure that the north was represented.

Yukon agriculture has been a key part of Yukon life for over 100 years. We import much of our food from the south—from Ontario, from Alberta, from British Columbia—but Yukon farms continue to fulfill the important role of providing fresh, healthy products to feed communities.

You'll find that there's a little bit of every farm across the country up here, albeit often on a much, much smaller scale. Yukon farm operators specialize in a variety of products—vegetables, fruits, dairy, eggs, honey, sod and bedding plants. Hay remains the largest portion of the Yukon's industry overall. Yukon producers breed and raise a variety of livestock as well, including cattle, pigs, sheep, goats, horses, ponies, llamas, alpacas, you name it. We also have bison and elk up here. Producers breed and raise poultry across the spectrum as well, with turkeys and eggs and so forth.

[The Chair, Liberal, Pat Finnigan]

Mr. Ball, can I intervene for a moment?

Is interpretation working correctly, Mr. Lehoux and Mr. Perron?

From what I understand, interpretation is not working at all.

We'll just check that.

Okay, hopefully it's fixed.

Give it a try again, Mr. Ball.

[Matthew Ball]

Thank you, Mr. Chair.

Our local products are found in the retail stores, at community markets and in our gourmet meals by our caterers and restaurants. Processing, what we're interested in today, is mostly focused on meat products in the north. We have both abattoir operations and butcher shops, but we also have processing of a number of other products, including berries and other vegetables.

One thing that's important in the north is our first nations. We have 14 first nations, 11 of which are self-governing. They have their own governments to run the areas under their jurisdiction and their activities on those areas and in the whole of the Yukon. Agriculture activities by Yukon first nations are really an important part of our community and a growing part of our community, including inroads into commercial production in recent years.

I want to pass the floor over to Kirk Price to talk a little bit more about abattoir operations and meat processing.

[Kirk Price, Director, Agriculture Branch, Government of Yukon]

Thank you, Matt, for passing that over.

Thank you, members of the standing committee. It's a pleasure to be here today and represent Yukon.

Just to build on what Matt said, the agriculture industry is small, but locally, it's very important for Yukon. This has become probably even more evident during the COVID-19 pandemic. There is a strong demand for Yukon locally grown and processed food. There is a strong support from Yukoners to have these things available for Yukoners.

I'll give you just a little history. Prior to 2006, our regional capacity for inspected slaughter of livestock was limited to one facility. It was located where it was relatively difficult to get animals to the abattoir and back out to market. In 2006, the Yukon government purchased the mobile abattoir to help facilitate farmers to raise livestock, and help grow and support that industry.

The current situation in Yukon is that we don't have any federally inspected meat for local abattoirs, but we do have territorial inspected meat. That works fine for our local industry, right now. Since 2006, we've seen a lot of growth, and it continues to grow. There's a lot of support, locally, for self-sufficiency and supporting local farmers. Today, we have two private abattoirs, and we still operate our one mobile abattoir around the south.

Just to give you context, we're not dealing in thousands or tens of thousands of animals; we're dealing with hundreds of animals. In 2020, partly due to the pandemic, we have seen a sharp increase in that. We've seen a 40% increase in red meat. Last year was the first year we had white meat abattoir ready to go, and we've seen an increase in production in that sense.

Our programs do support local meat production that we operate in Yukon, and it's basically to help increase our self-sufficiency. There's a lot of room for more local growth in the sector to feed Yukoners. As farms increase production, the need for processing facilities will continue to be a challenge for us in terms of these things. We're working with local farmers and our local agriculture associations to help overcome these challenges right now.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Ball and Mr. Price.

We'll go to the Food Processors of Canada.

Ms. Denise Allen, you have seven and a half minutes.

[Denise Allen, President and Chief Executive Officer, Food Processors of Canada]

Good afternoon, Chair and committee. Thank you for the opportunity to appear today.

I'm Denise Allen. I'm president and CEO of Food Processors of Canada. For more than 35 years, we have been the leading voice of Canada's food and beverage processing facilities.

The recent allowance of overconsolidation in Canada's grocery retail sector has resulted in only five retailers controlling more than 80% of what Canadians can purchase, placing our food system and supply at risk. This incredible imbalance has created an environment where retailers can arbitrarily impose increasing and unrealistic financial pressure on food producers and processors.

Not only are their business practices viewed as predatory during a national crisis, but, if left unchecked, these fees and fines will diminish Canada's ability to attract investment in food production and innovation, reduce our ability to compete effectively against large multinationals, eliminate selection and choice for consumers who wish to support local farmers and brands, and threaten our collective ability to protect our food sovereignty and security.

Retailers such as Walmart and Loblaws have adopted unfair and unethical business practices where our food producers and processors struggle to maintain output to ensure Canadians enjoy what they come to expect in their food system—safety, selection and quality products from Canadian brands they enjoy.

The scale of the retail fees and fines is both unprecedented and untenable. The recent fees imposed by Walmart and Loblaws companies alone will cost suppliers approximately $1 billion per year, and will ultimately pay for these retailers' infrastructure costs, while no return on investment or growth is provided to suppliers.

Further, the threat of retailers' escalation of fees and fines places Canada's primary producers at risk, as food processors purchase in excess of 40% of Canada's farm gate output, for which they add value and sell both domestically and internationally. Our landscape requires immediate intervention to protect future growth and sustainability for local and national food systems.

Recent months have emphasized how important it is for Canada's food supply chain to be resilient and robust. The COVID-19 pandemic highlighted potential risks and issues which indicate that our nation's reliance on imported food products leaves our population without access to vital processing infrastructure and allows for the potential of food disruptions as borders thicken and concerns over protectionism increase.

The current and ongoing crisis has forced us to examine all aspects of our food production and processing capacity. We have learned that Canadians want their food to be grown and processed at home and that they feel our government needs to increase its support for its agri-food sector.

Canadians feel that having a small number of grocery chains competing results in grocery prices being higher than they need to be, and at this time the same majority of Canadians feel that our current supply chain needs intervention. In short, Canadians understand and want a robust, competitive food sector to ensure food choice and supply.

Now is the time to consider our lessons learned in recent months and act to strengthen our domestic food system. It has become vitally important that we look to those practices of large grocery retailers to understand the severest threats to our food supply chain and act to ensure that more competitive, fair and accountable retail practices are enforced.

Retailers' use of arbitrary fees, fines and deductions from supplier payments is taking place while those same suppliers continue to produce food under a backdrop of reduced capacity to support social distancing on lines, increased operating expense to support PPE requirements and workplace safety, funding unplanned capital investment to support necessary infrastructure changes to plants and equipment, and creating incentives for workers during a national labour shortage.

Our current atmosphere of uncertainty will ultimately force small and medium-sized enterprises to reconsider their future if we do not rebalance the food system geared toward the runaway profit for only the large grocery retailers, which comes at the cost of farmers and suppliers.

The heavy-handed nature of these retailers must be addressed to ensure future investment in agriculture and agri-food business. Canadians want a balanced food supply. Retailers have aggressively and unilaterally dictated their terms, with no mechanism to allow suppliers to voice their concerns. Moreover, the disadvantage at which retail fees and fines place the suppliers extends to primary producers in a way that will see a reduction in farm gate output and consumer selection of food choices and a decrease in Canada's export capabilities.

Canadians do not wish to rely solely on food produced elsewhere. The current shape of Canada's food system must be changed to allow farmers and value-added food processors to continue to serve consumers in a way they both want and deserve.

Governments across Canada are committing to strengthening our food system. The recent Speech from the Throne indicated that investments would be announced to strengthen local supply chains here in Canada. Strong support from Canadians encourages a government role that would ensure there is a balance between our retailers and our agricultural and agri-food businesses.

A grocery code of conduct would be a key piece of legislation that would effect the change needed to establish fairness and accountability in grocery retail practice in Canada. Experience in other jurisdictions shows that significant grocery concentration requires a code to balance retailer-supplier relationships. Codes in countries such as the U.K., Ireland and Australia have been proven to improve competition and support greater collaboration in the broader supply chain.

The focus of the code would encourage good-faith negotiations between grocery retailers and their suppliers, reduce punitive penalties and create greater transparency and accountability. Even more interesting, after the legislative code was implemented in the U.K., prices for consumers decreased, and the industry culture shifted to one of collaboration and consumer focus.

We are respectfully calling on government to intervene and level the playing field, as this is the best way to address the inequities in the food supply chain that threaten investment and increase price inflation for the consumer. A legally binding and enforceable code to monitor, establish and enforce compliance is recommended. While changes to Canada's Competition Act may be helpful in addressing some issues, that is in no way a substitute for a code of conduct.

Constitutional jurisdiction for the development and implementation of a retail code of conduct falls within the provinces and territories; however, the federal government has a large and key role to play in establishing a code of conduct. First, the federal government must consider the importance of our sector to Canada's COVID-19 recovery and, in doing so, must consider a series of changes or enhancements to the Competition Act to enable the bureau to address anti-competitive behaviour of retailers.

I'll add a cautionary note, however, in that increasing the reach of the Competition Bureau to investigate anti-competitive behaviours is necessary, but that alone will not create the change required. Investigations are reactionary and prolonged. A proactive approach is preferred over a lengthy enforcement process, which may or may not address the root cause.

Other actions that will greatly assist fairness and accountability include conducting a study into the issue, establishing an industry working group, developing legislation in both the provinces and the territories, and structuring federal oversight to the provinces and territories' approach to establishing such legislation.

We are eager to work and partner with the federal government to this end, and I thank you very much for your time today.

[The Chair, Liberal, Pat Finnigan]

Thank you, Ms. Allen.

Now we'll go to the Ontario Ministry of Agriculture, Food and Rural Affairs for seven and a half minutes.

Go ahead.

[John Kelly, Deputy Minister, Ontario Ministry of Agriculture, Food and Rural Affairs]

Good evening, everyone.

Thank you very much for inviting me to speak before the Standing Committee on Agriculture and Agri-Food. I'm pleased to provide an overview of the Ontario food-processing and beverage-manufacturing sector.

I'd like to begin by expressing gratitude and acknowledging that we're on the traditional lands of the Anishinabe and specifically the traditional territory of the Mississaugas of the Credit First Nation.

We're in a unique time, with the COVID-19 pandemic. Nothing has shown how crucial the food supply system is more than the pandemic. Our food processors will be an integral part of our province's economic recovery from this outbreak.

I'd like to begin by highlighting some of the things we have in our food and beverage sector that make us part of the entire food sector.

The agri-food sector in Ontario supports more than 860,000 jobs and contributes more than [Technical difficulty—Editor] to the province's economy. In 2019, we had more than 4,400 food- and beverage-processing establishments in the province, the most in the country. [Technical difficulty—Editor] employs approximately 106,000 people. Many of the largest employers are international players. More than a quarter of the establishments in Ontario are in rural communities, as well. Among those establishments with employees in Ontario, the vast majority are considered either micro or small, with fewer than 100 employees.

Ontario is an ideal location for food and beverage processors. Our competitive advantages include quick and convenient access to major North American markets. There's a huge U.S. and Canadian population within a single day's drive of most processing plants in Ontario, including Chicago, St. Louis, Philadelphia, New York, Washington and Montreal. We have access to superior end-to-end supply chain solutions, including processing, packaging, specialized storage and transportation, in addition to 3.6 million hectares of cropland growing over 230 agricultural commodities. We have low corporate tax rates; we have a highly skilled, multicultural workforce.

We have capitalized on these assets to become one of the largest food- and beverage-manufacturing jurisdictions in North America, with annual manufacturing sales of more than $47 billion. The majority of Ontario’s agri-food products are value-added products, for example meat products and edible preparations like soups and sausages.

Our agri-food sector will be a critical contributor to the federal government’s goal of achieving $75 billion in exports by 2025. It's a strategic sector for us and an essential service that has the potential to take advantage of the opportunities in the growing local, national and global markets.

However, our sector faces a number of immediate challenges, including structural ones, as it struggles to remain competitive and innovative in this uncertain global environment.

Aging plants, outdated technology and inefficient equipment are limiting productivity growth and reducing our competitiveness. Some food and beverage manufacturers have plants that are 75 or 100 years old. Our capital investment in Ontario significantly lags that of other, competing jurisdictions, such as the United States, Germany and the Netherlands.

To match the level of annual capital of other countries, Ontario food and beverage manufacturers would have to increase their annual investment substantially. It's estimated that more than half of Canadian food-processing businesses are foreign-owned. While foreign direct investment is great and has increased, Ontario competes with head offices in other jurisdictions that make the investment decisions. As countries recover from COVID, there may be pressure for international companies to bring that money back and repatriate their investments to their home countries.

The majority of Ontario’s food and beverage manufacturers are small and medium-sized businesses and are not capturing the economies of scale that their much larger international competitors are achieving. Processors are also facing competitiveness from increasing input costs, such as those for energy, labour and raw materials, while being at the same time pressured by retailers to provide finished products and at lower cost, as the previous speaker alluded to. Of note, we are now seeing food processors asked to absorb additional fees to cover in-store upgrades and the shift to e-commerce.

Prior to COVID, industry reports indicated that 85% of food manufacturers struggled with labour shortages. This drives up the costs and also impacts upon their ability to operate at full capacity. COVID highlighted how reliant the agri-food sector is on labour and how vulnerable it is to labour disruptions.

Ontario typically brings in 20,000 temporary foreign workers to work in a lot of different areas, such as planting, growing and harvesting. Approximately 600 of these temporary foreign workers work directly in food and beverage processing. Disruptions early on in the pandemic generated real concerns for us that some of these crops would be affected by lack of labour.

We need to learn from the lessons of 2020 to ensure that workers can come to Canada next year without delay and do so safely. Outbreaks among employees at meat-processing plants, for example, caused temporary shutdowns, and measures had to be taken to slow the spread, resulting in reduced capacity. While less dependent on temporary foreign workers, the nature of the work of meat processing is made more prevalent through COVID when we have a serious spread.

Labour disruptions from the virus emphasize how dependent the sector is on labour. Other jurisdictions have made more advancements in automation, have reportedly struggled less and have had fewer production delays. The extended closure of even one large processor would have been a threat to the food security of Canadians and also to the income of our farmers.

In general, COVID-19 has put incredible strain on the food and beverage manufacturers, and it has exacerbated existing issues that I've already mentioned, such as aging infrastructure and lagging investment. Due to the pandemic and the rapidly changing market conditions that accompany it, some businesses are currently operating below capacity and/or have struggled to pivot towards retail, away from the struggling food services industry. Only time will tell if this is a temporary or permanent change.

The domestic supply chain has always been a priority. COVID-19 has revealed vulnerabilities and has exacerbated weaknesses that will not easily be resolved post-pandemic.

For example, when an entrepreneur fails in the U.S., the old adage there is to “try, try again” and celebrate the effort, whereas when an entrepreneur fails in Canada, it's not a mark of experience but solely one of failure. We need to enhance our risk tolerance for entrepreneurs and our acceptance of those.

To achieve the goal of increasing Canadian agri-food exports from $55 billion to $75 billion, as per the Barton report, requires major transformation in the sector. The industry needs to be aligned with future market needs, to scale up where possible, and to ensure its continued viability and success through improvements in competitiveness and productivity.

The same issue—

[The Chair, Liberal, Pat Finnigan]

I'm sorry, Deputy Minister, but the time is up. I have to go to the question round. I'm sure you'll have a chance to—

[John Kelly]

In fact, I was done.

[The Chair, Liberal, Pat Finnigan]

Okay, thank you so much.

We'll start our question round with Ms. Rood for six minutes.

Go ahead, Ms. Rood.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair.

My question is for Ms. Allen.

Ms. Allen, I've been hearing from farmers across my riding and across Canada and from processors that retail grocery giants are increasing the fees that they charge to the suppliers who sell them produce and process foods. I've heard that the retailers are asking suppliers to help them pay for things like store upgrades on their sales floors or on their digital capacity.

I'm wondering, what are some of the ways in which large retailers impose fees and fines on suppliers? What is their effect?

[Denise Allen]

There are a number of ways that retailers can enforce, place or shift their risk for innovation, development and capital plans to the supplier, and ultimately the primary producer—everything from short payment of invoices to penalties on fulfillment.

Right now order-in quantities on certain SKUs and categories are very erratic, and ordering systems are automated at the retail level; therefore, all of those algorithms that run those ordering systems are based on pre-pandemic levels. Ultimately, the supplier is penalized for the order quantity that has been ordered through those systems that haven't been adjusted for the current crisis. Another way is asking suppliers to disclose trade secrets in order to fund prices and promotions that are out of the suppliers' control.

Suppliers are very nervous about speaking up about these issues because they face the threat of the delisting of their product. There is no other way to get their product to consumers in Canada except for two selling channels, retail and food service. We know that food service is in a very, very hard way right now. Retail has become, effectively, one of the only selling channels in Canada. It's very concerning when a retailer has the power to delist a product.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

In my experience as a supplier of produce to some of the big, giant grocery retailers, one thing that's an impediment for farmers on the farming end is that sometimes we have to wait 90 days just to receive payment for the goods we've shipped. We've shipped perishable products. That's another impediment to add to your list there.

When the retail grocery giants are asking for these increased fees or when they impose these monetary payments or penalties on suppliers, most of the time a supplier can take or leave the option. What happens, in my experience, is that if you say, “I'm not going to supply to you because I can't afford the increases”, you can lose your entire business. That would be the same with processors, because you're dependent on these giant retailers for your income.

I'm just wondering, is there currently an appetite among grocery retailers to discuss these fees and fines and their effects on Canada's food supply?

[Denise Allen]

That's a very good point. Certainly I agree that the size and scale of the fees that are being imposed on suppliers, in some cases, represent the entire operating margin of smaller and medium-sized businesses. It becomes unprofitable very quickly. That business can shut down with one simple notice from a retailer.

We were recently encouraged, however, to see an interview by Michael Medline, the CEO of Sobeys, who has indicated publicly that he is open to discussing a retail code of conduct. I think it is critical that we have Canadian-based retailers who are willing to recognize the issue and work toward a better outcome for the consumers, ultimately.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Also, in reading through your brief, and as I've brought up in the House before, grocery consolidation right now is five major chains, which make up about 80% of the grocery business in Canada. From your perspective, on the federal government side.... I know you've talked about the grocery code of conduct, but that does fall under the purview of the provinces. We hope that maybe we can see the provinces work together with industry. I know a lot of folks in industry have called for a grocery code of conduct.

From a federal perspective, what would you like to see from the federal government? In regard to, perhaps, the Competition Bureau, what do you see as challenges that can be mitigated by the federal government on this issue?

[Denise Allen]

It's an excellent question.

We are calling on the federal government to help establish the framework that the provinces and territories can adopt, so that there's a consistent implementation of a grocery code of conduct that is ultimately enforceable across the country.

We think that the federal role is a key role in determining basically the ability to control price inflation for the consumer and to protect our industry and our primary producers who ultimately produce the food that ends up on grocery store shelves. Without that protection, without that grocery code of conduct, we are left to face and fight independently with large grocery retailers that have an enormous imbalance of power over our industry.

If our industry, which represents about 7,000 processing plants and 290,000 direct manufacturing jobs in Canada, is not protected and allowed to grow at the same pace, that will ultimately affect farm gate output and the ability of farmers to get their product to market as well.