Agriculture Committee on Oct. 8th, 2024

[The Chair, Liberal, Kody Blois]

I call this meeting to order.

Welcome to meeting number 112 of the House of Commons Standing Committee on Agriculture and Agri-Food.

This is not your first rodeo, colleagues, so I will not repeat the reminders. However, there a couple of things I want to highlight.

You'll notice that this is a different sound system. These microphones are different from the ones we're used to. I've been told that you need to speak directly into the mic—not over here and not on this side, but right into the mic to the extent that you can. Of course, I'll remind you to keep your distance from our translation pieces for the benefit and the health of our translators.

That's what I would say in relation to measures that you need to be aware of.

Pursuant to Standing Order 108(2) and the motions adopted by the committee on Thursday, February 8, 2024, and Tuesday, September 24, 2024, the committee is resuming its study of the impact of carbon border adjustments and reciprocity of standards on Canadian agriculture.

We have two full panels today. I'm really excited to get at this.

First, from the agri-food analytics lab at the beautiful Dalhousie University in Nova Scotia—it looks like he might be joining us from Nova Scotia—we have Dr. Sylvain Charlebois, who is the senior director of agri-food analytics lab and a professor.

From the Canada Organic Trade Association, we have Tia Loftsgard, who is joining us here in person. Thanks for being back, Ms. Loftsgard, before the committee, and thank you for your work on behalf of the organic sector.

From the International Institute for Sustainable Development, we have Aaron Cosbey, who is a senior associate, joining us by video conference. It's great to see you. Thank you for your time today before the committee.

Colleagues, you know the drill. We're going to have five minutes for opening remarks from each witness, and then we'll turn it over for questions.

I'm going to start with Mr. Charlebois for up to five minutes, please.

[Dr. Sylvain Charlebois, Senior Director, Agri-Food Analytics Lab and Professor, Dalhousie University, Agri-Food Analytics Lab]

Thank you, Mr. Chair and members of the committee, for inviting me again to speak today.

Unfortunately, I couldn't make it to Ottawa. I'm actually in Calgary, Alberta, where the weather is nicer than in my hometown of Halifax, by the way, so I'm enjoying the weather here in beautiful Calgary, Alberta.

This issue is quite important. Border reciprocity when it comes to trade is critical, especially when our nation is trying to make our world greener through different policies like the carbon tax. It's important to understand exactly how this policy is impacting our agri-food sector's competitiveness.

I've said this before at this committee—twice already, I think. Instead of looking at retail prices or the retail landscape, it's critical to look at the supply chain and wholesale prices. If you look at figure 1 in the document I sent to the committee along with my opening remarks, you will see a huge difference in the wholesale prices you find here in Canada versus those in the U.S.

Since 2019, when the carbon tax was implemented, food wholesale prices in Canada have actually increased by 37% more than in the U.S., which is significant. In other words, our wholesale prices are now less competitive than prices you find in the U.S., and that's due to several policies. Of course, it's hard to isolate the impact of the carbon tax as a coefficient, but we can still speculate that the carbon tax did not help our cause.

Since April 2019, Canada's RSPI, or retail services prices index, has increased by approximately 32.47%, while wholesale prices in Canada have increased by 42.26%. If you look at figure 2, you'll see that there's basically no gap between wholesale and retail anymore. Wholesale food prices are putting way more pressure on retail, making our food essentially more expensive. Now, again, you could speculate that wholesale prices are being pushed up by policies like the carbon tax.

In the United States, the pressure from wholesale producer prices, which they call the PPI, is passed on more directly to consumers, with a more immediate reflection of rising costs at the retail level. This suggests that in the U.S., contrary to in Canada, retailers may have more of a buffer or are more inclined to adjust consumer prices in response to producer price increases.

If you look at figure 3 in the document I sent, you'll see there's a huge difference between the U.S. and Canada. When you think about border reciprocity, you have to look at both landscapes and how they're behaving very differently right now. In other words, just looking at the data right now, Canada is put at a disadvantage over the United States.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Mr. Chair, can we have a point of order when we have a witness?

[The Chair, Liberal, Kody Blois]

Not unless it's in relation to a technical issue.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

I was just wondering what study he was talking about.

[The Chair, Liberal, Kody Blois]

I've stopped the clock, Mr. Charlebois.

It isn't a point of order. What he's referencing, Ms. Taylor Roy, is a document that was sent and distributed to the committee, I believe.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Right, but what does it have to do with...?

[The Chair, Liberal, Kody Blois]

Ms. Taylor Roy, I apologize. It was not distributed.

Mr. Charlebois, I think there was an issue with the linguistic translation. We're making sure that we're getting that dealt with. I don't know if all members have reference, exactly, to the tables that you're...but that's fine. We'll be able to move forward.

Go ahead, Mr. Charlebois, over to you.

[Dr. Sylvain Charlebois]

My apologies to members, I didn't know that you didn't have my notes in front of you.

Essentially, the core of my message is that wholesale prices in the U.S. are moving at a much slower pace than in Canada right now, putting more pressure on retail. Of course, you can speculate that the agri-food sector in Canada is less competitive than the U.S., so if you are to think about policies to make sure that there is border reciprocity between two nations.... I'm just looking at the U.S. right now because the U.S. is so close to us. Of course, you will need to implement tariffs, and that's highly desirable when you think about food security in Canada, because tariffs tend to have an impact on inflation domestically.

With lower and no federal carbon pricing in the U.S., American food producers are not burdened with the same environmental costs, creating an uneven playing field in the North American market. We often talk about benefits given to farmers and different stakeholders across the supply chain. Even if you provide financial support to different stakeholders in the supply chain, you still will see inflation and increasing costs because of the compounding impact throughout the supply chain, making, again, the agri-food sector less competitive overall.

The issue is not just about direct financial burdens but also about the systemic cost increases across energy, transportation and input supplies, which enhance inflationary pressures across the board. These increases, even when partially mitigated by government programs, still make the Canadian food industry less agile and competitive on the global stage. The carbon tax likely adds a significant cost burden to the Canadian food industry that is not faced by U.S. producers, making Canadian products more expensive and less competitive, both domestically and internationally.

On that note, I will stop. Thank you, Mr. Chair.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Charlebois.

We'll now turn it over to Ms. Loftsgard for up to five minutes.

[Tia Loftsgard, Executive Director, Canada Organic Trade Association]

Good afternoon, Mr. Chair, and members of the standing committee.

Thank you again for inviting the Canada Organic Trade Association to present. We are also called COTA, so if I'm quoting our acronym, you'll know COTA. We also run the technical advisory committee on organic equivalency to ensure that organic standards align with our trading partners internationally.

It's an honour to share our perspective with you here today. Our mission, of course, is to promote and protect organic practices, while fostering a fair and competitive environment for organic trade.

Since 2009, organic has emerged as the most recognized and regulated agri-food sustainability claim in Canada. We've established very successful organic equivalency trade arrangements in over 35 countries, and we adhere, of course, to the joint FAO and WHO food standards program for codex and organically produced foods.

Over the past 15 years of being regulated by the federal government, these arrangements have eliminated the need for duplicate organic certifications, resulting in reduced costs for Canadian organic operators, strengthening our trade relations with our key trade partners and significantly increasing exports and imports of Canadian products.

While COTA does not have a formal position on border carbon adjustments, we recognize that various jurisdictions are exploring these measures to promote climate resilience. We, Canada, must monitor these actions in order to ensure a fair trading environment for our products and to avoid punitive actions that could undermine the competitiveness and financial stability of our farmers. It's important that any approach adopted consider the diversity of practices in Canadian agriculture.

The already-regulated nature of the organic sector presents a unique opportunity for Canada to negotiate zero tariffs on organic goods in the event that our trading partners implement BCAs. Given that organic is a “regulated claim” with established trade arrangements and that organic practices are defined by standards that reduce carbon emissions—such as using 50% less new reactive nitrogen through the prohibition of most synthetic inputs and promoting careful nutrient management to prevent fertilizer overuse—organic products should be exempt from any BCA tariffs in the global trade arena.

In the context of this study, the organic sector exemplifies how reciprocity arrangements can be structured around sustainable agriculture. Even with established reciprocal standards, there is a pressing need for supports to keep our sector competitive. Other regions, notably the EU and the U.S.A., are heavily investing in organic agriculture as part of their climate goals, adopting a “carrot approach” to encourage sustainable practices and outcomes.

In contrast, Canada lacks these explicit policy directives and comprehensive support and funding mechanisms for organic growth, putting us at risk of losing our competitive edge. Each of our trading partners has enacted an organic act, which emphasizes and incentivizes market opportunities, rural development benefits, and pathways for small-to-medium operators to thrive, while reaping the environmental benefits of organic production.

Canada's regulatory framework must evolve. We've had 15 years of being regulated by the federal government, but we still see an absence of an organic act and a cohesive strategy for the sector's growth, which hampers our ability to export, to convert farmers with suitable incentives and training, and to meet that growing demand for organic products, including those beyond the scope of the CFIA's enforcement, which are items like pet food, cosmetics, textiles and more.

To summarize, I have three main points.

We need to see more regulatory alignment and investment. Ongoing regulatory alignment and market investment in the organic sector are vital. The European Union is the first jurisdiction to amend their organic arrangement into a formal trade agreement, which is happening near the end of this year. As organic trade matures, other countries may follow in adopting formal trade agreements. Canada's organic monitoring systems need improvements to navigate the complexities of trade and maintain the trust of our trade partners.

Number two, we'd like to see the creation of an organic act for Canada. We need to prioritize the establishment of an act that has a broader strategy to promote the growth of the organic sector. This act would eliminate existing silos and provide necessary policy direction for the sector to reach its full potential and effectively respond to market demands. Remarkably, Canada is the only major country without a distinct organic act.

If our trading partners implement carbon border adjustment mechanisms, organic products should be exempt. This is my third point. We can leverage existing trade arrangements that demonstrate the reciprocity and equivalency of our organic standards and practices. With ongoing consultation with the organic sector and other agricultural stakeholders, this is necessary for us to cultivate success.

There's strong consensus among the agricultural community that federal investments in economic incentives, knowledge transfer and data are urgently needed. Improved data measurement at the farm level, in addition to organic trade data, is needed to measure sustainability, outcomes and validity and to monitor our competitiveness, risks and successes within the organic sector. These investments are essential for supporting farmers, ranchers and fishers in adopting high-resilience, low-emissions practices and enabling manufacturers to prioritize organic suppliers over cheap imported organic products.

Thank you very much for your time.

[The Chair, Liberal, Kody Blois]

Thank you very much.

We'll now turn it over to Mr. Cosbey for up to five minutes, please.

[Aaron Cosbey, Senior Associate, International Institute for Sustainable Development]

I'd like to thank the standing committee for this opportunity to intervene on this important subject.

My name is Aaron Cosbey. I'm trained as an economist, and I'm a senior associate with the International Institute for Sustainable Development based in Winnipeg. I'm also a senior fellow at the European Roundtable on Climate Change and Sustainable Transition. In both of those capacities, I've done extensive analysis and policy advice around the EU's carbon border adjustment mechanism, or CBAM, and other proposed border carbon adjustment schemes.

The EU's CBAM, to put it in context, is part of the EU's broader suite of climate-related policies, the so-called “fit for 55” package. It's meant as an accompaniment to the strengthening of the EU's emissions trading system, its ETS. That's a cap-and-trade scheme that limits GHG emissions, or greenhouse gas emissions, within the union. Part of the strengthening involved is removing what's known as free allocation of allowances for the covered sectors. That is, while all sectors have to submit allowances for the GHGs that they emit under the scheme, in some sectors, many of those allowances are provided for free. These are heavily allocated to emissions-intensive, trade-exposed sectors like steel, aluminum, nitrogenous fertilizers and cement, and the point of that is to avoid what's known as carbon leakage.

Just to take a small side trip to talk about carbon leakage, this is what occurs when climate policies in a jurisdiction like the European Union cause greenhouse gas emissions to rise outside of the European Union. This can happen because the regulated installations in the EU lose market share to competitors in jurisdictions that don't have a carbon price. Canada has a similar mechanism built into its federal output-based pricing system. It only charges for emissions above a designated sectoral standard and not for all emissions. There's a similar mechanism built into all the provincial-level industrial pricing schemes. The point is to keep average costs low while maintaining a high marginal cost that still incentivizes decarbonization.

The EU has declared that it will, by 2034, remove all of these free allocations and impose a full carbon price on its producers and, ultimately, its consumers. As free allocation phases out between now and then, the CBAM is going to phase in. The CBAM is an obligation on importers to purchase allowances for each tonne of greenhouse gases embodied in the goods that they import at the same price as they would have had to pay had they been produced under the EU's ETS. These changes are going to start in 2026. We're currently in a transition period, but the charges will start in 2026 at very low levels as free allocation gradually reduces, and they'll ramp up to full value by 2034.

The EU CBAM covers five goods plus electricity, and those are iron and steel, cement, nitrogenous fertilizers, aluminum and hydrogen. These are the usual suspects of industrial decarbonization, and they're covered at the level of basic and slightly processed materials. We're talking not about an automobile but about basic iron and steel, rolled tubes and pipes.

The emissions that are covered are not just direct emissions from the exporters' operations, which are so-called scope 1 emissions, but also emissions embodied in purchased electricity, in the case of cement and fertilizers, and, importantly, emissions that are bound up in any of the CBAM-covered input goods; if you're a steel pipe producer, you're paying for the emissions in the steel that you purchased. This is important: Agricultural goods are not covered, and that means there's also no need to declare emissions, for example, embodied in agricultural goods from upstream inputs like nitrogenous fertilizers.

There is a commission review due in 2025 that's going to make recommendations about expanding the scope of the CBAM coverage, but it is almost inconceivable that it would recommend covering agricultural goods. Frankly, they're having a hard enough time implementing the regime even for the goods they currently have covered. More importantly, the CBAM is only going to be charging for goods that are also covered by the EU ETS; that is, the CBAM is a mirror of the EU ETS at the border, and the current ETS does not cover agricultural goods.

While the EU does have other policies that may significantly affect Canadian exports, and I think the members of the committee know that as well as anyone, such as the farm to fork regulations, and perhaps even the EU deforestation-free products regulations and other more long-standing policies, the CBAM does not appear to be an immediate threat to our export of agricultural goods.

There are many other CBAM-like initiatives in other jurisdictions. The U.K. has declared that it's going to impose a CBAM by 2027. Australia is wrapping up its review that may recommend a version there. The U.S. has had, at any given point in the last decade, four or five bills before Congress that proposed to put a carbon price on imports of some kind, even though the U.S. doesn't have a domestic price.

While it would be prudent for Canadian exporters to carefully monitor these developments, none of them at this point propose to cover agricultural goods. For me, having covered this for a while, I find it inconceivable that they ever would.

In conclusion, in my view, the EU CBAM is not a particularly threatening policy development from the perspective of Canadian agriculture and agri-foods.

I thank you for your attention and look forward to questions.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Cosbey.

We'll now turn it over to questions.

We'll begin with Mr. Barlow, for six minutes.

[John Barlow, Conservative, Foothills, AB]

Thank you very much, Mr. Chair.

Thanks to our witnesses for being with us today. I appreciate the testimony of our experts here.

It's clear that when we had our department leads here last week, they were also unsure of how this would work. There were many questions on whether this was something that was actually achievable, having a CBAM on agricultural products. As a matter of fact, Global Affairs has even refused to appear at this committee to talk about this issue. I think that is a pretty sad testament that our own departments are unprepared to deal with this issue. The government is bringing this forward as a study at this committee when even its own department heads don't seem to be prepared, and one does not want to even appear.

To Mr. Charlebois, when we did ask finance about the possible implications of imposing a carbon border adjustment in Canada or looking at doing so....We already know the costs of the carbon tax on Canadian consumers. Even to administer, just on the government side, it is $83 million annually. We asked the finance department, “What would be the impact of a carbon border adjustment? How would it be financed and administered? What would be the impact on the agriculture industry?” Her answer was that it would be intense.

Knowing the work you've done on the impact the carbon tax is having on food prices—and I know this might be difficult to answer—in your assessment and expert opinion, what would be the possible consequences of implementing a carbon border adjustment on Canadian agriculture?

[Dr. Sylvain Charlebois]

I would be extremely concerned, given the past record of the government in not measuring anything really related to the agri-food sector, so we would go in very blindly to something yet again quite new. That, to me, would be quite concerning.

I did talk about this. The competitiveness of our industry is being jeopardized by not focusing on competitiveness and by not measuring the impacts of certain policies that we implement.

Also for Canadians, tariffs will have an impact on competitiveness inside our own borders on retail. The Americans are having the same conversation right now with their presidential election, because both parties are talking about tariffs. It will be the same in Canada.

[John Barlow, Conservative, Foothills, AB]

Thank you for that.

We have had some questions from our colleagues in the government questioning the validity of your statistics. I saw on your social media the other day that the carbon price is increasing the price of wholesale food in Canada in every category by more than 30%, and food inflation in Canada is about 37% higher than the United States.

I want to confirm with you that those numbers are correct. As a professor at Dalhousie University and a pre-eminent food expert in Canada, are those numbers that you have stated correct? Is the impact of the carbon tax on Canadians quite significant in a negative way?

[Dr. Sylvain Charlebois]

Absolutely. The numbers are correct, but the interpretation of those numbers would need to be corrected.

The U.S. numbers are coming from the Federal Reserve Bank of St. Louis, and the data in Canada comes from Statistics Canada. It would be a little premature to say that the carbon tax is solely responsible for the difference between the two nations.

What we're speculating is that perhaps the carbon tax could be a factor, but we don't know for sure to what extent. That would need to be clarified.

[John Barlow, Conservative, Foothills, AB]

Thank you very much for that.

I saw a news report this morning, when I was walking to my office, which I found to be quite surprising to be honest. Canadian doctors are warning their colleagues about the potential of having scurvy once again in Canada. That is not something I ever anticipated I'd have to deal with. They were saying this is as a result of a vitamin C deficiency, and Canadians not eating enough healthy food. Again, they attributed that to the high cost of groceries.

I think we have to look at every aspect that's potentially driving up the cost of food for Canadians. We're seeing two million Canadians going to food banks. I know this isn't necessarily about a carbon border adjustment, but any additional impediments we put on our agriculture industry, processors and manufacturers are going to have an impact.

Are you surprised to see a headline like that, or is this not surprising to you, who has followed this closely?

[Dr. Sylvain Charlebois]

I actually read the report. I'm very concerned, but unfortunately I'm not surprised either.

We're releasing a report on Thursday about food expenditures in Canada. Retail-wise, food expenditures have remained flat despite higher food prices. This only means that people are avoiding the periphery of the store where fresh products are. It's where good vitamins and minerals are, including vitamin C. People will go to the centre of the store to escape from inflationary pressures. That's exactly what's happening right now. A lot of families are facing that reality.

The last thing you need to do is put more pressure on the border to make food even more expensive in Canada.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Barlow.

Thank you, Mr. Charlebois.

Ms. Taylor Roy, you have the floor for six minutes.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you very much, Mr. Chair.

Thank you to the witnesses for being here and for being here in person.

I'd like to start by making sure that our witnesses understand that this study was initiated to look at what competitive position the Canadian agriculture sector would be in if the EU or the United States continues to go in the direction of carbon border adjustment mechanisms and expand that to agriculture.

We've heard that you don't think that's very likely. I appreciate that.

I just also wanted to go back to some of the original things that were mentioned in terms of vitamin C and scurvy. It sounds like a nuclear winter kind of scenario again.

When we had another study, I remember somebody came in and said that the increase in the price of, for example, orange juice and oranges or produce was largely due to climate events. It was the drought in California or in Florida, for example, or the diseased romaine lettuce that had caused great spikes.

I do recall, Mr. Charlebois, that you talked very much about the fact that price volatility is the problem. That seems to be more a factor of droughts and other climate events than it is of a regularly scheduled increase in a price on pollution. I'm very glad to hear you say that you only speculated, that there's no proof and that there are a lot of other factors contributing to this.

I would like to ask this in terms of the point of this study, which is the possibility of the CBAM. We're not looking at introducing one. We are trying to assess what our competitive position would be if other countries put this in place.

Given that and what we know about our Canadian agricultural sector, and in particular the organics, do you think that Canada would benefit competitively when we compare Canadian agriculture practices to those around the world if the EU or the United States were to put in a carbon border adjustment mechanism on agriculture?

Perhaps we could start with the International Institute for Sustainable Development.

[Aaron Cosbey]

That's an excellent question.

In that hypothetical situation, the impact would depend on the relative GHG intensity of Canadian and U.S. or Canadian and EU production. If Canada, for example, was a lower GHG-intensity producer of wheat than U.S. producers, we would actually benefit from a border carbon adjustment imposed by the U.S., which would presumably put a price on carbon on U.S. production and impose one on Canadian production.

Now, the devil is all in the detail. It's unlikely that a U.S. proposal would put a price on U.S. production. If we're talking about a hypothetical charge on all imports entering the U.S., including agricultural goods, obviously we would suffer from that.

If we're talking about a CBAM-like mechanism, which is a more fair mechanism and which imposes a domestic price, and let's say they impose the price on their agriculture and mirror that price at the border—that's what a real border carbon adjustment is supposed to do—then again, it would depend on the relative GHG intensity of Canadian and EU production.

I'm not an expert in that area, but I know that EU agriculture is not particularly low-cost agriculture. I know also that the CBAM credits for carbon price paid in the country of export. Canadian agriculture.... In all of the other sectors I've examined that are covered by CBAM, Canada does well. Agriculture may be the same.

You have to do a quantitative analysis to answer authoritatively, though.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you very much.

We've heard and seen from Canadian agriculture producers whom we've had as witnesses here that the Canadian agriculture sector is indeed one of the most environmentally friendly in many ways. There are a lot of practices that could be extended across the board.

Ms. Loftsgard, or Tia, if I could call you that, you were talking about organics. I'm assuming, given what you've discussed and the way that organics are already regulated and produced, that the organic sector would do very well compared to the carbon intensity of organics produced in other areas like the United States, for example.

[Tia Loftsgard]

When it comes to organic products, unfortunately, they're a bit different from other forms of agriculture because they already have the built-in standards that are really focused on low-carbon emissions, nitrogen and avoidance of synthetic pesticides, which, of course, are things contributing to some of the carbon issues. What we see happening in other jurisdictions are very progressive policies, where they're trying to incentivize organic as one of the solutions. Instead of putting the stick, they're putting the carrot.

From our perspective, we imagine our trading partners would agree that, if they were to do a border carbon adjustment, organic should not be a part of that element. Let's hope for that, anyhow.