Agriculture Committee on Oct. 10th, 2024

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

I'm just wondering what the ceremony would look like and what the length of it is. You can make me vice-chair for life.

[The Vice-Chair, Conservative, John Barlow]

I just hope you have a dry suit for when you actually take the chair, because there may be a dunking of some sort involved.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Oh, I thought there was a sword.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much.

We will suspend for a couple of minutes. Don't go far. We'll get the next group of witnesses up as quickly as possible.

[The Acting Chair, NDP, Richard Cannings]

I call the meeting back to order.

I'd like to welcome everybody back to the Standing Committee on Agriculture and Agri-Food and our study on the impact of border carbon adjustments and the reciprocity of standards on Canadian agriculture. It's our second panel of the day.

With us today we have Kyle Larkin, the executive director of the Grain Growers of Canada. It's good to see you, Kyle. I know you from the beer industry; you're moving back to the basics.

From the Canola Council of Canada, we have Troy Sherman, the senior director of government and industry relations.

From Producteurs de grains du Québec, we have Benoit Legault, general manager, who's joining us by video conference.

We also have the Producteurs de légumes de transformation du Québec and Pascal Forest.

Welcome all.

We're going to start with some opening remarks. You will each have five minutes to make some opening remarks and then we'll turn to questions.

We will start with Mr. Larkin. Go ahead.

[Kyle Larkin, Executive Director, Grain Growers of Canada]

Thank you, Mr. Chair, and thank you to the members of the committee for inviting us.

My name is Kyle Larkin. I am the executive director of Grain Growers of Canada. We are the national voice for 65,000 cereal, oilseed and pulse producers across the country. As a farmer-driven association for the grain industry, GGC advocates for federal policy that supports the competitiveness and profitability of grain growers across Canada.

Canada's grain sector is fundamentally tied to international trade. In 2023, production by Canadian grain farmers resulted in 55 million tonnes of grain and grain products exported to over 150 countries globally, generating $40 billion in revenue. This trade fuels our economy and is the livelihood of thousands of farm families across the country.

By adhering to and supporting the WTO's rules-based trade framework, we have established long-standing relationships with countries around the world that depend on Canadian grain to meet their food demand needs. These partnerships are essential not only for our agricultural sector, but also for global food security, which highlights the importance of maintaining open and fair trade channels.

As it relates to carbon border adjustment mechanisms, we urge the government to exercise extreme caution for two reasons. First, we are concerned about the mechanism's impact on Canada's international trade. Second, we are troubled about the impacts it will have on input prices for thousands of farmers across Canada.

From an international trade perspective, implementing a carbon border adjustment may be perceived as protectionist by our trading partners, potentially leading to retaliatory measures that could disrupt established trade relationships.

Our partners at the Canadian Agri-Food Trade Alliance, CAFTA, articulated before this committee two weeks ago that, “It is essential that sustainability measures do not become barriers to fairer and freer international...trade or do not serve as cover for protectionist trade policies.”

We are in complete agreement with this statement.

Furthermore, the landscape of international trade is already fraught with differing standards related to carbon accounting, which not only complicates compliance for exporters, but also could further strain relations between trading partners. These discrepancies could impose an administrative burden on businesses and other countries.

Any carbon border adjustment mechanism under consideration should be developed multilaterally, ensuring that it aligns with WTO obligations and adheres to rules-based trade principles. Seeing that the United States is our largest trading partner for grain and grain products, it must also align with American policy.

We are also concerned about how a carbon border adjustment mechanism could impact input prices, such as fertilizer and equipment for farmers. When we consider fertilizer, Canada heavily relies on imported fertilizer from other countries. In 2022, we imported over $3 billion worth of fertilizers, which are essential for growing the crops Canadians and the world rely on.

With a CBAM in place, prices for essential inputs to grow crops could skyrocket, further straining Canadian grain farmers, who are already facing rising input costs, declining revenues and increasing taxes.

Over the past five years, Statistics Canada has reported a staggering increase in the farm input price index. Total farm costs have surged by more than 40 points, from 116 in 2019 to 157 by the end of 2023. Canadian grain farmers simply cannot bear more financial pressure from increased input costs driven by additional costs at the border.

In conclusion, we urge the government to exercise caution and carefully evaluate the potential unintended consequences of implementing a carbon border adjustment mechanism. Any Canadian CBAM should prioritize our global competitiveness and be crafted to align with the standards recognized by our major trading partners.

Thank you. I'd be happy to take questions.

[The Acting Chair, NDP, Richard Cannings]

Thank you, Mr. Larkin. You're well under time, so that's much appreciated.

Now we'll move to Mr. Sherman for five minutes.

[Troy Sherman, Senior Director, Government and Industry Relations, Canola Council of Canada]

Thank you, Chair and members of the committee, for the invitation to join you today, along with my colleagues.

My name is Troy Sherman, and I am the senior director of government and industry relations for the Canola Council of Canada.

The Canola Council is a full value chain organization, representing approximately 40,000 canola farmers, as well as exporters, processors and life science companies.

As a value chain organization, our goal is to ensure the industry's continued growth and success, and to do this by meeting domestic and global demand for canola and canola-based products, which include canola seed, oil and meal.

Canola's success is Canada's success. Our industry represents almost $30 billion in economic activity annually, supports over 200,000 jobs across the country, generates $12 billion in wages and is one of the largest sources of farm cash receipts.

International trade is vital to the success of the industry. Approximately 90% of canola products are destined for international markets, with exports totalling $15.8 billion in 2023 alone.

Given the significance of exports to the canola industry, trade mechanisms, such as border carbon adjustments, must be carefully considered before being implemented in Canada. While the stated intent of border carbon adjustments is to largely reduce carbon leakage and maintain the competitiveness of domestic industries, the government should proceed with caution as this policy approach is not without risk.

There are at least two key considerations that Canada must weigh, should it consider implementing border carbon adjustments.

The first is the trade implications for border carbon adjustments and their potential impact on Canada's trade policy and international reputation. As an industry that relies heavily on export markets, we are cognizant of ever-changing trade dynamics and, in particular, measures that could impede market access. Current market and geopolitical headwinds underline this exposure and the importance of market access in key jurisdictions.

Border carbon adjustments and potential corresponding import charges and export rebates, depending on how implemented, could result in countries taking action against Canada at the World Trade Organization, or pursuing unilateral action as a form of retaliation to limit our access to those markets. This would not be an acceptable outcome for the Canadian canola industry.

As a result, Canada must thoroughly assess if any potential border carbon adjustments are compliant with its WTO obligations. Respecting and upholding rules-based trade is central to Canada's trade policy, and any policy mechanism designed to avoid carbon leakage should be aligned with Canada's international obligations.

To this end, the Canadian Agri-Food Trade Alliance, of which the Canola Council is a member, recently developed principles for sustainable trade that could serve as a valuable reference and provide appropriate guardrails for policy development. Among other things, these principles emphasize the importance of alignment with WTO principles, obligations and measures that are not barriers to freer and fairer international agricultural trade. Any deviation from Canada's obligation in this regard would further undermine the rules-based trade system.

The second consideration relates to administrative burden. The administrative burden associated with developing and implementing border carbon adjustments must be weighed against the theoretical benefits of these mechanisms. Specifically, any additional administrative burden associated with carbon pricing mechanisms must be avoided. The canola industry specifically and the grain sector generally cannot afford additional administrative burden in the face of increased global competition and volatility.

Knowing this, it is our recommendation that the government not move forward with the border carbon adjustment policy in Canada until considerations related to international trade and administrative burden are properly studied and addressed.

I would like to thank the committee again for its invitation to appear today. I would be pleased to answer any questions the committee members may have.

[The Acting Chair, NDP, Richard Cannings]

Thank you, Mr. Sherman.

We will now hear from Benoit Legault for five minutes.

[Benoit Legault, General Manager, Producteurs de grains du Québec]

Thank you, Mr. Chair.

My name is Benoit Legault, and I am the general manager of the Producteurs de grains du Québec, or PGQ. We appreciate being invited to appear before the committee today.

By way of background, the PGQ is a provincial organization that represents some 9,500 grain producers in Quebec, who grow five million tonnes of grain on a million hectares of land. They sell two billion dollars worth of grain, around $500 million of which is exported. It's worth noting that about $500 million of the grain we sell supports the pork industry, which exports the vast majority of its production.

I would like to share our findings and recommendations regarding the border carbon adjustments. It's important to keep in mind a few principles the PGQ sees as key. We are in favour of policies that help Quebec's grain growers compete and be profitable. That is a prerequisite for the survival and, of course, sustainability of their businesses. As I said, Quebec's grain farmers rely heavily on international trade, and thus support preserving open and fair trade.

In terms of carbon pricing, Quebec has the carbon exchange system. I must say, it's having a very negative impact on grain growers currently, and it will only get worse with the cost of the credits going up. In no way does the money accumulated under the current system help the grain sector adapt or meet the challenges of reducing its carbon footprint. As you know, these costs can't be passed on to grain purchasers.

Now I will turn to the border carbon adjustments, specifically. We aren't experts on the adjustments previously announced by the government when the carbon policy was introduced. We really have no idea how all this is going to play out when it comes to measuring the carbon footprint of products from various countries, ensuring fairness under international climate agreements—which place more responsibility on certain countries—or managing the revenues associated with the adjustments.

Our observations at this point lead us to believe that the policy will apply mainly to products with a larger carbon footprint. In theory, it won't apply to imported agriculture and agri-food products, and certainly not those we're competing with in export markets. We are therefore calling on the government to be very careful in order to avoid, one, destabilizing international trade with our partners and, two, increasing input costs or access to imported inputs under any policy being considered. As you know, Quebec is extremely reliant on imported agricultural inputs, and we are still dealing with the hardship and costs stemming from the import restrictions on Russian agricultural inputs.

In closing, I want to leave you with another important point. Any border carbon adjustment mechanism should be developed in a multilateral way, in keeping with WTO obligations—which is very important—and rules-based trade principles. In the PGQ's view, that should have been the case when the carbon policy was introduced.

Overall, that is what I wanted to convey at this initial phase. Thank you.

[The Acting Chair, NDP, Richard Cannings]

Thank you, Mr. Legault.

Mr. Forest, you may go ahead. You have five minutes.

[Pascal Forest, President, Producteurs de légumes de transformation du Québec]

Thank you, Mr. Chair.

Committee members, my name is Pascal Forest. I'm a producer of fresh and processed vegetables in the Lanaudière area. I'm also the president of the executive committee of Producteurs de légumes de transformation du Québec and a member of the board of directors of Fruit and Vegetable Growers of Canada.

I want to thank the committee for giving me the opportunity to speak about issues of great concern to Quebec's agricultural sector and to Canadian producers in general. The committee has fittingly chosen to look at border carbon adjustments at the same time as reciprocity of standards for Canadian agriculture. From our perspective, these are two sides of the same coin.

In principle, border carbon adjustments, or BCAs, involve applying an adjustment, meaning a tax or rebate, to traded goods based on their estimated greenhouse gas emissions. Again, in principle, this adjustment would make it possible to take into account differences in emissions reduction policies around the world. As other witnesses told you, BCAs haven't yet been introduced in any other part of the world and they aren't being considered for agriculture. There are many reasons for this, including the lack of a credible and cost‑effective global compliance system.

Closer to home, the diversity of carbon pricing systems, such as Quebec's cap‑and‑trade system, would make benchmarking difficult or even impossible. We may want to revisit this issue in the future. However, today, if we want to discuss how best to mitigate the market distortions resulting from carbon reduction efforts, we must focus on the far better policy and regulatory regime governing American agriculture.

In their testimony last week, my colleagues from the Association des producteurs maraîchers du Québec already pointed out many differences between the Canadian and American regimes and their impact on our competitiveness. I won't repeat them this morning. I do want to be clear. The competitive imbalance between Canadian and American producers resulting from our countries' respective carbon reduction policies poses a real and growing threat.

American farmers are benefiting from the $20 billion allocated under the American inflation reduction act to support their transition to net‑zero practices. In Canada, we're facing rising input costs brought on by carbon pricing. This imbalance will only get worse. If the issue remains unresolved, over the coming years, Canadian producers will continue to drive innovation to reduce their carbon footprint and production costs, but will see input prices continue to rise. In turn, American producers will boost innovation and reduce their carbon footprint while cutting production costs as a result of the support from their federal government.

If this imbalance isn't urgently addressed, American producers will benefit from cost reductions resulting from technological advances and other innovations. Meanwhile, Canadian gains will be offset by the growing burden imposed by our carbon pricing system. We urge this committee to focus on the real and growing impact of the carbon pricing system on the Canadian horticultural sector, rather than on border carbon adjustments, which currently remain largely theoretical in agriculture.

Thank you. I look forward to answering your questions.

[The Acting Chair, NDP, Richard Cannings]

Thank you. You were all under time, so that is a good start. We'll now begin the question period.

Mr. Epp, please go ahead.

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

Thank you.

Thank you to the witnesses. It's good to see all of you again.

Indulge me a bit, please. I'm going to come at this a bit from an obtuse direction. We've talked about reciprocity here. We've talked about keeping competitive. We are, from a certain perspective, still in a hypothetical state, but areas of the world are moving ahead with this. I've heard the concerns expressed around competitiveness, around the retaliatory potential trade implications. If areas of the world that we compete with or trade with have higher carbon intensity for the impacts of their own production that they're bringing into Canada or that we're competing with, what is the issue with Canada then—actually, the Canadian taxpayer—subsidizing our competitors with their imports into our own country?

Just think about this for a bit. That would reduce the retaliatory risks. It would lower the input costs to our own farmers if the Canadian taxpayer subsidized the import costs coming in. After all, Canada is only 1.5% of the world's greenhouse gas emissions, and agriculture is only 10% of that amount. A lot of the world that we compete with is putting a lot more greenhouse gas emissions into the air than we are. The Canadian taxpayer actually addresses climate change by subsidizing imports that compete with our producers. What are your thoughts?

Believe me; I'll circle back.

[Pascal Forest]

This is a tough question to answer. The idea of taxes for a better environment is highly commendable. I understand the principle. However, we don't have the same regulations governing the same issue and the same government assistance available for products imported into Canada, regardless of the country of origin.

I agree with my colleagues who already expressed the need for caution. Canada often tries to lead the way, without really measuring the final impact on the farm. I'm speaking as a farmer here today. I understand that high‑level decisions must be made. However, the decisions must be made carefully for the people who stand to face the economic impact of these decisions and see the effects on their bottom line. I'm really uncomfortable with the idea of making decisions for the future without knowing how things will turn out in the end.

Everyone wants to do the right thing. However, I think that we must remain extremely cautious when making decisions.

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

Thank you.

I want to hear from Mr. Larkin, Mr. Sherman and Mr. Legault as well.

[Kyle Larkin]

There are certain products that we import into Canada that are necessary for crop production that we don't produce domestically, like heavy equipment, for example. There are many heavy equipment manufacturers; a lot of them are based in the United States, Japan and other places around the world, and they import into Canada the combines or tractors that are necessary for crop production.

I pointed out fertilizer in my opening remarks. In 2022, we imported over $3 billion worth of fertilizer into Canada. The three largest importers into Canada were the U.S., Morocco and Algeria, three countries that don't currently have a carbon pricing scheme in place, so a CBAM, in theory, would hit those countries and increase those input costs for Canadian farmers, so that's what we're looking at when we're thinking of this.

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

Mr. Sherman, go ahead.

[Troy Sherman]

The nature of your question speaks to the many known unknowns that exist around this policy, and we're going to see how this will play out internationally as well. As the CBAM in Europe is implemented, and I think there are a couple of other countries that have indicated they're looking at that as well, it'll be very interesting to see how that plays out at the World Trade Organization. I think this speaks to the need for a very thorough study on whether or not this is going to be a policy that will help or harm us here in Canada.

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

Mr. Legault, what are your thoughts?

[Benoit Legault]

I'll echo the comments made by the representatives of Producteurs de légumes de transformation du Québec and Grain Growers of Canada. It all depends on how this new measure takes shape. We gather that it won't have much of a direct impact on imported agri‑food products. I would be surprised if the proposed adjustments affect these products. Instead, we're concerned that they'll affect industrial products with a broader footprint and that they'll have a direct impact on agricultural inputs.

We're concerned about how this measure will be implemented, along with carbon measures in general. Of course, these types of measures would be much less concerning if they were implemented around the world.

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

Merci. I'm cognizant of the time.

I want to make one statement and ask one quick question.

Just for the record, I am not in favour of the Canadian taxpayer subsidizing inputs. My point was that if other countries put their own policies in that impact them and make their own industries less competitive in our market, that is their country's responsibility. Similarly, Canada has a responsibility to our industries as it affects us in foreign markets.

Mr. Legault, I have one quick follow-up question. How is the carbon tax regime in Quebec impacting your green industry's competitiveness?

[The Acting Chair, NDP, Richard Cannings]

Give us a very short answer.

[Benoit Legault]

It affects the cost of fossil fuels, including propane for drying grain and, of course, diesel. Unlike the tax, diesel is currently still being targeted. The same holds true for the rest of Canada. We're talking about thousands of dollars for a company that specializes in grain production.

[The Acting Chair, NDP, Richard Cannings]

Thank you, Mr. Legault.

Mr. Drouin, you have the floor for six minutes.