Agriculture Committee on Oct. 10th, 2024

[The Vice-Chair, Conservative, John Barlow]

Thank you, Ms. Sauvé.

Now we go to the Canadian Federation of Agriculture and the president, Mr. Currie.

You can now give your presentation for five minutes, please.

[Keith Currie, President, Canadian Federation of Agriculture]

Thank you, Mr. Chair.

It's good to be back in front of this committee one more time.

As most of you know, my name is Keith Currie. I'm the president of the Canadian Federation of Agriculture, and I'm an eighth-generation farmer here in Ontario.

I just want to start by saying that Canadian farmers are committed to sustainability, and we do applaud the committee for taking a very proactive approach in studying this emerging issue.

I'll get straight to the point. Our main concern with discussions related to the implementation of border carbon adjustment mechanisms—or BCAs, as I'll refer to them—relates to their potential to establish non-tariff barriers to trade and undermine Canada's competitiveness, if not done correctly.

As an example, Canadian supply chains for inputs such as fertilizers, pest management products, and equipment are highly integrated with the United States. Given the absence of carbon price in the U.S., we are concerned that a Canadian BCA would increase the price of critical agriculture inputs here in Canada. A large portion of farm inputs, supplies and equipment are imported into Canada as manufactured products. Any additional carbon levy or import surcharge on these imported goods would add more carbon-related costs onto primary producers, further reduce farm operating margins, and negatively affect their competitiveness in global markets.

Furthermore, we have been very clear on our ongoing concern regarding the impact the carbon tax is having on Canadian farm profitability, sustainability and competitiveness. As this committee is well aware, we have always been and remain supportive of Bill C-234, which in its original form would have provided much-needed relief to Canadian farmers across this country. While we do believe measures like BCAs could play a part in levelling the playing field for Canadian farm businesses, the lack of international guidance or standards on this front could result in inconsistent unilateral approaches that establish protectionist non-tariff barriers to trade under the guise of sustainability.

Given these concerns, any consideration of BCAs in a Canadian context can only work if Canada were to form part of a coalition of countries and regions that implement BCAs, including the United States. In addition, we would need to see strong multilateral disciplines, including a rules-based approach underpinned by science-based standards. Without such international disciplines and widespread international adoption, BCAs would have limited value for Canadian agriculture exports, given the lack of developed domestic carbon pricing systems in key export markets.

Were Canada to explore a Canadian approach to BCAs that is not harmonized with U.S. policy, including the level of subsidy supports to affected industries, there is a significantly higher risk that Canadian producers would bear the higher prices. At the end of the day, Canadian producers are price-takers on the international market and do not have the ability to pass on any negative price impact stemming from BCAs or other similar mechanisms. As a result, any consideration of a BCA in a Canadian context would need to be coupled with additional support to help reduce carbon emissions domestically, including investment in research, extension and programs.

We also need to be aware that BCAs are likely to place upward pressure on food price inflation, which has already proven to be quite sticky when compared to other consumer goods, given the number of imports that occur from major emitters like China.

Finally, while Canada already has a well-established commitment to reciprocity when it comes to trade agreements, BCAs are somewhat new and unexplored territory. From our perspective, the same principles that guide our actions from a reciprocity perspective, such as equal treatment, rules-based order, and flexibilities where appropriate, need to be carried forward into any future development and implementation of a BCA.

In conclusion, from our perspective, any consideration of BCAs, whether in Canada or by major trading partners, cannot occur unilaterally or in a vacuum without the support of an internationally supported science-based framework.

Thank you. I look forward to the questions.

[The Vice-Chair, Conservative, John Barlow]

Thank you, Mr. Currie.

Now we'll go to Mr. Northey for five minutes, please.

[Greg Northey, Vice-President, Corporate Affairs, Pulse Canada]

Thank you, Mr. Chair.

On behalf of Pulse Canada, the national industry association representing over 26,000 Canadian pulse growers and over 100 processors and exporters, I want to thank you for the opportunity to provide our sector's views on this study.

International trade is critical to the success of Canada's pulse sector. Canada represents close to one-third of the global pulse trade and relies heavily on export markets. In 2023, upwards of 90% of our production was exported, meaning that trade barriers or protectionist measures can have significant repercussions for Canadian farmers, value-added processors and exporters.

First, I would like to address the impact of reciprocal standards, particularly how the EU's direction in this area is ushering in a new era of concerning protectionism. The EU is an important market for Canadian pulse crops, and it is actively using and exploring reciprocal standards, or “mirror clauses”, as protectionist tools aimed at disadvantaging imported products over domestic ones. Their regulatory and legislative choices are increasingly turning away from international risk-based standards and rules-based trade.

One of the key reasons the EU must turn to reciprocal standards is that their regulatory and legislative choices have removed production options and tools from their farmers, undermining their competitiveness. As a result, the EU must turn to reciprocal standards to protect them. This policy creates a race to the bottom and is not the direction Canada should take. We are a trading nation whose economic security is largely dependent on free and fair trade and the elimination of barriers to trade. No government should actively choose to erode our farmers' competitiveness through regulation, and then look to protectionist measures to fix the issues created.

The EU also happens to be the most advanced jurisdiction on border carbon adjustments; their mechanism has been put in place to prevent carbon leakage and to support and protect the industries that have been rendered uncompetitive by the EU's regulated price on carbon.

The EU CBAM is a prime example of how an effort to reduce emissions has resulted in, and provided cover for, protectionist trade policies and barriers to freer and fairer trade. Putting a price on carbon, either through a regulated approach like an emissions trading system or through a carbon tax, clearly renders certain industries uncompetitive in the global trading environment, and this then leads to a tool like border carbon adjustments.

The EU approach is not a good or relevant example for Canada to emulate in this regard. It is our view that setting a price on carbon, either regulated or through a tax, is not well suited for grain production. Grain production and food supply chains more generally should not be actively rendered uncompetitive and their productive capacity diminished through a price on carbon.

Canadian farmers already produce grains with highly competitive carbon intensity scores. In the case of pulse crops, carbon intensity is often zero or positive. A price on carbon ultimately achieves very little benefit for our sector. This is not to say that grain production does not have a role to play in reducing emissions. There are clearly areas where innovation and technology adoption can have an impact to increase efficiency and lower emissions, as Canadian pulse growers continue to demonstrate year after year.

However, these changes will not be achieved through a policy like a carbon tax, which is a blunt instrument that can simply erode margin, reduce farmer profitability and suppress grain production, all with little impact on grain sector emissions. While the EU's approach to reciprocal standards and the combination of a carbon price and border carbon adjustments are clearly not the right policy choices for Canadian grain production, we must also be clear-eyed on the threat these tools pose to Canadian exports if other jurisdictions adopt them. BCAs, whether enacted here in Canada or as demonstrated in other jurisdictions, would impede our farmers' competitiveness without providing meaningful emissions reductions.

The Government of Canada should focus its efforts on industry-led sustainability priorities supported by farmers and avoid creating unnecessary red tape that would hamper Canada's ability to compete on the global stage.

Thanks.

[The Vice-Chair, Conservative, John Barlow]

Thank you, Mr. Northey.

I appreciate everyone sticking to their time.

We will now start our first round of questioning, with the Conservatives.

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

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mr. Chair.

I'd like to thank the witnesses for being with us this morning.

Ms. Sauvé, you said that Quebec was still a major producer of strawberries: It's the largest producer in Canada and third in the world. With the arrival of strawberries from Mexico and other places in recent years, there's been talk of reciprocity of standards. Do you think it's possible to enforce this reciprocity at our borders in the current context if there's no international harmonization of standards?

[Jasmine Sauvé]

Good morning, Mr. Lehoux, and thank you for your question.

I'd answer that by saying it would be possible to apply that reciprocity if the Canadian Food Inspection Agency were better resourced to inspect food imports. The agency should inspect just as many food imports as it does food exports. Then, I think it would be possible to implement a reciprocity of standards approach.

[Richard Lehoux, Conservative, Beauce, QC]

The whole labour issue is another consideration given that labour costs are probably much lower in Mexico. You talked about it in reference to berry pickers. Ultimately, will it be possible to take that impact into account within a potential reciprocity approach, or would it be too complicated?

[Jasmine Sauvé]

That's a good question. There's no doubt that it could become quite complicated.

However, the idea today is to highlight the unfair competition Quebec's strawberry and raspberry growers are facing. If we were successful in applying food hygiene and safety standards at the border, that, right there, would be a big win for the sector. That would be very important for growers.

I'm not sure whether Ms. Forcier has anything to add.

[Richard Lehoux, Conservative, Beauce, QC]

Ms. Sauvé, we could also talk about dumping. That jumped out at me when you mentioned it earlier. It's definitely happening. How could we use reciprocity of standards to control the situation, particularly in relation to Mexico?

It will be necessary to harmonize practices internationally. You said harmonization was possible, but it's probably not something that can be implemented tomorrow.

[Jasmine Sauvé]

Before we get into international harmonization, we should talk about North American harmonization, in my view. That would be a good first step for strawberry and raspberry growers.

As far as dumping goes, one way to help strawberry and raspberry growers in Quebec is to allow only goods produced in accordance with the same environmental and social standards into the country. That would limit the dumping of products from those regions.

[Richard Lehoux, Conservative, Beauce, QC]

I like your answer that we should start with the practices in North America. If we tackle the problem in bite-sized pieces, it makes changes more palatable and easier to accept.

Would Ms. Forcier, your colleague, like to add anything?

[Stéphanie Forcier, Public Relations Manager, Association des producteurs de fraises et de framboises du Québec]

When it comes to the reciprocity of environmental and social standards, we really want to press the social side. I think, at the same time, we may see certifications to offset things if the government isn't able to bring in legislation and really examine what's coming into the country. Then the industry can implement environmental, social and governance principles. The new retailer-supplier code of conduct could be another tool if the most important thing at the end of the day is the lowest price for consumers.

That price, however, does not reflect the total cost of producing the food product. I'm not necessarily talking about the environmental considerations. I'm talking more about the social considerations. As we mentioned in our opening remarks, the question is this: How is it possible to produce food at such a low cost? It's about more than just the comparative advantage. It's not a level playing field when you have Mexican workers being paid $12 a day and our workers, here, being paid $15.75 an hour.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Ms. Forcier.

Thank you both for your comments. They are appreciated.

Mr. Currie, I have some questions for you along the same lines.

When it comes to applying reciprocity, the focus is on this new practice, this tax, but you say it's complicated to achieve. Is it realistic or idealistic to think it's going to happen? Europe has already moved in that direction. At a standards level, are we able to harmonize our practices with Europe's? Our businesses' ability to be competitive is also at stake. I, personally, always see that as connected to the use of our land, here, in Canada.

[Keith Currie]

That's a great question. If we're going to be looking at border carbon adjustments, certainly being in lockstep with the United States and their policies around it would be imperative for us, seeing as they're our largest trading partner.

With respect to the European Union, I would be cautious about looking at the way they implement their CBAM. The World Trade Report that came out in 2023, I believe, suggested that there will be a decrease in exports to the EU from high-carbon-intensity economies. I think we have to make sure that any programs we implement are science-based and practical to implement and will not create competitive disadvantages. We need to align with countries like the U.S., which will certainly put in financial programs to help their producers in order to make sure they aren't seeing a competitive disadvantage on their exports.

We need to be very cautious about how we approach BCAs. We need to make sure we are aligned with our biggest trading partners, for sure.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mr. Currie.

[The Vice-Chair, Conservative, John Barlow]

Thank you, Mr. Lehoux.

Now we go to Mr. MacDonald for six minutes, please.

[Heath MacDonald, Liberal, Malpeque, PE]

This is a great discussion. It's a complicated issue, obviously, but a very important one.

It's good to see that the industries and sectors are actually talking about it, because I think it's extremely important. We know, as Mr. Currie just summarized, that if the U.S.—our biggest trading partner—moves in this direction, then we had better be prepared.

I'll direct my first questions based on that.

Mr. Currie, you recently attended the G7 farm organizations meetings. There was likely or possibly some discussion on this. I'm wondering if you can enlighten us to what extent.... Were those discussions on the sidebars or at the general meeting itself?

[Keith Currie]

Yes, Scott Ross and I attended the G7 meetings in Sicily a couple of weeks ago. Our discussion, which we collaborated on with the G7 farm groups, centred around high-level non-tariff trade barriers.

Certainly, BCAs were part of the general discussion leading up to our declaration that we presented to the ministers in Sicily. Although it wasn't specific to BCAs, they certainly were part of that conversation around the aspect of this being another potential non-tariff trade barrier that we may face. As I mentioned, we need to be very cautious about how we approach BCAs, to make sure that doesn't happen and that any costs aren't borne by producers because of this.

[Heath MacDonald, Liberal, Malpeque, PE]

From some of us around this table talking to some people in the United States, I think they're not happy with the EU either. I don't know if that's a good thing or a bad thing, at the end of the day, because we don't want any reciprocity in exchange for geopolitical issues on trade. There's already enough of that. We did see, under the last administration, that it can happen relatively quickly.

We're sitting here discussing this today, and I certainly want to be clear that it's not a government-driven issue to have cross-border tariffs—CBAs or whatever you want to call them. This is something that I think we try to get out in front of, and it's not that often that we bring sectors and industry together. Governments are usually somewhat reactive, which is very unfortunate, but I think this is proactive, and I appreciate all of you guys being here today.

Mr. Northey, you talked a little bit about how the EU has changed their regulations—and maybe this is political in the EU—to see a better fit for cross-border tariffs in the farming industry and sector, maybe to pacify their farmers. Maybe that's not the appropriate choice of words, but I just want to know whether you can elaborate on some of those changes they made. Maybe we can learn from them.

[Greg Northey]

Yes. There's one that's active and one that's proposed. The main one that we would deal with is around crop protection products. Jurisdictions across the world use a risk-based approach to how they regulate those kinds of products. The EU uses a hazard-based approach. One of the things we're seeing from them—and this is creating all kinds of issues for Canada but also for anybody else trying to trade into the EU—is that they're eliminating import MRLs. Essentially, if they choose to eliminate a crop protection product for use in Europe, to make that reciprocal, they eliminate an import MRL, so essentially, if you're using that product in Canada, you can't then export to the EU.

They're making choices to remove those products in the EU based on a hazard-based approach, not a risk-based approach, which is a fundamental problem. It then becomes an issue where Canada can't export into the EU because of that, because they're removing an import maximum residue limit. It's not just us that it impacts; it impacts the world.

The second one would be around deforestation. This is a classic “mirror clause”, as they would call it. It was meant to be implemented at the end of this year, but they've delayed it by a year. They are placing deforestation standards on anything that comes into the bloc, which is essentially a pure standard of reciprocity, so anybody would have to meet a standard they're setting. When I say “anybody”, I mean anybody who's looking to import into the EU. They're really setting a high bar for how these things are used for protectionism.

Those are the two main ones.

[Heath MacDonald, Liberal, Malpeque, PE]

I know that in his preamble Mr. Buy mentioned what the EU is doing to ensure that their producers are receiving the benefit of cross-border tariffs. Basically, they're again putting us at an unfair disadvantage by subsidizing their farmers by utilizing the revenue generated by cross-border tariffs, which is going back directly to their farmers. Is that the truth? Is that what you're hearing?

[Greg Northey]

Certainly, the EU has a long history through their common agriculture policy of supporting their farmers in a very unique way across Europe. It's a huge bloc. There's a rural development element that they see agriculture as, sometimes pastoral and sometimes large production. There's a large number of support mechanisms for EU farmers. The WTO has been able to eliminate a lot of the more egregious ones, like export subsidies and these kinds of things. That has been one of the huge benefits of the WTO in the EU.

Certainly, agriculture in the EU is treated very differently than in Canada when it comes to how farmers are directly supported.

[Heath MacDonald, Liberal, Malpeque, PE]

Mr. Currie, just quickly, is there anything our trading partners are doing that would put us at a disadvantage based on this? I suspect we're out in front of most farming industries and sectors in the world. Is there something else we should be doing or focusing on?

[The Vice-Chair, Conservative, John Barlow]

You'll have to be really quick, Mr. Currie. I know it's tough.