Agriculture Committee on Nov. 21st, 2024

[The Vice-Chair, Bloc, Yves Perron]

I call this meeting to order.

Good morning, everyone.

Welcome to meeting number 119 of the Standing Committee on Agriculture and Agri-Food.

I will begin with a few reminders. First, I would like to inform you that the sound tests for online participants were successfully completed.

Today’s meeting is taking place in a hybrid format. The proceedings will be made available via the House of Commons website. The webcast will always show the person speaking, rather than the entirety of the committee. Screenshots or taking photos of your screen is not permitted.

I would like to make a few comments for the benefit of the witnesses. First, members and witnesses may speak in the official language of their choice. Interpretation services are available for this meeting. If interpretation is lost, please inform me immediately and we will ensure interpretation is properly restored before resuming the proceedings.

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Pursuant to Standing Order 108(2) and the motion adopted by the committee on Thursday, October 24, 2024, the committee resume its study of fertilizer tariffs.

I would like to welcome our guests for the first part of the meeting.

Before I turn the floor over to the witnesses, I have a few procedural points to discuss with committee members. First of all, I have to leave the meeting no later than 9:30. We will therefore require a substitute for the chair. I need unanimous consent to nominate Mr. Richard Cannings to chair the rest of the meeting. Does everyone agree? I see that they do.

Considering that I am the chair and that I am the only Bloc Québécois member on the committee, I must ask for unanimous consent so that I can also ask questions during the speaking time allocated to the Bloc Québécois, with the promise that I will not exceed it. Do we also have unanimous consent on that? I see that we do.

Just before we go on, I must ask you to approve four budget requests, which I believe you received last Friday.

The first budget request is to study railway-related issues and opportunities in the Canadian agricultural context.

Have all committee members seen the budget? Do they agree to adopt it? I see that they do.

The second budget request relates to the study on the protection of farmland in Canada. I see that all committee members are in favour.

The third budget request is for a briefing on the Minister of Agriculture and Agri-Food's mandate and priorities. I see that all committee members are in favour. Thank you.

Finally, the fourth request relates to the study on fertilizer tariffs, which we are beginning today. I see that all committee members are in agreement.

Thank you very much for consenting so readily, as usual. This is an outstanding committee.

This morning, from the Sollio Cooperative Group, we have Casper Kaastra, chief executive officer; Patrice Héroux, vice-president of finance; and Marc Poisson, director of government and institutional affairs.

You have seven minutes for your opening remarks, since you are the only group of witnesses, after which we will move on to a round of questions.

I will signal when you have one minute left. I encourage you to keep an eye on me at all times.

Thank you in advance for your testimony.

I now yield the floor to our witnesses for seven minutes.

[Casper Kaastra, Chief Executive Officer, Sollio Cooperative Group]

Thank you, Mr. Chair.

Good afternoon, vice-chairs and members of the committee.

As executive vice-president of Sollio Cooperative Group and CEO of Sollio Agriculture, I thank you for this opportunity to speak to you today. I am accompanied by Patrice Héroux and Marc Poisson, respectively vice-president of finance and director of public and government affairs.

Sollio Cooperative Group has been around for over 100 years. It is the largest pan-Canadian agricultural co‑operative with Quebec roots. Sollio Cooperative Group represents over 123,000 members, agricultural producers and consumers in 48 traditional agricultural and consumer co‑operatives. We have over 15,000 employees in our three divisions, including Olymel, which specializes in pork and poultry processing, as well as BMR, Quebec's leader in the retail trade of construction materials and hardware.

Our Sollio agriculture division supports producers in eastern Canada to help them maximize their yields by specializing in the marketing of agricultural inputs and value-added agronomic services. As a federation of co-operatives, ensuring the supply of inputs required by producers for their various production activities at the farm is both the core of our business and an obligation.

We depend on imports, and the large quantities of fertilizer required by producers for their brief spring period cannot all be stored in advance. This explains the maintenance of some of our supply contracts, which were concluded before the sanctions were imposed, in order to honour past orders and guarantee the availability of fertilizer to producers during the key planting period.

Nevertheless, withdrawing the most favoured nation tariff treatment for imports from Russia and Belarus required the payment of a 35% duty on many of our shipments, amounting in total to $33.5 million. Certainly, the severity of the atrocities committed by Russia—which are ongoing—against the Ukrainian people demanded a strong and severe response from Canada. However, these sanctions must have an effect on Russia, not on Canada. This is why we have undertaken the appeals that bring us here today for three of the shipments, representing seven customs transactions in total, which were in transit to Canada before the sanctions were imposed.

On April 13, 2023, the Canada Border Services Agency approved the modification of the tariff treatment on our first two review requests, which resulted in a refund of $7.8 million. That was then redistributed in the following weeks, in accordance with our commitment to producers. At the beginning of this year, we were notified of a review of the two decisions that led to the $7.8-million refund, only to be told last March, 11 months later, that the agency was reversing its decision and that we had to return this amount—already redistributed to producers—adding interest that represented an amount of $395,000. That is what we did, in order to appeal these seven decisions. To date, there is a burden of $35.3 million that remains unacceptable for producers in eastern Canada.

It is equally unacceptable, from our point of view, that producers in eastern Canada have been at a competitive disadvantage since March 2022 compared with those elsewhere in the world, including in the United States, given our dependence on imports.

Speaking of the United States, I would like to point out that it still sources from Russia, despite its position against the war in Ukraine. Unfortunately, the affordable price, quality and quantity available with Russian fertilizers are difficult to source elsewhere. Canada depends on fertilizer imports. We do not produce enough nitrogen to meet our needs, and we simply do not have any domestic production of phosphorus.

Other countries with similar restrictions compete with us in sourcing from markets where available volumes are lower and located in regions with high geopolitical tensions, such as the Black Sea or the Middle East. We are not immune to a destabilizing event that would force us to reconsider Russia as a supplier, whether we like it or not. What needs to be remembered here is that it will be difficult to guarantee supply—given the restrictions, availability and prices—and that agricultural production and food security in Canada could be weakened as a result.

In conclusion, I thank you for your attention and the interest you give to these issues that closely affect producers across Canada.

Thank you.

[The Vice-Chair, Bloc, Yves Perron]

Thank you for your remarks.

We will now move on to questions.

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

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mr. Chair.

Thank you to the witnesses for being with us this morning.

We know that 40% of the country's fertilizer supply comes from Russia and that those imports were hit with a specific tariff, without consulting the main parties involved. Sollio is the largest fertilizer supplier for all of eastern Canada.

Sources of supply are hardly plentiful. In this situation, were you particularly curtailed in your capacity to supply fertilizer in time for producers in eastern Canada?

[Casper Kaastra]

Thank you for the question, Mr. Lehoux.

Allow me to answer in English—it's my mother tongue and I want to make sure my answer is clear.

Yes. In fact, we have difficulty sourcing from various regions other than Russia. There is limited production in regions around the world. Most of the production of fertilizer is concentrated in areas where there are low energy costs. We see, in certain of those situations, instability in those regions.

In particular, the imposition of the tariff in 2022 was challenging for us because it arrived several weeks before we needed to begin our seeding process. Normally, because we import through a large number of vessels into eastern Canada every spring, it takes anywhere from two to three months of preparation. For us, finding alternative sources for the full amount of the quantity of fertilizer that was already in transit was simply not possible.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you.

From what I understand, $33.7 million in tariffs were imposed on you. Of that amount, you said that $7.6 million or $7.8 million was reimbursed to you. However, to your great surprise, that amount was clawed back several months later. You returned that money directly to producers, I imagine.

Was it explained to you why you were being asked for that $7.6 million?

[Casper Kaastra]

We don't have the clarity to fully understand what the rationale was for the demand to return the sums that were already reimbursed. However, it is our understanding that it's fully within the rights of CBSA to proceed to that review and ask for repayment.

It is true that we reimbursed the full amount of the funds back to the various networks and producers impacted by these tariffs. It was returned in the weeks following, yes.

[Richard Lehoux, Conservative, Beauce, QC]

Mr. Kaastra, that means that, in fact, it was Sollio Cooperative Group that ultimately disbursed the $7.6 million.

[Casper Kaastra]

It's $7.8 million, plus $395,000 in interest.

[Richard Lehoux, Conservative, Beauce, QC]

You're talking about the interest that was added on. You did mention that at the outset.

Our American neighbours to the south never applied those tariffs. What impact do these tariffs have on agriculture in eastern Canada and on its competitiveness in markets compared to the main competitors, who are just as affected as we are by the conflict in Ukraine?

How can you explain this situation?

[Casper Kaastra]

For sure, the U.S. has maintained the approach of having ready access to Russian fertilizer for importation into their market. North America in total is a net importer of nitrogen and phosphate products. That includes the U.S. and us. It's been like that for quite a long period of time. We're a net exporter of potash products, so there are no concerns about supply security in that case.

What we've seen is that the U.S. has significantly increased their imports of Russian fertilizer since the arrival of the war in Ukraine. They've more than doubled the amount of fertilizer imported from Russia into their country. They've also increased the number of exports, so there's a lot of trade and commerce going back and forth with no restrictions on full and fair trade.

In our case, on the impact on producers in eastern Canada, we can estimate that there has been an increase in cost to producers as a result of limited access from all regions across the world. However, the bigger risk is an interruption in supply from any other available region of the world. That would put us at significant risk, because the number of options is quite limited. We can think of the conflict in the Middle East as an example that would be a high-risk scenario.

[Richard Lehoux, Conservative, Beauce, QC]

In addition, Mr. Kaastra, that's not counting all the red tape it entails for your company. We got bogged down in red tape instead of taking a truly effective measure with respect to this conflict. I also think that we still need to provide Ukraine with significant support, but I'm not sure we can do that by filling out paperwork.

Do you agree with me on that?

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Please keep your answer brief, Mr. Kaastra.

[Casper Kaastra]

All right.

Would you like to answer that question, Mr. Héroux?

[Patrice Héroux, Vice President, Finance, Sollio Cooperative Group]

Certainly.

There was a great deal of paperwork, not only administrative, but also financial. Among other things, those documents had to do with the re-invoicing and redistribution of tariffs. In our opinion, the current measures may not have helped to achieve the goal in terms of sanctions.

[The Vice-Chair, Bloc, Yves Perron]

Thank you very much.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mr. Chair.

[The Vice-Chair, Bloc, Yves Perron]

Thank you, Mr. Lehoux.

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

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you very much.

Thank you to the witnesses for being here.

I don't want to talk about the Russia issue, because I don't think that argument gets us anywhere. The fact remains that it worries me.

Nor do I want to talk about storage capacity, because depending on who you talk to, you find that some people can store fertilizer for a year. In fact, a supplier in my riding prepared for this storage capacity, and is now doing just that.

I think you're here because CBSA initially agreed with you and reimbursed you. Eleven months later, it informs you that a mistake was made and it wants to review the situation. CBSA has the right to do so.

That being said, is CBSA still in touch with you, or have they stopped contacting you?

[Casper Kaastra]

We received an indication early in the year—in January, I believe—that it was under review in parallel, because we had submitted requests for reimbursement for three vessels in total, which was seven import permits in total. We had received the reimbursement for two of those and then subsequently applied for the other five. At that moment, or shortly thereafter, we were advised that the first two were now under review.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

All right.

So the review was under way at that time.

Has CBSA set a timeline? Is it being reviewed and are we going to wait for Santa Claus to come to town?

[Patrice Héroux]

Actually, we're following up assiduously at the moment. We're sending them numerous applications on this subject, and we're told that they will get back to us quickly.

We weren't given a specific timeline for a final decision on our current applications.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Apart from the fact that CBSA is acting within its rights, did it give you a valid reason for reversing its decision?

[Casper Kaastra]

Mr. Poisson, the floor is yours.

[Marc Poisson, Director, Governmental and institutional affairs, Sollio Cooperative Group]

In fact, just to provide proper context, there are two executive orders regarding Russia's withdrawal from the most-favoured-nation tariff treatment. There was the initial order, in effect from March 2 to October 7, 2022, that imposed a general tariff of 35% on Russian goods. Then, there was the order in effect since October 7, 2022, which establishes the same measure, but adds an exemption for certain goods.

As a result, Sollio Agriculture is challenging the application of the tariff, arguing that these fertilizers were in transit to Canada before March 2, 2022. However, CBSA interprets the term “in transit” as a direct shipment without transshipment as a registered good in Canada, which is not the case for our fertilizers.

That's a technical explanation, but it essentially boils down to that.