Agriculture Committee on March 31st, 2022

[The Chair, Liberal, Kody Blois]

I call this meeting to order.

Welcome to meeting number 12 of the Standing Committee on Agriculture and Agri-Food.

I will start things off with a few rules.

Today's meeting is taking place in a hybrid format pursuant to the House order of November 25, 2021. The proceedings will be made available via the House of Commons website. Just so that you are aware, the webcast will always show the person speaking rather than the entire committee. Please note that screenshots or taking photos of your screen is not permitted.

To the members of Parliament in the room, I can't watch you, but my trusty clerk will keep an eye to ensure you're following the spirit of the rules from the Board of Internal Economy. Thank you to everyone.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, January 31, 2022, the committee is resuming its study of the agriculture and agri-food supply chain.

Just before we get to our witnesses, members, I need to ask you a couple of questions. The first is on the adoption of the budget for the study of the environmental contribution of agriculture. You've all received it by email. It covers costs related to our meetings. Do I have agreement?

Seeing no issue, we'll say that's in agreement.

We also had a small technical glitch at our last meeting with CropLife Canada's opening remarks by Dr. Justine Taylor. To ensure that we capture these remarks, I propose the following:

That the speaking notes presented by Justine Taylor, Director, Stewardship and Sustainability of CropLife Canada, be taken as read and published as an appendix to the Evidence of Monday, March 28, 2022.

Again, it's just an administrative element where we lost connection. I don't foresee that being a problem, but can I get agreement on that?

[An hon. member]

Yes.

[The Chair, Liberal, Kody Blois]

Great. That's adopted.

Finally, I just have a reminder that recommendations should be submitted to our analyst today for inclusion in the first draft of our supply chain report. We would appreciate your co-operation in that domain.

I would like to welcome the witnesses for our first panel.

Joining us by video conference today from Fertilizer Canada, we have Karen Proud, who serves as the president and chief executive officer. We have Clyde Graham, executive vice-president. Welcome back, Mr. Graham.

Also with us is Benoit Pharand, CEO of Réseau végétal Québec.

Welcome, Mr. Pharand.

Ms. Proud, you will have just over five minutes for an opening remark and I'll give you a little bit of leeway. I'll turn the mike over to you.

[Karen Proud, President and Chief Executive Officer, Fertilizer Canada]

Thank you very much, Mr. Chair.

Thank you for having us today.

My name is Karen Proud. I am the president and CEO of Fertilizer Canada. I am joined by my colleague Clyde Graham, who is executive vice-president of our organization.

Canada has a strong, diverse agricultural sector and the foundation of this sector is fertilizer. Fertilizer is an economic driver that contributes $23.6 billion annually and employs over 76,000 workers throughout the supply chain. We export to over 75 countries, contributing to agricultural industries around the globe.

We help feed the world. Without fertilizer, global food production would be cut in half.

Canada has a vibrant fertilizer industry, which is critically dependent on a safe, secure and reliable supply chain that gets our product to both domestic and international customers.

There are two primary nutrients produced in Canada—predominantly in the West—potash and nitrogen. Ninety-five per cent of Canadian potash is transported internationally through ports in British Columbia, and over 40% of nitrogen fertilizers manufactured in Canada are exported to the U.S. Phosphorus is not manufactured in Canada, and is imported from the U.S. and other jurisdictions including Morocco. Due to the large amount of tonnage being moved and concerns about safety, the fertilizer industry is reliant on railways to move goods. In fact, fertilizer is one of the largest commodities transported by rail in Canada.

For Canadian industry, the past two years have been characterized by frequent supply chain disruptions, including the COVID-19 pandemic, extreme weather, and blockades and labour disruptions leading to work stoppages.

Fertilizer Canada and our members have serious concerns with these supply chain disruptions and the impact they have on our international reputation as a reliable trading partner and on Canadian farmers.

This spring there have been serious issues impacting our industry—which occurred at a critical time of year. The first disruption was the Canadian Pacific work stoppage.

For farmers, purchasing and applying fertilizer is a highly time-sensitive process. During critical fertilizer application in the spring and fall, periods that largely determine the course of farmers' harvest, any delay or disruption to the supply chain can prevent farmers from accessing the essential products they need to grow food for Canada and the world.

Farmers already face challenges during these seasons due to variable weather and logistical concerns. Impeding farmers' ability to access fertilizer inputs will have long-term consequences in terms of costs to farmers, and harm domestic and international food security.

While the CP Railway work stoppage was only two days, our member companies felt the impact for several days prior and after, and were days away from curtailing production at their manufacturing and mining facilities before the strike was declared over. The impact of a work stoppage is felt long after it is resolved, and it takes time for the railways to ramp up back to full service. Shippers are facing significant backlogs.

This is the third work stoppage our members have dealt with since 2019. Our member companies operate in a global marketplace and need a transportation system that is not disrupted every two years. We are aware of several collective agreements expiring in 2022, and we cannot afford for these agreements to expire and another work stoppage to occur. The federal government needs to develop a long-term approach to fixing problems within the supply chain so that Canada can continue to be a reliable trading partner.

Prior to the work stoppage, the global fertilizer markets were tight due to an increased demand and a strained supply. The war in Ukraine and the sanctions placed on Russian product have further tightened supply.

Fertilizer Canada supports the actions of the Canadian government and is deeply concerned by the invasion of Ukraine and the impact on the Ukrainian people. The situation is having negative effects on the global economy and fertilizer is one of the commodities affected. Eastern Canada, which is highly dependent on Russian fertilizer imports, has been disproportionally affected by this spring seeding season.

Approximately 660,000 to 680,000 tonnes of nitrogen fertilizer are imported from Russia to eastern Canada annually, which represents between 85% and 90% of the total nitrogen fertilizer used in the region. When the sanctions and tariffs were first announced, our members estimated that between 30% and 40% of the fertilizer shipments to eastern Canada were either en route or pending shipment. Since that time, our members have worked diligently to secure product, and now have approximately 70% of product in place.

The fertilizer industry is committed to providing farmers in Canada and around the world with the crop nutrients they need to grow food; however, we need the government's support to develop long-term approaches and a regulatory environment that would allow our member companies to remain globally competitive, secure capital investments in Canada and remain an industry that employs a highly skilled Canadian labour force.

Thank you, Mr. Chair. I am going to stop there.

I apologize to your francophone colleagues. This is my first testimony en français, and I hope my pronunciation was not too bad.

[The Chair, Liberal, Kody Blois]

No. I think it came across wonderfully.

We have you, Mr. Graham and Mr. Pharand available for questions, and we're going to turn it over to questions now.

Colleagues, we'll get two rounds in and, perhaps, even a third, even if it's a bit truncated.

I'm going to start with the Conservative Party. I presume it's Mr. Barlow, but I'm not in the room.

It's over to you for six minutes.

[John Barlow, Conservative, Foothills, AB]

I'm going to let my colleague Mr. Lehoux go first.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you.

Good afternoon, Mrs. Proud. I congratulate you on the quality of your French. If I may, I will ask my questions in French.

Do you feel it's important that we monitor shipments from Russia and Belarus?

You said that 25% to 30% of shipments are not delivered.

What do you think of this situation?

[Karen Proud]

Thank you for the question.

Since the sanctions came into place and due to the fact that we didn't have all of the fertilizers secured in Canada at the time, our members have really been scrambling to find supply in order to make sure farmers have access to what they need. As I said in my opening statement, this is the most important time for Canadian farmers to have access to the fertilizers they need, and our eastern provinces were certainly most affected by the war in Ukraine.

We have been working closely with the government in feeding them information about the supply and about our concerns around supply. As I said, our members are working very hard to secure supply, some of which has been able to come in. That Russian product has been able to come in, but some of our members have also had to look at other sources of supply, both domestically and internationally.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mrs. Proud.

On a related note, what effect might the fabled 35% tariff have on that 25% to 30% of fertilizer that still needs to be imported for Eastern Canada?

Representatives from Sollio Agriculture told me that the additional costs are over $50 million.

This is on top of current fertilizer costs, which are already much higher than last year. Again, we're talking about an additional $51 million in costs, which producers and distributors will have to bear.

Could the Government of Canada help farmers with these costs?

What solution would you foresee?

[Karen Proud]

We have been talking very closely to the federal government about the various sanctions, including the tariffs. What we've asked is that whatever the government does they do so in a fair and transparent way and ensure that they continue to have a level playing field not only with our members but for farmers as well. We want to continue those conversations with the federal government.

Obviously, a 35% tariff has an impact on the final prices of fertilizer. We also know that following the start of the war in Ukraine, fertilizer prices globally increased significantly, because of the high importance of the Russian fertilizer industry, which is now sort of out of the global supply. As I've said, we're working very closely with government. We do feel that the government should look into what it can do to ensure that costs are managed and that there's a fair approach to all players along the supply chain.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mrs. Proud.

Do you have a long-term plan at Fertilizer Canada with respect to fertilizer supply for farmers, particularly those in Eastern Canada?

[Karen Proud]

Our members are certainly looking at their long-term plans. They develop their production plans based on a long-term vision of the needs and Canadian fertilizer. We just can't adjust our plans and our facilities overnight to meet specific demand or to address issues in the marketplace that tend to fluctuate up and down. Obviously this has a huge impact, the war in Ukraine, and we still don't know what the long-term effects will be, but we know that our members, where they can, have made commitments to increase supply in order for Canada to be able to meet some of that international demand and for countries to be able to depend on Canada.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you.

In that case, when you have a more comprehensive plan, could you share it with the committee?

My other question will address what you mentioned directly.

What recommendations would you make to the government for improving the whole issue of transportation, both west to east and east to west?

[Karen Proud]

That's a really important question.

As I mentioned, 75% of all fertilizer is moved by rail. Each time there is a disruption, we call on immediate action from the government. This last one, while lasting only two days, did have a significant impact.

We have asked that the government develop a long-term approach. There have been discussions about whether that means rail designated as an essential service. That's something that's certainly an option to discuss. I don't know whether that's palatable.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mrs. Proud.

[The Chair, Liberal, Kody Blois]

Thank you.

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

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

Thank you very much, Mr. Chair.

I would like to thank the witnesses for being with us today.

Mrs. Proud, your French is excellent. Keep up the good work.

I want to bring us back prior to February 24. Obviously, we know that the war in Ukraine has caused some shortages, but the availability of fertilizer, in general, was already somewhat scarce. That was obviously reflected in the price.

Can you explain what is happening in the market prior to...I know you touched on CP and Ukraine, but even in December and January, we saw prices going up.

In general, what were your members saying about the availability of fertilizer?

[Karen Proud]

I'm going to ask my colleague, Clyde, to jump in. He has more knowledge than I on the supply and demand, and history there. I think it's important to put it in context.

[Clyde Graham, Executive Vice-President, Fertilizer Canada]

Thanks, Karen.

Fertilizer markets are driven globally by supply and demand. The demand comes from growers around the world who buy the products.

Fundamentally, underpinning the market for a while has been a decline in global grain stocks, grains and oilseeds. The stocks of those products have been low for a time. That sends an important signal to growers around the world to produce more. The way you produce more food is by using more fertilizer. We've had a surge in demand for fertilizer products on a global basis.

As Karen had mentioned, over the last year there have been a number of global events that have disrupted supply. We had weather events in the United States. New Orleans and Florida are both important fertilizer manufacturing areas. We had one of our nitrogen facilities in western Canada that had to go down for technical reasons. China had strongly curtailed its exports of fertilizer in order to meet its own domestic demand.

Even before the invasion by Russia, the Russian government had restricted exports of fertilizer. Further, the high cost of natural gas in Europe had led to one of our large manufacturers in the U.K. stopping its production, because the cost of natural gas was simply too high.

All these events had come together over the last one to two years to lead to a very tight market for fertilizer, even before current events.

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

I know you've expressed the complexity of how to solve that, with some that are sourced through Russia, and some that went somewhere else, but paid a higher price for the fertilizer they were importing.

What do you recommend government do, knowing that you have some of your members that source through Russia, and would be impacted by that 35% tariff? Then you have other members that source through a different source, but pay a higher price. Have you proposed a solution?

[Karen Proud]

I wouldn't say we've proposed a specific solution to the government. It is difficult for us as an industry association in which we have to represent all of our members' interests. I think what we really want to see is that the government take an approach that looks at making sure there is a level playing field, not only for our members but for farmers who in some cases may be disadvantaged because of where they would buy their fertilizer. The government seems to be open to looking at this. We don't have a specific solution, but I think we need to have a conversation with those affected to see what the best solution might be.

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

Thank you.

In the medium term, I know you can't just turn around and start producing at some of your manufacturing plants overnight, but are you having conversations and are your members having conversations in terms of how they can increase their output so that next year we don't find ourselves with a shortage of fertilizer?

[Karen Proud]

With our potash manufacturing, one of our members has already very publicly come out and said that they are going to step up production for 2022-23. As I said, you can't just flip a switch. That means getting the mines ready, employing people, and getting the necessary [Technical difficulty—Editor] operating 24 hours a day, seven days a week. Without making additional investments in the facilities, we don't have a lot of room to increase our production in Canada. Whether or not these companies feel they need to invest in Canada or elsewhere in order to step up that supply, based on whether they think countries will be looking for more reliable sources in the future as well, is obviously a much longer-term business decision.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Drouin and Ms. Proud.

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

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

Thank you, Mr. Chair.

I would like to thank the witnesses for being with us today and for making the effort to speak French.

I am going to address Mr. Pharand, whom we have not yet had a chance to hear.

Mr. Pharand, in one minute, can you tell us about the reality that your organization is facing?