Agriculture Committee on April 17th, 2023

[Ryan Turnbull, Liberal, Whitby, ON]

In a market dominated by large distributors—this is specifically in Ontario, but I'm sure across Canada—I know that your model is quite different. Are you not supporting small-scale farmers who have very few options to get their product to market?

[Paul Sawtell]

Typically, yes. The reason we exist is largely for the small and medium-sized farms. The impetus of our business was to provide sales and distribution to a group of farms that were too small to work with larger distributors and too small to work with grocery store chains, of course. They were largely relegated to farm-gate sales and farmers' markets.

If you are beyond a very small farm operation and you're looking to expand, you're in a whole group of farms in the middle that are caught in no man's land. You can't service a larger market and can't get by just based on farm-gate sales alone. It's about access to market, and building a marketplace for these farms was the reason we founded this business.

[Ryan Turnbull, Liberal, Whitby, ON]

Thanks. I noticed your supply chains are obviously a lot shorter, because you're doing mostly just-in-time delivery, I think. You talked about the resilience in regional supply chains. I noticed also the core commitment you share with your vendors to address climate change. Do you think that makes you more able to respond to inflationary pressures and keep your prices down?

[Paul Sawtell]

I think time will tell. I know that the farms we work with that are very proactive with respect to climate change, soil mitigation and regenerative farming have a lot fewer concerns than their neighbours regarding the rainfall levels and droughts seen in the past. The organic matter in their soil alone is far more resilient, and they're able to work with and irrigate a lot less. Obviously they don't have lots of the traditional, conventional farm inputs like fertilizers and chemical pesticides.

I think this transition within agriculture is inevitable. I think we're going to be dragged kicking and screaming, but this has to change. Soil can't maintain this level of degradation long term.

I think the UN and many progressive food organizations have recognized this for a long time, and we need change to shift into more sustainable agriculture methods. However, farmers need help in that transition, which was mentioned before. You can't just flick a switch and make things different. You need to make sure that farmers are at the table and are supported during that transition.

[Ryan Turnbull, Liberal, Whitby, ON]

Thanks.

I'll go over to Ms. Taylor Roy. I'm sorry for sharing my time at the end.

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

Thank you very much.

Thank you to all the witnesses for being here, and I'll give a special congratulations to Ms. Hendricks. It's great seeing you in this role.

I noticed in the testimony of Mr. Macdonald and Ms. Hendricks that there was a different conclusion reached about the profits of the large retail chains. We've been conducting this study for quite a while now and listening to many witnesses. There seems to be a lack of transparency with the numbers.

One of the witnesses, Mr. Martin Caron, the general president of the Union des producteurs agricoles, talked about a consultant body in France that was established to basically look at the price of agricultural goods at the production, processing and retail stages. I'm not sure if you're familiar with it.

I was wondering what your opinions are, Mr. Macdonald and Ms. Hendricks, on having something like that in Canada so we can have greater clarity on where these price increases are coming from and who is benefiting and who is not.

[The Vice-Chair, Conservative, John Barlow]

Before you answer, I'll note we're way over the time for the question period. Perhaps Mr. Macdonald or Ms. Hendricks can answer Ms. Taylor Roy's question quickly. Both of you can answer, but just try to keep it as succinct as you can.

[David Macdonald]

I'm happy to start.

I think it would be fascinating to see more detail on grocery store subcategories, not just the entire industry, which is what we're looking at with the Statistics Canada data we have, but parts within that industry—fresh produce versus milk and dairy, and eggs versus other parts of those stores. We don't have that data. We're asking nicely for it. The Competition Bureau is asking nicely. It cannot compel data from grocery stores like the FDC can in the U.S. It would be fascinating to see that data.

[Justine Hendricks]

J-P, I might ask you to very quickly say one or two words, but I just want to be clear to the committee that I did not comment on the profitability of the large grocers. What we talked about is the need for innovation and productivity.

J-P, can you maybe say a few words on the need for Canada to improve its productivity, which is key to reaching some of our goals for this country?

[Jean-Philippe Gervais]

In the case of data, first of all, data is power. More knowledge will allow businesses to make better decisions. If we can drive to efficiency with decisions and data and then drive to efficiency and lower costs, I think all Canadians are going to benefit.

Data is power, so I think it is about more knowledge for businesses to make better-informed decisions.

[The Vice-Chair, Conservative, John Barlow]

Thank you, Mr. Gervais.

Now we have Mr. Perron for two and a half minutes, please.

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

Thank you, Mr. Chair.

Mr. Gervais, someone referred to a report that you wrote, if I'm not mistaken. In the report, you talk about tremendous pressure on food producer and processor margins and the fact that in grocery stores, the margin has gone up.

What can we conclude from this?

[Jean-Philippe Gervais]

The report sticks to the margins of food processors. We are building an index because we don't necessarily have access to primary data. However, we do see trends based on the indices we can get from Statistics Canada. We see that in general, the decline in gross margins to revenue was in the range of 10% in 2022.

Therefore, processors have absorbed cost increases. In addition, as the price index for industrial products, or processed food products, rose as well and some of the cost increase was passed on to processors. They have had to absorb some of those costs given that profit margins are at their lowest level in 20 years. We haven't been able to go further back in time, but clearly there hasn't been a profit margin index as low as what we're seeing now in the past 20 years.

It's true that there is a lot of information to take in there, but I would point out that we're talking about gross margins here, meaning that we subtract primary input and labour expenses from gross revenue.

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

If you compare to the big grocers' margins and profits, which have gone up, you can still see that there seems to be an imbalance.

Wouldn't you agree?

[Jean-Philippe Gervais]

That's certainly true if you're talking about gross margins, which are down in the processing business. I say that because it's been mentioned here, but it's not something we addressed in the report. That said, if you look at the fact that retail margins have gone up, you also see that some profit margins are going in the opposite direction.

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

You and Ms. Hendricks both mentioned the need to enhance productivity.

What could be done to enhance productivity in the agri-food sector? Given the current environment of scarcity, do you feel that an investment program or investment incentive to enhance automation would be advisable?

[Jean-Philippe Gervais]

Labour shortages present one of the most significant challenges across the agri-food sector. That's certainly the case for the processing industry, which is experiencing acute labour issues and growing productivity needs. It has failed to keep pace with productivity increases. The processing industry is facing this, but so is the primary production industry. As I said, these challenges affect the entire sector.

Anything that would help increase productivity with the goal of lowering business costs could cause consumer prices to stabilize, at the very least.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Perron.

Mr. MacGregor, you have our final questions, for two and a half minutes, please.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you, Chair.

I'll turn to Farm Credit Canada.

Ms. Hendricks, thank you for joining our committee today.

Farm Credit Canada is set up by an act of Parliament, the Farm Credit Canada Act. I'm curious. You're before a group of legislators here, and I am wondering if you can provide your honest opinion on the act. Do you see any room for improvement? Are there any areas in the act that you think we as members of Parliament could look at for possible amendment? Do you feel that your agency maybe needs a better definition of different services you could provide? I would like some feedback in that respect.

[Justine Hendricks]

Thank you for the question, and keep in mind that I'm on day 75 of my role.

To the extent that I've thought about it, the way our mandate is written actually allows us to do what we believe we need to do. That's reflected...whether we provide advisory services or financing. We're involved in venture capital and some auxiliary services, such as the great work that J-P does in his department.

When I look at the customer base we have, I see that we can deploy what we need to in helping Canada.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

I have a quick question before my time runs out.

Your main purpose, of course, is to be a financial institution with agricultural interests at heart. Many farming operations depend on Farm Credit Canada to get through a year, but you also have some very difficult conversations from time to time with the ones that are struggling.

What does Farm Credit Canada hear from farmers when they're talking about their relationships in trying to sell to retail chains? We've heard from farmers who say they are struggling, and in some cases some of the retailers have slapped unfair fines on them.

Can you provide any context or detail on some of the feedback you've received during the difficult conversations you've had with farmers when they've been struggling financially?

[Justine Hendricks]

I don't have any specific details that I believe would answer that question. I would offer that one of the reasons the farming community and the whole agri-food chain have a strong relationship with Farm Credit Canada is that we are there in the good times and the bad times. We put a great deal of pride and attention into working with every single farmer through difficult times, whether it is through interest relief programs we have or, if we need to, through restructuring the facility they have. That is probably the number one reason we have such strong brand loyalty. We intend to continue to operate that way. We're here for the long run.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Ms. Hendricks and Mr. MacGregor.

I see your hand up, Mr. Lehoux, but before I get there, I'll thank our panellists. That wraps up today's presentation. Thank you very much for your testimony, comments and submissions for this study. You are now free to go.

For the rest of my colleagues, we have a couple of reminders here, and then we'll go to Mr. Lehoux.

Remember that the witness lists for the animal biosecurity study are due tomorrow by four o'clock. If you have not already submitted witness lists, please do so with the clerk. Also, as a reminder from our analysts, the deadline for recommendations on the food price inflation study we are working on is April 20. I know we still have another panel or two on this study, but if you can start working on those recommendations and provide them to our analysts by April 20, that would be very helpful.

Mr. Lehoux, please go ahead.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mr. Chair.

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

I like to inform committee members that last Friday was quite a dark day for my region. It was announced that the Olymel pork processing plant, which employed 1,000 people, would be shutting down.

The announcement was made on Friday morning. The plant will be shut down as of December 2023, and operations will start slowing down in September. The evening shift will be eliminated, and then it will be over. This is a real blow for the employees. There's also the whole issue of production. Over 30% of Québec's pork is produced in my riding and surrounding municipalities. This major event will also have repercussions on some of our fellow producers in Ontario. The Olymel plants in Quebec slaughtered 700,000 to 800,000 hogs. The impact will be felt not only in my constituency, but throughout Quebec and Ontario.

Many factors, including a labour shortage, contributed to the decision last week. The concentration of all processing facilities and federal regulations have always been a major concern. In our 2021 report, we made some recommendations on processing capacity, and yet no changes have been made since then.

Producers in my riding and a number of other constituencies in Quebec are very concerned because the closure of this plant will mean a greater distance to travel in terms of slaughtering hogs, in some cases hundreds of kilometres more. Several producers contacted me over the weekend, and I found their state of mental health very unstable. These factors are quite significant.

So I'm bringing all of this to your attention. I intend to introduce a motion for an upcoming meeting so that we can do a quick study on this issue. So far, there is no change to the analysis of the consumption capacity that was done in 2021. I would like it if we could discuss this particular situation.

We're talking about food insecurity in Canada and around the world. In my opinion, we really need to take the time to discuss the closing of this plant in the agri-food sector, which employed 1,000 people in the regions.

I will put forward a motion at an upcoming meeting so that we can have a look at this. I believe it's really important.

[The Vice-Chair, Conservative, John Barlow]

Thank you, Mr. Lehoux.

Thank you for bringing that to our attention. I know many of us have those types of facilities in our ridings. I know losing Cargill in High River would be pretty difficult for my area as well.

I would bring a motion forward in a future meeting. Perhaps we can add that to our list of study issues to discuss.

Seeing nothing else, thank you very much colleagues. We'll see you on Wednesday.

The meeting is adjourned.