Mr. Chair and honourable members, I'm honoured to appear before you this afternoon and provide my insights as a researcher with the Canadian Agri-Food Policy Institute, an independent research institute focused on agriculture and food.
The COVID-19 pandemic brought important concerns regarding agri-food supply chains to light, but in fact, pressures on agri-food supply chains existed prior to this. Many of the gaps observed in the agri-food supply chain are highly tangible, relate to human and physical capacity, and are transactional in nature. Too few truck drivers, too few international shipping containers, insufficient commercial cooling capacity to handle pulses of cold chain inventories—each of these contains its own market dynamics, anticipated fluctuations and perceptions of risk, and also plays into social and economic megatrends relating to workforce capacity utilization and investment.
The sharp reduction in food service demand during the pandemic focused the consumer supply of food and demand for wholesale food with grocery retailers. Consumer prices were tightly monitored for gouging, but it was more difficult to monitor wholesale market power. This has intensified pressure for a grocery retail code of conduct. It stands to reason that retailer market power directed at food processors would eventually spill over into farm market products, with a great fragmentation of effect across farm products.
In many cases, food-processing plants operate at large scale to offer efficiency and low unit cost. However, this creates a large impact on farm product markets if these are suddenly shuttered. The closure of small plants would be much less disruptive, with farm product more easily redirected. However, small plants are no panacea and come with very significant loss of efficiencies and difficulties with regulation and marketing. The framework to broadly assess this trade-off between cost efficiency and resilience does not easily present itself.
More generally, governments do not have any kind of dashboard from which to monitor supply chains, track performance, and detect and analyze system bottlenecks in real time. This has been left to markets and profit-motivated adjustments in operations and investments, to our great benefit. However, in the face of stark sudden adjustments from climate extremes, disease emergencies, and geopolitical pressures, this mechanism alone is unlikely to be adequate going forward.
The changing global food security and geopolitical context challenge our understanding of macro effects on supply chains. The current situation with a Canadian ally under attack and hostile occupation means that we must assume our supply chains may need to be redirected to supply our allies. However, this is only the latest and most dramatic devolution in the international geopolitical order, in which food is increasingly used as a weapon.
As our rules-based system of international trade has eroded and countries target farm and food products as an instrument of retaliation and political agendas, Canadian companies are increasingly exposed. When companies invoke shifting or arbitrary food regulation and technical standards, such as coronavirus sampling on food packaging, as a means of disguised protection, the first victim is the exporting company.
Our Canadian agri-food exporting companies are vulnerable to serious financial injury as a result, and we lived this experience in canola and pork, as have some of our allies, notably Australia. Conversely, we need to concern ourselves with the prospect of predatory foreign acquisitions of Canadian agri-food assets, stemming from the financial injury from frivolous intentional trade barriers and otherwise.
The minister's mandate letter establishes human resources as an important focus of agri-food policy. It is also encouraging that the department has developed new capacity in monitoring and analyzing supply chains through the retail and consumer task team, and this can be further expanded. We have learned through the COVID-19 pandemic that agri-food supply chains can be long, complex, and subject to shifting bottlenecks. This presents the need for expanded conceptual frameworks and much broader data collection.
Yet, some supply chain issues are really matters of efficiency and competitiveness, such as the need for a more agile regulatory system and new investment in automation and digitization. These are already known from the Barton report, the economic strategy table and previous research, and simply need to be fully enacted.
As an open economy and a major agri-food exporter, Canada can be vulnerable in an international trade environment that has grown increasingly unkind. Redoubling of market access enforcement under trade agreements is necessary, but Canada must go further.
Canadian exporters need greater protection from the abusive effects of frivolous and predatory actions of others. Increased export market advocacy, indemnification for sudden losses of market access, and increased investment in processing to support value-added exports and greater import replacements are strategies Canada should advance.
Equally, policy needs to adjust to recognize the risk that foreign investments in Canadian agri-food supply chains could be extensions of the political and mercantilist agendas of others and not aligned with Canada's interests. In this regard, Canada should be prepared with formal reviews of foreign investments and acquisitions of Canadian agri-food assets where these raise concerns.
Finally, we are two generations removed from the prospect of supply chains aligned to support allies in time of war. How this will occur, when many of today's agri-food supply chains are international and populated by competing multinational firms, is unclear. This should elevate agri-food as an element of Canada's foreign policy.
Thank you.
