Agriculture Committee on Dec. 4th, 2023

[Dimitri Fraeys]

First, we need to look at food taxation policy. In many cases, goods and services tax, GST, is still charged on various food products at the grocery store. I think it would be a good idea to rethink that and eliminate the GST on all packaged products. Right now, there's GST on some products and not on others.

Second, transportation costs are a big one for us. Reducing taxes on energy, both for transportation and for businesses, is extremely important. That's a big part of our production costs.

Third, we need to automate and computerize factories to boost productivity. Higher interest rates mean that some SMEs can't really afford to automate their factories. We need financial programs to support businesses and facilitate factory automation. Programs that were implemented in some provinces have shown that this can accelerate the adoption of new cutting-edge technology. If a factory can improve its productivity, it will automatically improve its profit margins. In Canada, manufacturers' profit margins fell by 15% from 2019 to 2023. Profit margins now are lower than they were in 2020.

Fourth is sustainability. We have to do a better job of managing waste and packaging, but we have to do it over a longer period of time. As was mentioned, front-of-package nutrition labelling begins January 1, 2026, for all general prepackaged foods that meet or exceed 15% of the daily value of certain nutrients. That will result in an incredible amount of packaging waste. All businesses will have to update their packaging at the same time, so we should expect packaging costs to go up over the next two years. As we heard earlier, that's likely to cost $8 billion.

These costs could be reduced to help consumers. I think more time is needed to implement these things. Right now, we're really in the eye of the storm.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much.

Now we have Mr. MacGregor for six minutes, please.

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

Thank you very much, Mr. Chair.

I'd like to echo the comments of all of my colleagues in thanking all of our witnesses today for helping guide our committee through this very important study.

Ms. Farrell and Mr. Graydon, I'd like to direct these questions to both of you.

Both of your organizations represent companies of a variety of sizes and strengths. Some are very large multinationals with a lot of market power of their own; others are small to medium-sized industries that are located in just one province or a region of a province.

Minister Champagne and Minister MacAulay both acknowledged that there was a need for greater competition and innovation in your sectors as well.

Mr. Graydon, I take your point. I think you said in your opening statement that in the last 15 years there has been a doubling of costs just to put items on store shelves. I have that comment in mind that it's become increasingly expensive for companies that you represent just to get their items listed, and then you have ministers asking for greater competition. Of course, some companies are better able to absorb the costs that retailers have put on them, while for others it's much more difficult.

We've heard repeated reference to this power imbalance. What have the challenges been in your sector in terms of encouraging greater competition, when, as you've mentioned, there are all these barriers to your companies' just getting items listed on store shelves?

[Michael Graydon]

It has been very difficult, actually, to stimulate competition.

The small to medium-sized enterprises in this country, which represent a large majority of the manufacturing facilities, are having a really difficult time. As my colleague indicated, just the issues in regard to financing are very difficult. It is very difficult for them to capitalize their business or to take advantage of the opportunity for efficiencies through automation. It's been a challenge.

Larger manufacturers are working very hard to try to streamline and make investments. Unfortunately, what's happening is that a lot of the manufacturing capacity, even of the global players, is transitioning to the United States. In this country we're starting to see plants close.

We, as an industry, represent 350,000 workers. I think that number will decrease quite significantly over the next few years.

[Kristina Farrell]

I'm happy to add to that.

Many of our small and medium-sized companies are battling the costs of ingredients, packaging materials, pallets, transportation and labour. Having to deal with all of this before the next supply chain disruption hits makes it difficult for them to even look at things such as innovation or investing in automation or technology to make themselves more efficient and competitive.

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

Thank you.

Mr. Graydon, I don't want to belabour the point. I think you've made it quite clear. You were able to say out loud what Mr. Medline was unable to say, which is that it was Loblaw and Walmart. I think it's unfortunate that those two companies seem to have thrown a wrench into the works.

Before their apparent opposition to the process, is it correct to say that we seemed to be on a path towards a voluntary code, but that now you believe that the only way forward, in order to make it fair for all players, is for the government, in conjunction with the provinces, to use its legislative authority to make this mandatory, with clear rules for everyone?

[Michael Graydon]

Yes, I think that's the only path forward.

We looked at the request from Loblaw with regard to changes, and they would have virtually neutered the code and rendered it ineffective. I think we, as an organization—by which I mean the working group from the code committee—provided some very concrete responses to them.

It was a negotiated process. Everybody around the table made compromises. To expect everybody to make further compromises at the eleventh hour for these two organizations was really unfortunate.

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

Yes, it's a bit of a disappointment.

Ms. Farrell, in your opening remarks you made mention of something that I don't think we talk about very much as a cause of food price inflation, and that is climate change.

We depend on a lot of our fresh produce coming from the United States, particularly the state of California. They've certainly had their problems with droughts and with extreme weather events, as have many parts of Canada.

I've been on this committee now for six years. We have repeatedly heard farmers, our primary producers, talking about how they are on the front lines of climate change and how in a matter of minutes, let alone hours, they can see an entire crop wiped out by an extreme event.

Can you talk a little bit about that? How often are you hearing from primary producers that extreme weather events have led them to not be able to supply enough or to have to increase their costs?

[Kristina Farrell]

We're very cognizant of the impact of climate change on our primary producers, and food and beverage manufacturers were the largest consumers of those products. I will note that we've made it clear that we want to be partners with government as we begin to look at this. Every time there is a climate event, whether it be floods in B.C. or fires in Alberta, we see the impact across our food supply chains. We recognize that this is something we need to take seriously, and we need to work across the food supply chain to come up with some of those solutions.

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

Is there anything you want to add, Mr. Graydon?

[Michael Graydon]

Yes, it's challenging. We are now looking at a 38% price increase in orange juice for next year. It's basically because of challenges within the crop, both in Florida and Brazil. There's a blight going through South America that is wiping it out. That's climate-driven, and it is a challenge. We continue to be impacted, because those are significant. We don't grow oranges here, so it is a challenge. I think our mimosas will probably have a little less orange juice at next new year's celebration.

[The Vice-Chair, Conservative, John Barlow]

Thanks, Mr. Graydon.

I'm now going to pause for a minute to make sure everybody has a chance to vote. We'll just take a minute from our witnesses....

Now we'll go back to our last two rounds of question.

We have Mr. Epp for five minutes, please.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

Thank you, Mr. Chair, and thank you to all the witnesses for being here.

I'm going to pick up on a comment from Mr. Drouin from across the table. I'm a proud Conservative and I believe the market is the best way to transfer goods and services. However, the market only works when there's a balance of power, and that's, I think, at the heart of what we're dealing with here.

The code of conduct has come up from all the witnesses on both panels here today. Let's go back. This is not actually inventing the wheel, because as has been brought up in testimony, other parts of the world have gone down this road.

Can you comment on the history just in general, and the history of the Australian model and the U.K. and Irish models? They did not start where they are right now. Why?

I'll start with you, Mr. Graydon.

[Michael Graydon]

Fourteen years ago, when the U.K. code was implemented, it was a voluntary code as well, and it lasted two years. Unfortunately, the large retailers in that market did not participate and comply with the code, which forced government to regulate it.

In Australia, they pretty much learned from the U.K. experiences and implemented a regulated code right from the start. They are two very different codes. The U.K. code is very principle-based, which is something that we've aligned to. The Australian code is very much prescriptive. It reads almost like regulation in that aspect of it.

Both have been very effective in regard to achieving the results and the principles that they had originally intended to try to solve.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

My understanding is that the Australian code, though, is still a voluntary code. Is that correct or not?

[Michael Graydon]

No. It is voluntary inasmuch as once you sign on, you must live and abide by it. There are only two retailers in the marketplace, so those two retailers do currently participate. We've structured the Canadian code as a voluntary code in the same way. Once you're in, you must live and abide by the code.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

Ms. Farrell, I just want to make a small correction. In your opening testimony you mentioned canned vegetables. It's canned and also frozen vegetables, because I've supplied both to your members.

How many of your members are big enough to stand up and say no to one of the big retailers and not suffer dramatically?

[Kristina Farrell]

There are not many of them. The majority are small and medium-sized retailers. That's the makeup of our companies.

I will note that from the beginning we have been pretty clear that we wanted the code to be mandatory and enforceable, recognizing that most of our companies are small and medium-sized and don't have the ability to stand up to the big retail companies.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

The code deals with the distribution of shocks and the distribution of costs; and the challenge before the committee and the government is actually to reduce grocery costs.

I look at what's come up in testimony today. I think I heard correctly that we have $8 billion for front-of-package labelling. We have $5 billion that is internal to fines within the system. I haven't heard a number yet on what the carbon tax is adding, but I think that will be coming out shortly. I also haven't heard a number of what the potential cost, besides food spoilage, would be for the P2 arrangements.

Can anybody comment on an estimated number for the cost to the system just on the P2?

Mr. Graydon, can you comment?

[Michael Graydon]

No, I can't. One of the things to remember, Mr. Epp, is that we're concerned about fresh fruit and vegetables that are coming to retail. Manufacturers who also buy that product at certain times of the year to supplement their processing will have no availability of those products as well, so there will be significant cost implications, but I don't have a number for you today.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

I will ask that question of Mr. Sands.

Would that then impact the food security aspects in the rural and remote areas of this country?

[Gary Sands]

It will, very much so. It will just compound the challenges we're already facing.

I just want to emphasize that in addition to the cost—the CPMA has told us the cost would increase by 30%—I think the real paramount concern should be that these products won't be getting to these rural and remote communities. They'll just be cut off. That's the issue. It just won't be feasible in terms of cost.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

Specifically on the regulations around labelling, when I go to the grocery store here in Ottawa, I use a QR code to park my car. Why is that not feasible for health and food safety and other regulations on our food products? Why wouldn't that work, Mr. Graydon?

[Michael Graydon]

I think it would work. I think that is our recommendation to government.

This is 2023. You're right: You park your car, you go to a restaurant and you get your menu. I think the penetration of smart phones within the Canadian population is significant enough that a majority of people have access.

It also provides timeliness. We can change the data relevant to a QR code in days instead of asking for a four-year transition period on packaging to be able to protect against writing off inventories of packaging.

[The Vice-Chair, Conservative, John Barlow]

Thank you, Mr. Graydon. Thank you, Mr. Epp. It was a good effort, though, to try to get one more in.

Mr. Louis, you have five minutes. I understand you're going to share your time. I will leave that up to you.