Finance Committee on Sept. 25th, 2017

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Okay.

Moving on to the Co-operative Housing Federation, one of your ideas was with regard to the prepayment of high-interest CMHC mortgages. When I first moved back to Ontario, I lived in a downtown Toronto riding that had a lot of co-op housing that's represented by the Parliamentary Secretary to the Minister of Human Resources and Skills Development. What amount in mortgages are we talking about, and how big a catalyst would this be to the development or the construction of new co-operative housing?

[Timothy Ross]

We think we've really only scratched the surface of the potential of new financing of housing co-operatives to fund modernization. Again, the indicator right now is that, just in about a two- to three-year period, we've leveraged about $100 million in new mortgage financing to finance the renewal. We think it could be significantly more if the terms of prepayment were improved for certain types of housing co-ops.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I do agree with you. I remember canvassing some of the co-ops in that riding and meeting the individuals there. These are individuals who we want to make sure are not being left alone or behind, if I can use that term, and who we need to assist. Our government is there doing that with the development of our national housing strategy as well.

Mr. Atkinson, I do want to go back to you for one second. Thank you for your constructive comments with regard to the current conversation around tax policy in Canada. Thank you for using the terminology that we need to calm down the rhetoric, that our government is consulting, and we are listening to all sides of the debate and all ideas that are being generated. Thank you for saying that. That was nice of you to say.

Moving on to the Association of Canadian Faculties of Agricultural and Veterinary Medicine, we know the agrifood business in Ontario is, if I'm not mistaken, the largest industry in Ontario right now, and we need continuing innovation there. Please comment on your top two ideas on how we can move the needle with regard to innovation with regard to a very important sector of the Ontario economy specifically, and of course of the Canadian economy.

[Dr. Jean-Claude Dufour]

Mr. Sorbara, I will answer your question.

If we want to accelerate innovation, we must first help SMEs with matching funds. I'll give the example of the faculty at Université Laval. About a hundred small businesses are working with us, whether they're producers or small processors. These people need help with matching funds. If we want to rapidly increase innovation, the first element is to get them to invest in innovation.

Then we obviously have to deal with training. Producers and small processors have staff, and we have equipment that is often very efficient, thanks to the Canada Foundation for Innovation. We have the necessary knowledge. They must now have access to this knowledge. That is often where the problem lies. I think they need help in going and getting it, and we need a training program that can be directly adapted to the industry. Obviously—

[The Chair, Liberal, Wayne Easter]

I'll have to end you there, Francesco.

Mr. Albas, you have seven minutes.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

I want to thank all of our witnesses for coming here and sharing. I try to learn something new every day, and you have done a very good job, so it must be downhill for rest of this meeting for me.

Mr. Helie, what are Canadian firms' marketplace share here in Canada domestically?

[C.J. Helie]

On the spirit side, we represent just under 60% of Canadian spirits consumption.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Okay, so we have 60% of it currently.

Who is most sensitive to these excise tax changes? Is it the larger firms or is it the smaller ones?

[C.J. Helie]

It's equally damaging. From a large producer perspective, what it does is it rips out any investment in innovation, and on the smaller producer side, it just destroyed his business plan because most of these have been open for less than three years.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

That was going to be my next question because the maturity of firms is also a big question. Obviously, someone new has to pay off the capital investment and keep the doors open with their staff. You would then think that the more mature, larger firms are able to weather the storm a little bit better.

[C.J. Helie]

The second recommendation we have is a step system that would provide every producer a break on their first 100,000 litres of pure alcohol, let's say. Obviously, there's a much greater proportion and value to small producers producing up to 100,000 hectolitres, but the actual investment is going to come from the larger firms, so it depends on what you're looking for, jobs or investment.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Well, we're certainly looking for both, and we're looking to see them do well.

Again going back to the smaller firms, there are many people who have opened up small artisan distilleries in the Okanagan, for example. What are some of the concerns for someone with these new excise taxes? Can you maybe elaborate on that a little bit further?

[C.J. Helie]

People are enthused about the idea of getting into the artisan spirits business. It sounds very romantic but what they don't always do is have a full business case done in advance and they are surprised and shocked by the amount of investment that is required to get into a liquor board system, to develop a product that differentiates them from what's already in the market. One more hit like excise threatens closing some of those stores.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Where do you see most of the growth in the spirits industry in the past five years? Is it in the mature market or is it in these new craft artisan distillers?

[C.J. Helie]

It's in new artisanal products made by producers of all sizes. That's what has differentiated spirits from the other sectors. Products like Lot No. 40, Pike Creek, Gooderham & Worts, are all produced on a craft basis by established large firms.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Who are our main competitors in the domestic market?

[C.J. Helie]

On the whisky side, it's the Scots, the Irish, and the Americans. The Irish and the American whiskies have been seeing double-digit growth for the last five years or so. Canadians still prefer Canadian whisky, so 65% of the whisky market in Canada is occupied by Canadian whisky. That was 70% six years ago.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Why have the Americans, the Scots, and the Irish seen large returns in growth in their industry?

[C.J. Helie]

Primarily because of the level of investment they're putting against their brands, because all investment in foreign markets—so in this case an American investing into Canada—is funded by their local market. The fact that they have much higher margins in their home market allows them to invest in foreign markets and develop new export markets, something that we don't have the dollars in our jeans to do.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Already the Canadian producers basically are taxed much higher than other competitors.

[C.J. Helie]

Exactly, and that was the fallacy in the department's analysis last year. They assumed that there was all this tax room for them without doing the analysis to recognize that we are already dis-investing from the Canadian whisky business and the Canadian spirits business, as has been seen by some members here from Brampton. They know that a Bacardi plant that had been in operation for over 40 years had to announce their closure. People down in Windsor noticed that the Canadian Club Heritage Centre had to close its doors. It's all because we don't have enough resources to fully invest in our franchise.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

If we don't have a tax-competitive regime in Canada then when we open ourselves to tariff-free access—and I'm a big believer in free trade—is it going to put that 60% at risk?

[C.J. Helie]

We do not advocate tariffs or building walls because 70% of what we make we export. We have to have clean hands ourselves to make sure that we continue to have open access in foreign markets.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I'm a big believer that we can compete and do very well in the world. It's just, again, what kind of regime are we operating under if we don't allow these small producers to become large ones and large ones to be able to get economies of scale that they can compete with? I imagine with the Scottish, as well as the Irish and some United States companies, they are very mature and established.

[C.J. Helie]

The spirits industry is a global industry. So we have a Canadian subsidiary of a multinational. That Canadian subsidiary has its own profit-and-loss responsibilities. If you increase the cost of that Canadian subsidiary, they can't reach into their Scottish counterparts or their American counterparts and pay for that. It has to be generated from the domestic business itself.