Thank you.
Good afternoon, Mr. Chair and committee members. As you identified, I'm Leah Olson. I'm president of the Agricultural Manufacturers of Canada. Our board chair, Geof Gray, sends his regrets for not being able to attend.
I'd like to provide a few remarks before the floor is opened for questions.
I'm pleased to be here as you continue your study on manufacturing in Canada. It's an important one, and I want to share with you the critical role that agriculture equipment manufacturers play in today's economy.
The Agricultural Manufacturers of Canada is a national member-driven industry association with just under 300 members. Our mission is to foster and promote the growth and development of the industry in Canada.
Canadian-made agriculture equipment is among the highest quality in the world. Just over 50% of our manufacturing members are located in communities of fewer than 10,000 people. Some of our members are located on the family farm or in communities where the people they employ outnumber the community they're in.
For example, Westfield, founded in 1951 by Abraham Plett, a farmer turned manufacturer, is a leading producer of grain augers. Westfield, acquired by Ag Growth International in 2000, continues to have its manufacturing facility of approximately 175,000 square feet in Rosenort, Manitoba, a community of fewer than 600. Their products are exported to over 30 countries worldwide, and they employ approximately 250 people at their plant in Rosenort.
Seed Hawk, a manufacturer of seeders, was established in the early 1990s when Pat Beaujot, a professional agronomist with a passion for precision seed and fertilizer placement, wanted to avoid tilling his farmland but did not have the equipment on the farm to fit his needs. As such, he and two partners developed and began manufacturing equipment to enable them to employ no-till technology. Today, Seed Hawk is majority owned by a privately held Swedish company, Väderstad. Despite the ownership change, Seed Hawk continues to be located in Langbank, Saskatchewan, a hamlet with a population of fewer than 100, and they employ more than 200.
These are not isolated examples; rather, they are the norm within our industry. We provide unique employment in all realms associated with being a quality manufacturer: finance, marketing, IT, engineering, procurement, etc.
All across Canada, agriculture equipment manufacturers are making a positive economic impact, but they are not immune to global market downturns and job losses. While there have been some employment reductions, it is not consistent across our industry. In fact, with a global downturn, most of our members, small and medium-sized, have turned to increased R and D and made efforts to reduce their input costs rather than seek out government subsidies.
The key role the government can pursue for agriculture equipment manufacturers is to enable further innovation by providing tax rebates supporting R and D and the commercialization of our products in Canada and globally.
Machinery has been at the heart of Canadian agriculture for many years. It shaped agricultural practices and, in many respects, created the opportunity for rapid European settlement in the late 1800s. The agriculture equipment manufacturing industry has progressively developed as an entity separate from commercial or industrial manufacturing.
Central to this evolution was the need to develop agricultural machinery capable of meeting the challenges of our Canadian climate. This drive for innovation was critical to farmers who struggled with foreign equipment designed for smaller farms and less arid conditions. These same challenges have enabled Canadian agriculture equipment manufacturers to be global leaders in the development and production of high-quality, durable, and innovative machinery.
Innovation is crucial if we want to address global issues such as overpopulation, limited resources, and the need for food. The agriculture industry will need to produce more with less, and Canadian farmers are at the forefront of meeting this challenge. AMC's members continuously develop innovative technologies and manufacture products that enable us to be leaders throughout the world. This puts us in a good position to align with and inform the government's innovation agenda.
Our industry is unique, not only in that it's developed in Canada, but also because it impacts food sources globally. Our products help feed the world. Our environmental footprint is better today than 30 years ago because of the equipment that we have built and that we are using.
Our members lead the world on intellectual property of agriculture equipment. Innovation happens every day because our members are talking directly to farmers and responding to their needs by further refining and enhancing their products.
For us, innovation is not just a way of being or something that happens in an isolated facility. It is how we manufacture and manage our day-to-day operations. It is what drives us to develop some of the best agriculture equipment in the world.
Although our sector innovates regularly, there are some areas that could be improved, which I'd like to discuss with you.
First, I'd like to speak about the industrial research assistance program. The $50 million in additional support allocated to IRAP in the 2016 budget is an important investment in moving the innovation agenda forward, and we applaud this. It has helped our members tremendously.
For example, as one of our members highlighted: “We were given an IRAP grant last year that allowed us to do some testing with the Prairie Agricultural Machinery Institute (PAMI) on a new product destined for the European Union. That product testing identified a fatal flaw in one of our components and allowed us to stop installation and adjust our product development direction into something that worked.” They continued: “Without the IRAP funding, we would not have been able to afford the testing. The test was expensive and we had put [all of] our money and energy into the design and development of the prototypes. While the testing year wasn't pleasant due to the identified failure, the results could have been disastrous for us if the product had made it to the [European] market without this test and instead of costing us a few hundred thousand dollars to right the problem it could have easily cost us millions.”
Small and medium-sized enterprises benefit greatly from the IRAP program. Often, it is the difference between launching an innovation, leaving it on the research floor, or launching it without due testing. However, we'd like to see IRAP expanded to cover production and marketing costs of projects, which would help grow our industry even further and contribute to an innovative economy.
Another program that is beneficial to approximately 60% of agriculture equipment manufacturers is the scientific research and experimental development tax credit, SR and ED. However, administrative costs associated with it are increasingly burdensome, resulting in research and development becoming more challenging. The process to make a submission to the program needs to be streamlined if the objectives of the program remain to reward innovation.
Of our members who use the SR and ED program, many are frustrated with the submission process, indicating that it is confusing and often requires professional outside help to do the applications. Often, members will pay anywhere from $30,000 to $100,000 to get the application done. If you assume that 10 of our members hire external consultants for their submission, the combined amount is upwards of $1 million going into administration costs rather than innovation itself. Perhaps it is the cost of doing business, but these are dollars that we would rather see invested in R and D.
Innovation in our industry is incremental, and it's these small steps that allow for the leaps and bounds to occur. We encourage the government to not only streamline the process, but to also have auditors who understand the agriculture equipment industry.
Finally, I'd like to speak about market access.
Export Development Canada is a key player for many of our members, and we thank them for their support.
In 2015 agriculture equipment manufacturers exported 1.8 billion dollars' worth of products to 154 countries; the U.S. was 82% of this. This is why we're keen to see the trans-Pacific partnership agreement ratified, and we want to work with the government on communicating to the public the importance of stronger and more open trade relations.
Innovation minister the Honourable Navdeep Bains recently said in a speech, “As a country made up primarily of small businesses, I'd like to see more than 10% of them exporting, and to places other than the U.S.”
Mr. Chair, we agree. Australia and eastern Europe are key markets for Canadian agriculture equipment manufacturers. Our equipment performs very well there, but there are also great opportunities in South America and Asia. The government could do more to support our efforts at international farm shows and in working with us on challenges that have been overlooked, for example, visas and getting entry into a country more easily to market our industry's products. Continued investments, promoting international trade, and bringing international buyers to Canada are key to our continued growth.
In conclusion, Mr. Chair, Minister Bains has said that innovation is “the path to growth” and the path “to a stronger middle class and higher quality jobs for all Canadians.”
Mr. Chair and committee members, we could not agree more. AMC members help drive the Canadian economy, are global leaders in innovation, and are entrepreneurs who are feeding the world. That's why changes to IRAP and SR and ED, as well as opening up international markets, are integral to Canada's innovation future.
Thank you. I appreciate the time you have given us.