Evidence of meeting #26 for Industry, Science and Technology in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was products.
A recording is available from Parliament.
Director General, Sector Development and Analysis Directorate, Market and Industry Services Branch, Department of Agriculture and Agri-Food
Those are a lot of questions.
Director General, Sector Development and Analysis Directorate, Market and Industry Services Branch, Department of Agriculture and Agri-Food
Under the Growing Forward 2 policy framework, we have a program called AgriInnovation. In it we have the cluster program. It is commodities specific, so we have a wheat cluster and a canola cluster. This time around, we created the food processing cluster through the Canadian Food Innovators. They identified some key priorities, like health and well-being and food security and safety, through a collaboration between government, universities, and industry, and they're working on some key projects.
One project is a blueberry juice that uses not only the juice but also the blueberry pulp and seeds. They were working with food safety scientists, likely in the Guelph food technology centre, to ensure that they could have a liquid form with the health benefits. If they heat it up, they lose the health benefits. How do they have the capacity to ensure that it is safe but not heated so high that they lose the health benefits? They worked on that, and it's now commercially available and has won what they call the Sial prize.
It's that kind of collaboration that's happening in the food processing clusters.
Regarding colleges, it's a unique challenge. I think you'll probably find that in any manufacturing sector.
Liberal
Lloyd Longfield Liberal Guelph, ON
If I can interrupt, that's where automation happens. It is at the colleges. That's where I graduated from.
We don't have the automation, and we're not supporting colleges. That is what I am concluding.
Director General, Sector Development and Analysis Directorate, Market and Industry Services Branch, Department of Agriculture and Agri-Food
Agricultural colleges are declining in enrolment, as well.
Liberal
The Chair Liberal Dan Ruimy
Thank you very much.
The last question goes to Mr. Masse. You have three minutes.
NDP
Brian Masse NDP Windsor West, ON
To follow up on the U.S. and Mexico, I think it is important for Canadian competition. Is there a measurement standard? Do we share data with these nations?
Say, for example, we're getting a Mexican product that's going to come through the U.S. If they find problems with it, is that information then shared with Canada? Say, for example, it's a fruit or vegetable that is caught in the U.S. If they have a chronic problem, do they let us know about that company and that processing?
Acting Executive Director, Food Import, Export and Consumer Protection Directorate, Canadian Food Inspection Agency
Right now I don't believe there's a formal standard. Normally, if they catch something that's non-compliant, it would just be turned away by the U.S. That's through their own import rules.
We do, without question, have a good relationship in terms of, if we have any concerns that products have made it to market in either country and we know about it, advising our neighbours to the south. If they find a product, from any country in the world, that they feel is a food safety risk, without question they will alert us as well as the international bodies. There's an organization called INFOSAN, where countries notify one another of those issues.
In addition, there is the food safety systems recognition arrangement. This year is about implementing that recognition agreement. One of our objectives is to sit down with the United States Food and Drug Administration and actually discuss how to improve our relationship, which includes notification and sharing of information. That's already been identified, now that we have this recognition agreement and our relationship is so strong, as an area we can definitely put more effort into to try to improve what's already a very successful process. There's always room for improvement.
NDP
Brian Masse NDP Windsor West, ON
With regard to the country of origin labelling between our countries, one of the things that took place was that a grain mill, one of the last ones in Canada if not the last one, Dainty Foods in Windsor, was going to actually have a tax put on for rice coming in from the United States. It was kind of odd, because we were punishing ourselves. There were 100 different potential penalties for that.
What type of consultation is done when we start using potential penalties with the United States when we get into a dispute about labelling and other issues?
Acting Executive Director, Food Import, Export and Consumer Protection Directorate, Canadian Food Inspection Agency
CFIA doesn't get into tariff issues or taxes. It's only about food safety and labelling requirements, in that sense.
Normally we try to work it out through consensus building and working with each other. I think the country of origin was a unique incident that went to the WTO, but the vast majority of differences we work out through negotiations between our two countries at the official and ministerial levels.
Liberal
The Chair Liberal Dan Ruimy
Thank you very much.
That's about all we have time for. Thank you very much for coming in and giving us some great information.
We're going to suspend for two minutes while we switch panels, and we'll get right back on track.
Thank you.
Liberal
The Chair Liberal Dan Ruimy
For the second, almost hour, we have from the Canadian Agri-Food Policy Institute, David McInnes, president and chief executive officer, and Ted Bilyea, chair, board of directors. Then from Food and Consumer Products of Canada, we have Carla Ventin, vice-president, federal government affairs.
We're going to jump right into this. If you could make your comments in six or seven minutes, that would give us a bit more time for questions. We will have votes starting at 5:30. The bells will be going off.
Let's go ahead, Mr. McInnes.
David McInnes President and Chief Executive Officer, Canadian Agri-Food Policy Institute
Thank you, Mr. Chair.
For purposes of the translation, I'm going to be jumping past a couple of paragraphs, just so you're aware.
We thank you on behalf of the Canadian Agri-Food Policy Institute for this opportunity to present our views on the status of the manufacturing sector in Canada.
We represent an independent and impartial think tank dedicated to advancing research, ideas and dialogue on the long-term competitiveness of the Canadian agri-food sector.
We're going to address three questions with you today. How is the idea of competitiveness changing? What does this emerging shift mean for Canada and Canadian food manufacturers? What can Canada do to take advantage of this change?
In short, I think Canada could aim to become not simply competitive or more competitive, but how we can become sustainably competitive. I'm going to go through each of the three questions very quickly.
Turning to the first, how is the idea of competitiveness changing? What's the single most important determinant of success in food manufacturing? Is it labour, price of ingredients, good road infrastructure, a low Canadian dollar, lower hydro costs? These are all important for sure, but the scarcest and most precious ingredient or resource is trust.
Germany's Volkswagen showed what happened when it lost consumer trust. It misled consumers and regulators on its car emission tests, costing the company billions of dollars and seriously denting its corporate reputation.
Global trust in food production is taking a beating as well, if we look at algae blooms threatening oceans and lakes, fostered by the overuse of fertilizer, and the runoff of phosphorus and nitrates from towns and cities. In Europe and elsewhere, pesticide levels and nitrates in groundwater are a concern. In China, people have come to mistrust their food so much that they seek food online from Canada and other countries in order to source products.
Consumers have an abundance of food to choose from, and very safe food, but consumers are growing increasingly uneasy about the food they eat. It's no wonder that food manufacturers and their supply chains are working to develop sustainable sourcing for a whole variety of products, including sustainable seafood, sustainable beef more recently, and sustainable palm oil. This also helps to explain the rise of organic food.
Despite this, the stress on global natural capital, that is, water, soil, and the biodiversity of living organisms is growing.
The Global Footprint Network, an international NGO, has calculated that most countries are in what they described as ecological deficits. It's calculated that more than 80% of the world's population lives in countries that use more resources than what is renewably available within their own borders, and climate change is going to make this worse.
The Bank of England's Mark Carney has said that climate change will threaten financial resilience and longer-term prosperity. International financial institutions will soon require borrowers to submit climate risk disclosure statements. Norway's $900-billion government pension fund has dropped 11 companies because of their deforestation practices. Moody's, the ratings agency, now assesses the water risk of mining companies in the developing world. So, managing natural capital, the building blocks of how we produce food and everything else, is becoming a financial systems and an access to capital risk. This is going to impact all manufacturers. Fortunately, Canada is in an ecological surplus. This is a strategic opportunity if we can diligently preserve that surplus.
What does this emerging shift mean for Canada and Canadian food manufacturers?
Canada produces safe, high-quality foods, but so do a lot of other countries. To compete, we must differentiate. This is important given that food manufacturing is a national economic engine, and you heard some statistics and data just before us about the size of the sector.
We examined 13 food companies and why they were so successful, from Bonduelle and PepsiCo, large multinationals, to Lassonde and other mid-size companies in Canada, to small companies in P.E.I., such as Island Abbey Foods.
We tried to identify what was common to explain their success. For the start-up and small business in every province and territory, success often depends on having a niche product, a terroir, an intellectual property that they can become regionally or locally dominant in, and build an export market for.
What does the larger Canadian mid-size company need for success and how does that drive it? Those companies need, ultimately, to build resilience to American firms. The U.S. firms often have the advantage of scale, and to counter this, Canadian firms need to offer several points of differentiation, which is also a way to attract capital.
For multinational firms operating in Canada, outperforming the NAFTA option is what they must do to stay here. They also compete for capital within the global corporation, and that means they need to secure a reliable supply of high-quality competitive ingredients and have a mandate that often includes exporting from Canada, as well as serving the domestic market.
Common to all these types of companies is differentiation. Going forward, we believe that companies will increasingly try to differentiate themselves based on how they manage natural capital. This is Canada's huge opportunity, and we are among the few in the world that can attract the companies that want to develop innovative products and processes here in this country because of it. We have adequate fresh water. Our winters act as a natural pesticide. We use less pesticides and other chemicals than our key competitors do. Our ratio of animal density and human population to arable land is among the lowest in the world. I should also add that we have a reputation for good governance.
The third question is what we can do to take advantage of this emerging and shifting marketplace. We need to better leverage the opportunity that I just outlined, but we face some barriers, and we need to be proactive. Our long-term game should focus on how we raise the bar on our competitors. This means taking action on global subsidies and quality standards. Global agricultural subsidies are huge. They allow global food manufacturers to access relatively inexpensive food ingredients, giving many of our competitors the ability to achieve global scale. As well, such subsidies incent production without really factoring in the ecological impact. This actually prevents us, here in Canada, from leveraging those natural capital strengths.
Here's an example. We often look to the Netherlands as a food manufacturing model, and rightly so. They have many large food companies, and the Netherlands is the second-largest food exporter, after the United States. However, this has come at a cost. Its agricultural practices are highly intensive, unduly impacting soil, water, and carbon through pollutants and greenhouse gases. The sector contributes an average of 10 billion euros annually to the Dutch economy by GDP, but its ecological net impact is 1.6 billion euros. The EU subsidies support this form of agriculture.
Canada can shine a light on what's happening here with global subsidies as part of a concerted global campaign, but we need to be cautious in imposing new requirements and regulations on the Canadian food system, such as new environmental protections, as we don't want to give our competitors a cost advantage in the meantime. Instead, we should be trying to raise the bar on global standards internationally. Over time we believe this will be harder for our competitors to meet as these rising expectations and standards go up.
Domestically, we also need to continue to focus on having an inviting business climate. How we enable investment and innovation to help us differentiate is really the strategic task. Clearly, many consumers and investors are expecting more transparency from food companies and the agrifood supply chains on a whole host of matters from nutrition, animal care, sustainability, antibiotic use, and ethics, and the list really goes on. We see this as a catalyst to build a better Canadian brand. To help us, we need data and credible metrics and measures to track our progress and reassure consumers and markets at every stage and step in food production and supply, from field to fork.
These steps will actually help to deepen trust. Governments and industry need to work more closely together to make such traceability a reality. We need to be able to demonstrate that food production does not undermine water and ecosystems, add to greenhouse gases or use unhealthy ingredients, and so on. Better transparency of such practices on our part will make this a race to the top and not a race to the bottom. As well, we can better align our innovation and science organizations on priorities that will help enable this transformation. This needs to include deeper collaboration with industry.
We believe that Canada can define a very powerful food brand around trust and use this to differentiate our food products and beverages. Sustainable competitiveness is our big possibility because of our natural resource base, if managed right.
Thank you for your time.
Liberal
Carla Ventin Vice-President, Federal Government Affairs, Food and Consumer Products of Canada
Thank you.
On behalf of Food and Consumer Products of Canada, FCPC, and the member companies we represent, I would like to thank the Standing Committee on Industry, Science and Technology for undertaking a study on Canadian manufacturing. I would like to take this opportunity to highlight the important role of the food and consumer products industry to Canada's manufacturing sector and its future.
I'd also like to say how pleased I am to have the Canadian Agri-Food Policy Institute testifying with me today. We collaborate closely, and they do excellent work.
FCPC is Canada's largest industry association representing companies that manufacture and distribute the majority of food, beverage, and consumer goods found on store shelves, in restaurants, and in people's homes. Our membership is truly national, providing high-quality jobs to both urban and rural Canadians in more than 170 federal ridings across the country.
Food manufacturers, as we heard earlier, are in fact the largest employer in the manufacturing sector in Canada. We were pleased that budget 2016 recognized food manufacturing as the largest employer in Canada and an important contributor to the economy. For the first time, food manufacturing was also identified as a priority in July at the federal, provincial, and territorial agriculture and agrifood ministers' annual meeting. We are hopeful that this recognition will be reflected in future government research, policy, and programs.
We also heard earlier that there's enormous growth potential for this industry. It's estimated that the world's population will grow to 9.6 billion by 2050. This will require a 70% increase in global food production. According to the chair of the government's advisory council on economic growth, Mr. Dominic Barton, food will be one of the biggest businesses in the world. Mr. Barton believes Canada has the potential to be a leading global food player, but we're not there yet.
Canada is well positioned to play a vital role in feeding the world with its high-quality and made-in-Canada products. Our reputation in food safety, ranked as number one in the world by the Conference Board of Canada in 2014, can help propel Canada into this leading role. Despite the growing global demand for food and trust in Canadian products, however, Canada is actually importing more value-added processed food than it is exporting. Most recent figures show that we have a trade deficit of $7.55 billion in further processed food products.
According to CAPI, which studied the issue extensively, the reason for the trade deficit is the steady decline in net capital investment in machinery, equipment, and buildings. Certainly we are seeing those challenges presented by aging manufacturing facilities across the country. More incentives are required to urge food and consumer product manufacturers to reinvest in their Canadian plants, open new and modern facilities, and integrate new technology like automation robotics. Other countries are fiercely competing for these investment dollars. We need to be in the game if we want to keep value-added manufacturing jobs here in Canada.
Now, another hurdle is our backward-looking regulations that have not kept pace with advanced technologies, global practices, or new product innovations. A modern regulatory framework would encourage companies to manufacture in Canada, grow their operations, and introduce innovative processes and products. Canada's innovation and growth agenda depends on Health Canada's ability to modernize its food and consumer product regulations.
We also need to carefully consider the impact of new regulations on our industry's ability to innovate and grow. There is currently a lot on the table in terms of Health Canada's potential intervention in our sector: how we make our products, how we package our products, and how we market our products. We recommend that the government take a balanced and holistic view of existing and potential regulatory initiatives as a whole in terms of the efficacy of the measures and their economic consequences.
Overall, I think we need a new way of looking at the food processing sector in Canada and a recognition of its current economic contribution and potential. I like the way CAPI summed this up in a recent report, “Canada is often viewed as satisfied with remaining largely a commodity supplier, rather than doing more to add value to what it produces or enhance its processing potential.”
We need to process for the sake of processing, and figure out how to add value beyond the farm gate. Food manufacturers, however, remain currently under-represented in the federal government. In our home, which is Agriculture and Agri-Food Canada, only about 5% of the entire departmental budget is allocated to the food manufacturing sector. This means that only about 5% of the department's funds in areas like research and programs, which are critical for our sector, are focused on food manufacturing.
If we want to retain and grow food manufacturing jobs here in Canada, we need more balance and equity in the department. We need to take a step back and map out these challenges and opportunities presented by the fourth industrial revolution on a global scale and figure out how to equip Canadian manufacturers with the tools that they need to compete. I highlighted a few steps needed along the way, including more incentives for capital investments, a modern regulatory framework, and more focus on food manufacturing research and programs.
We're taking a deeper dive on these critical issues in partnership with Canadian Manufacturers & Exporters. As explained by CME at this committee on May 31, they're spearheading Industrie 2030, and we are pleased to be working with them in partnership on this project. The objective of Industrie 2030 is to outline an action plan for growth to double manufacturing activity in Canada by 2030. Industrie 2030 will be launched on October 18 and 19 in Ottawa, and we encourage the committee to review the findings as you prepare your report on manufacturing.
Canada has the potential to be a global leader in manufacturing and the work of this committee is extremely important. We share the government's focus on growth, innovation, and competitiveness and look forward to working closely with members in this committee to make manufacturing a priority.
Thank you.
Liberal
The Chair Liberal Dan Ruimy
Thank you very much.
We're going to go right to Mr. Arya. You have five minutes.
Liberal
Chandra Arya Liberal Nepean, ON
Thank you, witnesses, for coming here.
Mr. McInnes, I have a bit of confusion here. I believe CAPI, in 2014, released some reports that noted trends of falling levels of investment in buildings but rising investments in machinery. Earlier we heard Ms. Andrea Johnston, director general from Agriculture Canada say, and now Ms. Ventin also say that one of the reasons for the deficit of $7.55 billion in trade of processed food is less investment in machinery, whereas in your report you mentioned that there's a rising investment in machinery. Why is that?
President and Chief Executive Officer, Canadian Agri-Food Policy Institute
There are two parts. One is the deficit, which I think we'll leave off to the side, and if you would like, I can come back to that. The other is on the investment side.
What we found is that during the period of our research we saw a lot of closures of companies and retrenchment primarily to the United States. While there might have been a lot of plant closures, we did see a period where companies were actually starting to increase investment in machinery. This was due in part to their ability to use the accelerated capital cost allowance and some other tax tools. Often this takes place with changes in the value of the Canadian dollar and other factors as well.
Liberal
President and Chief Executive Officer, Canadian Agri-Food Policy Institute
Our analysis was from a number of years ago, and we don't have current data, so I can't talk about the present trend, but when we did look at it—