Industry Committee on May 4th, 2020

[The Chair, Liberal, Sherry Romanado]

Good evening, everyone.

I now call this meeting to order.

Welcome to meeting number 12 of the House of Commons Standing Committee on Industry, Science and Technology. Pursuant to the order of reference of Saturday, April 11, the committee is meeting for the purpose of receiving evidence concerning matters related to the government's response to the COVID-19 pandemic.

Today's meeting is taking place by video conference, and the proceedings will be made available via the House of Commons website.

I'd like to remind our witnesses today and our members to please wait until I recognize them by name before speaking. When you are ready to speak, please unmute your microphone and then return it to mute when you have finished speaking. When speaking, please speak slowly and clearly so that the translators can do their work. Please use the language channel of the language in which you are speaking.

As is my normal practice, I will hold up a yellow card when you have 30 seconds left in your intervention, and a red card when your intervention time has expired.

Now I would like to welcome our witnesses. From the Beef Farmers of Ontario, we have Mr. Rob Lipsett, president, and Richard Horne, executive director. From the Canadian Cattlemen's Association, we have Bob Lowe, president, and Fawn Jackson, director of international and government relations. From the Canadian Federation of Agriculture, we have Keith Currie, vice-president, and Scott Ross, assistant executive director. From the Dairy Processors Association of Canada, we have Philip Vanderpol, vice-chair; Dominique Benoit, treasurer and member of the board of directors; and Gilles Froment, secretary. From Morton Food Service, we have Robert Calcott, president.

We will have five-minute presentations by each of the five groups, followed by our normal rounds of questions.

With that, we will start with the Beef Farmers of Ontario.

[Brian Masse, NDP, Windsor West, ON]

I have a quick point of order, Madam Chair.

[The Chair, Liberal, Sherry Romanado]

Yes.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

At an appropriate time, can we have five minutes of committee business, or will I use the end of my time to introduce a brief motion that would deal with committee business, with the previous study that we had on fraud? I just want to flag that now. I don't want to obstruct proceedings, so I'll leave it to you to decide.

[The Chair, Liberal, Sherry Romanado]

I appreciate that.

Mr. Masse, just to let you know, based on the motion that was passed in the House on April 11, we cannot consider any other business during these meetings, so unfortunately we will not be able to accept the motion with respect to a previous study. We cannot do committee business during this time, but I'm happy to have that conversation with you after we finish. Is that okay?

[Brian Masse, NDP, Windsor West, ON]

That's fine.

[The Chair, Liberal, Sherry Romanado]

Thank you.

With that, we will start with the Beef Farmers of Ontario.

You have five minutes.

[Rob Lipsett, President, Beef Farmers of Ontario]

Good evening. My name is Rob Lipsett. I am a beef producer from Grey County, Ontario, and the president of the Beef Farmers of Ontario. Joining me tonight is BFO's executive director, Richard Horne.

Like our colleagues from the Canadian Cattlemen's Association, we strongly believe that if the current challenges are strategically addressed, the beef sector will emerge as a key recovery sector post-COVID-19. But time is running out.

Our sector has faced a number of serious challenges in the last couple of years that have limited our growth potential and hurt our financial viability, the largest being the lack of sufficient processing capacity and the market price volatility. COVID-19 has significantly amplified these challenges and has placed our farm operations at a critical tipping point in the face of real threats to family beef farms like mine and to the security of the food supply chain.

The losses beef farmers are experiencing, particularly within the feedlot sector, are simply staggering, mirroring those we experienced during the BSE mad cow crisis of the early 2000s: Farm gate prices have plunged, despite increases in wholesale beef prices; corn distillers, one of the main feed ingredients that producers in Ontario use to feed cattle, have doubled in price since March 1; and per-head losses have averaged around $300 per animal during COVID, despite the fact that eastern Canada has largely maintained its processing production.

Before Richard speaks to our recommendations, I want to share part of a story an Ontario beef producer sent me regarding the impacts COVID-19 has had on their farm:

We try to sell cattle to the processors every week but currently we have had a load of cattle listed for sale for more than 3 weeks with no bids because the processors are backed up.

When cattle are fed past the date when they should have been harvested, they lose efficiency and this costs us extra money to feed them. When this happens, we incur weight discounts at processing between 15-35 cents per pound.

Each month I have to do a statement of inventory for my banker. Since March 1st we have lost $245 per head. Through the BSE years government did an excellent job of supporting farmers and that is likely the number one reason I’m still farming today.

Production on my farm helps feed approximately 32,000 Canadians per year, and my operation deals with over 100 suppliers and support companies annually. We can’t wait much longer for support from our governments.

Ladies and gentlemen, we need help. Beef farmers need immediate financial support—direct support. Our farmers cannot borrow their way out of this. The current funding announced through the CERB, wage subsidies, loan programs and others is almost entirely unusable by our farmers.

I'll now turn it over to Richard Horne.

[Richard Horne, Executive Director, Beef Farmers of Ontario]

Our first recommendation is to introduce immediate enhancements to business risk management programs. Our strong preference is for the federal government to immediately contribute to Ontario's risk management program. In our belief, this is the most effective way to ensure support for beef producers in Ontario.

We support the recommendations made by the CFA and others, such as the CCA, to enhance the current suite of BRM programs. However, our strong preference is that you immediately contribute the federal government's 60% share to our provincial RMP, similar to what western Canada is asking for with respect to the western livestock price insurance program. This would also support farmers in the grains sector and the non-supply managed livestock sectors in Ontario. These recommendations not only would support farmers quickly but would put in place the necessary safety net to mitigate future market shocks, be they COVID or otherwise, particularly over the next six to 12 months.

Our second recommendation, an equally important two-pronged approach, is to immediately establish a cattle set-aside program for fed, feeder and cull cows to help manage cattle supplies, given the current and potential disruptions at processing. The U.S. is looking at similar programming to help their cattle sector manage COVID-induced volatility, and Canada used this type of program during the BSE crisis. We need this tool available immediately.

That concludes our formal remarks. We would be happy to entertain your questions.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Next we have the Canadian Cattlemen's Association.

Mr. Lowe, you have five minutes.

[Bob Lowe, President, Canadian Cattlemen's Association]

Thank you, Madam Chair, and I thank everyone on the committee for allowing us to testify here.

Good afternoon. My name is Bob Lowe and I'm a rancher and feedlot owner in southern Alberta. I'm also the current president of the Canadian Cattlemen's Association, the national voice of Canada's 60,000 beef operations. With me is Fawn Jackson, director of government and international relations.

The beef industry is the foundation of jobs for 228,000 Canadians and contributes $17 billion to the Canadian economy. As you've likely seen in the news, challenges brought forward by COVID-19 have resulted in a number of Canadian and American meat processing facilities significantly reducing their processing capacity.

Due to these reductions in processing capacity, we estimate that we have built up a backlog of 100,000 head of cattle that are ready for market with nowhere to be processed. As a result of COVID-19, this group of cattle alone has dropped in value from $250 million to $166 million. It costs approximately $400,000 per day to feed and care for these cattle. The loss in value is only a small portion of the economic impact, as all market-ready cattle have dropped significantly in value and financial hardships are rippling through the full beef supply chain. We can't stress enough how important swift action is to mitigate the scale of the problem we are faced with.

The CCA estimates that if this is left unaddressed, the Canadian beef industry will lose half a billion dollars by June on market-ready cattle. Again, this doesn't account for the full supply chain impacts and the growing costs of feeding and caring for cattle that would otherwise have gone to market.

It has been two weeks since the Cargill plant at High River shut down, removing 36% of Canada's total beef cattle processing capacity. That plant's reopening today does not change the urgency of our recommendations, as it, along with other packers, both in Canada and the U.S., is and will be operating at significantly reduced levels. We estimate that 6,000 to 9,000 head of cattle per day are still being backed up within the Canadian beef supply system.

Eastern Canada was dealing previously with these shortages, and you just heard from Rob about the problems in Ontario, so I won't go into those.

As we have stated from the onset of COVID-19, the beef industry has three immediate recommendations.

First is to establish a set-aside program. This program would help manage inventories within the beef supply systems and help us avoid a large backlog of market-ready cattle.

Second is to address the sky-high premiums that have made our main risk management tool—price insurance—unusable. We would also like the tool to be made available to the Atlantic provinces. This program is very important to our young and new producers.

Third is to adapt the advance payments program, similar to what was done for canola producers last year, to provide added liquidity and financial flexibility.

These changes will enable cattle producers to market their commodity at the best time and actually make reinvestments in their herds.

The CCA has also stressed the importance of assisting with challenges at processing facilities. It should be noted that the existing suite of BRM programs comes nowhere near being able to address the current challenges we are facing. For example, AgriStability has only 31% total farm enrolment, and for the beef industry the utilization rate is much lower due to the structure of the program not being suitable for beef farms. If our recommended changes are made to this program, it will be more usable by the beef industry in the future, but it should be noted that this program was never designed to be able to address a pandemic.

Utilizing AgriRecovery, another one of the BRM programs, with the provinces could be one method through which funding could be quickly delivered. However, this is yet to be completed. Furthermore, as Rob mentioned, the current funding announced—the CERB, wage subsidies, loan programs or otherwise—is almost entirely unusable by our industry.

The Canadian beef industry knows the impact of hard economic times, having lived through them during the early 2000s. Following the difficult financial times of BSE, 27,000 beef farmers exited the industry, marking it as one of the largest economic, social and environmental structural changes in Canada's agricultural industry. We lost a generation of young producers during the BSE crisis, and today our younger and newer producers are once again the most vulnerable group in our industry due to the extreme hardships we are currently facing. We have to do everything we can to find ways for all producers to weather this storm, and immediate multi-faceted action is needed.

Thank you.

We look forward to your questions.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Next up we have the Canadian Federation of Agriculture.

Mr. Currie, you have five minutes.

[Keith Currie, Vice-President, Canadian Federation of Agriculture]

Thank you, Madam Chair and committee members, for this opportunity to speak to you tonight and to talk about the difficult realities that farmers and food supply chains across Canada are facing due to this pandemic. These next days and weeks are essential if we are to ensure that Canada’s domestic food supply is secure, both now and into the future.

I am Keith Currie. I am vice-president of the Canadian Federation of Agriculture, and I'm also president of the Ontario Federation of Agriculture. My colleague Scott Ross is with me here tonight as well.

CFA is Canada’s largest general farm organization, providing a unified voice for the 200,000 farm families right across this country. Food systems around the world are being challenged by unprecedented challenges and untenable operating conditions. The challenges and the uncertainty they introduce highlight the importance of a domestic supply of affordable and nutritious Canadian food, a critical factor in good public health. It must be the leading priority behind the direct public health impacts of COVID-19.

Canadians have always been able to depend on farmers to grow food, but today Canadian farmers are asking for immediate assistance from our federal government to be able to continue fulfilling that responsibility. Without it, Canadian consumers could see a decrease in the amount and variety of food at their local grocery stores as well as higher prices in the months ahead.

I applaud the collaborative efforts of all levels of government in mobilizing their resources to protect Canadians’ health, demonstrating what can be accomplished in the face of urgent challenges when we work together. There’s no shortage of issues facing Canadian farmers and their food supply chain. A primary concern is the labour shortage impacting farms and food processing.

We welcome many of the measures taken to date. However, continued logistical and recruiting challenges will likely see many Canadian farmers short on critical labour needs. This extends to processors and other key buyers of agricultural products, who continue to experience disruptions, absenteeism, and reduced capacity. The second concern is the increasing, unexpected costs COVID-19 is placing on Canadian farmers. Supply chain disruptions like plant closures already see farmers having to hold on to livestock where they can, or face immediate animal welfare challenges and the prospect of depopulation where they cannot.

Regardless, this equates to additional expenses, reduced revenue and less production. Meanwhile, shifts in the retail and food service landscape have seen markets evaporate literally overnight. These challenges erode the confidence needed to invest in planting a crop and maintaining livestock herds: decisions that directly affect the availability and affordability of food later this year. Unfortunately, the lumpy revenue of many agricultural businesses leaves them ineligible for wage subsidy, or their operating structures also preclude them from accessing most other COVID-related measures.

I would be remiss in not stating the extreme level of frustration and stress farmers are experiencing, particularly as they’re repeatedly told to look for support from existing business risk management programs that farm organizations have identified for years as inadequate and in need of reform prior to this unprecedented crisis. Reports from individual farm businesses identify losses well in excess of tens of millions of dollars, and these programs just weren’t designed to deal with the kind of financial challenges we’re seeing play out this year. I implore you to recognize the urgency of this situation and the need for immediate, targeted programs to respond.

The CFA is calling for an emergency preparedness plan that gives farmers confidence to overcome these challenges, targeting investments in a number of key areas. Most immediate is a flexible and responsive emergency fund, giving farmers and food businesses confidence that there will be expedient financial support for targeted programming to help them address previously unforeseen challenges. Following a survey of agriculture commodity organizations across Canada, farm and food businesses are calling for $2.6 billion in immediate support to respond to the myriad issues I touched upon earlier. In addition to this, producers need enhancements to Canada’s business risk management suite to provide confidence that they’ll receive adequate support from AgriStability if they do see significant losses throughout this year.

Finally, further measures are needed to encourage Canadians to work on farms and in Canada’s food processing plants. This includes financial incentives, but just as critically, prioritizing access to personal protective equipment, second only to health, to ensure that all agri-food workers feel safe coming to work. Canadian farmers take pride in the fact that we feed Canadians every day. If government invests now in risk mitigation, it will ensure that our food system is secure and our grocery stores continue to be well stocked with safe and affordable food, preventing more costly issues down the road and positioning the agri-food sector to help drive Canada’s economic recovery.

I thank everyone for their time, and I welcome any questions.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Currie.

Our next group is the Dairy Processors Association of Canada. You have the floor for five minutes.

[Philip Vanderpol, Vice-Chair, Dairy Processors Association of Canada]

Thank you.

On behalf of the Dairy Processors Association of Canada, thank you for the invitation to appear today to discuss the impact of COVID-19 on Canada's dairy processing sector. I am the vice-chair of the DPAC board and the president and CEO of Vitalus Nutrition. Joining me on this call are Dominique Benoit, treasurer of the DPAC board; and Gilles Froment, secretary of the DPAC board.

In these difficult times, DPAC is grateful for those who continue to work diligently to provide Canadians with essential goods and services. Like all Canadians, we are especially thankful for the hard work and dedication of our health care providers.

I want to highlight the work done by the dairy sector to ensure continuity of dairy product supply in Canada. These are unprecedented times, and dairy producers and processors working together are doing their part.

Since the beginning of the COVID-19 crisis, the dairy industry has donated almost five million litres of milk, which has been processed into nutritious dairy products and distributed to food banks right across Canada. This speaks to the strong commitment of dairy producers and processors towards their respective communities.

COVID-19 has put a lot of pressure on all aspects of the country's economic and social infrastructure. Canada's food manufacturers are no exception, and dairy processors are under tremendous strain today as they adapt to the challenges brought on by COVID-19. Providing Canadians with a continuous and ample supply of nutritious dairy products, while protecting employees' health, remains the very top priority of dairy processors.

[Dominique Benoit, Treasurer and Member of the Board of Directors, Dairy Processors Association of Canada]

My name is Dominique Benoit, from Agropur. I will continue in French.

Depending on their product and market mix, the majority of dairy processors have seen their revenue decline anywhere between 0% and 50% due to the reduction in the food service market. Furthermore, dairy processors have seen an increase in expenses due to costs related to COVID-19, such as a rise in absenteeism, higher PPE costs, and so on.

The combination of decline in sales and increase in cost means that many dairy processors are under significant financial stress as a result of a much lower or even negative bottom line.

We recognize and appreciate the emergency support programs announced by the federal government to help businesses mitigate the impact of the COVID-19 pandemic. However, these programs often fall short for most food processing organizations. As such, we recommend expanding current support programs.

First, selected elements of the business risk management programs should be extended by Agriculture and Agri-Food Canada to the critical food processing sector to address margin losses, notably the impact on earnings before interest, taxes, depreciation and amortization, or EBITDA.

Second, as currently structured, the Canada emergency wage subsidy will leave some food manufacturers without support because revenue declines will not meet the 30% threshold in April and May. We propose that the government provide a sliding scale of support for revenue reduction between 10% and 30%.

[Gilles Froment, Secretary, Dairy Processors Association of Canada]

We cannot come here today without putting in broader context the impact of COVID on the dairy sector.

At full implementation, when considering the last three trade agreements, Canadian dairy processors will lose about $320 million per year on net margin. On top of the market access concessions, CUSMA has a clause that imposes caps on worldwide exports of Canadian milk powder, which will make it increasingly difficult to balance the supply management system.

As per the clauses of the agreement, there's a significant difference between year one of CUSMA and year two, both in terms of export caps and level of access into the Canadian market. There is no question that having CUSMA entering into force on July 1 instead of August 1 will have a huge impact on the dairy sector, as it means that year one of CUSMA will last 30 days as opposed to a full year.

We trust that the government will keep its promises to fully and fairly compensate dairy processors for their losses. As such, we would like to remind the committee of the twofold approach to mitigate the negative impact of these trade agreements: first, allocation of import licences to Canadian dairy processors; and second, a dairy processor investment program.

In conclusion, the pandemic has brought unprecedented challenges to the entire Canadian economy, and the dairy sector is facing significant pressures endangering its financial viability. It is imperative that essential activities such as ours be treated as such by our governments.

We thank you for your time and consideration of this important topic, and we welcome any questions you might have.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Froment.

The last witness is Mr. Robert Calcott from Morton Food Service.

You have five minutes.

[Robert Calcott, President, Morton Food Service]

Good evening, committee.

My business, Morton Food Service, just celebrated its 100th year in 2019. We employ over 110 individuals throughout southwestern Ontario. As some background, we started as a small retail shop on Ouellette Avenue in Windsor, and we have progressed to become a broad-line food service distributor to independent restaurants in all of southwestern Ontario, including the Niagara Peninsula and the first nations reserves on the Grand River.

Over 75% of our 1,200 customers have closed their doors as a result of the Government of Canada's mandate to the restaurant industry. They were simply not equipped to convert their operations from sit-down to takeout, and they're also very concerned about the safety of their employees. They've come to realize that their fixed expenses—such as rents, mortgage payments, equipment leases, taxes, insurance, etc.—are still accumulating and that they will eventually be responsible for paying them.

The Canada emergency wage subsidy is not very helpful to our accounts, nor to my company. Subsidies do not create revenue, which is what we require. The CEWS will be helpful when my accounts are allowed to reopen and we begin to build up some revenue, but only if it's extended well beyond June 6. Can you imagine trying to cover your fixed expenses and pay employees when your business is only doing 25% of its normal volume?

As for Morton Food Service, we have a number of specific hurdles that have yet to be addressed. We have around a million cubic feet of fully temperature-controlled warehouse space to ensure the safety and integrity of the 6,500 food products we regularly have in stock. The expenses we incur to maintain this space are substantial, including rent, hydro, insurance and distribution equipment, to name a few. We also have a fully refrigerated fleet of delivery vehicles, 20 vehicles on full-service leases that cost us approximately $70,000 per month. Other items include equipment leases, insurance, hydro to keep our building fully temperature-controlled, and the lease of a sophisticated computer system to fully track all food products from farm to table, etc. We incurred all of these expenses in order to properly and safely service our customers.

The Government of Canada has legislated our customers to close their doors, causing an 80% decline in our overall business, yet we are still responsible for maintaining these fixed expenses with next to no revenue and a very poor cash flow. It hardly seems fair.

To make matters worse, our competition consists primarily of two multinational companies, Sysco food services and Gordon Food Service, both based out of the United States. They would love to see businesses like mine be forced to close, as they would simply control even more of the Canadian food distribution landscape.

We have partnered with many local southwestern Ontario farming businesses to provide us with products that our multinational competition doesn't carry in its inventory. This provides the small local farmer with an avenue to distribute products, and it provides us with some unique items that our competition does not carry. It is clearly a homegrown win-win. As our business suffers, so do the small local suppliers.

I'm obviously very passionate about my business, my customers, my suppliers and my employees. If we are unable to continue, our market will be fully controlled by the two U.S. mega-distributers I already mentioned.

Federal assistance in the following areas is desperately needed to keep afloat not only my company but also my small local suppliers and my customers. One area is the continuance of the wage subsidy for many months after the restaurants are allowed to reopen. It is of very little help right now.

Two, we need subsidies to cover the fixed expenses I mentioned earlier. These expenses were incurred in good faith in order for my company to be in business and service the independent restaurant trade in southwestern Ontario. We have no way to fund them while our business is down 75% to 80%. This will cause us to permanently close our doors if it is not addressed in the very near future.

Three, we need subsidies to cover mortgage payments for those businesses that choose to purchase rather than rent their premises. Many of my customers are in this situation. They didn't want to simply rent their premises and build up no equity, so they purchased their building with a large mortgage. Covering rent will not help them. Loans will also not help. How would they ever be repaid?

I'd like to close with one final item that hasn't been discussed yet. It has to do with severance pay. The present Employment Standards Act requires that an employee is considered to be severed after being on EI for 13 consecutive weeks.

The financial burden that severance pay would have on my business and my customers' businesses would cause us to close our doors. It would be impossible for us to sustain these costs and continue operating our businesses. Clearly, we cannot get back to anything that resembles normal for quite some time. As a result, many employees will reach their 13-week threshold—

[The Chair, Liberal, Sherry Romanado]

Mr. Calcott—

[Robert Calcott]

I'm just finishing.

[The Chair, Liberal, Sherry Romanado]

Okay.

[Robert Calcott]

—and be considered to be severed, with the associated severance liability going to the employer. Lastly, full relief from this severance obligation must be provided if you want businesses to pick up the pieces and try to rebuild themselves.

Thank you for your time.

[The Chair, Liberal, Sherry Romanado]

Thank you so much.

We will start with our first round of questions. I just received a new list for this round of questions.

Our first speaker, for six minutes, is MP Dreeshen. The floor is yours.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you very much, Madam Chair, and certainly thanks to every one of the witnesses who have appeared here today.

I know these are very difficult times for farmers and ranchers. My Conservative colleagues and I are certainly trying to make sure that you get the help you need so that our food supply chains remain as strong and vibrant as they were before. As a former cattleman, I know something about the challenges you face.

Today I'd like to start by addressing my questions to the Canadian Cattlemen's Association.

It was 40 days ago when the Liberal finance minister told Canadians that when it came to support for our critical oil and gas industry, we could expect action: “hours, potentially days, that we can ensure that there are credit facilities for especially the small- and medium-sized firms in that sector.” Well, the reason I mention this is that our critical agriculture industry is getting the same treatment from this government. Last week, we had the Minister of Agriculture before this committee, and incredibly she told us in no uncertain terms that it was too soon to announce any kind of new aid packages for the agriculture sector.

I understand that the Canadian Cattlemen's Association has also been meeting with the minister since the middle of March. Privately they have told you that they agree that the current BRM programs are insufficient to address the challenges that you face today. You suggested that what's needed are changes to the BRM, as well as a national set-aside program and enhancements to the advance payments program.

Can you tell this committee what the results will be if the government fails to immediately move forward on what you're suggesting today?