International Trade Committee on April 2nd, 2009

[The Chair, Conservative, Lee Richardson]

I think we'll begin. We're still missing a few important players, but we're going to begin because our witnesses are ready to go. We're delighted to have them here today at the 13th meeting this session of the Standing Committee on International Trade.

In our ongoing discussion of Canada-United States trade relations, I'm happy to welcome back to the committee our friends from the Canadian Cattlemen's Association--John Masswohl, who has been with us before, and Dennis Laycraft; nice to see you, Dennis.

From the Canadian Beef Export Federation, we have Ted Haney, who is from Alberta as well.

From the Canadian Pork Council, we have Jurgen Preugschas; and Martin Rice, executive director.

Thank you for coming.

I think we're all familiar with the format. We're going to start off with some opening comments. I haven't had a chance to speak with you, so maybe you'll just give me an indication of what you are going to do. Are we going to have three statements today? Okay.

So I take it, Dennis, Ted, and Jurgen, that you are going to give brief opening statements, somewhat under 10 minutes if you can. And then we'll proceed to questions from the committee.

Maybe I could ask Jurgen, from the Canadian Pork Council, to start.

[Jurgen Preugschas, Chair, Canadian Pork Council]

Thank you very much, Mr. Chairman.

I do appreciate the opportunity to present to this international trade committee meeting.

As you well know, our Canadian hog producers are continuing to battle an unprecedented period of losses on their farms. The hog sector crisis is now into its third year, as we're trying to struggle with the shocks hitting our system every month, it seems. While the crisis was started with the rapidly rising exchange rates and high feed costs, these variables have moderated. They've been replaced by the global economic crisis, which has reduced access to credit, and by the U.S. introduction of mandatory country-of-origin labelling.

As our sector relies tremendously on exports—in fact, two out of every three hogs born in Canada are exported either as live hogs or in the form of pork products—we are totally exposed to global shocks. We're facing serious challenges in terms of our ability to compete in the world market, and we must not lose sight of the Canadian hog industry's long-term interests. The world economy will continue to evolve, and we cannot afford to suspend any efforts that can improve our market access. In the short term, we encourage you to ensure that Export Development Canada has the tools in place to ensure that lines of credit are available to exporters for emerging markets.

The Canadian pork industry enjoys a solid worldwide reputation for superior quality and animal health status. For example, in 2005 Canada set new pork export records by shipping for the first time over a million tonnes of pork to over 100 countries around the world, valued at over $2.8 billion. A study from the George Morris Centre found that those pork exports alone account for about 42,000 jobs and $7.7 billion in economic activity in Canada. In 2008 the export value was $2.7 billion.

In today's economic crisis, I think we have to remember that we want to protect these jobs in our country. And given that hog and pork production occurs in every province in this country, there's no denying our industry's significant contribution to Canada's economy and labour force.

We must point out that the creation of the Market Access Secretariat for livestock producers is a positive step, but it's necessary that the government properly fund the secretariat, aggressively explore trade opportunities, and assist our sector in developing measures to increase exports to other markets.

We've been downsizing in Canada because of the shocks, and the number of farms reporting hogs continues to decline. In fact, we've had dramatic decreases in the past two years, with 28% fewer farms reporting hogs than in 2006. Our inventories have fallen 18% since January 2006.

Today we want to remind this committee that while we try to remain optimistic about the long-term potential of the Canadian hog sector, it's increasingly difficult to be prepared for, and manage, the shocks that continue to hit us. The most recent and most pressing is COOL.

The many associations and governments representing livestock and meat producers who have been dealing with the U.S. country-of-origin labelling regulations since they were introduced in 2002 received some very disappointing news on February 20. While the U.S. Secretary of Agriculture, Tom Vilsack, announced that he would not reopen the final COOL rule issued by the Bush administration, he is asking U.S. processors to do several things: first, to “voluntarily include information about what production step occurred in each country when multiple countries appear on the label”; second, to extend COOL to processed products, that is, the ones subject to curing, cooking, smoking, etc.; and third, to reduce the inventory allowance for ground meat from 60 to 10 days.

American processors are now faced with extreme uncertainty. If they simply satisfy the law as it currently reads, they risk having the rules changed once again, changes that will make it more, not less, difficult to operate within an integrated North American market—as has increasingly been the operating environment since free trade was implemented 20 years ago this past January.

Furthermore, they’re being asked to function as if COOL now applies to a vast range of processed pork products that, in the past, were never included, or intended to be included, in the scope of mandatory labelling.

Secretary Vilsack's suggestions would make COOL as restrictive for live animals as what was in the original 2002 bill. This more restrictive version was rejected as too costly to implement by the U.S. Congress in the 2008 Farm Bill.

The expansion of the COOL mandate to include processed meat products would put at severe risk more than 165,000 tonnes of Canada's pork exports to the U.S. in 2008. This is more than half of our shipments, which were $1.2 billion in total last year.

U.S. processors are being forced to make business decisions that will have market-closing effects on Canadian hog and pork exports, as well as detrimental impacts on hundreds of U.S. hog farmers who depend upon Canada for their feeder pigs, and on the many U.S. processors who rely on Canadian hogs and pork. Already in the first quarter, total exports of live hogs to the U.S. are down by 45%, of which feeder export are down 35% and market hogs down by 66% year-to-date.

Moving on to the trade agreements, the CPC's support for the completion of the Doha Round of multilateral trade negotiations remains strong and unequivocal. However, the slower pace of the negotiations has led many of our competitors, such as the U.S. and Chile, to pursue bilateral and regional trade agreements. We cannot rely on multilateral trade negotiations to offset the preferential access obtained in bilateral trade agreements. Without a dual focus on both multilateral and bilateral trade agreements, Canada's ability to supply current export markets, as well as breaking into emerging markets, will be undermined.

The Canadian Pork Council has been following with great interest the developments since the 2008 Canada-European Union Summit, which explored an economic partnership. We strongly support the negotiation of a comprehensive free trade agreement between our country and the EU, but we will oppose any exemptions if, as a result, our access to the EU for pork is in any way diminished.

With a population of over 500 million in the EU, the majority of whom view pork as their favoured meat, the Canadian industry is making important investments to be able to respond to this increased demand. In fact, our first plant for exports to the EU was just approved. We strongly urge the committee to give its support to Canada engaging in negotiations for an ambitious trade and economic agreement with the European Union.

Bilateral trade agreements help diversify our market abilities; and the legislation that was recently tabled for agreements with Colombia and Peru needs to be approved. The Canadian Pork Council, furthermore, is an avid supporter of current negotiations to liberalize trade with Korea, Panama, and the CA4 countries. The CPC also encourages trade negotiations with Japan, India, and the Dominican Republic.

To conclude, we would ask you to continue to pursue a better outcome on COOL, one that recognizes the important trade flow between Canada and the U.S. We need to encourage you to pursue the WTO action, which has been on hold at the present time, in order to encourage the U.S. not to make things more restrictive on the COOL front.

It is critical for Canadian exporters to have continued access to markets. We therefore ask that when you visit U.S. representatives, you should raise COOL and the detrimental impact it is having on free and open trade on both sides of the border. And you should engage in bilateral trade agreements and support the Canada-Colombia and Canada-Peru agreements, and others on the way.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you very much. It's been very helpful.

Mr. Haney, would you like to carry on? Or perhaps Mr. Laycraft would like to.

[Dennis Laycraft, Executive Vice-President, Canadian Cattlemen's Association]

Thanks, Mr. Chairman.

We've worked with the Beef Export Federation closely on this.

First of all, thank you for taking an interest in this topic, which is important to our industry. We have a close relationship with our good friends in the pork industry and have worked on the country-of-origin labelling issue on an almost daily basis with them.

Like the pork industry, we are an export-dependent industry. Almost half of our production is exported; and with the United States, we've had a very long and integrated, as many would argue, market relationship with them. Last year, we had an almost $2 billion positive trade balance in live cattle and beef trade with them, and it's extraordinarily important to the viability of our industry to have unfettered access to that market and other significant export markets.

We have, over the last number of years, significantly increased our activity regarding our relations with the United States, as well as promoting improved access around the world.

I'm very pleased to turn the mic over to John Masswohl, who coordinates our efforts in this area. He was stationed in Washington for three years with the Government of Canada, and we certainly are very proud, as an organization, to have someone with his expertise working on behalf of our industry.

[John Masswohl, Director , Governmental and International Relations, Canadian Cattlemen's Association]

Thanks, Dennis.

COOL has been portrayed by its proponents as a consumer marketing initiative, and has sometimes even been misrepresented as a food safety measure. We believe it's purely a trade protectionist measure. The main target really isn't Canadian beef; it is actually the live cattle trade and live cattle imports into the U.S. particularly.

The new rules that came into effect last year were so complex that many U.S. cattle buyers either restricted their purchases of Canadian cattle or just stopped buying them altogether due to the cost and difficulty of handling Canadian cattle and of segregating those products from what we believe are otherwise superior animals.

This measure really has nothing to do with food safety. Indeed, under the Bush administration, it was not portrayed as a food safety initiative; it was portrayed as a consumer marketing initiative. Unfortunately, USDA now, under the Obama administration, doesn't seem to have quite made up its mind as to what it thinks COOL is. It's not quite sure whether it's a marketing initiative or a food safety initiative.

The law came into effect at the end of September 2008, on an interim basis. It immediately caused a number of U.S. cattle slaughter facilities to stop purchasing Canadian-fed cattle for immediate slaughter. That's the so-called C category. The C category is cattle that we ship directly to the U.S. for immediate slaughter. The few U.S. facilities that continued to purchase C cattle started to limit production days. And they reduced the price they were willing to pay so they could recoup their increased logistics expenses.

I've passed around a map. It has map 1 on one side and map 2 on the other. Map 1 illustrates what occurred under the interim final rule. That was the period from the end of September 2008 to March.

Take a company like Tyson Foods, for example. They operate eight slaughter facilities across the U.S. Four of those eight Tyson plants used to purchase cattle directly from Canada for immediate slaughter. As soon as the COOL interim rule came into effect, they made three of those eight unavailable to Canadian cattle. The only Tyson facility that, under the interim final rule, was accepting Canadian cattle was up in Pasco, Washington. That's one of those little cattle-crossing symbols on map 1.

JBS Swift adopted a similar policy and restricted a number of its facilities from buying Canadian cattle. JBS is only taking them at Hyrum, Utah.

The end result is that in the middle of the United States, you see a whole lot of “do not enter” signs where we used to ship the C cattle. They're not taking them anymore. That is just the first part of the impact.

The second part is that even though those facilities in Washington or Utah or Pennsylvania continue to take cattle, they have limited them to a number of days per week. For example, Tyson at Pasco is only taking them two days per week so they can further segregate them.

The final blow was that they reduced the price, because they still had the additional cost of segregating those animals. On average, the price discount was about $3 U.S. per hundred pounds of animal.

If you take those impacts together, considering the longer distances travelled, more shrinkage of the cattle on those longer journeys, more competition for trucks, and more border congestion on those limited days on which they accept those cattle, we estimate that the additional transportation logistics expenses are about $40 to $50 per head. The price discounts worked out to about another $40 to $50 per animal. So we're estimating that the total combined impact, on average, is about $90 per animal.

In addition, U.S. cattle feeders who purchased and fed Canadian feeder cattle, which became category B, the younger animals we ship to the U.S.--they finish them off in the U.S. and then sell them--started experiencing similar price discounts and discrimination by late November and December of 2008.

With respect to cattle imported after the initial grandfathering period, if they'd been in the U.S. up until July 15, they were considered as U.S. when they went to slaughter. But the cattle that came in after the grandfathering period started to come to market and see those discriminations.

In response to this situation that had been occurring in the fall, the Government of Canada requested formal WTO consultations in December. The result of these consultations was a change that has now been implemented in the final rule as of March 16. So now, under the final rule, beef from B cattle and C cattle can be sold under a single label. This final rule affects Canadian-fed cattle shipped for immediate slaughter. It should provide some relief on the shipping costs and increase the delivery opportunities, but the delivery days are continuing to be limited. The price discounts have become less formal, but they are continuing according to what the market will bear. While this final rule is an improvement, it remains far from a resolution. That's what we've been experiencing.

Now I want to talk a bit about the strategy and where we think this needs to go. The first element of our strategy is that we believe the government should pursue all available means to address the situation, including a resumption of the formal WTO process. To enable this process, we're working with our friends in the hog industry and with government officials to determine and document the market reaction to this final rule. We're not yet sure how much of the $90 per head we're getting back under this revised scenario.

As Jurgen explained, a recent twist on this issue was a new element of uncertainty introduced by Secretary Vilsack the day after President Obama's visit to Ottawa. The day after the president was here saying he does not want to constrain trade, Secretary Vilsack was telling the U.S. industry that he wants every meat label to identify the country of birth, growth, and slaughter. He further wants this information to appear on processed meat products that were supposed to be excluded from COOL.

Although we're not aware of any U.S. companies that are volunteering to comply with Secretary Vilsack's suggestions, he has advised USDA that he will audit U.S. companies to determine the uptake of those suggestions. And the implication is that if companies don't comply voluntarily, USDA will force compliance.

CCA is working with our U.S. allies to create an assessment of what it would cost the U.S. to implement Secretary Vilsack's suggestions. Once completed, this analysis is going to form part of the second element of our strategy, which is our ongoing effort to let Americans know why an onerous COOL law is not in their long-term interest. We would also, as Jurgen did, encourage all Canadian government officials, federal and provincial, to ensure that any and all U.S.-Canada political or diplomatic meetings include a discussion of COOL.

The third element of our strategy involves marketing the Canadian beef advantage in the United States. The Beef Information Centre, which is the market development arm of the CCA, works with our U.S. trade clients to grow Canadian beef opportunities in the U.S. market and mitigate the impact of COOL legislation. BIC's approach has been to align with Canada's packers and U.S. distributor partners to build awareness of the Canadian beef advantage. The Canadian beef advantage includes key points of differentiation between ourselves and our competitors in animal health and safety, genetics, animal ID, product quality, yield and profitability, service, technical support, and potential age verification and traceability. BIC provides educational resources and market development support that promote our comparative advantages to U.S. meat buyers.

I brought copies of some of the materials they use. Our French versions are still in production. They will be available to the committee once they're all prepared.

The BIC is working to promote Canadian beef in the U.S. by securing premium positioning in U.S. retail and food service locations as well as by building Canadian brand identity among certain U.S. demographic groups, such as the rapidly growing U.S. Hispanic and Asian populations. BIC's communications activities include trade advertisements, education seminars, trade missions, partnerships with U.S. distributors and retailers, distribution of technical materials, and the creation of www.MeatCool.info.

Much of this activity is funded in part through the Canadian cattlemen market development fund, sometimes known as the “legacy fund”.

The legacy fund was created in 2005 with investments from the Government of Canada, plus the Government of Alberta, and a check-off collected on cattle sales. We have submitted to the clerk a document providing additional detail on how BIC utilizes the legacy fund to promote Canadian beef in the U.S.

The last element of our strategy to mitigate the impact of COOL involves increasing export opportunities around the world. For that I'm pleased that Ted Haney from the Canada Beef Export Federation is with us to elaborate on those marketing activities around the rest of the world.

Thank you.

[The Chair, Conservative, Lee Richardson]

All right, that's helpful. Thanks, John.

Mr. Haney.

[Ted Haney, President, Canada Beef Export Federation]

Committee chair and committee members, thank you very much for the invitation to present to you today.

The Canada Beef Export Federation is an independent, non-profit industry association. It was created in 1989 to build export demand for Canadian beef in a global marketplace. Since that time, the federation has established representative offices in Japan, South Korea, Taiwan, Hong Kong, Shanghai, and Mexico.

Today the federation's 53 members represent over 90% of the Canadian cattle and beef industry from Quebec through British Columbia. The stability of our membership through the last six difficult years speaks clearly to our industry's unwavering commitment to international exports.

The competitive advantage of the federation and its members is created through the industry's working together to increase worldwide recognition and demand for Canadian beef and veal products. The federation's role is to coordinate strategies and coordinate funding so that we end up with a critical mass of activities. Those are focused primarily on market identification and competitive intelligence, market access and trade advocacy, local representation and international market services, as well as beef promotion in strategic and emerging markets.

The federation, backed with private and public resources, invested almost $8 million in its export programs last year. The federation was able to leverage $20 million of additional export-oriented capital and marketing investments from our export members over the past five years, creating just in that very difficult five-year period 200 new high-quality manufacturing jobs directly associated with export sales and marketing.

I would like to specifically note the value of the Canadian Beef and Cattle Market Development Fund as delivered to the federation through the Canadian Cattlemen Market Development Council. I have submitted a document, which I think the secretariat will be forwarding to committee members, but I would like to say that the legacy fund has delivered $7.7 million worth of support to the federation over the last three fiscal years and represents 40% of our total promotion budget.

This visionary decision of the governments of Canada and Alberta to create a $50-million ten-year market recovery fund and program is highly valuable. Without that support, the federation would likely have had to close two international representative offices, likely in mainland China and South Korea. We would have had an incredibly difficult time delivering pure market research as well as our brand promotion and research activities.

Quite frankly, we would have been much more passive in attempting to stimulate a recovery from the trade crisis--that is, from BSE. That fund has been valuable. That fund has underpinned our success and will continue to do so for many years to come. A moment of recognition is deserved for these two governments working cooperatively in this way with industry.

The federations delivered 388 separate export development projects in our last fiscal year, which just ended on March 31, averaging more than one completion every day of the year. These projects were grouped into 10 different program areas, the partner market development programs, in which we cooperatively work with our export members delivering programming that is of interest and is valuable to the individual companies—brand building, market exploration, attendance at major activities—as well as being of interest to the industry.

We do market information and liaison whereby we ensure that the Canadian export community is informed of emerging opportunities and constraints and is focused on addressing them: market research; incoming beef buyers' missions; beef seminars in our key and emerging markets; 106 retail and food service promotions, featuring the Canadian beef advantage brand in our products, with our members in front of consumers in these key international markets; food shows; promotional materials; newsletters; as well as a limited advertising and public relations program worldwide.

We know that these programs are vital and relevant, as Canadian beef and veal exporters last year attributed 23% of their total exports to Asia and Mexico to the federation's programming, its services, and its projects.

Success over time is measured in many ways. This is not just for the federation; it is also a measure of success and return on the public and private investments made in the federation.

Prior to our May 2003 BSE closure, we were able to see Canadian beef exports outside the United States increase from some 9,000 tonnes—less than $30 million—in 1990 to 158,000 tonnes, worth $540 million, in 2002.

Export trade dependence on the United States dropped from over 90%, which was our typical long-term dependence on the United States, definitely since the post-civil war era, to less than 70%. Our industry is very focused on continuing to serve the U.S. market, as important as it is, but by increasing sales outside of the United States, to decrease our dependence on that one market to around 50%.

Commercially viable access to our major markets in Asia and Mexico has the ability to add some $85 per head of additional value as compared with selling the same products in our domestic Canadian market. This is for beef derived from animals under 30 months of age. Further, those international markets have the ability to add some $100 per head in value over what those products can sell for in the United States. It is that premium, that directional, changing premium, that we really need to tap into, and primarily through the provision of market access in all markets.

Canada's beef and dairy cow herd is estimated as now 5.6 million head. Production in 2009 is estimated at 1.5 million tonnes. It takes the production of only about three million cattle to meet the total domestic consumption needs here in Canada. The Canadian market is an excellent one, but it's not large enough to absorb the production from our six-million-head national cow herd.

The message is that we must trade, and we must profitably trade. One of our coping mechanisms in dealing with dependency on the United States is to increase trade outside the United States. That's a positive reaction, and a reaction that takes a team created out of both private sector and public sector resources.

We have to remain focused on deriving full value from international markets. The extent to which we're successful in creating commercially viable access not only in Asia and Mexico, but also in Europe, Russia, the Middle East, South America, and Central America, will determine the eventual size of our national cow herd—three million or six million head. What lies in the balance is the difference between a further long-term contraction and a healthy and prosperous growth industry.

Our industry cannot promote itself through market access barriers—either prohibitive tariffs, continuing quotas, or protection such as country of origin labelling.

Mandatory country of origin labelling in the United States, as we know, came into effect September 30, 2008. The implementation of the final COOL rule was the conclusion of a long-standing campaign, which was led by protectionist forces in the United States, designed to secure their position in their domestic market by discriminating against imported products. Since that date, the final impacts on a per-head basis have been as high as $90 per head in reduced revenues to Canadian cattle producers.

Canada and Mexico have indicated their initial intent to pursue action through the WTO. Mexico has continuously suggested that this is where they want to go, and I think increasingly the Canadian industry has agreed that even with the changes that have been suggested and the potential moderation of effects, the WTO challenge may well still be called for.

We were pleased that the final rules saw some relaxation; however, the very public letter that Secretary Vilsack distributed, indicating his request for much more stringent measures, is not acceptable. While the U.S. offers an alternative market for Canadian cattle that is helpful, the emergence of COOL is an important reminder of the urgency of diversifying beef exports.

There is some cause for optimism. The federation believes we have reached a turning point concerning international markets. In 2008 world exports of Canadian beef increased 8.4% over the previous year to 393,000 tonnes, worth $1.36 billion. Exports to the federation's key markets in Asia and Mexico increased 15% to 83,000 tonnes, worth $321 million, in the same period. Exports to markets outside the United States now account for 23% of total world exports.

The Canadian cattle and beef industries have strongly endorsed the creation and operation of the agriculture Market Access Secretariat. This is a perspective that I know is shared by the pork industry and many other agriculture trading sectors that need a more fundamental and strategic approach from Canada to managing our trade relationships on a technical front with our trading partners worldwide.

We are cautiously optimistic that the announcement made by the Government of Canada on January 9 will result in an efficient and effective centre of excellence in export trade management. The federation is cautiously optimistic that utilizing the government's new approach of pursuing incremental access in key export markets such as South Korea, mainland China, and Japan would also be a tremendous benefit.

The reward for accomplishing the objective of removing technical barriers while seizing opportunities as they become available to Canada is significant. Again, we believe it could represent as much as $85 per animal processed in Canada.

The inevitable export diversification caused by mandatory country of origin labelling in the United States must continue to be recognized as only the small silver lining on an otherwise very dark cloud. The U.S. must live up to its trade obligations and respect WTO-compliant country of origin labelling on all beef and other agrifood products.

Every major product transformation, every that a product moves from one harmonized code to another harmonized code, should reset origin of the resulting product. In our particular case, slaughter confers origin, fabrication confers origin, and value-added processing confers origin.

Restrictive labelling at retail is not a matter of food safety. It is not a matter of consumer rights. It is a matter of trade protection. If we get it right and if we fully engage in the United States on trade regulation and fully engage internationally, I believe our industry can turn direction and move from a survival mentality to one of growth and prosperity.

We should have the ability to export up to 800,000 tonnes of beef products from Canada, with up to half of that trading to markets outside of the United States. It will take that in order for Canada to become self-sufficient again in beef processing capacity and even have the potential to process 4.5 million cattle in Canada--1.4 million just to service markets in Asia and Mexico.

It's high time for the Canadian industry to be allowed to focus on pursuit of prosperity and growth, rather than to focus all of its efforts on mere survival.

Thank you very much.

[The Chair, Conservative, Lee Richardson]

Thank you. That's all very helpful, if not slightly confusing. I hope we can have some of those points that I'm confused on recognized in questions asked by our members.

We're going to start with seven-minute rounds, first with Mr. Dhaliwal.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Thank you, Mr. Chair.

I would like to thank and welcome the panel members for coming out and giving an excellent presentation to inform us.

Mr. Chair, last week I was travelling through western Canada in my role as western economic diversification critic. What I found is that Saskatchewan has more trade with countries other than the U.S. than any other province. I see the theme here as well. The way we see it is that the pork and beef industries are dependent on the U.S.

What can the panel suggest that we, as elected representatives and the government, can do to diversify the export market?

[Jurgen Preugschas]

Thank you for the question. I think there are several things that can be done, and I think you heard the very positive comments on the beef legacy fund.

I think for the pork industry, we need to develop a similar fund. As you realize, the pork industry exports over one million tonnes around the world, and as I mentioned, it's a key economic driver. Certainly, there's some help from federal funding through CAFI programs and others, but we feel that we definitely could use some more help there, looking at the development of something like a legacy fund to help diversify our markets even more.

We've been quite successful since 1990 in moving from a 75% dependence on the U.S. market for our pork down to 28% dependence.

Now, the live animal market is different. We export nearly 10 million live animals to the U.S., so that is still there, and that's where COOL is affecting it so drastically.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

With regard to COOL, when you export the processed products, are you better off that way or are you better off exporting the live animals?

[Jurgen Preugschas]

Let me put it this way. Because of the rules in the past, we've developed an integrated North American market. Manitoba has become a leader in producing weanling hogs, sending them down to the midwest to finish. So it's been good for Manitoba producers, and it's been good for the American producers that have been finishing them. It is an integrated market. What COOL is doing is putting these types of individuals out of business and into bankruptcy, and we feel that this is unfair.

Of course, we could say that we don't want an integrated market, that we should pull back and finish those animals in Canada and develop more of a packing industry. Long term, that will work. But short term, it will put some of our producers and families in financial stress. We believe it's wrong for politicians to be doing that.

[The Chair, Conservative, Lee Richardson]

Mr. Laycraft.

[Dennis Laycraft]

We believe in striking the right balance between exports to the U.S and exports to other nations. It's not as if the rest of the world has treated us particularly fairly. Before 1983, the European Union was our second-largest export market, but they've subsequently come up with every possible measure to exclude us. We're encouraged that we finally see an opportunity to re-examine that relationship, and we're very positive about the potential in other markets. But the U.S. is the largest beef market in the world. They're also the world's largest importer. It's always going to be important, but the rest of the world is important, too. Mr. Haney talked about increasing our capabilities to get through some of these barriers and dramatically increase our investment. We're talking a few million dollars. We're not talking billions like you're hearing everywhere else these days.

When we take a look at the incredible work that some of our competitors have done in getting through some of these initiatives, we realize that countries like New Zealand have really done a remarkable job. We have some good people representing us in these markets, but we need more, and we need a stronger commitment as a country to get this done. Our product is very good. We've actually exceeded pre-BSE market levels. So once we get through the encumbrances, there's great opportunity.

The beef and pork trade, particularly beef trade, is one of the most protected areas in the world. So a successful WTO outcome is very important to our industry. Frankly, we are looking for a little different leadership from the federal government, with greater flexibility in their negotiating position.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Mr. Haney, you mentioned that you have scope in Japan and India. Would you be able to compete in those markets? Do you think we could have fair trade with those two nations?

[Ted Haney]

Japan, I did mention; India, I don't believe so. I mentioned Japan, South Korea, Taiwan, Hong Kong, mainland China, and Mexico with increasing focus on the European Union, Russia, and the Middle East, North Africa. Those are the regions of current priority and emerging....

Canadian industry is world-competitive. We export and we compete against the world in export competitors. In Asia we come up against the great South American exporters. In Russia we come up against them in some of our Asian markets and we compete well against them. We're absolutely competitive.

Pre-BSE, in 2003 Canada exported up to 30,000 tonnes of beef in Japan with significant increases. In fact, one commercial contract was signed by one of our export members in March 2003, which would have seen a 50% increase in our sales to Japan just on the back of one trade deal. So we were in fact gaining competitive momentum prior to the trade disruptions associated with BSE.

Are we competitive? Yes. Were we? Yes. How can we be more competitive? With a federal government taking a strategic approach to agriculture market access through the creation of what I would call a centre of excellence in agriculture trade policy, and that through the agriculture Market Access Secretariat.... This is really required as a way of consolidating resources and expertise.

Agriculture trade is complex. It's been complex since the Uruguay Round, when countries weren't allowed to slap on massive import tariffs and put in arbitrary quotas. Since then, all they've had is trumped-up safety protection, and that requires great technical resources, great policy resources, and great political resources to break down those new, very difficult-to-define barriers. When done, we will always trade on that activity. These are the things we need.

[The Chair, Conservative, Lee Richardson]

Thank you.

Monsieur Guimond.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair.

Good morning, gentlemen.

I am a farmer myself and I have been involved in the Union des producteurs agricoles in Quebec. So I know Michel Dessureault well, whom you must know too, since you work in the cattle industry.

I found your presentations very interesting. You know where you are going and how you want to get there. I would like to hear what you have to say about the possibility of doing things differently in the future, so that our domestic agriculture can continue to develop.

We have talked about the American COOL program and about labelling products by their origin. In Quebec, we have traceability. Agri-Traçabilité Québec is a mandatory traceability system that keeps track of where animals come from, their dates of birth and their movements. While this puts a lot of restrictions on producers, consumers seem to like it. For the continued development of agriculture, how would you see possibly extending a traceability system to Canada, for beef and for pork? In Quebec, they are even thinking of extending it to plant products. What is your opinion on identifying our products, especially as it applies to the traceability of animals?

[Jurgen Preugschas]

I'll have Martin answer this one, if you don't mind.

[Martin Rice, Executive Director, Canadian Pork Council]

I think traceability, as seen for some time as having more than just animal disease trace-back capabilities, is the thing that I guess is the most topical for livestock producers who depend on foreign market access and depend on the country being able to assure its customers that we can carve out an area that may have a foreign animal disease occurrence. I think Canada has been fortunate among pork-producing countries in that we're the only one that hasn't had a serious foreign animal disease outbreak in the last 40 or 50 years. However, we need to be prepared to deal with one, because the ways it can happen are very difficult to prevent in all cases.

Producers do appreciate that there are also some opportunities for traceability to make customers more confident that we can provide them with opportunities to identify origin of the meat and the ability to trace back in the case of a food safety incident. Again, we have an excellent record on the world scale, but customers are increasingly interested in having those opportunities to have confidence in knowing the chain the animals have followed through to the point of marketing.

However, I think we need to have the benefits communicated back to producers. I think this is where we haven't seen very much happen yet. It's not just going to be a cost for producers to make investments in traceability. I think more of the market advantages have to be identified and captured by our marketing partners. I think that will help facilitate the producers buying into the additional investment and the time this is going to require.

[Dennis Laycraft]

Mr. Chairman, I think it's a refreshing question to ask what we're doing in terms of positioning ourselves for the future. We are working actively. Behind that beef advantage initiative, we're working on a couple of pilot projects. One is currently under way. We're really working to try to get a traceability system that works, as we describe it, at the speed of commerce. We've seen some traceability systems around the world that only work if they're heavily subsidized, and witness how some of those countries are the most protectionist when it comes to reducing barriers.

On the other hand, we have seen some other programs that work well, and we believe Canada is one of the leading countries in the development of technologies that allow for the electronic transfer of information.

We're not necessarily expecting there will be huge premiums as a result of this, but there's going to be a growing expectation of improved traceability. Certainly our identification system, which our industry put in place, which gives you at least the herd of origin and the point at which that animal was processed, is better than almost all other countries that attended a forum in Argentina last week to take a look at where the world is at on that. We intend to work actively with efficient systems in between to fill that in.

What we really want to couple with that is a market-based system that will allow us to make industry improvement at the same time. Anytime a person is purchasing your product, it's the sum of its attributes they're interested in. It's how we continue our lead in quality, how we use it to produce more efficiently, and how we meet a whole variety of consumer preferences around the world. There are some who are very interested in traceability. There are some who are very interested in other particular attributes, who are going to be increasingly important to serve.

We're not going to be the low-cost producer in the world. We're the leading exporter in grain-fed beef products in the world or the high-quality beef that's sold throughout the world. We view this as important. We want to build our future on what we refer to as the value proposition, which is quality, safety, animal health, and our ability to service those markets.

We are working closely with Agriculture and Agri-Food Canada—the Growing Forward initiative—and we intend this to be a major part of our activity over the next two years.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

At the beginning of your presentations, you talked about slaughtering being done to a greater and greater extent in the United States, as I understand it. I know very well that trucks loaded with steers leave Quebec for slaughter facilities in the United States. Those animals are travelling thousands and thousands of kilometres in the trucks. Environmentally, that is not very well-regarded these days. Consumers and the general public might raise questions about the procedure from the standpoint of the animals' health and comfort.

Is there a way to have a Canadian strategy to increase our slaughter and processing capability so that our producers can get added value from their products? What is your opinion, your vision, on any real possibility of better slaughter facilities at home, and of policies to support them?

[Dennis Laycraft]

I'll start on that.

We worked pretty actively from 2005 on to increase capacity. Pre-BSE, which is the term in our industry from May 2003, we were processing up to around 70,000 head of cattle a week in Canada. We increased that capacity to over 100,000 head, if we were operating the full number of days with double shifting. And then, when the market opened to the United States for live cattle, of course they came back as competitive bidders in our market. We saw that capacity fall back to around 60,000 to 70,000 head a week.

It wasn't that we didn't have enough capacity to kill more cattle in Canada. A whole number of issues started to come into play. Some regulatory issues have created a higher cost structure in Canada. We presented before a number of committees on how we have applied the policies differently, like the feed ban and the impact of that. So there are some competitiveness issues that are greater than just simply do we have enough hooks in this country to process cattle.

Ontario is a really good example. If you take a look at the last two months, when U.S. plants, as a result of the change in the rules, started buying Ontario cattle again, we saw the price in Ontario improve by over $100 a head in relation to the rest of the country. In other words, they were being discounted just because of the concentration.

The fact that we've been integrated and those plants are all part of the daily bidding process creates more competition every day when a person is selling cattle. So it is healthy to have a certain amount of product and a certain number of people bidding on it every day.

We would prefer more of those cattle be processed in Canada. Part of it gets back to market access that Mr. Haney could talk about.

A range of those products capture more value outside Canada than it will inside of Canada, and one of those, I believe, is that you don't really have domestic markets any longer in our trade. You have larger or smaller markets. Every time we process an animal, probably different parts of that animal should find their way around the world. Long cut feet should be sold into Korea. You take a look at the value of livers in countries like Egypt and so forth, that all adds value. For us to compete against U.S. plants, we have to be able to optimize the value of every animal we process. And that is part of our overall strategy.

We believe there are some improvements in technology. We've just written to the Government of Canada, as we move ahead with some new technologies for quality assessment, that now, we think, is the ideal time to move forward with that, because it also links nicely to your question about traceability. We link the ability to go back to the original farm and add more information through the system. Not only do we show our customers we have a better system, we're able to use it better as an industry.

So a whole competitiveness relationship goes right from what does it cost to process products in Canada all the way through to what value can we obtain through the marketplace for them.

[Ted Haney]

There are many arguments that would favour trade in meat over trade in live animals. We appreciate the ability to trade, in our industry, live cattle to the United States, again for competition reasons. But from a strategic perspective, and based on economic argument alone, trade in meat is the direction we need to focus on.

Trade in meat is less vulnerable than the trade in live cattle. From trade policy, from the ability of countries to restrict trade, trade in meat is less vulnerable.

Also, we have the ability to diversify that trade much more than we have the ability to diversify the trade in live cattle. So we don't apologize for our ability to trade live cattle, and our focus on trading meat is absolutely vital to the long-term health, prosperity, and decreased risk profiles within our industry.

Any time you decrease risk through diversification and reduce independence on a vulnerable product, you increase overall returns to an industry. It's this that creates optimism. It's this that moves us to an area of stability and eventual growth and prosperity.

So economic arguments alone at a strategic level will lead us toward trade in meat.

[The Chair, Conservative, Lee Richardson]

I think you want to comment.