International Trade Committee on April 2nd, 2009

[Jurgen Preugschas]

Yes.

I agree with a lot of the points, but we have to remember as well that the ability to trade live animals into the U.S. also creates an advantage. When you have fluctuations in numbers and we don't have an ability--if there's a breakdown, or a strike, or there are seasonal differences--the ability to ship live animals into the U.S. is quite critical. I don't think we want to lose sight of that.

The other fact is that we do want to sell more pork out of Canada, but we have issues like labour. Certainly the market access issue is very critical. This is maybe where we can work with government. It's value chain development that we haven't really done a good job at, where we do have interrelationship and cross-pollination, if you will, of all the sectors in the value chain.

I know we're looking at it in the Pork Value Chain Roundtable. I know Alberta is looking at it with the Alberta livestock and meat strategy. These are strategies where I think the federal government also needs to get involved to really take a look at what our industry needs to look like to be strongly sustainable in the future.

[The Chair, Conservative, Lee Richardson]

Thank you.

Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thanks to our witnesses.

I can understand it's very frustrating when you're looking at an export market and the goalposts keep changing. I just want to clarify your comments in regard to COOL.

In all three of the presentations, it seems clear you're very concerned about the voluntary guidelines that are essentially being imposed on the industry by Secretary Vilsack. Can you live with the COOL rules as they were announced in January? Are you seeking us, when we go down to Washington, to push back on the voluntary guidelines? Or are you concerned about both the voluntary guidelines and the COOL rules?

[John Masswohl]

Yes, both.

Ultimately, it's not that we're afraid to market Canadian beef in the United States. If we were required to label beef that we ship from Canada to the U.S. as Canadian, I don't think the U.S. would be offside in asking us to do that. Where we run into the whole problem is where they're requiring beef sold at retail to be labelled with where the animal was born.

There are two parts to how they violate their WTO agreement and NAFTA.

Ted mentioned the first part. When an animal is transformed into meat, under the trade rules, the meat is the origin of the country that does that transformation.

There's an additional provision in the NAFTA that says when you manufacture product--it doesn't matter whether we're talking about meat or furniture--you do not label the finished good with where the inputs came from.

So they're violating the trade agreement on those counts. Ultimately, where we want to get to is for the United States to acknowledge that slaughtering animals confers origin on the meat.

[Jurgen Preugschas]

I think what it also does is it makes North America less competitive with the rest of the world. On the pork side, Canada and the U.S. jointly make up nearly 50% of the world trade in pork. What this is now doing is making North America less competitive with the rest of the world, simply from the added costs that are being incurred by the processors in the U.S.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Okay. So you concur that it's both.

[Jurgen Preugschas]

Absolutely, yes.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Okay. I wasn't sure about that just from your presentation.

I'd like to move on to the next question--

[Martin Rice]

May we just confirm, though, that we were willing to give some time, after that final rule was put out in January and before the Secretary of Agriculture indicated that he wanted this additional compliance, these additional steps, to see whether this would have corrected. We are looking for ways to practically change the system so that it reduces or largely eliminates this distortion, this cost discount, that's being applied now to our animals. We weren't willing to give up entirely on the opportunity to pursue this, because we believe COOL does conflict with the trade obligations the U.S. and we have undertaken.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you.

Mr. Haney particularly, you've been very passionate about your advocacy. I can certainly appreciate that. We have been hearing a lot of evidence over the past couple of years at this committee about how minuscule Canada's product promotion budget is compared with that of other countries: the European Union, with $25 million in product promotion around the world for wine products from the European Union; Australia, with $0.5 billion. We have these huge amounts in product promotion, and yet you were speaking, Mr. Haney, to an amount of $7.7 million over three years, much of it essentially maintaining infrastructure.

I'd like to know how much there is available, both for the U.S. and around the world, for product promotion of Canada's beef exports and Canada's pork exports. That's my first question.

Second, are you aware what budgets our competitors have for similar exports? Other countries have supported their industries much more strongly than Canada.

My third question, because I only have seven minutes, is regarding domestic packing capacity. You've spoken about value chain development in trade in meat. Do we have the domestic packing industry capacity to achieve it? And what needs to happen to increase that capacity?

Finally, are American processors allies in this fight around COOL, and when we go down to Washington, should we be entering into contact with them in order to increase our leverage?

[Ted Haney]

Speaking from the beef perspective for a moment, there's about $10 million a year available for international promotion of our products worldwide, including the United States. We know that our number one competitor out of North America is funded with approximately $40 million in direct funding.

The difference, though, is that this is it for us: $10 million. In the U.S., they have concessions on rental rates of international offices, shared resources that are available out of the agriculture trade offices co-located at U.S. embassies around the world. None of those collateral supports exist for Canadian industry really at all. So our level of support is much less.

We looked at Australia, for example, at Meat & Livestock Australia, with a budget in excess of $100 million and a significant allocation to export promotion and development as well.

Absolutely, we've come a long way with respect to putting resources in place, particularly during a difficult time, but we still are relatively small. We need the allied support, we need to have a better integration of resources that come out of embassies, and we need to have it meaningfully available for industry. We still have this hard separation, in many ways, between “This is the embassy and what it does” and “Industry, you're on your own”. There's no agriculture trade office philosophy out of Canada, halfway between public and private. That would be tremendously helpful.

It's how we view agriculture. Export development is no longer an issue just of government. It has never been an issue just of industry. It's shared. Finding ways of combining resources more productively is very definitely part of our long-term benefit.

Capacity is an economic outcome. We can further utilize the capacity we have today with access, with the ability to promote product, and when that's profitable, new capacity has always flowed into our industry, based on economic signals.

We have found that American-owned capacity in Canada has been a friend of Canadian exports. We always have to understand that a company that operates in Canada and in one or many other countries has a corporate agenda. It may be in complete alignment with a national agenda; sometimes it's a little different. Our goal is to ensure that, where possible, the corporate agendas are aligned with our country agenda and that we're promoting Canadian products internationally.

By and large, we've worked hard to develop those relationships, and in export sales, international companies have been our friends.

[John Masswohl]

I would definitely say that when you are in the U.S., there are allies there who realize that this law is bad for them. The companies that buy these cattle, if they are packing companies--

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I'm sorry to interrupt; could you pass along those names to the committee?

[John Masswohl]

Yes, certainly.

The packing companies that buy the finished cattle are paying less for them because there is additional cost for them. There is nothing to pass on. It's just all lost value in the system. They certainly don't want to have those costs. They don't want to discount the prices, but that's what they're forced to do.

As for the feedlots that buy our feeder cattle, again, those are excellent cattle. There's a reason they buy them. They do very well. They perform well. But they have to handle them separately. Again, it's lost cost that they don't want to have.

Yes, we'll provide the names of the allies to the clerk.

Thank you.

[Martin Rice]

One of the hopes we have for the Market Access Secretariat would be that Canada would have a bit more of a coordinated agenda in dealing with trade access issues. It could be something as simple as an export certificate, the form that is recognized between the two countries as satisfying the importing country's requirement that food safety requirements have been met by the exporting country and recognized by the exporting country's food safety authority. These things have a life termination and date. If there isn't coordinated activity between the Canadian Food Inspection Agency, the trade department, the Department of Agriculture and Agri-Food, and the industry so that they know these things are coming up, they can, if they get caught up in other political issues, which happened to us going into Russia about a year ago, become a tool to be used in trade disputes. This really should be left entirely with the food safety authorities to work out.

It's important that we have an agenda of upcoming tasks, that we address them in a timely matter, and that they don't become political issues. We were out of the Russian market for about four months when there was very strong import activity. Millions and millions of dollars in losses occurred.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Do you have the promotions list?

[Martin Rice]

In terms of promotions, yes, we certainly would be far behind our major competitors in terms of overall government resources made available through the technical aspects, through embassy promotions, and through that kind of cooperation. Ted was mentioning that we would be well behind our major competitors in that respect.

[Jurgen Preugschas]

Canada Pork International's budget for their new business plan over five years is $5.5 million. We export in tonnage three times even what beef does, and our budget is one-third the size. We don't have the ability to get more. Half of that is from our producers and also from the processors--the marketers--that sell it. There is very little from the government. It is matched, so half of that is government and half of it is industry.

You asked a question about our domestic packing industry. We do have some capacity in Canada to expand, and if the markets were there, they would expand to fill them. But of course, labour has been such a big issue, especially out west, that it's been difficult for those plants to run at full capacity, simply because they don't have the labour to fill those plants.

[The Chair, Conservative, Lee Richardson]

Thank you.

I think that's changing. I hope so.

We'll go to Mr. Keddy.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you, Mr. Chair.

Welcome to our guests. It is a very interesting discussion here this morning.

I'm going to share my time with Mr. Holder.

I have a couple of questions on country of origin labelling. I don't know if we can avoid, to a degree, the parts of country of origin labelling that are actually positive: the ability to trace your animal back to the herd it came from or back to the feedlot it came from. I think those are positive marketing things.

If you look at what happened in softwood lumber during the original shakes and shingles fiasco back in the 1980s, at that time we had country of origin labelling on timber and logs. It kept Atlantic Canada from facing countervail and anti-dumping duties in the United States, because we could trace all our wood back to privately owned woodlots in a different regime than what the rest of the country had. Although we fought hard against it at the time, there was a benefit to it at the end of the day.

I just want some comments on the ability to trace that product and on the fact that we can compete with anyone in the world. You say that you would modernize Canada's trade negotiation strategies and philosophies. I'd like some examples of that. And you discussed greater flexibility in trade negotiations. What would you recommend?

First of all, especially with the food safety concerns out there today, how important is it to be able to trace that animal to the herd or the farm it came from when you're promoting a product that's safe and to be competitive with anyone else in the world?

[Dennis Laycraft]

I can argue that there are two separate issues here.

When you take a look at the actual legislation in the U.S. for country of origin labelling, they prohibit in there the U.S. Department of Agriculture from putting in place a mandatory identification system for that purpose.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I understand that.

[Dennis Laycraft]

They had that push-back down there. When it gets to labelling, they wanted to create a Canada-U.S. for fed cattle versus a U.S.-Canada or U.S.-Canada-Mexico for feeder cattle. It just became an inventory management problem for all distributors and retailers rather than some perceived benefit down there. Where there are alliances and the ability to do that, we think with our Canada beef advantage and some of the private branding initiatives that we'll be able to realize it without it being....

They estimate it's going to cost $3.9 billion to put in place the full country of origin labelling. Could you think of a worse time in history to be adding that cost into a meat complex?

As we move ahead, we believe there are the opportunities you talked about, but we think the systems we're working on will facilitate that.

Our concern as well is this de facto style of rule that the secretary has put out with the threat that if you don't adhere to these other costly procedures to do this.... In my opinion, we've already seen more evidence of problems in the pork industry than the beef industry. But de facto rules are a violation of the WTO, just the same as actual rules. We have to obviously be vigilant against that.

We prepared 25 recommendations in a report we tabled. The Beef Export Federation worked with the Pork Council, Canada Pork International, and others. There's a whole series of different things to increase our capabilities. This is our ability to negotiate market access in technical negotiations. It's how we take the combined strengths of Foreign Affairs and International Trade, the work of Agriculture and Agri-Food Canada in the negotiation of a veterinary agreement, in our case with CFIA, and working with industry.

It's very seldom just the science that's examined in these negotiations. If it were, every market would be open to us for virtually all our products. It's how you combine all these things, get the right people lined up, and do it on a timely basis. As we found with the border closing event, the questions were asked about what we spend in perspective. We're the third-largest live cattle and beef exporter. Our friends in the pork industry are often the largest pork exporter in the world. When you take a look at red meat, we're clearly one of the largest exporters and producers in the world. We need that capability to move forward.

I think we could spend an entire session looking at how we could make Canada the world leader. That's the essence of our report. We believe Canada should be positioned as having the greatest capability in this area, recognizing that we are one of the largest exporters of agriculture products in the world.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

You made several recommendations on how we should be negotiating with the Americans or at the WTO. What are the specific recommendations, and what do you mean by flexibility?

[Dennis Laycraft]

When I was talking about flexibility, that was in the WTO context.

We all know there was a resolution passed in the House of Commons that there shall not be any concessions essentially given in terms of the supply managed commodities. We're not here to attack supply management, but when our negotiator sits at the table and everybody has to negotiate all elements of a deal, we feel it's actually disadvantaging our sector and the other sectors when you're not able to be fully engaged. From time to time, we believe it's actually caused our interests to be excluded from the table at key moments in negotiation.

We're hopeful that we'll get the WTO rolling again once there's a commitment back to it, but it's more the willingness to sit down and engage on all these issues and look at where the WTO is moving to. That is my sense of what we mean by more flexibility.