International Trade Committee on April 9th, 2019

[The Chair, Liberal, Mark Eyking]

I call this meeting to order.

Good afternoon, everyone. Welcome to the trade committee. This is our second meeting dealing with the trade challenges the canola industry is having.

Today we're going to split the meeting into two sections. First we're going to have members from the industry here, and second we're going to have individual farmers come before us.The first meeting we had was with ministers and government officials.

As many of you know, it's a very important industry. There are over $26 billion in sales, $11 billion in wages and over a couple of hundred thousand jobs. There are a lot of people working in-between those supply chains. Whether it's farm families or all the way through the supply chain, we'll hear about that today.

I welcome members who are new to the committee and just attending and who might represent growers.

Without further ado, we have with us witnesses from the Canadian Canola Growers Association, Richardson International, and Viterra.

Viterra is here by video conference.

If it's your first time here, we usually try to keep presentations to five minutes. That would be appreciated, so we can have good dialogue with the MPs.

Without further ado, I'd like to go to our video conference first in case there is a glitch and we have to catch up. We will go to Viterra.

Go ahead, gentlemen. You have the floor.

[Kyle Jeworski, President and Chief Executive Officer, Viterra]

Great. Thank you, Mr. Chair. Thanks for the opportunity to address the group today.

By way of background, Viterra is one of Canada's largest grain industry leaders. Our company has been in operation for over 100 years with operations right across the country that include grain elevators; oilseed processing facilities, including for canola; pulse processing facilities; and port facilities on both coasts.

We are 50% owned by Glencore Agriculture, and our other 50% is owned by Canadian pension funds, namely, the Canada pension plan and the British Columbia Investment Management Corporation.

We have a long history of working with Canadian farmers, as I said, dating back over 100 years. Our job is to connect their production to various areas around the world that are in deficit. In fact, over 90% of Canada's farmers depend on world markets for their livelihoods.

Over the last several years, China has become an ever increasingly important market for Viterra and the thousands of farmers that we serve. We export several different commodities to China annually, including a significant amount of canola. Other major commodities would include wheat, barley, flax, soybeans and peas.

On March 26 this year, Viterra received notice suspending our licence to export canola to China. This decision by one of our major customers is having a profound impact on our industry and will continue to have major ramifications the longer it continues.

We've been very active in exploring various mitigation strategies and assessing both the short-term and long-term impact this will have on the fluidity of our pipeline. We are working to manage disruptions with producers, deliveries into our system, and sales in and out of our facilities. We are also working very closely with our railway partners to manage pipeline disruptions.

As a company and an industry, we've been very clear on our position. All of our exported products are rigorously tested to ensure they meet specific import standards. We do not believe that this is a quality issue.

We take these quality concerns very seriously and support a sound science-based approach in the testing of our exports. This is what gives Canada its excellent reputation for being a safe and reliable supplier of food ingredients and makes companies like Viterra a preferred supplier for many destinations around the world.

We appreciate the fact that the federal government has been engaged with the industry from the beginning to gather information and understand the situation. We are committed to working closely with the government and all key stakeholders to actively participate in this process.

Looking ahead, we need to continue working with a sense of urgency and to take concrete action toward solving this matter. For example, we need to continue pushing for a science-based resolution that supports a long-term trading relationship with China, and we need to ensure that the two governments are engaging at the highest levels and openly communicating about how to settle this most urgent issue.

Market access issues such as this one hurt our company, our farmers and the economy as a whole. We need to work together and act swiftly to restore access to this very important market.

Thank you again for the opportunity to speak today.

[The Chair, Liberal, Mark Eyking]

Thank you, gentlemen.

We're going to go over to Jean-Marc Ruest from Richardson International.

Go ahead, sir. You have the floor.

[Jean-Marc Ruest, Senior Vice-President, Corporate Affairs and General Counsel, Richardson International Limited]

Thank you very much, Mr. Chair, and members of the standing committee.

My name is Jean-Marc Ruest, and I am senior vice-president of corporate affairs and general counsel for Richardson International Limited.

I thank you for inviting our company and me to give you our perspective on the current trade disruption of canola seed exports to China.

Richardson International is one of Canada's leading agribusinesses. Our company was founded in 1857, 10 years before Confederation, by the Richardson family, and it continues to be privately held by the fifth, and soon to be sixth. generation of the Richardson family.

We are involved in the sale of crop inputs to producers; in the handling and export of Canadian grains, oilseeds and pulses; the processing of canola and oats on a large-scale basis; and the manufacturing of canola oil products such as bottled canola oil, margarines and shortenings for the retail, food manufacturing and industrial services sectors.

We have a very long business history with China, dating back over 100 years. We were among the very first Canadian companies to export grain to China, and have developed a deep and meaningful relationship with our Chinese customers.

While our relationship with China has grown over a century, the importance of the Chinese market to Canadian grain, oilseeds and pulse exports has become evident over the last several years.

In 2018 the grain sector represented just under 30% of all goods sold to China by Canada. Of the top 25 products exported to China, seven grain and oilseed products appear on the list, totalling $4.8 billion annually. Canola seed was, of course, the single-largest export from Canada to China in 2018, at $2.72 billion. Canola products alone represented just over 15% of all of Canada's exports to China.

If we look at the top five products sent to China last year—which include canola seed, wood pulp, canola oil, soybeans and lumber—grains and oilseeds accounted for just over 60% of the value of those cumulative exports.

To say that canola is important to Canada's trading relationship with China would be a gross understatement. Canola, and indeed the entire grains and oilseeds complex, is the foundation of Canada's trading relationship with China.

As you are now aware, China began raising allegations over the last few months that Canadian canola shipments, including those from Richardson, were non-compliant with Chinese phytosanitary requirements due to the alleged presence of prohibited weed seeds and fungal disease.

Our internal testing and testing at the time of loading and thereafter, along with testing conducted by the Canadian Food Inspection Agency at the time of loading, and subsequent to the complaints, was unable to detect a presence of the alleged weed seeds or disease, and in fact several of the weed seeds alleged to have been in our shipments have not been found in any Canadian grain shipments from western Canada over the past decade.

Notwithstanding these results, China chose to abruptly suspend our company's licence to export canola seed on March 1, based on those allegations. You can appreciate that such a course of action was alarming and upsetting, given Richardson's long-standing relationship with China, and the importance of the Chinese market for Canadian grain and oilseed exports.

We were particularly upset by the fact that Richardson was singled out. Notwithstanding the fact that the allegations of non-compliance had been raised against a number of Canadian exporters, the fact that a single commodity, namely, Canadian canola, has been targeted, and individual Canadian exporters are singled out by the Chinese government in response to an industry-wide issue is troubling. These are issues that our government must immediately address.

While we understand and agree that technical discussions between the regulatory subject matter experts must be allowed to occur to either address or dispel these alleged quality issues, we cannot emphasize enough the importance of expediting this process. The current state of uncertainty is creating significant distress among all industry stakeholders, and in particular producers who are currently making spring seeding decisions. The decisions they are currently required to make are critically important to their success or failure in 2019 in terms of their crop production and cash flows.

Again, getting to the bottom of the technical allegations is absolutely urgent and should occur within weeks, not months, and certainly not years, for both the Canadian industry and even for our Chinese customers, who have reasonably come to rely on the quality of our products and our consistently positive business relations.

In the case of exporters like Richardson, if the current disruption continues over the longer term, then we'll have no choice but to find other markets for Canadian canola seed. However, doing so will be no easy task and can only occur over a longer period of time given the magnitude of the Chinese market.

This past year, China accounted for over 30% of all Canadian grain and oilseed exports, having grown from just 20% in prior years. While we are confident that we can eventually find other markets, it will not be a painless exercise.

As it develops its response plan, the Government of Canada should take note that China is not the only country where Canada's grain and oilseed sector has experienced significant market access problems. The closure of the pea and lentil market to India and the durum wheat market to Italy have also been difficult and costly challenges for our industry in the recent past. Possible trade disruptions in several other countries and the spectre of non risk-based regulation in the European Union have formed a veritable cocktail of trade disruption for Canada's grain industry.

The Government of Canada must become more involved, creative and aggressive in defending the grain and oilseed sectors' interests from technical barriers of trade in our export markets. lt should, in fact, be the number one concern of our government for the majority of our bilateral trading relationships where the grain sector figures prominently.

ln closing, we'd like to thank the government and its officials for their stated commitment to finding a solution to the current challenge. Given the significance of this issue and the consequences that will flow to our industry and the entire Canadian economy, we trust that the Government of Canada will commit all available resources and expertise to its resolution. ln that respect, Richardson International will at all times be ready, willing and able lend its assistance as required.

Thank you, Mr. Chair and committee members, for the opportunity.

I will be happy to answer questions you may have at the relevant time.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to move to the Canadian Canola Growers Association. We have the president, Mr. McClean, and the vice-president, Mr. White.

Welcome, gentlemen. You have the floor.

[Bernie McClean, President, Canadian Canola Growers Association]

Thank you, Mr. Chair, and thank you to the committee for the invitation today to discuss the impact on farmers of China's move to revoke export registrations from Richardson and Viterra and, more broadly, to stop buying Canadian canola seed.

My name is Bernie McClean, and I farm northwest of Saskatoon. I'm the current president of the Canadian Canola Growers Association, the national association that represents 43,000 farmers across Canada. I'm joined today by Rick White, the CEO of CCGA.

Finding a path forward with China is CCGA's top priority. We're working with the Canola Council and government officials to find a science-based resolution and to resume trade as soon as possible. I cannot overstate the importance of this resolution and the uncertainty and concern currently being experienced by farmers and the larger value chain. With 90% of our canola exported as seed, oil and meal, we rely on international trade. The loss of our largest market, based on an action that appears to be without scientific evidence, is of real concern.

In 2018, China purchased $2.7 billion in canola seed, or roughly half of our seed exports. Many farmers choose to grow canola for its stable returns. In 2017, canola was the largest source of farm cash receipts of any commodity. It is also an important contributor to the Canadian economy, generating $26.7 billion in economic activity and creating 250,000 jobs from coast to coast.

Farmers, including me, are now weeks away from planting. In many cases, most of the seed, fertilizer and crop protections are purchased and production plans are set. Farmers plan months in advance and consider a variety of factors, including healthy crop rotations, disease pressures, stored grain, input costs, risk management and marketing strategies, all limiting their ability to change plans so close to seeding.

This year, we expect to plant 21 to 22 million acres of canola. As an illustration: I purchased all of my seed and a large percentage of my necessary inputs by the end of December 2018. A representative farm in central Saskatchewan spends roughly $215 an acre on seed, fertilizer and chemicals—those three alone—in advance of putting the crop in the ground, or roughly $323,000 to plant 1,500 acres of canola.

Furthermore, an estimated 10 million tonnes of canola seed remain in storage, creating cash flow challenges for farmers still needing to sell. Situations vary by farm, but it is normal practice to sell some grain in the spring to generate cash flow to cover expenses. With many expenses already committed and larger than average volumes of canola seed still on the farm, cash flow is top of mind.

An increase to the maximum limit under the available federal advance payments program would provide farmers with more flexibility to manage their cash flow and prepare for the upcoming production season, until a resolution can be found. Existing government risk management programs could be used to help farmers manage income and margin declines. Consideration should be given to how the enrolment in AgriStability can be increased and what adjustments can be made to make it more responsive to the current situation.

Overall, initiatives to diversify the canola market, such as increasing the existing biodiesel mandate, or efforts to reach new markets would help provide a new home for our canola. Ultimately, access to the Chinese market for canola seed is required. The measures discussed would help farmers manage the uncertainty in the short term, but the longer this market disruption goes on, the harder it will be to manage and absorb the negative impacts.

In conclusion, grain and oilseed farms are family-owned small businesses that depend on trade. With little warning, the rules of trade changed overnight, without a solution in the foreseeable future. Farmers are set to produce a crop without certitude of market, delivery or price options. We're confident in the quality of our canola and our ability to consistently meet the high safety and quality standards required by the Government of Canada and our customers. Farmers look forward to finding a science-based resolution to address China's concerns, as well as the resumption of trade, as soon as possible.

With that, thank you to the committee. I look forward to some questions.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

It's true—we heard this before—that this crop was developed in Canada and first planted here. Fifty years ago, we didn't have an acre. Did you say we now have over 20 million?

[Bernie McClean]

Last year the crop was a little over 21 million acres. We're expecting between 21 million and 22 million this year.

[The Chair, Liberal, Mark Eyking]

How much would that be, as a percentage of the total world crop? Would it be 10%, or 20%?

[Bernie McClean]

Jean-Marc, that might be a question for you. I don't know. We are one of the largest producers of canola.

[The Chair, Liberal, Mark Eyking]

It could be half of the world's production.

[Rick White, Chief Executive Officer, Canadian Canola Growers Association]

Yes, the second biggest producer would be Australia, and they produce two million or maybe three million tonnes. They're not a big player. Canada is by far the dominant canola producer in the world. The European Union grows a lot of double-zero rapeseed, but again most of that is for domestic use. It doesn't enter the export market in any significant way. We're dominant in terms of export canola business.

[The Chair, Liberal, Mark Eyking]

Thank you, gentlemen.

We're going to go to dialogue with the MPs now, and the Conservatives are first for five minutes.

Mr. Hoback, you have the floor.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

I want to thank the committee for entertaining this ag issue. It is a trade issue, so I appreciate your working with us to see this come here.

Jean-Marc and Viterra, I have a couple of questions for you guys. The urgency—I'm really trying to get that message across here in Ottawa that there's an urgency and this needs to be dealt with. Timelines must be put in place. We need to see things, activities happening.

I'm really frustrated with the executive branch of this Liberal government because they don't sense the urgency. They just called their first group meeting last Thursday. She virtually just sent a letter to China last week looking for an invite to go to China with our officials. She hasn't talked to the Chinese ambassador here in Ottawa. She hasn't reached out through that avenue. The Prime Minister has said nothing on this issue. The Minister of Foreign Affairs had the lead on the issue yet refuses to come before any of the committees.

My concern now, as this will be our last meeting on this issue, is how we keep this front and centre. What's going to be the impact if we don't keep it front and centre? I'm concerned about that.

The other thing is that a lot of people think you can just swap markets right away. It's as if we've never been looking for new markets. How hard is it to develop a new market? What type of time frame would it take to replace this lost volume in China with other markets? You're not going to be able to do it tomorrow.

Maybe I'll start with Viterra. If you're going to develop new markets for—what are you looking at; maybe 10 million metric tons—how much time would it take to actually replace that? Just give us a ballpark answer.

[Kyle Jeworski]

China's market is between 3.5 million and 5 million metric tons of just canola seed. To replace that would take years. The challenge is that you have to get market acceptance of canola, and you have to build up all of the infrastructure. The canola seed needs to go into market. It needs to be crushed, where you're converting that seed to both oil and meal, so you need acceptance of both the oil and the meal within that marketplace, and you need the infrastructure. It's years. We have some markets that have a little bit of additional capacity, markets like Mexico, Pakistan and Bangladesh, but they can't take a fraction of the additional product.

Really, diversification is a medium- and long-term strategy. It's not a short-term solution. The short-term solution is that we need China open.

[Randy Hoback, Conservative, Prince Albert, SK]

Exactly, and I think Jean-Marc would probably say the same thing.

The reality is that you only have so many crush plants built in markets around the world that will accept Canadian canola. To build new crush plants would take years.

In other markets, like those we've seen with durum in Italy, with pulses in India, what has been Canada's reaction when those markets have been shut down? Have we used retaliatory tariffs? Have we said, “Wait a minute, guys, this isn't good”? These markets now have been shut down for a long period of time, and it seems there's been no response from this government when this happens. Do you think the lack of response in previous disputes has now created the situation where China says, “Well, Canada won't respond. They won't do anything. We'll just do what we want”? Do you sense that happening here?

[Kyle Jeworski]

To comment whether they're related, I can't comment on that, but on the issue of India in particular with our largest pulse market, it's been a very long process in terms of having that market essentially shut down. There's very limited Canadian product—

[Randy Hoback, Conservative, Prince Albert, SK]

Our response to that when those tariffs came on...there was no response. Okay, we're taking widgets from India; they're going to have a 65% tariff tomorrow, too, then. We've just accepted it.

Jean-Marc, you said you wanted to talk on that.

[Jean-Marc Ruest]

I was simply going to say that you've identified ongoing issues that Canadian exports are facing around the world and that all have sanitary and phytosanitary issues as the root issue that's being put forward to prevent trade from happening. In the case of Italy, it's a complaint with respect to alleged residue levels of glyphosate, which is being used to justify country-of-origin labelling. In China currently we have the situation that we're facing with respect to pests, etc. In India, while we've got tariffs now, you may recall that originally the issue was with respect to fumigation requirements to treat insects.

We have the same type of trend that is happening. If it's not going to be a science issue, then the issue, its resolution, etc, necessarily gets outside of our hands to be able to address, and it becomes a political one. As I said in my opening comments, I think it's incumbent on government to recognize those tactics for what they are and take a very strong stand, because it becomes very quickly a very slippery slope with respect to those types of issues being put forward in the future by other jurisdictions.

[The Chair, Liberal, Mark Eyking]

Mr. Hoback, your time is up. I know you have more good questions, but we have a lot of MPs who want to get in here today.

We're going to move to the Liberals. Mr. Fonseca, you have the floor.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Thank you, Mr. Chair.

I'll stick with the questioning on the subject of a science-based approach for canola and other plant-based products.

When it comes to the science-based approach, looking at international trade and our agreements with countries around the world, what would you like to see in those agreements that would hold everybody to a level playing field and to ensure that games aren't played with the products?

[Jean-Marc Ruest]

With respect to trade deals, we need to have very strong language that commits the signatory parties to respect science and science-based results, proper testing protocols, etc., and in the event of dispute, we need to have a very quick mechanism to resolve these scientific issues, with the parties' being governed by the outcome of that result.

I think, though, we need to keep in mind that when we're pressing other countries to commit themselves to science-based decision-making and results, we have to play by those same rules as well. We can't say we support science and science-based decision-making and then weaken when we're faced with certain issues that appear on our domestic front—for example, our registration of pesticides, rules and regulations relating to application and use of pesticides, etc. We have to govern ourselves by science-based rationale versus other types of decision-making.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

To some of our other panellists, including the canola association, what's in place now by way of a rules-based approach and a standard? We had an opportunity to travel the country when we were consulting on CPTPP. This really didn't come to the table, so there wasn't much talk about the testing, the science and the standard.

Can you give us a bit more insight on this?

[Rick White]

I would say that most modern-day trade agreements, whether it be CPTPP or the new NAFTA, or even going back as far as the WTO international rules around this, are all based on science. Every country has an opportunity and a responsibility to inspect product coming in, but their decision-making process should be based on science and on food safety issues that are legitimate. Otherwise, they become disguised non-tariff trade barriers. Most agreements have that.

The question is, are countries standing up and complying with that? If they're not, are they being challenged under the agreement? In this case, we're not at that point. There are major agreements around the world, and they all have a science-based regulatory approach to imports.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Maybe I'll go to Mr. Jeworski.

What's missing in this piece? We have the standards. I understand there are International Plant Protection Convention rules. What's the missing piece here that we're not getting so that everybody abides by the science and is held to the same level of playing field?