International Trade Committee on Feb. 25th, 2016

[Dan Paszkowski]

The non-tariff part was important to us and the TPP did address that. As you may or may not know, Canada participates in something known as the World Wine Trade Group. With that group, which includes all the new world wine producers, including Australia, New Zealand, the United States, Argentina, Chile, etc., we have developed agreements over the past 20 years or so, such as an MOU on winemaking practices, labelling agreements, a definition of icewine, and things of that nature.

The hard work that we've done over the past 20 years was put into the TPP agreement. All those non-tariff barriers had been addressed by that addition to the TPP agreement.

I'll give you an example in terms of labelling. Different countries have different labelling rules for variety, volume content, alcohol content, and country of origin. It costs a lot of money when a small Canadian producer wants to export and they have to redo a brand new label for 50 cases, for example. Having that in the TPP means that our labels are now accepted in all those TPP countries. If there is a specific label requirement there, it can be stickered on once it arrives in that country. That's a significant cost advantage for a country that's largely just entering the export market.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Thank you.

Dan, you also said that in 1988 you were 50% of domestic consumption and today you're 32%, but that at the same time your exports have grown. It's the value of the industry now that is very significant. How does that 50% of 1988 numbers compare with today's numbers, when you have 32%?

[Dan Paszkowski]

Our exports definitely have grown significantly since that time, as has our domestic production. That was the point I was trying to make, that we have lost market share. That's because over the past 10 years, for example, because we're so attractive, imports have captured 75% of wine sales growth. We want to turn that around. We want to get back to 50%.

But our volume growth has increased and our exports have increased. Per capita wine consumption in Canada in the past decade has increased by 26%. There's a great interest in wine. Per capita consumption of spirits is flat—zero per cent—and beer has gone down by 9%. That's not to say that our volumes are down. It's just that there is a huge interest in wine from knowledgeable Canadian consumers. There's a huge opportunity for us to take advantage of that domestic growth and to take advantage of what TPP has to offer, but the two have to go hand in hand.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

I agree, and then there's the interprovincial thing, which we've been working on for quite some time. I find it absolutely ridiculous that New Zealand wine has an easier time getting into British Columbia than Ontario wine has. That makes no sense to me at all. It's a bit of kingdom-keeping at the provincial level.

You mentioned the court case in the U.S., which worked out extremely well for them. Have you guys never considered doing something like that here?

[Dan Paszkowski]

It's very difficult to do something like that in a marketplace in which you have a monopoly liquor board system. A constitutional court case—

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

But you're talking about direct sales. I understand the fly in the ointment, but is it worthwhile considering something like that, even just to raise the profile?

[Dan Paszkowski]

I think the profile has been raised in New Brunswick, with the gentleman who carried a few cases of beer across the border. That court case is still in the courts. There is a chance it could move forward, and that might be the fly in the ointment to get some progress on this issue.

But I'd hate to wait for that court case. I'd prefer to say that under the discussions of the Agreement on Internal Trade, something could happen. Given the fact that eight out of 10 provinces have Liberal governments, there may be an opportunity for the federal government to talk to its provincial colleagues to finally start opening things up.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Thank you very much.

[The Chair, Liberal, Mark Eyking]

Thank you. Your time is up, Mr. Ritz.

Thank you, guests, for coming. It was a really good, informative discussion.

We're going to take two minutes now to bring in our new witnesses. I hear there are some chicken farmers here, but the dairy farmers are still milking their cows and they'll be here very shortly.

[The Chair, Liberal, Mark Eyking]

We're good to go with the second round.

We have supply management in the room. It is unique to Canada and it works very well for us.

Committee, we're going to try to keep this round to 45 minutes. We have the dairy farmers and the chicken farmers. The chicken farmers are up first. Someone said the chicken came before the egg.

You have five minutes for your opening. Then we'll go to the dairy farmers and then open it up for questions.

Go ahead, folks.

[Mike Dungate, Executive Director, Chicken Farmers of Canada]

Thank you, Mr. Eyking.

Good morning, everyone. Thank you for inviting us to share our perspectives on the Trans-Pacific Partnership.

My name is Mike Dungate. I'm the executive director of Chicken Farmers of Canada. With me today is my colleague Yves Ruel. He's our manager of trade and policy.

I'd like to quickly tell you a bit about our industry, about how the chicken industry benefits all of Canadian agriculture, and about how we can improve our contribution to Canada's GDP, in spite of the additional access that Canada had to provide to conclude the TPP agreement.

We're a national organization. We represent 2,700 chicken farmers in Canada. Our board of directors has farmers, processors, further processors, and restauranteurs. We take a value-chain approach to it and really are a growth and a value-addition success story.

We sustain 78,000 jobs, $2.4 billion in farm cash receipts, and $6 billion in contribution to Canada's GDP. We pay $2 billion in taxes. We're part of the economic solution. We also purchase 2.5 million tons of feed, annually, and support other farmers with what we do.

We have farmers located in every province and we have more farms today than we had in 1978 when we started our business. Production has grown steadily, about 20% in the last 15 years. The year 2015 marked the sixth consecutive year of growth. We grew 3% this last year.

Contrary to a popular misconception, our market is not closed. Everybody focuses on the high over-quota tariffs, which nobody pays. Their sole purpose is to determine what the level of access is to our market and provide certainty. People avoid talking about the tariff that people actually pay. For every one of our free trade partners, chicken comes into Canada duty free or at a maximum of 5.4%.

It's not applied just on a small amount. In 2015 we imported 214 million kilograms of chicken into Canada. That makes us the 17th largest importer of chicken in the world. It makes us the second most important market in 2015, up from number three for the U.S. and after Mexico. Of the 12 Trans-Pacific Partnership countries, we import more chicken than the U.S., Peru, New Zealand, Australia, Malaysia, and Brunei combined. That's absolute volume with 35 million people. We're a big importer of chicken.

Only 10% of chicken production is exported globally. That's because it's a fresh market product. It doesn't have the shelf life of other meats and that's why it is at that level. Of the 10% of global production that is traded, Brazil and the U.S. account for 75%. In fact, we're the eighth largest exporter of chicken in the world, but we're a bit player, at that.

We believe we can increase our contribution to the Canadian economy, despite the concessions provided under the TPP.

At the end of the TPP's implementation period, we will offer additional access of 26.7 million kilograms to our market on an annual basis. This is the equivalent of us losing 61 farms in Canada, average size, with annual sales of $57 million. That's the hit that comes on us. In a loss, in terms of jobs, it's about 2,200 jobs, and it's about $150 million in contribution to GDP on an annual basis.

It will be on top of the already significant access we have of 7.5% of our previous production and that equalled just over 80 million kilograms this past year. When you take the two together, 9.6% of our market will be from imports, very close in line with the 10% that is traded globally. There's nothing for us to be ashamed of regarding the access we provide into our market. Every single kilo of that access will come in duty free.

On its own, this would be a hard hit for the Canadian chicken industry. However, the displacement of our production resulting from this additional access can be mitigated by the elimination of some import control circumvention measures. We've been working with the government for several years on these issues.

Three specific measures were announced by the government when the TPP was signed on October 5, 2015. It's critical that the government implement these, without delay. They were announced with the TPP, but they're not tied to the TPP.

The first is to exclude chicken from the duties relief program. This is a Canada Border Services Agency program that allows companies to import chicken, keep that chicken in Canada for four years—not sure what it's like after four years—potentially substitute it for lower-value product and re-export it. We see it as a fraudulent way to circumvent the import controls that we have. That volume is 96 million kilograms or about 9% of our production, so it's not an insignificant number.

The second is to implement mandatory certification for all spent fowl imports. These are old laying hens and they're not subject to import controls at all. We imported 103 million kilograms, or about 9.5% of our market of them. The problem we have here is not stopping spent-fowl imports but the fact that we're importing more spent fowl from the U.S. than they produce in the U.S. That speaks to outright fraud. They're labelling it as spent fowl, and it's actually chicken. That's taking away 8,900 jobs and $600 million in GDP contribution that we could be doing.

The third issue is to stop creative packaging by modifying what we call the “specially defined mixture rule.” Add a packet of sauce to chicken and it's no longer chicken. It comes in duty free. We don't think adding a packet of sauce that the consumer doesn't want, that the consumer throws away, should be a valid means of changing tariff classification.

In addition to the elimination of these import-control circumvention practices, there were indemnity programs announced on October 5. These will help the industry to face this new TPP access. We believe these measures recognize the difficult concessions that Canada had to make to get this deal that provided us access to other markets. They will provide some relief to farmers, albeit on a temporary basis, and help both farmers and processors.

In conclusion, the Canadian chicken industry and its evolving supply-management system continue to be a significant contributor to the overall health of the Canadian agriculture economy. We're innovating and we're investing to grow our industry. We're evolving our system to change and meet consumer demands. While the TPP agreement will be a hard hit on its own, chicken farmers and the Canadian chicken industry believe that the package that was announced by government on October 5 is the critical component. We support a rules-based trading system and call on the government to re-establish the integrity of our import control system by eliminating those circumvention practices so that we can fully seize the opportunities we have for our market.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you very much, Mr. Dungate. That was a good snapshot of your industry, where it is and where you want it to go.

We're going to go to the Dairy Farmers of Canada.

Please, go ahead.

[Caroline Emond, Executive Director, Dairy Farmers of Canada]

Thank you.

Good morning. DFC is pleased to participate in the pre-consultation of the Standing Committee on International Trade on the TPP.

My name is Caroline Emond. I'm the executive director of the Dairy Farmers of Canada. I'm joined today by my colleague Yves Leduc, who is the director of the policy and trade department. He's been following the trade negotiations for more than 20 years now, so he will definitely be able to give you all the background you need on this agreement and others.

DFC has never been opposed to the signing of any international trade agreements that preserve the integrity of supply management.

DFC is the voice of the Canadian dairy farmers, fostering a strong and united support of farmers at the grassroots level for a national system of supply management. We are the national lobby, policy, and marketing organization representing all dairy farmers living on Canada's 11,350 dairy farms. Our organization strives to create stable conditions for the Canadian dairy industry today and in the future. We work to maintain policies that foster the viability of Canadian dairy farmers and promote Canadian dairy products and their health benefits.

It is important to emphasize that the Canadian dairy sector makes a huge contribution to the Canadian economy. It adds $18.9 billion to the GDP; sustains 215,000 jobs, full-time equivalent; contributes $3.6 billion in tax revenues; and is one of the top two agricultural sectors in seven out of 10 provinces. Furthermore, unlike other jurisdictions where farmers' incomes are heavily subsidized, the Canadian dairy sector derives its income from the marketplace, a marketplace that will be affected by the opening of the market to European and TPP countries. The dairy sector is a positive contributor to the Canadian economy regardless of the state of the economy.

While we would have preferred that no additional access be conceded in the dairy sector, we recognize that the government fought hard against other countries' demands and have lessened the burden by announcing mitigation measures and a compensation package.

In addition to the CETA agreement that amputated our market of 17,700 tonnes of cheese, the TPP agreement includes concessions for cheese, with an additional 16,500 tonnes, as well as concessions for all dairy products. To this day, the dairy sector is extremely proud to state that it does not receive any direct payments from the Canadian government.

While we were pleased that Canada's compositional standards for cheese were preserved in the TPP agreement, we do have some concerns with respect to whether or not Canadian regulations and standards will be applied to imported goods. The growth hormone rBST, for example, is banned in Canada but remains in use in other countries. In addition, some of the labelling requirements mentioned in the Minister of Health's mandate letter for sugar, sodium, and trans-fat content are different from country to country. These have important implications for Canadian businesses, which could be placed at a competitive disadvantage if importers do not face the same regulations. It would also create confusion for Canadian consumers who might struggle with products not meeting higher Canadian standards.

Regarding the estimated 3.25% of access granted for milk and dairy products in the TPP agreement, using the government's assumptions, DFC was able to replicate the government calculations. However, when calculating using DFC's own assumptions, which differ slightly from those of the government on some products, our estimates came in at a slightly higher number. According to our conservative estimates, the outcome ranges between 3.37% and 3.97%, representing a loss of revenue ranging between $190 million and $250 million, depending on what product is really imported at the end.

In a similar manner to CETA, TRQ administration is very important in order to ensure these products are imported in a manner that is coherent with supply management and that helps preserve the stability of the Canadian marketplace for milk and dairy products. This is particularly true for butter, since the agreement will prevent the Canadian Dairy Commission from importing the TPP butter TRQ as it currently does for the WTO TRQ. Clarification is needed about who will be able to import as well as the role the CDC can play to ensure the impacts of the agreement are limited.

Unfortunately, the combined effects of CETA and TPP will seriously impact Canadian dairy farmers' bottom line year after year. DFC conservatively estimated that the combined impact arising from both CETA and TPP to be between 4.85% and 5.8% of the 2016 milk production forecast by Agriculture and Agri-Food Canada.

It represents between $282 million and $357 million in lost revenue. These are perpetual losses that cannot be substituted through exports. While we are working on a strategy to take advantage of some export opportunities, these remain limited as a result of the WTO panel, which essentially concluded that any export sales at below the domestic price constitutes an export subsidy.

DFC supports trade agreements as long as they have no negative impact on dairy farmers. Canadian dairy farmers should not bear the cost. The government chose to make concessions on dairy to secure the TPP trade agreement. The compensation to dairy farmers for lost revenue is a part of the compromise the Canadian government was willing to make. We are seeking a commitment from the Canadian government to invest into dairy and other supply management sectors the full $4.3 billion envelope at a minimum.

Contrary to the claim that trade agreements have helped to shape a better world market environment, it is difficult for us to conclude that. Now, 20 years after the WTO the world marketplace is not a friendlier place for farmers.

When DFC appeared before the Senate committee in November 2014 we told members that the world dairy market was essentially a dumping ground. Unfortunately, the situation remains disastrous. Looking at the International Farm Comparison Network world price indicators, prices have decreased from $56 per 100 kilograms of milk in February 2014 to $33 per 100 kilograms in November 2014 and to $25 in January 2016. At this price, none of the world milk producers can cover their cost of production.

Let's not forget that dairy is not a sector in which trade defines the industry. Only 9% of dairy production is traded on the world market. Dairy is mostly produced for domestic and local needs.

The CETA and TPP agreements open the door to products from dairy industries that are highly subsidized in both the U.S. and EU, putting Canadian dairy farmers at a disadvantage in our own market. Even products from New Zealand would currently enter the Canadian market at a dumping price, because 80% of the New Zealand dairy farmers cannot cover their costs of production with the current price they're getting; and Fonterra is helping them to offset some of this impact.

In 1966 Canada decided to support its dairy farmers by voting into law the Canadian Dairy Commission Act, whose mandate is to provide efficient producers of milk and cream with the opportunity of obtaining a fair return for their labour and investment. Since then, Canada has been fulfilling its promises to its farmers, and DFC hopes it will continue.

This is why the Dairy Farmers of Canada strongly believes supply management works. We wish to reiterate that DFC is not opposed to pursuing export opportunities. However, we are facing higher costs of production at the farm level as well as the processing chain in Canada. For example, Canadian processor margins are almost double what they are in the EU right now, suggesting that export opportunities are limited.

These export opportunities must return adequate profits for both the farmers and the processors. The promotion of export activities and export strategies can only succeed if they are jointly developed through a strong producer-processor partnership in collaboration with government. To be successful in world markets, the Canadian dairy industry must target specific niche markets as opposed to commodities. There is a real interest in exploring and developing beneficial and smart export activities, and we can assure you that we are engaged in dialogue with the processors and government stakeholders in finding ways to help sustain and grow the Canadian dairy sector.

In conclusion, DFC is looking forward to working with the government, which has reiterated its support for supply management, and working collaboratively to find solutions. We want to ensure farmers will continue to make an adequate income from the marketplace, while adequately compensating the farmers and processors for the negative impact occurring from the TPP and CETA.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you very much, Madame Emond, for a good snapshot of the dairy industry.

We're going to start our six-minute rounds with the Conservative Party and Mr. Van Kesteren.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

Thank you, Chair, and thank you all for coming.

I began my questions in the last round bragging about southwestern Ontario, which is of course a garden of Eden, but we have very little dairy and very little chicken. I do have some connection there, though. We have a small farm and we raise some Holsteins and of course we have chickens. Every small farm has chickens.

My wife's parents were dairy farmers and her brother is a chicken farmer, so I certainly know and appreciate it. I think anybody in dairy has a great love for their work, not only for the employment but for the animal itself. I don't know if that's true about chickens or not, but they're a whole lot of fun on the farm as well.

Anyway, with that segue, were you all involved with the consultations throughout the procedures? I'll start with you, Mike.

[Mike Dungate]

Yes, we were intimately involved with the consultations and as you hear it from this side we're not opposed to a trade agreement. We're looking at a trade agreement and making sure a trade agreement works for Canada, but it works for us as well.

We've had an ongoing relationship with Global Affairs, as well as with Agriculture and Agri-Food Canada and the ministers. We had ongoing discussions with them, and we had ongoing discussions with the negotiators. I think there was a level of trust that we could share information back and forth, and I don't think we had any concerns on that perspective for our own industry.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

Thank you.

Madame Emond, were you also involved with the consultations?

[Caroline Emond]

Yes, we were an active stakeholder throughout the negotiations, and we worked closely with the negotiator to give them the information they needed to do their jobs properly. The collaboration has been at a level where we could share, and we made sure they had the right facts and the data to do the job.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

There was a compensation package that was offered to the dairy industry. We had the dairy people visit us, and they were quite pleased with that.

Is that compensation package still on the table? Is the current government still going to honour that package?

[Caroline Emond]

Thank you, that's a good question.

Mike mentioned, and it's the same thing for us, that the TPP trade agreement goes with a mitigation and a compensation package. That was the way it was built and negotiated. As we said, we never opposed the trade agreement, but why should our industry bear the costs of that agreement that had been negotiated for the benefit of other sectors?

We understand that fully. We have never prevented our colleagues in pork and beef to export because it's important to them, and we respect that. You can see that lately, both with CETA and TPP, dairy is the sector that is paying the price for that.

We are a great contributor to this country, and I think everybody supporting supply management can understand that the dairy sector is not only an economic benefit to this country, but also a social one. The role we play in those rural communities is important, and I think that's why we want to make sure this industry is healthy.

We always say that when the dairy farmers are doing well, then the country's doing well. In that sense the compensation package is essential to that agreement.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

I would certainly agree.

I would even extend that though. I think the farm in general is something that we guard, and it's precious. Anybody that understands and has had any contact with farming, knows how important it is to our culture. We certainly do want to maintain that.

The other point I wanted to make was that you talked about the difference in standards, but would you not agree that any product that comes into this country has to meet our standards?

I think you would agree as well—and I'll allow you, and I don't want to put words into your mouth—that they have to rise to the occasion because our standards are second to none. Would you agree to that?

[Caroline Emond]

What I can agree with is that as dairy farmers we have invested a lot of energy and money to develop a program that we call proAction. This is a program that we've developed ourselves, for ourselves, and going above the Canadian standards right now.

We want our consumers and our customers, the processors, to know we're using the best practices from all sectors: from environment to traceability to biosecurity to animal welfare. We're doing the best we can as Canadian dairy farmers. It's important for our farmers that is taken into consideration because we bear the costs for that.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

I would agree.

Mike, I think you mentioned about the chicken. I'll tell you as a consumer I look at the packaging. I want to see and I want to be sure that when I buy chicken it comes from Canadian farmers.

Are we doing a good enough job? Will this agreement allow us to identify where that chicken comes from?

[Mike Dungate]

I think it is important that we understand where the chicken comes from. We're doing a branding program in terms of that.

We've built a trust level with consumers. Chicken consumption continues to go up because people trust what we're putting out there, and it's a high-value product. We're not working at the bottom end of the market. We're creating that trust level. If we allow imports that are inferior to that, and they put in question that trust we have because they're getting it at a restaurant where there is no package and they don't know where it's come from, then it is an issue for us.

We believe that the standards we've put in Canada that we want for our families should apply equally to the domestic industry and to imports.

[The Chair, Liberal, Mark Eyking]

Thank you very much, Mr. Van Kesteren. Your time is up.

We're going to go to the Liberals now for six minutes.

Mr. Peterson.