International Trade Committee on Feb. 25th, 2016

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

With the TPP, how would this affect the value of those quotas? If somebody today is selling or buying a quota, then looking at the impact of the TPP today, and then maybe if you could project out five or 10 years, what do you see in terms of that quota value?

[Caroline Emond]

This is really looking into the crystal ball. One thing I can tell you is that the TPP is taking away a part of our market. It's taking away the growth. If you're a business person, and you're looking at your growth for the next year, for the years to perpetuity, and it's being taken away, obviously you make your business decisions differently. The dairy farm needs a lot of investment, and doing the TPP negotiation, I can tell you, there was a lot of investment in barns that cost millions of dollars. You need to go to the bank to build those barns. It's a lot of investment. You take all of this into consideration in your decision to farm.

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

If the TPP went forward, what would the devaluation of a farm be because of the quota? Can you give me an example?

[Mike Dungate]

I'll give you an example of how we do it in that quota.

Every eight weeks we set the production in Canada for chicken. We allocate out to a province and we give them their share, and then they allocate to their farmers, every single eight weeks. They will have a unit of that provincial production. If 2% more access comes into Canada, and therefore they get 2% less, their unit will be devalued by that 2.1%. What effect does that have on the market? If we adjust down to compensate for that, it will just be a loss of volume. If we were trying to maintain it, it might be a loss of price in terms of that because that's not being affected.

As I said before, our job is to try to do cash flow as opposed to appreciation of that quota. As we grow, our farmer may have a unit, but a province will say, “We've just grown 1%, so your unit is worth 1% more because when we allocate it out, it's a greater amount”. As we grow, there's an appreciation of the value, not just today but what it will be. If you're in a growth industry like we are, people are buying ahead, just like on the stock market, and saying, “What's the value going to be five years from now when I'm interested in selling, perhaps because I want to retire?”

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

The next question is around the makeup of the industry: corporate, large farms, family farms. What's the mix?

[Caroline Emond]

The average dairy farm in Canada is 75 cows. In the east, like Quebec, you can have farms with 20 cows to 60 cows. That's the average in Quebec. In Ontario it's 79. In the west it's 140. Those are the averages. As you can see, they are not the biggest farms, like those you see in other countries. We have some bigger farms, but our biggest farm is small compared to many others. Most of them are operated, yes, on a family basis. It's still very common.

[Yves Leduc]

If I may, I'd like to add here that even though the dairy farms are incorporated, legally speaking, they remain family-owned and operated at the end of the day. Even the bigger farms that are incorporated are family farms, according to us.

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

Would it be the same with chicken?

[Mike Dungate]

It's a similar sense. Our largest farms are actually in Atlantic Canada because they need to be larger. They have cost issues, feed is a big issue, and therefore they have higher feed costs so they need more volume. You see larger farms there as opposed to in the rest of the country, and that's just to maintain a level of profitability. Frankly, even at that, they would be the least profitable farms in the country because they have a greater cost disadvantage in terms of it.

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

My next question is about the ownership of the farms. Are many of these farms foreign-owned by foreign investors? Do you have international companies coming in? Do we have Tyson coming? Does Tyson own any chicken farms? Do they pick up any of that quota?

[Mike Dungate]

I think Cargill as a processor would be the only...but on a farm level? No. Maybe at a breeding level, they might have some, but frankly at a farm level, even at a processing level, we're a Canadian business. I think Cargill is the only company, and it has a wholly owned operating unit in London, Ontario.

[The Chair, Liberal, Mark Eyking]

Thank you.

We have a couple of minutes left, and it was brought to my attention that when I did all my number-crunching here, Conservatives could have a minute and a half, two minutes, so I'm just going to leave that.

Mr. Ritz, you have a short question and maybe we can get a short answer, and we'll wrap this up.

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

Thank you, Mr. Chair.

I have a couple of comments on points that Caroline made on the CETA agreement. It's not a zero-sum game, as you portray, and on the TPP, we came in on the landing zone that the Dairy Farmers of Canada gave us. Even using your numbers, we're still within that landing zone. I just wanted to point that out.

On CETA there is tremendous access for dairy dealers in cycled-out cows, because no ractopamine is involved, and so on. They have unlimited access into that market. The 50,000 tonnes of beef that we've negotiated into Europe will certainly benefit eastern dairy more than anybody else, I would think. We also have full access back on dairy.

I know at the last Paris food show 30-some cheese producers from Canada did exceptionally well, won awards, and have now developed market access back in. You did allude to the fact that there are some niche markets that can be accessed.

The whole reason for the compensation package that we worked out with you guys was to make sure there was no run on quota. The Province of Quebec has backstopped a lot of quota. Farm Credit Canada under Agriculture Canada backstops several billion dollars' worth of quota. We didn't want to see a run on that quota value. The whole idea of the compensation was to maintain the stability of the operation.

I just wanted to make those points. We also went into—

[The Chair, Liberal, Mark Eyking]

Is there a question?

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

Yes, it's coming.

[The Chair, Liberal, Mark Eyking]

Okay, because you only have half a minute.

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

The other thing that we did under CETA was maintain cheese compositional standards, which are worth about $900 million a year to the dairy industry. That was in one of the chapters that was locked, loaded, filed, and we couldn't get into. We did. It was very important to make sure we had that capacity, because that really would have eroded the industry.

[Caroline Emond]

Thank you. We were very happy with that. That's why we put in the presentation that maintaining the cheese standard is very important, but enforcing it would be even more important. I think you all heard us on the importance of enforcing the cheese standard right now when we were on the Hill in early February. This is one of the important issues. It's one thing to have rules, but it's another to enforce them as well.

On CETA, just to mention that, yes, it is true that we have unlimited access, but know that Europeans are also good at producing cheese. We have a niche market, but don't believe we're going to be compensated for all the losses we're having right now with those agreements.

[The Chair, Liberal, Mark Eyking]

Thank you very much. That sums it up. Thank you for coming today, witnesses. It was a very productive meeting.

We're going to take one minute here, because we're going in camera, folks, to do our future business.

[Proceedings continue in camera]