Thank you and good morning, Madam Chair and committee members. I would like to thank you for the invitation to appear today to discuss the implications of CUSMA on Canada's dairy industry and on Vitalus specifically.
My name is Phil Vanderpol. I am the president and CEO of Vitalus Nutrition, a processor of value-added dairy ingredients.
Founded as a family business over 65 years ago, Vitalus is a leading producer of high-value, customized dairy ingredients for the world's food, beverage and nutritional industries. At our advanced facilities and FSSC 22000-certified processing plants located in British Columbia and in Manitoba, we process milk supplied by Canadian farmers into high-quality cream and butter, milk protein concentrates, and milk protein isolates that have superior quality, nutritional value and functionality.
Our products are used in multiple applications, such as nutrition bars, protein drinks, infant formula, baking, confectionary, dairy products, snack foods and much more. Vitalus supplies cream and butter to Canadian markets, and milk protein concentrates and isolates to both domestic markets and over 20 international markets.
In 2018, we expanded our B.C. facility and commissioned a new plant to produce Vitagos, a high-value prebiotic dairy ingredient also known as galacto-oligosaccharides. Vitagos is used extensively in infant formula, as well as digestive health products. As one of only a few plants in the world producing this product, Vitalus is the first to manufacture this type of product in North America.
Vitalus has a solid reputation and a strong brand recognition in the B2B marketplace. This is based on our unwavering commitment to quality, efficiency, custom capabilities and customer service.
At Vitalus, we've been able to capitalize on the growth in the nutritional value-added global dairy ingredients market. We have achieved double-digit revenue growth over the past three years, with the trend expected to continue this year. Our three-year compound annual growth rate on revenue has increased 49% from 2017 through to 2019, and we are forecasting continued growth into 2020.
We have achieved this growth by successfully expanding sales of our milk protein concentrates and isolates into global markets while also meeting the growth and demand for butterfat in the Canadian marketplace. This is evidenced by our export volume results from 2017 to 2019, which I will share with you. We have increased our export volumes in the last three years by 171% to Europe, thanks, certainly, in part to CETA; 132% to the U.S. market; 135% to the Middle Eastern and North African markets; and 65% to Asia. We have achieved this result by establishing long-term collaborative relationships with multinational food and beverage manufacturers around the world that value Canadian dairy ingredients.
As the second-largest food processing industry in Canada, the dairy sector contributes more than $20 billion annually to the country's economy. With Vitalus's export growth over the past three years, we are certainly contributing to Canada's achieving its growth targets in the agri-food sector. Between our two processing facilities, we employ over 200 highly skilled people, and we remain a proudly Canadian company.
Dairy processors, including Vitalus, have been motivated to continue the pattern of growth and move the industry—and Canada—forward. However, the pending implementation of CUSMA and the concessions that were made in dairy threaten to curb this growth and diminish the long-term competitiveness of the sector.
The Canadian dairy industry is experiencing a processing capacity shortfall that is expected to increase significantly in the near future due to a lack of sufficient investment in milk-drying plants. With pending plant closures as well, there may also be a decrease in the drying capacity for skim milk powder. Skim milk powder is generally produced to deal with the excess solids-not-fat that is produced as a result of meeting the butterfat demands within the Canadian market.
As you probably are aware, the domestic demand for butterfat continues to increase, and the lack of skim milk powder drying capacity already unbalances the system. It will only get worse going forward. With the implementation of CUSMA, skim milk powder and milk protein concentrates will be subjected to export volume caps, as well as an export tax on volumes over the cap, which will make it financially unfeasible to export.
It is important to note that milk protein concentrates over 85% in protein level and milk protein isolates are exempt from the export caps and tax. Building and operating a milk protein isolate plant, however, is a very costly endeavour with a long-term payback. The changes in the Canadian dairy processing environment, market demand for high-value dairy ingredients and pending CUSMA ratification have prompted the industry to work collaboratively to reach a solution for continued industry growth and long-term sustainability.
Vitalus has been part of the solution dialogue for the past two years. We strove to find the best solution for the projected excess solids-not-fat, specifically in western Canada, not just looking at the short term but looking at a plan that will help for the next 10-plus years.
We took into consideration the need for a staged volume increase in milk production to meet the needs of the Canadian market for butterfat. We also reviewed the geographical and environmental implications, as well as the handling of the by-products. Dairy producers and processors in western Canada are poised to invest in a long-term solution to address all the previously mentioned issues. However, we require tangible commitments from government to proceed.
We are specifically requesting that CUSMA not come into force until August 1, 2020. This will provide the industry additional time to implement the significant changes required to deal with the declining export volume caps placed on dairy. It will also provide the necessary time for Vitalus to develop additional milk protein isolate markets, products that are not subject to the export caps and tax.
We also require prioritization of export allocation volumes within the export volume caps to milk protein concentrates. By prioritizing milk protein concentrates, we will be able to make the additional capital investments required to convert skim milk powder and milk protein concentrate production over a sufficient period of time into milk protein isolates, which as mentioned previously, are not subject to export restrictions.
Our stakeholders will require assurances that the ramifications to the dairy sector have been addressed by this government, that promised compensation dollars to processors for all recent trade deals have been finalized and that it will defend our industry going forward.
Lastly, I want to emphasize that this made-in-Canada solution benefits the entire dairy industry and will contribute to Canada's prosperity by safeguarding current and future investments, jobs and the growth of Canada's dairy processing sector from the negative impacts of CUSMA.
Thank you for allowing me the time to present to you, and I welcome any questions you may have.