International Trade Committee on Sept. 23rd, 2022

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call the meeting to order.

This is meeting number 26 of the Standing Committee on International Trade. Today's meeting is taking place in a hybrid format, pursuant to the House order of June 23. Members are attending in person in the room and remotely, using the Zoom application.

I need to make a few comments for the benefit of the witnesses and members.

Please wait until I recognize you by name before speaking. When speaking, please speak slowly and clearly.

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Should any technical challenges arise, please let me know. We may need to suspend for a few minutes to ensure that all members are able to participate fully.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on March 21, the committee is resuming its study on trade opportunities for Canadian businesses in the Indo-Pacific.

We have with us today by video conference Raphael Gaudreault, chief operating officer of Arianne Phosphate Inc., and Brendan Byrne, chairman of the Grain Farmers of Ontario. In person, from Soy Canada, we have Brian Innes, executive director. Welcome to all of you.

We will start with opening remarks and then proceed to rounds of questions.

Mr. Gaudreault, would you like to start with an opening statement of five minutes?

[Raphael Gaudreault, Chief Operating Officer, Arianne Phosphate Inc.]

Thank you, Madam Chair.

Arianne Phosphate is a mining company headquartered in Chicoutimi which is launching a phosphate production project in Saguenay—Lac-Saint-Jean. Arianne Phosphate owns a phosphate deposit in Lac à Paul, a fully approved project that is ready to build, 200 km to the north of the city of Saguenay.

The asset is one of the largest undeveloped deposits in the world and capable of producing environmentally friendly phosphate concentrate. Owing to its purity and low level of contaminants, the Arianne company's phosphate can be used to produce fertilizer and specialized applications like food, animal feed and lithium iron phosphate batteries.

We are planning to build an open pit mine, an ore processing plant, and a deepwater port, in addition to leveling 240 km of forest roads to ship our annual three million tons of phosphate concentrate. When fully operational, the business would require approximately 375 employees.

Phosphorus is a key element in agriculture, and because nothing can be substituted for it, it is indispensable for crop development. It promotes root development and enhances resistance to drought. Recent disruptions in the world food chain resulting from quotas on exports from China and Russia have been aggravated by the situation in Ukraine. As a result, the selling price has increased considerably, and some countries, like India, have had to review their supply strategies.

Canada has not been a phosphate producing country since 2013, when Agrium, now called Nutrien, closed the mine in Kapuskasing, Ontario. We are therefore now 100% dependent on imports, mainly from the United States, which itself is a net importer. The economic performance of Canada's prairie provinces is now dependent on our capacity to obtain supplies of phosphate from overseas, even though the product is one for which Canada should be a net exporter.

There are potential clients for Arianne Phosphate around the world. The Indo-Pacific sector is particularly interesting, because it is a steadily growing market for phosphate product imports, whether for use in the traditional fertilizer or technological applications like the manufacturing of batteries for the electrification of transportation.

That being the case, the current study being conducted by the committee on trade opportunities in the ASEAN countries is very important for Canada's phosphate industry and for Arianne Phosphate. It's an opportunity for Canada to play an international role with a with a future-oriented product that addresses global needs: the use of fertilizer to enhance food productivity, and the development of lithium iron phosphate batteries for the global energy transition.

Although phosphorus is an abundant element on Earth, its geographical distribution makes it very vulnerable in terms of supply security, given that world reserves are mainly concentrated in North Africa and China.

The quality of the concentrates produced in these countries is also much lower than for those in Canada. The origin of our phosphate is igneous rather than sedimentary, making it possible to achieve a concentrate that has a much higher level of purity and that is virtually free of heavy metals or radioactive elements. This is very important for its use in fertilizer, and even more so for battery manufacturing, a subject that was studied by the committee last winter. Indeed, only a limited percentage of world phosphate reserves is suitable for the production of phosphoric acid that meets the technical specifications of battery manufacturers.

Canada has a role to play in solidifying its strategic advantage in phosphorus. It's disappointing to see that this metal of the future is not included in Canada’s Critical Minerals Strategy. The government is also relying heavily on mining exploration, but few mining projects are underway in Canada. There are various reasons for this, including the lengthy time periods required and strict regulations, not to mention the lack of support for mining infrastructure development.

If Canada hopes to grow its expertise and export opportunities with the ASEAN countries to meet growing demand, including for phosphate, then government policies need to be in tune with the needs of the mining companies, including ours.

We applaud a future free trade agreement with the ASEAN countries, and believe that it is an opportunity for our industry that should not be missed. We simply hope that the government will be there to implement policies that are favourable to the future development of our sector.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We'll move on to Mr. Byrne for five minutes, please.

[Brendan Byrne, Chairman, Grain Farmers of Ontario]

Thank you.

My name is Brendan Byrne, and I am the chair of the Grain Farmers of Ontario. I farm corn, wheat and soybeans in Essex, close to Windsor.

Thank you for inviting me to join you today to talk about the Indo-Pacific trade opportunities and what they will mean for grain farmers in Ontario.

We support efforts to expand Canadian export opportunities in this area. New markets help farmers manage market volatility risks. Right now, we are in a volatile commodity market.

To start, I would like to tell you about the Grain Farmers of Ontario. We represent the grains and oilseed industry in Ontario.

When many people think of Canada's farmers, they don't realize the unique qualities of the farms east of Manitoba and the contribution of Ontario's commodities to Canadian exports. Grain Farmers of Ontario represents 28,000 farmers from across the province, from Windsor to the Quebec border and as far up as Thunder Bay. Ontario grain covers six million acres, and our farmer members grow a rotation of crops, including soybeans, corn, wheat, oats and barley.

Our main export crop is soybeans. Over 70% of the soybeans we grow are destined for countries outside of Canada. Exports include both commodity beans used to feed livestock and specialty soybeans used to make tofu and natto beans. These are a staple in many of the countries in the Indo-Pacific region.

The soybeans grown in Ontario are some of the world's most sought after. We are a dependable supplier that countries can rely on. Specialty soybeans grown in Ontario are unique. Ontario farmers are able to produce exceptional quality food-grade soybean on their farms because of summer weather in Ontario. Hot humid summers and the cool nights created by the Great Lakes make a perfect soybean for specialty markets that are in high demand in the region of the Indo-Pacific.

Over the last few years, thanks to advancements in innovative farming techniques and seed technologies, the yields we have achieved on our cornfields have increased significantly. We have enjoyed an increase in new market opportunities created through Canada's new trade agreements.

Canada has gone from being a net importer of corn to a corn exporter in just the last 10 years. The opportunity for growth will continue as we achieve higher yields on the same amount of land.

However, our exports are not just in our crops. There is an opportunity for the value-added exports from renewable fuel made from soybeans and corn. Canada's livestock exports depend on our crops for feed as well.

The grains and oilseed farmers and the Ontario grain industry that is created from our crops contribute $18 billion to the Ontario economy. We have a strong domestic value and industry and export business. The grains industry in Ontario creates 75,000 jobs.

I am proud to be a part of this industry, not just because of our significant economic contribution, but also because, as farmers, we take seriously our responsibility to protect the environment. Ontario's grain farmers are committed to preserving biodiversity in the areas where they farm, including protecting the local soil and waterways that keep our fields healthy, our food safe and our communities sustainable.

Quite simply, trade [Technical difficulty—Editor].

I've come out of our field today. We're ready to take some soybeans off. They're ready to harvest. The beans are ready to go to the local elevator to be shipped to export markets around the world.

Today I'm feeling confident because we have good prices, but it's been a very stressful year. Every year we need to manage risks—the weather and the markets—but the extreme market conditions we experienced this spring are something that I've not seen in my lifetime. Many producers across the province have stated the same.

The cost to produce this year's crop was higher than we've ever experienced. Fertilizer is one part of that price: Shortages were real, right up to the time of planting. Retailers were rationing fertilizer because shipments were blocked by sanctions put in place in Canada. This year, Ontario farmers paid 238% more than they did in the spring of 2020. A few years ago, before the pandemic, we had good prices, but then they dropped because, for political reasons, China decided to stop imports on soybeans directly from Canada. The drop was drastic. Soybean exports to China went from $1.7 billion in 2018 to $33 million in 2019. With today's prices on fertilizer, fuel, transportation and seed, if the same drop were to happen again here, it would be devastating for Ontario farmers.

We need to have more customers around the world and in this region so that we're not vulnerable to these types of political decisions made by one country on our exports. To us, the Indo-Pacific represents a growing market for farmers. Farmers face a lot of risks when growing a crop, and market diversity is one risk management strategy that we can count on. We support any efforts to develop more market opportunities in this region and are thankful to be here to express that.

Thank you very much.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Byrne.

Apparently the technical difficulty is due to your Wi-Fi connection, rather than the headset. That's the direction we've been given. Hopefully, everything will be all right as we move forward.

[Brendan Byrne]

Thank you.

[The Chair, Liberal, Judy Sgro]

Next is Mr. Innes, please, for up to five minutes.

[Brian Innes, Executive Director, Soy Canada]

Thank you very much, Madam Chair.

Thank you to the committee for the opportunity to be here. I'm here representing the soybean value chain. This includes our farmers across the country, our seed developers, our processors and our exporters. We have a diverse industry from the Atlantic Ocean to the Rocky Mountains, and it includes farmers like Brendan.

Soybeans are the third most valuable crop here in Canada, with exports around $3 billion in 2021. We produce world-leading food-grade soybeans, as Brendan explained, for things like soy milk and tofu as well as commodity beans that are crushed into meal for livestock as well as oil for humans and oil for biofuel.

With more than 70% of our production exported, we're very focused on global markets. We appreciate your attention to the Indo-Pacific, because it's a really important growth opportunity for us. Before I describe the most important ways we can increase growth in trade, I'd like to share why we see it as such an important opportunity.

From a soybean perspective, the Indo-Pacific is the heartbeat of global soybean demand. Take the ASEAN region as an example. It imports approximately $9.1 billion of soybeans each year. Our Canadian exports are worth about $380 million to this region. There's a lot of opportunity for us to grow market share. At the same time, demand is growing significantly for our products in these regions.

For example, looking at the Philippines and the annual growth rate for soybeans used for food purposes, the growth rate has been approximately 12% every year over the last five years. It's a large market and a growing market for us. For all of us, the question facing us today is how we can take advantage of this demand to increase the growth opportunities. For us, it means better access to these markets, and to do that we need three things.

First, we need to eliminate tariffs and establish ongoing regulatory co-operation on plant, animal and environmental health issues through our trade agreement negotiations with Indonesia. Eliminating tariffs would be really helpful for us, because we face uncertainty. Should Indonesia decide to, they could raise tariffs on our products up to 27%. But eliminating tariffs is not enough. We also need to address non-tariff issues like sanitary and phytosanitary issues or other barriers to trade related to regulations. These issues can appear suddenly. They can create costs and create risks, and can even stop our exports.

In conversation with government last week, I asked when the last time was that we had regulator-to-regulator interaction between Canada and Indonesia. The answer...? I'm still waiting to hear it too.

Secondly, we need to secure access to India for our food-grade soybeans. Increasing food-grade exports to India is a real opportunity for growth, given the size of that economy and the growing demand for our products. Currently, we face tariffs of 45% on our soybeans going to India. The tariffs are also very unpredictable. They could be changed, at a moment's notice, up to 100%.

Our soybean trade with India is actually quite interesting. We import a lot of organic soybeans from India that come into Canada without a tariff. While we as Canadians face really high tariffs exporting our soybeans into India, Indian soybeans come into Canada tariff-free. It's also interesting, because other countries can export to India without the tariffs that we face. That has caused us to not be able to take advantage of opportunities in India. Recently, our food-grade soybeans were trading at a $100-per-tonne premium into India, or the opportunity was there, but because India could source without a tariff from other origins, we ended up selling those soybeans elsewhere.

The third thing we need to do is invest in industry-government collaboration to proactively prevent non-tariff issues throughout the ASEAN and Asia-Pacific and Indo-Pacific regions. Increased collaboration and investment would reduce risks and costs while helping to enable innovation on Canadian farms.

I will give you two examples of how this is hurting us and how it could be made better. The first example is in Vietnam, where we are unable to export our soybeans in bulk. While beans produced just steps away, in some cases, in the United States can be exported in bulk vessels to Vietnam, we are not able to do that because of concerns around sanitary and phytosanitary issues.

Secondly, when it comes to regulation of seed and crop protection technologies, throughout the regions, regulations are evolving. The result that ends up happening is that as regulations evolve, they may not evolve in the same way that they are evolving in Canada. Technology for new seeds and new crop protection products may be approved here but not in our export markets. That means we can't use them until they're approved.

[The Chair, Liberal, Judy Sgro]

Mr. Innes, could you close off, please?

[Brian Innes]

In closing, we see lots of opportunities to export more to the Indo-Pacific.

Thank you for your interest and your questions.

[The Chair, Liberal, Judy Sgro]

Thank you, Mr. Innes.

We will go now to our members, beginning with the Conservative Party.

Mr. Martel, you have six minutes, please.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Thank you, Madam Chair.

I'd like to thank the witnesses for having made themselves available to us today.

My questions are for Mr. Gaudreault.

I'm pleased to see you here today Mr. Gaudreault. The Arianne Phosphate project is in fact located where I'm from. We know that our phosphate is excellent.

I'd like you to give us a bit more of an explanation of why phosphate is a mineral with a future.

[Raphael Gaudreault]

It's a mineral with a future because it is definitely part of the energy transition. It's essential. It's also indispensable for productive agriculture. As we know, arable land is limited, making the use of fertilizer essential to continued farmland productivity. Canada is also rich in lithium and iron. We are lucky to have phosphate, the third element in the composition of lithium iron phosphate batteries. It could enable us to become a major producer of such batteries.

All these elements can contribute to decarbonization and make us a leader in this area.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Can you give us an overview of current phosphate demand in Asia and explain what we can expect going forward?

[Raphael Gaudreault]

First of all, one of the main factors leading to increased phosphate demand is population growth. Asia is going through a strong period of population growth. People need to be fed. That's the main factor underpinning growing demand.

It's also related to upheaval in the supply chain. China was one of the leading importers from the Pacific countries. However, when the Chinese decided to keep their phosphate reserves for themselves, it upset the entire supply chain.

In short, growing demand stems in part from population growth and in part from a necessary realignment of the supply chain.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Mr. Gaudreault, There's one thing I don't fully understand. Given everything that you've said, why has Canada not yet recognized phosphate as a critical mineral?

[Raphael Gaudreault]

I must admit that I have trouble explaining it too. Phosphate already meets several of the criteria for inclusion on the list of critical minerals. It's available in abundance and most importantly, the quality of our phosphate is, generally speaking, much higher than phosphate found elsewhere on the planet. It's clear to me that phosphate should have been placed on this list long ago.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

And how come Canada doesn't yet have any domestic phosphate supply?

[Raphael Gaudreault]

My view is that it's a combination of factors, including the fact that there are no longer any phosphate processing plants in Canada. The Agrium mine closed in 2013, and the plant that was converting some of its concentrates closed shortly afterwards. What this means is that if we want clients, a company like ours has to export 100% of its output.

Access to trade routes is also a challenge to the Canadian mining industry generally. Our land is vast and it's often difficult to transport concentrate to a railway line or a port for export.

These factors generate high costs. I mean both investment and operating costs. This negatively affects project profitability, which can reduce investor interest, and we end up paying the price.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

That leads me to another question. What could Canada do to become a leader in phosphates and boost its trade generally, including with the ASEAN countries.

[Raphael Gaudreault]

Canada already has the mineral reserves and resources required to gain recognition as a leader in phosphates. I believe that what we need is access to better infrastructure for dealings with our clients.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Mr. Gaudreault, If I still have any time left…

[The Chair, Liberal, Judy Sgro]

You have 30 seconds, Mr. Martel.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Okay.

Could you briefly tell us what economic spinoffs we could expect from having a mining company like Arianne Phosphate here at home?

[Raphael Gaudreault]

In Canadian currency we're talking $1.6 billion of investment during construction, $12 billion in economic spinoffs over the 25 years of operation and approximately 1,000 direct and indirect jobs in the region.