FINA Committee Meeting

37th PARLIAMENT, 3rd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Tuesday, May 4, 2004

¹

1540

The Chair (Mr. Roy Cullen (Etobicoke North, Lib.))

Mr. Patrice Schoune (Ferme Brasserie Schoune)

The Chair

Mr. Ron Waldman (President, Great Western Brewing)

The Chair

Mr. John Allen (Propeller Brewing Company)

The Chair

Mr. Howard Thompson (Co-Chair of the Excise Tax Committee, President and CEO of Creemore Springs Brewery Ltd., Canadian Association of Small Brewers)

¹

1545

¹

1550

Ms. Laura Urtnowski (President, Les brasseurs du Nord; Co-Chair of the Excise Tax Committee, Canadian Association of Small Brewers)

¹

1555

Mr. Howard Thompson

Mr. Howard Thompson

º

1600

The Chair

Mr. William C. Ross (President, Canadian Vintners Association)

The Chair

Mr. Howard Thompson

Ms. Laura Urtnowski

The Chair

Mr. William C. Ross

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)

Mr. William C. Ross

º

1605

º

1610

The Chair

Mr. William C. Ross

The Chair

Mr. William C. Ross

The Chair

Mr. Rahim Jaffer (Edmonton—Strathcona, CPC)

º

1615

Mr. Howard Thompson

Mr. Rahim Jaffer

Mr. Howard Thompson

Mr. John Hay (Director, Canadian Association of Small Brewers)

Mr. Rahim Jaffer

The Chair

Mr. Rahim Jaffer

The Chair

Mr. Rahim Jaffer

Mr. William C. Ross

Mr. Rahim Jaffer

The Chair

Mr. Pierre Paquette (Joliette, BQ)

Ms. Laura Urtnowski

º

1620

Mr. Pierre Paquette

The Chair

Mr. Gary Pillitteri (Niagara Falls, Lib.)

Mr. Howard Thompson

Mr. Gary Pillitteri

Mr. William C. Ross

º

1625

Mr. Gary Pillitteri

Mr. William C. Ross

Mr. Gary Pillitteri

The Chair

The Chair

Mr. Massimo Pacetti (Saint-Léonard—Saint-Michel, Lib.)

Mr. William C. Ross

º

1630

Mr. Massimo Pacetti

Mr. Howard Thompson

Mr. Massimo Pacetti

Mr. Howard Thompson

Mr. Massimo Pacetti

Ms. Laura Urtnowski

Mr. Massimo Pacetti

Mr. Howard Thompson

Mr. Massimo Pacetti

Mr. William C. Ross

Mr. Massimo Pacetti

Mr. William C. Ross

Mr. Massimo Pacetti

Mr. William C. Ross

Mr. Massimo Pacetti

Mr. William C. Ross

º

1635

The Chair

Mr. Nick Discepola

Mr. Howard Thompson

Mr. Nick Discepola

Mr. Howard Thompson

Mr. Nick Discepola

Mr. Howard Thompson

Mr. Nick Discepola

Mr. Howard Thompson

Mr. Nick Discepola

Mr. Howard Thompson

Mr. Nick Discepola

The Chair

Mr. Nick Discepola

The Chair

Mr. Alex Shepherd (Durham, Lib.)

º

1640

Mr. William C. Ross

Mr. Alex Shepherd

Mr. William C. Ross

The Chair

Mr. Werner Schmidt (Kelowna, CPC)

Mr. Howard Thompson

Mr. Werner Schmidt

Mr. John Hay

Mr. Werner Schmidt

Mr. John Hay

Mr. Werner Schmidt

Mr. Howard Thompson

Mr. Werner Schmidt

Mr. Howard Thompson

The Chair

Mr. William C. Ross

º

1645

Mr. Werner Schmidt

The Chair

Mr. Howard Thompson

The Chair

Mr. Howard Thompson

The Chair

Ms. Laura Urtnowski

Mr. Howard Thompson

The Chair

Mr. Howard Thompson

Mr. John Hay

Mr. Howard Thompson

Ms. Laura Urtnowski

Mr. Howard Thompson

The Chair

Mr. John Hay

The Chair

Mr. John Hay

The Chair

Mr. Howard Thompson

The Chair

Mr. Howard Thompson

The Chair

º

1650

Ms. Laura Urtnowski

Mr. Howard Thompson

The Chair

Mr. Howard Thompson

The Chair

Mr. Gary Pillitteri

The Chair

Mr. William C. Ross

The Chair

Mr. Rahim Jaffer

º

1655

The Chair

Mr. Nick Discepola

The Chair

Mr. Pierre Paquette

The Chair

Ms. June Dewetering (Committee Researcher)

The Chair

Ms. June Dewetering

The Chair

Mr. Massimo Pacetti

The Chair

---

CANADA

Standing Committee on Finance

---

NUMBER 019

l

3rd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Tuesday, May 4, 2004

[Recorded by Electronic Apparatus]

¹  (1540)  

[English]

    The Chair (Mr. Roy Cullen (Etobicoke North, Lib.)): If we could please call the meeting to order.... Thank you very much.

    Today we're looking at some small-business tax measures, specifically an idea from the small brewers, having to do with excise taxes.

    What the committee is doing is following the pre-budget consultation exercise at the committee level and at the minister's level. There were a few issues he asked us to examine in a little more detail, ways of looking at supporting the emergence, capitalization, and growth of enterprises and anything that would support small businesses, their growth and their prosperity in Canada. So this is one of those topics.

    Today we have with us, from the Canadian Association of Small Brewers, Howard Thompson, co-chair of the excise tax committee and president and CEO of Creemore Springs Brewery Limited. Welcome.

    Also, we have Laura Urtnowski, co-chair of the excise tax committee and president of Les Brasseurs du Nord—bienvenue, welcome—and John Hay, the director. Hello, John.

    From the Canadian Vintners Association, we have Mr. William Ross, president.

    And I notice we have Jim Brickman here as well, from the Brick Brewery, and Mr. Patrice Schoune.

    Which affiliation, sir?

[Translation]

    Mr. Patrice Schoune (Ferme Brasserie Schoune): Brasserie Schoune.

[English]

    The Chair: Brasserie Schoune. Bienvenue.

    Also, we have another gentleman over here from Saskatoon, Ron Waldman. And the brewery, sir?

    Mr. Ron Waldman (President, Great Western Brewing): Great Western Brewing Company.

    The Chair: Great Western Brewing Company.

    There are some other people here as well, but I won't get into all their names. Is that all the people at the table?

    Mr. John Allen.

    Mr. John Allen (Propeller Brewing Company): Propeller Brewing in Halifax.

    The Chair: Good, welcome.

    Thank you very much for coming. What we'll do is we'll turn it over to your group to make a presentation of seven, eight, nine, ten minutes. We're not going to stop the clock, but we'd ask you to keep it succinct and focused on the main issues. Then what we'll do is we'll turn to a question and answer period.

    Mr. Thompson, are you going to lead it off?

    Mr. Howard Thompson (Co-Chair of the Excise Tax Committee, President and CEO of Creemore Springs Brewery Ltd., Canadian Association of Small Brewers): Thank you, Chair Cullen, also vice-chairs and members of the finance committee. It's a pleasure to be back before the finance committee today. We want to thank you for inviting us back on short notice.

    For those on the committee I have not met, my name is Howard Thompson and I'm the president of Creemore Springs Brewery in Ontario. I'm also chairman of the Ontario Small Brewers Association, and through that association I work with Laura and brewers across Canada, with the Canadian Association of Small Breweries.

    We have a number of other breweries present today besides the ones that were introduced, and I will just introduce them quickly. We have Cam Heaps from Steam Whistle Brewing in Toronto; John Graham from Church-Key Brewing Company in Ontario; Ron Moore from Heritage Brewing; and Bruce Clark from Pacific Western Brewing in British Columbia.

    The Canadian Association of Small Brewers represents about 85 of the 90 small breweries currently operating across the country. There's a complete list of the breweries in the handout.

    We appreciate the opportunity to come before the committee. We've been here on a number of occasions, and on all occasions this committee has been a particularly quick study on our issue of excise taxation. I suppose more importantly, we've enjoyed some terrific support from the committee, which really was finalized in the 2003 committee report, where we received unanimous support for excise tax relief to small brewers. In addition, more recently in 2004, in the pre-budget submission process, we received very warm support, and we think we would have had again universal support from the committee had it been able to produce a report prior to the budget. In that respect, we want to thank the outgoing chair, Sue Barnes, for the work she's done, and the committee members who aren't here at this point.

    A copy of the brief that we had during the 2004 submission is presented in your package. There's also a one-page version. This is actually a special piece of paper, because since November we've been working very hard to have our associations work together—get the breweries to align in a cooperative effort on excise tax relief. That really resulted in a terrific event that happened here on Parliament Hill, where we had over 40 breweries representing over 80 brands of beer, hosting over 400 people from Parliament Hill—staffers, parliamentarians—to put a bit of a face and character on the issues and the industry we represent.

    We're here today because we have a modified proposal that we want to present to the finance committee. That modified proposal has come as a result of tremendous effort by John and other folks in the Canadian Small Brewers Association working with the Department of Finance, both on the tax policy side as well as on the policy side for Minister Goodale.

    We have a number of letters of support from members across the country. There is a list that has been circulated and that has been generated largely just leading up to and after the budget process of 2004.

    Through our conversations with the Department of Finance, a number of issues came to light. We believe that in this modified proposal those issues have been dealt with. In particular, there was the issue of the size of the excise tax relief that was being asked for and how that was distributed among the brewery members. In the modified proposal, that has been addressed by pushing more of the taxation relief toward the smallest of the brewery members on a proportional basis. That has universal appeal and agreement from our brewery members, whether they be small or large.

    We believe this industry is at a crossroads, and we represent our colleagues in presenting to government in an effort to ask the members of this committee, and then broadly the members of the government, to participate in what we think is a terrific regional economic development industry as well as a cultural industry and a job creator in the different communities where these breweries are located.

¹  (1545)  

    Many of the breweries, as you'll see when we go through the modified proposal, are indeed very small, often started by families, husband and wife teams, small-business partners. They enjoy some occasional success. We've seen that in the past. We all know of examples such as Sleeman, Brick, Unibroue, and Big Rock, where we can actually grow what started out as very small breweries in incubation to more important regional economic industry players.

    Through the mid-1980s and into the early 1990s, the small brewing industry in this country enjoyed successful growth. As Cam put it quite accurately earlier, we reawakened the Canadian beer consumer to this idea of premium quality and distinctive character in beer. The obvious result of that is that it attracted the attention of some of the larger players in the beer industry as well as the imports.

    The nature of the beer industry is such that globalization has created market alliances. So the premium products that we compete with directly have been aligned with the biggest brewery producers in the country. That's fine. It's a reality that small breweries have to deal with. Our case has always been that it's much better to drive the production locally and regionally, because the alternative is to have it offshore, either in Europe or, more recently, in South America.

    In the 1990s the beer markets were opened through both NAFTA requirements and localized requirements in the different provincial jurisdictions. The result was that liquor boards actively promoted imported brands, and an environment was created whereby major breweries could sponsor their own specialty products.

    In the early 1990s small breweries had about 2% of the market and imports had about 2% of the market. By the end of the 1990s and into the early 2000s, small breweries had grown to about 4%, whereas the imports had grown to about 10%.

    Small breweries employ about 2,000 people across the country. It's our belief that if we can effectively compete with the imported brands, we can create 1,000 to 1,500 new jobs simply by replacing market share held by imported brands by market share held by domestically produced premium products.

    Small breweries are wonderful at creating jobs and collecting taxes. We always talk about small breweries as a success story waiting to happen, and when we look at this proposal, you'll see what we mean. In rough numbers, since 1985 over 4,000 jobs have been lost through consolidation and globalization of the brewing industry. But during that time, the growth of small breweries has added back 2,000 brewing-related jobs.

    In many ways our industry has the same character and potential as the Canadian wine industry, which has had terrific success throughout the last decade. In fact, our beers, like the Canadian wineries, win many awards internationally and are well recognized for quality.

    We're now organizing to reach the next level. For example, in Ontario we've worked with the LCBO through our Ontario Small Brewers Organization to come up with a strategic plan for 2005.

    I'm now going to turn it over to Laura.

¹  (1550)  

[Translation]

    Ms. Laura Urtnowski (President, Les brasseurs du Nord; Co-Chair of the Excise Tax Committee, Canadian Association of Small Brewers): The question is: What is needed for that growth to take place? The simple answer is to provide us with relief from excise tax, so we can use the savings to grow the business.

    Our business has become extremely competitive recently, and it is now essential for small brewers to have significant marketing and sales budgets. Currently, we are being buried by imports because our cash flow is not sufficient.

    Most of the major beer-producing countries in the world, including the United States, have recognized the specific needs of small breweries and have acted by implementing a differential tax policy for their small breweries. Canada's provinces have used the same strategy and these policies have helped us immensely. The recent reductions were sufficient to finally move some of our operations into the black and led directly to job creation and local purchases. Exactly what the policies were intended to do.

    England's recent experience was similar. Jobs were created and equipment was purchased. So was the Quebec experience a few years ago. The recent Ontario tax reductions likely prevented the closure of four or five breweries, but we did lose one. We have also lost two in Quebec since the beginning of the year and another one was recently bought out.

    The provincial tax reductions helped keep many of us afloat, but we are still far from being able to keep apace in the fast-growing specialty beer market.

    Surely a decade is long enough to have to fight for parity with the rest of the brewing world, but Canada is sadly lacking. Today's proposal means that a very small brewer could actually take a small salary from the business, the next size up could add some sales staff and equipment, and the larger ones could finance expansion or add a marketing program to counter the onslaught of imported beer advertising and promotion. That is what our industry needs to create jobs and to bring more entrepreneurs into the business in smaller communities.

    Howard is going to review the modified proposal in more detail. Essentially, it lowers the cap on savings from $1.2 million to $680,000 and it uses a range of tax cuts to do it. This approach pushes the savings down to the smaller breweries while still leaving enough savings for the larger brewers to be operationally significant.

    We believe this excise tax cut would be sufficient to put the small brewery industry on a strong growth path. We also believe that, without it, we will gradually become marginalized.

¹  (1555)  

[English]

    Mr. Howard Thompson: Thank you, Laura.

    I'd like to ask the forgiveness of the committee for giving short shrift to some of the breweries that--and John was good to point this out to me--actually won these awards most recently at the World Beer Cup. Some of them are present. Brick Brewing Co. Ltd. won a gold and a silver. Steamworks Brewing Co. won a silver. Great Western Brewing Company won a silver. From Quebec, Unibroue won a bronze and McAuslan Brewing won a silver. I think these are very important quality considerations for the types of beers we are representing. And I didn't forget it just because I didn't win one. I don't know if we were in the competition.

    The committee members should have a document entitled “Reducing the Excise Tax for Canadian Small Brewers”. Those who were at our previous presentation will recognize some of the language. For those of you who have not seen our previous presentations, what we've done is represented both.

    In simple terms, the original proposition was that for breweries under 300,000 hectolitres, there would be a 60% reduction in excise tax up through the first 75,000 hectolitres. So it was taking an excise tax rate of $28, reducing it by 60%, and applying that on the first 75,000 hectolitres of production.

    We have modified that, largely through conversations with the finance department as well as with some of our other interested parties, to take more of the excise tax relief and move it to the smallest of the breweries on a proportional basis, which has two effects. The first effect is that it really generates considerable excise tax relief for the smallest of businesses--and these are small businesses. They just happen to be in the business of making beer, but they're no different from any other small business in terms of the types of working capital requirements they have or the overheads that are their reality.

    The other effect it has is to limit the total amount of money that a bigger small brewery could receive through the program, which was one of the questions asked during the process the last time.

    Both of these proposals, the original and the modified one, are patterned after excise tax or production tax relief programs that are represented in other beer-making jurisdictions. In the United States, there's a 60% reduction until the two-million-barrel mark--a little better than two million hectolitres. And then a graduated program similar to the one we'll present exists in several provinces in Canada.

    In large terms, the cost of the original proposal would have been about $14 million and the biggest of the small breweries would have attracted around $1.2 million as a maximum excise tax relief. Under the modified proposal, the total cost is about $11 million at current production rates, and the largest amount a bigger small brewery would attract from this proposal would be $680,000, so just about half.

    If you look at the comparison table at the bottom, you can see this in effect. The way we've staggered or graduated the proposal is the first column that says zero to two, that's zero to 2,000 hectolitres. This would be a brewery with somewhere between four and five employees, and there are 51 of them across the country. The original proposal at 60% would have created savings of $34,000. The modified proposal at 90% would represent a savings of $50,000. This is not an insignificant number. It looks small, but that's about the cost of a tank or the cost of an employee, if you wanted to add someone in production or sales.

    Mr. Howard Thompson: Beyond that, 2,000 hectolitres to 5,000 hectolitres, there are 14 breweries in that range in the country. We've proposed an 80% tax relief, again, to push more of the proportional tax relief into the smaller brewing facilities. That would result in about $118,000 savings annually.

    The next graduation is 5,000 hectolitres to 15,000 hectolitres. There are eight such breweries across the country. That has been left at the original 60% reduction and would result in about a $285,000 savings. The $285,000 is greater than the $252,000 you see above it because they've participated at 90% and 80% along the way, so there is a little extra taxation savings on the way up.

º  (1600)  

    The Chair: I'll ask you to just speed it up a little, Mr. Thompson. Are we going to also hear from the vintners, or is this all one package?

    Mr. William C. Ross (President, Canadian Vintners Association): You're going to hear from the vintners, I hope.

    The Chair: Yes, I would hope so. Perhaps we could proceed through without getting into every chart in all that detail, just to speed things up.

    Mr. Howard Thompson: I wouldn't propose to take you through the rest at the back. It's on that piece of paper. We've taken the total proposal, reduced the absolute amount of money being asked for, and reduced the amount that would be received at the top end for the bigger breweries and pushed more to the smaller ones.

    Laura just has the closing comments and then we're done.

[Translation]

    Ms. Laura Urtnowski: We have appeared before this committee many times. We have received a warm welcome, and our proposal has even received unanimous support from your committee. We are back here with a modified proposal in response to concerns raised by department officials. We believe the time has come to act.

    The minister referred our file to your committee so that you could offer your views on the benefits of introducing this measure. We respectfully ask that you again recommend our solution. We have plans and major challenges. Now we need you. Thank you.

[English]

    The Chair: Good. Thank you very much.

    Congratulations to the award winners. Good luck to the aspiring award winners.

    Now we'll go to Mr. Ross, speaking on behalf of the vintners.

    Mr. William C. Ross: Thank you, Mr. Chairman. I, too, have not won any awards.

    Our vintners are so poor that they couldn't afford to come.

    Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): They're a bunch of winers.

    Mr. William C. Ross: Actually, they are all farmers. This is a key time of bud break, and most of them are out in the vineyards.

    Thank you for this opportunity to appear before you. I appeared before you on October 7 and received good support. We hope that support will be ongoing.

    Just to remind you, the Canadian Vintners Association is Canada's national association of grape-based vintners. It includes 27 direct corporate members, about 33 wineries, and three regional winery associations, which represents over 100 Canadian wineries and about 90% of Canadian wine production.

    It has been a difficult and challenging domestic and international environment in recent years, but Canada's wine sector, particularly with regard to the production of 100% Canadian wine--and this is what this is about, 100% Canadian wine--has shown significant growth in the past decade, with the number of wineries considerably increasing and the number of grape acres devoted to Vitus vinifera high-quality grapes for wine doubling or tripling over the past 10 or 15 years, to about 20,000 acres, primarily in B.C. and Ontario.

    A recent consultant study--the consultant was KPMG--estimated that the economic activity generated per 750-millilitre bottle of Canadian wine sold in Canada is $3.88, or approximately $450 million. KPMG then went on to compare this with the economic benefit that was generated by imported wine, and this was 46¢ per bottle, or about $115 million. Of that $1.1 billion in retail wine sales in 2002, over $600 million went to provinces in taxes and markups, and another $125 million to the federal government in excise and GST.

    Unlike the beer industry, we have about one-third of our market--and that includes blended wines--using bulk imports. Our case before you relates to 100% Canadian wine, and that represents less than 5% of the Canadian wine market in total. Imports hold two-thirds of the market.

    The sector is characterized by very aggressive competition, import competition, severe downward price pressures from imports, high taxation, regulation, provincial monopolies, interprovincial trade restrictions, high production costs, but lots of innovation. Much of the capital invested in Canada's new wineries--indeed, most of it--is derived from non-wine sources. The wine industry is not so rich that it's reinvesting at the levels that you see in the investment. They are reinvesting, but much of that capital is from outside the wine industry, and the wine industry has not been a large beneficiary of provincial tax reductions.

    I would just like to situate for you, Mr. Chair--and I did this with the Senate agriculture committee last week--that Canada's wine industry is truly a poster child for the government's agricultural policy framework. We are farmers; 100% of the members of the Canadian Vintners Association, but one, grow their own wine. That one contracts from other grape growers.

    The industry produces a high-value-added, environmentally friendly, safe, branded, quality Canadian product, using increasingly advanced technology, and it does so without import protection or any significant federal subsidies. It begins with the planting of a grapevine and ends with a high-quality VQA Canadian wine at the dinner table.

    Further, it levers considerable economic benefit to tourism, culture, and the hospitality industry. We estimate that close to one million tourists visit the wineries in Canada every year, generating in excess of $350 million in income.

    I think, again, it is essential that the committee members understand that our members are farmers. These farmers, vintners, are subject to the vagaries of nature, just like other sectors of Canada's agriculture industry. They have experienced recently two very serious winters, last year resulting in a 50% crop reduction of wine grapes in Ontario alone.

º  (1605)  

They've gone through a plague of Asian ladybugs, which I hear are back this year, causing them to destroy or declassify millions of litres of otherwise high-quality product. And they've gone through the devastation of forest fires in British Columbia, in which one of my members lost his winery.

    There has been no direct compensation for the industry from the federal government, except in the context of normal crop insurance and related programs. In other words, the only real aspect of the federal government's own agriculture policy framework that does not extensively apply to the wine sector is that of business risk management. This sector does not derive significant money transfers to it from the federal government.

    With respect to the international environment, the Canadian wine industry operates in an essentially free market situation, with no import protection. The import tariff on wine is 3.7¢ a litre, generating about $6 million in tariff revenue for the government. We expect that the minimal tariff protection will be negotiated away in the context of the Doha round. Of course, Chile and the U.S.A., who are very significant wine suppliers to Canada, do not pay that tariff, given the free trade....

    At the same time, significant wine producers, such as the U.S.A. and Australia, provide excise exemptions or rebates for their smaller domestic producers. The European Union alone subsidizes its grape and wine sector in excess of 2 billion euros, or $3 billion, annually. That is what the European wine sector gets from the CAP. This causes tremendous downward depression on wine prices in Canada. This $3 billion is exclusive of the large subsidies at the national and sub-national levels. So a combination of heavily subsidized European wines and aggressively financed marketed wines from such countries as Australia, Chile, South Africa, and the U.S.A. places the Canadian wine sector under considerable pressure in its own market.

    The generous policy and financial support received by many wine industries in other countries and by other parts of Canada's agrifood sector are not shared by Canada's wine industry. We are not operating on an even playing field. We operate in a policy, financial, and taxation environment that may be considered prejudicial to our success as an important value-added sector of Canada's agricultural community. The Canadian wine sector is at a distinct disadvantage relative to other food and beverage sectors in Canada and relative to its international competition.

    Let me just give you a brief example; it's quite illustrative. This weekend, when you sit down at home for dinner with friends and family, simply take a look at your dinner table and at your dinner menu. The milk, butter, cheese, eggs, chicken, turkey, and ice cream all fall under a supply management system that provides import protection, with tariffs ranging as high as 350%. The wheat and the baked goods benefit from the Canadian Wheat Board—and we all know that we just wrote a very large cheque to the Canadian Wheat Board. There are cereals industry support programs, and an essentially closed border to wheat imports. The beef and chicken industries have, very rightfully, received hundreds of millions of dollars in federal government support, given the unfortunate BSE and avian flu situations. The Canadian seafood industry may have benefited—

º  (1610)  

    The Chair: Excuse me, Mr. Ross, but I'm going to have to ask you to speed up your presentation as well.

    We do have the brief in front of us. I notice there's another two and a half pages. Could you perhaps just take us through the highlights?

    Mr. William C. Ross: This is a highlight, Mr. Chairman.

    I'm telling you what it looks like. When you look at your dinner table on Saturday, Mr. Chairman, the only thing on that dinner table—unless you're eating candies or perhaps drinking beer—that attracts either GST or excise is the wine.

    The Chair: We want to leave some time for questions and answers.

    Mr. William C. Ross: I'll finish with this point, if I may, Mr. Chairman.

    We are an agriculture-based industry. We plant the plants, nurture them, harvest them, and make a value-added product, just like all these other ones. But when you look at the dinner table, we're the only ones paying the excise and the GST. So relative to what the other countries are doing and what we're doing in our own country for other food and beverage products, we're at a distinct disadvantage.

    Our case here is the same one we had in October. We have looked at what the Americans do, and we've based our request on the American system. The Americans give an excise break to American wineries selling up to 250,000 American gallons, about 946,000 litres. Our request is that the government exempt 100% Canadian wine from excise duty up to sales of 500,000 litres annually and permit a reduced excise duty rate for annual production levels from 500,000 through to 900,000 litres, where it would be kept at 51.2¢ a litre. That's modelled on the American practice, Mr. Chairman.

    To conclude, we are not looking for subsidies, we are not looking for import protection, we are merely asking that the federal government take less than they are taking now. We pay about $50 million in excise and generate another $70 million to $75 million in GST for the federal coffers. The cost of this would be in the range of $6 million to $8 million, depending upon the crop of VQA wine. It only applies to 100% Canadian wine and is an incentive for even those producers who are blending to move to 100% Canadian wine.

    Thank you, Mr. Chairman.

    The Chair: Thank you, Mr. Ross. There'll be an opportunity to elaborate on points you haven't been able to cover during the question and answer period. So feel free to put those points into your answer, if need be.

    We'll go to a seven-minute round. Mr. Jaffer.

    Mr. Rahim Jaffer (Edmonton—Strathcona, CPC): Thanks, Mr. Chairman.

    Thanks to all the presenters for being here again today. I appreciate your submissions in the past. I believe, Howard, you mentioned that the committee actually did endorse and pass your recommendation. I believe it would have endorsed it once again had we been able to table the report that would have gone through the whole process of the hearings. I think we would have probably found that we have the same sentiments. It's unfortunate that we couldn't table it this year, but at least you brought this submission. I'm interested in it and willing to support it.

    One thing I wasn't clear on from the presentation. After going through the process with the finance department and achieving this sort of arrangement or proposal, does this still give you the parity you're looking for with the U.S. in potential competition? I realize that in the past, when you were looking for 60% excise across the board, it was going to be brought in line with your competition in the U.S. Does this basically still achieve the same thing?

º  (1615)  

    Mr. Howard Thompson: Yes. At the very smallest brewery level, it provides more support. That provides a couple of things. There's working capital, but then there's also the opportunity to advertise or sell beer. As the breweries get bigger, it's still a material support, there's no question about that. I think, through the graduations, it's a good saw-off.

    Mr. Rahim Jaffer: From your dealings with the finance department, did they have any recommendations on how to proceed from here? I guess we can discuss at some point how we want to address this again, Mr. Chairman, whether we want to put forward a separate report, as we did in the case of the textile industry, and make that recommendation to the finance minister. Was there any suggestion that they were going to take the ball and try to set this up with the finance minister? What sorts of discussions did you have in the working meetings with the finance department?

    Mr. Howard Thompson: I'm going to defer to John, because he's done a lot of our interaction with the finance department.

    Mr. John Hay (Director, Canadian Association of Small Brewers): Thank you.

    Our understanding is that it's with this committee. As Laura asked earlier, we're looking for a positive recommendation from this committee, so that we can move forward on this. It rests here.

    Mr. Rahim Jaffer: Okay.

    Mr. Chairman, I don't know if this is the time to make a motion to that effect. Should I wait till after the questions? I wouldn't mind making a motion to that effect.

    The Chair: What I was going to suggest to the committee is that maybe next week we could get the Department of Finance in. We've looked at the cooperatives issue, we have the breweries and vintners today, tomorrow we have the jewellers, and maybe next week the department could come in. I think what we might do, as you suggest, if that's the will of the committee, is write a report and submit it to Parliament and to the minister. I'm not sure when or if he could act. We have an election coming up probably. Whether he'd wait to deal with this in the next budget or not or introduce separate measures would totally be at his discretion. But I think we can get back to that, maybe next week.

    Mr. Rahim Jaffer: Sure. I would love to hear the wisdom of the rest of the committee members during a discussion, but I know we had unanimous consent for the previous submission, so I didn't think it would be a problem. We'll wait and see, but I would like to put that motion forward at some point.

    The Chair: Sure.

    Mr. Rahim Jaffer: My only other question is to the vintners. Mr. Ross, I see you're wanting the exemption to apply strictly to Canadian wines, I think you've made that clear. I didn't get a chance to look closely at the whole submission, but I believe you may have said this does give parity as well to your U.S. counterparts, or at least some of the producers out there that Canadians are competing against.

    Mr. William C. Ross: It also would head off a challenge under NAFTA. Australia gives a similar break, and the EU gives breaks to its beer industry. To go back to your earlier question, when I talked to the finance department two years ago, they were worried about a WTO or NAFTA challenge, and in my last conversation with them, they said it's probably not an issue. We've modeled this on the U.S. practice, which gives preference to their wineries.

    Mr. Rahim Jaffer: Thank you.

    The Chair: Thank you.

    Monsieur Paquette.

[Translation]

    Mr. Pierre Paquette (Joliette, BQ): Thank you Mr. Speaker.

    I do not have many questions since this is an issue with which we are very familiar. We supported the previous proposal.

    I understand the new wording is perhaps more acceptable to the Department of Finance and is supported by the association. In that context, I will not question it, but I would like to know how this proposal was developed with the Department of Finance. I think I heard you say there had been contact between you.

    How was this proposal received? How were the levels chosen? Can you give us some indication from a technical standpoint? Why did it go from zero to two and two to five? Is this based on the number of breweries that were covered in one or the other brackets?

    Ms. Laura Urtnowski: Yes, the levels were chosen based on the number of breweries in each bracket, but also on the challenges faced at various stages of our growth. The challenges are the greatest at the very beginning and, little by little, we manage to become more comfortable and to better position ourselves.

    We discussed a number of things with the department, but our understanding is that the ball is in your court and in the minister's court.

º  (1620)  

    Mr. Pierre Paquette: I have no other concerns, other than to find out how our recommendations can be referred to the minister as quickly as possible, since there is very little time. We may have to call you back with other players. We want to avoid calling back the association, which has participated in prebudget hearings every year. I think we should find a way to send a notice to the minister immediately. Personally, I support your proposed change.

    As for the Canadian Vintner's Association, I must confess this is the first I have heard of it. I will read your brief, but, a priori, I think we need to have policies to promote our growers, especially since our neighbours have this type of protection. I will examine your proposal carefully, but I am sympathetic to it in principle.

    The Chair: Thank you, Mr. Paquette.

[English]

    Mr. Pillitteri, please.

    Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you very much, Mr. Chair.

    I want to ask a question of the brewers association. You said from 2,000 hectolitres you created four to five employees. Could you elaborate more on what happens from 2,000 to 5,000? I want to ask these questions specifically to show that the smaller the breweries, the more jobs they create, and as they get larger, they create fewer jobs. And the cost per capita of producing one bottle or one case of beer is much greater within the smaller breweries than it is in the large breweries.

    Mr. Howard Thompson: In the representation from the industry from the last round of pre-budget submissions we determined that with a brewery producing under 25,000 hectolitres, which is a large part of the list of breweries, it takes about two people per 1,000 hectolitres. So for every 1,000 hectolitres you employ a couple of people, and that we determined through a specific audit of our members. The next cut-off seemed to be over 25,000 to about 100,000, where you employ a person and a half per 1,000 hectolitres. When you get over 100,000 hectolitres, it's down to about one person per hectolitre. Those are good numbers, because you can contrast that with the imports, which would create--Mr. Ross put it well--virtually no employment per hectolitre sold.

    Mr. Gary Pillitteri: Thank you.

    Now I want to go to the vintners association and Mr. Ross. Even my colleagues around here, when we talk about Canadian wines, are often very naive. They buy a bottle of wine, it says “Product of Canada”, and they think it's a product of Canada. Under an agreement negotiated with the provinces and so on, in most cases, unless it says VQA, which is a designation of 100% Canadian content, all of that product, even when it says, “Product of Canada”, only has 30% Canadian product, while the other 70% is imported. Would you want to elaborate on this 2003, Mr. Ross, that it was only 10% Canadian product and 90% imported product, and it was called “Product of Canada”?

    Mr. William C. Ross: We've moved off “Product of Canada”. I think most of the wine that says “Product of Canada” today has 75% Canadian content. But we do sell it in Canada, and you're exactly right, Mr. Pillitteri, because of the crop failure last year, the Wine Content and Labelling Act of Ontario had to be amended to permit such blended wines to drop below 30%, so they could drop as low as 10%.

    Our request was originally for VQA wine, which gives you a guarantee of 100% from that appellation. We changed it to 100% Canadian wine because, for example, Mr. Paquette of L'association des vignerons du Québec makes some very good wholly Quebec wines that aren't VQA, but are 100% Canadian wines. We wanted to make sure our request encompassed a single winery in P.E.I. that makes wine, New Brunswick wineries, Nova Scotia wineries, and Quebec wineries, and presumably, if you did this, it would cover fruit wineries. There are fruit wineries, for example, in Ontario, Quebec, and the prairies.

    So you are correct. This is about the 100% Canadian wine, not even “Product of Canada” that has a blend in it. It's about VQA wines and their equivalents.

º  (1625)  

    Mr. Gary Pillitteri: If we take a look at what has happened to the Canadian wine industry, from imports of approximately 2.4 million litres from the United States under protection before free trade it's gone up to over 20 million litres, really pumping into our marketplace. We Canadians only hold, as you said, one-third of the total. Can you say how much of that one-third is 100% wine?

    Mr. William C. Ross: About 10%.

    Mr. Gary Pillitteri: Prior to free trade we had approximately 16,000 acres of grapes producing in Ontario and British Columbia. Now we're at 20,000 acres, and we still have not even 10% of the market. I see people talking about land preservation. What better way of land preservation? With even the land in Ontario that is capable of growing grapes, if we only had a level playing field, we would more than protect all the land available to produce tender fruit and vineyards that would make some excellent wines.

    I'm partial, Mr. Chairman. I have nothing but praise for the Canadian wine industry. Breweries have won awards in the last few years. It is the small wineries in Ontario and British Columbia that have forced the Canadian wine industry as a whole to make better wines, because it is the small wineries in Ontario and British Columbia that have won all the awards for the Canadian wine industry for the last 15 years. They continue, in essence, to pressure the larger entities to make better wines, so that Canadians can become wine connoisseurs and can drink better products. I wholeheartedly support this reduction in excise tax.

    The Chair: Thank you, Mr. Pillitteri.

    Most of the committee members here know that you're an established, well-known, and well-reputed vintner in your own right. Those who are examining the record I'm sure will take that into account.

    The Chair: I have a confession to make as well, if it's confession time. I've been chair of the brewing industry caucus of our Liberal caucus for the last many years.

    Now I'd like to go to Mr. Pacetti, please.

    Mr. Massimo Pacetti (Saint-Léonard—Saint-Michel, Lib.): Thank you, Mr. Chair, and thank you, witnesses, for coming.

    I have one or two questions, the same questions for both of you. The first one is just so we can try to understand this a little bit.

    When somebody asks for a reduction in taxes, whether it's excise or GST, what is that going to do for business? Will that money go into your pocket? The first question is for Mr. Ross if he can answer that, because you're looking at a reduction in excise tax for your product, but what will happen with the savings? Is there going to be a saving? That's the question.

    Mr. William C. Ross: Well, we hope so. We have actually asked this question of ourselves in our board meeting. The CVA board passed a motion a few months ago that if we got an excise tax break, we would seek to levy the members in some way to create a pool for the general good of the industry, and we would use that on a range of issues such as domestic promotion.

    We had a domestic promotion program of $4.5 million over 12 years, but it was when we pulled out the vines. So we had a good federal program from 1989 to 2001, but we pulled out all the vines. Now we have the quality product but are facing more severe competition than we ever had, and we don't have this program any more.

    We have issues on sustainable grape growing, wine production sustainability, environment, food safety, traceability, and research; these are all issues. As you know, on the agriculture side research is done by matched dollars. These are some of the files on my desk where we hope to apply these funds industry-wide and generically. Where the break did not go to a generic fund for the industry, we would hope that particularly our smaller wineries would benefit from that cash flow benefit.

    As I said, most of the new construction in wineries you see does not come from the wine industry; it comes from other sources.

º  (1630)  

    Mr. Massimo Pacetti: Mr. Thompson, I want to know pretty well the same thing. I'm not sure about your industry, Mr. Ross, but in your industry, Mr. Thompson, like you were saying, I think the lower end can use it for working capital, but I would imagine.... I don't want to put words in your mouth.

    Mr. Howard Thompson: No, that's fine, and you're right. The best example I can give you is that the excise tax for beer is $28 a hectolitre. Take the P&L from Creemore Springs Brewery; that's exactly what we pay in labour and it's about what we pay in depreciation and replenishing capital. Those dollars compete directly with either labour dollars or....

    Mr. Massimo Pacetti: Costs?

    Mr. Howard Thompson: Yes. In our one-pager it displayed it quite nicely. When we surveyed our members on what would be the use of the excise tax reduction, it was agreed that about 25% of it would go into marketing--just some overall brand awareness--or paying some back taxes. There are equipment purchases and then either production or sales staff. It depends on the size of the brewery. If you were smaller, it would probably be for production and distribution; if you were bigger, it would probably be on the sales and marketing side.

    Whether or not it goes back in our pockets, I think what we'd like to do is pay our staff better. It would be good to have a premium product represented by premium staff members as well.

    Mr. Massimo Pacetti: My second question would be, when does the consumer profit? At what point? We see the microbrewer's product as being a specialty item, and we're probably paying the same amount for a glass or bottle of that beer as for an imported beer sometimes. Am I mistaken?

    Ms. Laura Urtnowski: In Quebec it's often the case that you see them right next to each other on the shelf, and yes, often in Quebec it's definitely a question of distribution costs. The imports are distributed by the large breweries to each convenience store. The small brewers like us have to go and deliver four cases to a Provigo where Molson will back up the truck and deliver three pallets. The distribution costs are incredible for small brewers.

    Mr. Massimo Pacetti: The distribution part of it won't be solved.

    What you're trying to tell me is that I'm not going to have a saving when I go buy the locally produced beers.

    Mr. Howard Thompson: I think what it does is help the small brewers to be price-competitive. Some of that would take its form in marketing, and some of it would take its form directly at the cash register.

    Mr. Massimo Pacetti: For vineyards it's the same thing. Every time we look at imports, we see the high-value items.

    You were mentioning that South Africa is also one of the exempt countries. Is that correct, or is it just Chile and...?

    Mr. William C. Ross: They're Chile and the U.S., because we have free trade with them. The tariff is very small; it's not a--

    Mr. Massimo Pacetti: So how do they still compete? How can they still bring wine over here at a competitive price?

    Mr. William C. Ross: In the case of the Old World--Europe--it's highly subsidized. I mentioned $3 billion a year.

    Mr. Massimo Pacetti: But those are the major ones. How about the small vineyards?

    Mr. William C. Ross: It's under the European CAP act, and it's going to be extended to the new ten. If you'd read some of the wine press, which you probably haven't this week, you'd have seen there was a mad scramble in nine out of the ten that joined the EU yesterday that grow wine. They're madly scrambling to plant new grapevines so they will have a larger base when the EU CAP applies to them; they'll have more acreage in the ground and they'll get more money.

    Just on your first question, sir, we did not plan to pass it on to the consumer for two reasons. One, there's so little, and the consumer will benefit: they'll get a better price and quality. You get a better quality if you have a $12 wine and you may not have to go to $18 to get that price.... The other thing is, there are some pressures. I don't know about the beer industry, but we didn't want to, let's say, raise the interest of the anti-drinkers out there, because if you flip the tobacco tax argument on its head...but we're flexible.

    The other thing is that under the new Excise Tax Act that came into effect last year, there's a flow-through when you're selling to the LCBO and you pass on that excise responsibility. We don't have much control over our pricing. Pricing of wines in Canada is controlled, one, by the liquor boards, and two, by the downward pressure of the imports. We don't have a lot of flexibility.

    We're not saying no and we're not saying yes, but our intent is this. Like the beer industry, we have a lot of little guys out there who are really hurting, and any savings would go back into their quality.

    Mr. Massimo Pacetti: Are the Australians subsidized as well?

    Mr. William C. Ross: The Australians were subsidized pretty well beyond that. Now they are so large they don't have a problem.

    I'll give you an idea, sir. The total consumption in Canada of wine, the total sales last year, was in the range of thirty million cases. E. & J. Gallo alone in California produced 65 million cases. So that's what we're up against. Like the brewers, we're trying to drive a quality product and move the quality because we can't compete at the massive level; we give a quality product at a better price.

º  (1635)  

    The Chair: Thank you, sir.

    Now Mr. Discepola.

    Mr. Nick Discepola: Thank you, Chair.

    I had the same question as Mr. Pacetti. You were saying the excise tax represents 20% of the cost of goods sold?

    Mr. Howard Thompson: It's $28 per hectolitre.

    Mr. Nick Discepola: What percentage of your sales or revenues would that be, roughly--or your cost--if you're operating the whole--

    Mr. Howard Thompson: It would be about 25%.

    Mr. Nick Discepola: So it's substantial.

    Mr. Howard Thompson: Yes.

    Mr. Nick Discepola: I want to correct, I think, a misperception created in the answer to Mr. Paquette's question. In your comparison table, a brewery the size of 5,000 to 15,000 hectolitres benefits 90% for the first 2,000 hectolitres, 80% for 2,000 to 5,000 hectolitres, and then 60% on the excess over 5,000 hectolitres.

    Mr. Howard Thompson: That's right.

    Mr. Nick Discepola: So it's cumulative.

    I'm led to believe that you've met with the Department of Finance and they've told you the ball is in our court. How reassured are you? We've made this recommendation at least three or four times that I'm aware of--I've been on this committee a long time--and if they haven't listened to us in the past, why are they going to listen to us now? Have they given you reassurance to that effect?

    Mr. Howard Thompson: It's difficult for them to give us direct reassurance. The comment was they didn't want to presuppose the advice from the committee.

    What we do know is that there were direct questions relative to the overall size of the reduction and also how that was attributable to few versus more. We believe we've addressed that in the new proposal. The new proposal also is much more in line with some of the provincial proposals, so there's some precedent for it.

    Beyond that, what we believe they're looking for is bang for the buck. We've demonstrated, particularly at the very smallest level, that they're great job producers--they tend to be regionally and economically distributed across the country--and that it can be effectively implemented and, I believe, easily administered because there is an excise tax regime in place now, and it's simply a matter of setting up graduations.

    Mr. Nick Discepola: Well, then I would concur. I don't think we need another report, Mr. Chair. My recommendation would be that we report directly to the House and give direction to the finance department to implement the two recommendations, point à la ligne.

    We can do that with a motion as of tomorrow even. I don't think we need to have the Department of Finance back here. If they're looking for guidance from us, let's give them the guidance once and for all.

    The Chair: The only little complication is that we have the jewellers, the co-ops, and the brewers. We could decide to deal with them separately, but....

    Mr. Nick Discepola: Just as we did with the textile industry.

    The Chair: Mr. Shepherd.

    Mr. Alex Shepherd (Durham, Lib.): You'll have to excuse me. I haven't really been a member of this while your submissions were made.

    I just have a point for clarification. We're essentially talking about the domestic market. I haven't heard much talk about the export market. I presume that for the micro-brewers, that's not on, an export industry is not a big part of your production. But just from a vintner's point of view, I'd be interested to know what your sales of exported goods are. Presumably you can compete in the United States. Those excise taxes wouldn't be executed on exported products.

º  (1640)  

    Mr. William C. Ross: Well, our exports last year were $13.7 million, compared to imports of $1.146 billion, not counting the bulk that was blended into the Canadian...I don't think. Anyway, those are very significant imports.

    In terms of excise and exports, as you know, there's no excise payable on exports. But in Michigan, if we're selling in Chicago, we pay the U.S. excise because it's due, but smaller wineries do not--American wineries.

    Mr. Alex Shepherd: So you're saying that not only do you have a competitive disadvantage in the domestic market in Canada, but also because of the application of excise taxes in the United States, that's uncompetitive as well. They're in a sense discriminating against you because you're an importer.

    Mr. William C. Ross: Yes, that is correct.

    The U.S. is ultra vires of the WTO national treatment rules, just like the EU would be, say, for their treatment of breweries, or the Australians are, where they give a rebate on the excise. That's why we've modelled it such that it's not vulnerable to WTO or NAFTA attack.

    The Chair: Mr. Schmidt, please.

    Mr. Werner Schmidt (Kelowna, CPC): Mr. Chairman, I apologize to the committee. I had other obligations for a minute in the House that I had to....

    I want to thank the gentlemen and the lady for coming. I think it's really great to have you here. And I happen to be in complete agreement with what Nick just said a minute ago. It's sure nice to see some efficiency for a change. I like that. Let's move. Let's do this thing.

    But I do have a little question. You probably have done the work on this. What would be the overall economic impact for Canada if your recommendations were implemented?

    Mr. Howard Thompson: The one thing we have proven is that if we could take back even half of the import market share--we're sitting at 4% and they're sitting at 10% in the brewing industry--that would create another 1,500 jobs, based on this formula of two jobs per 1,000 hectolitres. I don't know what the absolute number is that would spin off from that, but that's not an insignificant number of brewing jobs coming back to this country that simply don't exist right now.

    Mr. Werner Schmidt: I'm not looking for an absolute number, just an extrapolation as to what that could do. That's pretty significant.

    Mr. John Hay: I was just going to add that you can spend a lot of money and hire economists to do economic impact analyses, but generally speaking they come up with a multiplier effect of four to seven. Small businesses tend to be in that category. You take the 1,500 jobs and multiply them by four, five, six, or seven and get a new number, and that's the basic impact on the job front. You're into the hundreds of millions then. That's typically where it would be. It would be quite significant. It's almost the size of a small car plant, actually.

    Mr. Werner Schmidt: Yes, but you also argue about capitalization--

    Mr. John Hay: Yes.

    Mr. Werner Schmidt: --and that's a whole other factor.

    Did you do anything there?

    Mr. Howard Thompson: The one thing about being domestic producers--both us and the wineries--is that we source domestically, so for example the tank is made by domestic producers and contractors.

    Mr. Werner Schmidt: I understand.

    Mr. Howard Thompson: The spinoff is pretty directed.

    The Chair: Mr. Ross, did you want to add something?

    Mr. William C. Ross: I just wanted to add that I think that's an excellent question, Mr. Schmidt. I would like to thank you as well for your presence here today and your ongoing support.

    As I said earlier, KPMG has estimated the economic outgrowth or impact of a domestic wine at $3.88 a litre, about eight or nine times that of an imported wine at 46¢ a litre. As you know, just south of your riding, Hester Creek Winery went into receivership, and hopefully it's going to come out of receivership.

    We are trying to work on the gross numbers, but the anecdotal numbers say you can generate this huge amount, eight or nine times what can be generated from imported wine, with domestic wine through the hospitality industry, through culture--the Shaw Festival and the Niagara festivals--and through tourism. Last year, I can tell you, sir--you'd know this from your own riding--when SARS hit, there was a tremendous impact on the wineries. Flip that on its head and you can see how important the wineries are to tourism.

    We like the KPMG assessments. What we have to do is “gross it up” and find out exactly how it works, but it's about eight to one in terms of economic benefit.

º  (1645)  

    Mr. Werner Schmidt: Thank you, Mr. Chair.

    The Chair: Thank you.

    I have Mr. Pillitteri and then Mr. Jaffer, but before we go to them I'm going to slip in a question on the breweries if I might.

    The 75,000 hectolitre to 300,000 hectolitre brewers don't really get any benefit, according to this, under the old proposal and under this revised proposal. Is that correct?

    Mr. Howard Thompson: That's correct.

    The Chair: So I'm just wondering why you--

    Mr. Howard Thompson: Oh no, I'm sorry. They participate on the way to the 75,000 hectolitre mark. All their hectolitres over 75,000 no longer qualify. The support threshold is 75,000 hectolitres, and then the 100% clawback isn't until 300,000 hectolitres.

    The Chair: But on the chart here, when it says “75,000 to 300,000”, there's zero. Beyond 75,000 hectolitres there's no participation, right?

    Ms. Laura Urtnowski: There's no participation from 76,000 hectolitres on.

    Mr. Howard Thompson: It's just on your first 74,000 hectolitres.

    The Chair: Why do you even put that in there, “75,000 to 300,000”? When you bump into the 300,000 hectolitre range, you start hearing from the bigger breweries that you're not a small brewery any more. But if there's no benefit at that level, why do you even have it on your chart here?

    Mr. Howard Thompson: It's important to set the participation threshold higher than the support threshold so there isn't tax shock right at 76,000 hectolitres. Then the million-dollar question is, how big do you make it? The two provincial examples we have are Quebec, where it's 300,000, and Ontario, where it's 150,000 averaged over five years.

    Mr. John Hay: In Alberta it's 200,000.

    Mr. Howard Thompson: We picked a number in range with those other precedents.

    Ms. Laura Urtnowski: In the United States it's two million.

    Mr. Howard Thompson: Yes, it's two million.

    The Chair: Yes, but everything is bigger in the United States.

    Mr. Hay, you were very much involved with one of the breweries in my riding, Molson. Before the consolidation with Barrie, just give me a feel for what the volume was, in hectolitres, coming out of the Molson Brewery in Etobicoke North.

    Mr. John Hay: Let me just work backwards for a second. There are seven million hectolitres sold in Ontario, 20 million in Canada. Each Molson-Labatt brewery had roughly 40%. You're taking three million hectolitres for each company, let's say, and two breweries for each company. Divide that about in half and you're in the 1.5 million hectolitre to 2.5 million hectolitre size for those four breweries, the two Labatt and the two Molson.

    Does that answer your question?

    The Chair: Yes, I just wanted a ballpark figure to get a sense of the size of a small brewery in relation to a big brewery.

    Mr. John Hay: It's about 100 times the size of the biggest brewery we have, which would be in Ron's category.

    The Chair: I'm just going to throw out another question before we go to Mr. Pillitteri and Mr. Jaffer.

    Could you tell me a bit about those imports that have been gaining market share at your expense? I don't necessarily mean the specific brand names, unless it's easy to do it that way. What kind of beer is coming in, and what types of imports are taking jobs from your members?

    Mr. Howard Thompson: The most important thing about the imports is that ten years ago they had about the same market share as the domestic premiums--breweries like ours--of around 2% or 3%.

    As was said this morning, we helped develop a taste for premium beers--and a similar thing happened with premium wines. And in answer to that the call was for Stella Artois, Heineken, Corona--we all know them--and to a lesser extent, for some of the out-of-province beers. They were picked up by the major breweries. So these were very important premium beer labels that now had direct partnership with the biggest breweries in the country. They were very eagerly adopted and marketed by the liquor boards across Canada, and rapidly took their 3% share to 10%.

    It's interesting, if you look at the brewing market in Canada, although Molson-Labatts have about 90%, if you count their import interests as well, that's probably closer to 97%.

    The Chair: But those brands that are brewed under licence, you wouldn't categorize them as small breweries, would you?

    Mr. Howard Thompson: No.

    The Chair: No.

º  (1650)  

    Ms. Laura Urtnowski: And they're not brewed under licence.

    Mr. Howard Thompson: And they're not brewed under licence, they're brought in.

    The Chair: All right. You're not competing then really with small breweries in the U.S.; they're not shipping product up here.

    Mr. Howard Thompson: In the west you do see that where some of the bigger small breweries, in California particularly, will bring beer into western Canada. And you're seeing it in the LCBO as well, with Sierra Nevada, Mendocino County, Anchor Steam.

    The Chair: Mr. Pillitteri.

    Mr. Gary Pillitteri: Thank you, Mr. Chairman.

    A question was put by Mr. Shepherd to the breweries and Mr. Ross about access to the United States and whether there is any disadvantage. There is quite a bit of disadvantage, Mr. Chairman. It is in the beer and wine industry both. This is for the simple reason that in Canada we have one buyer, and distribution is only through the liquor control board of each and every province. So anyone exporting into Canada comes in with one buyer and they sell to that one buyer, which is the Ontario, Quebec, and so on, control board.

    In Canada--and this was what I said prior to the start of the questioning--whereas prior to free trade we had a two million export market, two million litres from the United States into Canada, it's now ballooned to over 14 million litres. Let me explain exactly what it is. For us to export into the United States, each and every state has its own controls, so in 36 states of the United States there is this contravention of GATT and the free trade agreement.

    In Canada, when we went with free trade we changed the regulations so that the federal government makes all the provinces comply. But in the United States, if I want to export, or the breweries or the wine industry want to export to the United States, you have to go to each individual state to export and get permission to export in those states. Imagine the cost of that. And besides that, the importer and the distributor, the retailer, cannot be one and the same.

    Would you want to elaborate more for my colleagues to understand how difficult it is? Because in a sense they're saying we're in a free market. They are not in a free market. There are non-tariff trade barriers that make it almost impossible to trade with some of these countries, not only the United States but also all of Europe.

    The Chair: Mr. Ross, did you want to comment?

    Mr. William C. Ross: I would just reiterate what Gary said. I haven't stressed these points in my response, because really why I'm here before this committee is to seek some reduction in excise in Canada to bring us on a more even keel with the Americans. As I said, whether it's Chicago or New York, we are paying 28¢ a litre of their excise there, and their smaller vintners are paying zero.

    Another thing I would mention, Mr. Chairman, is that a significant number of major wine producers in the world have no excise at all: Spain, Austria, Italy, Germany, Greece. While we are on an even keel because if we're exporting to Germany we don't pay the excise either, I think it's important for the committee to understand that with our excise, as soon as Gary moves his wine out of his excise warehouse, 51.2¢ per litre is due to the Queen.

    So it's an underpinning that they cashflow 51¢ right after, the end of the next month, whereas in these other countries they don't have that in the economic foundation or the economic roots of their companies. So even though we are on the same footing when we're exporting to Greece or Germany, those companies have never had to undertake the foundation hit of 51¢ as soon as they move the wine out the door.

    The Chair: Thank you.

    Mr. Jaffer.

    Mr. Rahim Jaffer: Thanks, Mr. Chairman.

    I want to get a little bit more clarification to pick up on Nick's point and Werner's point.

    If there is a feeling around the committee here that we want to in fact deal with this particular issue and basically pass a motion to endorse the recommendations, I understand the window's closing, because we obviously don't know when the election is going to be, but also because we have a busy schedule in the next little while on the committee. I'm wondering if there is the consent on the committee, if everyone feels that's the way we want to proceed, that if we do give the direction to our committee staff that maybe before the next meeting, or just after the next meeting, if we do have the motions in the final form, then we can submit it as a recommendation from this committee.

    My only fear is if we put it off it may not get addressed at all. And it seems that there is consent here. We can ask, obviously, but if there is and we can endorse the two positions, basically, then maybe before the next meeting, or just after, we can vote on it finally to make the recommendation.

º  (1655)  

    The Chair: Anything is possible. The only thing I would highlight is the fact that we looked at the co-op issue last Thursday, and tomorrow we're looking at the jewellery excise tax issue. The committee is the master of its own fate. If we wanted to write a separate report on each, we're talking about efficiency, and it's not terribly efficient to do it that way, but the committee can decide to do whatever it wants to do. If we want to separate this issue out, that's well within the committee's right to do that.

    Nick was first, and then Mr. Paquette.

    Mr. Nick Discepola: Just on that issue, my preference would be to issue separate reports. We've done that already with the textile industry, because I think I'd be a bit leery of watering it down with three other non-related industries, for example, and I believe that we've more than belaboured and discussed this issue to death. The industry has bent over backwards trying to come up with a solution that will appease the finance department. I think it should have been the finance department's role, quite frankly.

    So my recommendation would be let's get on with one recommendation at a time. If we have a recommendation for the jewellery industry on Wednesday, we can do that also, but I wouldn't want to water this down with two other non-related issues.

    The Chair: Mr. Paquette.

[Translation]

    Mr. Pierre Paquette: This is not new material; it can be found in previous reports. The association's proposed approach is new, but the argument is exactly the same. For cooperatives and even jewellers, the issue was not addressed this way in previous committee reports. Further explanation will be required.

    In this case, we need only to refer to last year's committee report—there was none this year—to determine that, following initial contact, a different approach was proposed. This motion alluding to previous work by the committee should be adopted.

[English]

    The Chair: The concern is that we could have a writ dropped on Sunday. If we're not going into an election I don't know what the panic would be, but that is a possibility, I suppose, that the writ would be dropped on Sunday, and then we'd lose the opportunity to report back.

    Is it the will of the committee that we ask the researcher to put together a recommendation that would basically endorse the vintners association and the small brewers on these recommendations, and then submit it to the House of Commons and the minister? Is that the view of the group?

    Some hon. members: Agreed.

    The Chair: We can ask the researchers to draft something up for consideration at our meeting, which would have to be tomorrow, I guess.

    You're working a bit late tonight, are you, June?

    Ms. June Dewetering (Committee Researcher): That's not much time.

    The Chair: You don't have to worry a lot about what the recommendations are, I suppose.

    Ms. June Dewetering: There won't be too many.

    The Chair: Mr. Pacetti.

    Mr. Massimo Pacetti: Perhaps we can do it along the same idea as the textile report, two or three pages long, to the point, and with the same cover page, just change the title.

    The Chair: Change the cover.

    I think you've obviously done a very convincing job, Mr. Thompson, Mr. Ross, and all your group. As I say, it's not an issue we're unfamiliar with. We thank all of you for doing a great job, for great products. Thank you for coming.

    We'll be submitting our report, and beyond that, what the minister does with it, whether we're into an election, and what can happen after an election, who knows. But at least he'll have the benefit of our report and our recommendations.

    Thank you very much for coming here today and presenting this case again.

    The meeting is adjourned.