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Thank you, Mr. Chairman, for this opportunity to contribute to your study of the food supply chain in Canada. I'm pleased to offer a perspective from Maple Leaf Foods, particularly as it relates to the pork sector.
In November 2006 I appeared before your committee to talk about challenges facing the Canadian pork industry and identified six big concerns: animal disease pressure, particularly PRRS; declining relative productivity in efficiency, particularly managing the higher feed and energy costs; insufficient scale of Canadian processing plants; the competitive threat of pork industries in emerging countries; international market access barriers and trade risks such as country-of-origin labelling in the United States; and finally, and most of all, adjusting to a strong Canadian dollar.
Looking back five and a half years later, it's hard to avoid the conclusion that these six issues have shaken the Canadian industry to its core, but in fact there were at least three more challenges that no one anticipated in 2006: the financial crisis and global recession of 2007-09; the 2008 listeriosis tragedy, which was linked to our company's products; and finally, the so-called swine flu outbreak of 2009. In the last couple of years I could also mention growing health, animal welfare, and environmental concerns that have been linked to our industry's products and continuing evidence of declining per capita consumption of pork in Canada.
These events, of course, caused multi-year losses for producers, the exit of hundreds of experienced producers from the industry, record debt levels, processors facing overcapacity and margin pressure, loss of domestic and international market share, and millions of dollars spent on government support programs.
For Maple Leaf Foods, a radical transformation of our business model to meet these challenges had begun when I spoke to you in 2006. The imperative to complete it has only grown. Between 2010 and 2014 we'll be spending $560 million in strategic capital across our protein and bakery operations to reduce costs, boost productivity, and drive market value. We're doing this largely on Canadian soil, securing Canadian jobs, and helping to ensure the Canadian pork industry and our value-chain partners can again profit and grow as market conditions improve.
Our industry must now think and act differently since the favourable cost structure we enjoyed in the 1990s and the early 2000s is unlikely to return. The product quality, pricing, and reputational advantages we long enjoyed in both domestic and international markets can no longer be taken as given. We have to embrace product and process innovation, investments in scale, operational efficiencies, food safety leadership, and market development with purposeful strategies and coordinated efforts.
This brings me to the important question of how governments can help, bearing in mind that despite herd consolidation, the Canadian pork industry still slaughtered over 21 million animals last year, generated $5.1 billion in sales, and set a new export record of $3.2 billion.
Let me again go back to 2006 when I presented the following five recommendations, and if you'll allow me, I'll just comment briefly on the progress, the shortcomings, and new priorities to be considered in each area.
The first recommendation I gave then was to move forward on smart regulations and improve federal-provincial coordination. I can say progress here has been very positive. In the aftermath of the listeriosis crisis and the report of Sheila Weatherill, a great deal of positive changes occurred in food safety policy, programs, resources, regulatory approvals, enforcement, and governance.
We particularly commend the government on the recently tabled and long-overdue amendments to the Food and Drugs Act to speed up regulatory approvals, and also the anticipated consolidation and strengthening of food safety and inspection legislation under CFIA. Those were the CFIA initiatives on regulatory and inspection modernization, enhancements to import licensing and inspection, some very good changes recently proposed to the meat inspection regulations, and an ambitious agenda under the border action plan between Canada and the U.S.
We could still do much better on federal-provincial coordination in food safety, animal health, environmental standards, and other areas, but we do now have a national farmed animal health and welfare strategy, and I see hope for a similar food safety strategy based on efforts begun earlier this year.
The second recommendation I delivered then was to enhance trade through bilateral agreements and better infrastructure. While we wait to see deals concluded, the scope and ambition of the government's current bilateral trade agenda and the services of the Market Access Secretariat also deserve praise.
In addition to the above-mentioned commitment to Canada-U.S. regulatory cooperation, free trade deals with high-value markets like the EU and Japan would bring enormous opportunity to the Canadian agrifood sector. Getting into the trans-Pacific partnership is also extremely important, especially if Japan is admitted.
I must, however, mention specifically the need to conclude an agreement with South Korea. As just one company, we had $75 million in pork exports to Korea last year, and these are in immediate jeopardy because we now face a tariff disadvantage relative to our U.S., European, and Chilean competitors. Total Canadian agrifood exports to Korea were over $1 billion last year, and it's all at risk.
The third recommendation, five and a half years ago, was to improve labour market flexibility and foreign worker recruitment. In the past few years, we—our workforce, our union partners, and the communities in which we operate—have enjoyed considerable benefit from the temporary foreign worker program and the provincial nominee programs. Since we commenced recruitment of foreign nationals in 2002, we've employed 2,194 skilled or semi-skilled workers and 154 skilled workers, with a retention rate of about 60%.
Many aspects of program administration by the federal departments and coordination with the provincial departments of labour and immigration have improved. Efforts to accelerate labour market opinions and restore two-year approvals are appreciated. However, two years is still too short, especially given the new and higher English language threshold that has been established to gain permanent residency. This new threshold has already compromised our recruitment of lower-skilled workers and threatens the success of the program in communities such as Brandon, Manitoba.
Also on the labour front, I do again have to point to fragmentation across the provinces when it comes to employment standards, pension regulations, and so on, and the frequently threatened labour disruptions to rail and port services. Speaking about rail, though, we do welcome the government's response to the rail service review and look forward to the promised legislation.
The fourth recommendation was that we support more science and innovation in animal disease prevention in Canada. Here, our assessment is somewhat mixed.
We appreciate federal funding for science and innovation under Growing Forward, including the swine science cluster, the Swine Health Board, and other bodies, but we see an erosion of publicly funded agrifood research in Canada, an underfunding of meat and livestock compared to the crop sector, and unfortunate changes that were made to the SR and ED program in Budget 2012. We certainly hope support for science will be strengthened under Growing Forward 2 and that we maintain the continuity of the clusters.
I would also remind the committee that the $23 billion Canadian livestock, poultry, and meat industry faces the constant threat of a major foreign animal disease outbreak. We've made progress in Canada in terms of improved traceability, on-farm biosecurity, east-west disease zoning, and coordination of surveillance and laboratory testing, but we still lack a comprehensive national foreign animal disease response and recovery strategy.
In terms of animal welfare, we're finally updating the national codes of practice for animal care, but we still have a fragmented, outdated approach to animal welfare and standards across the country.
Finally, the fifth recommendation was for stable and effective farm support programming. Well, the Growing Forward framework, which began in 2008, introduced the suite of cost-shared programs that we know of today. In fact, if you check, there are 187 Growing Forward programs on the agriculture website—a lot of programs.
We've had ad hoc programs to help the hog sector downsize and adjust to harsh market conditions, various AgriFlexibility programs dedicated to animal slaughter, traceability, and food processing innovation, and new provincial programs, such as the risk management program in Ontario.
As a major pork processor, Maple Leaf values national, whole-farm programs that provide income stability and investor confidence in hog production. We do not welcome commodity-specific provincial programs that expose the industry to trade risk and create distortions in interprovincial trade and investment.
In Growing Forward 2, we hope that strong commodity prices will allow a rebalancing in favour of more support for science innovation, food safety, animal health, international trade, and environmental protection. We particularly believe that a program should be developed to help offset the capital cost of converting sow barns from gestation stalls to open housing—and I hope you ask me why I think this is important and how it could be done.
In summary, recent years have brought adversity to Maple Leaf Foods, especially in its pork business, but we've weathered the storm and accomplished much on our path to becoming a globally admired meat, meals, and bakery company. With the help of government policy supporting a strong business climate, our future in Canada and globally is promising.
I look forward to your questions.
Thank you.
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We just felt it was the right place to do it. Thank you, Mr. Chair, for that privilege.
The other thing we would like to start out with is congratulations to the Minister of Agriculture for all the money he's spent travelling the world, being away from his family, to assist us with market access. We'd like that on the record. We would also like to thank Fred Gorrel and his secretariat team on trade. He now has horses under him, with a bunch of talent that the Canadian system does have. Market access is important.
With respect to imports and exports, the beef industry tracks that. XL Foods tracks that very well. We have major concerns. We are now no longer a net exporter to the United States. We are a net importer from the United States. It happened last year, for the first time in my short meat career. It seems as if American beef coming into Canada is going to do even better this year.
We would also like to thank the efforts of CFIA. We see a very transparent working relationship with them that has developed over the last 10 years in the beef industry, since BSE. We have confidence in each other. We believe that we are a world leader, and we support them in their initiatives.
We are concerned about some fuzzy words currently being used. One is “validation”, which of course is “outcome-based”. They kind of make the industry a little bit nervous. We'll work towards getting the framework around those phrases, so that we have a better understanding and these plants can continue to operate efficiently and protect our consumers.
On labelling, we have some concerns in the beef sector about labelling, such as the “natural” claim in Canada versus the United States. You can walk into a Walmart and buy “natural” ground beef. We are assured that the product does not enter Canada, but we know the livestock does leave Canada to fill the needs of those labels.
On the U.S. dropping the ethanol subsidization, we kind of see that working both ways. We feel it will help the feed grain situation in North America over the next three to five years. If corn did hit $10 a bushel, maybe chicken breasts would be equivalent to strip loin, so it might not be too bad for the protein sector.
That's tongue in cheek. That could be misled by Rory. Sorry Rory.
On traceability, we have traceability in livestock, and we're working on making that more efficient, as Rory alluded to. We understand that this cannot be government supported forever. We're not sure why not. But we have to make this efficient, and the current system is not. We are looking at using a bill of lading. Zoning is critical. There are probably better ways of doing it through a more efficient bill of lading and what they call premises ID.
In the beef sector, we're implementing the beef information exchange system, the BIXS. We're interested to see what the uptake from the producers is going to be. It will be there for them to use. I think we are putting the electronics in place as we speak. That will give them the yield and carcass information they've been looking for. We look forward to that uptake as well.
The SRM road map is critical. This is coming to the support of the beef round table, which does wonderful work. It has since 2003, and we thank the government for implementing these round tables. We find that this has allowed the further processors and the processors of beef and veal in this country to understand each other's businesses a little better so that they know that we're not always ripping them off. We try to buy the livestock as cheaply as possible, and we try to sell the meat for the most money we can get for it. That's business. We try to stay in business to make money.
The SRM, though, is a little disappointing. The round table supported it 100%. It was supported by the beef round table, which is a national, federal organization. And it was deemed not necessary. That is in the packing industry's face every morning when we go to buy over-30-month livestock in this country. We look forward to working with CFIA to get a road map to get us out of this box we're in as soon as possible.
I look forward to questions from there.
We have a beef infrastructure in this country that is struggling. It has rationalized itself. There may be room for more. I don't want to mention anything, but there may be room for more infrastructure and rationalization in the beef packing industry. Maybe it's okay. Maybe we will just slaughter them in the United States. That might be all right. Time will tell. But we are going to do everything in our power, because at XL, we have a lot of investment in this country, to maintain our plants in this country.
So we ask you to keep us as efficient and as effective as possible. That would be on the regulatory side. That's where the SRM policy fits in.
Food safety is of the utmost concern to all people in the meat industry. We should understand that. At no point will we take a risk with food safety. The customer is of the utmost importance to us, because that's who does keep us in business.
On “product of Canada”, we've fixed the livestock side of things, but if you did want to marshal a load for China, for example, we would have to segregate possibly 10 steers out of an operation that's doing 4,200 a day. You'd sooner cut them down. The cost is horrendous. So we just need to find our way through that. That's system recognition when we talk to foreign countries, because we can sign a deal, but if it doesn't accompany what we're doing and we have to go through different measures, it adds costs—and I believe that's for all protein in this country.
Because Rory did mention the FTA with Korea, I don't want to spend any time on it. I think we all understand that.
We look forward to a possible strong FTA with Japan.
I'll leave it there, Mr. Chair. I'm sure there aren't many questions. I think I answered them all the way through.
Thank you.
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Well, in Canada, we feel that in the beef sector, if we don't disappear 70% of our production domestically this year and next year, and for the next possibly two years, we've failed domestically, only because of where the herd is. Our cow herd is down. We have heifer retention.
The cow plant in Calgary closed because of supply. We chewed through the over 30 months pretty quick, pretty heavy. We made these plants pretty efficient.
So if we don't disappear 70% in Canada—in Canada we can compete, there's no doubt about it—then we feel we've failed from a marketing standpoint. As far as access to the domestic marketplace, there are no restrictions, but it is all price. That's the business we're in currently.
One of the big problems we have, if we're talking about the supply chain, is the disappearance of middles—strips and ribs. We see ourselves in a new economic world, one where people cannot afford to buy strip loins and buy ribs. Once it gets over a certain price threshold, it sits.
People say, “Well, is that ever funny. You can buy ground beef at $4.99 a pound, and yet you can buy strip loin at $4.99 a pound.” Well, a 16-ounce will feed two adults if you cut it into eight-ounce steaks. That's $10. With a pound of ground beef, you can mix it with Kraft Dinner—which I enjoy—and feed a family of four.
That's the problem we run into in the North American marketplace. It's not just Canada; it's North America. The disposable income by our consumers is disappearing. It's hard for us to comprehend that in this room, because if we want a steak, we can go out and buy one. A lot of people can't, and they're our major customers.
I don't know if that answered your question, but that is a concern of ours when we talk about supply chain. We do need the return on those middles.
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That's a good thing, but they're not going up quickly enough for a meat processor.
We've got ourselves in a global shortage of protein. We've had a major drought in a major part of the United States. It was the Mexican drought that came up through Texas and chewed up their cow herd pretty heavily. Will they go back into the cow business? Who knows. Farming's not a bad business.
We've got the same problem. We had the same problem in northern Alberta, and Quebec benefited from it. The cows came across the country, stayed in Ontario, and some went into Quebec and created cow-calf operations. We thought those cows would come back to northern Alberta, as you can attest to, and they never did. You people got into farming.
The Canadian consumer is used to disposing of product, like not finishing their plates. You can go into restaurants, you can sit at your own kitchen table, and you can even evaluate a head of lettuce in any one of our fridges; if we don't eat it all, it's okay. If you go to Japan or other Asian markets, nothing is thrown away. You'll sit at a table for two or three hours and you'll eat everything that was served to you. It will be to the bare bones, even to the degree where they'll cook the bones to make soup. Maybe we need a culture change in Canada so that we're not quite so wasteful. It might not be quite so expensive. That would be my answer.
We've had the luxury of disposing of food in this country and in the United States. The United States may be even worse. The portions are so big down there that you just can't get by the first quarter. I think they have to learn how to manage their food better. It's not going to get cheaper. We're dealing with record feed costs.
From grain to canola, right across this country, China is lining up to buy our product. You're not going to feed cattle cheaper. I doubt you're going to feed hogs cheaper. That's today's reality, and we are sensitive to that. We're nervous because agriculture is the number one employer in this country; if it's not, it's close to. That's a good thing, but it also means less income for our general population. The automotive industry paid much better than my industry ever did, so there's also less disposable....
It's not too bad if you live in a government community or a university community where people are still making good money, but if you're in a blue-collar community, where you come from, it affects them. I think we just have to be less wasteful. I think there's an opportunity for us to eat just as well but not to throw quite as much away.