A. Trends, challenges and opportunities

1. Trends: Competition

According to Agriculture and Agri-Food Canada (AAFC), red meat products include beef, pork, lamb, goat, rabbit, venison and bison. The red meat industry is the largest sector of the Canadian food manufacturing industry, with annual shipments worth $24.2 billion in 2010.[10] Main stakeholders in the red meat supply chain include producers (cow-calf producers, finishers), slaughterhouses, secondary processors, retailers and food service industries, and renderers.

Mr. Rory McAlpine of Maple Leaf Foods indicated that Bovine Spongiform Encephalopathy (BSE), the financial crisis, exchange rates, and other factors have all had lasting effects on the red meat industry. This industry is also affected by international trade, including competition with the United States, and, in the case of sheep and lamb, with New Zealand. The consumer market is highly fragmented and is pulling the industry in new directions. At the same time, the exchange rate, technology, food safety, and other factors are exerting pressure on costs. In addition, the ethanol and the red meat industries are competing for the supply of corn and other grains. This competition has an effect on the pricing of corn.

According to Mr. David Sparling’s testimony, meat processing is carried out by either very large or very small companies. These businesses differ not only in their size, but also in their approach (economies of scale for large firms, and diversification and niche markets for smaller firms), and face different challenges. Mr. Robert Seguin of the George Morris Centre noted that certain actors in the red meat supply chain, such as slaughterhouses, have consolidated, achieved economies of scale, and rationalized their operations. Major slaughterhouse firms have concentrated their operations in certain plants, among other reasons, because they are competing directly with United States slaughterhouses to purchase Canadian livestock. Mr. Michael Burt of the Conference Board of Canada reported that there is also a trend within the sector toward vertical integration — from production of animals through to secondary processing — to limit certain risks associated with supply and with the commodities markets (such as exchange rates); to facilitate innovation; and, to improve communication about market needs throughout the supply chain. Vertical integration also entails some risks, such as greater control over prices by a small number of players, and the elimination of independent producers.

This concentration is seen in the retail sector as well. According to Mr. Derek Nighbor, Senior Vice-President, Public and Regulatory Affairs, Food and Consumer Products of Canada, there is a marked trend toward concentration in the grocery retail sector in Canada, where five giant retailers account for 75% of all sales.[11] In addition, this sector will have to deal with competition from new major players such as Walmart and Target. To supply these large retailers, suppliers must often deliver very large volumes of merchandise, a requirement that smaller players may have trouble meeting, which limits their access to shelf space.

Mr. Nighbor also pointed out that some retailers’ store brands are occupying more and more of their shelf space. Store brands account for about 20% of the grocery retail market in Canada.[12] According to Mr. Matthew Holmes, Executive Director, Canada Organic Trade Association, in the organic sector, house brands account for a similar percentage, approximately 21% to 22%.[13]

2. Challenges: Consumer demands

In recent years, consumers have begun to show a keen interest in the environment, health, and animal welfare. The red meat industry acknowledges consumers concerns for animal welfare and food safety. The industry also recognizes that there is a trend to buy local and organic products. In addition, the red meat sector has a keen interest in traceability.

Traceability

Ten years ago, the Canadian cattle industry established a mandatory system for identification of every animal. In this system, the traceability is based on live animals, where each animal is tagged so that it can be traced to its herd of origin. However, this traceability system is incomplete, because the animal is no longer identified at the processing or export stage. Although the animal is no longer identified individually at the stage of slaughter, each processing plant has its own procedures to identify the meat. Usually, the plant knows which group the animal belongs to with the date and time of processing. It is clear that the beef and cattle industry wants a traceability system that allows full tracking of all meat movement.

Right now, we recognize that we want to move forward as an industry, eventually, to full animal movement tracking, but we want to move forward carefully, because the last thing we want to do is move forward hastily and bring on extra regulatory burden on an industry that competes globally. At the same time, technology is improving monthly and I think as those tag traceability trials have shown, the technology is still in catch-up mode, in terms of what we demand of it. So we're committed to seeing that premise ID is finalized across the country, and then moving to a phased implementation of movement-tracking. At the same time, we hope technology will be improving so that we can move forward incrementally but progressively to eventual full traceability.[14]

Several witnesses recognized that traceability in the beef production industry is a value-added benefit, and have undertaken initiatives in this direction. In addition, the Canadian Cattlemen’s Association has developed the Beef InfoXchange System (BIXS), a program for sharing information on cattle tracking and traceability.

We've developed the Beef InfoXchange System, which has created the most modern and successful beef cattle information-sharing system in the world. The program was launched this winter at the cow-calf level, and now includes detailed carcass information that's available back to the original producer who makes the investment in the national ID ear tag. We're adding additional production and animal health information at the feedlot level, and will use this system to encourage age records and tracking information for our traceability system.[15]

In the pork industry, the tracking system identifies pens of pigs and loads of pigs rather than individual animals. The sheep and beef industry identify every live animal.[16] In the sheep industry, there is a system for identifying carcasses by radiofrequency. The information gathered enables the industry to make decisions about genetics, and about how it feeds its animals. However, this practice still remains limited.[17]

Farmers’s markets

At a time when food travels long distances before reaching consumers’ plates, consumers want to know from where their food is derived. According to the testimony of AmiEs de la Terre de l’Estrie, lack of information on where food comes from is leading consumers to turn more and more to public markets where they can buy local produce.[18] According to Mr. Robert Chorney, the President of Farmers' Markets Canada, farmers’ markets satisfy the expectations of consumers who have ecological, health, or other concerns. That is why farmers’ markets have been enjoying such a rebirth over the past 15 to 20 years, especially in Ontario and British Columbia. According to Mr. Chorney, there are three main reasons that farmers’ markets are so popular in Canada.

The first reason is that shoppers and consumers want fresh, local produce. That's the number one reason we have this renaissance. The second reason is that farmers want to market directly and they want to cut out the middlemen. It's as simple as that. The third reason is that communities are looking for good things to do for their communities. [19]

A recent study by Farmers' Markets Canada reports that farmers’ markets make an important contribution to the entire Canadian economy, with sales exceeding over $1 billion. Experts who prepared this study indicate that because of the multiplier effect, the economic impact of farmers’ markets across Canada is over $3 billion. Farmers’ markets thus play a major role in the food supply chain and represent tremendous potential.[20]

Local and organic products

A great many witnesses noted a heavy demand for local products, as well as for organic and “natural” products. The market for organic and “natural” meat has been growing in recent years, and some producers have formed partnerships to meet this demand.[21]

According to Mr. Mike Beretta of Beretta Organic Farms, organic meat complies with specific production standards that are certified by a third party. The certification process is an obstacle to producers because of the costs and the lack of a premium during the conversion period. There is also a lack of communication among the various links in the chain (such as cow-calf operations and feedlot operations) concerning such issues as the type of animals to raise to meet the demand. Canadian geography and demographics create a challenge, as markets are more developed in the eastern part of the country, yet production occurs in the west. Sometimes it is difficult to find slaughterhouses with the right certifications. Also, there is an additional cost for slaughterhouses, as they have to empty the slaughtering and processing line completely before they start slaughtering animals that are not certified organic (in general, “organic” animals are slaughtered first). A witness expressed concern about the purchase prices of Canadian retailers that are based on models developed by the United States Department of Agriculture (USDA), which are not consistent with Canadian producers’ actual costs.[22]

“Natural” meat is meat derived from animals that are raised without any antibiotics or growth hormones. It is an intermediate product between the basic product and the organic product. This type of product can be an option for producers who are making the transition to organic status to earn a premium, but it also meets a demand from consumers who do not want the basic product, but are not ready to purchase the organic product. However, there is no common definition of “natural” in Canada or with trading partners such as the United States. There is also no third-party certification, and, as Mr. Matthew Holmes testifies, there is a risk of debasing the term by creating confusion among consumers:

One area that we've seen that is of great concern to many of my members right now is the widespread use of the term “natural” on products in the marketplace. It's a product claim that doesn't have any basis in a standard, or indeed in any common definition, and these products are often misleading consumers. At this point, we would like to work more to see those sorts of claims better scrutinized, and perhaps have more enforcement.[23]

What's important when you're talking about the claim of being local is that, again, we don't have a common definition.[24]

Recommendation

The Committee recommends that the government, in collaboration with the industry, propose a clear definition of the term “natural meat” to prevent any confusion among consumers.

3. Challenges: Skilled workers

Slaughterhouse operations

The agricultural labour market faces a shortage of workers in the slaughterhouse and livestock transportation industries. In response to the labour shortage, some industries — in particular, the meat-processing industry — have recruited foreign workers.

A good example is the meat packing industry.... That's an industry that's been very effective at using international immigration as a source of new workers for the industry.[25]

Changes in hiring practices by the federal government have made the labour market more flexible, and have facilitated the recruitment of foreign workers, but the industry wants to modernize it further, as some issues remain. In general, companies would like to be able to hire these workers for longer than two years, because it takes three months of training to make an employee efficient. Also, the companies would like to be able to keep these employees as high turnover is not sustainable in any industry.

Livestock transportation

The livestock-transportation industry is experiencing a shortage of skilled labour. Transporting animals is a highly specialized activity that is far more complicated than transporting any other product. It is not enough simply to transport live cargo — workers must transport this cargo in a safe manner that satisfies government and consumer expectations, in addition to the expectations of the livestock-transportation industry itself.

There are preparation of animal compartments, loading and sorting, proper cleaning, safety of the animals in transit, associated paperwork, and also, different driving skills are involved in moving animals. It's a very specialized business, and one in which we are running into challenges.[26]

Previously, livestock drivers came mostly from farming backgrounds, but these workers are becoming more and more scarce, so training is becoming especially important. The Canadian Trucking Alliance (CTA) has begun an initiative to develop a national training program for livestock drivers.[27] The CTA wants this program to be recognized as the national standard for transporting livestock in Canada throughout the supply chain. This program will include the following elements:

The content will include animal behaviours, needs and skills required to transport, and relevant regulations. This program will be delivered in a method consistent with driver learning habits, including online content with interactive components, in-class parts, and audits.[28]

This program will be available throughout Canada and will take regional differences into account. Thanks to this initiative, various stakeholders in the supply chain will have access to a secure database where they can consult a list of drivers who have acquired the mandatory training to haul animals. The livestock-transportation industry also takes a special interest in the data-traceability initiative undertaken by the Industry/Government Advisory Committee, as any additional information will no doubt prove very helpful to drivers in performing their duties.

Currently, for an animal to be transported, it must bear an approved identification tag. When an animal is discovered without this approved identification, the transporter is subject to a fine. The Committee recognises that while traceability may be an inconvenience to the transportation sector, it is vital to the livestock sector.

For numerous reasons, it is impractical to hold transporters responsible for this. For one, the RFID tag is small, and it is difficult to ascertain its existence visibly. It may actually be unsafe for the driver to get close enough to a large cattle beast, for instance, to inspect its ear, and pickups most often occur in the dark, so it's very difficult to check visibly for the presence.

The tags are also applied either by the owner or the tagging facility, not the transporter.[29]

Recommendation

The Committee recommends that the government encourage initiatives that enable drivers to take proper training so that they can transport animals safely.

4. Opportunities: Trade

Several witnesses expressed the view that emerging countries such as China, India and Brazil represent tremendous market opportunities for Canada, because of their growing populations and their growing demand for meat products. The European market also constitutes an important outlet for the Canadian beef and pork industries. In order to take advantage of these opportunities, the signing of a trade agreement with these countries is a priority for the industry, whether it be within the framework of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union or with the Trans-Pacific Partnership. The following excerpt from the evidence describes the size of the markets in Europe and in the countries of the Pacific Rim.

The swine industry's interest must be reflected in Canada's trade negotiations with Europe, with its 500 million people; with the Trans-Pacific Partnership, which represents 30% of the world's GDP; and as well with Korea and Japan, which already have some success stories with us.[30]

Many efforts are being made to promote exports of Canadian products. Witnesses are satisfied with the scope of Canada’s bilateral trade program and the services of the Market Access Secretariat. We need to make sure that the Canadian industry is on an equal footing with its main competitors for access to the Japanese market. This market is important for the cuts of meat that are hard to sell in Canada. Thanks to these efforts, Canada is a major exporter of pork meat. But Canada also imports large quantities of pork meat as well. The following excerpt from the testimony of the Canadian Pork Council illustrates this situation very clearly.

We actually have an interesting thing going on in Canada. Although we're the third largest exporter of pork globally, 30% of the pork consumed in Canada actually comes from outside of Canada, mostly the United States. Part of that is because the big retail chains want to deal with volume and big distribution centres. When they do specials, they want to know they have quantity of products.

But what's not said is that we don't identify our product as Canadian product. It's one of the things we're working toward in the pork industry. We seem to be better at marketing our pork in Tokyo than we are in Toronto or Montreal.[31]

Some witnesses believe that it is important to focus not only on exporting products but also on developing local products. Although there is a heavy demand for local products, including organic and meat products, the supply of lamb and organic products remains limited, as suggested by Ms. Kathleen Gibson of the BC Food Systems Network.[32] In the lamb sector, supply is the main challenge. The small production volume is also better suited to the demands of independent butchers than to those of the large distribution chains, which require high volumes.

We have very little federal slaughter on the lamb side of the business in Canada. It's almost non-existent, really.

In order to be in those large grocery store chains, you'll rely on a federal slaughter for their central warehousing. You probably won't find us in Loblaws for a while until we have been more successful with our expansion of the industry and expansion of production, because that is really the biggest reason you're not seeing us in those big box stores.

Where we are being very successful is in your corner butcher store, where we can use a program like Homegrown Ontario, for example. Alberta Lamb has a program similar to that as well, as do smaller, independent grocery stores, which is probably the best place to look for a Canadian domestic product.[33]

Witnesses agreed that there should be more promotion of Canadian meat. Rules have now been set for labelling beef as “Product of Canada”: the animal must have been in Canada for at least 60 days before being slaughtered in Canada. However, there are still many cases of non-compliant labelling of imported pork and beef at the retail level. Representatives of Maple Leaf Foods proposed that more random checks need to be conducted to rectify this situation.[34]

5. Possible new outlets for agriculture

Because of the limitations imposed by non-renewable resources, many people are looking for renewable alternatives, and see the bioeconomy as an indispensable choice. The production of energy and non-food products from agricultural products and by-products offer much promise for recovering value from agricultural waste and generating additional income. Thus, by-product recovery offers the possibility of interesting new outlets for the agriculture sector, as witnesses from Agriculture and Agri-Food Canada and the Canadian Agri-Food Policy Institute described:

Biofuels and bioproducts also offer new market opportunities for the agriculture sector, and will require the development of new supply chains with sometimes unfamiliar end-users, in the energy and manufacturing sectors, for example.[35]

The bio-economy is surely going to be the innovation engine of the future. Creating business opportunities is a priority, and this is the platform for generating new revenues, reducing inputs, and lowering the costs for farmers. Take a Manitoba potato processor. It now diverts its potato waste to a biotechnology company, and that's used to create biodegradable plastic resins used in packaging and mouldings. That's a win-win.

In the livestock sector, bio-digesters can generate gas and electricity from manure, reducing energy costs and generating new revenues by selling the electricity to the local grid.[36]

Rendering operations represent an important link in the supply chain of the animal production industry. Each years, renderers recycle 3 billion kilograms of animal waste and produce protein meals, oils, and fats for livestock feed and the chemical industry. In his testimony, Mr. Graham Clarke of the Canadian Renderers Association indicated that the supply of recyclable material has fallen over the past few years due to the economic slowdown, BSE regulations that discourage the collection of deadstock, and thefts of raw materials such as restaurant grease, estimated at several millions of dollars per year. This last phenomenon can potentially cause a public-health problem if the grease contaminates the livestock feed production chain. Competition from other methods of disposing of this waste (composting, biogas production, etc.) is also stronger.[37]

There is a heavy demand for meat and bone meal in Asia, mainly for use in aquaculture, and supply of these products is not meeting the demand. However, because of BSE, some export markets are still closed to Canadian products such as tallow and meat and bone meals from ruminants.

B. Role of government

All of the various stakeholders that make up the food supply chain have important functions to carry out to ensure its success. Witnesses believe that the government has a role to play in the food supply chain as a regulatory authority, a partner in key initiatives, and a promoter of trade. Many witnesses believe that close collaboration among various links in the chain will provide better results, and that the government must encourage such collaboration.

1. Inspection and Regulation

A great many witnesses stressed that food safety is of critical importance for the industry. The responsibility for food safety does not belong to any one participant in the food supply chain in particular. Every participant is responsible for safety measures, as described in the following excerpt from the evidence:

Principle number one is that food safety is the shared responsibility of all participants in the supply chain, all governments, and consumers.[38]

As the regulatory authority, the government is responsible for developing policies and regulations. According to small businesses, these regulations sometimes have a significant financial impact. Small businesses have the impression that they are operating in a regulatory environment designed for larger businesses. To register with the federal government, a small plant may have to spend $150,000 to implement a Hazard Analysis and Critical Control Points (HACCP) system, and will need several employees for its operation. For a larger plant, the HACCP system costs over $1 million to operate.[39]

In addition, witnesses explained that there is some inconsistency in approaches used in inspection activities. Mrs. Deanna Pagnan of Canadian Trucking Alliance, stressed that in Western Canada, inspectors tend to use an educational approach in their inspection activities, whereas in the east, they are more inclined to apply administrative monetary penalties. Representatives of the Canadian Food Inspection Agency acknowledge this inconsistency and recognize that there is room for improvement.[40]

That being said, I want to be very clear that the modernization initiative, including how we propose to do changes to our regulations, etc.... There is a big consultation effort around that and also at the round tables. Many specific issues around consistency of inspection—for example, enforcement processes, etc.—are dealt with at those tables.[41]

According to processing companies, there is still some work to do regarding federal/provincial co-ordination on food safety. Currently, there are federal and provincial inspection systems in Canada. Representatives of the Canadian Food Inspection Agency reassured the industry that the federal and provincial governments are making the necessary efforts to guarantee food safety.

Nonetheless, we work very closely with our provincial counterparts, so there’s a significant amount of alignment. That’s why I think I can say with confidence that Canadians, whether they’re choosing products that are subject to a provincial oversight or a federal oversight, can have confidence that this product is subject to food safety requirements and is subject to an oversight regime that can provide them assurances around its safety.[42]

Recommendation

The Committee recommends that the government continue to work closely with all stakeholders in the food supply chain, including other levels of government, consumers, and major trading partners (especially the United States), to ensure that Canada’s food safety system is effective, harmonized, efficient, modern, and able to adapt quickly to the changing needs of all stakeholders.

In addition to the importance of federal/provincial co-ordination, processing companies also indicated that co-operation with the United States is essential. It is important for the Canadian regulatory system to be equivalent to that of the United States, as there is a risk of losing Canadian slaughtering capacity. Canadian companies have the impression that the United States’ border is thickening. For example, American and Canadian rules on the location where in which inspections of imported meat take place are different and operate to the disadvantage of Canadian exporters. In Canada, meat is inspected at its destination, whereas in the United States, meat is inspected at a dedicated facility. In addition, different regulatory requirements may lead to higher cost for Canadian companies.

In order to ensure the competitiveness of the Canadian agri-food sector, it is essential to resolve the issues regarding the equivalence of the regulatory systems not only with our principal trading partner, the United States, but also with other countries.

Recommendation

The Committee recommends that the government continue its efforts to improve the regulatory environment between Canada and the United States, and ensure equivalence of standards between the two countries.

In Canada, Mr. Gordanier of Canadian Sheep Federation, explained, the sheep and lamb industry has more trouble in accessing veterinary medications than does its foreign competitors. In Canada, veterinary drugs are not always available in a timely fashion due to the delay in approval process. The Committee recognises that there needs to be greater harmonization, and a better recognition of scientific evidence produced in other countries. But the Committee also acknowledges that companies make their own business decisions about the markets they want their products to be approved in.

On the access to medications, we have a disadvantage against some of our competitors because of access to medications or vaccines that they may have in other countries.[43]

Often, the red meat industry perceives the prescriptive requirements as too rigid and likely to obstruct innovation. The Canadian Food Inspection Agency is currently modernizing its regulatory framework to make it more consistent, easy to understand, and risk- and outcome-based.[44] This initiative was welcomed by many witnesses.

Regulatory modernization is welcome and will remove some archaic policies that actually obstruct adoption of improved procedures and technology. Our vision is to have Canadian high-quality beef products recognized as the most outstanding in the world. A regulatory system that allows timely innovation is needed to facilitate continuous improvement. In many cases, this means less prescriptive regulations and more outcome-based objectives.[45]

Although outcome-based initiatives are a move in the right direction, some witnesses believe that they still need to be clarified.[46] One aspect of modernizing the regulatory framework consists of improving the recruitment and training of inspectors so as to make inspection and verification methods more uniform.

In the last budget, in the context of the funding received for modernization, there is a tranche of that funding that will be dedicated to putting together a very systematic, entry-level training for all inspectors. It will be of long duration and will cover all the basics of inspection. It will also have specialization for inspectors who have specialized responsibilities.[47]

2. Research and Innovation

In terms of technology, witnesses believe that innovation and research are essential to both keeping the agriculture sector competitive, and maintaining producers’ ability to adapt. Businesses must innovate, as the agri-food system is changing constantly, as are science and consumer demand. According to the beef and pork industry, research and innovation enable this industry to keep its competitive edge, for example, by lowering production costs as illustrated in the following excerpt from the evidence:

The important research offers ways to reduce the cost of production and enables the industry to stand out. The fundamental commitment is to ensure that research results are transferred to producers, in the form of cost effective on-farm solutions.[48]

Witnesses stated that the establishment of agri-science clusters is making a great contribution to the meat industry. Witnesses firmly believe that innovation and research are success factors for the industry, and expressed the wish to see research clusters continue and support for science strengthened. In addition, the red meat industry has undertaken various initiatives in this direction.

The sector is in the process of drafting a national beef research strategy that will define a five-year national beef research strategy that establishes desired industry research outcomes and improves coordination of funders.[49]

We’re the first, and to date, the only national group to establish a national check-off to fund research and market promotion activities.[50]