Thank you, Mr. Chairman.
We appreciate the opportunity to participate in your study of the service sector. In the next 10 minutes, Ron Reaman and I will provide you with an overview of Canada's food service industry in terms of its size, scope, employment, and performance in recent years. We will also briefly outline the challenges that food service industry operators face and the policy help that the industry needs, focusing on three specific areas: labour shortage, food supply, and the GST.
The first slide shows that Canada's food service industry represents one of the largest sectors of the Canadian economy. With sales of $53 billion, it represents close to 4% of GDP. With almost 63,000 establishments across the country, the food service industry contributes to the economy of virtually every Canadian community.
More than two-thirds of Canadian restaurants, cafeterias, coffee shops, pubs, and caterers are locally owned and operated by independent entrepreneurs. They bring jobs and investment to communities from coast to coast. In fact, restaurants are often the community hub. They provide gathering spots for people, a social club for seniors, a boardroom for small business owners, and a meeting place for community groups. They're the go-to business for most charities. They raise money and donate food; they sponsor little league, fun runs, and summer camps. They believe in getting involved and giving back.
The next slide shows the economic impact of a new restaurant coming to a community, a full-service casual restaurant. I won't go through it, but I will leave it for you to read later.
In terms of employment, with over one million employees, the food service industry accounts for 6.3% of total employment in Canada. More people work in the food service industry than in agriculture, forestry, pulp and paper, banking, and oil and gas extraction combined. An additional 240,000 Canadians are indirectly employed by the food service industry as suppliers, distributors, and consultants. The food service industry provides first job experience for hundreds of thousands of youth, as well as a wide variety of career choices.
The next slide is on performance. Canada's food service industry has faced an unprecedented number of challenges in recent years: SARS, BSE, followed by skyrocketing energy prices, a rapid rise in the Canadian dollar, and a dramatic reduction in travel to Canada. As a result, real food service sales have increased just 3.6% since 2001, compared to real GDP growth of 14.5% during the same time period. There are 1,180 fewer food service operators today than in 2001. The number of international travellers to Canada has fallen 13.3% since 2000, and international tourist spending on food service has decreased 5.9%.
On profitability, food service is a competitive business that operates on razor-thin margins. According to the most recent data from Statistics Canada, rising food and labour costs reduced the pre-tax profit margin for the average operator to only 3.8% of operating revenue in 2005. The average business in Canada, in contrast, enjoyed a pre-tax profit of 8.8%.
Now I'll speak about the challenges, beginning with labour shortage.
The labour shortage is the greatest single issue facing food service operators. In Alberta, higher wages haven't translated into more employees. We're still facing fewer employees. A lack of people means lack of opportunities.
Over the next nine years, Canada's commercial food service industry will require an additional 181,000 workers. While the demand for food service employees will grow an average of 1.8% per year for the next nine years, the working-age population of 15- to 69-year-olds will grow by just 0.9%. Nearly 45% of food service employees are under the age of 25, reflecting the many part-time and entry-level jobs the industry provides.
Over the next four years, however, Canada's population of youth will remain flat, before dramatically declining over the following 11 years. By 2022, there will be 340,000 fewer young people in Canada than there are today. Our industry is confronted with a huge challenge.
How can industry help? It is essential that we modernize our immigration system, and in particular, the point system, so that it recognizes the diversities of Canada's labour market.
In terms of temporary foreign worker programs, we need to offer a bridge from temporary to permanent residency. We should recognize the Canadian job experience that temporary foreign workers acquire, and we should allow them to apply for permanent residency while they're in the country. We need to further streamline the process in the temporary foreign worker program and permit bulk applications. We wish to acknowledge significant progress in the last year in this regard. We would also like to see temporary foreign worker permits extended further. We need to expand the working holiday program to incorporate a larger cap and longer permit periods.
Other ways government can help is through policies that encourage rather than discourage work. Reduce the marginal tax rate for low-income Canadians. We were pleased to see the introduction of the working income tax benefit in the April budget. We'd like to see that expanded. We were also pleased to see the increase in the personal tax exemption. We would like to see it expanded as well, and increased over the next five years to $15,000.
We'd like to see seniors permitted to earn additional income without a drastic cutback in their guaranteed income supplement. Similarly, we recommend that the clawbacks of EI benefits be graduated.
I'll pass it over to you, Ron.
I'd like to take a couple of minutes to speak to the issue of food supply, and in particular, to the current system of supply management in Canada.
We consider ourselves partners with all Canadian producers in Canada, and we have a vested interest in ensuring that there's a robust dairy and poultry sector. I want to underscore the fact that over and above the more than one million employees we employ across the country, we are also responsible for upwards of 20% of all the agricultural jobs created in Canada.
As one of the largest customers for dairy and poultry products, we have serious concerns about the long-term viability and sustainability of Canada's current supply-managed commodity sectors. Canada's closed marketing systems for dairy and poultry have led to a crisis in supply, have stifled innovation and new product development, have shut down export opportunities for all Canadian producers, and have resulted in higher supply-managed commodity prices for customers and consumers alike.
Canadian restaurants buy over $2 billion worth of dairy products every year. This makes us one of the dairy industry's largest customers. As a benchmark, the cost of production, according to the Canadian Dairy Commission's own study, has risen only 1.5% since 1994. The price of producing a hectolitre of milk in this country has actually increased by only 1.4%. At the same time, the price of industrial milk has increased by a staggering 54.5%. As you'll see from the chart I've provided, when you consider this against the consumer price index, which has risen a mere 30.2% during that same 12-year period, the cost-to-price gap is astounding, at nearly twice the rate. Is it any wonder that we've seen a decline in the consumption of dairy, as dairy prices itself off Canadian menus?
The next slide I've provided is a quote. I'd like to read it. It's actually something that came into our website during one of our annual dairy campaigns:
I am a small independent pizzeria operator and one of my biggest costs is cheese. Every time the price of cheese goes up, I have to raise my prices which makes me less competitive. Why do frozen pizza makers get cheese cheaper than I can? We need to make the system fair for everyone.
This is from one of our pizzeria operators in Alberta.
I just want to be clear that restaurants need a level playing field in order to compete successfully in this country. The existing special milk class permit program has created inequities in the system and gives preferential pricing to frozen pizza manufacturers, who pay U.S.-based cheese prices for their pizza cheese. Fresh pizza makers pay 30% more for their cheese, yet they compete directly in the marketplace with frozen pizzas. What I'm asking is to have access to special milk class 5A cheese pricing in order to compete with frozen pizzas in the marketplace.
So what are some of the solutions we see in terms of the supply management system? Clearly, there's a need for reform across the board. As the world's fourth largest exporter of agricultural products, Canada must begin to plan for transition to more open markets. Canada's existing closed marketing system for supply management is outdated and is costly to Canadians. The antiquated legacy systems limit our ability to innovate and promote dairy and poultry products in Canada.
I also would like to highlight that similar supply management systems have been reformed in other jurisdictions, such as Australia and New Zealand, so there is ample precedent and there are case studies on the success of reform.
Thank you, Mr. Chairman. Merci, monsieur le président.
We will be addressing or touching on three areas. One is investing in our people, the second is investing in new technology, and the third is removing barriers.
As mentioned, I am the president and CEO of the Retail Council of Canada, Conseil canadien du commerce de détail. We speak for an industry that is vital to the daily lives of all Canadians. There are more than 227,000 retail locations across our country, directly employing over 2.1 million Canadians. At the end of 2006, retailers generated more than $350 billion in sales.
As impressive as those numbers are, they understate the importance of the retail trade to the Canadian economy. The role of retailing in the economy has changed dramatically in recent years. Retailers are no longer the channel through which manufacturers and suppliers push products to final consumers. As a result of their superior knowledge of customer needs, retailers have become buying agents for the Canadian public.
This change in role has had two major effects. Retailers use the power of their customers' demands to drive other major parts of the economy. Their understanding of consumer needs and wants directs the production and importation of most consumer products and establishes the prices consumers are prepared to pay for those products. This, in turn, defines the cost parameters within which retailers and their suppliers must operate.
You can see this playing out in relation to the increase in the value of the Canadian dollar. If the product offerings of Canadian retailers do not meet the expectations of their customers, as we have all seen, Canadians quickly vote with their feet and their dollars.
Retailers have been responding to the pressure of the high dollar for some time, going back to suppliers and saying, please explain your pricing policies, please explain country pricing, please justify the price discrepancy, and if you cannot do so, we expect you to reduce that gap significantly, immediately.
Our members will keep the pressure on suppliers, but the reality is that currency parity does not mean price parity. There are a large number of factors that can create differences in the final retail prices between jurisdictions, and many of these tend to push prices higher in Canada. Some reflect fundamental structural differences between the two countries, some reflect policy differences, and some reflect competitive factors.
For example, the Canadian market is one-tenth of the size of the U.S. market, which presents scale issues. Labour costs are higher. The U.S. federal minimum wage recently rose in the U.S., as I mentioned, to $5.15 per hour. Transportation logistics costs are higher because of our smaller population and the long distances between major urban centres. Unique labelling requirements, including nutritional, bilingual, and metric, add cost and prevent retailers from sourcing directly from the U.S.
Some of these costs represent a premium we all pay for the many benefits that come with being Canadian. Our members, like all Canadians, value these benefits highly, and we accept and support this premium.
Still, there are things that can be improved to offset or reduce these costs and improve the competitiveness of the retail sector. We are grateful for the steps the federal government has taken to reduce corporate taxation. These measures are a meaningful step in assisting retailers to reinvest in their companies and their people. There are some additional measures that would provide targeted incentives for retailers to make some key investments.
RCC has called for government support for the investments that retailers make in their people and innovative technologies and business practices. We also need government action to remove some of the barriers to the efficient movement of goods within the Canadian supply chain.
Allow me a moment to speak about investing in our people. The RCC has supported the work of the federal government, in partnership with provinces, to improve the supply of labour through changes to immigration policy, new action on temporary workers, and the recent panel appointed by Minister Solberg to work on how to keep mature workers longer in the workforce. As well as increasing the pool of workers, retailers are anxious to retain the employees they have and to improve their skills.
One of the biggest challenges the retail industry is facing today is the cost of training a labour force that is constantly changing. Annual turnover rates are slightly over 30% in the retail sector, compared to a labour force average of slightly over 20%. Some members are now experiencing turnover rates as high as 60% in some regions of Alberta. The constant need for internal training puts a strain on retailers and affects the quality of service that retailers can offer to their customers.
Retailers are doing what they can to improve their retention rates, but it will always be a challenge. Retailers have been able to increase average pay rates faster than the industrial average in recent years, we're pleased to say. Retail hourly wages have risen from a low point of 76% of the industrial average in 1999 to over 88% in 2006, the most recent year for which we have information. The average hourly wage has risen from $12.18 in 1999 to over $15.18 in 2006.
Our members would like to pay their employees more, but the vigorous competition in the trade, driven by value-conscious consumers, makes it very difficult to do so, as we have seen in recent months. Employment is one of the very few costs that a retailer can manage, so these costs bear a heavy burden on the need to be competitive. Retailers deeply respect the smart, informed Canadian consumer, but this consumer also makes it extremely difficult for a retailer to raise its wages above the competitive norm.
One way to boost productivity and retention and improve wages is to invest more in our people. Retail is the place where many Canadians start their working careers, so retailers are accustomed to doing a lot of formal and informal training. Some of this is job and employer specific, but retailers also build a lot of portable skills in their people. The government currently recognizes company investments in upgrading its human resources by permitting the write-off of expenditures on third-party training and education paid for by the company. However, retailers also do extensive in-house training.
RCC would recommend that the government provide tax support for these expenditures similar to that provided for out-of-house training costs. RCC recognizes that there are challenges in defining what in-house expenditures would be eligible. However, Quebec is one jurisdiction that includes some forms of in-house training in its training tax credit scheme, proving that it is possible to identify and support certain defined forms of in-house training. RCC would recommend that the federal government consider providing tax support for these types of training costs.
As regards investment in technologies, information and communication technologies are driving major improvements in retail productivity and dramatic changes in business practices. Working from a small market base, retailers operating in Canada are struggling to keep up with rapid international developments. Obviously the sector could use some help.
The next major wave of change in retailing will be the implementation of radio frequency identification technology in the supply chain, which is RFID. This technology will lower costs and improve the quality of service offered to the customer. However, at this point, the use of RFID in Canadian retailing, and indeed in manufacturing, remains extremely low, largely because it's costly to implement. In order to stimulate investment in these technologies, RCC has recommended some faster rates of depreciation for key investments. The measures we suggest are similar to those used when the GST was introduced, so we know they are doable and we know they work.
In terms of removing barriers, I'm sensitive to time, but perhaps you could allow me to talk about duties, because there was a lot of misunderstanding in the public, and I think also with the members of this committee and Parliament, about how retailers price their goods. While we know many of the prices have been reduced, sometimes at the cost of margins, we also need to understand that this committee, as well as the government, has a role to play, and it's specifically in import duties.
Duties are the perfect example of a barrier, and the perfect example of not having a level playing field with our American competitors. One of the reasons that many consumer goods are more expensive in Canada compared to the U.S. is obviously the higher level of duty levied on imports. We recognize that some duties protect Canadian jobs and protect Canadian manufacturers, but some are pointless. For example, Canada does not manufacture any substantial amount of single in-line skates, but the duty on these products is 18% compared with a rate of 0% when these goods enter the U.S., meaning that a retailer importing these products into Quebec, Ontario, Alberta, B.C.—regardless—would import them at an 18% duty versus his or her competitor in the United States. This is a cost differential no retailer can surmount; no retailer can in fact eat within its profit margin with that duty.
I would add that Canada's rules on the movement of international marine containers, called cabotage regulations, need to be reviewed. Let me just wrap this up and say that our cabotage regulations currently do not reflect the needs of the modern supply chain.
Let me explain. When we're talking about marine containers, we're talking about those 40-foot boxes we see on boats, trains, and trucks, and at the locations of many businesses across the country. Cabotage regulations in Canada do not permit these boxes, so to speak, to enter the country for more than 30 days. They have to come through one port and they have to go out through the same port. The United States allows these containers to come into its ports and to stay within the country for over 300 days and to exit the country through another port, meaning that all of the companies using those containers are saving a substantial amount of money.
I wish I could conclude, and I apologize for not doing so, but hopefully I will have a moment when there's a question.
I have six minutes, so I'm going to split the two questions, one for Mr. Reaman and one for Madame Brisebois.
My first question would be to you, Mr. Reaman, and I have about three minutes. It's on your comments about supply management.
Being a past farmer and a member of the trade and agriculture committees, and having been to Geneva, I often hear from other countries that we're the envy of the world with our food system—and supply management is a big part of that.
It does various things. It keeps stability with a constant supply of food. Many of our farmers have to maintain a higher standard than those in other countries, whether from HACCP programs or other things. For example, many of our dairy farmers cannot use growth hormones, which are used in the States. If you take a cow in the States, they use hormones for it, making the cow produce more milk that's cheaper, but it burns out the cow. So there are all these different factors in play, which our supply management maintains—and our farmers maintain that quality of product.
There are other factors, of course. Our farmers live in a northern climate, where it costs more to produce our product. We can only have our cows on the grass for four or five months. So you can get this cheap cheese out of New Zealand, where they don't have the same costs. The concern is that if you let all these cheap cheeses come in, it's really going to devastate our dairy farmers, because a certain part of their milk is for industrial uses and goes into the cheese market, and if they don't have that market, it's going to really cause a devastating effect. That's my pitch from the farmers' point of view.
Also, there have been studies done on this, and there's no doubt that when you go to Washington or Detroit, there is some cheaper milk and cheeses. A lot of them are loss leaders, but if you take a basket of dairy and poultry products in Boston compared with Montreal, there's only about a 10% difference.
So that's my statement, but my question is, shouldn't the restaurant and food service organizations be concerned if they are pushing for eliminating supply management? Aren't they concerned about what they're doing to our rural economy and farmers, and about their future food supply--because there have been studies done lately showing that the first thing that matters to consumers is not price. They want to buy local food; they want to buy safe food; they want to feel they're supporting their local farmers. Just recently I was in Quebec City, and it's nice to know that all these products we have in our country we can eat right here.
So I'm just concerned about the food service industry pushing that way. Is there a concern from their side about how they could devastate our rural economy and our farmers?
Thank you for your question.
The first thing I want to say is that we are absolutely in support of, and we consider ourselves to be a partner with, both the dairy and poultry as well as every other agricultural commodity group in Canada. We are by definition the first and/or second largest customer of those products, next to grocery retail, as we are the primary/secondary sales channel for those products in Canada. We rely on fresh local product, and that's not going to change regardless of what happens in terms of supply management reform.
The other thing I want to say is that, with all due respect, I'm trying to be a little bit provocative in the sense that I want to stimulate discussion around this issue. I've found for far too long that I've been involved in this discussion there is a singular monolithic take on what it means to be a farmer in Canada, when there are great distinctions to be made between the various commodity sectors.
While there are some benefits to supply management, I will concede, what we are looking for and advocating is reform. I don't want to throw the baby out with the bathwater, but at the same time, when you look at the way other countries manage their agricultural commodity sectors, we have lessons to learn from some of those countries. I think there's lots of room for improvement. At the end of the day, food is what we do, it's what we sell. It is our business, so it's imperative that we have efficient, technologically advanced, competitively priced commodities to sell in order to sell those products.
The message I really want to deliver to this committee, which I believe is responsible for industry, science, and technology, is that in an increasingly global marketplace we have to start to look at some of the other jurisdictions that are doing things a little bit better and look at them for examples of reform. I think there's lots of room for improvement here in Canada.
I do not think there is a specific percentage that could... In our industry, there is probably a percentage, but even there, it probably depends on the category of product.
Let me explain what I mean. An effort must be made to eliminate tariffs, particularly import duties, particularly if they are not protecting industries that are supposed to be protected in Canada. In comparison, we could say that—
It's not a level playing field.
Our industry certainly agrees that people must pay a premium, and we are very proud to do so. However, as regards taxes on imports, that makes no sense.
There is an interesting point about prices. It should be understood that—and consumers do not understand this—most retailers in Canada, even the largest ones, do their purchasing through distributors in Canada. That means that if you want to buy Nike running shoes, even if you are the largest retailer in Canada—without mentioning any names—you have to go through Nike Canada, not Nike U.S. The same is true of all our retailers.
As retailers, we would like to be able to eliminate import duties and to negotiate with manufacturers located mainly in the United States and with their distributors in Canada to ensure that if there is a rise in the Canadian dollar, we will be able to benefit from the savings and pass them on to consumers. But that is not what happened.
A preliminary study shows that the percentage attributable to the cost of living in Canada compared to that in the United States is about 15%, assuming we eliminate unnecessary import duties.
Thank you, Mr. Chair, and thank you to our witnesses for joining us today.
I appreciate the time you've taken to enlighten us on some of the policy issues that confront your industry sectors. In fact, the purpose of our looking at the service sector is to help us, as parliamentarians, understand better the complexities of the service industry, how this sector strengthens Canada's economy, and how it provides opportunity for Canadians. So I'd like to shift slightly to that line of questioning.
I have many questions, actually, so I hope there'll be sufficient time.
Both of you in your presentations mentioned the degree to which your industries, through the course of your sales, are in fact purchasing commodities other than goods for sale. You're in fact engaging information systems. In other words, the indirect benefits that come to the communities in which your members operate are spinoffs.
Joyce, I think you mentioned, for example, that for a new restaurant in a local economy there is some $5.2 million in spinoff spending. I don't know what the gross was for that particular restaurant.
I'd ask you both to comment on two things. First, what is the degree to which this multiplier effect occurs in your communities? How many other businesses do you employ and support?
The second is with regard to training. How much are you actually spending on training to improve things like average wages, and how much have you been asked, as an industry, to address those issues to advance better, higher-paid occupations for your workers?
So my questions are on those two fronts. Take a minute or two each, if there's time. I'll ask Joyce first, or whatever you decide.
Thank you very much, Mr. Chair.
I've been enjoying this discussion. I'm not usually a member of this committee, but I'm finding this a very interesting discussion.
I am noting the increase in average weekly earnings for food service employees. Of course, I'm a western member--my riding is on Vancouver Island--and some of the problems that retailers and the food service industry are experiencing in Alberta are certainly hitting British Columbia in a significant way now, particularly on the island, where we're well known for having a large retirement community. In that regard, we're seeing a lot of seniors actually working in the retail industry and also in food service to supplement their retirement incomes, as is increasingly happening where there's a shortage of labour.
Anyway, I'm pleased to note, in the average for Canada, a 9.4% increase for wages over last year. Considering the competition in the industry, that's quite remarkable. In British Columbia it's 9.3%, so it's a very positive thing. We know Canadians do like to eat, we're very social critters, and we do like to shop.
I am wondering about this good news story, though. I know it's certainly a challenge providing employees with training and then seeing them go to another job, particularly in Alberta—and it's happening. It's frustrating for many of our service providers. The employees just get them trained, and zoom, they're gone. That's certainly a problem.
I guess it's market fluctuations. Eventually it will sort itself out. In B.C. I would certainly say it's being helped by the entrance of some retired people.
I wanted to ask you this, though. How is that going to sort itself out? Do you see these trends across the country? You have more people coming into the industry that way. What solutions do you see in that sector?
Perhaps another thing you might comment on is that more Canadians are travelling at home. We certainly see that on Vancouver Island, where there's an influx. Maybe there are fewer Americans, but there are more Canadians travelling at home and spending at home.
Members, I want to take a few minutes and ask some final questions and perhaps drill down into some of the specific recommendations. I'm glad Mr. Simard mentioned that, because that was one of the things I was going to ask.
We did recommend a tax credit in the manufacturing report—for manufacturers, obviously. We could look at it beyond that, but the answer some of us get back is that it's difficult in the way you actually measure that, particularly when people move from company to company or industry to industry. It's difficult to measure how much a company actually invests in training, in terms of measuring it from a government point of view, and then how to credit that. You don't have to answer that now, but any information you can provide on that would be very helpful to us.
I do appreciate very much, as a western Canadian and as an Albertan, the fact that you've highlighted the labour shortage issue. It's something we try to tell our fellow members of Parliament. You can walk into a restaurant that's one-tenth full and the manager comes to you and says, “I'm sorry, we can't serve you. I don't have enough people today. You'll have to go somewhere else.” That happens daily in Edmonton. It's a message we try to pass along to our colleagues.
Along those lines, then, I did want to make sure we have the specific recommendations.
Ms. Reynolds, in your presentation you talk about revising the point system for citizenship and immigration to better match labour market needs, the CIC criteria. Then you talk about temporary foreign worker programs and bridging, so that if someone comes here on a two-year program and works for two years and perhaps their employer says they are a very good worker, they can then stay within Canada and apply for permanent residency from within Canada as they're finishing that program. Is that what you're recommending?
Also, in terms of the temporary foreign worker program, that's the biggest issue I am approached on by businesses out west. The number of applications has gone up dramatically. So do you have any specific recommendations in terms of how to streamline that—labour market opinions, perhaps?