Thank you very much, Mr. Chair. Thank you, everyone, for the invitation to speak to you today.
Canada needs manufacturing as a strategic economic sector because, as an advanced country, we need to create and produce things. The ability to create new value is a key indicator of the technological progress of a country. More important, manufacturing has an enormous ripple effect on the other industries, especially transportation, finance, trade, and services, which employ large proportions of our society.
As we have also seen in the United States, Canada's manufacturing sector has dropped in the last 20 years from 25% of the nation's GDP to 10% today, mainly due to external forces, and most significantly because of globalization. We did not anticipate how quickly global competitors would be able to build up the infrastructure to compete on pricing and delivery. In the mix, business is facing growing challenges, including electricity pricing, pension programs, and environmental policies such as cap and trade.
Regardless of the source of challenges, it is no longer enough to develop new products; we need to also develop new markets.
The future lies in high-value production, embedding cutting-edge technology in our products. In an era of clean energy technologies, self-driving cars, and digital infrastructure, Canada can define its place in the global marketplace through quality, safety, and dependability. Above all, we need a continuum of resources and infrastructure to enable Canadians to design, make, and market new products. This will require a coordinated effort, a national effort across education, infrastructure, procurement, and trade policy. What can Canada's universities do to help?
First, education's impact is direct. We need to develop a real talent pipeline for high-level skills and creativity, so our students are equipped to impact the world from the day they graduate, or sooner.
At Waterloo, for example, all 12 of our engineering programs are co-op, so every student graduates with at least 20 months of hands-on work experience. In 2015, our students earned $120 million, working with 1,700 employers. Where our students work also indicates the dynamism of the sector. Every year about one-quarter of the 8,200 positions are in manufacturing, providing continual injection of new ideas and energy. Meanwhile, our students become experienced, job-ready engineers. Their employment rate post-graduation is over 95%.
Skills and education must reach further than just students and entry-level workers, however. The pace of technology innovation and adoption is ever accelerating. Existing workers and management in both SMEs and major industry need opportunities to explore new ideas and retool for new skills. We need an initiative that would allow industries into our education and research programs so that they can get hands-on experience of new technologies for themselves—a reverse co-op model, of a sort.
As Harvard business professor Michael Porter has stated, “innovation is the central issue in economic prosperity”, and the competitiveness of a country is directly tied to the ability of its industrial complex to “innovate and upgrade”.
To make this a reality, academia needs to engage more effectively with the manufacturing sector. Universities have already begun to do so. Half of Waterloo engineering research, for example, is funded via partnership programs. We have over 1,000 private sector partners, and we have translated hundreds of new technologies to industry.
While successful and important, however, these projects cannot transform private sector R and D by themselves. Many are funded for a limited duration, for work with a single partner toward a particular objective. Opportunities for networking and wider collaboration are restricted. On the other hand, funding for more ambitious programs can take years to assemble, making partners reluctant to invest and leading to missed opportunities.
In contrast, some of the most successful initiatives are much broader and more inclusive. We have a number of research centres, but I will use the automotive area as an example, since it is the most organized in the field of manufacturing.
The Waterloo Centre for Automotive Research, or WatCAR, has grown to become Canada's largest automotive academic enterprise. It acts as a magnet not just for car manufacturers like GM, Magna, Ford, Toyota, and Honda, but also for assemblers, parts suppliers, and regulators. With programs in connected and autonomous vehicles, lightweight materials, vehicle safety, green energy, and more, it allows all partners, big and small, to access a spectrum of expertise and know-how to help them adapt for tomorrow's automotive sector.
The upfront costs of development in producing a new product or manufacturing processes are large. Equipment can be highly specialized, and validation and certification expensive. This is a huge barrier for small business and it's why large corporations like BlackBerry, Bombardier, and Magna dominate R and D in Canada. Nevertheless, more than 95% of Canada's manufacturing firms are SMEs. They will need to adapt and innovate. We need to create innovation anchors, and also hubs like WatCAR, for world-class product development and validation where research infrastructure and expertise are open to all Canadian companies. These centres can be test beds for developing new platform technologies that are adapted for partners' needs. They welcome established technicians, engineers, regulators, and managers looking to explore and practice state-of-the-art technologies.
Innovation hubs should bring everyone to the table for networking, exchanging ideas, and seizing opportunities for integration and collaboration for large corporations that can invest strategically in Canada, SMEs that need to innovate and secure new customers, startups and entrepreneurs looking to scale up, regulators and the public sector seeking insight into tomorrow's industries and products, and researchers and students looking for new challenges with a real-world impact. Government can play a crucial role by seeding this kind of innovation.
We, as a country, cannot excel in everything, but some platform technologies will be vital for protecting Canadian companies and jobs in the global marketplace. Examples include advanced sensing and digital manufacturing, sustainable materials, flexible electronics, and the visualization and computational modelling of manufacturing processes. Autonomous vehicles and connected cars will revolutionize our established automotive and transportation sectors.
I'd like to quickly highlight two newcomers.
Mobile and autonomous robotics are expanding rapidly. McKinsey estimates the market will be worth $200 billion within 10 years. In Waterloo, mechatronics research has spawned some of the country’s most promising new robotics companies. Clearpath Robotics and Aeryon Labs, for example, have created hundreds of jobs in just a few years of operation. Aeryon drones helped firefighters scout the recent forest fires in Alberta, and Clearpath is expanding into industrial markets with their autonomous warehouse robots. They are investing in research to build a new generation of products, and they're being joined by many start-up companies in an emerging robotics innovation cluster.
Additive manufacturing and 3D printing meanwhile are just approaching the mainstream. International companies like EOS, GE Aviation, Rio Tinto, and Rockwell are lining up to partner with Waterloo engineering on research and development. At least five other Canadian universities are developing this capability. In the years to come, hundreds, if not thousands, of SMEs will need to incorporate 3D printing into their workflow.
The innovation index of the World Intellectual Property Organization, or WIPO, shows Canada slipping from 11th place in 2013 to 16th place in 2015. Germany, and now the United States, is leading the way in merging information technologies on the Internet of things and manufacturing process technologies that drive the next generation manufacturing enterprises.
While there are pockets of strength within Canadian industry and academia, we need a big “I” consolidated national initiative. We need a strategy for developing, demonstrating, and deploying select platform technologies, so they can be accessible to SMEs and large Canadian companies for commercialization. This is a vision that the manufacturing sector has been seeking and one that universities like Waterloo are eager to embrace.
Thank you very much.
Good afternoon, Mr. Chair and committee members. As you identified, I'm Leah Olson. I'm president of the Agricultural Manufacturers of Canada. Our board chair, Geof Gray, sends his regrets for not being able to attend.
I'd like to provide a few remarks before the floor is opened for questions.
I'm pleased to be here as you continue your study on manufacturing in Canada. It's an important one, and I want to share with you the critical role that agriculture equipment manufacturers play in today's economy.
The Agricultural Manufacturers of Canada is a national member-driven industry association with just under 300 members. Our mission is to foster and promote the growth and development of the industry in Canada.
Canadian-made agriculture equipment is among the highest quality in the world. Just over 50% of our manufacturing members are located in communities of fewer than 10,000 people. Some of our members are located on the family farm or in communities where the people they employ outnumber the community they're in.
For example, Westfield, founded in 1951 by Abraham Plett, a farmer turned manufacturer, is a leading producer of grain augers. Westfield, acquired by Ag Growth International in 2000, continues to have its manufacturing facility of approximately 175,000 square feet in Rosenort, Manitoba, a community of fewer than 600. Their products are exported to over 30 countries worldwide, and they employ approximately 250 people at their plant in Rosenort.
Seed Hawk, a manufacturer of seeders, was established in the early 1990s when Pat Beaujot, a professional agronomist with a passion for precision seed and fertilizer placement, wanted to avoid tilling his farmland but did not have the equipment on the farm to fit his needs. As such, he and two partners developed and began manufacturing equipment to enable them to employ no-till technology. Today, Seed Hawk is majority owned by a privately held Swedish company, Väderstad. Despite the ownership change, Seed Hawk continues to be located in Langbank, Saskatchewan, a hamlet with a population of fewer than 100, and they employ more than 200.
These are not isolated examples; rather, they are the norm within our industry. We provide unique employment in all realms associated with being a quality manufacturer: finance, marketing, IT, engineering, procurement, etc.
All across Canada, agriculture equipment manufacturers are making a positive economic impact, but they are not immune to global market downturns and job losses. While there have been some employment reductions, it is not consistent across our industry. In fact, with a global downturn, most of our members, small and medium-sized, have turned to increased R and D and made efforts to reduce their input costs rather than seek out government subsidies.
The key role the government can pursue for agriculture equipment manufacturers is to enable further innovation by providing tax rebates supporting R and D and the commercialization of our products in Canada and globally.
Machinery has been at the heart of Canadian agriculture for many years. It shaped agricultural practices and, in many respects, created the opportunity for rapid European settlement in the late 1800s. The agriculture equipment manufacturing industry has progressively developed as an entity separate from commercial or industrial manufacturing.
Central to this evolution was the need to develop agricultural machinery capable of meeting the challenges of our Canadian climate. This drive for innovation was critical to farmers who struggled with foreign equipment designed for smaller farms and less arid conditions. These same challenges have enabled Canadian agriculture equipment manufacturers to be global leaders in the development and production of high-quality, durable, and innovative machinery.
Innovation is crucial if we want to address global issues such as overpopulation, limited resources, and the need for food. The agriculture industry will need to produce more with less, and Canadian farmers are at the forefront of meeting this challenge. AMC's members continuously develop innovative technologies and manufacture products that enable us to be leaders throughout the world. This puts us in a good position to align with and inform the government's innovation agenda.
Our industry is unique, not only in that it's developed in Canada, but also because it impacts food sources globally. Our products help feed the world. Our environmental footprint is better today than 30 years ago because of the equipment that we have built and that we are using.
Our members lead the world on intellectual property of agriculture equipment. Innovation happens every day because our members are talking directly to farmers and responding to their needs by further refining and enhancing their products.
For us, innovation is not just a way of being or something that happens in an isolated facility. It is how we manufacture and manage our day-to-day operations. It is what drives us to develop some of the best agriculture equipment in the world.
Although our sector innovates regularly, there are some areas that could be improved, which I'd like to discuss with you.
First, I'd like to speak about the industrial research assistance program. The $50 million in additional support allocated to IRAP in the 2016 budget is an important investment in moving the innovation agenda forward, and we applaud this. It has helped our members tremendously.
For example, as one of our members highlighted: “We were given an IRAP grant last year that allowed us to do some testing with the Prairie Agricultural Machinery Institute (PAMI) on a new product destined for the European Union. That product testing identified a fatal flaw in one of our components and allowed us to stop installation and adjust our product development direction into something that worked.” They continued: “Without the IRAP funding, we would not have been able to afford the testing. The test was expensive and we had put [all of] our money and energy into the design and development of the prototypes. While the testing year wasn't pleasant due to the identified failure, the results could have been disastrous for us if the product had made it to the [European] market without this test and instead of costing us a few hundred thousand dollars to right the problem it could have easily cost us millions.”
Small and medium-sized enterprises benefit greatly from the IRAP program. Often, it is the difference between launching an innovation, leaving it on the research floor, or launching it without due testing. However, we'd like to see IRAP expanded to cover production and marketing costs of projects, which would help grow our industry even further and contribute to an innovative economy.
Another program that is beneficial to approximately 60% of agriculture equipment manufacturers is the scientific research and experimental development tax credit, SR and ED. However, administrative costs associated with it are increasingly burdensome, resulting in research and development becoming more challenging. The process to make a submission to the program needs to be streamlined if the objectives of the program remain to reward innovation.
Of our members who use the SR and ED program, many are frustrated with the submission process, indicating that it is confusing and often requires professional outside help to do the applications. Often, members will pay anywhere from $30,000 to $100,000 to get the application done. If you assume that 10 of our members hire external consultants for their submission, the combined amount is upwards of $1 million going into administration costs rather than innovation itself. Perhaps it is the cost of doing business, but these are dollars that we would rather see invested in R and D.
Innovation in our industry is incremental, and it's these small steps that allow for the leaps and bounds to occur. We encourage the government to not only streamline the process, but to also have auditors who understand the agriculture equipment industry.
Finally, I'd like to speak about market access.
Export Development Canada is a key player for many of our members, and we thank them for their support.
In 2015 agriculture equipment manufacturers exported 1.8 billion dollars' worth of products to 154 countries; the U.S. was 82% of this. This is why we're keen to see the trans-Pacific partnership agreement ratified, and we want to work with the government on communicating to the public the importance of stronger and more open trade relations.
Innovation minister the Honourable recently said in a speech, “As a country made up primarily of small businesses, I'd like to see more than 10% of them exporting, and to places other than the U.S.”
Mr. Chair, we agree. Australia and eastern Europe are key markets for Canadian agriculture equipment manufacturers. Our equipment performs very well there, but there are also great opportunities in South America and Asia. The government could do more to support our efforts at international farm shows and in working with us on challenges that have been overlooked, for example, visas and getting entry into a country more easily to market our industry's products. Continued investments, promoting international trade, and bringing international buyers to Canada are key to our continued growth.
In conclusion, Mr. Chair, Minister has said that innovation is “the path to growth” and the path “to a stronger middle class and higher quality jobs for all Canadians.”
Mr. Chair and committee members, we could not agree more. AMC members help drive the Canadian economy, are global leaders in innovation, and are entrepreneurs who are feeding the world. That's why changes to IRAP and SR and ED, as well as opening up international markets, are integral to Canada's innovation future.
Thank you. I appreciate the time you have given us.
First of all, I'm not an expert on trade. I think I have to be cautious in how to proceed on this answer.
I've heard from people, and there are always people who support us, as well as people who are detractors in the area of trade. I do think that in the globalized world it's absolutely necessary. We do need to be part of the world supply chain. We absolutely have to because if we can't sell and we can't buy certain things, then we cannot progress. Let me give you an example.
When you're talking about trade, you're talking about large volumes, right? Let me begin by saying that we just heard, maybe two days ago, about a company called Thalmic Labs. It's a company that was started by students who graduated in 2012 from a mechatronics engineering program. They were 23 years old when they graduated, and two days ago, they received $150 million U.S., as series B funding, to expand the manufacturing of their wearables.
What does that mean? They spent a lot of time in China and Korea trying to find suppliers for their product when they were trying to get started. What they did, and we worked with them closely, was they ended up producing all the parts in Canada. The supply chain is in Canada. After all that work, and after one year looking for suppliers, the only piece they make outside Canada is the chip from Korea. That's the intellectual piece.
This is what my point is. We have to make the intellectual piece and not just the other pieces. The fact that we are competitive enough to be supplying to Thalmic Labs is wonderful, but we have to make the chip.
Thalmic Labs is going with 100 people right now. These are three young men, all 26 years old, and they're going to hire 100 people. They're going to double up in the next year, they said. They have to find 100 people in the next year.
The manufacturing is right in a little shop half the size of this room, and they're making parts. They're selling hundreds and hundreds of these wearables.
I do think that it has to go both ways.
Thank you for that question.
Before I came here, I had a one-hour meeting with Leslie Klein, the CEO of C-COM Satellite Systems, which is right here in Ottawa. Mr. Klein has done research with us in the area of antenna systems for the last few years. Recently, together with the NSERC program, we got together for a very large, five-year collaborative program to take this forward together.
What is this project? Think about how the world is moving, the world of mobility. Right now, we are developing a mobile antenna. Here's what it means. The antenna you think of is a nice big dome with wires sticking out, and there you collect your information and you're able to watch TV or listen to radio. We have developed a printed circuit board that will act as an antenna. The next stage is how to make sure that it can be scaled up and implemented in homes and in cars. Our plan is to put it on top of the roof of a car, so that any car that leaves an area that has Wi-Fi or Internet broadband access in the city can go to a rural area and still have Wi-Fi and Internet access. It's a tremendous opportunity in terms of changing the landscape of mobility.
What's important here is this. C-COM designs antenna systems. They don't make antenna systems. They design them, but they're built in Canada, with 7,000 sold every year to 106 companies around the world. My question to him was, what happens next? He said that if Waterloo can pull this off, we will sell millions. I asked him how he was going to make them. He said that the only people who have come to talk to him so far are the Chinese. They have found him, and they have offered their hand to manufacture millions of these antennas.
I said to him,“Leslie, do not talk to the Chinese.” I have nothing against the Chinese, but “please don't”, I said. As for what he should do, I said, when we're ready, and we will be in two or three years, let's get the government and the other supply chains together and let's work in a room to figure out how to build the new market. It's going to be a new market in making antenna systems. We'll integrate it so they can be pulled off the shelf at Canadian Tire and stuck on the top of your car. That's what we should think about. We have to bring all the players together to make it here. The technology is here. It was developed here. Bell did that right here in Canada, and now we are licensing Wi-Fi and telecommunications. We have to make sure that we get to Mr. Klein first.