Mr. Chair, thank you for inviting us to join you this afternoon to provide you with an overview of the agriculture and agri-food sector in this country. We have just circulated a document.
I'm going to turn to Kara and Marco to walk you through that very quickly, to allow as much time as possible for questions.
Before I turn the floor over to them, though, I would simply begin by acknowledging that we're well aware that 2019, and indeed, the early weeks of 2020 have been a difficult time for many in the agriculture industry for many reasons, ranging from uncertainty and volatility in global markets to unusual and extreme weather events, to disruptions in the country's transport system.
Notwithstanding those very real near-term challenges, when we, and many in the industry and many independent analysts, look to the medium and longer term, we are very excited about the potential of this sector to sustainably contribute to growth in the Canadian economy. When we look at projections for growth in global population, growing global wealth and what that will mean for food demand in the years and decades ahead, we share the view that these create very unique opportunities for a country with Canada's knowledge in this sector, as well as our endowment of resources such as land and water.
With that, perhaps, I will invite Kara to very quickly walk you through the first few slides of the deck.
I'll start on slide 3. I probably won't touch on all of the slides, but we'll briefly go through a few of them.
Slide 3 demonstrates the agricultural sector's contribution to GDP. In 2018 it was $143 billion, making up 7.4% of total GDP. That includes the entire value chain, everything from input suppliers, such as fertilizer companies, all the way through primary and processing industries and including your restaurants and grocery stores.
We had a very strong decade in the agricultural sector leading up to 2018, setting income records for farmers in eight out of the ten years. Leading up to 2018, there was very strong global growth, we had good interest rates and exchange rates, and world prices were climbing pretty much the entire decade.
Leading into 2018, however, we saw a significant decline in farm income. That was due mainly to increases in expenses. Generally, every year we see some expense categories increase and other expense categories decrease. In that particular year they all increased, all at the same time. Despite the fact that we saw receipts on farms go up, expenses went up more significantly and led to an overall decline in income.
We don't have final numbers yet for the year that just finished, but for 2019 we are expecting to see a stabilization of farm incomes, and then, hopefully, a rebound leading into 2020.
Slide 4 goes into a little more detail, whereby you can see, across the board, those increases in expenses. There is no one expense that explains the overall increase; it really was spread across all categories of expenses.
Slide 5 shows the interconnected relationships along the entire value chain. I would also say here that the sector is very diverse. Depending upon the province or region you're in, different segments of the agricultural sector are more important, either in terms of products being developed or of whether that region is involved more in primary agriculture or in the processing sector.
Slide 6 shows a little bit of information about the department and how we function and indicates some of our priorities. I won't go through the slide in any detail, but it's there for your reference.
The case is the same with some of our minister's mandate letter commitments. Those can be found on slide 7.
In slide 8 we touch on our relationship with the provinces, as agriculture is a shared jurisdiction with the provinces. While the federal government has several levers to initiate change and to tackle various problems, we have to work in concert with the provinces, which have other levers. In going into changes to programs, for example, this is a relationship that's very important to maintain and build, in terms of both priorities moving forward and ways to tackle these matters.
With that, I'll switch over to Marco.
Thank you very much, Kara.
On slide 9, notwithstanding the challenges mentioned by Tom at the beginning of the presentation, many people in the sector see this sector as having significant potential for economic growth. About two years ago a business-led table formed under the Agriculture and Agri-Food economic strategy table defined five key specific areas that the sector should continue to work on.
Those were regulations; infrastructure; continuing to look at diversifying our markets; thinking about innovation, which is really important for our sector; and of course thinking about our labour and skill sets not just now, but also into the future.
We think about the context of additional real opportunities for the sector. We know on slide 10 that global food demand has been increased by 50%. We think we're ready for that.
We also have to take into account consumer interests and trends that we're seeing. We can certainly talk a little about protein and some of the things we're doing in the context of innovation and superclusters.
When we're thinking about science and emerging digital technologies we should think about big data, precision agriculture, and automation and digitization really taking hold in the sector. We think we're well positioned. We know that trade is a very important aspect of the agriculture sector, and we need to ensure that we're on top of that.
Of course, from a productivity perspective, we are looking at opportunities in climate change also.
Turning to slide 11, again I mentioned reliance on exports. One of the things I should mention that the economic strategy table talked about was to look at both the domestic market, taking advantage of our own market, and also at how we can diversify our own markets globally. Most of you know that we are the only G7 country with trade agreements with all other G7 members. That's really an important feature of our export strategy.
We certainly look at engaging our international standard setting bodies, including the WTO when required.
Slide 12 gives you a bit of a perspective on our export strategy and our exports to countries that we have FTAs with and that we don't have FTAs with. You will see the mix. Just over 75% of our exports go to countries with whom we have FTAs. It gives you a bit of a place marker on our export strategy.
Slide 13 provides some perspective to what that Tom mentioned with regards to some current market and production challenges that we see in the context of global trade. Certainly in some of the recent disputes, we have seen pork and beef prices fluctuate. We're also seeing those prices rebound over the last few months. Tom talked about the weather events that took place in late 2019 and early 2020.
On slide 14, to Kara's point, we are still seeing some underlying strengths. We are seeing exports continue to grow, reaching $67 billion in 2019. We did see significant growth in our food processing sector over the last few years, close to 12.5% until the end of 2018. While we did see some decline in canola exports, we certainly did see some increases in fish and seafood, beef and pork products.
Slide 15 provides a little perspective on our food processing sector. Looking at sales over roughly the last 10 years, again, we've had a steady increase, which is very nice to see. We think this is an untapped area. We certainly think we can do more in the value-added space as well.
Slide 16 provides a little perspective on the distribution of our food and beverage processing shipments. I think we do need to remember that the number one market for our primary agricultural products is the domestic market, representing 42% of primary production. It gives you a flavour of the percentages over 2018, from meat to seafood to baking and, of course, grains and oilseeds.
Next we have a bit of a perspective of the distribution of farms over the last 50 years. We've seen some changes. The average farm size has doubled. The farm value per acre has quadrupled. We have seen a consolidation of a small number of very large farms, with the largest 8% of the farms accounting for over half of farm cash receipts.
That gives you a flavour of the distribution and the breakdown from a farming size perspective.
Next are some demographics in the context of the next generation of farmers. One-quarter of the farm operators are 65 and older. And there are some statistics in the context of women operating farms, as of 2016.
We do need to continue to focus on new entrants to the agriculture community, for sure.
I'm sure the committee has heard of the labour challenges. We tend to look at the labour shortages not necessarily in the here and now, but also at the new skill sets that are going to be required. If you're thinking about technology and precision agriculture, automation, digitization, that will require a new skill set and so we want to make sure that those coming into the agriculture sector have, and can take advantage of, those new technologies in the workplace. That gives you a flavour of the use of automation.
With regard to temporary foreign workers, the government has made some changes. We've included some rural pilots that will, hopefully, help for both the processing and the primary sector.
I believe I will turn it back over to Kara on climate change.
I have a couple of final words on environment and climate change.
As you can see from slide 20, overall GHG emissions from the sector have been fairly static over time. This is despite the fact that overall production in the sector has risen over that same time period. We often talk about GHG emission intensity, which has declined fairly significantly, and this is through efficiencies in the sector and the adoption of new technologies and new practices over time that have led to more and more GHGs being sequestered in agricultural soils over that time period.
The challenge, though, has been getting the overall GHG emissions to start heading down, so that overall emissions go down at the time as we continue to increase production over time.
There are lots of challenges, but there are also some opportunities that come with climate change for Canada and agriculture. Some of the challenges are extreme weather events that we see more and more and the impact they have on both animal and crop production, as well as the increased incidents of pests and disease with warmer temperatures.
There have been some opportunities that have been taken advantage of, with longer growing seasons and the ability to start moving more production farther north. We have seen soybeans spreading from Manitoba and across the Prairies, and this is in reaction to slightly longer growing seasons as well as technologies allowing soybeans to ripen more quickly and be grown in Canada. This is a crop that we've taken advantage of, as well as other adaptations to grow different varieties and different types of crops that have increased the ability overall to increase income.
Canada is well positioned with our abundance of fresh water, which is really where climate change is having an impact around the globe on different countries' ability to produce various crops and animals.
I'll leave it there. I think we've touched on a lot of different topics across the agricultural sector. We probably could spend an hour on each of these topics, but that was a brief highlight.
Good afternoon, everyone.
Thank you for the invitation.
We're glad to be here today to give you some context on our programs. There are three things that I would like to talk about here in the few minutes that we have.
The first is to provide some context on the history of agriculture risk management programming in Canada, because there is quite a significant history there. Second, I will provide an overview of the existing program suite. Finally, I would like to outline the work under way with our provincial and territorial colleagues to evolve the programs to meet the needs of Canadian farmers.
Canada is one of the largest agricultural producers in the world, as we heard just now. It generated over $143 billion of Canada's GDP in 2018. Agriculture is at the centre of Canadian identity, and is a key to our long-term prosperity. For these reasons, there is a long history in Canada of government support for risk management in agriculture. Crop insurance, for example, has been in place in some form since the 1950s.
In the 1980s and early 1990s, risk management support for this sector was characterized by a series of regionally specific and commodity-specific programs. During that time there were also a number of ad hoc programs that responded to specific needs, but they didn't necessarily provide longer term program solutions. In addition, during the same time, a number of international trade actions were taken against the Canadian livestock sector in particular, due in part to differing support in the agriculture sector across commodities and regions. These events led to efforts to better standardize support for the sector, including the creation of the first agriculture policy framework with our provincial and territorial counterparts, which started in 2003.
That's a bit of history for you. Indeed, it goes back to the 1950s, but in 2003 we started with the new agricultural policy framework. This landmark agreement was the first in a series of five-year policy frameworks. We're now in the fourth of those policy frameworks. It established a set of cost-shared business risk management programs alongside investments to help the sector grow as well.
The issues relating to risk management programming have continued to evolve since that 20-year period when the program framework was put in place. Under the first two framework agreements, dating back to the early 2000s, the focus of program support was very much on income stabilization, although evidence emerged over time that government support was covering what would be considered to be normal business risks in many cases and was slowing innovation and adaptation in the agriculture sector.
Also at this time the sector was experiencing a period of rising commodity prices and therefore was seeing higher levels of profitability than it had in the past.
As a result, governments agreed to reallocate some support from business risk management programming into proactive investments in the sector to promote innovation and growth.
ln 2017, federal-provincial-territorial governments agreed to continue to focus risk management support on severe loss and disaster under the Canadian Agricultural Partnership, in order to help producers manage those risks that threaten the viability of the farm. ln addition to the significant investment in risk management, the Canadian Agricultural Partnership also includes a $3 billion investment in broader initiatives to help the sector grow, innovate and become more competitive.
The current business risk management programs are intended to function as a suite. Now I'm just going to outline what they are. It's not necessarily expected that every producer or farmer would use every one of these programs. They are intended to do different things, and farms work in many different ways.
There are five. The first one is AgriStability, which was already mentioned in your previous session. It's a whole-farm program that provides support to farmers when they experience a large income decline.
AgriInvest is the next one. It's a government-producer matched savings account that producers can draw on at any time to help manage income declines or increased costs or to make investments on their farm, so it's quite flexible.
AgriInsurance, often called crop insurance, provides subsidized insurance for production losses primarily for crop sectors, which helps protect farmers against natural perils such as drought, flood and disease.
AgriRecovery is a framework program that allows the two levels of government to work together to assess the impacts of an unexpected natural disaster, pest or disease event. Where appropriate, governments then develop initiatives to provide support for the extraordinary costs required for farmers to recover from the event.
Then finally in our business risk management programs, we have AgriRisk initiatives. These are available to help the sector investigate new risk management tools and approaches that can help support piloting new programs. For example, the western livestock price insurance program, which was developed a few years ago, is available to cattle and hog farmers in western Canada, and it's currently funded through that AgriRisk program.
Together these programs do provide significant support for the agriculture sector. They are federally and provincially cost-shared in a sixty-forty ratio, and in total they have averaged approximately $1.5 billion over the previous five years of the program I mentioned, so it's cost-shared sixty-forty.
Governments nevertheless recognize that the risks facing producers continue to change, particularly with respect to climate change and international trade.
Climate change is increasing risks due to the increased frequency of extreme weather events, and may also provide new opportunities for production.
International trade offers opportunities in new markets, and risks when access to existing or key markets is disrupted.
For these reasons, business risk management programs, not surprisingly, are under regular review. The system is constantly evolving. Reviews have highlighted the challenge in determining the balance of government support between market risk and production risk. These have worked to address farmers' concerns, in particular relating to the timeliness, simplicity and predictability of the AgriStability program.
Following the most recent review in 2018, federal, provincial and territorial ministers met in Ottawa in December 2019 to discuss progress on making targeted changes to the business risk management programs to better meet the needs of the sector. At that meeting, ministers directed officials to make two key changes to AgriStability right away for the program year 2020.
The first one was to incent farmers to purchase complementary coverage by allowing a new treatment of private insurance under the program to increase the incentives to use private insurance.
Second, understanding that administrative burden has been an issue for farmers coming into the program, ministers agreed to launch a pilot program in selected jurisdictions to make applying for support easier by using tax return information to simplify the application process.
Details of both of these changes are expected to be finalized very soon.
However, ministers also recognize that there may be opportunities to further evolve the programs, and to this end they have asked officials to report back to federal, provincial and territorial ministers in April on an assessment of business risk management programs to ensure they are aligned with the intended objectives. In addition, officials are to develop options to make the programs more effective, agile, timely and equitable for farmers.
It's a challenging period in the long-term evolution of business risk management programming. While our current suite of programs has provided significant levels of support to the sector in recent years, it is important to consider that these programs may need to further evolve to meet the changing needs of today's farmers.
While working closely with our provincial and territorial colleagues, it is important to advance options for ministers' consideration that will provide our farmers with the tools they need to grow and innovate.
Thank you for your time, and I look forward to your questions.