:
Welcome, everyone. Everybody seems to be in a great mood today and so am I. Everything has started well and hopefully we'll have good communication right through.
With that, I'll call the meeting to order.
Welcome to meeting number 14 of the House of Commons Standing Committee on Agriculture and Agri-Food. Pursuant to Standing Order 108(2) and the motion adopted by the committee on October 24, 2020, the committee is resuming its study on processing capacity.
Today's meeting is also taking place in the new webinar format. Webinars are for public committee meetings and are available only to members, their staff and witnesses. Members may have remarked that the entry to the meeting was much quicker and that they immediately entered as an active participant. All functionalities for active participants remain the same. Staff will be non-active participants only and can therefore only view the meeting in the gallery view.
I would like to take this opportunity to remind all participants that for this meeting screenshots or taking of photos of your screen is not permitted.
[Translation]
To ensure an orderly meeting, I would like to outline a few rules.
Members and witnesses may speak in the official language of their choice. Interpretation is available during the meeting. At the bottom of your screen, you have the option of choosing either floor, English or French. With the latest Zoom version, you may now speak in the language of your choice without the need to select the corresponding language channel.
You will also see that the “raise hand” feature of the platform is now more easily accessible on the main tool bar, if you want to speak or alert the chair. If this option doesn't work, I suggest that members and witnesses who wish to speak turn on their cameras and physically raise their hands. The committee clerk will keep the list of members and witnesses who wish to speak.
For members participating in person, proceed as you usually would when the whole committee is meeting in person in a committee room. Keep in mind the directives from the Board of Internal Economy regarding masking and health protocols.
Before speaking, please wait until I recognize you by name. If you are on the videoconference, please click on the microphone icon to unmute yourself. Those in the room, your microphone will be controlled as normal by the proceedings and verification officer.
When you are not speaking, your mic should be on mute.
[English]
During our last meeting, we experienced interpretation difficulties during Richard Davies' testimony, which elicited a reaction and comments from members, and justifiably so. As there was another place available for witness testimony on February 16, 2021, Mr. Davies will be invited to appear again in front of the committee on that day. Committee members will be given the opportunity to question Mr. Davies at that time.
I would like now to welcome our witnesses. Today we have, from Apple Valley Foods, Jeff Sarsfield, owner and executive director. Welcome, Mr. Sarsfield, to our committee. From Qu'Appelle Beef, we have Jason Aitken, chief executive officer. Welcome.
With that, we shall start with your opening statements.
We'll start with Mr. Sarsfield. You have seven and a half minutes.
:
Good afternoon, everyone. Thanks for the invitation.
I'm Jeff Sarsfield, president of Apple Valley. We're located in Kentville, Nova Scotia. We started the business back in 2000. We're a frozen fruit pie supplier, shipping all across Canada and the U.S. We mostly concentrate on private label customers in the retail food service business. We have 68% of our sales currently in Canada and 40% in the U.S.
Last year, we grew substantially, more in Canada than in the U.S. We're up to about 400 people now operating in two production plants, both located in the same industrial park here in Kentville. We did a major expansion back in 2014-15, where we tripled our capacity at the time for both Canadian sales and exports.
In the last plant we put together, we were about 80% automated in that plant. Then due to overall growth that we've had since then, we've upgraded our original plant a fair bit. We originally planned on shutting that facility down or changing it to a totally different product line. That has provided lots of additional sales growth during the last five years.
However, this past year, our major constraint for capacity was labour. We had four production lines, and there was one complete line that we were not able to staff. Basically, with COVID, we have seen a major decline in applications from new employees. We are fortunate that we had applications from foreign workers in place. By the end of the year, we saw our first foreign workers come into our facility. We originally brought in nine foreign workers back in late December, and just last week, we had another 11 workers come in. We are able to start increasing our fourth production line, which will give us some further growth for this year.
Ending last year, we were well in excess of $100 million in sales. Our main growth is from the fact that we concentrate on providing top-quality, homestyle products. We are one of the very few North American producers that grow, process and put together apple pies from scratch.
We grow some of our own apples. We buy direct from local farmers. We peel, core and slice them in our bakery and put them directly into the pies, which gives us a unique homestyle product. That's been a big secret of our growth. We also have good local staff, who are able to train for some of the technologies that we put into our process at the two facilities.
Going forward, we still have lots of opportunities to continue our automation to help become more efficient and competitive in the marketplace.
There is one other thing. FCC and ACOA and the province helped us out when we initially started the business and were quite instrumental in us being able to start at the level we did. We have done numerous expansions over the years, and FCC and ACOA have always been there. That's been a big part of why we are still around and why we continue to grow.
I just wanted to let the committee know how important those two programs have been, along with the agri-innovate fund, which was also in there as well.
It definitely has really helped us to expand when we needed to. I guess I'll leave it at that.
:
Good afternoon, everyone.
My name is Jason Aitken, and I'm the president of Northern Natural Processing. I'm here to directly address the goal that the Barton report is trying to achieve: specifically, to increase production capacity to meet an export objective of $75 billion in 2025.
Northern Natural Processing owns the only CFIA federally licensed beef slaughter facilities in Saskatchewan, and we do business under the brand name Qu'Appelle Beef. We're independent and to date have focused on delivering high-quality, value-added beef products.
We own two CFIA federally licensed facilities, both outside of Regina. The cattle harvest facility, CFIA establishment 659, is approximately 33,000 square feet and is in Neudorf. The beef value-added further processing facility, CFIA establishment 519, is approximately 22,000 square feet and is in Wolseley. Recently, we obtained export licences for the U.S., South Korea and Japan.
Saskatchewan accounts for more than 40% of arable land in Canada, yet 85% of the cattle born in Saskatchewan leave on trucks, with half of them going south to the U.S. Why can't we keep the cattle in Canada and process them locally?
Canada is currently a net importer of beef, so we're here to change this. It's about food security and value creation at home for the benefit of Canadian producers and families in our local communities. Our mission is to be a net exporter of high-quality value-added beef products, not just an exporter of live cattle.
Let me break down the remainder of my time into two segments: the barriers that hold us back as a beef processor and the opportunities ahead.
The three main barriers are capital funding, critical mass and market power.
On capital funding, the capital expenditure required to be competitive in beef processing is significant. The strength of the two main incumbents—both foreign players that control 90% of the market—is well acknowledged. Cargill has 14 billionaires as family members, and JBS's largest shareholder is 25% owned by the Brazilian government.
Capitalization for smaller processors is a critical issue. We've privately raised over $40 million from scratch from investors over the last decade since I founded the business. This represents a 10:1 ratio versus any government funding that we have received.
If Canada wants to have made-in-Canada beef and true self-sufficiency and to avoid the supply and procurement issues being witnessed currently with PPE and vaccines, I would submit that all parties would mutually benefit from greater stimulus participation from the Government of Canada.
On the topic of critical mass, the operating expenditure required to be competitive in beef processing is significant. By that, I mean funding for the working capital requirements for essential inputs like cattle, labour, packaging and utilities. Let me use a simple analogy. Think of a 747 airplane: Does it economically make sense to run it if you only have five people aboard? There must be enough cattle throughput to cover fixed costs. We've succeeded in selling over five million pounds of beef across the country to customers such as Metro, Longo's, Costco, Save-on-Foods and A&W, to name a few, but it's still not enough to realize break-even plant capacity. This is where international markets are critical.
On market power, as you know, the beef industry is incredibly concentrated, so much so that four players control 80% of the U.S. market, where there have recently been antitrust probes led by the Department of Justice. In Canada, two main players have 90% of the market. Cargill and JBS can sell steaks and ground beef as loss leaders because of their global reach. Think of it like a Sony PlayStation or Xbox that embeds their platform with entrenched consumers; they make all their profit with scalability on software and tie-in products. As any parent with teenage kids knows, they get you hooked.
The best way to make money in the beef-processing industry is to consider steaks as almost a by-product of what you do. The Better Beef slaughter plant in Guelph, Ontario, set an important precedent by building a by-product capture plant with strong distribution into Japan. Their success resulted in a high-value acquisition by Cargill at a twelve times EBITDA multiple. Don't let anyone tell you that beef processors can't make money for their stakeholders.
Let’s bring this back to the bigger opportunity and the reason why we’re here: the Barton report and $75 billion in exports by 2025. This gets very personal for me. I've spent 15 years living outside Canada: seven years in Japan and seven and a half in the U.S. I speak Japanese. I've done 1,500 company visits on site in Japan, Korea and China. If there's one thing I'm sure about, it's rising per capita protein consumption in those regions. It's an unstoppable long-term trend.
We have an amazing export opportunity. Asia-Pacific wants to do business with Canada, but they require stability and guaranteed supply. The only way to guarantee this is to develop the hard assets and truly invest in the necessary infrastructure.
This brings us to two points to leave you with.
The path forward is access to funds and greater flexibility. Canada has done a good job of providing funds and initiatives to lay the foundation for export opportunities, for example, the recent CPTPP treaty and the recent announcement of a $4-billion irrigation project in Saskatchewan. However, broader access to funds remains severely limited. Until application and performance criteria are revised, Canada is not encouraging the innovation and participation required to achieve the Barton report export objectives.
Finally, here are the benefits that a true commitment to funding would have. We'd increase the number of long-term skilled jobs and high-value jobs. It’s worth noting that indigenous people make up over 50% of our workforce at Qu’Appelle Valley. We'd create and realize significantly higher prices for local Canadian agricultural inputs. We would provide a reliable, guaranteed, high-quality supply of beef for Canadians; promote integrity and brand value for the region; promote Canadian interests, both domestically and abroad; and finally create a successful template for the business development of healthy value-added products, which can be replicated in other provinces around the country.
With that, I’d like to open it to questions. Thank you so much for your time.
Essentially cutting to the chase, the issue is we're not capitalized effectively. I outlined to you the critical mass of capital funding issues we face with two extremely strong incumbents in the area. What I think is the issue is during the pandemic, when there was a dire need suddenly for beef, we would receive calls from customers, and they would say, “We need beef now.” Payment from the customer is going to be in 30 days, and yet the cattle rancher will need to be paid right away. That working capital gap is a huge issue.
Related to government programs, and how they could help, really, there are two things at stake here: there's capital expenditure and there's operating expenditure. On the capital expenditure, the emergency processing fund is a great start, because it can focus on addressing the capacity constraints that you have in the facility. As it relates to the operating expenditure, the regional development funds can be useful, such as the western diversification program and specifically the business scale-up program because it allows you to scale up the working capital.
There has been a challenge. I guess it's established in tech companies. There have been years of no profits. But the scalability of going into export markets is enormous. It has to be nurtured over time. The traditional financial scoring system may not reflect some of the strategic realities of starting a new plan. These things have to be nurtured. It's the expectation that you're going to have setbacks, the expectation that things will go wrong. I think there has to be patience with that process. When I look at the strategic objectives of Canada, I'm not saying we can replace Cargill or JBS—that's like the power system. But if you were a hospital, wouldn't you want to have a backup power generator in case? The pandemic has really underscored that vulnerability. The lesson here is that nobody is infallible and you can't put all your eggs in one basket.
:
Welcome back, everyone.
I'd like to make a few comments for the benefit of the new witnesses.
Before speaking, please wait until I recognize you by name. When you are ready to speak, you can click on the microphone icon to activate your mike. I would remind you that all comments should be addressed through the chair. Interpretation in this video conference will work very much like a regular committee meeting. You have the choice at the bottom of your screen of “floor”, “English” or “French”.
[Translation]
When speaking, please do so clearly and slowly. When you are not speaking, please mute your mic.
I would like to welcome our witnesses.
[English]
From Pork Nova Scotia, we have Ms. Margaret Lamb, president.
Ms. Lamb, welcome to our committee.
[Translation]
From Benny & Co., we have Nicolas Filiatrault, vice-president of Finance and Administration.
Welcome, Mr. Filiatrault.
You will each have seven and a half minutes for your remarks.
[English]
We'll start with Ms. Lamb.
:
Mr. Chair, vice-chairs, members of the Standing Committee on Agriculture and Agri-Food Canada and other invitees, on behalf of Pork Nova Scotia I would like to thank you for the invitation to address this committee in regard to processing capacity as it relates to pork production in Nova Scotia.
I'm Margie Lamb. My late husband and I had a 150-sow farrow-to-finish hog operation, which I am in the process of selling through a shares agreement.
In addition to growing grain and pigs in the late 1990s, we started processing added-value products selling at farm gate, then adding wholesale and catering to our business. When my husband became ill, I took his place on the pork board and have since become the chair of the board. I have come to speak to you today in that capacity.
Prior to Jim’s death, the farm had transitioned many times due to economic pressures in the industry. All producers faced similar economic challenges presented by selling on an open market. The most challenging is prices that are based on the U.S. hog price set weekly, often with large fluctuations and frequently below the cost of production.
Compounded influences over the years from high grain and feed costs, a high U.S. dollar, excess pork on the world market, disease challenges and a loss of infrastructure like feed mills and processing plant relocating—and for us a barn fire—caused many to exit.
Without consistent and certain cash flow, the ability to borrow from banks, Farm Credit Canada and the farm loan boards is often restricted or denied.
In the 1970s, pork production was encouraged by government. The feed freight assistance program, which was seen as a great help in sustaining the industry, was discontinued July 1, 1995.
Over the years, Pork Nova Scotia saw an industry with 225 active farms, with production levels of over 200,000 market hogs, dwindle. There are now eight commercial-sized producers credited with marketing 8,500 market hogs annually, of which 25% are shipped to Quebec for processing. The greatest decline in the industry happened between 2006 and 2009.
Three of the eight producers ship 55,000 to 60,000 isoweans to Quebec and Ontario farms to be grown, which is 98% of the piglets born in Nova Scotia. This almost collapsed this past summer due to COVID.
In the 1990s, all commercial pigs were shipped through the marketing board. Most were shipped into the province to one of four facilities in Nova Scotia, which had an abattoir and further processing capacity.
Presently, between 3% and 4% of the pork sold in Nova Scotia is locally grown. Of that, 97% to 98% is provided by one other producer and me. Even at the peak of production, Nova Scotia only produced 65% of the pork we consumed, making it an importer of pork.
Due to the nature of the hog industry, large processors that purchased plants in the region consolidated and moved their operations, while others closed their abattoir services. A federally inspected abattoir is necessary. It is not inexpensive and is not initially profitable, but it is the infrastructure that is crucial so that producers can increase supply and be profitable.
There also hasn't been an appetite for long-term, low-interest loans from banks, government agencies or investment from related industry to support smaller federally inspected facilities to meet market-sized productions. Presently, government programs look primarily at projections on a spreadsheet to determine the feasibility of a project.
Do not misunderstand me. If something isn’t going to work, one has to change. However, if only financial projections are used to see into the future, they do not tell the whole story. If that were the case, my husband and I should have gone out of business 30 times in the last 30 years. What we did was we changed. We did not get bigger. Our hog numbers are smaller, while our employee numbers are 12 times greater.
The provincial government has supported upgrades to provincial abattoirs, which has taken away some of the immediate and critical concerns of collapse. Work during the past four years on business and marketing plans to access funds for a federally inspected abattoir, while not jeopardizing present abattoirs, found that, of the 22 Nova Scotia provincial abattoirs, 12 process red meat. Of those, all are mixed species, all have increased seasonal demand and all faculties are at capacity. Presently there are also 90 backyard facilities that work on a cash economy.
Strategic investment and access to federally inspected abattoirs would stabilize, maintain and grow our hog production, allow access to diverse market opportunities and build and support government policies and mandates.
What do we have in the province and region to support federal abattoirs? We have access to pigs, and producers who want to transition back to market animals and/or increase their numbers.
There are eight plus small to medium value-added processors. Of those, I am the only one processing and growing my own hogs. Most depend on imported meat for processing.
There is a very strong buy local movement.
Federal inspection is a must, as it allows for exports, sales opportunities into existing processing facilities and large retailers, and sales access to government institutions.
The environmental initiatives can be supported by having abattoirs located closer to production. The carbon footprint of pork in Nova Scotia and the Maritimes would be reduced. Fewer hogs would be exported. A round trip to Quebec consumes 800 litres of fuel. Less meat would be imported back to the Maritimes for meat processing and consumption.
Lack and scarcity of food will cause citizens to panic. Here in Nova Scotia, the Tantramar Marsh is under increased threat of breaching. There is only one land crossing into the province for both rail and trucks to bring human food, animal feed, fuel and goods. Currently we have a maximum of three days' food supply in the province.
Added benefits from having these facilities would be increased food sovereignty, job creation and rural development. This would meet the obligations and food policies set September 26, 2017, which say that it must support the next generation of farmers promoting a diversity of farming practices and sizes, as well as the right to food. This was ratified in 1976.
On animal welfare and transport of animals, there would be less distance, which would mean less stress on our livestock and better mitigation and correction of unforeseen circumstances such as storms, breakdowns and the slowdowns for checkpoints that we saw during COVID. Shorter transport would meet new animal care regulations.
In conclusion, time has been running out for 20 years in my province. Family farms are not run by CEOs. They are run on blood, sweat and integrity, and the one thing 99% of farmers will do is that we will go to our graves to meet our obligations. Your farms are like your homes: not a place to work, but a place to live.
Lastly, in my opinion, projects studied for years amount to inaction and procrastination. Both are actions that result in huge expenditures. We have seen $500,000 of studies with no results. Some of the public will never agree with what you, as leaders, may do. For some of us and our families to come, your recommendations for support make all the difference.
Thank you for your time.
Ladies and gentlemen, members of the Standing Committee on Agriculture and Agri-Food, I would like to begin by thanking you for your invitation.
My name is Nicolas Filiatrault, and I am the vice-president of Finance and Administration for the Benny & Co. rotisserie chain. I am pleased to be with you today as part of the committee's study on processing capacity.
Before getting to the heart of the matter, let me introduce our company. Founded in 1960, Benny & Co. is a third-generation family business that has carved out a place for itself in a highly competitive industry by giving priority to a business model that puts local purchasing first. Still 100% owned by members of the Benny family, the chain now employs more than 1,800 people, 36 of whom are family members. Over the past 10 years, the company has grown significantly, from 12 to 64 restaurants, including two in Ontario, and has experienced a 670% increase in sales. Today, Benny & Co. sells more than 10 million roast chicken meals a year.
As part of our operations, we purchase more than four million kilograms of Quebec chicken per year, which represents approximately 50,000 chickens per week. Each year, the company also purchases 500,000 kilograms of all-Canadian secondary processing chicken to supply its rotisseries, as well as 100,000 kilograms of pork. Our rotisserie chain focuses on product quality and proximity, with local sourcing being an integral part of the company's development.
At the beginning of 2021, 85% of the products purchased come from Quebec. When Canadian products such as P.E.I. potatoes and packaging are added to this figure, Canadian sourcing accounts for more than 90% of the chain's total purchases.
As I just mentioned, as major poultry buyers for more than 50 years, we are therefore extremely well placed to observe the pros and cons of supply management in the chicken industry. From the outset, we want to recognize that, for poultry farmers, this model has many advantages, not the least of which is the assurance that they will be able to sell their production at a fair and consistent price.
However, Benny & Co. believes that the principle of supply management shouldn't be extended to processing plants and slaughterhouses through guaranteed supply volume, as this results in additional cost to buyers, primarily those in the food service sector. Indeed, in our opinion, the current management method for allocating slaughterhouse quotas limits competition, innovation and product traceability.
Since the introduction of guaranteed supply volumes in 1994, Benny & Co. has witnessed major changes in the processing sector. When this measure was introduced, it was designed to ensure a volume of supply to slaughterhouses of all sizes, which at first glance seems logical. Unfortunately, since that time, many smaller slaughterhouses have either closed or been bought out by the two largest industry players in Quebec, creating a virtual monopoly of over 95% of the poultry processing market in Quebec.
As in any quasi-monopoly sector, the lack of competitiveness in the poultry processing market negatively affects buyers, including Benny & Co. Indeed, the supply volume system greatly complicates access to slaughter quotas. In this sense, reversing this simple trend is almost impossible without the intervention of legislators and regulatory authorities. Benny & Co. does believe that it is essential to encourage the emergence of medium-sized slaughterhouses. Fostering healthy competition encourages innovation and, more importantly, reduces the risk of breakdowns in the supply chain.
Imagine for a moment that because of the COVID-19 pandemic and outbreaks, the few large slaughterhouses in Quebec are forced to reduce or cease operations. It would have a catastrophic impact on chicken buyers such as Benny & Co. Several times this year, our supply team has had to work extremely hard to ensure that we have enough supply to simply keep our rotisseries running.
The absence of competitiveness in the poultry processing sector has also brought up a major issue for Benny & Co., namely, chicken traceability. Indeed, for our company, being able to determine the origin of the chicken is essential, since it allows us to ensure the quality of our raw material. When the chicken enters the processors premises, we lose track of it. Buyers can't choose their breeders or know where the chicken comes from.
While we know that the chicken we buy comes from Quebec, certain differences in terms of what chickens are fed and how they are raised have a considerable impact on the quality of the product sold to consumers. Contrary to what we might think, it is wrong to believe that all Quebec or Canadian farmers provide exactly the same quality of chicken.
For Benny & Co. and several similar companies, the gradual disappearance of small- and medium-sized slaughterhouses has severed the link with farmers.
Indeed, in the days when small- and medium-sized slaughterhouses were operating on a larger scale, Benny & Co. had the ability to choose the farmers who supplied it. On a large scale, in large slaughterhouses, being able to ensure traceability is an additional operational constraint, so it is obviously not an option for them.
In order to offer exceptional product quality, Benny & Co. carefully selects all the local producers that the company partners with for the purchase of lettuce or cabbage, for example. However, this is impossible for chicken, the most important product on the Benny & Co. menu, due to the refusal of these same large slaughterhouses.
As for secondary processing, we also note a significant consolidation of the market. In this case, there are no barriers to entry, but due to the vertical integration of the production chain, the same two large players find themselves with a very large share of the market. This situation hinders innovation in a sector that is full of opportunities, while there is an increase in demand in the restaurant and retail markets.
In closing, Benny & Co. encourages legislators to put in place measures to promote competitiveness. In our view, we must stop protecting the big players, who don't need additional support or protections. We believe that this is how competitiveness and innovation in the product processing sector will regain importance. It will make the Canadian poultry supply chain more secure and, at the same time, more efficient.
Thank you for your attention. I will be pleased to talk to you in the next few minutes.