I'll call this meeting to order.
Welcome to meeting number 15 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.
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Now I would like welcome our witnesses for today for the first panel.
We have from Agri-Food Economic Systems, Dr. Al Mussell, research lead.
Welcome, Dr. Mussell.
From the Agri-Food Innovation Council, we have Monsieur Serge Buy, chief executive officer.
Welcome, Mr. Buy.
With that, we'll start with opening statements.
We'll start with Agri-Food Economic Systems. Dr. Mussell, you have the floor for up to seven and a half minutes.
Mr. Chair and honourable members, I am pleased to appear before you this afternoon and to provide the insights I have to offer as an independent researcher focused on Canadian agriculture and food.
As a country we take great pride in our agri-food system and its performance. Our point of departure is a position of strength, and the flip side of the challenges that I will raise are opportunities for Canada. I would like to begin my remarks with this important acknowledgement.
I will touch briefly on a number of immediate and tangible challenges to food processing in Canada. These are the challenges of today, impacting the ability of food processing just to be retained in its current state. There are also forthcoming challenges only just beginning to be conceived. Increasingly, the full range of issues that we face in relation to food processing in Canada will not entail a stable solution in which we fix a problem, and the solution endures over time. The environment is more unstable, and maintaining solutions for food processing will require broader, ongoing effort.
Much of the data published by Statistics Canada dealing with capital stocks in food manufacturing was terminated in 2013. Increasingly, we are left to public announcements made by firms investing in new plants for information. That doesn't provide a consistent or satisfactory source of information on processing investment, infrastructure and capacity.
Scale in food processing in Canada faces a number of constraints. From the perspective of product brands and food marketing, Canada is a small market, yet from a geographic and product distribution standpoint, Canada is a very large area to serve and the need for product freshness and distribution can require multiple plants operating throughout the country at a relatively small scale.
The Canadian market is also fragmented provincially through provincial regulation in farm products marketing, under the interpretation of section 121 of the Constitution Act. In effect, the platform through which many processors purchase farm products for processing is provincial in structure, while their primary customers, grocery retail chains and food service distributors, operate at the national level.
The challenges of obtaining and retaining human resources for the needs of the agri-food sector are no doubt well known by the committee. This certainly extends into food processing. Where economics would have dictated that food processing plants be located in rural areas near supplies of farm products for processing, increasingly plants are locating closer to large urban centres as accessing the necessary workforce becomes the key consideration.
For some years now the trends and forecasts documented by Employment and Social Development Canada have pointed to trends in education and training oriented towards professional careers. This risks leaving our sector with a gap.
A recent and troubling development is the erosion of our global trading institutions and a shift toward bilateralism on behalf of large economies with the economic weight to use trade as leverage. Agri-food products are frequently drawn in as an instrument of retaliation in trade disputes, and the resulting injury drives the demand for agricultural support.
For example, the United States has had repeated and highly significant ad hoc farm subsidies in place dating from 2018. These support U.S. production, advantaging U.S. food processors. In addition, support also applies to food processing plant development. For example, in a recent announcement, municipal supports exceeding $1 million U.S. were given for development of a poultry processing plant located in Alabama.
There are also increasing technical challenges to exporting food. The pandemic has elevated these. For example, exports to China have recently become subject to inspections of packaging in food shipments for the COVID-19 virus. This has resulted in suspensions by China of exporters in a number of countries, including Canada. China has also invited countries to self-delist plants in which there have been cases of COVID-19 among employees; however, the process to get re-listed as an exporter to China is not clear. Delisting by China, under either mechanism, could be an overwhelming blow for a food processor leveraged into exports.
In the domestic market, food processors face a customer base of retailers and food service distributors that is highly concentrated. This, by itself, is a concern as the loss of a single retail account could be disastrous. Moreover, the supply chain relations between suppliers and grocery retailers is increasingly seen as fraught in Canada, with concerns regarding involuntary and arbitrary fees levied by retailers and processors, and requirements placed on processors that generally increase uncertainty and inefficiency in the supply chain. This topic occupied considerable discussion at the most recent federal-provincial agricultural ministers conference.
The process of constantly raising the bar on all aspects of food quality and safety and on facilitating innovation is in the interest of all. However, the public process and nature of regulation can undermine this if it is excessively cautious, onerous or creates uncertainty. Regulations need appropriate analysis, consultation and resources behind them, and excessive fees for regulatory approval can form a barrier to new product introductions.
Carbon taxes are recognized as the most efficient instrument for greenhouse gas mitigation; however, the financial magnitude of these costs on the food system are sobering. Without some rationalization about how these costs will be shared, the concern exists that they will end up being allocated by bargaining leverage in supply chains, with the costs rolling back to the food processing and primary production segments.
We are struggling to come to grips with how the economic adversity in Canada fragments itself across the segments of our society, but the effects appear worst in the prairie provinces whose economies are most closely tied to energy. There is a need to replace employment lost and restore economic growth in these provinces. One avenue for doing so is through agriculture and food, with food processing investment as a linchpin. My hope is that new economic development in Canadian food processing can proceed on the basis of competitiveness and efficiency, but this environment is ripe for dangerous provincial economic rivalry.
I have some recommendations.
Evidence-based policy development requires quality data. Improved collection of public statistics that deal with the capital stock for food processing in Canada, with the resources to analyze the data and interpret the results, is necessary.
Many of the challenges that I have identified boil down to inefficiencies in food supply chains. Understanding the causes, the costs of inefficiencies and who is affected can help bring about their resolution and relax barriers to investment in food processing.
Through investments in technology research and development, Canada can redouble its efforts to facilitate improvements in efficiency at smaller scales and address some of the issues with workforce in food processing.
Ongoing work is required on Canada's approaches to regulation of the food system and the provision of public resources to support regulation that is effective for all.
Export market access, and also access to imports, is fundamentally in the interest of food processors. Canada needs to continue its pressure to restore and expand the rules-based trading system. Equally, Canada should explore approaches to trade in processed foods that addresses broad priorities, notably climate change and the facilitation of processed foods featuring a reduced carbon footprint, with protective border measures based on the carbon footprint of the imports. Indeed, missing this point could lead Canada to falling behind.
Investments in food processing can be an important generator of regional economic development and form a portion of the solution for economic recovery. The federal government has a role to play in facilitating recovery through food processing investment, but in a coordinated manner that avoids the pitfalls of provincial rivalry.
Recognizing and addressing our constraints in food processing are critical in advancing the goals in the Barton report, and more fundamentally, having Canadian agri-food play the role that it can in economic development, enhancing food security, and being a resilient food supplier to the world.
Thank you, Mr. Finnigan.
Good afternoon, and thank you for giving the Agri-Food Innovation Council a chance to provide recommendations as you study processing capacity in Canada.
The Agri-Food Innovation Council has been in existence since 1920. It is a unifying voice for research and innovation in our country. Our members include research centres, university faculties, producer groups, government entities, and large, medium and small business, all involved in research and innovation on agri-food.
Some of our members are located in your ridings, such as in Mr. Steinley's riding of Regina—Lewvan, with Protein Industries Canada and the Farm Credit Corporation, while others have various connections through agri-food research and innovation, such as the Agriculture and Agri-Food Canada research centres located in the ridings of Madam Bessette and Mr. Blois.
The COVID-19 pandemic has resulted in Canadians being concerned about food safety and security. For some people this was the first time in their lives that they went to the grocery store and couldn't find the products they are used to buying. The problems we are experiencing with processing capacity won't end when the pandemic ends. We require thoughtful action now.
The Agri-Food Innovation Council would like to offer tangible recommendations which, in our opinion, are realistic solutions for some of the ongoing problems. We consulted our membership when preparing this presentation and making our recommendations, and we certainly want to thank them for their input.
I also want to take the time to thank the farmers, the workers in food and beverage manufacturing and processing plants, distributors, retailers and those in food services who enabled Canadians to continue to feed their families even when it meant taking a risk for themselves.
Let me move forward with our recommendations.
The first recommendation is to ask that the government create a funding program to facilitate the adoption of automation technology for food and beverage manufacturers as well as processing plants.
As noted by Food and Beverage Canada and le Conseil de la transformation alimentaire du Québec in previous submissions to this committee, automation in food and beverage manufacturing would help reduce risks for our food systems. Dr. Andrea Brocklebank of the Beef Cattle Research Council, one of our members, also suggested further adoption of automation for repetitive tasks in processing plants. Along with increased efficiencies, this would also reduce risks of worker injury and facilitate the transition of labour to value-added jobs.
We see the lack of capital as one of the key barriers to the adoption of new technologies for food and beverage manufacturing. The government has a role to play. Let's take today's news. The government has announced that it has secured a deal to manufacture vaccines in Canada. It is providing funding for new facilities. That is fantastic. It shows that the government sees a role in making us more independent for the supply of vaccines.
We need to be able to replicate that type of support for food and beverage manufacturing and processing plants. This will strengthen our food security. The development of a funding program to facilitate the adoption of technology for food manufacturers and processing plants would go a long way to support companies with the large capital investments required. Rightfully so, Canadians view food security as a crucial issue. Increased adoption of automation in food and beverage manufacturing as well as in processing plants would help.
Canada is a nation of innovation. However, we have seen an increasing gap between research and commercialization. Incubators and accelerators in agri-food, such as Creative Destruction Lab, Bioenterprise, and the Saskatchewan Food Industry Development Centre, can provide early-stage companies with guidance, cross-sectoral connections, mentorship and access to capital and funding. This leads me to my next point: incubators.
Our second recommendation is that the federal government should incentivize the expansion of incubators and accelerators to stimulate entrepreneurship in agri-food.
Incubators play an important role in bringing together agriculture research with other key sectors, as Dr. Paul Hoekstra of Grain Farmers of Ontario noted to AIC. This is why they're important and the government should play a role in supporting them.
In November and December, AIC held a series of video conferences on the climate for investment in agri-food research and innovation. We had a number of presentations from Canadian organizations, companies, funders and even international organizations, which helped provide comparatives for Canada.
The agri-food research and innovation sector is underserved in terms of private investment.
As Mr. Dave Smardon from Bioenterprise said during our video conference, trying to help agri-food companies find capital for activities such as piloting demonstrations was currently a significant challenge. This is partially an issue of perception and limited knowledge of available opportunities.
Ms. Kelley Fitzpatrick from NutriScience Solutions in Manitoba said that while government funding is generally effective at funding research, more could be done to support agri-food ventures looking to market innovative products and processes.
My final two recommendations further my previous comments. First is that the government collaborate with industry to actively attract private investments in agri-food research and innovation by promoting opportunities, success stories and incentives for investments. Next is for the government to expand NRC's IRAP offering to SMEs looking to commercialize their innovation by making capital costs eligible.
In the not-too-distant past, December 2017, in a report on Canada's economic growth, Dominic Barton highlighted agriculture as a key growth sector. He was right.
There is no question that this pandemic has had a deep impact on all of our society. Stemming from that are new challenges for our economy.
We don't need to see solutions to challenges as being out of reach. Yes, we need to move quicker and smarter. Yes, we need to work better together. Our recommendations don't necessarily mean big programs. They can be implemented and will benefit our country. The government, to its credit, has made more regulatory changes and more developed new programs in the past 10 months than in the past number of years. When there is a crisis, our society rises to the challenge.
In this presentation and in the brief that you should have received, I highlighted four recommendations that either require some investments but would support economic growth for the recovery or have little cost for the government.
We would be pleased to see this committee adopt all or even some of our recommendations as its own and would also want to work with the government on their implementation.
Let me begin by saying thank you for excellent testimony from both of the witnesses.
I'm going to begin by directing some questions to Dr. Mussell.
Al, it's good to see you again. Your words that we've often shared in conversations, “Dave, the market is always right, even when you think it's wrong,” ring in my head. Here we are trying to enhance the market for processing capacity in Canada. You've given us a lot to unpack.
I had a question prepared around the location specifically of meat slaughtering capacity and the trade-off between economies of scale and nearness to supply or nearness to market. I'm going to expand that because you touched on exactly that but introduced another factor, which was access to labour.
How does access to temporary foreign workers feed into that matrix of economies of scale, access to market or to supply and access to labour? Can you comment further on that?
Thank you very much, Mr. Chair.
It's a pleasure to have these two witnesses before us today.
Serge, thank you very much for mentioning FCC and PIC, Protein Industries Canada, which we have right here in Regina. I also grew up near southwest Saskatchewan, and have family who worked at the Canadian agriculture research station in Swift Current. There is a lot of great things going on.
Dr. Mussell, thank you very much for your testimony.
My first question is for you, Serge.
What are some of the reasons that Canadian agriculture businesses and manufacturers are facing liquidity issues? We heard it from a couple of the witnesses, especially from Qu'Appelle Beef and Jason Aitken. In terms of meat processing plants, they face a big liquidity issue. They have to ramp up and have a lot of product on hand, but then when they send that out, sometimes it takes a while to get paid for the products they're delivering. If they have to wait for those paycheques, they're really having an issue bridging that gap. How do we fix that?
Second, do you know if their counterparts in the United States are facing that same issue?
Welcome to our second panel.
For our second panel we have, from the Beef Farmers of Ontario, Mr. Rob Lipsett, president, and Mr. Richard Horne, executive director.
Welcome, Mr. Lipsett and Mr. Horne.
From the Dairy Processors Association of Canada, we have Michael Barrett, chair, and Mathieu Frigon, president and chief executive officer.
Welcome, Mr. Barrett and Mr. Frigon.
We'll start with the Beef Farmers of Ontario.
You have seven and a half minutes between the two of you. You can share that however you like.
Good afternoon. My name is Rob Lipsett and I'm a beef producer from Grey County, Ontario. I'm the president of the Beef Farmers of Ontario. Joining me today is BFO's executive director, Richard Horne. Thank you for the opportunity to appear before you today.
While the COVID-19 pandemic has heightened the focus on processing capacity, the beef sector across eastern Canada has had to contend with capacity challenges for some time due to a variety of factors that have led to periodic supply bottlenecks, significant negative pressure on farm gate prices and lost market opportunities.
Over the last five years, federally inspected processing utilization in eastern Canada increased from 71% in 2015 to 100% in 2020. In addition, Ontario provincial processing numbers are up approximately 20% over 2019 and the five-year averages. Some beef farmers must wait four to six months, and in many cases up to one year, to have their cattle processed at provincial facilities. CanFax estimates that shortages in beef processing capacity equated to $129 million in lost revenue in 2020 for farmers in eastern Canada.
To enhance processing capacity, we recommend four key areas of focus. They are strategic investment in the sector, addressing labour shortages, addressing regulatory differences between Canada and the U.S., and creating permanent tools to help mitigate processing disruptions.
First and foremost, continued government investment in the sector is needed. We need to simplify programming and ensure funding windows have enough runway to allow facilities sufficient time to plan and execute. Focus programs on outcomes and stop limiting what and how businesses can invest in capacity growth. Funding priorities should be placed on projects with the greatest ability to expand production capacity. A combination of cost-share funding, no-interest loans and non-repayable loans should be offered to assist with capital investments to spur production and improve efficiencies.
Between 2008 and 2017, Canada's agricultural exports grew three times faster than the Canadian average. Last year, Canadian beef exports grew 17% and opportunity for further growth remains. The sector's ability to maintain jobs through COVID-19 makes agriculture a priority for economic recovery. To capitalize on export opportunities, we recommend creating an industry export development fund to assist export diversification efforts and address trade barriers. For example, the fund could enable processors to apply for matching funding that would support enhanced capabilities to segregate eligible product, support modifications to food safety interventions to meet country-specific requirements or make strategic investments that spur growth and improve efficiencies.
Access to labour is another issue of concern. A study was done by Food Processing Skills Canada indicating that the meat sector had a job vacancy rate of about 13%, compared to other food companies that averaged 2% to 4%. In Ontario, this equates to approximately 2,400 vacant positions and $1.2 billion in lost productivity. A domestic strategy to attract, train and retain the workers by providing investments and supports in training and education is needed. A refocus of foreign worker programs into permanent programs is also needed. The agri-food labour pilot was a good first step, but we need to be doing more. There are dozens of countries with ample supplies of workers willing to come here and fill the jobs. Pathways need to be created to facilitate this.
I'll now turn it over to Mr. Horne to complete our presentation.
Good afternoon. Thank you, Rob, and thank you, Mr. Chair.
Another issue we wanted to touch on today that is contributing to processing capacity challenges stems from an ongoing trade issue with South Korea, which is having a negative impact on American packer interest in buying Canadian cattle. South Korea requires shipments from Canada be halted if there's another case of BSE found in Canada. Because the U.S. does not have this requirement, processors in the United States that would otherwise compete for our cattle here in Canada are hesitant to do so as they must segregate those animals and then process them during dedicated shifts. This is a cost that most U.S. plants are not willing to incur.
Canadian lawmakers need to push for a resolution with South Korea to have this requirement removed. While our preference is always to have Canadian cattle processed domestically, the issue with South Korea has reduced the availability of processing space and competition for our cattle.
We also need immediate revisions to Canada's specified risk materials removal requirements, also known as SRM. It's a relic from the BSE days. Canada's requirements have created a significantly unlevel playing field between us and the Americans for our producers and processors that is no longer supported by science. The current cost discrepancy between the two countries is significant. On average, Canadian processors remove about 58 kilos of SRM on animals over 30 months of age, whereas the U.S. removes approximately 900 grams.
The Canadian Meat Council estimates that this costs our sector over $30 million a year in lost value, and there are also other associated costs on other classes of animals that we market here at home. Meat that is lost in the removal of the spinal column in animals over 30 months of age in Canada can be harvested in the United States and then sold back to consumers in Canada, which adds to the disparity and lack of fairness between the two systems on top of the cost.
While we're pleased to see that discussions with CFIA to address this disparity have begun, the goal needs to be to fully align our SRM rules with the U.S. as soon as possible. This will have immediate benefits to the Canadian sector.
Last, I want to emphasize the need for continued access to set-aside programs, similar to the ones that were implemented this year under the AgriRecovery framework, in response to COVID-19. These programs help farmers manage supply bottlenecks caused by processing disruptions. If we need this tool again, we need to make sure that it can be quickly accessed this year. When the Guelph Cargill facility closed over Christmas, for example, due to COVID-19 challenges, we were able to quickly trigger that program, which was great to see.
This type of program should become a permanent tool to help mitigate disasters and reduce processing availability. Things like floods, fires, human or animal disease outbreaks and labour force stoppages could be better managed if we had access to this tool on a more permanent basis.
That concludes our recommendations. Thank you.
Good afternoon, Mr. Chair and members of the committee.
Thank you for the invitation today to discuss dairy processors' views on our country's food processing capacity.
I'm the board chair of the Dairy Processors Association of Canada, as well as the president and CEO of Gay Lea Foods Co-operative. With me today is Mathieu Frigon, president and CEO of the Dairy Processors Association of Canada.
Dairy processing is the second-largest food processing industry in Canada. It contributes more than $18 billion annually to the country's GDP, supports the milk production of over 10,000 Canadian dairy farms and employs almost 25,000 Canadians in 471 facilities across this country.
For dairy processors there are two key areas where improvements could support renewal of Canada's dairy processing industry to restore investments and spur growth. The first is addressing the impacts of dairy market access granted under CETA, CPTPP and CUSMA through the development of a dairy processor compensation program. The second is addressing the unfair treatment of suppliers by Canada's largest grocery retailers through the creation of a grocery code of conduct.
As we have previously discussed with this committee, the dairy market access granted by trade agreements like CETA, CPTPP and CUSMA has created a climate of uncertainty, which has disincentivized investment and innovation in Canada's dairy processing capacity. At full implementation, access granted under these agreements will represent about 10% of the Canadian market or about $300 million in annual losses to net margin. This is the equivalent to Canada losing 15 to 20 medium-sized cheese makers. In addition, CUSMA will restrict our exports of certain dairy ingredients. Since the conclusion of CETA negotiations in 2013, dairy processing is the only food processing industry exhibiting negative GDP growth among the top 10 food processing industries on which data is collected by Statistics Canada, and trade agreements have a lot to do with that.
The Canadian government has made repeated promises of full and fair compensation for supply-managed sectors. Last week, significant compensation for dairy farmers began to roll out. Our industry is still waiting for any sign of the government's intention to announce compensation to dairy processors for their losses.
Supporting production at the farm but not taking action to support processing capacity is a failure to acknowledge that supply management is a system. Its long-term viability requires both its farming and processing industries to be healthy and growing.
A dairy processor compensation program is necessary to ensure that we continue investing in our future in the face of growing imports and that Canadian-made products customers want are available in the future. A compensation program, including tools like non-repayable contributions for investments and refundable tax credits, could improve competitiveness and support investments in processing capacity and modernization.
Compensation to processors should be viewed as not simply a support or a handout, but an investment in domestic processing capacity, Canadian jobs and economic growth.
I'll now turn it over to Mathieu.
The unfair practices of Canada’s largest grocery retailers are another major hurdle preventing not only dairy processing, but the entire food value chain from meeting its full potential.
There has been significant attention to recent announcements by large grocery retailers regarding new fees for suppliers, but this is part of a much larger and long-standing problem that has reduced investment and innovation and slowly erodes Canada’s food processing capacity.
It is estimated that the fees, deductions, and administrative costs required to simply get products onto shelves has grown at twice the rate of sales over the past five years. This is known as trade spend and it is significantly higher in Canada than in other countries. For example, in the United States, trade spend accounts for 18% of processors’ costs, while here it accounts for about 28%.
This stands as a major hurdle to expansion and growth, especially for small and medium-sized processors.
Money paid to large grocery retailers in the form of arbitrary fees and deductions is money that is not being reinvested in facilities, product innovations or new jobs. In the long run, this could have serious impacts on Canada’s domestic food production.
As others who have presented to the committee have noted, this is all possible because of the concentration in Canada’s grocery retail market. Five large retailers control over 80% of the grocery retail market. For comparison purposes, the largest food processor controls no more than 3% of any given retailer’s volume.
If we, as a country, are serious about improving local production and making our food system more resilient—and the pandemic has shown the extreme importance of having resilient systems—our food value chain needs to be rebalanced so that food suppliers are given a fighting chance. We believe this is where a Grocery Code of Conduct comes in.
I'll start, and then I'll let Mathieu finish.
I didn't get to all the comments, and I appreciate this very much.
First of all, we are not asking for something that has not been established in other countries. As I mentioned in the brief that was submitted, the U.K., Australia and Norway also have working codes of conduct that are voluntary.
Indeed, if you read the U.K. report, the yearly report that the auditor puts out, it is actually serving consumers, retailers and processors well. What they've seen is a net decrease in food pricing within the marketplace.
What it will allow us to do as a processor is to not get sidelined or tripped up by an arbitrary decision.
I want to put it into context. If one of our retailers decides that they need a new warehouse computer system, they have levied those costs against us. They have levied their costs against modernization of the redesign of their stores. Where do processors go to be able to recover that? We cannot go right back to the individuals who are levying that. It has created such an uncertainty that the concept of being able to invest for innovation is grinding to a halt and we need processing in Canada to support our producers.
I'll turn it over to....
In my area of Nova Scotia, we've seen Saputo and Agropur buy Scotsburn and Farmers Dairy. There have been closures in plants in Saint John, Sydney and others.
Certainly I'll put on the record, and I hope it's part of your conversations with the government, that when we're looking at compensation, we're trying to solidify and improve not just facilities where they're becoming centralized in other parts of the country, but indeed in those areas that still remain in more of the regional economy. That's part of our study as well.
Can I ask about TRQs? I hear you in terms of the importance of the processing compensation. As I understand it, the tariff rate quotas are also given to processors, or some of your membership, where the actual price of the input costs for your products that are being processed is lower than perhaps what the average price is for the supply-managed products in Canada. That's, in some form, a way of compensation.
Is that helping, or is that certainly recognized within the industry as some form of support, although it's not quite exactly what you're asking for here today?