:
I call the meeting to order.
Welcome to the sixth meeting 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, the committee is commencing its study on processing capacity.
[Translation]
Today's meeting is taking place in a hybrid format, pursuant to the order of the House adopted on September 23, 2020. Proceedings will be published on the House of Commons website.
For information purposes, the webcast will always show the person speaking rather than the entirety of the committee.
To ensure an orderly meeting, I would like to outline a few rules to follow. Members and witnesses may speak in the official language of their choice. You have the choice at the bottom of your screen of “floor”, “English” or “French”. Before speaking, please wait until I recognize you by name.
I remind you that all comments by members and witnesses should be addressed through the chair.
Please ensure that your mike is on mute when you are not speaking.
[English]
With that, we are ready to begin.
I would now like to welcome our witnesses.
For the first hour, from the Canadian Food Inspection Agency, we have Theresa Iuliano and Tammy Switucha; from the Department of Agriculture and Agri-Food, we have Warren Goodlet, director general, research analysis directorate; Frédéric Seppey, assistant deputy minister, market and industry service branch and Marco Valicenti, director general, sector development and analysis directorate, market and industry services branch; and from the Department of Industry, Sheryl Groeneweg, director general, manufacturing and life sciences branch.
We'll start with Ms. Iuliano, for seven and a half minutes.
:
Thank you very much, Mr. Chair.
It's a great pleasure and honour for all of us to appear and have the opportunity to speak before this committee.
Before speaking to the current situation of the agri-food sector, let me start with a few facts on the importance of the food processing sector to the Canadian economy.
In 2019, the agri-food sector was a key contributor to the gross domestic product, employment and exports.
The food and beverage processing industry is the largest manufacturing sector in terms of GDP, representing 17% of manufacturing GDP and 290,000 employees.
The food industry is a major economic driver for rural communities, as it purchases about 40% of the total Canadian agriculture production.
Small and medium-sized enterprises account for over 95% of establishments, while large establishments account for about half the industry's total output.
Exports of processed food and beverage products stood at a record value of $38.1 billion in 2019. Globally, Canada is the eleventh largest exporter of processed food and beverage products in the world.
In total, Canadian-based processors supply about 70% of all processed food and beverages that Canadians consume every day.
[Translation]
The food and beverage processing industry performed relatively well over the recent five-year period. Specifically, I wish to give a sense of the results in terms of growth, trade and employment.
Industry revenues for the food processing sector increased at an average rate of 3.5% per year, compared to 2.3% per year for total manufacturing. In addition, employment increased by 2.9% per year, compared to 1.1% for total manufacturing. Finally, exports of processed food and beverage products grew at an average annual rate of 6.9% during the last five years, whereas growth was at 3.5% for total manufacturing.
Overall, the opportunities for the Canadian food processing industry are significant given the growing global demand for processed foods and beverages, as well as population and income growth in emerging markets. Our well-recognized food safety regulatory framework is a key positive attribute for our products in foreign markets.
There is no doubt that the current pandemic has caused an unprecedented shock to the whole food system as a result of significant changes in food demand.
I shall preface my upcoming comments on the impact of the pandemic with a word of caution. Any current assessment is no indication of how the situation can evolve in coming months.
To give you a sense of the dramatic shift in demand, between February and April 2020, food service sales declined by 57% , while food and beverage store sales increased by only 18%. Purchases at restaurants continue to lag pre-COVID-19 levels. In August, food service demand was at about at 80% of pre-pandemic levels. However, this is likely lower now with the recent restrictions in many regions of the country.
Purchases at grocery stores in October were at 8% above the pre-COVID-19 levels. As mentioned earlier, although the supply chain seems to have stabilized, we cannot take the resilience of the sector for granted. Extraordinary efforts were required to keep grocery store shelves stocked and food on the table. The system remains vulnerable as the COVID-19 pandemic continues to have an impact.
Since the beginning of the pandemic, the food processing industry experienced a number of challenges that resulted in new and significant cost pressures. For example, industry had to adapt to health protocols that required plant modifications, increased sanitation measures, and changes in manufacturing processes, often leading to reduced production.
To provide for increased worker safety, companies had to provide their employees with personal protective equipment. Further, labour costs rose significantly due to additional payments for overtime, hero pay and training. Other increased costs included higher transportation, packaging costs and increasing fees paid to retail for infrastructure development such as for e-commerce. Lastly, some companies faced lost revenue from food service without commensurate increases in retail sales, as well as increased cost for surplus inventory.
The total financial implications of COVID-19 on the food processing industry remain to be seen as statistical agencies, such as Statistics Canada, continue to gather information over time. However, it is clear that impacts throughout the industry have not been homogenous.
In response to COVID-19, the Government of Canada has implemented a number of food industry specific initiatives to ensure a safe, reliable food system. I will just mention three of those initiatives.
The government set up a $77.5 million emergency processing fund (EPF) to help companies implement changes to safeguard the health and safety of workers and their families, as well as to improve facilities needed to increase Canada's food supply capacity.
The government also set up a $50 million surplus food purchase program to help move surplus food commodities through the food system as efficiently as possible to help feed vulnerable Canadians.
Finally, there is the mandatory isolation support for temporary foreign worker program to support these workers who are absolutely essential not only for our horticultural industry, but also for our food processing sector. The $50 million fund helps cover some of the incremental costs associated with the mandatory 14-day isolation period imposed under the Quarantine Act.
I would also like to highlight the efforts of the Canadian Food Inspection Agency (CFIA) to preserve the integrity of Canada's food safety system. First, CFIA prioritized critically important activities and services during the ongoing COVID-19 pandemic by introducing a temporary suspension of low-risk activities that did not immediately impact the safety of food or the protection of our agricultural resources.
:
That's very nice. Thank you very much, Mr. Chair.
The Agency is maintaining oversight of domestic production and imported food products while also supporting trade and the supply chain, including through the certification of exports.
The Agency also temporarily suspended certain non-food safety labelling requirements for foodservice products so that they can be quickly repurposed for retail sale. Also, in order to prevent meat shortages, the CFIA has been working with the provinces and territories to enable the interprovincial trade of meat produced in provincially regulated establishments. To assist in these efforts, the CFIA received an additional $20 million in funding to support its efforts. This will help the Agency continue its important work to safeguard Canada's food system and better support the production demands of Canada's food industry.
[English]
In conclusion, although COVID-19 has taken a financial toll on the food processing sector, given its agility and its resilience, the sector can play a major role in the economic recovery.
My colleagues and I are pleased to be with you today and to answer any questions you may have.
Thank you very much, Mr. Chair.
As we look beyond COVID-19, we expect that there will be a greater emphasis on innovation in the food processing industry. Business spending on research and development is vital to ensure that Canada's food and beverage processing sector responds to shifts in consumer demand with globally competitive products and processes.
With continued support of Canadian innovators, we can capitalize on emerging technology areas and changing consumer demands and realize incredible growth opportunities in the food sector.
The Government of Canada is making targeted investments towards innovative companies in the value-added food processing sector through the strategic innovation fund or the innovation superclusters initiative.
To further strengthen this sector and realize these recommendations, the Government of Canada also awarded up to $30 million towards the Canadian Food Innovators Network, through the strategic innovation fund, for the development of a network that will accelerate innovation and collaboration specifically in the food processing sector.
With respect to investments, we continue to invest in industry to build capacity in the value-added food and beverage processing sector at the intersection between market opportunities and Canadian potential.
The Government of Canada's investment in the Protein Industries Canada supercluster, known as PIC, is an illustration of these efforts. Through the Innovation Canada supercluster program, the Government of Canada recognizes the potential of Canada's existing strength in areas such as pulses and the growing global demand for value-added plant-based foods.
:
Thank you for the excellent question, Mr. Drouin.
We are major agricultural producers in the world. In fact, we are the fifth largest exporter of agricultural and agri-food products in the world and the fifth largest importer. This shows that we have a very strong absorptive capacity. We import a great deal to meet our needs. However, as I mentioned in my opening statement, we have to keep in mind that a very large portion of Canadian demand for processed products is met by products made and processed in Canada.
In terms of processing capacity, it can vary from sector to sector. In sectors such as dairy processing, it is very strong in terms of our internal needs. The supply management system ensures that our capacity is high enough to process all the products we need. In other sectors, we have a significant comparative advantage on a global scale. I'm thinking of the meat processing sector, meaning meat products. Clearly, our production capacity is far greater than our needs in Canada. We export the vast majority of our products.
It is difficult to answer this question because of the heterogeneity of the sector. In some regions and for some sectors, the capacity may be insufficient but, given the way our market economy operates, it is up to market forces and businesses to determine where to invest to increase processing capacity.
:
Yes, indeed. In fact, the Department of Innovation, Science and Economic Development has been quite active in this space over and above what the regional development agencies have been up to.
Since 2017, I can report that ISED has committed up to $203 million to support innovation in Canada's value-added food and beverage processing sector through two avenues: the strategic innovation fund and Innovation Canada's superclusters initiative. Mr. Seppey has already indicated such investments in that regard.
In 2018, as well, there was a Maple Leaf Foods project funded through SIF to build a world-class, value-added poultry processing plant facility in London, Ontario. The SIF funded $20 million toward a $744 million project, and that project is expected to create one of the most technologically advanced poultry plants in the world that will lead on food safety, environmental and animal welfare processes and technologies.
In 2018, we launched a competition under stream 4 of the SIF. It's a competition to spur on consortia coming together to bring different actors around the same ecosystem in such a way that smaller players across the country could interact with bigger players with research components of the ecosystem, and create value and, hopefully, garner new market share.
There were 55 different applicants to that process. Two victors came from that: the Canadian Agri-Food Automation and Intelligence Network and the Canadian Food Innovators Network.
My thanks to the witnesses for joining us.
I will continue along the same lines as my colleague Mr. Drouin's question. Decentralization was mentioned, but I will explore it a little further.
During the pandemic, we were told that we have a strong processing capacity in the meat industry, among others. That is good. However, we saw the dramatic effect that the closure of a plant due to the COVID-19 outbreak had on markets and upstream producers. We don't know what the situation will be in three, four or five years. We have to adapt and we have to adjust our system.
Has the department addressed this issue? How can we diversify the supply?
It could be another scenario, but if we are talking about the slaughter process, how do we make room for smaller players, for example?
:
Thank you very much for the question.
You're probably talking about the closure of the Olymel plant in Yamachiche, which took place at the end of March. That plant processes 28,000 piglets every week, and it clearly plays a pivotal role in the entire hog processing chain.
In fact, when the processing assistance program was put in place, one of the priority sectors was actually meat processing. We knew that investments were needed in the area. For example, slaughter capacity had to be increased in order to deal with the delay in slaughtering animals.
The pork industry, as you probably know, operates like a pipeline. You have to be able to pasture the animals and feed them until you have the processing capacity. Otherwise, you have to do the slaughtering to take into account animal welfare. That's why the $77.5 million program placed particular emphasis and priority on applications from the meat processing sector.
:
Thank you, Chair, and to the witnesses who are appearing before us today.
Yesterday I had a meeting with representatives from UFCW, which represents approximately 70,000 workers in processing plants across Canada. I'm happy to hear the acknowledgement that labour is a critical part of the puzzle, because indeed it is. However, during the course of my meeting with UFCW, they clearly raised some ongoing concerns they had for the safety of their members.
If we acknowledge the important part that labour plays...I want to reiterate to members of the committee and our witnesses that UFCW did submit to department seven recommendations for best practices. Even with the timeline we are on right now, and with all that we know about COVID-19, they found that in some cases recommendations were adopted and followed, but in many cases they were not.
With COVID numbers now on the rise again, and the vulnerability we've already seen in our supply chain, with some processing plants having to shut down, why is the CFIA not stepping in to enforce these consistently applied protocols to protect the health and safety of our workers?
:
So I understand that the funds are depleted, the needs haven't been met and more money is needed.
I'm going to move on and talk to the Canadian Food Inspection Agency representatives.
At a convention of the Union des producteurs agricoles, or UPA, in 2019, a cheese producer spoke. She said she herself found samples of 23 foreign cheeses that did not pass 200 inspection points. Quebec's minister of agriculture, fisheries and food, Mr. Lamontagne, who was on hand, responded by saying he wants to be a leader in standards reciprocity.
At present, it seems that we are having difficulty establishing reciprocity of standards. If we want our processors to be dynamic and present everywhere, there needs to be a level playing field for products coming into Canada from abroad.
Do you have an action plan to increase resources for this purpose? How do you see this problem?
Thank you, Mr. MacGregor.
Unfortunately, that's all the time we have for the first hour.
I want to thank the Canadian Food Inspection Agency, Ms. Iuliano and Ms. Tammy Switucha; and also the Department of Agriculture and Agri-Food, Mr. Warren Goodlet, Monsieur Frédéric Seppey and Marco Valicenti; and also the Department of Industry, Sheryl Groeneweg.
I thank you all for updating us on the situation in the food processing sector in Canada and also for your hard work in keeping Canadian food and Canadian people safe. Thank you so much.
We shall have a small break for a few minutes to bring in the next panel. The clerk will let us know when we're ready. Thank you so much, all of you.
:
Welcome to the second hour, and to the second panel for our study on processing.
From the Deans Council-Agriculture, Food and Veterinary Medicine, we have Martin Scanlon, dean of the faculty of agricultural and food sciences at the University of Manitoba;
[Translation]
We also have Christine Theoret, dean of the faculty of veterinary medicine of the Université de Montréal.
[English]
from Food, Health and Consumer Products of Canada, we have Michael Graydon, chief executive officer;
[Translation]
Finally, we have Jean-Sébastien Gascon, director general of the Société des parcs d'engraissement du Québec of Boeuf Québec.
You each have seven and a half minutes for your presentations.
[English]
Mr. Scanlon, we'll begin with your opening statement.
:
Thank you very much for the opportunity to speak here today on behalf of the Deans' Council to discuss food processing in Canada, a topic that's even more critical in light of the COVID-19 pandemic.
After a brief introduction to the Deans' Council—Agriculture, Food and Veterinary Medicine faculties, we wish to address two things. The first is the importance of innovation and innovation training for building an internationally competitive food processing sector. Second is the importance of taking an integrated approach to the continuum that is environmental health, animal health and human health. Canada's food processing industry is an integral part of that continuum.
The Deans' Council is a pan-Canadian network of eight agricultural faculties and five veterinary colleges for training, research and knowledge translation. It's really a core to the national ecosystem in food, agriculture and health. Indeed, as one of the world's most advanced producers of food, Canada does have a leadership role to play in meeting the expanding requirement of the globe for quality nutrition.
As a result, Canada's communities and trading partners must have confidence in the integrity, resilience and safety of our food system. It's important to emphasize that the Deans' Council faculties not only hold the talent, but they're also responsible for developing the talent and the knowledge that will enable the tremendous economic and export growth potential of Canada's agri-food sector to be realized.
Our faculties also contribute to public confidence in the integrity and safety of Canada's food system, and they also shield it and potentially also our health care system from future infectious disease incursions, food safety threats and environmental risks.
About a year ago the Deans' Council worked with Industry, Science and Economic Development Canada to produce a report examining the path to growth for Canada's food and beverage processing sector. More specifically, ISED asked us how the Deans' Council could help cultivate a skilled, innovation-minded workforce. How could we also marshal the enormous research and development capacity within our faculties to address the short, medium and long-term goals of a transformed food sector?
In the report to ISED Canada, we made various recommendations that our analysis showed were necessary for attracting a diverse set of students to our faculties, and that way we could ensure that there was a broad range of ideas and creative solutions to both ingredient and process innovations.
One recommendation was the need for renewal of core infrastructure that is absolutely vital for student training as well as for research. It's worth noting that hundreds of scientists and indeed thousands of students in our faculties conduct internationally recognized research that fuels ingredient innovation for Canada's crops and livestock. They also devise process science innovations for retooling Canada's small to medium-sized enterprises. As you're likely aware, it's these SMEs that dominate Canada's food processing landscape.
When we did this, though, as deans we recognized that we couldn't take a narrow perspective on just renewal of infrastructure for the food process sector, because consumer choice and confidence in food is increasingly driven by considerations of this important lifeline between human health, animal health, plant health and environmental health. The intimacy of this lifeline is recognized through a one-health concept, a concept that's been endorsed by the World Health Organization and the Food and Agriculture Organization as the way to tackle zoonotic disease threats.
Renewal of the research, innovation and training capacity in our veterinary and agriculture facilities must be a priority if we're realistic in our aspirations to turn natural capital, through our human capital, into an international leadership position for our agri-food industry.
An investment into unique, cutting-edge, highly connected national initiatives will provide the evidence that Canada is willing to protect its borders and its communities from current and future infectious diseases and food safety threats. The investment will also fundamentally strengthen Canada's economic recovery from this pandemic and prepare us for future pandemics.
The first of these investments, “growing Canada”, is directed to training and research capacity in sustainable ag and food processing. This will integrate the academic innovation that's spread across the country for the prospering of Canada's agriculture and food processing sectors. The second, “one health Canada”, will integrate science and data-driven approaches to human, animal and environmental health risks: these risks have been starkly evident over the past year, but it will also propose solutions to these threats. These two initiatives are interconnected and interdependent, and both are vital elements for the economic and social progress of a growing agri-food sector.
As Monsieur Seppey had talked about earlier on, this is warranted not only by the size of the industry, its importance to our national economy, but also its effect on the employment sector. One point Monsieur Seppey emphasized is the fact that both these metrics, the employment and the size of the sector, are growing faster in the agri-food sector than in other sectors of the economy.
In closing, the Deans' Council would emphasize one salutary lesson from COVID: we cannot take our food system for granted. We ask you to use the Deans' Council as a valuable resource for both building talent and knowledge creation for the agri-food sector. It's this innovation-focused perspective on the development of the tools and the talent in agri-food and veterinary science that will sustainably fashion the long-term economic and social benefits of Canada's agri-food system.
Thank you.
:
Good afternoon, Mr. Chair and members of the committee.
I'm Michael Graydon, chief executive officer of Food, Health and Consumer Products of Canada, the leading voice of Canada's largest manufacturing employers. The food, health and consumer products sector employs more than 350,000 Canadians across businesses of all sizes that manufacture and distribute the safe high-quality products that are at the heart of healthy homes, healthy communities and a healthy Canada.
We transform Canada's agricultural riches into value-added finished goods that feed families here at home and around the world. We work closely with Canadian farmers and are the single largest employer in rural Canada, serving as a critical link between rural and urban communities. We are present in every region across the country, providing good-paying jobs, strengthening communities and adding more than $39.9 billion to the economy each year.
Key initiatives like the national food policy, the agri-food economic strategy table and the food processing industry round table have all recognized the critical importance of the agri-food industry, and in particular the potential for value-added food manufacturing to make Canada a global leader in food production and innovation. Our sector is a necessary engine for jobs, growth and self-reliance.
Today I'll focus on two of the top constraints facing the Canadian food-manufacturing industry: first, a chronic and growing labour shortage that has left one in 10 job vacancies in our sector unfilled; second, unfair practices from grocery retail giants that harm Canadian farmers, grocery suppliers and consumers.
For Canada to be an attractive destination for investment, we must be able to attract and retain workers, yet labour gaps continue to worsen for food manufacturers, with nearly 28,000 job vacancies. Jobs in our sector pay well and should be in demand. Hourly wages for food manufacturers have increased by 16% compared to the previous year, with an average wage of $24 an hour. That's 60% higher than the highest provincial minimum wage. Food manufacturers have also stepped up to invest heavily in keeping workers safe through the COVID-19 crisis, to provide incentives to workers and to increase employee engagement and appreciation incentives.
Despite our efforts, labour challenges persist, and we ask the government to incentivize unemployed Canadians to take these jobs, to continue to help ensure predictable and timely access to workers outside of Canada to fill the domestic labour gap, to provide support and incentives for companies to invest in automation, and to convene a round table with food manufacturers to discuss these labour challenges and work together towards solutions.
If Canada truly prioritizes jobs and growth, it must also urgently correct the second constraint that I'd like to raise today: unfair practices by a handful of powerful grocery retail giants. Just five grocery retailers control more than 80% of Canada's grocery stores and drugstores, creating a significant power imbalance over manufacturers, farmers, suppliers, small retailers and consumers.
Some grocery retail giants have exploited this power to impose unfair and unethical business practices that hurt everyone else who grows, makes, buys or sells food and other essential products. For far too long, some large grocery retailers have used farmers and suppliers as a piggy bank, imposing arbitrary fees, raising costs and paying suppliers less than they are owed, all while charging shoppers more and more.
The consequences are severe. When farmers and suppliers are forced to pay retail giants' bills, they struggle to pay their own and must cut back on innovating new products, investing in new facilities and creating new jobs. Made-in-Canada food becomes more expensive, and our food system weakens. Consumers have fewer, more expensive choices; workers lose job opportunities; and, Canada is already losing investment to more competitive countries.
Now, in the midst of the ongoing pandemic, companies like Loblaw and Walmart have doubled down on this bullying behaviour, forcing suppliers to fund retailers' expansion, all while making record profits. New fees imposed by Walmart and Loblaw alone cost suppliers an estimated $1 billion per year, bringing the total cost of getting and keeping products on store shelves to an estimated $6 billion a year, with no tangible benefit to the suppliers or to consumers.
Canada's grocery giants may control the majority of stores and shelves in the country, but it's time that we all remember there would be nothing to sell without food and other grocery suppliers.
Proven models, such as the U.K.'s groceries supply code of practice, with a dedicated enforcement agency, have shown significant success in restoring balance and fairness to the relationship between grocery retailers and the suppliers, while keeping food-cost inflation low. A recent statutory review confirmed that the U.K. code has improved communication, collaboration and efficiency while maintaining flexibility in the food supply chain. It resulted in clear benefits for all stakeholders. The code's results prove that strong oversight and good governance are good for business and good for consumers.
We are calling on the provinces and territories to lead the way in implementing an enforceable code of conduct, similar to the U.K. model, that holds large grocery retailers accountable for fair treatment of suppliers. We also urge the federal government's leadership to develop a common framework that would be used by provinces and territories to avoid a patchwork approach of various codes of conduct.
It is long past time for governments to take seriously the negative consequences of unfair practices by Canada's grocery giants. Leaders across the supply chain agree that failing to do so will threaten food security in this country, weaken our essential supply chains, hurt consumers and jeopardize Canadian growth, jobs, and the COVID-19 recovery.
I thank you, Mr. Chairman, for your time.
:
Distinguished parliamentarians, I would like to begin by thanking you for this invitation. I'm honoured, excited even. I love the level of consideration this committee gives to issues. This is the first time I've been invited to appear before a federal committee. It's very exciting for me. I hope my presentation will interest you in some way.
Globalization puts Quebec and Canadian beef production in competition with the world. It's a commercially unstable industry, highly complex and high-risk. This is why the processing sector is concentrated in the hands of a few giants.
I would like to highlight four elements that illustrate the challenges we face.
The free market exposes beef producers and processors to highly volatile prices, and few businesses survive. Several countries have abundant and inexpensive labour, including the United States, Mexico and Brazil. Regulations lack reciprocity. Beef is imported from producers who are subject to production standards that are lower than Quebec's, both in terms of animal health and welfare and the environment. The same is true for producers in the rest of Canada. Finally, several governments support their processing sector financially.
Boeuf Québec is an innovative initiative for the recovery of the industry. Sales are doubling every four to six months, and we hope that this pace will be maintained for the next two years, even though it is still a small industry.
How can the government support the Boeuf Québec program so that we can seize the opportunities? The Boeuf Québec program is simple, and I'll tell you a big secret later. It is based on four key elements to strive for excellence and be among the best in the world. The government assistance announced today must help us innovate to meet these four major challenges. What are they?
First, we need to better respond to consumer demands. Indeed, the consumer is the final arbiter of our project.
Second, there is a need for better vertical coordination from farm to table, because collaboration between the links in the production chain leads to significant gains in productivity and agility. Mr. Graydon pointed out the difficulties of working with distributors and major brands.
Thirdly, we must start the race for greater business productivity. If we want a relaunch, we must seek better value and profitability for all businesses, especially processors, slaughterhouses and producers. In Canada, there is no recovery in the beef industry, and it's even worse in Quebec.
Fourth, we need to increase the competitiveness of the business environment. We need to innovate to better manage risk, better regulate, train the workforce, and foster research, investment and innovation. Government support is an essential lever to offset global disparities. It's clear that we aren't on a level playing field with the rest of the world.
The needs are clearly expressed to accelerate the Partenaires Boeuf Québec program, which takes the same direction as the Canadian Beef program. The challenge of such a program is to make it work on a large scale, and all partners have a stake in making it work.
On a more concrete level, I will now say a few words about productivity.
The key element that will require the most investment over the next few years is productivity. There will be no revival of production and processing in the Boeuf Québec industry without an increase in business profitability. I'm convinced that this is the same challenge across Canada.
As far as producers are concerned, one of Boeuf Québec's objectives is to increase production profitability by 6% by launching a pilot project in 2021. More value must be produced at lower cost. Today, this means innovating, selling better and producing better. That's how we'll get producers to invest and produce more.
As far as slaughterhouses and processors are concerned, we can now turn our weak links into a driving force. We have several slaughterhouses that are federally inspected. Surprisingly, in Quebec, slaughterhouses are constantly being shut down or doing other activities because they can't do it. Some provincially inspected slaughterhouses demonstrated during the pandemic that they have a tremendous capacity for strategic slaughter. Again, if left to their own devices, they won't be able to do it.
We need to make a radical technological shift. Technology allows us to manage the complexity of a project like Boeuf Québec's and allows us to be more productive. We need to make a radical technological shift in production and processing now. This is synonymous with automation, robotization, industry 4.0, blockchain. We have to focus on innovation, otherwise we won't be able to compete on a level playing field with other countries.
We are currently working on a blockchain project that will change the way we produce. We need the government to make this chain a technological leader and to compete with the giants that dominate this industry. You've probably already seen the robots coming into the factories at high speed. In five years, if we haven't innovated, we'll be dead.
I brought a note. Currently, there are two destabilizing issues in the processing sector that need to be seen and understood. The first one is technology—I think I've expressed it pretty well. A comet is coming towards us, and if we don't turn the corner now, I think it'll be too late in five years. The second earthquake came with the pandemic crisis. North America has been undercapacity in slaughter for years.
[English]
In “Business Insider” it says:
The era of big beef may be over as Americans turn to small-scale butchers in the pandemic.
The COVID-19 pandemic has exposed the fragile nature of America's meat supply chain as tens of thousands of meat industry workers fell sick, and hundreds died. Small-scale farms have seen a huge spike in demand as consumers search for alternative meat sources. Right now, 80% of the US beef market is controlled by four huge meat producers, and they're the target of a Justice Department antitrust investigation.
[Translation]
The current context is particular. There is an undercapacity in slaughter, and we are faced with the need to make not only a technological shift, but also a shift in relation to the consumer. The consumer is asking more questions and is willing to ask more questions. Demand must be met now.
For years, the beef production sector was viewed as a commodity producing system. In a sense, that era may be coming to an end. That's where we come in, and I go back to the strategic points I mentioned earlier: the consumer, productivity, vertical coordination and competitiveness.
My goal is for us to in some way become the Cirque du Soleil of the beef industry in North America. To do so, we subscribe to a marketing strategy called the “blue ocean”. In my opinion, that's what we're achieving through Boeuf Québec. We want to surprise you.
I, for one, find it quite exciting to have conversations like the one being held today with Canada's leaders in this field. However, I believe that we need to be able to—
I'd like to begin by thanking all of the witnesses for their testimony.
I'd like to focus my questions on one of the barriers that was identified to increasing processing capacity, namely that of retailer concentration, which obviously has been in the news recently. Through you, Mr. Chair, I'd like to direct some questions to Mr. Graydon.
Thank you for your testimony and thank you very much for the very comprehensive briefing note that covered almost all of the questions I had prepared.
I'd like to begin at the end of the value chain with the consumer. Yesterday StatsCan published the last monthly CPI report. It was up again 0.7%. It's up 1% apart from gasoline, and that's being led by rising food prices.
How, though, is the consumer being affected by these trade relationships? How is it possible that the consumer can benefit from the behaviours in the industry if those are corrected between the suppliers and farmers to manufacturers and processors? If they all receive a fairer price for their product, won't that raise prices for consumers?
:
Yes, there are major opportunities for contraction, unfortunately. Ninety per cent of the food manufacturers in this country are small to medium enterprises that employ fewer than 100 people. They do not have the financial flexibility to continue in this environment. They're vulnerable. They're running, sometimes, at less than a 3% margin. They are very vulnerable. Their ability to sustain business is going to be very difficult.
The large multinationals have other options. They have a much broader portfolio to work with and a lot more power to negotiate. Quite honestly, they have production options, which, fundamentally, are moving or transitioning their manufacturing to the United States and using Canada as a distribution centre.
What happens to agriculture is it loses its key business connection. In the province of Ontario, our industry takes over 60% of the agricultural output, and on average across Canada, 50%. All of a sudden you lose those markets, you lose that opportunity within 100 kilometres of your farm to be able to process that. You become a purveyor of commodities.
I think the margins and the impact on the farm and agriculture will be significant. It will be a cascading effect. There will be lost jobs, and I think, lost profitability, success and sustainability of the strong agriculture we're very proud of here in this country.
:
The more we advance in this project, actually....
[Translation]
Can I answer in French?
[English]
Will you understand if I answer in French?
Okay.
[Translation]
The more this project progresses, the more we discover the margins that are hidden everywhere, all along the value chain. By taking into account all these small margins that are being added and by coordinating the industry more and more closely, we are succeeding in lowering the price to the consumer to make it more competitive.
This is where the importance of vertical coordination must be recognized. With this approach, we get the players working together, and we are then able to offer a price that is almost like a commodity.
We have a choice: compete with the commodity sector or create additional value. It's a very nice choice, honestly, except the difficulty is that no one in this industry gives themselves gifts. I'm using the same direction that Canadian Beef is going in, but we're not doing it right.
:
Thank you very much, Mr. Chair.
I would also like to follow my colleagues in thanking our witnesses for appearing before the committee. Your testimony is very helpful in the formulation of our report.
In previous meetings at this committee we've talked a lot about the powerhouse that Canada is when it comes to exports. However, I want to swing the pendulum back to our local food capacity.
I represent a riding on Vancouver Island, and it's estimated that here on Vancouver Island we probably have about a three-day supply of fresh food. If something catastrophic were to happen to supply chains, then we would be feeling quite the pinch. I know there are many communities across country that would feel the same kind of pressures. It's a bit of an irony that we are a huge food producer, but we still have many examples of food insecurity across Canada.
Maybe, Professor Scanlon, I'll start with you because I know you've written on this topic, and I really appreciated your remarks on resiliency. That's a theme I really identify with.
Do you have any thoughts for the committee on how we build up that kind of resiliency and establish conditions, such as through programs like the local food infrastructure fund, to improve or increase the capacity and resiliency of smaller communities to have that kind of food security?