AGRI Committee Meeting

37th PARLIAMENT, 3rd SESSION

Standing Committee on Agriculture and Agri-Food

EVIDENCE

CONTENTS

Monday, March 22, 2004

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1535

The Chair (Mr. Paul Steckle (Huron—Bruce, Lib.))

Hon. David Kilgour (Edmonton Southeast, Lib.)

The Chair

Hon. David Kilgour

The Chair

Mr. Howard Hilstrom (Selkirk—Interlake, CPC)

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1540

The Chair

Mr. Howard Hilstrom

The Chair

Mr. Howard Hilstrom

The Chair

Mr. Howard Hilstrom

The Chair

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.)

The Chair

Mr. Rick Borotsik (Brandon—Souris, CPC)

Hon. David Kilgour

Mr. Rick Borotsik

The Chair

Mr. Rick Borotsik

The Chair

Mr. Rick Borotsik

The Chair

Hon. Wayne Easter (Malpeque, Lib.)

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1545

The Chair

Mr. John O'Reilly (Haliburton—Victoria—Brock, Lib.)

The Chair

Mr. Ben Thorlakson (Chairman, Canada Beef Export Federation)

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1550

The Chair

Mr. Nick Jennery (President, Canadian Council of Grocery Distributors)

The Chair

Mr. Nick Jennery

Ms. Kim McKinnon (Vice-President, Communications, Canadian Council of Grocery Distributors)

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1555

º

1600

Mr. Paul Fortin (Vice-President, Fresh Foods Merchandise & Procurement, The Great Atlantic & Pacific Company of Canada Limited, Canadian Council of Grocery Distributors)

The Chair

Mr. Howard Hilstrom

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1605

Ms. Kim McKinnon

Mr. Howard Hilstrom

Ms. Kim McKinnon

Mr. Howard Hilstrom

Mr. Paul Fortin

Mr. Howard Hilstrom

Mr. Paul Fortin

Mr. Howard Hilstrom

Mr. Paul Fortin

Mr. Nick Jennery

Mr. Howard Hilstrom

Ms. Kim McKinnon

Mr. Howard Hilstrom

Ms. Kim McKinnon

Mr. Howard Hilstrom

Ms. Kim McKinnon

Mr. Nick Jennery

Mr. Howard Hilstrom

Mr. Ben Thorlakson

Mr. Howard Hilstrom

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1610

Mr. Ben Thorlakson

The Chair

Mrs. Suzanne Tremblay (Rimouski-Neigette-et-la Mitis, BQ)

Mr. Paul Fortin

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1615

Mrs. Suzanne Tremblay

Mr. Paul Fortin

Mrs. Suzanne Tremblay

Mr. Paul Fortin

Mrs. Suzanne Tremblay

Mr. Paul Fortin

Mrs. Suzanne Tremblay

Mr. Paul Fortin

Mrs. Suzanne Tremblay

Mr. Paul Fortin

Mrs. Suzanne Tremblay

Mr. Paul Fortin

Mrs. Suzanne Tremblay

Mr. Paul Fortin

Mrs. Suzanne Tremblay

Mr. Paul Fortin

Mrs. Suzanne Tremblay

Mr. Paul Fortin

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1620

The Chair

Mr. John O'Reilly

Mr. Paul Fortin

Mr. John O'Reilly

Ms. Kim McKinnon

Mr. John O'Reilly

Ms. Kim McKinnon

Mr. John O'Reilly

Ms. Kim McKinnon

Mr. John O'Reilly

Ms. Kim McKinnon

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1625

Mr. John O'Reilly

The Chair

Mr. Ben Thorlakson

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1630

The Chair

Mr. Ben Thorlakson

The Chair

Mr. Ben Thorlakson

The Chair

Mr. Howard Hilstrom

The Chair

Mr. Howard Hilstrom

The Chair

Mr. Rick Borotsik

Mr. Ben Thorlakson

Mr. Rick Borotsik

Mr. Ben Thorlakson

Mr. Rick Borotsik

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1635

Mr. Paul Fortin

Mr. Rick Borotsik

The Chair

Mr. Paul Fortin

Mr. Rick Borotsik

Mr. Paul Fortin

Mr. Rick Borotsik

The Chair

Mr. Rick Borotsik

Mr. Ben Thorlakson

Mr. Rick Borotsik

The Chair

Mr. Larry McCormick

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1640

Mr. Nick Jennery

Mr. Larry McCormick

Mr. Nick Jennery

Mr. Larry McCormick

Mr. Nick Jennery

Mr. Larry McCormick

The Chair

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.)

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1645

Ms. Kim McKinnon

Mrs. Rose-Marie Ur

Ms. Kim McKinnon

Mrs. Rose-Marie Ur

Ms. Kim McKinnon

Mr. Paul Fortin

Mrs. Rose-Marie Ur

Mr. Paul Fortin

Mrs. Rose-Marie Ur

Mr. Paul Fortin

Mrs. Rose-Marie Ur

Mr. Ben Thorlakson

The Chair

Mr. Howard Hilstrom

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1650

Mr. Ben Thorlakson

Mr. Howard Hilstrom

Mr. Ben Thorlakson

Mr. Nick Jennery

Mr. Paul Fortin

Ms. Kim McKinnon

Mr. Howard Hilstrom

The Chair

Hon. David Kilgour

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1655

Mr. Ben Thorlakson

Mr. Nick Jennery

Hon. David Kilgour

Mr. Ben Thorlakson

Hon. David Kilgour

Mr. Ben Thorlakson

Hon. David Kilgour

Mr. Ben Thorlakson

The Chair

Hon. David Kilgour

The Chair

Mr. Ken Epp (Elk Island, CPC)

Ms. Kim McKinnon

Mr. Ken Epp

Mr. Nick Jennery

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1700

Mr. Ken Epp

Mr. Paul Fortin

Mr. Ken Epp

Mr. Nick Jennery

Mr. Ken Epp

The Chair

Mr. Claude Duplain (Portneuf, Lib.)

»

1705

Mr. Paul Fortin

Mr. Claude Duplain

Mr. Paul Fortin

Mr. Claude Duplain

Mr. Paul Fortin

Mr. Claude Duplain

Mr. Ben Thorlakson

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1710

The Chair

Mr. Ben Thorlakson

Mr. John O'Reilly

Mr. Ben Thorlakson

The Chair

Mr. Rick Borotsik

Mr. Ben Thorlakson

Mr. Rick Borotsik

Mr. Ben Thorlakson

Mr. Rick Borotsik

Mr. Ben Thorlakson

Mr. Rick Borotsik

Mr. Paul Fortin

Mr. Rick Borotsik

Mr. Paul Fortin

Mr. Rick Borotsik

Mr. Paul Fortin

Mr. Rick Borotsik

Mr. Paul Fortin

Mr. Rick Borotsik

Mr. Paul Fortin

Mr. Rick Borotsik

The Chair

Mr. Gilbert Barrette (Témiscamingue, Lib.)

Ms. Kim McKinnon

Mr. Gilbert Barrette

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1715

Mr. Paul Fortin

Mr. Gilbert Barrette

Mr. Paul Fortin

Mr. Gilbert Barrette

Mr. Paul Fortin

Mr. Gilbert Barrette

Mr. Paul Fortin

Mr. Gilbert Barrette

Mr. Paul Fortin

Mr. Gilbert Barrette

The Chair

Hon. Mark Eyking (Sydney—Victoria, Lib.)

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1720

Mr. Nick Jennery

Hon. Mark Eyking

Mr. Paul Fortin

Mr. Nick Jennery

Hon. Mark Eyking

The Chair

Mr. Nick Jennery

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1725

The Chair

Mr. Paul Fortin

The Chair

Mr. Paul Fortin

The Chair

Mr. Paul Fortin

The Chair

Mr. Paul Fortin

The Chair

Mr. Paul Fortin

The Chair

Mr. Paul Fortin

The Chair

Mr. Ben Thorlakson

The Chair

Mr. Ben Thorlakson

The Chair

Mr. Ben Thorlakson

The Chair

Mr. Ben Thorlakson

The Chair

Mr. Ben Thorlakson

The Chair

Mr. Ben Thorlakson

The Chair

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CANADA

Standing Committee on Agriculture and Agri-Food

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NUMBER 009

l

3rd SESSION

l

37th PARLIAMENT

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EVIDENCE

Monday, March 22, 2004

[Recorded by Electronic Apparatus]

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[English]

    The Chair (Mr. Paul Steckle (Huron—Bruce, Lib.)): As per the orders of the day, I call the meeting to order. The first order of business is to deal with a motion submitted by Mr. David Kilgour. This was submitted, of course, more than 48 hours ago. I believe each one has a copy of that motion. Is that correct?

    Mr. Kilgour, do you want to speak to the motion?

    Hon. David Kilgour (Edmonton Southeast, Lib.): Yes, Mr. Chairman. I understand we have a legal opinion saying we're entitled to have the financial records of witnesses who appear at this committee. That's what the motion is designed to do.

    I have a letter that I would like to file as an exhibit. I'm told this can be used as a public document. It's from Swift & Company in Greeley, Colorado, dated March 3, 2004, and it makes a number of important points. It points out, for example:

Canadian cattle have sold for an average of $275 per head less than comparable domestic cattle

    --that's of course U.S.--

enabling Canadian processors to undercut U.S. processors in our own marketplace. For Swift, that equates to a $240 million difference in price between Canadian and domestic cattle for the past quarter alone.

    There's one other quote, if I may, from the letter:

In the past four months alone, we estimate that the financial loss to a single beef processing community--Greeley, Colorado--exceeds $100 million from diminished economic activity due to declining production levels. Extrapolating from that one situation, we believe that nearly $2.5 billion may have been lost nationwide.

    It seems to me the entire letter makes the point convincingly that something is way out of whack. It seems to me that Canadians, cow-calf operators, and feed lot operators would be happy to hear about the kinds of profits that are being made by the two companies at issue.

    The Chair: On your point of providing that as an exhibit, I'm going to accept that as an exhibit. I'm going to ask you to withhold it and have it translated and brought to our Wednesday meeting. Would that be possible?

    Hon. David Kilgour: Shall I give it to the clerk now or bring it back translated?

    The Chair: You can do it right now, or you can hold it and bring it back in both languages on Wednesday.

    Mr. Hilstrom.

    Mr. Howard Hilstrom (Selkirk—Interlake, CPC): We still have a problem with this member, David Kilgour, entering exhibits here. Previously he entered an exhibit claiming that a graph with financial information on it was prepared by the George Morris Centre. We have it here, but the George Morris Centre has denied that it was their document. We have a real problem with this member putting in exhibits that we have no way of verifying.

    We need to have exhibits come from the presenters, and then their veracity can be attributed to them. This member is bringing forward things that we have no way of knowing.... In fact, we have already caught him once delivering a document that was a forgery.

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    The Chair: That gets into a debate. We're not going to do that today.

    Mr. Howard Hilstrom: I would like your decision, Mr. Chair, on the graph that is not from the George Morris Centre. We're going to use it to make up our report, and that's wrong.

    The Chair: Mr. Hilstrom, we're not going to enter into that today. That has been accepted. We're dealing with another presentation today. I've accepted it, based on the fact that it will be in both languages. We'll be receiving that on Wednesday. I think it's quite fair to say that the document we're getting today came from a certain source that has already been indicated.

    Mr. Howard Hilstrom: Why can't we have that source come here and present it, instead of having it come through a member?

    The Chair: We can't have everybody come here.

    Mr. Howard Hilstrom: We can so have people come here to present. We've got time to do it.

    The Chair: We're discontinuing that one.

    We're going to you, Mr. McCormick.

    Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you, Mr. Chair.

    I'm not qualified to talk about the exhibit, but I would like to make a short comment about the motion submitted by Mr. David Kilgour. I've been here for a few years. I was at all the meetings with the packers, and I've certainly heard all the official answers. They tell us they made no extra money; in fact, they lost money for months. Then they made a little money. So I think it's fair to them, to us, and to all Canadians that we give them the opportunity to provide and display their profit and loss sheets and to bring full documentation.

    Thank you, Mr. Chair.

    The Chair: Mr. Easter wanted in on this, I know, but he's not here.

    Yes, Mr. Borotsik.

    Mr. Rick Borotsik (Brandon—Souris, CPC): Mr. Kilgour mentioned in his preamble that he received a legal opinion on whether the financials--

    Hon. David Kilgour: No, the committee received advice, to my understanding.

    Mr. Rick Borotsik: Well, that understanding is beyond my understanding.

    Does the committee have a legal opinion on whether we can demand financials from a private corporation?

    The Chair: Yes, we can.

    Mr. Rick Borotsik: We can ask for this from a private corporation, but can they deny it? We can ask just about anything, I suspect, of anybody, but if they don't want to give the information, then that's kind of a moot point. So you're saying also that they have a right, as a private corporation, to deny to table that financial information. Is that correct?

    The Chair: Of course, what we then can do, and would do, is report to the House that they have declined to come or to present us with the information we've asked for.

    Mr. Rick Borotsik: If I may take 30 seconds here, Mr. Chairman, that seems to me to be somewhat heavy-handed. We had heard from the three major slaughterhouses that in fact they gave us, to the best of their knowledge and information, what their financial positions had been over the past 10 months vis-à-vis BSE. However, they also said that being private sector, they would find it difficult, obviously, if there were some government interference.

    We know right now there's a lack of slaughter capacity or slaughter facilities in this country, and I would hate to jeopardize that type of business or industry within the country. Obviously, it feeds into the whole agricultural cattle industry. I just think we should go very carefully in terms of how we demand information from these people.

    The Chair: Thank you, Mr. Borotsik.

    As I think I have said time and time again, this is not a witch hunt we're on here, but for public disclosure, for the public to understand what has gone on in this industry, we have a responsibility here as members of Parliament. Large numbers of government dollars have been poured into this industry, and we'd like to know where those dollars went, whether they ended up at the retail end or wherever.

    I have to go to Mr. Easter, who is next on the list of debaters.

    Hon. Wayne Easter (Malpeque, Lib.): Thank you, Mr. Chair.

    With respect to the motion, I agree that we have to get to the bottom of the matter and find out where the money went. But when you're dealing with a private company's financial information, when you're dealing with, I would expect, their marketing information as well, and information that's high priority to them, what are the rules of the committee and the members thereto in terms of protecting the confidentiality of those documents? That I need to know.

    We are dealing with private companies, Mr. Chair, and I hate to have to go as far as asking for their financial information. At the same time, you do not want to.... We may have a bone to pick with these companies, that's true, but I would not want to see any committee member or the committee itself jeopardize the financial ability of the company into the future.

    So we need to know the rules around this procedure and also the consequences for a member of Parliament should they break what are, I expect, pretty strenuous confidentiality rules should they have access to that information.

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    The Chair: That's a fair comment, Mr. Easter. One thing we certainly can and would do in that case is hold those meetings in camera. Of course, we all know the rules surrounding our confidentiality, and breaching confidentiality, so I think that would be respected.

    Mr. O'Reilly.

    Mr. John O'Reilly (Haliburton—Victoria—Brock, Lib.): Thank you very much, Mr. Chairman.

    I'm going to express my reservations on the motion. I come out of the private sector, and the last thing I'd want would be to give all my information to the competition. So this kind of breaches my principles. I think we have a right to know what they paid for beef and what they sold the finished product for, but I don't think their profit margin is actually something that....

    In my own case, I know I certainly wouldn't want my competition to know exactly how much I made on every transaction I made. Some of them you lose money on, some of them you make money on, and you hope you make a profit at the end of the year. But you try to do what's right, and I think that's the way most industries and private businesses operate, or at least to my knowledge.

    So it would have to be extremely specific what it is we're asking for before I could breach what I feel would be a code that government shouldn't be allowed into.

    The Chair: I'm going to use my powers because we're intruding into our guests' time. I'm going to suggest that we put this in abeyance for today and seek further counsel. I think we pretty much know where we can go and what we want to do; we wouldn't have brought it to a head without knowing that. Let's give ourselves some time to think about this and bring it back perhaps at our next meeting.

    Then we want to move on to the orders of the day and basically continue our review of what we think has been a very difficult issue, not only for the primary producers. We have a sector of Canadians, including all of us, I guess, the consuming public, looking at the price of beef in the stores and looking at some of the editorializing that's being written in our papers in terms of what farmers are getting at the gate for their animals. There seems to be a tremendous discrepancy.

    Today, we are the group that is kind of in the middle of all of this. Some of us catch ourselves--Liberals particularly, because they are usually found in the middle. You must be Liberals today, coming to the table and getting yourselves caught in that situation.

    Anyhow, we're going to be studying the matter of the pricing of beef at the slaughter, wholesale, and retail levels in the context of the BSE crisis in Canada.

    We have with us today, from the Canada Beef Export Federation, Ben Thorlakson, chairman. Mr. Ted Haney is not here today, but he was intending to be here.

    Most of the people who are here have been here before, and we thank you again for being present today

    From the Canadian Council of Grocery Distributors, we have Nick Jennery, president of the grocery distributors; Kim McKinnon, vice-president, communications--she, from time to time, in fact quite regularly, communicates with our office; and Paul Fortin, vice-president, fresh foods merchandise and procurement, The Great Atlantic & Pacific Company of Canada Limited.

    We want to thank you for coming. You have a presentation. We would entertain ten to fifteen minutes. If you can make that concise and package it in that way, we'll hear it and then we'll get into the questioning.

    Mr. Thorlakson, first.

    Mr. Ben Thorlakson (Chairman, Canada Beef Export Federation): Thank you, Mr. Chairman, and members of the committee.

    My name is Ben Thorlakson. I am currently the chairman of the Canada Beef Export Federation. In real life I'm a cattle feeder. I operate a feedlot with 20,000 head north of Calgary, so I have considerable interaction with the packers.

    My presentation today primarily dwells with the activities of the Canada Beef Export Federation, but I'd be very happy, in the question period, to address any questions of price discovery and packer feedlot interaction.

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    The Chair: Thank you, Mr. Thorlakson.

    We'll move to Mr. Jennery.

    Mr. Nick Jennery (President, Canadian Council of Grocery Distributors): Thank you, Mr. Chairman, and members of the committee. Thank you for inviting us.

    We're here to help, as always. We acknowledge the difficulty the committee has in understanding the mechanics of the industry. I hear your point, Mr. Chairman, about being blunt and to the point, so we look forward to your questions.

    I have with me Kim McKinnon, who from day one has dealt with all of the media and consumer inquiries on behalf of our industry. She has also monitored the measurements in terms of sales, pricing, and tonnage. I think that will be useful for you. I also have Mr. Paul Fortin, who looks after all of the buying and procurement for fresh products, including beef, for A&P. He has been doing so for some 38 years, so he has a considerable amount of experience.

    With your permission, I'd like to take about eight or nine minutes to frame it for you.

    The Chair: Yes.

    Mr. Nick Jennery: Very quickly, we are a national association representing all of the major distributors. When I say major distributors, these are small, medium, and large chains from coast to coast, from Thrifty Foods on Vancouver Island through to Colemans in Newfoundland. We have about $64 billion in sales. We represent about 80% of the product that finds it way to the grocery shelf, and that $64 billion travels through about 8,300 stores.

    At this point, I'd like to quickly get to the point and give the committee an update on what has been going on at the retail level. I'll ask Kim McKinnon to give you the numbers.

    Ms. Kim McKinnon (Vice-President, Communications, Canadian Council of Grocery Distributors): We've distributed the presentation to you, so if you look at the second page, where it says “The Facts”, I can just take you through that. The last time we were here in July we were speaking theoretically, as opposed to having hard samples of what the pricing was going to look like, because we were here early in July.

    It looks like this. It's a PowerPoint presentation. If you go to the second page, at the bottom slide, these facts are based on published ACNielsen data. For those of you who aren't familiar with ACNielsen, it is a syndicated research company that tracks the tonnage and price of beef at retail. When we say it's tracking the tonnage and price, it's actually the scanned data. When you go to the grocery store and you put your product through the scanner, these are the numbers that are reported here. So it's the price you pay at the grocery store. These numbers reflect what has happened over the past year on beef. That would be December 2002 to December 2003, because that's the most recent data.

    Number one, on Canada beef sales through the grocery stores, we sell about $2 billion worth of beef. That's about 240 billion kilograms. The kilograms are plus 5% versus a year ago, and that's a significant number, because in the past, beef sales have been flat. Paul can also attest to the fact that in some years it was even in decline.

    The price for beef since May is down, on average, 13.8%, and that is for all cuts through all grocery channels. So that's the average. There are some months when it is a lot higher and some when it's a lot lower. If that trend continues to next May and we report on 12-month data, it will be even less.

    In addition to that, beef has been promoted at a greatly increased rate versus a year ago. You'll find beef ads on the front page of fairly well every grocery flyer in Canada every week since May. That is more than was done a year ago.

    In addition, we're proud to report that pork and chicken sales have also remained stable or are in fact in growth. So beef is up, pork is up, and chicken is up, as reported by this data.

    The following pages are just photocopies of in-store flyers that we've taken over the last 12 months, and they're from all of our member stores, from Newfoundland to Victoria. It will show you some of the hard data we're talking about. On the next pages, as you flip through them, you'll see where beef, for example, has been promoted in full-page ads. If you flip to the next page, which is about page 5 in your deck, you'll see ground beef promoted at 89¢ per pound, and this represents all of our members, so it's at Safeway, Loblaws, Co-op Atlantic, Federated Co-operatives, and Thrifty Foods in Victoria.

    On the next pages you'll see another twist that Safeway took when they started to promote two for one. They took two roasts and they promoted them two for one, so you're getting a bargain there.

    As you go on to the next pages you'll see 30% off rib steaks for $5.99 or $4.99 a pound. On the following pages you'll see where we actually did joint promotions with the Beef Information Centre, the marketing arm of the processors, and we have done joint ads in our flyers to promote beef.

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    If you can turn to the page, “Retailers Rallied to Support Beef Industry”, this is just to summarize that a very important part of this crisis we've been through has in fact been to ensure food safety. We believe we have contributed to supporting the beef industry through ensuring that we maintained consumers' trust in the products they purchased in our stores. That of course was with the help of the whole supply chain. Because of that, sales are up, and volume is also up, because the prices were down.

    Going on to the next page, we've just taken some quotes here from the many studies that have been done and that we in the industry have been involved in over the last several months. We've worked with the Alberta government, with yourselves, with the P.E.I. government, with the Quebec government, and with several other groups, to work through and be very transparent with our pricing and our promotion strategies in stores so that we could help everyone understand how we were passing on the savings to the consumer. Those are some quotes from some of the findings.

    Lastly, we just want to answer the question that has been asked several times: Is our pricing strategy the same now as it was in May, now that the second cow was found in Washington State? We just want to reiterate that we are promoting the same number of aggressive features on beef that we did before in our flyers; we are continuing to promote beef, and we are continuing to keep it front and centre with the consumer.

    The next few pages just take you through some of the advertising you've seen in January and February. The prices continue to be 10% to 30% lower than they were a year ago.

    With the last page, I'll just conclude by saying that it's very important for the retailer that we meet the needs of the consumer—which Paul will speak more about. To do that you have to bring high-quality products at the right price; the market is so competitive out there that you have to have the best prices or people will go and shop somewhere else. We have been meeting consumer needs, working with all industry partners over the past eight months to keep the price of beef where it should be at retail and to support the movement of beef through the system.

    To your point about financials, retailers are making a profit, but I think 1% to 2% is a fair bottom-line return to make. We are passing on price declines to the consumer, which are passed on to us by the packer.

    Paul is going to tell you a little bit about what life is like now with the retailer.

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    Mr. Paul Fortin (Vice-President, Fresh Foods Merchandise & Procurement, The Great Atlantic & Pacific Company of Canada Limited, Canadian Council of Grocery Distributors): First of all, beef is the number one commodity in the meat department. If you don't have a good beef program, you don't have a good store. It's as simple as that.

    We've always been promoting beef, but since last May we've been promoting beef more than we have ever done. You know, we saw our tonnage growing, and we have passed the savings to the consumers. We are getting some deals, and we pass them on.

    Just this morning I picked up the ads in Ontario. There is not an ad that doesn't have beef in it. I have one for a hip meat roast that says, “Buy one, get one free”. T-bones are half price, at $4.99. That is below our cost; $4.99 is below our cost before we put the knife through it, before we take the excess fat.... Another ad here is for sirloin, at $3.49; and $2.97 for sirloin tips; front-quarter meat at $1.75; and striploins at $4.99. This is what is happening out there this week. And every week you see beef in the ads; it never stops.

    We work with the Beef Information Centre. I don't know if you recall, but we created a national barbeque last August. In a two-week period, we promoted barbeque products in our ads. We're very proud of what we have done.

    I know the industry is in trouble. We have also kept in mind the pork industry and the poultry industry, because that's important; if you save one,and you kill the other two, it's not a good move.

    But doing all of that, the pork tonnage is up and beef tonnage is up, and our pricing is down. The pricing is down, but the savings are passed on through features. If you look at the features today, you can grow by promoting something on the front cover of your flyers, increasing your sales by 300%, 400%, 500%. That's where you can move lots of tonnage.

    Thank you.

    The Chair: Are we finished?

    I have a comment. Think about it, what impact has the Atkins diet had on beef consumption?

    We'll go to our first questioner. Mr. Hilstrom, you first.

    Mr. Howard Hilstrom: Thank you, Mr. Chair.

    Certainly the consumption of beef and the red meats is instrumental to good health. I note that due to a lot of diet changes that happened in particular I believe to our aboriginal people in the west, diabetes and some of those things seem to have increased in numbers dramatically. A lot of it I think has to do with diet change. So getting back to red meat is a good thing.

    I think I could bring in a bunch of retail stickers that show beef at $12 a pound, too, and at higher prices. These are certainly sales, but to keep it in perspective, there's a much higher range of beef prices than what you show here. You can comment on that.

    Then, if I heard you correctly, you said there is 1% to 2% profit on your beef sales. I'd like you to reconfirm that, because one of the allegations being made here by Mr. Kilgour and the chairman is that there have been some unearned profits at the packing level and at the retail level that are actually stealing, taking money away from the primary producer. That's what we're trying to clarify here.

    Could you address those two points first?

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    Ms. Kim McKinnon: I'll address the 1% to 2%. Just to clarify that, it's public financially published data. That isn't beef related, necessarily, but it's related to the grocery industry, the profitability of the grocery industry.

    Mr. Howard Hilstrom: Do you have the profits for the beef, then, because that's what we're studying here?

    Ms. Kim McKinnon: I don't have that. It's part of the total bottom-line profit of the store.

    Mr. Howard Hilstrom: If Loblaws, or whatever company you want to name, received a subpoena from us requiring production of that financial data, would the companies be willing to produce that? We're asking the packing plants to do that, or some members are trying to ask them. Would the retailers be willing to provide us with those kinds of financial statements?

    Mr. Paul Fortin: We are a private company. If you request it, and you send a request to our company, my CEO will make the decision on that one.

    Mr. Howard Hilstrom: I think that clarifies it.

    Mr. Paul Fortin: There's one thing I can add to it. If you look at the pricing we paid a year ago versus today, there's not much change. Some items are a little bit higher, some are lower, but in general I could say it's lower than it was a year ago for the same timeframe.

    Mr. Howard Hilstrom: So there's no opportunity for the retailers to make excessive profits. Is that the case then on the beef?

    Mr. Paul Fortin: The way it is today, no.

    Mr. Nick Jennery: I would like to add a comment to that.

    Beef is a highly promoted category. We've seen examples of that. That's why you see the fluctuation. There is more square footage of retail space in the marketplace now than there ever has been, and therefore because it's a highly promoted category, it becomes a point of differentiation.

    What you try to do is figure on a promotion that your competitors don't so you can bring in the traffic and then sell the incremental sales to it. To look at the profitability of beef in isolation in a retail store is very difficult, because the store sells health and beauty aids.... You know what a store sells. Each company decides on their strategy to get consumers in through the front door. There are a lot of loss leaders at any one time. You've seen a lot of produce, for instance, being sold at pretty close to minimal profit or at cost, because it's the image that particular retailer wanted to do. Beef is just part of the whole equation.

    Mr. Howard Hilstrom: Is this figure correct here--240 billion kilograms--on this fact sheet here? What is that? Thousands, or millions, or what? That's 8,000 kilograms per person, or something, in Canada.

    Ms. Kim McKinnon: It's billion dollars.

    Mr. Howard Hilstrom: Right after the $2 billion it says 240 billion kilograms.

    Ms. Kim McKinnon: It's 240,859 kilograms.

    Mr. Howard Hilstrom: The question is, it should be “million” instead of “billion”, and even that's an awful lot of beef per person.

    At the retail in Canada, if you take 30 million Canadians and divide it into that, you get a ridiculous figure of some 80,000 kilograms per person.

    Ms. Kim McKinnon: Million.

    Mr. Nick Jennery: It's a typographical error; it's millions.

    Mr. Howard Hilstrom: Let's just show it for the clarity of the record.

    I'm going to ask a question of Ben Thorlakson.

    This is something that's been put forward to me by cow-calf producers, and of course they're neighbours and friends of mine. They're concerned about the conflict of interest of Ted Haney running for the Liberals in Calgary. Is that in fact the kind of thing that the Beef Export Federation...? I thought it was separate from the government. Is it a separate organization from the government or not?

    Mr. Ben Thorlakson: Very much so. I'm apolitical myself. I would prefer that Mr. Haney answer this, but I think he felt called to public service, as all of you have, and I suppose he had to make a decision on which party he would work with. When the writ is dropped he will step away from Canada Beef until the election.

    Mr. Howard Hilstrom: The point is there seems to be a bit of a conflict to be in such an important position. The Beef Export Federation does such a great job; it really does. We've built our whole industry on the work the Beef Export Federation has done in selling beef overseas and in promoting beef, and every cow-calf man is very thankful for that, but we'd like to see a fair amount of independence and no conflict of interest there. We're just a little concerned. But you've answered that very well.

    Can you say anything about the possibility of borders around the world opening up in regard to the beef? This idea of the packers making unconscionable profits, and the retailers and that, is a very minor little sideshow compared to what the real issue is, and that's getting our export situation back. Can you enlighten us on that at all?

º  (1610)  

    Mr. Ben Thorlakson: Probably since the last time we talked, Mr. Hilstrom, which was at the Manitoba Cattle Producers Association...I've had the opportunity with CBEF to travel to all our major international markets. In fact on Friday I was in Hong Kong and Macao, and prior to that in Shanghai, Seoul, Tokyo, Osaka, Taipei, Chihuahua City, Tijuana, Mexico City--I think that covers most of them. Each situation is a little different. I'm very hopeful, very pleased, that Macao is completely open to all beef under and over 30 months, boneless, bone-in, and edible offals. We're encouraged by the progress in Hong Kong.

    We're very fortunate to have the services of Dr. Norman Willis. Dr. Willis was Chief Veterinary Officer for Canada between 1988 and 1996 and also president of OIE between 1997 and 2000. I would suggest that this man is the most qualified individual in the world to work on our behalf in engaging regulators in our many markets around the world to try to facilitate developing options that can further discussion for re-entry.

    The Chair: We'd better cut this off now because we're way over time already.

    Mrs. Tremblay.

[Translation]

    Mrs. Suzanne Tremblay (Rimouski-Neigette-et-la Mitis, BQ): Thank you, Mr. Chairman.

    I would like to understand why our beef producers say they are going bankrupt. I would like someone to explain to me why they are coming into my office saying we have to do something, otherwise they will go bankrupt. It seems they are not getting their fair share.

    As for consumers, it is all very well and good for you to show us these nice specials, which are probably from out west, but the fact remains that the price of beef has not fallen significantly. We are paying about as much as we were before the mad cow crisis. In any case, the price of beef has not come down in Quebec, it really has not. Sure, there have been specials, which have lasted about three hours, but we often got the impression that it was simply because the beef was past its best before date or just about there. So, I would like to understand this situation.

    Who can explain this? What exactly is going on in your industry?

    Mr. Paul Fortin: I said a little earlier that the cuts we sell in supermarkets are basically the same as those we were selling last year at that time. The cost price fell slightly, but not by much. Which means that where we saved money is...

º  (1615)  

    Mrs. Suzanne Tremblay: Whom are you referring to when you say “we”, the producers or... ?

    Mr. Paul Fortin: I am not referring to producers, I am referring to the people who are here before you. What we do as retailers is to try to get the best price possible for our flyers every week. We do this about three weeks in advance. This means we turn to the market to see what is available. It is what all retailers do across the country.

    If you have an animal weighing 1,200 pounds and then remove its hide and bones, you are left with about 450 pounds. But many products are sold for export: the tongue, the heart and cuts called tri-tips are sold to foreign markets. But today, they cannot sell their product abroad, they cannot ship it offshore. That is why beef producers are not getting what they should for their cattle.

    But we, the retailers, have sold more beef this year. First, if today you look at...

    Mrs. Suzanne Tremblay: Excuse me for a moment. When you buy in bulk, is the cattle dead or alive?

    Mr. Paul Fortin: No. Let me explain. We only buy primal or sub-primal cuts. An animal is more or less divided into three parts: the rear, the buttocks; the middle, the steaks; and the front, the pot roasts or stewing beef. We try to get the best prices for these products and then we decide on what goes into the flyer.

    As I said earlier, an animal yields several cuts of meat. Cuts which used to be exported are not being exported anymore. This means that packers get less money for those products, but as far as we are concerned, as retailers, last year's prices are slightly lower than those we are paying this year. But there is not much of a difference.

    Mrs. Suzanne Tremblay: I am missing something here; there is something I do not understand. You, the retailers, buy in bulk.

    Mr. Paul Fortin: We buy in bulk, but only the cuts we sell here in Canada, which means we can choose which cuts we buy. This week, for instance, there is a lot of T-bone steak. But that is just one cut of meat. We need to find buyers for everything else, too.

    Mrs. Suzanne Tremblay: But in three weeks, you might come back and say that you are only interested in filets mignons.

    Mr. Paul Fortin: I could simply tell you that there are no filets mignons, because they are open to being exported today. However, last summer, we were able to put filets mignons on special, and we sold them for about $9.99.

    Mrs. Suzanne Tremblay: When you say that you plan three weeks in advance, that is precisely what you do: you try to buy cheap and that is what you put on special in your flyer in three weeks time. But in the meantime, consumers will pay full price for the rest.

    Mr. Paul Fortin: Not necessarily. There are several retailers across Canada. We cannot all buy the same cut. So we try to find what is best for our clients at the best possible price. Then we put it in our flyer. However, if today I put beef tongue on special in my flyer, I would not sell many of them by the end of the week; then again, when tongues were being exported, the packers got about $5 US a pound for them.

    Mrs. Suzanne Tremblay: When you buy your cuts, how old are the animals from which they are taken?

    Mr. Paul Fortin: They are all under 30 months and not any older.

    Mrs. Suzanne Tremblay: You do not buy any cuts coming from other animals. Are there retailers who may be interested in those?

    Mr. Paul Fortin: No. There is hardly any interest.

    Mrs. Suzanne Tremblay: Do some retailers—

    Mr. Paul Fortin: Normally, there are some, but they are few. Every Canadian retailer has a very high-grade beef program, grade AA or grade AAA.

    Mrs. Suzanne Tremblay: What about organic beef, natural beef, traceabililty and GMOs? You are a retailer. Do you agree with that? Do you stay on top of these types of trends? Do they play any role in your business?

    Mr. Paul Fortin: Yes, these are important issues. We stay on top of new developments in our industry. There is a market for organic products, but it is very small.

º  (1620)  

[English]

    The Chair: Mrs. Tremblay, your time has expired. Thank you.

    Mr. O'Reilly.

    Mr. John O'Reilly: Thank you very much, Mr. Chairman. I want to thank the witnesses for attending.

    I'm not looking for anyone to think there is some kind of a bogeyman hiding there and taking all the money, but with your ability in the retail business now, everything is scanned. That scanning, of course, gives you inventory control and many other things, the location of where certain items are selling and all that marketing stuff you use. Do you do a breakdown by area for certain things?

    Of course, you do a test market, and then you go to certain areas and you try the areas. Then you go to the city of Toronto and you realize it has gained the population of Montreal in the last eight years. Obviously, that's one of your bigger markets.

    In the pricing brochures you gave us, you are basically pricing by pound and not by kilogram. With some of the prices, on one page, pork is $1.79--I assume that's per pound--and on the page before it, it's $3.99--I assume that must be per pound--where you are promoting hips, and don't forget pork and chicken on that page. Is one of those a loss leader that it would be so low? Is that a pricing area where you could tell us where they are? It doesn't say exactly where they are, but how could one be $3.99 and the other be $1.79 in the same week?

    Mr. Paul Fortin: Yes, you can have a product like pork at $1.79, which could be a front quarter, such as a pork shoulder roast or a pork butt roast, and at $3.99 it could be a boneless pork roast. That's a big difference.

    You will have the same thing on the beef side of it. If you look at the flyer this week, you have front quarter meat, like blade roast, at $1.75 a pound, and you also have, in another flyer, $4.99 for T-bone. It's a different cut, a different pricing strategy. Normally, the middle cuts will be a lot higher than the end cuts.

    Mr. John O'Reilly: I was at the cattlemen's banquet on Saturday night, and I looked at one of the things I do, because I'm in a big farm area--that is, I run the website of one of the sale barns in my area and I do comparisons of their pricing. They are 40% to 50% below what they were last year, but the prices at the retail level are almost the same.

    I sat beside a farmer who has a 600- to 700-head type of farm, and he lost somewhere in the area of $250,000. The guy beside him is down well over $100,000 on a much smaller operation.

    Where do you think the difference in that money went?

    Ms. Kim McKinnon: I just want to clarify one thing that has been said a couple of times.

    The price of beef is down in Canada. It is down by up to 15% in every province, every city. That is the fact. It is down. The prices are down, and whether or not we talk about if it is significant, a 15% price decline across the board across the country on an item is a significant amount of price decline in this industry. So I just want to make that clear.

    Also, the ads we have from the flyers are from across the country and they're from many different weeks. I didn't put the dates on them. I can do that for you after, if you'd like.

    Mr. John O'Reilly: Well, it's hard to analyze when you don't have the dates or the places or the event that is going on around it. So we're stuck with some numbers here that I would like to have verified.

    You're saying the retail price of beef is down 15% to 20%?

    Ms. Kim McKinnon: It's 13.8% on average across the country.

    Mr. John O'Reilly: Why would Statistics Canada's figures be so much different from that then?

    Ms. Kim McKinnon: I believe they don't include feature pricing in there.

    Mr. John O'Reilly: Why is it down 50% at the sale barns?

    Ms. Kim McKinnon: Let's use a price of 50¢ a pound, or $1.50 a kilogram, or whatever you want to use in kilograms or pounds. If it's 50¢ at the sale barn, as the product works its way through the supply chain, value is added along the way. Of course you wouldn't expect to see the sale barn price when you go into the grocery store. You wouldn't expect to pay 50¢ a pound at the grocery store; you would expect to pay something a little higher than that. That's what's happening.

º  (1625)  

    Mr. John O'Reilly: Somewhere in between.... I think that's our bottom line here. We're all agricultural people. We all have farmers pounding on our doors declaring bankruptcy. Farm Credit is foreclosing; the banks are foreclosing; people have run out of lines of credit.

    You can't have a small operator losing $100,000 and a fairly significant operator losing $250,000. All we're trying to find out is whether that money is lost right across the board or whether it's being ripped off by the retail, or whether it's the packing houses. Somebody's making money on this. We're trying to find out who it is, and it certainly isn't the farmer. That's who I think I'm representing when I ask these questions about where that money went. I'd like to know.

    Maybe Mr. Thorlakson, who perhaps raises more cattle than anybody I deal with on an individual basis, could tell me how he's lost or how much he's made?

    The Chair: Mr. Thorlakson.

    Mr. Ben Thorlakson: What I would like to do is take what I sold cattle for last week, compare it with what we sold cattle for a year ago, and try to rationalize the difference, if you feel that would be useful.

º  (1630)  

    The Chair: Fine. Go ahead.

    Mr. Ben Thorlakson: Last week in Alberta we sold slaughter steers for 87¢ a pound. A year ago we were trading cattle for about $1.07, $1.08, $1.10—right in that range.

    The first variable that must be taken into consideration is the change in value of the Canadian dollar. Cattle are priced in North America in U.S. dollars. The Canadian dollar has appreciated 15%. That equates to 13¢ a pound live. That takes our 87¢ up to a dollar.

    Because of BSE, we have had increased costs in Canada. Primarily because we're exporting 50% of the product and only have access today for boneless product, we must bone out a considerable portion of the fronts on the cattle. This would add a cost of $20 to $30 a head, or $2 to $2.25 per hundredweight.

    The other major factor is the factor my friends here have alluded to; that is, we can't collect on the export premium, and that's what Canada Beef Export Federation is all about. That equates to approximately $190 per animal. We can't sell the Yoshinoya plate to our friends in Japan. We can't sell the short ribs to the South Koreans for the same price we would trade prime rib in Canada for. We can't sell omasum, rumen, or reticulum, inside skirt, hanging tender—all those products that you can't trade in Pittsburgh.

    We have to access the foreign markets. If you don't get that margin of $200 or $190 or whatever out of the export market, you need to increase the spread between what you're paying for live cattle and what you're collecting from the retail market.

    The other factor is the increased expense on rendering. Rendering for the large companies was a revenue source. Today, it's an expense—or a wash.

    Another factor, which is a little more difficult to get your head around, is that Canadian packers trading boneless product into the U.S. today are being discounted a nickel to a dime a pound on AAA—the U.S. equivalent grade would be “USDA choice”—and that reduces their revenues by $2 to $3 a hundredweight.

    If you add all those factors up, you're at about $1.13.

    The Chair: Our time has expired.

    An hon. member: Let him finish.

    The Chair: Okay, carry on. I'm just trying to get everybody in today and I can't do that if we go to 10 or 11 minutes.

    Mr. Thorlakson, carry on. We may have to take some time from Mr. Borotsik's time.

    Mr. Ben Thorlakson: All right. I was just about finished.

    Last year it was $1.08. If you add all those factors up, we're at $1.10 or $1.13. If there is price gouging, it isn't apparent to the casual observer once you take in all the factors. But given that the packers don't open the kimono, we don't know exactly where they're at.

    I guess I have other things I want to be paranoid about. I don't see that they're ripping us off. I also think the whole debate in the public domain is counterproductive, because it erodes confidence in beef and it makes beef a little tougher to sell.

    The Chair: Mr. Borotsik.

    Mr. Howard Hilstrom: I have one quick point of order here. This is important and it is a real point of order.

    With that explanation and what has been said here today, would it be appropriate for me to put forward a motion that this committee cease the hearings into the issue we're currently studying and get on with other business? Can I put forward a motion, with the consent of the committee?

    The Chair: That's not a point or order. That isn't going to happen today.

    Mr. Howard Hilstrom: Okay.

    The Chair: You can prepare a motion, bring it to the committee at the appropriate time, and 48 hours later we'll deal with it.

    Mr. Borotsik.

    Mr. Rick Borotsik: Okay. To clarify, Ben, I really appreciated the simplicity of your explanation. I think most everybody here understood. We've heard it, but perhaps we're not listening.

    I don't want to put words in your mouth, but for my purposes, my question will be: are there any windfall profits being achieved in the packing industry, in your opinion, and in the retail industry, in your opinion?

    It's pretty simple. Are there windfall profits now being achieved in either of those two industries?

    Mr. Ben Thorlakson: I'm going to limit my comments to the timeframe today.

    Mr. Rick Borotsik What is the answer?

    Mr. Ben Thorlakson: My opinion is, going through the cowboy arithmetic that I just did, I can't see it.

    Mr. Rick Borotsik: Okay. Thank you, Mr. Thorlakson. I appreciate that.

    This does have a tendency to be a knee-jerk reaction. We know there's a very serious problem out there. We know the solution to the problem is the opening of the border. It would put the market back in place and it would then allow competition. Everybody would be fat, dumb, and happy at that point in time, but that may or may not happen sooner than later. Let's hope it's sooner.

    In saying that, however, on the retailers, let me go back to my comment. There's a knee-jerk reaction here. The producers, who are behind the eight ball, are receiving 50% less than they did--not today, but in this window of time. It's not happening today, but at some point in time it was 50% less than what they had received prior to May 20. They are saying they look at the grocery store and the prices haven't gone down from what they were, so somebody is making some money somewhere. They're upset, as they should be. We're trying to find out, at this table, whether that is in fact the case.

    What I've been hearing all along, from the plant, the slaughterhouses, and the retailers, is that it's not the case. There have been some justifications; we had that from Ben. I think we'd better take that as real information, ladies and gentlemen, and not something that's a bogeyman out there.

    With the retailers, however, I do have a bit of a bone of contention. On the 1% and 2% margins, I've heard that constantly. In the grocery industry, it's 1.5 points to 2.5 points. But let's be honest, your volumes are quite substantial, so the 1.5 points to 2.5 points is better than a 49% profit margin on something with very small volume. There are volumes that you guys deal with, and there is competition.

    Don't get me wrong, the marketplace will obviously have a part to play. There is competition. But in saying that, there are a number of different areas in your business. There is produce, there are pharmaceuticals, there are canned goods, and there is meat.

    In a business, in general business in groceries or in the supermarkets, what percentage of the margin will be generated by the meat section? Is that a pretty simple question?

º  (1635)  

    Mr. Paul Fortin: This is a good question.

    A voice: Gross or net?

    Mr. Rick Borotsik: Well, I can get into that too.

    The Chair: Let Mr. Fortin respond.

    Mr. Paul Fortin: When we are looking at the total stores, we say it is 1% to 2% of our business. That includes everything we have in our stores.

    If we look at the meat department, you have different products, three major products. You have beef, pork, and chicken. The less profitable is the beef because normally you will use the beef--

    Mr. Rick Borotsik: As a loss leader.

    Mr. Paul Fortin: --that's right--to bring your customer in. You hope to make enough money in your meat department, with the other commodities, that they will buy something else in order that, at the end of the week, you have made your profit.

    Mr. Rick Borotsik: The reason I mention that is exactly because of what you've said. It's not apples and apples, oranges and oranges. You can't say that because we're selling beef at this price, we're getting windfall profits on it. It's a big store with a lot of departments and a lot of margins coming from different areas. You can't simply pinpoint one as being the culprit. You can't say that because in your mind you think the prices are the same as what they were, you're in fact getting windfall profits.

    I'm helping you on this one, I really am. It's very complicated and it's not that simple. Maybe you can answer yes or no to my comment.

    The Chair: Last question, Mr. Borotsik.

    Mr. Rick Borotsik: Well, I have one more.

    Ben, on the announcement today of $80, is that going to help the industry? Is it a good program? Is it going to end up with the feedlot operators? Ben, are you going to pay less because there is now $80 going to the cow-calf operator?

    Mr. Ben Thorlakson: No, we're very thankful for this program. This is the largest cash injection in the history of Canada, to the best of my knowledge.

    What we need is a turnaround in the thinking of producers. We need to instill more hope, and I believe this initiative will serve that purpose. Generally speaking, cattle feeders can't stand prosperity, so it will flow through. That's what creates the feeder cattle prices and gives a little bounce there--just anticipation of the program, which has been talked about for two or three weeks. We've heard figures from $150 down to $50. Everybody gets all excited and starts bidding on cattle, which is exactly what you want to happen.

    Mr. Rick Borotsik: Are you going to pay more, Ben, for your cattle?

    The Chair: Your last question has expired.

    Mr. McCormick.

    Mr. Larry McCormick: Thank you very much, Mr. Chair, and I want to thank the witnesses for being here.

    We've heard a most excellently informed person concerned about the eroding of the confidence of Canadians, yet at the same time the other witnesses are saying--as we've heard from every witness--that beef consumption is up in Canada. I don't want to hear people talking about BSE all the time, but I don't think the hearings are doing anything to erode the confidence of Canadians.

    I'm really glad to see the specials--and there have been many specials--but statistics say that prices were down less in Ontario than in any other province. I fail to see A&P here, but I'm sure they were. I see medium ground beef, Brooks, Alberta--a great spot--Lakeside Packers. They'd be glad to supply it at 75¢. They'd make a lot of money, I'm sure, when you look at what they paid for the beef during that period of time.

    A year ago, when we had the hearings here, some of the same witnesses were here. The chair from New Brunswick said, and I quote again some of the strongest language I've ever heard here, “You know, Witnesses, it's pretty scary, isn't it, when we think that two of you people control 51% of all the groceries in Canada, yet we hear about the competition.” I ran the smallest store in the country for 21 years, and I understand a little bit about competition.

    Canadians think as much about beef pricing in the supermarkets as they do about the gasoline companies. In Canada, two companies control 51% of all the groceries, so I'm not sure how you can have real competition. You play if the price is up one week and you play if the price is down one week. There are excellent sale advantages, but not all people are equipped with the money to buy the specials or can wait for them.

    You people had an opportunity--and you still do--to be part of the solution rather than part of the problem. It's unfortunate when these people, our witnesses, show up and talk about the same old story--the 1% to 2% profit. That's true. That's helping them grow, with all their new stores, and give us the best and safest food in the world. Yet we don't hear anything about the gross and net profits in the meat section. We don't hear anything about the pricing of our beef.

    Accountants can play with figures any way they want. It just doesn't seem fair that we don't have something here to take back to our constituents, who tell us repeatedly--and we've all heard it--that prices have gone down very little. Now we hear they're down 13.8%. Well, that's a good figure to come from some people. So we don't discredit you.

    You run specials, get people into your store, and make more money, but you have not returned any extra money to the marketplace. You could do that indirectly and you could do that directly, but again you have to be part of the solution, not just part of the problem.

    Do we have any comments from the grocery distributors?

º  (1640)  

    Mr. Nick Jennery: I'm not sure what the specific question is, but let me--

    Mr. Larry McCormick: Okay. Specifically, can we have competition when two companies control 51% of all the grocery distribution in Canada? Is that possible?

    Mr. Nick Jennery: Your numbers are not correct, with all due respect.

    Mr. Larry McCormick: According to whose numbers? What do we accept?

    Mr. Nick Jennery: If you'll allow me, let me just explain. If you look at the traditional grocers--I'm talking about A&P, Sobey's, Loblaws, etc.--you're absolutely correct that the two companies, Loblaws and Sobey's, are the biggest players by a long shot in the marketplace. But that's not the whole equation. There are more people selling more groceries; everybody's into everybody else's business. If you look at Wal-Mart and Costco, you'll see they have 11% of the grocery business. Look at Wal-Mart, which operates under a lower cost model than pretty much anybody else in the country; they are four times the size of the entire grocery industry in Canada. That's a very significant competitive threat, and it's one the industry has been working on for some fifteen years.

    That is why every two years we do a study--which, by the way, we share with the bureau. We look at the price of goods in a consumer shopping basket at the point of sale, comparing eight different cities in the U.S. and Canada. We track it every two years, and Canadians enjoy a lower cost of product when compared to their U.S. counterparts.

    When you're looking at the 51%...you have to understand that you can buy groceries in Canadian Tire, Wal-Mart, Costco, and a lot of different outlets. More people are getting into perishable products, and more people are getting into general merchandise products. It's a very complicated equation. I can only tell you there is more square footage out there, and if you look at Stats Canada for prices as well as the industry, you'll see they are either at or below inflation rates, which speaks of the competitiveness of the industry.

    Mr. Larry McCormick: Very briefly, Mr. Chair, I'd like to get the price, though, of the beef profit--

    The Chair: Your time is gone; I'm sorry.

    I'm going to come back. I've given two opposition members a chance to get back in, and I'm going to call on Ms. Ur.

    Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): Thank you for coming here today.

    On the second page of your slide presentation you say “25,000 Items are on Sale in our outlets”. Are they “on” sale or are they “for” sale?

º  (1645)  

    Ms. Kim McKinnon: They're for sale.

    Mrs. Rose-Marie Ur: It's because I thought, somebody is really busy marking things down in those stores, with 25,000 products.

    I'm reading through this material you have presented to us and looking at the prices in that. I do my own grocery shopping, I live in southwestern Ontario, I see these ads, and many of these ads don't pertain to the flyers I would see in southwestern Ontario as to a hip of beef or whatever. Maybe there are different flyers circulated in different parts of the country.

    I find it very interesting that it says on one of your slides here, “Pricing Practices for Retailers”, that “We pass on the pricing to the consumerthat is passed onto us from the packer--up or down”. That being said, I can say quite honestly that our primary producers are price-takers and the upper echelon are the price-makers, and that's what we're seeing right now. I don't think we've had too many stores go bankrupt, and I'm happy about that, but I've seen quite a few primary producers on their last legs because of the BSE crisis.

    It's all well and good to have these pricing things you put forth before us, but quite often, as you say, these flyers are a one-week option; the sale flyer is for one week.

    You're saying there's only a 1% to 2% gain for the retail chain. We have stats before us presented by Stats Canada, and I just happened to take the month of January from 2001, 2002, and 2003. According to every stat in that, whether it's for round steak, sirloin steak, stewing beef, or ground beef--I'm a front-quarter person; I like those kinds of meats for cooking--it's always continually gone up, and you're saying there's been a 20% decline in prices. That's really hard for the consumer to understand when those kinds of things are written up in the paper. Is Stats Canada wrong or are the flyers wrong? Who's wrong--or whose information is most accurate?

    Ms. Kim McKinnon: Well, the first thing I would have to say is, I'll have to look at the Stats Canada figures, speak to the people who developed that data, and find out where they sourced the information from. What I do know and can speak to is the information we buy as retailers from ACNeilsen, which is the scanned data from the checkout counter and which we believe is the most accurate data.

    Mrs. Rose-Marie Ur: Okay.

    Also, have you ever done in your businesses the costing of...? You buy sides of beef, obviously. You buy meat products like T-bone steak. You don't buy a whole half of the animal, do you?

    Ms. Kim McKinnon: Most of the retailers now buy it per what they need, per however many steaks they need.

    Do you want to speak to that?

    Mr. Paul Fortin: We don't buy what you call rail beef or half a carcass. This has been gone for years. It's not done any more. We select the cuts we want.

    Mrs. Rose-Marie Ur: Okay. Then you say your flyers come out. How do you put out a flyer so that all chains aren't putting T-bone steaks on sale? There are only so many T-bone steaks in one animal. So how do you come to a consensus on what you're going to charge or what you're going to put on special?

    Mr. Paul Fortin: It's based on our costs. What's happening there is we write programs three weeks out.

    Mrs. Rose-Marie Ur: Yes, I heard about that.

    Mr. Paul Fortin: We get the buyers who are searching for products, and he might have an idea what he will put in the flyers for that week. If it's not available, he will have to switch to something else. If our competitors, for example, have come up with T-bone steak and we want to promote T-bone steak but it's not available, well, there might be some opportunities on the front quarter meat. That's what we will promote that week, because the cost is very low and we're going to try to promote it, and sometimes it's below our cost, in order to bring our consumers in.

    We try to steal customers from our competitors to bring them into our stores, hoping they will do their total shopping or part of their shopping in our store.

    Mrs. Rose-Marie Ur: Mr. Thorlakson, are any grocery chains involved with feedlots? Are they connected in any way?

    Mr. Ben Thorlakson: No, not to the best of my knowledge. I think they're smarter than that.

    The Chair: We will move to Mr. Hilstrom.

    Mr. Howard Hilstrom: Thank you, Mr. Chair.

    Rest assured, Mr. Thorlakson, that the recorders of these proceedings will have your name down right. There are no Thorkelsons around here that I'm aware of.

    The retail price of beef is going to be going up here very shortly. The reason I say that is today in my hometown at the auction mart, 650-pound feeder calves are going for over a dollar a pound. The market is coming back in anticipation of opening the border and for the very explanation that Ben Thorlakson gave us here today. I think the beef industry is slowly moving back into heading for a profitable position, and I think the committee is having a little trouble staying current with what's actually happening on the ground in Alberta and in other provinces.

    Ben, Nick, or Kim could talk a bit about the dynamics of the beef industry and the speed at which prices change right from the farm-gate level to the retail level and about some of the factors that influence that speedy change.

    Mr. Thorlakson.

º  (1650)  

    Mr. Ben Thorlakson: It was mentioned that some cattle going out now are trading at losses. Cattle feeders generate their own losses, and I've done it a zillion times, by paying too much money for feeder cattle. We had a strong feeder cattle market this fall, and the reason we had a strong feeder cattle market was that people anticipated the opening of the U.S. border because the common period was going to close on January 4. They felt that perhaps after an additional month, month and a half, two months, we'd be able to trade live cattle. We'd have a more competitive market for slaughter cattle, and hence we bid up our calves.

    So the people who traded their calves in the fall made a smart move, in retrospect, and they should be fairly comfortable, with the exception of not having a market for their cull cows. Then December 23 came along and the Americans had their animal with BSE and the world stopped. Now we're looking at June or July for the opening.

    So the cattle that were bought with feelings of optimism...it's going to hurt a little. So be it; it's the way it works.

    Mr. Howard Hilstrom: It's the feedlot man who bought them with optimism....

    Mr. Ben Thorlakson: That's right.

    Mr. Nick Jennery: As a quick comment, I'm not aware of any industry that does as many price changes and moves as fast as the grocery industry does. If you take a store that can do anywhere from 800 to 1,000 price changes each and every week.... But I'll leave it to Paul to talk specifically about meat.

    Mr. Paul Fortin: With what's happening now, with the announcement today, the cost of beef will go up. The cost will be passed to us next week or the week after next. It takes us a week before we can react to our pricing. That means next week we might be paying higher for our beef than we have paid this week, but we're not able to get the retail slot until two weeks down the road. That's the way it works.

    Ms. Kim McKinnon: A&P is particularly fast—he's mentioned three weeks—but for some of our other members across the country it takes anywhere between four and six weeks. It depends on how early they've started printing their flyers and doing their promotional marketing programs and what they've planned down the road. There's a range of time.

    Mr. Howard Hilstrom: The dynamics of what the primary producer receives at the auction barn involve comparing in a kind of up-and-down price cycle. You do your marketing and sell as high as you can and hold off when you're selling low. But the main factor facing profitability on the ranch right now is the fact that inputs to the ranching operation always go up; they rarely if ever come down. That is the biggest thing affecting the profitability of the ranch over the course of three or four years, rather than even BSE price cycling—that's going to be a one-year drop.

    That's a little economics lesson for the chair, I guess.

    The Chair: Are there any respondents to that lesson, if we can call it a lesson? I didn't get that from it.

    If not, we'll move to Mr. Kilgour.

    Hon. David Kilgour: Mr. Chairman, I'd like to state for the record that neither you nor I have accused the grocery industry of making unfair profits, and I think it's grossly unfair of a colleague, Mr. Hilstrom, to make that charge. I'd like that to be on the record.

    I would like to ask Mr. Thorlakson and Mr. Jennery specifically this question. I had a letter from a cow-calf operator in Alberta last week who was talking about losing $300 an animal. I quote the letter: “In 1984, the rancher's share of beef was 63%; today it is 21%. Neither the packers nor the retailers will admit that their profits have increased. That leaves a decrease in the rancher's share of 42%.” Where did it go? What would Mr. Thorlakson and Mr. Jennery say in answer to that Albertan who wrote me?

º  (1655)  

    Mr. Ben Thorlakson: I'll just make one brief comment, and I can't really offer an opinion on the veracity of those numbers. The one thing I would say, as I mentioned earlier, is if the cow-calf man traded his calf crop in October or November, they were well sold. But a lot of them made the management decision that they would clip the coupons themselves, so they put themselves into the same position I'm in every day. As I said, sometimes it works out and sometimes it doesn't.

    With cattle trading at what they were trading at in November, given the fact that we had BSE it would take a certain amount of courage to make that decision. I would suggest that...well, he's placed himself in a difficult situation.

    Mr. Nick Jennery: The only thing I would say is that we don't buy what that person is referring to. It's hard to comment on it.

    Hon. David Kilgour: Mr. Simons, the CEO of Swift & Company in the U.S., made the point I read earlier, that Canadian cattle have sold for an average of $275 per head less than comparable domestic cattle. A colleague of Mr. Thorlakson figured out that last week with the exchange rate and the price per pound on the Chicago futures market, a 1,350-pound animal in his feedlot was worth $270 less than an animal sitting in Greeley, Colorado. I guess my question would be, if the border opened, what do you think would happen to that differential? And what is happening to the equity in the beef industry in Canada, at least prior to today?

    Mr. Ben Thorlakson: Well, I can go back over some of my figures.

    Hon. David Kilgour: No, you don't need to repeat them.

    Mr. Ben Thorlakson: Okay, but I can account for about $250 of that. The Canadian industry is trading beef into the U.S. at a higher discount than we were this time last year. I don't have the answer to why that should be—maybe because they know that's the only place we can trade this kind of volume of beef. Maybe we should have a whole bunch of American meat importers and distributors sitting around the table and ask them why they aren't more altruistic and more charitable with their bids. I don't know the answer to that.

    Hon. David Kilgour: Let me put it another way. What's going to happen to the people who provide you your feeders if our cow-calf operators in western Canada or across Canada go out of business?

    Mr. Ben Thorlakson: This whole situation was caused because markets have closed. The situation will heal itself when markets open.

    The Chair: That's it?

    Hon. David Kilgour: Yes.

    The Chair: Mrs. Tremblay, do you want to get back in again?

    Mr. Epp, I'm going to give you another crack at it.

    Mr. Ken Epp (Elk Island, CPC): Okay. I would like to ask a question. If the volume has gone up domestically, has it come anywhere near offsetting the volume loss for exports?

    Ms. Kim McKinnon: No, it's not even close.

    Mr. Ken Epp: In other words, your margin of profit stays the same, but on a lesser volume? For the retailers that wouldn't have an effect, but for the cattle marketers it would.

    Mr. Nick Jennery: At the last calculation, Canadian consumers would have to increase their beef consumption somewhere in the order of 350%. Given that there are only 21 meals in a week and people will only eat so much beef or poultry or fish, it's impossible for us to take up the slack on the domestic market.

»  (1700)  

    Mr. Ken Epp: In other words, until the export market is restored, this crisis will continue. For how long?

    Mr. Paul Fortin: May I add something? If you look at today—the past two weeks—slaughtering in Canada is up about 12% over last year. I think we're slaughtering now around 71,000; we used to slaughter about 63,000. Lots of boneless cuts are going to the U.S. We are about to what we were normally shipping last year on the boneless. The part that's missing is the live cattle that used to go to the U.S. that we cannot ship any more. Now we're all waiting here to see when the U.S. is going to open the border.

    Maybe it's time we asked ourselves what we can do here in our own backyard. We should try to increase temporarily the slaughtering here in Canada. Maybe we need another plant here in Canada, because normally we have about 90,000 cattle a week. That's what was available in Canada before BSE. Assuming we still have 90,000 cattle, if we could take just 20,000 cattle for slaughtering here in Canada, now that the U.S. is open for everybody, we could ship the boneless cuts to the U.S.

    Not only that, but this would keep jobs here in Canada, instead of sending the animal down there to be slaughtered and processed and then brought back to Canada. Why don't we take our own destiny into our hands, get another plant going or expand the plants we have here in Canada, and after that sell our cut to them and keep the jobs here in Canada? That's what I think we should concentrate ourselves on here. That's what we should be doing, instead of waiting for the U.S. to reopen the border.

    Mr. Ken Epp: That's an interesting comment in view of the fact that we're hearing of slaughtering places that are shutting down because they can't afford to continue to operate. It's really an anomaly.

    There's one more question I have. It is with respect to some of these volunteer programs. We have some cases, certainly in the west, where producers are undertaking to market their own beef. They set up a truck sometimes on the lot of a retailer. What is the attitude of local retailers who are basically losing sales because these people are selling it on their parking lot instead of in their stores? Is that a problem, or how do you react to this?

    Mr. Nick Jennery: I would say that's a very grave concern to the retailers. You can ask any retailer. Any retailer in business today will tell you they're in the consumer trust business. The first time you lose sight of that will be the last day you stay in business.

    Throughout this entire crisis, and any other crisis that has come along, we have gone out of our way in working with CFIA and the regulatory authorities to maintain consumer confidence. The fact that you've seen the consumption numbers that you have speaks volumes to consumer confidence when they go into the stores.

    If there is a problem because the product is not properly inspected or properly handled, and all of the due diligence prerequisites are in place, all of us will be seriously hurt from that. I would say there's a very grave concern.

    Competition is one thing, but selling to minimum, well thought out, science-based standards is a separate discussion.

    Mr. Ken Epp: Well, of course....

    The Chair: The question time has expired, Mr. Epp.

    We're moving on to Mr. Duplain.

[Translation]

    Mr. Claude Duplain (Portneuf, Lib.): Thank you.

    As far as I understand, and based on what you have said today, the situation for retailers basically has not changed. You said a little earlier that an animal weighing 1200 pounds yields about 400 pounds of saleable meat. Packers have lost a lot of money because the beef cuts which used to be sold for export are not going anywhere.

    Generally speaking, if you do not take price and cost fluctuations into account, as far as I can see, as regards the meat for consumers, which is what you sell, the situation has not really changed since before the mad cow crisis. That part was not affected. Before and after the crisis, you basically paid the same price per pound, and your retail price, according to your benchmarks, generally has not changed. However, you did mention a drop of 15 per cent, so perhaps you went down by 15 per cent, as well. As far as you are concerned, the mad cow crisis did not generate any costs, profits or additional losses.

»  (1705)  

    Mr. Paul Fortin: As I was saying earlier, if I look at the past year and now, beef costs are about the same or even a little lower. This provided us with opportunities for promoting beef since prices were better. Lower prices enabled us to increase sales. Last year, we saw ground beef selling at $1.00 a pound, and even at 89¢ a pound. That is what happened.

    Mr. Claude Duplain: And what is the situation generally?

    Mr. Paul Fortin: If you look at changes over the years, you see that beef consumption has been dropping continuously. The decline in consumption stopped three or four years ago, when almost everyone in Canada came up with programs to improve beef quality. Some people have programs whereby they sell only AA or AAA grade beef, while others sell only AAA grade beef. The result was a boost in consumer confidence about beef quality. Today, consumers still have confidence in our beef, and this is borne out by the fact we sold more beef this year than ever. The sales are due to the promotions we have had during the year.

    Mr. Claude Duplain: When we talked about animals over 30 months old, you said that cull cows were used essentially for ground beef in hamburgers and similar products.

    Mr. Paul Fortin: That's right.

    Mr. Claude Duplain: The Canadian government's main concern is the crisis our farmers are experiencing. If we don't help the industry and lose it as a result, we will pay the price later on in any case. Would you agree with that?

    We invested an initial amount of $500 million or so to deal with BSE. Then, we invested an additional $200 million. We established another transition program in which we invested $300 million, and we are preparing to add $650 million more. That is a lot of money. I would like to know where all that money has gone. If you remember, Mr. Chairman, the processors implied that they had not really lost any money. Is all this money actually helping farmers, or is it just going to the slaughterhouses?

    Mr. Thorlakson, you have 25,000 head of cattle; do you have any figures showing what the farmers in your organization received, and what the slaughterhouses received? We have invested about a billion dollars, and we are preparing to invest another billion. Where has the money gone? Have you done any studies to determine this? Do you have any figures?

    When we met representatives of the Canadian Cattlemen's Association, we found they did not really seem to understand the entire system, which begins with breeding and ends on the consumer's plate. You seem to understand the breeding stage of the process, but not the rest of it.

    In future, how will we be able to protect the money that the government is obliged to invest to save an industry, if no one in that industry can talk about it or understand how the system works? Has most of the money we invested ended up with the slaughterhouses, who do not seem to have lost very much? Was that money used as compensation for losses on trimmings and inedible meat? Are farmers the only ones who lost money because their prices dropped continuously? What has the impact been on you?

[English]

    Mr. Ben Thorlakson: There have been a variety of different programs in Alberta. There have been provincial programs as well as federal programs.

    This current program is a very simple one. My understanding is the $680 million will pay $80 a head to all cattle under one year that are non-breeding stock, not mature breeding stock.

    So it should fall as a gentle rain across the Dominion of Canada and be as uplifting to everyone who owns--

»  (1710)  

    The Chair: Sorry, Mr. Duplain, your time has expired. We'll allow Mr. Thorlakson to finish, but you're way over time.

    Can you give us more in your summation? I think that was a long question.

    Mr. Ben Thorlakson: You liked that? I thought it was a nice touch.

    A voice: The rain needs to continue.

    Mr. John O'Reilly: Bring in the rain.

    Mr. Ben Thorlakson: Okay, rain is good.

    In any event, this is a very simple program. There will be a payment of $80 per head to anyone who owns the cattle in Canada. There are  approximately 90,000 cattle producers across Canada. The average herd size, if I recall correctly, is 43 animals.

    If they continue to own the progeny from last year's calving, they will be paid $80 a head on those animals--or whoever owns those animals. It's a very simple program.

    The Chair: Thank you.

    We move across to Mr. Borotsik.

    Mr. Rick Borotsik: Thank you.

    Do you know any Shakespeare, Ben? That was a good start.

    I understand market. I understand Canadian beef being sold into the American market. You've given us a very good breakdown as to where the differentials are, but you also said there's a discount of about 5¢ a pound. And then you said you don't know why; you can't answer the reason why.

    Is there a possibility that there's collusion between the buyers in the States of Canadian cattle?

    Mr. Ben Thorlakson: That discount was on beef. The discount I'm talking about is 5¢ more per pound than this time last year. It was always discounted.

    Mr. Rick Borotsik: How much?

    In fact, we had that from the packers. Was 25¢ the number I seem to be thinking of?

    Mr. Ben Thorlakson: It was up to 25¢. The 25¢, I believe, would refer to the discount on AAA or the equivalent, the USDA choice, which is perhaps 55% of what we export.

    Mr. Rick Borotsik: They have us. They know we can't get into other markets. They know we have 50% of our beef production right now going into their marketplace.

    I go back to my question: Do you believe that perhaps there could be some collusion?

    Mr. Ben Thorlakson: I don't think so. I think they're only heartless and competitive.

    Mr. Rick Borotsik: Okay. Well, it happens. We all know that.

    To the grocery distributors, do you use import beef? Are you currently using import beef, selling import beef over the counter?

    Mr. Paul Fortin: No, not since BSE.

    Mr. Rick Borotsik: You are not bringing any beef in from Australia. You're not selling U.S. beef, none of that.

    Mr. Paul Fortin: No, we cannot bring in any U.S. beef now anyway.

    Mr. Rick Borotsik: Okay. When the markets are open, though, you do retail it.

    Mr. Paul Fortin: No. Do you know something? If we look back and talk about my company, we've been supporting the Canadian beef industry all along.

    Mr. Rick Borotsik: We appreciate that, and so does the beef industry, believe me.

    You also talked about the lack of slaughter capacity. I come from Manitoba, and 90% of what we sell is live, on the hoof, going into the U.S. We don't have that slaughter capacity.

    You were adamantly very passionate about it. Should the retail industry and the grocery distributors be considering investment in the packing industry?

    Mr. Paul Fortin: I wouldn't.

    Mr. Rick Borotsik: You would?

    Mr. Paul Fortin: I would not.

    Mr. Rick Borotsik: By the way, the packers we had here would suggest you would not or should not as well.

    I think that's about it for me.

    The Chair: Moving across, I want to finish off with my Liberal colleague, Mr. Barrette.

[Translation]

    Mr. Gilbert Barrette (Témiscamingue, Lib.): Thank you, Mr. Chairman.

    I have three or four short questions. With respect to promotions, I would like to know the difference between the price of products being promoted last year in March and the prices of the same products this year. I would like to see what the difference is.

[English]

    Ms. Kim McKinnon: It's the same range; it's down 13.8%.

[Translation]

    Mr. Gilbert Barrette: If there had not been any promotions this year, what would have been the normal price, the regular price?

»  (1715)  

    Mr. Paul Fortin: As I said earlier, there is not much difference between last year's price and this year's price. Sometimes we can get a better price. For example, this week T-bone steaks are selling for $4.99 a pound and last year, the same cut would have cost approximately $5.99. That is a difference of one dollar, and we were able to offer it at that price because the cost was lower.

    Mr. Gilbert Barrette: You will understand why we do not understand.

    Mr. Paul Fortin: You do not understand? I will repeat myself. We do not purchase animals, which means that we only purchase the cuts that Canadians will eat. When we purchase those cuts, the packers give us approximately the same prices as last year, perhaps a little lower. We take advantage of this, because there is a lot more beef this year. That means that when the prices are lower, of course we will take advantage of this to do our promotions. As far as regular prices go, as I mentioned, the prices are about the same, a little lower than last year. But there are some that are even slightly higher than last year's prices at the same time.

    Mr. Gilbert Barrette: How much do you import from Uruguay, for example, or from New Zealand?

    Mr. Paul Fortin: Nothing.

    Mr. Gilbert Barrette: Nothing.

    I got in touch with my local farmers' union last week, and I have just received their reply. I am told that the difference in price for cull cows between, for example, Uruguay and Canada, is 40¢ a pound.

    Is there any way we could ensure that those animals are consumed here rather than sending them away only to import them again?

    Mr. Paul Fortin: That is 40¢ less than Canadian beef?

    Mr. Gilbert Barrette: Is the market triggering this situation?

    Mr. Paul Fortin: Normally, cull cows are mainly used for ground beef, but many supermarkets will not offer ground beef made from culled animals. They sell ground beef made from animals under 30 months old.

    Mr. Gilbert Barrette: I would like to make a comment, Mr. Chairman.

    There are five or six main meat packers in this country. In Quebec, there is one. Recently, Quebec producers considered the possibility of forming an association in order to increase availability. When the people from the Toronto packer learned of this, they decided to stop buying animals in Quebec, to put pressure on them.

    Between you and me, when we are talking about pan-Canadian support, that is pretty surprising. I just learned of this ten minutes ago. For about one week now, animals have not been bought from Quebec, that is, since it was learned that people were going to try and organize in order to increase their opportunities.

[English]

    The Chair: I can't comment on that because I don't know the details, but I'm interested in learning more about it.

    We have to go now to Mr. Eyking.

    Hon. Mark Eyking (Sydney—Victoria, Lib.): Thank you, Mr. Chairman.

    I guess my question is to the retailers association. Regarding the quarterly earnings over the last couple of years, they're doing quite well. And I guess they should. The banks are doing well, so they might as well do all right. And I realize there are other people getting into selling groceries, especially dry goods, like the Wal-Marts and Canadian Tires. But they're mostly selling dry goods, and it's not hard to put them on the shelf.

    What I'm wondering is, if they're making a profit--and in dry goods it's very competitive and there's not much profit--one would almost think that the perishable goods are subsidizing the other parts of the grocery store.

    I guess what we're seeing in our neck of the woods is that the retailers are building their own distribution centres, consolidating all their networks. Are there some figures on what each department makes compared to the whole store? Is there such a thing as one department, like the meat department, subsidizing a lot of dry goods, because there's less of a market there, in order to make the end profit on top?

    I guess the thing I hope is not happening is that it's causing a downward pressure on those perishable items, working down to the primary producer getting a lot less for their product.

»  (1720)  

    Mr. Nick Jennery: It's a very complicated question.

    Any one retailer, certainly the chain operators, would have a number of different formats. That format can be a 40,000 square foot store or it could be 140,000 square foot store. In the larger stores you'd have a much greater array, depending on the company, of general merchandise and you'd have maybe a pharmacy, a donut operation, eye care, cooking classes--a whole lot of different things. I only say that because perishables can play a different role in some of the different formats, which also takes into account.... There are a lot of different factors that go in there.

    I can tell you that the retailers will look at the store as a single footprint. The whole game is how to bring consumers into the store. What you do is you understand your demographics, understand what would attract them to come in the door, and once you have them in the door, you try to merchandise to them. That's about as simply as I can put it.

    There is no rule of thumb--and I would ask Paul Fortin to jump in here--as to what an individual department can do. If I'm a new operator and I want to get into the marketplace, I may decide that I want to compete on produce, or on deli, or on fish, or something like that, and make my name in that particular area to differentiate myself from the other players. Once I've done that, then I build up consumer loyalty and I get people coming into the store. Maybe they'll buy things other than those from that department I specialize in. So really, it's a matter of proprietary strategy between the different retailers.

    You talk about the two largest retailers--very, very different strategies. One sells almost exclusively food and the other is very heavy into general merchandise.

    Hon. Mark Eyking: Just on that point, in Atlantic Canada we have the two big retailers, and all of their buying practices are done out of one distribution centre. Farmers are finding that all of a sudden 10 or 15 farmers are having to talk to one buyer now, and it's causing pressure. They feel the pressure for the perishable items to be more profitable is coming all the way from the top down to the primary producers. Is there pressure in some of these grocery chains to make more money on the perishable items because they can't make it on the other items?

    Mr. Paul Fortin: As Nick mentioned, we're looking at the total. We have different strategies. In the stores there is more than just beef. Beef is just a small portion of the offerings. There is the meat department, the deli department, the produce department, the seafood department, and the bakery department. We look at the total. We know that the grocery industry is very competitive. So is the meat industry. If we can make our profit, our bottom line, we're very pleased. But we're looking at the total store. Stores today have pharmacies. As Nick said, we all have different strategies to make our name. In my company we use the meat more as a driver to differentiate ourselves from our competitors.

    Mr. Nick Jennery: Perhaps I could add to that. When it comes to the big global retailers that are coming into our market, by and large the way you differentiate yourself is by having really great perishables. When I say great perishables, I'm talking about price, quality, and a consistency in your operation. That's something you can't get--

    Hon. Mark Eyking: That's what the farmers in my region are saying. The pressure is on them constantly to keep having a better product, top grade, which is fine. The price is dropping because that part of the store is so competitive. They figure it's getting downloaded on to them. What you're saying is true, and I believe it. It's getting downloaded on to the farmers. Maybe there's poor communication between the retailers and these farm groups, because the hog farmers and the apple producers are coming to me about problems with the retailers. It's a constant thing.

    The Chair: Is there anything more on that?

    Mr. Nick Jennery: I wouldn't say downloading. I would say it is very competitive because consumer demand is also changing. When it comes to the perishable products that can come into this country, unless you can meet that quality, price, and what the consumer determines to be value, you're going to be out of luck. So it is a very competitive area of the business. I'd certainly agree with that.

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    The Chair: The chairman always has a difficult time constraining himself, but I have four questions. I just want short answers. I'll make the questions very succinct.

    If at the retail end of it you are buying at the same price you did a year ago or thereabouts, do you believe you're buying right?

    Mr. Paul Fortin: As a buyer, I'd like to believe I always buy right.

    The Chair: And you're also selling right, then.

    Mr. Paul Fortin: Yes.

    The Chair: Does anyone else want to comment on that?

    Can you access anything you want at any volumes you want given that you have a three-week lead time or thereabouts? Can you always buy, or do you find that some products are on back order?

    Mr. Paul Fortin: Are you talking about the meat now?

    The Chair: Yes.

    Mr. Paul Fortin: It is not an issue. If we're talking specifically about beef, we get the quantity we want.

    The Chair: You can get anything you want. In Ontario some people are not getting it. I'm wondering if you find that to be the case. Can you get it?

    Mr. Paul Fortin: I can get it, yes.

    The Chair: How many cattle going to market in this slaughter year are owned by Americans? They bought that cattle last fall thinking markets were going to open to live cattle crossing the border. How many animals do you think are going to arrive at market in the short term?

    Mr. Paul Fortin: I cannot answer that question.

    The Chair: Mr. Thorlakson.

    Mr. Ben Thorlakson: I'd have to take a wild guess and say not many, maybe a grand total of 20,000 to 50,000. I honestly don't know of too many. I don't think it's a major factor.

    The Chair: Would you suggest that no Canadian government money should go to American-owned cattle? In other words, in the program we're bringing out right now, should we be paying Americans who have cattle they own here in Canada, or should it be exclusive to Canadian-owned cattle?

    Mr. Ben Thorlakson: I guess I don't see it as a big deal one way or the other.

    The Chair: Do you feed cattle only, or do you take the full risk of owning them?

    Mr. Ben Thorlakson: I probably own 85% of the cattle on the feedlot, something like that.

    The Chair: And who would own the others?

    Mr. Ben Thorlakson: Farmers. There's a myth that doctors, lawyers, etc., own cattle. I don't feed for any of them.

    The Chair: And you don't feed for packers?

    Mr. Ben Thorlakson: I have fed for packers in the past. Today I might have a couple of hundred.

    The Chair: Is it possible to distinguish between packer-owned cattle and farmer-owned cattle when those cattle go to market?

    Mr. Ben Thorlakson: I suppose it depends on what entity they're fed under.

    The Chair: Okay, you've answered my questions. I've tried to be succinct. I know we've run past our time, but we started late.

    Thank you, folks, for coming today. Thank you for frankly and honestly responding to the questions. We look forward to perhaps seeing you again some time in the future. Thank you very much.

    The meeting stands adjourned.