:
Good morning, Mr. Chair and committee members.
[Translation]
Hello everyone.
[English]
My name is Leah Olson, and I'm president of Agricultural Manufacturers of Canada. I'm pleased to have with me here one of our executive board members, Geof Gray, who will help answer questions and provide insight during the Q and A session.
In addition to his role on the AMC board, Geof is president and CEO of Salford Industries, a key manufacturer in southwestern Ontario offering a full line of tillage and seeding equipment, as well as fertilizer applicators. Salford has six manufacturing plants: two in Ontario, one in Manitoba, one in Iowa, one in Russia, and one in Georgia.
Agricultural Manufacturers of Canada is a national member-driven industry association with just under 300 member organizations. Our mission is to foster and promote the growth and development of the agricultural equipment manufacturing industry in Canada. I'm pleased to be here as you study non-tariff trade barriers to the sale of agricultural products in relation to free trade agreements.
In 2016, agricultural equipment manufacturers in Canada exported more than $1.8 billion of implements to more than 150 countries. In the agricultural industry, we are known as the innovative manufacturers, as we are highly specialized, offering farmers a short number of products, hence being called short-line equipment manufacturers. All agricultural equipment manufactured in Canada, except for one facility owned and operated by Case New Holland in Saskatoon, Saskatchewan, is done by a short-line manufacturer.
Your study is an important one, and I want to share with you the critical role that agricultural equipment manufacturers have domestically but also as global leaders of farm equipment. Canadian-made agricultural equipment is among the highest quality and most sought out in the world. Just over 50% of our manufacturing members are located in rural communities of fewer than 10,000 people. Some of our members are located on the family farm or in communities in which the number of people the manufacturer employs is larger than the population of the community it is in.
Despite being in rural locations, more than 80% of our members export. We have two members who export to more than 40 countries per year, a clear demonstration of the demand for Canadian-made farm equipment.
Employing more than 12,000 people across Canada, our member companies provide high-quality and well-paying employment in all realms associated with being a quality manufacturer: finance, marketing, IT, engineering, procurement, etc. Our members are key contributors and a vital part of Canada's agriculture industry and of rural economies.
A key role the government can pursue for agricultural equipment manufacturers is to enable further innovation by providing tax rebates supporting R and D and the commercialization of our products in Canada and globally. Machinery has been at the heart of Canadian agriculture for many years. It shaped agricultural practices and in many respects created the opportunity for rapid European settlement in the late 1800s.
The agricultural equipment manufacturing industry has progressively developed as an entity separate from commercial or industrial manufacturing. Central to this evolution was the need to develop agricultural machinery capable of meeting the challenges of the Canadian climate and our harsh growing conditions. This drive for innovation enabled Canadian farm equipment manufacturers to thus be global leaders in the development and production of high-quality, durable, and innovative machinery.
Innovation is crucial if we want to address global issues such as overpopulation, limited resources, and food production. The agriculture industry will need to produce more with less, and Canadian farmers and short-liners are at the forefront of meeting this challenge. AMC's members continually develop innovative technologies and manufacture products that enable us to be leaders throughout the world. This situation puts us in a very good position to align with the government's growth agenda.
As companies that thrive on exports, our members are enthusiastic supporters of trade agreements that open up increased market opportunities outside Canada. For instance, we wholly support possible action by the federal government to pursue a free trade agreement with China. As you know, however, any trade deal is only as good as the commitment of the participating countries to honour and enforce the agreed-to measures intended to lower both tariff and non-tariff barriers. Our members have found reasonable success in countries in which tariff barriers are low, but we have concerns about certain non-tariff practices, including border security issues, red tape and burdensome customs procedures, and requirements to meet various and different standards.
As one of our members highlights, “The paperwork and different certification rules are a detriment to developing export markets. It is difficult to keep up with the standards and to meet them, especially with 'legacy' products. The biggest obstacles to overcome for us are, first, different criteria for each country and region that can be hard to keep track of, and second, documentation that is applied arbitrarily.”
The recent approval of the Canada-European Union comprehensive economic and trade agreement illustrates this well. There is some confusion, both on the Canadian and European sides, as to whether CE marking certification is required. One of the requirements for exporting to the EU continues to be that of a CE marking certification, yet at this time, there are limited Canadian organizations certified to offer the CE marking certification. For agricultural equipment, this has been a challenge that has delayed exports to the EU.
Different countries require different formats of the same document. What one country accepts may be quite different from what another country accepts. The federal government would be well positioned to support and help harmonize the standardization of documents required.
Last is a lack of protection for intellectual property, including safeguards against the copying and reproduction of Canadian equipment and innovative products.
In this context, I should mention the absolute importance to our members of the support of Export Development Canada, which is vital in taking full advantage of liberalized trade opportunities outside Canada. While a lack of EDC financing is of course not technically a trade barrier, some of our members equate it with a non-trade barrier when such support is not obtainable.
Over the past year, Agricultural Manufacturers of Canada has hosted numerous government representatives at manufacturing facilities and farm shows across Canada. Our priorities moving forward include continuing to inform the federal and provincial governments' public policy agendas. Our goal is to help solidify Canada's role as a global powerhouse of farmers and short-liners feeding the world today, tomorrow, and in another 150 years.
Thank you for the opportunity to take part in your hearings on a subject of great importance to our members, to the wider agricultural sector, and to Canada's future economy.
[Translation]
Thank you very much.
Thank you for the invitation to appear before the committee and for your continued attention to the international market access for Canadian pork.
My name is Hans Kristensen. I am a producer from New Brunswick and the Maritimes' representative on the Canadian Pork Council's board of directors. As part of my responsibilities as a CPC director, I also sit as a director on Canada Pork International.
The roles and responsibilities between the CPC and Canada Pork International complement each other. Through public policy outreach, the CPC advocates for reasonable legislation and regulations both domestically and internationally to develop market opportunities for Canadian producers. Canada Pork International steps in once market access becomes feasible and promotes Canadian pork in foreign markets.
The last time we were here to discuss debt in the agriculture sector and its effects, we outlined how the pork sector relies on exports and how the relationship between market access and the economic stability of our industry are so closely connected. I'm certain by now you are familiar with the impact the Canadian pork industry has on the Canadian economy. It's a good story that needs to be told. In 2016, we exported over one million tonnes of pork and pork products valued at over $3.2 billion to 90 different countries. The pork sector relies on exports. In fact, more than two-thirds of the hogs produced in Canada are exported. Over the past decade, due to the hard work of the entire industry and this government, we have expanded to become the third largest exporter of pork in the world. This expansion supports not only hog farmers, but also provides thousands of jobs in rural and urban communities alike.
The pork industry has always been interested in eliminating trade barriers to our exports and improving access, whether import barriers, or unfair sanitary or regulatory measures, or legitimate tariffs. We work hard to remove measures that hamper our exports. It should not be surprising, therefore, that the meat sector is an ardent and steadfast supporter of all initiatives that contribute to not only the opening, but equally vital, the maintenance of existing export markets.
The Canadian Pork Council is pleased federal legislation to implement Canada's rights and commitments under the Canada-EU comprehensive economic and trade agreement, Bill , was granted royal assent on May 16. The CPC has followed developments with great interest since the October 2008 Canada-European Union summit to explore an economic partnership. Europe is the last important pork-consuming region in the world to which Canada currently has little effective market access. It is limited by very high tariffs and onerous import administration rules. The EU is one of the world's most protected import markets for meat. The new zero-tariff access for pork granted under CETA and much improved quota administration rules provide unique access for Canada and an advantage in the future over U.S. exports should a deal be worked out between the U.S. and the EU.
One of the non-tariff barriers hampering access for Canadian pork exports to the EU is the requirement that imports of fresh, chilled pork undergo costly and burdensome testing requirements for trichinae. The EU testing requirements are costly and severely limit sales of chilled pork to Europe. The EU also requires that a health mark label be applied to all boxes of meat exported to the EU. The label is intended to ensure traceability of the product to the producing establishment and to provide a visual means of determining if a package has been opened. The Canadian Food Inspection Agency's current interpretation of the EU requirement makes it extraordinarily difficult, if not impossible, for Canadian pork processors to meet this requirement. Over the past two years the industry has raised its ongoing concern about the health mark label with both Canadian and EU officials. Notwithstanding constant assurances that the issue is being worked on by officials in Canada and the EU, it would appear that little if any progress has been made to resolve the issue.
As important as trade agreements are, they constitute only one component of trade in pork products. The removal of import quotas and tariffs is only of value if it is possible to overcome also the myriad of associated technical regulations and requirements. The meat industry works very closely with the market access secretariat of Agriculture and Agri-Food Canada, the CFIA, Health Canada, and Global Affairs Canada on the endless task of addressing these impediments. These departments need the flexibility and a full team with the financial backing to efficiently address market access issues. There is work to be done to better capitalize on existing access.
When a country places a barrier to trade, our industry has to ask if we can overcome that barrier, and at what cost to our industry. The cost of compliance can sometimes deter operations from implementing the process or technology that allows CFIA to certify that the product or establishment comply for all products destined for the desired market...are erroneously expensive.
However, in some cases, a country's expectation or high barrier for import has benefited our industry, such as with Japan. Pork exports from Canada to Japan have been a major success story, and this has led to a strong trade relationship that has benefited both countries. The Canadian pork sector has a long history of trade with Japan that goes back more than 40 years since the first shipment of pork left Canada destined for Japan.
The Japanese market is very demanding on the safety of products and requires a high level of food safety and certification from its importers. These requirements have enabled the Canadian pork industry to develop some of the highest quality food programs and food safety programs in the world, such as the Canadian quality assurance program. These programs assist the industry in accessing Japan and other international pork markets. It can be said that the Japanese influence on the Canadian industry has also led us to be better producers and better exporters.
I must take a moment to point out that Canada is currently Japan's second largest country supplier of pork after the United States, and we believe there is still room to grow our sales. A trade liberalization agreement between our two nations will provide a big boost for our industry.
Another example where a non-tariff barrier is restrictive and the industry has decided to meet the country's requirement is the use of ractopamine. Ractopamine is a product approved for use in animal feed in over 25 countries, with an additional 75 countries allowing for the importation of pork that has been fed ractopamine, even though it is not allowed to be fed in their domestic herds.
In July 2012, the Codex Alimentarius Commission voted to approve an international standard that set the maximum residue levels of ractopamine as a feed additive, thus recognizing the product as safe for use in pork and beef production, yet markets such as the EU, Russia, China, Taiwan, and Thailand refuse the importation of meat where the product has been in contact with ractopamine.
As a result of this, the Canadian ractopamine-free pork certification program was launched in April 2013. This was in response to Russia's requirements banning the importation of meat from hogs that have been fed or even exposed to ractopamine. The Canadian Pork Council worked closely with the Canadian Meat Council, the Animal Nutrition Association of Canada, Canada Pork International, Elanco, and the CFIA to develop the program. The certification program was implemented throughout the pork value chain, including feed mills, producers, and live animal transporters, as well as slaughter, processing, and storage establishments.
Our industry is forgoing the benefit of using this product and has voluntarily implemented a national program to ensure that pork products meet import requirements of our clients for the ractopamine program. Our industry decided to stop using the product so we can increase the flexibility of accessing markets. That flexibility and that market access comes at a cost, but it also places our industry at risk.
For example, recently, Chinese testing of a shipment of pork from a specific establishment in Canada detected ractopamine residues. Canada's pork industry takes this detection very seriously, and we want to assure our Chinese customers that our country and our industry is dedicated to providing their consumers a ractopamine-free product. The CFIA has suspended exports of pork to China from the establishment. Product en route to the Chinese market from this specific establishment is also being recalled, and the plant involved will not ship until further notice. Our industry partners are working with the establishment involved, as well as with Canadian government officials, to clarify this incident and take the proper corrective actions.
The industry is confident in the integrity of the Canadian ractopamine-free pork certification program. The Canadian pork industry values its relationship with China and looks forward to continuing a strong trading relationship.
I thank you again for the opportunity to speak this morning on behalf of the industry.
:
I'd say each country has its own set of non-tariff barriers. In the global meat trade, meat will be like water; it will follow the path of least resistance. Where it starts encountering resistance, the industry has to decide whether there is enough market potential there to actually absorb some of the costs of managing or dealing with some of these non-tariff barriers.
Ractopamine is one example. It's a product that's available to use, but our industry has decided not to use it so that our industry can access the market that has placed that barrier. Would some of our members prefer it not to be there? Absolutely, but it is there, and we have to make that decision.
It comes down to understanding and knowing what markets are available along with the market conditions, and then moving forward. At CPC, we deal with that, but we also rely on expertise from within the country, as well as the experts in the country that we want to access. Also, the federal government helps us navigate some of the discussions that have to take place between governments about market access or when there is an FTA.
If we look at the EU deal, there was a very strong focus on the FTAs to deal with the tariffs. That was the focus and whatnot. There were processing companies accessing the EU and using those for their knowledge to continue.
When it comes down to the health check mark, frankly, that was something that was discovered as we started moving through the process and started dealing with the market intelligence. However, that particular issue is something that cannot be dealt with through the FDA but could be through government-to-government discussions after the fact.
Some of the issues we encounter include things like, certainly, phytosanitary issues that CFIA has to deal with and explaining the food inspection system that we have in place and how it compares to the market we want to get to. Those are the areas we need to focus on.
I'm very pleased today to be joined by our president, Brian Innes. We're here to address the subject of non-tariff import barriers facing our agriculture and agrifood exporters and how those are linked to free trade agreements.
I would like to begin by commending the committee for undertaking this study. It is a highly relevant topic, given the current focus on trade negotiations.
The existence of an agreement by itself will not ensure the desired increase in trade if the reduction in tariffs reveals technical and other non-tariff measures that prevent exporters from taking advantage of the new opportunities that the FTA was expected to provide.
I'll say a word on CAFTA. We are a coalition of organizations that have a major stake in international trade and seek a more open and fair international trading environment for Canada's agriculture and agrifood exports. Our members represent producers, processors, and exporters from the beef, pork, meat, grains, cereals, pulses, soybeans, canola, as well as the sugar and malt industries.
Together our members account for over 80% of Canada's agriculture and agrifood exports, which last year exceeded $55 billion, and support hundreds of thousands of jobs in communities across the country. As has already been noted this morning, the agrifood sector has been recognized for its potential for growth in the 2017 federal budget, being designated as a supercluster with a target of $75 billion in exports by 2025.
Competitive access to international markets is critical for our sector as 90% of Canadian farmers depend on world markets to sustain their livelihoods. We export over half of the agrifood products we grow, which makes Canada one of the most trade-dependent agricultural sectors in the world.
There is a widespread perception within the agrifood export community that over the past couple of decades, a period of significant tariff reductions through trade agreements, WTO, and regional deals, there has been an increased incidence of non-tariff measures. There is evidence to support this notion. The number of notifications under the WTO agreement on technical barriers to trade more than doubled in the past 20 years. Perhaps more telling is the number of new trade concerns raised with the WTO related to the technical barriers to trade agreement, which more than tripled from the years immediately following the implementation of the last WTO Uruguay round to the most recent period for which statistics are available.
There has been a substantial amount of economic analysis on the cost implications of non-tariff measures with estimates of the sum effect of non-tariff measures for our agrifood exporters being the equivalent of a tariff of 25% to 30% in Asia and 30% to 40% for the European market.
The committee has already heard from CAFTA members several examples of non-tariff barriers and their impact on export access. I won't repeat them here, but Canadian agrifood exporters have experience with virtually every category of non-tariff measures, which include restrictions on the use of pathogen reduction treatments, restrictions on the importation of agricultural products benefiting from biotechnologies, differences between the exporting and importing countries in maximum residue tolerances, and lengthy import approval measures of new types of plants and animal feed ingredients.
The increase in non-tariff measures and how they take on importance as potential barriers to our agrifood exports has occurred in different ways. One of these is the increasing importance people all around the world place on their food, not only on its safety, but increasingly, how it is produced, the result of which is a greater number and complexity of regulatory requirements that our agrifood exporters must adapt to in order to take advantage of the increased commercial market opportunities forthcoming from a newly implemented free trade agreement.
A second situation we are experiencing is where non-tariff measures have been in place in the importing country for some time, but whose existence or significance may not become apparent until tariffs or other border measures in that country are eliminated or reduced through a free trade agreement. An example of this would be European Union meat inspection requirements such as anti-bacterial treatments that differ from those in Canada.
Most countries Canada exports to recognize our system as being at least equivalent to their own such that a Canadian plant approved by the Canadian Food Inspection Agency is automatically accepted for imports to those countries. The EU, however, does not recognize equivalency of results of inspection systems as a basis for allowing imports. Instead, the Canadian industry is expected to adjust its operating procedures to conform to EU regulatory requirements before it can take advantage of the new market opportunities created under CETA.
A third scenario for non-tariff barriers, which can be the most disruptive for our members as well as for our government, are those that appear without warning and often with little or no scientific rationale. They are usually in response to internal pressures, such as a domestic industry seeking relief from import competition or to non-science-based movements protesting innovations in food production. This is the category of non-tariff barriers which seems to be occurring more often as tariff protection declines following a trade agreement, and when there is a domestic industry accustomed to protection from imports.
We should point out that not all regulations and technical measures act to restrict trade. Many of them, when properly designed and implemented, address legitimate health and safety objectives. These generate consumer confidence and support the growth of the markets into which we sell our products and for which we have obtained preferential access through free trade agreements. In addition, Canada's internationally recognized superior plant and animal health status can provide our agrifood exporters in some export markets with competitive advantages over other competitors, even those with their own free trade agreements. This is as a result of freedom in our own country from certain animal and plant diseases.
Of the scenarios described earlier, the first, that of increasing public expectations and demands, exists in Canada as well as most other jurisdictions. Our main concern here is that any new regulations and standards are no more trade discriminatory than is necessary to satisfy the regulatory objective, and thus do not risk provoking a trade challenge under either a free trade agreement or through the WTO.
Those barriers that are established with little or no consultation, or that do not have a rigorous scientific basis are, in our view, the most detrimental, as they often occur after exporters and their import customers have made substantial investments in developing new markets. The experience of losses from often highly perishable food products being held at the border due to the imposition of a non-tariff barrier can be severe enough that exporters lose interest in the market, viewing it as too risky such that the expected gains from a trade agreement are forgone.
We offer the following to the committee for its consideration in respect of non-tariff barriers and free trade agreements.
There need to be undertakings in the trade agreements that commit each of the parties to having in place science-based, transparent, predictable, and timely regulatory approval processes.
Similarly, the WTO-recognized international standard setting bodies, including Codex Alimentarius, the International Plant Protection Convention, and the OIE, the World Organisation for Animal Health, must stick to evidence-based processes such as those of establishing maximum residue limits and not be allowed to become politicized in their decision-making.
We need to start early in a free trade negotiation to clarify the regulatory requirements for Canadian agrifood export products of interest. This requires co-operation between industry and government involving the expertise and intelligence available from Canadian embassy staff, regulatory and trade policy officials in government, and industry associations and their members. Working groups such as those now in place for implementation of CETA need to be established at the earliest opportunity.
Another suggestion is that opportunities for co-operation between trade partners in regulatory standards and approval processes should be encouraged within our FTAs. Harmonization of standards is an example of that. This can also include approvals of animal health products and pest control tolerances.
Human resource requirements of our regulatory and policy agencies increase with each new trade agreement given differences between countries as well as the ever-increasing expectations placed on food producers in virtually all countries. As our dependence on trade increases, Canada must recognize that sufficient investment in staffing and expertise in our regulatory, policy, and diplomatic personnel is essential to take advantage of trade agreements.
More specifically, we would stress the need for adequate funding for several different components of the federal government with key roles in achieving market access for agrifood exports, including the market access secretariat, our diplomatic posts, and departments and agencies including Agriculture and Agri-Food Canada, the Canadian Food Inspection Agency, Global Affairs Canada, and Health Canada.
Thank you for this opportunity. We look forward to your questions.
:
Thank you, Mr. Chair. Good afternoon, everybody. I'm sure you'd enjoy a nice glass of wine with the meal you're having right now.
Voices: Oh, oh!
An hon. member: We're okay.
Mr. Dan Paszkowski: My name is Dan Paszkowski, and for those who don't know me, I'm the president and CEO of the Canadian Vintners Association, better known as the CVA. As the national voice of the Canadian wine industry, our members represent 90% of all Canadian wine production and are engaged in the entire value chain, from grape growing and wine production to retail sales and tourism. We have more than 700 vertically integrated grape wineries located in six provinces across Canada, with 31,000 acres of vineyards supporting 1,800 grape growers.
As you may know, wine is the highest value-added agrifood product in the world. Unlike the case with other sectors of the economy, once our vines are planted, it's impossible to move our agrifood operation to another jurisdiction. The Canadian wine industry produces high-quality, award-winning wines, contributes more than $9 billion to the national economy, supporting 37,000 jobs, and attracts almost four million tourist visitors to wine country each and every year.
We are the second fastest-growing wine market in the world, with wine consumption growing three times faster than the global average. Over the past decade, per capita wine consumption in Canada has increased by 27%, with by comparison, a drop of 1% for spirits, and a decline of 11% for beer, making wine the beverage of choice in Canada.
This is an opportunity, but it's also a challenge, as Canada is also the sixth largest importer of wine in the world, and the past decade has seen imports capture 75% of the 150 million litres of wine sales growth across Canada. Additionally, legislating the annual indexation of the excise duty on wine to the consumer price index, as proposed in budget 2017, will impact the competitiveness of Canadian wineries, impact demand for grapes, and threaten not only the growth of wine sales in Canada but also our ability to create new export markets.
With a U.S. WTO trade challenge looming over concerns about B.C. policy on grocery wine sales, and an EU notice last week that implementation of the proposed excise duty escalator in the budget implementation act could trigger a new trade challenge, it's clear that the industry is facing many obstacles.
This is all taking place at a time when we face the implementation of CETA and the renegotiation of NAFTA. These two trade agreements include the largest wine-producing countries in the world, representing 61% of total wine imports into Canada. The Canadian wine market is of the utmost importance to both EU member states and U.S. wine-producing states, given that wine is the highest value EU agricultural export to Canada and that this year the U.S. wine industry became the largest exporter of wine to Canada by value.
From Nova Scotia to British Columbia, vintners support a competitive and fair global trading environment, recognizing the numerous benefits to industry, consumers, and the greater economy. Canadian vintners are actively engaged in global trade, with $85 million in export sales shipped to 40 countries in 2016, up from $20 million in 2005; however, it's important to emphasize that our export growth realization is tied to our domestic success. The Canadian wine industry's domestic market share is a mere 32%, the lowest of any wine-producing country in the world. Further, our premium VQA wine sales have less than a 5% market share in eight out of 10 provinces across Canada.
Yet, with the exception of three provinces, I'm sad to say that 81% of Canadians cannot legally have wine delivered to their homes from an out-of-province winery. Clearly, the retail world has changed, and removal of the remaining interprovincial barriers to wine trade would help the Canadian wine sector adjust to, take advantage of, and prepare for a new state of global trade.
We are hopeful that the hearing of the Comeau case at the Supreme Court this year, together with the federal-provincial working group on beverage alcohol to be launched on July 1 under the auspices of the Canadian free trade agreement will help address this barrier to trade.
Globalization is an increasingly important factor affecting producers of all sizes. As Canadian wineries enter the world of international trade, they must manage a myriad of economic costs, ranging from import tariffs to more complex non-tariff trade barriers. Working with Agriculture and Agri-Food Canada and Global Affairs Canada, our industry has been actively addressing non-tariff barriers to trade through our participation in various fora including the World Wine Trade Group and the APEC Wine Regulatory Forum. Through these groups, the CVA works with a number of wine-producing countries to support a climate free of trade-distorting factors, through sound science and the harmonization of regulatory standards covering definitions, labelling, oenological or winemaking practices, and composition.
The harmonization of regulations are crucial, given that winemaking practices are not uniform, vary across jurisdictions, and can create costly barriers to trade. Let me provide you with a few examples.
Geological and other conditions require winemakers around the world to sometimes use different winemaking practices to enhance the stability, longevity, or consumer acceptance of wine. Different approaches are used to define which and how much of an additive or processing aid may be used in the production of wine. Restrictions are implemented on the use of certain pesticides, including differing maximum residue limits for agricultural chemicals.
Multiple export and food safety certificates are often required, even though the food safety risks from wine are miniscule and the wine in question already meets the requirement for sale in Canada. Labelling differences include country of origin, alcohol content, alcohol tolerance, expiration dates, nutrition labels, ingredient labels, health labels and a broad range of other information, often in multiple languages. Packaging differences include lightweight bottles and restrictions on the materials that contact the wine. Environmental issues range from the definition of “sustainability”, to carbon and water footprint and acceptance of organic standards. There are intellectual property restrictions on the use of traditional terms such as “reserve”, “champagne”, “port”, and “sherry”, as well as geographical indicators.
Those are but a few of the issues that create costly non-tariff barriers and complicate trade in wine. Through the World Wine Trade Group and APEC, the CVA has worked hard on adopting mutual acceptance of oenological practices, harmonization of labelling standards, the definition of “icewine”, an agreement on counterfeiting, addressing additives through the Codex Alimentarius Commission, and other efforts in supporting a global wine-growing industry characterized by freedom from trade distortions.
Those intergovernmental efforts have paid dividends through the World Wine Trade Group's endorsement of analytical methodology and regulatory limits, as well as the adoption of a wine annex in the trans-Pacific partnership agreement, which we believe is a crucial standard for inclusion in the negotiation or renegotiation of trade agreements.
The CVA has worked in co-operation with the federal government on a range of groundbreaking principles for nations to use when establishing wine regulations. These harmonization efforts, if adopted, would remove unnecessary obstacles to international wine exports that delay and add to winery costs, resulting in restricted market access and trade.
In conclusion, the regulatory efforts undertaken through the World Wine Trade Group should be advanced by the federal government to facilitate international trade in wine, whether through APEC or bilateral trade agreements with China, Japan, Mercosur, India, and so on, as an important foundation in bringing regulatory coherence with our trading partners.
Thank you. I look forward to answering any questions you might have.
:
Thank you. That is an excellent starting point.
For the Canadian wine industry to succeed internationally, we have to remove what I view as a non-tariff barrier within our own country, which is the ability to ship a case of wine to a Canadian consumer in another province, which isn't the case, with the exception of three jurisdictions, namely, British Columbia, Manitoba, and Nova Scotia. We are hopeful that will take place.
As you know, five years ago, Bill was passed. Both the House of Commons and the Senate approved an amendment to the federal Importation of Intoxicating Liquors Act to allow wine at that time, but it now includes beer, to be shipped across provincial borders for personal consumption. However, it was up to the provinces to make amendments to their own laws, which has not taken place. We are now at the point where it might take a Supreme Court ruling or the goodwill of the federal and provincial governments over the course of the next 12 months, beginning July 1, to come to an agreement on how we might be able to allow Canadian wine to be shipped from one province to another without fear of a significant financial penalty, or after three infractions, a significant time in jail, which is what the law says in the provinces that currently disallow trade across interprovincial borders.
:
We've always paid excise tax on wine. As you may know, it is a flat tax at the front of the pricing chain of 63¢ per litre, but since it is at the front of the pricing chain, it accumulates as it works its way down to the consumer price.
We already add inflation to our producer costs every year. Then you add the excise tax. If that is indexed to inflation on an annual basis, it is then fed into the liquor board markup, which ranges from 70% in Ontario to 160% in Nova Scotia, which then picks up the 5% GST on top of that, which then picks up the 8% PST beyond that. Then it gets to the consumer level. In the case of wine, that increase in excise will double by the time it hits the consumer. Then you have to think about the fact that we have to retail this at the liquor store, and the liquor store typically rounds off the price to the nearest nickel or the nearest dime. It adds a significant cost, which somebody has to take, either the producer or it is shared with the consumer, or it is given completely to the consumer.
The problem we face is we have a 32% market share in this country. We're not the lowest cost producer in the world. We aren't the biggest wineries in the world, so if we do increase the cost and it's passed on to the consumer, the consumer typically has a line in the sand they will not cross. If it's $9 a bottle and they're not crossing $9 a bottle, they'll find an alternative brand, which may be an imported brand. It's a real concern to us.
It's not the fact that government can increase tax. We've faced increases in excise tax in the past, a 125% increase in excise tax over the past 30 years. It's the fact that it is legislated, and inflation is not the only factor we face. Numerous business factors face the industry, and therefore, it's too rigid.
If the government is going to increase the excise tax, it should be increased in the budget every year, or every other year, whenever, and then allow the opportunity to debate that to make sure it doesn't have a negative impact on the industry, especially at a time when we are trying to adjust to the Canada-EU trade agreement when import tariffs will be eliminated. We're about to renegotiate NAFTA. We still don't have interprovincial access across the country. Our only ability to access the export markets is if we can own our own market at home to a larger extent than we do.
We need help to take advantage of these trade agreements to enter into the export market. Annual indexation of the excise tax will not allow us to invest back into the industry, which means we won't be able to expand our export opportunities or our domestic opportunities.