Committees (44th Parliament, 1st Session)

REPORT ON BILL C-4

STANDING COMMITTEE OF THE SENATE ON AGRICULTURE AND FORESTRY

An Act to Amend the Canadian Wheat Board Act and to make consequential amendments to other Acts

Chair: The Honourable Leonard J. Gustafson

Deputy Chair : The Honourable Eugene Whelan

May 14 1998

THURSDAY, May 14, 1998

The Standing Senate Committee Agriculture and Forestry has the honour to present its

FIFTH REPORT

Your Committee, to which was referred Bill C-4, An Act to amend the Canadian Wheat Board Act and to make consequential amendments to other Acts, has, in obedience to the Order of Reference of Thursday, 26 February 1998, examined the said Bill and now reports the same with the following amendments, and with observations and recommendations:

1. Page 3, clause 3: Replace lines 12 to 14 with the following:

"appointed by the Governor in Council in accordance with section 3.09."

2. Page 5, clause 3: Replace lines 17 to 21 with the following:

3.09 (1) The president is appointed by the Governor in Council on the recommendation of the Minister and holds office during pleasure for the term that the Governor in Council may determine.

(2) The Minister may recommend that a person be appointed president only if

(a) the Minister has consulted the board with respect to

(i) the qualifications required of the president; and

(ii) the person whom the Minister is proposing to recommend; and

(b) the board has fixed the remuneration to be paid to the president and has informed the Minister of the remuneration.

(3) Notwithstanding the other provisions of this section, the Governor in Council may appoint a transitional president and fix the remuneration to be paid to him or her. The transitional president’s term may not end more than one year after the coming into force of this subsection.

3.1 (1) The president is paid the remuneration fixed in accordance with paragraph 3.09(2)(b) or subsection 3.09(3)."

3. Pages 10 and 24, New clause 8.1 and clause 36:

(a) add after line 3, on page 10, the following:

"8.1 Within two years after the day this section comes into force, the Auditor General of Canada may commence an audit of the accounts and financial transactions of the Corporation for such fiscal years as the Auditor General considers appropriate and a report of the audit shall be made to the Corporation and the Minister."; and

(b) in clause 36, on page 24, replace line 1 with the following:

"tion 6(2) of this Act, and sections 8.1, 11, 27 and".

4. Pages 17 and 18, Clause 24:

(a) on page 17, delete lines 31 to 40;

(b) on page 18, delete lines 1 to 16; and

5. Pages 18, 19 and 20, Clause 26

(a) on page 18, replace lines 35 and 36 with the following:

"26. Section 47 of the Act and the headings before it are replaced by the following:

PART V

OTHER GRAINS

Application of Parts III and IV

47. (1) The Governor in Council may, by regulation, on the recommendation of the Minister, extend the application of Part III or of Part IV or of both Parts III and IV to barley.

(2) Where the Governor in Council has extended the application of any Part under subsection (1), the provisions of that Part shall be deemed to be re-enacted in this Part, subject to the following:

(a) the word "barley" shall be substituted for the word "wheat";

(b) the expression "barley products" shall be substituted for the expression "wheat products"; and

(3) An extension of the application of Part III shall come into force only at the beginning of a crop year.

(4) For the purposes of this section, "product", in relation to barley, means any substance produced by processing or manufacturing barley, alone or together with any other material or substance, designated by the Governor in Council by regulation as a product of barley for the purposes of this Part.

(5) The Minister shall not make a recommendation referred to in subsection (1) unless

(a) the Minister has consulted with the board about the extension; and

(b) the producers of barley have voted in favour of the extension, the voting process having been determined by the Minister.

47.1 The Minister shall not cause to be introduced in Parliament a bill that would exclude any kind, type, class or grade of wheat or barley, or wheat or barley produced in any area in Canada, from the provisions of Part IV, either in whole or in part, or generally, or for any period, or that would extend the application of Part III or Part IV or both Parts III and IV to any other grain, unless

(a) the Minister has consulted with the board about the exclusion or extension; and

(b) the producers of the grain have voted in favour of the exclusion or extension, the voting process having been determined by the Minister.".

(b) on page 19, delete lines 1 to 36; and

Respectfully submitted,

LEN GUSTAFSON

Chair

COMMITTEE MEMBERS

(dated May 14 1998)

Chair: The Honourable Leonard J. Gustafson,

Deputy Chair: The Honourable Eugene Whelan

and

The Honourable Senators:

Chalifoux, Callbeck, * Graham, (or Carstairs), Hays , * Lynch-Staunton, (or Kinsella), Robichaud, Rivest, Rossiter, Sparrow, Spivak, Stratton and Taylor.

* Ex officio

(Quorum 4)

Other Senators having participated in this committee study : Andreychuk, Fairbairn, Fitzpatrick, Ghitter, St-Germain.

Researcher Officers: Jean-Denis Fréchette et June Dewetering

REPORT ON BILL C-4

INTRODUCTION

Bill C-4, An Act to amend the Canadian Wheat Board Act and to make consequential amendments to other Acts, was referred to the Standing Senate Committee on Agriculture and Forestry on 26 February 1998. After Committee members had agreed that it was imperative to meet with as many individuals and organizations as possible, they unanimously decided that hearings in the Prairies were necessary. During the months of March, April and May 1998, the Committee met in Ottawa and in Brandon, Regina, Saskatoon, Calgary, Edmonton and Winnipeg to hear opinions on Bill C-4 as well as recommendations from a broad range of groups and individuals. In total, 92 individual farmers, 34 farm organizations and three provincial Ministers of Agriculture made presentations to the Committee, as did the Minister responsible for the Canadian Wheat Board and officials from the Canadian Wheat Board and from Agriculture and Agri-Food Canada. The Committee would like to thank all participants for their thoughtful, and thought-provoking, presentations.

During the hearings, some specific areas of the bill proved to be major irritants. These included: the governance of the Corporation, more specifically the appointment of the president (CEO) and the election process for the directors; the proposed contingency fund; the proposed process for the inclusion and exclusion of various crops under the Board's jurisdiction; and various issues related to marketing, including the Board's buy-back program and the possibility of a dual marketing system, often discussed in the context of the Ontario Wheat Producers’ Marketing Board’s Declared Off-Board Marketing scheme.

The hearings also revealed that the concept of enabling legislation is not clearly understood. A number of witnesses indicated that they do not believe that Bill C-4 will achieve its objectives. Is this because, unlike other legislation, the bill does not spell out all details of the proposals, or is it because Bill C-4 would create a new corporate entity, a "mixed enterprise," with which Canadians have only limited experience to date? Whatever the reason, misunderstanding about the possibilities and limitations of enabling legislation has created a lack of trust among farmers and other interested parties.

This was particularly clear when individual farmers or representatives of farm organizations spoke about the powers of the proposed board of directors. As enabling legislation, Bill C-4 would place all powers of the Corporation in the hands of the proposed board, the majority of whom would be elected by Prairie farmers. This board would, among other duties, establish by-laws governing the administration and management of the Corporation.

Similarly, concerns were raised about the details of the proposed contingency fund, which again Bill C-4, as enabling legislation, does not specify. The proposed board of directors would be responsible for such key decisions as whether or not the proposed fund would be established.

The Committee recognizes the uncertainty that accompanies enabling legislation and wonders if a better "education campaign" regarding the concept of enabling legislation could have alleviated some of the current concern. The Committee also recognizes that enabling legislation would give the proposed board of directors control over the Corporation and its future evolution, and believes that this independence and flexibility must be protected. However, following extensive hearings, from which it concluded that the following issues appear to be the main sources of concern, the Committee puts forward recommendations to guide the proposed board of directors. It is hoped that these recommendations might help to re-establish trust between wheat and barley producers and their marketing agency.

CORPORATE GOVERNANCE

Clauses 2 and 3 contain many of the provisions regarding the corporate governance structure of the Corporation, currently known as the Canadian Wheat Board. Bill C-4 proposes that a board of fifteen directors, including a chairperson and a president, would direct and manage the business and affairs of the Canadian Wheat Board. The Governor in Council would appoint four directors and the president on the recommendation of the Minister; the president would be recommended only after consultation with the other directors, and he or she would hold office during pleasure for the term to be determined by the Governor in Council. The remaining ten directors would be elected. The proposed board would designate one director to be the chairperson, and could fix his or her remuneration. The remuneration of the president and of the directors would be fixed by resolution of the proposed board.

With the exception of the president, directors would hold office for a maximum term of three years, up to a maximum of three terms. Appointed and elected directors would have the same powers, duties and functions and, unless the Governor in Council directed otherwise, all directors except the president would perform their functions on a part-time basis. In exercising their powers and performing their duties, the directors would act honestly and in good faith with a view to the best interests of the Corporation. They would also exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

The proposed board of directors could make by-laws respecting the administration and management of the business and affairs of the Corporation, including: the holding of annual meetings and any other method by which the board could demonstrate its accountability to producers; the periodic review of the performance of the president of the board; and the manner in which the board could recommend the removal of the president to the Minister.

Finally, the Governor in Council could, on the recommendation of the Minister, make regulations respecting the election of directors. In fact, the Minister responsible for the Canadian Wheat Board has released draft proposals governing the election process and addressing such issues as: the electoral districts, staggered terms of office to provide continuity, qualified voters, qualifications to be met by candidates, campaign spending limits and conflicts of interest.

The President

The appointment of the president by the Governor in Council, on the recommendation of the Minister after consultation with the other directors, could be justified on the grounds that, since the government would continue to guarantee initial payments and borrowings, some protection would be needed for Canadian taxpayers. A significant majority of the witnesses heard by the Committee argued, however, that the proposed board of directors must be permitted to appoint and to dismiss the president. Furthermore, they stressed that, in order to ensure full accountability to Prairie producers, the president should not be a member of the proposed board of directors. In their view, if the Corporation truly belongs to producers and is to work to their advantage, it is imperative that the proposed board, rather than the Minister, have control over the appointment and the dismissal of the president.

The Committee shares this view only in part; it believes that protection is needed both for Prairie farmers and for Canadian taxpayers. In the Committee's opinion, this dual protection could be achieved if the president were to be appointed by the Governor in Council on the recommendation of the Minister, but only following extensive consultation with the other directors of the proposed board. Thus, the Committee moves the following amendments:

Page 3, clause 3: Replace lines 12 to 14 with the following:

"appointed by the Governor in Council in accordance with section 3.09."

Page 5, clause 3: Replace lines 17 to 21 with the following:

"Appointment

3.09 (1) The president is appointed by the Governor in Council on the recommendation of the Minister and holds office during pleasure for the term that the Governor in Council may determine.

Conditions

(2) The Minister may recommend that a person be appointed president only if

(a) the Minister has consulted the board with respect to

(i) the qualifications required of the president; and

(ii)the person whom the Minister is proposing to recommend; and

(b) the board has fixed the remuneration to be paid to the president and has informed the Minister of the remuneration.

Transitional

President

(3) Notwithstanding the other provisions of this section, the Governor in Council may appoint a transitional president and fix the remuneration to be paid to him or her. The transitional president’s term may not end more than one year after the coming into force of this subsection.

Remuneration

3.1(1) The president is paid the remuneration fixed in accordance with paragraph 3.09(2)(b) or subsection 3.09(3)."

On whether the president should be a member of the proposed board of directors, the Committee did not reach a unanimous agreement. However, the majority of the Committee have decided not to recommend any change at this time; they believe that there are sound precedents in other corporations for the president to sit as a board member.

B. The Electoral Process

During its hearings in Western Canada, the Committee heard a variety of opinions about the election process for ten directors to the proposed board. A number of witnesses, perhaps drawing on their own successful experiences, recommended a delegate system for the process. They argued that, given the responsibilities of the ten elected directors, such a system could ensure information gathering and dissemination between directors and producers.

Committee members, as well as a number of witnesses, have identified the designation of electoral districts as a potential problem. Support for the current districts for the CWB Advisory Committee is not universal and other configurations have been suggested. The Committee believes that directors from all Prairie provinces must be permitted to contribute in a meaningful way to decisions regarding the Corporation and recommends that no one Prairie province have a majority of the elected directors to the Canadian Wheat Board.

RECOMMENDATION

To ensure that no one Prairie province has a majority of the elected directors to the proposed board of the Canadian Wheat Board, the Committee recommends that the electoral districts be structured so that five directors could be elected from Saskatchewan, three from Alberta and two from Manitoba.

C. Eligible Voters

Witnesses appearing before the Committee in Western Canada were also concerned about who would be eligible to vote. Specifically, discussion focused on whether each permit book holder should have one vote, or whether the number of votes should be linked to the acreage of each producer. There was a view among some farmers that the vote should be based on volume produced.

However, since at least 1988, with the release of its report Financing the Family Farm to the Year 2000, the Committee has long been a supporter of the family farm. The Committee believes, therefore, that each permit book holder should have one vote, regardless of his or her acreage, since a system linked to acreage might give undue influence in the election process to "corporate farms."

D. Campaign Spending Limits

Some of the Committee's witnesses supported imposing limits on campaign spending by those wishing to be an elected director, to ensure that financial strength not determine a candidate's success or failure.

The Committee, too, believes that the regulations to the proposed Act should contain limits on the amount of election spending to ensure that spending not determine success or failure. The Committee does not wish to specify any particular monetary amount, however. The prime consideration in electing and appointing directors to the proposed board should be the extent to which the expertise and experience of the candidate can contribute to the management and administration of a $6 billion corporation. The Committee firmly believes that collectively the directors - appointed and elected - must possess the qualifications needed to fulfil the Corporation’s mandate.

E. The Auditor General and Access to Information

It became apparent during the Committee's hearings that, among some Prairie farmers, there was a distinct lack of trust in the Canadian Wheat Board, which they said lacks transparency and accountability. A number of witnesses recommended that the Access to Information Act apply to the Canadian Wheat Board, recognizing that proprietary information would be protected, and that the Auditor General be the auditor of the Corporation.

The Committee believes that some role for the Auditor General would enhance the transparency and accountability of the CWB, in the eyes of Prairie producers and perhaps Canadian taxpayers generally. Concern among some Committee members was raised that an extra level of audit not only would be cumbersome, but would also go against the hope and belief that an elected board of directors would greatly improve the transparency and accountability of the Corporation. However, the Committee believes that, at least in the early years of the operation of the Corporation, the Auditor General should be able to conduct an audit that would contribute to establishing trust in the new Corporation. For this reason, the Committee moves the following amendments:

Pages 10 and 24, new clauses 8.1 and clause 36:

(a) on page 10, by adding immediately after line 3 the following:

"8.1 Within two years after the day this section comes into force, the Auditor General of Canada may commence an audit of the accounts and financial transactions of the Corporation for such fiscal years as the Auditor General considers appropriate and a report of the audit shall be made to the Corporation and the Minister."; and

(b) in clause 36, on page 24, by replacing line 1 with the following:

"tion 6(2) of this Act, and sections 8.1, 11, 27 and".

Finally, the Committee wishes to note that, according to the Minister responsible for the Canadian Wheat Board, all directors of the proposed board would have access to all Canadian Wheat Board "facts and figures," including the fully audited financial statements. For example, they could examine the prices at which grain was sold, the price premiums realized, all operating costs, and whether or not the Corporation was running efficiently. The Minister has suggested that, with this full knowledge of the CWB and its competition, the directors would be in the best position to assess which information should be made public and which should remain confidential for commercial reasons. The Committee is confident that all directors of the proposed board would exercise due caution in the release of information, particularly in light of the proposed requirement that the directors, in exercising their powers and performing their duties, act honestly and in good faith with a view to the best interests of the Corporation.

F. Responsibility

A number of witnesses told the Committee of their concern that the proposed board of directors would be responsible to the Corporation rather than to Prairie farmers. Some suggested that perhaps the proposed board could be responsible to both. While the bill states that directors would act with a view to the best interests of the Corporation, the Committee believes that, by being elected, the board of directors will also be responsible to Prairie farmers.

THE CONTINGENCY FUND

Clause 6 of the bill provides for the establishment of a contingency fund to be used for three itemized purposes: a) guaranteeing adjustments to initial payments; b) providing for potential losses from early pool cash outs; and c) providing for potential losses from cash trading.

The main objective of the proposed contingency fund would be to introduce more flexibility into the operations of the CWB. The Western Grain Marketing Panel's 1996 recommendation that the CWB be allowed to make cash purchases and to terminate pool accounts earlier is reflected in Bill C-4 by the proposed establishment of the contingency fund.

During the Committee’s hearings, concerns were expressed about the proposed fund, including that cash trading would destroy the CWB pooling system and have a negative impact on the domestic feed market, that the federal government should continue guaranteeing adjustments to initial payments, and that the contingency fund would be just another check-off imposed on farmers.

Though a number of witnesses told the Committee that they would like a more flexible CWB, they did not always link that flexibility with the proposed contingency fund. The Committee believes that the proposed fund would indeed offer new operational flexibility to the proposed board of directors, allowing them to offer more marketing choices to farmers. For some farmers, this might not go far enough; however, the marketing options offered by the proposed contingency fund appear to be a good approach for a transition period.

The Minister responsible for the Canadian Wheat Board pointed out that the proposed contingency fund could be funded from revenue sources other than a direct check-off; for example, from interest earned from sales of grain on credit or by sales of CWB assets. Although it would be the responsibility of the proposed board of directors to manage the risk associated with the three uses of the proposed fund, and to decide how that fund would be financed, the Committee strongly believes that farmers should have some protection with respect to how much money they might be called upon to contribute. During the hearings, discussions showed that protection could be provided through the establishment of a maximum on the amount of money in the proposed fund.

RECOMMENDATION

In order to alleviate the uncertainty among farmers regarding the proposed contingency fund, the Committee recommends that regulations state that the balance in the fund shall not exceed $30

Because the proposed contingency fund could be used for three different purposes, the financial performance of each activity should be transparent, so that farmers would know exactly where moneys were credited and how they were used. If the moneys were kept in a global account, there would be a possibility of cross subsidization between various uses. Transparent financial performance for each use of the proposed contingency fund is essential for both farmers and other stakeholders.

RECOMMENDATION

To maintain transparent financial performance for each use of the contingency fund, the Committee recommends the establishment of individual accounts for the three activities financed by the fund.

THE INCLUSION AND EXCLUSION OF GRAINS

The Canadian Wheat Board Act already contains an exclusion provision under section 46(b). During the debate on Bill C-72, the predecessor of C-4 in the last Parliament, it was often mentioned that, for fairness and balance, an inclusion clause should also be added.

Clause 24 of Bill C-4 would provide farmers with a general process for excluding any kind, type, class or grade of wheat (or barley). Clause 26 would extend the appropriate provisions of the Act to any grains that might be added to the mandate of the CWB. Under the Canadian Wheat Board Act the definition of grain includes: wheat, oats, barley, rye, flaxseed, rapeseed and canola.

During the Committee's hearings, the inclusion and exclusion clauses were probably the major irritant for witnesses. A number of witnesses told the Committee that if the inclusion and exclusion clauses were deleted, they would support the bill.

Trade considerations, particularly regarding canola sales to Japan, were often raised as an argument for not having the inclusion clause in the bill. This concern originates in the 1996 Western Grain Marketing Panel Report, which noted that the Japan Food Agency prefers to import wheat from central selling agencies, but that Japanese "oilseed crushers prefer the present situation dealing with private sellers and are generally pleased with the Canadian marketing system."

On 16 February 1998, the Minister responsible for the CWB proposed to the House of Commons that both the inclusion and exclusion clauses be deleted from Bill C-4, provided that agreement was reached on a motion "that no minister responsible for the CWB could attempt to change the wheat board’s existing mandate either to enlarge it or to reduce it without first having conducted a democratic vote among the relevant producers and also having consulted with the wheat board’s new board of directors." Because this proposal took place at third reading, it required unanimous consent; as this was denied, the proposal was never tabled.

Should the inclusion and exclusion clauses be deleted from Bill C-4, legislative change would be required in the future to exclude or include grains from the CWB's jurisdiction. Parliament would be required to draft the appropriate legislation but an amendment to Bill C-4 should also ensure that the input of the proposed board of directors and the affected grain producers would be considered.

Therefore, the Committee moves the following amendments:

Pages 17 and 18, Clause 24:

(a) on page 17, delete lines 31 to 40;

(b) on page 18, delete lines 1 to 16; and

Pages 18, 19 and 20, Clause 26:

(a) on page 18, replace lines 35 and 36 with the following:

1995, c.31, s. 4

"26. Section 47 of the Act and the headings before it are replaced by the following:

PART V

OTHER GRAINS

Application of Parts III and IV

Extension of Parts III and IV to barley

47. (1) The Governor in Council may, by regulation, on the recommendation of the Minister, extend the application of Part III or of Part IV or of both Parts III and IV to barley.

Modifications

(2) Where the Governor in Council has extended the application of any Part under subsection (1), the provisions of that Part shall be deemed to be re-enacted in this Part, subject to the following:

(a) the word "barley" shall be substituted for the word "wheat";

(b) the expression "barley products" shall be substituted for the expression "wheat products"; and

When extension to come into force

(3) An extension of the application of Part III shall come into force only at the beginning of a crop year.

Definitions

Restriction

(5) The Minister shall not make a recommendation referred to in subsection (1) unless

(a) the Minister has consulted with the board about the extension; and

(b) the producers of barley have voted in favour of the extension, the voting process having been determined by the Minister.

Minister’s obligation

(a) the Minister has consulted with the board about the exclusion or extension; and

(b) the producers of the grain have voted in favour of the exclusion or extension, the voting process having been determined by the Minister.".

(b) on page 19, delete lines 1 to 36; and

DUAL MARKETING

During the Committee's hearings in Western Canada, many witnesses said that they would like a dual marketing system, or an opting-out option, or a voluntary CWB. All of these are essentially the same concept, in that they would result in the loss of the CWB single desk selling powers. Dual marketing, although understood in various ways by various groups and individuals, is a concept that goes back to the early 1980s. It was recently updated, however, in 1994 by the Western Canadian Wheat Growers Association and defined as "a system under which the CWB and the private grain trade would both compete for the farmers’ grain, and would both sell in export and domestic markets."

The recent Ontario Wheat Producers’ Marketing Board’s proposal allowing Ontario wheat producers to sell their crop off-Board, for sales to the United States only, has attracted the attention of many supporters of a dual marketing system. The Ontario proposal is not a genuine dual marketing system, however. Under the Ontario approach, a producer would, early in the season, declare all his or her winter wheat or spring wheat acres to be marketed outside the Board’s pooling and cash contracting system.

Unlike the CWB, which exports about 90% of the wheat produced in Western Canada (10% to the U.S. and 80% overseas), Ontario sells about 45% of its annual average production of 1.2 million tons on the domestic market, 30% is exported to the U.S. and 25% overseas. The U.S. is often perceived as a residual market for Ontario wheat.

Committee members heard numerous wheat producers from Western Canada requesting that they should have similar rights to those of their counterparts from Ontario. Attempts to explain, and to demonstrate, the huge economic differences between the Ontario and Western Canada wheat sectors are unlikely to stop the political debate.

Bill C-4 does not address the dual marketing issue, but would enable the proposed board of directors to recommend changes that could result in a system with similarities to dual marketing, if Western Canadian wheat producers send this signal to the proposed board. The Committee wants to highlight that the decision in Ontario was made by the elected directors, on the recommendation of the delegates, and that the same could be achieved if Bill C-4 is passed.

Furthermore, a number of witnesses told the Committee that the CWB buy-back program was not flexible enough to be profitable for producers, particularly for those producing organic grains. The Committee urges the proposed board of directors to examine the buy-back program and to facilitate its administration.