Proceedings of the Standing Senate Committee on
Agriculture and
Forestry
Issue 4 -- Evidence
Ottawa, Thursday, May 16, 1996
The Standing Senate Committee on Agriculture and Forestry met this day at 9:00 a.m. to continue its order of reference to examine the state and future of agriculture in Canada.
Hon. Dan Hays (Deputy Chairman) in the Chair.
[English]
The Deputy Chairman: Honourable senators, today we welcome as witnesses the president and executive director of the Canadian Federation of Agriculture. As always, it is good to hear from the most important organization representing farmers in Canada. Please proceed with your opening remarks.
Mr. Jack Wilkinson, President, the Canadian Federation of Agriculture: Thank you. With me today is Ms Sally Rutherford, the executive director. We submitted a number of briefs in the package we sent to you. This morning we will concentrate on the cost recovery presentation.
We will then touch on the crop insurance review that is currently under way. There may be some implications within that review as to the worth of the program and, depending on what decisions are taken at the next agriculture ministers' meeting, there may be some ramifications on the effectiveness of crop insurance.
In our presentation we will touch on the submissions we will make at the upcoming national round table. As well, we will deal with world development issues. We will be pleased to discuss any of those topics.
As you are aware, we are most concerned about a number of issues relating to cost recovery. We appreciate the budgetary pressure on the federal government and the need for cutbacks and restraint. That has affected many programs within Agriculture Canada. A similar situation also exists in many of provincial governments, so we have been facing a significant reduction in program expenditures as they relate to agriculture and support of the farm community.
There has been a major shift in the whole area of cost recovery as it relates to many programs in Canada, but we are particularly concerned with the implications for agriculture. With the changes in the transportation support system within Canada, and the reduction in program spending, most producers are facing a significant cost increase. Granted, at this particular period that is offset to some degree, particularly in the grains and oilseed sector, by significantly higher prices than we have had over the last number of years and, depending on planting this spring, there could be historically high prices before the year is over. However, we cannot judge agriculture by grains and oilseed prices alone, and sometimes I think we tend to do that because that is most newsworthy.
The situation I described also has serious implications for the red meat sector, especially with the elimination of feed freight assistance. With the current liquidation of herds, we are currently experiencing historically low prices in the beef sector.
Over the last number of years, horticulture has also been through some very difficult times. We are trying to apply cost recovery to the broad agricultural sector, and attempting to set aside the fact that there is currently significant optimism in grains and oilseeds. Everyone in agriculture knows that today's high prices will not last, and that a few years down the road, we will see a price trough. It is difficult to imagine that any of these cost recovery aspects can cause further reductions, especially when the sector is at historically low incomes.
We believe the approach Agriculture Canada adopts in dealing with cost recovery should relate to the impact studies they have done regarding competition. That has not been applied in many cases. In fact, since Treasury Board mandated user fees and cost recovery in many areas, it would appear that they have applied that across the board in many sectors and have not considered the impact on competitiveness.
We do not set world prices. As a smaller nation, we must be able to provide a higher quality product and be able to match the price. Therefore, the question of competitiveness is absolutely critical to agricultural trade. Prices to the producer tend to be reduced, and we must meet those prices, maintain quality, and deal with net incomes after the fact.
Our concern is that discussions surrounding cost recovery have not fully addressed competition. What is worrisome is the fact that we do not believe this is the end of the cost recovery discussions; this is only the beginning of them. There has not been nearly enough concentration on cost reduction within the system which is where we think the emphasis should be.
In considering any new way of doing business, we must assess whether the cost of doing business will bear the same price tag. Will we require the same number of inspectors? If we are to enter a new regime, will we assess new models which will guarantee quality control and reduce the budgetary impact? If they could control their inputs and their prices, there may be some sense from the farm community and the agri-food industry that they could meet government targets. Currently there is what appears to be no requirement, and in fact in many cases, no ability to control the business side of farming. When suggestions are offered, we are told, "We are not willing to work together on cost reductions. We are here to tell you that you are picking up 60 per cent of the cost of the program and we are not interested in your input." As you can imagine, that has gone over like a lead balloon.
In grains and oilseeds, for example, a large part of the inspection grading services have already been picked up by the sector but, a number of other issues are coming forward. Ports are also considering cost recovery measures. Cost recovery is also being considered in the area of phytosanitary inspections. The horticulture sector, is assessing the costs associated with the issuance of expert permits. A whole litany of costing is being reviewed. For example, the horticulture industry is trying to assess the situation faced by a packer which is facing increased cost of $800,000 under the cost recovery system. It will have to absorb that increase within its system because it will not get it through the price regime.
As I said, our major concern is that often negotiations are not, in fact, negotiations, because no input by the industry is heard. For example, the feed industry entered into negotiations with the federal government. Instead of both sides working towards common ground in these negotiations, the feed industry ended up with four-fold increase in their expenditures. I am sure you will agree that it is a real incentive to settle early in these so-called negotiations if, every time you sit down, your costs increase.
Some major changes are being made to the marine service fees imposed by the Canadian Coast Guard. By June 1, 1996 the fees paid by the grain sector will increase by $20 million, and those will move up to 60 million by 1999-2000. The list goes on and on.
At our initial meetings to consider our pesticide registration system, we advocated harmonization with the North American-European system in order to have products registered quickly. In our first conversations, they proposed an increase in staff of 125 people which is a 225-per-cent increase in staffing requirements. They were proposing a program that would cost significantly more than the old system and, in fact, producers were to pick up 60 per cent of the cost of that program. Granted, we have had some negotiations and conversations with them since. I believe they are down to around 40 per cent, but the point is that they start with unrealistic numbers. By way of comparison, the Australians run a similar program for a cost of around $9 million. At the commencement of our conversations we thought the figure would be around $34 million, with some government money which would, initially, lower the cost. The concern by the farm community is that, eventually, we will pick up increasing percentages.
The sense in the industry is that many of the jurisdictions we do business with have increased expenditures in many areas. For example, the U.S. farm bill, in a time of restraint and high grain prices, will create decoupled programs which will meet the maximum allowed under the GATT program. They will retain their export enhancement program in the event of a downturn in prices. They are making significant green expenditures in environmental areas. For example, they will be allowed to pay out up to $10,000 per producer under green expenditures. Increasingly, Europe is putting more income support into green program expenditures, so that, under the GATT, the dollars are still legally rolling into the hands of many of the producers there.
In Canada, we have substantially reduced program expenditures on the domestic side. We have eliminated export programs totally with the elimination of the WGTA and other programs. We are also substantially reducing green program expenditures. There is no proposed green plan money for the agriculture sector after 1996-1997. There are further proposed cost recovery aspects in green program spending, in inspection grading, and in other areas. It is a loss-loss situation which has increased costs and put us at more risk in the market place by jeopardizing our competitive ability, and all this at a time where everyone has lofty goals of $23 billion in agri-food exports. As I say, the additional costs may be sustained at high prices, but when the price flattens out to a more normal level, farmers will be faced with very tight margins and bills.
I will now cover a few points concerning crop insurance, and highlight a few areas. At the last agriculture ministers' meeting it was determined that there should be a review of crop insurance in general. A report is being forwarded from a steering committee and a consultation group has been set up in, I believe, all provinces in preparation for the agriculture ministers' meeting in July.
They are considering a number of issues, from assessing new types of crop insurance schemes and what producers may or may not want within those, to other areas of critical importance within the jurisdiction of the federal government and which may have major ramifications. In 1995, in the budget, again under cost recovery and user fees, it was mandated that Agriculture Canada should look for a per-cent recovery from the producers of the administration costs of crop insurance as they apply to the federal government. The administration cost of crop insurance is split between the provinces and the federal government, with the premiums then being split three ways between the producers and the governments. In the past year, instead of applying that fee directly to the producers, they took the $7.5 million directly out of the safety net envelope and applied 20 per cent there. The question now is: Will they continue to do that or will they apply that fee? Some provinces are also considering user fees as that applies to their administration costs. That could have a significant impact on the producer if he is looking at user fees at the same time as increased insurance premiums. User fees will have a smaller impact on producers with smaller acreages than they will on larger producers. All this is happening at a time when we are already having trouble maintaining enrolment in crop insurance.
We have advocated that it makes sense to try to achieve cost reduction. Why would we not look at cost reduction before imposing a flat user fee which gives no incentive towards cost reduction at all?
The other area of major concern is the federal government's reinsurance program which is offered to the provinces. In the past, the federal government has had a system in place whereby, if a province had, for example, a major crop failure or back-to-back disasters, and where the provincial program could not sustain those major losses, the federal government would grant an interest-free loan which would be repaid over a certain time period, thereby avoiding massive peaks and spikes in premium costs over the next couple of years which would drive people out of the program. Only major disasters would covered. No program could in fact actuarially work. It is impossible to design a ten-year actuary program that can handle this. The federal government has stated that it does not want to continue reinsurance under the current system. Part of the problem is that the current repayment schedule will take up to 30 years. The view of the federal government is that it has a contingent liability that it would like to get out of. Some suggestions have been made in this regard. We have accepted the notion from the farmers on the steering committee that, obviously, the time period must be shortened. No one should have to live with a 30-year repayment schedule. We have accepted the notion that, if it is to be 20 years, that should move ahead.
The other option being proposed is privatization on the reinsurance side. British Columbia currently runs a privatization system for reinsurance. As it has only been in place for one year, British Columbia has no real experience of how it will work.
Our concerns are two-fold. First, it is anticipated that, if a private reinsurer were put in place, it would be trying to recoup its administrative costs or realize a return on investment at a percentage which would be above the current rates, and, second, they would want a repayment schedule in a three-to-five year time period for any claims on reinsurance. In that instance there would be an increased cost to producers and, probably more dangerous in the short term as far as farmers staying in the program are concerned, if the reinsurer on a major disaster must be repaid within three to five years, there will be incredible spikes in premium costs following any disaster. We are worried that we will have a significant drop out if there are major fluctuations in premium costs, so we believe that is a non-starter. We believe the federal government must stay in the reinsurance program to give some stability to prices. If the argument is that reinsurance must be changed to make it workable from a federal government point of view, we accept that notion.
At our meeting last week, draft paperwork on the reinsurance proposal contained suggestions for keeping reinsurers, who are worried about major disasters, in the program. Reinsurers are worried of the consequences of a major disaster. To give you a sense of magnitude, I believe Saskatchewan currently has over $400 million in the reinsurance because of the back-to-back frost disaster. We are talking about large amounts of money. Reinsurers are nervous that, if a province chose not to use them following a major disaster, they would have no ability to collect premiums. Apparently, this occurred in North Korea, where they reinsured, only to be told by the government that it was looking for a new reinsurer after a major disaster. Therefore, they are very nervous and they want federal government backing of their exposure.
This is a very interesting scheme. If we are moving to private insurance only to increase the cost, and then the federal government will come in to back the reinsurer to minimize their exposure, it would appear to me, a simple farmer from Northern Ontario, that the federal government should just stay in the re-insurance business. If they are going to cover off the exposure and not pass the 25-per-cent increased premium cost to the producer, they should stay in the business. I think that it is critical.
I believe it would be useful for this group to consider a number of these areas as they apply to cost recovery and try to find different ways of dealing with budgetary deficits in Ottawa. Thank you very much.
The Deputy Chairman: Thank you, Mr. Wilkinson. You have dealt with the cost recovery issue. Do you want to deal with the other matters now or should we deal with them sequentially?
Mr. Wilkinson: We would be pleased to answer any questions on topics of concern.
Later this morning we are scheduled to appear at the natural resources committee to discuss rural development issues, in particular, as they deal with the infrastructure within the control of the federal government, as well as the whole area of telecommunications which we think is absolutely critical if we are to equalize the playing field in rural Canada. We have major concerns about what is unfolding in the area of telecommunications and what was thought to be the new age of communications which was going to remove the need for living in urban areas. A few years ago it was thought that we would all start up businesses in the countryside and have telecommunication links to the world. The fact is that a party line does not keep you closely connected to the world. If all of the infrastructure is unavailable in rural areas, you are not connected to the world. We think it is absolutely critical for the government to maintain the ability to regulate in this area.
We are doing a major push in that area with a broader-based coalition in the primary resource sector which has exactly the same problems as we do. Whether a you are a resident of a fishing village or running a mine in Northern Saskatchewan, you are faced with exactly the same problems we face.
Some provinces have demanded that this sort of service be made available to its citizens and insist that, as part of its regulatory framework, a private line, and what goes with that, is a right of citizenship. In other areas, that has not been the case.
We would be pleased to answer any questions.
The Deputy Chairman: You say you are concerned about the imposition, at the federal level, of user fees, cost recovery or some other means of picking up expense without having any control or input into the cost that is being incurred, whether it be related to chemicals, insurance or whatever. What should be the means by which the producers of agricultural commodities, who will bear the expenses, can have a role in what you say is the preferable approach, cost reduction; instead of simply having to pay all or some percentage of the cost, and be told that they have to do that without having anything on the other side? What I am suggesting here is the worst of all worlds, a bureaucratic structure under which not all Canadians pay but rather a very narrow group of Canadians pay, namely, the producer of a particular commodity.
Mr. Wilkinson: When the budget was first discussed at our annual meeting in Halifax two years ago, it was suggested by our membership at that time that a joint committee of affected producers be set up because, obviously, there were many areas where cost recovery was being implied. Many of these issues are very specific, such as permits for the horticulture sector or grading and meat inspection for others. We suggested that a working committee be set up composed of people from the industry side -- representatives of the farm organizations, processors, importers, exporters, and so on -- and government officials, provincial and federal, where applicable, to think about how this could be done "differently", that is, streamlined, cost reduction measures taken first and, where it applies, some sort of cost recovery.
That offer was never taken up and, in fact, even though they say that they have consulted, the situation, as I have tried to describe, has been one-sided. At the first meeting we were told, "You are picking up the cost of this, period." When we suggest that perhaps it can be looked at differently, there are always reasons given as to why that is not possible.
One example I can give relates to the pesticide registration system. The horticulture industry and ourselves have been very aggressively working with the federal government to try to deal with harmonization and reduce the time it takes to register a product in a fast-changing, competitive world and also make sure that, in very small markets, which we are in Canada when we are talking world stage, we have product availability. We have not gotten very far at all. Health has reasons why it cannot happen. Environment has reasons why it cannot happen. Every department has reasons why it cannot happen. Nevertheless, the chair of the proposed agency comes in and says that they are going to increase their staff from 120 some people to over 200 people. In a time when the world is downsizing, we have an agency suggesting that they are going to increase their staff by 225 per cent with, in fact, no documentation, no flow charts, nothing. When you talk about harmonization, the response is, "Well, we have looked at harmonization. It could cost $60 million". God knows where that number came from. There is an implication that we are doing well by only being charged $34 million, and that, through negotiations, eventually that number will come down, but that is not the way to do it, and it does not deal with the issue at hand.
The Deputy Chairman: You said the Australians are only paying $9 million for the same process.
Mr. Wilkinson: The cost recovery that was being produced for us was $60 million. Sally can give you a breakdown of the numbers better than I can.
Ms Sally Rutherford: One has to be careful because, obviously, the Australian situation is different. They are much further away from any of their major competitors than we are. They are even significantly far away from New Zealand although, from this distance, it does not appear to be so. Their system is different. They also rely on international data more than we do. I think that is where some of the basic problems arise with the way the processes have been developed.
We understand that there are significant budgetary problems, but it was the speed with which things had to happen, were mandated to happen, that caused many of the problems. Departments were given imperatives and dates that they had to meet, and there never has been a discussion, for example, about what is, actually, the public good in terms of food production and inspection. We accept that grading is essentially a marketing issue but inspection is not only a marketing issue. It does have a significant component of public good, of public health.
The pesticide issue is one that we have been trying to understand; how they have determined what the public good issue component is of the cost they have put on the table. That is simply not there. The discussions have not taken place. The Treasury Board guidelines clearly state that there is a public good but that it does not have to be picked up by government. There is no doubt about that. There was a need to understand, on everyone's part, what the determination of the public good was within the department before the negotiations started, so that people knew what it was that they were working with, and that did not happen.
Mr. Wilkinson: Another concern we have relates to the cost per registrant. I want to be clear. In theory, this is not a cost to producers, it is a cost to chemical companies and others that will be applying for registration. However, I think it is fair to say in this capitalist world that we live in that, if there is a cost to the registrant, it will be passed on in the cost of the product in the market place.
Our major concern is whether a fungicide or other product which may require label expansion, will be available to a smaller acreage. We have a costing issue, a cost-recovery issue. Because of the diversification of Canadian agriculture, we have relatively limited usage, whether it be for new veterinary drugs, new livestock, or whether we are looking at acreages. We are, effectively, looking at a non-market-driven economy for the first few years until the acreage is large enough. If we have significant problems here as far as registering product because of prohibitive cost or difficulty in label expansion, producers will just not be interested in that, and that does not bode well for Canadian agriculture in the long term, where diversification can play a useful and critical role. Those parts of this package are very worrisome.
The Deputy Chairman: We all know that the minister's vision statement, which is, basically, the principal driver of policy, is that our value added exports of agri-foods will increase to the $23-billion level pretty soon. To do that, of course, we must have commodities that meet demand in other parts of the world. We also have the HACCP initiative which, we think, gives us some advantage.
However, we have to bring a whole series of things together such as quality, not only in terms of inspection but also in terms of safety. Of course, that has to do with whether or not you use certain pesticide or not. There are various other things.
Do you see a conscious effort being made in terms of negotiation on fees that are passed on? You have certainly described the need for working committees that are not in place. Is some effort being made to coordinate the various elements involved in order to achieve our objective? This is not restricted to issues involving agriculture, international trade is also involved.
Ms Rutherford: HACCP is a good example of that
The Deputy Chairman: Can you tell us what that is?
Ms Rutherford: It stands for "Hazard Analysis of Critical Control Points". I do not know if there is an acronym in French. It is a system that was eventually developed by McDonald's Corporation after the problems in the United States with hamburgers, the Jack-in-the-Box problem of a few years ago. Essentially, it tries to follow a product all the way through the production processing chain so that they can stipulate the specifications for the product. They are not just quality specifications. Safety specifications are covered as well.
That is a good example of where the system is not working because Agriculture Canada has put, not a huge amount of money, but a significant amount of money, into HACCP for the processing industry. At the same time, there is a lot of talk from the department about a "gate to plate" system, ensuring the system works all the way through. However, no effort has been put into trying to ensure that the primary sector can actually work into the HACCP systems that are being put in place with help from the federal government in the processing sector.
This spring the federal government sponsored a workshop on farm HACCP, but, at the end of that workshop, the response was, "It was nice to see you and thanks for coming. Go home." That is one of the issues that we are continuing to try to push.
At the same time as the federal government is pushing HACCP with new processing plants, they are also talking to these same processing plants about cost recovery for inspection, and other activities. They are developing a single food inspection agency. However, the three initiatives are not meshing because the process of inspection will be significantly different, if a HACCP program is put in place in a meat packing plant, or any other kind of a food processing plant, from the inspection system we have now. The discussions that have taken place on cost recovery for inspection systems, are simply going to be irrelevant within the next couple of years.
I know that some people in the packing industry, in particular, are very frustrated because they feel they are spending all this time developing a system that is simply inappropriate for what it is they are being pushed by another section of the department to try to take on. They also know that part of the problem is, if they are really going to go to a HACCP system, they will not need the same level of inspection. They will not need as many bodies because there will be more checks in the system along the way that, in some respects, will be automatic. It will be much more of an auditing system, so that they will not need the number of bodies they have now. It is a very frustrating situation. I suppose it will all work out ten years from now but, in the meantime, there will be some fairly significant upheaval in terms of what is possible and what companies actually do.
The feed industry people are just beside themselves. There are particular areas where it is a fairly significant problem and it will have some problems, especially now that there are problems with the feed industry, namely, BSE.
How do you try to take all of this into account at the same time as farmers are generally being told they have to be more self-reliant? I have spent the last couple of days at a meeting co-sponsored by us and the federal government on Chekhov legislation for research and promotion. Farmers are being told to collect moneys to pay for research and promotion on their own as research dollars decline within the federal system. The legislation has been on the books for almost four years and it simply does not work. It is a matter of trying to make some of these things functional, and that is what is really frustrating people. Everybody recognizes the realities. It is a matter of ensuring that we are developing a system which will work, and which will work when everything is put together so that we are not working at cross-purposes all the time.
Mr. Wilkinson: If the government insists on the old model and passes on costs, that will not work in the future. There is no need to have upheaval in every area of cost recovery. Depending on who is negotiating cost recovery, all hell breaks loose in that area at that time, whether it be with the seed producing industry or whatever. We know where cost recovery discussions are going on right now. No matter who we talk to, the opinion is that it cannot be dealt with in a positive and effective way. The upheaval is evident in the sectors where discussions are ongoing. Eventually, some reasonable conclusion is reached, but not before a lot of unnecessary grief and cost has been incurred.
The old model will not work if a bureaucrat can walks into a room with the attitude: "We are in charge, but we will not pick up any of the freight costs." It is either a partnership or it is not a partnership. You do not choose when it is going to be a partnership. The approach is inadequate and not useful.
Senator Anderson: Would you expand on the crop reinsurance program? We all know how important crop insurance is. You told us that crop insurance is split between the provincial and the federal governments. Can you assist us further?
Mr. Wilkinson: Each province has, effectively, a crop insurance contract or memorandum of understanding with the federal government in some broad policy areas. How that is run comes under provincial jurisdiction. Each crop has a specifically designed. In some areas, in particular on the prairies where you may have major acreages running a substantial risk of weather damage, in order that a province can sustain back-to-back major hits, they go to a reinsurer which, historically, has been the federal government. The first hit comes out of the premium reserve which is contributed to by the three partners, the farmers, the provincial government, and the federal government. To try to sustain the program internally, the next layer is picked up by the province. In the event of a major disaster, the federal government has a reinsurance program which, effectively, will take the next hit and be repaid over a time period. If some sort of re-insurance program did not exist, many provincial programs would be destroyed in the event of a back-to-back hit.
My understanding is that, because of problems encountered in the past, only five provinces belong to the current program. Those provinces are: Manitoba, Saskatchewan, Alberta, I believe P.E.I., and New Brunswick. B.C. has gone to a private re-insurer to offset its exposure, and obviously they pay the premiums out of the program. I believe the other provinces are running their own programs.
Ontario has indicated that, if the federal government fixes crop insurance, it would want to go to the federal government because they are nervous about a major hit. They would go to the Treasury Board and say, "We need $200 million because of a major disaster" on an ad hoc basis. They would like to be able to set a premium level.
Saskatchewan, which suffered two major frosts so close together, has a repayment schedule that is low in comparison to the hit. Treasury has said that it could take up to 35 years to make the repayment, provided there are no other major disasters which would require further reinsurance. At a time when cost recovery is the goal, I am sure you can visualize a bureaucrat in Finance going berserk knowing that this interest-free loan will take 35 years to repay. They have threatened to impose charges or else it will go to private insurers.
Fix it somehow because we are not willing to stay in it. We have accepted the notion that it has to be fixed. I would like to point out that, although it is interest-free, if there are surpluses in the account which is shared by the provinces and the federal government, no interest is paid either. You can charge interest if there is a surplus or a deficit; or it can be interest-free if there is a surplus or a deficit. We are not interested in what is being proposed by way of a private reinsurer coming in. We think it is a non-starter and bad news for the program design.
Senator Anderson: In your presentation, you referred to the U.S. farm bill. How do you see this bill impacting on Canadian producers?
Mr. Wilkinson: We have just returned from the international federation meeting which is, I guess, the farmers' UN of the world. It has approximately 55 member countries, and some 80 organizations. At that meeting, there was some, let me say, "discussion" about what the U.S. has done as a result of this farm bill, and about the way they went around the world using the GATT negotiations to, basically, beat up every country that supported its producers, demanding market access, demanding reduction in program expenditures. They have come in with a farm bill that, in theory, could cost more than the previous farm bill has cost. Granted, it is within their legal GATT limitations, but they will have substantial decoupled price support, so it does not matter whether you plant or do not plant this spring, you will still receive pay-outs on crops because, historically, if you grew, say, wheat previously, you would be paid up to, I think, 92 cents a bushel. When wheat could be at the highest price it has been in 30 years, U.S. producers will receive significant support payments, and they are legally allowed to do it because they have decoupled it from market prices, which was part of the push under GATT. Producers will receive substantial cheques. They have actually increased the amount they can pay per producer. Their export enhancement program remains in place. It has been broadened. We could effectively have a farm bill that would be more expensive to the U.S. taxpayer this year than in previous years and this at a time when Canadian producers have moved from expenditures of $2 billion three or four years ago to less than $600 million for all program spending, including crop insurance and others. In theory, we will still do well in the market place in the grains and oilseed business because of prices, but this attitude ticks people off.
In a time of technological change, they will obviously still have an edge because producers have modern equipment and combine harvesters and whatnot, and they know about global positioning for planters where they will be able, on a per-acre, almost on a per-yard basis, determine the fertility and the yield. That equipment is extremely expensive. Major amounts of cash will be going to their producers, both prices and farm support, and that will allow them to take a quantum leap ahead. Our producers will be unable to take advantage of this new technology and that is worrisome for the future, especially in a time when we are supposed to be levelling the playing field by imposing green cost reductions and others. They are still pumping money out and we are cutting back substantially.
Senator Taylor: You quite correctly point out that there is no control on the fee structure. There is no way of determining whether fees are just or not. Is it your opinion that the fee structures are set in such a way that the government can make money to subsidize other departments? Alternatively, would you say they are high because there is no competition and bureaucracy goes wild if they have many more people involved than is necessary?
Mr. Wilkinson: Our sense is that this is not a money-making venture. Our concern is that there was very little, if any, discussion about many areas when we started into cost recovery. I believe the question should be: Should we carry on using the current model? For example, with pesticides, along with the horticulture industry we were advocating quite a different system that would still have checks and balances in it and that would more harmonize the technical data from the U.S. and Europe for a host of these products. They we would only have to consider the variations which would apply to, say, our climate and environment in Canada. This would be a different approach to how we register a product.
We must keep in mind that we import a lot of horticulture product from, for example, the U.S. We do have some significant weather variations and so on, but if the product is registered in the U.S., we would think that, from a lay point of view, little extra work would have to be done. When we bring the product in, we recognize that the health standards are acceptable to usage there. However, we have never really gotten very far with that. If a plant is introducing HACCP, should we speed up the process and possibly lower the costs on the service, or is our main consideration the public health requirement versus the interests of the producer? How much of the bill should a producer pay, and how much should the consumer pay?
Perhaps we need to wipe the slate clean and recognize it is 1996, and design systems for today. However, there is always resistance to change. It does not seem to be on the table in many cases, and we think it should be.
If we were starting today, what would we put in place to guarantee a safe product for our consumer? Do we have to do it the way we are doing it? What is a fair breakdown between a producer's bill and a consumer's bill, the health and safety aspect, and what will meet our export requirements to maintain a high quality standard? If you find that what you have is appropriate, fair enough, but where it is not, then let us be willing to change it radically to fix it. We do not feel that has been the approach.
Senator Taylor: Do you feel it would be helpful to have -- and perhaps this has already been done privately or by the government -- a comparison study of fees paid by foreign countries on the food we import? In other words, if we compared the load that an imported food such as fruit or garden vegetables carries with the load that our own industry carries, would you find that there was unfair competition?
Ms Rutherford: That is a difficult issue to try to address in any exact terms. For example, Jack referred to the international meeting we have just returned from in France. People involved in agriculture tend to spend a lot of time in grocery stores in foreign countries comparing prices. It was pretty evident that milk and eggs are incredibly expensive. Six eggs in Paris cost about $3.00. The cost of food tends to be pretty much the same across the country because of their system. Therefore, it is difficult to try to determine which part is which.
However, because of the significant regulation involved in registration in any country, pesticides is probably most easily trackable from the input side. In many countries products are available for use that are not available for use here. That is where the competitiveness problem arises. Those tend to be less-developed countries which do not have the same kinds of stringent rules that we have in Canada.
We do not particularly have that problem with Europe and the U.S., except that there are products available in the U.S. that are not available here. That is almost entirely a competitiveness issue. It is not a health and safety issue. Because the acreages here are so much smaller, and with the cost of our system, it is not worth a company spending the money to try to register a product here. That is going to become an increasing problem, and the size of the acreage involved will expand. Companies are simply saying that they will not make any money out of this; there is no point trying to go through the system. As a result, we will lose out.
As Jack has said, we are aiming for a more diversified industry, and whatever the processed product, there must be a raw product to begin with. We are trying to produce some different crops that require different inputs, but initially production will be small, and it will likely never be huge. If it is not wheat, corn and barley or, perhaps, soy beans, it is difficult to convince somebody to register a new product or to even go through the process of label expansion. It is an expensive and time-consuming proposition, and companies are finding they can make more money by doing things elsewhere. They do not do it for the good of their health. They do it to make money. They are all multinational corporations. They have undertaken another merger in the last six months to try to consolidate their product lines to ensure that they have got better coverage of the waterfront, so that when they are not making money on one side, they can make it on another. It all shows up on one bottom line. It is risk sharing. Only about six big companies are involved and they are out there to make money. We are working in a system where the rules get tougher and costs are increasing.
Everyone wants safety in produce to be a priority, but we must figure out a way of doing that and maintain production. That is beginning to be a much bigger problem. The U.S., has other problems such as dealing with the ruling on the Delaney clause. Within the last months, a decision in a court case in California once again upheld the Delaney clause. That clause states that there shall be zero risk of cancer. When that clause was introduced, the testing mechanisms in place were not the testing mechanisms we have now. That is not to say that there should be any cancer-causing agents in the food we eat, but at the same time we have processes in place that simply do not match reality. The truth is that many more people die every year of salmonella contracted in their own kitchens than die of just about anything you can name that comes in a food product from outside. One of the difficult questions is how we deal with the issue of successfully producing food for a rapidly growing world population.
Currently we are sponsoring some consultation on food security for the upcoming Food and Agriculture Organization Food Summit in November in Rome. We talk to people from other countries, including developing countries. What will induce them to continue to produce food is making money. They do not want to make huge fortunes, but if they cannot make enough money to feed their families and send their kids to school, they will find something else to do and no one will take their place. The situation will continue to worsen.
I try to explain to people that everything is connected; it is all circular. It is an ever increasing spiral. Everything is connected. We are working in a global market and we have to try to figure out how to produce from a Canadian perspective and make money at it so that we can keep people in the industry. We also have to seriously consider what kind of industry we want.
Mr. Wilkinson: I want to make it clear that, when we talk about pesticide and deregistering, we are not here on behalf of the chemical companies, and we are not here advocating a lower standard of quality control and safety. On one hand, we cannot accept the notion of freeing up the border and adopting an "the world is your shopping cart" approach to life, which we are willing to live with from a competitive point of view, but, on the other hand, the world is not your shopping cart as far as the primary producer is concerned. Farmers have great difficulty understanding how a product can be imported from another country where they have a certain registration system that deals with the health issues on a totally different cost-per-unit basis and, when it moves into Canada, there is a myriad of red tape, and the cost involved with that, and yet the product keeps coming up in the transports and in the airplanes for the consumer to enjoy. As producers, we want that same market. We should not be uncompetitive because of government costing, and because we have few support programs in place. What is happening in many of these areas is not acceptable. More flexibility must be brought into the system so that the safety issues for consumers remain paramount while the concerns of the producers can be dealt with in an expedient way.
Senator Taylor: You mentioned six multinationals. Is there any evidence of lobbying by one company, which is getting by under the present registration, against another company that may want to produce a better product?
Mr. Wilkinson: I do not think so. If that is going on, I am totally unaware of it. Our concern is that companies are saying that it is not worth the return on investment to register in Canada. That becomes a major concern where they are looking at big markets or different systems. I am not implying by "different" that the safety standards are, necessarily, lower. That is a subject for discussion. Many countries in the world accept the data that they have put forward for registration in Europe and/or the U.S. and it is registered for use on their products. However, Canada -- and Canada is smaller in the world context of product sales particularly tender fruit, horticultural products and a list of others -- has a higher cost of running that through the Canadian system. Why would the multinationals bother? They are being open and blunt about it. There is nothing in it for them. They assess the cost, the time and the people power required to run that through; they assess the acreage and the expected sales; and then determine whether they will make their 20 per cent return on investment, and, if the answer is yes, then they go ahead. If it is no, then they will not. They do not care about us as producers. We have to think about how do we balance all these things. How do we maintain a clean system with quality control that is no more expensive than it need be?
Those are fundamental questions that many bureaucrats in the agency are not asking of themselves. They are pretending that they have to keep the current system without justifying it, from our point of view. Bureaucrats have said to me, "What Minister of Health would ever want to stand up in the House and answer a question about a food scare by saying that they gave up Canada's sovereignty by accepting international data? Just live with it. This is a political reality, Jack." They do not respond to our concerns.
Senator Taylor: Are you advocating that, in addition to the fee structure, there should be an investment by the Treasury Board or by the people of Canada by them paying for some of these registrations that cannot be loaded onto the product because our market is so small, with the idea in mind that it is an investment which will pay back dividends in the next 15 or 20 years by the development of a new industry, replacing imports or, in fact, going into the export mode? Could you argue that the government should be picking up a portion of this as an investment, not as a subsidy for food production?
Mr. Wilkinson: We think that there has not been a fair assessment of the benefit to the taxpayer or of the public good. If you talk about registering a pool chemical, they may get a user fee in the 20-per-cent range. We are not sure of the details, but we do know that, in some areas, they will be working in the 20-per-cent cost recovery range. It was advocated initially, even though it is down from that, that we might be at 60 per cent. We do not understand the justification for that. How can there be so much benefit to the Canadian citizenship at large with 80 per cent or 75 per cent of that being picked up by the tax system whereas, in our situation, such a heavy weighting is passed on from the registrant side, which will then get passed through the system to the producer side? That has not been justified. There is a common-good element of the system that should be picked up in the overall system.
We think much can be done to facilitate cost reduction by having harmonized systems. That has been advocated by many branches of government for a long time. The suggestion has been to harmonize the whole system of registration as part of the trade issues dealt with by the GATT and the WTO. How do we harmonize the way we handle the finished product at the border with the production side to ensure freer access and maintain quality control for health and safety reasons?
The Deputy Chairman: Can you offer us some guidance in terms of when an inspection cost, a grading cost, a cost associated with registration of a chemical for use in production of a commodity is for the common good? The initiative of government now is to recover that cost through assessment at some level. You represent mostly producers, if not exclusively producers and you say that that seems to be where the buck has stopped.
In the supply management sector it may work reasonably well because you could simply factor in additional costs at the producer level and that would find its way to the consumer level. However, if the purchaser of the commodity is not required to take into consideration that additional cost to the producer, then it is totally irrelevant to the producer, and it is not recoverable. I am not referring to the issue you were talking with Senator Taylor about, that is, competitiveness and how it is done in other countries. I am referring to our own country. Is there a guide that you might suggest, as to what are common good issues, to use your words, which are reasonably borne by everybody out of the general revenue? With respect to those which are not classified as such, is there some way the producer can pass that cost on? Perhaps we could have another tax similar to the GST.
Senator Taylor: The PST.
Mr. Wilkinson: Grading is a benefit to the producer and in just about every case, that has been picked up by producers. Grading of beef, grain, or whatever is already covered in part of the system.
The question arises when this moves into a host of other areas such as inspections and other areas which we think are substantially to benefit the consumer by guaranteeing a quality controlled product. Unfortunately, there is no model currently within the system to do an overlay and that has been our problem right from the beginning.
Departments are mandated to ensure that those costs become part of the cost recovery system, and they tell us to pass them on. The person in charge of this sector in that department has no flexibility. It is a mandate that is dictated. There is no suggestion of looking at brave new models and so on. The goal is to collect revenue. We think that is not an appropriate way of dealing with this question. There should be some sort of model that would apply fairly across many sectors, not only agriculture and food. I would include in that the registrant of drugs, and a host of other items that are registered as part of a consumer product, from insecticides to disinfectants in hospitals. All of those things have to be registered within this country and we think that a model could be generated whereby each product could be assessed as to whether it is in the public good or constitutes a common benefit, and then we could decide what part of that the producer, the registrant or the manufacturer should pick up.
That, in our opinion, has not been done. It should have been done because that would have been a fair way of dealing with this. Our opinion is it is not too late to start. There are probably many bureaucrats and others who say we are most of the way through this, so why prolong the agony, but we do not think this is going to go away because this is only one round of cost recovery. There will be others, and as these issues will become more and more onerous, as the ramifications affect the producers. In the future, we may have to start again at square one. Government should admit that what they were doing was inappropriate or in error. We would be quite happy to work with them to try to fix it at this time because, in our opinion, it will only get worse.
On supply management, it is very difficult to add all the cost into the price of the product. They often absorb larger and larger percentages of increased cost because of pressure in the industry not to increase prices. I think it is fair to say that they do not have the flexibility they formerly had to assume that they would recover it from the market place.
The Deputy Chairman: Do you have any numbers or do you have any sense of the effect that these changes in the crop insurance area are having on the use of crop insurance?
Mr. Wilkinson: To date, a working group has been set up and a report has been prepared. The proposed administrative changes on cost recovery have not yet come through the system. The $7.5 million has been taken out of the overall safety net's budget. If you ask somebody on the concession road, "Are you picking up 20 per cent of the federal government's costs?" they would say, "No". It is being taken off the overall budget, and that money is not available for something else. Both reinsurance and cost recovery are being considered by a study group which is looking for options and alternatives to what is being proposed by the federal government. We have insisted that those suggestions not carry through. We cannot calculate what the ramifications will be at the end of the day because there has been no firm indication which way the federal government and the provinces are going to go in this area. Only the Province of Manitoba has introduced an administrative fee when it changed its crop insurance for this spring. They are charging 20 cents an acre, so large contracts will pay proportionally more. Presently no data is available which would indicate what the ramifications will be because they totally changed their crop insurance system at the same time.
Our concern is that if the changes go in the wrong direction, there will be considerably more variation after a major loss, and it always creates problems when you have huge premium variations after a big hit. If premiums increase by 100 per cent the year after the hit, the question is asked, "Can we afford that cost or do we take a chance?"
The Deputy Chairman: In your report card the federal government received a C- in the area of providing market development and market information. What does the federal government have to do to improve its grade in terms of providing Canadian agriculture with more timely, more accurate and more relevant information on which to base decisions?
Ms Rutherford: Part of the problem at the moment is the level of upheaval the department is going through in the course of reorganizing itself. Agriculture Canada is simply not producing the same type of data as it was three years ago. That is one problem. To develop market analyses, you must have a fair understanding of what it is that you are actually producing and work that into the mix.
Another major problem, I believe involves a turf war with Foreign Affairs around which department is responsible for what. In some commodities, in some areas, the department does a pretty good job. However, much of the onus is on industry, which is fair, but there must be a lot more discussion with industry to ascertain what information they want and what it is they need, as opposed to simply providing information that you think somebody else needs. It is becoming more and more clear that there is an enormous gap between those who work in government as government bureaucrats and have been there a long time, and those who work in industry; as well as an understanding of what it is that people in industry actually need versus what it is that somebody who works in a government department thinks he needs.
There must be more collaboration in terms of what information is being provided. If industry is to set up missions in different countries, the right kind of information must be provided to people before they get there.
This touches on the whole cost recovery issue as well. If government is to start charging for information, then they must find out what people want and need. Industry is not going to pay for data just because it is available. Industry is willing to pay for good information; they are just not willing to pay for what they are getting now.
The Deputy Chairman: Are any provinces supplementing the market with other types of information?
Ms Rutherford: Some work in that area is being done, but less and less is being done since provincial governments have cut their budgets back over the past few years. They are relying more on the federal government to do it. Much depends on the commodity. Alberta is still putting a lot of effort into providing information about and Saskatchewan is still providing information about certain crops. More and more is being left to the federal government and to industry.
Another major consideration is that the world is changing and people have to learn to do business in a different way. That is the basic message behind all the things we have talked about today. There is a need for partnerships. Generically, government has a problem with being a partner and understanding what being a partner actually is all about. It is not a matter of telling somebody else what they are supposed to do.
The Deputy Chairman: It will require a cultural change to address those kinds of issues. Perhaps it is time that we re-examined our culture.
Mr. Wilkinson: On the farm side, that cultural change has been imposed on us. We have not had much choice but to accept that notion. Perhaps those who have imposed it on us should accept the notion that cultural change should take place.
The Deputy Chairman: By definition, culture should be what evolves from a given set of circumstances and how they change our approach to situations over time.
I know you are scheduled to appear before the house committee today, so we will not delay you further. We very much appreciate your attendance here today. Again, it is a pleasure to hear from our former researcher, report writer, and support person, Sally Rutherford. We are grateful for the assistance you have given us today. I assure you it will be important to us in our deliberations and any decisions we make as to further work.
Senator Taylor: Before we adjourn, I have one last question.
You mentioned the cost of crop insurance. Why do you not take a proactive approach now when more and more city people want to go to the country and either blow holes through Bambi or take pictures of the wildlife? Surely there must be some crop damage. Why would you not take a proactive approach? In France and Germany farmers are actually paid to restore the environment. We seem to have a nineteenth-century approach to things where wildlife is bad and we should be compensated for damage done by it. Have you considered this from the other perspective?
Mr. Wilkinson: We have been encouraging others to look at this from another perspective. People often advocate the benefit of increased wildlife, increased habitat and so on, but when property damage occurs, there is no money available to offset the damage. That has been the difference in both the U.S. and Europe, where people who open their mouths and advocate a policy regime actually open their wallets at the same time and pay for some of the consequences.
Senator Taylor: Don't be defensive and go for it next year.
Mr. Wilkinson: We have been doing that, only to find out that the Ministry of the Environment acknowledges wildlife has a public good aspect, but they will not pay for any of the consequences. Provincial ministries take the same stance.
Presently all compensation for damage caused by birders sighting migratory birds, for example, comes out of the agriculture budget. All of that, as I have said, has been cut back. At a time when the farm community is quite happy to see habitat development in general, there are cut backs in compensation for damage.
Farmers are trying to sell hunting rights on their farms and as a way of recovering some of the damage that is caused by substantial increases in wildlife population. North America has exceed all previous figures in ducks and some other migratory birds. There has been an amazing recovery in the last four or five years, but that does not come without cost.
The Deputy Chairman: Thank you for your presentation. We appreciate your help and we look forward to continuing to work with you for the benefit of Canadian agriculture.
The committee adjourned.