Proceedings of the Standing Senate Committee on
Agriculture and
Forestry
Issue 11 - Evidence - Afternoon sitting
OTTAWA, Tuesday, April 21, 1998
The Standing Senate Committee on Agriculture and Forestry, to which was referred Bill C-4, to amend the Canadian Wheat Board Act and to make consequential amendments to other Acts, met this day at 1:15 p.m. to give consideration to the bill.
Senator Leonard J. Gustafson (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, we have before us this afternoon witnesses from the Department of Agriculture and Agri-Food Canada.
Mr. Howard Migie, Adaptation & Grain Policy Directorate, Department of Agriculture and Agri-Food Canada: I am pleased to have this opportunity to explain certain aspects of Bill C-4 and to answer any questions you may have on the bill. As you know, departmental officials are not here to defend policy or to debate policy alternatives, therefore, I will limit myself to explaining Bill C-4 and the policy that is behind it.
There are three major components in Bill C-4. I will also review how the federal policy applies to the Ontario Wheat Producers' Marketing Board as a comparison with the Canadian Wheat Board. I know issue was raised in many of your hearings.
The first component of Bill C-4, which people tend to call the "governance issue," deals with the role of government and the role of producers in the decision-making of the Canadian Wheat Board. This relates to such issues as government appointments to the board of directors, the appropriate auditor for the Canadian Wheat Board, and the application of the Access to Information Act. I know those issues were raised, so I would like to review that part of the bill and the rationale behind what is in the bill.
The second component revolves around the tools to provide more flexibility to the Canadian Wheat Board and, in particular, I will touch on the contingency fund.
The third component relates to the mandate of the Canadian Wheat Board and, in particular, the issue of adding or taking away from that mandate.
In terms of governance, currently the Canadian Wheat Board is a Crown corporation and an agent of Her Majesty. The Government of Canada appoints the commissioners who are responsible for the management of the board. The consultations very early on, even before the Western Grain Marketing Panel, indicated that farmers wanted more influence and control over the decision-making of the Canadian Wheat Board. In order to have that, it is important that producers sit at the table where decisions are being made and not just simply act as advisers to those who make the decisions.
In developing the section of the bill that deals with the governance structure, it was important that the board of directors be a powerful board with decision-making authority, and that there be a mechanism for farmers to select a majority of the members of that board of directors.
One issue that needed to be addressed internally within government was how to retain the financial benefits the Canadian Wheat Board now receives from the federal government in large part for being a Crown corporation and an agent of Her Majesty, while providing decision-making authority to farmers.
The first element is, as you know, the government's provision of an initial payment guarantee to groups such as the Ontario Wheat Producers' Marketing Board where the Government of Canada does not have any involvement in the management or in the appointments to that board. However, the value of that guarantee is much greater for the Canadian Wheat Board, usually 20 times greater.
A second financial benefit is the guarantee behind the Credit Grain Sales Program which the Canadian Wheat Board operates. For example, when the Ontario board wishes to use credit guaranteed by the Government of Canada, it goes through the Export Development Corporation. In that case, the public interest is protected through the Export Development Corporation which has a board of directors appointed entirely by government.
There is a third type of guarantee which Lorne Hehn addressed earlier. It is very important to the Wheat Board and it is tied very closely to the Canadian Wheat Board being a Crown corporation and an agent of Her Majesty. The Canadian Wheat Board, as Mr. Hehn mentioned, is a very significant borrower for Canada, borrowing more than $6 billion per year. It borrows those funds right now as an agent of Her Majesty.
The interest earnings, as Mr. Hehn mentioned, were more than $80 million in the 1996-97 crop year. That is a very important sum of money which comes about because the Canadian Wheat Board is borrowing these funds at a significant discount to what they would otherwise pay. In the last year, that meant a difference of $80 million.
This ability to act as an agent of Her Majesty when borrowing large sums of money is something that the Government of Canada provides to only a select number of Crown corporations. If we have one member of the board of directors who is not appointed by the Government of Canada, then the Canadian Wheat Board would no longer be a Crown corporation -- unless we were to amend the Financial Administration Act and change the definition of "Crown corporation."
Bill C-4 addresses this issue by providing that the borrowings of the Canadian Wheat Board will be guaranteed by the Minister of Finance, once a certain number of steps are taken. It does not say "may" be guaranteed. It is clear that the borrowings "will" be guaranteed once the steps are taken.
These are the same steps that Crown corporations such as the Export Development Corporation would need to follow. Again, the Government of Canada does not offer this to anything but a full-fledged Crown corporation where the government makes all of the appointments.
Even though the Canadian Wheat Board will be managed by directors, a majority of whom will be selected by farmers, the Government of Canada is continuing with that guarantee of borrowings, but in a slightly different form.
In addition to the substantial financial guarantees that the federal government provides to the Canadian Wheat Board, there are a couple of other reasons why the Canadian government needs to have some involvement in the management and direction of the board. One is the control that the Canadian Wheat Board has over export licences across Canada. There is to be a board of directors managed by farmer-elected directors from the Prairies, yet the Canadian Wheat Board has control over export licences outside the Prairie region. For example, if you want to export Ontario wheat, you require a licence from the Canadian Wheat Board. It is important then to have some federal government involvement. You are giving to a board of directors, to which Prairie farmers elect the majority, some public functions which apply across the country.
The authority to control exports is clearly an important power of the Canadian Wheat Board. It is not one that the government normally delegates to private enterprises nor to enterprises whose boards of directors are controlled by the private sector.
A final concern that was taken into account was the ministerial responsibility to Parliament regarding the Canadian Wheat Board. The minister must be informed and be provided with advice when an issue arises. The Canadian Wheat Board will provide the minister with information to allow him to fulfil his responsibilities to Parliament. As well, the minister is responsible to Parliament for the actions of the Canadian Wheat Board and it was felt there should be some way, therefore, to influence the operation.
Despite all of the reasons I have just mentioned regarding the board's public function, it was felt that the arguments for producers having control over the operations of the Canadian Wheat Board were overwhelming. It was decided that the board of directors should be provided with very strong powers and the producers should elect, in this case, 10 of the 15 board members. In Bill C-4, the government does appoint the president, who is also the chief executive officer, and four other board members. It is clearly expected that the Canadian Wheat Board, in terms of how it exercises its power in its marketing effort, will continue to be independent of government to a very large extent.
The Canadian Wheat Board has significant commercial and public functions. Under Bill C-4, it is taking a few steps to be run more like a private company. There is no appropriation from Parliament for Canadian Wheat Board expenses, for administration or marketing. There is no cost to the taxpayer for providing this guarantee of borrowings.
We are taking steps to emphasize the commercial side of the Canadian Wheat Board. We follow a corporate model in the bill with a board of directors with the normal functions of a board of directors. Currently, as mentioned, the Canadian Wheat Board is audited by a firm of chartered accountants, Deloitte & Touche. It is a requirement of the legislation that a firm of chartered accountants be used, rather than the Auditor General.
Currently, the Canadian Wheat Board is not subject to the Access to Information Act. The same situation applies to a number of Crown corporations, such as Export Development Corporation and Canada Post.
Given the direction that Bill C-4 takes, which is that the CWB is to be run more like a private corporation, it seemed inconsistent to give more emphasis to that public aspect by making the Wheat Board subject to the Access to Information Act or to the scrutiny of the Auditor General. At least, that was the judgment made in drafting Bill C-4.
Let me move on to the second area of the bill being the flexibility tools. The Wheat Board will be given new tools to become more flexible. Bill C-4 enables the Canadian Wheat Board to use these tools, but does not require them to be used. That is an important distinction. Three tools in particular are made available to the Canadian Wheat Board but only at the risk of the board -- which really means the farmers -- and not at the risk of the government.
If the board of directors chooses to decide on their own adjustments to initial payments, chooses to use the cash purchasing power that is in the bill, or chooses to offer the early pool cash out, then the board of directors would need to determine how it would handle the risk.
Bill C-4 allows for a contingency fund to deal with the risk associated with these three tools and these three tools only, and it provides for regulations regarding that contingency fund. Mr. Goodale submitted proposals to the committee regarding the regulations, but it will be up to the board of directors to make the important decisions on whether and how to use these three tools.
I should like to address two of the three tools. Presently, when the Canadian Wheat Board wants to have the initial payments raised -- this happened just a few weeks ago -- the board makes a decision and sends a recommendation to the minister responsible for the Wheat Board. It takes at least three weeks to assess the risk and to get approval for the increase. When we are adjusting the initial payments, the Government of Canada is taking on what is referred to as a "contingent liability," and often the increase is $200 million or more. There is a possibility that the government will have to pay out a significant sum of money. Whenever that occurs in government, a number of steps must be taken. In this case, not only must the Department of Agriculture and Agri-food assess the risks, but the Department of Finance must also do so, and then it goes to cabinet ministers for their approval after the minister responsible for the Wheat Board makes a recommendation.
Usually, that takes several months, but we have managed to get it down to a few weeks each time. Although it is often down to three weeks, it still seemed preferable to empower the Canadian Wheat Board to make a decision one afternoon, announce it that evening, and the following day the adjustment would take place. That would mean the farmers could get their money right away. If a secondary reason for that adjustment was to, for example, attract more barley because the Wheat Board was unable to attract more barley, that could occur right away rather than having a long delay.
The risk of a deficit from an adjustment to the initial payment is minimal, provided that the board of directors continues with the same attitude to risk that we have taken in the past. It is a way in which the Canadian Wheat Board can be much more responsive to changing market circumstances.
The issue arises as to what happens if the new board of directors wants to take more risk to get more money out sooner to farmers. In that case, there would be a risk, and you would need some funds available in case you ran into trouble with a deficit.
The second tool I would mention that is related to the contingency fund is cash purchases. The Canadian Wheat Board has recognized that, in some instances, it would be very advantageous to have the power to operate somewhat outside the pool system, either as an adjunct to the pool or perhaps, in some instances, completely separate from the pool. The ability to cash trade in Bill C-4 is unrestricted. It will be up to the board of directors to decide if they will use it to complement the pool, perhaps on an ongoing basis, for feed barley, for example.
Last crop year, the Ontario Wheat Producers' Marketing Board developed a forward contracting option. For example, the Australian Wheat Board utilized cash purchasing in their domestic market, together with price pooling. It is a tool that can add more flexibility while retaining the single-desk system. That is, in part, why it is made available under this bill. However, the principle that we have applied in this clause of the bill is that the board of directors will have the new tools and the ability to use these tools without any government approvals being required, but they would be used at the financial risk of the Canadian Wheat Board, which means the producers.
The third area of the bill I will touch on briefly relates to the mandate of the Canadian Wheat Board. The Western Grain Marketing Panel made recommendations such as that organic wheat should be sold outside of the Canadian Wheat Board or unregistered varieties of wheat should not be under the Canadian Wheat Board jurisdiction. The policy decision of the government was not to implement those recommendations in the legislation but to put in place a process whereby the board of directors and the producers could make that kind of decision if they wished. Bill C-4 includes the process to both add and take away from the Canadian Wheat Board's mandate.
Minister Goodale did make a proposal which has been forwarded to this standing committee, an alternative to the process outlined in Bill C-4. Under the minister's proposal, the inclusion and exclusion clauses would both be dropped, but there would be a requirement that the minister responsible for the Canadian Wheat Board consult with the board of directors and hold a vote among farmers before introducing legislation to add or subtract from the Canadian Wheat Board's mandate. This would mean that legislative changes would be required to add canola, flax, rye or oats, and that legislation would be required to deleted unregistered varieties of wheat. However, the principle would be that producers should have a key role in determining the Canadian Wheat Board's mandate.
Let me turn to the last item that I would like to cover, which is the Ontario Wheat Producers' Marketing Board. That board operates under provincial legislation and has no government-appointed members on its board of directors. The question was recently asked as to why federal policy is seemingly different depending on where the wheat is produced, and this has received a lot of prominence lately with the new option that the Ontario producers are considering, the declared off-board marketing alternative.
The federal government is involved with the Ontario Wheat Producers' Marketing Board in a number of ways. The federal government guarantees initial payments, adjustment payments, and the marketing costs under the Agricultural Marketing Programs Act. It is very similar to what we do with the Canadian Wheat Board under the Canadian Wheat Board Act.
The federal government has also granted authority to the Ontario Wheat Producers' Marketing Board and to the Farm Products Marketing Board of Ontario to regulate the marketing of Ontario wheat and interprovincial and export trade for the powers that the boards have in relation to marketing wheat within Ontario. This is very important to the Ontario board with respect to levies for the Ontario wheat marketed outside the province.
As well, part of the Canadian Wheat Board Act applies to Ontario wheat. In particular, there are regulations to provide for licences for the export of wheat from Canada, including from Ontario.
The federal government does not guarantee the borrowings of the Ontario Wheat Producers' Marketing Board, it does not provide the Ontario Wheat Board the authority to grant licences, nor does the Ontario Wheat Producers' Marketing Board operate its own export credit program which is guaranteed by Canada.
The Ontario and Canadian wheat boards also operate on a different scale. The Ontario Wheat Producers' Marketing Board usually markets about 1 million tonnes of wheat, while the Canadian Wheat Board markets about 25 million tonnes of wheat and barley. An important point is that the Canadian Wheat Board sells a large portion of its wheat offshore, while the Ontario board sells most of its wheat to Canadian and U.S. mills. The Canadian Wheat Board's borrowing requirements are in the order of the $6 billion range, and for the Ontario Wheat Producers' Marketing Board it is more like $150 million, so it is quite a different scale.
As for the declared off-board marketing alternative which just last week was approved in principle by the directors of the Ontario board following the vote of the delegates, 90 to 10, they are still working on the details of it. They are still meeting with the flour mills. Many issues need to be developed with that particular proposal. However, it has been the government's policy for a number of years that farmers, collectively, should be able to determine what type of marketing system they want. That applies equally to Ontario and the Prairies.
This alternative, which gives Ontario producers direct access to the U.S. market, would still require that the producers obtain a licence from the Canadian Wheat Board in order to export.
Currently, only the Ontario Wheat Producers Marketing Board can export Ontario wheat. As well, export licences must be obtained, but neither an Ontario individual producer nor a company can export directly. That is not case on the Prairies where prairie farmers, as individuals, can export, as long as they obtain an export licence.
If the declared off-board marketing proposal were to come to pass, individuals who chose that alternative in Ontario would still need to seek an export licence from the Canadian Wheat Board as a prairie wheat producer does now.
The same law and the same regulations on export licences apply to Ontario and prairie wheat producers. Under those regulations, the Canadian Wheat Board must ensure that the granting of an export licence does not adversely impact the marketing by the Canadian Wheat Board.
For prairie wheat producers, that usually means that there is a payment to ensure that those who rely on pooling and the Canadian Wheat Board to export are not adversely affected by granting export licences. There is not that comparable need for a payment from outside the Prairies when the Canadian Wheat Board is granting a licence to Ontario.
I make the point that there are both similarities and differences in federal policy toward the prairie and Ontario wheat producers. Where there are differences, the main reason for those differences are the size of markets, the importance of the offshore markets in the two cases, and the public policy aspect of the Canadian Wheat Board.
In closing, I will emphasize two things about Bill C-4. The partnership between the prairie wheat and barley producers and the federal government is more aptly reflected in Bill C-4 than in the current legislation. Prairie farmers will have a much greater control in decisions of the Canadian Wheat Board. The significant financial benefits that the producers have now are retained. There are new tools provided which would allow the Canadian Wheat Board to be more flexible, but three of them entail the Canadian Wheat Board assuming the financial risk along with that flexibility. There still remains a significant public policy aspect of the Canadian Wheat Board that requires some government involvement in the management of the Canadian Wheat Board.
Bill C-4 does not take away from a single desk or the pooling pillars of the Canadian Wheat Board, however it does allow producers, through either elections to the board or direct voting, to influence the direction that the Canadian Wheat Board takes.
I will conclude with that. Thank you very much, Mr. Chairman.
Senator Whelan: Mr. Migie, what does your directorate mean? It says "adaptation and grain policy." What does that stand for?
Mr. Migie: Following the 1995 budget, we reduced the number of managers in Agriculture and Agri-Food Canada. This was not done in a very logical fashion. There were groups that were vacant, and in this case they took the adaptation and the grain area and combined them. The adaptation area deals with a $60 million fund that was set up from the 1995 budget that goes to a number of purposes, including marketing research, adjusting to policy changes, environment and grain policy which deals with the Wheat Board, grain transport and issues like that. We took two groups and put them together under one person when an opening occurred.
Senator Whelan: I notice you have Mr. Byer, the legal counsel for the department. What part did your group play in drafting this legislation?
Mr. Migie: We are not drafters. A group at the Department of Justice does the drafting. However, we would be involved in assisting the minister in preparing his memorandum to cabinet and then sitting down afterwards with the drafters to go over all parts of the bill to ensure that they had a good understanding of what it was that the cabinet wanted to be put in the bill.
Senator Whelan: You were here this morning and you heard the discussion about subsidies. I referred to the fact that legislators and farmers have been given a snow job about subsidies. What part would you have to play in recommending to the minister that he must adhere to this new world rule, that he must cut the subsidies? We know the United States and Europe have not kept pace with Canada. Our producers have been hit hard by this. What part did you play in that?
Mr. Migie: The only area that I was involved in was the transportation policy, which I have been involved in since the late 1970s. One main area of involvement that I had with respect to the negotiations which led to the World Trade Organization was how transport subsidies would be categorized and what our response was in part to the transportation subsidy restrictions that were put on by the GATT as well as the budget from 1995. However, that refers to an earlier bill.
Senator Whelan: The two senators who are present from Manitoba have been quite forceful in their presentations about what this is costing the Manitoba farmers. We read now where the cheapest place in the world to produce hogs will be Manitoba because they will put their grain through a pig and make money out of it.
I recently read an editorial in the Manitoba Cooperator where the hog proposal was described as a dream in the wilderness, because not even by year 2020 will there be enough hogs in Manitoba to take care of the grain.
Mr. Hehn pointed out that there are large subsidies for transportation in the United States. Over 50 some per cent of their grain grows by water and a large amount of money is spent by the U.S. Corps of Engineers doing dredging, maintenance and this type of thing, diverting water out of Lake Michigan to ensure they have enough water to float the barges down the Mississippi. A big part of the grain that goes to the West Coast goes by barge.
When you work out this fair globalization system of subsidies, is that type of thing taken into consideration?
Mr. Migie: As I recall, the U.S. Corps of Engineers and the amount of money that goes into it, because it is available not just to agricultural products but to all commodities that use that waterway system, is not counted as part of subsidies to agriculture by the United States.
Senator Whelan: Mr. Hehn pointed out today that according to the figures he saw, and compared to coal and potash, the big money-maker for CNR is grain.
Mr. Migie: What Mr. Hehn was referring to was that, in CN's annual report, they were indicating the amount of money they make per tonne or per tonne mile -- he was not clear -- from the various commodities and that grain seemed to be providing a reasonable return to CN from the grain movement compared to the other commodities.
Senator Whelan: Our Chairman has pointed out how much return he received from so many tonnes of grain that he sold. The economic shock of an increase of over 100 per cent in freight rates is a almost unbelievable. Were you part of that decision?
Mr. Migie: I will refer to my first sentence of my presentation where I say I will explain, not defend. This is the role that the Privy Council Office tells, expects, all officials to follow.
The subsidy represented half of the cost. The decision was taken to remove the subsidy as of August 1, 1995, which doubled the freight rate.
In addition, in Manitoba and parts of eastern Saskatchewan, another policy change was made at exactly the same time. I am referring to freight cost pooling, which was an amendment to the Canadian Wheat Board Act. Most people felt it should be done, but it was done at the same time. This meant that the freight deductions that a Manitoba wheat or barley producer would face in many cases tripled rather than just doubled, and it was somewhat less in the case of Alberta. In Alberta, the net effect was less than a doubling.
The government did put out a $1.6 billion program related to the WGTA subsidy being dropped, and it also put in $105 million for the freight cost pooling program, which was in place for Manitoba and eastern Saskatchewan. One reason it was done at one time as opposed to over a period of years in a phased-in way was that the rules for the WGTA transport subsidy were the same going to Vancouver as they were for the Export Enhancement Program or Europe's Export Restitution Program. It would have hampered the development of canola and special crops to have tried to phase down the subsidy. That was one factor that dealt with the timing.
Many people felt they would rather have a one-time payment of the $1.6 billion rather than have a subsidy that was just phased down over a period of years. That was the explanation. Again, I cannot defend it because I am not supposed to defend it, and I am not trying to defend it either.
Senator Whelan: You mentioned that, with respect to the inclusion and exclusion clauses, there would have to be a change in legislation.
Mr. Migie: Presently in Bill C-4 there is a procedure where you can add or take away. Have you to follow certain steps, but it does not require a change in legislation.
The canola groups made very strong objections to the inclusion clause. Minister Goodale proposed that, as an alternative to having it happen without legislation, he would be prepared to take another approach to add to the legislation the principle that the producers should have the say on whether to add or take away. In both cases, you would have to amend legislation. He could accept either of those two. He put it forward in the House of Commons, but it was not allowed to be debated and voted on. It came late in the day as well.
Senator Whelan: You said you are aware the hearings in Western Canada. I had the feeling from the witnesses who made presentations to us that they were afraid of democracy. They were afraid of a vote. You did not have to change the legislation, you merely filed the procedure. If the majority voted in favour of it, it could be included or it could be excluded. Do you feel that they are afraid of democracy?
Mr. Migie: Some people would like the government to make the decision alone. The examples they give relate to oats where a government decision was made and it was done quickly. With respect to the continental barley market, a decision was made by government, and the government took account for it.
Bill C-4 outlines that there would be a vote, and the the majority of producers would have to vote in favour of any change. It is a question of government. One question is whether government should be leading in a certain direction, or should there be a vote of producers where producers, 50 per cent plus 1, collectively, make the decision?
I do not know if they are afraid of a vote. They prefer that a government just put it in place without a vote having to be taken.
Senator Whelan: I come back to the subsidies issue again because I find that our producers are put at a tremendous disadvantage, as Mr. Hehn said this morning.
I remember being in Morocco two or three years ago. We had been asked to bring samples of Canadian wheat to their mills. We were given samples of grain from France. They said how they would love to have Canadian wheat, but it was so much cheaper to buy it from France.
A miller from Tunisia told us that our wheat was of exceptionally high quality. He could not believe that someone was putting that kind of high quality wheat on the market. However, we also have to deal with this enormous subsidy. I cannot imagine someone as learned as you not recommending to the minister that this be stopped before there is an economic disaster for the poor Canadian farmer.
The Chairman: Bring back Brian Mulroney.
Mr. Migie: The decisions made following the 1995 budget were only partly related to the trade organization. A lot it was driven by budget considerations, as well as dealing with a long-standing question of subsidies.
Senator Whelan: They wanted to change, but they have not changed the budget decisions. The Department of Finance and Treasury Board tells you what to do.
Mr. Migie: The Canadian Wheat Board is quite different from transport subsidies because no government outlay is required for the Canadian Wheat Board. There are guarantees, and we have had a payment from time to time. Often it is because of an unexpected export subsidy, which was the cause of the most recent one. The Wheat Board does not cost the government funds directly. There is no appropriation. There is a guarantee and there is a risk. They are substantial guarantees, but the farmer can get the benefit from those guarantees without any cost to the government.
Senator Whelan: We heard this morning that the minister in charge of the Wheat Board says he will fight to his dying breath for subsidies to transport grain. Senator Spivak thought it was ridiculous to abandon railroads, and now we will spend billions of dollars on our roads which will be ravaged by these overloaded trucks. Will you be in a position to make a recommendation to your minister?
Mr. Migie: I think Transport Canada can deal with the question of how much federal money goes into roads and highways.
We did put in place, as part of our WGTA adjustment fund, $140 million for infrastructure in the Prairies, of which over $80 million is going into roads in Saskatchewan.
Senator Whelan: I can well understand why that is so in Saskatchewan.
Have you studied where the tax dollars from gasoline and diesel fuel go?
Mr. Migie: I have not, but I know the federal government does not return it, as the U.S. does, so that it can be used to build those fine roads Mr. Hehn mentioned.
Senator Whelan: Neither do the provincial governments. They do not spend 10 per cent of their tax dollars on roads. That does not give them an excuse to build roads when we abandon railroads like we have. I maintain we should keep all our railroad right-of-ways public because we will need them some day. We cannot put all of our commerce on highways and expect the public to pay for them.
Senator Stratton: I would like to refer to the contingency fund. If there were to be a cap on the contingency fund, what kind of signal would be sent to the board of directors? For example, would the board and CEO of the corporation be likely to limit the use of cash buying and therefore the flexibility of the new corporation?
Mr. Migie: If there is a cap on it, there may be a signal given with respect to risk that I think would affect mostly the adjustments to initial payments rather than cash.
Cash buying or the forward contracting options almost always involve a little bit of risk, but it should balance out to zero.
It is not possible for the Canadian Wheat Board or anyone else to have a perfect hedge, and often when you have a cash buying program there is hedging that goes along with it, so the losses or gains should really work out to zero and you should only need a very small amount of money for cash purchasing.
Senator Stratton: You say very small. Can you tell us what you think it should be?
Mr. Migie: In that paper from Mr. Goodale, there was a question as to whether there should be an overall limit of, say, $50 million as a maximum to handle risk. I think the real risk potential is around the adjustments. If the board of directors gives a direction to manage it for the next year or two with the same risk, then I do not think they would want to put very much aside, into a contingency fund. There have been farm groups who ask for 90 per cent of remaining funds to be paid out six months ahead of time, and if they were to take that approach, they would probably have to consider putting aside more funds.
Senator Stratton: My next question is on choice. The Ontario Wheat Producers' Marketing Board has given approval in principle to allow export, as I understand it. This is a legal question, in part. I believe the case has been sent to the courts by Alberta. If Ontario can do that, my fear, from what we heard in Alberta, from the Minister of Agriculture in particular, is that they would want the same right, and if they could not get it within the Wheat Board, they would just do it unilaterally. Has there been a court decision yet on that?
Mr. Migie: The Alberta government referred the case to their superior court. The court has decided not to proceed with it for the moment, pending consideration of this legislation, because the legislation would make it moot. However, that was put in place well before Ontario even considered its declared off-board marketing option. That particular proposal is not really connected with it, and we do not know what the courts would have decided in terms of its legality.
Senator Stratton: I appreciate that part. However, a farmer does not worry too much about legality. If Ontario has the right, why does Alberta not have the right? That will be the fundamental question, and that will be become the issue if Ontario goes that route.
Mr. Migie: Under the current act, if they go ahead with their proposal, the Ontario producer still has to come to the Canadian Wheat Board for an export licence, just as the prairie producer does. As Mr. Hehn explained, the economic conditions are so different in the two situations that there is no need for a buy-back provision for Ontario. There is no harm done to those who use prairie pools, so there would be no reason to charge a fee in one case. However, the law is still the same. In Alberta, every individual who wants to export needs an export licence from the Canadian Wheat Board, and the regulations are identical. There is no special regulation for Ontario.
Senator Stratton: What about the buy-back provision?
Mr. Migie: The buy-back provision applies because there is a calculation and a determination that the board must make as to whether there has been some adverse effect on Canadian Wheat Board marketing. In the case of Ontario, up until now anyway, there has been no impact at all, so the result of the calculation would be zero. In the case of the Prairies, there is an impact most of the time, and they calculate it, and that is what applies each day, as was explained by the Wheat Board.
Senator Stratton: That will be a tough sell.
Senator Spivak: I want to go back to the contingency fund. The purpose of the contingency fund is to guarantee adjustments to initial payments to cover potential losses when pool accounts would be closed earlier and to cover any losses associated with cash buying.
Why can the government not continue its funding of this? Is there any legal reason? Is there any reason why the government could not just continue its guarantee for these functions?
Mr. Migie: These are new functions which do not exist now. They do not appear at all in the current legislation. In preparing this legislation, the cabinet decision was that these tools would be made available for the board of directors if they wished to use them but that it would be at the financial risk of the board of directors and the farmers, so it was really a government policy decision because there is nothing in law now at all regarding these three. These are new tools that they do not have at the moment, but it was felt that if the responsibility for using these tools was going to be on the board of directors, and if the government could not be involved in approvals, then it would be most appropriate for the board itself to take account of the financial consequences when they used the tools.
Senator Spivak: I understand that this is a policy decision, but are you saying that there are no legal barriers to have the government assume the guarantee for this, as it does for the other kinds of functions of the board?
Mr. Migie: We would have had to write the legislation so that it said that the government would be responsible. We could have written it that way.
Senator Spivak: If one wanted to amend the legislation to suggest that the government assumed the guarantee for these functions, would there be impediments to doing that? For example, I want to get into access to information regarding crown corporations. Is there anything which would prevent amending the legislation to suggest that the government assume the responsibility for that? What other examples of that are there in government? The Export Development Corporation assumes the guarantee for the sale of nuclear reactors to China and to Bulgaria, right? That is a government function. It is a risk. What is the legal situation here?
Mr. Migie: In Bill C-4 we are providing guarantees of borrowings. The credit grain sales program is still guaranteed and the initial payments are still guaranteed. It is a question of adjustments. As for cash trading, I do not know if the government guarantees that anywhere.
Senator Spivak: What is the legal difference between cash trading and what I am suggesting?
Mr. Migie: It is not a legal issue. We could have written the bill so that the government had that obligation, but it was felt that the better policy would be to give the board of directors responsibility for the new tools, not government, so that they could move quickly. In that case, it was felt that it should not be the government that would pay if they make a mistake.
Senator Spivak: I understand that. Again, since there is a great possibility that that fund would never have to be drawn upon, is there any legal barrier to a one-time application of funds which would become the contingency fund, rather than have those moneys drawn from the check-off or any other kind of agency of government which could provide a guarantee? Do you know what I am talking about? The money should come from some public source and not from private sources.
Mr. Migie: There probably would be a concern about the image of the government giving a subsidy to the Wheat Board. We have tried very hard not to give subsidies to the Canadian Wheat Board because it is under criticism internationally. There is a budget issue as well. It is not that there would be a legal requirement. It is just that there are those concerns that would need to be addressed.
Senator Spivak: It is not a budget issue if the money is not used. For example, is the $1.5 billion to China a budget issue? Does that come out of general revenues or is it just a guarantee?
Mr. Migie: If it is a guarantee, it will only show up as an expenditure when you have to pay the guarantee. It is also possible that the Canadian Wheat Board itself might decide that $1 million is all that needs to be sitting there, not paid out to farmers. If they have a good mechanism to deal with risk and to handle it within the crop year, then why would they need a large sum of money sitting there? It might be very small but it would be their decision because, if they wish to take risks, then they probably should have a larger sum sitting there. However, the bill allows it to go negative. As Mr. Hehn said, if the fund holds $1 million and they lose $2 million or $3 million, that loss could be handled over a period of years under the legislation.
Senator Spivak: I am not questioning the policy part of this. I want to get straight in my mind what might be the legal barriers. For example, you are talking now about a trade challenge. That is possible, but what about the sale of nuclear reactors? Would that not be a subsidy? I am wondering where is the quid pro quo here in terms of other transactions in which the federal government of Canada is engaged? Do you know what I am asking? Is this any different or could this fall into the same category?
Mr. Migie: In cash trading, the Wheat Board is somewhat at risk in the market place. They may be in it weekly or monthly. It is not like a one-time decision for a big sale.
Senator Spivak: I understand that.
Mr. Migie: It would be somewhat different to guarantee it without funds, but if there were a transfer of funds to the Canadian Wheat Board, it would be a target. There is no doubt it would be a target.
Senator Spivak: I see. I want to ask you about the Access to Information Act provisions. You mentioned that Crown corporations are not subject to that act.
Mr. Migie: There are some that are not. Many are, but some are not.
Senator Spivak: This will no longer be a Crown corporation. It will be a mixed corporation. Are not all mixed corporations immune from Access to Information provisions?
Mr. Migie: We are using the term "mixed enterprise." That expresses the view that there are some public functions and some private functions. Some examples arose over the past few years, such as the ports. Some public functions may go along with air traffic control. There are a number of activities from which the government has withdrawn recently, such as in fisheries.
In those examples, government has moved away from the Crown corporation model but has not really settled on the private corporation. That happened in trying to develop the Wheat Board model. It follows a lot of private sector models but it still retains a few government functions. It is that balance that we are trying to address.
Senator Spivak: I thought there were various kinds of public corporations. I recall something to do with cultural policy in which there is a different kind of corporation.
Mr. Migie: They are all Crown corporations on that list but with different status in terms of how much freedom they may have from the core. Outside that, we are taking one more step with this bill because the Canadian Wheat Board would not be a Crown corporation. The government then would have to appoint all of its board of directors.
Senator Spivak: I understand that. You are saying that that is the reason the Access to Information Act does not apply.
Mr. Migie: It would seem incongruous to make the board now subject to that act when they will be even further removed from being a Crown corporation.
Senator Andreychuk: You are saying the government will not be appointing the majority of the board; therefore, their liability is that much diminished that it falls into a private corporation. Is that the only test you are using?
Mr. Migie: No. When it became clear that farmers wanted to elect a majority or even one board member and that the government would not be doing the appointments, then it became clear that the Wheat Board could not be a Crown corporation. That has certain implications because the CWB, as Mr. Hehn mentioned, is out there in the marketplace as an agent of Her Majesty borrowing $6 billion a year, a huge amount of money. It was felt that it would not be good policy to allow a corporation not fully controlled by government to act as their agent in borrowing such an amount of money.
In this bill, a compromise was reached. The Minister of Finance will approve a borrowing plan once a year, just as it does for the Export Development Corporation. Then everyone in the market will know that it is guaranteed by the Minister of Finance, so there is no doubt, and that particular benefit can be retained.
In general, when the Canadian Wheat Board is composed of a board of directors two-thirds elected by producers and when we have given it the same powers as a private corporation in terms of management, then it is not a private corporation but it is not a Crown corporation either. It is subject to this law, the Canadian Wheat Board Act. That is where the board finds its marching orders, if you will.
Senator Andreychuk: Was there any consensus in any legal department as to what you have now created? It is interesting for me; I may go back into private practice and have a heyday trying prove what this is and who holds liability. I still see this bill as putting the ultimate responsibility for the Wheat Board in the hands of the government. You have given certain kinds of discretions to the farmers through the board, but many triggers are still there to pull it back in and not just by a new piece of legislation.
Mr. Migie: The Canadian Wheat Board still has public policy functions under this bill. As you have said, it will have features of a Crown corporation. The Government of Canada does presently have the power to give a direction to the Canadian Wheat Board, not through the minister but by the Governor in Council. That power has been retained even though the board is an independent board. For example, should the board of directors decide not to grant export licences to Ontario because it might hurt prairie income, what would the government do? The situation would be very awkward, the government having given authority to a board of directors composed of two-thirds prairie people. So there is a residual control there and there is always the power to amend legislation.
The policy intention is to have a board of directors with the normal power of a board of directors and with two-thirds elected. The government will be pretty much hands off. A Governor-in-Council decision is very public. People would know about it if there were a direction given.
Senator Andreychuk: If you add to that the power to appoint the CEO, are you not coming even closer to government control as opposed to a private corporation? Are not you therefore always muddying the waters as to the nature of this animal which you have created? Who controls it?
Mr. Migie: Those are good questions. We started with Bill C-72 which proposed that the chairman of the board of directors as well as the chief executive officer would be appointed by the government. It was only a majority, say 8 of the 15, that came in. Eventually it was amended to give more control, if you will, to those farmer-elected directors. However, it is a judgment call.
I was trying to get that across in the presentation. There are three types of large financial benefits, plus there is a public policy aspect on export licences across Canada. It cannot be completely private. It is a judgment call as to whether it is four directors plus a CEO. I might add that salary is to be decided by the board of directors.
In practice, it is hoped that there would be a joint initiative to hire when the salary is set by the board of directors and the government does the appointment. However, you are right, it is a new type of entity; there are a few around now. It is neither a Crown corporation nor a private corporation .
Senator Andreychuk: It is also not yet court tested.
Mr. Migie: Not the bill, no.
Senator Andreychuk: Or any similar model.
Mr. Migie: That I do not know.
Mr. David Byer, Legal Counsel, Department of Justice: It is safe to say that the Canadian Wheat Board is presently a unique body and will become, even in its changes, another type of unique body in Canada. However, if you look at the spectrum of supply-management bodies that have been set up by the government over the years, the fairest way to look at it is to say that the Wheat Board is now moving closer to the type of supply-management model that we use for the Canadian Egg Marketing Agency and the chicken agency. The difference will be that there is no supervisory council. The supervision is directly from the minister who has the power to require that reports and information be produced by the board in such form as he may desire.
Similarly, if you look at the Farm Product Agencies Act, you can see that the Governor in Council, in creating a proclamation, can determine how members are appointed or elected to the board of the national agency that is being created.
Today each of the agencies operates differently, but the Governor in Council has set up agencies where all of the members are designated by the provincial commodity boards in each province. The Governor in Council does not designate anyone. Whereas in other times or in other agencies, the Governor in Council reserved the right to appoint two or three members or just the Chairman. This is another model of supply management which is felt by the government to be a type of model that should work, given the unique character of the Canadian Wheat Board.
I will also point out that in the case of national agencies under the Farm Product Agencies Act, they are also not agents of Her Majesty, they are not Crown corporations. This is specifically declared in the statute.
As well, there is a specific provision in that piece of legislation that says that those agencies must operate on a self-sustaining financial basis without any appropriations whatsoever from Parliament other than a minor start-up grant of about $100,000.
The Canadian Wheat Board is now moving closer to that, but it still has very strong links with the government in terms of the guarantee on the borrowings and the other provisions that are there. There is some kind of a trade-off between who should control the board or how much influence the government should retain over its activities, if only as a safeguard measure.
Senator Andreychuk: On the contingency fund, you have indicated that the government wishes it to be in the form that you put it in the legislation, not by way of a transfer of funds or out of any general revenue. However, assuming the unspeakable, that the board would foul its own nest and create a massive debt in the contingency fund, what is the government's liability and how would this proposed legislation help them in dealing with that issue?
Mr. Migie: The government would still guarantee the borrowings, whether or not they were required to finance a deficit in a contingency fund. The government would still guarantee the Wheat Board borrowings, but they would have to have a plan over a period of years to pay it back. That would be the difference.
The government would not be in the same situation as it is now where the Wheat Board is an agent of Her Majesty. The Canadian Wheat Board would have to get insurance for certain things that right now they may not need to, or when people deal with the Canadian Wheat Board, they are not dealing with Canada. If they are not an agent of Her Majesty, a credit rating would need to be developed even though we would guarantee it. It is a different legal entity for those people dealing with the Canadian Wheat Board. However, they would have a guarantee in the legislation for their borrowings by the Minister of Finance.
Senator Andreychuk: If the board starts to behave in either a negligent or an improper way, and created a liability fund that was outrageous or unexpected in some way, does the debt attract in any way directly to the government? That is one question. You have answered that, that they must guarantee its borrowings.
Does the government have a role in the proposed legislation in supervising their decisions? In other words, would the government attract liability by virtue of sitting by and watching them act in a way they should not? I am mindful of a situation that is arousing curiosity in Saskatchewan in a provincial situation. How independent is that board if you have some supervisory capacity from the government?
Mr. Migie: Let me take a stab and then pass it to Mr. Byer. You are sort of asking the questions that are the nightmares raised by our Department of Finance going along with this model.
We are putting in place a model where farmers will be elected to two-thirds of the board of directors, and would wield a significant amount of power. The government will be guaranteeing the borrowings. That is why there are these features such as some appointments by the government, a plan that must be presented. There is a rule to watch over the board, however the minister does not have power in the proposed legislation to supervisor or direct.
There is one provision where the Governor in Council can give the direction, but there is no authority where the minister could manage the Wheat Board and step in without amending the bill. We do approve a plan, and if there is something in that plan that is quite outrageous in terms of riskiness it does not have to be approved. That is a discretion that the government has.
Senator Andreychuk: The riskiness does not come in the plan, it comes in that split second decision when you say, "I am going to for something."
Mr. Migie: If the Wheat Board hires someone and they are trading on the futures market and they lose $500 million, then under the proposed legislation that is a decision that the farmers of Canada would be liable for under the cash trading. When you get so high, they become a government or political issue. Legally, Bill C-4 says that that is the responsibility of the board of directors and the farmers.
Mr. Byer: If you look at clause 19 on page 10 of the bill, it lays out the structure for obtaining the approval of the Minister of Finance. A corporate plan being submitted is discussed and then in tandem with that a borrowing plan. That borrowing plan must indicate the purpose of the borrowing and it is for the Minister of Finance to review that and determine if he is satisfied with it.
The guarantee that follows or flows out of that approval by the Minister of Finance is in accordance with the borrowing plan. If the board of directors of the corporation were to run amuck and borrow money, there would be a defence for the Crown that this money was being borrowed outside of the borrowing plan and therefore the guarantee does not apply to it. There is a logical flow of developing a business plan, a borrowing plan and the guarantee being linked to how that is determined. It will be incumbent on the Minister of Finance to make certain that he is satisfied that the detailed purposes for which borrowings will take place are sufficiently spelled out that they are within certain parameters. If the board wishes to go beyond that, they will need to return to obtain further approval.
Senator Andreychuk: I have not heard anyone understand the depth of responsibility that the farmer is turning over to the new creature, the Canadian Wheat Board, under this legislation. Some farmers want the total risk in their hands to buy and sell. Others want the total risk with the government/Wheat Board. We have created something in between. Do the farmers really know that, given some actions of the Wheat Board, the government may not be responsible, that it will be the responsibility of the Wheat Board? It is their creature. Will they be able to sue them? Is there a provision to protect them by insurance, et cetera? One can only hope that the board acts responsibly all the time and takes the precautions and the backup guarantees to limit the risk to those they are allegedly working for, the farmers.
Mr. Migie: That is right. This is a $6 billion corporation. It is not a small entity. Those directors must know that the responsibilities they have as directors are really quite significant.
Senator Andreychuk: If their platform is run on other issues than the responsibility of directors, I see a battle coming as to where the Wheat Board should be going -- exclusive agent or non-exclusive agent. I think that is where the heads of the farmers will be, electing the boards not necessarily on their financial and fiscal responsibility, but on their policy issues.
Mr. Migie: That is one of the arguments that came up with respect to the inclusion-exclusion clause. If you delete them from the bill, then maybe the directors will focus on managing the Wheat Board because they will not have the flexibility as a board to change the mandate. Some people think that is a plus and others would like the board of directors to focus on the mandate issue as well.
The Chairman: You indicated that the legalities of the Canadian Wheat Board would be coming closer to that of other marketing boards.
Mr. Byer: The structure.
The Chairman: For instance, the chicken marketing board of Saskatchewan can opt out; is that right? The farmers can opt out. Any province can opt out.
Mr. Byer: No, not automatically. There are certain hoops they have to go through.
The Chairman: But it can be done legally.
Mr. Byer: They can issue a notice that they wish to withdraw from the federal-provincial agreement, but the Canadian chicken farmers agency would still be there to control exports and interprovincial trade. They cannot opt out completely, if that is what you mean. They can move out as long as ultimately all they are concerned about is marketing chicken within their own province.
The Chairman: In the case of the Province of Saskatchewan, where the freight rates have changed, there are only 70 chicken producers. They cannot challenge the global market. They have the feed to do it now, and we should be feeding chickens in Saskatchewan rather than in Ontario or B.C. Can they not do that?
Mr. Byer: There is no authority in the provincial chicken board to authorize exports by themselves. They would have to obtain some form of authority from the Canadian chicken farmers agency. The only other way they could acquire the authority is to receive, if they have not already done so, a delegation of authority under the Agricultural Products Marketing Act, which is a federal act. It would allow them to authorize interprovincial movement.
The Chairman: Do the same rules apply to the Canadian Wheat Board with regard to Alberta, for instance?
Mr. Byer: There is no provincial grain board in Alberta.
The Ontario Wheat Marketing Board has received a delegation under the Agricultural Products Marketing Act, and that is the means by which it can directly control the movement of grain out of its province. However, when they want to export out of Canada, they still require a licence from the Canadian Wheat Board. The extra requirement would still be there. They would still need a licence from the Canadian Wheat Board.
The Chairman: The information that I took from the minister of Alberta was that they could not legally opt out of the Canadian Wheat Board as a province, that the laws were that tough or that strict.
Mr. Byer: In export and interprovincial movement. It is not so much that the laws are that strict. It is just that with the other commodities you have a provincial market that can absorb the product that is being produced within a province. If they feel they are better off to get out of the national plan and build up their production within their own province because their market is growing within their borders, they can elect to move out of the plan and operate under provincial jurisdiction. That still would not authorize them to move interprovincially or in export trade.
In fact, Alberta did that at one time. Before they joined the chicken agency, they did build up their production within the province by staying out of the national plan. It was a source of some difficulty for the agency.
The Chairman: The problem I have, then, is how does the added value work? There is a lot of talk with farmers about adding value and if legally they cannot add value.
I cannot start raising chickens in Saskatchewan. It is against the law. My wheat can be worth $2.50 a bushel. It hardly pays to take it to market, but legally I cannot feed a chicken and sell a chicken.
Mr. Byer: That is because a chicken is a supply-managed commodity.
The Chairman: Exactly. That is my point.
Mr. Byer: But hogs are not and cattle are not, so you could feed it to cattle and hogs.
The Chairman: I think there are a lot of changes to come.
Senator Whelan: You said the chief executive officer would be responsible for running a business worth over $6 billion a year.
Mr. Migie: The board of directors is responsible, and then the chief executive officer is responsible for managing the corporation on behalf of the board.
Senator Whelan: But nothing in the legislation sets his pay.
Mr. Migie: The pay of the chief executive officer will be set by the board of directors under the bill.
Senator Whelan: If you figure that out, is it the same as running the Royal Bank? Money is a non-perishable item, and you can transfer it by pressing a button. You do not have to worry about railroads or shipping. Those CEOs get a $4 million or $5 million bonus. Do you think the farmers of western Canada would be ready to accept the new chief executive officer at $7 million a year?
Mr. Migie: I think the most that the elected directors could be expected to pay would be comparable to what some of the grain industry executives get in the Prairies. I do not think they come anywhere near those levels, but you never know. If they are picking one person, they might decide that they would be prepared to pay $600,000 to the best person.
Senator Whelan: If they have done an exceptionally good job, have they earned it? The head of the trust company who received the $7 million bonus said "I earned it because the trust company made lots of money."
Have you tabulated how much storage we have?
Mr. Migie: That was commercial storage. Much of it is stored on farms. I do not have that information with me.
Senator Whelan: Did we not give away the government elevators we had in western Canada and even on the St. Lawrence?
Mr. Migie: Right now the new elevators are being built and many of the others are being torn down. That is generating the movement of all the grain on the roads. The elevator companies are rationalizing.
Senator Whelan: Have you studied any of the old Agriculture committee reports, going back to, say, 1966?
Mr. Migie: I have not gone back to 1966.
Senator Whelan: If you had, you would have seen that the then Chairman recommended that they modernize the elevators in Western Canada, and they told him to go back east and mind his own business. At that time we had the most modern elevator system in North America in southwestern Ontario, all cement and steel, fireproof, with automatic scales, hydraulic lifts, et cetera. We later offered the pools the government elevators and they refused. I am concerned when you talk about lack of storage. We know that in the United States of America they are still using public storage built by Roosevelt for dollar-a-day labour. These were just given to them. They are all over the United States. Do they call that a subsidy?
Mr. Migie: Justice Estey is looking into storage and handling, as well as transport.
Senator Whelan: Are you aware of what the Economic Council of Canada has said about marketing in Canada? They stated clearly that the Canadian Wheat Board was the epitome of marketing. When they compared the Wheat Board to what Mr. Byer talked about, the supply management for chickens and the Canadian dairy commission, they pointed out that the Wheat Board was the most proper thing that you could have. Why has that changed? Has that really changed? Do you think there is something flawed in the way the Canadian Wheat Board markets grain for the farmers?
Mr. Migie: The changes being made on the management side are not being made because the Wheat Board is in any way poorly managed. That is not the motivation. There is strong pressure for change because many of the prairie wheat and barley producers must deliver to the Canadian Wheat Board and they have no say in the decisions. There was such pressure to have farmers elect a majority of the board of directors, or at least a substantial number of directors, that the structure put in place a number of years ago, with the appointed commissioners there until age 70, just could not continue. That pressure goes back almost ten years now. For that length of time, people in the industry have been proposing a more modern corporate structure, with a board of directors and a chief executive officer, so that you would know who would make the decisions and who was accountable, but one which would also give farmers a direct say in the management. That is really the motivation for those changes in governance.
Senator Whelan: Do you think the directors of the Canadian Imperial Bank of Commerce or the directors of the Royal Bank or the directors of Chrysler really have much to say about how those companies are run?
Mr. Migie: In this instance, you will not have an owner with shares that will be dominating. You will have farmers electing 10 of 15 members, and they will be the ones making the key strategic decisions. I do not see why that should not be the case in this model. It will not be the case of two or three people owning the shares and calling the shots. There will be 15 members, 10 elected and 5 appointed, who will be making the broad strategic decisions.
Senator Whelan: Do you think the Canadian Wheat Board, without any facilities, can make a success of cash purchases?
Mr. Migie: The cash purchasing options do not require any facilities for the board. It is not like dual marketing or voluntary pooling. For the Wheat Board -- and the Ontario board did this last year with forward contracting -- it is a way of offering another option for someone who wants to price at a particular point in time and feels that they can do better than by relying strictly on the pool. In that instance, the Canadian Wheat Board can offer that option and still keep its single-desk selling or its monopoly. It is one option the wheat growers like. I think it will be more popular in Ontario this year than it was last year when it was first made available.
Senator Whelan: Has the decision been made in Ontario?
Mr. Migie: This is the decision they made over a year ago to offer a forward-contracting option. It is a way by which you can keep the single desk and still provide pricing flexibility, which many farmers want. The Western Canadian Wheat Growers have a proposal that could be implemented with this legislation. It is not required.
Senator Whelan: Do you mean the Western Canadian Wheat Growers Association?
Mr. Migie: Yes. They made proposals on cash purchasing or forward contracting modelled after Ontario or similar to Ontario. Those are possible under the bill. If the board of directors can find a way to offer that option, it will be attractive to a large number of farmers who want more flexibility than the system of initial payments, adjustments and then final payments.
Senator Whelan: Have you seen the list of supporters of the Western Canadian Wheat Growers, the list of donors?
Mr. Migie: I did not see it, but I saw it mentioned in print.
Senator Whelan: I am astounded they call themselves Western Canadian Wheat Growers because so many companies have given them $5,000. They are listed like a club, by size of donation. They are mostly companies. They call themselves western wheat growers. Are you aware that the head of the western wheat growers ran for an advisory board position and did not get elected?
Mr. Migie: I have known Larry Maguire, who has been involved in the farm policy scene, for a number of years.
Senator Whelan: Thank you.
Senator Fairbairn: In the bill, the new board of directors has the power to set the remuneration for the CEO, and they have the ability to review if they do not like the performance of the person, and presumably to recommend action to the minister. If they can set the salary, would they also have the power to reduce it?
Mr. Migie: When they set the salary for that chief executive officer, there would probably be a time frame and a contract that would have to be honoured. It would seem odd that someone would accept a contract that would allow their salary to drop to $1 without the security that they would be paid the remainder of their contract. However, it is also the case that a CEO could not function in this model if a board of directors lost confidence in that person's ability. If a majority of a board of directors voted that they did not have confidence in that chief executive officer, he could not function. He would have to resign or be fired because it is just not possible to work given that legal model. I think they have influence when the salary is set, but it is likely it would be for a certain period of time.
Senator Hays: My apologies for being absent for a short period. If my question has been answered, tell me and I will check the record.
The market environment for cereals, oil-seeds, wheat and barley is one that has been discussed much today, and we think it has a lot to do with the polarization of the farm community in terms of low prices. Mr. Hehn identified $200, perhaps as much as $228, per hectare for the current crop year as being direct payment to wheat producers. I do not know about other grains.
We asked him about the U.S. equivalent, which is what I am asking you about. I do not know whether he was talking about more than wheat producers, but he said that wheat producers would be receiving 65 cents U.S. a bushel in direct support for a period expiring in 2003, I believe. That is about $1 Canadian. At 50 bushels to the acre, that is a little over $200 U.S. an acre.
Therefore, the Europeans are getting a little over $400 and the Americans are getting a little over $200. Is that the whole story or are U.S. producers getting assistance more comparable to the European level of assistance? There was no time for me to ask Mr. Hehn that, but that is what I understood from the exchange we had with him.
Perhaps you could finish the story.
Mr. Migie: As Mr. Hehn was mentioning, both Europe and the United States have changed the type of subsidies they are offering. Instead of being tied to production, it is in a "blue box," and they are the only two that have access to that. Since they are large payments and you do not have to produce wheat to get them, it was felt it would be more neutral. However, when it is as large as it has been in Europe, it is hard to be neutral even if it is not tied to a particular production.
However, I do not believe the Americans are anywhere near as high as the Europeans on their support to grain. I think it is still much lower.
Mr. Don Adnam, Deputy Director, International Markets Analysis, Grains and Oilseed Division, International Markets Bureau, Markets and Industry Services Branch, Department of Agriculture and Agri-Food Canada: I did not come prepared to talk about that issue and therefore do not have the actual numbers. However, my recollection is that Mr. Hehn's figures are not far off, that the U.S. is certainly lower than the European Union.
Mr. Hehn also made reference to the Export Enhancement Program. The U.S. has the ability to use that program and could probably be spending in the order of $800 million and still be within their commitments in the GATT. They are not doing that at the moment, but they could have that in reserve. They could use that sort of thing, which would really distort markets. However, the expenditures they are making at the moment would certainly be quite a bit lower than those in Europe.
Senator Hays: That is helpful in terms of confirming what we heard.
When we heard from the Minister of Agriculture for Alberta, he and his officials were very adamant that the government would have a pervasive interventionist role in terms of the operation of the Canadian Wheat Board if it were changed according to Bill C-4.
Perhaps you could explain what the role of the government could reasonably be expected to be given the experience of the Wheat Board and the current commissioners.
Mr. Migie: Currently, the Canadian Wheat Board is a very independent Crown corporation. The minister and the department have very limited roles with respect to it. They have a role to play when there is a request for an initial payment and a specific decision must be made or when the board takes its annual borrowing plan to the Department of Finance.
The changes are moving more in the direction of a board of directors. We do not expect there to be government influence or control except where a requirement is identified in the legislation. Once a year the board must present what amounts to a business plan to the minister responsible for it, and a borrowing plan for several billion dollars. As well, the board must put forward its initial payment requests to the minister.
To my knowledge, ministers have never become involved in marketing decisions of the Canadian Wheat Board. The Wheat Board is a very independent body. Once the individuals have been appointed, they have a lot of control over the decisions and how they are made, except when they need financial backing, for which there is a procedure laid out.
This legislation just sets out how the board of directors will be appointed and the powers it has. It is very specific about where government can intervene. There is a general clause that applies to cabinet giving an order, which is a reserve-type clause which has not changed.
The bill is enabling. If you are very suspicious of government, you would look to see how the bill could be used in a detrimental way. However, that is not the nature of the legislation. There is no requirement for the initial payment to be set at a certain level. It is a judgment. The bill assumes that the people involved on the board of directors and in the government will act reasonably because it does not require things to be done; in most cases it just gives options.
Senator Hays: If Bill C-4 passes, the board will not be governed by the Financial Administration Act but by the Canadian Wheat Board Act.
Mr. Migie: That is right.
Senator Hays: Under the act, if it operates the way the commissioners do now, will it submit an operating plan for the year? What happens now?
Mr. Migie: The board currently does not submit a business plan. Under this legislation, it would submit two plans. One is a business plan, which will go to the minister responsible for the board. It will also submit annually a borrowing plan, to be approved by the Minister of Finance.
That is often what Crown corporations do within the government system. However, the Canadian Wheat Board is currently exempt from a number of provisions of the Financial Administration Act and, under this bill, would not at all be under the Financial Administration Act. It would still provide an annual report which the minister would table in Parliament, and the minister can ask for information from the board.
Senator Hays: I have a question with regard to the make-up of the board. Where will the board members come from? We do not have regulations, but we assume that there will be one vote per farm or permit holder. It may be a process of direct election or through delegate election and then selection from that group.
I have not had time to look at the literature on that. Could you elaborate on how that is likely to play out? I know you cannot go too far into this, but from where are the four appointed members serving at pleasure likely to come?
Mr. Migie: The legislation does not restrict from where the appointed members might come. We did have one discussion with industry on whether, if there are 10 elected directors, they should all fit within a particular province. The advice the minister received was that farmers felt that that was not very important, that it would be better to have boundaries for electing the directors, based perhaps on soil zones or a different criteria, but that they did not see the value in having a provincial caucus of directors. They were open to having some wholly within a province and some cutting across the boundaries, because the issues involved in selecting a director did not seem that tied to provincial borders.
We have developed, for future consultation and which the minister submitted to the Senate, guidelines for the elections. It had a map attached which our PFRA people developed, more or less following a particular model with soil zones and working with that, to come up with something that we would like to test out to see if it is a reasonable model. It is very close to having the same number in each area. The advice we were given is that unless one area is very large geographically, we should try to have a similar number of voters in each voting district.
Our earlier consultations revealed that the groups wanted districts. They did not want directors at large because they wanted to be able to get to know the directors somewhat. They felt that they would not be able to if they were "at large."
There are some principles which we have enunciated. We would like to go out another time for consultation before putting them into regulations. Of course, we have to wait until after the bill is passed in any case.
Senator Hays: How does that break out? I am looking at the map now. You have options one and two. Where would the 10 come from under the material you have submitted?
Mr. Migie: When you ask where they come from, do you mean by province? Five of them fit wholly within a province and five actually cut across borders, but each has roughly the same number.
Senator Hays: There are ten districts.
Mr. Migie: I am not sure which version you have. The other view put forward was that staggering was a very good idea and that they should not all be selected at one time. So the even-numbered zones would have four-year terms and the odd numbers would have two-year terms. After that, they are all four-year terms.
Senator Hays: I have a further explanation on soil zones as the basis for PFRA's suggestion. The future of the board is highly politicized, whether it is at the parliamentary level or at the board level.
I appreciate the idea of having these zones from which a director is elected across provincial borders as a rationale for the way in which people come to the board table, however, some provinces may get upset about that. We heard from the three provincial ministers and the three provinces have different views. That will continue to be the case. I am concerned about that. The soil zones may be one way to do it. Have you thought of anything else? Is there any other consideration?
Mr. Migie: For that meeting we put forward one starting and one ending, and working with the even number of people until you go through. In the other approach, if you try to force it by province, you run into the problem where, for example, in the case of Manitoba, you might have 15 per cent of the voters. I do not know the exact number. How do you handle that with 10, if you have either two or one? It is difficult to justify that with a smaller number of electors in one province than in another. Of course, you have the B.C. area in the piece. It could not be a stand-alone, so it would have to be presumably in with Alberta.
The group with which we consulted, which included most of the farm groups, felt it was better to have a similar number of electors than to try to force a fit by province, in part because many of them were concerned that there could be a provincial caucus formed of directors who know that they have the numbers to act as one on the board but their responsibility is to the whole Canadian Wheat Board and not just to that group.
The provincial governments are a little more uneasy about that and about the notion of crossing provincial lines. However, I am not sure whether there are any good alternatives. The soil zones as a main base would have some value as well in terms of similarities with people. The border does not really have such a great significance in the attitudes of many people who live within a few miles of it on either side.
Senator Hays: What about the five appointees? That is left totally to the discretion of the government. Was any thought given to where they might come from? One would not expect them to come from one area or one province. Governments have had a long history of trying to achieve balance in making such appointments. Where is that debate at the present time?
Mr. Migie: Minister Goodale said to industry groups that he wanted the best people possible to make up a board of directors. As was mentioned, this is a very important economic entity with billions of dollars. It requires a group of 15 people who can give the best direction. We must ask what type of skills are beneficial for a director. Is it the international marketing, perhaps not dealing with grain but still providing trade experience? Or would you want one financial expert? Would that be valuable to have on the board? The questions were more about the type of person and the skills than anything else.
Senator Hays: Must they be Canadians?
Mr. Migie: That is a question that will have to be addressed in the regulation for the elected directors. Right now, we do not know the answer to that. That is something that could go into the regulations -- a requirement that they all be Canadians. For the elected ones, the draft as put forward does not have that restriction but it could be added. In theory, because they are elected, you could have a situation where a majority of the board were non-Canadians.
Senator Hays: Are there any similar or analogous situations to this in the array of creatures that might resemble this?
Mr. Migie: That was asked. We were stretching. There are some mixed enterprises which the government has but not where there is voting to elect the directors. As we mentioned, the Australian Wheat Board has a process where some of the directors, although they may be appointed by government, are coming from a list supplied by an industry association and they were moving towards a form of election. I am not aware of anything that is similar in this vein.
Senator Hays: You have answered my questions as best you can. I do not want to try the patience of the Chairman or my colleagues with further questions.
[Translation]
Senator Robichaud: Why weren't the administrators given the option of making suggestions to the minister rather than leaving the appointment of the chairman up to the minister?
Mr. Migie: At the beginning of Bill C-72, the government chose the council chairman. The government continues to give financial guarantees to the Canadian Wheat Board, which decides operational issues across the country, not only on the Prairies. The federal government accepts the amendments stipulating that the salary be decided by the council committee. The main idea is to make a joint decision between the council and the federal government concerning the choice of chairman. Although the salary depends on the council committee, there have to be consultations but also an agreement to choose the chairman.
Senator Robichaud: The choice will be made jointly by the administrators and the minister?
Mr. Migie: That will probably be the case. If the council is to decide on the salary and if the government has the right to choose the chairman, they will probably do it together. That doesn't necessarily have to be written into the act. It is very hard to choose someone without knowing the salary that the Board of Directors is going to give him. There is a financial and a public aspect to the Canadian Wheat Board. In the bill, it was decided to leave the choice of Chairman up to the government. There should be something in the act encouraging them to make a joint decision.
Senator Robichaud: That would be most desirable.
Mr. Migie: Yes, there is a very great public and private aspect to the Canadian Wheat Board. Farmers have to deliver grain to the board and they have to play a very important role. The government would chose a third of the council and according to the bill, the CEO would be part of that third. That's a judgement call. There are no rules to say that that would be the best choice.
Senator Robichaud: Appointing five people wasn't sufficient. It has to have control over the chairman too?
Mr. Migie: Yes, to avoid certain problems that Senator Andreychuk mentioned.
[English]
Senator Hays: Supplementary to that, can you imagine the minister appointing a CEO without the board's approval? It would not make for a very good work environment. Senator Fairbairn asked questions about salary that require approval. If the board did not want someone, they have means at their disposal to make life very awkward and difficult, in the end harming producers that we want the Canadian Wheat Board to serve. My question is: Can you imagine the minister embarking on a course of action such as that?
Mr. Migie: It would be extremely difficult with an elected board, where two-thirds of the board members are elected, for the government to select someone that would be at odds with that board. I do not think it could function. It is not like a fully appointed government board where the government has in the past appointed someone that they did not like. In this case, two-thirds of the board are elected, and there would have to be some assurance that the chairman was acceptable or it would be done together.
[Translation]
Senator Robichaud: Why not write the bill that way to make sure the choice is made jointly?
Mr. Migie: Bill C-72 was adopted with a majority of eight members. That was changed to 10. The CEO's salary is decided upon by the government and the council. That was changed. The chairman of the council was chosen by the government. In the bill, it is the council itself that decides.
It was changed partly in response to requests by the producers. They want to play a bigger role. Regarding the financial and public policy aspect, the federal government didn't really want to give up the role of naming the CEO of a council when it controls the council.
Senator Robichaud: Following up on what Senator Hays said, we can't foresee that a minister would make an appointment without consulting with the directors because that just wouldn't fly. Why not write that the nomination is to be made jointly to ensure good relations between the parties?
Mr. Migie: That element was put into the act but not the appointment decision.
[English]
The Chairman: If there are no further questions, honourable senators, I thank the officials for appearing here today and for answering the questions put to them.
The committee continued in camera.