Proceedings of the Standing Senate Committee on
Agriculture and
Forestry
Issue 24 - Evidence
OTTAWA, Thursday, November 19, 1998
The Standing Senate Committee on Agriculture and Forestry met this day at 9:15 a.m. to study the present state and future of agriculture in Canada, consideration of the effect of international subsidies on farm income.
Senator Leonard J. Gustafson (Chairman) in the Chair.
[English]
The Chairman: Honourable senators and guests, I call our meeting to order. In our study so far, we have heard many witnesses. Before us this morning is the Keystone Agricultural Producers.
Please proceed.
Mr. Marcel Hacault, Vice-President, Keystone Agriculture Producers: I want to thank you for the opportunity to be here. I am a hog producer. My operation is located about a half-hour south of Winnipeg.
Keystone Agriculture Producers is a farm organization that represents approximately 7,500 farm units in Manitoba. We are in the process of holding our annual district meetings. I have been across in eight different areas across the province at meetings with the grassroots producers. We have a fairly good dialogue.
Mr. Don Bromley, Director, Keystone Agricultural Producers: I farm in the southwestern part of Manitoba, in the Brandon area. We farm about 1,200 acres of canola, wheat, flax, barley, and peas, and we also have a small cow-calf operation. I am the executive member for our district, which takes up a good chunk of the western portion of the province, for Keystone Agricultural Producers.
Mr. Hacault: As I mentioned, we have just had a lot of our annual meetings. We were hoping to give you a status of what is happening in Manitoba and to relay to you some of the stories that have been told to us by our farmers. A document that was prepared by our staff is available at the back of the room. I will not be reading from that document.
The downturn in the hog prices has been hitting me fairly hard. I have been told they are the lowest since 1971. Of course, I have only been in production for 15 years, but in the past there were programs in place that the trade did not like.
The first time the hog prices went down fairly strongly, tripartite was still in effect. As a result of that, I believe if you talk to Manitoba farmers now, the tripartite program probably did help at the onset, but with the countervail duties that arose afterwards, any benefit from tripartite was probably lost. Since then, tripartite has disappeared. As hog producers, the only program we have access to is the NISA program.
Mr. Bromley: The cow-calf industry in Manitoba is probably one of the very few areas in which there has not been a downturn in returns. Calf prices are somewhat stable, comparable to last year. On the feeding end of it, margins there are quite often negative. Also, red meat, beef in particular, about which I am speaking here, is very vulnerable to oversupply, so a large increase in beef production could be disastrous to that sector.
The one attractive thing to the feeding industry is the low-feed prices, but that just passes the problem on down the line.
Mr. Hacault: As some of you are aware, supply management is fairly strong in Ontario and Quebec; but we would like to remind you that supply management is also strong in Manitoba. However, when you compare it to the rest of farm income receipts, I believe it only accounts for about 12 per cent. A lot of the farmers are not in supply-managed commodities and are probably exposed to these price fluctuations.
Mr. Bromley: On the grain side of it, wheat production is down. The buzz word a few years ago was "diversify," and many people diversified into other crops. I diversified into peas four years ago. At that time, the fall price was about $6.20. There was a fairly reasonable margin at that price, given average yields. However, given that many other people followed that same trend, that the pea acreage increased, the market became flooded. This fall, when I took my peas to market, I got $3.40 for them, and the price did go down after that. That put pea production in a negative position.
There is a bright spot in canola, flax and edible beans, but these acres are limited. There is a limited region in which beans can be grown. Those commodities are certainly vulnerable to oversupply as well.
Wheat movement has been very slow. I understand that the Wheat Board is doing some selling, but the car allocation to elevators in our area has not been all that great. Even though there is a 20 per cent call on hard red wheat, not very much of it has moved out of our area in southwestern Manitoba.
There is no premium for malt barley, as a result of the $175 European subsidy program. It has wiped out any premium for malt barley. People are not willing to risk shipping malt barley. There is no option or opportunity to export feeding barley. It is strictly moving into the domestic feed market. That is fairly slow right now.
With the loss of the Crow and other programs, there has been about $1 billion taken out of agriculture, and that is showing up in the bottom lines right now.
Mr. Hacault: The West has contributed a fair amount to balancing the federal budget. That is the word we hear in the West, that we have taken a lot of money out of agriculture to help all of Canada. Agriculture is very important for Canada's whole economy. On top of taking money out of agriculture, we have actually added extra costs, the whole cost-recovery exercise.
A hog producer recently talked to me about his frustrations. He sells a lot of weanlings to the U.S. Factoring in cost recovery, it used to cost $1.50 to do some tests, to satisfy Customs. Now he said he is paying about 30 per cent of the whole cost-recovery initiative on inspections for weanlings heading to the States. He is a major weanling producer. He feels he is not receiving service for the cost. That is one example of how cost recovery is really effecting a narrow margin and bottom line.
We were told to diversify. Our premiere said we should be the hog capital of Canada. A lot of producers took that to heart and diversified into hogs. In a sense, we have a bit of a double whammy. We seem to lose money at both ends, at producing feed grains and on the hog end. Maybe the politicians do not have all the answers on what the future holds.
Senator Fairbairn: You have the Lethbridge hog plant, too.
Mr. Bromley: We also have a hog plant being built in Brandon. Maybe you have heard some of the repercussions of that.
Another cost-recovery example -- this one is small but it is, nevertheless, an example -- is that the cost of registration of a cattle brand was about $5 for five years. I received my renewal a couple weeks ago and the cost has gone up about six times. It is a small item, but it is an indication of the trend.
There has been a shift from wheat into peas or small specialty crops. Everybody will try to grow as many acres of canola as they can because that is the one bright spot. In terms of crop rotation, putting in canola year after year, you run into disease problems and increased pest problems. At the end of the day, you are pretty much defeating your purpose. The same thing can happen with peas and beans and things like that.
The canola market is vulnerable to oversupply.
Mr. Hacault: The suggestion has been made that to keep their farms afloat farmers should supplement their incomes with off-farm jobs. That has already been done. That phase is already behind us. Should a doctor have to pump gas at a gas station to make ends meet? Why should a farmer have to work in a welding shop or have his wife work in a daycare to make ends meet? So there are some personal costs as well as productivity costs, as some of you are probably aware. If we do not take care of business first, if we try to stretch ourselves too thinly, there will be productivity costs there, too.
Mr. Bromley: The shift to growing feed grains has been fairly slow. In most cases, we would plant barley in the spring, with the intention of getting malt for it and gathering a premium. If the quality, for whatever reason, was such that it did not make the malt market, you looked at the feed market for those returns.
There has been quite a shift in emphasis and a need in the feeding industry for a high-feed-value wheat and barley. The amino acid structures could be changed to complement the feeding industry, to supply a need for them, to make their returns a little higher with a better feeding barley and wheat. There has not been too much research in this area. Also, more research could be done in disease- and insect-resistant feed grains.
Mr. Hacault: In the past, much of the research has been focused on the export markets, the high-protein feed wheats and malt barleys. If those wheats or barleys did not meet the specifications, then they turned into the feed market.
The money that is collected comes mostly through export grains and is funnelled into research there. In a sense, much of the research focus in Manitoba has been on those export crops. There is not a good mechanism to even start to do research on developing high-quality, high-yielding feed varieties targeted for an internal feed market. That is starting to happen now. The Manitoba Rural Adaptation Council is directing some of its funds towards research to supply a feed market, because the feed market in Manitoba is hot. If we could supply a fusarium-resistant feed wheat that had an amino acid profile that complemented the livestock, it would help us a lot more than the dollars being spent to develop a high-protein wheat that will cost us $50 a tonne to reach to export.
Another problem is the new entrants to farming. This downturn is really causing some problems. Anybody who wants to expand seems to have to really get into it "big time." With the safety net programs that are out there, such as NISA, you are disadvantaged if you are expanding because the whole eligibility in NISA changes. Hence, in tough times, you are unable to draw from the NISA.
In the past, there were a lot of classic signs of a downturn in farm incomes -- bankruptcies, for example. Right now, we are not seeing that in Manitoba. The reason for that is that, instead of farming and farming until they are broke, a lot of farmers are making business decisions to exit while they still have some equity left. Hence, we are not seeing a large number of bankruptcies. We have talked to lending institutions, the FCC, for example, and they have a low default rate, which is encouraging.
We have also heard that many of the credit institutions have learnt from the last downturn and as such are extending credit to more creditworthy customers. Hence, anyone who is a little shaky or more highly leveraged will not be receiving credit.
You would expect, given the downturn in the economy, that land values would be dropping. In Manitoba, according to the FCC, land values were up over 2.2 per cent in the last year. In the same breath, however, they have said that often it takes between 16 and 18 months for an economic decline to affect land values. Also, as a result of a strong push towards diversification, potato land, which is now in demand, is fetching fairly high dollars. There is a fairly good return on potatoes right now.
In essence, if you are building a hog barn and you need a land base -- if you are building a $1.5 million or $ 3 million hog farm, it is of little relevance whether the land you buy is $500 or $700 an acre. What is more important than the price of the land is the ability to build and to make good use of the manure. There is some discrepancy. Really, what we are seeing is that the price of land is not reflected in the production value.
We are seeing some layoffs in the farm equipment manufacturing sector and at the dealer level. Some of the fall fertilizer and chemical applications that should be occurring are not. Some farmers are reluctant to put money in the ground, not sure if they will be seeding or what they will be seeding in the spring.
Another trend is that farmers will lease, instead of purchasing, a "big ticket" piece of equipment. It is probably a good business decision, but it points to a shortfall in cash for many farmers. It also erodes a farmer's equity. If times are tough, often a farmer resorts to selling some machinery. Because many of them are leasing their equipment, they no longer have that option.
We have been in meetings all over Manitoba. I was in a region in the Swan River Valley, which is in the northern part of Manitoba. It is almost an island unto itself, an area of productive farm land 50 miles by 40 miles, but it has short frost-free days. The word there is that at least two of the big grain operators, the 5,000-acre operators, are having serious financial difficulty. In one case, the fertilizer dealer was on the field at harvest time taking the grain off the field and taking possession of it right away. The other operator managed to get his grain into bins, but the bins have been padlocked by the financial institutions.
To compare the Swan River and Hartney areas, some of the crop diversification opportunities, such as potatoes or beans, are not available, for reasons of moisture or frost-free days. Those people seem to be having a tougher time.
If we look at the existing safety nets, we have the cash advance.
Mr. Bromley: A cash advance is administered through the Canadian Wheat Board and, for the oil seeds and the pulses, through their commodity groups. It is a well-used and important tool. It is usually available in the fall of the year, when not too much grain has moved but when the bills are coming in. MACC and FCC mortgage payments are usually due sometime around the end of October; hence, the cash advance program helps to meet those requirements. The cash advance on the wheat and barley side is fairly low because it represents a percentage of the expected price at the end of the year. That has put a crunch on cashflows.
Another consideration is that volumes are small because farmers have tried to reduce their wheat and barley acres. Also, barley that is going directly to a hog barn down the road or a chicken barn or a feed lot is outside the cash advance program. Therefore, that program is limited in those areas.
There has also been, for a number of years on the Prairies, a safety net around crop insurance. In a time of weather disaster, it has helped out substantially. However, in a situation such as the one we have now, in a price disaster, it simply is not there to fill the need. In Manitoba, yields were probably average or slightly better because of fusarium -- there was some weather damage, so the quality was a little bit lower. However, with yields where they were, producers have not been able to access the crop insurance programs.
NISA has been in place for several years. It is probably a good program for farmers who have farmed for awhile, who have had a cash flow and years to make deposits. According to the NISA numbers, 78 per cent of the producers who actually have a NISA account only have about $6,200 in that account. For many farmers, that is not enough to cover the year's fuel bill. As a result, that kind of money will not solve the problem; and of course if it is all drawn out next year, that reserve is not there.
For someone who has been able to build up a NISA account, because of the trigger mechanism, accessing it would be a problem for this year. It works on a running average -- it is a percentage of your income -- and to trigger that pay out for this year would be a problem.
Mr. Hacault: I have been only been able to contribute to NISA in the last four years, but I have not been able to put enough money in there to make a meaningful stabilization account. The hog producers I am talking to are quickly pulling out their money because of the downturn in hog prices. They do not have to worry about being in any kind of taxable position if they pull their money out this year, so a lot of producers are doing so.
I have already taken mine out. To give you an example, pulling $8,000 out of my account, which is almost everything in my account, will allow me to market about one and a half month's production, 200 hogs, at the current loss of about $50 a hog. I have put money into a stabilization account for four years, and it will be wiped out for one and a half months. When I look to the future, I do not see anything straightening out in the hog industry for probably another six months, or possibly more.
The Chairman: On that point, you say you lose about $50 a hog?
Mr. Hacault: Roughly. In Manitoba, it is roughly $50 a hog. I believe my last load gave me about $66 to $70 a hog. I would guess that my cost of production, without paying the bank principle and relying on my wife to support the family -- I am losing at least $50 a hog. My production cost is around the $125 mark. It is not the first time it has happened. Most hog producers in the industry are not accustomed to, and do not welcome, price fluctuations, but they know the price fluctuations are there. What is so unusual this time how deep it is and that it appears that it will be lasting longer. The last price fluctuation went down to 48 cents, which was its lowest, and it lasted roughly six months. Most people can weather that out. Now we are looking at 30-cent hogs and no sign of recovery for nine months.
The hog industry has been saying that it does not want any type of per-head payout because of the whole countervail thing. Keystone Agriculture Producers has been working with the Canadian Federation of Agriculture. I understand the CFA made a presentation here. We helped them develop and support a gross margin program that would be on an individual farm basis, whole farm, not targeted, to prevent us from having any countervail problems.
Manitoba exports 80 per cent of its hog production, so we are extremely reliant. Our agriculture minister said that Manitoba, with a population of 1 million, produces enough food for 6 million people. That is a bit of a difference compared to Ontario or Quebec hog production, where I understand they virtually meet their own market demands. Hence, in a sense they are not as dependent on that export market. That is why we want to make sure it is not commodity-specific.
We have heard the federal government saying that it wants to increase exports to $40 billion and 4 per cent of world markets. Ultimately, they are saying that because they realize how many jobs are created through agriculture and agri-food. We are getting a mixed message from government. On the one hand, they say that agriculture is important to Canada, that it is important to trade and that we need agriculture. On the other hand, we are the recipients of cuts, cost-recovery programs, and so on. We seem to be hammered on, and the government is reluctant to listen to us. Maybe that is a function of being a smaller part of the population. Votes count, and when you are not a big producer, you have less of a voice, unless it is through organizations.
Another comment we hear is that when you look at who is holding power right now and compare that with the representatives we have in Manitoba, the numbers are not there. If there is no support from the Quebec and the Ontario MPs, we are almost hung out to dry again. That is the feeling that we are receiving from our membership.
It is probably time to reinvest in agriculture and send a message to producers that they are important. Focus on the first part, that agriculture is important to Canada, and that even though producers are a small part of the population they provide a lot to the social structure of the rural economy and that the government is there to make sure they will be around to farm for the next generation.
Mr. Bromley: The rural communities have taken an awful hit in the last number of years, with depopulation because of railroad abandonment and all sorts of other reasons. This situation here will add to that problem if we cannot maintain the services in the communities, if we do not have the population there to support them. Therefore, a strong agricultural economy would certainly bode well to keep those communities strong and healthy.
The Chairman: We have not heard that much directly on hogs. Your presentation covered it well.
Have you noticed any change in the price of pork in the stores?
Mr. Hacault: That has been an issue in Manitoba. There was actually a front-page story about pork in the Winnipeg Free Press, where they did do a bit of a comparative study in 1996-97 when the price of pork went up 21 per cent. Coincidentally, the retail price went up 21 per cent. At that time, it had dropped to 40 per cent. The retail chains seemed to find it in their wisdom to pass on about 8 per cent of that savings.
Our fear is that when the price goes up, they are very eager to embrace that new price, but when the price comes down, they try to establish a newer benchmark and make up for it. I am not sure who is profiting, whether it is the packers or the retailers -- maybe they are sharing it -- but we hear that concern from all the commodities, that the farmer's share of the food dollar seems to be shrinking every time. How do we address that? Do we tell the consumers they are getting ripped off? We can tell them, but what other options do we have? I do not know. We would like to see something done about it, too.
The Chairman: In the long-term view of the problem, Asia has been a major problem, I understand. Is that right?
Mr. Hacault: There are a couple of factors, and Asia would probably be one of them. If you recall, I mentioned that the last downturn had been fairly short. What brought us out of that downturn, I believe, was that there were disease outbreaks in a couple of countries. So much of the expansion in the U.S. and in Canada is targeted towards that Asian market. We are pinning a lot of hopes on that market. It probably did have an effect.
On the other hand, if my pork is so darn cheap, even if the economy in Asia has gone in the pits, the price of pork has dropped so much they must still be able to afford it. When you look at the cold storage stocks, pork is not backing up. The pork product, the inventory, is not staying in the freezer. It is moving out. It is moving out despite no price reduction at the retail end.
The Chairman: At 30 cents a pound?
Mr. Hacault: It is $2 on the shelf.
The Chairman: Is it as low as 30 cents?
Mr. Hacault: Yes. I believe last week it was 66 cents a 100 kilograms, and then you have indexes and premiums on there. I brought in a load of hogs. They weighed an average of 120 kilograms live and netted out $70 a hog. I have put $90 of feed in those hogs.
The Chairman: Did the change in the Crow help you at all?
Mr. Hacault: I have always maintained that I was not looking for cheaper feed. Most producers would probably agree with me. They just want a decent return. They want that margin. If I can pay $3.50 for my barley and make my spread, I am just as happy. I do not want to make my money on the back of a grain producer who is losing money.
The change in the Crow caused a lot of people to rethink what they were growing. That is why we are saying there needs to be a shift in research towards focusing on providing feed grain, to supply the feed grain market. Previously, there was always a default market; if you could not get it to export, you would sell it on the feed market.
Barley prices in our area, because we are a feed-deficient area, have not gone down since last year. It is slightly down from a couple of years ago. At my farm, my barley price is roughly $2.35 a bushel; last year, it was $2.40, I believe.
Senator Whelan: There seems to be a feeling that politicians are not making enough noise for you. I do not think some of my colleagues will mind my reporting what occurs in the caucus. I can remember one of the Manitoba members thanking members of Parliament from the rest of Canada for a strong presentation made on behalf of the farmers of Western Canada. It was several eastern members of Parliament who spoke. There is a problem in Ontario, too, in certain regions, especially with the hog producers -- and the hog producers in Quebec, which is a big hog production area -- in that they must buy most of their nutrition, their feed grain.
When Minister Vanclief was in Saskatchewan, Steve Klarenback, a Kingsley area farmer said to him: "We in Saskatchewan cannot be hung out to dry. There seems to be money for ice storms in Ontario, there seems to be money for grants and for food aid for other countries." He did not say a word about what the government did for Manitoba last year or what we did for Chicoutimi the year before in the flood area.
There is a tendency to pit one part of Canada against the other, which is maybe a little bit unfair because of the representation. We are here; we know what has been said in the Senate and in the House of Commons. There was almost unanimous support in the debate in the House of Commons, which is a rare thing to find. I wanted to make that comment.
You talked a great deal about the hog producers. I noticed you did not say a word about the dairy producers or the chicken producers.
Mr. Hacault: I was referring to the group when I talked about supply management. My only comment is that only a small portion of farmers are involved in supply management -- which is different than the scenario in Ontario and Quebec. Quebec and Ontario seem to have a lot of clout because they have the MPs. Whether it is true or not, it is up to the people in Ottawa to make that message heard.
Senator Whelan: I knew an eastern minister of agriculture; he was minister for about 11 years. If anyone can say that he showed favouritism to one part of the country over the other, I would like to see that evidence, because he tried to make sure it was fair, whether it was research or whatever. The same operations were offered.
You have one program out there that I was always envious of, and that was Prairie Farm Rehabilitation. I always thought it should have been Canadian Farm Rehabilitation. It would have been useful in Northern Ontario and other parts of Eastern Canada. It was one of the best programs ever devised to try to help develop rural Canada.
Swan River has a special place in my heart. In 1974, in Swan River, I received my first green Stetson. All the directors, men and women of the fair, wore green Stetsons, so they gave me one. They told me it represented love, hope, charity, fertility, and growth. I have worn a green Stetson ever since. Every time I take my hat off or on, I think of Swan River, Manitoba. I know the area well; I have been there several times.
You said frost damaged their crops in that area?
Mr. Hacault: No, the frost-free days.
Senator Whelan: They raised a lot of seed grain in that area at one time.
Mr. Hacault: If you look at some of the specialty crops, the sunflowers or the edible beans, those crops are probably not good alternatives in the Swan River Valley. That is what the producers are telling me, because of the frost-free days. Hence, the Swan River area does not have some of the alternatives that are enjoyed by other areas of the province, such as the Red River Valley, or the southern area.
You said that agriculture is receiving attention in Ottawa, and I believe that that is so. The next step is: Will something be done about it, and when will it be done? Those are the two next steps we are waiting for.
Senator Whelan: We have heard a lot about globalization. I have always had strong reservations about this. We are into this new era. We are painted rosy pictures yet the banking institutions of Japan fail. They were looked upon as the brightest bank institution, the best operation, one of the largest in the world. We are now finding out that it was badly run.
Do you have any reservations about this globalization without any regulation? The World Trade Organization keeps promoting this, the Organization for Economic Co-operation and Development. I make a comparison that it is like driving on a highway where there are no regulations. Imagine the chaos if people could drive in any direction in any lane. Decisions are made that can destroy you. I maintained that the Asian economic flu is everywhere, with the exception of those areas that have some kind of regulation for themselves. This is why I was such a strong supporter of supply management, especially with a perishable product; no guaranteed market, you are at the market's mercy.
Mr. Hacault: In Manitoba, we are trying to develop a bit of a trade statement and trying to take into account the supply management. The feeling in Manitoba is that without the agreements and some of the rules that have been provided -- NAFTA and the WTO have helped us. One example is what South Dakota was doing. The only way we managed to stop the States from what they were doing is by threatening to bring them in front of the WTO trade tribunal. In the past, we did not have those tools, so we are probably better off.
The analogy that our president has used is to look at it as a hockey game. Canada is Gretzky, able to put the puck in the net. The U.S. is the Boston Bruins, rough and tough. If there were no referees out there to make sure that we did not get clobbered, we would never be able to do anything. The trade rules provide a bit of a chance for those referees to come in there, thereby giving us a fighting chance.
Senator Whelan: They have agreed to cut their subsidies under the WTO. Canada has followed that the most religiously of any country. The United States, in the last election campaign, increased it by $7 billion. They have never cut their subsidies to the extent that we have.
The head of the Canadian Wheat Board was here the other day and he stated that they were receiving $5 a bushel for the wheat, $171 a hectare for durum, I believe it was. This is supposed to be this new-world trade organization, this new era of cutting subsidies. Here is the biggest country in the world, the economic might of the world, saying that it does not need to pay attention to those rules. Those northerners up there in Canada are the boy scouts of this organization. We will be the bullies of this organization.
Do you have any reservations about that?
Mr. Hacault: That seems to be what is happening. Our biggest reservation is why the other countries can do what they are doing. We must work on that because it is better than nothing, but we are still being clobbered.
Senator Whelan: Have you read "Compare the Share"? It was written by a former Minister of Agriculture, Ralph Ferguson. I recommend it. For instance, if you give your chicken away, it will lower the price of a bucket of chicken by $1.80 on an $11 a bucket, I think. Yet Kentucky Fried Chicken was yelling bloody economic suicide because we had supply management for our chicken. I can provide you copies of "Compare the Share."
Mr. Hacault: I have heard it is out there, but I have not read it.
The Chairman: I would like to pick up on a supplementary. It is important not to play one province against the other. There is no way that Saskatchewan has the kind of money to compete with the Province of Ontario or the Province of Alberta. This really creates a very serious problem, because if the federal government moves to a sharing program, the farmers that really need the help do not receive it. I do not know how you overcome that serious problem. I would like to hear your comments on it. It is one of the major problems that any government will face unless we can get some kind of a national program, a program that will work right across the nation. Senator Whelan raises a very important subject here.
We have tried for the 20 years that I have been around to try to bring some equality across with the provinces, and we have never been able to achieve that.
Mr. Hacault: Our past president was very much involved with the whole safety net discussions. He was very frustrated with the discussions. What they ended up doing was signing 10 different safety net agreements. If I had my druthers, I would very much like to have seen one agreement, where all the provinces operated under the same rules. Reality is different in Canada. There are unique challenges to accommodate some of the people in Canada. We must make accommodations.
Senator Fairbairn: Thank you for being here today on a subject that indeed has probably galvanized more attention on Parliament Hill than we have seen for quite a long time. It is unfortunate it must, but it is good the attention is being focused.
One of the points that you both touched on that certainly has a resonance with me -- I come from southwestern Alberta, which is an area of small towns and an agricultural area -- is that this is a new kind of situation, where you are not seeing bankruptcies. Instead, it is a question of people being prepared, and probably many of them may be young people -- to exit rather than push on to the last bushel or the last pound. That is deeply disturbing in terms of the continued viability of our world communities.
Clearly there is a great deal of advice being given on what the government can do. There is one area of your brief where you discuss that there are a number of people who have not chosen to be in NISA, the fact that NISA itself needs changing in order to be able to respond to these kinds of circumstances. I would like to hear a little more about what areas you think need changing.
In some of our hearings, we have heard the suggestion of possibly using the tax system as a method of placing resources into the hands of farmers. I know there are mixed views on that. I wonder whether we could have your views on that. All of us are pushing the urgency of this issue.
Mr. Hacault: NISA was originally designed to address small variations in price. It is a net income stabilization account. If I had been able to contribute a lot more to NISA when the prices were high, I would have, but really there was no incentive to. You must scrimp and save to put your money into NISA. You know you should do it, because it is a good thing for the future, but it is difficult to do. NISA was never meant to address this type of downturn. When they were discussing NISA, they were talking about a third line of defence, and it never happened. We did not come here to extol a program. However, a program is needed to provide that floor. NISA probably works fairly well to do what it was intended to do in regulating the small variations.
As a hog producer, I would appreciate it if I could put more money in when the prices are good. Most people do not want subsidies. They would like to be able to make it out of the marketplace. It would help to be able to use NISA more in terms of contribution matching by the government or being able to put more in when the times are good.
Senator Fairbairn: It would help.
Mr. Hacault: When my costs of production are $120 and I am selling for $160, making $40 a hog, I would like to contribute more than the 2 per cent I am allowed to. I hope it will not drop to $70, but I know there will be a downturn.
In terms of taxes, that is probably part of the solution. That is why we mentioned cost recovery. We have been trying to push the Manitoba government -- because we are in competition with Alberta and Saskatchewan -- to put on some type of PST exemption or rebate. They have been reluctant to do that. That would help to lower our cost production.
The cost-recovery exercise is frustrating. On the one hand, we see the benefits of it -- for example, grading of hog carcasses. It used to cost the government -- and indirectly me as a taxpayer -- 22 cents a hog for grading. Now that it has been privatized, the same job is happening at a lower cost, I believe 8 cents a hog. The good part is that we have streamlined it, lowered the cost, and still accomplished the same goal, although now I am paying for it where before society was paying for it.
There is a realization that probably some of these government services were inefficient. However, if we could get the efficiencies without passing the costs to the producers, when in essence all of society benefits, that would be a step forward also.
Mr. Bromley: You mentioned young farmers. They are taking the hit as much as anybody. To get started now, they are probably carrying a tremendous amount of debt load. Some of them probably are holding off-farm jobs, to try to subsidize their incomes.
If a father passes his operation down to his son, the father is probably not in a position to give his son the assistance that it will require to get started, to get him into a sound footing, while maintaining some sort of a living for himself. Hence, the young farmers will probably be the first ones to be forced to exit.
A friend of mine who has a 23- or 24-year-old son had his son announce to him just after harvest that he was leaving the farm for a job in town. The father was somewhat hurt by this; he had wanted the boy to continue farming. Then he stopped and thought about it, and said: "My advice to you is that if you are going to do that, do it now. Get there before the jobs are gone." That is the attitude out there.
Senator Fairbairn: That is very troublesome.
Senator Hays: Let me follow up on the issue of the tax return as an indicator of financial hardship being used as a means of delivering support. In Alberta, they have such a program -- farm income stabilization or farm income disaster program, two separate programs. I am not sure whether Manitoba has one. Basically, it uses the information you submit each year when you file your tax return, with some variations, to determine what your income drop is in the current year based on the previous years. It is a difficult calculation. You must value inventory differently, or at least in Alberta they do. In the three years that it has been in place, it has changed each year.
It might have one advantage, however. It can be used fairly across different regions to identify a farmer's income position and the financial stress he is experiencing and thus provide some assistance on an equitable basis.
It has some disadvantages. It is expensive and costly to do for each individual applicant. In terms of Alberta, my observation is that thousands of dollars are required to do the calculation. It requires going over a three- or five-year financial history, if it is available, and identifying those elements that will provide a true picture of a farm operation for purposes of a measurement, which can be used to determine a level of support.
What do you think of that? It is a little more refined way of asking Senator Fairbairn's question. I do not think you really answered her, so I will ask it again.
Mr. Bromley: In the area of tax concessions and quantifying those --
Senator Hays: It would not be a tax concession. The farm income stabilization program or disaster program employs the same information that is used to do your financial statements, which are a part of your tax return, to determine your income history. Under the Uruguay Round, there is provision for supporting a farmer up to 70 per cent of some historical income level, or 50 per cent or 20 per cent if that is all you had. It is not so much a case of delivering a tax credit; it would be a transfer based on information, generated the same way you generate your tax return, but it is a different calculation.
Mr. Hacault: I know what you are talking about. There are similar programs in B.C. and P.E.I. In Manitoba, we chose to use our companion dollars differently. Keystone is working with CFA, and we would support their proposal. We know it is not perfect, but it is the closest thing that can be implemented fairly quickly. It is probably fairly equitable. Under trade rules, it would meet all our obligations. It is not perfect, but I think it would provide that backstop. Because it is not a rich program, I do not think farmers will try to abuse it -- sometimes farmers are fairly creative and inventive; they seem to find ways to abuse programs.
Any program that will be delivered should not be contingent on producers having either put money in NISA or pulled money out of NISA. If it is tied to NISA, you will destroy whatever value was in that program because you will send the wrong message to farmers. The message will be to not worry about NISA because we will always come out at the end of the day and help you out.
If we use the numbers that NISA has generated, we will cut down on some of the administrative costs. An administration cost of developing a whole new program would probably exceed the administration cost of using an enlisted program or numbers like the NISA numbers and then building on that.
Senator Hays: Your answer is yes, you think it is a good idea?
Mr. Hacault: Yes. We support the CFA.
Senator Hays: The difficulty would be obtaining provincial agreement, which is probably unlikely. In any event, it would be something to strive for, and it has an element of fairness.
Any program that we might come forward with in Canada must be Uruguay Round-compliant or friendly, notwithstanding that the negotiation has allowed Europe and the U.S. to basically do what they have always done.
The philosophy of that is that we will not keep people in business. We will simply soften the landing, give them an opportunity to exit. Even if you are supporting at 70 per cent, in three years you are broke, so you get the signal pretty quick and either exit or change what you do.
Using the hog business as an example, somebody just distributed a pricing on Ontario hog pool prices going back to 1986. It is quite interesting, because every time the price goes up $80 a hundred kilograms, the price then goes down. It goes in that cycle every two or so years, but we do see a remarkable drop now. This morning, hogs are quoted at US$19. The feeling out there is we are into this for awhile. You said you think it will be six months.
That prompts this question: How do you know? You are, as a hog producer, a member of a marketing board. You live in a province, in a country, all of whom are supporting you, hopefully supporting you, and you are guessing six months. If hogs are at $30 a hundred weight, why are the Asians not buying them, because they are cheaper? We talked about the retail price; they are not buying them because they are not elastic. If you are in a country that has a 10 per cent GDP or 5 per cent GDP, you do not eat pork; you eat rice or bread or something else. People will stop consuming, and they have. Until they start consuming again, which they will do at some point, you are in trouble.
Are you being supported adequately in making good decisions? Do you have the necessary decision-making tools to decide what to do with a 100-sow operation or a 1,000-sow operation, in terms of how you should conduct yourself or whether you should strip some sows? You will stay in you say. You have off-farm income as almost all farmers do.
Just a question -- this is a hobby horse of mine. I do not think we do a good job here, as my question will indicate, but I would appreciate your comment.
Mr. Hacault: If you are asking what is happening in the hog industry in Manitoba right now we have two variations. A number of producers have older barns, smaller operations, and quite a few producers in the last three or four years have large barns, large operations. The ones with the older barns, smaller operations will ask whether they can last nine months or whether they should just shut down and cut their losses. The larger ones will probably stay in business. The banks or the shareholders have too much invested; moneys will be reinvested.
Manitoba in particular feeds the U.S. market. All of Manitoba's production is 1 or 2 per cent of the U.S. market. It probably depends more on what happens in the U.S. than what happens in Manitoba. We could produce probably all the hogs we wanted and in a sense not make much of a market difference; it is what happens in the U.S.
Senator Hays: What happens in the U.S. is a function of the world market.
Mr. Hacault: The U.S. exports, and we fill in the vacuum.
Senator Hays: We also export ourselves.
Mr. Hacault: Right. Part of the good news in Manitoba is that now we have packers in Manitoba that are aggressive in the world market.
Senator Hays: I assume you have a producer board. Does it provide you with good information? Or is there some other source of information that can estimate the length of the downturn so that you can decide whether your unit is old or new, or what you should do? Do you feel you have the best inputs possible?
We live in a world with remarkable data, and there is a lot of noise out there, but there is some hard news as well that can be distilled out of it. Do you think you are receiving that hard news so you can, in turn, make the best decision as quickly as possible?
Mr. Hacault: I would venture to say that most producers are not relying on the marketing agency to provide them with that news. Some of them are probably using the Internet, DTN globalling, receiving the news that way.
Senator Hays: So the best source of information for you is each individual using the available information and making decisions based on what is available from various sources?
Mr. Hacault: The producers are making up their own minds as to whether they believe it or not.
Senator Hays: Do you think there would be any value in enhancing that? For instance, in the oil and gas industry, you can buy software programs. You fit in the numbers and it will do a five-year projection for you in an instant. You can take the variables and you can make a very good decision, not a perfect decision, but a very good decision related to different circumstances very quickly.
Mr. Hacault: I do not think that would be used much. When I went to my bank, my banker made me do a summary. I had a pretty good handle on all my expenses, but on the revenue side I asked him what he wanted me to put in? "I can put in whatever number you want, these are my expenses because I have a good handle on that," so I put in the bank's number. He told me that is what we expect it to be, so I plugged it in.
Senator Hays: Would you turn the operation over to your banker? Do you think he knows how to run a hog farm?
Mr. Hacault: No.
Mr. Bromley: If I could just comment, you mentioned the spikes up and down on the market trends, and this graph that you just handed out probably indicates that quite well. On the revenue side of it, the spikes rise and fall quite drastically, but the trend is down over the years. This covers 10 to 12 years, and so the trend is down. On the input side of it, there are spikes in both directions, but they are not nearly as dramatic. When we are in a valley on this, in a down spike, it makes weathering that out and getting through it much more difficult than it has been in the past.
Senator Hays: One of the things this trend indicates to me is that larger operations are likely responsible for the downtrend, because their spreads are probably more efficient than those of smaller operations. I think that the last spike probably has its origins in the Asian financial crisis, which has dramatically reduced world demand.
Mr. Hacault: When I started 15 years ago, my operation of 100,000 sows provided me with a comfortable living. Now I would need at least 150,000 sows to provide me with the same type of living. It just means more work. The margins have decreased.
Senator Whelan: I was at a meeting this morning with the Agricultural Adaptation Council, and they gave us a graph on hog prices in Ontario.
Mr. Hacault: On that graph, the line is going down. Senator Hays, where would you move that line after 1998?
Senator Hays: That is the question to which we want the best possible answer. I am not a hog producer, so I would want help on that from an entity such as the George Morris Centre. If somebody were to have a way of determining the demand side in terms of the Asian financial crisis, trends in the world, and the input costs -- which I do not understand -- I would take it. Quite frankly, I think it would be a good idea. I do not know. It is going to go up again, I can tell you that.
Mr. Hacault: I hope so.
Senator Whelan: When you look at that graph, it is like a yo-yo. I receive a publication called "Yahoo" from an organization out West. You do not yell "yahoo" very often when you look at graphs such as this one.
The Chairman: I thank the witnesses for appearing, and for providing us with an in-depth look at what is happening in the Manitoba area. Your presentation was very good and most enlightening.
Mr. Hacault: Thank you for bringing us down and for giving us this opportunity.
Mr. Bromley: We really appreciated it. Thank you.
The Chairman: I want to welcome Mr. Larry Maguire, the president of the Western Canadian Wheat Growers Association, and Mr. Ted Menzies, a director of the same organization.
Mr. Larry Maguire, President, Western Canadian Wheat Growers Association: I would like to thank you for holding hearings on this important issue.
As we begin, I think it is important that you be aware that we are farmers. I farm at Elgin, Manitoba, about 50 miles from the Saskatchewan border. I am in the southwestern part of the province, which is normally thought of as the dry part of Manitoba. We have had 30 inches of rain since Easter Sunday of this year. There are more difficulties with that than I ever imagined, because the rain brought disease pressures with it.
We are a cereal farm operation, and we grow cereal, oilseeds and pulse crops. We are a partner, as well, in one of the hog operations that Mr. Hacault and Mr. Bromley just told you have been expanding on the Prairies. I am somewhat familiar with that, although I am not a managing partner in that operation. We continue to diversify our farm into other crops as well. Having said that, I would like to say that my wife and I run the operation, but at this time we do not have any family members who are considering coming back and taking it over.
Mr. Menzies will make a few comments regarding his operation as well.
Mr. Ted Menzies, Director, Western Canadian Wheat Growers Association: Thank you, senators, for your concern about farmers. We appreciate the opportunity to discuss this. As Mr. Maguire said, both of us are farmers. My wife and I are oilseed producers, grain producers, cereal grain producers, and we also produce pulse crops. We also do not currently have family members who wish to enter the operation. That is not to say that that will not happen, or that we will not be able to transfer it over to some interested young parties. That is a difficult situation to address in these times of high costs.
I farm at Claresholm, about halfway between Calgary and Lethbridge. We are farming in the middle of the Palliser Triangle, where supposedly no one has been able to produce a crop. We produced some tremendous pulse crops last year. The oilseeds were not so spectacular, but our pulse crops were. I am sure our ancestors would never have dreamt that we could produce this in that area. Our pulse crops exceeded anyone's expectations.
We are thankful for the time that you have provided for us today. I will now turn the floor back over to Mr. Maguire.
Mr. Maguire: A month ago, my son blessed me with a second grandson, so there may be hope in the family yet.
The Canadian Wheat Growers believe that, as we have move into the new millennium, there is still great potential for prosperity in agriculture. We are aware of the failures in the grain sector, however, and we will try to speak mainly of the grain sector.
We have seen the promise of the new Asian markets, the advances in technology, and the trade reforms that we need. These have contributed to optimism in our sector, but there is also the worldwide financial crisis, the fear of biotechnology, and continuing trade disputes. I have been very involved with the issues of South Dakota as of late. We had very good meetings with Ministers Vanclief and Goodale, and also with some of their U.S. counterparts when we went to Washington a month ago. Obviously, these things are tempering optimism about the profitability in farming today.
I would like to emphasize that the western grain sector is export-based. It will be export-based for both primary and processed grain and grain products, and will likely continue to be export-based with the volumes that we can produce in the foreseeable future. Grain farmers have adjusted to the termination of some of the transportation subsidies by diversifying their operations, as Mr. Menzies has pointed out.
We believe that we were promised more efficient, cost-effective transportation systems after the loss of the Crow benefit. I guess we are still waiting on that. We are hopeful that the report that is coming out of Mr. Estey's review will bear some fruit in that area.
We have accepted the fact, however, that the ad hoc government support for the sector that was common in the past is probably no longer possible, given fiscal restraints -- nor is it desirable from the perspective of competitiveness. We will have more to say about the programs that we currently have, and what we believe should be adopted in the future as well, because we are very concerned about the situation that exists today.
We maintain that the grain sector can thrive if we are placed on a more level playing field in the global trading environment, and in our domestic policy arena. Those are obviously the two key fronts for an export-dependent country. As you have heard from the previous speakers, the Uruguay Round of trade negotiations resulted in significant progress towards addressing some of the tendencies of these nations to protect themselves. This has opened up some of the markets, and has given us the opportunity to be a little more optimistic.
It has become obvious, however, that much work still needs to be done in order to allow Canadian farmers to prosper in these international markets. The farm subsidies in the U.S. and the European Union continue to place Canadian farmers at a great disadvantage.
Before I talk about what we see as some of the solutions, I would like to touch on the subject of the government supports and the market prices. Obviously, the high domestic support payments and the export subsidies on the grain from the European Union have resulted in significant increases in grain production in those areas.
The payments per acre, which are as high as $175 an acre on many of the grains in Europe, and as high as $307 on durum per acre, are way beyond our comprehension in many areas. They also receive a floor price -- the intervention price -- for their wheat, barley and rye. That price can be as high as a $205 per metric tonne basis on the country elevator.
On top of that, there is another program that gives them a subsidy of $60 a tonne on wheat exports, $108 a tonne on barley, and as high as $139 a tonne on malt. The malting one is really a big concern for our domestic industry in Canada. They say they are moving those down by the year 2000, but we feel that this program will be much more long-term than that.
I will just touch on the farm support programs in the U.S. They are very complicated. The 1996 farm bill still provides a marketing loan program called the "loan deficiency payment," and it sets a floor price for the grain. When it falls below that, it would be like the grain falling below the initial price established here in Western Canada, except that the American farmer can then, in essence, turn his grain over to the government. The government pays him the difference between the cash price at that particular time and the loan deficiency payment, and he no longer has responsibility for that grain.
Let us keep in mind, however, that at some point that grain has to come back onto the market, whether it is through the Commodity Credit Corporation that they used to have, or through this new program. That will depress the prices, and keep the recovery from happening as fast as it probably would otherwise happen.
On top of that, they have a product flexibility contract. It provides a per bushel payment to farmers, based on 85 per cent of their historical base acreage. Under that program, payments for this year have just been topped up to the US$1 a bushel for wheat, and US$0.28 a bushel for barley. Those are very excessive numbers, and they would mean an extreme income distribution increase if it were held in Western Canada as well. The payments provide an incentive for farmers to keep land in production. It just adds to the pressure of these high world wheat stocks of grain.
In contrast to the European farmer who receives $175 an acre, the Canadian farmer receives no payments per acre for his crops. That $175 that the European farmer gets would cover all of the variable costs and, in most cases, most of the fixed costs of Western Canadian grain farmers, never mind the other programs that they get on top of it.
I will just touch on the fact that the initial price for our top quality Number 1 Hard Red Spring wheat with 13.5 per cent protein is $151 per tonne. We have to keep in mind that the freight and handling charges from that are in the neighbourhood of $50. The result is you are left with about $2.75 a bushel, or $100 a tonne, for the wheat that we will market at the elevator at this particular time.
We believe that the whole farm income situation is a problem, and we are recommending some solutions. The sudden and severe downturn in commodity prices has contributed significantly to the net farm income crunch faced by Western Canadian farmers this fall. When farmers cannot pay their bills, the farm input suppliers and machinery dealers begin to hurt, and rural communities begin to lose businesses.
The situation a particular farmer faces varies widely, depending on the area in which he or she farms. Variables include the crop mix on the operation, whether a farmer had drought or floods, and the debt load carried by each individual operation. Good pricing opportunities are available on crops such as canola, flax, oats, and domestic feed barley. These non-board crops are the saving grace for many Western farmers this fall. They are certainly using them for their cash flow purposes at this time.
Despite growing demands for an immediate cash payment to farmers, the Western Canadian Wheat Growers Association urges the federal and provincial governments to take a long-term approach to the farm income problem. Might I say that ad hoc programs eventually get capitalized into land and machinery -- they have in the past. We must be wary of how those programs are used in the future.
I will just go back to the excessive land prices in Europe to see what results from that $175 that they get on the acreage base. It is very high, and their land prices in some cases are so high that farmers in Europe feel they cannot be sustained in the future. They are actually taking their equity, moving out, and coming to Canada, where they see a brighter future, of all things.
The wheat growers are wary, as I said, of ad hoc government programs for dealing with farm income problems. The current downturn in the farm economy is causing hardship for some farmers across the Prairies. It has, however, served to illustrate the need to provide farmers with better tools to deal with the impact of low prices, which in this case have been magnified by EU and U.S. subsidies.
We are recommending eight points in a plan for addressing farm income problems. First, we would like to improve the Net Income Stabilization Account Program. Particular emphasis needs to be placed on making NISA more accessible for young and new farmers, and possibly allowing them to take advances on future earnings. While there are considerable funds in NISA accounts across the Prairies, there may well be little connection between where the money is and where the need is the greatest.
Second, we would like to consider tax solutions, including tax relief on things like fuel, equipment and land. We would also like a re-evaluation of school taxes, which are a concern in most provinces in the Prairies. We would also like to address the utility rate hikes, as well as excise taxes on things like provincial sales taxes. At one point, we had a five-year block-averaging program as well. We now have a CCA depreciation schedule that allows one to only recover half in the first year of what can be recovered in subsequent years -- on machinery as well.
Third, we would like to see an improvement in the crop insurance system. We would like to expand a Manitoba-style crop insurance program across the region, and include an investigation into the feasibility of things such as a private crop insurance program.
Fourth, we believe that aid as a means to move grain through the system and provide needed cash flow to farmers from Canadian Wheat Board grains, in particular, would be a good move for the federal government to make at this time. It certainly would help the hog sector as well.
Fifth, we would like to see an increase in the CWB cash advance loan rate, and we would like it to be a greater portion of the initial price of the grain.
Sixth, we would consider introducing an Alberta-style farm income disaster program across the region. It would form the basis of a dependable, predictable safety net, one that would be targeted to the areas of greatest need. It would also be production-neutral and green box eligible under the rule of the World Trade Organization.
Seventh, we also believe that the reform of the Canadian Wheat Board compulsory marketing system has become critical for western grain farmers. Saskatchewan farmers are facing a drop in net farm income of 70 per cent this year, with a 40 per cent drop expected in Manitoba, and a slight increase expected in Alberta. Saskatchewan farmers also grow the lion's share of the Canadian Wheat Board grains, which illustrates that those most dependent on single desk marketing are also hurting the most.
A voluntary Canadian Wheat Board would not cure low world prices, but it would give farmers the flexibility to better manage their own businesses in difficult times. Farmers can take advantage of pricing opportunities on non-board crops, but these options are not available for wheat and barley sold through the board. The Canadian Wheat Board monopoly has been unable to attract a premium for malt barley this fall, and it is priced lower through the board than open market feed barley. We question the need for a monopoly that cannot give us a premium for a crop that is lower yielding and more difficult to grow than feed barley.
Consider the $60 that you have to take off the current expected malt price of $162. That leaves you with about $102 a tonne. You will collect the final payment on that one in January of the year 2000. Landed today in Lethbridge, however, the cash price is $124 a tonne. Even from my farm, freight costs $23 to $24 a tonne from Manitoba to that area of Alberta. It works out to be a better value, and the cash is in my pocket now. Right now a Manitoba farmer does not even have to haul it to Lethbridge, which is currently the highest-priced feed barley market in North America, because for the first time in years the feed value of Fusarium-resistant barley is virtually as high in southern Manitoba as it is in Alberta.
Lastly, we feel that the freight deductions comprise a large portion of our costs. The wheat growers have lobbied for many years to have the Crow benefit paid directly to farmers, not done away with completely as it was. You might say it is rather a sad irony that today, with it gone completely, a study is out that looks at how we can get money back in the hands of farmers.
Instead, a much-reduced Crow benefit was paid out, and the transportation subsidy was eliminated. Farmers are now paying the full freight costs for grain, as I have pointed out. We have outlined a plan for reforming the transportation system in our submission to the Estey review. Our paper, "The Implementation of a Contractual System to Control Grain Movement" explains in detail how to create a contractual system in order to govern grain logistics. The development of an efficient, lowest-possible-cost grain transportation system is critical if farmers are to have any control over their costs and, ultimately, over their own profitability.
Grain prices are cyclical, and farmers recognize that there will always be periods of low grain prices. We cannot expect governments to bail us out with temporary programs that do nothing to solve long-term problems. It is absolutely critical that Canada take a strong stand in the 1999 trade negotiations, in order to address the issue of trade-distorting U.S. and EU farm support programs. Canada cannot compete with the treasuries of either the U.S. or the EU. Therefore, we must work to ensure trade-distorting supports are reduced, and eventually eliminated.
In conclusion, Mr. Chairman, if government decides to readdress farm supports in Canada, we will urge it to ensure that there is a level playing field across the country. We need to have resolutions to trade problems that will allow us to operate successfully in international markets. We need to fix our domestic transportation and marketing policies, which tie our hands and have excessive costs.
We learned from the farm crisis of the 1980s that short-term solutions are only short-term fixes. They just do not work all the time. Western Canadian farmers must have a long-term and predictable safety net system, rather than hastily designed and ineffective ad hoc programs that do not solve long-term problems. Governments must make a concerted effort to ensure that the business of farming will be profitable in the long term, and our eight points will go a long way to ensuring that farming is profitable.
We would like to thank you for the opportunity to appear today. We would certainly open the floor up for discussion, and are ready for the challenge of answering any questions that you might have.
The Chairman: Thank you for your presentation. I have one question about your program of solutions. Can you explain how the Alberta insurance program works? I am from Saskatchewan, and I do not understand it, but perhaps the Alberta senators do.
Mr. Maguire: Mr. Menzies will address that topic.
Mr. Menzies: I will not go into great detail on it, because I do not know that I can explain all of the intricacies. The trigger point of the program occurs when your net income drops below 70 per cent of your average over the last three years. The program does not require any annual sign-up. If you feel that you are in a situation that would trigger that -- that you have dropped below that 70 per cent -- you request an application form. There is a $50 administration fee, and you go back on your last three years of net income. If you have dropped below that 70 per cent, then it triggers.
It is not a very simple program, but it does work, and it has paid out. In the last few days on the radio, they are saying that it will help many of the hog producers. There has been a major drop in hog prices, but the Farm Income Disaster Program, or FIDP, should help.
The Chairman: Last year, a hailstorm went through an area in Saskatchewan. It affected an area 10 miles wide and 110 miles long, and it had a cyclone effect. It completely wiped them out. Buildings were destroyed. Many residents said it was more severe than the ice storm in Quebec, and yet nothing was done for those farmers. I have contacted farmers about a hundred miles west of that, and they said that it happened to them two years in a row. The three-year average of those farmers will not be very high, so they will not get much out of it. However, the farmer that had good crops is going to have a pretty high three-year average.
Putting out a program that will work is going to be a tough job for the government. I am very concerned about that. You may have an older farmer who decides not to sell his grain now, so his income is low. He could defer his income because he does not need the money. You have a young farmer who has to sell every bushel he has, and then some, to meet his payments. He is in a different position when it comes to his income tax form. That is a tough one. It is tough for the government.
I was part of the program in the drought of 1984, and I chaired the committee on drought for Western Canada. We came up with an acreage payment that was pretty simple, and yet we encountered problems with its implementation. I will give you one example. A farmer in Saskatchewan took a section of land and sowed it with grass in order to take the wheat out of production. He said, "I did the right thing. I have no payment," because it was not wheat acreage, it was grass acreage. He said that he helped the situation. How do you deal with that? It would appear to me that the ones who need it the most might end up with the least. It will take a lawyer and an accountant to even figure out what will happen.
It is not an easy job for the government. It is very political, because it turns one farmer against another, and that is what it did in our time. You will recall that we, the Progressive Conservatives, put more money into agriculture and got fewer votes for it than anybody in the history of the country. These kinds of things can be very difficult. It will not be easy for the government to come up with a program that will work.
The Americans have a 20-year running average. Every farmer knows what his average production is in wheat. They just get a cheque mailed out on an acreage payment. Of course, that raises the whole subject of whether we were too quick and too pure in meeting the world trade obligations. The Americans just made an acreage payment to their farmers. North Dakota got in excess of $700 million.
Senator Hays: These are commodity-specific payments.
The Chairman: Yes, specific payments. The European Common Market, as you have just said, is doing the same thing. This committee has been seriously considering going to Europe and trying to deal with an expressly Canadian and very difficult position.
I have said a mouthful. I would like to hear your comments.
Mr. Maguire: Mr. Chairman, you have touched on many areas. As Mr. Menzies has indicated, we would like to look at an Alberta-style FIDP. Its design would be up to the federal government -- in consultation with the provinces, if they chose to go that route. We are not saying we would hold it to the three-year program that the Alberta government presently has, if you are looking for a rolling average. Right now, for simplicity, in dealing with the crisis that is before us, we use determinants such as three of the last five years' rolling averages in incomes.
In relation to the older farmer who wants to defer his income into the next year, he is probably not going to fall below the 70 per cent of the year that he is already in. He is not going to qualify for the program anyway, and he does not need to. The younger farmer who is selling every dollar of his crop that he can to meet his bills is the one who will probably be the most likely to qualify for this kind of program. We are very aware of the fact these programs can get so complicated that they are not worth trying to administer, and we do not want a program that will be overly complicated.
This program, if established, would certainly not be so lucrative that a farmer would not take out crop insurance. It would certainly not be so lucrative that one would want to farm without hail insurance if one were in a higher hail zone. Certainly, I understand your comment with regard to the two out of three years.
The Chairman: On that point, many of the young farmers who had the most problems did not have the money to pay the premium, so they did not have crop insurance. In Saskatchewan last year -- and I think it has gone up -- only 57 per cent of the farmers had crop insurance. Many of the calls that I received came from young farmers who never had crop insurance. These are the people who are really hurting.
Mr. Maguire: That is the difference between the crop insurance programs in the three provinces. That is why we have looked at the Manitoba program. Call it "enhanced" or whatever. It also has an administration charge per acre. It is a very minimal cost to get into that program, and it gives them bare costs of $40 to $50 an acre.
It is not going to cover you if you have a disaster of the proportion that you are talking about, but there are levels. That is, you can pay more dollars per acre, and guard up to 70 per cent or 80 per cent. Those dollars per acre are not anywhere near what the GRIP program costs were. They are much more affordable than that, even for young farmers who are just beginning the program.
With the package that we put forward, we think the young farmer can be most helped by ensuring that there are some funds in a NISA account to top up and get going. I do not know if it should be a student loan-type of program, where the funds would be paid back in the future, but it would be topped up so that there would be something there to start with.
We see NISA, however, as a more long-term program that could probably be used in the context of the family farm. It is a program that makes intergenerational transfers simpler or easier. That is, young farmers getting into the farm, and older farmers exiting it. It provides them with something that can be used in that area.
That is a combination of the two programs. When we say we are looking at an Alberta-style program and a Manitoba-style program, the experience of those programs is why we have done this. The Alberta program is already in existence. The Province of B.C. has adopted it, and, as we understand it, the Province of Alberta is currently administering it for B.C.
The Alberta program is not commodity-specific. It covers across the board, whether it is horticulture, hogs, or grain. It can be used in any of those. Therefore, it is a very green program, because it is only going at the 77 per cent level. That is the level that we are allowed to work with under the world trade agreement.
We already have a mechanism, and even though it may have some shortfalls, we feel that it should be look at, rather than going out and designing another program. Keep in mind that this program currently is only funded at the provincial level. If it is to be used -- whether it is nationwide or Prairie-wide -- we suggest that there be a large federal component.
Senator Hays: I wish to follow up on the FIDP. My own intuition is that it is a good approach. It is restricted to people who qualify under the Income Tax Act, those whose chief source of income is farming, so you are dealing only with farmers. Even if a farmer has elected to report income on a cash basis, the Income Tax Act now requires a modified form of accrual accounting, in order to report inventories and so on.
There are some pretty good guidelines, and the Income Tax Act itself is a good start. Inevitably, it must be modified. The Alberta program has been in existence for three years, but it is varied in each of the years. My impression is that the Alberta program was more generous in the year leading up to the election than it was in the year after the election. Perhaps I should not say that.
Mr. Menzies: Point taken.
Senator Hays: The problem is that this is an expensive plan, because you have to treat inventory changes in a fair way. You must value labour inputs in a fair way, and the farmer, as opposed to someone who has been retained, does much of that labour. Perhaps even if someone has been hired to do things, they have to be valued. As was said earlier, it is inevitably a quite complicated system.
If Canada is going to help in that area, perhaps we should help with completing the forms. If you go back for two or three or four periods, you have to recreate a history so that you can actually determine in a fair way what you are providing, and that it is applied fairly to those people who qualify. I think the chief source of income test is probably a pretty good one, and focuses it on those who are true farmers and who will be in need if certain disasters occur.
You cannot do it for one year, otherwise it is just another ad hoc program. Too often, the government designs a program at a time of crisis, which is difficult to do because of the political issues.
I am using you as a sounding board, because I provide input to the government through my caucus, through the government, and through this committee. I think this is a good approach, and you, of course, agree. Do you have anything to add?
I have highlighted some of the problems that I believe must be dealt with. Perhaps I am missing some things, or maybe I am overestimating some of the difficulties. You are both farmers, and you are part of a very important farm organization. I am interested in any further elaboration you might want to provide.
Mr. Menzies: Thank you for your comments. Perhaps I should have elaborated on this earlier. The inventories are, in effect, taken into account. Those of us who are on accrual accounting -- family corporations, for example -- have our inventories for the previous three years, or for however many years we have been incorporated. That does not pose a great deal of difficulty, but it does have to be counted.
The labour, the input costs, and the custom work are taken out or correlated back. Input labour costs are addressed in that also, but the inventories are the big one. They are addressed, and that is part of it. I believe they base it on a Prairie average price, getting back to the GRIP days. I guess that would be the price they used at that time. So your inventories are taken into account, and the accounting fees are certainly not cheap. I believe, on our operation alone, the accounting bill was $500 just to appraise whether or not we would qualify. It is not a simple administration, but it is possible.
Senator Hays: You would probably be looking at three times that amount to actually complete the forms for the relevant years. It would be less costly in future years, unless they change the program. Not surprisingly, they actually have tended to change the program, because it is evolving. It is a new approach.
Mr. Menzies: It was a temporary program, if I might add, and still is a temporary program. I believe that this program originally had a life expectancy of three years. Where it goes from here, I do not know. I think it is encouraging that British Columbia has signed on and is using the Alberta government as an administration organization.
The Chairman: Is everyone included in the program regardless of whether they sign up, or do they have to sign up?
Mr. Menzies: That is the advantage of it. If you feel that you are in line for a trigger, then you can apply. It is not like the old crop insurance, where you had to sign up by the end of April to become eligible for the program. If you feel that you would qualify, you apply. There is a deadline on it, of course, and you cannot go back.
The Chairman: You do not pay a premium.
Mr. Menzies: You pay no premium. There is a $50 administration fee, which is nothing, actually.
Senator Hays: You have to remember that the program is an exiting program. It is a matter of a soft landing. By any standard or measure that I see, supporting income at 70 per cent means that you are out of business if you use the program three years in a row. That is why I think they justify it as a no-premium program. It is a variation of something like farm debt review or farm debt adjustment.
The Chairman: That is why I used the example of the hail storm. What do you do for that farmer?
Senator Hays: Hopefully, things turn around for him. You use it one year, and you are back in business.
Mr. Menzies: I think this was the purpose of the program. It is not meant to be used year after year. You are absolutely right -- it will not allow you to survive if you count on it year after year.
Senator Hays: The hazard is minimal.
Mr. Maguire: Absolutely. That is why it is called a disaster assistance package. That is why this will not be used as a hail insurance or a crop insurance replacement nearly as much as some other programs might be. You use a sort of after-the-fact kind of a program. It can be targeted to the various commodities. It does not matter which one you are in, and it is dependable. It is fairly predictable. That is what wheat growers like about it.
We have been very involved in the whole program with the safety net system. Through that whole piece, we wanted a dependable, predictable package that could be used as a third line of defence. We think that this kind of a program could be used in that area.
Senator Hays said that a one-year term would be seen as an ad hoc program. We feel that this could be translated into the other provinces, which do not have that historic documentation at this particular time. In the previous programs, you had to go back and determine what your levels were for three of the last five years. You had to go back and go through your receipts and document all of that. If a farmer feels that he is in a tough enough situation, and that this kind of program is worth applying for, he will certainly either do the paper work himself, or have it done.
Senator Whelan: I looked over the list of candidates for the Canadian Wheat Board, and I expected to see your name there, Mr. Maguire. I thought you would get on the inside and change that system.
Mr. Maguire: I did that once, senator. I was the elected representative for the western part of Manitoba for two terms -- that is, eight years. We put the new contracting program together, and I worked closely with members in that process. I have taken a different view with regards to the voluntary mechanism that is required there now. Actually, to further comment on that, we grew the least amount of wheat on our farm than we have ever grown. We may increase that in another year, but that is certainly not an indication of the future.
Senator Whelan: Mr. Menzies, you said that you farmed in Alberta, and that you grew pulse crops. I believe Mr. Maguire said that his main income was from oilseeds and crops other than the grains. Which pulse crops do you grow?
Mr. Menzies: We have been growing field peas, mostly for European markets. We grew yellow peas and green peas, both of which are for human consumption. We are also growing lentils. We believe that there is a possibility of growing some spice crops in the near future.
Senator Whelan: Do you think enough research is being conducted on these crops at the present time?
Mr. Menzies: There has certainly been a lot of research done on them. There is plenty of on-farm research, done by people like myself who are growing these crops, and it works. I guess that is basic research. There has been some work done on them, but probably not the amount of research that there has been put into the wheat and barley.
I also see this as the wave of the future. We are growing a product that consumers require, and that consumers demand. Lentils, for example, are a staple protein in the diets of many other countries, more so than beef or any of the meats. We are growing it because there is a demand for it, rather than the old thought process of "my father grew wheat, my grandfather grew wheat, I am going to grow wheat and oh, by the way, Mr. Canadian Wheat Board, would you please sell it for me?" I think many of us have gotten past that mentality. We are going to grow something for which there is actually a demand, so that we have a reason to produce it.
Senator Whelan: I think I should gently remind you, as Mr. Diefenbaker would say, that we spent millions of dollars on researching lentils, fava beans, and canolas. We brought a man from Oregon or Washington to do the research on lentils. He developed the lentil that could grow in Western Canada in about four years, I believe, and we paid him $750,000 to do that. He did it much quicker than any of us had estimated. We spent millions of dollars developing canola.
I have strong reservations, because I have always regarded research as our most important product. Some of the things that we have developed -- things such as the embryos, the transplants and things for cattle -- were developed by Canadian agricultural scientists. The famous poultry that was exported all over the world was developed by Agriculture Canada scientists, as well as some of the other crops such as fava beans.
I see cutbacks when I look at the programs today. We are more dependent on grants and private sources. I think that is good, but we should maintain a strong government research program. Do you agree?
Mr. Menzies: I certainly agree. I also understand the fiscal restraint that our government is under. I know that there have been cutbacks in research. I strongly believe in research, and I think it is necessary.
I think you are correct in saying that canola, by its very name, is inherent to Canada. It is because of all the research dollars that were spent on it that we have a Canadian product. It is no longer called "rapeseed," as they still call it in Europe. It is a Canadian product, and it was developed through Canadian research. I strongly agree with you that research is certainly a necessity.
Senator Whelan: In my first days as minister, I spent most of a Sunday in Saskatoon with Dr. Downey. He was researching canola, which was called rapeseed in those days. He was trying to develop a seed that was low in erucic acid and glucosinolates. I never knew that much about rapeseed or canola. I will never forget what he was doing. It strongly motivated me as a minister to push for the kind of research that we are developing. Canola became the Cinderella crop of Western Canada. It is grown in Northern Ontario and in other parts of that province. The Northern Clay Belt in Ontario has the potential for 10 million acres to grow peas and lentils and that because they have a short growing season in that area, too.
I want to get back to Mr. Larry Maguire. I find it rather confusing in a way because you talk about the subsidization that exists in Europe and the United States. Then you are quoted as saying in one of the papers here that the crops keeping our heads above water today are those that are sold outside the monopoly system. For those same crops that are sold outside the monopoly system in the United States of America, I think my colleague here gave a figure yesterday that showed the United States of America is giving $14 billion a year in subsidies. What do you call that kind of system? It is not a successful one if it requires the infusion of $14 billion.
Mr. Maguire: We certainly believe that the Europeans and the U.S. are very successful in subsidizing their farmers. It is certainly not just those crops, but crops outside that. They have subsidized their wheat, beans, and corn as well in that program. They have recently added more. I would suggest that the number is much higher than $14 billion. Certainly, on wheat, we are very aware of the numbers. I took this to Mr. Schumacher in Washington and Mr. Scher a month and a half ago, along with Mr. Kriz from Alberta and Mr. Kartz from the National Barley Growers in Montana, to show that those subsidy levels are excessively high. They continue to add to them. I could quote you some of the opportunities that I am talking about. We are very cognizant that the American farmer is heavily subsidized.
Going back to the OECD numbers, we told those trade people that Canadian wheat is subsidized to about one-quarter of what the U.S. wheat is for the crop year 1997-98. The idea of being pristine does not do us any good at all if these people are so heavily oversubsidized.
My point earlier was, once you get into those kinds of subsidy programs at that level and they get built into the system, it is very hard to retract and come back to a situation where the government is not subsidizing farmers all the time. That is our concern. Australia and Argentina are even more pristine, if you will, than we are. We believe that there are a lot of dollars in these eight points that we have put forward today that would enable us to be much more self-sufficient in the future. The areas that have been hurt the most right now are in the hog industry, in the grain sector in west central Saskatchewan, and east central Alberta, where they had no crop, no program and no ad hoc. If you do not have a crop, it does not matter what the value of the crop is. Those are concerns for us.
Other farmers on the Prairies in the grain sector may have had a much better crop. We are saying that there is opportunity in those. I also grow pulse, peas and lentils. Sunflowers in our area is a big crop. Canola has been our mainstay over all the years in our farming operations. My dad started growing it in 1959. It has been our main crop. Certainly, wheat has not. However, I believe that the wheat research that we have done in that cereal area has little to do with the marketing system that we have. The wheat research that we have commissioned has been good for us. I think that it has given us more bushels per acre over the years, but I think we have to continue to watch what kind of research is done.
We have a system right now where I was told, even as late as Monday, about a new wheat variety last year that was Fusarium-resistant. In Manitoba and North Dakota right now, that is your biggest concern if you have a Hard Red Spring wheat. It goes right out to Moose Jaw. This Fusarium was found that far west this year. If you have a Fusarium-resistant variety that is a couple of bushels lower even, farmers will grow it in spades next year.
The Chairman: I am sorry that I have to leave to appear before the Internal Revenue Committee. Senator Whelan, as vice-chair, will take over. I want to thank you for appearing.
Mr. Maguire: I guess my point, to finish on the Fusarium, Senator Whelan, is that particular variety of wheat, because it was out from the standard just this very minute amount, it did not meet one of the criteria. The criterion was ash content. We had a Fusarium-resistant variety that did not meet the ash content by this much, so farmers cannot grow it. In our system, it gets thrown right out of the trials, and once that happens, it cannot come back. I think we really need to look at how we manage that research because producing the new variety of wheat would be a tremendous benefit for the farmers in those areas.
Senator Whelan: In my first year of being minister, the head of research was Dr. Mijikofsky from Manitoba. He watched over everything like that. His main desire was to develop a product, no matter whether it was wheat or what it was, that was going to be marketable and that was going to be the highest quality in the world. We always bragged about our different varieties of grains. We did not sell wheat seed, dust or dirt like some of our competitors. We sold as pure a grain as possible.
You more or less suggest here that the Europeans should have a supply management system. You talk about how the U.S. encourages the overproduction of farm commodities, thereby depressing world prices. You are suggesting that they should have better control over this by not paying the farmers so much. You have heard me make this suggestion before. They should have a system as in our poultry and dairy industry where we guarantee a surplus of production, where there is never a shortage. We use a pricing formula, that if input costs go down, they have to take less for it. That is working in the dairy industry right now because their input costs for some of their commodities that they use has gone down, therefore, they have taken a lower price. That gets passed on generally to the consumer, too. You heard earlier this morning when you were sitting here as an observer about the pork price not being passed on to the consumer. It was estimated that one of the biggest pork processors makes $8 to $9 a hog clear right now on processing pork.
Look at the dairy program. To illustrate the difference between the U.S. and Canadian systems, I cite these figures: butter at Port Huron, Michigan, costs US$3.79 U.S. a pound. That is CAN$5.86 Canadian. In Carmel, California, it is US$3.29 a pound. That is CAN$5.09. In St. Thomas, Ontario, a pound of butter costs CAN$2.49. There is no shortage here but there is a shortage in the United States. I have other figures that I can use on eggs and milk, too, that show consumers are getting high quality products, with no shortage and paying much less for it because it is under a supply-management type of system.
In contrast, in the United States, many dairy farmers have gone out of business because they cannot make a decent living. Monsanto talks about using rBST. Even with their biotechnology, it has not encouraged the production of milk like they thought it would, where Canadian production of milk has increased last year between 10 and 13 per cent. I think you are agreeing in part with the fact that with this uncontrolled overproduction, the United States and the European community are making a farce out of the World Trade Organization and even NAFTA, as far as I am concerned. Do you have any comment on that?
Mr. Maguire: Yes, we do, of course. If we were to implement some of the programs that we have talked about here today under the rules of world trade agreements, agreements with Europe and the U.S., we in Canada would indicate that what we are proposing falls within the present restrictions. We in the grain sector in Western Canada feel that we have made a very major contribution to the overall reduction of our GATT levels, if you will, and subsidization. You might say we took it on the chin by having $550 million to $700 million taken away overnight.
Other sectors in Canada have been able to reap the benefit of that. I will let supply management people speak for themselves. Last week, I attended a trade meeting in Red Deer where supply management was quite heavily represented. We sat down and developed many areas of equal concern as to where we should go with Canada's position in the next round of world trade talks.
They are in a tough position in supply management in Canada right now because we are in a tariff reduction mode that will go to the year 2002. Keep in mind that the U.S. farm bill of 1996 is supposed to do that for the grain farmer down there as well, but they are still allowed to top up these programs in the meantime. It is certainly heavily affecting our sector.
I would have to say, however, that we are certainly not promoting a supply management control production level on grains. The American farmer may be somewhat concerned and cry about his level of input costs, but if they are higher down there, look at who is being subsidized the most. They are four times what we have on wheat at the present time.
While this round of discussions on safety nets goes on in Canada, if you go to your local retailer today and look at the product Liberty that can be sprayed on a particular class of canola for next year, there has already been a 1 per cent increase in cost in the last several weeks. I am not suggesting that it is as a result of this but it goes back to the question of whether there is an $8 margin there for the retailer or not.
It is my understanding that you will hear presentations from some major grain companies in Western Canada. I am not suggesting that they do not speak for farmers or that they are not concerned about what farmers' incomes are. However, let me assure you that throughout this whole piece they are the players that are holding many of the outstanding accounts on farm supplies that are not paid from this last crop or from farmers who are trying to plant for next year in those areas.
Senator Whelan: I am sure you remember a program called LIFT, Lower Inventory for Tomorrow. I was Minister of Agriculture then and I was against it, but the minister in charge of the Wheat Board was all for it. That program only lasted one year because a real shortage of grain ensued. We even had to change the Income Tax Act so the farmers could sell the grain that they had stored for three or four years.
Mr. Maguire: I was one of those farmers.
Senator Whelan: Again, when we come back to our system of the wheat board, you can grow all the grain you want. There is no restriction on the grain. We have not contributed to the oversupply on the market by that system. We have an orderly market. They can never point a finger at Canada and blame us for causing depressed prices on the world market. We have never done that. As you know, you can only deliver so much. Sometimes you could not deliver any because there was no market for our products at that time.
I will put this question to you. I know your organization is not only funded by farmers. What percentage of the fund to run your organization comes from wheat growers and what percentage comes from non-wheat growers?
Mr. Maguire: We are 95 per cent funded by individual voluntary payments from farmers. We receive some corporate sponsors for our conventions because we do not like running conventions at a loss either. We have heard this many times. We get a very minute portion of our income from corporate sponsors. They help us put on a few speakers and that sort of thing at our annual meeting.
Senator Whelan: Do you think that we should go back into a LIFT program to compete with the United States or Europe?
Mr. Maguire: We are already in a LIFT program, if you want to look at the way wheat and barley farmers in Western Canada have responded. I was at a Canadian Wheat Board meeting on September 22 with other farm groups in Western Canada, and we have gone from 21.2 million tonnes of exports of wheat last year down to about 14.9, I believe. Those numbers include the 4.5 out of durum for both years.
Canadian farmers from Manitoba, Saskatchewan and Alberta in the grain sector have very much responded to the marketplace in that area. They have also responded to the fact that they could get more value for non-board crops than they can for boards because they have an opportunity today to lock in $8 a bushel for canola delivered next fall and $2 a bushel for oats delivered next fall. They are doing it in spades out there today. The non-board prices are in the neighbourhood of $8.40 in the country today for canola and $7 for flax. There are pricing opportunities there. They are taking advantage of them.
Senator Whelan: Again, the LIFT program was a payment for not planting grain, the same as Europe has today. I want to go back to when you are talking about these other commodities. Do not forget that when we were spending those millions on research, we wanted farmers to be able to supply the world market with other products because we recognized that we are big exporters. We had a high quality product and that had to come from research. If the farmers could make a buck, they would produce it.
Mr. Maguire: That is a very good point. I believe, and certainly our association does, that the wheat research of today, Senator Whelan, is much more targeted to the quality aspects that the world needs for our wheat in the future. Historically, we tried to grow something from Winnipeg to Peace River, and it has been successful for us.
In the new markets in the world, you look at the grain companies, you look at what farmers are doing in their own operations today, and they are taking advantage of things like the Warburton contract. That is a targeted area, a particular zone in Manitoba for a particular class of wheat. We are seeing the same things in potatoes, where the customer wants a certain starch content, whether it is McDonald's in Chicago or Milwaukee. Other sectors have focused more perhaps on classes and varieties of wheat specific to a certain market. Most of the people that are forecasting in this industry, and we as farmers are seeing more of it, are talking about developing particular varieties of grain, of wheat and barley, for targeted markets such as particular processing mills.
We are in the processing of developing new durum varieties right now because the quality of our durum, to be blunt about it, is not as good as it was a few years back. We must bring that standard back up for those who want to continue to grow it. Many of our members live on durum. They grow mostly durum year after year in that south central Saskatchewan area. Ted and I are in the neighbouring provinces to Saskatchewan, but the bulk of our membership is in Saskatchewan. They are in a tough bind right now because perhaps there is not as much diversification.
We realize that the governments have put dollars into research in those areas in the past. We commend them for it. We as farmers are utilizing those opportunities, which we must. We see shifts there as well in the livestock sector. Some of those have been maybe too fast, and not enough forecasting was done to be able to read this Asian crisis currency worldwide. However, the same could be said of the people who put their money in mutual funds or a number of other areas as well. I am not making light of the situation, but we are in a worldwide currency situation. It is certainly not just honing in on the specifics of agricultural commodities. We are caught up in this in the same way as the person on the street in any other area in Canada or the U.S.
We are here to indicate to you the kinds of mechanisms that we think can get us through this short-term situation. We hope and think that world currencies will become more stable. As Senator Hays alluded to earlier, prices will go up. We certainly hope they do. Stable world currencies will allow us to supply those people in the developing countries, who were just getting to the point where they had sufficient income, with products that we can produce cheaper than anybody else in the world.
We are not lambasting the federal government for the change in the Crow benefit. I mean, it was eliminated, as opposed to changed. However, there are things taking place that give us opportunities in Western Canada. We have to make sure that we are there when this clears so that we can take advantage of them.
Senator Fairbairn: Thank you both for being here. This is a very thoughtful brief on an extremely pressing and difficult problem. As I said to our earlier witnesses, it certainly has raised the levels of concern and awareness of parliamentarians regarding the farm community to greater heights than has been the case perhaps for a long time.
Two things have been impressed on us in recent weeks. First of all, there is a real urgency here, particularly in the hog industry. In the next crop year, we do not want to have a number of the farmers, including younger ones, decide that they are not into the risk business anymore, that they should get out while they still have a chance to make something out of it. This is very disturbing for the industry and for the entire farm community.
We sense the urgency. We also have received the messages of sadness that there was not a third line of defence when the programs were brought in several years ago. I think a lot of pressure was brought to bear at the time. As I recall, those programs were brought forward speedily in a short period of time. The third line of defence, the long-term line of defence, just did not happen. Now, we are obviously suffering from that. We will have to be very careful about how to insert that kind of a program into future systems.
We are told that you are wary, and others have been more than wary, about getting into another round of ad hoc programs because they end up having as many negatives as positives.
There are obviously two lines here. One is current urgency and the other is longer term. In many of the eight points you put forward, and this is a fact of life obviously in agriculture in Canada, the solutions must be, in many cases, cooperative solutions. That involves our partners. It involves the provinces. Sometimes, as you well know, federal-provincial discussions take time. Could you indicate your priorities for government action now?
Although again it is federal-provincial, does that in some way bring the tax system issue to the forefront or is this, too, something that will not by its very nature be able to respond quickly? Of your eight points, which ones would you want to have kick in now, in the short term -- and not by way of an ad hoc program? What is your advice to us?
The Alberta-style program is there. Obviously, if we were to build on that, it would have to be a joint operation. Give us a hand here. I know that it is an impossible question, really.
Mr. Maguire: No, it is not an impossible question. It is a very good question. We have a few suggestions here, quickly. Points four and five: Food aid. Put together a package on hogs. Do not try to compete with the U.S. in the amount that you are going to do it at the level you are going to do it at. Take Russia as an example. In the years when I was on the wheat board advisory committee, they grew between 88 and 105 million tonnes of wheat in Russia. Since things opened up there, if you want to call it that, they have only once grown a 65 million tonne crop. This year, they are at 47.8 million tonnes. As you are very well aware, there are going to be people starving on the streets in Russia this winter.
Senator Fairbairn: That is also a very great concern to us and to our part of the country, as well.
Mr. Maguire: Here we are with a product in oversupply. I think Canada is the big winner on humanitarian grounds. I talked to Minister Vanclief about this. He is concerned. We are a market-based organization. As the last speaker said, that is where the majority of the farmers want to get their income. This will have an immediate impact if there were hogs at that level. We do not have the wheat or the barley supplies. The U.S. has corn supplies and hogs, both in overabundance, which was caused by the Asian or worldwide currency crisis. If we have these products, let us try to do two things. First, let us help to stabilize some of the currency situation by helping another nation make sure that its people get food. Second, we think that if you took a certain number of hogs off the market in Canada today, it will retain jobs. The people still have to work. It keeps the people in the plant working. It keeps the transportation industry going. It keeps the farmers on the land and increases the value of the product. The grain prices will not increase tremendously in regard to that but it would certainly help out, although it would not help the grain industry as much as it would help the hog industry.
As for the subject of the cash advance, if you want to help the grain industry immediately, we are not calling for more interest-free advances. The current levels are quite sufficient. We are, however, asking that the loan rate portion be a greater proportion of the initial price than what is there today. That will help the smaller farmer more than the larger farmer because this would allow the smaller farmer to get more of those funds in his hands to get through the winter. He still has to prove or sign that he has the product. It is still going to be paid back when he gets the initial price.
There are two programs that could be implemented. The FIDP style program could be implemented fairly quickly if the provinces would come on side. I am sure that you are not going to have any problem with one province. When we look at the numbers, Saskatchewan and Manitoba are more in need of income right now than Alberta, which has had this program in place for the last three years. The program in Alberta has had a stabilizing effect. The $50 million to $100 million a year has come right out of the provincial treasury. The provinces will have to kick in some but we feel that the federal government will have to kick in the bulk of this kind of a payment for this winter of 1999. We suggest that we use that as a mechanism.
It will target the areas that were hurt the most. Having said that, we feel that the reforms that we have talked about in transportation and grain are necessary. A neighbour phoned me yesterday and said that his quality wheat was 14 per cent protein. I also checked this out at the Red Deer meeting last week. U.S. farmers can say what they like about all their high costs. They can say what they like about their increased subsidies. If they are ridiculous enough to continue to use those high subsidies; if we had a more transparent marketing ability with them; and if farmers were involved in that process along with the board, they could get US$3.60 a bushel for their 14 per cent protein wheat today just across the border. Someone alluded to CAN$5.40 a bushel earlier. That is cash in the farmer's pocket now. The equivalent of that will be about $4.30, $1.10 a bushel less. You have to wait another 14 months to get the final payment on it. That is an example of a high quality wheat.
An example of a low quality wheat is winter wheat at 10.5 per cent protein. It is priced at $2.71 today in the Canadian market, $3.00 potentially in the final payment, according to the pros, $4.06 a bushel across the border today in the United States. Winter wheat grows about 60 to 70 bushels an acre. It has 10 to 15 bushels more in it than some of the Hard Red Spring wheats. It is a tremendous boost to cash flow. Here is a situation where they could add $60 to $70 an acre on their wheat acres. That is tremendous. Certainly, it would not need any kind of an ad hoc payment, or any kind of a support payment at all. That farmer would not qualify if he had access to that market at the present time.
They are crying for the wheat in the U.S. because they have to show the fallacy of how these subsidies interrupt the market. The American farmer has the money in his pocket already. He has locked his bins. He does not want to deliver, and the grain company, not thinking that there was going to be a program like this, made the forward sale. It cannot get the wheat now to supply the mill in the U.S., which needs the low protein wheat.
Those are just some examples of the reforms that are needed in Western Canada. It is not a matter of whether we believe the monopoly should exist or not in the future. It is a matter of farmers going around and changing their farming operations just to do everything they can to bypass the present system.
I made a presentation to the Canadian Transportation Research Forum in Winnipeg on Monday evening where I have predicted publicly over the last year that we will export offshore virtually no grain out of Manitoba or southeastern Saskatchewan within 10 years. It will either all be processed in Manitoba and southeastern Saskatchewan or go into the United States for further processing. You only have to look at how the grain companies are aligning themselves to ensure that they can utilize the products. They are not building these $10 million inland terminals to ship everything out of Manitoba offshore in the future. They may be in west central Saskatchewan and Alberta, but they are sure not doing it in Manitoba because they are the furthest from port. They are the first ones to tell me, whether it is Saskatchewan Wheat Pool building AgPro and plants in Brandon and Boissevain or whether it is Agricore. I commend them for getting together with the Manitoba and Alberta pools and coming, but they are building new inland terminals. They are getting into Saskatchewan.
I commented that if you still believe in the status quo in the grain industry, it is a little bit like the tooth fairy. It just does not exist anymore. Do not tell my grandchildren. The situation is changing so fast out there. Some of it was precipitated by the Crow change. Some of it was precipitated by what we are doing on our own farms. No offence to wheat. I am a wheat grower president. I would like to see us grow more wheat, but Manitoba has just become the edible bean capital of Canada. They doubled the size of potato acres in the last few years. In Southern Alberta, where Ted is, you can expand on the potatoes that are going in there, the pulse crops, the peas, the lentils and the sunflowers. The processing of all of these commodities is taking place, but you do not see any flour mills being built in Western Canada. There is one small one at Ely. That is not to say that the board is not making special deals for those things to be established, but there are none here.
Senator Fairbairn: Thank you very much. That was very helpful. The heat is on for that quick fix and that is, in a sense, not on. What you have given us here are some guidelines for things that can be done now.
Mr. Maguire: If I could just make one comment in relation to that. When I mentioned earlier about being able to lock in those prices for next fall, I was not meaning the futures market that many farmers are not familiar with and are not comfortable using. I was talking about deferred cash contracts, deferred delivery contracts. These are cash contracts that you have to deliver on. Most companies will work with you through an act of god clause on those, even if you are hailed out and cannot deliver. For, let us face it, they are much more familiar with the hedging of the risk. They do that on a more regular basis.
The second one is the CFA's proposal to address the current situation. Our association's perspective is that the $460 to $480 million spread across Canada will go to the most needy areas, which would certainly be the Quebec and Ontario hog industries. How much of that $460 to $480 million will go to Western Canada? Perhaps as little as $100 million dollars, which amounts to about $2 an arable acre in Western Canada. It is not going to pay the land taxes.
A member chastised me a bit the other day for not publicly coming out and saying that we need ad hoc programs. I want to transfer this story to you. I asked him what would be enough, $3 an acre? That would not pay the land taxes. Twenty dollars an acre would pay for the nitrogen we put on last year's crop. I said, "What about $10?" He said, "Somewhere in there." I said, "Would you sooner have $10 in your pocket now and a U.S. border closed for the next five years?" He said, "I see your point." Market access is far more important to his operation than the $10 an acre payment that he would get in his jeans now. I think we have to be cognizant of that.
We have to be cognizant of the magnitude of dollars that the Europeans and the U.S. are using. We cannot direct their domestic policies, but we take them to task in international trade fora. I think the present federal government is doing that job. I think that Ministers Marchi and Vanclief are looking very hard at working in those areas internationally. We can certainly make available to you the joint forum of agreements that were made on September 25 in Banff between the 50 Canadian and U.S. farm groups that were there. That is what we took to Minister Vanclief and Mr. Goodale here in Canada and to the U.S. politicians as well. We were received very well and found a number of areas where harmonization was possible. I am not putting the other policies down, but let us be careful what we are asking for here. From a Western Canadian perspective in the wheat industry, the present program that is being talked about might not leave very much for Western Canadian farmers.
Senator Sparrow: I think most of my questions were answered. First of all, your eight-point program is fine. I do not find fault with it. Some of it could be expanded on, of course, but I think that it is a pretty good program. We need a quick fix though, of some description. We have been talking in Ottawa about the Income Tax Act and of the averaging over three years, but we have a disastrous situation in some of the areas. Whether we talk in Canada of flood disasters or whatever, we find money and we bail out certain groups when that happens. I think that we can really call some areas of the agricultural industry now a disaster. I think that something has to be done quickly in this regard. I certainly see that the federal government will probably have to do something, make some statement, prior to the end of this year so that the money could be in the hands of the agriculture community in the very early part of the new year. At least they would know what they would have facing them for crop inputs for the coming year.
We do not seem to have any way of determining how to get the money into the hands of those people who are facing that disaster. The biggest problems lie particularly in the grain sector, the wheat sector, and primarily in Saskatchewan. The hog industry, of course, throughout the country is in a disastrous situation. Is there any way that you could say between now and the end of December that the government should do something, should have a plan or a program to look after those disaster areas, rather than averaging it out over three years and so on? Think about that for a minute.
None of us are sure of what will happen in the agricultural industry. In the agriculture industry, in the livestock and grain industries, the cycle is always there. The cycle comes and the cycle goes. It may very well be three years, it might be five years, but we know that there are high prices and there are low prices in that cycle. In all the time that I have been farming, I have found the hog industry to be the most volatile in that process.
I have seen so many people from my part of the country say that the hog industry is the wave of the future. They have built the big barns. The big barns, going back, were for 500 hogs, 250 hog sows. Now they are talking about 5,000 hogs. The Wheat Pool got into the act and the chambers of commerce say that this is the coming thing. There is going to be a future there for hogs that we are never going to be able to fill. It was just totally unrealistic, and still is because, regardless of what happens, that cycle is going to come and go. Some facets have convinced the agriculture community to invest heavily in this hog industry, and they are going broke. It will come back in a year's time or in a year and a half, and it will be a hell of a market for three years. Then the same thing will happen again.
I do not understand what we do in the agriculture industry to prompt that aspect. In the hog industry, as an example, it was said that the Asian market will take all that we can produce. They touted that in Saskatchewan and Manitoba and certainly in other areas. Logically, if the market was that great, you know that Illinois, Wisconsin, Argentina, Denmark and the European community will all get into that market. They will produce hogs until they are coming out of the barn. They can produce until there is a surplus, if the market is there. But we have encouraged the agricultural community to expand into that area. We have done that, but what is really happening?
The smaller Ontario and Quebec producers will particularly be in trouble because that has been their livelihood for years and years. They have been able to withstand the cycle but the cycle now has hit such a low that they are not going to survive. We have to look at that aspect across Canada. There is certainly no question about crisis dollars having to go into that market now.
Then we have to look at the wheat industry and say that the same thing is true. We are going to lose farmers. I have made this statement before and others certainly have in the last five years, that we were going to lose 20 to 30 per cent of our farming community. Well, we have lost them. They have gone. Those young people have left the farm. In this particular cycle this year, we are going to lose one hell of a lot more unless something happens. Do we want our future to be full of the extremely large corporate farms that everyone always talks about? In fact, that scenario is becoming closer to reality now. We are going to have no young people in that agricultural industry, certainly in Saskatchewan, certainly in Western Canada.
For a long time, I promoted what I thought of as the concept of the family farm. It was very difficult to define a family farm. How big do you have to be and what type of income do you have to have? I guess we just lost that will to maintain a family farm. Now we have to have an income in the commodity markets for whoever is in the business, whether it be corporate or other. We need those dollars coming into our country. I have expanded more than I meant to, but I think that I would advise the Minister of Agriculture that between now and December 31 that this is what must happen. You will go to heaven if you come up with it.
Senator Whelan: Otherwise, you know where you will go.
Mr. Maguire: It is very hard to deal with that whole area. As I said earlier, we are a commodity that has been caught up in a worldwide financial crisis. Going back to the days when I saw the last trade war on grains and how heavily that affected us, some stop-gap measures to be put in place there. They may have kept some small communities in most rural areas alive. Never mind the individual farmers, they saved whole communities.
A farmer told me about marching with other farmers on the Manitoba legislature about 10 years ago. I agreed with that one; I was there, too. All the sectors were hurting. That farmer phoned our vice-president the other day and told him that if we go to Ottawa and ask for an ad hoc program that is going to be targeted at the hog industry, how in the blazes are we going to justify that 1,200-sow operation that just broke the ground and is going to be built in his neighbourhood? Those guys are going to get a payment for a brand-new barn that is being built in an industry at a time when they are seeing historic lows in values. I am not saying that the hog industry is not in trouble, Senator Sparrow, but it is very difficult and it shows the imbalance that these things can create. It is like that trade situation. Would you sooner take the $10 now or have long-term access? I guess that we support the federal government process regarding trade, and we have supported Minister Vanclief in relation to the efforts that he is making regarding his stance on these ad hoc programs to date, that it has been tough. It has been tough in the country but there were some bright lights out there this year as well. Wheat prices are better already than they were in the middle of August. You can lock in profits on pigs for April if you are looking at managing your feeder operation. It is not like there are no tools out there today. We are saying that we need to expand the number of tools that farmers can use.
When I was in Washington, one of the fellows said that politicians get re-elected by the amount of money they spend. I guess I would look at it and say he has not been in Canada over the last several years because our association has looked for fiscal responsibility, fiscal restraint, and the budget is under control. We could always do more, but dealing with an ad hoc payment and an ad hoc mechanism, it is so tough to target them. It is so tough to do. That is why we are saying that if we think that something can be done, that it be worked through the existing programs. I mean maybe it does not broad-brush everybody and cover them all with the same number of dollars per acre. It is a tough one. But if you are looking at $100 million to $150 million for Western Canada, or even if it is half of what the CFA is talking about, put it through the existing programs. I go back to Alberta. If you are looking at the numbers in Alberta on the federal program, it would be around $100 million this year, which would translate into about $350 million in Saskatchewan. The equivalent would be about $35 million to $45 million in Manitoba, and you would be looking at a program in the neighbourhood of $500 million that would end up being targeted in those sectors. We think that is a better way to go in relation to the kinds of support, if you will, that need to be put in place today without designing a new program.
Senator Whelan: I want to thank you, Mr. Maguire and Mr. Menzies, very much for your presence here today. We will study your evidence and hope to make some kind of recommendation to the government.
Mr. Menzies: Thank you very much for inviting us down here. Thank you for your concern. I obviously do not envy you the decision that you have to make. We wish that we could give you some real solid "you do this and it will work for everyone" solution because it is a very large issue. We hope that we have been able to at least give you some insight as to where we are coming from in the grain sector. We wish you luck in your decisions. Thank you again for hearing us.
The committee adjourned.