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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 32 - Evidence

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OTTAWA, Thursday, April 22, 1999

The Standing Senate Committee on Agriculture and Forestry met this day at 9:08 a.m. to study the present state and the future of agriculture in Canada, consideration of the effect of international trade issues on farm income.

Senator Leonard J. Gustafson (Chairman) in the Chair.

[English]

The Chairman: Honourable senators, I welcome our witnesses from the Canadian Cattlemen's Association and the Canadian Pork Council. We look forward to your presentations. Please proceed.

Mr. Neil Jahnke, Chair, Foreign Trade Committee, Canadian Cattlemen's Association: Good morning. I am chairman of the CCA's foreign trade committee and, as a full-time job, I try to make a living as a rancher in Saskatchewan.

CCA represents the interests of over 100,000 beef producers in Canada. The beef industry in Canada contributes $20 billion annually to Canada's economy. It is the single largest source of farm cash receipts, at almost over $5 billion. Each year we export over 50 per cent of our production, mainly to the U.S. Our industry is expected to grow.

With the elimination of the western grain transportation subsidy in 1995, Canada's beef, cattle and hog industries in western Canada have grown and now are the dominant customer for feed grains grown in Canada. In other words, we are feeding more barley at home than we export.

There are expectations that continued growth will create sufficient demand that all feed grains will be used domestically. We will export beef or pork rather than feed grains, which means we are exporting value-added products rather than simple resources.

I am sure you are aware that earlier this week Agriculture Canada hosted a trade conference attended by farm leaders and further food producers here in Ottawa. The purpose of the conference was to get feedback from the participants on the direction the Canadian negotiators should take in the upcoming WTO round. The CCA participated in that conference.

There is little doubt that we are trade dependent. I am sure you are aware that we are currently involved with actions taken by the United States. They have launched countervail and anti-dumping actions against the Canadian cattle industry. That is a serious threat to our industry and to the livelihood of beef producers. If we were to lose those cases, it would result in unbelievable financial hardship.

Trade in Canadian beef has skyrocketed in the past year. We support free trade and want to see further liberalization around the world. Canada is currently the fourth largest beef exporter in the world. We have also the distinction of being the world's largest beef importer on a per capita basis, mainly from the U.S., Australia, and New Zealand. The United States is our biggest customer for cattle and beef, with over 96 per cent of our exports finding their way into the U.S. market.

In the upcoming round of WTO negotiations, the CCA wants the rules of trade made as clear as possible. I am sure you are aware that some U.S. states used illegal trade actions last fall in stopping trucks carrying Canadian cattle into U.S. markets. Governors of particular states promoted that action. It is our understanding that only federal governments have jurisdiction over international trade; however, governors were able to disrupt trade to their political advantage without reprisal or reprimand.

Canada must push for reform in future bilateral and multilateral discussions. If we expect to increase our exports of all agricultural commodities, then we must obtain meaningful gains in market access and the complete elimination of export subsidies. The CCA believes trade is a two-way street. If we expect other countries to eliminate trade impediments, we must eliminate our own. The Canadian cattle industry is quite prepared to go one on one with anyone in the world, but we cannot compete with those who use unfair trade practices.

There are still too many barriers to trade. For example, the European community uses phony health and sanitary regulations to keep North American beef out of their market. That issue will come to a head next month, as they must comply with the WTO ruling stating that they must allow North American beef into their market or face retaliation. The Canadian government has already drawn up a list of commodities that are currently imported from the EU that will face higher tariffs if they do not comply with the WTO ruling.

Meanwhile, the EU spends billions of dollars subsidizing their producers, which results in mountains of beef being stored, and then they subsidize their exports, which means they basically dump beef on world markets. That type of action makes it impossible for Canada to compete in those markets. Our Canadian negotiators must press the other members of the WTO to lower tariffs and, in some cases, eliminate them.

At present, under the NAFTA agreement, we have free trade within the three countries involved. However, the EU continues to have very high tariffs on many commodities, including beef, which makes it impossible to enter their market. Asian countries continue to lower their tariffs, but we should like to see that accelerated.

The Canadian beef industry is prepared to accept beef from anywhere in the world, providing it meets our health and sanitary standards.

The Uruguay Round did create trade rules that improve predictability and market stability for some commodities. The beef industry in Canada received their tariff rate quota, TRQ, of 76,000 tonnes. That means that in order for beef from countries outside NAFTA to enter Canada, they must keep within the quota. However, if more beef is required, importers can get supplementary permits at no cost.

Importers have received supplemental quota each year since the agreement has been in effect. The CCA would be willing to give up its TRQ if the United States eliminated a similar system. Canada cannot remove its TRQ without the U.S. following suit. If we eliminated our TRQ and the U.S. limited exports, the excess beef on the world market would flow into Canada. That has happened in the past, as we all remember, when the EEC flooded our market.

The CCA is concerned about the growing trend towards using labelling of product as a non-tariff barrier. The United States tried recently to get a law passed that would require imported product to be labelled as such. That issue is still on the back burner in the U.S. Congress. In fact, it is in study. The CCA has always favoured a science-based approach to such issues, with the principle concern being food safety.

With respect to cattle arriving in a country for immediate slaughter, the CCA favours a current policy whereby those cattle must meet the importing country's animal health requirements for importation and then are subject to the meat inspection regulation of the host country. Those cattle can then be processed and sold as a product of the country in which they are processed. Any labelling beyond that should be voluntary.

For live cattle imported for finishing, the CCA favours the application of a science-based, risk-assessment import protocol that facilitates free trade while protecting the disease-free status of the importing country's herds. Once the cattle are imported, they should be identified with approved permanent identification by the country of origin for disease trace-back purposes only. At eventual slaughter, the cattle will be subjected to federal meat inspection and can be labelled as a product of the country in which they are processed.

For beef products that are imported, the CCA favours voluntary country-of-origin labelling and supports regulations to ensure label claims are science-based and meet our truth-in-advertizing and labelling requirements.

As mentioned, we are concerned that a number of countries wish to use labelling requirements as a means to obstruct trade. It is important that Canada take a strong stand against that type of incursion on science-based rules for market access and promote policies equivalent to our own.

As I indicated at the start of this presentation, exports are the future of the beef industry in Canada. While consumption in North America may increase, the major increase in protein consumption will take place in Asia. I spent a few years as chairman of the Canada Beef Export Federation, and I know firsthand that there are tremendous opportunities in places like Japan, Korea, Taiwan, and the People's Republic of China. We must encourage countries that are members of the WTO, such as Japan, to lower their tariffs and increase our access opportunities.

I thank you for your interest and look forward to your questions.

Mr. Martin Rice, Executive Director, Canadian Pork Council: You have copies of the booklet containing the position statement that we developed with two allied organizations, the Canadian Meat Council and Canada Pork International. The Canadian Meat Council is the national association of meat processors in Canada. They represent the pork slaughterers and meat processors. The other is Canada Pork International, CPI, which is an export development arm of the Meat Council and Pork Council together. I will be mentioning CPI on several occasions, because it is the mechanism through which the two segments of the industry have worked to increase our export access to the world outside of North America through much of the 1990s.

In that booklet, there is a chart showing the growth we have had in pork exports through the 1990s. As you can see, we had strong growth for the first half of the 1990s; however, it is really since the results of the last trade round, the Uruguay Round, were implemented that we have seen our most rapid growth in exports. We now export to the Philippines, South Korea and other markets that we did not have before the last trade round. The hog industry in Canada, like the cattle industry, depends on exports. We import around 60,000 tons of pork, but we export close to 500,000 tons. We are, on a net basis, about 40 per cent dependent on access to foreign markets. A little more than half of that is to the United States, but that is down significantly from almost 80 per cent 10 years ago.

We view ourselves as being in a most favourable position to become a world competitor in pork. In Canada we have high-quality, competitively priced feed grains. We also have a legacy of outstanding animal health and food safety programs. We give credit to the federal government for achieving those world-renowned health and safety standards and we take every opportunity to underline the importance of maintaining those programs.

Pork is the number one consumed meat in the world, and China is the largest consumer. Pork is also the meat of choice throughout Europe and is very popular in Latin America and Asia. We are well organized to exploit world market opportunities, because we have a long history of trading in the pork industry. In addition, we also have several trading companies that are quite well known in the export business.

We have followed the usual major categories of trade targets: market access, export subsidies, domestic support and sanitary and phyto-sanitary measures. We will also mention trade remedy measures, which are common to all economic sectors and which are becoming increasingly important to us in terms of our access to foreign markets.

Tariff rate quotas are our major target for reforms in the next trade round. The concept of tariff rate quotas came about from U.S. efforts back in the 1980s or maybe the early 1990s to break into the Korean beef market. The concept was carried into the Uruguay Round as a means of converting from fixed import restrictions to something that could be measured, defined as a tariff and gradually reduced.

We face tariff rate quotas into some smaller countries like Hungary, Norway, Switzerland and the Philippines; however the biggest ones we face are into the European Union. Those countries took advantage of the discretion allowed to member states to define their tariff rate quotas. I Instead of giving us a tariff rate quota that equals 5 per cent of their pork consumption, the European Union decided to lump all their meats together. They defined 5 per cent of their total meat consumption and then subtracted imported beef and lamb. Since they are traditionally large importers of beef and lamb, they came up with a figure for pork that was 10 per cent or 15 per cent of what we would have originally hoped.

We should like to see the tariff rate quota administration come under more standarized rules. We should also like them to define, under the tariff coding system, the four digits for pork. It should not be just meat, nor too precisely defined, as in pork feet or something like that. When that is revised we will see a very significant expansion of our export opportunities into the European Union. That expansion would be large enough that our plants would be prepared to make the investments needed to meet the European Union's inspection standards. Although their standards do not result in more efficiency or efficacy in achieving food safety standards, they have many precise elements in them that our plants need to know if they wish to invest in changes that will ensure access into the European market.

We should like to see lower tariffs on processed pork. Those are relatively high compared to meat. We are interested in seeing quantities increase above 5 per cent, but our most important focus to is to get the tariff rate quotas revised. However, 5 per cent, with revisions, will still give us a tremendous increase in access.

The Japanese safeguard system was designed to help them deal with any disruptions or surges in imports. We should like to see that system changed to become less disruptive to imports. The way it now works results in speculative purchases due to quarterly administration. We should like the Japanese quota administered on an annual basis or we should like to see a provision that they would withdraw the safeguard if, during the year, imports fall below expectations.

There are still differences in how countries administer their imports, labelling, inspection and so on. We need to have more uniformity there.

In the category of export subsidies, we could repeat what every agricultural group and the federal government is saying these days: let us eliminate export subsidies. They are the most disruptive form of subsidy because they have a direct effect on the price at which product is traded in the world. For that reason, we should like to see export taxes included as a form of export subsidies. For example, in 1996, when world grain prices surged, the European Union applied an export tax on feed grains. That measure shielded their domestic grain-using industries from the full impact of the increase in world prices. That, in turn, had the effect of lowering their internal costs of production relative to the rest of the world. We believe that reductions of export subsidies and the elimination of export taxes should be included under those reduction commitments.

As for domestic support, Canada is well beyond its commitment under the Uruguay Round to reduce internal support. We should like to see the institution of a mechanism at the world level that would permit countries, when they revise or introduce new domestic programs, to obtain an opinion on whether the program satisfies green criteria.

Just in the last few months, Canada brought in a farm income disaster program. We are confident that it satisfies the WTO standards for a domestic safety-net program. However, we must know that for certain in order to avoid undergoing a countervail investigation to confirm it. Currently, an importing country that decides to contest it must look at the criteria and determine whether or not that program is green.

The code on sanitary and phyto-sanitary measures that was adopted in the Uruguay Round is certainly one of the most significant achievements for agriculture. We are still dealing with major issues of implementation and the length of time it takes to implement GATT panel decisions. The case in beef hormones is a current example. Nevertheless, we look at the science-based approach of that code as being something we must preserve. We are reluctant to see any changes or opening up of that code in the next round.

Europe is interested in introducing consumer concerns. That is a slippery slope. We are not saying that there is no room for taking into account some of those issues, but over the years we have had to overcome many consumer concerns that were presented as legitimate reasons for restricting imports.

We are concerned about the introduction of environmental and animal welfare standards that do not have any scientific basis but instead reflect subjective public opinion, which evolves over time. We view that as a moving target that makes trade very difficult to maintain on a fair and equitable basis.

The final area is trade remedy measures. Over the last 15 years, we have been involved in several trade disputes including countervail and dumping cases. More recently, there has been anti-dumping against U.S. hogs going into Mexico based on cost of production. Canadian cattlemen are certainly aware of the use of cost of production in dumping cases. We should like to see the cost of production removed as a criterion for dumping cases. It should be based on whether a country is underselling. It is considered underselling if a country is charging a lower price in the export country than it is charging at home.

The nature of agricultural markets is that we go through cycles when prices move up above the cost of production, which encourages more production, and inevitably fall below the cost of production. As we move to an open world trading system, every country, whether exporter or importer, should live with those conditions. If countries are allowed to put in place anti-dumping duties anytime that prices fall below the cost of production, the entire onus for adjustment is placed on the exporting countries. That situation exacerbates the difficulties we go through. We are finding that right now, certainly in the hog sector.

In conclusion, Canada has a huge interest in this next trade round. Canada should, wherever it can, work in alliance with other exporting nations. We do not want to see the same result of the Uruguay Round, where the U.S. and EU made a deal on market access and export subsidies. We were told at the eleventh hour to accept that deal or reject it. If we had rejected it, we would not have had a deal at all. We want Canada, as well as other exporting countries, to be involved. We do not want it to become an EU-U.S. show again.

We support the views of the Canadian Alliance of Agri-Food Exporters, which either has or will appear before you. We should like to see a comprehensive world trade round. It would provide the best potential for Europe and Asia to be prepared to offer better access for their agricultural markets in return for better access for their export products -- some of which are agricultural and many of which are industrial and services. If it were just an agricultural round, there would not be sufficient leverage to have significant trade or import liberalization measures taken by some of those countries.

The Chairman: Thank you for your comments. Before I go to Senator Stratton, I will ask you one question in regards to the program the government has put out for assistance to farmers.

People looking at the program tell me that the pork producers are about the only people who will get any money out of that program. There have been boom and bust cycles in the pork industry. Pork barns that I saw built on the Prairies are no longer there. They were moved away or whatever. The pork barns that are being built now, at least in Saskatchewan and Manitoba, are large investments.

One wonders about the ability of the industry to maintain this growth. In Saskatchewan, the provincial government has paid considerable funds to support a pork program that was intended to sell a lot of hogs to Asia. Those sales did not happen. We all know that a few months ago pork was down to a few cents a pound. You could probably tell us how low. I understand from the newspaper that now it is up around 60 cents a pound again.

With the boom and bust cycles, the investment now is significant. A pork barn is not just a plywood barn any more, it is a major investment. Do you think this level of activity can be maintained? Also, could you please tell us what the reactions are of the Canadian pork producers to the aid program?

Mr. Rice: The instability inherent in the pork industry is what keeps us from encouraging people to get into the business. We try to make the situation as favourable as possible for the growth of the industry, but there is no question that it is risky. That risk increases the more dependent we are on exports, the more exposed we are to developments such as disease outbreaks in Asia that kind of spur a demand for our product. A fall in economic fortunes in Asia and Russia has the opposite effect.

Even though we are still determined to stay as diversified in our export market as possible, that has come at a cost. Formerly, when we were basically geared to the U.S. market, as long as North America and the U.S. were in good shape, we were in good shape.

We had no anticipation of the severity of the economic slump in our demand just as there was a major increase in production last year. We were not alone in increasing our production. The United States, in one year, increased its production by almost as much as our total annual production in Canada. Production was increased in Europe and even in some of the Asian countries that were importing.

In the pork sector, we were one of the most active and adamant in the fall to have a disaster program. We are looking at it not just as a temporary measure but as a long-term one. We were not dealing with a normal downturn. We were dealing with a disaster. People are accustomed to seeing their prices move up and down by 50 per cent or 75 per cent from year to year; however, last year, prices fell by much more than half. At one point, the prices were a quarter or less of what the prices were the year before.

This year, we would expect grains and some other sectors to be major users of the disaster program. In fact, I would not expect the hog sector to use it, because of that historic moving average. We will need to reflect last year's experience in that three-year average and that will make most producers ineligible. Of course, if they are diversified into other products that were not doing so badly, they will also be limited there.

There is probably an overestimation in some circles of how much the hog sector will actually benefit from that program. Nevertheless, we are still indicating our appreciation for it and there are some areas of the administration that we wish to see modified. However, we are still looking at a fairly optimistic long-term scenario for the hog industry. We do definitely have major production advantages here. Even though Europe has once again delayed major reforms in its agricultural policy, there are many of reasons to think that over the next decade they will have less support for their production.

We are seeing some return to the growth in Asia. Korea has become a major buyer again. With the unfortunate disease situation in Malaysia, we are seeing some important new marketing opportunities in Singapore. A major question is when we will get China involved. It looks as though there is a good chance that China will become a WTO member by Seattle. We think that we will be a beneficiary of that and that China will need to commit itself to lower and fixed tariffs.

I still say we have reason to believe that we can maintain a pork industry in Canada. I believe, though, that perhaps we will see more sensible and realistic expectations of how fast that growth can be in the future.

Senator Stratton: As you are probably aware, this committee travelled to Europe to take a look at what was happening there and to try to get a sense of where they were likely to go in the next round of the WTO. We found that in Great Britain they were cautiously optimistic about moving towards greater free trade. Then we hit the continent. Some of the farmers groups were quite adamant and open about the importance of protecting their industries as far as subsidies were concerned. They stated that was it important to protect their industries as a way of life. Whereas our farms have tended to get much larger and corporate-like, they are trying to protect the family farm and keep the farmer on the land. As a result, I believe the average farm size in France and Italy is approximately 40 hectares.

Recognizing the pressures of the WTO and given the adamant attitude of the farm groups, some of us tend to be pessimistic about the outcome of the next round of the WTO. Even if it is successful, the likelihood of a quick transition down to removal of export subsidies is slim. That will not happen overnight. Rather, it could take a considerable amount of time -- perhaps 10 years or 15 years. Hopefully, it will take far less time than that, but you must take a realistic attitude towards the transition from their current subsidies down to something more realistic.

Knowing full well that a long transition period is likely, do you feel that we have or that we could develop a fallback position to look after that transition? That fallback position would have to take into consideration the state of some of the prices in the world regarding grain now and pork as it was. What do we do to survive in that transition period? I firmly believe that the transition will take time.

Mr. Rice: The European Union is still very interested in seeing another trade round for areas other than agriculture -- for example, services. The results of their agricultural policy reform, the Agenda 2000, were pretty far short of what was even being projected by the pessimists. It appears that with the political turmoil in the community, with the resignation of the commissioners and with the Kosovo situation, when it came time to decide on the Agenda 2000 they did not have the internal appetite for taking on a challenge of France's usual determination to prevent any reduction in agricultural support to producers.

A European commentator at a conference earlier this week agreed that if Europe wishes to have any negotiating room, or if this trade round is to get started, they must find more ability to trade and to negotiate than they now have.

In addition, they have an interest in bringing in six former Eastern-bloc countries, and then Cyprus, into their European Union. Poland, Hungary and the Czech Republic have put a great deal of pressure on them to do that. Certainly there is no way they can bring in those countries, which have fairly large agricultural potential, and live within the budget that they must work with, because they could not support those new countries' production on top of their own. We believe that they will need to come back to that agricultural situation. We are pleased that they have gone to more de-coupled support. More of their money is used in a way that does not encourage increased production. That is a positive thing.

We are very interested in the potential for Canada to enter into bilateral discussions with some of the Eastern European countries, such as the Czech Republic, Hungary, Poland and some of the Baltic republics, in order to determine if they are interested in any freer trade discussions. Also, Europe is now engaged in free trade discussions with Mexico and the MERCOSUR countries in South America, and it seems to us that there may be some interest in those countries in engaging in discussions with Canada.

It is somewhat glum, I agree, however, there are still some adjustments that Europe must make.

Mr. Jahnke: I agree with the most of the things that Mr. Rice said and I certainly agree with the senator's position that they will not give up their subsidies very quickly.

We should have tough negotiators. Trade is a two-way street. If we are not permitted to export to Europe, we should be able to negotiate some sort of deal where subsidies will lessen more quickly.

You mentioned the 40-hectare farms that are subsidized. I feel that that is not really a subsidy, it is a social program. Perhaps we should start talking about social programs versus agricultural subsidies and get them laid on the table. We should face the fact that no one in the world can make a living on 40 hectares. Therefore, why do we keep talking about agricultural subsidies? That is a social program. Let us lay that on the table with the WTO.

Senator Stratton: I am not optimistic when I look at the transition and see even the European countries coming in -- Czechoslovakia and Poland, to name two. I see that transition taking at least 10 years to occur. If it takes seven to 15 years to complete, how do we survive the transition period? That is the fundamental issue. That is what we must examine, because that is perhaps our reality.

Mr. Jahnke: We have not exported any significant amount of beef into Europe and the European Union in particular for a number of years because of their rules.

If we can open the market bit by bit, we will fill our share. Our negotiators must work hard in that regard. I agree with your opening statement that the transition will take time. We must be tough. If we know the rules and if we can get our foot in the door, any opening in Europe will be a benefit to the cattle industry. We know it is a slow process, but we will be there to take advantage of each little step.

Mr. Jim Caldwell, Director, Government Affairs, Canadian Cattlemen's Association: If I may comment, one of the best weapons that North America has is the United States. They will not sit still and let Europe be an autonomous body within the world community. I do not think the Americans will subsidize to the rate of the Europeans. Politically, it is not the same situation as in France, for example, where the proportion of the population depending on agriculture is very large as a result of subsidization.

With regard to the issue of hormones, I do not think the Americans will sit still and say that Europe will keep to itself while European agricultural and non-agricultural goods are shipped into North America.

Mr. Rice: The commitments made by Europe in the Uruguay Round to reduce subsidies will take effect next year. Due to higher world prices in the earlier part of the period of implementation of the Uruguay Round, Europe did not use up much of their export subsidy room. Again, they made their own interpretation of the agreement that they could carry forward credits of any export subsidy allowance they had. In this past year, they really had to limit their export subsidy in terms of volume and value to the amount that was defined to be the amount that they have to get down to by the end of the adjustment period.

I do not think the Europeans will be able to dump all of their internal, irresponsible behaviour on the rest of the world, as they did before the Uruguay Round. We have some of that, but we must keep going further, as Mr. Jahnke says.

Senator Taylor: In regard to export subsidies, how much of an increase in the health of the beef and pork export industry is due indirectly to the grain subsidies of Europe, which drive down the feed prices that are one of the input costs of your beef and your pork? Have you factored that in at all? If grain went back to the price it should be, could you be as prosperous as you say you are now? In other words, it seems to me that you are trying to have your cake and eat it, too. I am not sure.

Mr. Caldwell: I will not speak for the pork industry, but the cattle industry has never been in favour of low grain prices. Usually, when grain prices are high, cattle prices tend to be high as well. We have exported during those years when grain prices were higher and exports did not decrease.

Mr. Jahnke: Just to add to that, every time grain prices went down, I knew that it would be tough for me because of the cycle.

The Chairman: Is it not fair to say that cattle can eat slough hay? You do not have to feed them grain; you can get by with cheaper food. It is a different matter for the hog producer.

Mr. Jahnke: In this day and age, it is almost impossible to sell high quality beef if it is not fed grain.

Senator Taylor: Can you get high quality beef from slough hay?

Mr. Jahnke: No.

Senator Whelan: I attended part of the conference at the WTO to which you referred. Mr. Caldwell mentioned that he had seen me over there. I met many farmers from across Canada whom I had not seen for quite a while. I can tell you that there is a significant amount of concern and worry. Many farmers feel that nobody cares about them. I am sure the three of you would agree.

My philosophy on the aid program is that there were producers in Canada who did not need any aid. Dairy producers and poultry producers did not need aid because they were vaccinated against the Asian economic flu, because they had supply management. U.S. Agriculture Secretary Dan Glickman did not even mention that subject in the recent meetings.

I am sure that you are also aware that the United States had a supply management program for years but they did not call it that. They tried to work it by acreage control, payments for conservation and that type of thing. They do not want other countries to study their program and to do what they did to become the biggest food industry in the world. President Roosevelt introduced tremendous subsidies.

I maintain that domestic subsidies can be just as damaging as export subsidies and can encourage the production of products for which the location of the home is unknown. Do you not agree that a domestic subsidy can be very damaging?

Mr. Jahnke: Yes, I can agree that domestic subsidies are probably just as evil as export subsidies. However, as Mr. Rice said earlier, they are not a direct hit. You will create over-production and do all of the things that we do not need or want in the world any more. They are evil, but they are not as evil as export subsidies.

Senator Whelan: Mr. Jahnke, you come from a province that is not as rich as the province to the west of you but probably richer than the province to the east of you. I do not know if Senator Spivak would agree. However, I am talking about moving your product to market. Alberta has more miles of hard surface, all-year roads than the other two prairie provinces. Producers in Alberta can get their product to market. I call that a subsidy.

Mr. Jahnke: I call it a natural advantage, because you are closer to the market.

Senator Whelan: It may be a natural advantage, but when you can deliver your product 12 months of the year, it is a good economic natural advantage.

We hear all the time that the three NAFTA countries have free trade, but I think that that is an overstatement, too. There is not much free trade between the three countries. Look at lumber, beef and wheat as examples.

Before NAFTA, I was the minister for nearly 11 years. We did not have nearly the problems that you have now. You have panels holding hearings, et cetera. I would ask anyone to prove to me that we have fewer problems today than we did before. Eighty per cent of agricultural products were free. There was no duty on them. There was no duty on farm machinery and fertilizer for years.

I had an arrangement with the Secretary of Agriculture in the United States. When I called him, he would call me back in 30 minutes no matter where he was. I would do the same. We did not have to go through a panel that takes six months or a year to come up with a decision. We settled our differences nation to nation, secretary to minister.

Mr. Jahnke: I can speak only for the beef industry, but there were no problems 10 or 15 years ago. When Mr. Whelan was Minister of Agriculture, there was always an argument and a discussion as to whether Canada was an importer or an exporter of beef. Today we are exporting over 50 per cent of our production, and we have done many good things for Western Canada with our beef production. When our exports jump that much, obviously there will be questions.

I am a strong supporter of NAFTA. I believe that without the rules provided by NAFTA, the difficulties that we in the cattle industry are having with the U.S. would be much worse.

Mr. Rice: I want to make another historical reference to our industry. First, we had countervail problems in 1984. That was probably a significant year in your political memory as well. It was before we had the trade agreement and before we had the bi-national panel dispute process. We came close to winning, but we did not, and so we ended up with the countervailing duty on live hogs. We might get rid of that this year.

Five years later, we did have a countervail on pork. We then had the dispute settlement process. We lost on the investigation, but we won on the dispute panel. That has been the most significant achievement for us, because we are no longer subject entirely to U.S. courts when dealing with these trade issues.

Senator Whelan: I want to revisit the issue of beef and the problems that we are having with the Americans. If I understood you correctly, you said that about 90 per cent of your beef is exported to the United States. What will you do with the beef if the United States stops that?

Mr. Jahnke: That is our problem. That is why I am glad we have the free trade agreement with the U.S. and Mexico. As Mr. Rice says, there is a third party. All things being nearly equal, we will come out of it okay. Without NAFTA, we would not have a hope and we would not have increased our beef production to the extent that we have.

Senator Whelan: Has your beef production increased all over Canada? I do not have figures in front of me.

Mr. Jahnke: It has increased more dramatically in Saskatchewan and Alberta. When the Crow rate was eliminated, we started producing a lot more beef, hogs and other livestock -- value-added products.

Senator Whelan: Production increased dramatically when the price went down four years out of five in Eastern Canada. They quit importing the calves for feeding operations. Some of them went out of the cow-calf business. I think Alberta increased the cow-calf herd operation at that time to around 50 per cent of the total production for all of Canada.

Mr. Jahnke: That is probably because the real world kicked in with the demise of the Crow rate.

The product should be grown where the feed is located, rather than exporting or shipping the feed and the cattle to Ontario.

Senator Whelan: When the Crow rate was still in place, there was a big transition in beef.

With respect to labelling, I favour the current movement to label products. Consumers should have the right to know. It should apply to all nations. That movement is becoming stronger all the time.

We are hearing a lot about biotechnology. That will be a big improvement in the world because it will mean increased production. Some people tell me that I am getting old and that I do not know anything about biotechnology. I challenge anyone to check my record on biotechnology research and what has been done in the cattle industry. I am in favour of good biotechnology. However, we are kidding ourselves if we think that consumers will accept these GMO engineered products, or genetically modified organisms.

In Portugal yesterday, there was some news on one of the big fast-food chains. Their suppliers must sign an affidavit stating that none of their products are GMO engineered.

The European Community talks about beef and other products where hormones are used in production. I do not blame them for being concerned, because we found out with respect to rBST that there was hardly any testing on how it affected humans. Scientists tested 30 rats for 90 days over a period of nine years. They then expected consumers to accept the hormone's use. I have strong reservations about this type of research.

Free trade and global trade are not new. We had the slave trade years ago. As well, pirates robbed countries of their gold. What do we do now? We send our businesses to the Middle East to make shoes and all kinds of products for slave labour wages. We call that globalization? I call it "gobblization," and I make no apologies for that. I do not think we can have an unregulated world where anyone can do anything and ship anything anywhere.

One U.S. official said that the United States must have more free trade and must get rid of its surplus. However, we all know that the U.S. is one of the most protective countries in the world. The U.S. does not care about what it does to the developing countries used to produce its products.

How many billions of people have to be fed? People will not be able to buy our beef, pork or grain if they do not have money or resources and if we do not allow them to have a marketing distribution infrastructure in their own countries.

Mr. Jahnke: Senator, I agree that consumers will demand labelling. We support labelling, as long as it is not an impediment to trade. That is the situation in the United States with its labelling requirements now. It has nothing to do with the safety of the product or anything else. It is simply an impediment to trade. It is a non-tariff barrier. Labelling is the wave of the future.

Senator Spivak: With respect to the price of grain, we saw a graph depicting the amount of money from exports. That line was going in one direction, and the line depicting the income of grain farmers was going in another direction. One table we saw outlined every single commodity in Saskatchewan, from durum wheat to lentils, and everything was far below the cost of production. They have not benefited from market access and one of the reasons for that seems to be the cost-price squeeze. Their input costs are high and many of them are going broke.

I do not know if we can count on cheap feed grains for a long time, or whether it will be cyclical. It may be that we will have to import feed grains if all those people go out of business. What is your view on the long-term future of grain prices?

Mr. Jahnke: Grain prices are low, but had we not increased our production and exports of beef and pork, grain prices would have been even lower, because we use that product. There is no question that we currently have overproduction of grain in the world. However, it is cyclical. There will be a drought somewhere. It has been cyclical since biblical times. As I said earlier, in the beef industry we do not count on cheap grain.

Senator Spivak: It is not cyclical, because the prices are going straight down. They are now what they were in the 1940s or 1930s.

With regard to labelling, the office of the trade representative has said that we are prepared to label U.S. meat. There are two issues here. One is the labelling of country of origin, on which I should like hear your perspective.The second issue is science-based. Who will decide that? One man's science is another man's trade barrier. We have had much discussion about who should decide and about the influence of various people in manipulating who decides.

Also, I should like to ask the pork producers whether, in the prairie provinces, they are using the most up-to-date methods applicable to cold climates for getting rid of waste. We hear horror stories, and the amount of waste produced is enormous. I should like some information on your latest techniques and on whether methods are enforced in the provinces. I get the impression that in some places they are not being enforced.

Mr. Caldwell: It is always difficult to know who the supreme authority is on anything. As we have said, we want to have everything based on the best science. Codex Alimentarius is one of the groups, although we do not agree with the way they dealt with the hormone issue. Politics was involved in that in Europe. Europe had too many votes on the committee. That goes back to before this recent case.

We try to develop a body that consumers are happy with and that countries can agree with and trust. That is very difficult, but we do not want frivolous arguments.

Senator Spivak: Are you saying that you are not opposed to labelling beef as hormoned?

Mr. Caldwell: Not if they are using it as a trade barrier.

Senator Spivak: As a consumer, I would rather buy Canadian beef or poultry than American beef, and I should like to know what they have done with that meat. I particularly do not like to buy American chicken, because our standards are better than theirs. However, as a consumer, I want to know. That is not a trade barrier.

Mr. Caldwell: The Americans are asking now for country-of-origin labelling. Currently, it may partly be due to trade, but eventually all countries will probably require country-of-origin labelling, and perhaps Maple Leaf will sell much more product around the world than we expect. We are looking at that. Unfortunately, now when we sell beef into the United States it is discounted because it is Canadian beef, and only for that reason. It is of the same quality and meets the same standards, but it is discounted because it is Canadian beef. That is why we do not want it labelled for trade purposes.

Beyond that, I think we will agree to include on the label whatever the consumer wants. The consumer is the boss.

Mr. Rice: I should like to return to the grain price scenario. We are currently able to get by with very depressed hog prices, although we are still in a loss position. Much of our ability to survive right now is on the backs of the grain industry. There is no doubt that their prices are very depressed.

We must assume that we will be paying more for grain in the long run. We must assume that, because we will not sustain a grain industry in Canada if we do not. However, the ultimate objective of these trade negotiations and of getting discipline on subsidies and so on is to let the markets move toward a market-determined equilibrium that is not as variable as when governments are jumping in with programs to increase exports under the guise of food aid. We think that we will get more equilibrium and, therefore, people will make decisions with more knowledge of what is a reasonable price to pay for grain, et cetera.

I am an economist by profession and I know that rarely will all economists agree with one interpretation of anything. However, we expect that the science-based process will not be driven by one opinion. We must determine the mainstream opinion on the science issue. That is what we mean by a science-based approach.

On the environment issue, although environmental standards and policies are under provincial jurisdiction, there is a national perspective of which we have become much more aware in the last while. We acknowledge that we have some challenges there in terms of border control and ensuring that we do not have any undue impact on water or air.

However, the newer operations have far more capital tied up in environmental control systems. I do not think that a large hog farm would be a worse offender of the environment than smaller, older hog farms. The new ones have much more in the way of control and storage systems.

In collaboration with Agriculture Canada, we have the Hog Environmental Management Strategy. Eighty per cent of what producers are investing in research today is invested in environmental management systems that will have a positive impact -- new odour-control systems, new covers for manure storage that aerate, for example.

Senator Spivak: It is very different in colder provinces. The same techniques cannot be used there. I am questioning whether that strategy and those techniques are being adapted for cold climates. Also, is it your view that the various provinces are really enforcing the strategy to eliminate waste? That is the problem.

Mr. Rice: As far as enforcement, I will not pretend to know personally.

Much of what we are doing with respect to environmental issues in Western Canada involves projects in Manitoba, Saskatchewan and at the University of Alberta.

Mr. Jahnke: In Saskatchewan, there has been a significant increase in the number of hog barns in my area. The rules are well known and they are enforced. With regard to the barns, everyone is suitably impressed with the way they are being run.

Senator Spivak: Does that mean that they are not affecting the water system?

Mr. Jahnke: That is right; they are not.

Senator Hays: I wanted to explore your comment that the current action prompted by the R-CALF group in the United States -- the Ranchers-Cattlemen Action Legal Foundation -- which has resulted in an International Trade Commission investigation, is something that we should like to eliminate in the current round of negotiations as a means of proceeding with countervail. The current cost of production of pork is probably even more vulnerable to that kind of action than is beef.

From time to time, the commodities, as I understand your comment, will move up and down in a cyclical way, depending on the way demand encourages supply in an ever-imperfect balance. It is my understanding that that is a NAFTA issue and not a multilateral WTO issue. Is there any likelihood that we could bring it into the multilateral round, given the U.S. sensitivity about their sovereign right to make pretty well any rules they want about what they consider to be a transgression of their trade laws? After all, that is what we saw in the Canada-U.S. free trade negotiations, as well as the NAFTA negotiations.

You point out that we are exporting half of our beef production. On a net basis, however, it is much less than that. I guess we are now more of an importer. We now export, in total, more than we have imported, when you take into consideration everything that we import from the U.S. and that we export to them. That is because of our success in red meats. We could meet their challenge by taking similar action on our part, if we structured our laws the way they have structured theirs. We have been in the North American beef market for a long time. I think it was in the mid-1980s that we moved into a net export position. We have been quite successful in value-adding and taking advantage of our comparative advantage in that particular area.

Do you think we have any realistic likelihood of bringing that issue into the multilateral trade talks? Should we be more aggressive in terms of doing to them what they are doing to us, as a means of drawing to their attention that they are not really being very fair with us?

Mr. Jahnke: I will certainly not disagree with your last statement.

In regard to exports, on a gross basis, we are exporting 53 to 54 per cent of our production. On a net basis, we are exporting 43 per cent of our production. Thus, we are major exporters.

The R-CALF has been a miserable battle. I believe that the Americans will be willing to change the rules on anti-dumping and countervailing, but in particular on anti-dumping because it is a pernicious form of protectionism. It has backfired. I am not sure what they are doing with their hogs, but the Mexicans have filed an anti-dumping suit against the U.S. on hogs. I talked to a Texas cattle feeder who said, "I have been exporting beef to Mexico for the last 18 months and I lost money on every load of cattle." It is coming home to roost. It is a brutal, miserable thing. I am not sure the American people have not realized it. I know that there are many cattle producers in the U.S. who, six months ago, thought that anti-dumping was the best thing since sliced bread. They are having some real concerns, especially when you get into the comparison of costs. Crown land blows their mind. They condemn us for using Crown land, yet they have determined that they are using Crown land for less money than we are. All of those things come out in the open.

Mr. Caldwell: In terms of R-CALF, senator, and I am sure you know this, the problem we have is the expense involved in fighting these cases by the industry. We will spend probably upwards of $3 million on Washington lawyers to defend ourselves in this case. We would love to have turned around and done exactly the same thing to them as they have done to us, that is, countervail and anti-dump. Basically, they are doing the same thing we are doing. However, we do not have another $3 million to give to Canadian and Washington lawyers. That is the problem. We raise it because we understand it is basically a bilateral issue. Is there some way that we can bring into the WTO a measure to prevent these frivolous actions from being taken? There must be a better way of doing it than the cattle industry in Canada and this group of renegade cattle producers having to spend that kind of money.

Senator Hays: If they are successful, it will not be frivolous. It will be a real problem for us. Perhaps one general program the Government of Canada could have to assist us in trade matters -- and we are talking about red meat here -- is to give some help with those legal fees.

Mr. Caldwell: Let us be fair. The Canadian government is spending millions and millions of dollars as well.

Senator Hays: I know that, but it is on a defensive basis and not an offensive basis.

Mr. Rice: The benchmarks one can use in dumping cases are international. If you can show that the country is not consistent with its WTO obligations on administering the countervail and over-dumping, you can challenge it.

The avenue of using cost of production is something that other industries are just starting to learn. I remember indicating to my own members that we want to be careful about acknowledging that our cost of production is higher than our selling price. That gives the other side some ammunition to use against you in a dumping case.

We are all subject to the same world depressed price conditions. How can anybody use them against another country? Many of our own competitors in the U.S. are becoming aware of what has been done to them by Mexico in hogs, and they are asking themselves why they are not in turn doing that to Canada. It is terrible.

Senator Hays: I have not lost sight of the fact that this is an important trading relationship, and a successful one. It has every sign that it will continue to be just that.

One of you made something of the fact that we have the most to gain by dealing with our issues at the WTO on a comprehensive basis. I have asked this of other witnesses and, like you, they say that comprehensive is the only way to go.

In agriculture, our story should elicit quite a bit of recognition at the WTO that we got screwed. We did it because, in the end, we were tied up due to the comprehensive nature of the agreement. We had to sign.

We have done pretty much what was envisaged when the deal was signed in 1994. Let us lay the blame somewhere, although it may be unfair. The common agricultural policy of the European Union is probably the biggest difficulty we have. You mention that it is motivated not solely by agricultural issues but by other cultural and social issues that people are concerned about. Therefore, they are prepared to spend $55 million U.S. per year supporting an agricultural sector that would look very different if that were not done.

We have to align ourselves with some countries. With which countries should we align ourselves in this round in order to make the most progress?

What is wrong with looking at agriculture on a sectoral basis? We can say that we have experienced the 1994 agreement in that way. We have gone to 16 per cent of agricultural income coming from support programs, while Europe is at 40 per cent and the U.S. is at 30 per cent. We can do nothing but ignore that agreement in the future, and as a sector go back to our government and tell them to get our levels up to 40 per cent or 30 per cent. If they do not do that, we will not be able to function the way we should, given our comparative advantage. Maybe our government will not do that, but you put us in a hard position.

As to Senator Gustafson's question about AIDA, the Agricultural Income Disaster Assistance program, we do need more. As farmers, we are all under stress and we need help. One major reason is the imbalance in the way in which governments or combinations of governments in the EU are prepared to support the sector. We are trying to compete with countries that have that base. On a sectoral basis, do we not have a story to tell that should prompt them to come our way? The minute we tie it into services and everything else, it becomes an important but smaller part of the whole deal. I should like your comment on that.

Mr. Rice: I think we would be happy to deal with agriculture as a sector if we could engage the biggest problem player, which is, I think, the EU. That is perhaps our comment about the comprehensive round. If Europe politically does not want to touch agriculture, how can we force them? The only way we can get them to the table to talk seriously is to provide enough prospects for them to get gains in other areas.

I have always been amazed at how insensitive Europe is to the implications of their trade agreements. Some people will acknowledge that they are part of a world trading system, but very few. Most of them just seem to laugh it off. I have never found, in my travels to Europe, any sympathy amongst Europeans for the messes they have left in the world in agriculture.

Mr. Caldwell: The last time, we aligned ourselves with the Cairns Group. They come as close to our way of thinking as any other. When you do not have the United States or Europe on your side, even in the Cairns Group you do not have that much power, but at least you have some. However, the Cairns Group does not necessarily agree with all of Canada's positions either, and that presents a problem.

Senator Taylor: Following up on Senator Hays's question regarding a sectoral approach and trade-offs and so on, my first comment would be that, when you walk in to trade, you have to give something. I am glad to hear you say that labelling is a thing of the future. I am learning that in North America as well as in Europe, consumers are starting to say that "scientific" means Monsanto. They are saying that they want to make the decisions; they do not want the producers or growers making the decisions. That is something you should perhaps be willing to trade.

As Senator Whelan often points out, we sometimes forget that the supply management sector is not in trouble. In export trade, you cannot do that. Supply management works well as long as Canada is one gigantic colony, you might say. That leads to the second point. Suppose that Europe or the U.S. comes to us and says, "Knock down supply management in poultry or maybe in dairy, and we will give you this and that." How far are you willing to go? Will you throw out your friends, or will you go to the wall to keep supply management as we have it?

Mr. Caldwell: The cattlemen's position has always been that we are for free and open markets. We have never complained about supply management, although we do not want it for our particular industry. However, should push come to shove, if our position on supply management were causing a problem for our industry, we would certainly be opposed to it.

Senator Stratton: Could you also give us your comments regarding the Canadian Wheat Board?

Senator Taylor: I thought things were too tame.

Senator Stratton: If you put supply management on the table, the Canadian Wheat Board should also be discussed.

The Chairman: That would be a question for the wheat growers.

Mr. Rice: I should make a comment for the pork sector. Our membership is not that separate from those other commodity sectors. For example, there are many pork producers in Quebec, which is the biggest pork-producing province, who are either brothers or sons of dairy farmers. Many of them have a poultry barn as well as a hog barn. Our trade position is unabashedly pro-export. It is not our task to apologize for that or to defend the supply management sector. We have been talking about what our priorities are and what is most important to us. Will it have to be at the expense of the supply management sectors? So far, it has not been. We happen to be in a position where most of our increased export access is not into countries that want to increase their cheese or poultry exports to us. I do not see many occasions where we will have to be trading off poultry and dairy in return for pork.

I think we all have a fair degree of commonality on wanting to eliminate export subsidies and wanting to make the within-tariff quotas as accessible as possible. At the same time, however, we have told those sectors that we can probably get along for a few years without having to see decreases in over-quota tariffs. That is a big issue for them. We cannot say we can live with high tariffs forever, because they will shut us out of those markets.

Senator Spivak: We heard from the trade people that Canada is way ahead of everyone else in reducing its own subsidies. Why would it have to give away anything in making the playing field level? I am talking about the transportation subsidy and so forth. I know what you are saying, but I wonder where that would be on the priority list. I also wonder if you would comment on marketing agencies. The Canadian Wheat Board is a marketing agency. In Manitoba, we had a hog marketing board, although we do not any more. How do you feel about marketing agencies? I want you to comment on the level playing field. Canada has already given away everything. Should we give away more? Why?

Mr. Jahnke: We did give away a lot in the last round that probably we should not have given away.

Senator Spivak: Yes, compared to Europe and the United States.

Mr. Jahnke: On the state trading enterprises, transparency would probably go a long way toward resolving our problems. The Canadian Wheat Board is a good example. The Wheat Board is cited as the biggest reason for the anti-dumping suit against Canada because, in the minds of R-CALF, the Wheat Board subsidizes the cattle industry. That is definitely not true. We have had discussions with the Wheat Board and I believe they have gone a long way to help our case.

The Wheat Board looks after the Prairies. When I was a kid living in Saskatchewan, we grew wheat. We had "Wheat Province" on our licence plates. Last year, or the year before, for the first year, wheat was not king in Saskatchewan. Canola was. I predict that within 10 years we will be consuming all of our barley and it will bypass canola. The Wheat Board is diminishing its control of the grain industry in Western Canada because we have switched to other grains and we have used up much of the board grains, for example, barley, which is used to feed our livestock. The Americans want transparency in this round.

I believe that the Wheat Board has helped us. I wish to extend my compliments to them.

Senator Chalifoux: I am not an old farmer. I am from the bush. In Europe, I listened to all the witnesses from London to Rome to Paris and I concluded that they have a closed shop there. They do not want to open it because of the hormones, the genetically modified organisms, and so on -- at least, that was my impression. They are terrified of mad cow disease.

In the deliberations that you are planning for the WTO rounds, how do you plan to address that issue? They were adamant about the genetically modified organisms and the hormones and so on that are being injected into the animals. I, too, am concerned. What is your feeling in the trade area on that?

Mr. Caldwell: Europe is a big area. It is a big community. Much of their trade is with their own people. They are not big exporters of beef, but sometimes from intervention stocks would be given away to poorer countries or members in the East Block. They have it all.

Mr. Jahnke: Yes, to the annoyance of the Americans.

Mr. Caldwell: Trade is not as big an issue to them as it is to us.

The hormone issue will come to a head probably on May 13. They will have to decide whether they will ship some products to Canada that they would normally ship or pay the penalty. If we are to ship beef there, then they want it labelled.

The ironic thing is that they have been illegally using hormones in beef in Europe for years and years. It is either that or they are using them on their athletes, or something, because a pile of steroid materials are going into Europe. We know that they are using them. We are simply saying, "Bring it to the table and let us address this matter."

We are addressing the issues that you mentioned. It is difficult for a country like Canada, even if we join the Cairns Group, to push them because they have it all. They are a big trading block. They are a very rich area in agriculture. If they choose to have their farmers live like kings, that will be their position whether they take off export subsidies and put on domestic subsidies or pay them not to farm, as they are doing in some cases.

What can Canada do about that? If they want to subsidize to keep their Swiss cows on the Alps for a tourist business, they will go ahead and do it. We should like to see those things changed, but it is difficult to do.

Senator Johnson: They are not perfect on the BSE issue, either. If they had our health standards, BSE and mad cow disease would have been nowhere near the problem in Europe that it was.

Mr. Caldwell: The Canadian industry will identify every animal that goes to market under the identification system, which we hope to have in effect within the next year or so. Every animal will be identified for that purpose. If an animal shows up with some reportable disease somewhere along the line, it will be reported back to the original farm. Every cattle and animal leaving the farm, even a calf, will have to carry an ear tag as to its farm of origin. That is the strictest system that you will find in the world right now. We hope the rest of the world will adopt it. As a matter of fact, the United States is thinking that it is not a bad idea.

Senator Taylor: Will that information be available to consumers at local supermarkets?

Mr. Caldwell: The processors want it right down the line to the consumer so that you will know the price of beef and the particular farm from which that piece of beef came. That is still far off, but we will get there eventually.

Senator Spivak: Will every single animal be tested?

Mr. Caldwell: Every single animal is tested now in an inspection.

Senator Spivak: After it is killed?

Mr. Caldwell: Yes.

Mr. Jahnke: We will have the ability to trace that back to the farm of origin.

Senator Stratton: My question has been asked about the marketing boards and the Canadian Wheat Board. We may have been Boy Scouts in the last round. However, this is hard ball. We all know that. You cannot expect to walk in there and get something for nothing. We were too nice in the last round. I believe that those two issues will be on the table. If we want something, we will have to give something up. Do you agree?

Mr. Jahnke: Yes.

Senator Whelan: You said that you have no business giving anything away at the trading table. That is a lot of malarkey that they have fed us for years. You said they were nice, but many people say they were poor negotiators at the last round.

Mr. Jahnke: I agree.

Senator Whelan: They had no reason to give away what they did. Some of our people should have taken them to court on the Charter of Rights. It was given away at the Uruguay Round. No farm organization or political party asked that they get rid of section 11. You would almost think that it was illegal under GATT. It was the law. We abided by the law that was there. Our big friends to the south put that in. They used government marketing orders and supply management right and left under wheat and other programs to supply the market in the world.

The United States is conducting an investigation on what the packers made on what they paid for farmers' hogs and what the consumers paid for them. Some of the packing firms in the U.S. had their biggest two quarters ever as a result of the money that they made on pork. We have said that we subsidize farmers. We did not subsidize farmers. We subsidized Maple Leaf and those other people. They stole the pork. If you or I were to pick up a few pounds of bacon in the store, they would put us in jail.

We have figures showing that our 12 pound pork roast was, in the United States, the same price as a farmer would receive for a whole pig. No one says a thing about that. They never threw a pig over Niagara Falls, nor put one in a dumper. They processed every single one. We ate in a restaurant last night; the fish dinner was about $13.00 while the pork dinner was $18.90. I was shocked.

I have a lot of experience dealing with the Americans but the WTO burns me up when they say that 131 countries were against us. There were not 100 countries there that could export a chicken, yet they voted against us on what we can do. I do not think it makes any economic, political or administrative sense to be involved in an organization like that. We are paying the head of the WTO five times what we pay the Prime Minister of Canada to administer that organization. He lives in the most posh place you can think of at headquarters in that city.

Mr. Caldwell, you talk about paying those lawyers $3 million. I would challenge you or any of the panelists here to find out where we had that trouble. When I was there for 11 years, we never had the trouble you are having today. I did it all for less than $100,000, and you are paying those lawyers $3 million.

Mr. Jahnke: We did not export any beef then.

Senator Whelan: Yes we did. I do not have the figures in front of me, but we had live cattle, and they made all kinds of arrangements for them, and we imported all kinds of cattle. There were no restrictions on us exporting cattle to them at that time. If there was any difficulty, we resolved it with a phone call to the United States of America.

We were fed a lot of malarkey about this new deal. Look how long it took them to make a decision on the imported sugar and milk products to make ice cream. It is not finished yet. It could go on for years.

Mr. Rice: Producers were agonizing over how much of the consumer dollar they were taking home during that fall. The years 1996 and 1997 were good for producers and bad for packers. I am not making excuses, but the industry is coming to realize that prices are just too great. Either you are making a lot of money or you are going to the banks to ask for more operating credit. We are having to look at systems that will be more risk-sharing and will share the profits. Right now the producers feel that they are taking too large a share of the risk in exchange for too small a share of the profits. You will see some new approaches in trying to get price discovery in the industry.

Mr. Jahnke: Our per capita consumption of beef has fallen in the last 15 years due to aging of the population and ethnic food choices. If we had not had open markets and NAFTA 15 years ago when we were importing as much as we exported -- because we were not a basic exporter of beef -- I would not be in business. Many other people would not be in business either, because we would not have the market for our product. We have to get the products around the world for our markets.

Senator Hays: I said earlier that NAFTA has served us well, although I am a member of a party that thought a multilateral would be more effective. We had an open market in beef prior to NAFTA, but it was very minimal. The pork and beef sectors have done very well. However, we were exporting beef and on a net basis we were importing it.

Mr. Caldwell: Senator, even some beef producers think that maybe beef would have increased with or without NAFTA. NAFTA made it easier. As Mr. Jahnke said, the dispute settlement mechanism helped. There are some rules set up to avoid having many frivolous trade problems. You may be right, beef exports may have increased anyway as the industry moved to Western Canada and then moved down. It could have happened that way.

Mr. Jahnke: I meant to talk about the Canadian production going up, because the American production has gone up a lot. This morning we talked about U.S.-Canadian trade. Our future in the beef industry is the Pacific Rim and other areas of the world. We are making significant inroads there. Last year, even with the wreck in the Japanese economy, we increased our exports by 18 per cent. However, we did take a licking in Korea. The Americans are in those markets as well. North America should have one North American beef market and look at the rest of the world.

Senator Hays: We pretty much have that.

Mr. Jahnke: We still have that.

Senator Hays: I think we will succeed in getting the meat industry sorted out. But we do need to diversify, and both industries are working very hard. They should be congratulated because they are working with some considerable success in diversifying the market.

The Chairman: What will happen to the industry if the Canadian dollar becomes par with the American dollar or keeps moving up? Without question, the low Canadian dollar has been a benefit. I feed and raise a few cattle myself, and every time I see the Canadian dollar go up, I get the shivers.

Mr. Jahnke: We all do, but one thing that that would do is bring down the cost of my tractors and pickup trucks and things like that.

Senator Spivak: Do not bet on it.

Senator Whelan: The head of the Canadian Manufacturing Association said that we are going to be in bad shape if the Canadian dollar goes up to 80 cents.

I run a radio program. Yesterday, I had a farmer on with his son and his son-in-law. He is the chairman of the Ontario Vegetable Growers Marketing Board. They market 13 crops under that marketing board. That marketing board in Ontario is 55 years old. They sign contracts with it. They never got a penny under this aid program. This year, they are increasing their contracts like they never did before. Last year they had the highest production of tomatoes in the world, an average of 37 tons to the acre. Heinz was going to move their production to someplace in the U.S., but they moved it back into Southwestern Ontario.

I said, "Well, you subsidize the other operations that you have." He has a hog operation of about 1,000 sows, and also feeds about 600 head of cattle. He is in all those businesses, and everything is computerized. They run about 2,000 acres of land in a very productive area. He knows the hog and beef business and supply management. He also knows the grain business, because they produce corn for the new ethanol plant in Chatham. That is where the big buck in corn goes.

Senator Stratton says that they were pleasant negotiators. I used to be known as a tough guy when I went to those meetings, but I fought for Canada and I never gave them an inch. After July 11, I will be offering my services to the Prime Minister of Canada for $1 per year to be an advisor on the WTO.

I tried to get all the minutes of the WTO proceedings. It seems like a secret operation. You do not know how many cocktails parties they attended, or how many exchanges took place. These negotiations take place in one of the most expensive cities in the world.

I challenge you to say that we had the same kind of trouble in past years. We did not have that trouble. Agreements were made between the Secretary of Agriculture, the Minister of Agriculture and the provinces. We had to deal with the provinces because, in Canada, under our Constitution, the provinces have 50 per cent of the authority. In the United States, the Secretary of Agriculture has nearly 100 per cent of the authority. He makes the decisions.

The Chairman: Senator Whelan is just getting primed to write his memoirs. Some people will want to read them; and some will not.

Mr. Caldwell: On a personal note, Mr. Whelan and I go way back. I am not as old as he is, but I knew him when he was not in radio, and he knew me when I was in radio and T.V. I lived near Mr. Whelan's riding for many years. It is good to see that he still has good health. He has come through a few tough years. I did not agree with everything Senator Whelan said back then and I do not agree with everything he says now. However, it is good to see him in good health, and I am glad he will offer his services to his country once again.

Senator Taylor:Do you believe that we should be more or less active in the Cairns Group? The Europeans have questioned why we are active in it and that, in itself, would seem to be a good recommendation for our participation. What do you think of the Cairns Group?

Mr. Rice: By ourselves we are not a major force against the EU and the U.S. The serious members of the Cairns Group are Australia, Argentina and New Zealand. They cannot force an agreement on us if we do not want it. However, if we can work with them, we can have some impact on their consciousness.

Mr. Jahnke: I agree wholeheartedly.

The Chairman: I thank our presenters for a most interesting and informative morning.

We will now call our final witnesses of the morning, representatives of the Western Canadian Wheat Growers Association.

Mr. Edward Cook, Chairman, Western Canadian Wheat Growers Association: Honourable senators, the Western Canadian Wheat Growers Association would like to thank the Standing Senate Committee on Agriculture and Forestry for the opportunity to provide input into Canada's position at the 1999 World Trade Organization agriculture negotiations. This document represents the association's views on a national position on trade issues for the 1999 negotiations.

The western grain sector is export based in primary and processed grain, and grain products and will continue to be export based and export dependent in the foreseeable future. Grain farmers have adjusted to the termination of transportation subsidies by diversifying their cropping patterns and by investing in processing facilities to add value to their crops.

We have also accepted the fact that the ad hoc government support for the sector which was common in the past is no longer possible given fiscal restraints, nor is it desirable from a competitiveness perspective. The wheat growers maintain that the sector can thrive without interference or hand-outs from government, given a level playing field in the world trading environment and in the domestic policy arena.

We need and expect that the level playing field will come out of the agricultural negotiations. Our concerns centre on three main areas: exports subsidies, market access and domestic supports. I will direct my comments to these areas.

Our first priority is the complete elimination of export subsidies. The European Union's export-support provisions within the common agriculture policy and the U.S. export enhancement program are the two most damaging programs for the western grain industry. While both are slated for reduction, allowable levels under the provision of previous agricultural agreements remain high enough to cause significant harm to international grain prices. It is urgent that subsidy levels be reduced and eliminated on a priority basis. We cannot prosper with the uncertainty caused by the use of export subsidies by other nations.

While tariffication has made the reduction of import tariffs more straightforward and transparent, some of these tariffs remain significant barriers to trade. Tariff escalation is a serious problem for western Canada. Many countries are using tariff escalation to impose increased import tariffs as products are further processed. For example, Japan imposes a significantly higher import tariff on canola oil than on canola seed which restricts our access to the Japanese market for oil.

This practice is particularly damaging to the western grain sector. Such tariffs have contributed to Western Canada's high dependence on the export of raw grain rather than higher-valued, processed products.

The elimination of transportation subsidies in western Canada is encouraging value-added processing by exposing the real cost of shipping low-valued commodities; and we must have access to world markets for our higher-valued products.

Countries were granted much leeway during the Uruguay Round in the tariffication of their market access barriers. Many imposed high tariff equivalents on the products that they most wanted to protect. Because domestic support was measured on an aggregate level, they managed to maintain high levels of protection and subsidization for selected products domestically.

These levels of support continue to encourage production above market clearing levels, and they continue to restrict trade. Therefore, consideration should be given to negotiating future commitments for domestic support reductions on a product-specific rather than an aggregate basis.

Excessive trade distorting and production enhancing domestic supports must be altered to ensure they conform to the green box criteria. Export trade dependent industries, like the western grain sector, suffer when excess domestic supplies of grain are sold on world markets, depressing world prices. Further clarification and tightening of green box criteria is critical to limit the ability of the WTO members to continue high levels of support, even within their current WTO agreements.

We support the elimination of the blue box category for domestic supports because it allows continued high levels of domestic supports that are not subject to reductions.

Non-tariff barriers are likely to be used more frequently, as tariffs and export subsidies are reduced and eliminated. We have urged the Canadian government to oppose the use of non-tariff barriers to limit trade. Specifically, the trade in genetically modified organisms must not be allowed to be hindered by excessive rules and labelling requirements based on unsound science. We oppose special labelling requirements for GMOs that could force them to be handled separately and that can make them vulnerable to negative propaganda by special interest groups.

Similarly, Canada must stand firmly behind the agreement signed on sanitary and phytosanitary measures to ensure that WTO members are not given the leeway to use sanitary and phytosanitary measures to restrict access to their domestic markets.

As trading blocs become a more common way of doing business in the world, Canada should seek a more comprehensive free trade agreement with the U.S. Canada is not large enough to stand alone in the face of these large trading blocks. We will have a stronger negotiating position in the 1999 talks if we go into them in an alliance with the U.S. rather than as opponent on important issues.

The world competitiveness of the Western Canadian grain sector is linked closely to domestic policies in grain marketing and transportation. To compete in world markets, farmers in Western Canada must have the ability to control their cost of doing business. Significant reforms in both transportation and grain marketing are critical for the continued development of the value-added sector and for the long-term viability of western farms.

We continue to urge the federal government to accept the recommendations on grain transportation reform made by Mr. Justice Willard Estey, and to begin the implementation process with the involvement of all stakeholder groups.

We also need marketing reforms that will allow farmers the freedom to make their own choices about how and when to market their crops. Import and export state trading enterprises continue to restrict trade on a global basis, particularly in markets in which Canada has primary trading interests. The Western Canadian Wheat Growers Association encourages Canada and the other WTO countries to consider establishing rules for import and export state trading enterprises -- to operate at the risk of the market and on a voluntary basis.

In the Uruguay Round, Canada tried both to protect the supply management sector while asking for concessions on export subsidies and market access. The western grain sector has accepted that protecting our industry from outside competition is neither possible nor desirable. Grain farmers have adapted to a global trading environment and, for this, we must demand that the barriers to fair trade in the products we sell on world markets be reduced and eliminated.

To gain concessions from our trading partners, Canada must be prepared to make concessions for balanced agreements. The highly protected supply management industries will have to mature as has the grain industry to allow access to Canadian market for their sensitive products and to take advantage of export opportunities. We welcome the challenge of the global marketplace, but we must be able to count on clear and enforceable rules of trade.

The wheat growers have been involved in a number of initiatives leading up to the WTO negotiations. We were one of the host organizations for the Canada-United States grain summit held last September in Banff which brought together representatives of over 50 Canadian and American farm organizations to discuss trade issues.

We are active participants in the Alberta Agri-Industry Trade Group, a coalition of 100 sector stakeholders working on a joint trade position to be presented to the federal government this spring. We are also involved in the planning process for the Alberta-Montana agricultural opportunities conference to be held in Great Falls, Montana on June 1 and 2, 1999. We actively participated in this week's federal-provincial conference: Towards an Agricultural Trade Position -- Dialogue with the Industry, at which we promoted our position on trade and gained new understanding of the trade positions of other sectors.

Thank you once again for the opportunity to address the Standing Senate Committee on Agriculture and Forestry. I welcome any questions you my have.

The Chairman: You said in your statement, Mr. Cook, that the grain producers could compete on a level playing field. We do not have a level playing field. We are miles away from it.

Mr. Cook: That is right.

The Chairman: We had a farmer that farms on both sides of the border here last week, and he indicated that Americans received a substantial payment, $80,000 per farmer. That is just one subsidy that the Americans got. When the committee was in Europe, the Europeans clearly stated that they have no intentions of eliminating subsidies. Given that reality, how are our farmers to survive?

Mr. Cook: It will be very difficult to survive. The Canadian people cannot afford to subsidize us to the levels that the American people are subsidizing their farmers and the European farmers are being subsidized. This year I will not harvest a crop that I will break even on.

The Chairman: That was the information that was given to us by the Saskatchewan government's research people at the meeting last week.

Mr. Cook: That is right. Unless we can get the other countries to give up their subsidies, it will be very difficult for the Western Canada agriculture sector to survive.

The Chairman: I know the grain producing area pretty well. I have lived in it all my life. For the most part, are not the members of the Canadian Wheat Growers Association the bigger farmers?

Mr. Cook: At a meeting in Manitoba I was asked by a gentleman if we only represent big farmers. When I asked him who he classified as being a "big" farmer, he defined it as the farmer who farms 5,000 or 6,000 acres. We have only one or two board members who farm that much land. I only farm 1800 acres. Our current president farms about 1500 acres. He has a small cow/calf operation. The perception that we were all huge farmers is not a valid one. We are progressive and aggressive farmers, and we want to stand and live by our own mistakes, and win by our own initiatives.

The Chairman: The issue of genetically modified animals was raised in Europe at every turn. That was one of the major issues they wanted to address.

I recognize, of course, that you probably have been a canola grower, as have I. The Europeans is saying no to genetically modified Canadian canola. The U.S. is telling their corn farmers not to grow genetically modified corn because it cannot be exported to Europe. This is becoming a very serious problem.

You know what is happening in the canola business in Saskatchewan, Manitoba and Alberta. Many farmers, I have heard as high as 80 per cent, are switching to genetically modified product.

I am very concerned about two things: Control of the way companies are doing this, controlling farms in this situation; and the trade implications on the international marketplace. I should like to have your comments on that.

Mr. Cook: I am concerned about that myself. On my farm I have 100 per cent GMO canola going in this year. I use it as a management tool. The Europeans have indicated that they do have a problem with this, so possibly the companies that brought this out did not handle it properly. They should have gone with an IP system, to market it in the countries that will accept the GMOs, and they should have kept the regular canola separate.

Senator Robichaud: You opened up an area on which I must disagree with you and indicate my agreement with some of the witnesses we heard from previously. I disagree when you say that those farmers who have operated under marketing boards should be thrown to the wolves so that we can gain concessions on other things. Last week witnesses told us that we should not pit one group against another.

On page 4 of your presentation you say that it is unrealistic for other sectors to expect continued high levels of protection from outside competition. Other witnesses would disagree with the next four words, "and continued inflated returns." Do you intend to start a war here? This would certainly be the subject of a heated debate with the people in that sector. Would you pit one sector against the other?

Mr. Cook: In our sector we were perceived to be "used" when we gave up our transportation subsidy, because that was negotiated away to maintain the other sector. We gave up the transportation subsidy, but we did not get all the concessions we needed to compensate for that. The markets were not opened up so that we could participate in all the markets. For our wheat and barley, must still deal through a marketing agency, and that is not doing a very good job right now, especially in relationship to barley.

Senator Robichaud: That is an opinion. We were told that many people supported the Canadian Wheat Board. By a majority vote, it was decided that it should continue.

I also disagree when you say that we negotiated away our grain transportation system to allow the other group to carry on. I do not believe that is how it was done. Perhaps you should re-examine that statement.

Mr. Cook: I would just comment, senator, that the perception of a trade-off is very strong.

Senator Robichaud: To talk about perception is different. Here you have made a statement.

Mr. Paul Earl, Manitoba Policy Manager, Western Canadian Wheat Growers Association: What we are reflecting in that statement is the very strong belief in Western Canada that transportation subsidies were traded off in order to keep supply management. If that was not true, perhaps you could enlighten us as to just how it was done. Certainly, we do have supply management and we do not have transportation subsidies today.

Senator Robichaud: The witnesses before you said that as soon as the transportation subsidy was eliminated, then western farmers got into value-added products. They thought that was a good idea.

Mr. Earl: That certainly is what has happened. There is no question about that. We say that in our brief as well. This is part of a maturing industry in a less subsidized world. That is what our brief is suggesting about supply management too, that it is simply inconsistent with the direction in which world trade is moving. To continue to sustain it in the face of those pressures will be increasingly difficult. We are suggesting that that industry could also mature and adapt to an open world trade environment.

Senator Whelan: I know you have heard me before talking about supply management. I was not there when negotiations took place on the Crow rate. If I understand correctly, your organization was one that advocated getting rid of the Crow rate because we would be processing that grain in Western Canada. We would be making the biscuits, the pasta and selling beef with so many hundred of pounds of barley inside that beef. Does it take 800 pounds of barley to grow a beef animal, or to finish it off? There was also some talk of the poultry industry. We met with the agriculture committee in Manitoba as well as their Minister of Agriculture, and we were told that they would do this in the hog industry and Manitoba would be the hog capital of the world.

As I have stated before, no political party or farm organization asked that section 11 be removed from GATT. Big business did, though, and they sat behind the minister when they gave that away at the Uruguay Round.

We had that world market before we went to a marketing board. We had what you wish to go back to. You want to go back to that chaotic economic world and it is even more dangerous now than before because five companies can control the situation. Formerly there were at least 10 companies in Western Canada who were in the grain business. That was significant, even alongside the Wheat Board. The agencies were working.

The global market was here with the pirates; it was here with the slave trade; and it is still with us right now. Even without the influence of the World Trade Organization, we moved our industries to Malaysia and other countries. If you remember, even as late as three years ago, APEC was the area to be in. They were great economic managers. Now they have caused chaos for our livestock producers, pork and beef, and our commodity producers, canola, lentils and the other cereal grains.

We had nothing to do with that. These bankers, economic magicians, were phoney magicians. They were phoney bankers. Their banking principles were the worst in the world. They were lending out 20 times more than a normal bank should have been, to their friends and to everyone else. They got into difficulty. Who suffered because of that situation? The farmers. The autoworkers did not lose one penny. That is not free trade, however, it is our biggest economic spin-off machine in all of Canada, and that comes under the Auto Pact.

You suggest that if we trade in this old world system that you wish to go back to we will be better off. Never. I am violently opposed to that.

Prior witnesses spoke about how the canola industry is bigger than the wheat industry in some regions. That would not have been the case had it not be for a stupid old farmer who was the Minister of Agriculture who knew when to believe his scientific research.

We spent millions of dollars developing good canola, and you have developed a weed with the GMO. You and I both know that. The seeds can fall and seed themselves, and they cannot be controlled even with Round Up because the plants are immune to that. Therefore, the pollen can be carried to cross-pollinate with a crop that your neighbour has, and that crop will inherit that gene. This is a terrible system over which we have no control.

I am a strong believer in diversification. That is why we spent money on canola and became the lentil capital of the world. We brought an American in to do the research and he became a Canadian citizen. We gave him nearly $1 million to develop a lentil that would grow in Saskatchewan and Western Canada in five years; he did it in four. Today we would not do that. We depend on Monsanto to do the research.

I do not like to see people wreck what we built. The WTO is a group of bureaucrats, most of whom have little knowledge of agriculture.

The Chairman: We need to be clear about what we are dealing with. We are dealing with apples and oranges. In our protected industries, dairy, chicken, and so on, we only produce what we consume. These are two different worlds.

When we speak about grain, cattle and hog production, we must include exports in the scenario. If we only grew the grain that we consumed in Canada, 80 per cent of our farmers would be out of business. If we only produced the cattle and hogs that we consume, those farmers would also be out of business.

We must clarify that we are dealing with two serious issues here. I do not want to take anything away from the producer who is in the marketing boards and making a decent living. However, I do understand the problem of exporting into an international market and competing against subsidies. It is a different world.

Senator Whelan: I wish to clarify something. We do export dairy and poultry products. Before NAFTA and the WTO, we exported 70 to 75 per cent of our grain to world markets. We did that even when the European community was not organized as it is.

The Europe Union has become the United States of Europe. The World Trade Organization is doing research to establish how many of the countries that vote with the United States' viewpoint receive aid from the United States. What would happen if they voted against the United States?

Mr. Cook: The wheat growers did not say that the Crow rate should be eliminated. Our standpoint was that it should have been paid differently.

Senator Whelan: Do you feel the same way about the new government program? I had calls from farmers in Manitoba yesterday telling me that they were not receiving their payments. Yet, some farmers make too much money from their off-farm jobs. Do you think that system is working fairly?

Senator Cook: No, I do not think that system is working fairly at all. I have not done a final calculation, but I have looked at the numbers and I know that I will not receive anything. I had one of the worst crops I have had since I started farming, in 1981, due to excess moisture and then a drought.

Had I had a normal crop, I would not even come close. Last year, on 1800 acres, I grew canola, barley and oats, and a little bit of winter wheat. Weather conditions caused my income to fall. As a result of my previous situation, I will not receive anything. One person asked me how I am doing. I said, "I am happy, I am going to break even this year." That is a sad statement.

I am running a $1 million operation and I am just breaking even. Any other businessman would be absolutely disgusted with that. I know that we are dealing in a world market with subsidies and somehow we must get to the point where we are making money.

My father told me yesterday that, in 1966 he bought a new grain truck that should have lasted 20 years. That takes us to 1986. It is now 1999, and we are still using that same truck. My father paid $3,800 cash for that truck. I do not think we could replace it for $38,000.

Input costs are increasing all the time. I used to be in the trucking industry. My brothers and I had two trucks on the highway. In 1983 we bought a brand new truck for $103,000. In 1983, you could have bought the biggest John Deere combine for $60,000. Today, that fancy truck costs $140,000. That biggest John Deere combine costs $250,000. I do not believe the price of steel has gone up that drastically although the cost of labour has increased somewhat. Why has the cost of that machine quadrupled, whereas the truck has only gone up a small percentage? One reason could be demand, that is, there is a demand for more trucks, but why has the cost of farm equipment gone up so much?

As to supply management, I have neighbours in the dairy business and they are doing wonderfully well. They receive a cheque every month, and they know what the amount will be.

I also have a friend in dairy and he said that if that industry is opened up, no one 500 miles from here could put milk into Winnipeg for the same price that he can. He said that the price may drop a fraction, and there will be a demand, but it will be a domestic demand.

Senator Whelan: He is a dreamer.

Senator Taylor: In your submission you mentioned genetic modification. My feeling is that you are behind the times. Genetic modification is the way of the future. Consumers are demanding it.

What it means is that you must get out and sell the attributes of genetic modification, not just to the producer but to the consumer. That should not be difficult. We have been getting away with selling poison in the form of tobacco for years. I think you can sell anything.

We eliminated the Crow rate, and the subsidy on export grain knocked down the price of grain at the farm gate. At the same time, politicians on the Prairies were anticipating an expanding population and arguing that we must create more value-added jobs. You have been the victim of the philosophy of increasing value-added products and you also believe that cheap grain makes for cheaper pork and cheaper beef processed in Canada. Export markets are expanding all over the place. Grain is being exported to feed cattle and that knocks down the price of grain. We feed it to cattle here, and then export it to the U.S.

It appears that you are the unlucky boy at the end of the food chain. Some people say it is your own fault. You wanted a free market and now you have to deal with it. Have you ever factored in how much of the beef and pork industry's success is due to cheap grain?

You said you planted a crop that you do not expect to make any money on. A city person would wonder what you are trying to do. It is like telling a guy to buy high and sell low on the stock market in an attempt to make money on the volume. Why are you growing crops that you do not expect to make money on when you can make money on other crops?

Mr. Cook: I will answer your second question first, senator.

I am in an area where I cannot grow some of the new crops because of soil type and stones. I cannot grow lentils. People do not like stones in lentil soup, and the same situation applies to peas. I farm on heavy clay soil. You get mud balls in peas when you pick them off the ground.

There are areas that can grow some of the new specialty crops. Everyone is raving about hemp and how much money some guys made last year. Some made $600 an acre, which is tremendous, but it cost them a lot of money.

I went to a meeting on hemp. The first thing I heard was that hemp does not like excess moisture or saline soil, so I am out. That is automatic. I would not even try to grow it because of the high input costs.

I am planting wheat, oats, barley and canola. I am in a break-even situation and I am not making a return on my investment. I will not go backwards, but I am not making anything on my investment, which is hard. If I get a bumper crop, then I will make a profit, but I always budget on the basis an average crop. If you budget with an expectation of making a good profit, you will not get it and you will go backwards quickly.

What was your first question, senator?

Senator Taylor: I asked about the subsidies and how much of the success in the beef and pork industries is built on the back of cheap grain.

Mr. Earl: It is not a question of one sector building on the back of the another. Historically, the livestock industry has been the grain sector's biggest single customer. We have always felt that having a strong customer and having a strong livestock sector is good for the grain sector as well. We recognized that, by paying the Crow rate in a different way -- not removing it -- it would have brought market forces into play. Indeed, that has happened. The expansion in the hog sector has been good for the grain sector. It will continue to be a good thing because it creates another strong market.

I think it is unfair to say that we removed the subsidy, which reduced the price of grain, and that that was good for the livestock sector and bad for the grain sector. That is implied in your question, but I do not think that is the case. They came into a better balance as they would do when distorting subsidies are removed, and when market forces are allowed to act. In the long run, that will be healthy for both sectors.

Senator Hays: I have a "what if" question. I appreciate your solution for most trade problems, but I will not get into that because it has been well discussed.

What if we do not make any progress in the next round? What if the blue box and the green box and all of these proposals are not successful? Do you have a fall-back position? This might be hard for the Western Canadian Wheat Growers Association to do, but I am inviting you to countenance how you would react to that. Would your position change in terms of the support you would expect from government? Your comment was that taxpayers cannot afford to do it. However, one of the factors in the European context and the American context is that farm organizations are effective in influencing public decision making such that we have the problem we have today.

We are deeply divided in Canada. We do not speak with one voice. We have regional problems and industry problems. Even within your industry, you represent a part of the approach that has a deep divide between those who do not support dual marketing for the wheat board and those who do. Would your position change? Do you tough it out and wait for more off-farm income for another six or seven years? What do you think?

Mr. Cook: Personally, I would keep toughing it out. I would get a job and just keep trying.

My great grandfather bought our farm in 1878, and my grandfather and his brothers paid for it before the Crow rate and the Canadian Wheat Board. Sure, some people out there probably got ripped off by the grain companies or by the banks, but I grew up with the understanding that you have to stand up for yourself. You have to pay attention to what you are doing to ensure that these people do not get you.

It is always tough. You are competing against the big guy. However, if you pay attention to what you are doing, what they are offering you and how they are offering it, I think you can survive and work with the big guy. The big guy is not there if you are not there.

Senator Hays: This approach transcends your self-interest. I guess that is probably the final answer.

Mr. Earl: Something that is not very often said has to be said: Long-term subsidies are built into the marketplace. In Canada, for example, particularly with respect to grain farmers over the last few years, subsidies have gone down, and we have found that a much more competitive and lean industry has emerged.

You always learn something in this business, no matter how long you have been in it. I have found that American grain farmers are much less market conscious and knowledgeable about the market than are Western Canadian grain farmers. The reason is that Canadian farmers have been exposed to the market. Long-term subsidies are built into things such as land prices. The consolidation and efficiencies found in a subsidized industry are not found in a non-subsidized industry. One might suggest, "What if other countries do not subsidize?"

Senator Hays: That is a possibility.

Mr. Earl: Yes, but the fall-back position is the status quo. The status quo, which we say is not satisfactory, still forces a much more competitive and efficient western grain industry than that found in our competing countries.

We have seen the damage that long-term subsidy has caused, as was the case with the Crow rate. We have seen the damage that kind of long-term subsidy does to the agricultural industry, for example, in efficiencies, in lack of rationalization, in lack of modernization, in lack of value added, and so on. We continue to press for that. We would not say, "The U.S. is still subsidizing their farmers, as is the EU. Therefore, Canada should subsidize their farmers." We would not take that position.

Senator Hays: Those subsidies come built into the international market and the clearing price reflects a producer in Europe or the U.S. who has a base amount that is transferred to them one way or another. A Canadian producer does not have that or he has only a fraction of it. You must be tough to succeed in that climate.

Senator Gustafson addressed the AIDA and its lack of responsiveness to the seriousness in the grain sector -- probably because it only works if you have positive margins in your calculation. You are not too upset about that, but you do not think it is a good idea.

Mr. Earl: We struggled a lot last year with the difficult situation involving the hog sector. As a staff person, I watched our board of directors struggle mightily with this question as to whether we should call for or support a pay-out. If you do not support it, you come across as being hard hearted.

This is not an easy political sell, as you all know. The real answer lies in long-term solutions, more market orientation, and a more competitive industry all around.

Senator Whelan said that this would be going back to the craziness and chaos of an open market. His words were heavily loaded with emotion, but he is pointing out a valid fact, namely, that agricultural markets are unstable. There is no question about that. That is the character of those markets. The question is: How do you, as an individual farmer, respond to that instability in a policy sense?

Long-term subsidies or ongoing subsidies is not the best way to respond to that situation. There are times you need some kind of effective stabilization program. We put forward an eight-point program last year that called for a long-term safety net. However, if that becomes an ongoing subsidy, it will be built into the market and it will create inefficiencies. It is a tough political situation, but we have tried to stay true to our principles.

The Chairman: You mentioned off-farm work. I have never farmed without also having an off-farm job. It should not have to be that way.

This committee of the Senate could well be one of the best committees I have ever sat on in the 20 years that I have been in the House of Commons and the Senate. One of our jobs is to bring to government the facts of where agriculture and the future of agriculture is going. Things could be done, for instance, with the five-year average. For a farmer that has had problems or is experiencing tough years, how will he pay the bills from last year if the income tax takes it all? Perhaps we should not be including off-farm income. Perhaps that is something different. Farmers are working unreasonable hours just to keep their farms going.

We also have problems at the border. The Americans look after their farmers. The Canadian people, who are the government, will have to decide whether or not we will have an industry. Do we continue to struggle, as you indicated? You struggle on your farm and your forefathers did the same. We have all gone through it. That is the question we are dealing with here. It is an extremely important one.

There are things that government can do. You mentioned the Crow rate. It should have been done over 10 years. Otto Lang said that $15 billion should go in to revamping the Crow, and then it was said that the figure should be $7.6 billion. We finally received $1.4 billion, divided three ways. That is the problem with the price of grain today, namely, it took anywhere from 60 cents to $1 a bushel out of the price of grain.

Mr. Earl: The Crow rate taught us a vivid lesson. I have watched this argument for about 20 years. The people who opposed the constructive reform of the Crow at every step of the way -- and, I go back to 1967, which was even before my time -- did more harm to the Western Canadian farmer than the people who were calling for reform. The opponents of the Crow were telling us that it was not sustainable in terms of world trade and in terms of fiscal policy. We were right on both counts. However, by opposing change when it could have been made constrictively, the opponents of change did harm to Western Canadian farmers.

The same thing is true in respect of trade issue. The trend is towards more open markets, less intervention and less subsidy. Intervention and subsidization is not sustainable in a trade environment, nor is it sustainable fiscally. We must deal with those things positively instead of putting up barriers and continuing to subsidize farmers. It will not work.

The Chairman: How do we deal with the American farmers who are lining up at the border? There is a clear indication that lining our trucks up at the American border was not the right thing to do. It backfired on us. It may have sent a message to the Canadian Wheat Board or to Canadian farmers, but it certainly caused political problems with the Americans.

At Bismarck, North Dakota, the Americans have a check-off system for every bushel of wheat sold there. They have hired lawyers from Washington to fight against grain coming into the United States. We are getting nowhere fast in our efforts to obtain a level playing field with the United States. If we had a level playing field, we would outdo the Americans. There is no question in my mind that we can compete if that were the case.

Mr. Cook: I am competing with an American farmer all the time. They are complaining about our wheat going south, but no one ever says anything about the corn that I have to compete with, which is coming back in to the food lots. Millions of bushels of wheat are crossing the boarder every day. As soon as we start getting close to our cap on wheat, then they start to complain. Even if we are not close, they still complain.

About three weeks ago, my brother was blockaded in at an elevator in the States. He was hauling contracted soybeans into North Dakota. The farmer in Manitoba had contracted with an elevator in North Dakota to grow these soybeans. My brother hauled them down there and was in the elevator getting his paperwork done when two farmers pulled in and blocked his truck in. These guys were talking about Canadian grain coming down south, and so on. The elevator manager went out and told them to leave because my brother had been contracted through their company. It was a farmers' co-op company, and they were arguing about it. The elevator manager told them that my brother would go three miles down the road to load corn and then go home. He told them to smarten up and recognize what this trade is all about.

I take the attitude that, if the American company that is processing our wheat did not want our grain, we could not give it to them. It is wanted down there. Even if we said it was free, if they did not want it, they would not take it from us.

The Chairman: You make a good point. My farm is right on the Regina-Minneapolis line. A large amount of John Deere machinery, International machinery and Case machinery comes across the border. Seventy-five per cent of what Canadian farmers spend is spent on American manufactured machinery.

Do you think that our trade people are defending agriculture the way that they should be defending it, when they are in negotiation with the Americans? Is this being pointed out? Potash goes from Canada into the U.S. to help them produce grain. They could not get along without it.

Mr. Cook: It is very difficult it find out if the people who are negotiating on our behalf are actually sitting down and mentioning all the corn, all the potash, and all the equipment we buy from the U.S. For example, 87 per cent of the durum that goes south comes back as a processed product. Are these things being said to the American negotiators?

Perhaps farmers in the United States need to understand some of this. A farmer in Western Canada has a better understanding than an American farmer of what the trade balance is all about.

The Chairman: However, if you point that out, then they recognize that this is a problem. Perhaps our ministers should be having meetings with farmers in, say, North Dakota and Saskatchewan to discuss some of these matters instead of creating barriers at the border. It is a very serious issue.

Mr. Cook: It is. Our association always invites the National Association of Wheat Growers from the United States to our conferences and we always attend their conferences. We have very good dialogue with them. They are getting a better understanding of our situation, and we are getting a better understanding of their situation.

Mr. Earl: I remind you there was a meeting between American and Canadian farm organizations in Banff, and one prior to that in Oregon or Montana, organized by the Pacific Northwest economic region. The Banff conference was a derivative of that, as is the upcoming June conference. A number of joint resolutions came out of those conferences. When the farmers met, they recognized that they had a lot in common and there were common solutions to their problems. Some of that information is available, and I would urge you to take a look at that.

Senator Whelan: First, I will go back to the Crow rate. I am sure you are aware that the United States ships 50 per cent of their grain down the Mississippi River. The government pays 100 per cent of the dredging which is a huge operation every year. It is called "defence for the nation," not a "subsidy." They could not operate their barges if it were not for that dredging. Yet, they always complain about our Crow rate. Even in Oregon, over 50 per cent of the grain for the export market goes by barge through Seattle or Portland. The American defence department subsidizes all of that, not agriculture, processors or producers. Are you aware of that?

Mr. Cook: Yes, we are.

Senator Whelan: I disagree with your statement that I used to have fun. I was partly responsible for the end of the "Cold War." It gave us a more independent say. You could say what you felt as long as you were constructive and questioned what they were doing.

You say that we will have a stronger negotiating position in the 1999 talks if we form an alliance with the United States of America rather than oppose them on important issues. Are you telling me we should go in there as robots with them and lose our sovereign right to have a different opinion from the Americans?

Senator Taylor: We did it in NATO.

Senator Whelan: Are you saying that? Is that what you learned at Banff and these other meeting that you had? I am going to be tough on you. I went to big meetings in Paris and all over the world. The minister of agriculture in Paris at the time is now president of France. France is one of the largest agricultural producing countries in the world. If we thought France was right, so would team up with France. If we thought the Americans were right, we would team up with them. If we thought the other countries were right, for example, Australia and Argentina, we would team up with them. We were independent. You are suggesting an alliance that is pretty rigid.

Mr. Cook: We should be looking at working with them and not giving up what we have. We should work with them and tell them that we have some common ground and that we need to work together to get concessions from Europe and from the other countries. We have some of our own issues that we will keep separate, and we will probably fight over those ones. There are areas where we have to team up because we are in NAFTA. On some of those issues, we will have to be with them, and on other issues, we will probably argue.

Senator Whelan: In all my dealings with Americans and American farmers -- and I have spoken to different farm organizations in different parts of the United States -- I never found the ordinary American farmer to be much different from the ordinary Canadian farmer. Some understood the Canadian Wheat Board and the Canadian Dairy Commission.

We had rBST hearings and producers came from different parts of the states to give evidence in support of or against rBST. Nearly all of them said that they wished that they had our system where we know that we are going to get paid every week for our milk. They do not. I doubt if your colleagues in dairy farming could ever compete with them and with the system that they have. We have to be consuming milk with rBST in it, too.

I strongly believe in our sovereignty. With the WTO there will be little use for assemblies such as our parliamentary committees, because soon they will be running everything. There will only be about five companies in the world that will control 80 per cent of the food.

I am sure you know the history of the Canadian Wheat Board -- who started it and why it was started. The Conservatives started it because of the terribly unfair marketing system. There was no control. You could drive your team of horses and wagons to the grain elevator and they would treat them like Mary and Joseph. Instead of saying, "There is no room at the inn," they would say, "There is no room in the bin." They would say to leave the grain there and return to pick up the wagon when it was empty. It was a horrible system. Then a Conservative government started the Canadian grain system. It was a wonderful system -- one of the best grading systems in the world.

Mr. Chairman, I remember attending meetings where I took along samples of our grain. We were given grain the U.S. received from the European Community. It was rubbish alongside our grain.

Under our inspection system, we were able to say that our agricultural products were the best, whether it was beef, pork, canned vegetables, et cetera. We had the toughest inspection and regulation system in the world. American processors could not believe they had to meet different standards in Canada.

You talked about the farmers in the industry meeting in Banff. Did you get your idea about getting rid of the marketing boards from the people at those meetings?

Mr. Cook: No.

Senator Whelan: No one buys wheat unless they need it, because the market can be unstable. With the use of satellites, we know more today that we ever did about production. Hence, stock markets <#0107> I call them casinos <#0107> know all about the agriculture business. However, the producer does not have that advantage. The markets know when there is no rainfall and when the soil is dry. They know right now whether our Chairman, Senator Gustafson should be planting wheat or canola, but he does not know that. Why do we think we organized supply management in the first place? Why was Article XI put into the GATT? It was because the world market was so chaotic. If we go back to that, I want to be alive to see how you welcome it.

Senator Taylor: You said you are in favour of the Estey report. I have had calls from a few people in your organization and some larger farmers who think that we should leave the cap in there because they believe that it will offer a certain level of comfort. Do you want the cap removed, too?

Mr. Cook: The overall cap for Western Canada is at a certain point, but we need a variable cap on branch lines and certain rail lines so we can have incentives. Freight rates on the branch lines will go up if we cannot haul full loads, whereas there will be lower rates on the main lines because there is a high through-put.

Senator Taylor: You like regional caps, then.

Mr. Cook: Not the overall freight cap.

Mr. Earl: What Mr. Cook is saying is true. The problem with the existing cap, the existing legislation, is its inflexibility. Some parties are trying to obscure this point, but the Estey report recognizes the reality of railway market power.

The Estey report proposes a series of means for addressing railway market power. The first one is the adoption of the CP rate proposal, which itself is a form of cap and is just as effective, in my view, as the existing cap. CP proposed a revenue cap as opposed to a rate cap, and Justice Estey accepted the proposal. He suggested it should be part of the legislation. CP and CN would earn no more than they do today from moving grain. It would remove this problem of inflexibility. Yes, some rates would go up and some would go down. On inefficient parts of the branch line system, rates may rise, but overall, they would not rise.

Another part of the proposal was that there would be a fixed ratio between main-line rates and branch-line rates. Even where rates would rise, there would be a limit on how far they could go up. This would create a more flexible system where there would be more room for negotiation and market forces to operate between shippers and carriers, which would drive efficiencies in the system. We are in favour of that.

It is important to recognize that there are many protections in Mr. Justice Estey's report, and they are just as effective and better suited to the reality of the marketplace than the inflexible rate cap we now have.

Senator Taylor: A great deal of our trade is north-south and not east-west. Do you have a position on highways or national highways? Did Justice Estey deal with that?

Mr. Cook: Our position is that, if fuel tax dollars are used for highway maintenance exclusively, then we do not have a problem with roads. A lot of tax is collected.

The Chairman: I thank our witnesses this morning. It has been a very enlightening experience. It is not always that committee members agree with all witnesses. We appreciate your efforts here this morning.

The committee adjourned.

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