Proceedings of the Standing Senate Committee on
Agriculture and
Forestry
Issue 36 - Evidence
OTTAWA, Thursday, May 6, 1999
The Standing Senate Committee on Agriculture and Forestry met this day at 9:05 a.m. to study the present state and future of agriculture, consideration of the effect of international trade issues on farm income.
Senator Eugene Whelan (Deputy Chairman) in the Chair.
[English]
The Deputy Chairman: Honourable senators, our first witnesses are representatives from Keystone Agricultural Producers.
Please proceed.
Mr. Don Dewar, President, Keystone Agricultural Producers: Mr. Chairman, Keystone Agricultural Producers would like to thank you for the opportunity to discuss with you today the effects that agricultural support in some of our competitor countries has on the income of our Canadian farmers. We can start by looking at the Organization for Economic Cooperation and Development statistics on producer subsidy equivalents, or PSEs. Those PSEs include direct subsidies and consumer transfers to producers as a result of artificially maintained price supports, which would include our supply management in Canada.
If you look at the numbers, European Union wheat subsidies are $318 per acre or $3.15 per bushel. In the United States, the subsidies are a third of that -- $68 per acre or $1.95 a bushel. However, in Canada, the subsidy is $15 an acre or 40 cents per bushel, which includes the basic safety net programs, such as NISA, the Net Income Stabilization Account program, and basic crop insurance. Australia is the country that comes in with a lower subsidy, at $11 per acre and 35 cents per bushel. We are told that the numbers for 1998 will show an even more marked difference in the PSEs, with the EU and the United States increasing and Canada decreasing.
U.S. agricultural spending is channelled through several support programs. The first is the Marketing Assistance Loan Program and Loan Deficiency Payments. It provides producers with interim financing on crop production which, in itself, sounds non-consequential. However, the levels of those loans are set by the government and are county-based and adjusted for transportation. The government posts a county price daily, which is supposed to reflect the local cash price.
If the county price falls below the loan rate price, producers repay the loan at the county price and at a lower rate than what they have actually received. They either sell or store the gain, as they desire. If the county price falls below the loan rate, the producer has the option of bypassing the loan system and receiving a direct payment for the differential between the county price and the loan rate. That is called a loan deficiency payment.
Thus far, 54 per cent of the U.S. crop, including 6.5 million tonnes of wheat, has been put under loan. The average deficiency payment for wheat is about 44 cents per bushel Canadian. Clearly, it affects the prices.
This program provides the U.S. producer with a floor price and masks the marketplace signals. The U.S. producer will make planting decisions based on the loan rates, rather than on the market prices. One significant crop would be soybeans; it has dropped drastically, but the loan rate has not. Producers in the U.S. will look at the loan price for soybeans, and it looks like a good revenue bearer. They can sell into the lower-priced market and still receive the price.
Exporters sell the grain at a lower price than the producers receive for it. Can we call that an export subsidy? In some ways I guess it is. However, it extends the length of time that the prices are low on the world markets, and that is the price that Canadian producers must sell into.
Flexibility contract payments were initiated in the 1996 U.S. Farm Bill to replace the old target price and deficiency payment program. It allowed producers to sign seven-year contracts and to receive per-bushel payments on 85 per cent of the historical base acreage of wheat, feed grains, cotton and rice.
The payment for 1998 was $1 per bushel Canadian for wheat and 43 cents per bushel for barley. Those rates are not at all related to market prices and the producers receive these subsidies, these payments, regardless of whether the market prices are high or low. They are based on historical production, and so they are considered to be a "green box" program and they are not subject, then, to the reductions in subsidy levels provided under the WTO agreement.
The total flexibility contract spending for 1998 is estimated to be $8.9 billion Canadian, and with implementation of this program, the U.S. Farm Bill eliminated mandatory set-aside provisions, which puts more acreage into production.
The direct effects of this type of decoupled or green program on Canadian producers are difficult to measure, but there are no rules for the green program, if it can be identified as green. There is no doubt that the additional income received over and above the market will affect how the American producer views the industry, and the decoupled payments can go into investment in land, equipment or operating purchases, or just generally to improve their position.
A new program was announced this year, a durum crop revenue coverage program, which you may have heard about because it is really distorting. It is a combination of revenue and yield insurance. It includes spring wheat and durum, but the support price for durum is based on the spring wheat futures price plus the average spread between durum and spring wheat, rather than the durum futures price, which would be indicative of the value.
The original program was going to guarantee the producer $5.50 per bushel in American dollars, compared to the Minneapolis January futures at the time, which were $3.79. That would clearly distort production.
Even the USDA realized the distorting effect of the program and lowered the support level to $4.75, and it is still a big difference, but the effect of this can be seen in North Dakota, which is our direct competitor across the border. Because of large sign-up, the producers are just looking at the value through the program and not at the market price, and already future prices have dropped considerably because there is anticipated overproduction, and Canadian producers will respond to the marketplace and curtail production to a great extent.
Another program that they have, and have used, is an international humanitarian aid program. They purchased 2.5 million tonnes of wheat last July. There is concern that this aid program may be directing wheat into countries that might otherwise be purchasing it. I believe last year they gave wheat to Malaysia, which would normally be a purchaser of Canadian grain. It was a way of buying a market. They give it directly into purchasing countries, and displace competitors, or our grain.
They are also aggressively using export credit programs to gain market share. For example, three years ago, they were not in Indonesia at all, and they have gained about 25 per cent of that market.
In addition, a spending package worth $9.2 billion Canadian was approved in October of 1998, with the bulk of the spending going into direct subsidy payments to compensate producers for low commodity prices -- again, a masking of the market signals and an injection of cash into the U.S. economy with which Canadian producers cannot compete.
The European Union has the other deep pockets in the world. The level of agriculture supports in the European Union considerably exceeds even the U.S. level.
Let me give you the primary European Union support programs. They have a direct area support program. The direct support payment is $54.34 in euros per tonne based on average yields. I have tried to convert some of these numbers. For wheat, the average yield is about 68 bushels per acre resulting in a payment of $175 Canadian per acre.
Using our Wheat Board pool return outlook for our number 2 wheat, 13.5 per cent protein wheat, which is the largest class we seem to have, the average price is $4.24 per bushel. Our production was about 32.4 bushels per acre as a provincial average for last year, which gives a gross income for a Manitoba farmer of $137, considerably less than the support payment in Europe.
They have a special support payment for durum wheat, as do the Americans, as I said, which for 1999-2000 is expected to pay about $222 Canadian over and above the other payments. Those are not a decoupled payment. They are not a green program. They depend on the individual crop. As a point of interest, corn qualifies, whether it is cut for silage or used as grain; therefore, in effect, while forages do not qualify, they can get virtually free feed for their livestock area from this program by getting paid for the corn silage.
They have intervention support prices, in addition to the direct area payments. The producers receive a floor price for the grain. National governments are obliged to purchase grains offered into intervention, and the floor price is basis the county elevator. European producers are guaranteed to receive $205 per tonne, or $5.58 per bushel. In comparison, the Canadian farmers get the $424 from the market and about $3 per bushel for corn and barley. Again, an established floor price masks the market signals and encourages overproduction.
These programs have encouraged overproduction of wheat in the European Union, with wheat area increasing over 15 per cent since 1993-94, and the output in l998 estimated to be 103.2 million tonnes, 13 million tonnes above the five-year average. Meanwhile, in response to low world prices, area planted to wheat in Canada was the lowest in 19 years.
Cereal grain is not the only product subsidized in the European Union. Average production subsidies for canola were $220 per acre and $456 per acre for flax. Between strong world prices and the subsidy level, European Union production increased significantly by 0.84 million tonnes, contributing to a world surplus in oil seeds and driving prices lower. World prices for flax are expected to drop by 15 per cent to 20 per cent for the 1999-2000 crop year. I think they have already dropped more than that.
We hear much about the export subsidies. An oversupply of grain puts pressure on the European Union to reduce the excess stocks by using export subsidies to sell into the world market. High export subsidies allow them to sell the commodity at a reduced price, thus depressing the world price for that commodity. In 1998, average export subsidies for wheat and barley were $1.44 per bushel and $2.07 per bushel Canadian. Since October of 1998, the European Union has approved the sale of oats at an average export subsidy of $1.54 Canadian per bushel.
Early in January of 1999, the malt export subsidy was set at $135 per tonne. The European Union does not distinguish between malt barley and regular barley, and therefore subsidizes the export of malt, seriously reducing a previously buoyant world market. A reduction of $29 a tonne costs Canadian malt barley producers a total of $75 million.
The European Union has announced their Agenda 2000. It is expected to implement that program over the next two years. The program reduced the intervention support price for grain from $205 to $164 per tonne. However, that reduction is offset by a change in direct area support payments that will increase their per-acre support from $175 to $215.
In order to deal with their change, as they reduce the export subsidies and the more distorting subsidies, the European Union channels them into a green program; therefore, the support to agriculture in fact increases even though the colour of the box has changed and it is now called a green program. That is a difference, as I am sure you are aware. Canadian producers have seen reductions in support levels, and they have disappeared rather than being rechannelled to the green box, for example.
The other aspect of trade agreements that affects farmers' pockets is the continuing need either to defend our trade position against challenges or to fight practices and regulations put in place to block our access.
These activities seem to be particularly prevalent in the United States. For example, since 1990, the Canadian Wheat Board has been investigated five times by the United States International Trade Commission, three times by the U.S. General Accounting Office and once by a binational panel under the Canada-U.S. trade agreement. The costs faced by the Canadian Wheat Board in meeting those challenges reduce returns to farmers for the grain that the board sells because they direct costs.
Actions by South Dakota earlier this winter forced Canadian shipments of cattle and hogs to bypass South Dakota adding an additional $200 per truckload in freight to the producers' cost of shipping livestock to markets in the United States. We had to divert out of South Dakota and it cost us dearly. Perhaps South Dakota was not thinking, because it cost their packing industry dearly as well. They had an economic loss with a less-than-full plant. The government chose to be an irritant.
There is a bill presently dormant in Minnesota that, if activated, could cost Canadian shippers $100 per railcar going into Minnesota. A substantial amount of grain has moved into the Minneapolis, Minnesota area from Manitoba.
The R-CALF countervail preliminary judgment came down in Canada's favour earlier this week. That was good news for all of us. None of our programs were deemed countervail-able; at least, none of them were beyond de minimis.
The anti-dumping challenge, which has yet to be decided, will cost cattle producers an estimated $3 million to fight. I know the bill for Manitoba cattle producers was about $250,000. The Canadian dairy industry has faced constant challenges, again coming out of the producers' pockets.
According to the March 1999 statistics of Agriculture Canada, net cash income and total net income will decrease significantly for Manitoba farmers.
There is a graph contained in the brief for your perusal. The change for 1999 -- in reference to the average on the extreme right -- is a reduction of 70 per cent. That is a significant note.
Crop losses in Manitoba, using average yields, are shown in dollars per acre. Manitoba Agriculture annually publishes per-acre cost-of-production figures. The current crop price projections range anywhere from minus $27 per acre on wheat to $40 per acre on both corn and canola.
Canola has been our "Cinderella crop"; it has been our bread-and-butter crop as other prices have been depressed. You can see that canola, with these prices in the world market today, will not be a money-maker for Western Canadian farmers. That will be an extra effect that will be felt in the next eight months.
The effects of those conditions are beginning to become evident. In the year ending March 1999, the Manitoba Farm Mediation Board saw a 55 per cent increase over 1998 in the number of farmers making voluntary applications for mediation. Of those applications, 55 per cent were made in the last quarter of their year, that is, in January, February and March. The numbers are shown. There were 38 cases of applications by creditors to foreclose.
The federal Farm Debt Mediation Service in Regina, which serves both Manitoba and Saskatchewan, did not have a breakdown of the total but it had more than 300 debt mediation cases in the past year. In addition, there were in excess of 600 farm families taking advantage of the new farm consultation service that provides producers who have financial concerns with a consultation from a financial adviser.
The special loan program initiated through MACC, the Manitoba Agriculture Credit Corporation, to deal with the present downturn in prices has already reached $20 million of the $25 million that they had allocated. They have gone back to the Treasury Board for approval for extra money. They are guessing that they may need up to $40 million of loan program money.
There were 55 auction sales listed in our Manitoba Co-operator for April and into early May. We believe from talking to producers that a number of them are assessing the financial risks, looking at the commodity prices and the costs, and then choosing to exit the industry before their equity erodes any further. They will not be seen in the consultation and mediation numbers. They will simply rent or sell their land and move on to something else. The regional agriculture manager for the Canadian Imperial Bank of Commerce has told us that the banking industry expects a 30 per cent reduction in the number of farms in Canada over the next five years.
What does that mean for individual farmers? Some are restructuring their financing. Some are turning the credit that was taken out for input costs into long-term debt termed out over a number of years so that they can afford the payments. Those are farmers who have the long-term equity to do that. Others have hit the ceiling on operating loans, and credit has expired. Those people are rolling the dice one last time and relying on dealer credit or operating on a cash basis only if they have some current market products to sell. We know that people are cutting back on their inputs. For those who cannot get their bank financing, the outlook is bleak because they have to pay higher interest rates for alternate financing and increase their costs even more. Those who cut back on inputs risk a poor crop, driving their incomes down. The options are not good.
Fewer farmers are buying equipment. The effects are being felt in the farm equipment industry. Companies like Versatile, based in Winnipeg, have had their plants shut down for almost six months. Bourgeault and Flexi-Coil as well have laid off vast numbers. Flexi-Coil has shut down completely for two months now. They are just hoping to sell some inventories but I do not think that will happen.
One of the most alarming comments came from a person at the federal debt mediation board who said that, in the last two weeks, they had received some very disturbing telephone calls. Some farmers are reporting no money to pay utility bills. They will be losing telephone and electrical service. One caller said that he had no money to buy medicine that his family needed. Another said that her husband was away to the auction mart with a cow and a calf that they had to sell in order to buy food for the table.
The mediation office based in Regina is now talking about sending people to Social Services to get them some immediate assistance so that they can survive.
In the short term, agriculture will have to rely on loan and support programs and attempt to find alternative products and markets in order to keep the industry alive until prices improve. As mentioned, MACC's loan program has had significant updates but it must be recognized that it is a loan program and therefore can be adding more debt to farms already facing economic difficulties.
The Agriculture Income Disaster Assistance program, AIDA, as we have known it, has some design flaws that we believe will minimize the assistance to many farmers in need. Earlier in the year, Manitoba committed $25 million to the AIDA program. However, the recent budget last week showed, on a line-by-line expenditure, $12 million for 1998. In our minds, that is an indication that they believe only half of the available or committed money will actually be used for the program.
While Manitoba producers are beginning to shift from grain-based production to other commodities, that causes problems as well. There has been a significant increase in hog production in Manitoba and a corresponding increase in hogs going across the border. However, the Canadian Pork Council met recently with the U.S. National Pork Producers. The U.S. producers are beginning to take a very militant approach to Canadian pork coming into their country. The chair of the U.S. organization has received death threats and has hired security because U.S. producers are very serious about closing the border to Canadian pork, whether it is legal or otherwise. Meanwhile, protest groups opposing the growth of large hog operations are springing up in Manitoba and municipal councils are putting restrictive by-laws in place to prevent the establishment of those operations. Many producers are switching acres into speciality crops with a resulting downward pressure in price due to over-production in small, sensitive markets.
I should perhaps point out here that Manitoba now produces the most acreage of edible beans, having shifted that production from Ontario. In 1999, even with the cutbacks, I believe we will be producing more potatoes than Prince Edward Island. Pressure is being put on agronomic practices as producers plant crops with the most possibility of giving them at least some return, even if that means disrupting a normally rational planting rotation that would be most beneficial for disease and weed control. There are very few viable alternatives.
The long-term solution rests with improved WTO rules, which remove the incentives for countries to overproduce and drive down the price of grain. There are a number of goals that must be pursued in the upcoming WTO round to resolve some of the problems. The elimination of export subsidies and the elimination of the blue box programs are at the top of the list and are not decoupled. In our opinion, the blue box was a mistake in 1994. Countries met their commitments by shifting from amber box to blue box without any reduction. They met their amber reductions merely by shifting the subsidy program.
At the next WTO round, we will seek consideration of whether simply decoupling support from production is sufficient to produce trade distortions. We will be seeking a clearer definition of the green box programs.We would like to see a maximum cap on those programs. That issue is important to Canada, because our green box is virtually empty. Why would we support a type of program if we were not going to have that available to our producers? If it will not be used in our country, then perhaps it is better that it not be allowed in others.
We will also pursue clearer rules for the use of trade credit that would limit the terms of credit to the life of the commodity being supported. It is also important that we will be working for clearer rules and definitions to minimize the opportunity for trade challenges.
Agriculture in Canada is facing a myriad of obstacles as we move into the next millennium. As farmers, we are being challenged by trade issues, as discussed, by environmental issues at home related to soil, water and air, by transportation issues as we struggle to move our commodities to market -- of course, Manitoba has suffered the highest change in transportation costs since 1995 -- and by control issues as we watch amalgamation, integration and new technologies threaten our ownership of agriculture as an independent business. There is a whole host of other complex and difficult problems.
We know from experience that, invariably, the costs of addressing those problems fall on the producer. We are rapidly getting to the point where we can no longer bear those costs. The present farm income situation clearly supports that fact.
It is absolutely critical that the farm income problems being faced by Canadian agriculture be addressed in a comprehensive and visionary way. Short-term band-aids are fine to see us through a rough period but the answer lies in a long-term sustainable approach that will ensure that Canadian producers can continue to produce the food needed at home and throughout the world.
That is our presentation.
The Deputy Chairman: You were talking about state trading agencies. The new head of the Canadian Wheat Board recently appeared before this committee. I asked him how much grain the Canadian Wheat Board handled in comparison to the smallest trading company in the United States. It was about one-third that of the smallest trading company. We have been doing some research since that meeting. In Japan and some other countries, it is the state trading company that handles the grain. What, then, is the difference between Cargill, Continental Grain and Archer Daniels Midland?
When I was Minister of Agriculture and Agri-Food, I worked with three secretaries of agriculture in the United States. They all said the same thing. The grain companies were so big that they could do nothing with them. Why are they so worried about state trading companies?
Mr. Dewar: I do not know why they are so concerned.
We at Keystone Agricultural Producers are supportive of the Canadian Wheat Board. We see the Canadian Wheat Board as our company and our marketer. We really believe it brings more money into Western Canada. There are things we can change about how it does business.
At the trade conference that was held down the street three weeks ago, some numbers were presented. I do not have them in front of me but, essentially, they show that the largest 10 companies have bigger economies than do the majority of countries in the world. The control that they have was just mind boggling.
The Deputy Chairman: There is a movement in the United States now for Cargill, the largest world trading company, a trading company that was set up so that nobody could touch it, to form a group with Continental, the second largest trading company in the United States. That company would be bigger than the total economy of Canada, if you take in all the businesses that are involved. I think that is terrible. Do you have any comment on that?
Mr. Dewar: It is part of what I referred to about losing control of our production with the integration and amalgamation. We are really concerned. Some of this comes from the chemical companies owning the seed companies and the grain companies. They are looking at some of the GMO products. They are not looking at the environmental or health aspect of those issues, just what it does to us economically.
In relation to the state trading agencies, there was an article last week in our Western Producer that said that the reason that the Americans are so after the Canadian Wheat Board is really to get after China's state trading agency, the central buying agency.
The Deputy Chairman: I felt that was one of the reasons why President Clinton did not accept it readily. It is one of the largest buying powers in the world now, and it is all practically state agencies.
Senator Spivak: It is a pretty grim situation that you are describing and it is not very different from what we have heard. You were suggesting what should be done in terms of the upcoming negotiations at WTO. I understand your suggestions, but what do you think ought to be done domestically in the short-term, or even the long-term, to make sure that we do not have a huge number of farmers that are forced to go out of farming? We have huge conglomerates buying up the farmland.
Mr. Dewar: The AIDA program that has been announced, and forms are presently being processed, occurs to me right off the top. The design flaws in that program could still be fixed for the 1998 payment year to make sure that the program paid out as much money as has been allotted to it rather than minimizing the amount of payment. There is the example of Manitoba only paying out 50 per cent of what they had budgeted. That is an indication of what the analysts must believe will come out of the federal program.
Senator Spivak: What design flaws are you referring to?
Mr. Dewar: The first that comes to mind is that it does not cover a negative margin. If you had a negative margin in the previous three years, you use that margin in the calculation, which would reduce the amount for which you are eligible. How it is handled is not even consistent. We have said from the start that it should cover the negative margins because that is the reality.
The linkage to NISA is $130 million right off the top. The 3 per cent reduction by linking it to NISA means that AIDA will pay out $130 million less than demanded by the program. We call it 70 per cent but just that linkage alone reduces it to 60 per cent.
There are smaller things. Family labour is an issue. My son lives on the farm and draws a wage from the farm. He gets a T4 slip but his labour is not counted, while the other hired man's labour does count in the calculation. In other words, they do not include family labour.
Senator Spivak: The design of the AIDA program is administered by the province, is it not?
Mr. Dewar: No, it is not. The federal bureaucracy designed the program. In our opinion, the bureaucrats do not think there is a problem.
On November 4, 1998, the Minister of Agriculture and Agri-Food attended a large meeting in Ottawa of farm groups and various levels of government from across the country. That was just prior to the minister being able to get the money out of cabinet. We realize that he probably had to work to get the money out of the cabinet, but the presentation that we heard said that because this money is in NISA accounts, obviously, farmers are not badly off.
They did not do an analysis of what the NISA program had done over the years and why the average account was only $6,000. They did not investigate how many people have used those accounts to stabilize for whatever reasons over the years, which is what the program was designed to do. It was not designed to be able to help someone who has suffered a drastic loss in one year.
Senator Spivak: Do you have any figures on the amalgamation and integration of land? You spoke about the ownership question being threatening. Do you have any idea of how widespread that is? Where it is going on?
Mr. Dewar: We lost 2,000 farms in Manitoba between 1991 and 1996.
Senator Spivak: Where did those farms go?
Mr. Dewar: The farmland would have been amalgamated with other farmers.
Regarding ownership, I believe that if we look south of the border we will see the vertical integration in the livestock industry. However, companies such as Cargill tried owning some land but could not make it work. You cannot buy land and pay people to run it and make money and make a return on your investment. They stopped doing that. I do not think that those companies will ever own the land, but they will maintain us as serfs, particularly as they own all the seed and the technology for production.
Mr. Ken Tjaden, Executive Manager, Manitoba Pulse Growers Association: Honourable senators, in the area of land ownership, certainly in the areas of the province of Manitoba, a significant amount of European purchasing has taken place.
Senator Spivak: Is the price of land going up or down?
Mr. Tjaden: Strangely enough, the price of land is going up. Basically, that is because Europeans sell land at four times the value of Manitoba farmland and then come over here and think it is a deal. With large amounts of acreage, it looks like a very inexpensive investment for them.
By and large, those people are not farming. Some of them are farming the land, but much of the land is being rented out and leased. It certainly is reducing the number of farmers living in the rural areas. Those people look at the numbers and they cannot turn the deal down. It is just too attractive. That land will likely never come back into Canadian ownership.
[Translation]
Senator Hervieux-Payette: My first question is a rather general one. Concerning the upcoming World Trade Organization negotiations, it would appear that the United States is also guilty of massive intervention as far as subsidies are concerned.
Not only is Europe intervening but it is also going so far as to set up tariff barriers through its prohibition of genetically modified organisms, thus prohibiting certain products that might be competitive like canola, for example. We have seen that certain groups stick together. They have very powerful unions. They are able to paralyze the country. They have a tremendous political force with the government and the population.
If our farmers are facing such a tragic situation where they are losing all their assets, all that has been acquired by their family in a generation, how do we explain that the effects are not being felt in Ottawa? The perception here is that the city population in general is not aware of the gravity of the situation. How do you explain that?
[English]
Mr. Tjaden: That is a very interesting comment. Some five or six years ago, when we were in the last round of trade talks and things were getting pretty serious, it looked like things would not go in favour of the Canadian farm economy. We were able to get 40,000 producers in front of the Parliament buildings in March or April, when those talks were going on. That demonstration took a significant amount of organization. Thankfully, we had the Canadian Federation of Agriculture, the supply managed industries, the grain and the livestock industries all working together for a common purpose.
Traditionally, it seems to take something that serious to get results. Only 2 per cent or 3 per cent of the population are out on the farms, and it is only a further fraction of that 2 per cent or 3 per cent who are militant enough to get out and demonstrate. Therefore, you do not have very big numbers. We filled many buses in that period in 1993 or 1994 to have that demonstration.
We were reasonably successful in those talks. Since that time, although the producers and the farm organizations are still there, the numbers that they represent are going down. It is getting that much more difficult to organize.
I do not know that we would ever be successful doing it as a demonstration. I guess our best hope, as Mr. Dewar said, is to convince our negotiators that our position is correct. That is not an easy negotiation for our negotiators, because they are going in there like the mouse dealing with all the big players. It is like the farmers dealing with the large grain companies. We do not have a very strong position.
[Translation]
Senator Hervieux-Payette: My second question relates to all Canadians, that is both the city and rural population. I would suggest that you organize demonstrations in front of the French and American embassies. It would appear we should show the solidarity of the people of Canada in supporting their farmers. We are not enemies. I think you will find that you have allies on Parliament Hill. It is important for you to realize that.
What politicians may most need at the present time is a demonstration so that the media and special reports can draw attention to the situation that Canadian farmers find themselves in, so that people will realize how they are losing their heritage. We are all aware of this. I am here as a member of the Quebec committee, it is very important for us. It is also important for you not to remain alone and left with no support, for you not to become second-class workers. All the players in this sector are making money except for those who are producing the raw material. I think that there must be a fair share for those whose work allows others to provide a finished product. I think there's quite a bit of work to be done on that score.
As for the negotiations on the excessive subsidies given by Europe and the United States, are items 1 to 6 noted in your document to be acted upon in the order given? Are you suggesting a certain sequence for the reduction? Or are you suggesting a program spread out over a certain number of years that would allow for a comparable level and true competition in this field? How is this phasing out to take place?
[English]
Mr. Dewar: It would have to be in combination. You cannot deal with anyone in particular. The Americans are very adamant on some things. If we say, "Let us go back and talk about sugar and peanuts," they say, "No, let us not." They have decided to be very protectionist. The question is this: Why do we talk about dairy and eggs if we do not talk about sugar and peanuts?
New Zealand is the world's big free trader. Perhaps we should eliminate country-specific quotas. New Zealand's dairy industry would not be able to survive. Our negotiators have to use these tools to get what we want.
As part of our trade policy, we have talked about a clear market access of 5 per cent, with the tariffs at zero for in-quota. Canada is already there. We are providing approximately 90 per cent of quota fill. The Americans are at 54 per cent. We are way ahead of them. We do not have to talk about over-quota tariffs. Let us clean up the in-quota.
Our negotiators have a job to do, and I believe they have to negotiate with the best interests of the producers at heart. The producers' interests sometimes get clouded over the bigger community interest of the country, perhaps. Is this 2 per cent worth protecting? That is a question we sometimes ask.
The Deputy Chairman: Just to interject for a moment, I am happy that Senator Hervieux-Payette went to Europe. I would not call her a revolutionary, but she is certainly giving me inspiration.
I asked my office staff to show her a picture in a book I have where the dairy farmers marched on the hill. The Minister of Agriculture at the time said that if he had been a dairy farmer, he would have marched on the hill himself. The government misunderstood the situation at the time, and that was our government. Then a separatist government was elected in Quebec because of what we did to them federally.
The European Union and the United States threw all their products on the market and depressed our market. The farmers then asked us for money so that they could stay alive, and we did not give it to them that year. However, the next year they wanted $44 million from Nova Scotia to British Columbia. After that, we put more than $100 million back into the program. In other words, after the horse was stolen, we locked the door.
Mr. Dewar: There was some mention of public support and community support. One of our producers visited France a year ago because he has some contacts there. The wholesalers told the packers that they will buy our pork if we pay the farmer a fair price.
Do you think Michael McCain will do that in Manitoba with his new pork plant?
The Deputy Chairman: Did you see his profit picture for the first quarter of this year? It is the best he has ever had since he took over Maple Leaf Packers.
Mr. Dewar: That is the kind of cooperation we need between the community and agriculture.
Senator Hays: You talked about the trade front and the impact it is having on Canadian agriculture. You have vividly described the problems. You talked about the need for a long-term, sustainable approach. Could you elaborate?
What I am getting at is that we need a short-term approach as well. We have a ministerial meeting on agriculture coming up at the end of this year. I am listening carefully. I understand what you are saying and I am fully appreciative of it, but perhaps you could give us a bit of advice to pass on to our government and hopefully on to our negotiators.
Mr. Dewar: That is a tough one. It is easier to describe the problem than to find solutions.
When we talk about a sustainable, long-term approach, we must look at the goals of the trade negotiations. Canada is a small player. We used to call Western Canada the breadbasket of the world, but Kansas produces more wheat than all of Western Canada. We have to recognize where we are, and we need clear rules for trade. That is where we can assert ourselves.
We do not have clout. One of the American negotiators made a presentation in Winnipeg in March and said that sometimes they are the elephant and they do what they want. He admitted that. It is pretty hard to deal with that unless there are rules to deal with things like that R-CALF complaint that cost the farmers $3 million.
Senator Hays: Going back to 1994 and the agreement we signed, I think we were optimistic about it being something that would create an international trade environment to help our cereals industry. Our experience has been that it did not work. We saw dollars going into the sector -- and Europe would be the best example -- basically replacing programs that were not allowed with programs that were allowed. As we have been told by the board, the net effect was that their production volume of wheat has gone up and ours has gone down. In the end, that all relates to incentives to produce. They still have strong incentives, such that they have increased their production at a time when ours has decreased, responding to the combined effects of program plus price. Price, to some degree, is a product of programs, particularly export enhancement programs or export subsidy programs.
We now are going into the next round, and the environment is a funny one.
I was listening to Senator Hervieux-Payette's points, which are very good ones. Most of those 40,000 people were from the supply-managed sector. There were some westerners there, but in that region now the strong political representation comes from a very successful political movement that does not believe in any of these support programs and that would, as I understand it, happily see the Wheat Board restructured to meet the American request and would happily see the supply-managed sector disappear. That is the political dynamic of a region that is, according to you and I believe you, suffering many problems from lack of an approach similar to the European-American approach in the face of real hardship.
Thus, we see the Government of Canada responding, and it is able to respond with a program that I think complies with the 1994 agreement, as it should. We have seen the government phase out programs that were not friendly to the concept of 1994, so, unlike Europe and the U.S., we do not have anything to give up there. We did not do what they did. We did not replace prohibited practices with practices that are allowed and so could be bargained away again in 1994; we go to the table mostly without any of that. We go to the table with supply management. Some would say we can give that away, but I can tell you that those 40,000 people could be brought to this hill again, and probably doubled if necessary, because it is the one really truly successful sector of the three major areas of Canadian agriculture.
That background is only to share with you what is going through my mind. How do we on this committee go to the government with a report that says that we think you should do this? I guess the obvious thing is to go to the table and say that we want what we bargained for in 1994. I do not know how strong a position that will be in the end, given who our friends at the table are.
With those concerns, and I have perhaps not articulated them as clearly as I could, how do we proceed on this? What is your honest view? This is a televised proceeding, but we are a few months away from the beginning of the negotiation. What do you really think?
Mr. Dewar: We are trying to educate those political people you mentioned in Western Canada about the merits of supply management and the Wheat Board, and they are a little less vocal now, I think, than they were.
That aside, our government has taken $2 billion per year out of agriculture since 1995.
Senator Spivak: Is that the federal government?
Senator Hays: That is in research, the Western Grain Transportation Act, WGTA.
Mr. Dewar: Yes, in all types of support. Some of those were green. Research was green. The cost-recovery things, which have all increased over the years, would be green, as would the work that the food inspection agency was doing previously.
The WGTA, a clear export subsidy, had to be reduced by 41 per cent by 2001. It was reduced 100 per cent the first year. If our government is not prepared to bring some of that money back as green, if we are to be the pure free traders in the world, then they have to get the rules in place properly so that we can be.
Mr. Tjaden: I am sure you realize that producing food is a very high-risk business; successful producers are ones that can manage the risk best. One risk, of course, is production, and we have a crop insurance program in place. Just to get some idea of the risk, owning a house is risky, too, and an individual, by and large, can buy insurance to cover the risk of that house burning down or getting damaged somehow. A producer cannot afford to pay the total cost of an insurance program because the risk is so high and the premiums would be so high that just paying them would put the farmer out of business. Therefore, part of our required support is assistance in providing a production risk vehicle or tool or an arrangement that does that.
Of course, on the other side of it, marketing is a risk, too, particularly when you get into situations like those trade challenges. As Mr. Dewar pointed out in the presentation, there are some pretty major changes in income that are not predictable, and they become a very difficult risk to manage. The solution to that, of course, is to get an agreement with very clear trade rules so that you know what will happen. As you are aware, those are negotiations. Negotiators are successful if they conclude an agreement. That is the way it is in labour. That is the way it is everywhere. A successful negotiator concludes an agreement. Then the questions are the following: Is it a good agreement? Is it a bad agreement? Who is it good for? That debate goes on forever. We see it every day. You have to realize that the negotiators take their direction from the government but they are negotiators. Mike Gifford is a career negotiator -- a very good one, too.
The Deputy Chairman: Some of us may have reservations about that.
Mr. Tjaden: I have known Mike Gifford for quite a while. We did not always think he was on the right track in the last round. He is a negotiator and his success comes from negotiating an agreement.
The will to push that negotiator has to come from the government. When we got into the situation last time, although we did not get everything we wanted, at some point we had to make a decision that this the best deal we could get. It is the same with labour negotiations. We go ahead and we sign it or agree to it.
Does our government have the strength or the will to walk away from that table and say we are not signing? If we did walk away, would anybody notice? We are a small player. For the producers, clear predictable rules, something to lower the risk, are helpful.
Senator Hays: I wish this problem were capable of being characterized in a short question and answered in a short response. It does not seem to be. We have been spending a lot of time on it, but let me try. In the long term, it seems to me, we can do one of two things. First, we can go along the road we are on and adapt more quickly to the transnational culture in farming and to the vertical integration. We can let the board go, bring in these guys and hope that some of them will have some Canadian content and that we will be ahead of the world in terms of beating the pants off everyone. The other thing we can do is go back to the table and say, "We have seen the quantification of the support levels -- in Europe, 43 per cent of the farm dollars come from programs; in the U.S., 33 per cent; and in Canada, 16 per cent -- and we will increase our percentage, probably through the most effective way possible, likely an export subsidy. That is our back pocket. We want to maintain the culture we have; we know it will cost us some money, and we know that, under the present program structures, we can put this in a green program. It will not really be green, but we have seen how you have done it, and that will get us where we want to be in terms of the support level."
Basically we must do one or the other. What do you think of that?
Mr. Tjaden: That simplifies it. The question the country must ask itself is the following: How do we want to go, the European way or the American way?
Senator Hays: Which is it?
Mr. Tjaden: I do not know. I have been over to Europe, around France. When you look down from the top of some of the hills, you see that every little farm has a few white Charolais cattle on it.
The Europeans have been around a lot longer than we have and they seem to have made a commitment to keep that rural economy going. Every little town has a bakery and a wine shop and all the amenities. Meanwhile, we are turning out lights here in rural Canada and I do not agree with it.
Senator Fairbairn: To follow on Senator Hays's questions, we understand from some of our previous witnesses that there is an effort, one in which Keystone is involved, to have the agricultural groups present to government a consensus on the major thrust of points within our negotiating position. Have you found that to be a good process so far? There are many different attitudes across the country and also within regions. Are you making good progress at coming together to reach a consensus position that you can drive hard to the government to try to influence how those negotiators will go into the room?
Mr. Dewar: As a member of the Canadian Federation of Agriculture, we are proud of the trade statement that we have been able to put together with exporters and supply management people around the table. The resulting document is comprehensive.
The Canadian Pork Council, an exporter, joined the Canadian Federation of Agriculture this year, not just because of the trade statement but in part because of the comprehensive statement that had been put together in trade as a direction for the government.
As Keystone and as part of that effort, we are proud of what is in that statement. We were part of the group that met two years ago to start the process. From that room to our annual meeting in Regina this year, we have come a long way. Everyone has looked not only at his own commodities but also at those of others and has agreed on the words in the statement. Will they listen? That is the another question.
Senator Fairbairn: That was my next question. From everyone who has come to meet with us, we have seen a sense of pride about the degree to which sometimes-conflicting interests have come together for the larger good and have been put forth in this unified stand.
What is your view, so far, on the access that you have had to the government in terms of putting forward this view and having a meaningful discussion with government? Have you been able to influence the point of view that will be taken into negotiations? This is really an extraordinary effort on the part of the overall agriculture industry and groups in Canada.
To what extent can we on this committee have an influence upon the government? To what degree do you believe that your access is good and that you have an influence? We would certainly want to do whatever we could to make sure that that happens. To date, do you have concerns?
Mr. Dewar: It is a little early. So far, we have had access to departmental staff for information. There are other negotiations going on such as the free trade area in the Americas and the European area, the European Fair Trade Association. We hope the WTO is different and we are learning from this. The agriculture community is miles ahead of where they were in the previous round.
KPMG will create a summary of the consensus that they heard at the conference that ended three weeks ago. What they put up on that big screen was essentially what the Canadian Federation of Agriculture had developed over the last two years. The statements they heard from the 600 people in that room were very consistent.
How much influence will that have? Right now, we are comfortable as it develops. We hope to have the kinds of relationships that developed at the end of the talks last time, but this time we hope to begin the talks with those relationships.
Senator Fairbairn: In terms of ministers themselves, are the channels open there? Are you satisfied with that degree of connection?
Mr. Dewar: I am not sure. I believe the Canadian Federation of Agriculture has met with the Minister of Trade and presented the statement, but I am guessing because the statement was only finalized in the early part of 1999. We do have reasonable access to the Minister of Agriculture and Agri-food. We have always enjoyed a relationship there.
Senator Fairbairn: You have raised the issue of Canada's position at these talks which, in many respects, even going in, is very frustrating. It is very frustrating even to read your brief and your assessment of the situation in other countries. Obviously, there is a major degree of frustration for Canada.
This is not really a fair question, but you raised it so I will ask it. Do you think we would ever, in these negotiations, be in a position to assist our country? Would it be favourable to our position if we ever walked away from the table?
Mr. Tjaden: No, I do not really believe that that is an option. We would be in chaos. If we were outside the trading group, we would be subject to people dumping product in here and blocking our product going out. We would essentially be outside the rules.
When you say that, you take away one of your bargaining tools. I keep going back to labour negotiations as an example. We must always have something in our back pocket. We must always have another option. In labour negotiations, you might be able to strike. You cannot do that here and we do not have the option to walk away from the table.
That does not leave many more options. You hope that your negotiators can do a good job. They must present a unified, solid Canadian position. The committee must be convinced that it is a good position so that it will try to convince the government that it is a good position, so that they will instruct the negotiators to hold that position. That does not always happen but that is the process.
Senator Fairbairn: Thank you for the answer because, as you know, in the final stages in the last round, there was a sort of flurry of activity that went on at the end. There was pressure from certain quarters to walk away. Instead, other compromises were made. I am grateful for your answer.
Mr. Dewar: You must remember that Canada put agriculture on the agenda in the last round, the Uruguay Round. That was part of the reason it took so long.
Senator Stratton: There are two things that I want to point out. When we were in Europe, I had the good fortune of taking a trip to rural Italy. It was quite an experience to see those farms of about 40 hectares in size. I had lunch with a group of farmers at a research and conservation centre. They stated quite clearly that they wanted to protect that way of life. It was a social thing. They felt that that is what their country wanted to do. That was reinforced in France, also. They simply query what the farmers would do if they were taken off the land and brought into the city.
They are determined to protect that way of life, which I found, not being a farmer and not being in the farming industry, quite surprising but understandable. The U.S., too, will make sure, as it is their sovereign right to protect their farmers. With that as a background, we can look at what is happening in Canada with the vertical integration and farms just getting bigger and bigger.
I have to relay another story to you. It is anecdotal but it at least reflects on what Senator Hervieux-Payette put across. I play poker with a group of city guys once a month. They do not have a clue as to what is taking place in rural Manitoba. As a matter of fact, they are convinced that the government in Manitoba does too much for the farmers, which I found rather appalling. I found it incredulous that they would actually believe that, but they do.
There is a marketing problem on the part of farmers and farm groups to explain to the folks in that big city just what is going on in the rural area, because they do not have a clue. It is not a lack of understanding on their part; it is just that they do not have any idea of the trauma that is taking place out there.
We know that the Europeans will try to protect that way of life for social and cultural reasons. We know that the U.S. will do whatever it has to do to make sure that their farmers do not get hurt. No country will give up the sovereign right to do that. At least from what we saw over there, in my view, Europe may diminish their expectations somewhat, but not entirely.
As we go into the next round of negotiations, we recognize that there are powerful interests to protect that way of doing things. When we go to the table, we want them to diminish that kind of thing over time. Yet, you are going to decouple and subsidize farmers directly, not through grain or export pricing.
What are we going to give up? They will expect us to give up something. This is a negotiation, as you pointed out. It is no different than a labour negotiation. What are we prepared to give up? That is why Senator Hays paints me as the ultra right-winger. My point is that you cannot expect to go into a negotiation without expecting the U.S. and Europe to ask what we will give up. The two things on the table are the Wheat Board and supply management. What do you think with respect to that? How can we go at this and protect those so-called assets?
Mr. Tjaden: I will make a few comments. I agree with you that the Europeans will take the position that they will protect their producers. They will keep people out on the land. You said that the Americans were going to do the same thing. I disagree with you there a little bit. The Americans will go in and protect their industry. They will not necessarily protect their producers.
What will Canada give up? We go back and look at what we have given up over the years in support for agriculture compared to the other countries. Do we have to give up something? I do not know. It depends on how well our negotiators can explain what has been given up in the past, and use those comparisons.
If we were to give up an organization that is supported by farmers to market their wheat, the Canadian Wheat Board, and supply management, then I think we should call it what it is. We are going in there to protect the industry. We are not going in there to protect producers.
We will not keep any yard lights on in rural Canada if we do that. We will turn the poultry and dairy industry over to one or two companies just like the Americans have. If we are going to do that, let us at least be honest and say that that is what we will do from the start. The producers will make their decision based on that.
Senator Stratton: I am not disagreeing that we should do everything we can to protect where we can. I am saying that if you protect those two major items as much as you can, is there anything else we can give up? As you said, we have given up everything else. It is a hardball game.
What if we were to say to them, "Why not decouple? Why not remove all subsidies to products? Why not remove all export subsidies? If you want to protect your way of life as a European, then why not pay your farmers directly?"
When we were in Europe, I met a farmer from New Zealand who had a large dairy farm. He had met a dairy farmer in Sweden who farmed at an elevation of 3,500 feet, not that that is necessarily a huge issue. His dairy farm was 13 or 18 cows. He got paid, by the community, $20,000 a year to stay in the region and farm. In other words, he was being paid a direct subsidy. It did not affect the milk prices, but he stayed in the area. There is a level at which they will grow the grain anyway because you paid them too much in the way of decoupled subsidies. Do you think that is a route we should take?
Mr. Dewar: That is one part of it. What a country does within its own boundaries is its own business, as long as it does not affect surplus prices. It is not for us to tell them to do otherwise. If their surplus production was dumped into the ocean to feed the fish, could we complain? But they dump it on the market place and drive down the price. They distort the production and then dump it on the export market and distort the international prices. As long as it does not affect trade, we cannot argue what they choose to do within their boundaries. However, the problem is that ultimately it does affect trade, if the production ends up going outside their borders.
Senator Stratton: I understand what you are saying, but in order to go in there and negotiate, you have to have something to put on the table. Could the position be that if they want to de-couple and subsidize, they must pay farmers directly? Is that worth pursuing?
Mr. Tjaden: It is worth pursuing, but then you have to convince those countries to put in a supply management system. If you pay them to produce, they will produce and where will all the production go? Maybe that is the solution, but I am not sure that it is achievable.
The Deputy Chairman: During all this talk about negotiations, you admit that we give away everything. I do not call that good negotiations or good negotiators.
Senator Spivak: Certain groups have come here to say that we should get rid of supply management and the Canadian Wheat Board. Do you think that the negotiators will take up any of that? That stance strikes me as totally illogical.
Was there anything in the summary provided at the end of the conference that you spoke about that would lead you to suggest that they might want alterations there, albeit under the table?
Appeasement has not worked in the past, certainly not with the Americans, whether it is with free trade negotiations, or in regard to lumber or magazines. If you give into that way of thinking, they will continue on other fronts. Strength is at least as good an asset as appeasement, which has not worked.
Mr. Dewar: You referred to the conference and what came out of it. They just gave a quick summary of what was reported. There were breakout sessions and I thought the whole thing worked very well. We have not seen the final report that KPMG put together. We rather facetiously had asked to see it before the conference started.
Senator Spivak: Why have you not seen the report?
Mr. Dewar: They have not completed the report. However, if the summary they put on the screen is to be in the report, then things such as supply management are not on the table.
Senator Spivak: Will you have representatives in the negotiating process at the WTO? Are you privy to those discussions?
Mr. Dewar: We will have people just outside the door speaking to the negotiators. The negotiations are just between countries.
Mr. Tjaden: All of the options in regard to successful negotiations are in your pocket. I would be surprised if our negotiators do not have that alternative in their pocket, in order to achieve a successful deal.
The Deputy Chairman: When you speak about what they have in their pocket, there is not much left to put in their pocket. I am very suspicious about what they have in their pocket and they will not tell you.
I can remember going to an OECD meeting where on the first day I found a press release for the fourth day of the conference. I do not think we have been in that kind of position lately, but when we work with the European Union and the United States, it might be best to be independent because of the huge size of those markets.
Senator Fairbairn: We have heard it suggested that our farmers in Canada should emulate their European counterparts and get out on the street and on Parliament Hill. Mr. Dewar reflected what I wanted to say. We must remember that Canada is a big country. There are many farmers. If farmers are to take effective action in this country, we may be asking too much. They would have to have an enormous number of allies from other areas.
The only event like that that I have been involved in had to do with the sugar beat industry some years ago. When it was virtually being closed down, they did organize and come to Ottawa. They did protest. For other reasons, the industry failed in Manitoba. However, in the end the organization won. They did so because they had communities, they had the media, they had the mayors and the reeves and everyone out supporting them as well. It was not just left to them. Even so, many of the leaders virtually set aside their farming in order to do that.
It is a dramatic thing to talk about, but it is an enormous responsibility to put on farmers to suggest that they come to Ottawa and organize the troops, the buses, the costs and everything else. Whether or not that kind of protest works is another question. However, if it is sought in Canada, the farmers would need a significant amount of support from other allies. It is not fair to ask them to do everything.
Mr. Dewar: In 1991, about 10,000 farmers showed up at the legislature in Winnipeg. The communities did that, not only agricultural representatives.
Further to what Senator Stratton said about urban people not knowing and the need for education, no matter what I do or say in Manitoba, The Ottawa Citizen, The Globe and Mail and National Post will not print it.
Senator Stratton: You could at least educate the citizens of Winnipeg. That is my point. If you cannot educate here, at least educate there.
The Deputy Chairman: To borrow a phrase from Mr. Diefenbaker, "as humbly as I can say," I will tell you that I once asked Prime Minister Trudeau why he kept me so long as Minister of Agriculture. He said, "We took polls on the cabinet ministers all the time and you never moved from number one or number two." Why not? Because at every opportunity I defended agriculture in the House or wherever. The people were in favour of agriculture. They were not so much in favour of me but they were in favour of good, nutritious food and the farmers getting a fair deal.
I thank the witnesses for their presentation.
We will now hear from our next witnesses. Please proceed.
Mr. William Miner, Associate, Centre Trade Policy and Law, Queen's University: Mr. Chairman, honourable senators, good morning. It is an honour to be invited to assist the committee in examining what is clearly a complex and difficult area, that is, agriculture trade agreements and, in particular, their future.
A review of agricultural markets demonstrates that change is the rule in the trading world and this, apparently, is occurring at accelerating rates. As we all know, the current trends are toward regional and global integration. This is reflected in the internal restructuring of economies and industries including, of course, the agricultural and the food industry. These trends have been in place for some time. They were there before the NAFTA was negotiated. They were there when the WTO negotiations were under way. I believe they can be expected to continue, as negotiations proceed in the WTO and toward a form of free trade in the hemisphere. They create both opportunities and challenges. You have been focusing this morning on challenges.
On the trade side, the opportunities relate mainly to the more specialized crops, which are increasingly being developed in the country, and to more processed foods and food components which are emerging in greater quantities and entering trade. The focus there is to add some greater value to what is produced at the farm level, hopefully reflecting the results back to the farm.
The challenges focus particularly on those who are engaged in commodity trade, because commodity markets have traditionally had an up-and-down trend. Furthermore, they have increasingly become an area of trade where the margins are rather narrow.
As well, the focus is on the importance of being able to meet competition, not only globally, if you are in the export business, or in the hemisphere, if you are concentrated in the continent, but also within your own market. As you know, that competition is occurring.
The policy and regulatory framework of most countries has not changed as rapidly as have the markets. However, in response to evolving consumer taste, in particular, as well as to the impacts of technology within the industry on production and distribution, and their effects on trade, more and more processed foods and food components are entering the market.
Generally, the trend is down with respect to commodities. These global trends are forcing agriculture in virtually all countries to be somewhat less insular and more commercial in its character and, of course, to compete.
It does mean that the challenge facing smaller farm operators is to earn a living from agriculture alone. They clearly come under greater pressure in a more open market environment. This may not necessarily be the case for the more commercial operators and, in this regard, trade rules can help but, in my view, they do not offer a solution.
Fundamental reforms of agricultural support policies and regulations that go with them, are under way in virtually all regions and in similar directions. However, they vary at their rate and intensity. Canada, the U.S., and even the European Union, are moving away from commodity specific programs, or decoupling, but they do not do this entirely across the board in all countries for all commodities. There are significant differences in the levels of support that are still given, and some of that support is still delivered through market-type programs. However, it is mainly through direct payments.
A major accomplishment of the Uruguay Round was a recognition by governments that domestic support programs bear a major responsibility for trade problems. To put that another way, trade agreements tend to follow domestic policies and, only in some cases, act as catalysts in causing changes to be made internally. The nature of the negotiation tends to be dictated by the sort of internal policies governments wish to pursue.
In respect of domestic support, the agreement based the reduction commitments on internal support on an aggregate of total support, and in relation to a base period. Most governments were already cutting back expenditures, even during the round. In fact, they were doing this for both internal structural reasons, because of the impacts of changing markets and production methods, and for budget reasons.
As a result of this, the domestic support commitments in the agreement have had little effect, which I think is being brought out here as a problem that we in Canada face.
While the provisions should prevent governments from going backward in the nature of the changes they have made, they do leave room for increases in expenditures up to whatever the permitted levels are under the commitments and the agreements. The reduction commitment, of course, excludes programs that are considered to have little or no effect on production and trade, "green policies," and these types of programs can, indeed, be expanded.
Another focus of your discussion so far, as I read it, is whether we need to look for disciplines in the amount that should be available under green-type programs, something that the current agreement does not do; or whether there is, in fact, a need to further clarify the type of programs that should be considered to be acceptable, and those which create difficulties.
Further to what I have just said, the production-limiting programs, set-asides being an example, which meet specific criteria and which are called "blue box," are not subject to reduction. Thus, there is little doubt, as we see it today, that the domestic support programs in the European Union, and to a lesser extent in the U.S., are contributing to Canadian farm income problems. However, as far as I am aware, these countries are operating within their WTO commitments.
There was an observation that the Uruguay Round did not deliver what Canada had hoped to attain. Of course, we recognize that we were seeking somewhat different objectives, depending on the sector. With respect to the export side, progress was made. However, we must acknowledge that, with respect to the areas we are seeking to protect under our supply and management, and certain other types of programs, the switch to tariffs reflects a direction in the agreement which will put pressure on those types of programs.
I say that because tariffs are there so that you can see the level of protection, even though it is at relatively high levels for a good number of products, and if you are able to get increased access, the focus will be on bringing tariffs down, or perhaps allowing more in at lower levels under the tariff rate quota.
A key question that you raise is whether, looking ahead, the WTO negotiations can be used to further constrain domestic support policies. I am talking about those which harm trade and, as a result, harm income in other countries and our own.
There is considerable evidence that the provisions as they are now shaped are influencing policy-makers to recommend programs that meet the green criteria. Since this category is protected from trade remedy actions, and by that I mean countervail, and challenges under the GATT, at least until the year 2003, this also encourages governments to shape their programs to meet the green criteria.
The related negotiation, when you are seeking more access or seeking to eliminate export subsidies, will put more pressure on internal programs or domestic policies. I think it should be acknowledged, however, that the main driver here will be what governments are prepared to do with their internal policies. There is an opportunity to initiate stronger disciplines.
The changes occurring in the trade environment, and in the nature of trade itself, are pushing us in that direction as well, but I do not believe that the adjustments can be made quickly. Consequently, they are not an answer to short-term income problems from the market, although export subsidy constraints clearly can be and are helpful in today's environment.
As was the case in the Uruguay Round, the EU position will strongly influence the outcome of these negotiations. Their earlier Agenda 2000, with which you are familiar, proposed significant changes. You will note that the direction was towards de-coupling and bringing their prices in line with world markets, at least in the grain and livestock sectors. However, the ministerial decisions did not go that far. Even the Agenda 2000 proposals would not have meant that the Europeans would be operating at world prices, certainly not at the price levels we see today.
The United States began to reduce its price supports and to provide direct income transfers in an effort to get more flexibility in their system as it affects production. They began that shift in the mid-1980s. The so-called "FAIR Act" of 1996 was a shift in that direction. While they have added to those programs recently -- and these are creating problems, as you heard from your previous witnesses -- I do not believe that the U.S. policies have shifted significantly at this point from the direction you saw in the 1996 act.
While EEP funding does continue in the U.S., they are not using it, or only marginally. I think that reflects, on their part, a willingness to get out of that business, depending on how the European Union reacts.
I think the U.S. will have similar negotiating goals to Canada in relation to both subsidies and, particularly, export subsidies.
Since we are working towards a free trade area in the western hemisphere -- and we have a target of the year 2005 -- there is an opportunity to coordinate positions in a western hemisphere manner in areas such as those we are discussing now.
I think the negotiations will proceed and that there will be significant pressure on peak tariffs. I believe there will be a general tariff reduction, which may be shaped to be more demanding the higher the level of tariff.
I believe further restraints will be placed on TRQ systems and demands for greater access. I think the Canadian view that others have not come up as high as we have is a strong point to pursue in a negotiation, obviously demanding more movement from others as a beginning before we consider making further adjustments.
I believe, also, that there is a reasonable chance that export subsidy competition and related mechanisms will be under greater discipline and perhaps abolished in some sectors under certain timetables. There will be an effort, I am sure, to strengthen and clarify the rules affecting technical standards.
It is evident from the current situation that there is a need to further constrain domestic subsidies, and this will be a pressure from Canada and a good number of others.
The blue box may be eliminated, but the European Union may pose some difficulty. In that regard, they are likely to shape their assistance, not only towards regions that trail in terms of adjustment -- and that is Mediterranean-type agriculture -- but also towards so-called "green" policies that maintain the character of the countryside while, at the same time, working towards a market that operates close to, or perhaps in concert with, world markets.
We must also acknowledge that, when we are dealing with free trade areas, we must seek to go further in some areas. I will not get into detail here, but I would make the point that Latin American countries are not strong subsidizers. Mexico has some programs and other countries have commodity sectors to which they provide assistance. I think they will be working in the same direction as are Canadians and as are, hopefully, the Americans.
As we are working together towards a free trade arrangement in the hemisphere, there is the prospect of coordinating positions in relation to the issues of subsidies and export subsidies, and probably tariffs, with some clear exceptions.
As has already been raised in your discussions, the focus will be whether the arrangement in the WTO will move further in the direction of the New Zealand model, as some put it, and further away from the European Union model, as others have put it. If that is the case, I think Europe will make further adjustments to their internal programs, that is, in addition to those you have seen them willing to make. Furthermore, I suspect you will find that the United States, while willing to go in that direction, will wish to retain its leverage in relation to the use of subsidies until they feel they are on an even playing ground with the European Union.
Mr. Robert Wolfe, Assistant Professor, Policy Studies, Queen's University: Honourable senators, I understand that the central question for this committee in this series of hearings is Canada's role in the WTO and its agricultural objectives for the next round of negotiations.
I would address three questions in my opening comments, and I will conclude with some suggestions on Canada's agricultural priorities. First, is the WTO an appropriate or sufficient institutional response to the kinds of fears we are all hearing about globalization? Second, do we actually need a new round of negotiations? Third, given that my answer to the first two questions is yes, what should we aim to achieve in the round?
I have a particular interest in the place of agriculture within the trading system as a whole. Some people think we can opt out of the WTO or opt only into the bits we like.
The answer to my first question begins with a truism. Global governance is a responsibility we cannot evade. This point was recently made by Kofi Annan, Secretary-General of the United Nations, who said:
Globalization is a fact of life. But I believe we have underestimated its fragility. The problem is this. The spread of markets outpaces the ability of societies and their political systems to adjust to them, let alone to guide the course they take...The industrialized countries learned that lesson in...the Great Depression, ...and they adopted social safety nets and other measures, designed to limit economic volatility and compensate the victims of market failures. That consensus made possible successive moves towards liberalization, which brought about the long post-war period of expansion. Our challenge today is to devise a similar compact on the global scale...
I think he is right. That puts the challenge quite aptly for the next round.
In its first 50 years, the GATT helped to create the conditions for the global flows of goods, services and ideas that, by bringing people closer together, undoubtedly contributed to peace as well as to prosperity. It forged a compromise between trade and the welfare state. Now we have to widen the circle of prosperity, while still maintaining social cohesion at home.
The boosters and the critics of globalization agree that the WTO constrains domestic policy choice. The boosters think that shaping the evolution of consensus about good policy is valuable; and the critics think that the WTO inappropriately values the views of multinational firms over those of citizens and farmers. This is the democratic paradox of global governance. Participation in governance of the trading system requires finding an accommodation with other countries which will inevitably constrain our policy options. It should not require an abandonment of national policy choice, and it should not be done in secret. The WTO is an appropriate institution, but it is no longer sufficient in its current form.
It may seem puzzling that work on a new round of negotiations is under way at a time when mistrust of globalization is at high levels and when the results of the last round have not been fully implemented.
This puzzle is the answer to my second question: What sort of round do we need? This next round of negotiations will be defined, as was the last, by the triangular tension among the old issue of agriculture, the new issue of what we call trade in services, and the increasing integration into the global economy of developing countries.
To take the first point: Why is agriculture one point of the triangle? Farm trade is simply the oldest form of trade in goods and the slowest to be liberalized in the GATT era. Members of the WTO are required, under article 20 of the agricultural agreement, to begin new negotiations this year. If anybody would prefer to duck the issue at this time, the peace clause, article 13, creates an incentive. It restrains the use of measures like countervail against agricultural subsidies, but only until 2003, four years after the new negotiations are set to begin. Many countries wish to extend the life of the peace clause but that will be easier to do if new negotiations are successful.
The Uruguay Round was a ceasefire in the farm war of the 1980s, but no more than that. The war began with skirmishes in the dispute-settlement system, but soon subsidies skyrocketed. The relative calm observed since the conclusion of the Uruguay Round was helped initially by favourable market conditions, but skirmishes are starting again. Failure in the round could mean that, when the peace clause expires, the farm war will start again.
The second point of the triangle is services, the newest form of trade. Further liberalization matters both to producers and consumers of services. Failure to keep working on the framework for regulating this expanding domain could both hurt growth and be a source of conflict among many governments.
Third and finally, the full integration of all states into the trading system on a fair and equitable basis should be a major foreign policy objective for countries like Canada. Developing countries, including the transition economies, want to assume more of the benefits and obligations of full participation in the system. If they do not feel part of the process, they can block it. If the round does not consider issues of importance to developing countries, it cannot and should not succeed.
None of these three domains can be avoided and none is self-balancing. Agreement at one point of the triangle will be possible only with trade-offs involving the others. Each point of the triangle will have other issues added to it.
Minister Marchi has provided an extensive list of possibilities. Investment and competition policy discussions will complement services. Discussion of regulations and standards is relevant in different ways. For agriculture, it is the services. Further liberalization is possible for other goods sectors. Members naturally want rounds that are shorter, and they want to harvest the results when they are ready.
My argument is that this triangular logic in the context of the single undertaking requires a comprehensive round, not a set of clusters. Such a round will likely take four years. I can elaborate on my reasons if you wish.
I come now to my third question: What should Canada seek to achieve in the round in general? Our first objective should be an agreement involving all three points of the triangle. Our second objective must be to use new trade negotiations to improve Canadian productivity, for example in advanced technology goods, while smoothing the path of structural adjustment in older sectors.
Governments see trade negotiations in terms of expanding exports through opening foreign markets, but that is only half the story. Contrary to both the boosters and opponents of globalization, trade is not about more jobs but better jobs. The number of jobs depends on macroeconomic policies, not on such microeconomic policies as trade. The gains from trade come in letting us do what we do best, the concept of comparative advantage, and using what we earn from exports to buy the best the word has to offer. If we do not use trade negotiations for this larger purpose, we cannot serve the more narrow goal. It is all very well to think in terms of what we want from others, but we must also consider what others might want from us or what we might be prepared to give up in our broader interest. Trade negotiations are a powerful tool of social and economic policy, but the questions then involve how we want to shape the Canadian economy.
Our third objective should be to resist the trend to seeing the WTO as a master agreement that can regulate all domains of life. Many groups will say that incorporating environment and labour standards in trade agreements should be our priority. The trading system can and must balance social and economic objectives, but sometimes that will require deference to action taken in other formal and informal organizations or within states. I would be happy to expand on that if you wish.
Finally I come to the most important question for this committee: What should we try to achieve on agriculture?
In general, we should try to strengthen and extend the framework developed in the Uruguay Round, within the context of the first three objectives I mentioned. What was called the "multi-country/multi-commodity framework" requires a balanced approach to domestic supports, border measures, and export subsidies.
Thus, we should have four goals in the round. We want to keep the green box. We want to encourage steady but gradual policy change by increasing market access and decreasing domestic support. We want to move towards the elimination of export subsidies. We should try to maintain the peace clause.
I will take those four points in order. The heart of the agreement is the green box. It allows countries to help their own farmers in ways that do not hurt farmers in other countries. It could be weakened, particularly if inducements are created for countries to start moving all of their policy into the green box. We have seen that with the United States. It is not a trend we should be supporting.
The second goal is gradual change. There are many ways to think about gradual change. The key one is probably the blue box. Lots of people think we should try to get rid of the blue box in the short term, but if you do that, the same volume of subsidy in the European Union -- who are the big users of the blue box -- will pop up somewhere else. Instead, we should be thinking of ways to reduce the impact of the blue box, to lessen the attraction of keeping it. Can it be removed from the peace clause, for example without hurting the ceasefire agreement? Can it be subject to a reduction commitment? Can we further reduce the size of the amber box?
On the question of gradual change, with respect to border measures, you will have heard from farm groups, particularly export-oriented groups, that there are all kinds of problems with TRQs. They are complex and important, but a focus on improving the administration of TRQs should not obscure the need to double the size of TRQs -- 5 per cent does not give much market access -- and to reduce the enormous tariff peaks. In other words, we still need to reduce tariffs and open the markets further, if we want to keep policy change going in the right direction. Simply fixing administration is not enough.
Third, we should move closer to elimination of export subsidies, but that does not mean we should be pushing for a declaration of faith that export subsidies are bad. We have that now in article 9 of the agreement. We need to move in that direction and not try to do it in one step.
Much more work needs to be done on definitions and on the clarifications of existing rules. For example, are state trading enterprises and other marketing devices a disguised form of export subsidy? That is a question that cannot be answered at the outset. Certainly, STEs should be as transparent as large private firms. Governments should not be able to hide the effect of a policy by pretending that a state agency operates at arm's length. The Wheat Board, in my view, remains an important legitimate tool of policy.
The fourth goal, the peace clause, is essential, but it is problematic. The United States, supported by some members of the Cairns group, would like to allow it to expire. The European Union and Japan have been among those supporting an extension. The key problem is not that they support the green box in article 13(a), it is that article 13 (b) protects the blue box from challenge. You do not want to get rid of the peace clause only to end the protection to the blue box. There must be other ways to deal with the blue box. We do not want to lose the protection it gives. We do not want the United States to use the dispute-settlement system and other WTO agreements to get at issues in agriculture where there have been unsuccessful negotiations up to now. The Americans like to litigate when they cannot negotiate. We should not encourage it. We have to keep the peace clause. Whether it should protect export subsidies is a separate issue.
The WTO lags domestic policy, as Mr. Miner said, and I think that is right. The WTO has little to say about how we organize our agriculture. It has a great deal to say when any country tries to get others to pay the costs of its choices.
The point is not to get a perfect trading system but to use the trading system to keep the pressure on for domestic reform. There are all sorts of pressures in all the advanced economies for the size of the agricultural surplus to increase. Those pressures must be managed. If they are not, countries will find a way to export the surplus, no matter what the rules say.
The WTO cannot dictate that the EU will reform the CAP, but it can make that the preferred direction for policy change and CAP reform. As it happens, the need to expand the EU will make CAP reform imperative in the coming years. The WTO needs to accommodate that process, to hurry it along, to lock in the results when we get them, but it will not lead the process. That would make efforts to eliminate the blue box futile, even counterproductive.
Farmers react to conditions in the markets on a daily basis, but policy cannot.
I understand that, in the process of consultations, the industry has identified a great many problems that Canadians face in export markets. This is essential information. The committee needs it, as do negotiators. You also must consider where policy in other countries will be when the Uruguay Round results are fully phased in; that is not necessarily where the countries are now.
It is essential to monitor implementation, and we do that through the WTO notification system. It is important for countries to discuss whether the agreement is working and whether restrictions in one area have caused support to flow somewhere else. That is part of the ongoing analysis and information exchange process. The Uruguay Round created a structure that captures everything. The task now is not to weaken that structure, but to keep tightening the noose in a balanced way over time. It matters not how we got to where we are today; it matters how we will go forward. Countries are in the system which does capture everything. Everything is bound. Levels of support can be cut further. Tighter rules can be drafted.
In the last round, Canadians hoped we could have our cake and eat it, too. We agreed with the Cairns group in wanting disciplines on export subsidies and, at the same time, by the end, we were alone in wanting what we called a clarification of article 11.
The process of open and extensive consultations now under way is important and valuable, but it would be a pity to let our position be defined by producers alone or to pretend that our negotiating stance can accommodate all interests equally. At the end of the last round, compromises had to be made between the interests of farmers and other Canadians, and compromises had to be made within agriculture. Some of those compromises were made so late that we had little time to engage in real negotiations with our trading partners. It is better to be looking to the end of the game from the start: What must we achieve? How can we do it?
In conclusion, Canadian foreign policy and domestic economic policy would both be well served by the launch of a comprehensive round in the WTO. We will need to stress further elaboration of the agreement on agriculture; to strengthen the General Agreements on Trade and Services; to integrate developing countries; and to improve the institutions of the system.
Policy must aim at ensuring that open global markets, from which we all benefit, can be reconciled with robust local communities where we all live. Canada is not alone in wanting to retain the ability to regulate in the national interest to allow the process of domestic dialogue to have a determinative influence on policy. However, Canada can only have such scope in the domain of trade if the WTO is able to keep pace with globalization.
The Deputy Chairman: You mentioned article 11. I checked what we did at the Uruguay Round. No political party of any consequence at all, no farm organization, asked that article 11 be changed.
We talk about this great globalization, but our agriculture community is being hit harder than, say, the auto industry. They have a product that is not quite everlasting; it can depreciate very quickly. In the downgrading or elimination of our subsidies, we have been the Boy Scouts of the whole operation.
Both of you are talking about how we will renegotiate our position, but we have been, economically, inhumane to some of these production entities in Canada. I have read the statement Mr. Miner made before the House of Commons where he suggests that we get rid of the little support we still provide. Perhaps our people should challenge this action under the Charter of Rights. These are rights that we fought to achieve, and now they have been taken away from us. We followed all the laws, all the international laws, to the letter. Then our negotiators tell us to give up our rights. Our dairy and food products are perishable.
I have strong reservations about this because I fought for those rights. No one ever came to me and discussed changing them. An institution like the WTO is like another United Nations -- it cannot do anything. Look at the chaos the world is in today. Since the end of the Cold War, we have killed 10 million people. Look at what is going on in the Balkans now. There is no regulation. Everyone is arguing over who should have authority.
Senator Hays: I have a question about the green box. Both of you touched on it. Dr. Wolfe spoke about it approvingly, saying that it served a good purpose.
My impression of the green box is that it is a means to continue what was happening before we had green, blue, amber or any other boxes. It is continued support for farmers producing a particular commodity. The support still goes into producing that commodity, whether it is under the green box or whether it is a commodity-specific payment.
Both of you have made excellent and thoughtful contributions to our work and I appreciate that.
Mr. Miner said that tariff equivalents equal transparency, and that will result in pressures where tariffs are high. In the case of the green box payments, say, to European cereals producers, those are not subject to tariffs. We see the numbers and so on, but they are not viewed in the context of the increased production of that commodity by Europeans as a result of the green box support.
It may well be that the green box payments referenced by Dr. Wolfe in an approving way could be useful if the payments were made to producers and were not allowed to be used to buy fungicides, pesticides, fertilizer and so on. That lets them do whatever they were doing when the green box did not exist.
Is there a way of quantifying what is being transferred under the green box? Can we make it transparent? It would not be called a TRQ.
I am asking in an anecdotal or an intuitive way, but I think I am probably right that the moneys transferred still go into farmers' pockets and still go to produce more cereals. We have not quantified the subsidies. We have not made them transparent nor have we put pressure, thereby, on the beneficiaries to enter the WTO framework which would create a better environment for international trade.
Dr. Wolfe, do you think the green box is working? Am I wrong in my allegations respecting the green box?
Mr. Wolfe: I am sure you have all heard the old joke about what a farmer would do if he won a $1 million lottery. The answer is to keep farming until it is all gone. Economists know that any kind of subsidy to farming is a subsidy to production. If farmers can stay in business, they will run a tourist business on the farm. Farmers will farm. That is what they want to do. Any kind of transfer to farming has some effect on production.
The key consideration about the green box is that you need not produce anything to get it. Many subsidies that were deemed "bad" subsidies by the agriculture research of the 1980s were subsidies that were only paid if a farmer produced something and that paid more if the farmer produced more.
Green box subsidies tend to be provided to the farmer just for being a farmer. A farmer can produce as much as he thinks is economical for the farm and still be eligible for most of those green box subsidies. They have a smaller tendency to increase production.
In terms of quantifying green box subsidies, there are two forms of the quantification available to us at the moment. The first is the OECD system, the consumer subsidy equivalent, the CSE, and the producer subsidy equivalent, the PSE.
I am sure you have heard that about 42 per cent of EU farm incomes comes from transfers. The combined CSE-PSE for the European unit is 42 per cent. That is all forms of transfer to farmers from government and consumers. It is quantified. It is not a basis for negotiation and never has been. It gives you a picture of the support for farming.
Each country reports in its notifications the AMS, the aggregate measurement of support in the WTO. There is only one table that I have found in the documents made available for the agricultural conference a couple of weeks ago, and it indicates the aggregates from 1995 or 1996 for the big four. I asked the agricultural people if there was anything else and they told me there was not. The problem is that a person must go through each individual notification by each member country to pull together all that information on the AMS, and no one has been doing that. It would be quite useful if the WTO secretariat had the resources to assemble all the information from all the notifications and tell us what is going on with the AMS, because the definition of the AMS was carefully negotiated and it means something in trade terms in the way that the OECD CSE/PSE does not mean something. That would be useful information, but we do not have it.
Senator Hays: You said that the green box transfers have a smaller tendency to increase production of a commodity as compared to a payment that was based on the production of the commodity. How would you explain the increase in cereals production in the four years that have followed the use of the green box?
I do not have the numbers and I guess you do not either, but my inclination is to believe that it was not a sufficient change to change the way in which the dollars are used. One could say that these transfers that are not conditional on producing wheat can be put in the bank, into your tourist interest, or into growing some other commodity but cannot be used to grow more wheat. If you did that, then that would bring into line a market discipline that we all think would benefit the world trading structure in terms of giving greater recognition of comparative advantage.
Mr. Wolfe: My answer to that is, first, generic. With any form of economic activity, you cannot pick one variable and necessarily associate it with another variable and say that one change did not cause another change. It is rarely that simple.
In the case of farm production, cereals production in particular, the major variables are the weather, state of demand in the large consuming countries, and macro-economic development, including changes in exchange rates and so on. All of those can have an enormous impact.
Senator Hays: They have not had an impact in the European market over the last four years.
Mr. Wolfe: As a matter of fact, they have. My understanding is that the market conditions were so favourable that the Europeans, and to some extent the Americans, did not need to use their export subsidy reduction commitments in the first few years. Now market conditions are swinging against them a little bit, they will use the provisions of the agreement that allowed them to backload their export subsidy reductions. Their subsidy reductions will actually go up now.
Senator Hays: Their beginning point, in terms of looking to the market for return, remains as high as it ever was. That has been a major factor in continuing to produce the commodities which we are getting sideswiped on in international markets, and that is because of the way we clear the product in the market.
Mr. Miner: I am not sure I can go much further than Mr. Wolfe has in commenting on the green box. I agree with his explanation of the rationale behind it.
It is similar to the United States countervail law or our own, for that matter. If you give a form of assistance directly to a product, the cause and effect is clear. You can assume that the subsidy affects the amount produced and the amount exported, and that, perhaps, it will be subject to a countervail action.
If, on the other hand, it is general or non-specific, that claim cannot be made. If you are in fact giving, as we are, safety net support to the commodities which are in our safety net system, it is regarded as green or non-specific in the context of U.S. countervail law, as far as I know. Consequently, that type of support, if given, is not deemed to be responsible for an increase in that particular commodity and the quantity being exported. That is the rationale behind this.
However, it is not quantified. In other words, there are no limits placed on the amount you can transfer.
Senator Hays: Therefore, they are not transparent in terms of bringing pressure.
Mr. Miner: You do not know how it is being used, and whether it is going into a commodity or not.
Senator Hays: I know how it is being used.
Mr. Miner: I share you view. If it is going into the farm base, it will be reflected in the productive capacity of the farm and eventually show up in some fashion in the market. I do not argue with that assessment. However, if you were giving it directly to the commodity, you would be absolutely certain that it would show up. You could trace it to a problem, perhaps, in the durum market. We are now looking towards that in the case of the U.S.
I wish to take another minute or two to go back to the point that the chairman made about giving up a certain type of farm program. I agree, again, with Mr. Wolf. The WTO does not try to dictate the form of program that a country uses. In a scenario where markets are becoming more open -- and this does has little to do directly with the WTO, it is just the world we live in <#0107> and you are running certain types of programs which require that you manage the supply internally, the pressure on that system is greater. That was my only point. I am not saying that you have to give it up necessarily. That is a decision that I suspect will be taken by the farm groups.
The question of whether or not it is under greater pressure is fairly clear. Under the earlier regime, the protection was given in article 11. That gave the authority for quantitative restrictions. As well, the U.S. had a general agricultural waiver in relation to their obligations under the GATT. They could run what they called "section 22" quotas against imports. I also remind you of the EU restitution levy system, whereby they had variable levies. The focus of the concern was that they created great distortions in the market and, consequently, we should move to a tariff system.
The focus was not to tell countries to get rid of a certain type of policy. However, the effect of shifting is to put greater pressure on some types of systems. It is still up to the farm organizations and, perhaps, the government, to determine what kind of systems are wanted. I, for one, would never publicly suggest that you get rid of a particular type of program.
Senator Hays: You say that the green box is decoupled, that its a good idea, and that we should keep it. You both agree with that. Perhaps it is a good idea but, with the way things are playing out, it is simply a continuation of what we went into the 1994 negotiations to try to stop. To the extent that it is irrelevant, exogenous, or having minimal bearing on this, I would be happy to agree with you.
However, in an effort to resolve the difference, should we not press, in another round, for a way of quantifying and interpreting this by way of a TRQ-like number?
If we negotiate an agreement and the expected outcomes do not materialize, should that not be brought back for review so that it can have some bearing on what you are committed to doing?
Mr. Miner: A number of avenues could be pursued. You are suggesting that it is possible to quantify expectations. Perhaps you are going further in relation to the use of the subsidy within the sector. In that regard, if you take the EU system, it is given either on a per-hectare basis or a per-animal basis. You have that differentiation. I do not think it could go further than that unless you were to investigate with an analysis as to how it is used.
You could certainly consider trying to bring the total level of transfer down. That is a possibility; namely, reduce subsidies and support. You have the AMS tool, which is aggregated and deals with policies that they think harm the market. You could try to constrain it or suggest that it be segmented by product, which it is not now, it is aggregated.
You could also do something similar for grain, but you must make a judgment call as to whether it is better to squeeze the money out of policies that directly affect a commodity and direct it towards more general, non-specific commodities. If you squeeze them both, you may not achieve some of the results you are seeking. This is a question of what is possible.
As to their increase, I cannot explain the total. Many factors have been beneficial, including the market. I think most would agree that, under the MacSharry reforms, the transfers that they made per hectare and per animal proved to be excessive. As the markets were relatively strong and the transfers were relatively large, the farmers were doing quite well.
Senator Hays: Do you see a value in guaranteeing decoupling from the commodity that was previously supported by designating dollars transferred?
My belief is that, if you try to reduce European support -- and I appreciate the upcoming expansion is an issue -- you will more likely meet with success if, instead of suggesting that they should spend less, you ask them to guarantee that they will decouple that from the commodity that it was previously dedicated or directed towards. Then it would be a support to the farm as a whole, not a substitute proxy or disguised way of doing what they were doing before.
Mr. Miner: The EU would be prepared to go in that direction to some extent as would the U.S. I do not know whether it would have quite the effect that you have in mind, but that direction of policy shift is already occurring and is perhaps negotiable.
Mr. Wolfe: It is important to distinguish between farmers as people and farmers as owners of small businesses, some of which are highly capitalized.
From the standpoint of the small business, we are trying to create more open global markets. From the standpoint of farmers as people, we are trying to preserve a way of life and, yet, make adjustments to accommodate a changed world, and we are trying to do that in a gradual, humane and sensible way. That has been the point of farm policy for two generations now.
In 1980s that policy did not work. We were locked in. The point of the Uruguay round was to create a structure in which that process of adjustment could begin again. I believe that is beginning.
We need to continue crafting a system which tightens gradually, in a balanced way, across all sectors, all commodities, "tightens the noose," as I called it my prepared remarks, and encourages countries to move in a certain way in regard to policy reform.
At the same time, you do not want to loose the ability to support farmers as people. That has been essential to the system, and the green box is central to our ability to support farmers as people.
The Deputy Chairman: If you asked one out of 10 people on the street, especially those associated with agriculture, they would not know what you are talking about. You speak about entering into a new world. I would suggest we entering into a world of chaos again. I was in that world of chaos in agricultural production. I was an agricultural producer.
Globalization and all its cousins will destroy one of the best agricultural systems we ever built, and we will have nothing to say about it.
Senator Fairbairn: Dr. Wolfe, at the end of your presentation, you indicated that you thought our foreign and domestic economic policy would be well served by a comprehensive round in the WTO. I presume you meant comprehensive rather than sector-specific.
How can you talk about a comprehensive view and, at the same time, have the sense that, when it is all in the pot, the agriculture sector would not run the risk of being moved aside or in some sense sacrificed to accommodate the interests of more powerful lobbying by other sectors?
You indicated, Dr. Wolfe, that the process under way will have the agriculture industry move towards the WTO, in their own consensus way, to try to achieve a central policy.
You said that these are valuable discussions but that it would be a pity to let our position be defined by producers alone or to pretend that our negotiating stance can accommodate all interests equally. Your statement concerns me in the sense that we have extensive difficulties in the agriculture industry in this country. If we put everything in the same bag, as it were, will agriculture get the serious attention that we think it deserves, or will it be pushed aside under a comprehensive model?
Mr. Miner in your brief you were encouraging about Canada coming to this world trade round as part of a coalition of the Americas and, if I understood your correctly, as part of the Cairns group. Can you expand on how this strengthens our position as an important, though smaller power, with the United States in that group?
We have heard, in our discussions over the months, people have long memories about how agreements seem to have been made, only to have, at the last hour special agreements between the United States and the European Union. Suddenly, we found ourselves in a different position from the one we thought we were in.
Mr. Wolfe: The most important thing to know about the WTO, is that its states agreed in 1986, that the launching of the conduct and implementation of the outcome of negotiations shall be treated as part of a single undertaking. In the end, members agreed that the WTO agreement shall be open for acceptance as a whole. That meant all of the agreements, including the revised agreements from the Tokyo Round were included in the WTO agreement.
Globalization affects countries and sectors in different ways. Everybody's interests had to be accommodated in the final act of the Uruguay Round, because countries could accept or reject it only in its entirety. Canada signed the whole thing once. It is important we maintain the trading system as a single undertaking and that it continues to move forward, taking balanced account of the triangular forces in all the new sectors called trading services, as well as all new players from developing countries, plus some of the traditional sectors, such as agriculture. They all interact and are part of the singling undertaking. You cannot slice any of them out.
In the case of agriculture, it is not self-balancing. For example, in the Uruguay Round, we wanted Japan to be part of the package. However, Japan was part only on the import not the export side. For Japan that meant that all it could see in the agricultural agreement was a loss. You could sit at an agricultural table with Japan forever and get nothing. If you want something from Japan you must put the whole trading system on the table. After much pain, the government had to say, "We have bigger interests than just rice farmers. We have to sign. We will have to change our policy." They have done it slowly and agonizingly, inadequately, perhaps, but they are doing it.
The Europeans have export interests, but they also have import interests. Could we do an agricultural deal with the Europeans on its own, without trading services? Probably not. That is part of their argument. A comprehensive round is the only way to move the trading system forward. It is the only way to reach a deal and make sure it does not fragment again. The fragmentation resulting from the Tokyo Round was serious. One of the major achievements of the Uruguay round was to end that.
You also asked about the cryptic comment I made on accommodating everyone's interests at the table. I am thinking back to what happened to us in the fall of 1993 when Canada was maintaining that we wanted clarification of article 11. I do not know if Mike Gifford told you a different story. I cannot believe that he had not known for a long time that that position was not sustainable. However, politicians were not prepared to admit it. Some farm groups, I am sure knew it, but many of their members did not.
Canada should have conducted many side negotiations, but did not. In one of the first results, the Americans immediately hit us with a case. They did not win it, but it is the sort of situation that could have been cleaned up much more efficiently and successfully had we admitted in an earlier stage of the negotiations that we would not achieve some of our maximum positions.
You do not necessarily say at the outset of the negotiations that there are things you are prepared to give in on. However, you do want to be reasonably frank about what the outcome is likely to be. You must also think about what kind of compromises you can make between import-sensitive producers and export-dependent producers; between makers of cars and makers of telecommunications services; and farmers. There are many compromises that will go into balancing the Canadian position. It is better to talk amongst ourselves earlier rather than later.
Senator Fairbairn: Along that line, rather than leading in with a list of agricultural sector objectives, presumably you would argue that the players in the agricultural sector, well in advance of people walking into a negotiating room, must be aware of compromise options and their consequences.
Mr. Miner: I wish to respond to the question related to negotiations in the hemisphere. I approach this from two perspectives. In one, I do not necessarily favour globalization or regard it as the answer to everything. It is a fact of the world we live in. Consequently, it does affect the way I think about these issues.
However, in agriculture we are moving towards a north-south orientation in what we are doing. This means, I think, that our systems will adjust gradually in that direction as well, if they have not already. We are, as well, seeking to obtain some sort of free trade arrangement on a hemispheric basis.
With that behind us, the assumption is that Canada cannot "outsupport" or "outprotect" you might say, major countries such as the U.S., and the EU. Their approaches during negotiations will be rather basic to the nature of the outcome. We have an influence but we cannot control it.
I believe that the western hemisphere countries collectively, including the U.S., have a similar approach to most elements in the negotiations. Certainly, there is less commonality with the EU, largely because we cannot, even if we wished to, emulate the EU farm policy. Consequently, our leverage can be reinforced with that type of coalition in a round.
How does that shape up vis-à-vis the U.S. and the EU perhaps, in the end, doing some sorts of tradeoffs? I do not think one can ever avoid that. The closer you can be to a common position, as in the U.S. approach to the EU -- which helps them push the EU in different directions -- the more strength you have.That is, provided that we, Canada, are going after things that we wants to see occur. That, again, is the reason why, to me, a coalition within the hemisphere, makes some sense.
The Deputy Chairman: There is a headline in the paper which reads, "Leaderless WTO in Gridlock." They cannot even elect a president. How on earth will they run the World Trade Organization?
Mr. Wolfe: The interesting thing about the WTO is that it is a member-driven organization. The leadership of the director general can be quite important. He or she certainly controls the secretariat, but not the agenda. That is pretty much set by the member countries. Their proposals come from member countries. A great deal of the work is done by member countries. The organization can move forward reasonably well, whether or not this particular problem is sorted out.
Why have they not been able to make this decision? I think it is because Supachai of Thailand is an appealing individual, but he comes from a country that has made a bit of a hash of its economic policy in the last couple of years. Mike Moore comes from a small country which is not a developing country. Some people thought that this should go to a developing country this time. He has a reasonably abrasive personality. Neither of them have national qualities that make them strong, compelling candidates. The major countries are probably preoccupied with other things at the moment.
The Deputy Chairman: Can we really call the World Trade Organization a "world" organization when over one-half of the world's countries do not belong to it? You talked about people before. Perhaps I did not understand you correctly. I was so impressed with the president of the Czech Republic when he talked about people first and government second. He stressed that several times in his speech. What we are doing here with globalization is putting people way in the background.
I remember the chaos which existed when I became Minister of Agriculture. We had warehouses full of dairy products and chickens. We paid people to bury them in the ground. As far as I am concerned, it is being suggested that we go back to that, or that we just get out of the business and depend upon someone else to supply us. Do you disagree?
Mr. Miner: I would disagree at least in part with you. This is because at the time you are describing the level of intervention, if you like, in world markets in agriculture was relatively high, even in a commodity like wheat, which was widely traded. Nonetheless, as I am sure you will agree, it was subject to substantial distortion from U.S. and European policies. We have seen that impact for several decades.
The Deputy Chairman: It is not happening as much as now since the WTO came into being. The European Community and the Americans have not adhered to their agreement. It is worse than it was when you and I were there. You were running the ship; I just went along for the ride.
Mr. Miner: I would have to disagree with both your comments in that regard. I do not think it is worse. It is happening more quickly and the swings are more severe, and that is probably the subject for a long debate.
The Deputy Chairman: The people who are swinging in and out of this are in APEC. About three years ago we were being told that APEC should be watched, that their gross domestic product was 6 per cent or 7 per cent. We were told specifically to watch Japan. Yet, Japan did not change one iota in terms of its position on agriculture in the WTO. Their representative told us that at our Foreign Affairs Committee. They did not bend at all, yet we are told that we had 132 countries against us. There would not be any more than 32 who could trade a chicken, and they are voting against us. We should not give up our developed agriculture here. We developed it under the most severe conditions of any country in the world. About 55 per cent is produced further north than any country in the world, yet, we are asked to entertain globalization. That has nothing to do with it. We had slave trade and pirates from the very beginning. That was globalization. One of them was Sir Walter Raleigh. He was knighted for being the best robber the Queen had. Was that not globalization?
Globalization is sending the shoe manufacturer to Malaysia or Indonesia and we pay them $2 a pair. Instead of bringing the slaves here, we take the machinery and encourage slavery there and then ship the products back.
I have been to many world meetings and I know if you give leadership you generally get followers.
I am sure you heard the witnesses who were here before. What is happening in certain sectors of agriculture is tragic. I refer, for example, to cereal grains, the red meat sector and oilseeds. It is unbelievably bad. No one seems to be doing anything. We moved in and we did everything the WTO told us to do. We were good Boy Scouts. However, those people you mentioned are the ones who are suffering the worst.
The program that we have here to help them is infantile when placed alongside the American program. They put $7 billion extra into their subsidies last fall during the election campaign. That was completely contrary to the WTO. The European Community said it would not change until 2003. I know we have used the excuse that we cannot compete treasury wise.
I do not believe those high tariffs are real, particularly when you can buy butter cheaper in Canada than you can in the United States. Who is subsidizing whom? Our dairy products have been the most stable.
I am not an economist. Some of you have heard me say before that I never heard an economist who was right. They are taught a certain philosophy. If you do something outside that economic philosophy and it works, it must be bad. We created things under article 11 of the GATT which were legal. We built a healthy agriculture industry.
I have some notes from when Mr. Miner appeared before the House of Commons committee. I understand that what you said there is different from what you have said here this morning. You seemed to imply that Canada would have to dramatically reduce its import tariffs. You seem to imply that our supply management would have to go because this tariff is so high. I do not know how they work those tariff rates out, but when we make a comparison, generally, the consumer gets a break and we do not have to use money from the treasury of our country.
Senator Robichaud: You said that there are important programs. You asked us to look at farms as businesses and then look at farms as people.
If you were the Canadian negotiators going to those talks, would you not feel that it would be better to try to hold off so that the talks do not proceed too quickly and, you run the risk of losing the "people-side" of the deal, because I feel that is what is happening. Alternatively, would you make every effort so that everything would go as smoothly as it can and get on with this globalization, and so on?
Mr. Wolfe: I agree with Bill Miner. Globalization is not a policy; it is like El Ni<#00F1>o. It is just there and you must deal with it. You cannot get on with it or not get on with it; it just exists.
Senator Robichaud: But you can put things in place that facilitate it proceeding faster, can you not?
Mr. Wolfe: I do not think so. You can help Canadians to adjust more or less quickly to changes in the world, but we can not do much more than that. As a portion of this global economy, we are too small now to effect ourselves to pace at the rate of globalization.
The important thing about the next round of negotiation is the peace clause. That clause states that many parts of agricultural policy can be dealt with only in the agricultural agreement. You cannot use the subsidies agreement or go to a countervail or go for nullification or impairment -- all of the various ways in which you can salami slice a policy by saying that it does not meet this or that.
The Americans love to go to the WTO and use the dispute settlement system to start pulling apart policies that they do not like. In agriculture, the peace clause prevents that. However, the peace clause expires four years from now. That is enough time to do a new round and, as part of the new round, to say, "The peace clause should continue to protect the things that we have negotiated in this round."
In the last round, which took a lot longer than four years, we also learned that this stuff is not easy. Agriculture is bewilderingly complex. It will take time. The mandate for the negotiators should be, "Hop to it! Move it as quickly as possible." If you do not, and if the system begins to erode, then the consequences for us will be much worse.
There is a kind of built-in incentive to make this thing go reasonably quickly and smoothly because that is how we stay on the track that we agreed to in the Uruguay Round. We do not want to get off that track.
Senator Fairbairn: Do you detect a mood that indicates that it would be difficult to retain the peace clause?
Mr. Wolfe: Yes, it will be difficult. The Americans do not like it because it was quite clearly part of the Blair House agreement. The EU commissioner for agriculture at the time was quite explicit. He said that they will not take the pain of beginning to move towards cap reform if they are going to be whip-sawed by the Americans in the dispute settlement system. They will insulate the process of agricultural reform within the agriculture agreement and not get pushed over into the WTO as a whole where there are many agreements that were not negotiated with agriculture in mind. That is what caused the problem. All the disputes with agriculture in the early 1980s occurred because people said, "We have these Tokyo Round agreements. Let us apply them to agriculture." In my view, because the agriculture talks failed in the Tokyo Round, the result was a great big mess in the trading system in the early 1980s for agriculture. Mr. Miner was there and may have a clearer view of that than I do.
I think the peace clause has been quite important at limiting the scope and the range of agriculture disputes, but it expires soon. There is a sunset clause on it. It is an encouragement to get going with this round and bring this round to a conclusion.
The Deputy Chairman: If I sound a little emotional, it is because I spent a whole career helping to build the agriculture industry and working with provinces, et cetera. I am concerned about the undemocratic institution that is being established here. I have attended several world meetings and I know what happens after the minister leaves -- whether it is the OECD or the World Food Council meeting or a meeting of the FAO, et cetera. Decisions were taken such that I, as minister, wondered -- was I there?
I want to point out to you what the United States is doing now. I do not think you will make a success with the World Trade Organization. I read an article about a U.S. bill moving them towards a milk cartel power. The people who appeared before our committee when we were studying rBST said, "We wish we had your system. We do not know from week to week whether or not we will get paid for our milk." No one else in our society is affected in the same way that farmers are, where their pay may go up or down. For instance, with the Auto Pact that we have in Canada, we have a $11 billion surplus. It is the economic machine that runs Ontario mostly. But this is outside of this agreement. A special provision was made in NAFTA for it. It has been in existence since 1965.
Many things seem unfair. I remember a French parliamentarian saying that he is worried about this because there will be no need for elected assemblies anymore if we go this way. I have strong reservations about giving that kind of authority to a group in some other part of the world and permitting them to make those decisions for us, as Havel said, "people." In Canada today, much is happening because of the low income that those people are given. They are facing economic suffering and we are brushing it aside as globalization. I call it "gobblization." Those people are just being destroyed. They are not doing that in the European community. You heard what Senator Hervieux-Payette said. That was an important point. Here is a city parliamentarian going to Europe to see what they are doing. I do not believe for one iota that the European parliamentarians will move in the way that either one of you is suggesting today, because they are scared of revolution. If Canada were not 4,000 miles from coast to coast, and if I were not so old, I would give serious consideration to leading a revolution. No one seems to pay attention anymore to what is happening in agriculture.
Senator Robichaud: I thought Mr. Miner had something to add. I should like to hear it.
Mr. Miner: Your question related to the speed of negotiations and whether it is in our interest to move quickly or otherwise. My view is that this should be governed largely by how the sectors see themselves looking after their interests in the markets that are coming -- that is, the integration markets that are occurring. I think that will continue to happen. Each sector must make its own judgments in the first case. When that happens, the focus will be on subsidies as a principle target, in particular export subsidies, and there will be some concern about access. The more quickly you can move that part of the agenda for those sectors, obviously, the better. I think we heard that from some of them this morning.
On the other hand, there is another side to it, which is the area in which we would not like to change things. That would create pressure there. I referred to a tariff level. I was asked in the previous committee what I meant by "peak tariffs" because I had said that pressure would be put on peak tariffs. I simply said that in our case they are, as you suggested, better, but for others they are higher tariffs than those particular levels. Pressure will be placed upon them. I am not saying that you must change them necessarily, but you are part of a negotiation and you will be under pressure to make changes.
My inclination would be to make sure that, as a negotiating group, you have a good fix on what you want to get for each subsector and in what time frame and then develop your approach accordingly and work with like-minded exporting countries in the North American continent, remembering that there are import sensitivities in those countries also. A couple were mentioned here with respect to the United States. It is a balancing act.
The Deputy Chairman: The real chairman, Senator Gustafson, is planting grain and oilseeds on his farm, so he could not be here today. On his behalf, I wish to thank both of you very much for your presentation.
I was once on a panel with Mr. Wolfe at Queen's. I do not remember how we got along at that time, but we must have done so because I have no bad memories of that experience. I wish to thank you for your presentation here this morning. I have read some of your documents before and had been told to read your book before you came here this morning but, unfortunately, I did not have time to do so.
As you can see, the members of this Senate committee have involved themselves in some very good work. We have people on our committee who have years of experience in government. Our members have travelled out west and held meetings here, and they have also gone to Europe.
I did not go to Europe with the committee but I can tell you that when I went to OEC meetings several years ago, I attended with the minister from West Germany and the minister from Italy and the minister from the Philippines. Together, we had 51 years of experience among the four of us. However, we did not always agree. If one of us came forward with a strong point and presented it well, sometimes it was carried and it completely changed the meeting.
I disagree with those who say that we are a little country and we do not have that much input. We are well respected in the world for our stand and our knowledge. We have brought many big countries here to see how we built this agriculture industry under one of the weakest confederations in the world compared to the United States south of us, which has total control.
The committee adjourned.