Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 10 - Evidence
OTTAWA, Thursday, May 11, 2000
The Standing Senate Committee on Agriculture and Forestry met this day at 9:20 a.m. to study the present state and future of agriculture in Canada, consideration of farm income issues.
Senator Joyce Fairbairn (Deputy Chairman) in the Chair.
[English]
The Deputy Chairman: Good morning, colleagues. We are coming to the end of a very long series of hearings over the last year, devoted to concerns about farm income and trade. Our guests today are from the Western Canadian Wheat Growers Association.
We welcome you. Please proceed.
Mr. Greg Douglas, First Vice-President, Western Canadian Wheat Growers Association: I should like to thank you for the opportunity to appear before this committee today. I am involved in a fifth generation family farm at McTaggart in southeastern Saskatchewan. We grow a variety of crops, including lentils, peas, flax, canola, durum, sunflowers and chickpeas, in a continuous rotation. We have also diversified into bison. In addition to farming, I work in Regina as a veterinarian, providing services for Regina and area practices.
You might be surprised to hear me say I am optimistic about the future of farming. No doubt you have heard many views to the contrary in your examination of this issue. While the short-term prospects appear bleak, I am convinced that Western Canadian agriculture will be the most dynamic place to be in the next 20 years. If we can strip ourselves of some the outdated regulations and perceptions, we can reinvent our industry and rebuild our rural communities.
However, if you have ever had someone stand on an object you are trying to lift, you will know how we often feel in the farming business. Prairie agriculture is being held down by the dead weight of regulation, high taxes, inefficiency and, of course, foreign subsidies. We must address those issues if our industry and way of life are to thrive in the 21st century.
The farm income problem has dominated the news media for more than a year, but unfortunately it is nothing new. We often hear about the hardships of the dirty thirties, but there have been many challenges in the intervening years. In 1969 there was a huge wheat crop that could not be sold. In the early 1970s, the federal government paid farmers to take their land out of production. In the late 1980s and early 1990s drought, grasshoppers and foreign subsidies drove thousands of farm families out of business.
Each crisis has been met with an ad hoc solution from well-meaning politicians, and all have failed. The Special Grains Payments of the late 1980s did not provide a long-term solution. Various stabilization programs have been cobbled together at the height of market downturns and later abandoned.
We find ourselves caught on a treadmill because we have failed to recognize the need for structural change in our industry. Many people long for the good old days but forget that the trend to larger and fewer farms has been occurring on the Prairies for more than 60 years. For example, since 1936, Saskatchewan has lost 60 per cent of its farms. Even between 1971 and 1976 -- some of the most profitable years ever in Prairie grain farming -- over 6,000 Saskatchewan farmers left the business. The figures were not a whole lot higher between 1966 and 1971 -- among the worst years in history -- when 8,700 Saskatchewan farmers pulled up stakes.
My presentation today will not focus on a detailed description of the problem because I am sure you have heard it all before. Farmers in Europe and the United States are heavily subsidized -- 56 cents on the dollar in Europe for wheat, compared to 38 cents in the U.S. and only nine cents in Canada. Farmers receive a paltry share of the value of the food we produce -- a nickel for the wheat in every loaf of bread and 14 cents for the barley in a case of beer. However, while many farm leaders and politicians have expressed outrage at these figures, I have heard very few constructive solutions.
The Western Canadian Wheat Growers Association consists of farmers who believe we can overcome most of these obstacles ourselves if given the tools to do so. We focus on market-based solutions that will enable Western Canadian farmers to prosper, including less government intervention and freedom of choice in how we market our grain.
During the current farm income crisis, much of our anger has been directed toward policy-makers in Europe and the U.S. who continue to subsidize their farmers at obscene levels. Our federal government has promised to take a strong stand for the elimination of all export subsidies in the current round of World Trade Organization talks, and that is encouraging. However, realistically, an end to the subsidy problem could be several years away. Even if subsidies are dismantled, it will not guarantee a return to buoyant grain markets.
In reality, many of the barriers to profitability have been created within our own borders. They can be found in outdated marketing and transportation systems, a heavy tax burden, inadequate crop insurance and the failure to involve farmers in value-added processing. Those barriers have contributed to a seemingly endless cycle of ups and downs that have forced farmers to ask for taxpayer assistance time and time again.
The challenge I would issue to members of this committee is to dedicate yourselves to developing a comprehensive plan that will put this cycle to an end. Provide us with the tools to earn our living from the land, not government handouts. That would be the ultimate safety net program.
The Wheat Growers have proposed a multi-phased plan to address the current farm income problem, while providing farmers with the tools to compete in the global marketplace of the future. Our plan includes the following: a voluntary Canadian Wheat Board marketing system to give farmers the flexibility to price their grain to suit their individual business needs; a more efficient, competitive grain transportation system based on the complete Estey report; a national disaster assistance program to provide dependable, predictable safety nets; improvements to the NISA program, with particular emphasis on young farmers; improvements to crop insurance, including consideration of a private insurance program; pursuit of a zero for zero agreement on subsidies and trade-distorting mechanisms in the current round of World Trade Organization talks; tax relief on fuel, equipment and land; increasing the Canadian Wheat Board cash advance loan rate; food aid as a means to move grain through the system and improve farmers' cash flows; and facilitating farmer involvement in value-added processing initiatives.
Polling in recent years has consistently shown that at least two-thirds of farmers favour a voluntary wheat board marketing system. Yet, our federal government continues to do everything in its power to prevent that from happening. An end to the monopoly would not be a cure-all for low grain prices, but it would give farmers the ability to manage their businesses more effectively in tough times.
While the introduction of two new pricing options by the Canadian Wheat Board this spring was a step in the right direction, it did not go far enough. First, the board's fixed price is a discounted version of the Pool Return Outlook -- a figure set arbitrarily by the CWB. Whether it is an accurate reflection of world grain prices remains to be seen. Second, the new pricing options are minuscule compared to the wide range of choices already available for other crops, such as canola and flax. The wheat board options still do not offer a true cash price because there are no competing bidders for our grain.
These small steps are being taken only after the majority of farmers have already lost faith in the single-desk monopoly. Therefore, credibility is a factor. Until farmers have the freedom to sell their wheat and barley to the customers of their choice at the best possible price, this divisive issue will not be resolved.
We were extremely disappointed to learn yesterday that the federal government chose to waste farmers' time, and that of many other industry representatives, by not implementing the bedrock issues of the Estey report. A commercial grain transportation system based on the vision of the Estey report would deliver real dollars and cents benefits to Prairie farmers. The Wheat Growers and several other farm organizations in the Prairie Farm Commodity Coalition have identified savings of roughly $10 an acre -- $300 million -- that would go into farmers' pockets every year if the Estey reforms were implemented.
Canada's grain handling and transportation system is dysfunctional. Between 1984 and 1994, it failed on 20 different occasions and broke down completely in the winter of 1996-1997. Last fall, the rigid car allocation formula could not supply enough rail cars for non-board grains, costing Prairie farmers between 200,000 and 400,000 tonnes in potential canola sales to China, according to industry sources. The special crops industry also reported lost sales due to their inability to access cars. A year ago, an independent study by the Organization for Western Economic Cooperation concluded that Canada's regulated grain transportation system costs Prairie farmers as much as $1 a bushel more than the U.S. system.
A commercial transportation system will force grain companies and railways to compete to move our grain to port at the least possible cost. It will lead to lower freight rates and better service. However, it will not happen if we follow the half-baked approach promoted by some. Transportation reform must be done as a package, including the following: 100 per cent tendering by grain companies to fill the wheat board orders at port; a reduction of freight rates through a combination of legislation and competitive forces; and measures to improve railway competition, including the consideration of open access.
As long as the Canadian Wheat Board allocates rail cars based on the past market share of grain companies, competition will be stifled and farmers will be stuck with the highest rates the law will allow. That fact was clearly demonstrated recently when the Canadian Transportation Agency announced a 4.5 per cent increase in freight rates to cover the rising fuel and labour costs. As long as we use bureaucratic formulas to establish freight rates, farmers will continue to bear these costs. Until we have a fully commercial system with binding contracts, farmers will be liable for the mistakes of others.
One of the greatest failings of our safety net programs in the past has been their unreliability. No sooner do farmers think they have something they can bank on than the rules change or the program is arbitrarily cancelled -- as was the case in Saskatchewan with GRIP. Farmers need a long-term national disaster assistance program that is predictable and reliable. It should be targeted, production neutral and green box eligible under WTO rules.
It is clear the AIDA program has not adequately addressed the problems experienced by grain producers over the past two years. However, the Wheat Growers have not joined the ranks of those calling for AIDA to be scrapped. History has taught us that walking away from programs like GRIP and the Western Grain Stabilization Plan was short-sighted. We believe AIDA can and should be salvaged in some form. Through our involvement in the National Safety Nets Advisory Committee we continue to examine options for improvements.
NISA has been an effective tool for many farmers. However, improvements must be made, with emphasis on making it more accessible to young and new farmers, more flexibility on withdrawals and allowances for taking advances on future earnings. While there are considerable funds in NISA accounts across the Prairies, there may be little connection between where the money is and where the money is needed.
Flooding last year and droughts in previous years have revealed the shortcomings of crop insurance. In many areas, the premiums are simply too high in relation to the coverage available. While some adjustments have been made in provincial programs this year, we believe further improvements are necessary to make crop insurance a valuable tool for a broader cross-section of farmers. The Wheat Growers are in the process of developing proposals for a private insurance program that would be similar to GRIP, but administered privately to reduce costs and political interference.
We are deeply concerned about Canada's hypocritical negotiating stance entering the new round of World Trade Organization talks. Essentially, we are asking other countries to drop their subsidies and trade barriers while insisting that ours be retained. The interests of Prairie grain farmers are being compromised to protect supply-managed sectors such as dairy, eggs and poultry, concentrated mainly in central Canada. For example, according to the Organisation for Economic Co-operation and Development, Canadian milk subsidies to farmers are roughly equivalent to those of the European Union and the U.S., at 58 cents on the dollar. Grain and oilseed producers in Canada are treated far differently. We believe Canada's negotiators must be consistent in their commitment to a zero for zero subsidy objective and be prepared to discuss changes in supply-managed sectors as well as the Canadian Wheat Board monopoly.
Taxes paid by farmers or those who supply them with products and services are really a tax on food production. They include taxes on fuel, fertilizers, chemicals, equipment and land, which add to our input costs. Farmers are price takers; therefore, we cannot pass these costs on to our customers.
Education tax is unfairly applied to farmland and that must be addressed at the provincial level. Farmers are more than willing to pay their fair share of education costs, but it must be equitable.
While farmers are exempt from most provincial fuel taxes, we pay federal taxes of 4 cents per litre on diesel and 10 cents on gasoline. For a typical 2000-acre farm, that bill amounts to roughly $1,000 a year.
Federal and provincial fuel taxes paid by railways and trucking companies also increase our costs. CP Rail estimates that fuel taxes account for roughly 2.3 per cent of freight rates or between 55 cents and 95 cents a tonne, depending on where you farm. Saskatchewan's railway diesel tax is a whopping 15 cents a litre, five times that of Alberta and more than double Manitoba's.
A comprehensive plan of tax relief would be one way of delivering assistance to farmers that would accurately reflect their cost of doing business and is trade friendly. With respect to school and property taxes, a tax credit could be considered that is tied to farmers' ability to earn income from that land.
One of the great failings of the Prairie economy has been our failure to add value to the crops we grow. That is starting to change, especially in Alberta and Manitoba. Saskatchewan, unfortunately, is lagging behind.
I am proud to be a shareholder in Prairie Pasta Producers, a group of Canadian and U.S. farmers attempting to develop a pasta plant in southeastern Saskatchewan and southwestern Manitoba. However, our efforts have been stonewalled by the Canadian Wheat Board's rigid pricing system. The board has made the incredible assertion that farmers who put their money at risk in a pasta venture should be entitled to no advantage over those who do not. Is it any wonder that virtually all the value-added investments in Western Canada are in non-board crops?
As long as that attitude persists, there will be no farmer involvement in value-adding of Canadian Wheat Board grains. Farmers will remain at the bottom of the value chain of food production and economic development will be discouraged -- all to protect the sacred cow of compulsory pooling.
In conclusion, I want to re-emphasize that Western Canadian farmers do not want to be subsidized. However, we need the tools to respond to market distortions caused by massive trade-distorting subsidies and barriers to profit created right here at home. We learned from the 1980s that short-term solutions are not long-term solutions. On the flip side, a commitment to long-term programs will translate into immediate gains. We need a broad-based strategy to create an environment in which farmers and their communities can prosper in the 21st century.
We also must recognize that change is inevitable, but it also creates opportunity. Many Wheat Growers members have seized on diversification opportunities into such areas as raspberry and wine production. Others have successfully added carrots to their list of crops. One of our Saskatchewan members has developed markets for weed seeds, buckwheat hulls and even ergot, a fungus that can downgrade wheat crops, but that has pharmaceutical applications.
These are challenging times, but by using our ingenuity in an environment that encourages innovation, I believe we can and will succeed.
Senator Stratton: Welcome. In your presentation you said that realistically an end to the subsidy program could be several years away. I feel quite strongly that the several years could be as many as 15 to 20 years. It is a long-term venture. The European Union in particular does not seem to be budging on the degree of their subsidies. Do you agree with that?
Ms Sharon McKinnon, Policy Manager, Western Canadian Wheat Growers Association: Yes, I agree wholeheartedly. It is very difficult to deal with the U.S. and the European Union, who believe that trade is a one-way street. Farmers in those places -- and we deal with U.S. farmers quite a bit -- are absolutely irate when they see any Canadian grain come down there. The European Union is completely implacable when it comes to making changes. They have agriculture subsidies for more reasons than just subsidizing farmers, and they are not particularly committed to change. We are probably looking at very long-term changes to the subsidy regime.
Mr. Douglas: Having said that, Mike Gifford spoke to our convention in Mexico. You probably heard about it. He is one of the most experienced trade negotiators who was part of the agriculture round. He has seen movement in the European group lately that he has never seen before. However, he is also seeing some obstinacy from other countries that he has never seen before, for example from Southeast Asia, or so he said. No solution will be quickly apparent for my generation of farmers.
Senator Stratton: You believe that if we bring in a long-term disaster assistance program it should not be a three-year ad hoc situation. It must be developed to be long-term and to adjust as the European and Japanese subsidies drop. Would that be your approach?
Mr. Douglas: A disaster assistance program needs to be predictable. It needs to be there all the time. It needs to be something farmers can bank on and understand. Farmers should not have to deal with the rules of a new program every other year or with a new acronym that gets dropped in their laps. Dollars aside, it needs to be left there and not be subject to any particular political persuasion or partisan influence.
Senator Stratton: In your presentation you also mentioned food aid as a means to move grain through the system and improve farmers' cash flows. What do you mean by that?
Mr. Douglas: The biggest problem with Canadian Wheat Board grains is that when you are managing a large operation -- and farming operations in the Prairies now are multi-million dollar operations -- it is very difficult to deal with your creditors when you have absolutely no ability to sell board grains that are sitting in the bin. Movement of grain through the system is very important. It is just a means that we may be able to move more grain through the system to help farmers.
Senator Stratton: By food aid, do you mean giving grain away to other countries? It could be interpreted as that. Is that what you mean?
Mr. Douglas: It could be.
Senator Stratton: Is that not another indirect form of subsidy that really we want to get away from? Other countries use food aid as a way of subsidizing their farmers. They give it away to other countries. That is being done now, is it not?
Mr. Douglas: We would not advocate increasing it, but if giving away grain is going to be done anyway, we suggest doing it in a more timely fashion so that it can be predictable. Moving the grain through the system could be useful, although ad hoc giveaways of grain throughout the world will not do anything for global wheat prices.
Senator Stratton: To my knowledge, that is already being done by other countries to a degree. If we hop on that bandwagon, all of a sudden we are on a treadmill that accomplishes nothing except helping those countries. You sure do not solve the long-term problem we have.
Mr. Douglas: Absolutely. I agree with you. In effect, you send stimuli back to the industry that you need more export grain when in fact, since you are not receiving a cash price for it, you really do not. If giving away grain is going to be done already for humanitarian reasons, we would like to see it done in a timely fashion to move grain through the system. Fundamentally, in Western Canadian agriculture we have always dealt with the glut, the fact that at harvest time everything comes together, at the end of the crop year everything comes together. That can be organized and facilitated in a way that helps improve cash flow.
Senator Wiebe: Do the cash flow problems that exist with farmers having their grain tied up in storage in their bins on the farm indicate that the cash advance program currently there on stored grain is inadequate?
Mr. Douglas: Unfortunately, the cash advance program is not the answer. The answer is changing the system to the extent that you can move your board grains through the same way you move your grains through in canola and flax. The cash advance system is useful to protect farmers from an artificial system they have to deal with. We have far more grain on our farms than the Americans do in storage. The advance loan is not necessarily supposed to pay for storage. It is supposed to pay for a lack of cash flow. Is the cash advance loan program supposed to help us with storage? That is not the way it was intended.
Senator Wiebe: I do not think the cash advance program helps us with storage. The no interest cash advance loan program allows us to receive the money for our grain that we have not been able to sell. In other words, is that cash advance program meeting the needs of the individual farmer who has bills to pay and who has that grain on hand in storage but who cannot move his grain?
Mr. Douglas: No, not right now, not the way it is.
Senator Wiebe: Should the cash advance amounts be increased?
Mr. Douglas: If you will continue on with the current system, absolutely they must be.
Ms McKinnon: It is better to allow farmers to sell their grain when they need some cash flow. They are far better off to have a system like that rather than having to wait sometimes 18 months for a payment when the cash advance payment covers the cash flow. It is better to get cash flow from the market.
Senator Wiebe: What happens if the market is not there?
Mr. Douglas: If the market is not there in board grains...
Senator Wiebe: I am talking about all grains.
Mr. Douglas: Right, but it artificially affects my non-boards and all my pulse crops. If I am forced to hang on to board grains, then I have to take what the market will give me for all the other crops. We grow a lot of crops on our farm. If I am forced to make difficult decisions, then I want to minimize my pain in some of my difficult decisions if I need to maximize my cash flow. With board grains, I am forced into a smaller pool of grains. I have to take what the market will give me for sunflowers or lentils. On our farm, I am forced to sell pulse crops, lentils, before Christmas, because the board tends to sell less grain between harvest and Christmas than in the rest of the year.
Senator Wiebe: Just to play devil's advocate for a moment, this applies to all grains if the markets are low and under that system you have to sell to meet your obligations. Surely an interest-free cash advance system similar to what we are talking about would allow the farmer to hang on to that grain until the price or the market improves. Would that not provide a much better marketing tool for that farmer to be able to maximize the greatest potential from the grains? As you and I know, markets change rapidly sometimes, and if you are tied into a system where you must sell now...
Mr. Douglas: I do not know if it is in anybody's best interest to subsidize me or my neighbours to speculate on commodity markets. I think I am the smartest guy in the neighbourhood. Take a look outside the Winnipeg Commodity Exchange: There are not a whole lot of Cadillacs out there. Nobody has all the answers when dealing with market trends, and I am not convinced that the Canadian taxpayers want to subsidize or give me interest free loans on all my crops and commodities so that I can watch and wait for what I think is the highest price.
Senator Wiebe: Do you think your view represents the view of most farmers?
Mr. Douglas: Most farmers are concerned about the market, but two-thirds of farmers polled by the Canadian Wheat Board are starting to feel that they are more comfortable with understanding how to manage their risk on their operations than anybody else, including government and government-sponsored organizations. I do it in my pulses and my oilseeds. I manage my risk throughout my industry in a variety of different ways, whether through insurance programs or options, or futures contracts, or spreading out my crops on different pieces of land. I can do that, but unfortunately you take away my ability to manage my risk on grains that frankly I have to grow. You hear many farmers say that they do not grow board grains as a matter of philosophy. In my rotation, I need to grow some cereal crops, to the tune of half, to minimize disease and other insect and fungal problems. When you take away my ability to manage those cash flows, then you really hurt my operation. I do not think the answer long term is to start to micro-manage my operation by helping me with what you think or we all think is the right way to market our grain.
Senator Fitzpatrick: Thank you for being here. I am curious to know the size of your farm and how that compares with the average size of the farms. Are you a larger operator than most?
Mr. Douglas: Five years ago I would have said we were roughly average; now we are probably double average. I am 38 years old and I have had a Canadian Wheat Board permit book since I was 17. I farm with my brother, who is a professional engineer, and my father, who is also a professional engineer. We farm together and we will seed probably 5,100 acres this year. We have gotten an awful lot bigger. It is not all owned land. We rent some, and we contract farm. We do whatever we can and it works out pretty well.
Senator Fitzpatrick: Obviously, as you get bigger more risk is attached. However, we know that we are facing structural problems in the industry. Are you suggesting to us that getting bigger is one of the solutions or one of the ways in which we can be more competitive in this business in Canada?
Mr. Douglas: That size is everything is an overly simplistic answer. Most of the reason we have been profitable and able to maintain our operation has nothing to do with size. It has everything to do with our innovation. In our area, we jumped into pulse crops when nobody else did. We tried to manage things like our fertility and wheat control very well. We do a lot of different things in the marketing side. I do not know if you are familiar with the Weyburn Inland Terminal. It is the largest terminal in Western Canada. It is farmer-owned, farmer-operated and farmer-controlled. It has done all the most innovative things in terms of grain handling in Western Canada. My father has been instrumental in that as the vice-president. We have done a lot of things. We have tried to see the future, understand how to serve our customers abroad as well as farmers, and we have been successful at that.
We have had a couple of neighbours in the last year come to us and ask us to take their land. They do not want to farm any more. They are the ones who seem to not want to look at those things, not recognize that just because you have not been involved in a certain aspect of agriculture does not mean that it might not be right for you in the future. Is size the answer? I do not think so.
Senator Fitzpatrick: You are saying size may be, but innovation is very important. That is very interesting and refreshing to hear.
I take it that you are not happy with the announcement that was made yesterday regarding improving the grain handling and transportation system. We will probably agree that there are at least two points of view on that. There are arguments both ways and we have been hearing many of those arguments here in this place over the last little while.
It does seem to me that it is a step in the right direction. There is an 18 per cent reduction in the rail rates, with a cap placed on it. That is significant. This is a step towards tendering by the Canadian Wheat Board. In three years this will be up to 50 per cent, so that is a step in the right direction. Monitoring of this process and these changes is important to determine whether or not we are making progress. I should like to have your comments in regard to the cap and the tendering, and then perhaps afterwards we can talk about the other more local transportation facilities that were talked about in the announcement yesterday.
Mr. Douglas: Mr. Estey called for a 12 per cent revenue cap. It is debatable what the 18 per cent cap will do to the railways and their level of service. The concept of a revenue cap compared to the rate cap is a positive one. We needed variable freight rates for farmers and the choice that farmers will have. Whether 18 per cent is too much and will affect levels of service, only time will tell.
In terms of the Canadian Wheat Board, unfortunately I never really recognized, until I became more active in understanding the Western Canadian grain transportation handling system and Western Canadian agriculture, how much effect the CWB has over all the decisions that are ever made there. It is a huge monolith that sits over innovation and development in agriculture in Western Canada. To have it continue to have a role in car allocation is detrimental. Mr. Estey had it moving to 100 per cent tendering. The possibility of 100 per cent tendering could have worked quite effectively. All the handlers want that right now. Our manager at the Weyburn Inland Terminal is always frustrated when dealing with the Canadian Wheat Board on a variety of issues. Oftentimes, their agenda is not merely business and maximizing returns to farmers: they have many agendas. I never understood completely the extent of those other agendas until I had an opportunity to go there. Those other agendas are what bothers me the most. In the future, we are going to have to deal with them in a way that limits their power over Western Canadian agriculture, and this is a perfect opportunity to do that.
Senator Stratton: What are the other agendas?
Mr. Douglas: They are mostly ideological and control where we are going in a variety of things. You see that after sitting down and talking with the wheat board about anything -- for example, export grains and development of a grain. Last year I had a chance to sit with them for a week and a half. Right now the future in Western Canada is probably towards animal protection. We are landlocked. We are a long way from ports. However, they help to stifle plant breeding on grains that are used for feeds. They help to stifle efficiencies that do not work in their best interest, specifically transportation, where they cannot have some element of control.
Grain companies would have no problem organizing and negotiating with railways directly. They do it to a certain extent now on a variety of grains. Farmers would benefit from that. The Canadian Wheat Board could in the future be a marketer or be very different than what it is now. It would serve modern Prairie agriculture very well. We had an opportunity to deal with that this time, and we caved in. We decided that we would have a half measure. That is what is most frustrating.
Senator Fitzpatrick: We could look at it as a first step. We will see whether it provides for improvement.
I want to get back to your answer regarding railway service and the 18 per cent cap. There are other items in yesterday's announcement that will help with the efficiency of transportation and the level of service of railways: $175 million to improve roads and some encouragement with respect to the short line operations. My understanding is that part of the problem we have been facing is getting the product to the terminals and to the major railways. This measure should assist in that and perhaps compensate for any cutbacks in service that might -- I am not saying would -- occur by the major railways. I would be interested in your comments about providing for a better service to get to the terminals.
Mr. Douglas: The press release I saw just stated that $175 million would be spent. It did not say where or how, and there was no indication of a plan for what the road network would or would not look like. In its previous provincial budget, Saskatchewan just spent $250 million on roads, so $175 million from the feds for Western Canada has to be taken in that context.
With respect to your comment on open access, open access is a red herring. It is really difficult to vision into something that we have no understanding of. That is why they say that in six months they plan on putting a report together. It is somewhat unrealistic to expect a lot of short lines on some marginal lines to pick up the slack in places where a large railroad has not been able to be productive. In some cases it will work. I applaud those individuals, communities and co-operatives that want to do it and I hope they are really successful doing it. But is it the answer in grain transportation efficiencies everywhere? I do not think it is. Moreover, on your way there, will you make the whole system so dysfunctional that we potentially could have one Air Canada in Western Canada and not have two lines and two companies? I do not know the answer to that.
I am not here to stand up for the railways, and maybe it does not matter to me if one of them goes under or if one of them decides to pull up stakes if we have really strong short lines everywhere. Frankly, however, right now we have two carriers that have made a commitment to Western Canada, and we have a very expensive system that is not working. There are some things we can do. I think open access has some merit and possibilities, but I would rather not see it as the focus or as more than a peripheral issue.
Senator Fitzpatrick: It is another step in the package that is being presented to try to resolve some of these problems. We have heard different views on this, and we understand it to be a major problem for our Western Canadian economy. We will have to wait and see how some of these things work out.
[Translation]
Senator Gill: My first question goes along the same lines as that from senator Fitzpatrick. For an average farm -- and you talked about a 5,000-acres or more farm -- what is the sales figure in the Western provinces? What is the average number of employees?
[English]
Mr. Douglas: Our sales for a 5,000-acre farm in past years have not been very good. We work on a dollars-per-acre basis so we will bank on $175 and $220 an acre; you can do the math. Our costs on an acre of land would be roughly between $80 and $90. I already told you of all our employees: my father, my brother and myself. My mother is there as well and our wives are employed. My wife is a professional economist. It is fundamentally a family operation and we have not yet had to hire outside help. It has worked pretty well this way. We put in long hours. I came from the tractor to the plane and I will get right back on the tractor as soon as I get home.
[Translation]
Senator Gill: My second question is the following: you talked about an artificial system. Do you mean an artificial system for production and subsidies?
I had the opportunity to study the issue a few years ago. I am a layman as far as agriculture is concerned. I do not know a lot about it, but I think I understood that the market is fairly controlled -- and by a very small number of people -- internationally. Do you mean that the market is created and that you can control it, decrease it or increase it? In reality, demand is controlled. Do you mean that this aspect of the market is artificial?
I think I understood that the market for coffee, sugar or grains is controlled internationally by some families. Is this why you say it is artificial or is the market only what it is? Is there a demand, does it decrease or increase naturally, or is it controlled?
[English]
Mr. Douglas: I am speaking only to our situation as it relates to our modern farms in handling our cash flows in terms of markets. I do not think we deal with an artificial system in the world. We are very much in a supply and demand market in the world, and global wheat stocks are at all-time highs. International analysts will show that with wheat. In the last 25 years, the world has produced three times as much wheat as we did 25 years ago, but global demand has been there as well. However, right now our world stocks are about 22 per cent over supply. When they get down to 17 per cent or 18 per cent, that is when we start to see wheat prices go up. We are very much in a supply and demand market with relation to bread wheat in the world.
Are we buffered in Western Canada by an artificial marketing system from the globe? I do not think so. Our prices are still low. Not only that, but we do not have the option or the ability to manage our cash flows in those grains. Our prices are low in canola and flax and sunflowers too, and they are not the greatest in peas right now either, but we have the ability on our modern farms to manage our cash flows to recognize that. If we have to pencil and deal with some tighter margins, we do it, we deal with that.
Ms McKinnon: Sometimes you must move quickly to take advantage of market opportunities. With your pulses and your lentils you can do that. You cannot do that with wheat board grains.
Senator Rossiter: Is it not about a year and a half now since the election of board members to the Canadian Wheat Board? Was it not envisaged that that would bring the concerns of the farmers and the producers to the board in a way that would be more constructive? Has that happened?
Mr. Douglas: It has not happened.
Senator Rossiter: Is it because of the lack of time for it to work out?
Mr. Douglas: Unfortunately, the Canadian Wheat Board has a lot of power. We know a few of the directors and their ideas. The mandate they were elected on is completely stonewalled to the extent that they are not allowed access to information. It pains me to say this, but they are put through psychological testing and so on. It is unfortunate, because there will be another round of elections this fall in all of the even numbered districts. Ideologically, right now that board is very status quo; it has an ideology of "protect me and the free open enterprise at all costs." Sometimes that is not very effective for a board. I hope in future elections there will be a meeting of the minds as to where modern agriculture can go, where the world is headed, how a Canadian co-operative marketing agency or wheat board might work in the future.
Farmers overwhelmingly support dual marketing. That is a given. Polls have shown that. Is it reflected in our board of directors there? No. We have a couple of dual marketers and we have some status quo compulsory marketing people, but we do not have a vision. I do not want to point fingers at any federal ministers. It will take leadership from a Canadian Wheat Board chairman, it will take leadership from the minister of the Canadian Wheat Board and it will take leadership from all of us. I hope that can be achieved starting this fall.
Senator Rossiter: Those who were elected are in the minority, are they not?
Mr. Douglas: That is right.
Senator Rossiter: How did the Canadian Wheat Board stymie your pasta plant? Was it unavailability of the grain you wanted for the pasta plant or was it pricing? The pasta plant would have been a value-added process.
Mr. Douglas: We produce on our farm about 100,000 bushels to 150,000 bushels of durum wheat every year. We want an exemption to ship to our plant when we want and for how much we want. We want to sell, after we develop our markets through our feasibility studies, anywhere in the world. We want every farmer who grows durum wheat to have a share in our plant. We were selling that plan quite aggressively and a lot of farmers were quite interested in it. We want those farmers to be from all over Western Canada; we hold no illusions about a closed group of farmers.
However, the Canadian Wheat Board reassured their foreign customers, most significantly in the United States, that no group of farmers in Saskatchewan was going to get an exemption to deal with their own durum in a processing and marketing and distribution fashion. Thus, we have no exemption and we have to sell through the board. They came up with some sort of stock switching option that maybe could have worked on paper, but unfortunately it stymied a lot of the investment. The perception by a lot of producers was that their investment opportunity was stymied if they could not have control over their capital. Does it matter if that perception was real or artificial? Investing in something is a gut feeling, an emotional thing. Unfortunately, it was a significant setback. Will we recover and do it anyway? I sure hope so.
We have dealt with the Canadian Wheat Board on a variety of things. I remember that with the Weyburn Inland Terminal we were the first ones to develop condo storage. That is where you own storage at site and you can haul and fill your condo up so that in the middle of winter, when it is 40 below, you are not trying to struggle to meet an obligation. They said that no, you can not have condo storage. It will be unfair to your neighbours and it will give you unfair delivery opportunities. It will never work. We went to Winnipeg and through a minister who provided some leadership. He said that it was not a matter of ideology or what would work: it was a matter of when would we do it, because it was a good idea. Now every grain company in Western Canada has condo storage for their customers so that they can buy whenever they want on site, and a lot of farmers have probably saved a lot of engines by not starting them up at 40 below.
Senator Rossiter: That is amazing. Thank you.
The Deputy Chairman: We hear from a wide variety of groups at this committee on these issues. It would be helpful for the committee if the polling you referred to on the question of dual marketing could be made available to us. Is it public polling?
Mr. Douglas: It is not public polling. It was all done by the Canadian Wheat Board itself. Winnipeg is a fairly closed environment in the Western Canadian grain industry.
The Deputy Chairman: We will seek other avenues.
You used a phrase that caught me by surprise in response to Senator Rossiter's question on the Canadian Wheat Board elections and directors. Hopefully, if the process is to continue, there will be more elected directors. You spoke about psychological testing. What did you mean by that?
Mr. Douglas: It is not a story I like to tell. The one board member from southern Alberta, James Chatenay, was elected on a mandate of dual marketing. He wanted to bring those sentiments to the board, but after a while he realized that he would not get any help from the Canadian Wheat Board. The board decided that they would put him through or help him to act in good faith on a board and reflect the fiduciary responsibility of being a Canadian Wheat Board board member. Some of that had to do with, in his words, "discussing and sitting down with a psychologist".
The chairman of the board of the CWB, Ken Ritter, who was elected on a dual marketing platform as well, has moved over or has reflected on all the virtues of the Canadian Wheat Board and has changed his tune since he was elected. He says it is his mandate to fulfil the fiduciary responsibilities of the Canadian Wheat Board.
There is a bit of a problem or a conflict. What are these directors elected to do? Are they elected as members who have a mandate to work on behalf of farmers and farmers' overall best interests in the new agriculture economy or are they elected to fulfil the mandate of the Canadian Wheat Board, which is preservation within the Canadian Wheat Board Act? It is difficult for everyone. It is difficult for Jim Chatenay and Ken Ritter. Without leadership and with all the conflicting messages, it is probably very difficult for them.
The Deputy Chairman: We may pursue that.
Senator Wiebe: I should like to go back to the question of farm size and your particular operation. Let me congratulate you. That type of farm is the ideal farm for the province of Saskatchewan. There are 5,100 acres looking after three separate families -- two brothers and one father. Individually, though, that breaks down to 1,700 acres for each family. With the price of equipment, price of land, the tremendous investment and all that is required, could you operate as successfully as an individual, completely separate from your brother and your father?
Mr. Douglas: I do not derive very much personal disposable income from the farm. That is why I am a veterinarian in Regina. My wife works as well. Many of our family members work off the farm. In reflection to the size of our operation being ideal, that is in the eye of the beholder.
But your question really is this: As a 1,700-acre individual farmer, could I be successful? It would depend on how innovative I was. A 1,700-acre organic farm is a large one, and some of them are doing very well. If I were a 1,700-acre bison producer, I would probably be doing all right.
I do not think focusing on the size of the operation is anything other than a statistical reference from which we can gauge some trends. Size does not indicate prosperity, nor does it guarantee anything. It could be problematic for an operation. We have a few neighbours with 1,700 acres or 1,800 acres who are doing very well. I would consider them to be more prosperous than our operation because they tend not to be spread out in dealing with their overall operation and so many different things at once. That way they can manage pretty well, although that is only my impression. I do not think the size of the acreage is that important.
Ms McKinnon: At the same time, you could have a 5,000-acre wheat farm and you would not be doing very well right now. It is the diversification that is critical. Many of our members run fairly small operations, but they are extremely diversified into cattle and some kind of livestock and a number of different crops. It is the diversification that allows you to weather downturns in one particular area of your operation. That is critical for Western farmers. Part of the problem for Saskatchewan is that it has been very wheat-centred.
Senator Wiebe: What would be the average size of a farm today in the province?
Mr. Douglas: I would think between 1,500 and 1,800 acres.
Senator Wiebe: I do not want to put words in your mouth, but reading between the lines of your presentation I got the feeling that part of the problem in regards to the future of agriculture is that some farmers might be very reluctant to change into other aspects, other crops and other forms of marketing. Things are changing very rapidly out there, but those farmers want to stay with the way that their fathers or grandfathers did it. Am I reading that correctly into your comments?
Mr. Douglas: I would disagree. There are many very innovative farmers out there. Future generations are becoming even more innovative and problem solving maybe more than past generations. My grandfather is not here so I do not have to take any abuse. It is important that we have structural change and institutional change that reflect that innovation and not stifle it. That is the message I am trying to put forward. I do not think you can force people to change if they do not want to change, but I do not think we structure institutions to cater to those sentiments.
Senator Wiebe: You partly answered my question. We agree on the fact that we have to change to meet the changing demands that are occurring in agriculture and to change along with economics of scale and so on. However, there may be some who are resisting that kind of change, and as a result they may not be able to continue on in the business of farming.
Ms McKinnon: Many of those people are leaving the farm. It is happening.
Senator Wiebe: That answers my question.
You say that NISA has been a very effective tool for many farmers, but it is not accessible to young and new farmers. NISA is based on a contribution basis. How would you suggest that NISA be changed in order to make it accessible to the young and new farmers? Are you suggesting that money be put in in advance or in anticipation of what they may produce?
Mr. Douglas: The beauty of NISA is that it is a fund that farmers can use on their own. It reflects their eligible net sales in a way that AIDA and crop insurance cannot. Unfortunately, it is very difficult to withdraw it and use it for short-term deficits or growth situations without putting yourself potentially in a deficit situation such that you will be penalized. We never know when we will be penalized in the NISA account until the future. That is what makes it very difficult to deal with in the short run.
It should be more of an account where farmers have that dollar contribution from the federal government as well as their own 50 per cent contribution, then they can factor it into their operation. Instead, now farmers use it as a pension plan. That was not the way it was intended. It was intended to be used in short-term deficits caused by whatever reason -- weather, commodities, personal situations. It is not being used that way because it does not have that flexibility.
In terms of increasing contributions based on potential future sales, that would be useful if a farm had some short-term ways in which to increase. As I said to Senator Gill, our farm has increased so much in the last four or five years; our NISA accounts do not actually reflect that. Eventually they will, and there might be some way in which ENS, or eligible net sales on the NISA account, might more accurately reflect growth in an operation, so that the NISA account in subsequent years deals with that. That could be done on a per cent increase of an operation at the end of a year, such that your ENS would reflect that and your contribution could reflect that. Those are structural things.
Fundamentally, NISA needs to be more in the operating of the farmers' hands so that he can use it, as opposed to it always being out there and potentially being used at the end of a farmer's career. That is the way it is being used right now. It is either being used at the end of a farmer's career or when a farmer has decided that they are really in trouble, and that is unfortunate.
Senator Wiebe: I get the feeling that there is a fairly large sum of money in NISA right now. That sum of money is there because the farmer has contributed over the years and has not withdrawn it. That farmer is looking at it as his retirement fund. The young farmer or the farmer in trouble today has withdrawn everything he possibly can from NISA. Is the problem then with the structure of the program or is the problem more in the mind of the individual farmer? I agree with you that many are looking at it as a retirement program. There are lots of dollars in there. Do you know if the young farmer or the farmer in difficulty has withdrawn the maximum he can possibly withdraw to help him over these difficult times?
Mr. Douglas: The answer is both. We have a mindset out there that NISA is something, and there are regulations in it that define it to be that. If we are going to change it, I do not think you can change it in a wholesale fashion. You can change it in a way that farmers can gradually start to utilize it in their operation better, potentially making it work for young and growing farmers a little bit better. However, the idea that you will change NISA in a wholesale fashion and all of a sudden the perception of the program will change, I do not think we will see that. It works effectively for what it is right now, but it could work better.
Senator Wiebe: As a new senator I do not have research capabilities yet, so I want to take advantage of the research knowledge you people may have. Have you any idea what percentage of a farmer's total operating costs is related to transportation and grain handling increases? What percentage is related to the increases in the cost of fertilizer and in the cost of fuel, and so on? Over the last number of years there have been some pretty dramatic increases in the cost of all those items. Has the cost of transportation, with which I disagree, kept pace with the increased cost of fertilizer and chemicals and fuel?
Mr. Douglas: I have the numbers roughly in my head. On our farm, transportation costs are about 25 per cent of our operation. Obviously, our costs in grain transportation have gone up since the Crow by at least double.
Senator Wiebe: Would that include the cost of taking the grain from the combine to your condo or to your granary and from there to your elevator?
Mr. Douglas: The cost from a combine to a bin or to a condo is negligible when it relates to railway transportation in our operation. In terms of fertilizer and fuel, fertilizer inputs have received a bad rap. In our operation in the last five to eight years, fertilizer really has not gone up significantly -- maybe 1 per cent to 3 per cent. We had some analysis done by a fertilizer dealer we had working for us, and ammonium nitrate, ammonium phosphate, and thiosulphate, which we use in a variety of our fertilizer blends, have not gone up appreciably. They change on an annual basis, but overall throughout the year and from a year-to-year analysis, fertilizer prices have not gone up significantly in the last eight years. However, the ways in which farmers are using inputs have changed. They have tried harder to maximize their inputs so they are using more inputs, and I think they are equating that back to the cost of inputs, when in actual fact the cost of fertilizer has not changed very much.
Senator Wiebe: Your tonnage of fertilizer has not increased over the years?
Mr. Douglas: No, it has not. We have been into certain agriculture practices for 12 to 15 years now, so our land is in fairly good shape in terms of soil fertility. When we take on land that is not in as good a shape, oftentimes it requires more inputs to bring it back to the state where its ongoing nutrient capability is sound.
Transportation is probably our most significant input. It has probably changed the most dramatically in the last five years in our operation. Fuel has had a lot of headlines in the last year. I have not received our fuel bill for this seeding, but it will not show as big a difference as grain transportation. Grain transportation is a huge bill and its fluctuations create the most anxiety in an operation.
Senator Chalifoux: My concern is your comments regarding the Canadian Wheat Board. The Canadian Wheat Board was established in the 1930s to address a serious issue with our farmers and the marketing agencies around the world. When we travelled to Italy and the European countries, I heard that through the years the Canadian Wheat Board has had a very good reputation. When the European markets deal with the Canadian Wheat Board they know the grain is clean. They know they are getting an excellent product and they have a lot of faith in the Canadian Wheat Board. They also said that the grain is not as clean from other marketing agencies that have come into Canada now from the United States. They have a lot of concerns with that product.
I have had many meetings with farmers in the northern part of Alberta and the Peace country. The majority of them are in favour of the Canadian Wheat Board because when they put their grain in the board they know they will be getting the best price they can get. I am only repeating what I am hearing. This is not my opinion. In southern Canada, you have the opportunity of cross-border shopping and cross-border comparisons. In the northern parts of this country, we do not have that opportunity or it is not as available as what you have. I should like your comments on what has happened there.
We had a town hall meeting in one of our communities in northern Alberta. More than 60 farmers were there and the elected representative for the Canadian Wheat Board was there. Those farmers seemed to have a lot of faith in that elected representative dealing with the concerns of the wheat board.
You were talking about dual marketing. I should like to know what your feelings are regarding the American firms, such as Cargill and a few others, coming in here and taking over. Many people are afraid of big brother from the south totally controlling and taking over our marketing systems.
Ms McKinnon: The major grain companies already do much of the sales around the world. The Canadian Wheat Board may make some sales, but the grain companies themselves are out there on behalf of the Canadian Wheat Board doing the sales. As far as the prices the Canadian Wheat Board gets for farmers, in world markets the Canadian Wheat Board is a price taker. They cannot dictate what the price will be. They must take what the market will pay. It is a world market and it is not controlled by any one person. The Canadian Wheat Board may be able to get some premiums, possibly on number 1 and number 2 wheat. For everything else, they just take what the market will give them. There are concerns of over-delivery of grade. We have heard this from a number of sources. Some of our world customers like dealing with the Canadian Wheat Board because they receive number 1 grain but pay for number 2. That does happen and that does not do farmers any service.
There are a number of farmers out there who still like the Canadian Wheat Board and think they do a good job. That is fine. Let the CWB continue to do that, but others want to do it on their own. They can see opportunities where they could market on their own. There is no reason why the Canadian Wheat Board could not adapt to a dual system. If they are not adaptable, they do not deserve to be running a multi-million dollar enterprise to begin with.
Senator Chalifoux: Is that your opinion or the opinion of your membership?
Ms McKinnon: It is the opinion of our membership and many farmers in Western Canada.
Mr. Douglas: The views are changing. It is probably the most contentious issue in Saskatchewan politics right now. Polls have talked about the partisan nature of people provincially and related to farm organizations. The National Farmer's Union is here and Western Canadian Wheat Growers are there. The views of farmers, younger farmers and innovative farmers, are changing to the point where our views are becoming more what farmers want in the future.
In direct answer to your question on the faith throughout the world, the Canadian Wheat Board has been in business for a long time and they are not bad at what they do in a global sense. They have established a lot of contacts throughout the world, and they do a decent job of maintaining those. They are professional. That is not the case. Do they have to be compulsory? Do I need to be forced to sell to them? Because if they are good at what they do, then I should see it easily in my bottom line. I should see it easily in how I deal with them. It need not be forced for my operation.
In terms of clean grain, that is the Canadian Grain Commission. That has nothing to do with the Canadian Wheat Board. Our organization in Weyburn was the first to clean grain on the Prairies. It is farmers who have the most to benefit by clean grain, by keeping the product, the dockage in the Prairies and only shipping clean grain to the ports. That is not a Canadian Wheat Board issue.
With respect to your comment on dual marketing, the Canadian Wheat Board's biggest customer right now is Conagra in the U.S. and the second I think is ADM, Archer Daniels Midland. They are merely a middle man, so when we hear all these stories about Malaysia and Korea and how great they are over there, do not kid yourself. Their biggest marketing is with a telephone from Winnipeg to Kansas City, or Winnipeg to Minneapolis.
Ms McKinnon: To Canadian mills as well. They are the biggest customers.
Mr. Douglas: I understand that you will have town hall meetings. Our organization deals with those and we can take you to a meeting in southern Alberta and it can be very skewed the other way.
Senator Chalifoux: In your opinion, do you think that the Canadian Wheat Board should be scrapped? Has it outlived its usefulness?
Ms McKinnon: No, I do not think it should be scrapped, because there are a lot of people who still want it, but there is no reason in the world why we should preserve it in its current form just for the sake of preserving it. Farmers are adapting. There is no reason why the Canadian Wheat Board cannot adapt to a different transportation regime where they are not part of it or to a different marketing regime. They should be able to do that, they have so much expertise. There is no reason why they cannot compete.
Mr. Douglas: It would be irresponsible to scrap that institution overnight. It would not be fair to farmers. In our operation, we would still choose to market some of our grain through the Canadian Wheat Board. However, we do not want to be forced. We want to have the option. The leadership of the CWB, for whatever hierarchical reason, has become dysfunctional at its higher levels, and that is too bad. Do you scrap something like that and throw the whole marketing frame for board grains into chaos? I do not think so.
Senator Wiebe: One of the most frustrating things for me as a farmer is that we cannot agree. That is one of the biggest things that have held us back over all these years. It is one of the difficulties that anyone here on Parliament Hill has when they hear the many different voices coming from agriculture. I have a question and a favour to ask you. First, do you think that farmers will ever be able to speak as one voice? And the favour: will you work towards obtaining farmers' support in order to be able to speak with one voice? If we could do that, we would have tremendous clout and lobby in this country.
Mr. Douglas: There is no chance. I do not say that to be glib, but if you want a realistic answer, there is absolutely no chance that in the next 25 years farmers will speak with one voice. It is unfortunate, because I should like them all to read off the same hymnal as me, but that is not going to happen. It will take leadership. It will take somebody to step up to the plate or some organization or some group that says, "We have a vision." There is no easy answer here. It will not be presented to you by a committee of farmers who all of a sudden come together in Saskatchewan and walk up with a paper that is the panacea for agriculture.
You saw us be a part of that Saskatchewan farm coalition on the farm crisis and how difficult it was for the Minister of Agriculture in Saskatchewan to keep that together. At the federal level it would be even more difficult. It will take groups like yours to make recommendations in the House, to make recommendations here, and a very strong Minister of Agriculture and Minister of the Canadian Wheat Board.
Senator Wiebe: I hope you appreciate how difficult it is for us as well. Thank you.
The Deputy Chairman: Thank you very much. I know that Senator Gustafson, who is our chairman, would want to send his regards to you. Senator Gustafson is a very dedicated farmer and is at the moment where he should be -- seeding on his farm in Saskatchewan. Best regards and thanks from him as well. You have provided us with a lot to think about.
The committee adjourned.