Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 12 - Evidence
OTTAWA, Tuesday, May 16, 2000
The Standing Senate Committee on Agriculture and Forestry met this day at 3:30 p.m. to study the present state and the future of agriculture in Canada, consideration of farm income issues.
Senator Leonard J. Gustafson (Chairman) in the chair.
[English]
The Chairman: Honourable senators, we are pleased to have Mr. Lyle Vanclief, Minister of Agriculture and Agri-Food, with us today. His stay will be a short one but his officials will be pleased to answer questions. The subject today is the present state and the future of agriculture in Canada, consideration of farm income issues.
As we have heard from several farm groups, and especially again yesterday, a crisis situation exists. We certainly look forward to hearing from the minister about the direction that the government will take and, hopefully, about the short-term and long-term solutions to that crisis.
Welcome, Mr. Minister.
Hon. Lyle Vanclief, Minister of Agriculture and Agri-Food: Mr. Chairman and honourables senators, I am pleased to join you today. Deputy Minister Samy Watson has been detained but will join us shortly. Mr. Doug Hedley, Policy Branch, is on my left, as well as a number of other officials who will be staying to answer questions.
The state of farm income in Canada is certainly an issue and has been a key priority for me for a number of months. As you obviously know from the discussions that I have had with many of you, this has been occupying a lot of our time. I have been working closely with cabinet colleagues, my provincial counterparts, and farmers to come up with solutions that will help to provide greater income stability for our producers. I know that you have been following the issues closely and are familiar with the income pressures that some of our farmers face.
In response to those pressures, our government has made available $2.3 billion in new assistance to Canadian farmers. This assistance has three components. First, there is the federal commitment of $1.07 billion for disaster assistance for the 1998 and 1999 business years. Second, in January we announced a further $1 billion in income disaster support for the 2000 and 2001 business years, including interest-free cash advances to help farmers get their crops in the ground this spring. As of May 1 -- and I would have to assume that the number is higher by now -- over $81 million has been advanced to approximately 9,000 producers across the country under the Spring Credit Advance Program. Applications are still coming in.
Third, to address the extreme circumstances facing Saskatchewan and Manitoba grain producers, an agreement was reached to provide a one-time, additional injection of $240 million from the federal government. That was a 60/40 arrangement; therefore, there was also $160 million from the provincial governments. The cheques are being distributed by the provinces to the producers.
We also changed the AIDA program for 1999 to make it more responsive to producers' needs. As you know, all of the short-term assistance is in addition to the annual federal funding for our core farm safety nets. In that regard, I have been working with my provincial counterparts and the industry, through the National Safety Nets Advisory Committee, to come up with a framework for programs. These efforts have been ongoing for several years. As you know, and as I am extremely pleased to announce, in March the hard work paid off for farmers when we reached a tentative agreement with all 10 provinces on a long-term safety net plan. It was a significant achievement of benefit to all producers. That agreement will need to be ratified by all cabinets, but it is for three years.
We are now working with the provinces to iron out the details of that agreement. We are on track to ratify it in July at our annual meeting of federal, provincial and territorial agriculture ministers, giving farmers right across the country more security, which they certainly need to get on with their businesses. A tentative agreement provides for annual federal funding of $665 million for basic safety net programs, which include Crop Insurance, Net Income Stabilization Account, and companion programs. As well, there will be access to $435 million in income disaster assistance in the next three years. This federal funding is contingent upon the normal federal-provincial cost-sharing arrangement of 60/40.
Provincial allocations under the basic safety net package will be based on the size of the industry in each province. That method of allocation is also a change. As well, I will be seeking approval from cabinet for an additional $40 million, approximately, to ensure that no province receives less than its current allocation under the basic safety net envelope.
The disaster component of the program will ensure that, where risk exceeds basic safety net capacity in any province, affected producers will be eligible to receive disaster support. I will also be seeking cabinet approval for the third year of disaster assistance funding. The budget of February 2000 provided for two years; however, I will be seeking approval for the third year of the disaster assistance funding. That will bring the federal commitment to safety net funding to more than $3.3 billion for the next three years.
We also agreed at the federal-provincial meeting of the ministers in March that a new disaster assistance program and the Net Income Stabilization Account will be better integrated to provide a greater degree of stability to farm incomes. This means that NISA will be the main vehicle for moderating normal fluctuations in farm income, and the disaster assistance program will be used in cases where there is severe decline in income.
However, our work is far from done. It took an extraordinary effort on the part of the federal government and the provinces to come to this agreement. I am confident that we will continue to work co-operatively in the best interests of Canadian farmers.
The federal government will continue those efforts on a number of fronts: by providing the tools to help the sector adapt and compete in the global economy; by reforming our grain transportation system; and by efforts in the international arena. These efforts will help to ensure that our producers can compete on a equal footing with their counterparts around the world. Thus, we are contributing to the strength and vitality of Canada's agriculture and agri-food industries.
I am now pleased to take questions.
Senator Wiebe: Mr. Minister, thank you for coming today.
Over the short time that I have had the privilege of serving on this committee, we have certainly heard from many witnesses about the problems facing agriculture, not only in my province of Saskatchewan, but right across this country. We have also heard of the way in which the governments are addressing those problems. I was pleased to hear that the AIDA program will be continued into the year 2000. These are basically programs that are implemented to explore or solve a current problem. Perhaps this question should be directed more to your officials than to you, but as you know, this committee is tasked with looking at long-term safety net programs for agriculture. Our producers are asking for long-term, predictable programs that they can use in making their management plans.
One presenter mentioned that they had made a long-term safety net proposal years back and had spent a great deal of time working on it. I asked that presenter, "If that program had been adopted, would it have addressed today's problems?" He responded that there would need to be many adjustments to that proposal. Therefore, it will be extremely difficult to come up with a long-term, predictable program that farmers and those involved in agriculture can bank on. Do you think that a program can be put in place that will address those issues for the long term, and will there be sufficient program flexibility to allow for any changes that the markets may present?
Mr. Vanclief: Senator Wiebe, I appreciate your comments. I could answer your question with one simple word, although I suppose as politicians none of us do that. As you are all aware, I farmed for 25 years and there were programs that came and went and programs that changed during that time. None of the programs remained exactly as they were initially implemented, because all of us who are involved in agriculture, and not only those inside the farm gate or in primary agriculture, know that things change.
I will use the more recent example of the implementation of the Net Income Stabilization Account. Initially, everyone was happy and thought we had the answer. When Crop Insurance was originally introduced, again we thought we had the answer. However, those programs must be changed constantly.
Can we design a set of programs in the year 2000 that can continue for the next 10, 12, or 14 years? The answer is no. It is and always will be a work in progress. For example, even though the AIDA program for the 1998 business year was put in place fairly rapidly, we continued to make changes to make it more effective. We made further changes in the 1999 year to make it even more effective. We made changes for 1998 and 1999 to NISA. I have asked the NISA advisory committee to review it to see if we can make additional changes to increase its effectiveness as we move along. Safety net programs and policy in our industry will always be a work in progress.
Also, there are always unfortunate restrictions on the dollars available. We have had individuals come forward in the last few months with program proposals, not only to me but to officials of the safety nets advisory committee. One that I remember in particular would cost between $4 billion and $5 billion on an annual basis for one province alone. The last time I checked, that kind of money was not available. I would guess that that program proposal would cost a minimum of $10 billion per year just for grains and oilseeds.
As we know, governments have many priorities and many demands for money. We need to target the programs that we have in the best way we possibly can. In my view, the farmers are doing a good job -- in fact, they are doing a better job -- by using all of the available risk-management tools, whether that be diversification, forward selling contracting, or others. For example, corn and soybeans in Ontario went up to a reasonable price in the last couple of weeks-- not to where we would like to see it, but higher than a year ago -- because of a weather scare. I hope that producers sold at least some of their crop, because this week the price is back down. There are all of those risk methods.
The provincial and federal governments need to work together. I think that the federal government has demonstrated clearly that we are flexible and that we adjust programs as quickly as we can, given the available finances.
Senator Wiebe: One of the major problems facing agriculture today is the tremendous capital requirements needed to operate farms. The trend in my province is toward larger farms and I think that it is the same for the other two prairie provinces. The larger the farm, the greater the economies of scale in that investment.
I was quite interested to hear from one of our presenters last week that his farm was comprised of 5,100 acres. There were three of them -- him, his brother, and his father -- making a living operating that farm. That worked out to roughly 1,700 acres per family. There are many farms of that size, and smaller, within the province of Saskatchewan that are not able to adjust as quickly to international price changes as the larger ones.
Has your department considered ways of encouraging neighbouring farmers to share resources? For example, have you looked at a form of incorporation or cooperation under the Canada Cooperatives Act that would allow for the purchase of a $300,000 piece of equipment that could be shared by three farmers? In that way, those three families could continue to farm and remain in the rural areas of our country rather than having to sell up.
Mr. Vanclief: I would not say that we have programs to encourage those things, because I think that those are business decisions for individuals to make. If someone wishes to get together with a neighbour or brother or sister or other family member to purchase a piece of equipment, I believe the Farm Credit Corporation still offers what they call "syndicate loans." I do not know whether there is anyone here from the Farm Credit Corporation, but I believe that was its purpose.
Mr. Hedley says that is still the case. Therefore, if a group of farmers wishes to buy equipment to be used by all of them, without question we would have people capable of arranging business plans. However, I do not see that as the role of the government. I believe government's role is to offer information on how co-ops are formed, for example. There are certainly people in our department who can explain what is entailed in setting up a co-op, et cetera.
There is no question that farms are getting larger. To use another personal example, I planted my last crop in 1987. When I see how much my son can now plant in one day, it makes me look like a real slouch. The equipment and methods of farm management are different, as are the size and scale. The piece of equipment may be more expensive too, but it goes over more ground in one day.
A week ago last Saturday, I talked to an individual who planted 415 acres of corn in one day. I know many people in Western Canada plant more than that. I am not saying that big is always better. You must push the pencil and do the business plan. The reality is that margins are not very large, and that is not unique to Canada either. World commodity prices are not where we would like them to be by any stretch of the imagination, and that drives many of those decisions. As I said before, I include those things you just mentioned -- consideration of co-ops and syndicating the purchase of equipment -- in risk-management decisions that individuals are making and need to make.
Senator Oliver: Welcome, Mr. Minister. I regret that you cannot stay longer. Perhaps you can come back another time, because many senators have a number of questions that they would like to put to you.
The $3.3 billion for the next three years is a great deal of money, but it is for things like crop insurance, disaster assistance, Net Income Stabilization Account, and so on. A number of the witnesses who have come before this committee in recent months have said that that really does not address the needed long-term vision for agriculture in this country. They say that it is wonderful to have crop insurance, but they seem powerless to do anything about rising input costs, changes in transportation, and other things. What is there in your long-term vision for agriculture in Canada to give farmers the power to deal specifically with rising input costs and other things that these programs are not providing?
Mr. Vanclief: It is difficult, Senator Oliver, to give the primary producer control of the product all the way through to the consumer in any sector of our economy. However, there are more and more examples -- particularly in Quebec -- as I mentioned to the previous senator, of the use of cooperatives. Farmers are then more involved in what happens to the product beyond the farm gate and in further processing. There is no question that if possible, it is better to market a product rather than a commodity. I do not mean that you must have your own flour mill in order to market your wheat, but there is more and more being done and the demand for specific varieties is there.
Senator Oliver: Value-added product?
Mr. Vanclief: Yes, for value-added product, as well as for specific varieties of wheat and corn, or edible versus feed-grade soybeans. There are premiums, in that it requires segregation -- there is no question about that -- but there is also no question in my mind that that ability exists.
There is also no question that there are fewer suppliers to farmers and fewer buyers today than in the past. However, I do not believe that means there is no competition among people wishing to supply inputs to producers, whether that be fertilizer companies, feed companies, or whatever they happen to be.
Thankfully, we live in a country with legislation that can deal with any situation where it can be proven that competition does not exist. I am not necessarily defending it, but it is a current reality that things are getting larger and there may not be as many individuals involved, but that is driven by competition. I think that works in the buyer's favour for the most part, because companies need the business, and a farmer does not shop for 10 tonnes of fertilizer as in the past, but for more than 10 times that amount in many cases. Their business is important to the suppliers and they will sharpen their pencils well in order to get it.
Senator Oliver: Can you tell me whether people in your department are looking at the $3.3 billion worth of programs with a view to finding ways to be more flexible in dealing with farmers' input costs, or costs of production, so that they can experience the benefit where they really need it?
Mr. Vanclief: Current programs do not deal with support to input costs. Crop insurance is self-explanatory -- it is an insurance program. The Net Income Stabilization Account and disaster assistance are whole-farm programs, not specific to commodities, and they address an individual's gross margin. I will be frank here. We had examples last year of some who came to us, and I am sure they came here too. People may have been in business for one, two, three, four, five years, but in the AIDA programs it was three reference years. If they had had a gross margin of zero in three years, I guarantee you a percentage of zero is zero. Therein lies the dilemma. If people have not been making money for a number of years, whether it be in agriculture or whatever, then should we as a government or as a society guarantee a return on their investment and a certain level of living? Must we say that we will guarantee a return on investment at a certain level, whether they be farming, running a clothing store, or whatever? That would be a major policy decision for any government. The direction that we have taken -- and I believe it has been that way for a number of years -- is that the available monies have been targeted to a whole farm, gross margin level of income based on how the business has done in the past.
The Chairman: There seems to be much confusion. You say that there is $3.3 billion. I cannot figure out, on my farm, whether I will get anything.
Mr. Vanclief: You will not until you fill out the application form.
The Chairman: When I phone the department to apply, I speak to someone who really does not seem to understand it either.
Mr. Vanclief: Have you applied for your 1999 AIDA?
The Chairman: Not yet. I will apply, but I applied for 1998 and got zero. My farm has received nothing. I know that we are supposed to get a maximum of $7,500 out of the Saskatchewan program. It was indicated at one point that we were going to get about $11,000 or $12,000. In actual fact it is $7,500, which will not cover the increase in fuel prices since it was announced. We have programs announcing the distribution of millions of dollars, and yet my neighbours are telling me that they are not getting any of it.
Mr. Vanclief: Let's make sure that we are comparing apples with apples. The Saskatchewan government decided how they would pay out their portion of the $240 million federal money and the additional $160 million in February of this year for two provinces. That was to be split. Of the $400 million, $300 million was for Saskatchewan and $100 million for Manitoba. You are referring to a provincial decision on how to disburse the $300 million.
Now if you refer to your 1998 business year application for the Agriculture Income Disaster Assistance program, if your gross margin dropped below 70 per cent of what it had been in the three previous reference years, that would trigger a payment. If you did not get a payment, then your gross margin in 1998 did not drop below 70 per cent of that of the three previous reference years of 1997, 1996, and 1995.
The Chairman: I wish to counter that by saying mine was higher because I had diversified into a canola crop so that we made some money. I have two neighbours who have oil wells, but they stayed with wheat because they said, "Why pay income tax when we have all this oil revenue coming in?" One received a cheque for $40,000 and the other received a cheque for $75,000. There was no fairness and no incentive. The AIDA program did not work.
Mr. Vanclief: We do not count off-farm income in the AIDA program, and if I were you, Mr. Chairman, I would say, "I am glad I did not drop below 70 per cent of my gross margin." I think that you are not in business to lose money.
The Chairman: I think the program should be fair and equal.
Mr. Vanclief: It is fair. Anyone who dropped below 70 per cent received a payment.
The Chairman: The problem we had with three years was that we were hailed out in one year. What about the farmer who had no crop in the prior four years because of drought, and then in the year he applied, even though the commodity prices were down, he had a good crop? His income was higher and therefore he did not receive any money. There is example after example of that, Mr. Minister, is there not?
Mr. Vanclief: I do not know. I know that no two farming operations are the same. I had individual farmers come to me last year and say that they had lost money. I asked a number of them, "Did you have crop insurance?" They said no. I asked why not, and some said that the government had always sent them a cheque if they had a bad year. There was always a program put in place.
Quite frankly, crop insurance is there for a reason. Is it fair to the person who buys crop insurance? If you were hailed out one year and did not have hail insurance, then all I can say is that that is an available risk-management tool. You made a business decision not to buy hail insurance.
The Chairman: I have crop insurance on my farm and my neighbour had crop insurance on his. I have coverage of $30 an acre. My neighbour, who was hailed out, received $150 an acre. That is a comparison of the two systems. Our crop insurance is not adequate.
Mr. Vanclief: The crop insurance criteria are set by the provinces, so speak to your provincial government.
The Chairman: Certainly, but I think that our federal government must look at the overall picture of the current crisis in agriculture. As Senator Sparrow says, "Tell us and we will quit with dignity." We are facing a serious crisis. In my opinion, this $2 billion really answers a need to tell the Canadian public that we are doing something. However, in essence we are not.
Mr. Vanclief: When I became minister in June 1997, the safety net envelope was $600 million a year and now it is $1.1 billion. In 1997, the industry and the provincial ministers were telling me that the safety net envelope of the federal government should be $850 million a year. It is now $1.1 billion. I wish that it could be more, but then we as Canadians will need to make changes to the demands on health care, infrastructure, child care, innovation, education -- and I could go on and on. We must set priorities. We have nearly doubled the amount in two and one-half years. I wish we could have more for the safety net envelope.
[Translation]
Senator Gill: We heard witnesses from all over the country and many of them said there are problems in various sectors of agriculture. I am new at this. I listen to the CBC news and other media and I make my opinion on the basis of the information that I receive. On the other hand, I am not a farmer but a taxpayer and I like to know once in a while where the money goes.
In agriculture, as in the milk and processing industries, are there statistics available, like, for example, in forestry and manufacturing, indicating the amounts required to create or maintain a job?
Are you aware of the amounts spent in agriculture, for example, for the number of farmers in the industry?
Last week, or two weeks ago, someone said that a 5000 acre farm would employ 4 or 5 persons. Do we have such statistics in agriculture? One of my brothers-in-law is a vegetarian and he told me that we could produce much more grain if we didn't have to feed animals and that we could produce more food for human beings.
I agree with that type of arguments. Do you have statistics indicating that agriculture should expand? We have the technology. Is it possible to know the amount of money required to create or maintain a job in agriculture?
[English]
Mr. Vanclief: I must leave in a minute, but Dr. Headly may wish to comment. That is certainly an interesting question. I think that we could come up with numbers. However, as I said earlier, in a resource industry like agriculture, I would say that it would be very difficult to be exact about, if you spend X number of dollars you will create one job.
I know that there are approximately 275,000 farms in Canada. We certainly can determine the number of people farming, and how many people are employed on farms. Those statistics are available.
However, I am not a statistician, but I think that it would be difficult to determine that an investment of X number of dollars would create X number of jobs. I do not think it is an exact science. I would say that it would be even less exact in any resource industry such as forestry, fishing, mining, or the tourism industry. You can hire a person to work in your tourist establishment, or whatever you invest, but that does not mean that you will create jobs.
[Translation]
Senator Gill: Are there ways of determining if a farm operation is successful or not? In fact, we always hear that farmers are bankrupt. They are bankrupt, the media makes a bad news out of it, they don't have enough money, the family had to sell the farm, so on and so forth. I'm trying to see if the news is good or bad or if the truth is in between.
[English]
Mr. Vanclief: I will ask Doctor Headly to comment after I leave on whether those figures are available.
Before I depart, I will say clearly that there is no question that some farmers are struggling and under financial stress. Colleagues, do not underestimate the success stories out there as well. I met last week with the agriculture committee of all the major banks in this country. They and the Farm Credit Corporation, which has $6 billion in the agriculture field, told me very clearly that they are lending money every day for expansion in agriculture. Their individual farm accounts are in better shape than they were last year, and they are way better than during the last downturn in the 1980s.
Senator Oliver: In specific sectors?
Mr. Vanclief: In total.
Senator Oliver: Grains, wheat, canola?
Mr. Vanclief: Yes. That does not mean that there are no sector differences. I know that the press is here, but I will leave this question with you. I received a letter last week from an individual in the grains industry, and that is as far as I will go. They are no longer able to operate a fourth generation farm. I farmed for 25 years, and my father before me. My wife and I made a business decision and I am no longer farming. What do we as a government, and as a society, say if there is a farm that has been in existence for four generations, but the letter states that they had to sell? I respect that.
I raise the question again: Is our society going to say to someone who has been in business for four generations, "No, you should not need to sell so we will keep you in business somehow"? I do not know the answer to that.
I wish that I could stay, because I would like to get into that discussion. What is the answer to that? Is the answer to guarantee everyone a certain level of income per bushel, per animal, per unit, per acre, per barn, or per piece of equipment, so that people do not have to leave the farm after four generations? Help me with that, senators.
The Chairman: I thank the minister for coming. My answer to that question is that the government must realize that agriculture is important to Canada. We do put approximately $6 billion into the gross national product. We are the second highest injector of monies into the economy, and I think it is an important industry to carry through difficult times.
Mr. Vanclief: There is no more important industry. It has been my passion all my life, and will continue to be. However, I need your suggestions, and we need the resources to back them up.
The Chairman: Thank you very much. I want to say that this committee will try to work with you to overcome the crisis we face, and I hope that we will have a better situation in agriculture.
Senator Ferretti Barth: I have a question, if I have permission from the chairman.
[Translation]
If you allow me, I will speak French. All the reports that I read and all the witnesses that I heard say that transportation fees are too high and that it is the most important factor for farmers today.
Could your Department not ask the Transportation Corporation to handle the issue of grain transportation to allow farmers to be competitive again? They always raise the issue, transportation costs prevent farmers from competing with other nations.
[English]
Mr. Doug Hedley, Senior Executive Director, Policy Branch, Department of Agriculture and Agri-Food Canada: Senator, first of all, there was an announcement on May 10, 2000 about changes to the grain handling and transportation system in Western Canada. One part of that announcement was that there would be a cap on the revenue to the railways for the movement of grain, based on 30 million tonnes per year. That lowers overall transportation costs for farmers in Western Canada by an estimated $178 million per year. That is substantial. It leaves more money in farmers' pockets and helps to streamline and rationalize the system, making it more efficient.
There was previously a major subsidy to the movement of grain by rail from Western Canada to Thunder Bay, Vancouver, and western ports. The western grain transportation subsidy was removed in 1995, when its value was approximately $560 million per year. With the new rate cap and changes to the system, we think that we have an increasingly efficient system for moving that grain.
Senator Ferretti Barth: I have a supplementary question.
[Translation]
The minister said that if farmer revenues were not 7 per cent higher than in previous years, they were eligible to government subsidies.
Do you still maintain that level today? Are you going to help low revenue farmers or is the program geared to all farmers? If that is the case, I would say it is wrong. I think that there should be a limit of some sort so that low-income farmers can get the help they need to remain on the market. Farmers with incomes 4 or 5 per cent higher than previous years should be the second group to get help.
[English]
Mr. Hedley: First of all, let me correct your numbers. The minister indicated that we compare the gross margins in the income disaster program. That is, what the farmer is left with after deducting the cash costs for that year in comparison to the previous three years.
If that falls below 70 per cent, then we make up that difference through the income disaster program. In other words, it is geared and targeted to the individual farm experience.
As the minister indicated, if a farmer is not making money over an extended period of time, it is a policy issue whether or not you subsidize him and provide him with income because he is a farmer. That is the core issue in low incomes in agriculture.
Unlike the United States, we have targeted our assistance to those farmers who experience a dramatic change in income in an individual year. We have crop insurance programs to handle the weather risk they face each year. We have NISA to allow all farmers to put money aside in good years and take it out in bad. It is the responsibility of the farmer to apply for and use the program, and to make his or her own decisions about when to put that money in or take it out.
Senator Fairbairn: Mr. Hedley, is it correct that you were the co-chair of the National Safety Nets Advisory Committee along with Mr. Friesen?
Mr. Hedley: Yes, and Mr. Wilkinson before that.
Senator Fairbairn: My question is very relevant to the area of the country that I represent, Alberta -- and also Saskatchewan -- and deals with the tentative agreement to which the minister referred. Does this plan meet the needs of all sectors of the agriculture industry in the region?
I particularly want to know whether or not this expanded program will have any relevance for the hay dehydrators of Western Canada, who are in a very special position and kind of fall between stools, as it were. This issue is continually of very great concern to those of us from the area. Somewhere in the assessment of our farmers and their products, is the federal government now trying to see if there is some way to provide transitional assistance in order to keep this business alive?
As you know, a major plant has closed in Saskatchewan; other plants have closed in Alberta. Some plants are sitting in limbo. This may not be a major issue in the larger picture, but it is a viable and productive industry in our area. I would very much like to hear whether there is a way to include that in your discussions, or is there some other manner in which you can deal with this industry?
Mr. Hedley: Let me respond to both of your questions. The first is, do we meet the requirements of all regions and all sectors with our safety nets?
First, let me explain that our safety nets deal with commodities that lie outside supply management. Approximately 30 per cent of our industry is in supply management, and they are not part of the safety system as we know it today. They have their own mechanisms for administered pricing. As a result, we do not extend direct government programming to those industries.
Therefore, I recall that the National Safety Nets Advisory Committee has indicated that there are four programs in our suite of instruments. They are the ones that we have now: an income disaster program, NISA, crop insurance, and the compendium programs. They have strongly supported that for at least the last two years that I have co-chaired that committee.
Second, they support the allocation mechanisms that we tentatively agreed to with the provinces at the end of March. I conclude therefore that the committee does respond to all of the sectors and all of the regions satisfactorily.
I hasten to add, as I believe did my co-chair when he appeared before this committee, that they have asked for considerably more money than the federal government has put on the table. Specifically, the Safety Nets Advisory Committee has asked for $1.45 billion on a annual basis, with $1.4 billion for direct safety nets and $50 million for additional research.
We are currently exploring the hay dehydration or compressed hay industry. Let me describe briefly the problem as we see it. Our safety nets are designed to help farmers exclusively. We have a rule that you can have 10 multiples in a corporation at most. In order words, you must own more than 10 per cent of the shares in that corporation to qualify -- 10 multiples in NISA and five multiples in the income disaster programs.
One of the problems in trying to fit the dehydration industry into our safety nets framework is that they are cooperatives, and ownership of that product does not lie with the individual farmer in most cases. It is produced either under contract or it becomes the property of the cooperative.
We have difficulties in trying to deal with co-operatives because our safety nets are for farmers. We are there to risk-share with farmers, not cooperatives. Right now we are exploring the issue of how we treat communes, co-operatives, partnerships and corporations, to see if we can create a more equitable basis for those decisions.
The bottom line is, one must bear some risk. Otherwise, there is little point in the federal government and the provinces putting money into it.
We will be taking this issue back to NISA and to the National Safety Nets Advisory Committee for further review.
Senator Fairbairn: May I interpret that as a faintly optimistic sign?
Mr. Hedley: Senator, we make decisions on safety nets jointly with the provinces and the producers, through the National Safety Net Advisory Committee. It is slow and tedious, but the end result is robust.
Senator Fairbairn: I will hang on to that, Mr. Hedley.
Senator Robichaud: Mr. Hedley, you said that you are the co-chair of the committee, and you spoke of either ceilings or floors, depending on where you sit waiting for aid to go out to people in need. How is that ceiling or floor decided upon? Is it a group decision? Do people usually agree on what the limit should be? We hear some people say 70 per cent is a little too high, and probably some people are saying it is too low. How are those decisions reached?
Mr. Hedley: Senator, let me take a moment to explain the origins of that.
When we began constructing the income disaster program with provinces and producers, they felt strongly that we needed to create a green program under the WTO. By "green" I mean one that would not trigger countervailing by other countries, particularly by the United States in our case. There is really one paragraph in the text, paragraph 7, that is critically important to the design. That paragraph lays out a limit of either 70 per cent of net revenue, or revenue, or some measure of income, that one cannot exceed, or covering 70 per cent of a farmer's loss. As a result, we have been constrained by that 70 per cent in holding the program green under the WTO and avoiding countervail action by other countries. If we were to raise it, we would be outside that rule and subject to countervailing. We expect that would be almost automatic in the United States.
Senator Robichaud: That would create harm to our industry, would it not?
Mr. Hedley: Our experience is that if we try to assist an industry, and that assistance is in turn countervailed, the benefit is entirely lost. It essentially ends up in the U.S. treasury.
Senator Robichaud: Some people have been claiming we need more flexibility in these programs. Now I suppose that word means different things to different people, because we have had an example of where flexibility has created problems for a minister. I am talking about HRDC here, and I am not saying that the program was not good. Do you feel that there could be more flexibility in the programs and that more things could be done? You would be in danger of having the opposition coming down on you, but it would be of service.
Mr. Hedley: Senator, the initial design of the income disaster program was based on the experience of two provinces that had been running similar programs in the previous years, Alberta and Prince Edward Island. We designed our own national program jointly with the provinces for 1998. The minister has also agreed to quite a number of changes to make it more flexible, widen and deepen its scope, and cover more farmers, particularly in negative margin situations. Let me assure you, however, that even though we have received considerable criticism for it, we will not write a cheque to a farmer until we receive an application and have gone through it carefully.
Senator Robichaud: I have no doubt that is the way it should be, but when a program is described as "flexible," sometimes it all depends on who is looking at it and where they are coming from.
I thank you for your answers. You have given me the information I was seeking.
The Chairman: I have a supplementary question.
I farm 20 miles from the American border and most of the canola that we grow is shipped across the line to North Dakota. Therefore, I have conversations with American farmers from time to time. Their programs seem to be very simple, in that they are not filling out volumes of paper forms. In fact I went down to Crosby when the farmers received their first cheques, and I asked a farmer from Montana what he was required to do in order to get that cheque. He said he did not do anything, that the government had all their numbers for the last 20 years and the cheques were mailed. Why must our programs be so complicated that farmers cannot even understand them? In the 1980s, we had simple acreage payments. We always hear the answer, "Well, that does not meet the World Trade Organization rules." Are the Americans meeting the World Trade Organization rules, or do they have different rules?
Mr. Hedley: First of all, I do not think it is correct to characterize the U.S. system as simple.
The Chairman: I can only repeat what the farmers told me.
Mr. Hedley: The basic methodology developed in the 1970s, and which has been continued in the United States, is that they fly over 3,000 or 3,200 counties each year and photograph the land. Farmers must go to a regional office and indicate the program crops and how much they grow. That is tracked on a computer system and the information is entered into the Kansas City computers, creating a record of exactly what every farmer produces. On that basis, the government has the ability to write cheques directly to farmers through the Kansas City office. That is not a simple or low-cost system.
As a result, we have based our programs on targeting. The Americans have based theirs on money to every farmer for the program crops. That means that the hog industry, the beef industry, and many other industries do not receive very much. It is only the program crops.
Senator Robichaud: The decision to use a different system was not made independent of the farm organizations and the people involved in the industry, was it?
Mr. Hedley: No, the design of our current safety nets has been developed jointly with the National Safety Nets Advisory Committee and the provinces.
Senator Robichaud: Therefore, our system is better adapted to our needs, but I take it that we hear from some people in the industry that the American system is much simpler and meets the need in a better way. You would not agree with that?
Mr. Hedley: No.
Senator Wiebe: A big part of the reason for our discussion today is the result of what we believe is a subsidy war between Europe and the United States. Is that an actual reason for the low price, or is there a worldwide surplus in grains and oilseeds?
Mr. Hedley: First of all, if I look back over the production statistics on a worldwide basis, I find that there have been four bumper years in a row. That is the first time that has happened since the Second World War. I have not checked prior to that. We are now producing worldwide approximately 1.9 billion tonnes of grain a year. Slight fluctuations in North America will not affect the price. It takes fairly dramatic fluctuations to move those prices from where they are now.
The technology for growing grain is improving worldwide. That means that real grain prices are falling constantly. In other words, that real price has been falling for at least 100 to 150 years for wheat, as it is now for canola and for all of the crops. That will continue worldwide for some time. As a result, I do not see strong growth in prices for quite a period of time. We are not far off real, or normal, prices at the present time under current world production capabilities.
Senator Wiebe: Then we should not be calling it a subsidy war. You are saying that agricultural-based products are in the process of finding their own levels, and that Europe, the U.S., and Canada as a result of AIDA, have decided to subsidize the agriculture industry to keep it in business. Is that a proper analysis?
Mr. Hedley: First of all, senator, I cannot speak for how the U.S. is approaching the issue. In Canada, if an individual farm suddenly gets into difficulty for one or two years for some reason -- hail or drought or whatever -- we know that without safety nets, that farm faces great difficulty, much adjustment, and probably stalling of much of the expansion and growth that could have been possible. As a result, our safety nets slow adjustment in the short run. When those sudden shocks hit, farmers are not forced out of business in one year because the safety nets are there to get them through it. It is not a long-term subsidy for every farmer in Canada, rather it is targeted to those who need the money when they experience those shocks.
The U.S, on the other hand, is essentially giving money out whether or not the farmers need it. That is a subsidy across the industry and this country has not taken that path. We are minimizing adjustment costs, and thus we leave that farmer better off in terms of the continuing growth of that farm and being able to generate products for our consumers and our exports.
Senator Wiebe: I would like to carry it a little further by saying that we are hearing from the farm community, farm organizations, and politicians on a daily basis that Canada should be doing more to encourage other countries to constrain their subsidy programs. Are you saying that if we asked the Americans and the Europeans to cut back on their subsidies, it would not necessarily automatically increase the world price of grains and oilseeds?
Mr. Hedley: I would need to look at the worldwide models and their results, but my impression is that removal of all subsidies over a period of time, starting now, for example, or in a few years, would not substantially affect the overall world supply of grains and oilseeds.
Senator Wiebe: There are many countries in the world today that could use the grain that we produce. Part of the reason that we are not able to sell it is they are Third World countries that cannot afford to pay even the current low price. There is still a need for more grains to be produced. Somehow, we must find the means to make that available to some of these Third World countries. Should we be looking at making our surplus grains available to some of these countries, perhaps by tying the surplus into the safety net program?
Mr. Hedley: I will distinguish between two things. One is humanitarian assistance, and the other is the impact of that assistance on commodity prices. From the commodity market side, giving away a large chunk of our product and paying our farmers for it would not measurably change world commodity prices. Canada is too small in the overall scheme of things, in aggregate production, to be able to do that. We produce approximately 55 million tonnes of grains and oilseeds per year, but 1.9 billion tonnes of cereals alone are produced worldwide. We cannot affect such a large amount effectively. As to the humanitarian side, that is a completely different issue -- a policy issue -- covered by other government mandates. I will not go into that issue with you.
Senator Wiebe: You gave me the answers I wanted. Thank you.
The Chairman: On that subject, though, is it not true that that is exactly what the Americans do? It seems to be more politically acceptable for them to sell grain cheaply to underprivileged countries, and probably rightly so, and subsidize their farmers, rather than give away cash. It seems to me that is exactly what they are doing.
Mr. Hedley: First of all, it does not affect the price that farmers in the United States receive. However, I cannot speculate on their motives for doing that.
The Chairman: That is fair.
Senator Fairbairn: Just a question about Seattle and the breakdown in the talks there. The agriculture discussions, perhaps more than any other, were moving along, and indeed the Canadian delegation played a very important role in that. Could you bring us up to date? I know that when it all collapsed, there was a statement that the agriculture discussions, because they dated back to the previous round, would be in a position to be continued. Could you indicate how that process is working, and at the same time, is there an active attempt to link in the agricultural organizations and groups that were so active in support of Canada prior to the WTO talks in Seattle?
Mr. Hedley: You are quite correct that there is a built-in agenda for agriculture in the WTO. It began before the end of 1999, as required in the Seattle agreement. We have continued those negotiations in Geneva. Since that time, we have laid out a work plan and the exchange of information requirements across countries in order to continue the agriculture negotiations through this year and next. Discussions are continuing as to whether or not this is a wider negotiation of the WTO than the built-in agenda of agriculture and a few other things.
We continue to work with our industry. We continue to meet with the SAGIT, as we did last week, in terms of guiding that negotiation on agriculture. We are not allowing the lack of decision in Seattle to prevent those agricultural negotiations from continuing.
Senator Fairbairn: Witnesses have commented on a number of occasions that whatever the conclusion will be, it is many years off, which is a fair bet. However, I think it is important to understand that Canada is certainly pushing as vigorously as possible to keep it rolling and not get sidetracked by national elections elsewhere or other difficulties within the WTO. This area stood alone in Seattle.
The Chairman: I have a question on genetically modified foods. This committee travelled to Europe and one of the first questions we heard was about genetically modified canola. We were told very clearly that they were not going to buy any Canadian canola. As a canola producer, I saw the price drop from in the $9 to $10 range to the $5 range. We hear rumblings from Japan.
Has the department looked at this and at what the consumer is willing to do about a very serious question facing agriculture?
Mr. Hedley: The only thing I can say is that we continue to explore this on an ongoing and intensive basis. We continue to work with Europe on their refusal to accept genetically modified canola, particularly France. We continue to explore markets for our genetically modified canola in Asia. We are continuing to explore the needs and requirements of Canadian consumers as well as those abroad. I am not certain I can say much more at this point.
The Chairman: The Canadian Wheat Board has looked at the situation in terms of wheat varieties, but apparently a decision has not been made. They are looking at this situation. I believe this is an important issue for our farmers, because if the consumer does not buy the product, there is no point in growing it. On the other hand, it is very nice to see those clean fields of canola without a weed in sight, and any farmer looks at that as a tremendous advantage.
The other problem is with the control end. Do you lose control of your farm to a large, multinational corporation? I would say as a farmer, and from what we have heard in committee, that it is certainly important to monitor this very closely.
Mr. Hedley: We are.
The Chairman: I have one last question. Are you fully satisfied that the changes you have made to the 1999 AIDA program will be fair to farmers and much fairer than the 1998 program? Quite frankly, it did not work.
Mr. Hedley: We have made quite a number of changes to the AIDA program that include widening it so that more farmers will be eligible, particularly, for example, in the change in the inventory evaluation. We have included negative margins for the 1999 year to ensure that those farmers hurt the worst would be compensated for that. Since I do not know your definition of "fair," I hesitate to suggest that it would be fair in everyone's eyes. We believe that the federal side of the program will be administered fairly for all farmers across Canada.
The Chairman: It would appear that those who were hurting the worst did not receive the money, in many cases. That was the experience we found amongst farmers. Those that did not have a high average did not receive money. That was unfortunate. Do you feel confident that that has changed for the 1999 program?
Mr. Hedley: The only thing we have done to help that situation is to allow not only the three preceding years as the average reference period, but also the Olympic average. The Olympic average is three years of the last five, eliminating the highest and the lowest.
Again, I referred to paragraph 7 of the annex to the agricultural agreement of the WTO. It is clearly specified that the reference period must be one of two things -- either the three preceding years, or three of the five preceding years, throwing out the high and the low. That will give farmers greater flexibility in applying for and getting payments under the program.
The Chairman: It still would not help the farmer who had five bad years.
Mr. Hedley: No, senator, it would not.
The Chairman: I thank the officials and the minister for appearing. We appreciate that it is a difficult time for farmers, and we wish you success in the best interests of this country.
Mr. Hedley: Thank you.
The committee adjourned.