Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 2 - Evidence, March 29, 2001 (a.m.)

The Standing Senate Committee on Agriculture and Forestry met this day at 9:00 a.m. to examine international trade in agricultural and agri-food products, and short-term and long-term measures for the health of the agricultural and the agri-food industry in all regions of Canada.

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

[English]

The Chairman: Before we introduce our guests this morning from the Canadian Federation of Agriculture, I want to inform you that there will be a meeting this afternoon in room 256, at two o'clock in the Centre Block. We will be handy for the Senate chambers. We can deal with the other areas for next week later.

This morning, I want to welcome Mr. Bob Friesen, who is no stranger to the Agriculture Committee, and Ms Jennifer Higginson. I understand that you have a presentation, and then we will proceed to questions.

Mr. Bob Friesen, President, Canadian Federation of Agriculture: It is a pleasure for me to be back here. I was here previously in April last year. I must applaud you for your patience. I actually read the transcript of what I said last time and it got quite tedious after five or six pages. You showed a lot of patience in listening to me last time. I will try not to be too repetitious, although some of the things I said then bear repetition. I will try to be more concise today. It also gives me significant pleasure to introduce Ms Higginson, who has been pretty much everything in our office over the last five months. As you know, we have had some staff changes and she was acting executive director for a while. At the same time, she was also the trade policy analyst, the farm income analyst, the safety net analyst, the environment and climate change and voluntary labelling analyst -- everything with which we deal. We appreciate the work and effort that she has put into it. Clearly, the briefings and information with which she supplies me have been helpful. We will look to her to answer any difficult questions.

Anything that we have to say at the CFA always starts from the premise that agriculture and agri-food makes an important contribution to the Canadian economy. We generate approximately $95 billion a year and employ about 1.9 million people. Of course, we have now reached around $23 billion in trade. In fact, agriculture and agri-food makes up 25 per cent of Canada's trade surplus. We are also known around the world for very high-quality, safe food. We are noted for producing the lowest priced annual grocery basket in the world. Only 10.1 per cent of our disposable income goes toward groceries. It is 10.4 per cent in the U.S. and goes as high as 14.1 per cent in Australia. Farmers are extremely proud of that. However, that in itself has its own challenges, as you will find out later.

Concerning the short-term income issue, I want to say that farmers prefer to get their money from the marketplace. There is no question about that. You asked me to talk today about the short-term income problem as well as international trade. Clearly, there is a linkage between the two. I will try to make that linkage later on. We have also been invited to return in the future to talk about a long-term business plan for agriculture. It will be our pleasure to do that after we have had sufficient time to have that discussion around our own table.

When I was here previously, I used the analogy of a trapeze artist. When I say that farmers like to get their money from the marketplace, I mean that they prefer not to continually return to the government for farm support. They would much prefer to have the tools that allow them to perform. I used the analogy of a trapeze artist, where we must ensure that the artist has the equipment to perform. At the same time, we provide a safety net beneath trapeze artists. They do not use the safety net to perform, it is only there to catch them if, suddenly, the tools fail them and they fall. That is also part of the problem. As I said last time, we moved the safety net beneath farmers when they were already falling. We have not totally cleared up that problem. As you very well know, we have had a tremendous problem in the grains and oilseeds sector for which our Farm Income Disaster Program does not compensate adequately. We had to stay within the constraints of the agreement on agriculture at the WTO to ensure that the program would be green. Thus, the reference margin has created difficulty, because our grains and oilseeds sector has been experiencing a chronic problem. We will get into that later as well.

At the federal-provincial meeting last July, we were still grappling with how we could ensure that those farmers and those commodities with chronic problems could be adequately compensated. We did not achieve that. What came out of that meeting was a downsized income disaster program. If someone ever tells you that the new CFIP program is different -- and that is why we are giving it a different name -- I can tell you that the only difference between CFIP and AIDA is that CFIP is worse. It is worse is because it lacks the few components that we had managed to add to the AIDA program to improve it. CFIP is nothing more than an AIDA-like program with some very important components missing.

We were very frustrated when that happened and decided to take a different approach. We started looking much more at the farm support being paid in the U.S. We do that because our farmers now find themselves competing against the U.S. Treasury. I will mostly use the U.S. as an example because they are so close to us, but this clearly applies to groups of countries like the European Union as well. Our farmers are now competing against government treasuries in other countries. The latest figures show that for every dollar per capita Canada spends on farm support, the U.S. spends over $2. In fact we spend around $163 per capita; the U.S. spends $350, and in Europe it is much more than that.

Farm support in the U.S. has increased by 283 per cent over the last five years. In Canada, we have just achieved the same level of support that we had back in 1996-97. Support was around $5 billion in 1991-92, but current projections are at about $2.6 billion for all agricultural spending.

That is just over half of the amount in 1991-92. We have just achieved what we had in 1996-97, and that falls far short of what we see in the U.S. Between 1988 and 1999, our per capita spending dropped by US$105, while in the U.S. it increased by $73.

If you look at the money transfer as a percentage of GDP, about 0.78 per cent of GDP goes to farm support in Canada. The OECD average is 1.42 per cent, almost twice that level. In Canada, 3.6 per cent of the government budget went towards agriculture spending in 1981-82. It will be as low as 1.7 per cent in 2000-01.

Farm income support in the U.S. adds to the chronic problem that we are facing, especially in the grains and oilseed sector. I will touch on a few other commodities experiencing problems later on. The grains and oilseed sector has been experiencing historically low prices for quite some time. We were looking at a 35 per cent decrease in real net farm income in 1997-98. We were also looking at a 24 per cent increase in input costs over five years. A 10-year projection shows a 37 per cent increase in input costs. That does not include the most recent fuel price increase and the fertilizer price increase as a result of increased natural gas prices.

There was a 70 per cent increase in NISA withdrawals in 1998. Producers were already feeling the tremendous hurt from grain prices that began decreasing post-1995. At the same time, our support decreased almost 60 per cent over the five years leading up to 1997. We have been looking at high levels of farm support in the U.S. and at very low grain prices for quite some time. In fact, we are looking at decreases as high 45.6 per cent for corn between 1995-96 and 1999-00. It is around 34 per cent for wheat, around 33.5 per cent for canola, and of course the list goes on. Farmers have suffered from tremendous decreases in grain prices.

That sets the stage for what farmers are currently experiencing. We had user fees in 1998-99. We saw a 28 per cent increase in user fees in agriculture and agri-food. In fact, that year farmers paid $92 million in cost-recovery fees to the government. We have had the increase in user fees, the tremendous increase in input costs, and are currently still battling the high levels of farm support in the U.S. Prices of some farm fuels have increased recently by 45 per cent. By our calculation, there is a potential 6 per cent decrease in farm income for every 10 per cent increase in farm fuel prices. If you do the math, that represents a tremendous decrease in farmers' incomes.

I was recently speaking to a grain producer who had priced out fertilizer. He was making a comparison to last spring. The price of anhydrous ammonia last spring was $350. The price was $440 on December 28 and $700 on January 28. These price increases are not calculated in the 24 per cent over five years or the 37 per cent increase over 10 years in input costs that farmers have experienced.

We are often asked why institutions such as the FCC or the banks are not panicking or talking more about the outstanding loans. I recently asked a banker, "Why we do not often hear you complain about outstanding loans?" He replied, "There is a simple answer. To please our board of directors, we are trying to rewrite them as fast as we possibly can." If you look at the program that FCC implemented back in 1998 -- and we thank the financial institutions for doing this, because it is helping the farmers -- you could skip a year's payment and either blend that into the rest of your amortization period, or add it on to the end of your mortgage. Thus, the farmer was current as soon as they rewrote it. While they have been scrambling to help farmers, at the same time, it is not telling the true story. Farmers have lost a tremendous amount of equity and also find themselves behind the eight ball when it comes to their payments.

For those reasons, there is a real sense of urgency in the farm community about increased investment in agriculture. Again, let me make the connection with farm support in the U.S., where our producers are competing against the treasury. U.S. grain and oilseed producers receive subsidies as high as $130 per hectare. In addition, they have the Loan Deficiency Program, which guarantees the producers a minimum price for their commodity. It is not hard to understand why it becomes tremendously difficult for our farmers, who must take the real market price for their commodity and do not get such direct payments. They must then try to compete either in our own domestic market against U.S. grains, or in the international marketplace, also against U.S. grains. A crisis has been created by the increase in output costs and the decrease in our own commodity prices. That has all led to a situation with which farmers cannot deal, because these are all factors over which they have no control.

We sometimes hear the argument from the department that subsidies in other countries do not affect the price, it is a surplus in grain production. However, you only have to look at the stocks-to-use ratio in wheat, which has not been as low as it is now since 1974. Clearly, the farm subsidies in other countries have a tremendous influence on the price of all the grains and oilseeds commodities.

When we compare investment in the U.S. with that in Canada, the continual trade harassment that we get from them adds insult to injury. We were thankful for the $500 million that we did get; it simply was not enough. By our calculation, the $1.5 billion that we were asking for federally and provincially was reasonable. It was well justified and was urgently needed to give farmers a higher level of confidence going into this year's planting. Receiving only $500 million out of the $900 million that we were asking for from the federal government simply failed the test of common sense. We will continue to push for that funding because our farmers need it.

As I said earlier, what adds insult to injury is the continuoual trade harassment that we get from the U.S.

I need only remind you of the challenges to the Canadian Wheat Board and to supply management, and the border closings we have experienced in the West. Recent events in the potato industry in Prince Edward Island illustrate one of the most abject forms of trade rule contravention. Clearly that was nothing more than trade rule contravention. It was nothing more than a non-tariff trade barrier. According to the STS agreement at the WTO, Canada did everything necessary to secure and patrol the area. Upwards of 10,000 soil samples were collected, all of which were found to be potato wart free. All the U.S. had in mind was protecting the table potato market in the U.S. That situation has not yet been resolved.

Around the time of the potato crisis in P.E.I. last fall, an article appeared on the front page of the National Post. Mike Weir had just won the American Express golf tournament in Spain. Mike Weir, of course, is a Canadian golf professional. Tiger Woods screwed up and lost. He was out-competed. When Tiger Woods walked off the golf course, he was heard to say that there must be something wrong with the design of the course. That is the U.S. international agricultural policy in one brief statement. When they are out-competed by other countries, there must be something wrong with the course design.

We need fair and equitable trade rules. The WTO has dealt with about 103 disputes in the first four years of its existence. The U.S. has been involved in 78 of them, the E.U. in about 63, and Canada in 13. We have won more cases than we have lost. We certainly have an interest in negotiating fair and equitable trade rules, but there must also be an effective compliance mechanism and a way of settling disputes quickly and efficiently. I again use the P.E.I. potato industry as an example.

Canada is following the international trade rules that we agreed to at the Uruguay Round. We hear other countries calling Canada "protectionist," but we need only look at some of the things that Canada has done since we signed the Uruguay Round. Canada has only 21 of the 1,370 TRQs at the WTO. Norway has up to 245. Canada offered 5 per cent minimum market access. We have achieved 85 per cent of our TRQs, which is 30 per cent higher than the WTO average. Canada has the second lowest agricultural tariff in the OECD. In fact, we are one of four countries that have lower average agricultural tariffs than average industrial tariffs.

Agriculture tariffs in the OECD are, on average, 427 per cent higher than industrial tariffs. Ours are lower. Through minimum market access and tariffication, as well as through reductions in amber support, Canada has clearly complied with the spirit and the rules of the last round.

I believe that Canada has shown leadership. However, it sometimes seems that that leadership is not enough. We look forward to the next WTO round, and we hope that we will be able to achieve some of the goals that we have set for agriculture and agri-food in Canada.

I was in Geneva recently, where I talked to Mike Moore, who still casts doubt on whether the hoped-for launch of the next round in November will be successful. We believe that we can achieve our objectives more easily in a comprehensive round. Mike Moore said that if by the end of July they do not feel very confident that a November launch will be successful, they will simply cancel it. They will still have the ministerial meeting, but they will not bill it as a launch of the next round because they do not want to suffer the same failure as in Seattle.

We certainly support the launching of a comprehensive round, and we support Canada in negotiating fair and equitable trade rules in that next round. One of the goals that we would like to achieve in the next round is the total elimination of export subsidies. I will tie export subsidies to current farm income problems later in my remarks. Export subsidies are still the most trade-distorting subsidies in the agriculture industry. In fact, export subsidies create a non-tariff trade barrier against our commodities moving into other countries.

To that end, we heard in Geneva that the European Union is ready to talk about export subsidies, provided that we also talk about export promotion and food aid. As you well know, some countries use export promotion and food aid as a disguise for export subsidies, and that must be put on the table. Our position calls for that, as does our government's position.

Domestic support is another critical area. You have heard our Agriculture minister say many times that our government cannot afford to match the levels of farm income support that are being paid in other countries, but it will fight very hard in the next round to ensure that they at least decrease to a level that is more proportionate to what we can afford.

The CFA and the government have called for an overall cap on domestic spending. The U.S. supports putting a cap on amber spending, but they do not want to put a cap on green spending. The reason for that is clear. They do not mind moving money out of amber spending, because they move it into green spending, where there is currently no limit. While we would like to see as many programs as possible move into green box spending, we have to ensure that the entire package is capped. Otherwise, other countries will continue to be able to outspend Canada.

In support of the CFA position and our government's position, there seems to be a willingness at the WTO to talk about green box spending and a redefinition of what those programs can be. As I mentioned earlier, in our quest to find an appropriate income disaster program, we had to stay within the constraints of the WTO. Canada and other countries are now beginning to realize that the direct payments in the U.S., which are considered to be totally green at the WTO, are in fact probably more trade distorting than many amber programs. I need only again cite the example of their $130 per hectare support, which of course is considered to be green, and which we believe is very trade distorting and harmful to our producers.

We also insist, with government support, that the decrease in domestic support start from final round commitments. In other words, the decrease in support should start from what countries committed to in the last round. There are those who promote starting reductions from current levels.

In that case, the 9 per cent of the value of farm gate production that we pay towards agriculture in Canada would have to decrease. The U.S. is at 29 per cent, and they would have to reduce that figure. Thus, we are hoping to achieve a cap on green and amber spending. Those countries paying high levels would have to move faster than those with much lower levels of spending. There seems to be a willingness to talk about that as well as the redefinition of green box programs. In fact, the secretary of the agricultural negotiating group said some countries would like the green box discussion to be the first item on the agenda, immediately following the stock-taking at the end of this March.

We are further asking for a continuation of the peace clause. The peace clause was agreed to in the Uruguay Round and allows countries to implement green programs that would not be countervailable. We continue to push for that clause within a redefined green box.

I will now speak to market access, which is another important pillar of our trade policy statement. We can hold our heads high because Canada has been the leader in providing market access. The CFA has worked diligently on its trade policy statement to ensure that not only will our government continue to support and secure our orderly marketing systems, but at the same time, we improve market access in other countries.

According to the numbers I cited earlier, and in addition to the market access Canada has provided and our low average agriculture tariffs, we can do that unabashedly and do not have to apologize for it.

We are encouraging zero-for-zero negotiations for those commodities that are interested. We are also encouraging every country to go to zero tariffs within TRQs. We are further pushing for a disaggregation of market access. After the last round, we thought that the rest of the world would get 750,000 tonnes of pork access into Europe. They gave all their minimum market access to some meat that they did not mind being imported. Instead of receiving 750,000 tonnes, we got only 75,000 tonnes. Minimum market access should be provided for each commodity specifically, so that there is true market access.

Tariff escalation should also be eliminated. In other words, canola and canola oil should have the same market access provisions in each country. We are finding that a country may partially close the border to canola oil with high tariffs, but will allow canola to come in. There should be parity for commodities and their processed products.

There should be a maximum reduction in single-stage tariffs, those tariffs that do not protect a TRQ, such as we have in supply management. Canada has tabled an interesting position in their market access paper to the WTO as recently as a few months ago. That paper suggests that countries should either lower their tariffs significantly, so that there is access over the tariff, or leave theirs tariff as high as they want, but then at least guarantee minimum market access at the bottom. Either one of those, of course, would increase market access around the world.

Those are some of the important components of our trade policy statement. I believe they are connected very closely to our current situation in agriculture. Tariffs, farm support, and market access are all key components in ensuring that our farmers get the tools they need to perform and move to a position where they will get their income from the marketplace.

The Chairman: The input costs of fertilizer and fuel alone, as you have said, are estimated to be over $1 billion, which would eat up anything that the government has put in to this point in time. I am hearing farmers at the grassroots level saying, "We just cannot afford to put in the fertilizer we have previously, so we will have to cut back." Some farmers are saying that where they were putting in 150 pounds, they were now going to put in 50 pounds.

If we come up with a half a crop because farmers do not have the wherewithal to pay the input costs, how much will government lose? There will be considerable loss.

Many farmers are saying that they will go out and sow the crops, buy crop insurance, and take what they can get, because they do not have the money for input costs to get the crop they should.

Mr. Friesen: A short answer to that is, you cannot make money with crop insurance. I do not think who rely on crop insurance will stay in farming very long. Second, given the extremely low reference margins that we are seeing in the grains and oilseed sector, they will not be adequately compensated by the income disaster program.

While the aggregate NISA account is somewhere around $3 billion, farmers in the most critical commodities have either zero NISA accounts or very few. Compensation for those farmers will be totally inadequate unless they get a further cash injection. Again, we are thankful to the government for increasing the spring cash advance. However, let me remind you that those are loans. While it is an important and key tool in helping farmers with cash flow, it only helps those who are in a position to utilize that tool. The spring cash advance my help farmers who are already far behind the eight ball to start, but again, they will have to dig out of that hole in the fall. I should also remind you that although it is called an "interest-free" cash advance, the money to cover that interest comes out of current safety net funding. Therefore it must be taken from another program.

The Chairman: The Americans move very quickly. I understand that there has been pressure on durum wheat, as you know, and that there is a glut of it. There is movement for hard red spring wheat. I understand the Americans have already moved their subsidy off of durum wheat and on to hard wheat. Do you know if that is true?

Mr. Friesen: I cannot answer that.

The Chairman: I got that information from a trucker who transports canola from our farm to the United States. He said they have already moved on that.

I make the point that the Americans, while they are very tough in negotiations, move quickly on their agriculture programs. He indicated that he thought North and South Dakota would be sown wall to wall to in hard red spring to capitalize on that.

Mr. Friesen: The Americans do move quickly. You are right, the direct payments they are receiving, rather than being non-trade distorting, in fact give producers a tremendous amount of flexibility to change their production practices. The green program is not supposed to affect production. It does give them a significant amount of flexibility.

The last time the U.S. increased their direct payments by $8 billion, on top of the $4.5 billion they were already paying, a paper crossed my desk two weeks later indicating that 95 per cent of the money had already flowed.

Senator Fairbairn: Mr. Friesen, I am glad that you came today to put these matters on the record. Some of your comments on the trade side will be particularly useful. If I were able to stay, I would ask questions. However, I will look over the transcript of the meeting and will get in touch with Ms Higginson or you.

Mr. Friesen: I should apologize -- it was fairly short notice -- because we do not have a package to provide, but we are in the process of preparing one in both official languages and you will receive that. It will include much of the information in my presentation, and more.

Senator LeBreton: As I was listening to your compelling and comprehensive testimony, I specifically noted your comment that U.S. grains and oilseeds are guaranteed a minimum price per hectare.

What effect has the historically very low Canadian dollar versus the U.S. dollar had on the economic ability of our farmers to compete, and on overall farm income? I believe you said that the U.S. guarantees $130 per hectare. That is a significant amount of money in present-day dollars.

Ninety per cent of our population lives within 100 miles of the U.S. border. Have you had a chance to study the impact of the lower Canadian dollar on farmers' incomes?

Mr. Friesen: I can only respond from personal experience. Our farm generates 75 per cent of our revenue from the export of hogs. The hog price goes up whenever our dollar drops. A low dollar is positive for our hog industry, as far as marketing is concerned.

You would get hit on both sides if you were in a commodity that requires significant inputs that have to be purchased from the U.S. You might get some advantage if you are exporting your commodity, but the disadvantage might be greater because inputs do take up so much of a farmer's gross margin.

Senator LeBreton: You are referring to things such as machinery and fertilizer, or can we buy most of our fertilizer in Canada?

Mr. Friesen: A significant amount of fertilizer is manufactured in Canada. There is a large company in my backyard.

[Translation]

Senator Gill: As we all know, we are almost always in competition with the Americans in a number of fields. When Canada subsidizes one sector, the Americans always up the ante a little. Is Canada's Treasury able to compete with the US Treasury when it comes to agriculture?

In your presentation, you proposed various solutions aimed at reducing or eliminating subsidies. To bridge the existing gap between US and Canadian aid levels, Canadian would need to inject several billion into the industry. The problem lies with Canada's ability to match the US on this front. I would imagine that many people here are asking the same question. Just how far can we take this? Does Canada have the capability to compete with the Americans?

[English]

Mr. Friesen: We would have to pay a considerable amount per acre across Canada if we wanted 100 per cent equity. The American direct payments that were implemented over a seven-year period increased a little, peaked, and then dropped. They were worth about $6 billion at their peak. The U.S. government has doubled those payments every year for the last three years. If we were to look at paying $130 per hectare across Canada, we would have to base that to some extent on yield. The U.S. picks a base period -- and I think it was 1994 -- on which to calculate a farmer's production and, to some extent, yield. They got a payment based on that every year for the next seven years.

You can imagine the stability if farmers had known in 1995 that they would get these cheques for the next seven years. However, that does not create viability. It is the safety net, not the tool, but it does provide stability. We have heard numbers as high as $20 billion for us to match that.

We have left that calculation to the government. If you recall, the Minister of Finance said in his mini-budget last fall that the government was well aware of the high levels of subsidy being paid in the U.S. and would continue to monitor it. We have said the time for monitoring is over. However, the point is that they have the resources to very accurately calculate what it would take. We have been told continually that Canada cannot afford it, but we do not buy that.

By our calculations, farmers have contributed at least $14 billion to deficit-cutting in the years since 1992. We feel that now is the time to put some of that back into agriculture. We hastily add that the benefits of extra or added investment will accrue to the Canadian economy.

We felt that the $1.5-billion figure would be an important step. It is not as much as some farmers have said that they need, but we thought it was justifiable, certainly very easily affordable, and would do a great deal of good. The $500-million figure is an important first step toward that goal, but the second step must be taken very quickly.

I believe the U.S. has no intention of sharply decreasing farm spending. Their current program runs out in the year 2002. I have already seen an article saying the farm organizations know full well that with the trillion-dollar surplus in the U.S., now is the time to take their shopping list to Washington. I believe that list will be fairly substantial. Americans cannot afford to eliminate their current program overnight.

To some extent, those subsidies have been capitalized in the price of land. You can sell your land in one of two ways in the U.S. You can either sell it for the higher price, and the buyer inherits the cheque; or you can sell the land for a lower price and go on receiving the cheque, even though you are not farming any more. Again, it has nothing to do with whether a farmer plants a crop or not. He gets his cheque every year any way.

Senator Stratton: Mr. Friesen, you gave us some amazing, staggering statistics in your presentation. We know that we need a short-term stop-gap until the long term is looked after. My biggest concerns, of course, are how long will it take for the long term to be achieved, and will the U.S. and European countries reduce their exports?

The U.S. will do whatever it takes to achieve success for their potato farmers, for example. That is exemplified by the banning of imports of P.E.I. potatoes.

If we were to increase our subsidies, which farmers desperately need, would you not expect the U.S. to then start putting up walls? Do you think that is part of the problem that the Canadian government is having?

We are looking for a solution to that. I am mystified as to why the Agriculture Minister felt so positive about the figures. Why did that number change significantly? If you look at that you will say, does Canada have a problem with that? If we increase the subsidies, the U.S. will create an artificial wall by claiming that our farmers are getting inequitable support. Do you agree with that, or is that just nonsense?

Mr. Friesen: First, in response to your comment about the EU, it is tough to know what they will do. We have been told by their farm leaders that their support has been capped. At the same time, they are looking to have other countries join the EU. For example, Poland currently has more dairy farmers than any of the EU countries. They have about 1.5 to 2 cows per farmer. If they want to throw them to the wolves in the international marketplace, they will have to offer a lot of support. It is unclear as to how that cap will work. I do not think we have any information on that.

Ms Jennifer Higginson, Trade Policy Analyst, Canadian Federation of Agriculture: I do not think they know yet.

Mr. Friesen: Your P.E.I. example is an excellent one. We told the minister that we do not believe that the current safety net programs are adequate protection when another country blatantly contravenes a trade agreement that our government has signed.

I find no fault with the government and its officials in trying to resolve that situation. They worked tirelessly over Christmas, but it just did not happen. The U.S. just refused to cooperate. Clearly, that is a situation which falls outside the safety net package.

You talked about increasing our spending and how the U.S. will respond. Both the U.S. and Canada are well within their amber spending limits. Of course, amber programs are countervailable anyway. If we increase our green spending, and the Americans do not care if they contravene an agreement, then we have little to fall back on, because we depend much more on them than they depend on us. That is part of the problem, as it was in the P.E.I. situation. We had all kinds of opportunity to retaliate because we currently import potatoes from the U.S. that give us some concern about diseases that they have down there. At that time -- I think by Glickman, and later on perhaps by Venamen -- our government was basically told, "If you do that, we will close the entire border from coast to coast." What can we do? We depend on them more than they do on us.

You make an excellent point, senator. If we were ever to pay our producers full equity with U.S. producers, to what would they resort?

Senator Stratton: We see the same thing happening with the softwood lumber agreement that will expire on Sunday.

Many farmers are virtually at the end of the line, or quickly approaching it, particularly this year. There was a program in the 1980s called the Canadian Rural Transition Program to help farmers who wanted to get out of farming. This is a long-term problem that will take at least 15 to 20 years to work out, if we are fortunate. Should we not consider giving an option to farmers who want to get out? All they know is farming. Should we not offer them retraining and relocation into another field? Do you think that is something the government should be looking at?

Mr. Friesen: I would like to add one thing to your previous comments. Why was Minister Vanclief unsuccessful in getting the full $900 million? I have said publicly -- and I believe it is true -- that I think the government is willing to let part of agriculture go.

Senator Stratton: That is really what I was coming to.

Mr. Friesen: We did discuss offering farmers a transition program or an exit program some time ago. The mandate of our organization is to ensure that we create a stable environment in which farmers can farm. We said to the minister, "If you introduce the discussion, we will respond, because we have some ideas of our own." If the government says, "Look, that is it. We are willing to let 25 per cent of farmers go. Have you any ideas?" then that discussion may start. I really believe some provinces have already started down that road. Minister Serby from Saskatchewan has alluded to it.

I believe that the task force that the Prime Minister is to appoint to work on a long-term business plan will consider exit and transition programs as well.

The other point I should make -- and we do not have a policy on this -- is that if there is a transition or exit program, it must be done in such a way that it does not appear that the government is treating farmers like second-class citizens. That is very important. Do not offer them just a small amount and say, "Well, that is adequate." That would certainly be a priority.

When I last talked to the executive director of the New Zealand farm organization, he told me about their government program. If a farmer walks off an insolvent farm, he gets between 6 and 12 months' worth of salary. I believe the figure is around $45,000 or $50,000. They cannot use that money to try to buy the farm back. They must walk away. The creditors cannot get at that money either. That gives them an opportunity to either look for a job, or go to university and either increase or upgrade their education.

Senator Stratton: Some senators on both sides are really concerned about the future of rural Canada. That ties into the problem with agriculture to a large degree. We have seen the quality of rural life diminish over time. If you get sick in the city, you can go to a hospital for treatment, although it may be "hallway medicine," as it were. However, if you get sick in rural parts of the country, you could be in significant trouble because you have to travel so far for treatment. Do you think that when members of this committee look at the future of agriculture in Canada, we should examine aspects of rural life as well, or should we stick strictly to the confines of agriculture?

I must ask the question because the two go together. I do not see why we would separate them. Perhaps we should look, at least in part, at what is happening out there in these small towns and villages across the country. I think they are being devastated.

Mr. Friesen: I agree with you 100 per cent. Each of those components is part of the total equation. I had breakfast with the mayor of Souris, Manitoba, a couple of weeks ago. Souris is a town of 1,800 people who are totally dependent on the success of agriculture. They lost 13 businesses last year. Total rural infrastructure is part of the package, and that includes job opportunities and small-town businesses. The more infrastructure we lose, the greater the cost the farmers must incur. Thirty-five years ago, my father could buy a car or a tractor in the town of Wawanesa. There were several garages in Wawanesa. Now I must drive as far as 40 miles to buy a car or to buy farm machinery. The last garage in Wawanesa closed just last week. I must now drive 40 miles just to get my car repaired.

It is a vicious circle. The latest figures I have seen show that only 25 per cent of total family farm income is derived from actual farming operations; the rest is off-farm income. We need rural infrastructure to create job opportunities for local people and to continue to shore up farmers' incomes. A very large number of farmers have off-farm jobs in my community.

The Chairman: The big mistake is that while agriculture is creating $14 billion worth of surplus for the government, we are short-changing the whole agriculture industry. A quarter-section of land is selling for US$100,000 in Crosby, North Dakota. Sales this spring directly across the border in Canada brought about US$35,000. We are telling the world what we are worth, really, by neglecting agriculture. It makes no sense to lose $14 billion to save a few million dollars.

Canada will have to come to grips with the fact that we are living in the year 2001, we are in a global economy, and things are moving on. Are we going to do the right thing now or not? Many young farmers have already left the farms. I believe that 82 per cent of Saskatchewan farmers have off-farm jobs. The transition is already happening. The question is, how will government deal with it?

Senator Hubley: My question relates to the safety net that you touched upon briefly at the beginning of your presentation. You mentioned that the CFIP is lacking some of the more important components of the AIDA.

Would you explain what you feel are the program's weaknesses, other than the obvious -- which we have run into -- which is that it does not address trade-related issues?

Mr. Friesen: The biggest problem is the reference margin. The income disaster program covers you for up to 70 per cent of your three-year reference margin or of your Olympic margin, that is, it takes the high and the low years out and averages the other three years.

Seventy per cent of a very low reference margin is very little. Additionally, as was the case in the AIDA program, if you qualified for an income disaster cheque, they discounted it by 3 per cent of your ENS, and that is out of NISA. They said that if a farmer contributes to his NISA account, the government matches that 3 per cent. They said, "Well, if we give you the full income disaster cheque, somewhere we are giving you double the money." A farmer then has the government contribution to his NISA account taken out of his income disaster cheque.

For grain farmers, 3 per cent of their ENS is a lot of money, more than for hog producers. The NISA calculation is your gross receipts minus your commodity purchases. The commodity purchase for grain farmers is basically the seed. As a hog producer, I buy weanlings and I buy the feed. That is a large commodity purchase compared to what I get for my pig. A grain producer's ENS is considerably wider, so 3 per cent amounts to a lot of money. Many farmers had nothing left of the income disaster cheque. When they discounted it from AIDA to CFIP, we lost the coverage of negative margins. I believe I have explained that before.

The factors that cause you to go from 100 per cent down to 25 per cent of your reference margin, for instance, are exactly the same factors that cause you to go below zero.

It has never made sense to us that they compensate farmers down to zero, and then suddenly, when they have negative margins, there is no compensation.

The gross margin calculation in income disaster is gross receipts minus direct input costs. The direct input costs are just exactly that. We have taken out of that calculation all the factors that could be attributed to poor management. If a farmer buys a combine that is too expensive or too large for that operation, or maybe bought a new one when the old one still worked, that is not compensated for in income disaster. Debt servicing is totally out of the calculation. The input costs that are included in the calculation are fertilizer, hydro, insurance, and labour. Again, they are all costs over which the farmers have no control. We had insisted that negative margins should be covered, but we lost that in CFIP.

We also lost out on the way that we calculate the inventory. We did accomplish, with the minister, some very good changes to AIDA 1999, some of them retroactive to 1998. Because the provinces did not cooperate, the minister finally said he would go ahead and do it himself with 60 cents on the dollar. Negative margins were another factor. That added another $170 million to farmers' pockets. He also made a change that allowed farmers to choose how they wanted to calculate their inventory. I am not sure how detailed you want me to get.

Senator Hubley: Not too detailed.

Mr. Friesen: Quickly then, if you have 1,000 bushels of wheat in your bin on January 1, and that same 1,000 bushels of wheat in your bin on December 31, your inventory is calculated with only one price, the price on December 31. It does not matter if the price of that wheat was $10 a bushel at the beginning of the year and $1 per bushel at the end of the year, they use the $1 a bushel. The farmer is not compensated for his extreme loss of inventory value. Those are two of the main factors.

We are hoping we will be able to ward of another major concern. They are actually intending to make the link between NISA and income disaster even harsher than it is currently. It is contingent on what comes out of the NISA review. At the federal-provincial meeting last July, the ministers decided that if they could not come to a consensus on an appropriate link, there would be a default link, and that default link scares the heck out of us. That has the potential to turn a 72 per cent program into a 42 per cent program. We will have to fight very hard to ensure that that does not happen. They do not talk about that very much. We like to think that sometimes we put enough pressure on them to cause a change of heart, and we are hoping that happens this time.

The Chairman: Honourable senators, we must be out of here by eleven o'clock. We have another witness to hear. I would be pleased if we could complete our questions in the next five minutes or so.

Senator Tunney: Mr. Friesen, I congratulate you on your election to your position and certainly on the presentation this morning. It was excellent. It is probably no better than it would have been with the previous presidents. We are lucky to have good quality people leading our national farm organization.

I have been a dairy farmer all my life. I would not be here otherwise; I would be back home struggling with a mountain of debt, as many of my neighbours are. I have only been a senator for three weeks, and while what I am hearing is not new to me, it is very discouraging.

My main concern has not been mentioned this morning, and that is the social impact of the current state of agriculture. It is resulting in family breakups. It is resulting in suicides. It is resulting in threats of farm takeovers. The farmers do not know what to do about it. They feel like victims of the government, and that is so to some extent. They are victims of foreign governments to a greater extent. Some people whom we should be able to think of as our friends are not.

I am drawing your attention to an article in The Ottawa Citizen of a week ago Sunday, in which George Brinkman, a tenured professor of agricultural economics at the University of Guelph, is recommending that our government immediately withdraw all subsidies and support, and abolish the Canadian Wheat Board, the Canadian Federation of Agriculture, and any other organization that might be of help to farmers.

George Brinkman is an American. He is a graduate of the University of Indiana. He is really one of the most right-wing people I have ever met, and I have been fighting with him since the early to mid-1980s. He does not want farmers to depend on anyone or anything other than themselves, and may only the strongest survive. We have threats like this.

One problem we have that other players in our industry do not is the lack of any kind of price-setting for our products. The transportation industry, the processing industry, the distribution industry, and the retail industry decide how much of our product they need at a certain price to pay their costs and make a profit. Do we have any of that, except in supply management? No, we do not. Until something like that is introduced into the other commodities, we will have this trouble.

For instance, in the AIDA program -- you did not mention this, but I think it is so -- we did gain, after a fight, the inclusion of family labour along with the other negative margins that you mentioned. I believe we have that now. I certainly hope so.

When I was once at a dairy meeting as a director of the milk marketing board, I met a farmer who had added cash-cropping grain production to his operation. He said to me, "I do not care, as long as I can break even." Well, what is a farmer supposed to be in farming for if it is only to break even? They are not greedy people, but they do deserve to make a living.

Thank you very much for coming. I will be looking forward to receiving either a summary or the full text of your presentation.

Mr. Friesen: Thank you for your kind comments at the beginning. Certainly I have a lot of respect for all the presidents who preceded me at CFA. However, a president is only as good as his staff. For that, certainly today we can thank Ms Higginson.

You are absolutely right. Farmers are price-takers, except in supply management. Incidentally, that brings me to an interesting conundrum that New Zealand would like to put us into. New Zealand was pushing us at the last farm meeting to actively lobby our government to eliminate all forms of farm support. The market does not pay our farmers. They do not want the government to help farmers when the market does not pay for the production of food, and they accuse supply management of taxing the consumer. That begs the question, if the market does not pay the farmer, the government is not supposed to pay the farmer, and the consumer is not supposed to pay the farmer, who is supposed to pay the farmer? You are absolutely right. Farmers have no control over all the factors that have created this crippling situation. This is not a matter of poor management. This is not a matter of small versus large. I talk to a fellow in Alberta quite regularly who farms 11,000 acres, and he is having a tough time making a go of it. I talked to a guy recently from Saskatchewan who farms 3,000 acres, and he broke down crying on the phone because, on a per unit basis, he cannot make it.

Senator Oliver: Is it mixed farming? What are they in?

Mr. Friesen: They are grain farmers.

The Chairman: I want to thank you for appearing this morning. This has been an excellent exchange. We look forward to having you back before this committee with suggestions for long-term solutions.

I wish to thank senators for their questions and their participation this morning, and especially the representatives from the Canadian Federation of Agriculture for the job you are doing. One further question: Are you going to Quebec City?

Mr. Friesen: Before I answer that, let me first say, thank you very much for giving us the time. Next time you invite me, I will just sit down and open it up for questions. I will not spend so much time talking. Hopefully, you will have questions for the answers I will have then.

I hope I have managed to sufficiently stress the urgency of getting the extra $400 million at the very least. We had a joint press conference with five of the provincial agriculture ministers at the federal-provincial meeting in Quebec City. Alberta, Saskatchewan, Manitoba, Ontario, and Quebec have already publicly committed that if the federal government comes up with the $900 million or $1 billion, they will put up their share. We would appreciate whatever help you can give us in pushing for that. We have urged the provincial agriculture ministers to kick it up to the premier level, and they have done that. We are hoping that the premiers will call a meeting with the Prime Minister. If there is anything else we need to say to stress the urgency, then please tell me what it is. Clearly, it is critical.

As for Quebec City, you are talking about the FTAA. Ms Higginson has been monitoring that very closely. We are trying to decide whether we have a role there. One of our members, UPA, will be at the people's summit and the part that deals with agriculture. They will be there. If we feel we have a role to play, we will definitely be there too.

The Chairman: I want to thank you again. It has been very informative. We certainly appreciate your appearing on short notice, because of the urgency of the situation that is before you.

Honourable senators, we will move into an in camera session.

The committee proceeded in camera.