Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 19 - Evidence
OTTAWA, Tuesday, November 6, 2001
The Standing Senate Committee on Agriculture and Forestry met this day at 6:02 p.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: Honourable senators, this evening we are examining the international trade in agriculture and agri-food products, and short-term and long-term measures for the health of agriculture and the agri-food industry in all regions of Canada.
We are pleased to have the Honourable Ralph Goodale, Minister responsible for the Canadian Wheat Board and Minister of National Resources. Welcome. We will hear your statement and then we will go to questions.
Hon. Ralph Goodale, Minister of Natural Resources and Minister responsible for the Canadian Wheat Board: Mr. Chairman, I am pleased to have with me officials with whom I am sure at least some members of the committee are familiar. Mr. Howard Migie and Ms Suzanne Vinet are from Agriculture and Agri-Canada. Ms Vinet's specialty is international trade issues and Mr. Migie focusses on many dimensions of the grain business across Canada, especially in Western Canada. We also have Dr. Brian Oleson from the Canadian Wheat Board.
I appreciate the opportunity to meet with members of the Standing Senate Committee on Agriculture and Forestry once again. I should mention, Mr. Chairman, that time is a bit constrained this evening because I have a cabinet committee meeting that I must chair at seven o'clock. However, we have one hour. I hope we can make the most of that. I will try to keep my opening remarks brief, simply touching on some of the highlights of different events since I last had the opportunity to appear before the committee.
One of the topics I would mention is the whole issue of grain handling and transportation reform. We discussed that subject at length in my last appearance. At that time, as you will recall, there was considerable uncertainty about where the reform process was going.
In May and June of last year, the government announced its policy position. The House of Commons and the Senate enacted certain legislation, all in an effort to make the grain handling and transportation system a less regulated system, and one that was more commercial, contractual and competitive. That, for the grains industry in Western Canada, was a major turn of events, moving to a much different environment from that which had been commonplace in Western Canada for many decades.
The process of making the transition is a considerable challenge. It involved some lengthy and difficult negotiations between the various players in the system, most particularly between the Canadian Wheat Board and the grain handling companies, as well as the railroads. As those negotiations, as difficult as they were, rolled forward at a rather slow pace over the course of the last year or so, there were a number of suggestions from time to time that, perhaps, the government should intervene in the negotiating process. We were reluctant to do that because we thought it was, under the new policy framework, the responsibility of the parties to negotiate the framework in the spirit of a more commercial, contractual and competitive setting.
Ultimately, I am pleased to report that the negotiations were successful. Intervention was not required and a tendering process is now in place and functioning. It is still in the early days, however, because we are in the first part of the first crop year in which this new tendering process in place. However, the experience thus far has been a positive one.
There is an official reporting process that will come to the attention of parliamentarians in due course. It would not be appropriate for me at this stage to pre-empt that, but I am pleased to say that in the tendering experience there appear to be considerable savings in grain handling and transportation costs being accrued to farmers, in some cases with values of the $5, $6 or $7 range or higher than that. That saving goes right to the bottom line from the farmer's point of view. As I said, though, it is still early.
The negotiations took a long time so the experience under tendering is still preliminary but so far so good, and the savings appear to be accruing as we anticipated they would.
One other item of news is specifically with respect to the Canadian Wheat Board. We are in that period toward the end of the calendar year after the close of the immediately preceding crop year, so farmers will be anticipating possible interim and final payments for the 2000-01 crop year. Those payments are being processed through the normal channels and we anticipate interim payments in November. The board is hopeful that final payments can be made in December.
They are also taking a hard look at adjustment payments for the new crop year, 2000-02. It would appear that at a relatively early point in this new crop year that adjustment payments will be forthcoming, particularly with respect to some types of barley.
The market conditions, of course, continue to be difficult and prices are fluctuating, as we all know they do, but the early signs based on world stock supplies indicate that there should be some modest strengthening of prices as this crop year unfolds.
I have some points on trade matters. I am pleased that Ms Vinet is here this evening. She will be able to speak to these matters in greater detail if members of the committee are interested. I have two points in particular. You will know that the WTO round in Doha, Qatar, is now underway.
With respect to agriculture in those international trade discussions, there are several Canadian objectives. First, we want to achieve the complete elimination of export subsidies. Second, we aim to achieve major new disciplines on domestic support programs that have a trade distorting effect. That is particularly our point in relation to some of the domestic policies of both Europe and the United States. The source of our current difficulty is not so much the direct export subsidies, but the indirect domestic support systems that have a trade distorting impact. We will be working to achieve major new disciplines with respect to domestic support systems. Third, we want to achieve significantly improved market access conditions around the world.
Finally, with respect to State Trading Enterprises - STEs as they are called - into which organizations like the Canadian Wheat Board tend to be defined, we are prepared, in those international discussions, to have a factual conversation with our international trading partners about the realities in respect of STEs. However, we are not prepared to engage in some theoretical, philosophical discussion or some argument based upon the latest rumour coming out of the coffee shop in Minot.
We have clearly told the Americans, the Europeans and others, that if they have specific factual complaints to lay on the table, we are prepared to discuss those. I have been making that request, Mr. Chairman, as you know, of the United States since 1993. They have yet to put before me a solid factual argument. There are plenty of rumours out of the coffee shop in Minot, but not a shred of factual evidence to back up their complaint in respect of the Canadian Wheat Board.
We intend to defend our position in the international trade discussions regarding the STEs. Our point is simply this: Obviously, we should be seeking fair trading situations on the basis of level playing fields. The issue is not the structural nature of a trading enterprise - it is up to every country to determine what structural form their trading activities will take. The issue is the conduct of the trading enterprises in the marketplace. We would not want to see STEs or - to translate it into Canadian language - the Canadian Wheat Board, put at a competitive or market disadvantage, compared with other players in the marketplace, who may be in a position, because of their size, to exercise more untoward influence on the marketplace.
Those discussions in Doha are beginning, and Canada certainly intends to advance its positions with a great deal of vigour.
A second trade item, of course, is the outstanding investigation under U.S. legislation - the so-called "Section 301 action" - launched by the North Dakota Wheat Commission with respect to the Canadian Wheat Board. The investigative process into that complaint is ongoing. We had expected that there might be reports published in the latter part of this year, but it appears that security events and other preoccupations in the United States have changed the calendar and the flow of anticipated events. We do not expect any further significant action on that file until sometime in the new year.
However, once again, I make the point that this complaint on the part of the United States is "ploughing old ground." There is nothing new in the allegations that have been made by the North Dakota Wheat Commission. These issues have been investigated over the course of the last decade no fewer than eight times by various agencies in the United States.
To ensure that information is on the record, I will summarize it briefly: There were investigations conducted by the U.S. International Trade Commission in 1990 and 1994; investigations by the U.S. general accounting office in 1992, 1996 and 1998; a bi-national panel and then an audit by an independent international auditor under the Canada-U.S. Free Trade Agreement beginning in 1993, and continuing for a number of months; and most recently, there was a investigation by the U.S. Department of Commerce in 1999. In total, there have been eight separate investigations by eight U.S. agencies of one kind or another over the space of a decade. The score in all of that is eight to nothing in Canada's favour. In other words, none of those investigations has found any evidence upon which to base an allegation of unfair trading activity against the Canadian Wheat Board.
We anticipate the result of this further investigation - number nine - to fall under the same category. It is certainly our intention to defend our position strongly. Canada will not agree - let me underline that - to restrict its wheat exports. With respect to any future action that the United States might contemplate as a result of this complaint, we will certainly hold the U.S. firmly to its commitments under both the WTO and NAFTA.
There are many other matters that I might discuss at the outset in this meeting, but in the interest of time, I will stop and welcome your questions.
The Chairman: Thank you, Minister Goodale. I am sure that our senators have questions.
I have a question about grain movement for the officials from the Wheat Board can answer. Farmers are telling me that it is slow, especially for durum on grades. In other words, they will accept number one hybrid durum, but there is little of it in the South. I have talked to farmers in the North and they say the same thing. Is this because of the events of September 11, given the durum that goes to that part of the country?
Mr. Goodale: There is not a direct impact that we could measure or quantify. However, it is true to say that economies around the world have taken a hit since September 11. Obviously, in many places around the world there is a universal slowdown in economic activity. Every country will be measuring that impact on its trade flows, national accounts, and so on. However, to the best of my knowledge there is no direct measurable interference or impact on the grain trade, as far as we know.
The Chairman: How do the export percentages line up with other years, for instance, to this period?
Mr. Goodale: I will ask Dr. Oleson to comment on that.
Dr. Brian T. Oleson, Senior Economist, The Canadian Wheat Board: This year is relatively short, simply because the size of the crop is down. World trade is down slightly from last year itself. Over the year, we expect that our year-end inventory on durum and barley will be in normal range by the end of the year.
The Chairman: We hear rumours and suggestions coming from the grain companies that buy from us, that the movement of durum wheat might be slow this year. Are you getting that same direction from our buyers or from people that we sell to?
Dr. Oleson: The durum market has been somewhat slower. However, when you take the large year-end inventory that we had at the beginning of the year, together with the smaller crop that we have, then the year-end inventories, if my memory is correct, will be pretty much in the range that they have been over the last couple of years.
The Chairman: Given the drought in Manitoba, Saskatchewan and in parts of Alberta, what percentage of grain will we get compared with what we usually get, on average? Has the Wheat Board done any work on that, or is it too early?
Dr. Oleson: The Wheat Board has done much work on that. I am not as close to the movement numbers as I would like to be for your particular question, but our overall movement program for the year will be relatively healthy, given the production that we have. However, wheat production is down considerably, hence our overall program will be down considerably for that reason.
The Chairman: Are they putting a percentage on that?
Dr. Oleson: I will go through the numbers and give you them to you in a couple of minutes, if that is all right.
Senator Wiebe: One of the problems with commuting between Regina and Ottawa is that it is a six-hour process - though there are some side benefits. When I was flying down this Sunday, the minister happened to be on the same aircraft. I had the opportunity to bombard him with questions for six hours. I must thank him for his receptiveness and his open responses to those questions.
I would like to follow up on the chairman's question. Since harvest, we have seen a slow but steady increase in the price of durum. I believe that reflects the fact that we produce such a high quality durum and the fact that our crop was about 20 per cent less than normal because of the drought.
However, with regard to wheat, while the price is higher now than it was at the start, it has been rather erratic in the markets. It went up substantially and then dropped, and then went up substantially again. Is there uncertainty in some of our Asian markets with regard to what happened on September 11 as to whether they should be committing dollars to purchase this commodity? Is that perhaps the reason why it is difficult for the price to find a steady level?
Dr. Oleson: You are likely correct in the uncertainty aspect.
There has been an underlying bullish tone to the market and to the fundamentals of the wheat market for a long time. However, for various reasons it does not seem to have expressed itself in the market.
If you look at the fundamentals of the wheat market, most economists would say that prices should have been firming and tightening up earlier. One of the things that has happened with September 11 is that the comfort of living hand-to-mouth on the inventory side may be something about which the buyers are starting to wonder. There has been tremendous comfort among buyers that they could live hand-to-mouth on the inventory side and the exporting community would always be there for those supplies.
Everyone has been shocked in terms of what happened on September 11 and people are likely reassessing the way that they look at business and inventories, among other things. We feel that the wheat market has upside potential, but it has not been expressing itself through the market as yet.
If you look at the fundamentals, countries such China seem to be starting to turn a corner in terms of having moved from being a large exporter, to being almost non-existent in the market, to suddenly starting to develop a profile where they may well be much larger in future years. All of those factors do exactly what you suggest. There is just a jittery element in the market. Once you are bottom-feeding on a market, as we are with wheat - and let us face it, we are - any real jitter can send that market up and then it comes collapsing down again. That is exactly what we have seen.
Senator Tkachuk: In regard to the October 9 meeting of the U.S. House of Representatives Committee on Ways and Means, their trade minister said that he believed that the Canadian Wheat Board is engaging in unfair pricing. He indicated that the United States should try to eliminate these places or reduce the monopoly aspects of the board.
Have you followed up on his statement? What is their strongest argument that the board is unfairly pricing?
Mr. Goodale: The argument that I hear from various American representatives - to reduce it to its basic terms - is that the Canadian system is different from the American system; therefore, Canadians must be cheating. It is no more sophisticated or glamorous than that. I press them on that and ask exactly where, when and how. They are never able to provide the factual details. It is an instinct, intuition and suspicion on their part.
When pressed for detail, the detail is not forthcoming. I said that if there is a complaint or a problem, they should give me the facts. We are prepared to have a discussion based on the facts, not anecdotes, stories, rumours and innuendos.
I have been making that point to American counterparts now for the better part of eight years. They are not in a position to be more specific. They say, "Well, it is an STE; therefore, it must be a subsidy." I say, "All right, tell me exactly where." They are never able to do it.
It is not a matter of having casual dialogue or informal discussion between ministers on the Canadian side and secretaries and other officials on the American side. They have examined - officially, formally and exhaustively - the Canadian system no fewer than eight times over the course of the last decade by very sophisticated means through the International Trade Commission in the United States; the general accounting office in the Congress; the U.S. Department of Commerce; the auspices that are available to them under the Free Trade Agreement; bi-national panels; independent auditors. On and on it goes. There have been eight different investigations. Every time, the conclusion has been that there is no basis upon which to make an allegation against Canada and specifically against the Canadian Wheat Board with respect to unfair trading practices. However, they continue to make the allegation.
To put it bluntly, it seems that various American administrations are responding to hot-button, squeaky-wheel local politics in the United States.
Senator Tkachuk: What does a farmer in North Dakota or Montana get for high protein wheat versus the farmer in southern Saskatchewan, for instance? I do not follow the markets on a daily basis, but what would they be getting in U.S. dollars if you were to compare it? What would the Canadians and Americans be getting domestically for their wheat?
Mr. Goodale: Senator, it would be difficult for us to provide that information this evening. However, we could provide the committee with representative samples of what the market is generating. We can collect that information.
Senator Tkachuk: Can you give us approximate figures? You are the Minister of Wheat Board. What about internationally?
Mr. Howard Migie, Director General, Marketing Policy Directorate, Strategy Policy Branch, Agriculture and Agri-food Canada: Every time we compare prices, we get letters that say, "I saw a price at a particular elevator and it was way higher." We investigate and we find out that it is a different quality or it is there for a particular reason or time.
Mr. Goodale: Exchange rates or transportation differences may not have been taken into account. In doing these investigations, we have found that you get a complaint on one side of the border that there is a big price discrepancy. We track all of those down and find that when you actually compare the same grade and quality on one side of the border to the same grade and quality on the other side of the border, after accounting for factors like exchange rates and transportation, you are dealing with similar prices.
Senator Tkachuk: Accounting for the differences between the Canadian dollar and the American dollar, the prices are similar. What does that then do for our export market? When we sell our wheat to China, what are the Americans selling it for and what are we selling it for?
Dr. Oleson: The North American market is a premium market in terms of the world market. The returns that we get from selling our wheat to Canadian and American millers will be slightly better than the rest of the world. That is true of all grain traded in North America because it tends to be a premium market.
The heart of our question relates to the total return that the American farmer obtains from participating in the grain business versus the Canadian farmer. One of the frustrating aspects of dealing with the American system is that so much of the American net farm income comes through the direct and indirect subsidy programs that exist in the United States.
That is one of the problems that the American farmer has with the Canadian system. Namely, they have a significant amount of money that is delivered indirectly outside the marketplace to the farmer. We will all get similar prices. We think that because it is Canadian wheat and the way we market the product that there may be a premium that Canadians are getting. It is a small premium, but it is nothing in the range of the types of monies that are delivered through the subsidy system in the United States.
That creates a certain mental block within the United States in terms of their system. What they see is a purely commercial system working the selling and buying of wheat. In the meantime, there is tremendous government interference in the system through the subsidies - both indirect and direct - that the American farmer gets. The American farmer gets much more money in his pocket when you net the total price plus the subsidy.
Senator Tkachuk: I understand that. I know that Americans take a back seat to no one in assisting their farmers. The money given in the United States is substantially higher than Canada. However, are we talking about a price that is the same on both sides of the border - and let us use $3 a bushel on both sides - ours in Canadian dollars and theirs in American? If the amount of money that the farmer gets on both sides of the border is exactly the same - that is, in same dollar terms - why do Americans think they are operating at a disadvantage?
Mr. Goodale: It relates in part to what Dr. Oleson referred to in terms of our system being different and, therefore, raising suspicions that flow in the United States related to the fact that it is a system with which they are not familiar. Therefore, they make the assumption that there is something untoward here, which is a false assumption.
Part of the complaint or concern in the United States flows from the protracted global situation that we have all been in now for a long period of time, where world grain markets have been depressed. Farmers in the United States, if they look just at their farm returns, and set aside for a moment the subsidies they receive, they see, as Canadian farmers see, a level of return from the marketplace that appears to them to be grossly inadequate.
They look around for reasons for that and say, "It must be this avalanche of grain that is coming across the border from Canada and depressing our marketplace." First, there is no avalanche. The volumes are very normal in terms of the ebb and flow of supply and demand.
As we pointed out, it moves into the American market at fully competitive prices. The Canadian Wheat Board has, as one of its marketing objectives, to achieve the high end of the price range, not the low end of the price range. It is the premium market they are after, not the low sales.
When you talk to American businesses that buy Canadian grain, whether the North American Millers Association, the U.S. Feed Grains Council, the pasta producers or others, they make two paints. First, Canadian quality is superlative and they need and want that quality. They must have it as part of their processing mix in the United States. They want access to superior Canadian supply. If they have a complaint against Canada, it is that our price is too high. If you talk to buyers in the United States, they completely contradict the argument that we are somehow undercutting the American price in that market. We are not.
The Chairman: Our prices are initial price, and then an interim payment and then a final payment. There is a difference there of the dollars that go directly into the farmer's pocket.
I was in North Dakota, and their durum wheat is selling at $4 a bushel in the elevator, that is in the farmer's pocket. There is no freight off that price. Our number two durum will move at about $3.17 as an initial Canadian payment. I will be very surprised if I get Can. $6 for my durum. I will be pleased and so will Senator Wiebe.
Senator Tkachuk: Minister, I thought at first that you were talking about dollar for dollar, the Canadian dollar versus the American dollar. Then I understood you to say that you were referring to equivalent amounts.
Even though we have a large federal defence of the Canadian Wheat Board, I do not think any one would argue that a substantial proportion of farmers selling Wheat Board products of wheat and oats do not want the Wheat Board or they want to go to a system where they can choose. I am sure that the majority of Albertan farmers believe that; in Saskatchewan, that is probably not the case. However, it is still a substantial number.
Business is judged by how it services its clients. Almost half the clients are upset at the way the Wheat Board is operating. Why is that? They are the ones who are using it. Why are they so unhappy?
Mr. Goodale: I will invite Dr. Oleson to make some observations about that question but I will start with these comments.
A significant amount of the concern relates to the fact that, as I said earlier, global grain markets have been depressed for a long time. That naturally creates a frustration among farmers about the levels of return that are coming back to them from their marketing. They wonder whether a different marketing approach could yield a better result to them.
In part, it is because this situation in the world has prevailed for a long time - for too long now. We all hope we are on the verge of a turnaround in that market with returns to farmers getting better and, therefore, a better atmosphere prevailing.
When times are as tough as they have been, it is natural for people in any marketing system to raise questions about the system. Is it a part of the problem rather than being part of the solution?
The practical and substantive answer to your question - though it may not yet be very well understood across the Wheat Board area - is that the governance system for the Canadian Wheat Board has, in the last number of years, changed dramatically. We used to have a situation where the Canadian Wheat Board was run by five federally appointed commissioners who were completely in charge and accountable to the federal government that appointed them. That old commissioner system, as you know, is gone.
Senator Tkachuk: It has a good chairman now, too.
Mr. Goodale: The Canadian Wheat Board is now governed by a modern corporate-style board of directors. Ten of them are directly elected by farmers; five are appointed to represent the broader public interest.
The legislation provides that if the mandate of the Canadian Wheat Board is to be changed in the future, it would require essentially two things. First, would be consultations by the minister of the day with the duly elected producers of the Canadian Wheat Board - the people who are elected by farmers to fill those positions. Second, would be a vote among producers about whether or not they would want the change. The mandate of the board can, in future, be changed, subject to those provisos.
The critical difference between the situation that pertains today and that which existed historically is that farmers are in the driver's seat. They control the whip hand in terms of what the Canadian Wheat Board will and will not do in the future. It is a very democratic process largely driven by the fact that those directors act within a democratic system of producer elections.
Senator Wiebe: I told my wife the other day that, the older I get, the harder it is for me to remember things. She commented that a person's mind is just like a computer: The older the computer, the more full the hard drive. The more full the hard drive, the longer it takes to retrieve the information that you are after.
That is part of my problem tonight. Perhaps Dr. Oleson can fill me in. The debate about dual marketing and the board and open marketing is one that has gone on for quite a while and it will continue. It is a good debate. Whether that debate is resolved or not, today's farm crisis would not be resolved.
I read an independent study commissioned by either the Wheat Board or the Canadian Department of Agriculture. The study compared, over a five-year period, what individual Canadian farmers sold in Canada under the Wheat Board system to what individual American farmers sold in the U.S. on the open market. There was a considerable net return to the farmers of Canada. I do not know the end figure, but it was very large. Do you have those figures?
Dr. Oleson: That particular study was done by Darryl Kraft, University of Manitoba, Hartley Furtan, University of Saskatchewan and Ed Tyrchniewicz, who was Dean of the University of Alberta at the time.
Your characterization of the methodology is more or less correct. The subtlety is that it was comparing what the Canadian farmer got under the Canadian Wheat Board system compared with what their showed they would get under a non-wheat board system or a multiple price selling system. Depending on the year, these numbers varied tremendously from about $12 per tonne up to upwards of $35 per tonne. There were some large numbers in there that the Canadian farmer received. It is perhaps best to look at it on a per-tonne basis. If you take that number over the entire export program, you are right; it is $200 million or $300 million.
We must remember - and this relates to an earlier question - that part of that period was during the U.S. export subsidy period, which distorted world markets to an incredible degree. In that situation, the Canadian Wheat Board used the system to capture a much larger price than would be the case under a multiple-seller market. Under the U.S. export subsidy system, some markets would be eligible for export subsidies and some would not. The Canadian Wheat Board system would be able to compete head-on in both of those markets, whereas under a multiple-seller system, you would end up going to the lowest common denominator.
That relates to the senator's earlier question in terms of some of the frustration with the Canadian Wheat Board. Until 1995-96, for that whole period, basically the period of the Uruguay Round negotiations, there were U.S. export subsidies that varied between $20 and $50 per tonne. That meant that the price right across the border at times could be $40 per tonne higher because of the export subsidy effect.
The U.S. stopped using export subsidies in 1995-96. Some of that pressure came off, but there is a big lag effect that you find on perceptions. As you will remember, in that period there were prosecutions with regard to crossing the border and so on. That was certainly a difficult time for the Canadian Wheat Board in dealing with its clients, as you appropriately pointed out.
Senator Chalifoux: Gentlemen, your presentation is interesting and timely, especially with the WTO talks that are just beginning, especially in agriculture.
Through my years of being on this committee, as we have travelled, I have found that, between the European Union and the Americans, no one knows about Canada. When we talk about agriculture, they look at us blankly and say, "Well, we do not know anything about it," or, "We do, but it is all rumour and innuendo," as you say.
I would like to know - other than the odd bureaucrat coming over and having a look at your offices in Winnipeg - what are you doing, if anything, to educate the major players in these countries? It is important with the WTO talks because we are losing ground here, not because we are not trying but because they need to be educated.
Mr. Goodale: One of the most useful institutions with respect to education and information about the Canadian grain marketing system is an agency in Winnipeg known as the Canadian International Grains Institute, CIGI, which is supported in part by the Canadian Wheat Board, by the Canadian Grain Commission and others. It is a remarkable institution that conveys excellent information about how the Canadian grain system works - both in our own country and internationally. I wish we could find the means by which to expand and accelerate the work of the CIGI, as it is called, the Canadian International Grains Institute, because it is a good international tool both for Canadians and non-Canadians.
In addition to CIGI, there are educational exchanges that occur from time to time among state and federal government officials from the United States coming to Canada, and there are return visits by Canadian provincial and federal officials travelling to the United States. There are regular exchanges. Ms Vinet might correct me, but at least twice a year - perhaps more frequently - the Government of Canada, in this case Agriculture and Agri-Food Canada, and the U.S. Department of Agriculture meet and compare activities in their respective agricultural sectors and try to anticipate problems and head them off before they become major trade irritants.
There is a range of mechanisms in place now, but I take your point seriously. We should work harder and more extensively in this area to make sure that the rest of the world accurately understands what we do, why we do it and how we do it. We should demystify some of the processes so there is not that instinctive assumption, as I said earlier to Senator Tkachuk, because we do it differently somehow we must be wrong.
We need to improve the level of education and understanding. I have engaged in a number of sessions with the National Association of Wheat Growers in the U.S., with the U.S. Feed Trade Council, with the North American Millers Association - a variety of organizations in the U.S. - to try to improve the level of information, education and understanding to demystify the way we do things in Canada. However, we could do more of it and, quite frankly, this may be an area where members of the Senate and the House of Commons might want to become engaged in dialogues with your counterparts in the U.S. to help improve the way we understand each other.
Perhaps I could ask both Ms Vinet and Dr. Oleson to elaborate on some of the ways that information is flowing now. Perhaps, Mr. Chairman, your committee and your counterparts in the other place might want to take a look at this to see if there is a role that you can play to deal with your counterparts in the United States to foster mutual understanding. We must recognize that that cross-border trade between Canada and the United States is approaching $2 billion a day. All things considered and all things added in, that is just too valuable for either side to monkey around.
The Chairman: On that point, Mr. Minister, the Senate committee was in Washington. We spent a good part of a week there attending some excellent meetings with congressmen, senators and farmers. We discovered that they talk the talk when it comes to subsidies but they do not walk the walk. If you ask them the question, "Will you get off subsidies?" they reply, "You are dreaming. It will never happen." We were told that the American Agriculture Bureau is the most powerful lobby in Washington. Any congressmen or senator who does not have support from that lobby does not get elected. That is the way they explained the situation. They were quite candid.
Mr. Goodale: I understand that it is certainly blunt on the American side, Mr. Chairman, but I still think there is value in us constantly working at our communications techniques and one that I would call "being in their face nicely all the time."
Ms Suzanne Vinet, Chief Agriculture Negotiator, International Trade Policy Directorate, Market and Industry Services Branch, Department of Agriculture: We have regular meetings between ministers. Minister Goodale initiated that with his counterpart by signing a record of understanding in which we identified a number of issues that needed to be resolved between the two countries. Some ministers have undertaken to meet on a regular basis. Officials support the work of the ministers by meeting at a minimum twice a year and more often as need be, sometimes on the margins of other meetings.
We have also instituted a program of regular quarterly meetings to review grains issues - specifically issues of trade in wheat. We felt that has been somewhat successful in preventing some actions and in keeping the information flowing at certain levels in administration and avoiding further difficulties.
There has also been active work done by key provinces with their counterparts in the northwest states. They have held several meetings, in particular one in Fargo in 1999. There was a follow-up meeting last spring at which they discussed several issues - not only in the grains trade but also in all kinds of production areas where we have a large amount of trade on a North American basis.
The Canadian Embassy in Washington is also active, as you witnessed yourself, and we try to keep information up to date to share with congressmen and key staffers in Washington. We have been pursuing a series of initiatives such as these. With the new administration in place, we have a confirmed commitment on the part of the new administration to keep the information flowing between the two countries and to try to avoid conflicts in the future.
Dr. Oleson: I wish to supplement Ms Vinet's comment. Agriculture Canada has been working closely with the embassy and we have been impressed with much of the work that has been done there. One member of the gallery spent three years researching into every way that we could try to get that question further. If you look at the International Grains Institute, the minister's office, the Canadian Wheat Board, the federal and provincial governments, there has been a tremendous amount of work done.
Part of the frustration comes back to the heart of the question, namely, are we willing to make the commitment to keep this up? You are dealing with a country that is 10 times the size, so there are 10 times the number of players and, invariably, all of those processes, including all the farm organizations especially, have rotational governance structures. The people that you get through to today are not with you five years from now. That means that the commitment is not there. We have seen our own efforts ebb and flow in a situation where we have gone into it, made great progress and then, suddenly, all the players changed. That is at the heart of your question: Are we willing to make that sustained commitment, because it is important?
Senator Chalifoux: Yes, it is important.
Senator Tunney: I have a good news item from last week's Ontario Farmer weekly newspaper. Two Ontario researchers, one at the University of Guelph, one with a W.G. Thompson & Sons Limited, have found a gene that will eliminate fusarium in wheat. That has been a plague in my area for several years and renders some wheat useless. A lot of it - even just a bit - makes it unfit for human consumption. If there is more of it, it is not fit for hog or swine feeding. Cattle will survive on it, however, if they are not lactating or pregnant.
It is a good news story. These two plant breeders and scientists have come out with several varieties that are now fusarium resistant
Mr. Goodale: It is a good news story. I recall a few years ago when fusarium first hit in a major way. It was a real shock for grain producers, not only in Ontario but also in Manitoba where they had a severe infestation. The blight has been tracking its way westward into Saskatchewan, and so on. Our agricultural researchers at Agriculture and Agri-Food Canada, at the University of Guelph, at other universities across Canada and in the private sector, deserve substantial credit for moving along the science of a disease such as fusarium in a substantial way, compared with where the research was as recently as only five years ago.
The Chairman: I thank you, minister, for appearing before us this evening. I am sure there are many questions that we would like to ask, but we appreciate the time you have given to us.
I understand that Dr. Oleson and Mr. Migie will stay and answer more questions.
Mr. Goodale: I thank all of you for your typical courtesy. I have appreciated the chance to come here again. I know that Mr. Migie, Ms Vinet and Dr. Oleson will respond ably to your further inquires.
The Chairman: I wish to thank the officials for staying this evening to continue to answer our questions.
Farmers feel that some of the grain companies are getting too powerful. I am talking about American companies such as ADM, Con-Agri, the United Grain Growers - 48 per cent of which is owned by Archer Daniels Midland Company.
The concern is that that if you sell grain in the fall under the quota system, they seem to be stiff on the grading. Many of these large terminals have storage for the farmer. If your grain goes in there as a number three, next July that grain may be bringing you number two or number one. You have no recourse. On the other hand, if you do not sell your quota, you lose your sale. I do not know if Senator Wiebe gets that complaint in Swift Current, but I get that complaint all the time.
Mr. Migie: Perhaps I can answer that from this perspective. Many new grain companies have come in - for example, you have not mentioned Louis Dreyfus. For the last year or so, we cannot say that the profits of the grain companies are high, because they are quite low. All of the grain companies have been competing with each other the year in a short market.
We have seen, with the new tendering system, the wheat board receive bids as low as $10 per tonne under the initial payment, as the minister alluded to. This year, there is a great deal of competition to move grain, because all of the grain companies are suffering from the lack of volume.
It is hard to say that there is inadequate competition at the grain company stage. They have come in and there is a shake-out. As you know, a merger has just been approved and so who knows about the future? There may be more.
The Chairman: You are speaking about Agri-corps.
Mr. Migie: Yes, and the United Grain Growers. In the last year for sure, grain companies have been competing for business, and they have not been making excessive profits by any means. Their profit pictures show that they are quite low.
The Chairman: It seems that the Saskatchewan Wheat Pool - which was at one time considered the farmers' elevator - is almost in the position of hurting severely. They sold off their livestock operations, and so on. However, the American companies seem to be taking it over, at least in the southern areas where we live. They have built large elevators and terminals. What do they see in Canada that we do not see?
Mr. Migie: I probably should not be referring to rumours in grain trade, because the rumours that float are that some of the companies are there in the hope that at some point, the Canadian Wheat Board will not have a monopoly and they will want a footing in Canada. That is what you hear in the street.
Several companies have come in and they have a good footing. They are presumably doing quite well. They could be in the business because it is profitable for them to come in right now. They feel that they can do well as the traditional companies are shedding elevators and they are losing market share so the market share is available for other companies.
We do not know their long-term plan, but we have seen in the last few years several large multinational companies come into Canada with a foothold. There is competition. That is the positive side. There is more competition in Canada and the grain companies have made investments in Canada over the last several years.
The Chairman: If you look at their terminals, they are much better in Canada than they are in the U.S. They are operating with old, obsolete elevators that were built in the interim, but companies like Cargill and Archer Daniels Midland are major world traders. They dominate world trade. What is it they see? I realize that they are opposed to the monopoly of the Wheat Board; we are all aware of that.
Mr. Migie: The investments have been over $1 billion in elevators in Canada. That is quite extraordinary. You are correct, that has not happened in the United States. Part of it was that we had an elevator system that needed to be modernized somewhat. That was inevitable.
These companies are coming to Canada. Perhaps they see it in the short-term as a profitable venture, or perhaps it is a long-term investment.
Senator Wiebe: When our committee was in Washington, we met with a group of 14 congressmen for lunch. Congressman Peterson from Minnesota said that the congressmen and senators in the U.S. as well as the farmers should be thankful that there is a Canadian Wheat Board and that they should quit pushing to have it disbanded. He went on to say that was because the elevator companies - which I found hard to believe - are building huge concrete silos along the U.S.-Canada border. The idea is that as soon as the Canadian Wheat Board is done away with, these companies will flood the U.S. market with cheap Canadian grain because there will not be a board up there to control it. I do not know if you have heard that suggestion before, but this came from Congressman Peterson.
Mr. Oleson: His heart and his reasoning is in the right place. One of the things that the Canadian Wheat Board is able to do, in trying to get a better dollar for farmers, is to continuously looking at how to put that grain into the market to get the biggest return. We will never sell into the United States, for example, when there is a better market elsewhere. That is true of every market that we look at.
It is a great contrast, for example, to the Argentine system where you have a system that is an open market, without the large American subsidies, and when that crop comes onto the world market, it is blown into the market and you must step aside at times and let it go where it will if the Argentineans chase it.
Congressman Peterson recognizes that the Canadian Wheat Board provides a discipline in approaching that market and, therefore, supporting the prices rather than decreasing them. All the studies come to that conclusion. There is a study by an individual out of Davis, California, named Dan Sumner. That study highlights that the Canadian grain marketing system likely helps Americans get a better price because it provides that discipline.
Your question relates to the chairman's question with regard to concentration as well. There is an underlying question that is the real heart and challenge of this. That is what Minister Goodale and the government have tried to do in terms of giving farmers a stronger voice in running the Canadian Wheat Board and in terms of this sense of ownership.
This world is more concentrated, senator, you are absolutely right. If you look at the concentration in the private sector, historically we had some high concentration, but it was with farmer-owned cooperatives and those cooperatives were working on behalf of the farmer and returning the profits from the industry back to the farmer. Those cooperatives have by and large disappeared and we have gone into a different structure. At the same time, the government has asked the farmer: "Do you want the Canadian Wheat Board to have a high sense of farmer ownership and participate in the supply chain from the farm to the customer through the Canadian Wheat Board?"
That is the real challenge that is there in front of the farmer at present. That relates to earlier questions with regard to the buy-in on the part of the farmer. That is why communication is so important as well as having an understanding this concentration question. That is one way that the farmer can participate in that supply chain and have a strong impact on the system.
Mr. Ritter, our chairman, was mentioned. How many systems are there where an individual interested in the system can decide, "I want to have an influence on this system; I will run for it?" Mr. Ritter did that. He is now the chairman of the board of directors a $5 billion organization and the largest wheat marketer in the world. That is very impressive. However, it is part of the question, "Do farmers want to take that organization and do certain things with it that maintains their interests in the supply chain in an ever-increasing concentrated world?" In your words, Mr. Chairman, how do you maintain competition with concentration?
The Chairman: You are absolutely right. It is my opinion that the wheat pools in Alberta, Saskatchewan and Manitoba, the United Grain Growers and the Wheat Board have probably missed an opportunity to build a strong competition that would have been equal to ADM. I know there was a move afoot to try to do that, but it never materialized.
You are right when you say that the farmers lost a voice when they lost some of these grain companies. The farmers were members, came to the meetings and voted. The only province that has been able to maintain that voice in their agriculture is Quebec. They have been able to maintain a strong farm voice.
Senator Hubley: Can you explain transgenic wheat and barley and how it is different from genetically modified organisms and biotechnology? If that process, or entity, is continued how will that impact on the international or Canadian market?
Mr. Migie: I will ask Mr. Oxley to come to the table, he deals with genetically-modified organisms.
We are talking about a new technology and techniques that allow for different trades to occur in products like wheat. It is not there yet for wheat, but the technique is different and it is something that we can use to great advantage in the sense that there are all kinds of possibilities to have new products. On one scale it is not that different from the type of biotechnology that we have had in the past.
I will ask Mr. Oxley to elaborate on the genetically modified question.
Mr. Jamie Oxley, Chief, Cross-Sectoral Policy Development Division, Strategic Policy Branch, Agriculture and Agri-Food Canada: I am not a geneticist; I am an economist. If there are any geneticists here, I apologize if I say something a bit odd.
"Genetically modified" can be thought of in three ways. One is classically genetically modified where we do normal breeding. The second might be "muta-genesis" where we mutate the genes, then breed them out and select them. The third is "transgenics," which has come around since the mid-1990s when it really came into play. That process is taking a gene from one species and moving it over to another, or even moving it from the same species within. Those are the three techniques. Transgenics is a form of genetic modification.
Senator Hubley: What would the Canadian Wheat Board's stand be on transgenic products?
Dr. Oleson: We have some people who are highly specialized in this area. I tend to work in a number of other areas.
Generally, our view is that we do not want to see genetically modified wheat on the market before the customer is ready. The question of customer acceptance is a large issue with us.
That brings it into some fairly sensitive territory where, as countries we have been trying to rely primarily on scientifically based criteria with many of the actions that we are taking in trade areas. The Canadian Wheat Board is not necessarily against genetically modified wheat coming on the market; however we believe it should be done and programmed in a fashion that is acceptable to the marketplace. That means if we are running dual paths where we have both genetically modified and not genetically modified wheat varieties, we have a system that is able to, first, recognize them and, second, keep them completely segregated through the system. We are then able to maintain customer confidence.
We are at this transition point and the transition view because there are aspects where the scientific value of this new technique may be overwhelming in terms of its benefit. We hope that the farmers will benefit that that the benefits are not extended only to the individuals who are marketing the products or selling the inputs. To a large degree, in both Canada and the United States, we have seen that a large part of the benefit has been accrued to the individuals who are controlling the seed or selling the chemical. We are hoping that it will be the farmer who gets the big benefit.
The Chairman: Senator Hubley, you might be interested to know that this Thursday morning we are hearing from nine farm groups, including the wheat board, on genetically modified grains. That will be an interesting session.
Senator Wiebe: Regarding your answer, Dr. Oleson, I still must be convinced that GMOs will be to the benefit of the farming industry in Canada. You mentioned that there might be some benefits to farmers. What are those benefits?
Dr. Oleson: I say this in terms of any science and technology that comes along. Given the current state of farm income and given the state of the low farmer participation and the final consumer dollar, it is my hope - and I believe the hope of those working in the system - that the farmer gets a larger share of that final consumer dollar.
Senator Wiebe: I have a tremendous answer for that. If we are talking about GMOs, this kind of development should be done by the Government of Canada and not by individual companies If it is done by the Government of Canada, then any patents relating to it will then refer back to the farmer. As an example, a farmer would not have to pay some company for seed; he could use the seed from his own crop.
These are some of the areas in which serious adjustments must be made if we are looking at the long-term health of agriculture in this country.
I speak as a member who happens to sit on the government side of the Senate chamber, but also as a farmer from Saskatchewan.
Senator Phalen: I am not sure that you can answer this in the absence of the minister, but the Auditor General of Canada is currently conducting an audit on the accounts and the financial transactions of the Canadian Wheat Board. When will the audit be completed and when will information about the audit be available to the public?
Dr. Oleson: I am not sure that the office of the Auditor General has made a full indication in terms of the final date. My expectation is that they are working on the final pieces of that audit. In regard to how they approach it in terms of reporting to the board of directors and what other reporting they do, I am not aware of any statement they have made.
Mr. Migie: They have extended the time and once the auditors are there they want all the time they need to complete their work. It has been extended from an earlier date of September to a date in January for reporting to the board. I do not know if that will hold. When the auditor is finished they will submit it to the board of directors of the Canadian Wheat Board.
Dr. Oleson: There are two points on that. First, as is often the case when people come into agriculture - and it certainly is true for the Canadian Wheat Board - it turns out to be a much more complex subject than first meets the eye. That is just the nature of agriculture and agriculture systems, and the grain industry is a complex industry. The other observation that I would make is that the whole process seems to be an incredibly thorough one, and because of that thoroughness they are taking longer than they originally anticipated.
Senator Phalen: We could believe that the results of the audit would be fair. Could we use those results to convince the Americans that the board is trading fairly and has nothing to hide?
Dr. Oleson: That is a good question. The one thing to remember, though, is that this is a very comprehensive audit. One of the things that happened is that the office of the Auditor General is generally looking at the efficiency and effectiveness of the internal processes. It is not the type of price audit, perhaps, that you are thinking about. It is more along the line of whether this is an organization that is using effective and efficient processes in terms of carrying out the mandate given it by the Government of Canada.
The Chairman: What percentage of farmers use the cash advance system through the Canadian Wheat Board?
Mr. Migie: I do not know. I do not have that data.
Dr. Oleson: I do not have the numbers for this year. It varies widely from year to year.
The Chairman: That was the reason for asking the question. With the drought, I thought the numbers may be higher than normal, or perhaps not if the rain is not there.
Dr. Oleson: It is a much smaller crop. I will revert back to your first question in terms of the numbers, which do support your overview.
Last year's production was about 26 million tonnes versus 20 or 21 million tonnes this year. With that carryover, we had a total supply of 35 million tonnes last year compared with about 30 million tonnes this year.
Last year's export program in wheat was 17 million tonnes. This year it will be about 15.5 million tonnes. The export program will not be down as much as the production. The difference is from last year's carryover of about 9 million tonnes. This year we will have an estimated total carryover in Canada of 6.5 million tonnes. That is near rock bottom in terms of the pipeline.
In that sense, farmers will be able to deliver most of what they want to deliver before the end of the year. Movement is going well. Car availability is there.
The Chairman: That should advance the price as well.
Dr. Oleson: It should, if we had a little cooperation from the Americans and the Europeans.
Senator Day: I was not fully clear on the explanation of "genetic modification" versus "transgenic." Is "transgenic" being chosen by marketers to avoid the umbrella of a GMO and the bad rap that it has received in the last little while? Why are we starting to hear about transgenic now?
Mr. Oxley: That is a good question. I am not a marketer so it is difficult for me to comment on that. However, I think the concern is a perception of moving genetic material from one species to another. That was brought in around the mid-1990s in a commercial sense. Certainly, at the beginning, there was no issue associated with that, but it has been brought forward mainly because of the EU and other major countries. Their definition of "genetically modified" is "transgenic." Genetically modified organisms are defined as those that have gone through the process of transgenics, in other words, moving genetic material from one entity or one species into another.
Senator Day: If a wheat gene was modified such that it became resistant to blight or resistant to a particular type of insect, is that "transgenic modification" or is that something else?
Mr. Oxley: Genes can change in a number of ways. Natural change can occur, for example, with exposure to ultraviolet light or mutation. One of the feeders of evolution is mutation. Genetic modification has to occur for mutation to occur.
Transgenics can occur within nature, apparently. A virus or bacteria can transfer DNA particles from one entity to another. What we are talking about here is humankind doing that purposefully through science.
Senator Day: Is science just speeding up evolution a bit? Is the concern internationally about the potential "Frankenstein of plants" and "Franken-foods"?
Mr. Oxley: Yes.
Senator Day: Are we not trying to develop a marketing position that says we are not doing those things - that we are just helping evolution along? Is that what I am supposed to read between the lines in all of this?
Mr. Oxley: I was not trying to put in any lines that need to be read.
Senator Day: You used these terms. I am not being critical with this.
Mr. Oxley: No. I am not trying to be defensive either. People have taken the information and defined it as "Franken-food," expressed with a negative tone.
Senator Day: There is nothing reprehensible or unacceptable about selective breeding or selective planting, is there?
Mr. Oxley: No.
Senator Day: With normal evolution, the seeds of a good crop with a good yield will be kept for the next planting. There is nothing wrong with that, is there?
Mr. Oxley: I do not think so, no.
Senator Chalifoux: What they are doing, though, is transplanting, for example, genes from a mouse into a tomato. I thought that "transgenic" meant taking genes from one species to another.
Mr. Oxley: In what we have looked at so far in the food system, no, that is not my understanding.
Senator Chalifoux: I was reading about that.
Mr. Oxley: There is a potential for that to occur. There are also other potentials within biotechnology to turn genes off and on without using transgenics, without bringing in new material. There are other methods of biotechnology as well.
The Chairman: I want to voice a question on behalf farmers. It seems that marketing grain in the fall gets a much lower rate than in July. Is the Canadian Grain Commission doing its job then? I have heard farmers say that the grain commission seems to be working for the grain companies.
I suppose the answer would be that the grain companies are getting a certain price for that grain at the time they buy it and they sell it at that time. Under the quota system, if you have written down a number of bushels for number three durum wheat, that is what you will get. Come next July, that durum could be at a much lower number.
This has been a long historical complaint by the farmers. If you do not do the quota, if you do not put down the correct number of bushels, then you do not get rid of your grain. Of course, that change came when we changed the quota system.
Mr. Migie: The grain commission tries to balance well between the farmer and the grain companies. They try to approach the issues fairly and in a scientific way. From everything I see, that is the case throughout the year. They have services to use when there is a dispute or a challenge, but I do not see any systematic bias on the grain commission toward grain companies.
Historically, going back to the turn of the century, farmers were concerned that the grain companies will somehow have the upper hand and that the system will not allow for a fair arbitration.
Dr. Oleson: The system now is quite different than it was 20 or 30 years ago. Under the old quota system and with excess production, farmers were locked in more than they are now where their entire crop has been marketed on a regular basis, year in and year out. That is the first point. The second point is that if a farmer feels he is not getting a fair grade, it is up to him to say, "I can send a sample into the Canadian Grain Commission."
The Canadian Grain Commission has professional and scientific individuals who look at those samples and arrive at completely fair and competent judgements.
The Chairman: I am well aware that grain is not graded only on the grain that you bring on the day. The possibility of a company being able to mix grain may provide a better grade, too. If there is a significant amount of number one in the area, the big terminals can do this. The small elevator cannot do that. In that case, the Grain Commission does not have any say about it, because they do not know how much is being met.
There are two farmers today putting together a program whereby they fill an envelope with grain. At the time of delivery, that envelope is sealed. If there is a discrepancy, then they take that to the Grain Commission later on. That grain is then graded.
That is one of the problems that farmers have asked me to raise as an issue.
Dr. Oleson: That comes back to your earlier question that some of these dynamics are changing. We must continually ask those questions. The nature of the large terminal elevator means that those dynamics are different than when we had a pile of small elevators.
Both the Canadian Grain Commission and the Canadian Wheat Board are reviewing their entire systems both individually and together in terms of trying to ensure that they are staying up with those changing dynamics and serving the farmer.
The Chairman: On that note, I want to thank you for appearing. We appreciate the time that you have given us and we will invite you back again.
The committee adjourned.