Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 20 - Evidence - October 21 meeting
OTTAWA, Tuesday, October 21, 2003
The Senate Standing Committee on Agriculture and Forestry met this day at 6:07 p.m. to examine the issues related to the development and domestic and international marketing of value-added agricultural, agri-food and forest products
Senator Donald H. Oliver (Chairman) in the Chair.
[Translation]
The Chairman: Our committee is studying the issues related to the development and domestic and international marketing of value-added agricultural, agri-food and forest products.
[English]
Honourable senators, in the preparation of the ``Canadian Farmers At Risk'' report, the committee devoted six pages to value-added products in agriculture and recommended that the government develop a comprehensive strategy that encompasses tax incentives, direct federal government funding and expertise to enhance the development of value- added industries, including farmer-owner initiatives in rural Canada.
It is the committee's belief that the adoption of value-added production, security and expanding trade exports has become vital to the survival of Canada's agricultural economy. Demand for value-added products has increased and so has the competition from other countries. If Canadian producers are to excel in this environment, they are required to innovate and adapt to advances in the new technology and changing consumer demands.
This evening, we have invited officials from the National Farm Products Council and from the Canadian Wheat Board to discuss the importance of value-added products. Appearing before us on behalf of the National Farm Products Council are Ms. Cynthia Currie, Chairperson and Mr. Ron O'Connor, Vice-Chairperson. Following their presentation, we will hear from the Chair of the Canadian Wheat Board, Mr. Ken Ritter; Director, Mr. Bill Nicholson; and Senior Marketing Manager, Mr. Jim Thompson.
Ms. Currie, please proceed.
Ms. Cynthia Currie, Chairperson, National Farm Products Council: It is a pleasure for me to be here this evening to speak to the matter of developing marketing value-added farm products. I have been involved in this area as Chairperson of the National Farm Products Council, NFPC, for the past six years. Previously, I was General Manager of the Canadian Chicken Marketing Agency, now known as the Chicken Farmers of Canada.
I would like to introduce the Vice-Chair of the council, Mr. Ron O'Connor. Mr. O'Connor operates his chicken farm near Shelburne, Ontario, and has served on the NFPC since 1998. He is also former Chairman of the Chicken Farmers of Ontario.
My purpose is to outline some of the successes that Canadian poultry producers have been achieving. I will also describe some work that is underway to ensure that this sector continues to contribute to Canada.
There should be no doubt that the Canadian poultry and egg industries have been very successful. The sector accounts for 7 per cent of Canadian farm cash receipts, or approximately $2.5 billion.
[Translation]
Much of this success is due to Canadians' rising appreciation for chicken. Per capita consumption has risen steadily for the past decade, and chicken now rivals beef as the most popular meat. In fact, the average Canadian consumes nearly 31 kilograms of chicken meat per year, and still has a healthy appetite for 15 dozen eggs and four kilograms of turkey meat.
There are many reasons to expect that this success will continue.
Many consumers have switched to poultry products for their convenience and nutritional value. Poultry-based products, and value-added foods containing poultry ingredients, continue to be favourably positioned for growth.
Sales of dinners, entrées and other value-added products containing poultry are growing 30 per cent a year.
Often, we notice the national brands in the stores, but private label valued-added poultry products are also very prominent.
[English]
Food diversification is a growing trend. As the Canadian population grows more diverse with immigration, so too does the Canadian marketplace. Our cuisine becomes more diverse and, as you know, ethnic restaurants and grocery stores are multiplying. Grocery stores are offering more ethnic products than ever before. For their part, poultry and egg producers have been doing much more than simply responding to rising demand.
Increasingly, they are identifying and responding to new segments in their market such as prepared foods and the emergence of new markets for products like halal poultry to supply our growing Muslim marketplace. As they identify new segments and meet their needs, today's producers must also meet consumer needs in critical areas such as food safety and environmental protection. They must also embrace innovation and apply new knowledge. In doing all of this, they still must resolve the challenge of profitability.
As we see in our production statistics, it is clear that today's producers are meeting the challenge of adding value, and doing it very well. It should be noted, and this is important, that they are doing so in all regions of Canada. A key reason for this success is the nature of the systems that is operated by these producers. It is called ``supply management,'' which is a term that is not often understood as well as it should be.
The role of the National Farm Products Council in supply management is defined in the Farm Products Agencies Act, the FPAA. The National Farm Products Council administers the act and oversees the five national producer agencies that were created under the act. Four of these are national supply management marketing agencies, created to manage the supply of chicken, eggs, turkey and broiler-hatching eggs. The fifth agency is a promotion and research agency created recently to permit the beef industry to collect mandatory levies on domestic and imported beef marketed in Canada.
These five agencies, by and large, are run by producers and not by government. Our role, as the federal government, is to review their operations but not to control them. The national poultry and egg marketing agencies, for example, regulate production and fund their operations through mandatory levies. As they develop and execute their orders, these agencies are required by law to act in the interests of both producers and consumers. The NFPC reviews these orders to ensure that the agencies act in accordance with the FPAA.
For all of its successes, it is not commonly remembered how the present structure came about and it is not fully appreciated how the system benefits producers. Farmers have long understood that marketing boards could improve their bargaining power when negotiating with food processors. Marketing boards took shape in Canada between the 1920s and the early 1970s. Until the Farm Products Agencies Act was passed in 1972 at the request of the provincial government and producers, there was no mechanism to coordinate marketing boards at the national level. With the FPAA in place, producers gained a Canadian market that enables producers in all regions to supply the Canadian marketplace with poultry and egg products. For the consumers, the Farm Products Agencies Act effectively assured a stable supply of high quality poultry and egg products, produced within the region at a reasonable price.
A stable supply has also benefited the food processing industry and enabled it to pursue new markets, knowing it could count on its local suppliers to deliver the inputs that it needs.
There is more to supply management, however, than simply allocating production to meet consumer needs. The real value of the system is that it creates a forum through which all members of a value chain can work together for mutual gain. Producers, as I mentioned, run the national marketing agencies. However, all agencies include processors and further processors on their boards of directors, and some include representatives of the food service industry and consumers. Importantly, these interests all work together to meet the needs of the market and to set strategic direction for their sector. This cooperation extends into the structure of the National Farm Products Council. One-half of our members are required by the act to be primary agricultural producers and the other members are drawn from the industry.
Mr. Chairman, members of the NFPC are proud that we have a hands-on approach with the industry and that we are not removed from that industry. In our experience, this approach works well because consumers benefit from a stable supply of reasonably priced products and producers face predictable production volumes and incomes, which means that their business risk is reduced.
[Translation]
Mr. Chairman, the committee might usefully consider hearing from one or more of the agencies about their strategic planning, and how they are addressing the issue of adding value.
There is excellent collaborative work underway today and more planned for the future.
For instance, the Chicken Farmers of Canada is working to increase both the volume and the value of dark meat products. This strategy would help balance the Canadian market, where consumers prefer white meat, and create the potential to increase exports of high-end value-added products to niche markets.
[English]
The collaborative approach of the Chicken Farmers of Canada is clear. I will quote from the agency's strategic plan which states, ``For this approach to be successful, the entire value chain needs to share the costs, risks and benefits.''
This approach is also used by the other marketing agencies. They are all working to provide opportunities for their producers to increase their value-added by working with their partners along the chain.
There is another feature of supply management that should be mentioned. The system is flexible enough for producers to pursue their value-added objectives in a variety of ways. In some cases, producers have set up cooperatives for mutual gain. Mr. Michael Presley from Agriculture and Agri-Food Canada, recently described to you the experience of the Manitoba Egg Producers Cooperative. This group allows producers to influence the future course of their own industry, especially through science and by-products.
Of course, there is the example of the ACA Cooperative in Nova Scotia. It processes chicken and turkey and further processes poultry meat through a subsidiary. It also produces and grades eggs, and it owns one-half of an affiliated poultry processing operation in Newfoundland and Labrador. I am informed that the ACA Cooperative has about 700 employees that are involved in the value-added food industry.
There is also the approach used by Olymel, which is owned by a federation of agricultural cooperatives across Quebec. Olymel is a national and international player in agricultural production, food processing and the retail and food service sector, making it a very large employer.
Some individual producers have addressed the value-added challenge through integration. For example, Burnbrae Farms, in Eastern Ontario, has been producing eggs since 1943. It soon began to grade eggs and then to expand its operation. Now it owns egg quota, grading stations and processing plants in Ontario, Quebec and Manitoba.
These, honourable senators, are a few examples of how the poultry and egg industries add value in ways that benefit producers and consumers.
Most of our work at the NFPC focuses on the national marketing agencies in the poultry and egg sector. There is another aspect of our work that the committee may find interesting. The FPAA enables farm products groups to create a second type of agency that is commonly known as a promotion and research agency. Any group can seek to establish such an agency to conduct, for example, marketing research into the attributes of its products, and the tastes and preferences of Canadian consumers. It can also conduct generic advertising and promotional campaigns. This work, as you will appreciate, benefits all industry participants. The FPAA enables that farm product group to establish a levy, or a check-off, to fund the promotion and research operation. It is worth noting that the levy can be collected on both domestic and imported farm products. This approach has been used with considerable success for years in the United States.
In Canada, one such agency has been created for the beef cattle industry. The Canadian Beef Cattle Research, Market Development and Promotion Agency is preparing its first levy order — its first step in becoming operational. Our council is working closely with the beef cattle industry to move this initiative forward. As we do so, we are looking for ways to simplify the process so that other groups might consider using it to promote and research their own farm products.
Mr. Chairman and honourable senators, I have described some of the ways in which the agencies that the NFPC reviews are working to add value to Canadian agriculture today and to create further value for the future.
The success of this work should not be underestimated. These industries not only create value but also, through their structure, ensure that this value is shared in all regions of Canada. This is as relevant for us today as it was when Parliament enacted the Farm Products Agencies Act more than 30 years ago.
Honourable senators, thank you for inviting our council to meet with you this evening. We would be delighted to answer any questions.
The Chairman: Thank you. Before you spoke to supply management, you did talk a fair amount about value-added. Are there obstacles for farmers to move up the food chain and become more involved in value-added production and, if so, what are some of those obstacles?
Ms. Currie: I can begin by saying that the farmers have shown that they tend to overcome obstacles as they arise. They view them as a challenge. As I mentioned, in Manitoba farmers got together with the processing industry and government to form the Manitoba Egg Producers Association, the cooperative, which is working well. Farmers are considering exports of lysozyme from the eggs that can add value to the raw material.
I pride myself that we are very hands on and that my vice-chairman is a producer and so I will ask him to elaborate.
Mr. Ron O'Connor, Vice-Chairman, National Farm Products Council: I am a chicken farmer and the relative nature of our business in the chicken industry is such that we work closely with our processing sector. In terms of adding value to product, most of that would be done in cooperation with a processor.
The farmers' role would be to supply any specs that the processor would need in order to add value, such as sizing, diet and breed of chicken.
The Chairman: What are you doing to move more dark meat in the market?
Mr. O'Connor: The processor that I sell my birds to is Sun Valley Foods, a division of Cargill Limited, which was formerly owned by Cuddy International Corporation, and they have done a great deal to promote dark meat. They are the sole supplier to MacDonald's of Canada and so they have a huge demand for white meat — the breast meat — used to make sandwiches. Some of the dark meat is blended with the white meat to make nuggets. They are doing considerable work in boneless skinless thighs and boneless leg meat. Much of their work has been done in cooperation with M & M Meat Shops at the retail level to package and market this product. Some of our dark meat, specifically leg quarters, is exported as a commodity.
The Chairman: There is probably a big market in Cuba for dark meat.
Mr. O'Connor: Yes.
Senator Wiebe: I am a strong supporter of marketing boards, which will come as no surprise to many. However, my question may surprise you.
If you have a quota and if you belong to a marketing board, you do not really have to worry about value-added objectives. That marketing board will determine a fair return for the product that you produce.
The concern I have about value-added relates to those people who do not have a quota and those who want to add value to the product that they produce. The only way that they will add value to that item is if they are somehow involved in the processing of that particular product.
The majority of problems in agriculture today is that we produce raw products, and we are at the whim of international dictates as to what price we get. If we were able to be part of the processing chain, we would then see value-added.
Bringing a meat packing plant, for example, into a particular province may increase the value-added for that product as far as the province is concerned, but that does not add one red cent to the income of the farmer who is producing the beef, because he is governed by the price on the international market.
Our concern as a committee is how to find ways that will allow that farmer, who is not part of a marketing board, to be able to become part of the processing system so that he will receive some value for the product he is producing.
Ms. Currie: Given that our specialty is the marketing board structure, I do not believe that I can comment adequately about other farming segments. With respect to the marketing board sector, supply management has shown that it can evolve and even get the producer more interested in value-added.
I am thinking of the market development policy, at the national level, that the Chicken Farmers of Canada has just put in place. The objective of that policy is to find more value-added ways for the farmer to benefit from a value-added product that the processor will produce, and to get the producer and the processor closer together so that they can share the wins in that scenario. At the marketing board level, they are looking at ways of doing this that, perhaps, were not on the table three, four or five years ago. They are looking at that more and more.
I came from the chicken industry, so I know that industry very well. The producers and the processors are working more closely together. It is no longer a matter of one segment against the other segment. If they do not work together as a chain, the benefits will not accrue to the industry at large. The marketing structure is certainly working in that direction.
Your point with respect to beef is a very good one. Unfortunately, that is not my specialty. We do not deal with the beef industry other than in the research and promotion agency.
Senator Gustafson: I would like to continue in that area. In Western Canada, there is a strong feeling that the protection of the marketing board penalizes the grain industry. While we have the Free Trade Agreement, there is not free trade in North America. If you had open, free trade, could the industry survive?
Again and again the Americans have said to us, ``If you open the door to us in the marketing board protected areas, we will open the door to grain.'' Many people in Western Canada feel that we are being penalized. Yet, at the same time, I do not hear the marketing board people supporting grain producers or cattle producers.
I agree that you have a very successful industry, but the grain sector is absolutely drowning.
I would be the last one to take away something that is working. I do not want to take away the success of the chicken industry or the milk industry, but I think the time has come when government has to realize that the marketing boards have been a great advantage to Canada, but they have not left an opening for the survival of the grain industry in Western Canada, in particular. I hear the same comments from Ontario. Farmer after farmer is going broke. Saskatchewan has lost 10,000 farmers since 1960, and it is losing more and more every year. Something has to be done.
I am not trying to take away your marketing board and your success. However, I am saying that we need your help. Why would you not support the Minister of Agriculture? The marketing boards alone can keep the minister happy and in place, even if he does nothing for the grain industry.
Ms. Currie: Those farmers in Western Canada involved in supply management would not want to see the system dismantled.
Senator Gustafson: I do not want to see it dismantled.
Ms. Currie: They see much benefit to continuing the marketing board structure, independent of whether that structure is more prevalent in Ontario or Quebec.
It is also worth noting something about the grain purchased by supply management farmers. Someone mentioned to me recently that supply management farmers spend around $1 billion a year purchasing grain. That is fairly significant in the scheme of things. It is not a number that is petty or small by any stretch of the imagination.
Mr. O'Connor: I have a hard time agreeing with the statement that supply management is doing anything detrimental to grain farmers. I do produce grain as well, and I support grain farmers every eight weeks with a significant cheque. It is a misperception if anyone thinks that, by getting rid of marketing boards, we will improve the grain industry in Canada. I do not believe that.
Our industry is not closed. We have considerable imports of chicken into this country, mostly from the U.S. We are open to trade, and we do trade. I do not believe that getting rid of poultry farmers, supply management or marketing boards would help the grain industry.
The grain industry has many difficulties and problems, but I see much support among marketing boards and supply-managed boards, as well as other marketing boards, for grain farmers. Many of the trade positions that have been developed have been developed in cooperation with the Canadian Federation of Agriculture and others. They have been developed in cooperation with farmers of beef, hog, chicken, turkey, eggs, dairy and everybody else. The positions that have been developed are fair and reasonable.
Senator Tkachuk: These hearings are about value-added products. We should turn our attention to how we can improve the raw products we grow and see if we can add value to them in the market place.
If I had an idea to market powdered egg products, and I bought a farm in Saskatchewan and stocked it with chickens, would I have a problem in manufacturing the eggs to produce powdered egg products and in selling the chickens to Safeway? Can I do that as an individual Canadian or as a company of partners? Could we make chocolate milk or powdered eggs?
Ms. Currie: You recognize, senator, that the supply management system for eggs, diary, chicken and turkey are quota systems. You must purchase the quota and be part of the marketing board structure.
Senator Tkachuk: How difficult is that?
Ms. Currie: It depends on the province.
Senator Tkachuk: If I were in Saskatchewan or Alberta, could I buy 10,000 chickens and start production?
Ms. Currie: Quite frankly, I do not know whether it would be that easy or not.
Senator Tkachuk: Why not? Why do I not have the freedom to grow chickens and sell them in the market place? Why am I stopped from doing that?
Ms. Currie: It is a regulated industry. Saskatchewan, as an example, has a marketing board. It determines how much chicken is required in Saskatchewan.
Senator Tkachuk: How do they know that?
Ms. Currie: They meet with the processing community and the retailers and they decide what is necessary. Once they find out what is necessary, they go to the national agency.
Senator Tkachuk: Are you telling me that my son cannot start a chicken farm?
Ms. Currie: I am not saying that.
The Chairman: If he could buy a quota somewhere, then he could start a chicken farm.
Ms. Currie: Exactly.
Senator Tkachuk: How much does a quota cost, and where would he buy it?
Ms. Currie: I work for the federal government, so I do not know what a quota costs anywhere.
Senator Tkachuk: What is your province of residence?
Ms. Currie: I live in Ontario.
Senator Tkachuk: What does an Ontario quota cost?
Mr. O'Connor: It varies quite a bit according to the time of year and from year to year. It is probably in the range of $50 per bird, which will give you access to produce 13 kilograms a year.
Senator Tkachuk: How many could I buy?
Mr. O'Connor: You could buy as many as you wanted.
Senator Tkachuk: From whom would I buy the quota? Would it be from other farmers?
Mr. O'Connor: Yes.
Senator Tkachuk: Let us say that I want to purchase product to manufacture. I want to produce powdered milk or egg powder to ship. From whom would I buy a whole bunch in order to sell it throughout the world?
Ms. Currie: Senator, with all due respect, those are very good questions, but we are here as representatives of the federal government who apply the federal government policy, which is to support the marketing board structure. The people who operate the marketing boards and the marketing agencies would probably better answer your questions. We do not do that. We are the overseers at the national level.
Senator Tkachuk: I understand that, but I am asking for information. I am trying to determine the ease with which one can get into business of taking the raw product of the egg and the chicken and make something different out of it that costs more money. When I go to a Safeway store, I can buy a cappuccino-type milk that costs me some outrageous amount of $1.95 in a glass bottle. I think that is pretty smart marketing.
Ms. Currie: I agree.
Senator Tkachuk: I want to know if a person can set up his own dairy farm and produce it himself. Why would that person need to talk to marketing boards?
Ms. Currie: It will come as no surprise when I give you this answer. The Canadian Dairy Commission looks after the dairy sector. I do not know the system that they run, and I do not want to speak for dairy farmers. If you wish, I will try to get some more information from the marketing agencies and get back to you. As I said before, your questions deserve to be answered, but I am not the right person to answer them.
Senator Tkachuk: Could we get some data on the percentage of products in marketing boards that are exported in comparison to those sold for domestic consumption?
Ms. Currie: Certainly.
Senator Tkachuk: Of those used for domestic consumption, how much is sold for processing for other products, and how goes to, say, Safeway? That information would be helpful.
Ms. Currie: We will send that to you tomorrow.
I would, however, make a point on the export side of the equation. Prior to 1994, there were virtually no exports of supply-managed products, that is, poultry and eggs. Since 1994, there has been a significant increase primarily in poultry — chicken, in particular. We have gone after certain markets such as Cuba. That has proven to be a good market place for Canadians.
At the council, we are trying to transfer our knowledge of the world to Canadian producers. To that end, about three years ago, I led a mission of producers and processors to Asia. We went to China, Hong Kong, Japan and Korea to see if there were niche markets for Canadian poultry products, particularly of the value-added type. We are not very competitive at all in the world market in commodities such as chicken, turkey or whatever else,
The Chairman: What was the result of the trip?
Ms. Currie: The result was very good. We formed a working group, and we have exported products, value-added products as well as commodity products, to Asia.
Unfortunately, we got wrapped up with the dairy panel on exports. You may be familiar with that. That brought a bit of a dampener to poultry exports but, hopefully, things will start up again and we will see more value-added products being exported.
Senator Tkachuk: Could you send one more piece of information? If the federal government passed legislation to end marketing boards, what would it cost them to buy out all the quotas? Could we have an estimate of that as well?
Ms. Currie: I can ask Agriculture and Agri-Food Canada, and they may be able to do that. We will find whatever information we can and send it on to you.
Senator Gustafson: If you take a quota of $50 a bird, 350 birds would be worth more than a quarter section of land. That may give you some idea of the situation.
Senator Wiebe: This might help to answer the questions of Senators Tkachuk and Gustafson with regard to quota. If, for example, my daughter wanted to go into the poultry business, she would need $1 million at $50 a head to buy quota for a 20,000-bird operation, which is a reasonable size. On top of that, she would need equipment, buildings, feed and so on.
If she wanted instead to go into grain farming, to have a reasonable size farm she would have to buy at least 2,000 acres at $500 an acre. She would be investing $1 million. On top of that, she would need to buy machinery, equipment and so on.
In my mind, there is no difference whatsoever whether it is a marketing board or a grain farm. It is how we approach it, and we approach it as a business.
The individual who joins the marketing board, by investing that $1 million, has a guaranteed income, whereas the individual who invests $1 million in a farm does not. I would sooner encourage my daughter to go into poultry than to go into grain farming.
Ms. Currie: Senator, this is music to my ears. I could not have put it as eloquently as you have. Thank you very much.
Senator Fairbairn: We all know that in recent years other nations have had a beady eye on Canada's poultry industry. It is a source of constant anxiety for you and the farmers in this country. In your view, is that a major concern in this industry?
As well, what are the major obstacles that currently face the farmers in their quest for value-added production in Canada?
Ms. Currie: With respect to the first part of your question, senator, the fact that we are always being pinpointed by our allies around the world, including the WTO, is a major concern to Canadian poultry and egg farmers. There is no doubt. A lot of money is being expended by national agencies and farmers across Canada to protect what they have. Their feeling is that the structure has worked very well, not only for them but also for all Canadians. Yes, it is a concern to them. We will see what happens in the coming months with respect to the WTO.
As to obstacles to get into value-added, I am grappling with how best to answer that question. There is no doubt there are constraints in supply management. That is the nature of the beast, so to speak. It is a regulated product. It is not a free market system where you can easily get in or out. You can easily go bankrupt or stay in business, I might add.
Therefore, as in any sort of regulated industry, obstacles do exist. The marketing agencies are trying to view these as challenges and see how they can adapt their systems so that the obstacles are removed and farmers can gain advantage in value-added production.
I mentioned what is happening in Manitoba. I mentioned ACA Co-op in Nova Scotia. Lilydale Co-operative Limited in Alberta is another wonderful example, as is Olymel in Quebec.
Farmers are looking at new infrastructures such as a third or new generation co-op system to determine whether they can enter into joint ventures with processors. All this is to add to more value-added production.
However, there are obstacles. The only general statement that applies is that it is a regulated industry. Maybe as a farmer, Mr. O'Connor can answer that better.
Mr. O'Connor: In terms of value-added production, farmers themselves have taken some steps. Marketing boards have been very flexible in altering rules and quota regulations to allow farmers to go into value-added production. It is done mainly at the provincial level because they deal directly with their provincial marketing boards. I am thinking of activities such as organic, free range and silky-bird production. There is a host of special productions where provincial marketing boards have granted exceptions to the rule in terms of size and so on.
The other significant challenge now is that everybody has to meet the food safety regulations. We are all on a farm food safety program. That can be a challenge for a smaller producer. However, if there is a need for an exemption to a rule, provided it meets the food safety standards, marketing boards have been flexible.
Senator Fairbairn: What would happen if Canada were forced to drop its tariffs on poultry and egg products?
Ms. Currie: The producers will tell you that their industry will be devastated. It is also fair to say that, because of our structure, not only would the farmers be devastated, but the processing industry would also be devastated.
The chicken and turkey industry have come together with the processing industry. Large processors across Canada have formed a coalition, for want of a better expression, whereby they have spoken to our minister and demonstrated to him, very graphically, the impact of reducing tariffs on their industry, not only at the producer level but also at the processor level. It would be devastating.
Senator Fairbairn: What are we talking about in terms of dollars?
Ms. Currie: I do not know.
The Chairman: A lot of money.
Ms. Currie: It would be a lot of money. The question then, which I would not begin to answer, is: At what gain? What would we be gaining if we were to lose what has worked so well for Canada?
Senator Hubley: I do apologize for missing some of your presentation this evening.
My question is in regards to your international trade missions. You mentioned that you had visited China, which turned out to be a very successful venture. Has your organization taken part in Team Canada? What other areas of the world are being targeted for niche markets? How do you prepare for those areas? What kind of research do you have to do into their cuisine or their eating habits to ensure that you will have a successful trip?
Ms. Currie: Before we went to Asia, we did a lot of research. The mission to Asia was an awareness mission to see, first-hand, what sort of product and what sort of competition is in that marketplace, so that if we went into that marketplace, we would know what our competitors would be doing.
We do a lot of research and we use the facilities of Agriculture and Agri-food Canada to gather information. Also critical in our preparation is the information we get from our embassies. We also do a lot of soul-searching. We have an export working group that looks at the marketplaces best suited for Canadian processors. Only when those are identified do we go after them.
On the flip side of that, not for the purpose of marketplace exploration, but to find out what the competition is doing, we recently had a mission to Brazil. We took producers of poultry and eggs to Brazil so that they could see what was happening there first-hand. It is amazing. I visited that country four years ago, and I can see the progress that has been made in four years. They have progressed in every way possible.
They are very competitive. In some instances, their agriculture products are more competitive than those of the U.S., particularly in products such soybean, corn and poultry production. I could go on and on.
They have state-of-the-art facilities. There is a focus on the client. There is a spirit of ``Let's grow Brazil.'' Their marketplace is just unbelievable in terms of how far advanced they are. Mr. O'Connor and several other producers on that mission came away and said, ``It is true to say that Brazil is developing in some aspects, but in agriculture, they could be termed as being a developed country.''
The Chairman: Mr. O'Connor, what are they doing differently in value-added? What could we be doing better?
Mr. O'Connor: In terms of value-added, they are not doing anything different. They are doing many of the same things that we are doing. They use much of the same equipment. Most of the equipment in the poultry plants is European. They are doing many of the same things we are.
They have a huge advantage in terms of cost. I will use the example of building a barn to house 25,000 birds. Their cost for that barn is Can. $40,000. My cost is Can. $400,000. They have a huge advantage.
The Chairman: How do you explain the difference? Are building supplies less expensive?
Mr. O'Connor: We build a barn here for temperatures ranging from minus 30 degrees to plus 35 degrees. They build a barn for an ideal climate. The structure is basically just a roof with a screen on the side.
Ms. Currie: One thing we can learn from Brazil is that we must promote Canadian. We saw an emphasis on promoting Brazilian that I have not seen in most other developing countries. They promote themselves; they promote the people who produce their product; and they generally promote Brazil. If we were to adopt the same attitude in Canada, promoting Canadian products, we would go a long way. We are putting together a report that we will send to you. We think it is interesting because so much is happening there. There is a lot we can do to learn a little bit from them.
Senator Gustafson: When you talk about selling into world markets is there not a danger of disapproval by the WTO? World trade in Mexico broke down as a result of this issue. We will not be able to have our cake and eat it too. The World Trade Organization will not to stand for that. If you start exporting to international markets and do not allow markets in here, I would think that it would be dangerous ground.
Ms. Currie: As Mr. O'Connor mentioned before, people think our markets are closed in supply management. They are not. Canada is the U.S. most valuable market when it comes to chicken.
Senator Gustafson: Is that because it is higher grade chicken?
Ms. Currie: The product they export to Canada is the high-end product, and we can afford to pay for that. They export the low-value part of the chicken to other parts of the world, so we are their most important customer.
There are opportunities for value-added product, but it will be niche marketing. We must go that way at some point in time. Our population is not growing by leaps and bounds as it is in other parts of the world. If that trend does not reverse itself, it means we will have to look at some form of expansion, both domestically as well as in the export market. However, we have to be careful how we choose those markets.
Senator Tkachuk: If we are going to look at value-added products and value-added in agriculture, obviously, the products that are controlled by marketing boards are very important. When I talked to you about getting into the business of chickens or eggs in Saskatchewan, for example, you said, ``You would have meet with your marketing board in Saskatchewan.'' Do Saskatchewan chicken and egg producers only produce for Saskatchewan?
Ms. Currie: They produce primarily for Saskatchewan, but they also ship because their population base is not as large as it is in central Canada.
Senator Tkachuk: Do Quebec and Ontario have most of the marketing board quotas in dairy products? Are most of the quotas owned by people in the province of Quebec?
Ms. Currie: I am not certain, but I believe Quebec is the largest dairy producing province.
Senator Tkachuk: They export to the other parts in great volumes.
Ms. Currie: Absolutely.
Senator Tkachuk: If farmers in Western Canada wanted to supply their own marketplace and export, would they have to buy quotas from Quebec?
Ms. Currie: No, they would buy quotas within the province.
Senator Tkachuk: How does the marketing board in B.C. know if someone is selling a product into Quebec, say?
Ms. Currie: A dialogue goes on between the person who wants to set up the operation and the marketing board.
Senator Tkachuk: This is very strange. I read lots about marketing boards, but I have a hard time understanding them. It reminds me of Al Capone, who figured that, if you control distribution, you control everything. You create a monopoly.
Why can't Western Canadian farmers in Saskatchewan, for example, who want to get into the poultry or egg business and diversify, not just go ahead and get into it?
Ms. Currie: They can.
Senator Tkachuk: We have to buy quotas.
Ms. Currie: The growth in production in Saskatchewan in chicken for the last five or 10 years would surprise you. It has been phenomenal. Production has doubled, if not more.
Mr. O'Connor: The growth has been a much larger than in beef, hogs or any unregulated commodity.
Senator Tkachuk: If you want to grow wheat on your farm, no one cares. You need not buy a quota from somebody.
Ms. Currie: There are two different systems. One is regulated and one is free market. As you heard from Senator Wiebe, we know which one he prefers.
Senator Wiebe: I have two questions. Were you in Cancun?
Ms. Currie: No, we were in Brazil.
Senator Wiebe: Cancun was not a good experience for Canadian marketing boards. If that trend continues, have you any contingency plans in place to help producers here in Canada to overcome that?
Ms. Currie: The quick answer to that is no. We are there as a federal government agency to implement the policy until the policy of the federal government changes.
Senator Wiebe: I suppose this question could be related to policy. Have you had a chance to study the New Zealand experiment?
Ms. Currie: I have not. I have heard a lot about it, but I have not personally studied it.
Senator Wiebe: Perhaps I could mention it, for the benefit of the members opposite. A number of years ago, New Zealand decided that they would no longer provide subsidies to agriculture. As a result, they told all of those involved in agriculture that they would give them a one-time payment. That one-time payment could either allow them to continue in agriculture or to graciously bow out. As a result, agriculture in New Zealand is booming today. It is very successful.
I was down there this spring on a private visit and I checked into the successes that were taking place in New Zealand. Indeed, they are very successful, and the reason is that the farmers who opted to stay are the farmers who are in marketing boards.
The Chairman: I have one final question. I am fascinated with what you said about Brazil and the government attitude toward farmers in Brazil. Can you tell us whether, as a result of the good things they are doing, they have a thriving export business for their agricultural product? If so, to which countries are they exporting?
Ms. Currie: The answer in poultry is absolutely yes. They are exporting to Europe, Russia, the former Soviet Union, and also to Saudi Arabia and Middle Eastern countries. They have recently started exporting poultry to Canada. We have a veterinary protocol with Brazil, and they have recently started exporting to Canada.
The Chairman: Are they exporting all forms of the product?
Ms. Currie: It is primarily frozen poultry.
The Chairman: I want to thank you for a superb presentation. The questions were tough. Our members ask very relevant questions, and that is why we are able to produce good reports.
I would now like to call to the podium officials from the Canadian Wheat Board, Mr. Ritter, Mr. Thompson and Mr. Nicholson.
Mr. Ken Ritter, Chair, Canadian Wheat Board: Mr. Chairman, we brought a few props along. For us bachelor types, we have macaroni and a French baguette, a pan loaf of bread and some Chinese noodles.
The Chairman: Made in Canada?
Mr. Ritter: I am not sure about that, but they would probably be using Canadian grain — at least we think so. We also have a bun, and for the more affluent, a croissant. These are some of the grain-based products that we have, Mr. Chairman.
I will begin my presentation around this. One of our themes is that demand drives value-added processing. I am sure you can all remember when grain-based foods formed the staple of a healthy North American diet, one that was high in complex carbohydrates and low in fat, and that gave us the fuel to meet our daily activities with energy and vigour. However, now these products are being blamed, by some, for making Canadians fat and unhealthy. Some diet authors encourage high protein, high calorie foods and tell the public to shun carbohydrates. This is an alarming trend that not only threatens the health of our citizens, but also has the potential to negatively impact the value-added grain- processing industry in our country by lowering consumer demand for breads and pastas.
I am the chair of the Canadian Wheat Board's 15-member board of directors, and one of 10 elected farmer directors. I am a lifelong farmer from Kindersley, Saskatchewan. With me is Mr. Nicholson, who is also an elected farmer director from the Shoal Lake area of Manitoba and chair of our Strategic Issues Committee. We also have Mr. Thompson with us, the senior marketing manager for Canada and the United States. He is closely connected to both the Canadian and U.S. milling industries.
Before I address value-added processing, it is important to give you a brief outline of the CWB. It is a farmers' marketing organization that sells 18 to 22 million metric tons of wheat and barley to more than 200 customers worldwide. Our annual sales range from Can. $4 to $6 billion.
The CWB is not a marketing board in the same sense as the business structures in place for supply management products like dairy, chicken and eggs. Wheat and barley producers in Western Canada are free to grow as little or as much wheat and barley as they choose, depending on what will give them the best return.
Having set the stage for the marketing of wheat and barley, I am here to tell you that value-added processing within the Canadian wheat and barley market is alive and well. It has shown healthy growth and development over the last decade, despite bad eating plans that encourage dieters to avoid grain products.
The CWB is committed to maximizing Prairie farmers' returns from the sale of wheat and barley into the domestic market. We are also committed to facilitating and encouraging economically viable value-added processing in Canada — not only because investment in value-added creates jobs for Canadians, expands the tax base and strengthens the national economy, but also because it increases demand in the important domestic market for wheat and barley. This helps us fulfill our mission to generate higher returns for the farmers we serve.
We accomplish our mission to farmers and also serve our customers by striking a price balance that is conducive to value-added processing, while still optimizing returns to grain growers. Our efforts to serve the wheat and barley value- added industries have been successful, as evidenced by the growth and vitality of these sectors.
Since the signing of the Canada-U.S. Free Trade Agreement in 1989, value-added wheat and barley processing in Canada has grown significantly. In fact, the largest customer for Western Canadian wheat and barley is our own domestic processing industry. Domestic sales total about 2.7 million metric tons of wheat and durum and 1.2 million metric tons of barley. If you filled railway cars with all that wheat sold into the domestic market each year, you would have 30,000 cars forming a train stretching for 300 miles, all the way from Toronto to Montreal. Over the past few years, the domestic market has become our number one customer. In 2001-02, approximately two out of every 10 bushels of grain — including wheat, durum and barley — were processed domestically, compared to only one in 10 a decade ago.
Canadian wheat and durum milling has increased 31 per cent since 1991, compared to growth rates of 14 per cent in the United States. In little more than a decade, Canadian flour mill capacity has grown from about 7,700 metric tons per day to about 10,300 metric tons per day. Evidence of Canada's healthy milling industry is well known within the industry. Milling and Baking News, an internationally read and respected publication on milling and baking, reported in August 2002 that a comparison of flour production amongst the leading milling nations since 1990 showed that Canada's mills enjoyed the sharpest increase of any country, including the European Union, the U.S., Argentina and Australia.
The location of this milling also tells a story about the CWB's success in encouraging value-added processing in the West. About 32 per cent of this milling takes place in Western Canada, compared to just 15 per cent of U.S. capacity located in the growing regions of North and South Dakota, Montana and Minnesota. Three new mills have been built in Western Canada in the past five years alone; two have expanded production earlier this year; and three other Canadian mills have expansion plans under way. A new mill is currently being built in Chilliwack, B.C., representing a $25 million investment. This positive situation can be compared to the dismal state of the U.S. milling industry, which has seen 15 mills close in the last two years, equivalent to closing about 50 per cent of the flour milling industry in Canada.
Exports of wheat-based products to the U.S. have increased almost 10-fold over the past decade, from 15,000 metric tons in 1991 to 220,000 metric tons in 2002. Per capita, wheat processing is greater in Canada than the U.S., with increases in the processing rates exceeding our national population growth.
The CWB's ability to supply international customers with consistently high-quality wheat has also had an impact on value-added processing. If you are in Japan and crave doughnuts and coffee, you will likely end up visiting over one of 1,300 Mister Donut shops to place your order. Mister Donut is so pleased with the quality of our Canadian product that No. 1 Canadian western red spring wheat was advertised on all tray liners for a three-month period.
Domestic malting capacity, that is, the process of converting malting barley to malt for use in brewing, has also grown in the West. As one of the world's major malt barley exporting countries, Canada has experienced the world's greatest increase in malt capacity over the last 15 years, adding over 350,000 metric tons of capacity for an annual total of 1.2 million metric tons. In contrast, U.S. malting capacity has actually declined over the same period.
Canada malts four times more barley per capita than the United States. The malting industry in Western Canada has shown tremendous growth in the face of free trade. In 1980, only 55 per cent of total Canadian malting capacity was located in the West. In 2003, 75 per cent of domestic malting capacity is located on the Prairies — a result of increased demand from international markets that have nearly doubled to 700,000 metric tons in barley equivalent annually, a demand that Western Canadian malters are helping to meet through increased exports.
As I have demonstrated, wheat and barley value-added processing is thriving in Canada. The CWB has played, and will continue to play, a pivotal role in these industries. As sellers of what I believe is Canada's best resource — high- quality wheat, durum and barley — our role is to supply the product, while fulfilling our mission of maximizing returns to prairie farmers. Farmers have indicated their support of the CWB's encouragement of value-added processing, but not to the detriment of their own returns. In a recent Earnscliffe study of Western Canadian farmers, more than half of those surveyed said they would not be willing to invest in more value-added processing if it meant returns on grain sales would be reduced.
Our success is attributed not only to the excellent product we have to sell, but also to the structure of our marketing system. This structure is designed to encourage value-added development by providing North American, competitive, market-based pricing. Our pricing structure is transparent and fair, assures stable supply dynamics, and treats all processors fairly in a manner that puts them on a competitive footing with mills in the United States.
The Canadian National Millers Association has publicly stated its satisfaction with our approach to competitive pricing, and its willingness to continue to work with us. Even the U.S. International Trade Commission, in its 2001 investigation into CWB pricing, has taken note of the Canadian value-added industry's successes. It states that the CWB has been extremely successful in promoting investment in Canadian milling capacity. Clearly, the board views the rapid growth in processing as an important policy triumph.
However, increasing the value level of value-added processing in Canada takes more than creating a positive environment for investing in facilities. Consumer demand is what drives value-added processing, first and foremost. The Canadian National Millers Association is aware of this fact and has publicly stated that creating increased manufacturing capacity does not necessarily lead to increased market demand. Without an increase in consumer demand to purchase the processed products, or increased consumption levels by consumers, even the most advanced, well-capitalized, value-added ventures will end up fighting for a smaller slice of the market-share pie. However, the total market will not get bigger.
If increasing value-added investment relies on increasing the demand for products, then I believe the solution lies within the influence of the federal government. In the past few years, North American consumers have been subjected to a variety of diets that promote high fat, high protein foods over complex carbohydrates. Although Statistics Canada recently reported that Canadians are eating more carbohydrates than a decade ago, grain-based foods are becoming a scapegoat for North America's obesity problem.
Judi Adams, a well-respected nutritionist and president of the U.S.-based Wheat Foods Council, agrees that grains are getting unfair treatment. In a recent interview in World Grain, she said the grain products are not the culprit. She said that too many calories and not enough exercise are causing obesity amongst North Americans.
Health Canada knows that grain products — including bread, pasta and noodles — should actually form the majority of a healthy diet. In fact, the Canada Food Guide recommends that each of us eats between five to 12 servings of grain-based products each day. A healthier population benefits all Canadians, not only in terms of lifestyle satisfaction, but also in terms of health care savings and the individual's ability to contribute to the growth of our economy.
Canada's value-added grain industry and Canada's population as a whole will be much healthier if the federal government plays a proactive role in reminding, educating and encouraging citizens to eat a healthy diet that contains up to 12 servings of grain products every day. A more vibrant, value-added industry will be the natural outcome of this increased demand — a situation that will benefit Canada's economy, population and wheat and barley farmers.
The Canadian Wheat Board is committed to doing our part to ensure consumer demand for grain products. We are working with the Baking Association of Canada to increase awareness of the nutritional value of grain products through a promotional campaign of grain-based foods. I challenge this committee to do its part to ensure the future health of Canadians and the future health of the value-added grain industry through proactively educating the population on the nutritional value of grain products. Thank you.
The Chairman: Thank you for that excellent report. As someone who has tried the Atkins diet, I know what you are saying when you talk about carbohydrates. Perhaps it is a fad.
You talked about the Earnscliffe study. Who is Earnscliffe? I do not understand the results of that study. At the top of page 6, you say that more than half of the Western Canadian farmers who were surveyed said that they would not be willing to invest in more value-added processing if it meant returns on grain sales would be reduced. I do not understand that.
Mr. Ritter: Earnscliffe is a survey firm, and we occasionally hire them to do studies of farmer attitudes. When they interviewed farmers and asked them a simple, blunt question: ``Would you be willing to take less for your grain if it meant more value-added?'' a majority of farmers said no. They would not.
Senator Wiebe: Governments, both provincial and federal, have been making a lot of hay over the last number of years, talking about how important value-added would be to the producer. Value-added was going to be the be-all and end-all to solve the the problems of producers. Since he was not getting a high enough price for his grain, we encouraged the farmer to go into value-added so that he could share in that chain. It seem that all of the efforts, both provincial and federal, have resulted in value-added production for the province and the country, but not for the farmer. The farmer is still selling the raw product. We may build a new mill in B. C. or an ethanol plant outside of Regina but the individual farmer producing that grain gets exactly the same price for his product if he sells it to that mill, to that plant or if he exports it to another country. How do we define the term ``value-added'' so that the individual producer gets an increase from the processing of that product within Canada vis-à-vis the way it is now?
This leads to my question. Farmers in Saskatchewan put a great deal of effort into building pasta plants. They managed to raise enough money to begin the process. The problem is that each and every such effort fails, and then the organizers of the process blame the Wheat Board. They claim that it is because of the Wheat Board's stringent guidelines about buying their own grain that the pasta plant idea failed. Yet, they forget to realize that they failed because the company that was to help them with the processing of their pasta product and the marketing pulled out.
Could you give me the Wheat Board's explanation and response to the claim that the pasta plant failed because of the guidelines of the Canadian Wheat Board?
Mr. Bill Nicholson, Director, Canadian Wheat Board: The question of how farmers benefit from value-added is certainly important. We believe that, through the pricing policy of the Canadian Wheat Board, CWB, which Mr. Ritter briefly outlined, any increase in sales we can make in the domestic market adds to the farmer's returns. The board is in a position to maximize the price that we charge processors, while ensuring that processors are competitive on a North American basis. Through the CWB, farmers can be assured that they are receiving the best possible price from grain that goes to value-added enterprises across the country.
Senator Wiebe: Pardon me for interrupting, but are they receiving the best world price for that product?
Mr. Nicholson: Overall, they are, but part of the CWB's effort is to extract the maximum price possible in any given market. The Japanese and European markets provide significantly better returns than some of the other market options that we have.
Our domestic market is relatively good compared with some of the alternatives. Our domestic human consumption pricing formula is based on North American competitive prices so that farmers are getting the most that they can out of that market. The processors are still achieving a price that allows them to be competitive with other processors in that market. That goes some of the distance to assure farmers that they receive the best price.
There have been moves by farmers to try to participate in value-added themselves, and we certainly encourage and fully support farmers who want to begin such enterprises. It is important to keep in mind, though, that the milling and malting of wheat and barley are fairly mature industries. A few large players dominate them. In wheat milling, ADM controls about 46 per cent of the milling capacity in Canada. For farmers to go head to head with these larger participants in the industry does present difficulties, because those same farmers are already involved in a high-risk agricultural venture with a low return and then they need to ante large amounts of capital to enter the value-added business. That presents an obstacle. Again, the CWB pricing to a farmer-owned enterprise is such that they may access wheat or barley on any given day at the same price as ADM or the other giants in the industry may access those products. At least it puts a farmer-owned enterprise on a level playing field with the rest of the industry.
There is also a political element to this. Some groups of farmers have used the issue as a way to carry on the single- desk debate and attempt to portray the CWB as an obstacle — we contend that we are not — and to use it as a tool to attract investment if they were able to achieve some kind of exemption from CWB policies that would give their enterprise a particular advantage. We have felt that it would not be appropriate for us, as a single-desk marketer, to give a commercial competitor a particular price advantage. That is why they would have to price their grain through the Canadian Wheat Board.
They are on a level playing field with the rest of the industry, but they do not have an advantage conferred upon them by the Canadian Wheat Board that would not be sustainable if they were successful in achieving their goal of eliminating the Canadian Wheat Board. In that case, they would go right back to competing against the rest of the industry without any advantage. We feel that the level playing field is the best basis we can provide for potential farmer-owned value-added.
There are other advantages of wheat board participation such as security of supply and technical support and assistance that smaller enterprises would find more useful than would the large players. We also offer the policy of stock switching for farmer-owned value-added, which broadens the potential pool of investors and helps with their supply assurance.
Mr. Ritter: I want to give you a perspective of how much grain is grown in Western Canada. Do you realize that we grow enough pasta in Western Canada to feed 15 Canadas? We consume about 300,000 metric tons here. We grow about 4.5 million metric tons of durum wheat per year. I am always amazed at our ability to export that much pasta.
The Chairman: Do you have large reserves of durum now?
Mr. Ritter: Yes, we have some reserves that remain on farmers' farms.
Senator Wiebe: Are we not far better off, as a country and as a producer, to market that box of pasta worldwide rather than sell the raw product? That would provide jobs for Canadians and it would probably provide value-added to the producer of the durum wheat. We are spending a great deal of effort marketing the raw product. Should our efforts not be to find ways to secure the market and export the pasta product rather than the durum wheat?
The Chairman: That is the issue before us.
Mr. Ritter: We are a member of NAFTA and the good and bad of that, if you were in a processing mill, is that you could not pay the supplier of grain to that mill a price that is lower than the standard North American price, as Mr. Nicholson mentioned. The standard North American price is a basket that relates to some of the trades around Minneapolis. If you do, then you have a trade challenge. If you pay higher than that price, you will go broke. That is the dilemma of the processor. We have seen numerous processors in that same predicament.
The North American stable price is what we have developed, what we rely on and it is what brings stability to the industry. The question is: Can you rationally export spaghetti to Italy, for example? You might be able to export some, but Italy has many spaghetti plants. Some gain could be made. North Africa is another big buyer of durum products. They make couscous, which is an Arab dish. We have made some inroads and we are continuing to make inroads, primarily in North America, but there is a limit as to where we can go.
Senator Wiebe: What you have said is exactly right. We cannot sell durum for more money in Canada than we can sell it worldwide. The point I was making and that we are looking at is, if the producer owns the processing, he then gains not from the price of the durum, because he will get world price for that durum regardless of the weather conditions, but from having the durum processed in Canada and from having a share in the ownership of that Canadian processing industry.
Mr. Ritter: Sir, our policies support that vision. If a farmer wants to buy a share in a pasta plant then he can do that and gain from any profit to be had from that plant.
Senator Wiebe: If I decided to build a durum processing plant in Vancouver, in Regina, in Winnipeg and in Toronto, could you give me an idea of what I would pay for my durum?
Mr. Ritter: Mr. Thompson deals with that every day.
Mr. Jim Thompson, Senior Marketing Manager, Canadian Wheat Board: Currently durum is running about $300 per metric ton at a gateway location, such as Vancouver or Thunder Bay. The cheapest point to process durum is in Regina, which is one freight point lower than in Vancouver or Thunder Bay. That equates to roughly $40. As you move toward the gateway points the numbers vary. At Thunder Bay, durum is about $300 per metric ton, at Toronto it is about $330 per ton, and at Winnipeg it would be between $250 and $300 because it is about halfway between Regina and Thunder Bay. The cheapest processing point for raw material would be in Regina — the centre point of the Prairies.
Senator Wiebe: You mentioned a new plant, perhaps for flour-milling, that is being built in B.C. Basically, they are paying close to the highest possible price for their raw product. Is it being built there rather than in Saskatchewan because they happen to be closer to a larger market? Has the freight on the finished product caused the problem with locating in Regina?
Mr. Thompson: The current economics on a processing plant — flour or semolina or other product — dictate that it is better to be closer to the market where the product is being consumed than to the production centre.
Senator Gustafson: There is no question that we would all support added value. I grow 6,000 acres of durum and we have not sold one bushel. When we do happen to sell a bushel, we receive $2.68 for it. That will not cover the input costs. That is what we are up against. That is not the CWB's problem, but we do face a problem. We do not want to give the wrong impression to the federal government, but we are facing a extremely serious problem in agriculture and the grain industry in particular. There is no question about that.
We talk about added value. Look at the new plants that were built in the Prairies, such as Con Agra and ADM. Cargill has expanded. Consider also all the American programs. When I move my grain on that ticket, more than one- third comes off when I sell. Since the Crow Rate was removed, we have been operating at a deficit. Charlie Mayer said at the time that we needed at least $7 billion per year for seven years to phase out the Crow Rate. We received $1.4 billion. The $1 per bushel has been the real problem that farmers have faced. The government has not truly faced that problem and solved it. The situation is serious. Farmers are going broke and will continue to do so unless the federal government does something.
The Government of Alberta and the cattle industry can inject capital, which they have done, even into the cattle industry. They have not been able to do that in Saskatchewan. I do not fault the NDP Government of Saskatchewan because it just does not have the revenue to do it.
However, undoubtedly, this will have a major impact on national issues in Canada, if something is not done.
I commend you on trying to point out the areas where we can be positive and try to move ahead, but it is a difficult situation. I do not think we want to mislead Ottawa into believing that there are not major problems.
Mr. Nicholson: As a fellow farmer, I certainly understand the situation you describe and I live it every day. The only money the CWB has is from the farmers.
Senator Gustafson: Please do not get me wrong. I am not blaming the CWB for this because we face a global problem, as we can see with our exports to the global market. We will not manage to eliminate American subsidies because their farmers would go broke if that happened. Americans will never let the heartland of the United States go down, nor will the Europeans let their agriculture industry go down. However, something must be done in Canada to deal with this problem. The only place we can turn to is the federal government.
Mr. Nicholson: For our part in the area of value-added, I would reinforce that the North American competitive policy we have ensures that farmers receive the most from the market place, while the processor is still in a position to be competitive in world markets.
Senator Gustafson: You do a good job under the circumstances, but this is a serious problem.
The Chairman: Implicit in the questions that Senator Gustafson is asking our three witnesses is the fact that you have given us a pretty glowing picture of the CWB's activities. However, when you factor the input costs to grow an acre of durum with the price you receive for selling one bushel at the end of the day, you will realize a huge discrepancy. The question is: What can you recommend to this public policy-making committee could be done about this terrible discrepancy?
Mr. Ritter: Mr. Chairman, we were not trying to put a glowing image on the impact on grain growers. We are facing extremely difficult times. There is a huge cash crunch, to which Senator Gustafson referred, and grain prices are very low. The viability of many farmers is in question and much hurt is being sustained.
At the end of the era of the Crow Rate, we looked around the world and at ourselves and found that we have competitors, such as the U.S. and Europe, who will continue to subsidize. At the same time, countries such as Australia and Argentina are so close to the coast that their cost of production is naturally much less than ours.
We have been working very hard and we have shown that we are competitive and productive. Many farmers still in business are amazing because they have managed to eke out an existence with these kinds of prices and input costs. As to any specific solution, and as a general statement, the Government of Canada has to put us on a level playing field with our competitors, or has to find another solution. I do not want to describe that in any great length but, certainly, we cannot continue in the state that we have faced over the last five years.
The viability of the whole industry is at stake. We have to come up with solutions that will bring more revenue for the grain that farmers grow.
Mr. Nicholson: I would just emphasize that the ingredients are there for Canadian farmers to continue to be successful. We have products that are recognized worldwide for their consistency and quality. While we have a relatively costly system, because of the long distances to get to export position, our advantage is that the system is sound, efficient and able to preserve, for the most part, that quality.
The potential solutions that Mr. Ritter mentioned are the next steps, I guess, to build on the base that exists.
Senator Gustafson: It is fortunate that we probably have the best sample of durum wheat that I have ever grown in my lifetime. It is absolutely beautiful. It weighs 64 pounds per bushel, which is a positive for the industry. Hopefully, it will sell in the U.S. or another market. Last year, we had sprouts, and we were only rated at No. 3. This year's crop is No. 1 hard, and it is the best in the world — no question. The CWB has done a good job of selling our durum to the world, but we are still facing a global problem.
Mr. Ritter: Yes.
Senator Gustafson: Unless the government recognizes the fact, we will have a national problem on our hands. I apologize for the negative spin, but we surely need to make it clear to government.
Mr. Ritter: The grain industry in Western Canada works in conjunction with the livestock industry, so we felt a double blow vis-à-vis the BSE issue. Grain usage is now in decline — which puts more in the other markets. It is a vicious cycle, one that is, unfortunately, downward.
Senator Fairbairn: Having come from cattle country in southwestern Alberta, I actually find your brief cheerful because it has not been a happy summer in the West.
Mr. Ritter, you talked about the increase in new mills in Western Canada and about the expansion that is underway, compared to the dismal state in the U.S, where 15 mills have closed over the last 15 years. You also mentioned that we have experienced the world's greatest increase in malt capacity over 15 years and that, in contrast, the U.S. capacity has actually declined. Why is that? Why are we receiving such positive forces in those areas at the same time that the United States is declining?
Mr. Thompson: On the milling side, the good news is that per capita consumption in Canada has not decreased. It has straight-lined over the last few years. It saw significant growth in the early part of the 1990s and has now straight- lined. In the U.S., we have seen a trend with high-protein diets such that their per capita consumption peaked in 1996 and has done nothing but decline year after year since then. The other positive news for Canadian millers is the U.S. free trade agreement.
If you look at the statistics, our exports of wheat-based products, including raw flour and its processed products — mixes, doughs, breads, buns, pastas, et cetera — have increased to more than 900,000 tonnes in the last seven or eight years. Currently, we export about one third of everything we process in Canada to the United States. That is the second key area of difference between Canada and the U.S. Their consumption per capita has been declining and their exports have been falling as well.
Mr. Ritter: There were some recent comments made by a U.S. millers association in respect of the trade case and the fact that they like Canadian wheat because of its consistency and because it is not mixed like the hundreds of varieties available in the U.S. They gave those reasons for wanting our grain. The flour we make in some of our mills is highly regarded throughout North America.
It is my understanding that a malt plant close to the source of the malt barley may be a competitive edge. The CWB has done a good job of hanging in there with some valuable clients such as Japanese breweries and the Chinese in the production of malt. That has been a cooperative venture in some of the big houses out West — shipping malt instead of barley. That is a good-news story.
Senator Fairbairn: I have one final point on that. Would you say that part of the reason is also the degree to which we are marketing our product in comparison to marketing in the United States?
Mr. Thompson: Yes, I would suggest that that is part of it the reason. Our marketing efforts have been a more concentrated. As Mr. Ritter mentioned, we are joining with Canada Bankers Association and the mills to work on a generic promotion campaign for Canadian products. Those kinds of efforts are reaping some of the rewards.
Mr. Ritter: In malting barley and malt, we have looked at the direction of the grain industry and where we can grow. That is certainly one area where we think we have a competitive advantage to grow the market.
Senator Fairbairn: Another committee that I am also involved with, the Social Affairs Committee, has produced a report on health care in Canada. The committee is still working on areas that we considered worthy of individual reports because they were too involved to be properly encompassed in the larger report. One of those issues is public health.
You talked about grain-based foods becoming a scapegoat for North America's obesity problem. If anything shocked the senators on the Social Affairs Committee over the past two years, it was the degree to which doctors and others in the medical profession were adamant that one of the main difficulties facing the health of Canadians, and particularly young Canadians, was the issue of obesity. The extent to which this is taking place quite shocked the members of the committee. You said that this is a problem because people are inclined to think that grain-based foods are the culprits to obesity when, in fact, they are not to blame.
I agree with you that the federal government has not just an obligation but an opportunity, in many ways, to rethink and revamp the ways in which it tells Canadians about what is good for them to eat. You talked about 12 servings per day of grain products constituting one part of a very healthy diet for Canadian citizens.
Could you tell me what those 12 would be?
Mr. Ritter: I asked that question just before we came. I am ready for it.
Senator Fairbairn: The number 12 sounds daunting.
Mr. Ritter: It is half a cup of pasta. A full pasta meal, would comprise eight servings in the one meal.
Senator Fairbairn: Are you talking cooked or uncooked.
Mr. Ritter: One slice of bread, half a bagel and three-quarters of a cup of cereal account for one serving each. We say between five and 12 servings per day.
Senator Fairbairn: It would be hard to eat 12 servings, I would think.
Mr. Ritter: An individual who is eating 12 servings may be eating in excess.
Senator Fairbairn: That is very interesting. All of this is interconnected with our health issues.
Mr. Thompson: I met with Judy Adams of the Wheat Foods Council in the U.S. in June. They had recently completed a Gallup survey throughout the U.S. I would suspect the attitudes there are similar to here. Their results of their study indicated that 56 per cent of Americans believe that breads and pasta are fattening. That is disturbing to the grain-based industry.
Four generic health claims have been approved in the U.S. to appear on labels of grain-based foods. It is not legal to do that in Canada, at present. I believe they are working with Health Canada to try to overcome some of these.
Those are the kinds of things that have to get out in front of Canadians to make them realize that grain-based foods are part of a healthy diet. It is the number one item on the grain rainbow and the food pyramid. It should be promoted more vigorously.
Senator Fairbairn: If you are thinking about the health of Canadians and grain-based products, you might consider promoting the production of those products without salt. That would get you a fair way towards healthy eating.
Senator Hubley: I am looking for the opportunities for you to have value-added. We grow the best wheat in the world, and we produce the finest flours.
I should like you to tell me a little bit about the milling process. Does every mill produce a variety of grains and cereals, or do they have clients for which they must produce a specific quality in order to sell to them?
Mr. Thompson: That depends on the mill. Mills separate into three types. Hard red spring mills produce flour for breads. There are durum mills that produce semolina, which is a granular product used to make the pasta. There are soft wheat mills, and that flour is used for cakes, pastry, cookie, crackers and things like that.
Senator Hubley: Who produces the flours for the hamburger buns for the fast food industry?
Mr. Thompson: A spring wheat mill would produce those buns; it is the same type of flour used in bread that you buy on the store shelf.
Senator Hubley: There is little fast food that does not come without a pocket or a covering of bread. Chicken is breaded. That must have quite an impact on the industry.
Mr. Thompson: Grain-based foods are seldom a meal unto themselves. They are a carrier for something else, whether a hamburger, a hot dog or peanut butter.
Often the culprit, the fat, within that particular product is not the bread but what is on the bread or the bun.
For example, there has been a huge explosion in popularity of pizza over the past few years. In that case, the flour- based product is the carrier for the sausage, the pepperoni, the cheese, all of which should be avoided in large quantities in a diet.
Senator Hubley: It is part of our way of life. Look at the amount of frozen foods with crusts.
I do not have a lot of knowledge about the wheat industry, I am afraid. Who is our biggest competitor? Which countries are we competing with?
Mr. Thompson: In terms of wheat, it has been evolving, but essentially the United States is our major competitor, with their hard spring wheat and hard winter wheat. As well, Argentina, Australia, and the European Union export a substantial quantity of wheat.
Over the last year, we have seen the emergence of minor exporters. The Ukraine and the former U.S.S.R. countries have become significant exporters of wheat. That will change this year because they suffered some crop problems, resulting in a smaller crop. There are the five major exporters and the minor exporters.
Senator Hubley: Is there any area of milling that the Canadian mills are not able to achieve? Is there any niche market that you do not supply?
Mr. Thompson: Currently, there is limited couscous production in Canada. Couscous is not a product consumed readily here. Ultimately, the market will develop and producers will be large enough to provide some of that product. We do not do much export of that particular product.
Putting the U.S. aside, many of the developing countries of the world first get into primary processing. Brazil was touched on by Ms. Currie. They like to have flourmills. Exports of that product is often difficult because there are subsidies in all those countries. It makes export of that primary product a little more difficult, simply because developing countries like to develop that industry first. Cuba is another example of a country that developed a primary processing industry around flour.
Mr. Ritter: A good example is the Bogasari Flour Mill in Indonesia. It has greater milling capacity than all of Canada.
They get their raw product from Australia. They get some from us. My colleague Larry Hill and I visited Perth and Geraldton, a community north of Perth, last year. They had a large exporting elevator and a shuttle ship that went between it and the mill. It is seven-day round trip for them. It is a difficult task for us to service that mill. That is the largest flourmill in the world.
Senator Hubley: Has Canada ever built a mill in another country to service that country's unique requirements for milling?
Mr. Ritter: We have not yet. Australia has dabbled in that. AWB Limited have investments in Egypt and Vietnam.. They do not release how well those investments are doing, but they have strategic investments in a couple of countries.
The Chairman: You began your presentation today with what you called yours ``props'' — the products made from basic wheat durum.
Could you go through them again? I should like to know if every bit of it is manufactured and produced in Canada.
Tell us what is in the box of pasta that you held up several times. Tell us what it is, and where it was made.
Mr. Thompson: This is a Catelli product. Catelli is owned by New World Pasta in the United States. They produce this particular pasta in Montreal. The semolina for this product would be ground by one of two mills, either the ADM mill in Montreal or the Howson & Howson mill in Blyth, Ontario, would produce the semolina for this product. They use the brand name Ronzoni in Canada, and they market under the Catelli name. You will also see Ronzoni market under several product names, including Lancia.
The Chairman: Would that have been boxed and packaged in Canada?
Mr. Thompson: In Montreal, that is correct.
The Chairman: Do you know where the box would have been manufactured?
Mr. Thompson: I do not.
Mr. Ritter: The pan loaf and other bakery items are from a local bakery in Ottawa.
Mr. Thompson: This would be made with a top patent flour, which would be made with CWRS, Canadian western red spring wheat. There is probably about 13.5 per cent protein in the wheat, and about 12.8 per cent protein in the flour.
There is no mill in the Ottawa area. Montreal or Toronto would be the service area for the flour used for this particular pan bread.
The Chairman: What about the croissants?
Mr. Thompson: Croissants do not need the volume that pan bread needs. This would be made with a soft wheat. It might have a little bit of hard wheat in it to give it fluffiness. It would probably be made with either a soft red or soft white wheat, depending on the functionality of the mill.
Nabisco Mill makes soft wheat. It uses white wheat because it uses the white bran for shredded wheat. They have a use for the by-product. Another soft wheat mill might use red wheat because they do not have the Nabisco shredded wheat franchise so they do not need to use the bran in that particular product.
Senator Fairbairn: What about organic wheat?
Mr. Thompson: Organic wheat is exactly the same as conventional wheat except that the farming practices are different.
The Chairman: Is there any by-product from the milling process that can add value to it to make a product?
Mr. Thompson: Absolutely. If you start with 100 pounds of wheat, you will produce 75-pounds of flour. You will have about 25-pounds of by-product that can be further processed into animal feed. It can be fed as it is, or processed into animal feed. It can be made into pellets or added to other particular products.
The Chairman: Is it fair to conclude that 100 per cent of the wheat kernel can be used and is used?
Mr. Thompson: Yes.
The Chairman: There is no waste?
Mr. Thompson: There is no waste other than that which is spilled and lost in the mill.
The Chairman: The two largest populations in the world are India and China. I am interested to know what, if anything, the Canadian Wheat Board is doing to sell Canadian product there?
Mr. Ritter: The Chinese market is of considerable importance to us. You may recall that back in the 1970s and 1980's that China and Russia each took about a third of the Canadian crop. Both of those markets have made efforts to be as self- sufficient as possible.
As was mentioned earlier, former Soviet countries are now significant exporters from time to time. China's demand is also less than it has been historically, but it remains a good customer for us. We certainly make every effort to market there.
In the area of malt and barley, the Chinese market is one where we see potential for significant growth as disposable incomes increase. If the per capita consumption of beer rises by even one bottle per year, it would be a significant amount of beer meaning tons of malt and barley. It is a market with future potential.
Mr. Ritter: I can give you a context of what I know about China. I read these factual statistics as a hobby. China produces 275 million metric tons of vegetables, which is incredible. It means that every single person eats or makes use of 400 pounds of vegetables per year.
By the same token, they produce 100 million metric tons of wheat. That number is in decline. In our view, is that they are switching more to higher valued products within their own country and will be importing a significant number of grains in the future. We are predicting they will become a significant importer within the next five years.
We have an office in Beijing. We are in constant contact with their buyers.
The Chairman: There are substantially over a billion people in India. Are there any possibilities there?
Mr. Ritter: India is a different story. Their per capita income is only about half that of the Chinese. As well, India has an incredibly good piece of real estate. They are capable of growing a tremendous amount of feed with multiple crops.
India has been a wheat exporter during the past several years to the tune of up to 5 million metric tons. Therefore, we do not see a big future there insofar as selling grain-based products is concerned.
Senator Wiebe: This question is for Mr. Thompson. It may be difficult to give me exact figures because the Canadian Wheat Board's responsibility is the western provinces and not Ontario and Quebec. Do you have any idea of what percentage of pasta processed in Canada is owned by Canadian firms?
Mr. Thompson: It would be very small. I would venture to say that I would not be far off by saying less than 5 per cent.
Senator Wiebe: What about spring wheat that is processed?
Mr. Thompson: That would be much higher. It would probably be 25 per cent or as high as 30 per cent. I do not think that range would be far off.
Senator Wiebe: I ask that question, for the edification of the members on the committee, because I was reading a book the other day that stated that Canada runs the risk of not processing enough of the food that it needs domestically. We are running close to having the majority of the process being done by firms owned outside of Canada.
Five per cent of the durum produced in this country is manufactured by Canadians and only 25 per cent of the wheat. It has nothing to do with what we are studying now, but it is something that has been of concern to me.
The Chairman: Their evidence earlier was that we are doing more milling in Canada. Our milling is increasing.
Senator Wiebe: It is not being done by Canadian firms. That process is owned and controlled by boardrooms outside our country. That is the scary part.
Senator Fairbairn: However, there is a Canadian firm. My hometown decided that it wanted to produce its own pasta and export to the United States. It is finding quite a market in southern Alberta and in other parts of Western Canada.
Senator Wiebe: It is more difficult for Canadian-owned corporations, companies or individuals to form cooperatives. They can raise the money to build a physical structure but unless they hook-up with some international, foreign-owned company, they will not get the shelf space to market that product.
More and more of these processing firms are no longer owned by Canadians. It is tough enough dealing with a Canadian firm. How tough will it be to deal with a firm that is foreign-owned?
The unfortunate part is that, when we tried to open a pasta plant in Saskatchewan, we could not find the marketplace. The Canadian Wheat Board wheat is being blamed for that pasta plant not getting off the ground.
That was the purpose of my first question. You explained to me very well that it is much easier to build that plant closer to where the market is than it is to absorb the high cost of freight to get the product from where it is grown to the markets.
I was using that as an example to say the problem with the pasta plants in Saskatchewan is not the fault of the Wheat Board. The problem is that we depend on an international company to market for us.
Mr. Thompson: I will add a comment to that. In the early 1990s, I worked for a flour mill called Ogilvy Flour Mills Limited, which was the largest flourmill in the country. It was owned by John Labatt, a Canadian company. John Labatt worked with Maple Leaf Mills, which was the second largest flour miller in Canada, to merge Ogilvy and Maple Leaf into one company.
That merger was ultimately turned down by the Competition Bureau. As we evolved, and now that we can look back, we see that ADM ended up owning both of those companies. It now has about 45 per cent of the milling capacity in Canada. There was an opportunity for that to be owned in Canada. It vanished in the early 1990s.
Senator Fairbairn: I return to the matter of what we eat and how it is marketed. I mentioned organic wheat. Given the growing attention being given to organic products, what would be the potential growth of the use of organic wheat for people who are interested in trying that?
Mr. Nicholson: We are not directly involved in the marketing of organic wheat, but there are opportunities that come to the attention of the Wheat Board in the course of marketing conventional wheat or barley. We do share information with organic farmers and organic marketers on those opportunities.
Certainly, the inherent quality of Western Canadian wheat is an asset to organic farmers as well in marketing that product. Their market premium is based on the farming practices that they employ and the value that their customers attach to that. It seems to be a steadily growing market with some significant premiums over conventional prices from time to time.
The Chairman: On behalf of the committee, I would thank the panel for giving us a very enlightening presentation. We have learned much, and it has helped us formulate some initial views on this study on value-added production.
The committee adjourned.