Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 1 - Evidence - Meeting of October 28, 2004
OTTAWA, Thursday, October 28, 2004
The Standing Senate Committee on Agriculture and Forestry met this day at 8:05 a.m. to study the future of agriculture and forestry in Canada.
Senator Leonard J. Gustafson (Deputy Chairman) in the chair.
[English]
The Deputy Chairman: Honourable senators, our first order of business is to send our best wishes to Senator Fairbairn, the chairman of the committee, who has been ill and who, I understand, is recovering at home.
Is it agreed that we do that?
Hon. Senators: Agreed.
The Deputy Chairman: This morning we have with us Mr. Bob Friesen, President of the Canadian Federation of Agriculture, and representatives from across the country. Mr. Friesen, would you begin by introducing your colleagues?
Mr. Bob Friesen, President, Canadian Federation of Agriculture: It is a pleasure to appear before the Standing Senate Committee on Agriculture and Forestry. We know, when we come to this group, that we are talking to friends of agriculture. It gives us much pleasure to speak to you about our concerns for agriculture.
We know many of you. In fact, I know you, Senator Gustafson, from when you were Parliamentary Secretary to Prime Minister Mulroney.
I am pleased to have with me some CFA members. Mr. Robert MacDonald, a horticulture producer, is President of the Prince Edward Island Federation of Agriculture. Mr. Terry Hildebrandt is President of APAS in Saskatchewan and is a grains and oilseed producer. Mr. Bruce Webster is the Executive Director of the Canadian Sugar Beet Producers' Association. With us in the bleachers is Mr. Thad Trefiak, who is a vice-president of the Saskatchewan Wheat Pool.
I will try to be as brief as possible because I know that my colleagues would like to make some comments as well and we would like to leave as much time as possible for questions. We do have some issues that we definitely need to go over.
We have submitted a document to you, and I would ask that you read it at your leisure. I will not read that document and will not even cover all the points in it, but there are certain issues included that are very important to agriculture.
As you know, we have ongoing issues with the review of the agricultural policy framework, with BSE, with the environment, with animal welfare and with food safety. As well, we were in Geneva at the end of July where the WTO countries agreed to a framework text, and I will touch briefly on some of the concerns in that regard as well. While it was a positive step forward, I would point out to you some of the areas in which we will have to negotiate vigorously.
Of course I do not have to tell you that we still have an ongoing problem in agriculture, that being net farm income. I also need not tell you about some of the crises that we have had in agriculture over the past five years. It seems like they never go away. If it is not one thing, it is another. However, we are very resilient, and so we still come to you with smiles on our faces this morning, hoping that we can reach some solutions.
I will start with BSE. You all recall the announcement that the federal government made on a BSE strategy. One of the positive things about that strategy was that, more than just simply throwing money at the industry, it looked closely at how we could approach it strategically to restore market functionality. I will not go through all of the components but I will highlight some of our concerns.
We have communicated with the minister that we would like the department to monitor very closely whether the set- asides, both at the fat-cattle level and the cow-calf level, will result in a strengthening and increase in price. We know that there was some hesitation to set a base price simply because there was concern that, if that were done, most of the money would simply flow to the downstream industry. However, but we would like that monitored very closely to know whether it is working to strengthen the price as well as whether, if the price does strengthen, that strengthened price moves across Canada and works well in all the provinces and regions of the country.
We would like to see an expansion of the cull cow program. Because we do have the set-asides at the calf level as well as at the fat-cattle level, we believe that, for that to work well, we will also have to ensure that we maintain the breeding herd at pre-BSE levels. Currently, we have an overpopulation of breeding cows because last year, of course, they were not culled to the same level as normal. Therefore, we need to look at a bigger compensation package for cull cows. We must ensure that we create incentives for producers to cull an appropriate number and also ensure that there is adequate compensation for that.
I was speaking to a member of the CFA this morning who showed me an invoice that he received when he marketed a cull cow. He marketed a calf as well as a cull cow and his net return at the bottom of the invoice, after freight, was $150 for both, and I believe the cow weighed around 1,400 pounds. We really need to do something. We support any initiatives for the expansion of slaughter facilities.
Even with the strategy in place, we have to work vigorously at opening the border. However, there is far more potential that we will be able to open the border for cattle in under 30 months. That is another reason we need a long- term, adequate strategy for the cull cow program.
We would also like to see a little more work done on some of the components. Farmers have told me that they want a tax deferral provision. Farmers have said, ``Bob, I have lost so much equity in the last couple of years that I need to retain at least the little bit of equity that I have left.'' The farmer is, perhaps, at an age where he cannot work his way out of the hole and he wants an opportunity to depopulate. If you depopulate a breeding herd that has been built up over many, you are liable for a huge amount of taxes. The money that you receive from liquidating the herd is what we call artificial revenue because you are depleting your assets. We would simply like to see a tax deferral provision.
We also think that the cash advance was good. The concern about it, however, is not that it was offered, it is because it was needed. It is backstopped by the CAIS Program. Therefore, if you receive a cash advance that is pegged on a value per animal, and then when you fill out your CAIS application, which is a margin program, it could very well be that a farmer may not trigger CAIS. If a farmer does not trigger CAIS, and does not have the money in his pocket to pay back the cash advance, say the price has not increased or perhaps there still is not enough market demand, then they will claw back the advance from any future CAIS payments. When a farmer triggers CAIS, that is the year that he really needs money, but that might also be the year that they claw back the money that the farmer received previously.
I will leave it at that and let my colleagues fill in.
I am certainly not going to go through the entire agriculture policy framework. I will touch on only one issue of that today. We are going into the first annual review that was committed to us simply to see whether the program is working. Once we get the final numbers from 2003, we will be in a position to evaluate and analyze whether that program is working as effectively as it needs to work, given the crisis that we have in parts of agriculture.
The one area that we really need help on, and Minister Mitchell needs help on, because he is been supportive of this, is to eliminate the deposit requirement. While farmers are quite willing to do a mandatory application form at the beginning of every year, the deposit requirement that goes with it is totally redundant. What a farmer does is go to the bank and take whatever amount of money he needs out of his operating line of credit. Most farmers are very close to their limit when it comes to their operating line of credit. They either take the money from there or, if their line of credit is full, they borrow money from the bank, put it into a deposit and, when the farmer triggers the program, he can take out this deposit.
Understand that, at that time, the farmer either takes that money and repays the loan or turns right around and redeposits it for next year. It does nothing to stabilize a farmer's income.
If you think of a 4 per cent differential from borrowing to the deposit interest, we are looking at giving the bank somewhere around $40 million to $50 million a year across Canada for having a deposit that adds absolutely nothing to the program. Even with a one third deposit requirement, we are still looking at having $1 billion sitting in these redundant accounts across Canada, which will add nothing to the program. Moreover, the department has already informed us that the deposit requirement alone in the CAIS program is costing them $14 million a year to administer.
I would implore honourable senators to speak to whoever you can to get it eliminated. This comes at no cost to the government. It would simply take away this redundant requirement. Farmers are still willing to look at their numbers, to be responsible and fill out their application forms every year, but we could hand them a gift by saying, ``We no longer require you to try to find money to put into this account.''
The deposit requirement also creates a restriction. Farmers are finding that there is an administrative burden to this. They have added accounting fees at the farm because of the deposit requirement, and so it adds a bit of a restriction. Unfortunately, there are those who are saying that if not everybody participates we can save some money. However, honourable senators must be aware that, if there is a crisis and 20 per cent of the farmers are not part of CAIS, it will simply result in the industry lobbying for more ad hoc funding. We ask you to help us set that right.
I will touch on animal welfare, as well. The agriculture industry was disappointed that the cruelty to animals bill did not pass in the last Parliament. It was not perfect for agriculture, but it was much better than what it could have been for agriculture. We had hoped that that bill would pass. I would ask you to do whatever you can to make sure that that entire discussion on cruelty to animals is not reopened, because for agriculture things could be worse than what we were looking at. We would appreciate you doing whatever you can to get a bill passed similar to the bill that did not pass in the last Parliament.
Finally, I want to give you one example about the framework text. Canada has a very good negotiating position at the WTO. We really have an opportunity, if we negotiate vigorously and if we continue to work with other countries, the way CFA has already done — and I know that our negotiator has already done — we have the potential to build alliances. Many of the ideas we have would work well for other countries as well. We have the opportunity to create a win for the collective interest of agriculture.
Our industry is still competing against government treasuries in other countries. There has been no relief in sight on that front. The way the framework text reads is that even if countries, high spenders, were required to do a 20 per cent down payment reduction to their domestic support from the numbers that will be established to start the reductions, then did a further 60 per cent overall reduction during the implementation period, it would result in the U.S. only reducing their domestic support by 10 per cent below their 2001 expenditures. If you look at an implementation period of 10 years, by the time the negotiations are done we are looking at a possible 12 years to see the U.S. reduce by 10 per cent.
A significant amount of work will have to be done to ensure that our grains and oilseed industry especially — and of course we know there is a lot of cross subsidization in the U.S. — does not continue to carry the $1.3 billion cost attributed to having to compete against high government subsidies in other countries.
You know me well enough to know that I could go on for hours, but I will leave it at that. I invite honourable senators to ask any questions they may have on these or any other issues they may have.
The Deputy Chairman: Thank you, Mr. Friesen. I have one quick question on the BSE.
I am interested in what happened between the U.S. and Japan, and between Japan and Canada. I see this as a very positive move. How do you read that? Has there been anything signed? Is there anything moving? Does Canada get the same deal as the U.S. with Japan, and so on?
Mr. Friesen: That is an interesting question. We have our board of directors in Ottawa this week, and there has been a fair bit of discussion around the press release that we saw. You will be aware that they are still trying to decide what sort of age identification will be acceptable to both parties. The opinions run from the cynical, to where they are saying that this is only an election ploy in the U.S., to others saying that this is real progress.
Certainly, if it is progress, and if they do get an agreement on how they determine the age of the animal, we have also been told that we will get the same treatment from the Japanese as they give the U.S.
The Deputy Chairman: Of course, it would be considered as to whether the border would open or not, but it seems to me that the numbers in the U.S. might be down considerably. If they were to meet the export market, they would almost have to depend on Canadian cattle. Is that your thinking?
Mr. Terry Hildebrandt, President, Agricultural Producers Association of Saskatchewan: Honourable senators, if they want grain-fed cattle to meet those demands, ours is the only other option to theirs. You are correct in your assumption that their beef supply is down. If they want to get into an export demand, and that demand is calling for the good quality grain-fed animal, Canada would be the only alternative.
The Deputy Chairman: Before we go to questions, would it be your wish that each one make a statement?
Mr. Friesen: I think that would be appropriate, if that works for you.
I will ask Mr. Hildebrandt to speak.
Mr. Hildebrandt: Thank you and good morning, honourable senators. I wish to thank Senator Gustafson for the invitation and also the request to bring forward the situation in the Prairies. Specifically, I will speak to Saskatchewan. However, in talking with my colleagues in the last few days, some of the same situations certainly exist in northern Alberta into Manitoba.
Just after we came out of three years of droughts and grasshoppers and overriding BSE, which we still have, it really looked like Mother Nature was turning things around in pretty well all of the Prairies. There was a nice crop coming. Certainly, the feed situation was changed throughout the province. Then, on August 20, Jack Frost visited almost all of Saskatchewan and parts of Manitoba. The current situation is that, although we have a fair amount of quantity in grains, the quality has taken a real hit.
The situation is unique. Generally, in a situation where there is an abundance of feed grains, the livestock industry benefits. However, as you will appreciate, with the overhanging BSE situation, the cash flow and the numbers are not there. Hence, coming out of three years of feed shortage, having to look all over the world for feed, our problem now is too much feed, or feed wheat condition.
We have a majority of feed wheat. Wheat and durums, I think it is safe to say, are a majority in the feed situation. Within that, there are three different levels of feed, anywhere from a normal 60-pound bushel of wheat down to a 40- pound bushel of stuff that is hardly even recognizable for wheat. The problem becomes one of high volume, poor quality. There is no blending of power. There is very little milling capability in this product. Therefore, we sit there with feed wheat that has an average value of $1.50 a bushel.
To put that into perspective, even at a fair crop or a good crop of 40 bushels an acre to 50 bushels an acre, we are looking at a $60 to $75 an acre return, if and when it is marketed. Honourable senators, the average direct input cost to grow wheat these days is $80 to $100 minimum. We are sitting in a 1960-revenue situation. Added to that, there was an all-time input cost last spring due to high oil prices, which is a reflection of fertilizer production and so on. Therefore, there is an immediate complexity in meeting cash-flow requirements.
There is not even a market for this wheat because everybody is sitting back. They have to know how to fit it in, what they have got at the end. We have statistics that indicate that over 80 per cent of the production — I am talking Saskatchewan now — is harvested. We would question that. If it is that, it is certainly not an ounce over that. I would suggest that there is more like 25 per cent left in a lot of areas. Granted, a lot of it has little to no value, but it still has to be harvested, for the whole picture to be seen.
In a situation like this, we have crop insurance on the grains and oilseed side and we have production insurance based on a volume. It is based on a production level. There is a factor for quality. A good crop was expected, until the frost knocked out the quality. You will not see an effective crop insurance program. It will not reflect the value loss because of the bushels that are there. In addition, for the two thirds of the province that have suffered three years of droughts, their crop insurance coverage is way down because they have plugged in three claims. As a result, of course, their premium have risen — because you know how insurance works, if you use it. That scenario adds up to a cash- flow crunch.
I cannot stress enough the uniqueness of the situation. If you know and understand agriculture, you know that there are cycles. When one commodity is up, one is down and you have a self-assuring. We are in a situation in Canada now where all commodities are in trouble. Mr. Friesen spoke to a lot of the reasons for that. There is a trade issue over a tariff or an anti-dump or a border closure tied to that.
We are in a global marketplace. The United States has a record soybean and corn crop in production, which affects our prices as well. We have to move our canola and our cash crops to try to meet our financial commitments. That has driven those prices down to 30-year levels; the price is the same as it was 30 years ago. So the cash crunch situation is there.
We have the CAIS program, which is designed to pick up revenue losses or at least to address margin drops — I have never been able to decipher how that is connected to income. However, we do have ways of applying for an interim payment on 2004 through that. However, if you know and understand the program or know and understood CFIP in the 1980s, of which this is the same design, there is so much uncertainty. The accountants have to go to work to see if there is even a chance. At the very best, you are a time period down the road to where you are going to get this interim payment, and it is within a program where there is an uninsurable, even if you are going to claim one.
Within the CAIS program, they picked a five-year term to develop a reference margin in which they stabilize your farm. It could not have been five worse years in the history of farming, especially for the areas that had three years of drought. It is a five-year Olympic average, so you knock off your best year and you knock off two of the droughts, and you are left with a drought and a mediocre year to determine where you are going to start this program.
The production margins are so terribly low — and this has to be addressed in the review. However, even if this was to get an interim, and even if you were to trigger it, it will not go near where it has to in order to address the degree of income hurt that is out there.
Just following up on what Mr. Friesen said with respect to the BSE, I want you to appreciate that what has changed in the cow-calf business in the last two to three decades has been the residual value of the culled cow and breeding bull. That is to say, after a normal five or six calves, these cows have retained a value in the market, a value that has obviously allowed each player in the chain to make money. It has seen a value of about $600 to $700 return to the producer of this culled cow prior to BSE.
Now with BSE closed, the value of that cow has dropped to some $100 to $200. That takes away from the producer an annual 20 per cent cash flow, which has made the cow-calf business viable in the last two decades. That has also been the backstop of the equity on the financial page, which has backstopped a lot of borrowing for the expansion we have taken in the last decade or two, as promoted by both levels of government, and for good reason.
I cannot stress enough that within the programs that have been initiated today, we see a lot of merit. We still see it as normal business practice of some 12 per cent of what you call a culled animal being able to be removed and compensated for, to see us through until we get slaughter capacity and markets developed to handle this in a better way.
I will leave it at that. Thank you very much for your attention this morning.
Mr. Robert MacDonald, President, Prince Edward Island Federation of Agriculture: Good morning, and thank you very much. I will try to give you a representation of what is like in Atlantic Canada and some of the challenges we are facing these days.
Many of the issues that Mr. Friesen and Mr. Hildebrandt mentioned also affect Atlantic Canada, albeit maybe on a smaller scale. For P.E.I., as with the other provinces, agriculture is one of the largest sources of revenue generation for the economy. Indeed, in P.E.I., we rely on agriculture more than any province in the rest of Canada. The latest stats that I saw indicate that for the rest of Canada about 3 per cent of the population is in the farming business. In Prince Edward Island, it is about 5 per cent. That is how much we rely on agriculture to be prosperous and sustainable.
As has been mentioned before, it has been a challenge the last number of years. Indeed, at our last annual meeting in January of this year, our minister of agriculture coined the phrase ``the perfect storm in agriculture,'' and that is because we have had BSE, potato wart and drought. Hogs have been up and down like the proverbial yoyo, and at that time they were down. They are up a little bit this year. Now they are facing trade challenges. That is what it has been like.
In terms of what we need to happen to help us get over this hump and continue to be partners in the overall economy, the issues are the same. We have issues surrounding trade and human resources. The new CAIS program needs to be looked at and reviewed.
I would like to put real figures to it at the farm level, and that is where I come from much of the time when I talk to people.
On Prince Edward Island, regarding the CAIS deposit, and Mr. Friesen mentioned it before, I would be required to have on deposit $22,000 to $23,000 for every 100 acres, in order to access the program, if I wish to. On our farm, this year, without the full deposit required, it was one third this year and it will be one third next year. I had to have $45,000 in position before I could access any funds out of the program.
As Mr. Friesen mentioned before, it is a redundant piece of work. I had to borrow the money, put it in the deposit, and I did not hound people because I did not think I had to. I wanted to see how the system would work this year. It took four months for the money to get turned around. There is an interest differential in between. That was my cost of doing that. It was for no reason. The money is in the system. The cost, as Mr. Friesen mentioned, is $14 million nationally just to administer the CAIS portion of that. Farmers like to make the best of use of resources they have, and it is not a good use of resources at all.
If there is anything this committee or your group could do in terms of convincing the government to eliminate this deposit requirement, it would be a big help for us.
We have a growing problem in Canada and, in particular, Atlantic Canada, with human resources, and that is the ability to attract people to work in our industry. We are an aging population. The average age of a P.E.I. farmer is 48 years old. I am past that. We have a crisis coming in that alone. In 10 years, where will the farmers come from?
In Prince Edward Island, and I know it is much the same across the country, we have to find ways of working with the system we have. There are adjustments that need to be made to EI and to CPP, to allow people who want to work to come to work. We are, for the most part, a seasonal business. Horticulture in Prince Edward Island is our biggest area of production, and potatoes are the biggest, as Senators Hubley and Callbeck will recognize. We plant in the spring. We have a heavy demand for human resources in the spring. Then, in the fall, when the harvest comes, workers tell me, ``No, I cannot work, because I am on EI and you cannot guarantee me full-time work, 50 hours a week, every week.'' I have to work with the weather. There were two individuals who were retired, for whom it was a disincentive to work for me as a truck driver for the two or three days a week that I needed somebody. We have to find ways of adjusting those systems and allowing those people to come to work if they want. The two retired individuals were capable and willing to work; it was something they looked forward to for years. They used to work on the farm for four weeks a year. That was part of their well-being. They enjoyed being useful and participating to a certain degree.
If something can be done to correct those problems, it would help us with the human resources issue. We do not have enough people in Canada to do the grunt labour, as we call it, the hard labour. There will always be that kind of work. We need people who can come to my warehouse, for example, and lift a 50-pound bag of potatoes and put it on a pallet. We do not have enough people to do those kinds of things.
I know that in Ontario, there is a diverse horticulture and agriculture sector, and the only way they can access enough human resources is to work with programs like the foreign workers aid program, which allows them to bring in a certain number of workers every year to do the work.
Trade affects Atlantic Canada much the same way as it does the rest of Canada. I do not need to go into a long explanation about who our competitors are and their pocket books. I will give you one example, however. In the potato industry, Idaho is our largest competitor in North America for table stock potatoes. An announcement came out the day before yesterday that they will be getting $40 million in aid assistance from their federal government to look after past years' droughts and those issues.
It would be nice if our government could do the same thing for us, but we cannot. However, we still have to be aware of those things when we come to the table to make trade agreements. We are dealing with people who have deeper pockets than we have, and we have to be sharp, as Mr. Friesen is aware, around the WTO trade table, so we can try to negotiate some things that will help mitigate those issues.
The environment is a big item in Prince Edward Island, and, again, the two senators here are aware of the environmental challenges we have in Prince Edward Island. Given that we rely so much on farming and that we are the most densely populated province in all of Canada — we have more people per square mile than any other province — we are starting to see cases where we are being asked to set aside land to look after environmental issues — for example, buffer zones around streams. That started three years ago. It is mandatory that we have 10 metres, or 30 feet, around every water course in Prince Edward Island.
Farmers agree that these things need to happen, but we cannot continue to pay for these things ourselves. I would not wish it on anybody, but it will come across Canada at some point in time. In other areas, they will be seeing the same kinds of challenges, and you will have to deal with the same issues. If we have a system in place that will help pay for some of these things, farmers are more than willing to do it. They like to do the right things, but given the challenges we have faced in the last few years, it has gotten impossible financially to do these kinds of things.
I thank you for your time, and if you have any questions, I am more than willing to answer them.
Mr. Bruce Webster, General Manager, Canadian Sugar Beet Producers' Association: Good morning, senators. There is no one more surprised to be here this morning than I. We had asked for a simple meeting with Senator Fairbairn, but you know her. Anything to do with the Lethbridge area or sugar beets is a national issue, so I found myself on this committee.
My daughter Danielle drove me to the airport in Lethbridge. She asked me what I would be doing in Ottawa, and I told her I would be meeting with politicians. Please understand that my daughter has never voted because she has a great mistrust of politicians. I told her that the ones I would meet with are well-behaved. She then asked if I could get them to talk to the other ones.
With that, I was left with the task of finding something to speak to you about today. I arrived in Ottawa and apparently the Canadian Federation of Agriculture, the CFA, has prepared some notes, but I have not seen them. I will try to do Senator Fairbairn proud and tell you about how sugar beet farmers have faced many challenges that have been spoken to today and what we have done to overcome them.
I want to focus on two areas, the WTO agreement and Canada's balanced position, and the International Joint Commission and its consideration of the 1921 order dealing with the allocation of water along the Saint Mary and Milk Rivers between the United States and Canada.
As far as the WTO is concerned, the Canadian Sugar Beet Producers' Association supports the Canadian balanced position and the petition of the CFA on trade policy. I will go into a little bit of background on that.
We have faced many of the perils that the beef industry is currently facing. Back in the 1980s, Canada was able to export about 120,000 metric tons of refined sugar. Over the years, as more free trade agreements developed, our access was reduced to zero. We managed to fight that back up to 9,700 tons of sugar that is exported solely to the United States.
We know that these problems can be long term. I was speaking to some people at Alberta Beef Producers last year who knew that we had trade problems with respect to access to the U.S.A. They asked how long these problems could last, and I told them that we are in year nine. Even though these things can last long and be severe, as Senator Fairbairn has always said, we are tough and resilient, and we have come back.
In 2002, following many problems in our expanded factory as well as drought problems, even on irrigation, we were down to about 28,000 acres of sugar beets, so we delivered only about 425,000 tons to Rogers Sugar. This year's harvest is still going on. We have 35,000 acres of sugar beets, and we expect to reap about 700,000 tons of sugar beets from that.
In the 1995 crop, our growers unanimously asked the federal and Alberta governments to stop giving us commodity-specific support. We said that if we are going to exist in the long term, we have to get our money from the market. We have drastically renegotiated our arrangement with the processor on contract. We get our return from the market now. We have fought and tried to be innovative to find new export markets.
In the way of sugar trade with United States we have, unfortunately, a tariff-escalation arrangement. We can send raw and unfinished product to the U.S., but there are severe restrictions on refined sugar. We have found a market for the unfinished product. Already, the American Sugar Alliance in Washington is lobbying Capitol Hill to eliminate that arrangement too.
That is where Canada's balanced position comes in. The easiest trade agreement to make would be one in which all tariffs are eliminated and markets are opened up. However, with the framework agreement reached in Geneva we know that that is not possible. The markets simply will not open on their own. That is why we think Canada's balanced position is so important. We have to attack export subsidies because those affect the world sugar market terribly. Through some of the WTO appeal decisions, we will see some changes in that area.
I mentioned that we asked governments to take away our domestic support. We could have had another year of it, but we said that we preferred to deal with it at the market level. We are proud of the job Steve Verheul is doing in negotiating on that topic. There are also the tariff quota administration problems. Those have bedevilled us. We know right now that our competitors want to make that task even more complicated.
We think the Senate should encourage the Government of Canada to stay on its task of having a balanced position and to solve all those problems. Having market access in one market does not always work. All of our refined sugar exports, both from cane refineries and beet factories, went to the United States. With one document, we were cut off from that market. That was back in WTO implementation, in 1995, but we are still here, we are growing again.
We have existed because Canada's maximum tariff applies to fully refined sugar only — about $30 per ton. Over the last five years, that has only been about an 8 per cent tariff. Over 90 per cent of Canada's sugar supply enters this country tariff-free. We have existed growing sugar beet because we have had to face the world market.
Members of the Canadian Federation of Agriculture are not afraid to face the world markets head on, but we are entitled to our own kind of domestic scheme. Other countries have their schemes. We think the Government of Canada is heading in the right direction. Times are tough, and many of our sugar beet farmers have cow-calf operations and other activities. We know that we have overcome the problems and we are growing again in sugar. We think Canada is headed in the right direction at the WTO.
I also wanted to speak to the International Joint Commission. As senators may be aware, the commission was asked by the State of Montana to review the 1921 order allocating water between our two countries. We think the IJC will come out with its recommendation on that quite soon, and we hope it remains intact. It has provided great certainty in Southern Alberta to make massive investments in sugar beet and potatoes, processing vegetables and timothy-alfalfa. We acquired our portion of the water fairly. The argument of the Government of Montana has been that the 1921 negotiation was unfair and that that is why it should be changed. In 1921, we did not buy off any American officials; we did not make threats; and we did not take anyone hostage. The State of Montana, in its most recent submission to the IJC, admitted that. They said that it was unfair because Canada did a better job at negotiating.
We do not think that it is unfair for Canada to do a better job, occasionally, than the United States. The U.S. is our greatest trading partner, and we value greatly our relationship and our ability to export to them. The U.S. is a great country.
I had dinner in Montreal with another relative, a first cousin once removed. He is an elderly fellow. In his business career, he had many dealings with the United States. He reminded me of a story. In 1948, he was at a Canadian Institute of Mining and Metallurgy meeting at the Château Frontenac. His good friend Premier Duplessis was bringing greetings to the President of Hannah Mining. Premier Duplessis said this: ``What your company is doing here in Quebec is very good for our economy, and we really enjoy a good relationship and a fair relationship with the United States, but sometimes, Mr. President of Hannah Mining, we have a problem. When you are up here or we are doing business down south of the border — when USA means United States of America — we are proud to be your partner and glad to work with you. When USA means `us always,' the relationship isn't always so good.''
Those are the messages I have put together. I hope that if my daughter is watching this she can see how well behaved some politicians are. We are firm CFA members and we are very glad to have this opportunity.
The Deputy Chairman: Thank you, Mr. Webster. I have one question on the subsidies. As you said, Mr. Webster, you want subsidies removed.
With commodity prices the way they are — and I am talking about grain and commodity prices particularly. In 1972, a bushel of wheat was $2. A barrel of oil was $2. We know that a barrel of oil today is in the $50 range. How in heaven's name do you expect a grain producer to compete with countries that are subsidized?
You will not get the Americans off subsidies. The minute we removed the Crow rate in Canada, they put on a $93- billion additional subsidy in the U. S. that are phased out over 10 years. The Europeans will not do that. Canada cannot step back and say that it will not recognize the global economy.
I have been here long enough to know that the sugar beet producers came to this committee about 10 years ago with a pretty sad story.
This is almost an impossible task. I have been around here for 26 years. We bought the lie that we would get the Europeans off subsidies and the Americans off subsidies.
I live on the U. S. border. I know the farmers across there. I know what they get. A farmer in the U. S. will not sell his land because he gets so much subsidy from the federal government. You can compare the land prices in Crosbie, North Dakota, with Estevan, Saskatchewan. You will find that their land prices are about three times as high as Canada simply because of subsidies.
Mr. Webster: That is very true. We are not suggesting any unilateral disarmament on the part of Canada.
The Deputy Chairman: I am glad to hear that.
Mr. Webster: Mr. Friesen can speak with more knowledge about the dealings with the United States.
There was no doubt that we used come down here every year for a government check.
The Deputy Chairman: I remember.
Mr. Webster: However, we decided, after 70 years of trying to get a sugar policy, that we probably would not get one. We decided that our best option for the future was to go with the market.
We have proved, by changing our relationship with our processor and by changing the contract, that we can survive. We can produce a quality product and can be competitive with Brazil and other countries. It is a tough thing.
We are not saying that Canada should disarm. We did, but we did our own research on whether we could survive. I will let Mr. Friesen answer that.
Mr. Friesen: Your question brings to mind several important points. First, the Canadian sugar beet industry is basically congregated in Alberta. There is one buyer. That gives them a certain level of what we call farmer empowerment. They have a better ability to negotiate price than, say, the grains and oilseed sector would have across Canada.
The other important point is what Mr. Webster called product specific. Clearly, the sugar beet industry can avail itself of whole farm programs in Canada.
The product-specific issue is a very important one because the framework text that was agreed to at the end of July talks about product-specific amber caps. In other words, they are talking about caps on product-specific trade distorting subsidies.
However, the problem is that the U.S. is pushing very hard to have those caps based on historic spending. In Mr. Webster's case, sugar beets are at zero. The sugar industry in the U. S. has received product-specific amber support as high as close to 70 per cent of the value of their farm gate production at times. The U.S. would be capped up here, and we would be capped at zero. We would have no ability to respond to a commodity-specific crisis in the sugar beet industry. That is an extremely important point, as well.
Mr. Hildebrandt: You are most right, senator. These subsidies will not go away.
However, I want the committee to understand that these are not just costs to the American government and the American people. These are investments. There is some strategy behind this. Grains and oilseeds, for example, are the raw material that fires your beef production, your ethanol production, your hog production. Keeping a cheap raw material allows you to draw value-added activities to your country, to create jobs and end up with a very economical product to go out in the world market to export. There is some strategy behind it.
Mr. MacDonald touched on another way that certainly the Europeans are moving. As a country and as leaders of the country, we have to start promoting environmental incentives. We do have as producers and landowners more to offer than food and forestry. If we have, and continue to add, ecological goods and services through our stewardship of our land — we are increasing that with buffer zones — there has to be recognition that this is good for the country. I will not sit here and yea or nay Kyoto. However, if we are heading in that direction, there has to be an entire will towards Canadians recognizing what we do, what we can do and what we can increase.
Saskatchewan has 47 per cent of the arable land. Do you know what kind of carbon we could store in that, if it were a profitable situation, to meet some of these demands to clean this air? There should be an entire refocus on the importance of what we can do.
The Americans and, more so, the Europeans are changing that. They are more creative with their subsidies. It is just not a wheat subsidy any more. It is a creativity. We have to get this government and the people of Canada focussed in on that for the good of everybody.
The Deputy Chairman: Thank you, Mr. Hildebrandt. It is evident that the Europeans have moved to combining environment, rural development and agriculture under one caption. The Americans are moving very quickly in the same direction.
Senator Callbeck: Welcome, gentlemen. It is great to have you here. I have several questions, but I may not have time for all of them. Hence, I would like to ask Mr. MacDonald, from my province, a few questions.
You said that the CAIS program should be reviewed. Then you talked about the premium. I believe you used the figure of $22,000.
Is that the total premium? The government has reduced it to a third, has it not?
Mr. MacDonald: Yes, it is the third. The $22,000 is in relation to 100 acres of potatoes. Based on the margin that I would be able to insure for 100 acres of potatoes in production, I would have to have $22,000 in play. That is the full deposit. This year and next year, we have an agreement that I only need to put a third of that down, so roughly $7,000 to $8,000 per 100 acres this year. I just did the math — 800 acres of potatoes, and that is what I had to have in position this year to access the program this year.
Senator Callbeck: There has been talk that a line of credit would be an alternative. Are you proposing that?
Mr. MacDonald: No, we talked about that at the start of developing the program. People thought that it would be a viable option. Since then, farmers and governments have discussed the option. It is not a viable option. It ends up costing as much as it does now. You are quite familiar with how lines of credit work. They are not free. The banks charge a fee for putting those in place.
Both the federal government and our organization did the math on the costs of the program itself and what it is supposed to do. It does not do anything to encourage the farmer to participate. As the program stands now, the first 15 or 30 per cent is our loss of the margin. I cannot get 100 per cent — if I lose 100 per cent of my margin, the first 15 per cent is mine. I do not get 100 per cent coverage. That is my real participation in the program. I never get 100 per cent. If I have a complete loss, I cannot get that back through the program.
That is what we feel is our participation. If people are looking for our commitment, we have a commitment every day that we put investments into the ground or into the cattle, or whatever you want to call it. That is our commitment to the program. The fact that I must have a deposit in place is a very redundant piece of work.
Senator Callbeck: Are there any other major changes that you would like to see to this program?
Mr. MacDonald: In the review, one of the biggest issues is the way inventories are valued, especially in the cattle industry. I know of circumstances on Prince Edward Island — and we are not as large as some of the western producers, but all things are relative. It affects somebody with 5,000 head of feeders in a feed lot as much as it does affect a farmer in Prince Edward Island who may have to feed out 100 head of cattle a year. There have been instances where farmers have lost over $100,000. These are beef farmers, cow-calf operators, and they fatten cattle off. They have lost over $100,000 and they have not accessed a dime out of the program. It all has to do with how the inventories are valued. That is one area of the program that will have to be adjusted for the beef sector to be able to access any significant funds out of the program in the future.
Senator Callbeck: Mr. Hildebrandt, in mentioning the program, you said that it was a problem that they took the last five years. I am wondering what you would suggest there.
Mr. Hildebrandt: We have put one suggestion forth. Within WTO agreements or NAFTA, you could also use three out of the five years, which could help. There just needs to be an amendment — a percentage of what would be the normal, the producer's record normally without three years of droughts. With a little creativity, an adjustment could be made, rather than changing the formula.
I could say let us take five years in the 1970s and create ourselves productive margins. That would have been a higher degree of a production margin because times were better. I think it just takes a readjustment.
I talked to a producer on the west side of the province who farms exactly three times as much as I do. I farm on the east side of Saskatchewan where we have been fortunate to miss the droughts. He has three times the land base and no structure change. He has been there in those five years and I have been here. His production margin is a lesser one than mine. Obviously, it is not a fair situation because he has had three droughts in an Olympic average.
Senator Callbeck: Mr. MacDonald, you mentioned the environment. I know the Prince Edward Island Federation of Agriculture has worked very hard to come up with a proposal to pay property owners for environmental services. What support have you had from governments in other provinces on this?
Mr. MacDonald: From governments, we have a lot of moral support. Unfortunately, that does not pay the bills. Our provincial government has supported us all the way. There are funds available through the new APF for environmental issues. The problem is that the programs were designed based on a western format — that is, the cost of land in Western Canada per acre obviously is a lot less than what we are faced with in Prince Edward Island.
As a federation, we went to both our provincial and federal counterparts and asked if we could take that block of money that is allocated provincially for Prince Edward Island, for instance — even though it is supposed to be spent in certain fashion, it does not suit our needs. We asked if we could take that block of money and do a test pilot in Prince Edward Island, determine what our needs environmentally in Prince Edward Island, and use that money to fund this project.
Right now, it is my understanding that the federal Department of Agriculture is looking at that. We are patiently waiting to hear whether they will allow us to do that. It takes money to fund these things, and times are tough for everybody both provincially and federally. For us, there is a block of money that was deemed to be able to come to Prince Edward Island. Federally, it costs the province nothing to access that money, so can we not tweak it a little bit to allow us to do this in Prince Edward Island?
Senator Mercer: Gentlemen, it is a pleasure to have you here. I believe we have in front of us some of Canada's best business people, people who understand how to operate small and large businesses better than most of the people on Bay Street. You people know what really happens out there and feel the effects of world change quicker than anybody.
I do have a little concern. Mr. Webster thinks we are well behaved; obviously, we will have to send him some tapes of previous committees. I would hate to disappoint his daughter, but I would encourage her to vote anyway.
The balance, of course, is that there are five Atlantic Canadian senators on this committee and Senator Fairbairn from Lethbridge, so that makes it just about even, I guess.
In a joint press release on October 10 this year, the agriculture ministers from Prince Edward Island, Nova Scotia and New Brunswick announced that the recent federal strategy to reposition Canada's livestock industry was designed to meet the needs of Western Canadian beef producers and does not adequately address the issues facing Maritime beef producers. There is a concern that, first, the strategy does not sufficiently address regional processing-capacity issues; second, little was allocated to benefit the cattle-replacement breeding sector, either beef or dairy; and, third, certain features of the strategy, such as the proposed set-aside programs are less relevant in Atlantic Canada.
I have a couple of quick questions on that. Do you agree with the positions of the three ministers of agriculture? Is there flexibility within the recent announced PSA strategy to meet their needs?
Mr. MacDonald: I assume you are asking me.
Senator Mercer: Well, anybody who could help.
Mr. MacDonald: We agree with their position. For those of you who are not from the area, as a beef industry last year, we lost our only beef processing plant in the Maritimes. We were faced with transporting our cattle to other provinces to have them slaughtered for market. It was a costly affair, both in terms of transportation costs and lost shrinkage on the way to the marketplace.
The cattle producers in the Atlantic provinces got together and came up with a proposal to chip in some money to try to access some funds provincially and federally and build a beef plant. That is coming to fruition rather quickly. The last report I had indicated that next month they are supposed to start the line-up for the first time and get things going.
One of the things that the cattle industry in the Maritimes was looking for was federal assistance in getting traceability systems in this new plant. We all recognized quickly after last year what we needed to do to get back in the marketplace and prove to the world that we had a safe product. We know that we have it but we have to prove it.
There was some frustration during the summer months about where this funding was going to come from. There were programs available federally, but they were not getting the answers they needed. I have not had a chance to talk to our minister about that press release since then, but I think that is where some of the frustration was coming from. I believe that is being resolved as we speak. There have been things done since then that will allow the federal funds to come forward to help them put those traceability systems in place.
The $100 a cow that you can borrow from your CAIS application is not much money. It is not that we want to sound ungrateful — anything is a help — but the cost of carrying an animal is $1.75 a head per day, and the $100 is borrowed money and it must be paid back. Farmers do not like to borrow money, if they do not have to.
If we do not correct the inventory adjustments, there are farmers who will not bother borrowing that $100 because they are very concerned, given what they went through on their application in 2003, that they will not be able to access any money of the CAIS funds. They will owe that money plus interest. I believe that is what they were talking about.
Mr. Friesen: That is why I mentioned earlier that we had implored the minister to make sure that he monitored the strategy very closely.
I will provide some anecdotal evidence. In anticipation of that announcement, the price of calves, certainly in western Saskatchewan and Alberta, strengthened considerably because there was some recognition that perhaps there would be a set-aside, et cetera. Because a large part of the beef feeding industry is located in Alberta, we think this strategy might work better in that area but might not work across Canada.
When I last spoke to the president of UPA, he said that their prices had not strengthened at all yet. That was probably a good three or four weeks after the announcement.
Senator Mercer: My colleagues will tell you that one of my major concerns about all of the money that has gone into the BSE recovery, which is somewhere close to $4 billion for all the various programs, is that the money has not gone where the governments intended the money to go to.
Everybody had good intentions in all of this — but we have a major crisis. The agriculture industry asked for help. The government agreed to help and put into effect several different programs. The intention of the consumer is that the money goes to the farmer. The consumers increased their consumption of beef, et cetera.
I am interested in your opinion. My frustration is the fact that the money did not get to the farmers, not all of it, particularly in the first program. Since we last met here, I have learned that the profit margin in three of the large meat packing companies went up a startling 281 per cent in the last few months of 2003. They were doing fine before that. I am shocked. It is a travesty.
I am looking for your comment on that. I am really also looking for advice to governments. It was not only the federal government, but also the governments of Alberta, British Columbia and Saskatchewan that were involved in some way or another in the various programs. How do we avoid implementing programs that will put money into the bottom line of the meat packers instead of into the bottom lines of the farmers — even though I know that there is probably no bottom line, that you have too many bills?
Mr. Hildebrandt: You are most correct — at least with the first payments, which were not directed — these later ones have been somewhat.
Although the goal, as Mr. Friesen mentioned, was to get market functionality going, the set-aside monies do nothing to overcome the losses of the last year and a half. If you are going to set aside a cap for $200 a year, it will cost that plus to do it.
It is basically keeping this out of the market to try to get some slaughter facilities in place and get more of a supply- demand situation. We are oversupplied to not necessarily the demand but to the capability to slaughter. The theory is there.
Mr. Friesen and I addressed the need for the cull cow, for which we still call, it was to focus the money right to the primary producers and probably help alleviate some of this east-west problem, too. There is a higher percentage of cow-calf in the east, especially dairy. As Mr. Friesen mentioned, the feedlots are out there.
Again, the theory behind the set aside and the Canadian cattleman is that you set aside here and it trickles through to help the market for all levels of calves, but it will not trickle through to that cow-calf situation, that breeding herd situation. That 20 per cent has been cut off for beef and somewhere in there for dairy as well.
First, the cull program naturally goes to ground, to the cow-calf producer, be it dairy or beef. Probably, it would be directed as much east if not more. It would help in that problem as well.
That is the portion that has been missed all along in our mind. We have been pushing this through the CFA. We have had some policy on that cull. I presented it a here a year ago on behalf of the CFA. That is one area that has not been addressed yet.
Mr. Friesen: We believe that the initial money to the beef industry last summer was some of the easiest money that the packers ever made.
With regard to your comment that we spent almost $4 billion in the beef industry, let us not forget one thing: For every $1 a beef producer gets, if that beef producer also triggers CAIS, it is a savings to CAIS. I do not know what the percentage would be, but a lot of that money is simply an offset to whatever CAIS payments might be paid to those farmers.
Senator Mercer: Do not misunderstand me. I am not begrudging spending the money. I am begrudging the money going to the bottom line of the packers. If the money goes to the farmers, I am a happy camper.
The Deputy Chairman: On that subject, I phoned the Whitewood Auction Mart last week. Cull cows were bringing from 8 to 12 cents a pound. That makes a lot of hamburger. Somebody is a making a lot of money on an 8-cent cow. The good fleshy cows were bringing 12 to 20 cents. Cattle across the board were bringing about 25 cents a pound. Somebody, somewhere, is making a big buck out of these cheap cattle.
Senator Mercer: Not the farmer.
The Deputy Chairman: It is not the farmer, we know that.
Mr. Hildebrandt: Those fleshy cattle, prior to BSE, would be in at 64, 65 cents.
Senator Ringuette: A pound, not a kilo.
Senator Oliver: I have three questions. They are all for Mr. Friesen. The first deals with BSE.
This committee put out a report last year on BSE. The report had two recommendations. I want to know if you received a copy of the report. If you were able to study it, what do you think of the two recommendations?
Second, you made some comments about animal welfare. You talked about a bill that was before the Senate last year. I believe it was Bill C-10 that you were talking about. You said that you were hoping that that bill would pass, and that you want future legislation to go through in the form that Bill C-10 was in.
I, for one, received a number of letters from a number of people who were farmers complaining about the bill and who were worried about the bill. I want to know if you had an opportunity to read any of the debate in the Senate on that bill, particularly the Aboriginal arguments about how the bill was encroaching on some traditional Aboriginal rights. If you have read that, could you comment on that in view of the fact that you said that you were hoping the bill would pass in the form that it was in?
My third question relates to the WTO. You have told us that you were in Geneva, again. I know they came up with a new framework for future negotiations. Can you tell us whether there was lucid discussion at the Canadian Wheat Board and what was said about our supply management at those meetings? How will they both be affected?
Mr. Friesen: I did read your report, but I will need a reminder as to what those two specific recommendations were. I will answer your other two questions.
When I said that we were hoping the bill would pass in the form that it was in, it was right at the end of the day when the agricultural community thought that we had managed to get the amendments that we needed to get it as close as possible to where we thought we could live with it. We certainly did not want it passed in its original form, absolutely not. We had very serious concerns. We still had concerns even in its latest form.
We thought that we would be better off if that one passed than if we started right from the beginning. We know there are certain NGOs that would like to write that bill in a way that it would be much more serious.
Senator Oliver: It could do irreparable damage to farmers.
Mr. Friesen: Absolutely. That is why we thought that at least it was close enough and so we should get it done.
Yes, we were aware of your recommendation on Aboriginal exemptions. We have no problem with other interest groups making sure that the bill worked so that their interests were not irreparably damaged. We had some concern with it simply being a broad exemption. One suggestion for agriculture was a broad exemption, as well. We certainly did not have a problem with the intent of your recommendation for Aboriginals but thought that the way in which it was recommended might stall the bill. We were hoping that there could be an agreement whereby the wording of the exemption would ensure that it would pass. It was absolutely not because we thought that agriculture was the only important interest group in that bill.
As far as the framework text is concerned, yes, the Canadian Wheat Board is under attack; there is no question about it. Adding insult to injury is the way in which they are attacking it. First, the government guarantees for the Canadian Wheat Board — we have, I believe, an $80-million shortfall for either 2002 or 2003 because of the price they paid to farmers initially and then at the end of the year. Our government notifies that as amber support. That is no different than a transnational company in the U.S. being able to buy cheaper grain from American farmers because of their loan deficiency program, then having the government fill in the hole, and then noting the loan deficiency money as amber support. It is the same thing. Thus, it makes no sense that they would attack. If it is a domestic-support issue, then we should deal with it under domestic support; but clearly it is not an export subsidy.
Time and time again, we have made the point that a monopoly on its own is not an export subsidy. We are quite willing to comply with exactly the same rules that all other transnational exporters have to comply with. The question that needs to be asked is this: Why is it only farmer monopolies that are targeted at the WTO? No other monopolies are targeted. I spoke to the OECD last week in Europe and I asked them that question. We know why the U.S. wants to eliminate the Canadian Wheat Board — because they have transnational-company interests that are frustrated because our farmers operate in a collective way of marketing wheat around the world that competes against them in international marketplaces.
Again, we are quite willing to comply with the same rules. As a matter of interest, imagine this scenario: The Americans are trying to dismantle the Canadian Wheat Board, which empowers western Canadian farmers to sell their wheat — the jury is in on that one. The last time I was in the Philippines I saw a Cargill elevator, and we know that the U.S. is trying to force countries such as the Philippines to reduce their tariffs. If the U.S. is successful in dismantling the Canadian Wheat Board, will Cargill pay our western producers more for their wheat? I do not think so. Will they sell the wheat cheaper in the Philippines, even while they are kneecapping the peasant farmers in the Philippines? I do not think so.
You will often hear the rhetoric that, if the entire world were globalized and all of the borders were wide open, there would be an increase of $300 million in revenue. Where would that revenue go? They will always charge what the market demands at the retail level. The more you consolidate the downstream industry, the more the downstream industry will simply be able to give farmers what they want to give farmers.
I am fairly passionate about this subject. As far as supply management is concerned, we believe that we have an opportunity to negotiate in such a way that we will be able to maintain supply management.
Senator Oliver: It is not that threatened, then.
Mr. Friesen: It was threatened with the words in the framework text initially with the words that there would be a mandatory reduction of over-quota tariffs. The countries that supported that line were protectionist countries that have enough room in their over-quota tariffs such that they can afford to reduce them without jeopardizing product coming over the tariff wall.
As well, there are three ways to improve market access. One is to reduce tariffs; one is to offer TRQ commitments; and the other is to reduce in-quota tariffs. The point that we are trying to make is that countries that are pushing a formula reduction in tariffs are the ones that do not want to improve market access.
India has 100 per cent tariff on soybean. If you were to drop that tariff by 50 per cent, there would be those who would say that market access has been improved by 50 per cent; but you still have a 50 per cent tariff. With today's margins in the grains and oilseed sector, you still do not have a profitable export market. Even a 50 per cent reduction in tariff in that case would not improve market access. We are saying, especially on the sensitive product part of it, that we want aggressive reductions in tariffs; there is no question about that. We export over 70 per cent of our agri-food production. In reference to the sensitive product part of the framework text in respect of other countries, there are three ways to improve market access, which I just mentioned.
It might surprise you to know that when we last met with the Mexican trade ambassador we said that we do not want a mandatory reduction over quota tariffs. He said there has to be a mandatory reduction over quota tariffs. We said that we do not want a mandatory expansion of TRQs. He said that there has to be one. We then said that we would like in-quota tariffs to go down to zero, and then he responded by saying, no, we need in-quota tariff to control products coming into Mexico. Thus, you see that countries use these in different ways.
We are saying that when supply management in Canada offered a 5 per cent minimum market access, they are already offering far more market access than many other countries are offering in what we would consider to be the more trade-liberalized commodities.
I am a turkey and hog producer. Coming out of the last round, as a turkey producer, I had to give up 5 per cent of my domestic market. As a pork producer, I obtained 0.5 per cent into the EU. Our point is that we need to take a close look at what really improves market access and gives countries options to improve market access while ensuring that those options result in similar outcomes. Then, we can offer market access through TRQs, another country can offer market access through a reduction in in-quota tariffs, or if a country wants to offer market access by reducing their tariffs to a level that provides meaningful market access, they can do it in that way. That should achieve an equitable end point.
In answer to your question, if we are successful in convincing other countries about that, Canada will have a real opportunity to negotiate something that will help to maintain supply management, that will keep the farmer empowerment in the Canadian Wheat Board and that will also give us some excellent market access by reducing tariffs.
If you were to talk to the Canadian Pork Council, you would learn that high tariffs are not an issue. Rather, the issue is TRQs. In Europe, if they were to live up to the spirit of the Uruguay Round, we would have 750,000 tons of pork access instead of 75,000 tons of pork access. Then, it is also TRQ administration.
There are many different aspects to look at before we can pass judgment that market access has been improved. Again, if we negotiate vigorously, we still have a window of opportunity to do that.
Mr. Friesen: Senator Gustafson, with apologies, I have another meeting to attend but I am quite willing to have my colleagues remain. I have two other points to make. One point relates to the production-specific amber support that Mr. Webster spoke to earlier. All the commodities in Canada that are heavily reliant on export markets are trying to stay away from product-specific support that is too high because that always makes us vulnerable. We are trying to find greener ways to provide domestic support.
The other point is that the CFA is hosting the National Symposium on Farm Income on November 15 and 16 here in Ottawa. A lot of interesting speakers are lined up for that meeting. The symposium is not intended to be a lobby initiative. The purpose is for the primary-production sector to sit down with the down-stream industry and MPs, anyone who is interested, to listen to these speakers and to have a good discussion, to see if we can start a movement toward finding some solutions to our farm-income problem.
The Deputy Chairman: Thank you, Mr. Friesen, for appearing.
I hope the remaining presenters can entertain a few questions, in the next 15 minutes or so.
Senator Hubley: Welcome to the committee. If I were to ask the last question of the day — and I probably will not be asking the last question of the day — I would like to know, through our experience with BSE and its horrific impact on our Canadian economy, what changes are we looking to make to that industry? Have there been new developments within the industry, value-added, or new markets explored?
While you are commenting on that, can you comment on the chances of the U.S. border opening and when you think that might happen?
Mr. Friesen: First of all, with respect to what we should learn from the BSE situation, we have to have more control of our destiny in that industry. Due to the exchange dollar and to a big and prosperous market in our backyard, we have become dependent on our American friends in this sector quite extensively.
There are movements to develop more slaughter, and the three major slaughter players in the country have expansions on the go, as we are sitting here. That does not necessarily give us any more competition or control, but our holdup now is slaughter. I am told that, if we could slaughter even more box beef, we could move through more animals. We have to get more slaughter, especially on the older animal situation. There is some belief that it will be a long time until live cattle go back into the United States, the over 30-month age.
Critically as important, as we develop slaughter capacity, is somewhere to go with it — the market. Although there have been some good initiatives and some small niche things in every province that are tied to some market, it is very niche. To get into any major slaughter capacity, I am not convinced that we have done the market research for that. Not only is developing a market important, but also important is developing a profitable market.
There is a movement, for example, with some good merit, for the government to put up the money for a major cow- kill slaughter plant in Western Canada, with the producers gaining access of ownership through a check-off system, as they deliver their animals. That is a fine incentive, but in the end there must be a profitable market to go with it. Do we put it in a box and have to freight it further now; does that all record back to profitability, right down to the cow-calf producer?
As we develop slaughter, we have to develop profitable markets. Not enough attention has been paid to that. Yes, there has been a focus to reopening the U.S. market, which could and may be the quickest solution to the problem, but we must learn more, get more control, and develop markets.
However, the key will always be profitability. There is no sense encouraging new slaughter plants, getting them up and running, even with a market, and then having the border open in three years and the big competitors offering 20 cents more because they are shipping just next door again.
I am very cautious. Yes, let us get more slaughter and more Canadian ownership, and preferably producer ownership. However, we must ensure that we have an end use at the end.
Senator Hubley: Mr. MacDonald, with respect to potato wart, a protocol was put in place — with two discoveries. That protocol allowed the potatoes to move. With this discovery of potato wart, is there any indication that the protocol will not be followed by other countries? Will the United States put restrictions on it? Have they already?
Mr. MacDonald: There are no guarantees that the other countries — that is, the United States, which is our major foreign market for potatoes. We discovered a lot of inequities in the system at the time. In Prince Edward Island, we bit the bullet for the rest of the industry. Not to say, ``Here we are; we did a good job for you,'' but the realities of the day were that, if we did not get a protocol in place to handle our own situation, we would never get into the U.S. potato market, either as a province or as a country.
Having said that, to answer your question, there are no guarantees that the if potato wart is found again the other countries — mainly, the United States — will do the same types of things. The only thing we can do is maintain our protocol. It has worked and it is working today. Within a very short period of time, we did gain market access. It is no secret, another case was found. No big move has come out of the U.S. to shut us down again, simply because we had a protocol in place, and it works. The product was isolated and was not allowed to go to market. There was never even a threat of that product going to market, because of our protocol. We are thankful we have the system in place now. A lot of people were complaining about the cost and issues around maintaining that system — it is cumbersome, both for growers and government agencies — but it works.
Senator Hubley: The industry in Prince Edward Island has to be congratulated for taking what were very difficult steps at the time; certainly with traceability and the health of the food chain, you have made the right decision. You can be very proud of that. It is an important industry to our province.
Senator Ringuette: I am from New Brunswick, the potato belt, so I am familiar with the potato issues in P.E.I. You talked about your colleagues in the beef industry and their new cooperative project, the Atlantic Beef Producers Co- operative. They were in front of this committee last spring, and we were very supportive. The Atlantic Liberal caucus was very supportive; Wayne Easter was acting as cheerleader on that issue. We realized that one of the main issues for the beef producers was slaughter capacity. It was also the main issue for the new cooperative in P.E.I., but the Atlantic producers have the entire market for their product, in the Atlantic regions. They already have the distribution channel for that.
In thinking about that and in thinking about what Mr. Webster said about the sugar beet industry — about adding value in Canada. He said that is no market in the U.S. for refined sugar, because of the added value of that product. They want to process the sugar there. We are in the same situation with a portion of the beef production in the West.
What is the middle ground? How can we make sure that there were added processing to the beef industry in the west coast the market will not be completely closed off for all that added-value product, like you are experiencing in the sugar beet industry?
Mr. MacDonald: That is a very good question. We are not happy that we have to find a new market in the unfinished product. Getting more access for the refined sugar is going to be very difficult. Under the WTO framework agreement, a lot of countries are designating sugar as a sensitive or special product. What has been happening in Canada is that, in the last five years, the sugar beet product industry has expanded quite a bit. That is quite extensive. Even though the population is growing in the U.S., the consumption of sugar is going down. That is not because there is less sugar being eaten down there. It is just coming in in processed foods from Canada and Mexico. You will see Quebec, Ontario and British Columbia have all attracted sugar-containing product industries in the last few years. We are going after the value added in that way. We have not gotten any new sugar-containing product industries in Lethbridge but we are working on that.
As well, economic development in Lethbridge is working with a proposal on beef producers. It is a very sad situation that when we are looking for new markets it has to be in the unfinished product. The sugar refiners and other companies have relocated sugar-containing product lines to Canada. Sugar consumption has been going up at about 4 or 5 per cent a year in Canada in the last few years, and that is because it is going into sugar-containing products that are exported.
Senator Ringuette: One other comment that you have raised, Mr. MacDonald, is the human resource factor in the industry.
I am part of the Prime Minister's task force on seasonal work and how the human resource factor affects the industry. There are definitely disincentives in our programs in regard to the workforce. We have to acknowledge that the seasonal industry and its workers is not an Eastern Canada issue. It is a national issue. We have talked to a good portion of your colleagues across the country. It is a major factor. If that element is not there, you guys are gone. There is no question about that.
We heard in Kelowna two weeks ago that we should look at the demographics in this situation, not only the youth out-migration of the rural communities but the retiree in-migration into the rural setting; that could be one of the key elements to your high-peak seasonal hiring. Rest assured that that will be part of our recommendation, to look at the demographics and help in that perspective.
Mr. MacDonald: I am glad to hear that. Again, I do not think our industry believes that it is entirely for our benefit to be able to adjust the rules and regulations around EI or Canada Pension to allow people to work. It is a health issue.
If I can live as long as my parents and my grandparents, and be as active, I will be a very fortunate person. It is a well-known and accepted fact that if you retire and you do nothing, you will not have a very good life or a very long one. We need to be able to allow people who want to work to work. That will help us out a great deal.
We have a valuable resource that we cannot use, because of the system. If the government can find a way of adjusting that, it will go a long way to helping out the human resource issue.
Mr. Hildebrandt: Perhaps specifically in Horton, it is even more hands on, but there is seasonal work in a grain farm. If you are getting 20,000 acres in operation and you need six combines, it is hard to find six individuals that you can put on a $300,000 piece of machinery.
If there were some profitability, not get rich but just some profitability, there is room on most of these farms to bring in a young family, be it from other countries or wherever, and train them. That type of economy is being missed in this theory of CAIS programs, trying to keep us up to water level. What about the economy that can grow and stimulate? However, it takes a little bit of profitability, of which the negative farm income numbers will show you we do not have.
To get more proactive and invest in this sector that can drive the economy from the bottom up instead of these administratively high-cost case programs trying to fill in a part of the hole after it is dug — let us eliminate the hole.
I would strongly urge the Senate to start the initiative on the environment side and in investing in value-added cleaner fuels. Again, if we offer more than food and fibre, we can produce energy, we can produce bio-diesels. At the same time, we will do a great benefit to the environment, which is a great benefit to each and every one of us. That is where the focus has to be.
We may not be able to go dollar for dollar against our competitors, but we can get creative. This business has to be seen as an investment with a return rather than a cost. We have been in this cost scenario forever, and we will go nowhere. CAIS is not going to do it; CFIP did not do it. We have to change the mentality to investing; and when you invest, naturally you want a return on the investment. I am telling you, there is one there if we get creativity with some strategy.
Senator Mahovlich: Mr. Hildebrandt, you were mentioning the frost in August. Does this mean that this weekend when I go to buy my pumpkin I am going to have to pay a premium for it?
Mr. Hildebrandt: It all depends where and when it was grown. The local store had pumpkins in for 34 cents a pound because they could not get any more, but the next week they were there for 19 cents. Go figure.
Senator Mahovlich: Mr. MacDonald, you were saying you had difficulty getting young workers. When there was a shortage in Ontario, they went to Mexico and they brought in about 10,000 workers. When it is time to pick pears, Ontario brings in Mexicans. Has P.E.I. ever thought of importing seasonal workers?
Mr. MacDonald: Yes, there is a small workforce coming in from Mexico now in the western end. There is a company in strawberries and strawberry plant production that brings in people.
Part of the complexity of our industry in P.E.I., as everybody well knows, is that it is for the large part potatoes. We have a gap from the first of June through September; there are two or three months where there is not a lot going on. The people that are bringing these foreign workers in have to guarantee them work from the day they arrive until the day they leave, which is, for the most part, May until the end of September or October. For the potato industry, it is pretty hard, because I need 18 people to plant potatoes in the spring but in the summertime I only need about four of them. Therefore, I cannot bring those people in and then take them back in the fall again. It does not work very well. Hence, we need a combination of support for that farm program that is working very well in certain sectors, more so in other provinces than it is in ours.
In New Brunswick and Nova Scotia, I understand they are beginning to bring people in too, for the same reason. They have those kinds of crops and those kinds of productions that need that workforce for six months of the year, not just two in the spring and two in the fall.
Senator Mahovlich: It is a timing problem.
Mr. MacDonald: Very much so.
Senator Mahovlich: I have travelled extensively. France provides a great deal of subsidizing to their farmers. Their farms almost look like gardens. You might have something there. They are beautiful farms.
France has been around longer than we have. We may have to look at their programs. That is the route that we will need to go because I believe that the Americans are taking that route. We ought to value our farms in that way.
Mr. MacDonald: I agree with Mr. Hildebrandt's comments regarding the investment. We have to change, as a society, our entire mind set around farming and agriculture and what it means.
I was criticized a couple of years ago for some public comments I made about the everyday consumer's knowledge about farming. I said that, in this day and age, the average consumer is two or three generations removed from having been from a farm. They do not understand what it is all about.
We are being forced to do things to give them comfort levels for their food safety and things like this. Farmers are willing to do it, but we need to get paid for it. We do not get it out of the marketplace.
The same thing goes for the environment. We have seen it in other countries.
In our province, we went through two huge round tables on the land reports. There are bibles that thick.
I will give an easy example of what other countries are doing. Some people went over to England and had a look at what they were doing over there. In England, they value their stone fences a whole lot. They felt it was very nice to have them out in the country. Farmers wanted to tear them down because they wanted to make their fields bigger. They compromised. Now they have a program in place where a farmer gets paid to keep his stone fence up, just for a look of it.
We are looking to invest, as Mr. Hildebrandt said, in our environment. It is the same kind of a thing, but why can we not get our minds around that. That is where we need to start. We need to have people like yourself and the governments to really think outside the box. What can we accomplish if we say that this is not only a cost of doing business but an investment?
Mr. Hildebrandt: You have probably heard this before, but it is a privilege to talk to my childhood hero, although you do not seem to look that much older than I am.
Senator Mahovlich: The Senate keeps me young.
Mr. Hildebrandt: Appreciating some very short high labour situations, the focus is on the difference between migrant workers or immigrant workers. Immigrant workers come in and we train them, and they become citizens and add to the economy of the province rather than take a month's wage back to Mexico or wherever. We welcome these people from all over the world, but again, with a little profitability and a little creativity we create another taxpayer within the country.
Senator Mahovlich: It gives the youth of our country the incentive to go into farming. If they could see a bottom line that is profitable, it would be an incentive for our youth.
Mr. Hildebrandt: We could go on and on. There are few of us that do not have a spouse working off-farm. Some women choose that, but some would just love to be at home, and then somebody else could have that job. We could go on and on, if there were some profitability.
As you can see, I like three squares a day. It should be a pretty high priority for any country.
We have lost control, for the most part, of our processing of beef and grain. It is controlled by five multinationals. We have to ask ourselves this question: Do we want to lose control of primary production or do we want Canadian men and women, bring them in from all over the world, stewarding that land and having the pride in it?
Senator Mahovlich: It starts from the top.
The Deputy Chairman: How do we create that in Canada? In the U.S., from New York or from Los Angeles, they support the heartland. They want to keep it strong. In Canada, we do not have that mentality. Our mentality is that the farmers are crying again. We do not see the bigger picture of what this could do for Canada.
Mr. Hildebrandt: As Mr. Friesen alluded to, the symposium that is upcoming — and again, I would back that invite. Not only primary producers but all the chains will be attending. The primary producers, to my knowledge, are the only one in the negative income situation. It is the primary producer that creates the whole activity, from that on up. All we are asking for is a little bigger slice of the pie to be able to keep our farms. Mr. MacDonald said that the average age in P.E.I. is 48. I think it is 59 in Saskatchewan. Obviously, we have a large amount of land that has to transfer. Does it go to the next generation of Canadian youth or does it go to multinational ownership? Where does it go?
This symposium will take a 10-year look at how we develop a market share where every player gets a fair amount. Yes, I create all that work, but I do need the retailer, the wholesaler and the processor. We need each other.
Senator Mahovlich: Mr. Friesen was talking about his visit to Mexico and trying to get the Mexicans to see things our way. Does he often go to Europe and talk to other World Trade Organization groups? Do they see things our way, or is it just impossible? It seems to me that we are swimming against the current all the time. I know I get awfully tired when I do that.
Is it an impossible situation to deal with that? We have to find a level playing field.
Mr. Hildebrandt: His reference to discussions with the Mexicans was within the realm WTO talks where everybody is there. Mexico, the United States and us, as you know, have the NAFTA and the North American agreement. It is not impossible, sir. It is a challenge.
Everybody goes there wanting more access to trade. Everybody goes there with a one-way street.
The reality of which Senator Gustafson speaks, that if there were no subsidies, we could go on our own and compete, is not a reality. You have different levels of support set up to find compromise.
It is not impossible, but it is a challenge. It is a very severe challenge.
Senator Callbeck: I have a question regarding the slaughter-house capacity in Canada. I understand it is now 79,000 head per week. The goal is 98,000. By the end of next year, 2005, we will be at 93,000.
Is it realistic that by the end of next year we will be at 93,000? If we do reach our goal of 98,000, what per cent does that represent of the total livestock industry?
Mr. Hildebrandt: It is realistic, but, again, appreciate that most of that expansion is within the big three players. On the fed slaughter, we are not that far off norm. We are backed up on the older animals.
As we develop new slaughter, we need a market. With some vision on the cull cows, we could quite possibly consume 95 per cent of that meat domestically. We need to address offshore supplementary tariffs and so on. We do have some of our food chains committed to Canadian beef. Much of that could be domestic.
You say that we should process more. Processing does not make it any easier, competitively, in the world market. It does create some jobs and can eliminate diseases. Is it any less competitive to take a processed product out and about? No, not from ethanol to beef to anything. Prior to BSE, we shipped live cattle to the United States, they paid someone to make it into hamburger, and then they shipped it back to Canada. We have to learn from this in job creation and value added. It is difficult to do because they keep the raw material cheap there, the grain source.
Senator Ringuette: In this case, the raw material is our beef.
Mr. Hildebrandt: That is correct. To keep the cattle fed in Canada is a challenge. We have to compete against that cheap corn. I cannot grow barley for $1 and sell it to his feedlot and still survive.
Senator Mercer: It may not surprise Mr. Webster's daughter that sometimes we are prone to exaggeration, so I may have overstated the BSE money. It is not quite the $4 billion that I mentioned earlier but it is a significant amount. I want to ask two questions of Mr. Webster. First, in respect of the human resource problem, who will take over the farms when you retire, particularly in Prince Edward Island? There, you have land-use and land-ownership restrictions. It seems to me that we need to talk about ensuring that people take over the farms, and not just big farm corporations. Cities expand and take more farm land out of production. Fortunately, we do not have a shortage of land in Canada. The question is how it is being used. Should government do something to help manage the use of that land?
My second question is this: Should we be talking to an International Joint Commission about the problem with the rivers? Do you think it is worthwhile for this committee to have them appear before this committee to help in solving that problem in the West?
Mr. Webster: In respect of your first question, in many of the irrigation districts in Southern Alberta we have reached the practical capacity of taking water out of the rivers and still maintaining the riparian systems. There is a regulatory and consultative role the governments can play, to ensure that we utilize the resources wisely. Certainly, we have to take care of the land and water so that we have something to pass on to the next generation of farmers.
As to the decision of the International Joint Commission, we believe that the order will remain as it is but that there will be some substantive changes in the administrative mechanisms for it. It would be wise to speak to the IJC to ensure that Canada's interest continues to be well protected. In some of the correspondence that the State of Montana has submitted, they have said that they will try to have one of the administrative agreements rescinded. There is a veiled reference to a similar kind of NAFTA water challenge that Texas farmers have filed against Mexico. There is plenty for Canada to protect in those negotiations. We probably should wait for that report and examine it carefully.
Mr. MacDonald: The land-use limits of Prince Edward Island were put in place a few years ago. P.E.I. once had feudal landlords; the land was owned by few from foreign countries. At that time, farmers were peasant farmers. That concern has always existed in Prince Edward Island because we are a limited land base. If the farm consists of 1-million acres, you cannot get any more acres. That is all there is to it. When the land limits were put in place, there were concerns about corporate interests of large, vertically integrated companies buying up the land and controlling the farmers, again in that feudal way of so many years ago. That is why the limit is in place.
Our industry in Prince Edward Island has looked at that issue today, given the demographics of our current farm community. Where will my farm go when my brothers and I reach retirement age? We have lost a generation of people who could have moved into the system, primarily because of the profitability issue.
I have to laugh to myself about some of the comments over the last number of years on how to help the farmers. People are so concerned about how to pass the farm on, but it is so much easier to pass the farm on if it is profitable. It is easy to convince the next generation that it is a good life. They know it is a good life but right now it is not a profitable life.
My circumstance is no different from many others in P.E.I. and across Canada. My children have made their decisions about life and we have lost that generation. We have to think outside the box. How can we invest in farms so that we do not lose the next generation of farmers? There is no quick fix to the problem. I am thinking that we have a 10-year time frame. We have to change our thoughts and our policies in Canada to reinvest in agriculture to make farms profitable. Once farms are profitable, people will be able to farm and pass the farm on to the next generation.
The Deputy Chairman: Unfortunately, we are a long way from that. I have grandsons and one is working in New York and two are studying engineering. They will not even look at the farm in its current state. This is a general statement but our farmers are not encouraging the next generation to farm. As you say, unless it becomes profitable, the kids are better off finding a white-collar job in Ottawa. We have not made agriculture an important industry in Canada; and we do not see the bigger picture.
We face some serious difficulties in agriculture; there is no question about that. Our witnesses have placed that before us this morning. Thank you for attending here today.
The committee adjourned.