Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 2 - Evidence - Meeting of November 16, 2004
OTTAWA, Tuesday, November 16, 2004
The Standing Senate Committee on Agriculture and Forestry met this day at 6:15 p.m. to study the future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, this evening we are delighted to have with us the Minister of Agriculture and Agri-Food, the Honourable Andy Mitchell. Accom panying him is Deputy Minister, Mr. Leonard Edwards, and Mr. Richard Fadden, President of the Canadian Food Inspection Agency.
Minister, I know that your time is limited. This is the first time that we have had an opportunity to have you at our meeting. On behalf of all of us I congratulate you on your appointment and wish you all the luck in the world. We know that yours is one of the toughest jobs in this country. Thank you for taking the time.
I believe you want to say a few words to begin with and then we will ask our senators to pepper you with questions.
The Honourable Andrew Mitchell, Minister of Agriculture and Agri-Food: Honourable senators, thank you for the opportunity to be here. I thank all honourable senators for their indulgence. I was delayed with a vote in the House and I apologize for being a few minutes late. Thank you for the opportunity to present for a period of time, and I look forward to the questions that senators may have on what is really a wide range of possible topics that I face in my ministry.
As I am sure honourable senators are aware, there are a number of complex and important issues that I deal with in the agricultural portfolio, ranging from things like food security to environmental stewardship to accessing international markets to biosecurity. The list is quite extensive.
When you deal with all of these complexities, Madam Chair, you always need to understand, I think, some very basic and important first principles in trying to understand agriculture. First in my view, and very important, is the reality that it is essential for government to create an environment that will allow producers to be profitable. If producers cannot make a living farming, then they will not farm. If they do not farm, that is a significant detriment, not just to them, not just to the rural communities that support our agricultural industry but to all Canadians. Indeed, when you consider our ability to feed markets beyond our country, it is detrimental to people around the globe.
Second in terms of my portfolio responsibilities is the importance of ensuring that the agri-food industry is strong and healthy. That industry represents 8 per cent of the gross domestic product in this country. It is an important part of our economy, an important part of how we generate wealth in this country, and therefore it is important that it be strong.
Before I get to the third point on my list, honourable senators will recall that I have previously appeared before this committee in another role, as Secretary of State for Rural Development. Therefore it should come as no surprise that I continue to see the sustaining of our rural communities as being a key component of the job that I do. Without those communities to support our industries such as agriculture, then again this country would be weaker.
In contemplating this job, there are a number of important approaches that I believe it is important to take. There are many people in this room who have previously heard me speak, so they have heard this line before. However, it is important to recognize that all knowledge is not resident within the department. That knowledge is there in the communities and with producers. In order to be successful, it is absolutely imperative to acquire and work with that significant body of knowledge that exists both in the communities and with the producers, and to take that into account as we develop the programming and approaches that we want to take as a department.
It is also important to work in a collaborative way. It is absolutely essential that, as we build our programming and those initiatives that we wish to undertake, we do it in a collaborative way, with producers and with the provinces. Obviously, agriculture is a shared federal-provincial jurisdiction. It is absolutely essential that we work together. Collaboration must be a hallmark of the approach that we take.
As well, honourable senators, there needs to be a willingness to change. Simply because we have done something in a certain way in the past is no reason why we should continue to do it that way in the future. It may be that that is the appropriate thing to do, but there needs to be a willingness to change, a willingness to take a different approach. Along the same lines, included in the importance of taking that approach should be a willingness to think outside the box, to take a look at new and innovative ways of doing things and to be able to simply say, ``You know what, there is a different approach. We may not have tried it before but it is indeed something that is worth pursuing.''
Finally, in terms of approaches, it is important to remember that it is all about people. It is about the men and women who are producers in this country. It is about their families and about the communities that support those families and those producers. When we take decisions and take actions and take on particular programming, we should do it with an understanding of the impact it has on people. Our producers contribute significantly to this country and to the wealth of this country. They go out every day and make some very tough decisions. They need to take significant financial risk, and they do it, and because they do it Canadians are enriched, and great and important public policy objectives are able to be achieved.
Since taking over the portfolio a number of months ago, I have had no lack of issues to deal with, and I would just like to highlight a few of them for you. I suspect that senators have some questions. Obviously, BSE and the closing of the U.S. and other borders to the shipment of live cattle has been a significant issue that we have been facing since May of 2003. The federal government, along with the provinces, have initiated a number of programs in order to address that particular issue. Prior to my coming to office, we had announced, jointly with the provinces, close to $1.7 billion in initiatives. This past September 10, we announced another initiative, something that was a little bit different in its approach. Rather than simply trying to provide interim assistance pending the change in circumstances — that being a border opening — we moved forward with an initiative that was about repositioning the industry, and making sure that the industry could be profitable with or without a border opening.
I felt it was absolutely critical that we move away from the situation where producers would be making decisions and working as hard as they possibly could but with the realization that, no matter what they did, the decisions governing their success were being made in another country. It was essential to re-empower our producers and it was important to come forward with programming that would reposition our cattle industry. It was an initiative that was built on that collaborative approach that I spoke about, working with the provinces and with the industry. Indeed, many of the components that we implemented on September 10 were ones that the industry itself had developed and brought forward to us as a government.
In putting in place this particular initiative, it was important to provide flexibility for its implementation to the provinces, a recognition that the industry works very differently in different parts of the country and, although it was important to have national programming, and to realize that how that programming would be used might be very different in Alberta, for instance, than perhaps it would be in Atlantic Canada.
The initiative included five main component parts. First, a continued and vigorous effort to have the U.S. border opened. We have been pursuing that goal since May of 2003. Regardless of the fact that we are proceeding with the repositioning initiative, we continue to work hard to have the U.S. border opened. When that occurs, that will be a positive for our industry, whether or not the repositioning has taken place.
Also, we feel it is important to build new Canadian domestic slaughter capacity. We feel that that is an important ingredient in building and having that repositioning take place. However, it will take some time to bring the slaughter capacity on line. Plants need to be built, for example. In the interim, we have put forward programming, feeder set- aside programs, fed set-aside programs and a managing older animals component so that we can assist the industry as we go through the transition and bring the marketplace into balance sooner rather than later. Finally, it is important to develop new foreign markets so that our producers have diversity in their marketplaces and are not subject to having only one foreign market.
Other issues that we have been dealing with since taking over the portfolio include the WTO negotiations. I had the opportunity to be in Geneva shortly after having been appointed where we were successful in entering into a Framework Agreement with the other 146 nations of the WTO. We have worked hard on achieving that agreement and have substantial work ahead of us as the negotiations move forward on the modalities and as we move towards a final agreement.
Honourable senators, there are five components involved in the Agricultural Policy Framework: Food safety, environment, renewal, science and business risk management. In other words, making sure that the implementation of the Agricultural Policy Framework moves forward, the importance of ensuring that it is done in a way that respects the fact that it is a three-pronged approach that includes industry, provincial governments and federal governments and that in order for it to survive and thrive it needs the support of all three pillars.
We are also engaging with the industry significantly on a review of the APF as we move forward in line with those principles that I talked about before, namely, the importance of working collaboratively, the importance of examining what we have done and determining whether or not we need to make adjustments.
Finally, honourable senators, I would be remiss if I did not mention the Canadian Food Inspection Agency, for which I am also responsible. They continue to work hard at protecting the health and safety of Canadians. They are doing this work within the context of providing that safety, but doing it in an efficient manner. I would be remiss, honourable senators, if I did not recognize the work that the CFIA has done with the BSE issue and with the avian flu issue, and the hard work done by the scientists and men and women who are very dedicated in the CFIA to protect the health and safety of Canadians over what has been a very difficult period for all of us.
I look forward to the questions that senators may have.
Senator Gustafson: Welcome, Mr. Minister. I have several questions. First, low commodity prices in the grain industry have caused farmers in that business to be in dire straits. Neal Hardy, president of the Saskatchewan Association of Rural Municipalities, made the observation recently that many grain farmers are facing their worst crisis in 50 years. The western part of Manitoba, the Peace River and most of Saskatchewan had three frosts. The wheat that we are getting from that frozen crop is selling for 87 cents a bushel. Even under good conditions, farmers are not recovering their input costs. This has gone on for three to four years in some areas. Something simply has to be done. I would suggest that, of the surplus $9 billion, $3 billion will have to be thrown in to save these farmers, or tell them to quit and get out.
That is not a very encouraging synopsis of what is happening out there, but it is the reality. The marketing board sector of the country is doing quite well. I would not want to take that away from them. Farmers of dairy, chickens, turkeys and so on are doing well, especially in Ontario and Quebec, but the grain industry has a big problem. Something must be done about commodity prices.
Just before I leave that subject, the global situation must be looked at. I, for one, having been around here for 25 years, do not believe for a minute that the Americans or the Europeans will remove subsidies. They have proved that they will not. If we look at the global situation from that aspect, we must take a different tack. Programs will not do it. We have gone into different crops — canola, oilseeds, peas, beans — you name it, we have tried it — and that has not worked because of low commodity prices.
Mr. Mitchell: I will answer in several ways. There are three specific responses. Colleagues around this table can share some of the frustration that the honourable senator is expressing because those same producers of whom he speaks went through periods of drought in the last few years. Finally, the moisture is there. There was a bumper crop in the fields. It was a little slow getting going but it was a bumper crop, and then along comes perhaps the earliest frost on record, or one of the earliest, and that really impaired the quality and the quantity of the crop. After so many tough seasons, to have such a prize put in front of them and then, almost at the last minute, having it grabbed back, must be very frustrating for producers.
Three distinct issues have been raised and it is important that we deal with all three. First is the point that our producers will, from time to time — and probably more often than we would like to see — face unexpected and significant disruptions in their income. That is why we have a business risk management component to the Agricultural Policy Framework, which contains two parts that are important to the senator. First, there is production insurance, crop insurance which producers can draw upon in the case of a frost or a drought. There is also the CAIS program, which will provide income support when producers face a significant disruption in that income.
I should mention, Madam Chair, the importance of providing advances on the CAIS program. It is not simply that, if something happens, you must wait until the following year. If you experience a loss you can get an advance on that loss in the current year. That is number one. It is very important.
Second — and the honourable senator mentioned this as well. It is a separate issue, and it is important that it be understood as separate — is the long-term decline in farm income in certain commodity areas. We need to deal with that. Short-term income supports are important, but there is a long-term decline in certain commodities. We must look at that. I was pleased to see that the Canadian Federation of Agriculture has just completed two days of meetings here in Ottawa, bringing producers and representatives of producers from across Canada to discuss that very point. I pledged the department resources to work with them on this particular issue, to quantify the issue, to identify some of the causes, to identify some of the actions that we can take, and to identify who should take those actions, whether they be producers, producer organizations or governments. I have assigned my parliamentary secretary, Wayne Easter, whom many of you know as a long-time parliamentarian, former minister, and a long-time farm leader, to lead that initiative within the Department of Agriculture.
Third — and mentioned as well by the senator — is the issue of our international trade agreements. It is important for Canada, considering that we are able to sell, and do sell, a large amount of our production beyond our own borders. There is not a another country where it is more important to have a rules-based international trading system than it is for Canada, given our ability to trade and its importance to us. The honourable senator points out, and I agree with him, that in entering into those agreements it is simply not good enough to have the agreements, although they are very important, but to have them executed and implemented in a transparent and meaningful way. In other words, what is agreed upon must be verifiable, and that all parties to the agreement, in fact, implement them in the way in which it is intended in the agreement. All three of those issues need to be pursued in order to address what I think the honourable senator rightfully and clearly points out is facing producers in his province and elsewhere.
Senator Gustafson: There is one problem with the CAIS program, of which I am sure the minister is aware. If you happen to have three or four drought years, you have no average. If you happen to have really good crops, the CAIS program pays well, but if you do not, you are in trouble. The same thing is true with crop insurance. If you have had three droughts, you have no average left, so your coverage is so low that it really does not help the farmer who has had problems for a while. Both of those programs need some adjustment. Would the minister look at that?
Mr. Mitchell: Absolutely. That also falls into the second category where you are talking about long-term erosion, whereas the CAIS program and the business risk management program deal with an unexpected interruption. Long- term decline is a separate issue. It is as important; it is not in second place, but it is somewhat of a separate issue and it is important that we deal directly with it.
Senator Hubley: Welcome, Mr. Minister and staff.
On October 10, 2004, the agricultural 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 did not adequately address the issues facing maritime beef producers.
One of their concerns was that that strategy did not sufficiently address regional processing capacity issues, specifically investments in increasing slaughter capacity for fat cows and culled cows, trace back systems, dead stock removal systems, and developing local markets and the upgrade of provincial meat inspection systems. Is the department working with different regions of Canada to address specific needs, as they pointed out in the Maritimes?
Mr. Mitchell: I have met with the Atlantic ministers since that time twice in person, and I have talked to them on the phone, individually or collectively, several additional times as well.
That component part of the program that deals with slaughter capacity is available to Atlantic Canada. As you know, a plant is about ready to begin operations in Prince Edward Island. The CFIA has been working closely with that plant over the last few days to get the last of the things that need to be in place for the licence to be issued, and good progress is being made in that respect. The initial line that they are putting in place is a cow-calf line and fed line. They want to do an older animals line as well. We have indicated to them that if they want to expand beyond what they have done, then our initiative for expanding capacity would be available to them.
We are working closely with them on the tracking and tracing issue. We understand the programming that they want to have. We feel that we can come to an agreement with them in the not-too-distant future to provide them with the type of financial assistance that they believe they need in order to put that initiative in place.
I have been working closely with the ministers on that as well. We continue to have discussions with the ministers to see how we can make the managing older animals component work in the context of what is being faced in Atlantic Canada. As I said to the ministers, we will continue to have discussions and dialogues to see what additional things we can do on behalf of the producers in eastern Canada.
Senator Tkachuk: It was the understanding of our party, minister, that the surveillance testing for BSE, which this year is targeted for 8,000 head, was going to be 30,000, but my understanding today is that it was stated by the food inspection agency that it would be 38,000. Could you clarify exactly what the objectives are and what the numbers are?
Mr. Mitchell: Yes. From my understanding, for this year, 2004, the objective is 8,000, and we have actually exceeded that objective. We are at 12,000 now. Next year, the objective is 30,000. Collectively, the two years together are 38,000.
Senator Tkachuk: Prior to signing on with the recent BSE aid program, the Saskatchewan government was critical of it for numerous reasons. In addition to complaining that the BSE crisis is a trade dispute and therefore a federal responsibility, Saskatchewan's Agriculture Minister also stated that the arrangement is unjust for Saskatchewan because it has almost half the country's arable land and 30 per cent of the beef cattle herd, but only a small percentage of the population to help fund support programs. This is in contrast to some of the other cattle producing provinces such as Alberta and Ontario. These provinces have larger populations and other economic characteristics that would put them at an advantage. Even though Saskatchewan is now participating in the BSE program, how valid are Saskatchewan's criticisms and to what extent were the criticisms addressed through the process of negotiating Saskatchewan's participation?
Mr. Mitchell: The minister in Saskatchewan has always been very supportive of the substantive component parts of the program, of doing increased slaughter capacity, to establishing set-aside programs and instituting an international marketing network with the United States. In a substantive way, Saskatchewan has been supportive of what we have done. As we came to developing the program and announcing it, the minister from Saskatchewan, along with his other provincial ministry colleagues, was engaged with me and the industry. This was not something developed in Ottawa in isolation where we called on the province one day and said, ``Here is the program.'' They were involved in the development of it all.
In terms of funding, we were very clear when we went forward that we would offer the federal component parts of the program without any preconditions to the provinces. In terms of the slaughter capacity, in terms of the international marketing, that is 100 per cent federal. In terms of the set-aside programs and older animals program, we said we would contribute 60 per cent. If the province wanted to simply administer the program, we would not require them to put in the 40 per cent if they did not want to do that. We were very clear and concise that it was up to the province to make its decision as to whether or not it wanted to participate. Of course we gave the provinces an opportunity to reflect upon what they wanted to do. Alberta announced the same day that we did that it would participate. Manitoba has announced that it is participating, as have British Columbia and Ontario, and Saskatchewan has decided it will participate as well.
Agriculture in Canada is a federal/provincial responsibility. The Constitution assigns it to both levels of government. We both have that responsibility. We have had some traditional ways in which we have shared that responsibility. One of the things I indicated to my ministerial colleagues when we met in Prince Edward Island is that if they wanted to have a broad conversation about the issue of how each level of government participates, then we should have a conversation about it. We met at the beginning of November and began a conversation on just that matter. As I said to all my colleagues, we have joint responsibility at both levels of government, and if we want to have a discussion about how we exercise that responsibility, I am prepared to do that, but clearly both of us, federal and provincial, have a responsibility to the agricultural sectors: myself nationally and my provincial colleagues within their province. As I said in my opening comments, I am determined to work collaboratively to reach solutions in the best interests of producers.
Senator Tkachuk: Is our strategy different under the Martin government than it was under the Chrétien government, both in programs and in dealing with the United States on these matters?
Mr. Mitchell: Certainly, in terms of BSE, whether it was in the previous government or in the current government, we have been making the case that the science indicates that the border should be open. I can speak directly only for the time that I have been minister. I have been making that case with the U.S. administration. We have had about 160 separate interventions at various levels with our American counterparts, making our points about this subject. We have done that at the technical level and at the political level. I spoke to the outgoing secretary a couple of days after November 2, and I spoke to the U.S. ambassador after the election as well, and I spoke to those same people, and others, before the election. We continue to vigorously make the point that was made recently at the political level by Minister Peterson, the trade minister, when he was in Florida either yesterday or the day before, opening a new trade office in that state. We will continue to do that because we believe that the science clearly indicates that the rule change that the United States is contemplating should be finalized and that the border should re-open to live cattle.
Senator Tkachuk: Our strategy is the same.
Mr. Mitchell: No. As I mentioned at the beginning, in terms of the support we are providing to the industry, our strategy is to provide a repositioning of investments of $48 million that will allow the industry to be profitable with or without a border opening, yet we continue to work hard to have that border open.
Senator Callbeck: In view of the time, I will be brief. First, I must say I was happy to hear you mention the Atlantic beef processing facility and the fact that you feel an agreement can be reached on the issue of traceability, because that is something that will be extremely important to them. I am very hopeful upon hearing your words tonight.
I want to ask about the CAIS program. The president of the Federation of Agriculture was here a few weeks ago. He said that one of the biggest concerns was the premium or the amount of cash that they have to put into a deposit or into an account up front. Are there any alternatives that the department is looking at right now and, if so, what are those alternatives?
One more question: I read recently that the Department of Commerce in the United States has implemented a 13 to 15 per cent duty on live Canadian hogs entering the U.S. They claim that the U.S. producers were suffering because of a subsidy that the Canadian producers were receiving. What is that subsidy?
Mr. Mitchell: On the CAIS program there are two processes in place examining changes. When the ministers came together in Prince Edward Island for their annual meeting, they committed themselves to looking at the CAIS program and the issue of deposits. Also, we have struck an annual review process which will be done by governments and the industry together. Fifty per cent of the people on that review committee are from the industry, so it will, in fact, deal with the issues they want. One of the principles we all share is that business risk management is a shared responsibility between producers and government and that underlying principle would have to be there for whatever process or for whatever structure we may want to contemplate as we move forward.
In terms of the pork, there were two actions taken. One was a countervail action which suggests that the government was subsidizing producers. The Department of Commerce found no merit to that countervail action, and no retaliatory action was taken.
A second action on anti-dumping suggested particular firms were selling below market rates and basically dumping. They found on a preliminary ruling that that was happening. We disagree. We believe that the price of swine fluctuates with supply and demand in the market and has nothing to do with dumping. We have a vigorous campaign going in the United States to make that point clear because their actions are not simply hurting just Canadian producers but it is hurting American producers who depend on our supply of live animals into their system. Their action is counterproductive for themselves as much as it hurts Canadians, but we are vigorously working on that as well. On the countervail action, they found no subsidy by the Government of Canada.
Senator Ringuette: Mr. Minister, I will not talk to you about BSE. I come from the New Brunswick potato belt. We are now in a crisis and I know that our member of Parliament has been in touch with you and your department. The response time so far seems to be acceptable, and we thank you for that.
However, I want to talk to you about another scenario where the response time is not that impressive. I want to talk to you about the PVYN issue, the event that happened in 1991. We are now in 2004, some 13 years later, and the department is involved in a court case with the New Brunswick potato farmers. That has been going on for ages. I do not want to talk tonight about the extent of the discoveries that have happened during that court case. I want to talk to you about all the costs that the department has incurred to go to court with the New Brunswick potato farmers in regards to the PVYN issue. We are looking at at least nine weeks of court with a lot of high-ranking officials from CFIA, your department. We are looking at at least one astonishing week in Scotland to discover facts and talk with experts. Then we have also all the pretrial discoveries. We are looking at an event that happened to the potato farmers in 1991. P.E.I. farmers were compensated two years afterwards. Thirteen years after the event, we are still ina court case with the New Brunswick potato farmers.
I want to know the costs involved to go to trial. For the last 13 years there have been experts and high-ranking bureaucrats travelling throughout the country and to Scotland. I think this is somewhat unreasonable. However, before making a true judgment call, I want to know the amount of money that this has cost Canadian taxpayers in order to cover up a mistake made probably by a bureaucrat in the department. New Brunswick potato farmers have been hurting on this PVYN issue for 13 years. I want to know the cost to the taxpayers of Canada and to these farmers that I am representing here tonight.
Mr. Mitchell: Thank you very much for the question. I do not have that information right at hand, but I will undertake, through the chairman, to provide that information to the senator. I will provide a letter that deals with both the cost and the history of the case, and I will ensure that you receive the information.
Senator Ringuette: I am familiar with the history.
Mr. Mitchell: I will make sure you have the information you are seeking.
Senator Ringuette: Thank you.
Senator Mercer: Minister, welcome. I am a fan of yours from your previous portfolios. I compliment you on your job there and I anticipate that you will do likewise here in the Agriculture portfolio.
The president of the Canadian Federation of Agriculture was at our last meeting. I asked him a question with respect to the BSE recovery program and we talked about the $2.5 billion, or whatever the amount was that went into the BSE program. We all agree there were good intentions on all fronts by government departments. My frustration is that the money did not get to the farmers.
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 six months of 2003. When I asked the president of the Canadian Federation of Agriculture, Bob Friesen, during our last meeting to comment, this is what he said:
We believe that the initial money to the beef industry last summer was some of the easiest money that the packers ever made.
I would like you to comment on that but I will ask you my other questions first.
Today, in Winnipeg, the Canadian veterinary officials said they would not be surprised if they found a small number of cases of mad cow disease after boosting test rates among old and sick cattle. ``When you have one indigenous case of BSE, even if you have a very low prevalence of BSE in the national herd, it is possible to have other cases that are coming out,'' said Ms. Frédérique Moulin, a senior member of the Canadian Food Inspection Agency. This is a grave concern. I am not suggesting that Ms. Moulin is incorrect, but my question is: Are we ready?
I firmly believe that we Canadians are too nice. I firmly believe that there have probably been dozens of cases of BSE in the United States that have gone unreported and they followed the Ralph Klein method of shoot, shovel and shut up. I know you will not comment on that, and I do not blame you for that, but I can comment on that because I am not the minister. I believe that is the case.
Secretary Veneman has resigned as Secretary of Agriculture in the United States. Is this good news so that we can get our borders opened quicker and our cattle moving across the border?
Mr. Mitchell: To take your last question first, regardless of who the Secretary of Agriculture is in the United States, we will continue to work vigorously to open the border. I am prepared to work with whoever is the Secretary of Agriculture and we will move forward as vigorously as we can at that level and at all levels in the administration, in the Congress and at the official level as well.
In terms of your middle question, we have a surveillance program in place; the OIE recommended that. That is an important one. As I mentioned in an earlier response, we well exceeded the goal of 8,000 this year, with 30,000 scheduled for next year. That is designed to determine the prevalence of BSE. The comments that were made were appropriate to be made. If you are doing this surveillance, there is a possibility that you may determine that there is another animal that has BSE. That is always a possibility. The surveillance, in part, is done to determine the prevalence.
In terms of your first question, I know that you and I have had a discussion about this matter, and I suspect that members at this committee know that the House committee is engaged on a particular component part of it. The Auditor General in Alberta did a study of that subject and his report concluded that the substantial increases resulted from supply and demand forces at work in a distorted market. That is one of the realities that we face, namely, that we have a distorted market.
That is what the BSE repositioning program is trying to deal with, both in the long term and in the short term. We have a situation on the one side where we have many more animals being offered for slaughter than there is capacity to slaughter them. On the other side of the equation, though, we have as many people willing to buy beef as we are able to process it. In other words, we have a different supply-and-demand equation on the other side of the marketplace. The normal connection between supply and demand is being severed because of our inability to have the necessary processing. On the one side, we have more animals than we have ability, but on the other side — and this is where Canada has behaved differently than, I believe, any other nation — our actual consumption of beef went up after BSE was discovered. Our demand for beef continued to be the same. We had an irrational marketplace where supply and demand were not able to meet.
By building the necessary capacity, we will be able to deal with that surplus. In the interim, because it takes time to have that capacity come on line, we have put in place the set-aside programs so that almost immediately the number of animals being offered will come more closely to their ability to process them.
If you look at when we were first facing this possibility, the price in Alberta of a fat cow was somewhere down around 65 or 66 cents. By the end of October, that had increased to 81 cents. That is a substantial increase of dollars into producers' pockets for the marketplace. For the young cattle, that is also a price increase. However, that is not recovering back to the place where we were. We will work hard to get there through a combination of measures which we talked about, for example, the set-aside programs in the short term, the development of new slaughter capacity in the medium term and the development of our international markets as we go along. All of those are working to bring some rationality back to the marketplace so that the producers can make solid business decisions based on a reasonable operating market.
Senator Tkachuk: May I ask a supplementary on the numbers?
The Chairman: Very quickly, yes, because we do want to hear from Senator Sparrow and Senator Mahovlich.
Senator Tkachuk: It had to do with the question I asked. I asked about the 38,000 and the 8,000 and you mentioned the 38,000. You told me as well that you had done 12,000. Are we going to do 12,000 and 30,000 or are we going to do 8,000 and 26,000 or 12,000 and 36,000?
Mr. Mitchell: There is a difference between what our objective was and what we are accomplishing. Our objective was 8,000 this year and 30,000 next year, for a combination of 38,000. This year, the year in which we have an 8,000 objective, we have exceeded that count and are actually at 12,000. We have actually been able to do more than we had anticipated we would be able to do.
Senator Tkachuk: Next year, you will still do 30,000?
Mr. Mitchell: The objective is 30,000. Whether or not we achieve the objective, we will have to see as we go into the year. We will test a minimum of 30,000 animals in 2005.
Senator Sparrow: Getting back to the border opening, you continue to refer to the science — that is, the border should open because the science indicates that there is no problem. Are you speaking about all cattle or are you still only talking about those cattle two years of age and younger? Is the science there that would allow the cows to be exported to the United States?
Mr. Mitchell: Our ultimate goal is to have the border open for cattle of all ages to move back and forth. The rule change that is presently being contemplated by USDA, and would have to go to the Office of Management and Budget, or OMB, at some point in time, is a rule change that would open the border for live animals 30 months and younger. That is the current rule change being contemplated by the USDA. The first actions that we would see would be those actions being adopted by USDA and then by OMB, and then come into force.
Senator Sparrow: Do you see any hope, then, that the border will be open for older cattle, or is that a lost cause for the next year or two?
Mr. Mitchell: That will be a longer term process but we will not abandon our efforts. Right now we are concentrating our efforts on the rule change that is before us. That is what we would expect to be able to accomplish first.
From our perspective in 1997, when we introduced a ruminant to ruminant feed ban, that was the action that we needed to take in order to prevent the spread of BSE. We believe that action was an appropriate action in 1997 and that it is having an impact as we move forward from that date.
Senator Sparrow: Can you give us some indication of when you think the border will be open?
Mr. Mitchell: No, I will not, senator. One of the things that I have said from the day I was appointed to this job is that I would not speculate on when the border would be opened. I will not put producers in a situation where they will be making decisions based on my speculation. I will provide a date certain when I have a date certain.
Senator Sparrow: On the subject of slaughter capacity, a number of slaughter facilities have closed in the past years. We have ended up with our slaughter capacity being probably 80 per cent owned by foreign investors. Now you are talking about investing in greater slaughter capacity. Will we need that extra slaughter capacity if the border does open? I question that because we may be encouraging the growth of greater slaughter capacity that might be in financial trouble in a short time because there will not be enough cattle to service the Canadian market if the export is open to the United States. You sounded optimistic about that slaughter capacity, that we would have it and there would be markets for it, but I do not see in the near future those markets being open to the Canadian slaughter industry. Once that border opens, the flow of finished beef will come from the United States back into Canada. That was historically the case. The capacity we had two years ago was a balanced capacity for export and for Canadian consumption.
I want you to assure me, if you can, that that slaughter capacity will not be caught with the problem of overcapacity and our industry lose money that some farmer may have invested. That is what happened in the pork industry. We expanded that industry. We said ``There is a market out there and we will expand that capacity.'' However, the cycle in the pork industry is so fast that if you overproduce, the price goes down. We then cry out for subsidies in the pork industry. All of a sudden, then, the price goes up; but then the cycle is so short. I am afraid of introducing that cycle into the cattle industry, too, that if we encourage this expansion in the slaughter industry, we will be caught short.
Mr. Mitchell: Those are very good questions, senator. We are operating right now at about between 79,000 and 81,000 per week. For the size of our herd, we really need to be operating at about 100,000. We were at less than 79,000 when the border closed. Some of that has been made up through the ability of plants to ramp up their slaughter capacity and, therefore, we have been able to take up some of the slack.
Prior to May, we had an integrated system. Certain grades of animals went south for slaughter and their meat came right back north. We discovered that once that integration was interrupted, the industry was put in serious crisis. Having the capacity in Canada gives producers the opportunity to process in Canada and sell finished product into the United States and around the world.
In terms of developing our systems, we say that they need to meet two tests: They need to be supported by a sound business plan and to be sustainable after a border opening. Those are the tests and due diligence that need to be done with respect to the proposals that are being brought before us.
There are different scenarios in different parts of the country. For instance, in Atlantic Canada the need to put a plant in place is critical. They have done it in such a way that, clearly, the business plan shows that it will survive with or without a border opening, or is likely to survive with or without a border opening, because of the transportation issues that they face and the way in which they have structured the plant: in other words, to have the producers involved in the deal in terms of guaranteeing product to go into the plant. Different realities are faced in different parts of the country.
We are also trying to develop international markets for finished product. We are making some progress in Asia. We will continue to try to make progress to expand those international markets. However, you are right, senator, that we need to do this in a way that will be sustainable even after there is a border opening. Producers will make decisions about how they want the industry to be structured once the border is opened. They will be making decisions about how much they want to process outside the country and how much they want to process within the country. I think they will decide that within the context of the experience they have had over the last several years.
Senator Sparrow: You say the producer will make the decision. The producers are really not in a position to make those decisions. The marketing by the corporate structure of the U.S.-owned industry makes those decisions. The actual cattle producers — you used the word ``producer'' and I assume you mean the actual producers — have no choice. We sell into that market. We do not have a choice. The decision whether it is exported to any country is not producer-driven.
Mr. Mitchell: Briefly, the idea is to give the producer the choice by building capacity in Canada.
Senator Mahovlich: Minister Mitchell, welcome to the Senate.
On October 23, 2004, Japan and the United States reached a Framework Agreement that will allow the resumption of beef trade between the two countries. Japan is now revising domestic regulations to alter its BSE cattle-testing requirements and other procedures. I would like you to explain that revision to me. A special marketing program will be developed for Japan under which the U.S. Department of Agriculture will certify that exported products meet the terms of the agreement. Did the Government of Canada try to reach a similar agreement with Japan? Should Canada expect a formal agreement with Japan in the near future?
Mr. Mitchell: Thank you, senator. There are several issues there. What we faced in the Japanese market, which the Americans faced as well, was that, after a number of cases of BSE in their own country, the Japanese instituted a domestic regime that required that 100 per cent of their animals would be tested. We believe that the science indicated that that was not a necessary or an appropriate position to take, and the Americans shared that opinion with us. The Japanese said that they would only accept imports based on their domestic policy. Imports have to meet exactly the same standards of testing as their domestic regime.
Two things changed for the Japanese, both of them positive for Canada. The first was their willingness to change their domestic policy where they would no longer require testing for animals under 21 months of age. That was important because in order to get access, that change needed to be made. They are in the process of making that domestic change. At the same time, they have said to the Americans that they are willing to begin discussions about the rules that would govern importation. The Japanese have said to us — they have said it directly to me and they have said it publicly as well — that they believe that the North American marketplace is an integrated marketplace, that there is not a distinction between Canada and the United States. They have clearly stated that whatever is provided to the United States will also be provided to Canada, and provided to Canada in the same time frame. That is also good news for Canada. They have indicated that there will be a technical mission coming to the United States to discuss those things, and that that technical mission will also be coming to Canada to have those same discussions with us.
The changes that are happening in the Japanese market are North American changes. They are positive for Canada. We believe that we have a regulatory regime, particularly in our ability to track and trace animals, that is second to none and that we will be able to meet the requirements that the Japanese will have in order for us to export into their market.
The Chairman: Mr. Mitchell, thank you very much. I know that you are in a tight situation tonight. I think you can tell from the questions around the table that we would love to engage in further dialogue with you at a time convenient to you. I hope you will come back and meet with us again.
You have been very generous tonight. All of the people around this table are concerned about these issues. Perhaps the next time even I can get to ask a question.
We look forward to seeing you back. We wish you all the best of luck. These are big issues that are very important for our country. Thank you for taking the time with us tonight.
Mr. Mitchell: Thanks to all of the committee members. I look forward to working with you and having the opportunity to speak to you again. I know that you all share my commitment and that of the government and of my department to taking actions in the best interests of Canadian producers and the industry in general. I appreciate that support and I look forward to working with you.
The Chairman: Thank you to Mr. Edwards and Mr. Fadden.
The committee adjourned.