Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 4 - Evidence of December 9, 2004
OTTAWA, Thursday, December 9, 2004
The Standing Senate Committee on Agriculture and Forestry met this day at 8:02 a.m. to study the present state and future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, thank you for being here and welcome to our viewers. This is the Standing Senate Committee on Agriculture and Forestry. Today we are discussing some of the problems, and I hope opportunities, that are out in our Western provinces in terms of the grain industry.
We have been discussing our cattle crisis and the closed border with the United States, and we will continue to do that in meetings ahead. However, this also has been a very difficult, in some cases heartbreaking, summer for some of those who are in the business of grain and oil seeds. We have had weather problems and I know this is affecting farmers across Western Canada in particular.
We will hear today from Mr. Murray Downing, president of the Grassroots Producers of Manitoba; Mr. Lynn Jacobson, president of the Alberta Soft Wheat Producers; their executive director, Mr. Andrew Kovacs; and from the Saskatchewan Association of Rural Municipalities, we have the president, Mr. Neal Hardy, and a director of SARM, Mr. Jim Hallick.
Welcome all and thank you for coming this distance. We are interested in hearing what you have to say to us today. We will have an hour and a half, so I will begin by saying in order to let everyone get as many questions and answers in as they wish, I would encourage you all to be crisp and to the point. I will begin with Mr. Downing.
Mr. Murray Downing, President, Grassroots Producers of Manitoba: I am a grassroots producer from the Province of Manitoba, and reside in the southwestern corner of the province.
This is our seventh occasion appearing before different committees in Ottawa. Every time we come here we hope we will go home and things will improve, but that has not been the case. There has been a steady decline; Mother Nature has not been friendly, and we are in a crisis situation in Western Canada.
There have been farm programs, but their timing has not been delivered properly, and it has had an effect on the communities. The family stress is unbelievable. We always look to governments for help because people are government. We are saying that what we are doing is not working. What can we do to make things work?
We have been involved in the CAIS program from the start, and we are here to talk about points in that program. I find it frustrating that if you are over at Agriculture Canada talking to some of the bureaucrats, they say they agree but they have to get the provinces on side. I see that as a huge task; the more people you have to get involved, the harder it is to get a consensus. This happens in a lot of the federal programs or federal-provincial jurisdictions,
Why cannot agriculture be a federally run jurisdiction, where decisions can be made down here? Everyone seems to look to the federal government for support when there is a crisis. Let them make the decisions down here. I see this as a solution to the problem.
Saskatchewan has 46 per cent of the cultivated acres in Canada, yet it is impossible to deal with the crisis because the province does not have the taxpayers to deal with the problems.
What can we do to address these problems? I guess that is why these types of hearings are held.
We have been to four committees before, but there is just talk and we keep going around and around. There has to be a point in time when we say enough is enough, and this is what we have to do. I would like to engage in a lot more discussion in questions and answers, so I will cut my time short.
The Chairman: Thank you; we will start with Senator Gustafson.
Senator Gustafson: How severe was the frost?
In Saskatchewan, the frost was very severe and I understand in the western part of Manitoba. This frost that hit seemed to be the last stone that was cast as it were, and I would like to hear from Saskatchewan, Manitoba and Alberta on that situation.
Mr. Downing: Where I live, probably Number 1 Highway was the deciding factor; north of there was devastated by frost. To the south of the highway, it was hit and miss; you could have one canola field that came off in pretty good shape and the next one was not worth harvesting. It was the same with many of the other commodities. We were not devastated, but there was still a huge impact. North of us, a lot of crops were just harvested for the formality of having to do it because the crop insurance said you had to do it. That is how bad we were too.
Senator Gustafson: What about Saskatchewan?
Mr. Neal Hardy, President, Saskatchewan Association of Rural Municipalities: Seeing that you farm in Saskatchewan, you have some idea of how severe it was. We have made available to you a package, and we did a quick survey of three things: the crop damage; the financial situation of farmers; and what will be needed to seed the crop in 2005.
The Chairman: I apologize, honourable senators. I should have asked all of our witnesses to make their statements first so that we will have it all on the table.
We will go to Mr. Hardy and Mr. Jacobson at this time so that we will have the basis for committee members to ask questions of all of you at the same time.
Mr. Hardy: Thank you to the Agriculture Committee for hearing what we have to say about the situation in rural Saskatchewan. I do not have to say much more with regard to that, but we did give your clerk a package with maps in it outlining the area of concern.
We also did a quick survey and sent it out to all 296 rural municipalities; 209 responded within four days, and we have not had time to check to see if the rest have responded, which I am sure they will.
I would like to talk about grain marketing systems that are a concern to our members, and the recommendations that stem from the seed sector review; the proposed disposal of the federal hopper car fleet; the economic state of the grain industry; and the financial situation of 55,000 Saskatchewan farmers.
I will ask Mr. Hallick to do the seed sector review and the hopper car presentation, and then I would like to talk about the farming situation. We will be brief.
Mr. Jim Hallick, Director, Division 4, Saskatchewan Association of Rural Municipalities: We would like to discuss the Seed Sector Review, commonly called the SSR. This is an initiative being led by the Canadian Seed Growers Association, the Canadian Seed Trade Association, the Canadian Seed Institute and the Grain Growers of Canada to review the current regulations governing the seed industry.
It is SARM's understanding that this review is arm's length from the federal government, but the Canadian Food Inspection Agency will consider the recommendations in updating the regulations pertaining to the seed industry. SARM has been following the recommendations stemming from the review and providing comments to the committee. Producers are the ones planting the seed and they are very much impacted by these recommendations.
SARM agrees with the recommendation that suggests streamlining the seed industry and its regulations, as well as establishing a permanent consultative body to monitor the seed industry. We also agree that kernel visual distinguishability, or KVD, must be reinvestigated, and that measures to increase traceability will be necessary in the future to ensure food safety and allow Canadian producers to continue to access world markets.
Our first concern lies in the lack of consultation with western grain producers through the SSR process. We understand that the Grain Growers of Canada were consulted throughout the review and were considered to be adequate representation for all Canadian grain producers. However, we do not feel that they adequately represent Western Canadian producers. SARM cannot stress enough how critical it is that a broad range of producers are included in the discussions surrounding seed sector issues like KVD and traceability, because these issues will have a major impact on future markets and our ability to access them.
Our second concern is the underlying implication conveyed in almost all of the final recommendations that were outlined in the SSR final report. The implication is to encourage grain producers to use more pedigreed seed. We have no argument with the use of pedigreed seed, providing producers can seed it in later years at no additional charge. Their recommendations will make it more costly to grow common seed. They suggest collecting royalties on common seeds and they tie the use of pedigreed seed to market access.
The following three examples outline some of our concerns. The review suggests increasing the regulations surrounding the use of common seed. This will increase the cost to grow and market it.
They make mention of linking the use of certified seed with crop insurance; using common seed will increase your premiums; and that the CWB contract program should be based on the use of certified seed.
The review also mentions that all seed should be required to be sold by variety name. This could ultimately lead to the end of producers' ability to buy and sell common seed. Such variety naming would require field inspections, documentation, et cetera to ensure that varietal purity and standards were being met.
The final report also explains that one of the results of such regulations may be that common seed becomes too expensive, making certified seed more commercial.
That is just one of our major concerns. The other two are listed, and are there for your perusal.
I would like to go on to the disposal of federal hopper cars. SARM has a vested interest in the 13,000 federal hopper cars. We feel our members deserve to be heard on this decision. Our members are the farmers who have been using the freight over the past 30 years to get their product to market; and they will continue to require a well-supplied, well- maintained capacity in the future.
Agriculture products in Western Canada travel thousands of kilometres to port. The federal fleet is currently provided to Western Canada grain for the movement and transportation of this grain. Farmers are currently required to pay the cost of maintaining these hopper cars through the freight rate.
In 1996, the Government of Canada announced its intention to sell this fleet of cars. It was proposed at that time that the cars be sold to the railways for $100 million and that $1 per tonne would be added to the freight rate for five years to pay for the cars. In other words, the producers would be paying for the cars. This was unacceptable to the farmers. We felt if we were going to pay for the cars, we should have ownership of them.
It was in response to this reaction by farmers that the Farmer Rail Car Coalition (FRCC) was formed, and SARM was one of the founding members. We have been involved in this exercise for eight and a half years, because we knew that if the hopper cars were sold to the railways, it would mean the producers would pay for the cars with no guarantee that they would be dedicated to the movement of western grains or that the fleet would be maintained.
Ensuring that the cars are being well maintained is a huge concern for farmers. Transport Canada told the FRCC that only 49 per cent of the hopper cars are completely fit for loading as the maintenance of gates and hatches are unsatisfactory. That means that the other one half of the cars are in need of repair.
The FRCC has reliable estimates from rail maintenance facilities that car maintenance on a long-term basis can be carried for approximately $1,500 per car per year. That is approximately $2,800 less per car per year than the railways are allowed to charge on the revenue cap. This could mean huge savings to the FRCC and to producers, and it could be used to upgrade and replace the cars and maintain them in a proper manner.
Farmers are aware that the amount they have been paying for rail car maintenance in the freight rate far exceeds the amount that should be charged. Farmers will not support any solution that will allow these charges to continue.
SARM was in attendance at the Transport Canada meeting on November 1, 2004, in Winnipeg. After listening to the business plans presented by CN, CP and the FRCC, we continue to place our total support behind the FRCC efforts. The FRCC was the only group to present a sound and professional business plan.
If the cars are sold commercially, as is suggested by the industry, the CTA provisions allow for a one-time capital expenditure to be rolled into the revenue cap; producers would be forced to pay for them again, increasing their freight rates, as was suggested in 1996.
The FRCC proposal is the only option that ensures the cars are dedicated to the movement of western grain and that they will be continually upgraded and the capacity maintained throughout the years at no additional cost to producers or the government.
SARM is a strong supporter of farmer ownership of the federal hopper cars. We continue to support the FRCC in their objective to retain the ownership of this federal fleet. If anyone is interested in more information or the complete business plan, it is on our website.
Mr. Hardy: I have a few comments in regard to the situation as we see it in rural Saskatchewan. This year, Saskatchewan grain producers are faced with severely degrading crop factors, such as excessive moisture and frost, that affected the quality of the 2004 crop.
This year's hurt is only compounded by the hurt experienced in the previous year due to drought, frost and trade injury, and international subsidy programs that are not available to our producers. SARM is concerned that come seeding time next year, producers will not have the financial capability to seed the 2005 crop year.
We can speak to the hurt in Saskatchewan as the 2004 crop damage our producers has been extensive throughout the province. SARM conducted a frost survey in August 2004 after the first heavy frost to find out how many rural municipalities in Saskatchewan had been affected. Our survey indicated that over 75 per cent of rural municipalities in our province were hit by the frost. Forty-six per cent indicated it was widespread throughout DRM. The south western corner of our province was the only part to escape frost.
We also conducted a survey a few days ago to assess crop damage, and the need for financial assistance to seed the 2005 crop. The results indicate that over 70 per cent of the 205 farms had extensive crop damage and over 80 per cent felt they would need financial assistance to seed their crops in 2005.
Many producers are being turned away at the elevators, because the grain has no market value. The feed wheat market is over supplied. Many producers have about 45-pound feed wheat that has no buyers, yet Canada Saskatchewan Crop Insurance indicates it has a quality factor of 0.32. The quality factor should reflect the fact that the grade of wheat is unmarketable and should instead have the quality factor of zero and producers should be able to trigger an insurance payment.
Even our number one hard spring wheat is not attracting the prices it should. Also, we had only about 13 per cent of our wheat to come off as number one or two. We do not have high grade wheat. Producers have exhausted their lines of credit. We have talked to quite a few of them and they have run out of options for borrowing. Many lending institutions have told managers not to accommodate accounts that are at risk; just about every account is at risk. The lending institutions have tightened down, because of the quality and value of the wheat and the value. Our growers will be left with no option, but to approach both the federal and provincial government come seeding time.
A short-term strategy that was suggested by APAS, one group in our area, is a targeted per acre payment based on crop insurance data. I was talking to their president last night and they are still working on that.
Another short-term strategy suggests a set-aside program that would pay producers to take a portion of the land out of production for one year. This seeded acreage set- aside program would be expected to have the same benefits for the grain industry as for the cattle industry. Taking land out of production would reduce grain and oilseed supplies and drive the price up wards. Not only will it help lead to a more favourable price for grains and oilseeds, but by paying producers a set amount of dollar per acre to set aside a portion of seeded acreage, it would provide producers with the cash they will need to seed the 2005 crop year. Hopefully, it will do two things. In order for such a set-aside program to significantly address the financial needs, SARM would suggest the following parameters in the program: The set-aside program would be in operation for one year; a producer would be allowed to set aside 35 per cent of seeded acreage; a payment of $40 per acre set-aside would flow from government to those producers who choose to participate.
The average farm in Saskatchewan is between 1,500 and 2,000 acres. We suggest that the maximum number of acres eligible for payment under the program should be 30 per cent of 2,000 acres, which is about 600 acres. We suggest the set-aside program be separate from the APF program and funded 80/20, federal and provincial, respectively.
In order to address the hurt over the long-term, we need to take a serious look at the effectiveness of the Canadian Agricultural Income Stabilization program (CAIS). We are aware that it is new and undergoing a period of critique, but it is currently the only income support program available for producers. We have crop and reduction insurance, but the only one we have available for income is the CAIS program.
SARM feels that CAIS has not adequately addressed the farm income declines. Enrolment statistics show that producers do not have the confidence in the CAIS. In 2003-04, 30 per cent of Saskatchewan producers choose not to apply and 20 per cent that made applications have not submitted their supplementary forms by the deadline of November 30, 2004. We have checked those percentages with the province. Of the 50 per cent of the producers who have not applied or have not put up their deposit, many have no reference margin. They are building their cattle herds and producing grain and oilseeds. You do not build a net income, because you are putting it back into your capital. Many of them have no money to pay the accountant, which is about $1,000.
Those in the cattle and grain industry are the worst affected. We have almost 23,000 producers in Saskatchewan who have cattle and grain and oilseeds. It is a double whammy for them. The producers who need the support the most are not getting what they need as the reference margin has been severely depressed due to years of poor crops or of building a herd.
The requirement that the producer make a deposit prior to triggering any government assistance is unreasonable. Unless you can borrow from someone that you know the money is just not available. It is easy to say to borrow from the bank, but it is not easy.
Those are the things we are facing in rural Saskatchewan. I have never seen it so bad in the 50 years that I have been farming.
Mr. Lynn Jacobson, President, Alberta Soft Wheat Producers Commission: We do not want to do all six of these briefs today. We do not have the time. We want, if you have time, to introduce three topics: The government hopper car disposal; the agriculture policy framework, or the CAIS program; and research.
We planned to address an issue here, since the tension level is getting higher, and Mr. Kovacs will address this before we start.
Mr. Andrew Kovacs, Executive Director, Alberta Soft Wheat Producers Commission: It is rare for someone from Alberta to come before this group. We are happy to be here, and we bring greetings from Alberta and special tools that our small organization can afford. The tools cost in the neighbourhood of $6. We have two items here. These are bona fide Alberta stress relievers, a red one for liberal and a blue one for the conservative. What they are meant to do is relieve stress. Those of you who are not stressed will make the toy into a tree or a house, but those of you who are really stressed with make it into something like this.
We bring special greeting for honourable senators. We have supposedly elected senators in-waiting for Alberta. We will send them to Ottawa and pay them to be senators in waiting, probably to cater to this group here today. In addition, in Ontario you had the SARS outbreak. Well in Lethbridge, we had a DARs outbreak.
The Chairman: We always like to have a bit of Alberta sunshine here. I am sure we will all have some use for this stress equipment and take our warmest wishes back to southern Alberta.
Mr. Jacobson: I will not go through the history of the railcar coalition. I will comment on the comments that have been read into evidence and some of the things that are being said in the press about the farmer rail car collision. I will start reading at the bottom of the first page of our brief.
It is no secret that the knives came out, so to speak, when it became apparent that the FRCC proposal for the acquisition of the government hopper car fleet was being considered very seriously by the federal government. Opposition from the railroads, the Western Grain Elevator Association, the Western Canadian Wheat Growers, and the Saskatchewan Canola Growers Association have all tried to raise doubts about the business plan and the motivations of the FRCC.
There have been statements made by those opposed to the FRCC proposal that we would like to comment upon.
It has been stated by groups opposed to the FRCC's bid that the grain transportation system is far from perfect, and it is complicated and any changes that will be made will need to be well thought out. The Alberta Soft Wheat Producers Commission and any other organization in the FRCC can agree with that statement.
However, we cannot agree with the Western Grain Elevator Association suggestion that if the FRCC obtains the grain car fleet it will cause too much uncertainty in their business and ultimately the collapse of the grain transportation system. To suggest that social goals, political agendas and non-commercial factors would come into the management of the hopper car fleet is simply not true. The FRCC has stated in meetings and in their business plan that they are going to operate like any other leasing company of rail cars.
If the FRCC is going to maintain and replace a grain hopper car fleet out of operating revenues, as is the plan, they have to act in a responsible manner by taking commercial factors into account.
It is not in the best interests of producers and the FRCC to pick winners and losers in the grain handling system. As to accountability, we agree that the FRCC will be held accountable for their actions by the grain producers of Western Canada.
The railways opposition to the FRCC is more readily understood if the FRCC maintenance figures by car are correct. Reading the briefs read into evidence before the Standing Committee on Agriculture and Agri-Food hearings, it is evident that the railroads have skirted around any questions concerning their actual costs of car maintenance. They prefer to talk about in train repairs, bad order repairs, transportation of cars to shops or how complicated the transportation system is in general.
The Alberta Soft Wheat Producers believe that the FRCC maintenance cost figures must be fairly accurate or the railroads would have jumped all over them.
The Alberta Soft Wheat Producers has recently joined the FRCC as a full member, and we hold a seat on the interim board of directors. The announcement in the newspapers of our joining the FRCC has not resulted in one negative comment from members. Conversations with neighbours and other grain producers at meetings I have attended have almost always ended with them saying, ``It only makes sense to own the cars.''
Any other options that the WGEA, railroads or opposing farm groups have put forward has grain producers in Western Canada paying for an asset that someone else will own.
We believe that the best option is to obtain ownership of the grain hopper fleet, if the federal government wishes to sell them. It is our opinion that the FRCC plan offers the best option for maintaining or replacing the car fleet with the least cost to grain producers.
Research has always been of huge importance to farmers no matter what part of the country they are from or the type of operation they run. Although it is difficult to get universal agreement on many issues in the farm community the value of research is acknowledged right across the board.
The former Agriculture Canada, now Agriculture and Agri-Foods Canada research facilities are recognized for their expertise and contribution to all producers. This research goes back over 100 years to the first experimental farms in 1886. The specific research achievements and contributions to producers would take pages to list. Their contribution to crop variety development and animal production applied research is immeasurable. This contribution was recognized during the consultation process for the Agricultural Policy Framework when research was big part of the discussion. The government indicated that more research needed to be done in health, safety and environment issues, as well as up stream research such as bio-products. The farming sector was in agreement since our understanding was that new money would come in to fund the research. The government said that it was committed to fostering a technology advanced agriculture sector. Producers hoped that research in these new areas would pay the same dividends up stream for the food industry that applied research is making to their operations.
It was recognized that up stream research would only benefit producers if it benefited them all. Up stream research benefits the agri-food sector and Canada as a whole, but not necessarily the agricultural producer.
If all this seems to be positive, I would like to say that until now we too have regarded research as one area where agriculture has not experienced the deep cuts that have been experienced in other areas.
We were told that research, science and technology were big priorities for the government. It was a major disaster for us when we learned that the new research into health, safety and environmental issues, as well as up stream research into bio-products is to be done at the expense of crop development research, animal production research and other applied research to agricultural production. These areas of research with benefits to the individual producers are to be discounted because up stream research has a higher priority. This is to take place over a 10-year timeline.
AAFC has not yet made it public that applied research in agriculture, including crop variety development, is facing elimination. They may never make this public statement, but sources indicate that this decision has been made. We hope that this decision will be reversed since plant breeding and applied research is so crucial to producers.
The best way to describe how essential this research is for me to describe research in my industry and the effects such a cut would have on soft white spring wheat. Producers of other crops would echo what I say if they talk about production of their crops.
The producers of soft wheat spring wheat have benefited from applied research and production in various areas including fertilization, pest control, cereal disease research and plant breeding.
The area of research with the most obvious benefit is plant breeding. Fully 100 per cent of all of the soft white spring wheat produced in the past 10 years has been from varieties developed at AAFC. There are presently no other varieties of soft white spring wheat registered for use on the Prairies than those developed by the AAFC. There are no other varieties of soft white spring wheat that match the quality or agronomic performance of the varieties developed by the AAFC. For that reason, plant breeding is important across the Prairies. Wheat bred and developed for production on the Canadian Prairies should perform better in agronomical terms than wheat developed in the United States, Australia or Europe. The same applies to soft white wheat developed in Ontario. Regional experimental farms were started across Canada for that reason. These research facilities should be maintained in the various regions of Canada. The justification put forward for moving away from applied research and plant breeding is that private industry will move in when AAFC is not involved.
Realistically, this will happen in a limited way. Private industry will do some research and extract a price from producers for the results. Even that will take place only for large volume crops. In the case of soft white spring wheat with its small potential market, it is unlikely that any research will be done. Producers will slowly fall behind their competitors as research moved ahead in other countries. After some years, our industry will die. Soft white wheat production will not survive without research.
There is always a ripple effect in the loss of production. In Western Canada, there is no product to replace soft white spring wheat for flour for pastry, cookies, donuts and cakes. All other our soft white spring wheat is presently being used domestically. The spin-off of this would be greater than the simple loss of production.
What can the mills do to replace this wheat? We can only speculate on what effect the loss of the supply of soft white spring wheat would have on end users such as the big cookie plant in Edmonton, Alberta.
Other classes of wheat would not be affected as completely as this class, but all would feel the effect of the discontinuation in research. Every year the Canadian Wheat Board comes out with a list of varieties of all wheat grown across the Prairies. The list is comprised principally of varieties developed by AAFC. The most common hard red spring wheat grown for years was AC Barrie. The topic variety now is AC Superb. AFCC scientists developed both of those crops.
The value of applied research in other areas is just as great. No institution or company has the scientists, lands or expertise to do what AAFC has been doing. A discontinuation of plant breeding and other applied research at AAFC will hit all producers hard and will be devastating to many.
The Alberta Soft Wheat Producers Commission recommends that crop variety development, animal production research and applied research not be discontinued and a commitment be made to keep things going; that infrastructure and research facilities be maintained to keep this research going; and, that there be an increase in core funding for science and technology in order that the present research be maintained and funding still be available for up stream research.
Mr. Kovacs: I would like to add a couple of recommendations to the CAIS program. We recommend the establishment of a national committee composed of producers, government officials and other stakeholders, and that is being done. We wish to ensure that the CAIS program continues to comply with the underlying principles of AAPF and WTO requirements. In conjunction with the provinces and territories, we recommend that it is made more flexible for producers to access interim payments under CAIS in order to ensure cash flow. We also recommend the elimination of the deposit requirement on producers' reference margin and replace it with a deemed deposit requirement. We have had meetings in Alberta on that issue and it looks like there is momentum to work toward that goal. Our last recommendation is that producers be provided with the option of using a five-year average when calculating reference margins.
Those recommendations may help the situation in the short-term.
The Chairman: Thank you very much. You can be assured that members of the committee will study the other parts of your presentation, which are of great interest to our study.
Senator Gustafson: I am glad that the Saskatchewan Association of Rural Municipalities is putting forth some suggestions for solutions to the crisis, which seems unreal. Yesterday, the headlines in the newspapers said that more people are starving in the world than ever before. They said that one child dies every five seconds. Something has gone wrong in the world. There has to be a global solution to this problem. Farmers can produce the food, but they themselves are having problems. It seems that the emphasis in the world today is on everything else but the basics.
I do not expect that you will have a quick answer for this, but something has to be done at the global level, perhaps at the United Nations. I know that there are many reasons why starvation happens, but it is hard to understand why, in an age when we can put a man on the moon, we cannot deal with the simple problem of ensuring that everyone has food and that the producers get some return.
That is a pretty broad statement, but it has to start somewhere. We have a very serious global problem with which we must deal.
Mr. Hardy: That is a very broad statement and probably way beyond the capabilities of our organization. We all recognize that the need around the world is great, but the need of Saskatchewan producers has become great too. Farmers who know that they will lose everything and have no way of getting money from lending institutions are committing suicide. This is starting long before April and May when we start seeding.
We put together a proposal on ways to maintain good farmers. These problems are not as a result of bad farming practices. Locally, the problem is that we had a severe frost on August 20 that wiped out most of the wheat crops and one-half of the canola crops. Our malt and barley went to poor feed. These are situations that no farmer can afford.
One suggestion for helping these farmers is a set-aside. This has an up side and a down side. The up side is that it will give producers who have some chance of surviving a cash flow in the spring if they agree to set aside a certain number of acres. Also, it will probably reduce the amount of production next year and therefore improve the price a bit.
Two things are killing farmers. The first is the frost this year and the second is the price we are receiving for it. Federally and provincially there is really no subsidy. We do a bit with CAIS and a bit with other programs, but there is really no price subsidy. We just go with whatever we can get.
We have only been working on that proposal for a few days. We have had conference calls and meetings and some discussion last week with Senator Gustafson, Senator Tkachuk and Senator Mercer. There is some support for something like that. We have to do something for our producers because it is the end of the line for them, particularly for the cattle producer who has grains and oilseeds at well. There is nothing left for them.
Senator Gustafson: Otto Lang brought in the LIFT program, and it was successful for my farm. I know that Mr. Lang took a lot of heat for the program, but things were very difficult then. It is hard to find a perfect solution, but I can say that it did work on my farm.
Senator Tkachuk: Mr. Downing, you recommended that agriculture be solely a federal responsibility. That is an interesting proposal. Part of the reason for that recommendation is that when you have discussions with the federal government, they say that they have to get the provinces on side.
Is there anything stopping the federal government from funding the program on agriculture on its own?
Mr. Downing: To my knowledge, no, there is nothing stopping the federal government. That is the way it has been traditionally, but sometimes tradition does not work.
Senator Tkachuk: It is custom. When they say they have to get provinces on side, are they saying it because it is custom or are they trying to avoid addressing the problem?
Mr. Downing: It is probably a bit of both. We all know that the more people you have to convince, the more complex a situation gets.
The Chairman: I believe that somewhere in the mists of constitutional time agriculture is referred to as an area of shared jurisdiction. However, I think that in that and a lot of other areas there has been change over the years. We take your suggestion very seriously, Mr. Downing.
Senator Tkachuk: The environment is also a joint responsibility, as is agriculture. In other words, both the provincial and federal governments have taken certain actions. We do meat inspection. We do many things cooperatively, and we also do things separately.
My point is that there is nothing stopping a province or the federal government from initiating a program on their own without the cooperation of the other.
Mr. Downing: The crop insurance program seemed to be the provinces' baby. The CAIS program is a national program. Perhaps the CAIS program needs to be run federally and crop insurance run provincially.
Senator Tkachuk: Many times, a federal program is the best thing because the situations are so different from province to province that they need the federal government to actually implement the program.
Mr. Hardy, you talked about the set aside. Were there any estimates done as to what it would cost the federal government if everyone took the maximum percentage,
Mr. Hardy: We did brief estimates. If everyone took it, it looked like it could be up to 8 million acres, which would cost $320 million. It would help the small and middle size producers. With the cap on it reduces a lot of those acres out of the package and some will not take it. They do not want anything to do with government at all. They just stay away from it.
We estimate that the maximum would be 8 million acres in our province, and we have one-half the farmland in Canada. It would certainly focus on those who really need the help to put in the crop in the spring.
Senator Callbeck: You have described a very difficult, stressful situation in your province. You mentioned the hopper cars. I believe, Mr. Downing, that you were the only one who did not comment on that subject. Are you in favour of the farmers' coalition?
Mr. Downing: As producers, we have lost our control at the farm gate to multinationals. I will support anything that puts control back to the farm gate.
Senator Callbeck: Are you all in support because you feel the costs will go down? You mentioned the meeting in November at which the coalition had a very professional business plan.
Did that show your transportation costs would be down or is efficiency the reason?
Mr. Hallick: To answer that it is two or three fold. We are not suggesting the costs will go down tremendously. They will stay even, at worst. We would have improved maintenance and insured supply, because the cars have been owned by the federal government for several years. There has been no replacement strategy, nor do we see one with the sale. Furthermore, the cars are dedicated to the movement of Western grain. They were purchased in the first place for the sale of Canadian grain. We see the worst scenario as maintaining capacity with much improved maintenance. That is why we are interested.
As I said before, if we are going to pay for them surely we must have ownership. It does not make common sense any other way.
Senator Callbeck: The Alberta Soft Wheat Producers Commission mentioned CAIS and the account deposit. Other witnesses here, including the Canadian Federation of Agriculture would like that would like to see that replaced or eliminated. You mentioned that you would like to see it replaced with the deemed deposit requirement. Please explain.
Mr. Jacobson: If it is deemed by CAIS or AFSC in Alberta that you have $100,000 as your production margin, you would be putting in 22 per cent of that as cash for your contribution. Many farmers must borrow the money to make the deemed contribution for the program. Much of the government money is being in use for other purposes. It is not sitting in an account. It does not really come into play until there is a claim.
Farmers should have equality with the government. Their money should come into play at the same time as the federal money. If you had a deemed contribution and were to collect $50,000, then the farmer's contribution should be taken off the cheque issued to that farmer. It would save farmers the cost of borrowing the money from the bank. Some of the people wanted to change their NISA account into the CAIS program. There were problems there, also, if you had a NISA account.
Mr. Kovacs: As it turns out, honourable senators, it was estimated that if producers were full participants in the program, they would have to borrow in the neighbourhood of $5 billion. They would pay the difference between the Treasury Board rate offered as interest on that deposit and the bank rate, which would probably equate to 2 per cent.
However, there is no need to do that; the deemed deposit would act the same way as the NISA program did if the money was deposited. The borrowed portion of the producer's deposit is only to access the federal money.
You cannot borrow money and have it free. You must pay something for that borrowed money. The logic is that it be deemed by the bank and be available to the government in that program at no charge.
Mr. Jacobson: There is another element. The administration on the deemed deposit will cost the government many million dollars. That is a waste of money. The costs to government would go down, too.
Senator Oliver: What about a promissory note?
Mr. Jacobson: There has been a letter of credit, which costs you money at the bank; it is like borrowing money. A promissory note would be like a deemed deposit.
Senator Oliver: It does not require cash.
Mr. Downing: The banks are in favour. If I have to borrow the money, they will maybe charge me 6 per cent and give me 4 per cent as an interest bonus on the account. The banks are the gainers, not us.
Senator Gustafson: They gain especially if the government guarantees it.
Mr. Downing: That is correct. There was a push by the financial institutions to have that. It is unnecessary.
Senator Oliver: I want you to see that I feel your farmers' stress. I have a question that I call the ``politics of seed.'' I am interested in what Mr. Hardy said in a portion of his presentation when he talked about pedigree seed, certified seed, common seed, and genetically modified seed and so on.
It seems to me that the essence of the crisis is that if you cannot get seed for the spring of 2005, you cannot plant and farm. This committee should be looking at what can be done about the politics of seed.
Before Mr. Hardy gives me a description of the real crisis with the pedigree, the common and the certified genetically modified seed, I would like you to comment on what Monsanto Canada is doing.
In January of this year, Monsanto said that it will be putting its development of genetically modified wheat on the back burner because of market conditions.
Do you think seed companies will try to introduce it again in the next two or three years?
Will market conditions have changed, and what will that do to seed companies?
What is the effect of not having this genetically modified seed in the West?
Mr. Hardy: Since we have not had it, it is hard to rate the effect of not having it. Our concern has always been the mixing of our modified seed with our regular grains, for export markets in particular. Many countries do not accept genetically modified grains; they do not want it mixed in. We were not against the science of it, but we had no way of keeping it separate. Most European countries will not accept genetically modified seeds in the grains.
I assume that Monsanto Canada will bring it back at some time as they have spent a lot of money in its development. If they do, I hope we will have a way of separating it out.
Senator Oliver: Wind blows the seeds all over.
Mr. Hardy: Yes. You can find Roundup Ready canola everywhere.
Senator Oliver: Returning to the pedigree problem for the spring planting of 2005, what is the main problem?
Mr. Hardy: I do not know if there will be a direct problem for 2005. Our concern is that if changes to the pedigree seed sector require farmers to use certified seed or pedigreed seed and to buy it from a seed distributor rather than using their own seed, costs will go up dramatically. We all buy pedigreed seed and certified seed at times to re-establish our seed, but many of us carry our seed over. I personally do that for a couple reasons. One is that it is much more cost effective and I have high a germination rate. Second, it is acclimatized to my area. I am from the northern part of the province and it shortens my season. Some will say it does not, but it does. If I buy my seed from the south, my season will be five or six days longer than if the seed is from my own area.
[Translation]
Senator Gill: Mr. Downing, you said the situation of the farmers of Saskatchewan and the rest of the country is deteriorating. You mentioned several problems, including price freeze. You also suggested that agriculture should be managed more by the federal government.
I will go back to Senator Tkachuk's question. Without modifying the Constitution, do you think a delegation of responsibility to the federal government could solve the farmers' problems? In Quebec, notably, outside of politics, you really think this transfer of responsibility could change farming efficiency and profitability? The situation of farmers has been deteriorating for several years. Would this be enough to improve the situation?
[English]
Mr. Hardy: When the federal government brings out a program that may be favourable, it goes to the provinces and the provinces say that it will cost them too much money. Therefore, some of the good aspects of the program are removed in order that it can go forward.
We have been involved in the CAIS program from the start. It was watered down to get the provinces to sign on in order to make it a deal for Canada. In Senator Gustafson's province of Saskatchewan, the cost sharing is 60 per cent federal and 40 per cent provincial. Therefore, the provincial government is negotiating to remove aspects of the program to save itself money.
A prime example is the hail and crop insurance that producers buy. If we could remove the proceeds and indemnities of hail insurance from the CAIS program, producers would get much better coverage, because we would be getting closer to a cost-of-production program. The provinces say they cannot afford that so, as an example, it would be put in as an expense.
Crop insurance is specific to each province. This is more of a general revenue program, which is a national program.
Senator Hubley: Given the extreme weather conditions that have impacted the wheat industry has the Canadian Wheat Board become involved in the marketing of the wheat?
Have they taken any steps to improve matters for farmers?
What happens to your existing markets around the world when you cannot supply them, or do you have reserves that you can tap into at times like this to fulfil those obligations?
Mr. Hardy: A person from the CWB could answer your question much better than I can. Farmers really do not carry over stocks on the farm from year to year. We grow it, sell it, and it is gone. I do not think the CWB holds very much either, but I cannot answer that question.
Senator Hubley: There is no obligation on the Canadian Wheat Board with regard to buying your wheat?
If it is a good year, they buy a lot; if it is a bad year, they do not buy?
Mr. Hardy: Overseas customers probably want that No. 1 wheat.
Senator Hubley: Who are your competitors?
Mr. Jacobson: There may be some misconceptions with regard to the CWB. For one thing, they do not buy our wheat; they handle our wheat, which is an important distinction. They are our agents; we are not their customer. Our customer is the end user of the grain.
As to carry-over of wheat, as Mr. Downing said, it is usually within our system of on-farm storage or wheat left in the elevator system at the end of the year.
The sales program to a certain degree cleans the system out and we do have Mr. Weisensel from the CWB here who could answer some technical questions. As a farmer we are not involved in the day-to-day operation, so it is hard for us to say.
Senator Hubley: Could we have him comment?
The Chairman: They will be our next witnesses.
Senator Callbeck: I would like to get your comments on ethanol production.
Mr. Jacobson: We have looked at ethanol within our industry. Some of the varieties of soft wheat we have will produce more biomass product or starch product than any other grain in Canada. It competes favourably. The net in on ethanol does not match the net out. It costs more to produce it.
Unless there is a clean air act in Canada like in the US, ethanol will not become a viable industry. The ethanol industry is looking for biomass or starch not quality or grain. Whatever you produce will be a lower value product for that industry. You have to produce more to stay even where we are now.
Mr. Hardy: Saskatchewan has moved a bit toward ethanol production. We have two major plants. Husky Energy Inc. at Lloydminster has moved in and is going to produce 15 million litres a year. The plant at Weyburn will be the next one coming on line.
The problem with ethanol is to find the sales as mentioned here by Mr. Jacobson. The price of production supersedes the price you receive for it. There are subsidies involved.
There is also a small plant at Foam Lake that produces biodiesel. Some of the school buses and some of the transit buses in Saskatoon have started to use it. They have moved a little in that direction, but we have a long ways to go. However, there has been a start in Saskatchewan.
Mr. Kovacs: I would like to add that the soft wheat would be a solution. For example, if we had three world scaled plants in Manitoba — we would have to legislate this federally — and we were going to use 10 per cent ethanol in all the fuel used in Manitoba, we could eliminate 30 per cent of the total grain production in the province to supply the ethanol that is consumed in that province. This is a particular advantage to a province that is land locked and where they have shipping costs that are the highest in the country.
Senator Tkachuk: You said that the Agricultural Policy Framework indicated that more research had to be done in health, safety and environment issues and then you said that the applied research is facing elimination.
Does that mean the agricultural stations are going to be shut down?
Are you hearing that and have you had an official statement?
Is that what the department moles are telling you?
Mr. Jacobson: We are in the mole department to a certain degree on this one. It has not been made public, but we have seen evidence where they have listed the stations. They have classified them as good, fair, and poor. For example, a research station in Ottawa is listed in poor condition, because of the buildings and infrastructure. The one at Swift Current and some of the other ones are also in poor condition. There is a consideration on the government's part, because of the cost of upkeep on some of those things. We think there will be a downgrading of those research stations.
Also I have seen where over the 10 or 20 year plan, they will go in and do the bioresearch. They call it up stream research on the bio, and germ plasma end. From a farmer's point of view, if you are dealing that end of the industry, you are not touching producers at all, because that type of thing does not produce a plant; it just produces the genetics. Who is going to produce the plant?
The research that goes on now, through the AAFC, basically produces the plants and the varieties for us. They are planning to do the up stream research and then farm out to the universities or to the other big companies.
Well, from our experience with the big companies, if they do that type of research, developing the plants, they get to patent that plant and the seeds. As the end user, a producer, of all that seed, we will be paying another cost to use the technology.
Senator Tkachuk: That program even though they do the work of the federal government, they do work with the universities. It has been successful and has had a long history of success in Canada. It seems to me it has anyway.
Mr. Jacobson: To a certain degree, our industry is envied around the world. Now there has been a basic change. We have a representative on the WGRA, Western Grain Research Association, with which you are familiar. They have their matching grant money and they have to go to the federal government with what they call the MAI grants. They have had limited success in signing those agreements with the federal government on the research end. They are in the plant development, the agronomy end of it. They develop new varieties for farmers. They have had little success in signing those agreements and they are usually done by November.
Mr. Kovacs: Public plant breeding — so there is no misconception about who is doing the funding — is not funded 100 per cent by the federal government. Over the last 15 years, they have sought soft money from industry and now it is funded 60 per cent by producers matching other grants and industry. The government at this point is perhaps only paying 40 per cent.
You have to remember that public funded research benefits everyone. Perhaps, it benefits the producer first by producing a new cultivar that has special agronomic traits, yield or quality, but in actual fact it benefits the whole country. That is why public funded research has always been a mandate of the federal government, because it benefits the country as a whole. Sixty per cent has been funded by soft money not by the federal government. From our information, the federal government wants to eliminate that 40 per cent as well.
Senator Tkachuk: Maybe we can follow up and get an official statement in the Question Period.
The Chairman: Maybe we want to ask someone from the department to come back and address that question, because it is an important one.
Senator Tkachuk: I would rather ask a politician.
The Chairman: You can do that anyway, but we can get the department as well.
Senator Tkachuk: If there is time, I would like to talk to Mr. Hardy about ethanol for just a minute.
Senator Gustafson: Mr. Jacobson, what are you receiving for a bushel of soft wheat? What is the interim price or the initial price?
Mr. Jacobson: It is $130 a tonne.
Senator Gustafson: What is that in bushels?
Mr. Jacobson: I have to start calculating.
Mr. Kovacs: That is approximately $4 a bushel. They would take off $1.40 for freight, elevating, handling and other expenses. We would end up with $2.60 per bushel in our pocket. You receive an initial payment then final payments. The initial payment would give just over $2.50 per bushel.
Senator Gustafson: That is less than the hard wheat?
Mr. Jacobson: We are sitting at the equivalency price of 12.5 per cent of protein No. 2 hard wheat. We are within pennies of that PRO statement.
Our industry favours comparably with the hard wheat industry given our yield advantage.
Senator Gustafson: Does that price cover your input costs?
Mr. Jacobson: At this time, no.
Senator Gustafson: You lose money on every bushel of wheat that you grow?
Mr. Jacobson: On the initial payments, all farmers are in a net loss position.
Mr. Kovacs: Perhaps the profit would be in the last 10 per cent that you receive in the last interim payment and final payment. That would be profit margin for producers, even those on irrigation.
Senator Gustafson: Is most of the soft wheat on irrigation?
Mr. Jacobson: Most of the south wheat is grown in southern Alberta and is on irrigation. Some is grown in Saskatchewan on irrigation, too.
Mr. Kovacs: To answer the previous senator's questions, they tried a new variety called AC Andrew. It is being grown in Lanigan Saskatchewan for PoundMaker. They have adopted it over CPS Red because of its starch quality for ethanol production. We are working on the ethanol part of it with higher yielding varieties with high starch content.
Senator Gustafson: Regarding Mr. Downing's suggestion of a national program, John Wise was working on that idea 20 years ago; it never happened. Either Ontario or Alberta would jump out.
What is each of your provinces contributing towards the CAIS program?
Mr. Downing: Our province is fully funding their 40 per cent, as I understand it.
Mr. Jacobson: Alberta is fully funded up. We are meeting the provincial commitment to the CAIS program at this point.
Mr. Hardy: Saskatchewan is capped at $99 million of the 40 per cent. When they made the payout for 2003, it was only 10 per cent. They paid 60 per cent federally and 10 per cent provincially. That is all that the farmer received for the 2003 application of the CAIS program.
Senator Gustafson: Has approach been made to the provincial government now that they are a have province to kick in their fair share?
Mr. Hardy: You can believe that. I had a discussion with Mr. Wartman a few days ago. He is the agriculture minister for Saskatchewan. We have been putting on much pressure on both him and his department. I do not know if they will move or not. I get the impression they will move. They have sufficient dollars to do it, no doubt about that.
Senator Oliver: I have a question about research. You have told us that you all have had an early frost, and it did irreparable damage on many of the crops.
Is there any research that has said value can be added even to a poor crop by doing different things with it?
People have been talking about ethanol. What about some of the other value added products that can come from poor quality wheat and oilseeds?
Mr. Hardy: It depends on the protein. If the protein is very low, it becomes almost a no-value crop because even the hog industry or any other secondary type of usage does not want it unless it has high protein.
Some of the damaged crops that were not too severely damaged do have high protein content. The hog industry will look at this type of crop. The poultry industry will not. We cannot find anyone else to use it. There are piles of this wheat and barley sitting all over the country. They do not even want to put it in their bins because they know that they will need to destroy it.
Senator Oliver: There is absolutely nothing that can be done with this product?
Mr. Hardy: No, not that I am aware. The only types of secondary industries are hog, cattle and poultry. It does not work well for ethanol production. It does not fit any place of which we are aware.
Senator Oliver: A number of people in the fishing industry would take the head, tail and offal to be used for dog and cat food. It is a multibillion dollar industry.
You are saying that your research institutions are not working on any possibilities. Is anyone studying this at all?
Mr. Jacobson: We are not aware of any research being done on the poor quality product. This situation does not happen that often to us. When it does, it has a devastating effect to our industry. When you are getting 30 or 40-pound wheat, there is nothing in it. There is basically no meat; it is only husk.
Senator Oliver: Most Canadians who are not farmers will now understand how severe it is. Even the product you are able to cut for the purpose of getting insurance has no value.
Mr. Jacobson: That is one of the things with crop insurance. They take net bushels on it. There is no price per acre. That is a problem. You can have your bushels. In our area, we are covered for irrigation wheat. You have 65-bushel coverage on that. If you get that 65 bushels, they will discount it on one or two crops. However, if you produce 100 acres of wheat that is not good for anything, you will still not collect on crop insurance, because you have the production. You still have nothing to sell, and you have no money.
Mr. Downing: There were other suggestions made on what to do to help for the spring of 2005.
We do have a spring cash advance program based on crop insurance. It is not perfect. The program is capped at $50,000. If I have $110,000 worth of crop insurance for my farm, I am still capped to $50,000.
I may need $100,000 of credit to put into that crop. I can only get $50,000 from the federal government for the spring cash advance. I might have to the multinational grain company to get the balance. That is where the hook starts. The multinational may give the credit but you may need to pre-sign canola for fall delivery at whatever price they are offering. I might not like the price, but I need the credit. I would sign and be committed.
We were Agriculture Canada yesterday asking if the cap could be removed. They responded that they no reason why not but noted that it would take pressure to get it removed.
My crop insurance is a government document. I am not making it up. That is insurance coverage for me, remove the cap.
We all agree that we must have some other form of assistance. I would like to see a bridge funding payment based off the decline in the CAIS margin. If I have a $100,000 reference period and go to zero, that is a 100 per cent decline. The program covers me only for 70 per cent of that decline, which is $70,000. The bridge funding payment would top me up to 100 per cent.
The payments could be directed to the area that is hurt. It could be targeted to the people who really experienced the hurt. All the other programs were based on the NISA practice of using eligible net sales. The bigger the crop is, the more ENS and the bigger the cheque received. Nobody received much of a cheque in areas that had three bad years without ENS. This approach would have targeted the hurt.
My suggestion is that if we have to do an ad hoc payment, let us base it on the decline in the margin and fully compensate to 100 per cent of the margin decline.
The Chairman: Have you shared this with Agriculture Canada?
Mr. Downing: Yes.
Senator Tkachuk: Mr. Hardy mentioned the ethanol plants in Saskatchewan. Canada has worked hard at diversifying agriculture products, and we in Saskatchewan have some knowledge of that; Peckford had his cucumbers and Romonow had his potatoes, and both were disasters. I want to follow up on ethanol.
Is the government subsidizing it directly, or is it with tax credits?
How are they doing this?
You mentioned Husky Energy Inc. in Weyburn. Is Weyburn a co-op, a private company, or is it a Crown corporation?
Mr. Hardy: The one in Weyburn is a private co-op. The one in Husky, as you know, is owned by Husky Energy Inc. Both are subsidized by removing the gas tax. They do not pay any provincial gas tax. We pay 15 cents a litre; they get that removed. That is part of how they are cross-subsidized. That is the way the province has been cross-subsidizing; PoundMaker, as well, has been doing that for years at Wynyard.
Senator Tkachuk: Will there be a federal excise tax on that product?
Mr. Hardy: I am not sure.
Senator Tkachuk: Would it be like tax-free gas?
Mr. Hardy: It is tax-free.
Mr. Kovacs: The provincial excise tax is removed to make it feasible. I believe a portion of the federal excise tax is removed as well to encourage ethanol production, but there is still excise tax on the ethanol.
Mr. Hardy: Can I just make one other comment?
The Chairman: While you are making the comment, if you could be brief, Senator Gustafson would like to have a comment on the proposition that Mr. Downing just made.
Mr. Hardy: In regard to what Mr. Downing said about topping up the difference on the reference margins, our problem in Saskatchewan is the reference margin itself. Most of them, a lot that is not in it, have no reference margins to start with. You could top it up to whatever and have no dollars there. That is the problem.
Our industry has gone from grain and oilseeds to cattle. All the reference margins were put back into capital, which does not show up in the reference margins. Our major problem in Saskatchewan with the CAIS program is that we have no reference margins. That reduces the cash flow dramatically. I want to make that clear because we are different from Manitoba.
The Chairman: Gentlemen, we have the Canadian Wheat Board waiting here, and we are supposed to be hearing from them now. I am wondering if you could be really quick, Mr. Downing.
Mr. Downing: I said ``margin decline.'' The program is covering negative margins now, so that compensates for the margin decline.
The Chairman: Thank you all for being here. It has been a very interesting morning, and all of your comments and your material will be circulated.
Mr. Hardy: I want to say thank you to the senators and to you, Madam Chair, for letting us bring forward our views from our provinces. It is important it is heard at this level, and I am sure you will do the best you can to help us with the situation we have out there.
The Chairman: It is important for us to hear from you directly.
Ms. Jacobson: We very much appreciate the opportunity to make this presentation today. It is not often we get down here and it is a privilege to come.
The Chairman: Honourable senators, we are very pleased today to have with us representatives from the Canadian Wheat Board. We have with us Mr. Dwayne Anderson, the director, from Saskatchewan, and Mr. Ward Weisensel, the chief operating officer.
We have officially until 10:30, but we might have some spare time at the end if you have it as well.
Mr. Dwayne Anderson, Director, Fosston/Rose Valley Area of Saskatchewan: Good morning, Madam Chair, distinguished senators and guests. Thank you for the opportunity to present to your hearing this morning.
I am an elected director for district seven, which represents a large portion of east-central and northeast Saskatchewan. I represent farmers that were significantly impacted by this fall's untimely frost. I would assume that is why the chair of our board of directors asked me to come down as a representative of the farmers that were impacted by that frost. In the 22 years that I have farmed, this is by far the best crop that I did not get. It was by far the biggest crop that we have seen on our farm. It was a wonderful crop until August 20. In one evening we lost a significant portion of our earning power from that crop.
Our wheat and canola crops were extensively damaged. Less damage occurred in our oats and green peas. However, since the impact of frost varies depending upon the maturity of the crop, my barley was a record crop.
Frost, drought and hail damage can vary widely within a small area. Even on our farm, which is only 15 kilometres from one end to the other, there were varying impacts from the frost. Maturity can have a significant impact, but it also depends on elevation.
I will look forward to questions at the end of Mr. Weisensel's presentation. He is here to give you an update on crops produced in Canada, world production, and market prospects Western Canadian grains.
Mr. Ward Weisensel, Chief Operating Officer, Canadian Wheat Board: I will refer to the charts that were distributed to you as I speak to you. The second chart is entitled ``General market factors.'' In order to understand farm prices in Canada, it is critical to understand that the strengthening of the Canadian dollar, as it has impacted all industries, has had a significant impact on the wheat and barley industry. To put that in perspective, let us look at exchange rates over the course of the last three crop years. The exchange rate of 82.7 cents on December 7 compares to an average exchange rate in the previous crop year of about 74 cents. In the 2002-03 crop year, the exchange rate averaged 67 cents.
International grain trade, as is the case for many markets, is done in U.S. dollars. As an example, that means that a sale worth US$150 FOB Vancouver is currently worth CAN$181. With the average exchange rate in the 2003-04 crop year, that worked out to CAN$203, and with the average exchange rate in the 2002-03 it worked out to CAN$224. That gives you a sense of how big an impact the exchange rate has on the net return to Western Canadian farmers.
The third chart is entitled ``World wheat production vs. consumption.'' The green bar on the far right illustrates that we produced a world record wheat crop this year. Six hundred and fifteen million tonnes is an all-time record. This follows several years of decreasing production, but this is the first year, after a number of years, that production around the world has exceeded consumption. The difference is about 10 million tonnes, which means that ending stocks will rise by about 10 million tonnes year over year.
That is the topic of the next chart, which is entitled ``World wheat ending stocks.'' This chart shows that, since the 2000-01 crop year, world wheat stocks were declining. This year we will see a reversal of that decline and slight increases, which has put some pressure on prices. That increase in stock and that overall increase in production is a direct result of very large wheat crops in the European Union. They moved from just over 100 million tonnes of production last year to over 130 million tonnes of production this year. To put that into perspective, this year in Western Canada we produced about 23 million tonnes of wheat. Their increase in production is equivalent to our entire crop. That gives you a sense of the size of agriculture in that area of the world.
You cannot look at this record world wheat crop in isolation. With regard to the feed grain situation worldwide, this year the U.S. will produce a record corn crop. The U.S. is expected to produce about 260 million tonnes or 11.8 billion bushels of corn, which is a record crop. Last year was a record crop as well at 10.6 billion bushels. That increase alone is equivalent to the total production of six major grains in Western Canada. There is a lot of supply in this market.
Quality has been an issue, not only here in Canada but also in the U.S. The U.S. had rainfall through the harvest of their winter crop, which reduced their quality, and there were also quality issues in Russia and Ukraine. That means that there are abundant supplies of medium- and lower-quality wheat on the world market, which is a factor.
A positive factor is that dry conditions in Australia resulted in a drop in their crop production. Last year, they produced about 24 million tonnes of wheat. We are expecting that they will produce about 20 million tons this year, which is a positive factor for us.
In spite of these increases, on the fourth page we show a stock-to-use ratio of 23 per cent, which is still relatively tight in historical terms. We will end up with a larger world wheat carry-out than in previous years, but it is not a hugely burdensome carry-out in a long-term historical perspective, and that is supportive of the market place.
The fifth chart illustrates what our crop looks like. This chart shows average protein levels across the Canada Western Red Spring wheat crop. The average protein level this year was 13.3 per cent, which is below the ten-year average. To highlight how critical this is, this year, as a result of frost and rain at harvest time, only 30 per cent of that wheat crop will grade in the top two grades. About 65 per cent of that crop would grade in the top two greens on a ten- year average. Last year, 90 per cent of that crop was in the top two grades. This says that we are very tight on high- quality, high-protein product, and that has created some unique challenges with regard to the marketing of this crop this particular year. The challenge has been and continues to be moving customers to lower-protein and lower-grade product, which is a dramatic shift from last year.
We are focusing on domestic mills. Japan and the United Kingdom are key high-grade markets for those limited quantities. We are trying to shift some customers to lower grade and protein specifications. We are convincing customers that have traditionally bought No. 2 to buy No. 3 based on higher specifications within those grades.
One thing that has been an issue is that not only have we had a lower quality crop and serious production problems, but as you are aware, harvest was very late, so getting the samples off the fields has been an issue in terms of servicing customers. When you want to convince customers to move to a different product than what they have purchased in the past, you have to be able to do that on the basis of them being able to work with samples, so they can see how they will work in their milling and baking operation. We have been getting those samples out and we have had good success in switching some customers over, but that is a key part of the strategy over the course of this selling period.
Obviously, as you have heard, we have significant quantities of feed wheat to sell this particular crop year. We estimate around 30 per cent of that of wheat crop will be in the feed wheat category. Key feed wheat markets around the world are largely in Southeast Asia. We have a very good sales program on feed wheat today, but we do know there is a lot more work to do in that particular category.
Chart 6 in your package outlines what we are estimating for total pool returns. This particular chart shows total pool returns from the 1983-84 crop year to present to give you a long history of what has occurred.
We estimate, that for the current year, No. 1 Red, 13.5, will come in at an expected pool return of $202 a tonne in- store Vancouver. No. 3 Red will come in at around $165 a tonne in-store Vancouver. Feed wheat is not shown, but we anticipate that it will come in at about $118 a tonne in-store Vancouver.
The subject of chart 7 is durum, which is a unique crop. It is a product that is specifically well suited for the production of pasta and couscous. Pasta is a major consumption item in Canada and the U.S, but in North Africa, couscous is the major consumption item; and countries across North Africa represent between 30 per cent and 50 per cent of the annual durum world import demand. That is a key area of the world for us.
The numbers in that particular chart show you that we have produced a record crop of durum in 2004-05; a worldwide crop. A key aspect of that record crop was the European Union, which produced 11.4 million tonnes of durum. That compares to Canada, where we produced about 4.8 million tonnes of durum this year. That gives you a sense of the scope on the production side of the equation. That European crop is up from 8.3 million tonnes last year. You can see that the increase alone in Europe represents about 60 per cent of our total annual crop.
I have indicated how important North Africa is in terms of this particular product. We are expecting demand to be below a five-year normal, because this area of the world produced above average crops last year. That is an issue.
While the EU produced a very large crop, they also had quality issues, and based on a 10-year average, we expect them to import more durum than they have in the past. Typically, Europe imports about one million tonnes of durum from around the world, and we will be a key supplier to that marketplace. This year, we expect them to import 1.4 or 1.5 million tonnes.
Chart 8 walks through the quality of the durum crop; and what I have talked about on wheat also exists on durum. You can see that just under 35 per cent of the durum crop is expected to grade in the top two grades. That is well below the 10-year average. The 10-year average is over 60 per cent. You can see last year's number, when 92 per cent of the durum graded in the top two grades. You can certainly see the issues there.
The approach on the durum side is very similar to the wheat side because of the lower quality crop. We are working with customers to move them down one grade, one protein, and providing samples to assist in that regard. We are clearly encouraging traditional buyers of No. 1 durum to move down to twos and threes, and we are obviously maximizing sales of threes and fours to more price-sensitive customers, because a big chunk of the crop is in those grades.
What is critical here is there are also significant quantities of No. 5 durum. We sell No. 5 durum the same as we sell feed wheat. As I have indicated before, we have good sales on the books for feed wheat. There is a big job to do there, but we feel comfortable with where we are, given the stage we are at in the crop year.
Chart 9 outlines the pool returns for durum farmers. We estimate pool returns in-store Vancouver for No. 1 durum, of 13 per cent protein, at $214 per metric tonne; No. 3 durum at $174; and No. 5 durum at $118.
Chart 10 shifts to barley. You can see here that world barley production is up over the last number of years. It moved up from 140 million tonnes last year to 151 million tonnes this year. Unlike wheat and durum, this is not a record crop. That is a positive aspect.
Chart 11 outlines the Canadian barley situation. It shows that production is slightly above the 10-year average of 12.6 million tonnes, at about 13.1 million tonnes.
On the barley side, interestingly enough, despite very large quantities of feed grains available in Western Canada, the domestic feed barley market remains strong; it is, in fact, strong relative to what you can achieve on the offshore market.
High ocean freight is a significant issue in terms of this market segment because the vast majority of the demand is on the feed barley side. With world trade at about 13 million to 14 million tonnes annually, the vast majority of that trade is in the Middle East, in the North African area, where we are at a significant ocean freight disadvantage vis-à-vis Europe, Russia and Ukraine. That is a factor.
Our strategy is focused upon marketing the barley to those markets where we do not face that ocean freight advantage. We will be focusing on markets in Southeast Asia, and particularly Japan as it relates to feed barley.
In terms of the pool returns, they are outlined on chart 12. They show feed barley pool returns coming in at $117 per metric tonne in-store Vancouver.
Chart 13 shows total annual trade in malting barley since 1994-95. It shows that total trade for 2004-05 is anticipated to be around 4 million tonnes. It is divided up between 6 row and 2 row, vis-à-vis the blue and red bars.
Chart 14 shows Canada's role in that particular marketplace. You can see that at this stage, our malting barley supplies have been hit by weather issues at harvest time. Malting barley must be a very high quality product with a high germination rate. Rainfall through the harvest period tends to causes deterioration of that germination rate, so we have lesser quantities to market than in recent years.
In spite of that, as you can see from chart 14, that we expect to export approximately 850,000 tonnes of malting barley world wide. The vast majority of that will be to China, because that is the biggest growing market on the malting barley side, and certainly a key market for Canada on a go-forward basis.
In terms malting barley strategy, we are concerned about the potential for declining germination on 2 row barley for later shipment, and especially for March and April shipment and beyond. We are focused on sales for earlier shipment to avoid those types of eventualities.
In terms of the returns for malting barley, you can see on chart 15 that we are estimating that 2 row malting barley will come out at $179 in-store Vancouver, and 6 row at $163 in-store Vancouver.
I do want to make several comments on grain movement. In terms of where we are, we expect that by the end of December, we will have exported 40 per cent of the export target we have set for board grains. We have set an export target of 16 million tonnes in total across all these commodities. We expect to have 40 per cent of that shipped and executed to customers by the end of December. We expect to have 80 per cent of that shipped and executed to customers by the end of May.
I hope those comments are useful in terms of any questions that you may have.
The Chairman: Thank you both very much. We are quite cognizant, indeed. Some people around this table, Senator Gustafson in particular, have gone through what is really been a tragedy with the weather in Western Canada. It was the dream year for crops, even in my area, and all of a sudden they were on the ground.
Thank you for your comments.
Senator Gustafson: Thank you for appearing at this very difficult time in the industry.
One of the problems I heard from producers last year was that when they put down ``X'' number of bushels of durum for sale, the Canadian Wheat Board came back and said that they would take 70 per cent of what the producer had. Many farmers got stuck with grain they could not move, especially durum. This year it seems that the CWB is taking only 60 per cent of the amount of bushels that the farmer has to sell.
As a result some of the farmers are putting a high price, and have told the board that they have not as much grain because the CWB will not take it anyway. They put the average up very high, and as a result feel that they will be able to deliver it.
The farmer that was honest with you is being penalized and the farmer who took the high risk is not. I must explain, there is a penalty of 15 per cent. I believe that has been raised. Has it not? The penalty has been raised if you do not deliver the promised amount of grain.
Mr. Weisensel: There are liquidated damages in those contracts between $6 and $25 a tonne, depending on the impact. Yes.
Mr. Anderson: The accuracy has to be within 90 per cent now, instead of 85 per cent.
Senator Gustafson: It has stiffened up the regulations, in fact. The point I am making is that there is a lot of concern out there about that problem.
Mr. Weisensel: Yes. That is a very important question. First of all, I want to put the total durum situation in a perspective, so that you understand what is going through our minds as we are looking at this particular issue.
This year, in Western Canada, we produced 4.8 million tonnes of durum, and world trade this year is anticipated to be 6.1 million tonnes. Domestic consumption for durum within Canada is 300,000 tonnes. That is what is consumed in pasta if we eat it on a day to day basis. For those of you love pasta, I encourage you to eat more. We would like to get our consumption it above 300,000 tonnes. However, anything beyond that, you have to seek an export market for the product.
In the marketplace today, Canada and the Canadian Wheat Board represent between 50 per cent and 60 per cent of world durum trade. If world trade is 6.1 million tonnes, Canada will be 3.5 million tonnes. To push beyond that has such an incredible price impact that we just do not see that as prudent.
When you are faced with 4.8 million tonnes of production, and a marketplace of 3.5 million tonnes, we are not in a position in a year like this to accept all of that durum that is offered to us.
The one thing we are saying is that we do intend to accept more beyond the A series contract. Therefore, we have accepted 60 per cent from farmers who have offered up the A series. We do feel in subsequent contract series that we will be able to accept more, but it will depend on how the marketing program shakes out over the course of the crop year.
We recognize that a farmer ``over committing'' is a potential issue. Farmers are taking the chance that we could accept 100 per cent and that is a gamble that they take. If we would accept 100 per cent, they would be in a situation where they could be paying damages to us; basis non-delivery. You do raise a very good point there.
Senator Gustafson: With Alberta's position on dual marketing and the general question of dual marketing, what are your comments?
Mr. Anderson: The position that the Canadian Wheat Board has taken through the direction of its directors is that it should be the farmer's choice to establish whether there is a single desk in place to market wheat and barley on behalf of Western Canadian farmers. If the province of Alberta wants to run a test market, it will really impact all of Western Canadians' marketing choice. The position that the board of directors takes is that it should be all the farmers making that decision rather than just one province.
Senator Gustafson: Therefore, in your mind the idea of choice, is not that each individual farmer gets a choice? It will come down to a vote. If the vote says that 80 per cent of the farmers do not want choice, then that implicates the individual farmer or removes him from the opportunity of choice.
Mr. Weisensel: When the federal government made the decision to change the Canadian Wheat Board Act in 1988 and implement a new act with a board of 15 directors, 10 of which are elected by the farmers of Western Canada, they conferred that democratic principle to that board of directors to determine that, because each of those board members must be elected from the farmers in their own district.
Over the course of the last number of years, we have made some very significant moves in terms of providing much greater pricing flexibility to farmers outside of the core pooling and payment system. We feel that over time, we will be in a position to provide farmers more choice under this system, than what they would have in that alternate system.
Senator Gustafson: What percentage of our grain is sold to Archer Daniel Midland, Cargill, ConAgra or the big world players?
Mr. Weisensel: Do you mean as an exporter in their own right?
Senator Gustafson: No, what percentage of your grain do you sell from the Canadian Wheat Board to those big players?
Mr. Weisensel: Do you mean as milling operations in their own right?
Senator Gustafson: No, just in general.
Mr. Weisensel: I do not have that number handy. I will guess and say that the sales would be very significant. ADM owns the biggest chunk of the milling industry in Canada and a big chunk of the milling industry in the U.S. ConAgra also has a big chunk. They are much smaller players in offshore exports. They probably have 70 per cent plus within the North American market. Offshore, I would say that they have less than 20 per cent of the market share. That is a gut feeling answer.
Senator Gustafson: One of the irritants with the Western farmers has been Ontario's preferred position of being able to sell into the American market. The Western farmer cannot understand why an Ontario farmer has that privilege, and a western farmer does not have that privilege.
Mr. Weisensel: It is the approach of two different organizations. The Ontario Wheat Board has always been much more focused on the U.S. domestic market because they are in close proximity to that market. They have a small offshore sales program and a small sales program to the U.S.
In Western Canada, the U.S. market represents about 7 per cent of the entire program. It is a much smaller proportion of the program. There are very different interests in terms of how we approach the marketplace collectively.
Senator Callbeck: Thank you for your presentation. I have a question about protein. On page 5 we see quite a decrease; in 2001 it goes from 14.7 per cent down to 13.3 per cent. You mentioned the weather as a factor.
Is that the major factor for this decrease?
Mr. Weisensel: Yes, it is, and I will explain why.
As Mr. Anderson indicated earlier today, this was the best crop that he never harvested. Until August 20, this was an absolute bumper crop.
If you have high yields because you have good moisture, you tend to get lower protein. There is a build-up of more starch and less protein in the wheat kernel. We had a very good crop. Rainfall conditions were virtually ideal. The crop never suffered. Whenever that happens, protein tends to come down.
Senator Callbeck: Thank you. I read yesterday that the Canadian Wheat Board announced their final payments for the year 2003-04.
Do the farmers have an approximate idea of how much money they will get?
Mr. Weisensel: Farmers should have a reasonable idea of what those numbers should be because we have been publishing expected pool returns consistently through this period. They only need to compare the expected pool returns to the payments they have received to date and calculate the difference. This calculation will give them a good idea of the payment. They should not be a surprised when that cheque comes in the mail.
Senator Tkachuk: What percentage of the wheat trade in Canada is Canadian Wheat Board grain?
Mr. Weisensel: Do you mean of the wheat trade in Canada?
Senator Tkachuk: In other words, how significant are the other provinces outside of the Prairies?
Mr. Weisensel: They are very small. Wheat production in Canada this year will be in the neighbourhood of 26 million tonnes, and we will export about 14 million tonnes. I am including durum in that number. We will export in the neighbourhood of 14.5 million tonnes of those products, and we will market close to 3 million tonnes to the domestic industry.
That gives 17 tonnes sold of 26 tonnes produced. The majority of that difference is the wheat that will be consumed within Western Canada as feed grains.
Senator Tkachuk: You said something interesting, Mr. Weisensel. You said that we will be able to provide the farmers with more choice. That power to provide the farmers choice comes from legislation. I do not mean to be overdramatic, but that is how communist countries used to run their wheat production.
It is a really strange statement to say that ``we would provide.'' Does not the farmer by right have choice? Is it not intrinsic that if I grow commodities on my land, that I can sell them to whom I want? Is not that an intrinsic right of a producer, or is that right not there any more?
Mr. Weisensel: Farmers have many choices in the crops they grow. They can grow canola, wheat, barley, durum or other things to access the market place. They do that on the basis of the returns they expect from that marketplace.
In a country such as Canada, farmers have the right, as do all individuals, to decide that they want to organize themselves differently to achieve a marketing end. That particular approach is embedded in the Canadian Wheat Board Act as it exists today.
We see our role as to try to meet all of the needs of farmers through the various delivery and pricing options that we make available to them. We do feel that today farmers have many more options than they had two years ago, and many more options than they had five years ago. They will have many more options as they go forward.
Mr. Anderson: I was elected as a director on a dual market platform, not on a single desk platform. On the Canadian Wheat Board, I represent a group of farmers in my district that want to move forward and have choice.
I also respect the democratic process. I believe that there would be two directors out of 15 that would vote for removal of the single desk authority. I am committed as a director, to work within the single desk system to try to bring forward as many improvements as possible and to allow as many different options as possible to the farmers of Western Canada. I am committed to doing that and still respect the democratic process.
Senator Tkachuk: Are all the directors elected?
Mr. Anderson: Ten out of 15 are elected.
Senator Tkachuk: Five are not elected?
Mr. Anderson: Four are appointed by government.
Senator Tkachuk: The federal government?
Mr. Anderson: Yes, and one is appointed jointly on the recommendation of the board of directors and that person is the CEO/president. There are ten elected directors, and I am one of ten.
Senator Tkachuk: It is obvious that five of them will not be supportive of dual marketing, right?
Mr. Anderson: I do not think that you can make that assumption.
Senator Tkachuk: It is quite an assumption. I am asking the question of a director.
Senator Gustafson: It is control.
Senator Tkachuk: I have more questions on choice. The Wheat Board should be able to earn its customer, both from the selling point of view and from the product point of view.
What problem would there be with dual marketing?
Mr. Weisensel: One of the key aspects of being able to capture more value for farmers from the international marketplace is that we are the only seller of that Canadian branded product.
Senator Tkachuk: Yes, you have a monopoly.
Mr. Weisensel: We are the only seller of that Canadian branded product in the marketplace. We believe, and we have shown, that because of that we get higher prices than would be the case otherwise, because as soon as there is more than one seller of the same product there is only one direction the price can go. We see that as the key value we bring to farmers and that is the first thing that would go in a dual market.
Senator Tkachuk: That is illogical because the farmers themselves could form a monopoly to sell their product, without the state mandating that to happen, because it is in their self-interest to keep the price high. It is illogical to say that if other farmers were in competition with me it would automatically mean that prices would be lower. Why would a farmer do that? I do not mean that you are patronizing the farmer, but what self-interest would a farmer have in doing that?
Mr. Anderson: It is the leaky bucket syndrome. If there is a tiny pinhole in a water bucket, the water will disappear. It is the pinholes that are created that are the problem.
Of the ten elected directors, two of us are very clear on our side of this debate and eight are very clear on the other side. This demonstrates the democracy of our organization. They clearly ran and won on that platform. I am proud to be a Canadian and am proud to have democratic rights. I hope that we can maintain those rights.
The debates about the single desk live on in my mind, but I will not debate it before this committee today with our operations people, who are doing a marvellous job in the system within which we are working. I think we should move on to other things, because we will not solve much debating it here.
Senator Tkachuk: That is fair enough.
Senator Hubley: I have a question about the graph on page 3 of your presentation. Does the 615.3 million tonnes of wheat that is produced include all grades of wheat?
Mr. Weisensel: That is total wheat production around the world.
Senator Hubley: Is wheat graded from one to five, generally speaking?
Mr. Weisensel: Yes. Not all systems have grades like we have. For instance, here we talk about grades one, two, three, four and feed wheat on the wheat side, whereas in the U.S. they talk about Dark Northern Spring and Northern Spring. They have totally different grade names. This is just total wheat production of all qualities.
Senator Hubley: How much of this would be Canadian production?
Mr. Weisensel: Total Canadian production would be in the neighbourhood of 25 million tonnes to 26 million tonnes.
Senator Hubley: You must be challenged this year in getting customers to accept a lower grade of wheat when there is abundance on the world market.
How successful are you in convincing customers to buy a lesser quality?
Will this have an impact on future marketing to those same customers if they are satisfied with that cheaper and lesser quality wheat?
Mr. Weisensel: It has been very challenging. We work very closely with our customers through these situations. They understand that we do not control production and quality; that is controlled by Mother Nature and we do the best we can with the quality that is available.
We believe that we have achieved some significant successes in our marketing program. We have had success in moving customers down a grade. It is a matter of working closely with them because, you are right, we do not want to lose them over the longer term as a result of a situation that is beyond everyone's control. It is a matter of keeping close contact. In some cases, they may not purchase grain from us this year, but we keep in contact with them over this period to let them know why we are in the situation we are in, and hopefully they will return when the quantities return to more normal levels.
Senator Hubley: If you are selling wheat at a lower price, will that ultimately be reflected in the price you can pay farmers?
That is not a criticism. I just want to understand the system.
Mr. Weisensel: Yes, if the market prices are lower, that will be reflected in returns to farmers.
Senator Ringuette: I am from Atlantic Canada, and I have heard positive feedback from the milk producers and other commodity producers in the Atlantic region in regard to the federal government's latest position on WTO negotiations.
I have heard, especially from the milk producers, that they are very satisfied with the federal government's current position on agriculture at the WTO.
How do you feel about the recent WTO discussions?
Mr. Weisensel: We are working very closely with the federal government with respect to the key issues and potential implications for this organization. They are very much focused on the single desk as a key aspect that can create value for farmers.
We do have some concerns with some of the items that were agreed to in the famework agreement earlier this year, particularly the fact that borrowing guarantees and the initial payment guarantees, which we use to manage the risk within this organization, were basically conceded. So we have highlighted our concerns in those regards to the federal government from the perspective that it is critical that Canada and Canadians do not provide anything more. We already have very significant concessions on the table in this round.
Senator Ringuette: My understanding is that when we put a position forward at WTO, all countries are to adhere to it in order that there is a standardized framework. I suspect that if the federal government did that in regard to you, it is because other countries are probably more heavily subsidizing through a similar kind of board that you have.
Is my assumption incorrect?
Mr. Weisensel: You are accurate that these negotiations are built around frameworks that apply equally to all parties. We were concerned about the two items that were identified in the framework agreement; the initial payment guarantee and borrowing guarantee. We view those as both being items to fall within the domestic support category, which through this framework round would be subject to reductions but not elimination. However, it was agreed that they are subject to elimination, which is inconsistent with the framework applied to other players. That is our concern.
The Chairman: We have an extra period of 15 minutes if our witnesses would be prepared to stay with us for 15 minutes.
Mr. Weisensel: That is not a problem.
Senator Gustafson: The farmers, in general, are concerned about what they will sow this spring because much of the frozen grain will not germinate.
What are the numbers for non-board grains and board grains?
Mr. Weisensel: I do not have the non-board grains numbers handy, but I will try to find them.
Production on the wheat side indicated earlier for this year in Western Canada was 18 million tonnes. Production on the durum side was about 4.8 million tonnes. Production on barley showed in the presentations at 13.1 tonnes. Add that up, and we get 36 million tonnes in production.
Production of the six major grains in Western Canada this year was approximately 48 million tonnes. You are talking 36 million tonnes relative to the 48 million tonnes, but you have to recognize that a big chunk of the barley number is traded within Canada.
Senator Gustafson: Unless I am wrong, we exported, at one time, about 31 million tonnes of wheat alone. That number has now dropped to 18 million tonnes.
The trend is continuing because farmers are not getting their input costs back. For example, farmers are telling me that after trucking and freight charges they earn about 87 cents. That is the lowest I have heard, but most of them are under $1. They question the use of trying to deliver, because they do not get enough back.
How long can farmers continue to farm with input costs higher than the amount they are getting in return for the grain?
That has been happening generally, as I hear from farmers. We heard the same thing from the rural municipalities in Manitoba and Alberta, even where they had fair crops.
How does the Wheat Board see this progressing from a global stand point?
Mr. Weisensel: Clearly, we have very real concerns about the situation of this particular crop. I look at an operation like my father's outside of Saskatoon where before August 20, he was looking at a wheat crop that would earn over $200 an acre gross, at which he would make money, no doubt about it. After the frost, his worst field will earn him about $70 an acre. You calculate that over 2,000 acres, it is a huge hit on an individual level.
From our perspective, it is critical that we remain focused on the high end marketplace. Canada does have a comparative advantage in high protein, high quality spring wheats. We will not produce them every year; this year is a case in point. The crop would have been there but the frost changed that. Canada's competitive advantage lies with high protein, high quality spring wheats.
It will depend on how wheat compares from a profitability perspective relative to other crops. We have seen other crops come forward because of innovative behaviour in Western Canada to seek a basket of crops that diversifies a farm operation. That diversification will continue to occur as we go forward.
Senator Gustafson: If a grain company ships a bushel of frozen wheat or a bushel of No. 1 wheat, they will get the same price for shipping that grain whether frozen or not frozen. It appears to me that the grain companies are making good returns.
I watch very closely the Weyburn terminal. They have been moving ahead in leaps and bounds. They have done very well. One of the criticisms that we get is that the Canadian Wheat Board is the best thing that the grain companies have in guaranteeing their income.
Mr. Weisensel: It would depend on which grain company you talk to. Not all grain companies are making money. A fair number have lost money. I agree that the Weyburn terminal has been quite successful.
Senator Gustafson: They are all making money except the Saskatchewan Wheat Pool.
Mr. Weisensel: You are correct in the sense that grain companies earn a handling margin whether it is feed wheat or whether it is No. 1 red. Grain companies do not necessarily earn the same margin. As an example, some of our movement is tendered. The grain companies were not earning full margin on feed wheat. The companies were tendering aggressively. They were bidding away that margin to move the business. It depends on the dynamics at any given point in time.
Senator Gustafson: Wheat sold out of Vancouver was bringing $8 a bushel on the international market.
How is it that there is that much difference between what the farmer gets and the price on the international market?
Mr. Weisensel: Today, No. 3 red wheat out of the west coast would trade around $145 U.S. FOB. That lines up closely with the pool returns that we are publishing.
Senator Gustafson: What would the price be for No. 1 hard red spring wheat?
Mr. Weisensel: I am talking about competitive wheat. DNS 14 out of the U.S. is trading in the range of US$181 FOB. That compares closely with high-protein, high-quality spring wheat.
Senator Gustafson: It is obvious to me that since the Crow rate was abolished we have not been able to make a profit growing grain on the Prairies.
Senator Tkachuk: At the meeting of the general council of the World Trade Organization in Geneva from July 27-31 last, the members reached agreement on a framework for future negotiations.
In a background paper published on July 31 of this year, the Minister of International Trade said that some of the provisions regarding state trading enterprises like the Canadian Wheat Board were broader in scope than the Canadian government would have wished and that the framework for future negotiations threatens the use of guaranteed loans by the government which, in turn, threatens to reduce the Canadian Wheat Board's borrowing capacity.
Do you think the Canadian Wheat Board can continue to operate if the government can no longer guarantee its loans?
Mr. Anderson: The Canadian Wheat Board can continue to operate if the federal government does not guarantee its loans, but it will have to develop retained earnings. Currently we pay back to farmers every penny that is earned from wheat sales, less operating costs. In order to have the ability to borrow money, you must have a retained earnings or contingency fund that must be built up to allow the business to move forward.
This issue has a high priority at our board table. We are bringing forward a very large plan to deal with several concerns, not only in the world environment but in the political spectrum, even in Western Canada, as far as the dual market-single desk debate. We are going to have an election. Our minister, Reg Alcock, has said that there will be an election process review. The democratic process is underway now with an election currently underway. On Sunday, we will know results in four of the 10 districts. One director was acclaimed in one district that was up for election. On Sunday, there may be four new faces at the board table. That is in the hands of Western Canadian farmers.
Senator Gustafson has asked how long we can go on. This is a serious problem for the Canadian farmer. We look at other ways of earning revenue. In Saskatchewan in particular, the cattle industry looked like it was going to become the backbone of the agricultural field, until BSE hit us. That has put a significant dent in the security of Saskatchewan agriculture.
The world is producing 615 million tonnes and we are producing 26 million tonnes. Therefore, we are a small game. We represent 14 per cent of the hard red spring wheat export market, but we are not very big players in overall world production. The grain farmer has some tough years ahead. We could demand programs such as the farm bill in the U.S. that gave farmers several backstops, but that is for groups other than the Canadian Wheat Board to develop.
I believe we need a strong crop insurance program for frost, drought and hail. I believe we need a really strong cash advance program. I believe that there can be serious enhancements to the cash advance program to enable us to carry feed wheat into the next year. We would not end up with defaults in our cash advances if we were allowed to roll cash advances into the next year. Those who want to could carry some of the feed wheat, spreading out the problem of selling 70 per cent of production in the three lower qualities as feed wheat. We can do some of those things. Also we need improvements in medium-term programs like CAIS. In the long term, I do not know what the solution is, but it will be difficult.
The Chairman: Thank you all very much for your contributions.
The committee adjourned.