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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 7 - Evidence of February 10, 2005


OTTAWA, Thursday, February 10, 2005

The Standing Senate Committee on Agriculture and Forestry met this day at 8 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: Good morning, colleagues. We have a quorum and we can begin our hearings. We are very pleased to have with us Mr. David Reykdal, President of Rancher's Choice Beef Co-op Ltd, and Mr. Robert Kuziw of B.C. Blue Mountain Packers. For the past many months, this committee has been dealing with the very sad but important issue of the closing of the U.S.-Canada border because of the discovery of BSE in a handful of cattle here in Canada. This has had an enormous impact on our producers as well as on the way we in this country process our meat and make it available to the marketplace. Since the border was closed, some bold, confident and innovative people have come together to build Canadian packing plants. Over the years we had forfeited that opportunity in this country and most of our cattle were processed by two very large companies located in my province of Alberta. The beef industry has now taken steps to serve our own market, not only in times of crisis but also continuing well after the crisis is over.

Our witnesses today are pioneers and leaders in this effort. We applaud them for that. Efforts such as theirs were one of the recommendations in the report on our own study of the BSE crisis, which was released last spring.

Please proceed with your presentations, gentlemen.

Mr. David Reykdal, President, Rancher's Choice Beef Co-op Ltd.: Honourable senators, we have formed a co-op in Manitoba called Rancher's Choice Beef Co-op Ltd. A large number of producers have signed up with us.

You said that you started your study last spring. I started this endeavour long before that. I started on May 20, 2003. We had no processing facilities in Manitoba for our cows and bulls, and they were needed. Prior to that, I sent cows to the auction mart. From there they were sent to the United States to be slaughtered and processed, and we were buying processed beef from other countries.

We were not doing our own processing in Manitoba, in particular, and in Canada in general. We used to have one of the largest slaughtering facilities in Winnipeg and all the cattle went there; however, 15 or 20 years ago that all disappeared.

On May 20, 2003, I started the ball rolling, but it takes a while to get everyone working together to get something like this to happen. I did not realize how much work would be involved in it, but having started it I was not about to stop, because I am not a quitter.

Over 3,000 people have so far bought shares in our venture to build a slaughter plant in Manitoba. We have looked at many options, one of them being refurbishing an old plant in Winnipeg. That was a quick-fix idea, but it did not work out. The cost of purchasing a plant of that age exceeded our budget. We looked at another plant in the Interlake district north of Winnipeg, and there were problems with that one as well. The next option was to build a new plant in Dauphin, which is northwest of Winnipeg, and that is what we are currently looking to do. The city of Dauphin has opened its doors to us. They have supplied us with land and other incentives to move there.

We are in the process of seeking environmental permits. Our engineer has completed a proposal and is ready to present it to the appropriate officials in Winnipeg. Once that is done, we will carry on with the work associated with building the facility.

We set up a share structure for producers. For every $100 share they buy, they can deliver one cow per year to the plant. If they bought 10 shares for $1,000, they would be able to deliver 10 cows yearly. They will maintain ownership of those shares until they transfer or sell them.

Currently many farmers are getting to such an age that they would not have to retain the shares for very long. The average age of farmers in Manitoba, as in Canada, is increasing every year. There are fewer young people taking over the farms because of the uncertainty in farming.

We have sourced out a plant in the state of Washington that was built in 1998. When May 20, 2003 hit, they closed their doors because they sourced their cattle from B.C. and Alberta. They have not opened their doors because of the uncertainty of the border not opening. They are selling off the equipment. We have made an offer to purchase equipment, and that goes before a bankruptcy hearing today. Nobody else has bid on it, so it looks very positive that we will acquire this equipment. As soon as that happens we will be going in and designing a building to put that equipment in.

For us to get all this done, we have applied to Farm Credit Canada. We have talked to Minister Speller in the past to try to get a slaughter plant going in Manitoba. We have hit a brick wall. We have had no assistance from the federal department whatsoever. The Loan Loss Reserve Program does not apply to cooperatives, for us any way, because we would have to have 20 per cent equity. It is pretty hard to get 20 per cent equity out of farmers when the price they are receiving for their cows is anywhere from nothing to a couple of hundred dollars. We once would get $600 or $700 for a cow. The feeder cattle price has dropped dramatically since May 20. It is hard to operate and then come up with cash to invest in our future at the same time.

Prior to May 20, we in Manitoba relied heavily on the U.S. packers to take our cows and bulls. They all went across the border. Statistics state that prior to 2002, 26,000 bulls and over 100,000 cows went across the border. It is not likely all were from Manitoba, but they went across the border to be slaughtered somewhere else, thereby taking away the processing from us in Manitoba. These animals should be processed in Canada or, in our particular case, Manitoba. In doing so, we create jobs, industry and a tax base. When you create a tax base everybody is happier, because there are more taxes to go around.

One thing about a cattle rancher or farmer is that if he has money, he will spend it. He will buy a new tractor, car, Skidoo — whatever. He will more than likely buy a new tractor before he will buy a car, because that is more important to him; that is where he spends a lot of his time. In doing so, he is also adding to the economy of this country. The farmer spends his money buying inputs, so there is a lot of money being put into the economy in that respect. The federal government has to realize that. They probably do, but they are not doing anything about it.

What can the federal government do? Well, the first Loan Loss Reserve Program they announced last fall was $67 million. The final analysis came down: Half of that program was to train Canadian Food Inspection Agency people to be able to test the cattle that we would slaughter in our expanded slaughter capacity. That will take a while to happen because there is no help to do that. The Loan Loss Reserve Program does not help too many people. I do not know of too many who have applied and been accepted for it. There is a possibility of one in Ontario. I do not know that for sure, though.

One thing that would help would be if they would give loan guarantees. The bankers have the money but they are sitting back. Are they waiting for the federal government to give loan guarantees or to do something? They do not want to invest in unknowns. That is something with BSE right now: There are many unknowns. They ask, ``What will happen if the border opens? Will you be able to compete?'' Our comment back to them is, ``Yes, we can compete. Why not?'' We are selling the beef to the same consumers that they are — if we are efficient — and this plant we will build will be very efficient.

We will be applying to use a hot-boning method, which was done in the plant in Washington. Hot-boning saves 1.5 to 2 per cent on shrinkage. You are more efficient. You are getting your beef to the marketplace 24 hours ahead of anybody else.

What else can the federal government do?

Senator Tkachuk: Can you explain what ``hot-boning'' is, so we know what you are talking about? If you continue on, the term will not compute.

Mr. Reykdal: The animal is slaughtered and run through the line; the hide is taken off, and it goes straight to the boning operation. The meat is taken off the bone before chilling. It is taken off hot. I have never done it. It is more efficient. It is easier to take the meat off the bone.

The standard way of doing it is to put it in a cooler, or they call it a ``hot box.'' I have always called it a cooler, but it is a hot box. The meat goes in hot and comes out cold. It chills overnight and comes out at 40 degrees the next day. We will bypass that. We will run it straight into the boning room. CFIA has not approved that. They have never approved that in Canada, but in talking to CFIA we have asked, ``Why not? Why can it not be done?'' It is being done in the United States, and it is being done in New Zealand. Much of the beef that we used to get, prior to May 20, came from New Zealand, and that was hot-boned. They have indicated that there is no reason why it cannot be done. Anyway, that is hot-boning.

That is pretty well it. Right now, where are we? I did state that we are waiting for the equipment, which will probably be there today or tomorrow. Then we will design the building to go around the equipment. We will be building this spring. I am optimistic that we will be operating by late fall.

Mr. Robert Kuziw, President, Rangeland Beef Processors Inc., B.C. Blue Mountain Packers: I am in a little different situation from Mr. Reykdal in Manitoba. I am from Alberta. I have been a rancher all my life. We turned our ranch over to our youngest son, and he is struggling with it. He has had three years of drought and two years of grasshoppers.

The Chairman: Where are you in Alberta?

Mr. Kuziw: The ranch is in the Stettler-Coronation area. I think he is about to sue us for child abuse.

Senator Mercer: He probably has a good case.

Mr. Kuziw: I think he will win.

As you know, I am in a different position because we did purchase a plant in Salmon Arm, B.C. That was bought out by Fletcher's Fine Foods Ltd., which had a pig and livestock line of operation in this fairly modern plant. When Fletcher's bought out the Grimms family business, they moved the pig operation over to Langley. At the same time they picked up the Red Deer hog slaughtering facility and moved that to Langley, as well. All those animals are hauled there now also.

We found that in the beef industry we have a lot of purebred bull breeders in Alberta. They could not sell their big bulls because nobody would buy them. Most bulls are over the weight of 1,850 pounds; therefore, XL would not buy them. If they bought them or stole them from you, they then gathered them in two places — one at Prescott's in Strathmore and the other in Ponoka — and shipped them to Montreal. Most of the big bulls came from that route. There was no facility at all in Alberta to butcher these bulls.

Looking at this plant, six of us got together and purchased it. Like Mr. Reykdal said, it was terrible dealing with the banks because the first thing they said was, ``The border will open and what will you do? We are not interested in you.'' We did get assistance from Farm Credit Canada for the first mortgage. That is not a good scenario, because the interest rate is terrible. They felt it was a brand new venture, because there were no other plants in Western Canada that could do this processing. We have not done the processing, like Mr. Reykdal said, for many years. I guess we were so satisfied with sending these animals to the United States that Burns and Swiss and all the rest of the small federal abattoirs just disappeared. They are not about to start up now because of the two megaplants that we have: Cargill and Tyson Foods.

At the present time, since BSE, they are only able to address the UTMs, which are the under-30-month cattle. The OTMs, which are the over-30-month cattle, are pretty much left to XL, which used to be in Calgary. As of the first week of January, they moved their heavy slaughter to Moose Jaw, Saskatchewan. They moved their UTMs back to Calgary. They are processing approximately 1,000 head there in Calgary. With the UTMs and the OTMs down in Saskatchewan, they will try to get up to around 1,400 head a day.

Once they get into processing these larger animals, anything over the 1,850 pounds that they are not used to will take much more cooling. They will probably quick chill the carcasses, the same way as Mr. Reykdal has mentioned. The only thing is that they do not hot-bone; they will probably cold bone, the same as they did in Calgary.

That is the only plant that is going. In our plant in Salmon Arm, we are processing up to 60 head a day. We started with two cows and now we are up to 60 and better a day, progressing as our work speed and sales to the Lower Mainland have increased.

I suppose you do not know the trouble I had with CFIA to get our permit. Some of you do, I would imagine, but we spent four months and nine days with CFIA, and I have the heart pills to prove it for probably the rest of my life. That said, trying to obtain a CFIA licence was a terrible venture for someone who was not used to the bureaucratic system of.

This plant had a CFIA licence in 2001. They had applied for their European Union export permit and were waiting to get it when the company that was running it, Hi-Bred, dropped out of the market. We submitted all the blueprints that those people had. They were still left at the plant. We had the same plant manager, who is still there today. Thankfully, we are operating as of November 9.

If you want any information on the CFIA problems that we had, I can address them in the question period. I do not think I need to do that now.

As far as the help that the federal government could give us in doing what we are doing, definitely they should have CFIA and HACCP — Hazard Analysis Critical Control Points — coordinators out in the field. They have not had any out there because it may not have been the protocol they took. As far as we are concerned, this burden is all on the processor at the present time. HACCP has just come into play, and now they are pushing forward with the time limit and even their own people cannot process the protocol.

If you want protocol from CFIA and go to some of these meetings, you have to register ahead of time and wait for your information to come from the USDA, which is something that is not proper but is the way it is done at the present time.

The Chairman: Can you repeat that and just explain that to us?

Mr. Kuziw: If you want to become HACCP approved at the present time and if you want to go to a HACCP program — and I have a list of some here in Alberta or B.C.; I do not know about Saskatchewan at the present time — you have to apply, and then you will receive your information from the USDA in order to fulfill that registration. I could provide the committee with this, which is the information we have received from Debbie Hellbach, who is the red-meat supervisor with the Province of British Columbia. She is trying to coordinate everything that is HACCP and CFIA regulated because of the short time span they have given us. We have to have it all completed by November 29, 2005. According to their secretaries, it is impossible to get the number of registrations to become HACCP certified done in time. They do not have the manpower and they cannot do it.

The Chairman: For our viewers, Mr. Kuziw, could you explain what ``HACCP'' means?

Mr. Kuziw: HACCP is our Hazard Analysis Critical Control Points recall procedure, mainly in the food industry, but it does not matter what industry you are in any more. I can speak on behalf of the beef industry. The procedure starts with the liners and the people who are loading the cattle. There are a few different rules in different provinces, but they are all the same.

All the way to the plant, every step that that animal takes has to have a written procedure. After the hide has actually been taken off in what we call the ``clean'' area, and once the carcass hits the food chain line, that total recall has to be in place for every animal and every pound of meat that we ship out of there. This is good, and there is nothing wrong with it.

Safety and food safety is my number one concern at the plant at the present time. I am thankful for CFIA and the HACCP program that has been implemented, because I have children and grandchildren. There are wonderful people in Canada and we would like to keep them as safe as possible with our meat products. This is number one when you are dealing with HACCP and CFIA.

There is absolutely no help from the federal government in either one of these aspects. To get a HACCP person in place, I do not think there is anywhere in the West where we can hire anyone under $25 an hour.

For the next year to year and a half he will write the procedure of every step throughout our plant. We cannot get it done by November 29, regardless; it just cannot be done. There are too many pages and words to explain all this.

We had to do an HACCP program to satisfy the people we deliver the meat to at the present time, which are mainly the Lower Mainland and secondary processors. We do not freeze our meat. We have a delivery process of 72 hours. From the time of knock down to the time of delivery, we have to be within a 72-hour time span. Our meat is not frozen or stored. It is delivered pretty well daily. Right now it is delivered every second day, which is increasing as well. As I mentioned, there is absolutely no help from the federal government for these programs. These programs are very crucial to this industry.

I believe you wanted me to speak about the slaughter capacity, but we could probably enter into that in the question period.

The Chairman: Certainly. You are giving us testimony we have not heard before. That is very important. If there are other things you would like to say now, please do so. If not, we will open it up for questioning.

Mr. Kuziw: Mr. Reykdal mentioned the price of beef. One thing I can mention about the UTM market is that in Western Canada, because we have so many feedlot operators in Alberta, we have to thank the government for the $480 million it has distributed. If the three major feedlots had not received the majority of that money, calf sales would have dropped down enough to break more ranchers and feedlot operators than went broke at the present time. The three major plants still have full control over our feedlot operations. A feedlot of any size definitely has cattle from those three major contributors. Much of those cattle — 300,000 to 400,000 head — have come to Alberta because of the drought in the U.S. and are being fed at the present time.

Someday the border will open, whether it is March 7 or 20, or whenever, but it will open because Tyson and Cargill have hundreds of thousands of cattle in our country, and they want those cattle back in the U.S. to slaughter them in their own plants. Cargill is a long way away, so it is not as susceptible, but Tyson Foods has a few plants across the border in the United States that are running at very low capacity. This would fill those plants, and they would make the same amount of money because the U.S. is still short of good Alberta beef — sorry, good Canadian beef.

The Chairman: That is fine. We are proud of our beef.

Mr. Kuziw: Yes. I, too, am proud of my province, and here I am in British Columbia running a primary processor.

With that in mind, of course they control the majority of cattle that are in these feedlots at the present time. The price of cattle has jumped because their first line of kill has taken place and they have to replace those animals and fill up those feedlots.

As of last year, some of the prices in Alberta dropped down to 46 cents a pound for fats. This hurt the feedlots — not the boys who have the cattle from these three major plants, but the smaller person who has the 3,000 to 12,000 head, who is trying to run it on his own. If he had animals to sell at that time he really took a kicking, because the minute you get over-fat you get docked again. You do not have much choice. You probably have a six-week timeline to deliver these animals. They control that market.

When we get to that point in time these three contributors can bring their own cattle in, because we have no set numbers as to the number of cattle that can be owned by a major packing plant, such as one from the United States. In most of the states — not all of them because they are not all the same — a plant such as Tyson can process only 7 per cent of cattle per day that belong to individuals. In Canada we do not have regulations of that nature. If there were regulations such as that when BSE hit, I do not know if that would have been a good thing.

These three operators totally dictate the price. If you want to go to CanFax and get the price, you get it indirectly from these operators. With that said, that pretty well takes care of those cattle. Only one of those major operators at the present time, XL Beef, does the OTMs, as well as Blue Mountain Packers.

Finances are tough. We could not get anything from the bank. We had to go the other route because the border will open. The border will open someday when the Americans tell us that they want it open, and they will tell us for what and when. That is their attitude, and it will not change. There has been much work and millions of dollars spent to open that border and to get back to Japan, and you know where we are today. I do not have to explain that.

Nine months ago we had close to 32 proposed slaughterhouses in Alberta. Now we have between 14 and possibly 18 that would like to get going. There were articles written in Canadian Cattlemen magazine about the number of processing plants that would like to get going. If they all went into operation, we would not have enough cattle to supply them, especially the OTMs. Mr. Reykdal and I probably have a bit of a lead. We are a long way from Manitoba, so there will not be any cross-buying of cattle due to transportation costs. It is too expensive with the older cattle because the price is not there.

I would like to mention the offshore beef. I know there is 76,000 metric tonnes a year that come in due to world trade. If we lived in the United States, I would imagine that would have stopped the day we found out about bovine spongiform encephalopathy. We have not stopped it, but I think that we have slowed down the supplements. I do not think that any permits have been given for extra allotments of offshore meats to date, unless perhaps in the last week or two. If Canada can develop our own industry in the OTM portion of the cattle industry, I think that is the route we should take, and I think government should take the lead by stopping all offshore meat imports until we stabilize our own economy.

If we utilized only our own beef in this country, we would have a lot less to send to the United States or elsewhere. As long as we keep buying beef offshore, we will have this problem. A lot of the problem could be solved by, as I said, totally closing off imports from offshore and utilizing our own beef.

I acknowledge the price difference. You can currently buy meat from Australia and Uruguay for $1.09 a pound. A lot of it is terrible, but it can be used in secondary processing; however, beef jerky and pepperoni is not at all cheap. It is very expensive, and offshore meat is where most of that dry, shoe-leather meat, as I call it, comes from. Processors in the Lower Mainland are mixing that meat with their own, and it comes out a beautiful colour, so they do not have to add a lot of colour during their processing.

Everyone can work together a little bit, but I do not care to have as much meat coming from offshore as is currently.

The Chairman: This has been extremely interesting. You can rest assured that your comments will not just remain in this room. They will be noted by the people in the Department of Agriculture and Agri-Food who keep track of what we do in our committees. You are not just shouting into the wind here.

With that, we will start with our questioning.

Senator Mercer: I do not know where to start because I am in a state of shock. I have spent a year or so at this table listening to people tell us about the problems that BSE has created: the border being closed, the problems with our lack of capacity — all problems with which the government needs to help farmers.

I appreciate your comment, Mr. Kuziw, thanking government for the money that has been injected. That is important, but I am absolutely shocked that government is not taking the next step; that is, helping to build the capacity that this committee, farmers, the industry and various associations have identified is needed to process cattle in this country.

Has either of you applied for funding through the western diversification fund? If so, what has the response been? I suspect that I know.

As I said, I am slightly in shock. I do not share the chair's faith that the department is listening to all the things that we learned and I thought had been passed on to government. I do not share her faith that the government has paid attention to the complexity of this problem, or perhaps I should say the simplicity of it. This is not rocket science. It does not appear to be that difficult to fix if there is a commitment by government and an understanding that this is affecting not only a few farmers in Saskatchewan, Manitoba, Alberta and British Columbia, but is affecting all of us. It is affecting me as a consumer.

Has either of you applied for funding through western diversification? If so, what has their response been?

Mr. Reykdal: We have applied for funds through the western diversification fund. It was a long time ago, so I am fuzzy on the details. ``Western diversification'' is a misnomer. I believe that if we build a slaughter plant, we are diversifying; however, the money from that fund goes to things such as tourism. We do not qualify for funding. There is no money for building a slaughter plant anywhere in Canada through the western diversification fund. We were flatly turned down by the federal government.

Mr. Kuziw: I have to give you the same answer. We applied for a loan guarantee system through that program. The length of time it took to acquire funds from CFIA made it impossible to go that route. We went the Farm Credit Canada route because they were well ahead, and we had been working with them for over a year and a half.

With regard to the $37.5 million announced by the Minister of Agriculture and Agri-Food Canada, Andy Mitchell, we were told, just as Mr. Reykdal was, that it was an election ploy, and we might as well save our time and effort because we were not going to get anything. This came directly from two of the FCC members in Alberta.

By the way, I have never met Mr. Reykdal prior to last night, so we have not compared notes.

We did not take that route, because it was useless. Our plant was picked up by individuals. Seven individuals are involved now rather than the original six, because we only acquired 120 unit holders rather than the 300 we had hoped for, and that is due to the shortage of money in agriculture. Many people broke down during phone conversations with us because they could not keep the commitment they had made to us. They did not have the $5,000.

Many people would like to bring cattle to our plant in exchange but, due to the revamping of the Securities Act from pages 4 to 32, they could not even afford to get legal advice on all the risks involved. To date, we have only 120 unit holders, so the seven members had to come up with the extra money to finance our plant.

It would have been nice to have had someone to guide us on financing or give us a decent rate of interest.

Senator Mercer: It seems to me that it would be a lot easier to invest in an existing industry that needs some help, such as the cattle industry, rather than the tourism industry, which is not in as great a crisis. I have not heard that the border is closed to American tourists coming to spend their time at The Forks in Winnipeg.

You both talked about approvals. You said that the hot-boning process is not approved in Canada. My question is why, and is there a process in place to try to have it approved because if it is more efficient, then it is something we are interested in.

My question is for Mr. Kuziw. You talked about the approval for B.C. Blue Mountain taking a long time to get CFIA approval, when it had already been an approved plant before. I find this frustrating, shocking and disgraceful on the part of the department. I would like you to give me a little explanation as to how that happened, what their response was, what they say your problems were, or more likely what their problems are.

Mr. Reykdal: In relation to hot-boning, I have been in conversation with CFIA on that. Nobody has ever applied to do hot-boning in Canada; that is why it has never been approved. They have approved hot-boning for chickens. This is the comment from CFIA. They said that because nobody has applied for it and they have never approved it does not mean it cannot be approved. You have to go through a process. You have to prove that the bacteria counts are down and the E. coli is not there and it is a safe procedure. This is the process that we will have to go through, to prove to the CFIA it can be done. As I said, if it is done in New Zealand, and Canada imports that beef and Canadians eat that beef through that process, it has to be safe.

Mr. Kuziw: As far as the approval is concerned, we started on July 1, at which time we sent the original blueprints of the plant to one of the CFIA members from our local area. He was and still is our CFIA inspector at the plant. The inspector and I, together with the plant manager, rolled out the old blueprints and laid them on the table. He acknowledged that is what we needed, and we sent the application in with the original blueprints. The next day he was flying to Ottawa to take those blueprints for us. That was a relationship that we had with the three inspectors just in the Kelowna-Vernon area. He delivered the blueprints. One week later we received them all back home again with a note telling us that they were not clear enough. I commented that I have read blueprints for over 40-some years in the little bit of construction we have done, and we did not see it that way. We sent them another set of blueprints that had the CFIA stamp on the back of every page. We registered this because we did not want to lose these; they were our final blueprints, our number one sheets of paper. We sent those to them and a week later those blueprints came back with the same excuse that they could not read them, that they were not clear enough. We took these blueprints to a place called Mailboxes and they redid the blueprints. Once photocopied, they were not as clear as the originals. Then the inspector in Ottawa said that he was going on holidays and he had given the task to another CFIA member. He would be away for a month and this member would have the authority to stamp the blueprints. So fine and dandy; we redid these blueprints and sent them in. Of course, they were not clear enough at all so they had to be redone. We brought in an architect and had the blueprints redone and submitted them. This took three and a half months and cost us roughly $12,000 dollars.

We just about had the approval from the second member, and we were supposed to have the certificate on the wall on Friday. I had already ordered two liner loads of cattle; they were on their way and we were going to process. To us, everything was an okay. On Friday morning we got an e-mail, which actually came from the office late Thursday night, stating that he would not sign these because the first member of the CFIA that we dealt with was coming back from holidays in another week and he would address the situation. Here we are with two liner loads of cattle on the way to the plant. The one load ended up in a feedlot not too far from the plant, but we did have a load of bulls. If any of you know what a load of bulls are like that came from about 10 or 12 different places — that is where we were. We took these bulls to the Kamloops Auction Market. In the fighting, we lost five of these bulls. We could not hold them any longer. We had to sell them. We ended up getting 13 cents a pound for these bulls. They went to a fellow out of Kelowna who had helped us. He has a feedlot; otherwise we would have lost them all because they would not get along.

In the two weeks that followed, the number one CFIA member came back. We were going over the set of blueprints and of course they were not good enough. We had on there our pneumatic stations. Of course this plant is already built; there is not much you can do with it. It has the cattle line; it also has a pig line off to the side, which we do not use. In the cattle line all the equipment is pneumatic. You stand on there and use the foot valves to go up and down at each station. The only one that does not do that is the hide bench. That is where the hide is first removed from the two hind legs and the legs are taken off. We have schematics of a person on the stand. If you took an architectural ruler and measured this person, he would be a three by five. We were told that the guy was way too big and he could not fit on these pneumatic lifts. We made them smaller.

We tried to do everything that they mentioned to us in every one of these conference calls. At the plant we had our HACCP coordinator there already. We started from day one because we knew that by January 1, we definitely would have to have HACCP, so we started this in August. We had 20-some people on staff at that time. We went ahead and fit most of the blueprint together.

There was one situation with the tile. The bathrooms for the CFIA and the veterinarian were not totally tiled, so we tiled them within about a day and a half. Three times in a row the comment came back that these bathrooms were not tiled. They just kept repeating it. At that point my patience gave out and we started speaking to our MPs.

To make it a little shorter story, we had 11 MPs working on getting our certificate. Finally, they gave the CFIA members three days to have our certificate on the wall and in three days we had it on the wall, but it took a minimum of 11 MPs. We had met with the minister, Andy Mitchell, in Red Deer. Three of his members met with us in the time allotted in two days, but that did not really help when we had to get our certificate, except for the 11 MPs .

That is why I am on heart pills today.

Mr. Reykdal: Since Mr. Kuziw went through that, I contacted CFIA in December. When I phoned he said, ``I am out in the country, but I will meet you back at the office.'' When I got to the office in Winnipeg, he said, ``We were told, if you call, to drop everything and respond to your request.'' I am glad that Mr. Kuziw is on heart pills and not I.

Senator Callbeck: I am from Prince Edward Island. As you know, a new plant has just opened in my province. One of the aspects of that plant is the technology for traceability. I believe they say that it is ``from the gate to the plate.'' It is our first plant to have ever used this technology. I understand it was installed because they felt it would help to increase their markets.

Are either of you looking at using this or similar technology in your plant?

Mr. Reykdal: Yes. The company that installed that in Prince Edward Island has contacted me. They sent me brochures and disks on the operation. He did phone me several days ago trying to sell me the technology. We do not even have a plant going yet and already we have salesmen coming. Am I right that the federal government put a fair amount of cash into that facility in Prince Edward Island?

Senator Callbeck: I know the federal government put some money in.

Mr. Reykdal: The plant we are looking at in Washington has a trace-back system installed called the Triton system. The animal is bar-coded when it comes in. It is traced right through the system. It is traced to the coolers. That is as far as it goes. Those bar codes could also be traced to the consumer in that system. It is not new technology that this company is putting forward; however, it is good technology. If you buy a hamburger, it can be traced to my J-57 cow back on the farm, which is good. We do not want to go through a long process to try to determine where that animal came from. If it can be isolated, that is something we need. If we sell to a customer, and it eventually goes to a consumer, the consumer can have confidence in our product because he or she knows it is safe.

Mr. Kuziw: We have a trace-back system. This is part of the HACCP program. It was part of CFIA, which they had in place, but all the plants like Cargill, Tyson and XL have a trace-back right on the rail, because they only deal with UTM cattle. Until the three different systems combine into one, we have to pretty well go with the flow at the present time. Seeing that we do the UTMs, we mainly have only seen the bar code system, which traces back to the point of origin. In many cases it is a poor way to say it is done; but let us say it works for now. There are still many of those tags being removed. The tag must be put back on before they are loaded on to the trailer, but that is not saying that they will stay on the animal during transportation.

At the plant we are a registered, licensed tagging facility. If an animal does not have a tag on it, we have to replace that tag at the plant. You know that that animal was not born at our plant, but the last point of origin before it was knocked down can be traced back to this plant.

The tagging system that I can use with the UTMs at the present time goes all the way into the batch of meat that is sent to the secondary processors. All that has to be written on the container. We use the Julian calendar for the dates of processing and the dates of shipment. That in-place program is not really working according to CFIA and the CCA, because of the loss of these tags. They are now coming out with electronic tags: One is a small round tag put in the ear, and another will be implanted under the skin. If you implant one in a calf, by the time that calf is three years old, for instance, or becomes a cow, that implant can move in these animals. Some of them have gone right down to the bottom where it cannot be read any more.

Those three systems are in place. The electronic system is roughly $30,000. The program that Mr. Reykdal mentioned is anywhere from $20,000 to $30,000, for the ability to trace back that you have mentioned. It is not new in the under-30-months cattle but it is brand new in the over-30-months cattle, because we never had to do it before BSE.

Senator Callbeck: I want to ask a question about determining the age of the cattle. I know there are some producers who are not happy with how one determines age, by looking at or inspecting the teeth. They felt that some of their cattle were assessed to be older than they actually were and, therefore, they got a lower price. Is there another way to determine this? How will your plant inspect them?

Mr. Kuziw: The electronic tagging system will definitely give you the date of birth, where the animal was born and much more history than the bar code did. I just mentioned to you what the bar code did if an animal lost it. I do not think they will lose them as readily with electronic systems. Electronic systems will go right back to the date of that animal. It will be determined right at the plants wherever they are processed. At the present time, you are correct that they mouth them.

Mr. Reykdal: The question was whether there is a better way. Ossification of the bones is a better way. As an animal gets older, when you split their spinal bones in half, blood gets in the bones. The bones of a young animal will not do that. As it gets older, there is more and more blood in the bones. This is a much more accurate way of telling the age of an animal. Mr. Kuziw was talking last night about the inspector doing a test wherein he was right about age all the time. Ossification is a better way of determining age.

With regard to mouthing and looking at teeth, some animals could have them at 22 months of age. I have never done it myself. It is not a good way of doing it, because many animals under 30 months of age are going down as OTMs.

Senator Hubley: I think we are all a little surprised this morning. We felt we had a sense of the impact that BSE has had on our industry. This has demonstrated how important it is to get input from all the stakeholders.

With regard to your new plant in Dauphin, am I correct that the investment the cooperative members make determines the number of cattle they are allowed to bring to the plant for slaughter each year?

Mr. Reykdal: Yes.

Senator Hubley: Could you explain that to me again?

Mr. Reykdal: We set up a cooperative structure that gave us an exemption from the securities commission to sell these shares to producers. In order to participate you must buy a $100 membership in the co-op. In order to be able to deliver animals to the plant, you must buy one share per animal; those shares also cost $100. If you want to sell 10 cows per year, you would buy 10 shares, which would cost you $1,000. You could deliver up to 10 cows every year and would not have to pay again. I guess you would call it ``a hook.'' A $1,000 investment enables you to deliver 10 cows every year.

Senator Hubley: Ten cows are not very many. What sort of an investment would a farmer have to make to ensure that he had slaughter capacity at your plant? I want to clarify the situation of cattle over 30 months and under 30 months. I believe we will now be looking at slaughter capacity in Canada for cattle over 30 months.

Mr. Reykdal: At our plant in Dauphin we are looking at cattle over 30 months, or the OTM ones. ``OTM'' and ``UTM'' are new terms in our society.

Senator Hubley: How quickly we progress into using those.

I also come from P.E.I., so we are looking at operations of different sizes. How many over-30-month cattle would a farmer want to slaughter every year?

Mr. Reykdal: ``Cull rate'' refers to the number of animals we remove from the herd and replace with younger animals. In Manitoba, our average cull rate is between 10 and 11 per cent on beef and 22 per cent on dairy. The average is 12 per cent. Our cow population in Manitoba is currently close to 700,000, up from 600,000. At 12 per cent, that is 72,000 head a year that we would sell off the farm.

I had sold a few before May 20, but since then I have not sold an older animal from my farm. Their numbers keep increasing, although some have died; however, I am too stubborn to give them away for five or 10 cents a pound.

The model is that a producer with 100 cows would buy 10 shares at a cost of $1,000. A producer with 500 cows would buy 50 shares at a cost of $5,000. However, many farmers in Manitoba do not have that $1,000 or $5,000. Some producers have bounced cheques for $200. They just do not have the money.

Senator Hubley: What will those farmers do?

Mr. Reykdal: The provincial government in Manitoba has put another $2 million of equity into our project, and we thank them for that. As a result of that, farmers need only put up $100 and sign a commitment that, if they have 100 cows, they will deliver 10, and when they deliver them, $100 per cow will be deducted from their proceeds.

The farmers asked for this. We finally convinced the provincial government that this was a good idea, and they came on board. Everything is in place now. Now we need to get the commitments from the farmers. This is one way they can do it. The provincial government is helping us. As I said before, we received no help from the federal government in any way except, as I said, when I phoned CFIA they said that they were supposed to jump when we called.

Senator Hubley: You said you are buying equipment from an American firm to open your plant in Canada, which was the first concrete information we had that American farmers are suffering as well, although many at this table have suggested that to us.

When the border reopens, will our slaughter capacity in Canada be in place to handle the culls, or will all our under- 30-month livestock again be slaughtered in the United States? Will they be able to handle that capacity? What is in place if they cannot?

Mr. Reykdal: Are you talking about our over-30-month cattle?

Senator Hubley: No, the under-30-month cattle.

Mr. Reykdal: We are specifically building a plant for the over-30-month cattle. If we run short of OTMs, we will look at processing under-30-month cattle, but we are specifically targeting cows and bulls.

If the border does open on March 7 to under-30-month cattle, there will not be a big change in revenue in my pocket because of the bureaucracy and paperwork that will be involved. It is estimated that it will cost 9 cents per pound to transport the animals across the border, and that is quite a bit. Therefore, I do not foresee a big flow of cattle south across the border. It will be time consuming as well.

Senator Tkachuk: Your story about the Canadian Food Inspection Agency was humorous only because no one here was surprised, and that perhaps tells the story.

You mentioned the interest rate of Farm Credit Canada and said it was too high. What did they quote to you when you applied?

Mr. Kuziw: When the Neilson Group bought out the Heartland Co-op Saskatchewan Pool system and auction markets in Northern Alberta, Saskatchewan and Manitoba, to my knowledge they received money from the government at under 2 per cent interest. We heard it was less than that, and some of the people who are very close to them received anywhere from 4 to 5 per cent. I know that to start with they received some money as low as 1.5 per cent. I do not know whether the government can operate on that, but I think in a time where we have such a devastating market out there, some help should have been given in some way.

I am not saying we have to go in that, because they are a multinational organization now. They do not only sit with the two slaughter processing plants, but they sit with just about all the auction markets, buying them up because some of these auction markets have gone broke.

Since we were on holidays, I heard of another one at Ponoka that is having problems due mainly to the Bennett Feedlot that went broke. They had a lot of money invested in that.

Let us hope that those are rumours, because the Ponoka Auction Market has done a lot of business in Central Alberta. They were very strong and good people who just got caught in the system when they had a lot of older OTM cows in a feedlot that they could not get anything for all of a sudden.

The government should have some type of assistance, mainly for these packing plants. Mr. Reykdal would probably appreciate some help; I know we would. We will still have to get something from someone, somewhere, because there is not really that type of money in the OTM industry if we have to compete with offshore prices.

Senator Tkachuk: You had to be certified by the Canadian Food Inspection Agency although you are a B.C. primary producer. You said you ship to the Lower Mainland in B.C. Is the reason you need federal inspection because you also ship outside of the province of British Columbia? Can you just be certified provincially if you are selling provincially? How does that work?

Mr. Kuziw: To answer that, I think as far as we are concerned, if we want to sell to a federally inspected plant that sells their product to the U.S. and wherever — being that we sell to the secondary processors: Fletcher's and the Grimms plants. They sell all over — in order to do that we definitely have to be certified CFIA and HACCP approved. They have to see our HACCP program. They want to know that we have a recall system in place before they will buy one ounce of it. Since we started the plant, Fletcher's has been bought by Quality Meats, another outfit that has come in with more stringent requirements.

Senator Tkachuk: When you said you wanted some help — or maybe you said there was no help and you wanted some help, I am not sure — from the HACCP program and from the Canadian Food Inspection Agency, were you talking of assistance from personnel to help you fill out all the forms and help you with procedure, or were you talking about cash? Were you hoping that their response would be more client oriented than bureaucratically oriented?

Mr. Kuziw: I think I would express my opinion on both. We definitely did not have a HACCP program in place. You cannot get one off the Internet that is particular to the beef industry. We did this from scratch. We picked up a person who was in the dairy industry; without him, we would not have our doors open. The dairy industry has been HACCP approved for many years.

As I mentioned to you, this is a total out-of-pocket cost, above and beyond anything we even imagined when we first started with this. The timeline will get closer. Now the CFIA is asking for all the provincial plants to meet the same regulations that we are.

Senator Tkachuk: The same HACCP regulations?

Mr. Kuziw: That is correct. They do not have anything to go by. They do not know where to find these people; they are not out there. It will create more of a problem down the road, but you definitely need some sort of assistance to put this into place. As far as Mr. Reykdal's plant, our plant, XL's and the other federally inspected plants are concerned, I think that some organization or the federal government should be out there to coordinate some of this, and set rules and things for us to go by.

Senator Tkachuk: If the inspector in Alberta certifies an Alberta primary producer to sell in Alberta only, and the Alberta inspectors then also approve a HACCP program, like the feds want — if that particular primary producer said, ``I am selling to Alberta, and it is going well. I would like to sell into Saskatchewan and B.C.'' That person has to go through the feds, and they go through it all over again.

Mr. Kuziw: That is correct at the present time.

Senator Tkachuk: If Alberta people are alive and well after that, the person should be able to sell in Alberta, B.C., Manitoba or Saskatchewan without having to go through the federal program, which would be easier. I do not understand why we have to do this twice.

Mr. Kuziw: I think at the present time a lot of these small abattoirs — I will just mention some names. For instance, let us go to Trochu, Strathmore or High River. High River has a small provincial abattoir. They are sitting in town. If they wanted to expand and become CFIA approved, it would be almost impossible for them to compete in the market then. Take the small one at Mere, for instance. That plant is not a good sight. If they had to meet our standards, the whole plant would be destroyed, because there is nothing there with which to work. I think we probably have to bring these standards up in a hurry. There is no doubt about that.

There is a plant in Forestburg that is totally built on. There is one in Wainwright that is added on. Those plants are not plywood lined inside any more. They have come up to standard and rightfully so. They should be cleaned and absolutely hygiene inspected.

Senator Tkachuk: Are you saying in Alberta or B.C., the provincial inspections and level of approval is much less?

Mr. Kuziw: That is correct.

Senator Tkachuk: Is it less to the point where you think it may even be dangerous?

Mr. Kuziw: I will say that it is not as sanitary. At the present time in B.C. — I do not know exactly in Alberta — but we are very close. Our Blue Mountain Packers plant is within a quarter of a mile of a provincial plant. He came to me the other day asking what they can do with the blood. If you are CFIA approved, you have to dispose of that blood. You cannot throw it out in the dirt. He said, ``I cannot afford the system you guys have to dispose of this.'' Our system cost the Greenway people in B.C. $250,000 just to equip our plant to remove the waste. He does not know what to do.

At the present time if you slaughter a sheep in a provincial plant, you can take that sheep — the waste, the head, the brains and whatever you take out of them — and throw it in an open pit and let the rest of the animals haul it away. You could never get away with that in a federally inspected plant. Everything is contained, sealed and air conditioned. That is the difference between what can and cannot happen. For instance, his plant has strictly plywood-lined walls. They are painted nicely, but they are still plywood. This is not the only plant in that situation. There are many provincial plants in exactly the same situation.

Senator Tkachuk: You mentioned U.S. restrictions on partial vertical integration where primary producers in certain states could only produce 7 per cent or 9 per cent of the cattle they owned. Is prevention of this kind of vertical integration prevalent in all the U.S. states?

Mr. Kuziw: I can only mention the ones that came out of Washington and states at the northern border. I do not know if it is the same all over, but to my knowledge it varies from 7 per cent to 9 or 10 per cent. I know it is a small amount, and in some areas they do not let them have them at all.

Senator Tkachuk: That is just to keep it competitive rather than monopolizing the price.

Mr. Kuziw: That is correct.

Senator Tkachuk: You talked about restricting foreign cattle imports or meat imports. As a result of this tragedy, people have rediscovered Canadian beef. Before BSE, when I went to Safeway or IGA to pick up meat, I always thought I was buying Canadian beef, but I was not. I was buying American beef or Australian beef and, if I was lucky, Canadian beef. I think that people want to buy Canadian beef, and I think supply and demand will solve a lot of those problems. I do not think we need to ban foreign imports. I think that they will be reduced without bans as people learn what they are buying. I notice that Safeway now has signs saying ``Alberta beef'', which it never did before. That is Canadian marketing.

Mr. Kuziw: That has a lot to do with it. Again, we have only three distributors in Western Canada now, and they are all foreign owned. People thought that the small distributor who was caught delivering through his garage last week in Calgary was certified as well. He was probably as clean as could be, but he was not certified and that is not the proper way to go. We have to protect our industry in all aspects.

Mr. Reykdal: When we get more slaughter capacity in Manitoba, we will be able to promote Manitoba beef, but we do not yet have the slaughter capacity to do that.

The Chairman: It says a great deal for our consumers and producers that consumption of our product has increased substantially throughout this BSE crisis. This is the only country where that has happened. It surprised people at the beginning, but it has continued, which is positive.

Mr. Reykdal: That shows that the consumer is confident that Canadian beef is safe, and we are striving to be as clean as possible and to produce as wholesome a product as possible.

The Chairman: Just before Christmas we put out a report on value-added issues, which we had been working on for some time. In that report we recommended additional federal resources to help smaller operations reach HACCP standards. What you are saying today gives us additional reasons to pursue such recommendations.

Senator Oliver: I would like to extend a warm welcome to both of you. I enjoyed your very informative presentations.

You outlined some of the problems that farmers continue to have with the bureaucracy in trying to set up a new niche to help get beef to market. It is an amazing struggle that continues.

Senator Tkachuk asked about the difficulty you are having with Farm Credit Canada. However, even before you mentioned Farm Credit Canada, you said that the banks do not help at all. If you are going to build a new plant, a new capital asset, why would a bank be unprepared to take security in the form of a first mortgage on that? What was the problem you were having with the banks in terms of financing these projects?

Mr. Reykdal: We had preliminary discussions with some of the banks. They viewed it as too high a risk because of uncertainty about the border opening or Cargill and Tyson putting us out of business. They were not prepared to take that risk.

As a primary producer, I raise a calf to be processed, and I am not getting the dollar for it. The multinationals are taking the dollar. We would like the federal government to help us get this running by perhaps guaranteeing our loans from the banks. Perhaps the banks would be willing to lend us the money if the federal government would guarantee the loans.

When I as a cattle rancher go to the bank to borrow money, I have no trouble getting a loan because I have equity in my land and cattle. The cattle are not worth much, but the land is still worth something. I guess this is the problem with the lenders.

Farm Credit Canada was using pre-2003 statistics, prices and profits, not today's profits. Pre-2003, there was a slim margin to be made in the slaughter industry. Further processing is where the profit is.

Senator Oliver: That is what we call ``value added.''

Mr. Reykdal: Yes, and we are trying to value-add to the cattle rancher, not to the multinationals. We want that money to stay with the cattle rancher because, as I said before, if you give the cattle rancher a dollar, he will spend it.

Senator Oliver: The committee did a study on value-added, and we agree with you entirely.

Two companies share 60 per cent of the weekly slaughter capacity in Canada, and you are starting to do some slaughtering of your own to get back into the market. There is a chance that on March 7 the U.S. border will open and many of our cattle will go over the border to be slaughtered in the United States. You told us that there were more than 30 groups thinking about establishing their own plants, but that number is now down to 14 or 15.

What is the optimum? Right now, over-30-month cattle will soon be diminishing. What is the optimum number of new plants that we can afford to have in Canada so you can all continue to make a profit, with enough cattle to keep these plants busy and occupied in a profitable way?

Mr. Reykdal: I will speak for Manitoba. One.

Senator Oliver: You do not want any competition.

Mr. Reykdal: It is not the competition. If we are to do 60,000 to 70,000 head a day, that would be the capacity or the supply of cattle in Manitoba. We need other plants to do the under-30-months. There are proposals for plants in Manitoba to do them, but we are the only one proposing at this time to do the over-30-months. It is not that we do not want any competition. We are a co-op, so the profits go back to the primary producer. It all goes back to the primary producer.

Senator Oliver: Even though you are in Manitoba, what effect will the border opening have on the over-30-month cattle that you need in your business?

Mr. Reykdal: It will not have any effect, because March 7 will not open the border to over-30-months. It will open to under-30-months. In Manitoba, prior to May 20, all our cattle, whether they were over 30 months or under 30 months, went south across the border to be slaughtered, to Alberta or to Montreal.

Senator Oliver: When the American border opens for under-30-months, will that mean that there will not be so many cattle getting to over 30 months any more? Will they go over earlier?

Mr. Reykdal: It will not make any difference.

Senator Oliver: It will make no difference whatsoever; there will still be the same number of cattle over 30 months for slaughter?

Mr. Reykdal: Yes. We have an excess amount of over-30-month cattle right now. I would be bold and say we have 120,000. I have not sold an animal over 30 months old since May 20. That is a year and a half. They just stay on the farm.

Senator Oliver: Mr. Kuziw, of the 14 plants that are in the process of being built, what is the number you say we should have in Canada so that anyone who does build can still make a profit?

Mr. Kuziw: At the present time, we have anywhere from 860,000 to probably close to 900,000 or better just in the three western provinces. In order to enlighten, on the UTMs, which you had mentioned, Cargill will be doing 1.2 million a year; Tyson Foods will be doing 1.2 million a year; XL in Calgary — if it ever gets going, and I think it will — will be doing anywhere up to 300,000 a year. That is 2.7 million animals under 30 months. I do not know at the present time if we can totally supply that.

Senator Oliver: What can you say of the 14 plants that are on the drawing boards now?

Mr. Kuziw: Of the 14 plants on the drawing board, we have the three that I mentioned. Sorry, XL is doing roughly 300,000 a year in Calgary now. Those are the three that are doing UTM.

Out of these 14 packers that I have here, I have Canada Direct that was hoping to get the same system as Australia. I do not know if that will ever materialize. We have some in different places that will definitely have labour problems. When you take these processing plants, only certain types of people will work there.

Senator Oliver: It is not for everybody.

Mr. Kuziw: That is correct. I cannot speak about anything east of the Saskatchewan border, because I had enough on the west. There is the one in Innisfail. Now I will go to the OTMs. I think the UTMs are just about looked after. Naturally, some of the small, local abattoirs will definitely do some of these fat cattle for you or for anyone wanting to buy packaged meats, and there definitely will be at least 100,000 head of those throughout those three provinces that will go to local consumers province-wide.

On the OTMs, we have a plant in Pincher Creek. It is looking for $50 million. It is a small town in the foothills. It does not have the labour, and it is not getting the money either.

Senator Oliver: If it got the $50 million, what would be its slaughter capacity?

Mr. Kuziw: It would like to do 200 a day. Lethbridge has one coming on stream that is U.S. oriented. It only wants to do triple A and prime cuts. We have to wish it good luck, because cattle just do not come in that type of a package with the hide on. We have to take the hide off first. That is $160 million.

I am sorry; I was on holidays and I left all my notes in High River.

Senator Oliver: Let me ask one final question. How will this all shake down then? Without people spending $50 million and then finding that there is not a capacity there, what is the best way for this to shake down with the market opening in the United States?

Mr. Kuziw: I honestly think that the federal government should have a board of directors or some sort of initiative to direct these people. As I mentioned, there were 32 prospective plants on my last report. I am now down to 14 or 16, and I know there are other plants that want to get going. I have been approached by three different plants to be their coordinator or to work for them. I first have to get over what we have done already. I hope I do not need a pacemaker yet.

Senator Oliver: Do you see a role for this committee to come up with proposals to help what is almost a crisis?

Mr. Kuziw: At this point, I would probably help anybody in the agriculture industry, because we have been so devastated. That is all I know. We have some other side businesses, but I have been in agriculture ever since I was born. When this came up, with the devastation we had in the feed program and everything, I would probably have helped just about anyone. The only thing I see that could really happen is that we end up with too many plants in Alberta, and then we would have a problem. Sure, Alberta is a rich province; we have all sorts of resources and we could probably afford some of these plants, but at the present time they have not donated any money whatsoever that I know of. We have a new minister now and things could change; however, we cannot have 14 plants in Alberta and expect to survive. It is impossible.

Senator Tkachuk: Some will survive.

Mr. Kuziw: Some might. They will definitely drain the number of animals. We have the B.C. Livestock Co-op on our side as one of the members in our plant. They tried to buy the plant prior to that, but had nobody who really wanted to step forward. If you take that into consideration, except for these young people over here, that is the type of hairline we see at every one of these producer meetings. That is the only type of people who are out there running the beef and agriculture industry.

We have had three suicides among young people already. It is a terrible thing to see. We had it before, about five years ago, when the grain industry and agriculture went down in the north. People in the south always get more money for their land; therefore, these boys all went north. They doubled the size of their production and their debt — or tripled it — and then the price of grain went down. We had a terrible disaster in Northern Alberta.

Mr. Kuziw: That is right, Senator Gustafson. It is just a tough situation to be in. I guess that is why I stuck my foot forward and did this. At the present time, regarding plants doing OTMs, we have Moose Jaw, which is now probably doing 420,000 with their new line, new coolers and new capacity. They will end up doing the animals over 1,850 pounds. We have Blue Mountain Packers that will probably do 30,000 a year. We have Innisfail that would like to do about the same as we are doing, but they are not quite rolling. I do not know where they are with CFIA and HACCP, but if they are ready, they will probably be about the same as we are with the 30,000. The provincial plants do about 100,000 a year. For local usage, the ranchers' firms do their own, and there are close to 50,000 with the small abattoirs, so we are up to 645,000. We do not need many more plants to take the profit away from what is already there. You have to remember that the OTM is a very small margin, nothing like the UTM.

Senator Gustafson: I do not know what to say. I have sat around these committees for 26 years and I am getting frustrated. This committee has heard nothing but ``added value,'' and ``diversification.'' These are government terms that come to this table again and again. I am so sick of hearing it because it is not working.

Senator Tkachuk: It is not my fault.

Senator Gustafson: I am trying to get you to understand the problem we are facing. I will just throw this at you. In Weyburn, Saskatchewan, for added value, we had the durum-wheat producers down here trying to get a pasta program going, but it died. They cannot get anywhere with the Wheat Board or with other government regulations. There is a problem.

We had a distillery at Weyburn where they have tried at least three different things. The distillery closed down, and of course now it is Molson's that moved to the United States. They closed down, and brought in a tractor factory from Australia that went broke. They closed down, and all this time we are hearing ``added value.'' There is also another one there.

Why is this idea that we have been fed not been working? In spite of the fact that my colleague gave a tremendous speech yesterday and analyzed all the things that we heard in this committee, it is not working. I think we have to go back to where we were. This is a question I would like answered. Before the BSE, the cattle industry was a very successful industry, right?

Mr. Kuziw: Yes.

Senator Gustafson: You cattlemen made money.

Mr. Kuziw: Yes, we did in some years. Yes.

Senator Gustafson: You made money because the Americans were capable of selling your beef into the international market. Is that fair?

Mr. Kuziw: And back to us.

Mr. Reykdal: We do not say we made a whole pile of money prior to May 20. There were things that could be better. In some years we lost money; in some years we made money, but do not picture it as rosy, because a lot of young farmers were leaving the industry. As Mr. Kuziw was saying, young farmers were going into the oil fields. I have had people from Alberta buying shares in my co-op and farmers from Manitoba. I asked them what they were doing in Alberta. The response was that they cannot make it on the farm, so they are working in the oil fields, but they still have their farm in Manitoba.

Senator Gustafson: There are reasons for that too. Alberta land prices have gone through the roof, where Saskatchewan's have gone the other way. They are at least down 30 to 40 per cent. Alberta's land prices have gone up, but that is oil money. It has very little to do with agriculture, unfortunately.

The point I want to make — and I want your comment on this — is that we have sold out to the United States, whether we know it or not, and I am pretty pro-American. If you look at the grain industry, you have Archer Daniels Midland; you have Cargill; you have ConAgra, and you have the United Grain Growers, which is owned 49 per cent by ADM. They are all building new plants and they have a captive market.

We have the lowest grain prices that we have had in years. I phoned the Weyburn Inland Terminal the other day and found that good wheat is going at $2 a bushel. You cannot get by with that when fertilizer prices are higher. You cannot get your input costs back. This is all controlled by American industry. That is what's happening. The Wheat Board quite frankly has lost their clout in the Canadian market.

We did go through the diversification. We brought in other kinds of crops. I have been through that on our farm, and every other farmer has been through it. What do we do now in terms of processing? When I was a boy, our cattle all went to Canada Packers in Winnipeg. Alberta, with their oil money, bought the industry by putting in subsidies. I fed cattle in Alberta and there was a subsidy of $70 a head on cattle fed in Alberta. You could not feed a cow in Saskatchewan or Manitoba and compete. They bought the industry. How are you going to stop that from happening again? You have Tyson and Cargill in there — the big players. Now a lot of the big feedlots are owned by the Americans. I will make the point that a lot of American cattle will be fed in Canada because of cheap feed. Here you can buy wheat for 75 cents a bushel; you cannot buy it for that in the United States. They are going to ship their calves into Canada and feed them. I would like your comments.

Mr. Reykdal: I could talk here for a long time. How do we stop it? One way is controlling the amount of cattle that feedlots can own. In the United States, they can only own seven per cent. In Canada, they can own as much packing capacity as they want. We do not have the Combines Act in Canada to protect us from that.

When I lost my train of thought before, I was about to say that when our finished beef went south across the line, the Americans in turn, prior to May 20, would ship it to Japan, so the United States made the profit on those cattle. Why did we not just ship directly to Japan? We did not have the market; the Americans had the market. How do we get that back? How do we get extra processing? We have to start by getting our slaughter plants up and going, do the processing and sell the beef within Canada. Instead of importing beef from other countries like the United States, the Canadian consumer — as Senator Tkachuk said — eats Canadian beef. Once they realize that it is Canadian beef, they indicate that they want Canadian beef. We do not have to convince the Canadian consumer that we have wholesome beef. Canadians like our beef and they are going to eat our beef.

This is what we have to put out there. We have to get our plants going so we can get the product out there.

Senator Gustafson: The way I view it, it is such a big challenge. Can we overcome all the mistakes we have made to this point? The Canadian Wheat Board was before the committee here and I asked them, ``To whom do you sell your grain?'' Most of the grain goes to Cargill, and ADM buys our grain. They control our industry, whether we want to admit that or not. There is no question about it.

I do believe in your idea of a mixed market in Manitoba. You already have one in B.C. For goodness' sake, do not scrap that. It is not a rosy picture out there for agriculture.

Mr. Reykdal: It never has been.

Senator Gustafson: Do we want to set up a competition with the Americans like we have in the lumber industry where we will start undercutting each other? The Americans have done a pretty good job of selling Canadian beef to Japan. I see Mr. Kuziw nodding his head, because he is an old cattleman and he knows that.

I can see why the government is somewhat hesitant to jump in with big dollars for new plants. I realize that there is a vacuum in Manitoba. Saskatchewan, now with Moose Jaw, is opening again, but they have been up and down. They have to analyze the situation carefully to determine where we are going.

Mr. Reykdal: You are looking at why they would put money in it. We could sit back and let the Americans run our country.

Senator Gustafson: That is what is happening. That is the point I am making.

Mr. Reykdal: If we sit back and let that happen, it will happen. If the government says, ``Why should we put it in? We will let Cargill and Tyson run our beef industry for us,'' that is not what we cattle producers want.

Senator Gustafson: I cannot agree more.

Mr. Reykdal: We cannot have that attitude. We have to have the attitude that we cannot let this happen. We have to take a proactive stance, get our value added and get our consumers onside and saying, ``We want Canadian beef. We want Canadian beef from Canadian farmers, produced in Canadian plants.'' This is what we have to push for.

Senator Gustafson: Do you not think that our officials are asking the question of whether this will fly?

Mr. Reykdal: In Manitoba, it will fly.

Senator Gustafson: As long as Alberta oil money does not put subsidies on cattle and buy all the cattle back into Alberta.

Mr. Reykdal: This negativity —

Senator Gustafson: I fed cattle for 10 years. The only reason I fed in Alberta was because the Saskatchewan subsidies could not compete with the Alberta subsidies. They were getting $70 a head at one point in time. They bought the industry with oil money, which was a good business operation for Alberta; no question. It took all the cattle out of Manitoba and Saskatchewan.

Mr. Reykdal: I quit feeding when they took that off.

Senator Gustafson: What happens if they do that again?

Mr. Reykdal: I guess we will cross that hurdle at that time.

Senator Gustafson: I wish you well, but I think the time has come when we have to look at facts. I have heard of added value and diversification. When it comes to agriculture financing in Canada, the banks have always supported the farmer as long as the government would guarantee it. As long as they did not have to take a risk, they put money in with the government backing.

Mr. Reykdal: The only ones who are supposed to take a risk are the farmers. Is that what you are saying?

Senator Gustafson: That is what is happening.

Mr. Reykdal: We are the gamblers and the federal government is not prepared to gamble at this point.

Senator Mercer: He is not saying it is right. I think Senator Gustafson is making an observation.

Senator Kelleher: I have just one question. This idea Canadians have of adding value to the product is great, because it means that we will start processing in Canada and get more money for the product. That is just great, except for one thing as I see it. The Americans did not get where they are in the world by sitting back and idly watching Canada steal their market from them. I understand enough about this business to know that the United States needs our cattle. If we start processing them here at home, the United States will not be very happy, and they will react. God knows, it might even turn out to be something like the lumber industry. What will the Americans do if we start doing this? They will not stand idly by. They will react and do something. This will have an effect on Canada's plants. What will the Americans do when we start doing this? They are already concerned that Canada is starting to add value and is putting in plants to achieve it. What will happen?

Senator Gustafson: I think, as a point of interest, this gentleman is the former Minister of Trade.

Mr. Reykdal: If I could answer what will happen, maybe if we have plants up and running in Manitoba, B.C., Alberta and Saskatchewan, and there are plants in the States competing for the cattle, maybe we as cattle producers will get more money for our cattle.

Senator Oliver: Put the price up.

Mr. Reykdal: Put the price up, so we will be winners either way. If we do not have a processing plant in Manitoba or in the rest of Canada, there will be no competition, and we will be price takers. They will say, ``We will give you so much a pound; take it or leave it.'' That is what is happening right now in the industry.

Senator Kelleher: What will the Americans do as we bring these plants on stream?

Mr. Reykdal: At this point in time, they are complaining because this is happening. There is also pressure from our calf producers and others who have a lot of money behind them. They are pressuring the courts to not open the border to Canadian cattle. There was an announcement out of Washington yesterday that they were not going to allow beef from animals over 30 months to cross the border on March 7, as they previously announced they would. To me, this is good news for us because that means they will not let live cattle in any time soon either.

Senator Kelleher: I understand that and the measures the Americans will bring. That is a temporary thing. In the long run, what will the Americans do? They will not stand idly by. How will they react and what effect will this have on us?

Mr. Reykdal: My comments to Senator Gustafson will be the same to you. If we always sit back and wait for the Americans to tell us what to do, we will always be at their beck and call. If we fight back and say, ``We will do our own,'' at least something will happen. We could just sit back, roll over and let them run us, which I do not foresee happening in my vision of things. I know you have been in trade and probably have a lot more experience than I. I am a fighter; I am not going to quit.

Senator Kelleher: With the greatest respect, you are not actually answering my question. Mr. Kuziw, can we hear from you?

Mr. Kuziw: Prior to us putting the Blue Mountain Packers plant into existence, or putting it back on the trail, we actually priced all our meat, our buying of the cattle, at exact daily market prices. At that time, cows averaged 60 cents per pound and bulls were at 70 cents per pound throughout Western Canada. That is what we were selling them for and that is what the Americans were buying them for. That is how we priced our inputs.

As you mentioned, we do have a niche market in fresh, boneless meat. We do not freeze our meat. The secondary processors with which we are so closely associated may continue to use our product. Costco has picked up the market for kipper beef jerky, which is made with fresh meat. Grimms is making it in the Lower Mainland of British Columbia. They can only use fresh meat because of the amount of pressure used to compress the meat to keep it together. They use about 2,500 pounds per square inch of pressure. If they use frozen meat, which contains ice particles, the meat will break down when packaged. We hope that will continue to be a number one product for them as well as for us.

On the West Coast there are a lot of secondary processors, and fresh meat has added colour and flavour to the offshore meat.

Does that help a bit?

Senator Kelleher: Not really, because I know the Americans will not stand idly by. They will understandably react to what we are doing. What will they do? Will they interfere with our plans to add value? Will they be successful? They are huge and have a lot of money and can stand the attrition that will go on for several years.

Mr. Kuziw: They also have the secondary processing equipment in place, which we no longer have. We have given that all up.

Senator Kelleher: I am somewhat concerned about this. Do not misunderstand me; I think that what you are doing is great. I admire the gumption of the Canadian people doing this.

As Senator Gustafson said, we have to look at this from an economic point of view, and I am concerned about what will happen in the future.

Mr. Reykdal: When we get our plant up and running in Manitoba, it will be producer owned and producer invested. When you invest in something, you do not want to lose your investment. If the producers do not bring their animals to our plant, they will lose their investment. They are not likely to do that, so we will have a captive supply of cattle. Once we have that captive supply of cattle, someone would have to bid pretty high to get them. This will give us an advantage.

As far as selling the product, the hot-boning method, which has proven to be successful for boneless beef in other countries, would give us a competitive edge over what they are doing in the United States.

Those are a couple of examples of where we would be at an advantage over them.

Senator Callbeck: There has been some discussion this morning about interprovincial trade. As I understand it, in order to sell to other provinces you have to be registered by CFIA, which means you must adhere to federal regulations, and those are the same regulations or standards that you must adhere to in order to sell to a foreign country. Is that right?

Mr. Kuziw: They will be. They are not at this time.

Senator Callbeck: It is my understanding that there are certain terms and conditions in the regulations that are coming into force, which are there because foreign countries want them, but they really have nothing to do with food safety or the health of the product.

Do you agree with the standards that are coming in for the new regulations? Should we have a different level of interprovincial standard as compared to international standard?

Mr. Kuziw: Food safety is still the first priority of standards. We must consider that at all times. I am not saying that the food from those small abattoirs was not safe, because I have not heard of people passing away as a result of consuming it. The only thing that has happened is contamination of hamburger, and with hamburger we do not know what the consumer has done to it once it has left the secondary processor or the store. The latest problem was with consumption of raw hamburger, which is not a good thing to do, regardless of where you are from. How was this meat prepared? In most cases, hamburger is 100 per cent safe. The only difference is that it goes through many more processes than a whole piece of meat.

I think that some of the provincial standards should be increased, but would we kill that industry by implementing these rules? I do not know whether the small abattoirs can live with the HACCP program. Many of them will not be able to afford it, especially if the government does not help them, at least with a generic system. Perhaps somebody could compile all these papers on a computer. At the present time, we have four loose-leaf binders full, and we are probably not half done. That is just with the HACCP program with the CFIA, because everything has to be written up. I hope we do not kill that small abattoir.

Senator Callbeck: What are these regulations or standards that are coming that would be the same for international and interprovincial?

Mr. Kuziw: One item that we had quite a problem with when we were trying to get CFIA approval was the inspectors' inspection station. We went by the rule of 244 square centimetres that CFIA had in the booklet. Our lift, after renovating, met those standards. The following week, we learned that the USDA standard was a four-by-eight inspection station. We could not install that inspection station without knocking out an outside wall or, as they suggested, changing a rail. You do not just put a zigzag in an automatic rail when you have an animal coming by every two minutes. In some of these abattoirs, where would you put a four-by-eight stand for carcass inspection? Many places do not have that facility and do not do a citric wash to protect from E. coli and salmonella. They do not do the swabs, because they cost $20 per test. The cost would go on and on if we go with such a practice. It is fine if you are doing thousands of head per day, like Cargill which runs 5,200 head each day through its plant. We cannot do that; Mr. Reykdal will not do that and many of these smaller niche places will not do that. However, there are some good ideas for animal processing like the black Angus and Hereford programs. The U.S. will not pick that up on the other side. I did not mention that to Senator Kelleher, but I do not think they will get into that niche program because it will be more or less locally oriented.

Senator Callbeck: Currently, the standards for interprovincial trade are not the same as they are for international trade, but they will be.

Mr. Kuziw: That is right, and they are not the same as the European Union.

Senator Callbeck: This will make it much harder for the small producer.

Mr. Kuziw: Definitely.

Senator Callbeck: When are those standards coming into effect?

Mr. Kuziw: We are supposed to receive a letter from the CFIA before the end of February telling us that we have to be HACCP certified or we have to have our application in by November 29.

Senator Callbeck: Thank you.

Senator Gustafson: I was a member of Parliament for several years when we had a problem between Manitoba and Saskatchewan. Somebody was trying to sell beef from Gainsborough to Brandon and could not do it because one of the provinces had to have brick and cinder blocks, while the other had two-by-fours covered with steel. Thus, he could not sell in the other province. We operate as 10 vassal states in Canada. We talk about international free trade but we do not even have free trade among the provinces in this country. That is our biggest problem.

Mr. Kuziw: Absolutely.

Senator Gustafson: Mr. Kuziw, you could run into that problem at every corner, I am sure. Do you grind hamburger, or who does that?

Mr. Reykdal: That is further processing, and we are looking at doing that down the road.

Senator Gustafson: I would think that McDonald's might be the biggest way to get rid of much of this tough beef when it is bringing 12 cents per pound.

Mr. Reykdal: Do not say ``tough beef.'' It is not all tough. That beef is not for hamburger but for further processing. The hamburger that you eat is from the better animals, I would assume, because that is what I would do.

Senator Gustafson: It would appear to me that your packing plant would have a captive market in the Lower Mainland, Mr. Kuziw.

Mr. Kuziw: We have that, Senator Gustafson. With the co-op livestock members on our side, we run right from Vanderhoof all the way to the B.C. border. That has probably been one of our best moves. We had to put them on side mainly because we could not raise the money through the unit holder fund.

I will respond to your question on hamburger and value added. We have been running since November 10. For the last two weeks, we have not been able to supply the Lower Mainland people who have asked for our meat. We were asked for meat in Alberta, and we could not bring it to them because we cannot produce enough of it. That is why we will need some kind of help in order to increase the plant in the Salmon Arm area to do a job for the OTM and for the rancher. That has raised the price of cattle in that area.

Senator Gustafson: You have a captive market of 4 million people.

Mr. Kuziw: That is correct.

The Chairman: Honourable senators, Mr. Reykdal and Mr. Kuziw, this has been a rollicking session. Thank you.

Mr. Reykdal: On behalf of all the producers of Manitoba, Saskatchewan and Ontario, I thank you for the time to appear before the committee to bring our case forward.

Mr. Kuziw: I thank you on behalf of Alberta, B.C. and a little bit of Saskatchewan.

The committee adjourned.