Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 10 - Evidence
OTTAWA, Thursday, April 14, 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 Leonard J. Gustafson (Deputy Chairman) in the chair.
[English]
The Deputy Chairman: Good morning, honourable senators, I see a quorum.
Our committee is dealing with the future and present state of agriculture, which we all know has some problems. We welcome this morning the Fédération des producteurs de bovins du Québec. We are pleased you are here and we look forward to your presentation.
We have Mr. Dessureault, Mr. Drury and Mr. Bélanger.
First, I understand Mr. Dessureault will make a presentation and then we will go to questions from the senators.
Mr. Michel Dessureault, President, Fédération des producteurs de bovins du Québec: Thank you very much. I prefer to make my presentation in French because I have more facility in that language.
[Translation]
The Fédération des producteurs de bovins du Québec represents all beef producers in Quebec. We represent 20,000 beef producers on 15,000 cattle farms; 30 per cent of our members are dairy producers. We represent 90 per cent of the slaughter calf production in Canada. Quebec is the leading producer of slaughter calves in Canada. Our herd represents 5 per cent of the butcher cow and butcher beef herds on Quebec farms.
Today, we are all in the same situation given the U.S. embargo that is causing considerable damage to our farms. We are trying to come up with solutions that will enable us to adapt to this reality, but also, as producers, to stay in this business in the long term.
Beef producers in Quebec, as well as the industry, subscribe to the government's objective to increase slaughtering capacity with the aim of reducing dependence on slaughterhouses outside the country. The solutions implemented to resolve this problematic situation should also have as one of their objectives to ensure that producers are able to obtain their fair share of the consumer's dollar. What we are seeing in Quebec and more or less throughout Canada during the crisis is this: The consumer's purchasing power for beef products has gone up slightly during the crisis, but the sharing of the dollar in the industry has changed considerably, leading primarily to losses on the farm.
The lack of slaughtering capacity in Canada has made beef producers more and more dependent on American slaughterhouses. In the last few years, more than 20 per cent of finished beef and 40 per cent of cull animals were slaughtered in the United States. These livestock came from both eastern and western Canada.
In referring to the document that we handed out, we can see Table 1 shows Canada's slaughtering capacity and the number of head. Mr. Bélanger will make some brief comments on the Table.
Mr. Gaétan Bélanger, Secretary-Treasurer, Fédération des producteurs de bovins du Québec: Until the early 80s, slaughtering capacity more or less followed production. In fact, capacity was even much higher than production, and slaughtering capacity was often underused. However, the situation started changing in the 80s. Over the next two decades, the slaughtering sector gradually underwent considerable streamlining, and there was a sharp decrease in the number of slaughterhouses. At the same time, beef production in Canada went up. So the relatively small gap in the early 80s grew over time.
Mr. Dessureault: According to data collected by CANFAX, initiatives underway to increase Canadian slaughtering capacity will allow for the slaughtering of about 101,540 head per week by the end of 2006. Table 2 shows slaughtering capacity at the end of 2003, which was 76,000. At the end of 2004, capacity was 86,000 head. In June 2005, it shows 90,000 head, and that the number gradually increases to a slaughtering capacity of 200,000 head. In any case, taking into account the projected increase in Canadian production, it is estimated that Canada will remain in a situation of under-capacity for slaughtering at least until 2008.
Initially, the industry calculated that the lack of slaughtering capacity would take much longer to resolve in the cull animal sector than in the finished beef sector. This situation could mitigate against decisions taken by some of the large slaughterhouses in western Canada. Cull cows will be slaughtered in the same facility, instead of slaughtering steers, at the XL Foods in Moose Jaw, Saskatchewan, and eventually, at Lake Side in Alberta. The bar graph in Table 3 shows slaughter capacity, and the surpluses are shown in black. Mr. Bélanger will explain this Table.
Mr. Bélanger: In fact, it is difficult to measure this production capacity and to attribute slaughter capacity for slaughter steers or cull cows. The slaughterhouses make these decisions on their own, based on rules of international trade and based also on their internal structure and their market.
A year ago, most industry stakeholders felt that Canada would probably continue to face under-capacity in slaughtering over the next few years for cull animals, or non-fed cattle.
There was an increase in slaughtering capacity. Slaughterhouses have made decisions that currently have analysts thinking that under-capacity for slaughtering will be from now on somewhat more of an issue for slaughter steers than for cull cows. Please refer to the last two pages of our document, to annex 1 and annex 2.
I will not go over all of these figures. These documents were prepared by the Canadian Cattlemen's Association. They are estimates. But I think that they will give you a rather realistic overview of what will happen between now and the end of 2006.
These are estimates for slaughter capacity and at the bottom of the table, you can see a gradual increase in total fed cattle, up to 84,000 head per week. That is clearly below current steer production levels. Federal and provincial capacity for non-fed cattle would go from 12,000 to 16,000 or 17,000.
It is tight, but it nevertheless shows a rather considerable increase. However, bear in mind that 40 per cent of cull cows have historically been slaughtered in the United States. So this growth is normal. The annex on the following page shows a host of figures. They are estimates and scenarios of what may happen between now and 2008. This was also prepared by the Canadian Cattlemen's Association.
Without going over all of these numbers, if you go to the last line of the table, you will see surpluses not in cull animals, but according to these new estimates, in fed cattle. This is surplus cattle, in other words, the slaughter houses will be unable to slaughter all of the slaughter steers on the market. That is currently the case and it will remain the case until at least 2008.
Estimates show an increase in production. There is in fact an increase in the figures you have before you. Will production grow more quickly or more slowly? It is difficult to say. One thing is certain; the conclusion is always the same: there will be a shortage of slaughter capacity, be it for cows or steers, for at least another three years.
Mr. Dessureault: I would like to talk about some elements of caution regarding slaughtering capacity, in other words, variance between theoretical and functioning slaughter capacity. It must be acknowledged that there is a distinction between the theoretical capacity of slaughterhouses, and the functioning capacity which is about 90 per cent of the theoretical capacity.
Any calculation of slaughtering capacity in Canada must take into account this reality. As regards surplus or deficit of slaughtering capacity at the regional level, the balance between the offer for sale and the slaughtering capacity, whether it be for cull animals or finished beef, is important at the national level. But attention must also be paid to this balance within the larger regions of the country, which is not the case at this time.
I now want to talk about business decisions. To avoid putting pressure on the market, which has the effect of increasing prices, slaughterhouses have the option of adjusting the number of kills in relation to the quantity of animals offered for sale by producers, which is what they are doing currently. Incidentally, despite the increase in slaughtering capacity and in Canadian production, there were fewer numbers of beef animals slaughtered from January to March 2005, than the number in the same period in 2004. Thus, the slaughterhouses are reacting in anticipation of the set aside program, as we can see in table 4.
Mr. Bélanger: This data comes from the Canadian government. Table 4 shows fed cattle slaughtered and is divided into two categories: east and west. Under “fed cattle” which includes slaughter steers and heifers, you can see that the total slaughter from January to March 2005 is 623,811 head, whereas it was 649,092 in 2004.
That is a 4 per cent decrease; so 25,000 head remained on the farm. And a few more, because we are fully aware that production is increasing, not decreasing, whereas the number of animals slaughtered is decreasing.
The situation is the same in Eastern Canada for slaughter steers. In 2005, there were 163,693 head, between January and March, compared with 178,566 last year. There was an 8 per cent decrease in Eastern Canada. I think that the entire industry and the government were putting considerable pressure on slaughterhouses last year to deal with surplus animals on the farms. There is less pressure now. The cattle are still on the farms. Market prices have firmed up somewhat. At the same time, producers are attempting to take steps to set these animals aside, namely with the help of the government.
But in the end, as soon as there are fewer animals available on the market, the slaughterhouses are reducing their slaughter capacity proportionately to avoid putting pressure on market prices. That is legitimate. We are not saying that we would not do the same thing if we operated a slaughterhouse. But we are saying that the set-aside program is not totally neutral. It has consequences. The reaction by industry is such that the problem of surplus animals on the farms is not being totally resolved.
As regards cull cows, we can nevertheless see some stability with respect to slaughter in Western Canada. That is on the non-fed side for cows and bulls, whereas in Eastern Canada, you can see that as well, there is a 10 per cent increase in slaughter. Two companies, Jencor in Ontario and Colbex in Quebec, have increased their slaughter capacity.
Mr. Dessureault: As regards concentration in the slaughtering sector, in North America during the last 20 years, slaughterhouses have increased in size and decreased in number. They can now be counted on the fingers of one hand. Canada is no exception to this trend. Four large facilities slaughter almost 80 per cent of Canadian production for finished beef, and two large facilities slaughter 90 per cent of cull animals. At the regional level, this concentration of capacity is even more noticeable; there is only one large facility for finished beef and one for cull cows in Eastern Canada, in Ontario and in Quebec.
At the provincial level, the situation is even more critical. In Quebec, for example, there is only the capacity to slaughter 25 per cent of the finished beef produced in the province.
The concentration of Canadian beef buyers has further reduced competition in the marketplace.
As regards the concentration of slaughterhouses in Canada, table 5 shows that 80 per cent of fed steers are slaughtered in Western Canada, and 20 per cent are slaughtered in Eastern Canada. On the bottom of page 4, you can see the four large companies: Lakeside, 34 per cent; Cargill, 31 per cent, XL Beef, 14 per cent; and Better Beef, in the east, 13 per cent.
Fifty per cent of cull animals are slaughtered in the west and 50 per cent are slaughtered in the east. The largest slaughterhouse in the west is XL, which slaughters 45 per cent of all cull animals in Canada. In the east, it is Colbex, which slaughters 45 per cent of cull animals in Canada.
Integration by the slaughter houses: some slaughter houses also control a part of their supply chain. They use this “reserve” to reduce market pressures. So some slaughter houses now own animals. Table 6 illustrates how that works and what level it has reached in Canada.
Mr. Bélanger: In fact, this section is the second part of our brief, which is entitled Other factors affecting market dynamics and the distribution of profit within the sector. That is where our interest in this discussion lies. It is not just about slaughter capacity. It is also important to know whether the consumer's dollar and revenues are well distributed in the sector. It is not simply a matter of slaughter capacity. We must also take into account market dynamics which are affected by concentration and by the integration by slaughter houses that is more and more of a reality, as we can see to a large degree in the United States, especially in pork and poultry.
This table was prepared a few years ago. It reflects the situation at that time. The situation has probably evolved; there has certainly not been a reduction but instead an increase. I'm referring to table six, where you can see than on average, slaughter houses are producing custom supply. Sixteen per cent of the total volume slaughtered was steers that the slaughter houses owned and had in their feed lots. We also know, through this investigation, that at least 5 per cent of the cattle on the farm were produced by contract. So there was already a link. Everyone knew where those cattle would be slaughtered; so the 5 per cent rate does not represent animals available on the market to establish a transparent price.
That is a total of over 20 per cent. That has consequences. It is probably more than that today, and it varies from one slaughter house to another. When a company already has 15, 20, 25 or 30 per cent, it does not need to control 100 per cent of its supply. Controlling part of it is important in the company financial strategy. I would say that 20 per cent is already sufficient to ensure that the company does not put much pressure on the market; when the company needs animals, it will turn to this reserve, and these are the company own steers. When the market is lower, the companies buy on the free market. So it is an important cushion. That is the kind of tool that a slaughterhouse can use to control its price, but that producers cannot control. When our steers are ready to be sold, we must get rid of them, and we accept the market price.
Mr. Dessureault: There is an added difficulty surrounding transparency and market price discovery. Slaughterhouses are revealing less and less about the price paid for their supplies. Several days a week, the organizations that publish market prices have not information to provide, whether from the Ontario or Alberta markets. In addition, these organizations have very little at their disposal to be able to verify their sources. How can the price offer to producers be determined as competitive if there does not exist a trusted reference for the market price? Unfortunately, this is the case today in the cattle sector.
Steps taken by the Fédération des producteurs de bovins du Québec, an increase in slaughtering capacity is not, of itself, a guarantee of a fair and equitable price for producers. The marketing system must also be organized and efficient in such a way that producers are able to access their fair share of the consumer's dollar. Such a fair price will only come from real competition between the different buyers in the market place, or through direct ownership and control of slaughtering and processing facilities by producers themselves. Quebec producers have opted for this second option.
In doing so, Quebec beef producers have followed one of the recommendations made by the Standing Committee on Agriculture and Forestry in their April 2004 interim report entitled the BSE crisis — Lessons for the future. On page 11, the committee proposes “ways for the government to create the best possible environment for farmers that will enable them to move up the value chain and retain a larger share of the profits.” That is what is happening in Quebec as we speak.
To carry out their projects, Quebec producers, in keeping with their tradition, have chosen to opt for a collective approach — equity between producers — innovate by making maximum use of the powers under the Act — Act respecting the marketing of agricultural, food and fish products — and promote partnerships with industry specialists whenever possible. For this purpose, following consultation with producers last April and May, Quebec producers decided to invest the money, despite the crisis, in order to provide immediate solutions. They voted to implement two check offs, $10 per head for fed cattle, and $20 per head for cull cows, in order to create two market development funds, one for fed cattle and the other cull cattle.
Thanks to these developments funds, producers were able to get involved collectively, downstream from production, namely with abattoirs Zénon Billette Inc., in Quebec — which was the only fed cattle slaughterhouse in Quebec bought out by producers — and the Colbex-Lévinoff cull cow slaughterhouse, which was also the only business for which producers were able to make a buyout proposal in its last few days.
To assure the financial success of their approach reproach, the producers really need the financial support of the governments. Certainly, the producers would be able to use their funds to place a little capital or equity in the business; however, both federal and provincial governments supports are necessary if there is to be sufficient equity. Indeed, when taking over a new business, the greatest challenge is starting up and creating a solid base to ensure the longevity of the business.
I would also like to make some comments and suggestions concerning the current federal support program to increase slaughter capacity: as soon as it was announced on September 10, 2005, Quebec beef producers noted many weaknesses in the new Canadian program.
In order to reach the intended targets, this program must be reviewed and improved. For this reason, the Fédération des producteurs de bovins du Québec is sharing the comments submitted on April 6, 2005, by the Canadian Cattlemen's Association to representatives of the federal and provincial governments. Here is an excerpt from the Canadian Cattlemen's Association's document:
For the most part, increases in slaughter capacity have been made by the existing processing companies. However, many proponents of these new initiatives are focused not only on building more capacity, but on ensuring the ownership of this capacity is Canadian and / or producer controlled.
While the federal government had announced a Loan Loss Reserve Program to assist in financing some of the new entrants, it has largely been ineffective. One of the most critical success factors in any project is the ability to raise sufficient equity to position the project in a strong financial position. Equity allows for adequate debt financing; a margin to allow for unexpected construction costs and start-up expenses; and a provision for losses while building market share. The past 22 months has already shaken investor confidence in our industry, and many in the cattle industry are wary of risking what equity they have left given future uncertainties.
These factors make it very difficult for these new projects to get the required equity to make the projects viable. It is strongly recommended that all levels of government develop incentives for equity investment into these new projects. These could take the form of investment tax credits, accelerated capital cost allowance, or equity loss coverage for investors. If successful, this could put many of these projects “over the top” while ensuring a strong financial position and increased shareholder loyalty to sustain these projects when live cattle trade normalizes.
The Canadian Cattlemen's Association recommends improved financial/equity instruments. It firstly recommends that the loan loss program be revised to be a matching capital program, “with the condition that the facility must remain intact for ten years.” Secondly, it recommends that new incentives including investment tax credits, accelerated capital cost allowance, floow through shares, or any combination of the above, be pursued.
The Fédération des producteurs de bovins du Québec share the comments and the proposals of the Canadian Cattlemen's Association. Moreover, the federation would like to see the program modified so that financial assistance can be given to producers who purchase abattoirs, even though it does not translate immediately into an increase in slaughtering capacity.
In addition, the program should not impose a ceiling on the sales of the business acquired by the producers. If a large number of Canadian producers decided to acquire a slaughterhouse as big as Lakeside in Alberta, the government should be able to support them with a direct input of capital.
In conclusion, considering the current centralization in the Canadian bovine industry, and considering that the U.S. borders could unfortunately remain closed to live Canadian cattle for a long time, it is in the best interest of the Canadian and provincial governments to support the producers in their efforts to acquire abattoirs. Keeping jobs in Canada is one of the issues at stake here.
By giving themselves sustainable strategic tools, by better positioning themselves to receive a fair share from the marketplace, producers will gain better financial autonomy. From then on, they will be better prepared to face crises, and in the mid-term, they will require less government assistance. In some ways, it is an investment for the government. However, until the slaughtering capacity and marketing problems are solved, the governments must also implement improved assistance programs to cover losses incurred at farm, which have been steadily increasing month after month for nearly two years.
As an example, on December 31, 2004, losses incurred at farm in Quebec stood at $390 million. Assistance provided by the different levels of government, both federal and provincial, stood at around $150 million. Quebec farms therefore faced a $240 million shortfall which was not covered by any program.
What Canadian business could possibly stand up to a $240 million loss! For the same period, the big Canadian slaughterhouses registered profits. At the moment, it is the farmers who are really feeling the effects of the crisis.
The producers' coffers are empty. It is imperative that the balance between supply and slaughtering capacity not be reached through a reduction in the Canadian bovine herd, as the entire country would end up losing.
[English]
The Deputy Chairman: Thank you for the detailed presentation. Mr. Dessureault, I understand that you are a dairy producer.
Mr. Dessureault: Yes.
The Deputy Chairman: What price do you receive for a cull cow, in dollars and cents?
[Translation]
Mr. Dessureault: We had held discussions with the Quebec government and with the slaughterhouse industry in Quebec. Since December 2, 2004, the floor price for live cull cows gives 42 cents to the producer. This rate applies both for dairy cows and butcher cull cows. Currently, the market provides the producer with between 26 and 27 cents, and the difference is paid by the government of Quebec by means of a top up. We hope to gain the support of the federal government in order that this project can be finalized.
From the 1st of May 2005, the market will pay the producer 32 cents. From the 1st of September, the market, by which I mean the slaughterhouse, will pay the producer 42 cents a pound for live animals.
We had to aggressively lobby our main partners in Quebec. I am sure that you are aware of that, at the end of November, producers demanded that the abattoirs pay them their due. Demonstrations were held, and pressure was put on the slaughterhouse industry to pay producers a fair price. Thanks to the mediation carried out by the government of Quebec, producers were able to get a price of 42 cents per pound for cullcattle. In similar markets, producers fetched between 55 and 60 cents, which means that, with the price set at 42 cents, slaughterhouses still have a profit margin.
[English]
The Deputy Chairman: That indicates that the Government of Quebec has been very good to its producers compared with some of the provincial governments in Western Canada, where some farmers have a bill to pay after they ship the cull cows.
It would seem that the cattle producers are able to buy very cheap feed. What is the price of corn in Quebec?
[Translation]
Mr. Dessureault: Grain fetches a miserable price in Quebec as it does elsewhere in Canada. Dry corn sells at around CAN$100 per metric tonne, an amount which does not provide cattle farmers with much of a profit margin. At best, the price makes the crisis a little more bearable for the producer; however, it is not high enough for him to make a profit. Cattle farms are in negative margin. As well as creating difficulties for other sectors, the problem is not being resolved for cattle farmers.
[English]
Senator Mercer: First of all, you should understand this committee has a great deal of respect for the farmers who are surviving this awful crisis across this country. You people are magicians; you continue to lose money but keep going. We also recognize the good support that you receive, in particular, from the Province of Quebec.
You stated that you support the Canadian Cattlemen's Association's response to the announcement in September. Specifically, this statement:
While the Federal government had announced a Loan Loss Reserve Program to assist in financing some of the new entrants, it has largely been ineffective.
Can you expand on why you think that is the case?
[Translation]
Mr. Bélanger: In fact, when the program was first announced, our federation was not at all comfortable with the proposed approach. The initial comments made by the Canadian Cattlemen's Association on the subject were cautious. Everybody knows that what matters in business is an inflow of capital. Starting up or expanding a business requires capital and equity, but the program offered no such support. What is offered by this program is protection, and protection for the banks, not the investors. Such a program simply insures that if the business were to go bankrupt, the bank would not lose too much money. It is a program which offers loan guarantees, and which does not, therefore, provide protection for investors. This is something which was criticized by the CCA, our own organization, and virtually all other producers associations.
Today, the CCA is stressing two points which are more in line with what we have always argued. Firstly, governments should provide all new investors with real equity, in other words venture capital. We too would agree that venture capital is what these businesses need to get started. Furthermore, as Mr. Dessureault said earlier, it is also needed to help them through the first years, which are the most critical in business.
The CCA also argues that, due to slaughterhouse concentration, increasing slaughter capacity to bring it more into line with supply, will not necessarily guarantee better prices for producers. If there is only one buyer on the market, then he is the one with control. Even if there were an abattoir in Canada which had the slaughter capacity to process all Canadian cattle, if it is the only one on the market, it would be able to fix the price. It is not a cartel, it is a one-man decision. What are we to do if that price is not in our interest?
Senator Mercer: There is nothing that can be done.
Mr. Bélanger: The CCA believes that both slaughterhouse capacity and marketing problems must be resolved simultaneously.This is the approach favoured by cattle producers because, in view of the concentration and integration, one without the other will not work.
We therefore support this proposal and the new analysis of the situation carried out by the Canadian Cattlemen's Association.
I would like to conclude by giving you a more specific answer to your question. The program has proven to be broadly ineffective because, of the $58 million earmarked for the program, and these are figures in the public domain, virtually no money has been spent. That is what we are being told. Setting aside millions and millions of dollars, only to end up not spending them, is a fairly ineffective approach.
Any increase in Canadian slaughter capacity has been made by existing slaughterhouses, which already had a virtual monopoly. These are the ones which continue to expand. We do not believe that marketing problems can be resolved in the current context. You need to help producers help themselves.
[English]
Senator Mercer: Probably, if any good comes out of all of this, it will be our increased understanding of our capacity problem and our increased emphasis on building capacity. I am from Nova Scotia, so I am particularly interested in what happens in Eastern Canada. East of Quebec we only have one plant, and that is a new one in Prince Edward Island. It is just up and running. Has there been any talk amongst the farmers and farm organizations in Quebec about integrating their efforts with the respective organizations in New Brunswick, Nova Scotia, Prince Edward Island and, to a lesser extent, Newfoundland? I see both a business advantage and a real political advantage to having all five provinces bringing their weight to the table. Many times in Eastern Canada when we are dealing in agriculture, particularly when we are talking about beef, we are overwhelmingly outweighed by our brothers and sisters in Western Canada. We are not always big players at the table. Has there been talk of that, and do you see that as a venture worth pursuing?
[Translation]
Mr. Dessureault: It is a very interesting idea, and one which we are considering. Our first priority was to get ourselves organized in Quebec. The advantage of the Marketing Act and the joint plan is that we have created a close partnership agreement between the slaughterhouse and those supplying it.
If Quebec producers decide to invest in a slaughterhouse, such as Colbex, which has the capacity to process more than 50 per cent of the cull cattle in Canada, they intend to meet with their colleagues in neighbouring provinces to see which services could be pooled. Working together is considered to be important across Quebec as a whole.
Yesterday, I attended a meeting of the Québec dairy farmers, where I met somes from Manitoba. We have reached the point of organizing meetings with our Manitoban counterparts. Previously, we have also met with New Brunswick producers. Our objective is to secure long-term supply for our plant, and to ensure that producers receive a decent price for cull cattle. We are still at the planning stage, but Quebec producers are very open to such an approach.
[English]
Senator Mercer: Which leads me to the question of interprovincial trade and the regulations that affect it — to be able to sell in another province, a slaughterhouse must be registered by the CFIA and comply with the federal meat inspection requirements and standards for interprovincial trade. It is the same as for foreign exports, even though, according to the CFIA, certain term ands conditions in the federal standards demanded by our foreign trade partners have nothing to the do with the food product health.
Are you in favour of a level of inspection that would allow a provincial slaughterhouse to engage in interprovincial trade without necessarily being authorized to market its products internationally to take down some of our internal roadblocks?
[Translation]
Mr. Dessureault: It is a matter of always ensuring that there is proper supervision in terms of food safety. The Canadian Food Inspection Agency provides us with this assurance through its Canadian standard. This means that once slaughtered animals have met Canadian inspection standards, they can be moved freely around Canada. Inspection standards vary from one province to the next, and harmonization is required to allow for free movement of goods. With live animals, given that Canadian controls are imposed, regardless of the province in which they are carried out, we already have harmonization. As regards provincial inspection systems in the Canadian market, we want to have a level-playing field in terms of marketing.
Mr. Dessureault: In Canada, we still have a situation where some provinces have inspection systems while others do not. We have to make sure that there is a standardized inspection system across the country in order to ensure consumers' safety. If this were the case, and adequate inspection was carried out, then we would have no problem with the free movement of meat products.
[English]
Senator Mercer: My final comment is on Mr. Bélanger's answer to my previous question and his comment on the banks. The agriculture community is much like the rest of us, in that we all work for the banks, whether we are paying our mortgages or car loans or we are working on the farm. It is a frustration that we all share.
[Translation]
Senator Gill: If I understood you correctly, you said that producers had lost $300 million in revenue. If we subtract from that figure the financial assistance that you were given, we are left with a figure of around $200 million in losses. Has the situation changed since prices were fixed and the Quebec government decided to help producers by bringing the price per pound up to 42 cents? You have perhaps not yet been able to measure the effect, because this is something which was done very recently. What impact could this have?
Mr. Dessureault: The agreement arrived at between the slaughterhouse and Quebec cattle producers will result in $35 million for the cull cattle sector. A table based on Quebec figures showed that in 2003-2004, the Canadian government contributed $50 million to compensate for losses in the cull cattle sector, compared to the 90 to $92 million losses which were actually incurred. Automatically, therefore, the agreement resulted in $35 million being provided to offset the $90 million losses. In the short term, this constitutes a significant step in the right direction. However, this cost the federal government nothing beyond the undertaking made in the agreement. Without the support of the Quebec government, I do not believe that the floor price would have been introduced. Given that the slaughterhouse was making significant profits, it had no incentive to reduce them. It always comes down to market forces when you talk to those people. An agreement was reached on this front, but in concrete terms, it means $35 million for Quebec cattle producers for 2005.
Senator Gill: In Quebec, you have begun to implement a Senate committee recommendation on buying over one or more slaughterhouses. Obviously, the prices paid to producers are currently decided by the slaughterhouse. Were you to become a shareholder, who would control the producers? Would it be the consumer or demand? If you are a shareholder in an slaughterhouse, you will still have to compete with others. I understand that. There is a degree of competition, but in terms of the consumer, once you own the slaughterhouse, what happens to market forces?
Mr. Dessureault: In the current context, becoming the major shareholder in one of the Canadian industry's leading slaughterhouses will not change much from that point of view. The business is already in the market, it has a client base, and consumer spending will not change. Consumers will still be spending the same dollars. However, in terms of profit margins across the sector, and in particular for the slaughterhouse sector, we will see benefits shared across the industry, which could result in us staying in the Canadian market. Even if the Canadian market shows no signs of change, our slaughterhouse will not be in difficulty. However, in a situation where we can determine market price, it will be possible to share profits on a regular basis. The solution remains to be determined, but our objective is not to hit consumers for more money. Our objective is to better share what money there is. There is room for that to be done. You must have received documentation explaining the exact situation of these businesses, and showing that this is possible, the money has remained in the sector; although the benefits may not have remained in Canada, the money certainly has. But, the producers have not seen any of it.
Senator Gill: I come from the Lac Saint-Jean region. People seem to be experiencing difficulty in getting to slaughterhouses. It proves to be very costly. It would seem that everything is centralized in your area. Well, not so much your area, but more towards Montreal, Quebec, and the major centres. It seems to me that the regions are experiencing difficulties.
Mr. Dessureault: Currently, the reality in Quebec is that there is one slaughterhouse which processes 90 per cent of Quebec's cull cattle, and 150 others which process the remaining 10 per cent. The large slaughterhouse is centralized in Quebec, thanks to the federation, the Marketing Act, and the joint plan. We are currently exploring how to supply it and streamline transportation. By dealing with these problems together, we are going to be able to provide service to people in Lac Saint-Jean, New Brunswick, or the Lower Saint-Laurent, at the same price. That is what happens when we join forces and work together.
[English]
Senator Callbeck: I want to follow up on interprovincial trade. Mr. Dessureault, you said that some provinces have no inspection system. Does that mean they meet the federal requirements or are there no requirements if you are selling within a province and not interprovincially?
[Translation]
Mrs. Dessureault: The provinces do have set standards, but in certain provinces, there are people working in the meat sector who are exempt from these standards if they are selling directly from their establishment. At any rate, that is how it is in Quebec. This means that agreements are individually negotiated between consumers and meat processors. We therefore must ensure that, if meat is being traded interprovincially, there is at least a Canada-wide minimum standard; and that is what the CFIA can provide to help ensure that interprovincial trade is fair. Otherwise, you are left with a situation of unfair competition, whereby some businesses are subject to standards and others are not. Secondly, minimum inspection standard are required in terms of food safety. As producers, we have the responsibility to ensure that consumers are buying products which are not only of a high quality, but also safe.
Mr. Bélanger: Allow me to add to that answer. In certain regions of Quebec, there are not even any small provincial slaughterhouses duly inspected by the Quebec government, but with standards which diverge slightly from those of federal slaughterhouses. These are regions which border Ontario, and in Ontario, there is a provincial abattoir which could, for regional marketing purposes, slaughter these animals and take them back — I think that was the drift of the question which you asked earlier. I think that, given that we do not currently have enough slaughter capacity, we ought to be open to the idea of taking advantage of such slaughter capacity under very specific conditions. If these animals were slaughtered in Ontario, they would be marketed in Atibiti-Témiscamingue, for example. We are facing this problem at the moment. Animals have to be brought to Montreal to be slaughtered, and then returned to Atibiti- Témiscamingue. How can this be resolved? The slaughterhouse on the Ontario side is provincially inspected. We feel that, en light of the current situation, CFIA inspectors could visit the abattoir to ensure minimum standards, as Mr. Dessureault suggested earlier, in order to allow this slaughter capacity to be quickly exploited. However, our governments are currently showing no willingness to solve some of these marketing problems with provincial slaughterhouses.
I think that this is an opportunity which is not fully exploited. But let's not us kid ourselves, this alone would not solve the problem of Canada's lack of slaughter capacity. It will solve some small regional problems, but will not solve the real problem of slaughter capacity.
[English]
Senator Callbeck: A slaughterhouse selling within the province goes by provincial standards. If they are selling interprovincially it has to meet the same standards as if they are selling internationally.
Do you feel there should be different standards? In other words, I understand the international standards contain certain requirements simply to please some of the foreign countries, and which have nothing to do with food safety.
Do you feel that if you are just selling within Canada interprovincially, there should be a different set of standards?
[Translation]
Mr. Bélanger: That is the case at the moment. When we sell products within a given province, these standards are slightly different. As you said earlier, that does not mean that the meat is not safe to eat, far from it, but the standards are not exactly identical. We would like to take advantage of this opportunity, but we need the Canadian Food Inspection Agency to cooperate. We believe that more needs to be done if Quebec and Ontario are to reach an agreement. The CFIA has to be at the table to ensure that the trading standard does not result in others countries no longer wanting to buy Canadian meat. The three parties have to sit down together and find a short-term solution to remedy the problem of under-capacity slaughtering and cattle marketing.
[English]
Senator Callbeck: I agree we do not want low standards. I am still not clear whether you agree that we should have one set of standards for interprovincial trade and another one for international trade.
[Translation]
Mr. Bélanger: Yes, it would be both possible and viable to have two standards. We already have a Canadian standard and a standard which applies within each province. We believe that it would be possible to have an intermediate standard for interprovincial trade; an intermediate standard between the provincial's standard and the international standard, given that the meat will not be leaving the country. Our cattle export capacity would not, therefore, be put at risk.
Mr. Dessureault: I would like to add something if I may. There are some inspection considerations, but increasingly, since the BSE crisis, the important thing is product traceability. Permanent identification has been imposed on producers in Quebec and Canada. In Quebec, our animals are identified from birth. We must assume that meat imported into Canada has the same traceability. However, this is far from certain in the United States or in other provinces. That puts the producers in a very difficult position, because traceability does cost money. We are prepared to go along with this, and we do so, but when meat comes from another province or from another country, the situation is simply not fair. And then, we are supposed to be able to compete with the others. There is more than one factor, there is a host of factors to ensure proper processing.
[English]
Senator Callbeck: On page 11, on the slaughter capacity, you show an increase in federal inspection between 2004 and 2006 of about 20 per cent. For the provincial inspection, you do not show any increase at all. I would like you to comment on that.
[Translation]
Mr. Bélanger: With respect to growth at the provincial level, no, it is not really in this area that either the CCA or ourselves think that there will be increased capacity. There may be better use of slaughter capacity in provincial slaughterhouses. The capacity of our federal slaughterhouses is being used to a very large extent, but that is not true of all the provincial slaughterhouses. We do not expect that there will be a great deal of growth with respect to capacity as such.
You will appreciate that Canada produces twice as much as it consumes. The important thing is to have a slaughter capacity that allows us to export our products. In order to do that, we must be inspected by the Canadian Food Inspection Agency. That is where there will be growth.
Mr. Dessureault: We should not forget that Canadian beef production is for export. Sixty per cent of Canadian beef production is for export. Perhaps we have relied too much on a single client in the past and we should ensure that our standards allow us to deal with several clients if another problem should occur.
The other point is that we could be consuming more of this meat in Canada. Canadian quotas for imported beef are no longer necessary in Canada in the case of an embargo. The industry has reacted well in recent years in this regard. We were importing close to 200,000 tonnes of beef in Canada, and this figure was reduced to 35,000 or 45,000 tonnes in 2004. Canada absolutely must not give additional import quotas to certain countries. There is high-quality beef meat available in large quantities in Canada, and that is an important point in the entire context of beef in Canada.
[English]
Senator Tkachuk: Thank you for your presentation. I have been so impressed at the innovation of the cattle producers and how they have responded to this terrible situation that exists in the export of our cattle because of BSE. I was looking at your press release where you were talking about the Colbex acquisition. According to the fourth paragraph of the press release, the deal must be approved by a marketing board in Quebec.
This seems a little odd to me. Could you tell me why this would be the case? Is it because of the dairy cattle, or something else?
[Translation]
Mr. Dessureault: No, not at all. The Federation is structured as provided for in the Farm Products Marketing Act, under the supervision of the Farm Products Board. When we have a joint plan, we have some power, but we also have some duties. One of these duties is that the act does not allow producers to be involved directly in processing and selling the product.
I would not say that this is a formality, because we have to go before an administrative tribunal and find exemptions in the legislation that will allow us to become owners and operators. We may be the owner of a slaughterhouse in Quebec, but there will still be other slaughterhouses. We have to demonstrate to the board how we will ensure that the other slaughterhouses receive supplies and how the remaining 10 per cent will receive supplies and how we plan to do this fairly for all the companies. The role of the legislation is to maintain this balance, and we go before the Farm Products Board — hearings are scheduled for the end of May. We did the same thing at the time of the purchase of the Billette slaughterhouse and the Farm Products Board authorized us to become involved in slaughtering and processing slaughter steers. But this is a unique feature of Quebec, we have to comply with the Quebec Farm Products Marketing Act.
[English]
Sen. Tkachuk: There are laws on the books to prevent what would be called normally in the industry a vertical integration.
That is interesting. It is similar to the production of beer in Canada, is it not? Obviously, you believe that this will be approved. Will this affect future entry into the marketplace? How can there be rules to prevent a cattle owner from owning a processing plant but, in the reverse, a processing plant can own cattle? You mentioned earlier that it was a way to control prices. Why is that? Is there an element that I do not understand? You said that when prices were going up too much because there was a lack of supply, the processors would bring in their own cattle to control that price hike, or at least level the price. Why is that?
[Translation]
Mr. Dessureault: The raw material is the property of the beef producers of Canada. As a beef producer, can we get involved far enough in the production chain, in the industry, to better share the consumer's dollar? In Quebec, we produce close to 125,000 cull cows a year. The industries we are up against slaughter 200,000 heads a year. If there is not enough supply, will they come and establish operations in Quebec? At the moment, they are interested, but they do not give anything to the producer. We do not want to continue this trend. There must be some way of sharing things better.
Competition is not necessary in all areas. When we enter the market to sell meat, we will be in competition.
The current trend of the beef industry throughout Canada is toward concentration. Why can producers not be important players in this? Why is there no concern about a slaughterhouse on American soil? Why is the current market price so ridiculously low? Where are the profits from these companies going at the moment?
Farm losses in Canada totaled $7 billion. Who are they benefiting? The cost of beef in Canada is the same. This is particularly difficult to accept, because it is harmful to the producers who are losing money.
We are not blind. The Canadian government knows some things. You referred earlier to beer. This is a very structured and concentrated industry in Canada. The Canadian government dared impose a minimum price for beer, while its beef industry is dying off. All it needs to do is impose a minimum price for beef in Canada. That will cost the government nothing. Why is it not doing so? The government knows that the money exists. It also knows who is getting the money. And yet it is doing nothing. We are entitled to take such an action in Canada. Why is it not being done? We prefer rather to ask questions of producers who have decided to take charge of things themselves.
Unfortunately, if some large companies want to establish operations in Quebec, the cows, the property of the producers, will be slaughtered by the producers, the meat will be sold by the producers on the Canadian market and abroad for the benefit of Canada and Canadian producers. That is the wager. To achieve it, we need some support.
[English]
Senator Tkachuk: I agree with you. It bothers me, in that I do not understand why you have to ask permission to be involved in the process.
I read on page 5 of your brief that the organizations that publish market prices have no information to provide, whether from the Ontario or Alberta markets. For your new acquisition, will you publish the prices that you pay on a daily basis?
[Translation]
Mr. Dessureault: We did this in the past for the Canadian market. The Federation had a sales agency for slaughtered steers. We stopped doing this, because we realized that the Canadian price was the Quebec price, which is not true. We represent 5 per cent of the Canadian beef industry. Quebec should not be setting the Canadian price, unless there is a government order to this effect, of course.
There should be clear rules in Canada to require companies to publish their market price daily. This week, we had a meeting with our producers. They told us certain things. They send a load of steers to this slaughterhouse valued at $45,000, and they did not even know the price of the product for four days. Once the product leaves the farm, there are no further decisions to be made. How can we operate in this way in Canada?
The power of the big companies means that today the market price is a corporate secret for them. The market price in Canada for commodities, such as animals, cannot become a state secret. This problem has existed since the Canadian government stopped requiring companies to disclose their market price daily. Once there were no longer any statistics, the price disappears every day. Producers are therefore constantly worrying about whether they will be paid today's market price.
We have some American reference points that we could use if the situation were normal. However, at the moment, the border is closed and these reference points no longer exist.
[English]
Senator Tkachuk: Mr. Chairman, we should follow up on this particular problem because it is terrible that the market price is not posted. How can a market system work in that way? How does a beef producer know when to sell his cattle for a good price if he does not know the price until he gets his animals to the gate, after it is too late to take them back home? Let us try to find out why this obligation was removed. Perhaps we are missing something; you never know.
The Deputy Chairman: We are missing the reality, if you will, Senator Tkachuk, that farmers are price takers and not price setters.
Senator Tkachuk: It would be nice to know at least the day before delivering the cattle what price you can expect to receive. I sympathize with you in that situation.
I have one additional question on the lobbying for aid for processing plants and slaughter capacity. You mentioned that there is a subsidy from the provincial government of 26 to 42 cents, although you said that 42 cents is quite low and the market price is higher than that. If we did not have this particular problem, probably the price would be in the 50-cent range. There is a current subsidized price for the product that is lower than what you believe is the market price. Why would there be a problem in obtaining investment dollars for a product that is cheap to come by, gets a good price at the retail level and is subsidized by the government for 26 to 42 cents? It would seem that you should be chasing equity away. Why is there a problem getting equity? Why are you asking the federal government to provide it?
[Translation]
Mr. Dessureault: The Canadian government has to face a Canadian reality at this time. There is an embargo on Canadian beef products. The current government is the same one that encouraged producers to develop beef production in Canada. And they did this successfully. Once a little incident happens, that is beyond the control of Canadian beef producers, the Canadian government must step in and support them. When producers bring forward long-term alternatives that will allow the Canadian government to deal with the crisis better, the government should provide better support for these investments.
At the moment, it is clear the financial institutions do not want to invest venture capital in slaughterhouses. For example, in Quebec, support of about $15 million would enable us to find a long-term solution to the slaughter steer problem in Quebec. This amount is far below the $150 million that the government invested during the same year in the same province. It will also have to invest this amount in 2005 if it wants to get through the crisis. That is the fact of the matter.
The government's role is to support winning initiatives for the country and for the benefit of producers. These initiatives must create jobs for Canada. Fortunately, Quebec producers have shown that they were ready, in the context of this crisis, to play the long-term card. Quebec needs the support of the government to get this process underway quickly.
[English]
Mr. Gib Drury, Member of the Board of Directors, Fédération des producteurs de bovins du Québec: When you look out West, the expansion in capacity has all occurred at existing facilities that already have close to 100 per cent equity in their businesses. To start a new slaughterhouse in the West, or even in Eastern Canada, is almost impossible on borrowed capital. If you had the same 100 per cent equity position at the start, then you could take on the big boys who are already there, who control the market and have their distribution chain in place.
It is not just the bankers who are afraid to invest given the possibility of the border opening, but producers themselves cannot raise the 100 per cent equity position to match the existing facilities. That is where we are asking the governments, both provincial and federal, to bring us up to an equity position with the producers investing their own money, up to at least the 50 per cent equity level, where our debt would then still remain at 50 per cent. If the borders do open we can still compete against the current slaughterhouses that are in this unbelievable position after two years of, I would not want to call them indecent profits, but it is close to that. They now have a nice capital reserve fund. They have expanded and they will continue to expand to keep new entrants out of the business.
When you have a project like ours in Quebec, where the producers are entering into a partnership with existing facilities — which we find is the best way to get into the business, not start something new yourself when you have no experience — that ends this current rivalry between the processor and the producer, where if one wins the other loses. If you enter into a partnership, you are both winners when you sell the meat. That is what we are trying to do in Quebec, and that is why we want the government to help us create an equity position whereby we can get out in case the border reopens.
Senator Tkachuk: Is it not creating unfair competition for those who built processing plants without government aid? Government has to provide a level playing field because we are using taxpayers' dollars. I can see us assisting the producer himself because of this situation that is a human and an economic tragedy, and which is no fault of the producer. It is like a drought; it is a crisis. I have no problem with producers owning processing plants; that would be great — co-ops; it does not matter to me. By providing this money, are we not eliminating the level playing field and saying, “We will give you special consideration here, but over here where you already have a healthy processing industry, we will provide more competition and more taxpayers' dollars”? How will that work out?
[Translation]
Mr. Bélanger: Everyone knows that the government did not act quickly enough to establish a fair and equitable price. The prices dropped to completely unacceptable levels for both steers and cows. The government had to set up some programs to support producers. To a large extent, particularly in the first programs that were set up, the money from the government went into the pockets of the large slaughterhouses. It is not public money, it is not consumers' money. Existing slaughterhouses have already received a great deal of money from the government.
I think there is a lack of balance in the current situation. In the BSE-1 program, the price paid to the producer dropped, and it seems that the amounts being paid by the government were going directly into the pockets of the slaughterhouses.
We think this imbalance must be corrected and that we must ensure that producers are on an equal footing, because what the existing slaughterhouses have in their pockets is really money borrowed from the government.
We could have avoided such a situation if the government had acted quickly to set a minimum price guaranteeing these companies a reasonable profit, not an exorbitant profit, as is the case at the moment.
Since corrective action was not taken in time, these companies have already pocketed a lot of government money, either directly or indirectly, and we must now correct the situation, because it will only get worse over time. Mr. Drury gave a very good explanation of what happens to newcomers to the slaughter industry.
[English]
Senator Tkachuk: If the government program was not the way it was, perhaps they would not have made all those profits.
Senator Mahovlich: Twenty or thirty years ago, I would take my children to the fast food outlets, MacDonald's, Wendy's and so on. I was amazed to find that most of the meat was imported from Australia. I was wondering if that has changed since we have had this crisis. Have these companies helped Canada in any way, or do you know?
[Translation]
Mr. Dessureault: These companies have changed the way they obtain their supplies. In 2002, over 200,000 tonnes of meat was imported into Canada, and this is being reduced to 35,000 tonnes. These companies, with the exception of one, got their supplies in Canadian meat. I think we have been well supported by the industry in this regard. That is a positive aspect of the crisis in Canada.
[English]
Senator Mahovlich: Talking about other countries, we can talk about the United States because they are our neighbours. Does the federal government in the United States subsidize their farmers the way we are asking our government to help the producers? I am sure they have had many problems in different states. Are their abattoirs all privately owned or can we learn from them?
[Translation]
Mr. Dessureault: That is currently a problem. Under the American Farm Bill, tens of billions of dollars are being provided for American farms. At the Dairy Producers' assembly yesterday, we were told that the American government has invested $7 billion in the American dairy industry alone.
In Canada, the decision has been made to provide nothing to producers; and you think we are going to overcome a crisis by providing nothing to producers? We still do not know where the Canadian government is headed with this. The majority of countries have established strong agricultural policies, for example, the American Farm Bill and the European CAP.
Canada has risk programs. Eight new programs have been established since the month of May 2003.
One can only assume that the basic program has not achieved its objectives because it has not resulted in money to farms. The issue of ownership in the United States is the issue that Canada is currently facing, in other words, there are two, three or four main leaders, with all the risks that implies for producers, but on the other hand, there is the State which is guaranteeing a significant income for producers.
At a recent conference, an American banker said that the net income on his farms — I believe this was in Iowa — was equivalent to the amount of money being invested by the government in his State. He said that if the government were to withdraw, then he, the banker, would withdraw. Now imagine the situation for us in Canada.
The Canadian government has made all Canadian producers, in all sectors, dependent on the market, knowing full well that the market is in total disarray. The famous neo-liberal law that says that the market will take care of everything simply does not apply when the American government is investing billions of dollars and Europe is also investing billions of dollars. It just does not exist.
On top of all that we are in a period of crisis. Sixty per cent of Canadian beef is produced for export and we can no longer sell it. There is no forthcoming assistance and no support. At the very least, a minimum price should be set for these products. That would re-establish a balance within the market. It would not cost more to the consumers.
All that to say that the government is not sharing its resources, in the interest of four individuals, rather than acting in the interest of thousands of Canadian beef producers. Four producers are acceptable and 100,000 producers are not? That cannot be.
It is the State's responsibility to provide that balance and a better distribution of the tax base. They currently do not have the courage to do this. They are doing it for the beer industry. They found the courage for the beer industry, but it is the same multinationals with a different name.
[English]
Senator Mahovlich: Mr. Drury, I can understand where you are coming from because I was a professional hockey player at one time. I agreed that the alumni should be part owners of the hockey league so that we could have some control. Right now, they are out of control and, as a result, we have not been able to watch our national sport this year. I can understand your position. Things evolve, and they need to change, I agree. It is the problem of the government to step in and be a kind of referee in this matter.
[Translation]
Mr. Dessureault: I am tempted to answer that that requires a good organization and the goodwill of the members of the organization.
[English]
The Deputy Chairman: The bottom line is that agriculture is in such dire straights we might need the help of hockey players to straighten it out.
We will hear from the expert on this committee, former Minister of International Trade, Senator Kelleher.
Senator Kelleher: I do not think that Senator Mahovlich always believed in referees to settle problems. That is a mere observation.
Gentlemen, we are increasing slaughter capacity in Canada. Ultimately, this will reduce the number of cattle available for slaughter in the United States. Government and industry in Canada will have to look ahead to try to determine how the U.S. will react to this. The Americans did not become the number one nation in the world economically by sitting back and allowing things to simply happen. How do you think the Americans will react to this Canadian plan?
[Translation]
Mr. Dessureault: Are you referring to the producers' initiatives?
Mr. Bélanger: The Americans' reaction.
Mr. Dessureault: To the producers' initiative?
[English]
Senator Kelleher: I refer to the plan to increase the slaughter capacity in Canada, which will result in fewer cattle being available for delivery to the United States when the embargo is lifted, which it will be one of these days or years. The Americans will not sit back and do nothing, surely. How do you think the Americans will respond to this perceived threat?
[Translation]
Mr. Dessureault: I do not know how they will react but I am certain that under the Farm Products Marketing Act, beef producers in Quebec are currently able to market their products as they wish.
Once that supply is captive — and that is the big challenge Canada is facing — then there can be slaughtering capacity. But if the Americans offer premiums on our market when the borders are opened, then the producers will tend to try to recover their losses as quickly as possible.
Perhaps the best way to support the industry in Canada is to make the producers' organizations or the producers themselves the owners of the slaughterhouses. Big business's interest will be in securing their supply. It is simple and they have always done this in the past by paying a premium on the market for the short run. Once they have that market, then the price is dropped again.
The Americans' response will be to secure supply again on the Canadian markets, but the producers have to act strategically and ensure that that supply will be slaughtered in our own slaughterhouses. That is the difference between slaughtering capacity and actual slaughtering in Canada.
In Quebec, we are working on the basis of actual slaughtering, according to what is actually being done in Quebec. If we can help all of Canada, then we will also do that. However, the Americans will try to have access to that raw material.
Mr. Bélanger: The American industry is already reacting to the current situation. You have heard the announcements on the part of most major American slaughterhouses. There are operations that have been completely shut down and others currently working at a very reduced capacity. If the situation continues, some American slaughterhouses are going to have to close. Not necessarily the least efficient, but those whose supply was mainly made up of Canadian beef.
So the numbers are going down and that is making the American operations very unhappy. They are currently doing extensive lobbying in an attempt to get the borders open because they count on a Canadian supply. Thus, in the United States, the numbers of operations are going down.
We must not forget that there is a production cycle in the beef sector and currently, since last year, American production is increasing. North American beef production is therefore currently increasing. And for the next two, three, four, five, six, and seven years, North American production will be growing.
However, Canada should be taking advantage of the current crisis in order to restructure its industry. This is a threat that we should try to turn into an opportunity. If new operations are being established, then their long-term supply should be secured. That is only possible if there is a partnership between the suppliers of raw material and the operations. That is the challenge we are trying to meet in Quebec and, I believe, in several Canadian provinces. At the very least, many projects are being launched.
Thus, supply for these operations has to be secured and not necessarily because these operations are inefficient. We know that very efficient businesses can end up closing because of extensive competition. We need to protect these operations because the free market is quite ferocious, and rarely fair.
We also need government assistance in order to ensure a minimum equity within our operations to deal with the competition. We want to have access to the American market and to other markets and all we ask is that we be in a position to participate in this market war and win it.
[English]
Senator Kelleher: I understand that the slaughterhouses in the United States, certainly those close to the border, are very supportive of reopening the border to Canadian cattle. Is your association, for example, in any way discussing this problem with those American slaughterhouses, and are you working with them, or have you had discussions with them with respect to their support?
[Translation]
Mr. Bélanger: Clearly, we are dealing with a certain number of American slaughterhouses that traditionally were securing their supply on our markets. It must be understood that Quebec does not have a very significant slaughter steer production. For example, approximately 4 per cent of our steers and 15 per cent of our cull cows were slaughtered in the United States. The representatives of those operations tell us: “We desperately need your cattle.”
I would say that currently that is exactly what we are also thinking we need for our operations. We desperately need animals in order to, first, make our operations profitable and, if there are surpluses, supply other operations.
We first need to secure our supplies before providing those animals to other operations. Supply does not just mean the Colbex-Levinoff slaughterhouse. In Quebec, there are also regional slaughterhouses and we need to make sure that these slaughterhouses have the 10, 15 or 20 animals per week that they require in order to meet their market's demands.
We need to first think about Quebec and Canada before trying to supply the Americans slaughterhouses. That should be the Canadian producers' strategy from now on.
[English]
Senator Kelleher: I understand that, but in view of the fact that some of these American slaughterhouses and their associations are supportive of the borders being opened, are you as an association having any specific discussions with them to assist them in their efforts?
[Translation]
Mr. Bélanger: The discussions we have had with these people have not been political discussions over opening the borders. We share the same point of view and we want to see the borders reopened. Even if we invest in slaughterhouses, we still truly want the borders to be completely opened. We are asking the government to work with us in our investments in order to deal with the competition.
The market will carry on playing its role, international trade will continue, and Canadians will be better equipped to face this competition.
[English]
Senator Kelleher: I understand that, but with the greatest respect, I do not think you are answering my question.
Mr. Bélanger: Sorry.
Senator Kelleher: I am asking you very plainly, clearly and simply, are you as an association having any discussions with any of the groups in the United States who want to see the borders reopened?
Mr. Bélanger: We do not speak to the national association in the United States. That is the job of the CCA. We are talking directly with American abattoirs. They are part of those associations, AMI or National Meat Association, but we have no direct link with the National Meat Association. The CCA has, and does a good job, in our opinion.
The Deputy Chairman: I have a couple of questions that do not directly relate to the situation that we have been talking about, but, first, to some implications of the news that animals with mad cow disease have supposedly been found in the United States. The other one is there are indications, or it has been announced, that some members of the cattlemen's association are suing the government. Are you a part of that cattlemen's association that is suing the government?
I want to say right off the top I am concerned about this, because if I were a judge in the United States and I heard that there was discontent in Canada about the way things were done and the cattlemen's association was suing the government, it might just keep that border closed for a long time. That is why I would like to raise the subject to hear your comments on this situation. To me, it is very volatile.
[Translation]
Mr. Dessureault: We discussed this issue last week at our annual assembly. The delegates unanimously rejected it. The Fédération de producteurs de bovins du Québec prefers working with the Canadian government to find quick and sustainable solutions rather than resorting to legal proceedings.
In fact, from the very outset, we have tried to avoid the type of confrontation that is currently occurring between the Americans and a certain group.
[English]
Mr. Drury: If I might add, no group of cattlemen is launching this action. Rather, it is being launched by a group of lawyers on a contingency basis who have found a farmer to front them. It has nothing to do with Canadian cattlemen or beef producers' associations. We are opposed to it because it is the wrong action to take. It will make some people rich but it has nothing to do with the governments or farmers involved in the matter.
The Deputy Chairman: I am pleased to hear that. It would be in the best interests of the cattlemen's associations to clarify that for the public and proceed from there. If there are no further questions, I thank our witnesses for appearing this morning. This committee is well aware of the many problems in agriculture that we have been dealing with. Many of those problems are global in nature and we think it is important to come to grips with them. It is my personal opinion that it will not bode well for Canada if we ignore the importance of agriculture. I lay this out in a positive way: The Americans have dealt with their farmers, whether from New York or California; Americans support the heartland and their farmers. For some reason, Canadians do not seem to express that kind of loyalty to agriculture and its producers; and I say that as a farmer. Perhaps not everyone shares that opinion, but I think it is extremely important. We face a serious problem in Canada that is global in its breadth and we must deal with it.
[Translation]
Mr. Dessureault: I would like to thank the committee for inviting us. I am certain that you have realized that the crisis gives the beef producers in Quebec an opportunity to look at what we are doing and come up with realistic long- term solutions for the beef industry in Quebec and Canada. I thank all of you for meeting with you.
The committee adjourned.