Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 11 - Evidence
OTTAWA, Tuesday, April 19, 2005
The Standing Senate Committee on Agriculture and Forestry met this day at 6:15 p.m. to study the present state and future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chairman) in the chair.
[English]
The Chairman: Honourable senators, we are about to launch into another good discussion with our Minister of Agriculture and Agri-Food, Mr. Andy Mitchell. He is no stranger to this committee.
Before I ask you to start, minister, I would like to introduce some of our new senators who have joined us this evening, namely, Senator Bob Peterson from Regina and Senator Elaine McCoy from Alberta. Thank you for coming.
Minister, thank you for the letter that you have circulated, through me, to the committee, which is your response to our value-added report.
Although the minister may respond to any question that we would have for him, his focus this evening is will be timely issues such as the slaughter capacity here in Canada. He will be with us for one hour. I would suggest that we begin, Mr. Mitchell. We will, no doubt, have some questions when you have completed your remarks.
Hon. Andrew Mitchell, Minister of Agriculture and Agri-Food Canada: Thank you, Madam Chairman and senators. I appreciate the opportunity to be here. Thank you for the invitation.
I would like to introduce my two colleagues, Mr. Richard Fadden, President of the Canadian Food Inspection Agency, CFIA, and Mr. Len Edwards, who is the Deputy Minister of Agriculture, will perhaps assist me with some of your questions.
I will talk about the situation with BSE in general terms and then try to nail it down specifically to the issue of capacity. I will then take questions.
Generally, the government's approach to dealing with BSE since May of 2003 can be roughly divided into two general thrusts. The first one has to do with the issue of providing liquidity to the industry, ensuring that producers who have been experiencing significant income disruptions have liquidity, so that they can continue to operate as we work towards regularizing the marketplace until we can achieve some long-term changes.
That, Madam Chairman, leads into the second part of the strategy, which is to undertake some transformative change within the industry so that we can return the industry to profitability and to have that profitability exist with or without a U.S. border opening to live animals. That is what we refer to as a made-in-Canada solution. Many of the activities that we are undertaking are to ensure that our industry can, in fact, be profitable.
On the liquidity side, there have been a number of different programs over those two years that have made substantial investments into the industry. To mention a few, the Transitional Industry Support Program, TISP, which my predecessor announced approximately a year ago, provided substantial investment into the beef and cattle industry. The Farm Income Program, FIP, which I announced a couple of weeks ago, is providing additional liquidity. Of course, the CAIS program provides income stablization for all producers, including cattle and beef producers. Last September, we did a special advance on the Canadian Agricultural Income Stabilization Program, CAIS, to provide rapid liquidity. We did that in conjunction with the provinces. It worked very well. We were able to provide, in very short order, between the provinces and the federal government, some $300 million last fall. The set-aside programs that we have put in place, particularly the federal set-aside program, saw a substantial recovery in the price from where it was in August of last year, as well as a strong firming up of the market through the fall and winter. That has made a substantial difference in income to producers.
The repositioning strategy, though, is as important, because it is not simply an issue of liquidity. It is also an issue of repositioning the industry so that it can return to profitability. I should mention something that we have developed in close consultation with the industry. They provided substantial input in all of the items that we have undertaken. I would also mention that we have worked very closely with our provincial counterparts in moving forward.
The strategy that we announced in September had a number of parts to it. One of those parts was to continue to work to regain access to the U.S. market. As important as it is to structure ourselves so that we do not have to absolutely depend on it, it is an important market to Canada, it is an important market to our producers, and we want to reacquire it, and not only expand our meat access, which we now have, but also as it relates to live animals and breeder animals, which is an important part of the industry that has been impacted.
The second part of the strategy has been to seek out new markets beyond simply those of the United States. We have had some successes, and we continue to work hard in that respect. We have seen the Hong Kong meat market reopen to us.. We have seen progress in China as it relates to our genetic material. Most recently, we have seen progress in Cuba where we have a total opening of the market. Over the last couple of weeks, we have had some good sales to that country of agricultural products in general, and beef and cattle in particular.
To go along with those new markets, we have also been working to increase our capacity. It is important as a long- term strategy for the industry that we have the ability to process more of our own cattle in this country. In addition to having the markets, there is also the importance of us being able to process more of our cattle here in Canada, and we have been making progress in that respect as well. As you can appreciate, there is also the whole issue of managing the herd, in terms of both size and age. We continue to work on that with the industry.
To go more specifically into what the committee has asked me to talk about, the issue of increased capacity, from our perspective as a federal government, we have put out a couple of principles as being most important — it is something that I have always talked about — and one principle is that any proposition to increase capacity must be based on a good, sound business plan. It must make economic sense in moving forward. It also needs to be sustainable as we move forward, even after the reacquisition of U.S. markets. We need a strong business plan and we need sustainability in the ideas that come forward.
However, a number of other considerations are important in the issue of increasing our capacity. Obviously, there is the whole issue of the macro number that we need to achieve. We need to be able to slaughter, on a weekly basis, a sufficient number of animals to be able to bring equilibrium into our marketplace as well as to service potential external markets that we may have.
Beyond simply the macro numbers, there are other items and other issues that must be considered. One is the type of animals that individual slaughter facilities are able to deal with, whether it is those that are under 30 months or those that are over 30 months. As a result of the situation as it has developed since May of 2003, that is an important consideration.
There is also the issue of regional distribution. To have all the slaughter capacity contained in just one region in Canada, although you may hit your macro number, in and by itself would not achieve all of your objectives. There must be a regional distribution of that slaughter capacity across the country.
You also need to deal with the business model that may exist as it relates to the type of facilities that may be developed, for instance, producer-owned slaughter facilities as a particular business model for which a lot of interest has been expressed. There is also the issue of whether that slaughter capacity will be developed around specialty products that may provide marketing opportunities in the international marketplace.
As to the progress that we are making, we have been successful in Canada in moving, on a macro basis, from having a capacity of about 75,000 head to just over 85,000 today. It has been more of an increase in actual numbers because, even when we were at 75,000 head, we were not at full capacity. We were running substantially below that. We have made good progress in increasing our slaughter capacity here in Canada. With what is in the pike right now, it is fair to say that we could expect to reach the 90,000 figure by year end, and I suspect we may even reach it before that.
Marketplace experts tell me that we will probably reach around 105,000 head per week, which would seem to be a reasonable objective. Different people may be a little on one side or the other of that number, but there seems to be a general consensus about where we should be headed.
About 5,000 head of that increased capacity has occurred since the repositioning strategy was put in place in September of 2004. That has come from a number of sources. In part, two new plants have come on line since September, one in Salmon Arm in British Columbia and one in Prince Edward Island. That one has received fairly significant provincial and federal support in being put in place. It also has significant producer participation.
At present, beyond those two new plants, a number of other plants have been able to increase their capacity. That is how we arrive at the additional numbers. Presently, we, and by ``we'' I mean CFIA, have five formal requests for increased capacity. Those requests are being processed by CFIA. There are also a number of requests by existing plants to increase their capacity. It has been a fairly active file. A number of folks and groups in different parts of the country are examining the business potential of new slaughter capacity.
From a federal perspective, we have developed some tools, and one ongoing tool in particular, that I will take a moment to talk about. One is our Loan Loss Reserve Program by which we work through financial institutions to provide a loan loss reserve for about 40 per cent of advances. To date, we have two formal agreements with financial institutions, one with FCC and one with Alberta treasury branches. This provides them the opportunity to work with individual clients. We are also working closely with six chartered banks to conclude agreements with them. We are making some progress in that respect.
From what I understand, some of the five new plants that are being considered, are working with financial institutions and contemplating the use of the Loan Loss Reserve Program. As I said earlier, though, having a sound business plan that shows sustainability into the future is important, and obviously appropriate due diligence must take place.
Colleagues may have noticed that, in the most recent budget, additional money has been put into developing new slaughter capacity. We are in the process of considering a number of different ideas from a number of sources, from parliamentarians, from the industry and from producers, about additional ways in which the federal government may wish to partner in the development of slaughter capacity. We are working with a number of partners in considering additional tools that may make some sense.
I would be remiss if I did not also mention that CFIA is an important part of the development of new slaughter capacity. They have undertaken a number of steps to help streamline their process and to assist folks who are looking at putting new plants in place. For instance, they have delegated the review of blueprints to the regions as opposed to doing it all centrally here in Ottawa. To expedite the process, they have dedicated a team to new approvals. They brought new human resources online to ensure that they have the capacity to deal with the issue.
In working with individual companies, they have tried to make the regulatory process as friendly as they can. At the same time, remembering that their primary responsibility is to protect animal health and the health of individual Canadians — and they have done an excellent job of that in the past, and they will continue to do that — they are trying to make accommodation so that they can expedite processes as best they can.
That is a brief overview. I did not want to take a lot of time with opening comments, since I suspect the members would appreciate the opportunity to ask questions and not listen to the minister drone on and on.
The Chairman: You are not droning, minister. We thank you for that presentation. The new senators must be acutely aware of the hot issues, because I see that a third one has now arrived. I would introduce Senator Grant Mitchell from Alberta.
Senator Mercer: Good evening, minister. Welcome. It is a pleasure to have you back. It is always enlightening to hear from you. With respect to your discussion on capacity, you have talked about the new plant in Salmon Arm and the one in Prince Edward Island. Last week, representatives of the producers from Quebec told us that they are considering a business plan to do something there.
I am concerned about the plant in Prince Edward Island. It is relatively small and, as a co-op plant, obviously, it is only available to members of the cooperative. I am concerned about other farmers, particularly in Nova Scotia and New Brunswick, who are not members of the cooperative. Is the department considering ways to level the accessibility to capacity across the country?
Mr. Mitchell: You are absolutely right. One issue I addressed in my opening comments is that it is not simply a matter of achieving a macro number. There are regional concerns. In part, I was pleased to see the initiative in Prince Edward Island, because it was absolutely essential. My officials may correct me if I am wrong, but I understand that they continue to seek out new product or additional product to be processed in that plant. They have the capacity to do that. No one is shut out. They are currently concentrating, on the line that they have, on UTM, and there is a need to develop OTM capacity. That is being considered either through a separate entity altogether that may be located somewhere else in Atlantic Canada, or by putting in a second line in that particular plant. What is the best approach, will have to be a business decision.
One of the unique things about the plant in Prince Edward Island is that it represents cooperation of the three provinces. Although the plant is in PEI, they have buy-in from producers from Nova Scotia and New Brunswick. The three governments have worked closely together. It is a good example of a regional initiative. They still have some work, particularly on the over 30 month meat.
Senator Mercer: We see in the papers that Japan has now confirmed its fifteenth case of mad cow disease and its first case of Creutzfeldt-Jakob Disease after a man died in Japan.
The Americans continue to deny that two cases of sick animals was mad cow disease. I have said this publicly and I will say it again. I do not believe the Americans. I think there has been mad cow in their herd for many years and they are following Ralph Klein's model of shoot, shovel and shut up.
What is the department doing to protect Canadian herds? We have heard that the Americans are worried about protecting their herds. What are we doing to protect our herds from what I consider to be relatively unsafe herds of the Americans? How does the Japanese situation affect the herds?
Mr. Mitchell: From a Canadian perspective, it is my view, and I think it is shared by most experts around the world, that Canada has one of the best regulatory systems in place. It follows the OIE guidelines and standards. We do a number of things that are considered appropriate to protect animal and human health. First, we have the ruminant to ruminant feed ban that was put in place in 1997. That was considered and continues to be considered one of the most effective ways of stopping the spread of BSE in a particular herd. Since that time, most recently, we have reviewed the situation in Canada. As well, we had some people from outside take a look at our system. In both cases, it came back that we had a sound system.
In addition to protecting human health, we remove all SRM from the human food chain. As I am sure colleagues around the table are aware, if an animal were to be infected, it would in fact be contained in that material, so we put an absolute wall up to ensure that that does not go into the human food chain.
In addition, we made an announcement in July that we will have an animal feed ban on SRM. We are in the process of working through that. We have just finished a comment period with the industry, and we are evaluating those comments. We are also working closely with the provinces. You may have noticed in the budget that we have committed $80 million to deal with that issue. We have a strong regulatory regime in Canada. As you know, we did put a prohibition order in place in respect of the United States, and we are lifting that prohibition order in line with the North American standard that all three countries have adopted in respect of the importation of live animals.
As you know, the Japanese have done a number of things over the last little while, not the least of which is to recognize a North American situation as opposed to a separate situation in Canada and the United States. They see it as one integrated marketplace. They have indicated to us that, as they reopen their market, they will reopen it to North America. That is a point that we have made with them. You may also know that the Japanese are going through an internal process regarding how they deal with their cattle. They have a proposal to move away from 100 per cent testing and to allow for age verification for animals under a certain age. Once they adopt that as their domestic standard, it will give them the opportunity to re-establish trade with countries that meet their domestic standards.
Senator Gustafson: Thank you, minister, for appearing here today.
It appears to me that the two new processing plants are well located. The one in BC has a captive market of 4 million people in the Lower Mainland B.C., and the one in Prince Edward Island, because of freight considerations, is naturally a good location.
I have some question about overbuilding. It is difficult to compete with Tysons and Cargill. Three or four weeks ago, our committee visited the U.S. One of the questions I asked the cattlemen's association was how long it would take them to bring their herds back to their former level. Because of high prices in the states, they have sold anything that was saleable. The answer was six years. It is my guess that, when the border opens — and it will — you will see a lot of young heifers, under 30 months, bought by the United States for breeding stock. We could be in a position where we are short of cattle. That is being optimistic, but when you look at the numbers, Canada's contribution to North America in cattle numbers is small compared to that of the U.S.
In the international marketplace, the last thing we should do is get into a price war with the Americans. If we do, we probably will not survive in the international market. Would you care to comments on that?
Mr. Mitchell: You make an excellent point about building overcapacity. That is why we have tried to determine a reasonable capacity level. Although experts will disagree, the 105,000 head figure seems to have some sort of general consensus. You have to guard against overcapacity, and that is why we have set out sound business plan and sustainability principles. The type of business model you have can help determine that. Creating a business model, usually a producer-owned business model, that has guaranteed you supply for a certain period into the future, may be one way you choose to address that.
In essence, the more capacity that you have for processing animals here and the more market flexibility that you have for the meat product — not simply sending it to the United States, but also to other markets as we work to have success in that — gives producers some flexibility that they may not want to abandon once there is some regularization of trade. One would not be prudent if one did not consider some of the points you put forward, senator. One must consider potential.
As to international markets, Canadian agriculture has had a tendency to develop specific parts of the market where we do well. We have an advantage because we are recognized for that. Opportunities in the beef industry allow us to do that.
You are correct in saying that we are a smaller industry than the United States. That gives us the opportunity to be a little more flexible and a little more nimble as we consider markets. Canadian cattle producers are sharp individuals and sharp business people. They have demonstrated that over and over again as they built the industry through the first part of this decade. I have a lot of confidence in their ability as we provide them the environment to allow them to be successful.
Senator Gustafson: The cattle industry has been one of the bright spots. The cattle industry has had free trade with the U.S. since 1930.
My other question relates to low commodity prices in the grain industry. I recognize that I am deviating from the subject, but recently we have seen the lowest commodity prices in history. In the past couple of weeks, I have attended several farm sales. It is a most serious situation. I think that is probably a more serious situation, in the final analysis, than the cattle industry is facing now. The circumstances facing the cattle industry can be solved and resolved.
Frozen wheat is selling for 70 cents a bushel. Cattle love it. There is no question that a margin of income will result from low commodity prices. The Americans talk about a bank of cattle coming south, but I would suggest that, because of low grain prices, cattle may be coming north.
On the global scale, how do you view commodity prices now and in the future? We know we cannot exist on $2 wheat and lower prices than that, depending on the grade.
Mr. Mitchell: Senator, low commodity price is an important issue. As a minister, I will not rank all of the issues that I have to deal and say that one is more important than another. They are all important. They all represent challenges that are faced by producers. As you well know, senator, it is not just a matter of considering the producers, as important as they are, we must also consider the communities that surround them and the multiplying effect throughout rural Canada.
I would reiterate some of my opening comments. There are two approaches, and both are important. One is obviously an income approach. We have worked hard to continue to provide liquidity injections into the industry, the most recent of which was three weeks ago. As a result of the announcement we made three weeks ago, from what I understand, the first batch of cheques was sent out yesterday.
We understand the need for liquidity. We have an income stabilization program that deals with those issues. I know many of my colleagues have said that we need to make some refinements in that. The federal and provincial governments are working with our producers to address some of those issues.
In addition, we need to deal with some structural changes, but it is difficult to deal with some situations. You may have to respond to a drought or, for example, frost in Saskatchewan on August 20 of last year. These are tough situations.
As to the trading environment that exists, the WTO negotiations on long-term sustainability in the industry are important to us. Canada depends on a rules-based trading system. We sell 80 per cent of what we produce. Our trading partners eliminating their export subsidies and decreasing their domestic supports are critical issues towards long-term sustainability.
My colleague Mr. Peterson, the Minister of International Trade, and I are seized intently this year with the Doha round. I met with the Cairns Group countries a couple of weeks ago. A mini ministerial meeting will take place in May, with another meeting scheduled for July, and another one for September. Then we will try to come to some sort of initial agreement in Hong Kong in December.
That is critical, because, as I said in talking about beef, it is important to provide income stabilization. I never want to diminish the importance of that. You cannot just do that. You have to deal with the structural issues. In grains and oilseeds, we have to consider the trading environment in which our producers are operating.
Senator Gustafson: I received a phone call just two weeks ago from a corn producer here in Ontario telling me he was selling good corn at $1.20. That price is unthinkable.
Senator Callbeck: I may deviate somewhat from questions on BSE, minister, but I would like your views on a couple of areas so that I may respond to questions I am asked in my home province.
One such area has to do with the consultations that the parliamentary secretary conducted in January when he went across the country and talked to producers about the farm income problems. I understand an action plan is being developed that will be presented to the Ministers of Agriculture in July. Can you comment on what we might expect in that plan? After it is presented, when can the producers expect to see some action?
Mr. Mitchell: Thank you for mentioning it, senator. You are quite right that the parliamentary secretary has been addressing this. Again, the focus is on the structural side, trying to identify some of the issues surrounding the long- term decline of farm income, particularly in certain commodity sectors.
The parliamentary secretary, Mr. Easter, held an initial set of consultations with producers, and from that developed what I would call a menu of ideas. He has just completed a second round out west where he brought a smaller group of producers together with this universe of ideas and asked them to try to refine what it is that we should be looking at doing, both in terms of the most important in the sense of the impact that they may have, and looking at it in the sense of what is do-able. He will follow that up. That was the western side. He will be in eastern Canada. I do not have the dates but I would be happy to provide those to you. He will then be in central Canada. He will have covered three areas of the country.
From that, he will bring forward a plan that will encompass a list of activities that should be considered or may be undertaken. He will divide them, from what I understand, into what I would call short-term deliverables, medium-term deliverables and long-term deliverables. There is no question that some of the items being suggested will take quite some time to accomplish, but others may be dealt with in the shorter term. My view is that we need to try to work on those that we can deliver quickly, and to do that expeditiously, and then work through that.
Somebody asked me, ``Why would you embark on such an exercise? It can lead to failure because there has been a long history of a decline in farm income.'' My answer was that, if you do not take the first step then I can guarantee that you will not be able to address any one of these issues, so we have moved forward with a determination to begin that process.
As to what the specific items will be, I will wait to hear what Mr. Easter has to say at those two additional round tables. A key component of this process or exercise is that this is not the government or the governments getting together presenting their ideas. We are trying to build this process from the bottom up with the producers and identifying them with us. From the information that I have read and the discussions that I have had with producers and with Mr. Easter, there has been tremendous focus by producers, not simply on the income side, because they understand that, but also on the structural side. They have been doing an excellent job. I would be remiss if I did not mention that the Canadian Federation of Agriculture has also been a big proponent of this process.
Senator Callbeck: Thank you, minister. Am I correct in saying that, after the July meeting, the producers can expect some short-term measures will be announced?
Mr. Mitchell: That is our hope. We will see what suggestions are made. As you can appreciate, senator, some things can be done relatively quickly, and others take some time. There is the issue, of course, that, constitutionally, agriculture is a joint federal-provincial responsibility, so you have that added complexity. I think that we have clearly demonstrated over the last while a determination to move when we are faced with issues, whether BSE or the income support program which we put out three weeks ago. We are determined to deal with the issues that producers face.
Somebody just gave me gave me a note that the meeting in Atlantic Canada will be held on April 22 and in Central Canada on April 25.
Senator Callbeck: I have one short question on that$1-billion program that you announced under the Farm Income Payment Program. Were the provinces involved in the development of that program or are they involved in the payment process? Are some of them putting up the cash?
Mr. Mitchell: That is a strictly a federal program. All of the dollars involved are federal dollars. It is a straight federal program. In many programs in the past the federal and provincial governments have cooperated. We have also had unilateral programs in the past.
The provinces and the federal government collectively, I think it is fair to say, have worked hard to address the needs of producers. I met last week with nine out of ten of my provincial colleagues, and I can tell you that, to an individual, there is a determination amongst all of us to address the serious challenges that are facing Canadian producers.
Senator Oliver: Thank you for your excellent presentation. It was most informative. You have spent a lot of time talking about slaughter capacity. I am wondering what will happen on the day that you get your slaughter capacity up to the 105,000 you referred to and, on the same day, the U.S. market opens to the movement of live cattle. Have you prepared some charts to determine just what will happen? I guess the premise of that question is: How many head do we have in Canada today, and how much can we afford to move over the border and still have enough for the 105,000 slaughter capacity here in Canada? Will it be a crisis?
Mr. Mitchell: I suspect not, senator. The border opening, from my view, should have happened a long time ago. I want to make that point very clear. It will happen, not through our desire, but because of the reality, and it will be a staged process. It will happen first with animals under 30 months and move to animals over 30 months. Then it will probably move to breeder animals, although I am hopeful that the United States will deal with the last two categories at the same time. A transition period will occur.
There was a lot of speculation. We do not have a wall of cattle waiting to go down to the United States. I know that concern was expressed. That is not a reality. We have been able to demonstrate that to the producers, that that is not the case.
Building that capacity also entails our ability or desire to develop new international markets, so one of the realities is that that production, finished product, will be shipped to points around the world. We are working hard to re-establish the Japanese market, which will be a profitable one, or it has been in the past. We will have to regain our market share once that reopens to us.
I am not pretending to suggest that there will not be an adjustment period, but I think that our producers are developing, and that is why we call it a repositioned industry. The market will not resemble what it looked like prior to 2003. It will have developed and evolved and, to a certain extent, it will be more focussed on meat as opposed to live animals. That is not to say it will be all meat and no live animals, but the ratio will change. That is the reality. People in the United States are looking at the fact that there will be a different type of Canadian industry.
Senator Oliver: When Senator Gustafson was speaking with you he forgot to ask you about the effect of fuel costs, which have doubled, in terms of the input costs. If you read The Economist and other international magazines, it appears that fuel costs will not decrease in the near future. What effect will that have?
Mr. Mitchell: Fuel costs are an input cost. As well, petroleum is a raw product used in the production of other products. There is no question that the impact is not restricted to the agriculture industry, it is experienced by many other industries. However, it does have a different type of impact in agriculture.
For the most part, agricultural producers are price takers; they are not price makers. The ability to pass the cost on is much more limited than it is in other industries. That is part of the reason why the income stabilization programs that we have, and programs like the FIP program, are important investments to make. That is one of the challenges, and something that Mr. Easter is dealing with in what he is doing. The operation of the agriculture industry is unique in certain senses, and it is important that we understand the uniqueness of that particular industry. Although it has a lot of comparisons to how other industries operate, it also has a lot of unique challenges and, as public policy is developed, that must be taken into account. That is part of what we have been doing. It is part of what Mr. Easter is trying to enunciate and quantify to an even greater extent.
[Translation]
Senator Gill: Last week, we heard from representatives of Quebec's agriculture industry. They told us that they were not getting their fair share of industry revenues. They blamed — if I understood them correctly — price controls and limits set by slaughterhouses on the number of heads processed.
Those representatives seemed to be saying that this is totally unfair and that it is not in the interest of the producers. What are your views on the subject? In your opinion, is the control exercised by Quebec slaughterhouses a major problem? The situation, i.e. price controls and capacity limitation, is probably the same elsewhere in the country. Slaughterhouses themselves produce a certain number of heads. They can therefore control the capacity and, obviously, prices.
[English]
Mr. Mitchell: Without having heard the testimony, let me provide you with my perspective. First, much of the commentary from Quebec revolves around older animals in the dairy herd as opposed to in the cattle and beef herd. In cattle and beef, they participated in exactly the same way as did the industry in the rest of the country. It does not have as much in terms of overall dollars because the beef industry is smaller in Quebec than it is in other parts of the country. However, there is an impact on the dairy industry in the sense that, what they have experienced with the closing of the border to older meat, is a decline in the price received for older cows.
That has been addressed in a number of different ways. As you are probably aware, senator, the Canadian Dairy Commission, in setting the price of milk in December, provided a $5 increase for a hectolitre. As part of that, the commission provided $1.66 per hectolitre specifically to deal with the decreased price of culled cows. That has been of specific benefit to producers to help them deal with that decline in price. We would be remiss if we did not consider that.
Second is the issue of increased slaughter capacity. As long as you have more animals offered than you have capacity to process, then that creates a certain market situation. One of the solutions is to bring a better equilibrium into the marketplace and, therefore, we have offered public programming to increase capacity — and I use the phrase ``increase capacity'' as a means to deal with price distortions.
We also understand, and this is important, that one of the components we need to deal with is the issue of managing older animals, the age of our herd and the size of our herd. We are working closely with the provinces, including Quebec, and producers on what the best approach to that may be.
Suggestions have come out of Quebec for a minimum price. We provided an opportunity, particularly to the UPA, to make its case to assistant deputy ministers in governments right across Canada to assess whether there was an appetite to set a national minimum price. There did not appear to be an appetite to take that approach. Having said that, there certainly is an appetite to deal with the issue of the age of the herd and how we deal with older animals. We are in fact working through that now.
[Translation]
Senator Gill: What do you think of Quebec's plan to take over slaughterhouse ownership, whether in part or in whole? I'm thinking of the farmers and producers themselves. We were told that, in Quebec, one solution for providing fair division of revenues would be to own the slaughterhouses.
[English]
Mr. Mitchell: As I mentioned in my opening comments, several different types of business models may be appropriate. Producers in Quebec must decide whether they see that as the most appropriate business model. Judging from the actions that they have taken, they have obviously come to the conclusion that that is what they want to do.
As I have said to them, if they want to contemplate expanding their capacity, obviously the programming that we have for increasing capacity will be available to them. Our program is not there simply to see a change in ownership of existing capacity. If there is any movement to increase capacity, I made it clear that they would be eligible for our programming, assuming that they meet all of the due diligence requirements and all of the things that go along with that.
Senator Mitchell: I should preface my question by saying this is the first Senate committee that I have ever sat on. In fact, I am not even an official member, I am just observing. This is the first question I have ever asked in a Senate committee and I happen to come from a city. It may be that the significance of those three factors will be painfully evident once I ask my question.
It is clear that some provincial governments have been publicly aggressive and critical about your government's relationship with the U.S. That criticism and aggression could be construed as potentially undermining your strength in negotiating with the United States to open the borders to our cattle.
If the BSE border closing is a matter of internal U.S. politics, which I believe it largely is, then the kind of statement that Senator Mercer has alluded to, the shoot, shovel and shut up, not only is not helpful, it actually gives these politicians powerful fodder to continue their political arguments against opening the border.
I am interested in knowing what sort of relationship you have structured with the provinces to nurture a united front, and whether you are making progress in that regard.
Mr. Mitchell: On the BSE file we have had excellent cooperation with my provincial counterparts. I would have to describe it that way. We are all of a single mind. We are all determined to work towards opening the border.
I should point out that the situation vis-à-vis the United States as it exists today is that we are basically both committed to trying to do the same thing. The U.S. administration, the USDA, and my counterpart, Nebraska Governor Mike Johanns Secretary of Agriculture, are working towards a border opening. They put forward their rule change on December 29, I believe it was, to come into effect on March 7. The administration has been clear that they believe that the rule is one that is based on sound science that Canada is indeed a minimal risk country, and that the border should be open. During my visit in February, the secretary made a public commitment that, once this rule comes into effect, they will expeditiously come forward with a second rule to deal with some of the product that is not covered under the first rule. Secretary Johanns, in testimony before both the House and Senate, has made that point. The USDA has appealed the court case of the temporary injunction in Montana. Therefore, they are vigorously defending their rule. As 10 provincial governments and a federal government — and we should include the territorial governments as well — we certainly share that view of the USDA.
Is there politics involved in U.S. Senate and the House positions? There has been. Although the Senate passed a resolution, the president has said clearly that he would veto it. The House, which also needs to concur, although you can never predict what they may do in the future, has, to date, not taken any action.
Senator Mercer: I congratulate Senator Mitchell on his first question. As the other city boy around the table, I think he will do just fine.
Minister, I will switch topics to and deal with dairy cattle and the problems in the dairy industry. I will pose my three short questions in one so that I will not take up time with preambles.
How did we get ourselves into the situation where the milk protein concentration issue are eating away at what I thought was a once very profitable dairy industry? I know that negotiations are going on. How do we invoke article 28 of the GATT, as some other countries are thinking of doing, to protect our dairy farmers now?
This is an important question for the farmers in my province of Nova Scotia, but it is probably even more important for the farmers in Quebec where the dairy industry is so large.
Mr. Mitchell: Clearly, senator, it is important across the country, because there are dairy industries in all provinces. It is more concentrated in some and, obviously, in Quebec it is very important.
As a federal government, we strongly support supply management in the dairy industry. It has proven to be a successful marketing regime in Canada, and one that has provided profitability to the industry.
There are issues surrounding some of the tariff lines and some of the products that come under those tariff lines. I have said clearly to the industry that, although I would not rule out an action under article 28, I want to pursue the negotiations that we are in the midst of now with our WTO partners. We will deal with a number of complex and important issues as we move through this year.
My view has been that, at some point in time, that may be the tool that we will want to use. However, for the time being, I would like the opportunity to negotiate. Let me be clear, we strongly support supply management. That is the position that we have taken into the negotiations. We are working hard on that aspect.
I do not think there is a fundamental disagreement in policy. We are having discussion about the best strategy and the best timing of the strategy, and that is a fair discussion.
Senator Mercer: Do you have any concept of what the timing?
Mr. Mitchell: My view is that we should see what type of results we achieve from the negotiations in which we are presently engaged. At some point in time, as we move down that track, we will be able to assess the success or, hopefully not. the lack of success we are having. I have been very open about my view. This is not a policy issue. We absolutely agree on the importance of supply management. We are discussing the best strategy.
The Chairman: Minister, I see that we have run out of time. I would thank you very much for making time for us during what I know is a busy night and a tough week.
We would like to know that we could call on you again, I would say, almost frequently. This is an active committee. We have been watching this issue like a hawk for some time. We would like to have you back so that we can follow your path as you attend these meetings. We represent the country well in this committee, and we hope to have you back soon.
Mr. Mitchell: Madam Chairman, I am always pleased to appear before your committee and provide you with updates, whether on our WTO negotiations or on whatever. I know that this is a hard working committee, and I compliment you on the job that you are doing.
The Chairman: Thank you, and good luck with your talks.
Senator Mercer: Madam Chairman, we have not had a discussion about the recommended studies that we proposed some time ago. Would that be on the agenda for a subsequent meeting?
The Chairman: Yes. I will close the meeting at this point.
The committee adjourned.