Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 1 - Evidence - Meeting of May 11, 2006
OTTAWA, Thursday, May 11, 2006
The Standing Senate Committee on Agriculture and Forestry met this day at 8:03 a.m. to study the present state and the future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chairman) in the chair.
[English]
The Chairman: Honourable senators, I would like to call us to order. Welcome to the first hearing of this new Parliament of our Standing Senate Committee on Agriculture and Forestry. This hearing comes at a time when farmers, particularly the grains and oilseeds producers, and all those others who assist them in their work, are in a most difficult situation. We are beginning hearings to explore various areas on which the committee may wish to also do a further study. We are pleased today to begin with our friends from the Canadian Federation of Agriculture, the CFA. It is a national umbrella organization that through its membership represents over 200,000 Canadian farm families from coast to coast.
We have with us today Mr. Bob Friesen, from Manitoba, who is the President of the CFA; Mr. Laurent Pellerin, the First Vice-President of the CFA, and also the President of the Union des Producteurs Agricoles du Quebec; and Mr. Marvin Shauf, of Saskatchewan, who is the Second Vice-President of the CFA. We have all the leaders on hand here and we have asked them to speak today very directly about the crisis that is facing farmers across Canada and its impact on the farming communities.
My co-chair, Senator Gustafson, sends his regrets that he cannot be here, but he is out in Saskatchewan seeding his crops, and that is where he should be.
We have two and a half hours today to cover a wide array of issues and I would, as always, invite my colleagues to keep their questions as pointed and brief as possible so that we can we allow our witnesses to respond fully and have everyone be able to contribute to this discussion today. We will begin with statements from our guests.
Bob Friesen, President, Canadian Federation of Agriculture: Thank you very much. It certainly is a pleasure for the three of us to be here. It is gratifying to see this group start early on in the session with what we consider to be a very important subject and issue.
I can assure you that we are here for only one reason, that is, we keep our ear to the ground and listen to what farmers have to say across Canada through the CFA membership, with a general farm organization in every province. Those general farm organizations listen to their farmers. They come to the CFA and tell us what is happening on the ground, what their farmers are telling them.
I can assure you that, together with Mr. Pellerin from Quebec and Mr. Shauf from Saskatchewan, we are here to bring what we consider to be an important message. It is not just a negative message; we have serious problems and issues, but we believe there is a lot of potential for agriculture.
You have in front of you several documents. One of them outlines the environment in agriculture, the situation that farmers find themselves in. The other document talks about a proposal, perhaps the outline of an initiative, whereby we think agriculture has some potential to make its way out of a serious farm income problem.
I will briefly go through the document that outlines the environment in which farmers find themselves. I will ask my colleagues to make a few comments as well, after which we look forward to answering your questions.
Many of you may know that Canadian farmers are coming out of absolutely the worst three years — and if you include the projections for 2006, it will be the worst four years — in history when it comes to farm income. They find themselves continuing to compete against farmers in the U.S., who are coming out of their best three — and including projections for 2006 it will be the best four — years in terms of farm income. I will identify that later on through some of the graphs in this document.
Certainly, this is a problem that has not sprung up overnight. It has continued to grow over the last few years. We definitely need to make a U-turn in agriculture to bring farmers back to where they can do what they do best, produce high quality, safe food that is known around the world as exactly that.
What are some of the things that led to this income crisis? We had the BSE problem, which cost the industry billions of dollars. Also, as mentioned earlier, we currently have a serious situation in terms of farm income in the grains and oilseeds sector. Some of that comes as a result of the droughts we have had in the past — or too much moisture — but probably most of it comes from the fact that we have had a long and serious downturn in grains and oilseeds prices.
If you look at the numbers in the document, you will see that from 2002 to 2005, the price of grains and oilseeds dropped by over 25 per cent. If you look at what has happened to the Canadian dollar, we have estimated that every one cent increase in the Canadian dollar vis-à-vis the U.S. dollar has cost our agri-food exporters over $230 million in value.
Of course, not all of it has to do with the exchange rate or the decrease in prices. A lot has to do with escalating input costs for farmers. Between 2002 and 2005, the price of fuel for farmers went up by 55 per cent. That is December 2002 to January 2005. Between January 2005 and September 2005, the price of fuel increased by another 25 per cent.
If you look back, the last number we have estimating the proportion of fuel expenses to total expenses for the grains and oilseeds sector was 8 per cent in 2001. If you include the increase, it is much higher than that. If you look at the farm debt, you will see that it has gone up by 90 per cent between 1995 and 2004.
Farmers are dealing with challenges that they have no control over. We really need to get to a place where we can find long-term solutions.
On the second page of our document, again comparing Canadian farmers with U.S. farmers, looking at their debt- to-asset ratios, you will note that in 1997 they were very close. In 1997, of course, our debt-to-asset ratio worsened much more than that of the farmers in the U.S. If you look at farm income, and also compare it to government payments, you can see the huge difference between U.S. and Canadian farmers.
About two years ago, CFA members tried to find a way to measure the need when it comes to farm income. We took the average realized net income for the last four years, including 2006, and compared it to the previous 10 years. The 10 years previous were not that good either, but we identified a $6.1 billion hole. That includes some of the record levels of government money that farmers have received, certainly from 2002 to 2005, and the projected government money for 2006. Even including those record levels of money, farmers find themselves with $6 billion less in realized net income.
That is why we continue to emphasize the importance of government investment in agriculture. It is an investment that accrues contributions back to the entire Canadian economy. Evidence shows that, on average, across Canada the multiplier factor at the farm gate is 5 to 1; every dollar of revenue generated at the farm gate eventually generates $5 for the Canadian economy. Therefore, we certainly look at it as an investment.
However, we recognize that if something is not done quickly to ensure that we get farmers out of this crisis, the cost to the entire rural infrastructure will be much greater. If you look at the contribution that agriculture and Agri-food Canada currently makes, it is almost 9 per cent of the GDP and accounts for around 14 per cent of employment in Canada. Export value now has reached somewhere around $30 billion. It makes an extremely important contribution to the Canadian economy. It determines the plight of most Canadians across Canada when it comes to job opportunities in the rural areas, when it comes to input suppliers and businesses — certainly small-town businesses such as hardware stores, et cetera.
Every year, 250,000 farmers across Canada produce enough food to feed 120 people each. That is enough food for 30 million people. The agri-food industry employs 2 million Canadians and pays almost $2 billion in salaries to Canadian workers.
In 2003, Canadian farmers spent $1.9 billion on fuel, over $2 billion on fertilizer, over $570 million on veterinary services and drugs, over $800 million on electricity and telecommunications and over $300 million on rental and leasing of machinery, equipment and vehicles. This farm income crisis is about the entire rural infrastructure, about the fact that the success of almost every city in Canada is contingent on the success of agriculture.
There were thousands of farmers on the Hill on April 5 to try to emphasize the problem we have in agriculture and to implore government to increase the investment in it so that farmers can get through this. I should say that CFA members and farmers across Canada are committed to working on long-term solutions, but to reach those solutions, we have to ensure that farmers survive to benefit from them. As I said earlier, there is a great deal of potential in agriculture and farmers were on the Hill that day in search of hope as they head into another planting season. They needed some kind of bankable announcement that would enable them to go to their financial institutions and say how much money would be flowing from both levels of government to get them through another spring crop-planting. While the budget announcement of $1.5 billion for Agriculture and Agri-Food Canada is significant, farmers are concerned that they might not get that money in time to do much good for the spring planting season. Certainly, our concern is that they do not have an amount that they can take to their bankers for this year.
It is extremely important that we continue to create an environment in which farmers can survive. When it comes to the long-term solutions in this document, CFA members have looked at what should happen in the next agricultural policy framework. If you talk to farmers across Canada, many will say that the first APF was a collage of important funding programs. We have tried to focus on how we can add strategy to the next framework. What can we do to ensure that not only will there be funding in place for on-farm food safety programs, environmental programs, business risk management, but also how we can add a strategic growth pillar. We have divided APF2 into three pillars.
The first pillar is goods and services. Farmers across Canada have no problem with being accountable in respect of the environment and food safety. However, they recognize that when they do something for the public good, the public needs to share the costs of those food safety and environmental programs implemented by farmers. We believe there is a real opportunity to create a competitive policy such that our farmers will be more competitive with farmers around the world. While Canadian farmers are going through some of the worst farm income figures in history and competing against U.S. farmers, who have some of the best farm incomes in history, this is not about our lack of competitiveness. Canadian farmers are as competitive as any other farmers around the world, and so we must ensure that we develop competitive policy and a goods and services pillar would move us toward that. We would then have the opportunity, even within WTO rules, to help the public pay for some of the costs incurred when farmers implement food safety and environmental programs.
The second pillar is business risk management. We need to be much more strategic in the way that we flow the money allocated by governments for agriculture. A comparison between Canada and the U.S. shows their programs are working better not only because they are spending more money, but also because of their strategy in flowing that money. Their strategy is to prime the pump in agriculture rather than let it be an afterthought such that if a farmer has not done well, he might get some money. They have programs in place that prime the pump. We need to look at more strategic ways to flow money, and of course, that would continue to include a disaster program, bringing back the companion program that we had before. We know that one national program cannot address all the existing provincial specific needs so there has to be provision for a companion program. We also need a form of price support, or income support, and income stabilization.
The third pillar is strategic growth, which is extremely important. Yes, we must ensure that we provide the needed investment to help farmers make it through an income crisis such as they face now. However, we also need the strategic growth pillar, which includes identifying how we can empower farmers and how farmers can work together better, whether on buying input costs or creating cooperatives to market products. Certainly, we need to identify ways in which to empower farmers. We need sustained and sustainable investment in research and to ensure that when we have research results, we do not simply ignore them but continue to drive those results right on through to the end user.
We need investment in value added, which touches on our proposal for an initiative in biofuels and ethanol fuels, which hold great potential. Certainly, we need look no further than the U.S., where they have strengthened the industry through biofuels and ethanol. We need investment in value added and in bottom-up support. We need to develop better links between producers, retailers and consumers. We need to build much stronger crosswalks between the farm gate and the downstream industry. Of course, we must continue to drive not only for more market access, but also for more profitable market access for the products that we export, which is over 60 per cent of our agricultural production. Better market access is important, but it needs to be profitable market access. Recently, I heard a corn producer say, "Stop talking to me about improving my market access. I am losing money on every bushel of corn that I produce already, so what is the point in getting me better market access?" While it is important to get better market access, we need to ensure that we create competitive policies so that farmers can be profitable in their export markets as well. We need to continue to identify the policy tools that work for farmers, including supply management and single- desk selling through the Canadian Wheat Board. Such policies empower farmers and continue to accrue more stability and more viability back to the farm gate.
Having made those comments, I will conclude by saying that this is about much more than just farmers; this is about the entire rural infrastructure, farm families, small-town businesses and job opportunities. We are committed to looking for long-term solutions, but unless the industry, together with both levels of government, can make this U- turn, it will end up being a much greater cost and no longer an investment, not only for farmers but also the entire rural infrastructure. I would ask Mr. Pellerin to make some comments.
Laurent Pellerin, First Vice-President, Canadian Federation of Agriculture: I will take you back to the third graph, which depicts the bottom line of our lives. As Mr. Friesen said, we represent 200,000 farmers across this country. The graph shows that for at least one full year, those 200,000 farmers and their families work for nothing. The graph also shows that the average farm income coming from the market over the last 10 years is close to zero.
It likely has to do with the impact of U.S. policy on agriculture. The "world war" on subsidies between the U.S. and the EU has resulted in the very low price that Canadians receive in the agricultural marketplace, at least at the farm gate, although some people do make money in agriculture.
Our product leaves the farms. People make money on our product across Canada: processors, exporters and equipment dealers. A lot of people make money on agriculture products; however, at the farm gate it is a big problem.
We have full-time personnel at the WTO in Geneva looking at what will happen in the coming months and years. I read on a daily basis the report from our representative in Geneva, and what is being discussed there and what we expect from that round is not encouraging.
The second point is that as a neighbour of the U.S., how can we do things differently from what they are doing in agriculture? As Mr. Friesen said, they put their money into grain to ensure that animal producers, ethanol companies and commercial users of grain receive a low product price and then build on that to add some value. In this country, we try to receive the income from the market, and on grain it is not there.
Those incomes are an average. We know that many farmers in Canada are still making money in supply management — milk, eggs and chicken. Farmers are continuing to make some money. When you look at an average like that, knowing that some farmers still make money, try to think of the farmers who are losing money. The grain farmers in this country are far down that road. In fact, we are losing our grain farmers in this country.
Our feeling is if someone decides that we have had enough of grain production here in this country, the problem is they never tell us that they want us to stop. They just let the market do the job. We are going out of business in grain production in this country, which historically was the largest industry and had the most important reputation across the world for quality. We are losing the base of that production in Canada.
For years we have tried to convince government, and it is good to be here today in front of members of the Senate. This is probably the place where, if there is something to be done to change the mind of the federal government, it will start.
We have tried to implement change with the past government. It is not that the government did not allocate money. They did, but I do not think that they put the money in the right place, especially in the last budget. Because of the flow of money that is being put on the table, the way that the money will circulate will put more money in the pockets of people who do not need it, and that will leave the grain farmers without the necessary income to continue their production. This is probably our biggest problem.
Our own government does not understand the three basic graphs, or they decide to do something and simply forget to make us aware of that decision. I think that if government decides that we should no longer produce grain in this country, we in agriculture deserve to know that, as the first persons involved in that activity.
Marvin Shauf, Second Vice-President, Canadian Federation of Agriculture: I sincerely appreciate the opportunity to be here on behalf of CFA. I have been asked to speak directly, and I intend to do exactly that, because there are many people on the ground at home — not just farmers, but a lot of people involved pre- and post farm gate — who are absolutely dependent on success at the farm level.
When one looks at the graphs in this paper, it is difficult not to see Canadian agriculture policy as a failure when it comes to the differences between Canadian and United States agriculture, when one country on the same continent has record high incomes and the other has record low incomes. One must begin to look at where the strategies are different and what works and what does not.
Mr. Pellerin just spoke about the strategy that they have used in the United States to build low inputs into value adding, processing, value building and market strength in United States agriculture. In Canada, our strategy has been to stabilize what happens. It has been passive, it has been after the fact, and it has not been strategic in terms of creating value.
When we look at what has happened in the United States, it has clearly pulled potential agricultural value out of Canada and into the United States. This has happened with the wiener hogs that move out of Manitoba and into the United States. Calves that are born and raised mostly on the Prairies go to the United States to eat corn. Instead of being finished, fed, processed, packaged and marketed as high-value product, in Canada they are marketed as very low-value product.
There are a number of parallels to this situation. We did not create that stability and supply that would attract the rest of the value-adding initiatives into Canadian agriculture that we could have and should have. We have created a great deal of debt in this industry, especially at the producer level. We have created a great deal of low value because we have denied that the strategy in the United States works for them and could have and should have been working for us.
At this point, we have $50 billon of debt in agriculture. One percentage point increase in the interest rate takes $0.5 billon out of this industry. If you add that to the $0.25 billon that each percentage increase in currency value takes out — and you recognize the number of percentage points in currency value that we have seen over the last number of years — there is a huge impact there. Those are contributing factors to the farm income problem we have.
When one looks at the debt differential between Canada and the United States, it is clear that there is a significant impact there, and it comes back to the fact that we have followed very different strategies compared to the country with which we compete.
There are additional investments that Canadians make on which we have not realized a return by not having the value-adding jobs that are subsequent to the farm gate. We have made gifts of young, educated people whom we have sent to other jurisdictions, along with our low-valued commodities, to add value elsewhere.
We need to build a strategy for moving ahead, instead of just analyzing the situation, and talk about how we can build value in this economy and build consumption of this commodity. If we combine a number of our environmental, economic, agriculture and social objectives, we can making agriculture a strong competitor and contributor to the Canadian economy, as opposed to the path that we appear to be on.
Many producers on the ground are saying exactly what Mr. Pellerin said: Are they about to abandon oilseeds and grains in this country? There is a huge concern that that is happening. The problem is that the rest of agriculture is anchored by that production. We will not have a feeding industry; we will not have ethanol; we will not import grain from another country and be able to add value to it competitively.
We have some choices to make, and we must make the right ones if we are to have high-value agriculture. We must understand that there is an underpinning of grains and oilseeds, instead of denying that what has been happening in the United States works for them. We need to ensure that we do not forget about the foundation and say, "Well, we will just go with the rest of Canadian agriculture," because without underpinning it with our own production, we will not have that.
There has always been an attitude that, regardless, someone will continue to grow grains and oilseeds. We are at the point right now where producers are making the choice not to grow grains and oilseeds because it is not profitable. If we continue on that path, the rest of our agriculture is at risk. We need to be able to make some sensible choices today, but to base them on the economics, not on a philosophy that we can abandon that and just move on with the rest.
We are talking about a strategy for building. We are talking about building value in the Canadian economy, but there also has to be a strategy to include the Canadian producers of grains and oilseeds in that value.
The Chairman: Thank you. I am glad that you chose to come here to give us the straight news from your perspective on the ground and within your organization.
We will now proceed with our list of questioners. I would again urge everyone, even though we have a fair amount of time here, to be as concise as possible so that we can get as much from our witnesses as possible.
Senator Callbeck: Thank you for coming this morning. There is no question that we have a farm crisis in this country. I come from Prince Edward Island, so I am well aware of the importance of the agriculture industry.
We just had a budget, and I want to quote what the President of the Federation of Agriculture in Prince Edward Island had to say about it. Eddy Dykerman said that he got the impression that the problem with the speed of getting cash to needy farmers has not been solved, and that is what is important as they enter the planting season. Mr. Friesen, I take it from what you said that you agree with that, and I wonder if the other two witnesses also agree with that statement.
Mr. Shauf: I think that statement is absolutely accurate when it comes to the necessity for producers to be able to provide clarity to the people that they do business with, whether it is their financial institution or their suppliers. They need to know that they have access to cash in this particular crisis.
Senator Callbeck: How long can the farmers wait now? What is needed to salvage the rest of the planting season, if we can? I know some farmers have already planted and others could not. I would like to hear your comments on that.
Mr. Friesen: You are absolutely right. Farmers came to the Hill on April 5 because they needed something urgently. This is not to diminish the money that was announced, because $1.5 billion is a lot of money, but they were looking for immediate hope. I have heard stories of farmers who started seeding, and the fertilizer company cut them off because they did not have any more credit. The farmer decided, "I will continue seeding anyway, and then when the money that I am hoping will be in the budget comes, I will top dress my crop with fertilizer," and now he may have to wait.
I would quickly identify several issues: First, farmers had asked for some flexibility in the way the money would flow. We were suggesting flowing it to provinces, and then the provinces, together with farmers, could decide how best to address specific provincial needs and the farm income crisis in a province-specific way, because we know that a national, overall approach does not always do the job.
Second, everyone that we have talked to, whether in Ottawa or the provinces, is beginning to realize that the CAIS program, while it has some strengths, is not doing the complete job. Of course, you also know there is a lot of talk about changing the program to make it better. Our concern is that the suggested method of flowing the money is through inventory valuation through CAIS. The farmers need this money urgently, and we are using a program that everyone has already identified as flawed. We are greatly concerned that the grains and oilseeds sector will not get the money in a timely way. Also, in the grains and oilseeds sector, if you use the CAIS program and inventory valuation, in many cases farmers may not get very much because of the way the inventory calculation works. If you use a program such as CAIS that continues to trigger money based on a historical reference margin, we have identified the margin as having a $6 billon hole, so it is depleted to a level where the program cannot trigger enough money.
Yes, the money is much needed, and farmers are very appreciative, but we really need to work with the government to ensure that it flows in a timely way.
Mr. Pellerin: We had an announcement of $1 billion before the seeding period last spring, and we had another $750 million last autumn before the election campaign. That money flowed just a few months ago. As Mr. Friesen said, the average shortfall in recent years was $2 billon per year. If the money had been announced months in advance of the seeding period, it would have been the best scenario. However, as was mentioned, we have been waiting 20 years now for a strategy in this country. It is a figure from the marketplace for the last 20 years. How long must we wait? Look at the top graph there. We borrow money each year to finish our calculation.
On my own farm, last December I had to borrow $75,000 to close my year, on top of the farm income I received. That kind of money is crazy.
You all know that agriculture in Prince Edward Island is not the same as it is in Ontario, Western Canada, B.C. and Quebec. We have to recognize that. If the major problem in Alberta is BSE, deal with that. In Saskatchewan, the provision for next year is minus $287 million net income — minus. The problem is grain. If you look at Ontario for next year, where they have the biggest agriculture output in the country, it is $9 billon a year. The projection for next year, 2006, is minus $63 million net income in Ontario.
Those people in Ontario will work for nothing in 2006. We recognize that the announcement of $1.5 billion means money, but it is far from what we need at the farm gate. We need money and a strategy. We need to stop this debt ratio from growing. We are going out of business one by one in this country.
We lost our co-op structure in Western Canada. There is nothing else, and nobody reacted to that. We are losing the ownership of the processing sector. The next step is losing the ownership of our land in this country.
Something has to be done rapidly, and it was not a good thing to have had that announcement last autumn. My profound feeling is they do not care about that.
Senator Callbeck: I wanted to talk about getting cash to the farmers right away. No doubt you have had discussions with the Minister of Agriculture to press the point since that budget came down. Can you tell us anything about those discussions? How positive are you that there will be cash shortly?
Mr. Friesen: We have been trying to meet with the Minister of Agriculture since the budget came down but have been unable to. We fear that if the money flows the way it is proposed, farmers will not get it for quite a few months. That is our concern, and we would very much like to discuss that with Agriculture Canada and the Minister of Agriculture, but as I said earlier, we have been unable to get a meeting with him.
Senator Mercer: Do you mean that you — the President of the Canadian Federation of Agriculture, representing all farmers in the country — have not been able to meet with the Minister of Agriculture since the budget?
Mr. Friesen: That is correct.
Senator Mercer: Have you been able to meet with the parliamentary secretary to the minister?
Mr. Friesen: I met with one of the parliamentary secretaries to the minister a while ago, but not since the budget.
Senator Mercer: What about meeting with members of the House of Commons Agriculture Committee?
Mr. Friesen: We have tried one or two members but have not been able to get a meeting with them. We met with the minister and the Prime Minister on the morning of the rally.
Senator Mitchell: I am interested in the two points that you made about the dichotomy, namely, that we have to look at the short and long term. It is interesting that Senator Tkachuk would try to make the point that the issue of early funding or emergency funding should have been anticipated in November, while his government is quick to spend money on its family allowance programs and to implement its targeted and clever political tax cuts. The government is quick to fund its five priorities, but not very quick to address what is an unprecedented farm crisis right now.
I am not a farmer, nor have I been one, but I have been following agricultural issues for 20 years. Never before have I been aware of a crisis of this nature, where there is a massive shifting of farmers out of the industry. It is a crisis in getting the money to seed their crops. It is getting past the point where that money will be useful.
When you did meet with the government, what did they say about why they will not give you immediate funding to meet this crisis? It is difficult to sort through the budgetary presentation because it not clear, but is it your impression that you will, either immediately or in the longer term, get more money this year than you were getting previously?
Mr. Friesen: In the last few years, the federal government has invested, on average, $1.5 billion to $1.8 billion above the allocated funding through the APF. Last year, it was $1.7 billon. This year it is $1.5 billion, so far. We will continue to do analyses and work with government to get the level of investment that we feel is needed in agriculture.
While farmers identified a $6 billon hole, they were gracious enough to say they would take that over several years, so we will continue to work on that.
Our main concern for the moment is not the level of funding. The main concern right now is to get the money out there. The $1.5 billon is a significant announcement, but our concern now is to get it out there as quickly as possible and to where it is needed the most. That is why we said everybody has identified CAIS as a flawed program. Why are we trying to make this ad hoc money, which is to address an income crisis, flow through a flawed program? Let us find a different way to make it flow as quickly as possible to where it is needed.
I mentioned earlier the flexibility of flowing it to provinces. I believe farmers would be willing to settle for any other way to make the money flow as long as it gets to the farm gate quickly and where it is needed the most.
We cannot afford to have any farmers falling through the cracks, and again, the concern is if we make it flow through a flawed program, that might happen. We are committed to working with the federal government to ensure that we make it flow in a timely way to where it is needed.
Senator Mitchell: In the context of your case about the importance of agriculture to the overall economy, the cities, and the economic and social fibre of this country, it is interesting that of the five priorities of this government, agriculture is not on the list. In fact, it has been a diminished priority, given your argument that funding has been reduced.
Has the government approached agricultural groups and farm communities in any structured way to specifically discuss a mechanism for getting the money to you quicker, changing the way in which it is delivered? Is something pending? Are there negotiations or discussions? Have you been consulted?
Mr. Friesen: We met with the minister a few weeks before the budget and gave our suggestions as to how we thought the money should flow, and said that it was urgently needed. Of course, we suggested that some of the surplus from last year could have been used before March 31. We had a meeting with the minister about three or four weeks ago, identifying, first of all, the same need that we identified for you this morning and also suggesting how the money could flow in a timely way.
Mr. Pellerin: We are having difficulty learning how this payment will work. We have obtained information in small pieces.
Some farmers have received good support in the past from the program in commodities, where there are great fluctuations from year to year. The program is not bad for those commodities.
An example is potato producers, because there are great variations in that industry. They received more money from that program than grain farmers, because they corrected the historic margin in 2003, 2004 and 2005. It is good for those farmers. However, there is no strategy in place to correct the most serious situation in Canada, that being in the grain sector.
There is no agreement on the formula. If it were decided tomorrow morning that Quebec should receive 15 per cent of the envelope and that 15 per cent were given to us, the farmers would have their cheques next week. There is no doubt that in Quebec we will flow money to the grain farmers. It is not because the situation is not difficult in other commodities, such as hogs, due to health status and the exchange rate. We still have problems due to BSE, and it is not easy, but the greatest problem is in grain.
We are always having a political battle between the different commodities in this country, but I hope that you will keep in mind that our competition is the U.S. I know that the political structure in the U.S. is different, but the contribution of the U.S. Senate to improving the situation of farmers is comparable to that of the Senate of Canada. You have a responsibility to speak to those who administer the country on a daily basis. You have the seniority to put the emphasis where it should be.
Senator Campbell: Good morning. I am replacing Senator Mahovlich this morning.
We have to get past partisanship. I am a wheat farmer. In 1983, I got $5 a bushel. This year I might get $5 a bushel. It is all about getting the money to the gate in time. There have been many programs over the years. There is always something new.
It there any way that we can have a long-term program that the farmer can depend on? We currently plant and pray for the big white combine. For those who do not know what the "big white combine" is, it is a hailstorm that will take out the crop so that you will be able to collect the insurance on it, ensuring that you will make a couple of bucks.
It is frustrating. My family has a century farm in Saskatchewan, and it will be gone. There are five children, all of whom went to university and did well. Two of them wanted to return to the farm, but there is simply no way that can happen. All the land in our area is being bought by Alberta farmers. They are fencing it and raising cattle on prime farmland. We have never had a crop failure there in 20 years.
How can we develop a program that will last? You cannot give the money to the province, because it will take 10 per cent off the top as a handling fee. The money must go directly to the farmer.
People do not understand that farming is an industry. They think it is a way of life. They think that farmers like being poor. They think that farmers like having four 8600 tractors. However, they need to have four because they are all old. When one breaks down in the field, the farmer walks back to the yard to get another one.
How do we make the people of Canada understand that farming is an industry and how do we get good, solid funding for it? My friends in Vancouver think that farmers plant and then fish, harvest and then hunt. We have to change that mentality.
Senator Tkachuk: They also think that in the winter you go to Phoenix.
Mr. Shauf: With regard to a program that will last, we need to back up one step and determine our vision for agriculture. Can we have an agricultural industry that is sustainable?
Agriculture has many profitable jobs associated with it. Can we take our initial product that has a relatively low value and build it into something that Canada needs and more Canadians are involved in? We need to have a vision of agriculture with value and as a major contributor, instead of it being seen as an anchor that we are trying to drag. We certainly need to look at agriculture in the context of the United States, and definitely globally. We then need to determine what we are able to build agriculture into in this country, or whether we want to continue to throw a little money at it, with no strategy, just to keep it on life support. Those are our choices now.
As to whether we can have a program that lasts, I think that with a new strategy we absolutely can, but we have to set an objective for that program. The most important point is timing, ensuring that the investment is made at the right time.
Let us consider what happens if there is no money in the hands of producers right now. They get lower value from their farm because they are not able to do the right things when they need to do them. That means that many pre-farm gate activities should have taken place that did not and that many post-farm gate activities will not happen next year because the product will not exist.
As a result, we have a smaller value economy. The producer has a smaller margin. A margin program that protects margin that has declined goes to sleep as well. There is no strategy in place. All that is happening is looking at what exists and projecting where you dig the hole. We can do much better than that with some strategy. We are spending significant amounts of money. Let us put it into a strategy that will result in some value and something that Canadians can be proud of. Producers do not like the way we are currently living, but this program does not recognize the declining margin problem caused by subsidies in other jurisdictions.
Canada identified it several years ago and has since then refused to do anything strategic to mitigate the damage. We need to mitigate that damage, and when we do we can have a long-term program, but it has to be strategically supportive.
Mr. Friesen: I wonder if I can respond as well. The first thing Senator Campbell asked was that we keep the politics out of this. I can assure you CFA members would say exactly the same thing. This is not about politics. We will work with anyone on ways to turn agriculture around, but we also have to have the opportunity, and farmers are committed to doing exactly that.
The Chairman: I agree with what you say entirely and that is the attitude we will have in this committee.
Mr. Friesen: My second point — and I agree with Mr. Shauf — is with regards to Senator Campbell stating that farming is an industry, and he is right. If the farm gate snaps shut, we lose an industry that is worth $100 billion to $130 billion year to the Canadian economy; almost 9 per cent of our GDP.
People ask what will happen to the food supply if we do not have farmers producing the food. We currently import a lot of our food, but why make the Canadian public vulnerable to imported food when farmers have worked to implement food safety and sustainable environmental programs. We feel a tremendous level of support from the Canadian public, but you are right, it is an industry, and that is what we need to try to preserve. It is not about the industry alone, but the entire rural infrastructure.
Mr. Pellerin: I have a comment on the basic question can we have a program that lasts? The average life span of a federal program is less than two years. We have had the same program in place in Quebec since 1975. It works. At least, it worked up to the last two years, where it is impossible now to co-share this program money. We have to go back to that problem later.
Secondly, U.S. farmers know well in advance that if they seed corn this spring, the support price will be the equivalent of $180 per metric ton. They know that in advance so they can make their decision. We still do not know the support price for 2003, 2004 or 2005. The last budget announced was back in 2003. That is a big difference. Yes, there are some programs in place elsewhere in the world that work and there is some flexibility in the provinces. It is not worth flowing money through some of the provinces because they take 10 per cent in administration costs. I am also the chair of La Financière agricole in Quebec, and we administer, as farmers and government in a real partnership, program support to farmers and we do not charge any administration costs.
Senator Mercer: You learn things in the committee every day. I did not know Senator Campbell was a farmer too. I am impressed.
I too would like to make sure that we turn this discussion into a positive one. We can argue about the politics, but it does not help the farmers. We are here to try to help. All of us, on all sides, have the best interests of farmers and Canadians at heart.
We heard mention of biofuel and ethanol several times. I attended a conference this past weekend of Canadian and U.S. parliamentarians where we talked about a wide range of issues, but I was interested to see that agriculture kept creeping into a lot of conversations. One of the discussions was around ethanol production and ethanol plants. A comment by one American colleague was that, to his recollection, 70 to 80 per cent of the ethanol plants in the United States are owned by the producers, by farmers, and the profit level is extremely high. His comment on one particular plant in Minnesota was that the capital costs were recovered in one year. He believes that one of the ways out of subsidy dependence in agriculture may be through producers owning such things as ethanol plants, either on a shareholder basis or as a cooperative.
I want to know where you see this going; what the government can do to help. We talk about production of corn, using switch grass and wood products. We have lots of grass, or we can grow lots of grass. He talked of grass that was planted once then harvested for 10 consecutive years before being planted again. That sounds like an ideal crop. We have lots of wood by-products in this country. Are we missing the boat on our ability to assist farmers and also help solve our dependence on fossil fuels?
His final comment was that the major oil companies are not that interested in seeing this happen. That is why a farmer-owned plant works better; they have an interest in making it happen.
Mr. Friesen: You are absolutely right; we think there is potential in biodiesel and ethanol. I was at a meeting recently where one of the attendees was a representative of a fairly large multinational company. During the discussion of biodiesel, this person said that they have to be careful that a biodiesel industry would not take away product that they now purchase from farmers to export. That is exactly the environment we are trying to create; one where they have to bid for the product and, hopefully, drive up the price.
Canada does have the cellulose technology and we think there is a lot of potential there. You are correct regarding ownership of these plants in the U.S. When we talk about biodiesel and ethanol plants, we are saying that as we make a sustained and sustainable investment in that, we have to ensure that we do not make the mistakes of the past and simply build an industry for someone else to control and get all the accrued benefits. That means we need to use Canadian production, and farmers have to be partners in these plants and be able to make a profit.
Plants in the U.S. are making a profit. If $1.30 is paid to the farmers for a bushel of corn and the taxpayer pays another $1.60, they have a larger profit margin then we would in Canada. That is one of the reasons the livestock industry is being cross-subsidized through this, because the price of feed grains is so low and the price of ethanol grains is so low that that profit is available, but they are simply getting the taxpayer to pay the rest.
Yes, we believe there is a lot of potential and a need for a deliberate, methodical approach to creating an industry that would be owned by farmers and accrue benefits back to them.
Mr. Pellerin: My information is that there are plants in the U.S. owned in partnership with farmers; 16 are under construction there. In Quebec we have one under construction and it is the only one we have. My suspicion is that it is not only the first one, but the last one, because of the pressure brought to bear by environmentalists who are against the process.
Another fact that we must place in the balance is that Canada is an exporter of fuel, from Newfoundland to Alberta. The U.S. depends on imports for gasoline and other energy sources. Thus, they are probably prepared to give tax breaks to a new industry like that. However, that has to be part of the strategy in this country. We have to look at that closely. That is the long-term part of the strategy. We have to have that part in mind.
Senator Mercer: This is fascinating. Just to conclude our discussion on ethanol, it is also said that one of the real problems is with the delivery system. People selling gas and oil are not that anxious for this to succeed. However, there are regulations with regard to mixing ethanol with gas. I agree that there are problems.
Mr. Shauf: If we do this in Canada, it needs to be done recognizing what they are doing currently in the United States. In the United States the producers own those plants and they deliver feedstock to them. Producers in the United States have two sources of revenue from that feedstock going into that plant. One is from the marketplace, which the plant pays. The other comes from the American taxpayer.
When they do the processing in that plant there are two sources of revenue coming in. One is from the government, while the other is from the marketplace. When people talk about doing it in Canada — and some are in the process of building these structures right now — they start with the assumption that the plant will pay them sufficiently for their grain and that they will get enough from the marketplace for the processed product to make it a viable operation.
We have to think that through. There are two sources of revenue currently missing in that scenario for it to be competitive with what is happening in the United States. We have to stop building things and imagining there is a magic bullet that will make us profitable. For a long time we have been building our investments on philosophy and not on economics. That has to change. Only then will we be able to build "value agriculture."
Senator Mercer: That leads into my second question. We can always export ethanol because the Americans will continue to need it. We are happy to export gas from Nova Scotia. We can just as well send them ethanol as natural gas.
You have been discussing with us the problems in the short and long term. Would it be advisable for today's government, or the next government, to put together in the near future an agricultural summit, for lack of a better word, where we can come to some kind of agreement similar to the Kelowna accord on Aboriginal affairs? Obviously, we would discuss the immediate problems. However, we should start to look at agriculture with a 5- 10- or 20-year plan in mind. We can bring together all the stakeholders, which would include government, producers, processors, consumers and retailers. We will not solve the issue of subsidies in the EU or the U.S by ourselves. Let us manage what we can, ourselves.
Do you think it would be a good idea to create a high-level summit involving the Prime Minister of the day, as well as the Minister of Agriculture, other ministers and all facets of government, both provincial and federal, to recognize that this is an extremely important industry? This is about the survival of not only a vital industry in the country, but the survival of our own food source. Would that be of some help?
Mr. Friesen: I think it could be a lot of help. Our staff is currently working on including many other upstream and downstream organizations when we talk about biodiesel and ethanol. As I said earlier, we have talked to the minister about it. I think everyone realizes that we are poised to go. Perhaps something like that would be a good kick-start. We think there is the potential there. Anything to move us along this road would be welcome.
Senator Tkachuk: I have been a member of the Agriculture Committee for a long time. All of you know we have discussed these issues for years. It is most frustrating for all members of the committee to find ourselves discussing the same problems all the time.
I agree with you when you say that sooner or later we have to fish or cut bait. Farmers need to know whether we will compete with the Americans and the Europeans or just let the farm economy go. That is what has to happen. I for one do not want the second option. I want the first option. We must find a way to make this industry sustainable. As a member of a Saskatchewan family, I do not want to see the rural economy broken down in the Prairies. It is our strength. After all, we produce all the hockey players. It is our way of life. I disagree with you — there is a lot of philosophy in all of this, as there is a lot of politics. However, it is good politics. I do not mean political party politics but the politics of getting the Canadian public to understand what we have to do. That will be difficult. As far as the $1.5 billion is concerned, they do not care if it comes in January or February. It is just not on their radar screen.
I have a couple of questions because the party of which I am a member now forms the government. I will not let them run away from this problem. This is something I would like to see attended to, especially with some type of long- term program.
There are two issues that I want to ask you about. The first you touched on, that is the WTO attacks on marketing boards. There is also the issue of the U.S. believing that the Wheat Board and our marketing boards are communist organizations or something. Politics is involved in those two ways of marketing products as well. However, right now we have external problems to worry about.
You mentioned the WTO. I would like you to comment further as to why you feel there is some fear there.
Mr. Pellerin: All Canadian organizations are working hard on the question of world trade negotiations. Our fear is that by opening the market, we will end up destroying what we are doing in this country. The Canadian Wheat Board is a good example of that.
It is the first and most visible point of this collective marketing. Supply management is just following that.
If you look at some commodities in this country, they are not doing that badly. Chickens, eggs and milk are under supply management, so what is the problem with this system? They are the only ones that survive in agriculture in this country. The rest is tough. It is under attack on a daily basis in Geneva. Everyone, including our own civil servants, are not convinced those systems should stay in place.
The other important point you make is the link with the U.S. I come back to Marvin Shauf's comments on ethanol. When you discuss subsidies on food, we became more nervous. We are not all aware of that. However, if you put the ethanol industry in a new strategy in this country, you have to keep in mind that we will not develop this industry in Canada without high subsidies on grain, which is the case in U.S., and high subsidies on ethanol.
You have to abolish the gasoline taxes if you want to produce ethanol in this country. It will not cost $1.5 billion. It would cost a pile of money to support ethanol production in this country in competition with the U.S., because U.S. ethanol is coming into the Canadian market. That is a fact of life. We have it in our gasoline in Quebec, but we produce none. It is coming from somewhere — a little from Ontario and from the U.S.
You have to keep in mind that you will need a lot of money to subsidize ethanol. Perhaps in people's minds it will be less difficult to subsidize ethanol than food, which is crazy. If we look at the bottom line, it is crazy. To redesign or rebuild agriculture, from this idea of a large summit or an activity like ethanol production, or the World Trade Organization, we will have to share with the political decision makers where we are going on those questions.
Senator Tkachuk: Do the Europeans keep a straight face when they are asking us to get rid of our marketing boards while they are putting $8 to $10 subsidies on wheat, or is that part of their negotiations?
Mr. Pellerin: No, the U.S. has a straight face, but I do not think the Europeans do in connection with the Canadian Wheat Board.
Senator Tkachuk: I am talking about the marketing boards.
Mr. Pellerin: The next step after the Canadian Wheat Board is the marketing board. There are 50 rabbit farmers in Quebec who got together to market their rabbits collectively, and they have had success. They receive a very small amount of support from government. They receive their income from the market — 50 farmers who get together through a collective marketing system.
If you attack the Canadian Wheat Board, in the end you will attack those types of central selling desks. That is the final objective of the free marketers such as the ones in the U.S. — it is a free market, no rules.
Senator Tkachuk: As Mr. Shauf knows, there are a lot of free marketers in the Prairies who want to see an end to the Canadian Wheat Board, which is sometimes its own worst enemy. The organic farmers have to sell to the Canadian Wheat Board; they keep it in the bin, take their commission and then export it. We have all those other issues. There are a lot of differences of opinion on the Canadian Wheat Board itself in the Prairies. What do you think? Should we get rid of the Canadian Wheat Board; should we have dual marketing?
Mr. Shauf: I would come back to your first comment, when you said you disagreed with me and that there is a lot of philosophy here. From my experience, and from most people's experience, if you attempt to overwrite economics with philosophy, you will lose. We have done that many times in trying to philosophically drive our agriculture as opposed to economically.
I think the same thing exists in looking at Canadian Wheat Board issues. There are a lot of people who look at marketing to the Canadian Wheat Board as opposed to marketing through the Canadian Wheat Board. It is a difference in philosophy. However, when it comes to the WTO, that organization is about free trade and being able to move things around the globe at someone's will. Producers have to be disempowered in order to do that.
From a Canadian context, we are a high-cost society; there is no way around that. If Canadian farmers are to survive on a level playing field, they need the power to extract things from the marketplace. You do not get that individually; you get that collectively.
If you look at labour issues in this country, there is a lot more power in the collective that works for a common purpose than in individuals working in the marketplace to try to get the volume, the ability to do business and pass the lack of wanting to pay down the value chain, ultimately ending up at the producer. There are a number of things to consider in terms of trying to improve things. It is certainly not an improvement from the producer's perspective to lose the ability to market collectively.
Senator Tkachuk: You talked about your plan — the $1.4 billion a couple of years ago, the $1.7 billion, the $1.5 billion, et cetera — all of this is not enough. What is enough based on the prices today? What would it take? I tried to find it here but I could not.
Mr. Friesen: Before I turn to that question, I would like to touch briefly on your previous question with regard to the Canadian Wheat Board and the Europeans. The Europeans' reason for trying to get rid of the Canadian Wheat Board and the U.S.'s reason are different.
The Europeans are saying that if they have to get rid of export subsidies, they want to make sure someone else has to sacrifice; and they are using the export subsidy argument with the Canadian Wheat Board, which we know is not correct.
Senator Tkachuk: At least there is something in return. If we get rid of the Canadian Wheat Board, they get rid of subsidies. I do not think that would be a bad thing.
Mr. Friesen: Our negotiators told us a few years ago that we should not be prepared to give up much for the Europeans to get rid of their export subsidies because they were moving that way anyway. The U.S.'s reason is simple. The multinational lobby effort in the U.S. wants to get rid of the Canadian Wheat Board because it is a way for our farmers to compete in the international marketplace.
Mr. Pellerin: The Canadian Wheat Board is a member of the CFA.
Mr. Friesen: Our fear is once the multinationals get rid of farmer monopolies, they will go after co-ops, because cooperatives require legislation as well and they are competing against multinationals around the world. In fact, in Denmark 80 per cent of their agricultural production is sold through the co-op system. They have largely managed to keep out multinationals, who will no longer tolerate farmers using legislation for empowerment. Therefore, we believe that could be the next step.
On your question of what is enough, a year ago we identified the deficiency as being $1.9 billion a year for three years.
Senator Tkachuk: So that I am clear, you said that the figure is $1.9 billion each year for the next three years. Is that right?
Mr. Friesen: That is correct. When we use the same formula for 2006, for which the projections are getting worse, and take government money out of agriculture, we find that only two provinces in Canada would realize a positive net income: British Columbia and Newfoundland and Labrador. All other provinces, without that government money, would realize a negative net income. We used the same formula comparing the four years' average realized net income with the previous 10 years' income; and again, significant money has flowed. If you went back 10 years before that, you would be out another $1.5 billion. We were asking for $2 billion per year for three years simply to get farmers out of the hole. In response to people who say they would like to talk about investment, it is quite correct. You mentioned that we have been here for years and the same issues continue to arise. CFA members would much prefer to go to governments and talk only about investment in some solutions for the future that we could implement immediately. However, we continue to have to try to fill the hole, otherwise we will lose farmers. To avoid that, using the same formula that we used one year ago, including the projections for 2006, we would need $2 billion per year for three years.
Senator Tkachuk: I want to follow this up because I am trying to get a handle on the amount of money. You would need $6 billion over three years to get out of debt. Is that correct? What comes after that? Would there be an expectation of $2 billion per year ad infinitum? Is this never ending?
Mr. Friesen: We are committed to working with both levels of government to develop long-term solutions and to create a policy environment such that we would no longer need that amount. We know that amount of money is not sustainable, but we also know that because of the hole that farmers are in, they cannot even begin to look at the future. It was Michael McCain who said at one meeting, "Do not expect innovation from farmers who are on their knees." We need that amount of money over three years to get farmers out of the hole, although it would not get them out of debt, and shore up their net income so that they are able to continue farming.
Mr. Pellerin: I have a short comment on the Canadian Wheat Board, which is far from Quebec farmers. The only person in Quebec who is happy about it is the general manager of Bunge, an international trader of grain, who says that without the Canadian Wheat Board he would do more business than he currently does. He is quite sure about that and is pushing hard for governments to make changes on that front.
Concerning the subsidy, if you wanted to go back to the 1970s figures, as shown on the graph, you would need $4 billion or $5 billion per year, and not $2 billion.
Senator Tkachuk: Is that on the graph where it says "government payments?"
Mr. Pellerin: It is the red and the blue on the graph.
Senator Tkachuk: The blue is the run-up and the red is the run-down, or is it the other way around?
Mr. Pellerin: The dark red indicates government money and the blue one is market income. Look from 1985 on and you will see that there is close to nothing coming from the market on the net end of farmers' income. In the 1970s, Canadian farmers earned a good deal of money. However, we are not dreamers; instead we are realistic about all of this. In the end, we know that Canadians have two ways to pay for their food: through a food basket on a weekly basis, which is the cheapest way, and through their taxes. Each U.S. citizen pays $350 per year to support agriculture. Each Canadian citizen pays about $175 to support agriculture. In Canada that equates to $3 to $4 per week and in the U.S. it is $7 to $8 per week, in addition to their food basket, which is the cheapest in the world. We ask Canadians if they can support Canadian agriculture to the same level as in the U.S. The figures I have stated are from the OECD and not the CFA.
Bring Canadian support up from $175 to $350 per year, which is the average over the last five years, and we will be happy. For the rest, we will have to compete with U.S. farmers. Now, because our subsidy is non-competitive with the U.S, farmers are fearful. Canadians look at farmers as inefficient, subsidized people, but we are not that. In truth, we have inefficient civil servants in this country who fail to develop the necessary programs to change that trend. For years we have faced an inefficient government that is not competitive with the U.S. in its support of agriculture. At the farm gate, on average, we do the job.
Mr. Shauf: Senator, your question, about what happens after three years of payments of $2 billion per year, is important. In order to deal with that, we first have to look at history. It was 1949 when the U.S. put in place target prices, at about the same time as Europe put in place programs to increase production. That was continued in the U.S., with a couple of small exceptions. They also used to have government-managed stocks, whereby they basically set the price of a commodity globally through reserves and then put those reserves into the marketplace as the values became too high. They discontinued that practice in the mid-1980s, but they continued the subsidization.
There has been a continuous decline in commodity value, particularly over the last 20 years. We have had declining global prices and changing currency values, et cetera, and Canada has not reacted to that. We have built a huge differential between Canada and the U.S., which we have already talked about, in terms of the shape of, and debt in, our agriculture. We need to look at the future of agriculture, and so in that respect, we need to ask precisely that question: What happens after the next three years? We have always talked about building a bridge to a new strategy. Then we get some money and everyone carries on with their short term plans, but we have not focused on that long term, or even the mid-term strategy, for where we are going. We have not looked at the investment that agriculture producers make and we have not looked at the fact that pre-and post-farm gate, there are many high-value well- compensated positions in the agriculture industry. It is the producer who is not getting his reward on investment. We begin to see that showing up on the U.S. side of the border. What about after the next three years? Will we develop a strategy that appreciates the labour and investment and that deems agriculture important to the Canadian economy? Will we recognize the value in the entire value chain, including all of the links, and ensure that they are appropriately compensated? Will we determine that we could build this into something, whether it might be a biofuel or other kind of product for the Canadian economy and for a much higher-value global export market than we currently have?
The United States would not have done what they did relative to corn if they wanted to just put it on a boat and give it to someone else. They did what they did with corn production to build that value in their marketplace and to build markets around the world, but a huge part of it was focused on domestic consumption. They created it; they did it strategically and supported it at all levels to ensure not just that it happened, but that it happened in their economy, to their benefit.
That is all that we need to do in this country. That is where we need to go and that is what needs to happen, not just after $1.9 billion for three years, or whatever the number is. That is what needs to begin to happen right now so that we are building toward that during the three-year transition.
Senator Segal: I wanted to ask the three witnesses, if I could, four questions, with the greatest respect.
On the process of intervening when there is a commodity crisis, after drought and when there is a BSE crisis, your evidence is very clear: It actually has no lasting, positive impact upon the farmer. In fact, one could argue that despite the best intentions of everyone involved, the interventions are not increasing the financial capacity of farmers to stay in certainly what I think all of us on this committee see as an absolutely strategic role for the country, which is sustaining food production on a viable basis.
Have you ever considered stepping back from the macro issue — commodities, marketing boards and all the rest — and focusing in on the micro issue, of farmers who are living below the poverty level?
I noticed that Mr. Friesen made reference, as did Mr. Shauf and Mr. Pellerin, to the broad rural community and all the pieces involved therein. Without being in any way cynical about how each industry and each commodity in the country has its different requirements, in the end it is about the money; either you are making enough money to stay in the business, feed your family and have some equity for the future, or you are not. If you are not, then rational decision makers, like the kids who you sweat day and night to send to university, will say, "I am not coming home. I want to make a living."
The question I ask is whether or not the federation has ever given thought to what we do for other parts of our society who, despite their best efforts, have income collapse.
We have extensive programs, for example, for auto workers and manufacturing workers, when, through no fault of their own, the business shuts or cycles — and layoffs have begun. They are put into a process where they are protected at a level in excess of 75 per cent of their salary. We are speaking of a farming community, if I understand what our witnesses have said this morning, where you cannot take X per cent of last year's salary and set it as a line, because last year's salary was negative.
We have a basic income floor for seniors and a basic income floor in other parts of our society. Young people who have to pay the GST receive a GST tax credit because their income is not sufficient for the tax to be less than 30 per cent of their gross.
Have you ever given thought to a basic income floor for people who are defined, under the Income Tax Act, as farmers, in terms of their total production as a part of their revenue, so that we know that, as individuals, whatever the commodity cycle, they will at least not have to face any issues involving subsistence, survival with dignity and self- respect? I just put that to you as one question.
[Translation]
Mr. Pellerin talked about the BSE (bovine spongiform encephalopathy) problem.
[Français]
I am interested in your views on the need — particularly in the face of, God forbid, a pandemic of avian flu and other kinds of issues that have been referenced — for an animal health strategy for the country, like our European friends have implemented, around zones, so that if there is a problem, God forbid, with pork in zone A, it does not mean that all the other pork zones are problematic. I would be interested in your perspective on that.
My third question is on market failure. It strikes me that Marvin Shauf was kind enough to say that you cannot use philosophy to overtake economics. However, if the core economic theory is that the more efficient you are, the better you should be doing — part of what we are discussing here — clearly it is not working for our farmers. Someone was kind enough to say that each farmer feeds 120 Canadians. It is hugely efficient, and by any stretch of the imagination, that efficiency of productivity has gone up remarkably on the part of Canadian farmers, through their own hard work and through some of the new technologies that have been used in the process. However, they are not getting the reward. Everyone else in the food chain is getting the reward.
In the days when we created institutions like the CBC, the Wheat Board, the farm credit organizations or the caisse populaire, it was because of an admission that the market was not working and that there had to be an intervention because fairness and strategic interest required that kind of creativity.
I know that the federation is remarkably non-partisan and committed to serving all farmers, regardless of their political views. Have you given serious consideration to alternate fuels? I am impressed by the discussion regarding alternate fuels and with the information that Senator Mercer has brought us with respect to how that great free- enterprise economy to the south understands that producer-owned instruments are the way to get those fuels into the marketplace. I suspect that our auto manufacturers are frustrated that if they produced vehicles that ran massively on ethanol, the oil industry would be the last bunch of guys to show up with ethanol pumps to be supportive.
I wanted to ask that final question about market failure and what new structural initiatives governments that set aside partisan bias and want to work with farmers to achieve real solutions could begin to consider. If that is too broad a question for this short meeting, perhaps it is something that could be discussed further down the road.
Mr. Friesen: Thank you very much, senator. I will try to be brief on those issues. I will let my colleagues add to my comments.
First of all, let me thank you for the work that you have done in identifying that we do have a crisis that has put many farmers below the poverty line. It certainly is appreciated, and I have heard you speak publicly on that issue several times.
You made the comment that it seems as though it does not matter how often and how much we intervene in the income crisis, it does not appear to get us anywhere. We would much rather be talking about the fact that we need X billions of dollars for investment; that farmers are doing quite well, thank you; and that we need to continue to grow the industry. This may be one of the reasons why people get the feeling that it does not matter what we do; we are always trying to fill a hole and we just have not been able to make it over that final obstacle.
However, we do believe that we have the potential to turn it around. If one looks at the amount of direct money that Canadian farmers are getting as a percentage of the value of farm-gate production, that gap between Canada and the U.S. is getting smaller, and yet we are still looking at our four worst years and they are looking at their four best years. The United States is doing something that is making their farmers profitable, and for that reason we think that we have potential here.
You asked whether we should redirect our focus and simply address the minimum income, et cetera.
In spite of the fact that we think we need something like that to sustain farmers in the meantime, we would really like to focus just as much, if not more, energy on developing policy and an environment that can get us to a point where farmers can get their money from where they would like to get it, the marketplace. Farmers really do not want a social program. We may need to create something to maintain them in the meantime but, in the long term, they really want to get their money from the marketplace.
You are right that efficiency has not given them profitability. They are the most competitive farmers in the world, but we do not have competitive policy. That is where we differ from farmers in other countries, especially the U.S.
The industry is already in the process of working on an animal health strategy. Yes, there is definitely potential in zoning, especially in a country like Canada. If we do have a contagious disease in some parts, we should be able to zone Canada geographically so that it would not disrupt the entire industry. More work needs to be done on that, and we will continue to do that in partnership with the government.
We do not have market failure in all of our commodities. We do have it certainly in the grains and oilseeds sector. We did have market failure in the cattle industry for a while, but that is rectifying itself. In the hog industry, and I am a hog producer as well, from time to time it seems that we are in the tank — and we are — but then it also seems to spike up again.
Much of this goes back to farmer empowerment again, to the WTO negotiations coming out of Hong Kong. The Hong Kong declaration still gives us the leeway Canada needs to continue to negotiate its position, to be able to maintain the tools that we currently have for farmer empowerment. Whether you philosophically support the Canadian Wheat Board or not, the fact is that that decision should be made in Canada, not Geneva. If we continue to identify it as a tool that empowers farmers and accrues money, then we should keep it. If it does not, then we need to make other decisions, but the decisions should be made in Canada. It is the same with supply management. If these are tools that work, and they do, then we have to develop more tools for the commodities that do have market failure, not compromise on the tools we already have that empower farmers.
I will leave my comments at that because I know my colleagues have some good input to give as well.
Mr. Shauf: You talked about a market failure and you said we are not better off because of the interventions. I think economists will agree that there is a role for government to play in the event of a market failure. The market failure is in grains and oilseeds. That is the one sector where we have absolutely refused to recognize market failure and deal with it in any kind of strategic way. We keep bleeding there. Not only do we bleed, we bleed badly enough that we do not have the energy and the ability to get ourselves out of that.
We need to look at market failure from the point of view of, "Why is this market failure here?" Is it because society, globally or domestically, said "We no longer choose to use that product," or is it because somebody else is saying they will out-produce us and protect their producers from the impact of that overproduction so that it depresses commodity values globally and they can gain the power? That is the scenario we are living in. That is the scenario that we have absolutely refused to react to with our Canadian policy, and we are at the wreck because we have chosen to do that.
Three years ago, I asked a senior person in Agriculture and Agri-Food Canada about the impact of the loan deficiency payment. This person is no longer there, by the way, but the answer I got was that we are still trying to understand the impact. That style of program has been around since 1949. We will have to understand that impact soon, because it is picking the pockets of Canadian agriculture every day.
Mr. Pellerin: As to the first question, about minimum salary, we do not have access to insurance payments as employees. We do not have access to welfare. In fact, it is difficult for a farmer to apply for welfare. It is not that we do not need or do not deserve it, but when my two sons at home are working more than 70 hours a week, asking for welfare is tough.
When you consider two farmers, one doing the job and the other not, minimum wage is difficult. A minimum annual wage is a difficult program to apply. The program we have had in Quebec since 1975 is based on cost of production. That is the only way to approach the idea of minimum salary on a yearly basis. Say it costs $140 to produce a hog. If it costs $160 on your farm, you have a problem, because we will only support you at $140. On another farm, if it costs $125 because you do a good job, you beat the system. That is the only approach to take.
As for BSE zoning, I have nothing against Alberta, but in my mind it is quite clear that if it had been a case of a milk cow in Quebec with BSE, when the beef industry in Canada is in Alberta, we would have had a zoning program in place in this country very rapidly. Why destroy Alberta beef production if you have a milk cow in Quebec with BSE? That is absurd. Apply the reverse logic. Why close the rest of Canada when you have three BSE cases in this country in the same zone? We have a problem with BSE in this country, but we test more than 20,000 cases per year, and we discovered three in three years, out of 60,000 animals. That is very few. That is probably what the U.S. calls the native case. It is not an epidemic. Zoning is probably the only answer to avian flu or any type of health problem in this country. Canada is so large a country that to consider everybody to be in the same boat because there is a problem somewhere is crazy. The same thing applies to commodity production, considering the diverse agriculture from the Maritimes to B.C. to the Western provinces.
Your last question was on market failure. There is no doubt that is what happened. If you look at the graph for the last 20 years, you can see that the market provided no net income for the farmer. I have been in agriculture now for 35 years. I discuss this problem with my two sons on the farm on a daily basis. As a farmer, I have no money to pay them a salary unless there is government money coming. I work off the farm, and I work between 30 and 40 hours per week on the farm.
Be fair to Canadian farmers. If there is no hope, if there is no will to support agriculture, tell us. I can then tell my two sons, "Do something else with your life, and we will dismantle the farm." We need fairness, and there is no fairness now.
In the last government program, the words "cost of production" were there. We do not find those words now, but they were in the written program.
Senator Peterson: It is unfortunate that the public perception and understanding of the crisis in agriculture is so wanting, particularly when you consider that the GDP impact of agriculture is equivalent to the entire automotive sector. Nonetheless, people cannot link those two together and get an understanding of what must be done.
I agree that we need a long-term strategy, and it can be done. There is added value there that will sustain the agriculture industry. I understand that when you are hanging on by your fingertips it is hard to negotiate, so something must be done there.
There is also an issue of perception. Money directed towards agriculture is seen as welfare, but money directed towards the manufacturing sector is an industrial strategy. That must be changed; otherwise, we will get nowhere.
Your more immediate problem is that the window is closing on the ability to get the crops in this spring, and if the cheque is not in the mail now, it will not come in time to help a lot of farmers. However, can you not get some kind of letter or acknowledgment that is at least bankable, so that the farmers can get this done? If the will is there, that should not be too difficult. Otherwise, as Mr. Shauf mentioned, people will be doing the wrong things because of the financial impact.
I would certainly encourage you to go that route and try to deal with it that way, along with the long-term solutions we have to work on.
Mr. Friesen: Thank you for that question. I may need to be a little technical when I explain why we have a concern that this money is not bankable. We cannot see how letters can be sent to farmers saying that it may be bankable.
We have been told that the way it will be done is they will change the inventory evaluation in CAIS. That is something that the industry, together with the federal government and the department, has worked on, and there was general agreement by all agriculture ministers across Canada that the inventory evaluation in CAIS needed to be changed. The way the inventory calculation was done previously was to take the average price for the year times the opening and closing inventory. You received compensation based on a decrease in inventory volume, but the program did not trigger based on inventory value as far as the price is concerned. Everybody agreed we needed to use opening and closing price as well as opening and closing inventory. That was never implemented, and we think it was because the provincial governments did not want to spend any more money. I believe the federal governments were there, and clearly, we needed to do that.
They are proposing to make this billion dollars flow retroactively and to change the inventory evaluation retroactively for the three years of the program, so that the change in the way they value the inventory will identify that a farmer should receive more money, and that farmer will receive more.
Two concerns come to mind immediately. In some cases in the grains and oilseeds sector, farmers might have sold their entire inventory or might not have had a lot of inventory, which would not trigger any more money. In other cases, the change in the inventory evaluation will not give farmers any more money, whether they had inventory or not.
It will work for some commodities. For example, it will work for the commodities where you had fairly large up and down spikes and you were not compensated for the down spikes. In that case, it could work, but we fear that in the grains and oilseeds sector it will not be as effective as we would like it to be, and the bankable issue cannot be answered until they do the actual calculation because there will be farmers who will not get any money out of it.
Mr. Shauf: Your question about whether there could be something provided is important. It comes back to the question you asked earlier on.
There must be a way for government to make an announcement of a commitment that is clear enough to the producers and the financial institutions to ensure that producers can go to their lending institution to secure a credit arrangement based on a clear signal that they will be getting something.
At this point, that is the only thing available. There is no opportunity to put cheques in producers' hands before the end of this month. I am sure of that. However, there is an opportunity for a clear signal to be provided that both the producer and the lending institution could take comfort from to be able to work out that arrangement.
Senator Mahovlich: If we are to build a strategy, which country do we look to for a system that would suit Canada? When I look to Australia, the population and the size of the country are similar to Canada, but does Australia have the problems that we do? Then I look at the beautiful farms in France. I just got back from France. When I was there, I could not help myself — I had to stop the car so I could take photos of some of their beautiful farms.
When we are building our strategy, is there a country we can look to, or do we have to always follow the United States? Competing with the United States can be a problem. They outnumber us, have huge consumption and a huge population. That might be our problem. We are trying to follow the United States instead of leading it
Mr. Shauf: With respect to other countries providing a template, there are some factors in terms of looking at how Europe invests in agriculture. They put a great deal of money into creating the beautiful farms. It is a societal investment, and Canadians can decide to do that.
However, we have to look at the United States because it has clearly developed a template for creating value in the agriculture community, and we cannot ignore that. Australia does not suffer the same impact as we do because there is an ocean between them. We do not have an ocean between us and the United States, obviously, so it is easy for them to attract value out of Canadian agriculture. There is no transportation differential between our countries that provides any safety mechanism. Therefore, when the United States creates an advantage for value adding in their country, our investment moves to it immediately. It has done that by creating huge amounts of low-value feedstock. Our response has been that it cannot continue to do that. Well, it can, because it is working for the United States.
Our strategy has to be competitive with the United States. There are other things we can do. We can look at what Europe is doing. They have many multi-functional programs that deal with issues like the environment, food safety and production assistance. We can make those decisions too.
We must immediately recognize the value of the investment in Canadian agriculture, whether we want to keep it in this country or whether we want to allow it to flow to the United States.
You have spoken about the population of the United States. We have contributed a number of people to that population because we did not have an economic agriculture strategy to keep them here. That was a well-funded donation to the U.S. as well. It is our little subsidy program for the United States. We have allowed them to build value in what we started. We just did not have the strategy to take it through to where we could capitalize on the investment.
All the other pieces are available to us. It is about making societal decisions. It must all be based on the fact that we appreciate investment and recognize that for that investment to stay here, it must at least have an opportunity be profitable, and then we can build from that base.
Mr. Pellerin: There is no choice about that. Our traders, packers and processors consider the U.S. market a domestic market. We have a North American hockey league. Some people who play in that league do not like to be paid in Canadian dollars. Farmers are paid in Canadian dollars. That is a problem.
There is no other choice. We do not want what Europe has. It will require more money than the U.S. is spending now. We cannot afford to do what Australia is doing. We are competing with salaries in Brazil and China. It is not fair to us. We are all living in Canada.
We can only look at the U.S. If we cannot match the conditions in the U.S., we must make a decision. We are in a free market with the U.S.; we have a free trade agreement with the U.S., so we want to be paid commensurate with the work we are doing. This is a very integrated market
Mr. Friesen: The question speaks to the three pillars I mentioned earlier that we are suggesting for an APF2. One is the goods and services pillar. The Europeans have been much better at providing assistance to farmers for what they do for the public good. We think we have potential there. On business risk management we can be as strategic as the U.S. has been. Our economy is healthier. Believe it or not, in 2001, the last year of notification, they still notified $72 billon of spending for agriculture. Only $18 billion or $19 billion of that is what we call amber, or trade-distorting, spending, so they have ways of providing huge amounts of money to farmers that are, first, subject to reduction commitments and, second, not trade actionable, and we can adopt that strategy.
On the strategic growth pillar, we can look at different countries and at investment in research and value added. Finally, we need to ensure that we have a policy competitive with the U.S. We need to look at pesticide regulation and all our other policies. We have a free trade agreement; let us now ensure that our policy does not slam up against U.S. policy and render that trade agreement less than effective.
Senator Tkachuk: I want to return to the money needed. There are many farm programs. There is currently $1.9 billion in committed farm programs for grains and oilseeds payments, CAIS, production insurance and NISA. In addition to that, there is the $1.5 billion that was announced plus the provincial programs. I am not sure how much they are, but they are substantial.
Is the $2 billion you are talking about on top of all that?
Mr. Friesen: As far as government spending goes, we look simply at the $5.5 billion that was allocated to the agricultural policy framework for a five-year period for business risk management. That should be about $1.1 billion per year.
In spite of the fact that many farmers are falling through the cracks, the CAIS program has flowed record levels of money, well over $1.1 billion per year over the three years.
In addition to the $1.1 billion, or whatever the CAIS program measures, we need another $2 billion per year for three years.
Senator Tkachuk: The announcement made in the budget on May 2, of $1.5 billion, should be topped up with another $0.5 billion so that it amounts to $2 billion?
Mr. Friesen: That is correct.
Senator Tkachuk: How would that be distributed? Do you favour acreage payments? Do you think there should be a direct subsidy of grains and oilseeds themselves; in other words, a guaranteed price? I worry about that because increased production contributes to the low prices we already have all over the world. There must be a way to not distort the market too much while still assisting farmers.
Mr. Friesen: There are different ways to flow the money. To go back to the $2 billion, we are asking for the $2 billion above the CAIS requirements to flow directly to farmers as quickly as possible so that they have something bankable.
We had the $1 billion announcement plus the $500 million. It is our understanding that the $500 million is to go toward program changes within CAIS. It is unclear how that will flow, whether it will flow or what it will pay for. However, we need the $2 billion in addition to whatever CAIS triggers.
As for what other methods should be used, there are several options for flowing money directly to farmers that are not trade actionable. They can find green ways to flow direct money to farmers. Again, we suggested it be flexible and go to the provinces. If that is impossible, there are other ways that money can flow. I know that grains and oilseeds producers still fear trade action from the U.S., but there are green ways that the money can be flowed.
Senator Tkachuk: By "green ways" do you mean planting shrubs and trees?
Mr. Friesen: No, I mean non-distorting at the WTO. It could be a direct cheque to farmers. It could be an acreage payment if it is based on a base period. If the fear is that we will be challenged by the U.S., it cannot be based on current production and current price. However, there are ways of creating a base period and flowing direct money to farmers. It could be simply a cheque or it could be based on acres or on whatever else they want to base it on.
Senator Callbeck: We published a report a while ago on value-added initiatives. I want to ask specifically about plants owned by farmers.
Several years ago, a beef plant was established on Prince Edward Island that was owned by the farmers and therefore they received a fairer share of the food dollar. Do you have statistics on how many producers have actually invested in projects such as that and do you have any data on the results?
Mr. Pellerin: I do not think we have Canadian statistics on that; however, more and more farmers' groups across the country are looking at the possibility of investing in the beef sector. In Quebec, we bought two beef slaughterhouses and it is a tough job. More often, the first step in processing, particularly in the meat sector, is more service oriented than value added. The value added is in the second or third processing activities, where the money is going. We use an organization like Coop fédérée in Quebec. We own Coop fédérée, which in turn owns Olymel in the U.S., Manitoba and Red Deer. They are losing more money than we lose on the farm now because of the increasing value of the Canadian dollar. Processing is not easy and it is not the only answer.
Senator Callbeck: I did not mean to limit it to beef processing. I wanted to include all plants owned by farmers, regardless of what area they are in.
Mr. Pellerin: We lost the ownership of the grain sector in Western Canada through the dismantling of the large co- ops like Saskatchewan Wheat Pool. Farmers are no longer in power in that activity in Western Canada. Fewer farmers own processing plants, for all commodities.
Mr. Shauf: The number of producers who have been able to invest in something is small because of the lack of income at that direct farm level. Just buying one more link in a chain that someone else owns may not be a strategic investment if they pick your pocket behind the plant instead of in front. There needs to be a comprehensive strategy for much of this investment, because the higher up the value chain, the higher the concentration. If you have to go back to your competitor to get your next link, they can still pick your pocket.
Senator Mahovlich: Are you saying we need more control?
Mr. Shauf: We need more strategy and more dots connected to take producers closer to the consumer control and ownership in the value chain so that we can move value down that chain. There are few economic forces that push value down the value chain when you start from the basis of a market failure. There is almost nothing that forces it down to grains and oilseeds producers, for example. Horticulture in this country, if it is tied to the land, has a problem.
Senator Mercer: Mr. Friesen, I know you are a turkey and hog farmer. We know that avian flu has affected the bird population. If migratory birds land on your farm, how do you control that?
Mr. Friesen: Migratory birds fly, for the most part, north-south so we can zone east and west to compensate for that.
Mr. Pellerin: Same thing for BSE. It is not a disease that can be passed to animals throughout the country. Agriculture Canada tells us that is why they cannot zone for that problem. We know that the problem came from a processing plant so there was a zone around that plant. When we have a problem, we provide the necessary protection, and if the problem moves into other provinces, we extend the zone. Starting with a small problem in Canada is really the wrong way to think.
Senator Mercer: That is a good point. I am told that Brazil is now ethanol dependent, not oil dependent, so this can be done if there is a will. Therefore, are we, as Canadians, really willing to pay the price? Using your numbers of the U.S. subsidy of $350 per person, as opposed to our $175 per person, by my rough calculation it works out to $6.5 billion a year.
Mr. Pellerin: With 30 million people in Canada, at $300 per person, you have $9 billion. The province's budgets give us between $6 billion and $7 billion now.
Mr. Shauf: The issue of whether or not Canadians are prepared to pay the price is almost the right question. I think it is a matter of whether or not Canadians are prepared to make the investment to achieve the rewards that are associated with it.
The Chairman: Thank you. Mr. Friesen do you have a final word?
Mr. Friesen: I would like to thank you again for this opportunity. I would like to also tell you again that the three of us, and the farm leaders involved in the CFA, are passionate about agriculture, about trying to turn this around. We do want to work on long-term solutions and are committed to doing that. We would implore everyone to realize that when farm leaders speak about the issue passionately, it is the grassroots farmers speaking, and we are here to bring that message and continue to work with government to find solutions.
The Chairman: Honourable senators, I think it was important to hear from people from the Canadian Federation of Agriculture. While we are on Parliament Hill we tend to be in that building, and it is important for us, and also for our colleagues in the House of Commons, to have this kind of open and very direct meeting. You have given us much to think about, and if, as we carry on in our efforts, we want to see you again, we will give you a call. We again thank you for taking the time to come here today.
This is our first meeting. We can hopefully tone it down a little as we move along, but thank you for your participation here, because this has to be, whether many Canadians believe it or not, one of the fundamental issues in our country. People may not understand, but the agriculture sector drives an important part of their lives and we will try, in a variety of ways, to get that message out.
The committee adjourned.