Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 3 - Evidence - May 30, 2006
OTTAWA, Tuesday, May 30, 2006
The Standing Senate Committee on Agriculture and Forestry met this day at 5:02 p.m. to study the present state and future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chairman) in the chair.
[English]
The Chairman: Good afternoon and welcome to the Standing Senate Committee on Agriculture and Forestry. For our television audience I will say a few words about the work of the committee. During our last session, the Minister of Natural Resources, Gary Lunn, appeared here to speak about forestry. Today, we will hear evidence on agricultural matters. Many Canadians might not know that over the last few years, we have seen the worst levels of Canadian farm incomes in history. Despite increasing government intervention, farm debt is now close to $50 billion. The committee has heard that a number of factors have contributed to the current situation, including BSE in cattle and low commodity prices, particularly for grains and oilseeds. The committee is currently focused on that area.
To address the current crisis, the government recently made a number of announcements, including $1.5 billion in Budget 2006 for farm support. Appearing before the committee today are representatives from a strong group that has been in the agricultural arena for a long time, the National Farmers Union. It has been a direct-membership farm organization since 1969 and has appeared before this committee on many occasions. It has always valued the family farm as the basis of food production in Canada. Representing the National Farmers Union are Stewart Wells, from Swift Current, Saskatchewan; Colleen Ross, from Iroquois, Ontario; Barry Robinson, from Renfrew County in the Ottawa Valley; and Jack Hoogenboom, from Mountain, Ontario.
Stewart Wells, President, National Farmers Union: The National Farmers Union thanks the committee for the invitation to be here today. I will start off with a few opening comments. Then Ms. Ross will make a few comments, followed by Mr. Robinson and Mr. Hoogenboom to help us answer questions.
The National Farmers Union has supplied the committee with a few documents that have been translated and distributed. I will refer to those. I would like to start out with stating two or three things that we think we know as farmers and as a farm organization that has spent a lot of time, energy and resources on trying to do an analysis and come up with solutions.
One of the things we know is contained in this open letter we sent recently to the United Nations: World grain supplies are at record or near record lows at the moment.
The second page of this letter contains a graph. It is called the stocks-to-use ratio, and it shows the world supply of grains in relation to how much the world is actually using. These statistics come from the United States Department of Agriculture. We are down to 69 days' worth of stocks-to-use ratio, which means, if no farmer harvested another crop, starting today, the world food supply would run out in about 69 days. That is a little over two months. We can see from this chart that that number has fluctuated between 69 and a high of 116 to 120 over the last 45 years, back to 1960.
Since we sent this letter on May 9, the United States Department of Agriculture came out with its next projection. They have projected that the stocks-to-use ratio will actually fall by another 12 days during this current year. If that happens, we will be down to a 57-day stocks-to-use ratio, which is a record low since these statistics have been collected.
On the one hand, we have a situation where the world has been consuming more food than it has been producing. We have been drawing down these stocks. That is one point we would like to flag; we think it is important.
If you walk out on the street here, or in farm country in Western Canada, or, I would think, almost anywhere in the country, and you ask a citizen, a bureaucrat or politician in the federal or provincial government why farm gate food prices are so low, most of them will say it is because of oversupply. That has been the mantra that we have heard for the last four, five or six years. However, that is not the case.
On the world level, there is no oversupply; we are at record lows. The trend line has been coming down faster than at any time since these statistics began to be collected.
The second point is, and I have already made it, that the farm gate prices are at record lows. The entire world is experiencing the lowest real prices for food ever paid to farmers, worse than the prices experienced during the Depression of the 1930s.
Our third point deals with another document that has been distributed, and that is the larger point, on the farm crisis and corporate profits. The National Farmers Union took a statistical snapshot of the year 2004, and we show that was a record year for agribusiness profits.
At the same point in history, we have these three things happening: Record low food supplies, record low prices to farmers and record high corporate profits. That is our starting point.
Colleen Ross, Women's President, National Farmers Union: To segue from where Mr. Wells left off, the key to understanding the farm crisis is not in understanding who is feeding whom; it is understanding who feeds on whom.
You have been hearing that farmers feed cities. If you live in Ottawa, I am sure you have seen the tractors and maybe even heard some of the speeches. Industry indeed does feed on farmers.
There was an old line popular in the farm union back in the 1960s and 1970s when I was still a small child, and it went something like this: Farmers are farming the land, but corporations are farming the farmers. Our battle is not just with subsidies and the high Canadian dollar, BSE, droughts or floods. It goes far beyond all of that.
Farmers may be feeding cities, but together with companies like Cargill and Tyson, ADM, Agco, Maple Leaf Foods and ConAgra, banks are making record profits, as Mr. Wells has said. Agricore United and almost all grocery retailers are making record or near record profits. Food services in this country are showing record profits. There is certainly more concern with dividends and share prices than returning more to the grower.
Let us talk about something we hear about often in the National Farmers Union, something called ambition in market access. We have had international market access for over 20 years, first with NAFTA and later the WTO. Farm incomes have continued to drop, and the perceived success of NAFTA and WTO is not reflected in farm incomes.
Farmers have been successful on many levels. Canadian exports have grown by 92 per cent since NAFTA and WTO, to over $24 billion since the signing of NAFTA alone. Yet farmers are experiencing the worst farm income crisis in history. This is truly a dysfunctional marketplace, where farmers who underpin trade success have become the working poor in this country. Therefore, my question is where is the real success?
Clearly, trade liberalization or deregulation and any ambition in market access are not benefiting farmers. We are not getting our return from the marketplace. Indeed, farmers want a return from the marketplace. We do not want to be farming our mailboxes.
As our labour and investment have been the foundation for cheap food policy in Canada and allowed for corporate greed to flourish unabated, it is time for our government and, indeed, all Canadian citizens to respond.
The Chairman: That is a sombre beginning. I know the senators will want to ask questions.
Senator Tkachuk: We have heard some of these theories before as to why commodity prices for many of our grains are low. It seems to me, the fact that the world supply of grain is going down is a good thing for farmers. I do not know whether it has anything to do with the price of wheat, but that has been going up recently. There has been a drought in the United States, and they had a bad winter wheat problem. I think that is a good thing because a lack of supply will force the price up.
What is the point in talking about corporate profits? I have heard about that previously, and I have heard about agribusiness making profits while farmers are not. Both of those facts are true. What is the point of that? Is there anywhere else you can get a higher price for your grain?
Mr. Wells: With the present system, no.
Senator Tkachuk: What is the solution?
Mr. Wells: Just to back up for a minute, I think the reason we talk about corporate profits is to try to identify where the food dollar is actually going.
The name escapes me at the moment, but a Liberal MP from Ontario did a study called ``Compare the Share'' several years ago, and it was recently updated. If we were to just focus on farmers not making any money from the food supply, the general public would assume that nobody is making any money from the food supply; but in reality, practically everyone except the farmers is reaping record profits.
Our intention is to point out that there has never been so much money in the food supply system. That money is there; consumers are paying a decent dollar for what they are buying when they fill up their grocery cart, but it is not getting back to the farmers. It is being intercepted along the way.
A lot of the policy decisions that come from governments create new tools for these corporate suppliers — agribusinesses that farmers deal with — to extract even more money from the farmers. They drive the farmers into a position where they have to come to government and beg for enough money to try to stay on the farm.
Senator Tkachuk: Are you saying it has nothing to do with oversupply? What I find difficult to understand is that the Okanagan grape growers are making money. We do not have apple farmers coming in there. Maybe some of them have problems, but I am just telling you what I know.
Not too many years back, certain oilseed grains were selling for the equivalent of $10 a bushel. Prices have gone up because supply has gone up dramatically. These companies were still making big money and they were buying the same products.
It may be a fact that the companies are making money; it may be a fact that the farmers are losing money. I just want to know what the solution is and what one has to do with the other. I do not see the relationship.
Mr. Wells: We have deliberately posed this question to try to figure out how, in the same food supply system, farmers can be making record losses — and the Government of Canada has to come up with $5 billion to try to bring farmers up to zero or just above zero — and at the same time, the rest of the players in the chain can make record profits.
The data do not support the notion of oversupply. If there is no oversupply, if in fact the world is at record low food stocks, why are prices not rising?
You have mentioned that wheat prices have risen in the Board of Trade, in the complex. They have gone up slightly in the past couple of weeks, but nowhere near what the media have reported. I saw a front-page media report in a Western newspaper that said ``Grain Prices Soaring,'' when wheat prices had increased by 10 per cent on the futures market. To me, that is the wrong definition of ``soaring.''
Senator Tkachuk: I am trying to get to the point of it. Perhaps farming is not a good business. If you cannot make money on the farm, why stay in the business? Just try to help me through this. If there is no money to be made on the farm, why stay in it?
Mr. Wells: It is a good question. It is one that is asked and it does not have a 20- or a 30-second media-clip answer.
Senator Tkachuk: Five minutes?
Mr. Wells: No. I am serious about that. There are many reasons to stay in the business of agriculture. First and foremost is that farmers have a tremendous sense of pride in producing food to feed citizens of the world, and we are not oversupplying that need. There are over one billion people in the world now who do not have enough food to eat, and farmers are producing as much as they can to try to stay in business.
It has only been in the last 10 to 15 years that there has not been some kind of cycle. If you ask agriculture economists or people on the street, they will say it is a cyclical business and prices go up and down; but they have not in the last 20 years. In these documents, we are showing that the net income to farmers has been $5,000 or less in 15 out of those 20 years.
However, if you look back at the time 1945 to 1985, when we were all growing up on the farm, those net incomes were relatively good. They were stable. They moved up and down, but it was always between $10,000 and $30,000-plus net farm income on those farms. That was a relatively good, stable livelihood.
Something has happened, starting in 1989, which has changed that trend line and created this chronic crisis that we are in. It is not as if farming has always been a bad business to be in, and it is not as if you can jump in and out of farming and say one day, ``It is a bad business, I am getting out,'' and then try to get back in a couple of years later. Farming is not just another business.
Ms. Ross: Can I add to what Mr. Wells has said? I only hear that question asked in Canada. What other country in the world asks its farmers, why would you keep farming? We do not understand food security and food sovereignty in this country.
Look at India, where about 70 per cent of the population are food producers. It is an agrarian-based economy. They understand well the importance of storing food, of having a biologically diverse agricultural system and protecting their agricultural foundation. So does China and many African countries. Why, in Canada, are Canadian farmers asked, time and again, why are you farming? Why do you stay on the farm?
Farming is more than an occupation in other countries, as it is here in Canada. We are less than 2 per cent of the population now, but we have agrarian roots. It is not something you move in and out of.
How many children who grow up in the city really understand what it is to become a farmer when they grow up? That is why we have family farms. My grandparents were farmer-fisher folk. It was part of who I was back in Ireland, in Scotland, in Cape Breton Island and now here in Ontario. My husband is a farmer; he cannot trace back far enough to his agrarian roots because that is who he is. You are a farmer by trade and by nature.
Canadians do not respect that. They do not respect food security, food sovereignty. It has already been deeply eroded and compromised. We say in Canada that our standards are second to none. How can we say that today when about 65 per cent, if not more, of the food that is on our grocery store shelves — especially produce such as apples — comes from countries that do not even have pest-management standards? Some of the inputs they use and their labour standards would be totally unacceptable in this country. Yet we are happy to import those goods, put them on the shelves and sell them to the unsuspecting Canadian consumer.
It would be unfathomable in most countries to even ask why we need agriculture.
Senator Tkachuk: Then would you be supportive of a lot of African countries that are now pushing for a reduction of subsidies and getting rid of marketing boards so that they can compete in the international marketplace and raise their agrarian population? Would you be supportive of that, so that they could build an agrarian population and have food sovereignty, as we and the Americans do? I will leave that with you.
Ms. Ross: Actually, a lot of those countries had strong and deep agrarian roots and they have been eroded for many reasons.
Senator Tkachuk: Communism and socialism, mostly.
Ms. Ross: When a country such as Sudan — because I have had something to do with Sudan and farmers in that country — moves from a trade model, which is often monoculture, to growing for export to compete on a level playing field in the international market, it actually creates poverty and hunger.
I would like to see their agrarian roots revitalized so they are farming appropriately within their culture for their people's nutritional needs. For them to compete against export-oriented countries such as Canada, the U.S., the EU, Argentina, Brazil and Australia is not appropriate. I do not see how that could truly benefit those people.
Mr. Wells: May I respond to that, too? The farmers we work with from the countries you mentioned are encouraging their governments to adopt marketing boards, anything that empowers their farmers to receive a better dollar from the marketplace and create a market that actually works for them as well.
The Chairman: I would ask senators to keep their questions as crisp as possible.
Senator Hubley: My question is on the CAIS program, about which I do not know a great deal but I hear about it often. The federal government recently announced $950 million to fund changes to the CAIS program, the government's main farm income support program. The $950 million includes a one-time injection of $900 million to recalculate inventory valuations from 2003 to 2005.
Eligible producers will receive CAIS inventory transition initiative payments in the fall of 2006. In addition, $50 million is allotted to expand eligibility for negative margin coverage under CAIS. The funding for these changes is part of the $1.5 billion for 2006-07 announced in the May 2, 2006 federal budget.
Is it complicated to receive funding under the CAIS? Will these changes be positive for Canadian farmers? The federal government put a spending cap of $900 million on the payments under the CAIS inventory transition initiative. Do you believe that most of this money will go to large farms instead of small family farms?
Mr. Wells: That is a good question. It is more complicated than some previous programs. When compared to the previous two programs, the Canadian Farm Income Plan, CFIP, and the Agricultural Income Disaster Assistance program, AIDA, we find that it follows along the same lines, because those programs were almost as complicated. It did force many more farmers to take their books to an accountant. It was for a variety of reasons, but especially in the first year of CAIS, some forensic accounting had to be done so that certain numbers from the previous few years could be sent in. For inventories on cattle, they had to be weighed and weight estimates had to be done at certain times during the year. It could get complicated. CAIS has increased the accounting bill for many farm operations.
Some of the changes will be positive, although it is still a little early to be more definite. The details have been difficult to come by to figure out exactly how that will work. In some cases, it will increase payments to people who need the money. However, CAIS is not good at getting money to farmers who have had three to five bad years because the payments are based on averages. If a farmer has been unlucky enough to have four or five bad crops in a row, because of weather, perhaps, and his average income has come down over five years, he will never qualify for a decent payment from a program such as CAIS.
That is an inherent structural problem within the program. We are worried that the changes could trigger significant money to some very large players and companies that have already received huge payments from Canadian taxpayers. We were complaining in the press a couple of months ago about a company called Saskatchewan Wheat Pool, whose annual books showed that it had received about $4.9 million in Canadian taxpayers' money through the CAIS program. That original cap was changed by the previous Liberal government when Mr. Vanclief was designing the program. They had discussed a cap of $900,000 maximum taxpayer money to any one entity. During the last couple of weeks, the cap was changed to $3 million. The NFU complained bitterly that that move was intended to take money away from real family farmers and give it to large corporate players or agribusiness, and that showed up in the books of the Saskatchewan Wheat Pool in the amount of $4.9 million from CAIS — Canadian taxpayers' money paid to this agribusiness. If their losses were recalculated today, they could receive yet more money. I have no way of knowing how that might work. It might well help some other farmers who have qualified, but it will not help those who have experienced four or five difficult years on the farm.
Senator Peterson: In your presentation, you talked about a disconnection between corporate profits, input costs and the price that you get for your product. Most of those are developed by the marketplace and are difficult to tinker with. Agriculture is a major contributor to our gross domestic product and we cannot turn our backs on it, any more than we can jettison the auto industry or the aerospace industry.
What can we do? Do we have to talk about things like partnerships in ethanol and bio-diesel plants, whereby we mandate the producers to participate on both sides of the money stream? How do we get a higher yield per acre? You said that consumers are getting a free ride and are not paying their fair share. Do you have any suggestions as to how we should try to solve this problem?
Mr. Wells: I do not think that our organization would go too far down that road of trying to pin the blame on the consumers. There is a record amount of money in the food supply system. There are different ways of measuring it and the so-called ``food freedom day,'' tracked by the Canadian Federation of Agriculture, occurs early in the year, sometime in February, when Canadian citizens, on average, have earned enough money to pay their food bill for the entire year. That is one measure.
We look at ways and means by which farmers can be empowered to get their fair share out of the marketplace. You mentioned farmer ownership of bio-diesel and ethanol plants. Mechanisms such as the Canadian Wheat Board, produce marketing boards and supply management were developed to give farmers the tools they needed to get their correct remuneration from the marketplace. Those agencies have worked well for Canadian farmers. The Canadian Wheat Board puts an extra $2 million into the pockets of Western Canadian farmers every day because of its ability to market and its other policy initiatives on behalf of farmers.
Mr. Hoogenboom is a dairy farmer here in Ontario. Supply management has done a great job, but these farmer mechanisms are under tremendous attack at the WTO and through trade agreements. The same agribusinesses that are making the record profits are demanding that these farmer institutions be destroyed. At the same time, those same corporations are demanding increased patent protection on seeds, for instance — the so-called terminator seed issue, where they would like to develop seeds that cannot grow the second year to force farmers, gardeners and greenhouse operators to buy new seeds from the company each year.
There are government-legislated tools, like the patenting system, that allow these corporations to make these profits. At the same time, those players are demanding that any legislation designed to benefit farmers be destroyed.
The Farmer Rail Car Coalition is one example of where farmers were trying to get a toehold in the transportation system and have more control of their livelihood and their enterprise. The National Farmers Union was one of the founding members of that organization over 10 years ago. There was the last-minute deal before the last election, but now the new government is saying no, that will not happen.
There are things that governments can do to give farmers the tools we need but everything has been moving in the opposite direction — as I mentioned — with patent protection and the WTO and the NAFTA trying to kill the Canadian Wheat Board and supply management, and things are still moving in the wrong direction, from the farmer's point of view.
Barry Robinson, District Director, District 8 (Ottawa Valley), National Farmers Union: About a year ago, Cargill wanted to take over Better Beef, which is a beef packing plant in Guelph, Ontario. As an organization, we opposed that move on the basis that it gave them increased market power and decreased the farmer's power in the marketplace.
We appeared before the Competition Bureau to make our case, as did a number of other groups and some farmers, but the Competition Bureau ruled that it could go ahead. Therefore, Cargill, which is a huge beef packer in this country, a multinational corporation, ended up buying out Better Beef in Guelph and consolidating their power over the beef packing industry in this country.
The Competition Bureau needs more power or we need to look at the rules, because what we are doing is transferring power from the marketplace — from the farmers and the producers — to other players.
The Honourable Wayne Easter did a report for the Minister of Agriculture and provincial ministers last year on empowering farmers in the marketplace. Many farm organizations in the country supported that report. It is a longer term look at agriculture and some of the solutions, but one recommendation in his report was to strengthen the Competition Bureau.
We can certainly see that through the BSE crisis, farmers lost billions of dollars. We are grateful to provincial and federal governments for giving us some money. However, at the same time, producers across the country shouldered the biggest share of the burden, and yet consumers did not get a break. Essentially, the price of meat on the store shelves stayed the same but farmers lost. The documentation is there showing that companies like Tyson and Cargill made record profits off the backs of farmers.
We need to look at the marketing power and who controls the market. That was a situation where the federal government and provincial governments may have been able to step in and do a little more to give farmers, and perhaps consumers, more power in the marketplace.
Senator Peterson: I still think the producers have to be part of the downstream money flow. If you are just turning over raw product, you will not make it.
Mr. Wells: People are referring to it as being part of a value chain or having investments here and there. That is helpful, but we do not expect others in society to invest upstream and downstream in their own occupations to try to make a living.
I would not want to get to the point where we are trying to create another double standard that applies to farmers but not to everyone else. That is a sore point, because it has been generally accepted in the last 20 years that farmers should have two or three off-farm jobs in order to keep their farms running. The National Farmers Union will never accept that proposition. You cannot do as good a job as you should on your farm if you are trying to hold down two or three other jobs.
Senator Gustafson: I want your comment on a couple of suggestions I have. I think we have a global problem that the Government of Canada has never dealt with. I farm right on the border with the United States. They have had the three best years in agriculture they have ever had. Canada has had the three worst years we have ever had.
The Europeans have done well, and the Americans and the Europeans control the global market. There is no question about that.
Canada never bought into that reality. Lower margins are a good example of it. That is a good way to put you out of business — just keep cutting the margin and you are out of business. Some bureaucrat here in Ottawa decided that we cannot let these guys get away, we have to control them, and so they put that margin in there. If you do not believe me, phone up Senator Sparrow. He preached that here for years.
However, we have failed to recognize that we have a global problem. It especially affects the grain and oilseed market because we export a large percentage of our production. I have chaired meetings in Europe where they said, ``Well, we have had starvation two or three times and it will never happen here.'' We would ask them, ``Are you going to get off the subsidies?'' They would say, ``No, it would be political suicide for us to do that because we know what it is to be without food.''
The Americans take the same approach. It does not matter whether they are a senator from New York or Los Angeles, they will fight for the heartland. We do not have that kind of dedication in Canada.
We fail to recognize that agriculture indirectly puts billions of dollars into the Canadian economy — buying machinery, for example. We never take that into consideration.
My thinking is, unless we as a country recognize we have a global problem that has to be dealt with, study the situation and move on from there, we will not solve this problem.
We bought the lie for years: We will get the Americans and the Europeans off subsidies. It will never happen. They are going deeper into them. It is a global problem.
One other thing: In 1970, a barrel of oil was $2 and a bushel of wheat was $2. Today, a barrel of oil is $70 and a bushel of wheat is $2. We have not recognized these extreme challenges that face agriculture.
Ms. Ross: You are right; it is a global problem. Anyone who has travelled extensively and worked with farmers in other countries knows that it is a massive global problem.
The EU and the U.S. understand the principle behind food security and sovereignty. They will not stop subsidizing their farmers because they understand the importance of that principle. We do not understand it here.
In this country we have a bunch of cowboys who go to NAFTA and WTO and trade away our food and our future as farmers. Whether it is the Canadian Wheat Board or the supply management industry, these are all we have left to guarantee farmers the cost of production. They are willing to give it away for market access.
There are countries in this world that understand. Other countries are being forced into this hyper-competition, where we have 2 billion farmers in the world competing against each other on a level playing field where no one will win. It is a race to the bottom of the pile. Canada must have the guts to stand up at WTO and walk away.
Senator Gustafson: There is an element of what I call an East/West deal in Canada, grain and oilseeds versus the dairy business. The political reality in Canada comes down on the side of the dairy producer and the marketing board. We pay the price in Western Canada. I know the farmers union will argue that with me, but that is a reality. It is a political reality.
These are difficult things to say. If we want to be honest about the situation, someone has to talk about this.
When the border was closed, what happened to the beef business in Canada? Prices plummeted. The Americans have sold our beef for 100 years. We fight any intention of dealing with them in the grain industry on the same basis. We fight it because of our political ideas and suggestions.
This is straight talk. I think we need straight talk today.
I have driven through Kansas and checked it out. Those feedlots are full of Canadian and Mexican calves. Because of their power structure, they get a better price for beef and sell it to Japan and other countries.
I am not saying Canadians should not be doing that. We certainly should, but we also have to take advantage of things the way they are, not the way we wish they were. That does not work.
Mr. Wells: That is a lot of ground to cover, but it has not always been easy to sell beef out of Western Canada into the United States. I attended a presentation a few months ago that indicated in the early 1900s the United States closed the border to Canadian beef. The net result was that more farmers went bankrupt in Alberta between 1920 and 1930 than they did during the Depression.
The farmers union would never characterize the issue of supply management as an East-versus-West issue. British Columbia has tremendous strength in its supply management sector, and there is more strength throughout the rest of Western Canada. One of the main complaints of Western provincial governments is they do not have enough supply management. They cannot get enough production quota allocated to them; they would like more.
It always escapes us as to why any government wants to destroy a system in which the farmers are allowed to make their living from the marketplace and force them to beg for taxpayer dollars. Supply management in this country has been a tremendous success story, where the consumers and farmers have both benefited, not at the expense of the taxpayer, but by creating what the marketplace wants and demands.
This is a tremendous global problem. You are absolutely correct about the global nature of the issue. One of our main points is that farmers in Canada and around the world have never been in the situation we are in now, where the entire food business is controlled by a handful of companies. There is no competition in that business. Only the farmers are competing against each other.
Companies like Cargill and Tyson are playing a farmer in Canada against a farmer in Indonesia or the United States, and they will buy from whoever will sell at the cheapest price. They have the market intelligence and know where those animals are. In most countries they own a lot of those animals. That is why they were big beneficiaries of the BSE payments — taxpayer dollars — because they own their own animals.
Farmers are faced with these incredibly powerful multinational organizations operating in these other countries. That is a market imbalance that has forced farm gate prices of food to the lowest levels ever while at the same time we have the lowest food supplies ever.
The free market dictates this. When we have the lowest food supplies, farmers should be getting paid record money at the farm gate level. Whether or not these same companies could extract that money if the price of wheat tripled, would farmers be better off in the medium term? Twenty years ago it would not have been the case, but that is an open question now. The companies have the power to extract that money.
We have a piece on our website looking at natural gas and fertilizer prices over a couple of years' span. Because there is no competition in the business, companies are pricing their fertilizer at whatever the price of corn in the United States is. When you look at those graphs, they are in lockstep: When the price of corn goes up, the price of fertilizer goes up, and vice versa. If there was any competition in that fertilizer business, they could not do that. They would have to look at their own cost of production. It is a global problem, but it will take a government somewhere to recognize that.
Other governments have recognized that this is a problem and then said ``It is too big a problem for us to deal with so we will shovel taxpayer money to farmers and maintain production.'' That is what is happening in Europe and the United States because they want to maintain their secondary industries. They do not want to lose that primary production.
Senator Gustafson: The Bureau of Agriculture in the United States is the most powerful lobby group in that country. They are also the farmers' insurance company. They are a big insurance company that controls a lot of capital. When they go to Washington and tell them what they need for the farmers, they get it.
We do not have that in Canada, yet we have to keep up to the global level.
Senator Tkachuk: When you talk about farmers with marketing boards versus ones without, in the United States and Europe they use up most of their agricultural production because in Europe they have 300 million people living in one place and 270 million people are living in the States. We do not have that.
Let us think about that for a minute. To have marketing boards for wheat, beef, pork and all the other products in the West, how many farmers would have to go out of business? In the other marketing boards, none of the product is sold outside Canada. It is all based on the local market.
We only have 30 million people in Canada. You cannot have a marketing board or else you will put all those farmers out of business. The domestic market would be fed by a marketing board.
How many beef farmers in Alberta would be out of business? We are only feeding Canada because we have a marketing board here. How many pork producers in Saskatchewan would be out of business? We are only feeding the Canadian public and no one else. With marketing boards, you have to control the market. The only way to do that is by feeding your domestic population. All those other people have to be put out of business.
Mr. Wells: You raise some good points. There is a distinction to be made between supply management and the Canadian Wheat Board. Although they are orderly marketing agencies that get more money back to the farmers, they are working in different ways.
Senator Tkachuk: The Wheat Board is not a marketing board.
Mr. Wells: You mentioned the pork business in Saskatchewan. There used to be orderly marketing of pork in Manitoba and Saskatchewan. The provincial governments moved unilaterally to destroy those marketing agencies without a vote of the farmers. They did that to increase production. It has not raised the number of pork farmers or the number of family farms that can make a living raising hogs, but it has destroyed family production in hogs. It has reduced the number of farmers who produce hogs. It has switched that production to agribusiness, to mega-barns, to the factory-farm production.
If that is where people want to go, fine, but they should be aware that destroying marketing boards and farmers' marketing agencies destroys farms. Do not think that you will have the same number of farmers after the change. There is no question that the orderly marketing boards work for farmers and for consumers.
Senator Eyton: I am a little humbled, because I follow two senators from Saskatchewan who know something about the subject; I am a city boy and I am learning. I have prepared questions, but I would prefer to spend time with short questions. I am fascinated by the graph that you referred to on the days' supply of grain. I have a number of brief questions that relate to that general subject.
As soon as I see the word ``world,'' I get nervous. I am in the market in other ways and I look at what I call ``natural trading blocks,'' which in this case would be trading that is relevant to Canadian farming. I recognize that people trade grain worldwide, but I suspect that much of our trade is within naturally defined regions or blocks. Could you comment on that?
Mr. Wells: I suppose that is true to a certain extent, but an organization such as the Canadian Wheat Board markets in more than 70 countries around the world. You can break these numbers down in terms of the major exporters. There are five or six countries that traditionally have done most of the exporting. You can see who is holding the stocks, whether it is a major exporting country, a longstanding exporting country, or the importing country.
Senator Eyton: The Wheat Board has one product — grain.
Mr. Wells: It would be beyond the resources of the National Farmers Union to try to break it down in many ways. That is why we end up relying on USDA statistics.
Senator Eyton: I will look for that. My second comment is on the same supply. For example, I am involved in mining metals. There is a London metals market and every day you can look at pricing. I have seen many graphs like this, but they are always accompanied by a price line.
To what extent does supply reflect itself in pricing? Do you have that kind of information?
Mr. Wells: Yes. We do not have the supply listed on the first page of this other paper but the pricing and net revenue are included. Several of our other publications include the long-term pricing effects.
Senator Eyton: I am used to seeing inventory of lead and the daily up and down of the supply. If it got down to 20 or 30 days, you would see a spike in price.
Mr. Wells: I can relate some of that without having it on a graph. The only other times that we have been at these levels, 1972-73 and in the 1960s, it sparked a tremendous increase in grain prices. Look at the chart on the second page of this publication, where we show a spike in net farm income in 1976. It broke out of this trading range of plus- $10,000 to plus-$30,000 net income to Canadian farmers. That was the only time that it broke out of the range. That net income of Canadian farmers, on average, went well above $30,000.
I remember that year. In 1970-71 you could not give wheat away. The LIFT program was brought in by the Liberal government. In 1976 I finished university and went straight back to the farm. It was a time of the highest net incomes ever for Canadian farmers. It did trigger a price spike that has not been triggered in the current situation.
If you run that price forward from 1972 to today, when we are at the same supply numbers, the price of wheat should be over $20 a bushel and we are at $4 per bushel.
Senator Eyton: I wondered what happened in 1972-73. You have told me that the market is working in some ways, and that the price and the production increased.
Mr. Wells: In 1972 and 1973 it did.
Senator Eyton: However, you had three or four years that were awful, in fact worse than today. Might that not suggest prices are about to increase?
Mr. Wells: We are hopeful. That brings us to the other question, on bio-diesel and ethanol and whether it makes sense to turn food into car gasoline. The two elements might collide, if food prices start to take off and farmers actually get some returns back on the farms. If there were such a thing as a free market that actually worked the way it should, we would be living with wheat that costs $20 per bushel.
Senator Eyton: You have one more year.
Mr. Wells: I have a comment on your preface about following two farmers from Saskatchewan. Anyone who eats should never be afraid to ask a question about agriculture because it is your business as well.
Senator Eyton: How quickly can supply adjust? I know you are talking in world terms so it is difficult to judge. Does it take three or four years to ramp up production and supply?
Mr. Wells: We have addressed that in this same letter in one short paragraph. In 1972 and 1973, in Canada and many other places around the world, farmers were planting about one half the acres each year and the other half were left fallow to store moisture and nutrients. That is no longer the case. For a variety of reasons, farmers in Western Canada are planting every acre. In 1972 and 1973, farmers were just starting to use fertilizer and pesticide. Now they are maximizing fertilizer and pesticide use. Tremendous amounts of fertilizer are applied to these same acres. It is our hypothesis that there is not the room to double or triple agricultural production that there was in 1972 and 1973. Many of these farmers have already maximized their production techniques, trying to produce enough cash flow to stay on the farm.
Senator Eyton: This is more of an observation. Clearly, the farming community is challenged and it is a problem that somehow must be dealt with. However, you used as a kind of comparison, a series of companies that are involved in the supply chain. You go through nitrogen fertilizer, chemicals, seeds and veterinary drugs and point out, accurately, that they are making record profits. However, it struck me — and I would like you to comment on this — that all of those companies listed face competition, and for the most part, they are not regulated and do not receive direct subsidies, while at the same time, they are prospering. They are doing wonderfully well. It is a provocative question, but could it be that the problem with the farming industry is that governments do intervene and that there are subsidy programs, overregulation and limits to what the farming community can do? That is what is unique about it. The mechanisms you are talking about do not apply to all these people who are doing exceedingly well. There may be some premise that the difficulty is the government programs.
Mr. Wells: We would argue that in most cases, there is no real competition; these players are not in competition against each other. At most, they have split the marketplace into quarters or thirds and they may have a friendly rivalry going. Mr. Robinson talked about Cargill and Tyson and the takeover of Better Beef. Those two companies have about 80 per cent of the slaughter capacity in Western Canada now. To us, that is not competition. We always rely on the Harvard Business School rule, which is, if four companies control 40 per cent of the market, you no longer have effective competition. If that rule is applied to these companies we are talking about, they are not in a real competition.
On the subsidies part, they are subsidized through various ways and means. For instance, a tremendous amount of the BSE government payout ended up in the hands of Cargill and Tyson because of what they owned. They are able to do what they do because of government regulation. There are regulations and there are regulations, but patent protection, for instance, is a creation of governments that protects them from you and me going into business against them.
That patent protection is now applied to seeds, to chemicals and to everything else. That helps them create these record profits. In the regulatory scheme, they are beneficiaries of government policy. Again, we have no historical data that we can look back on because we have never been in a situation before where four or five companies could control every sector of the food supply system around the world.
Senator Mitchell: I would like to begin by clarifying to some extent the question asked by Senator Tkachuk, namely, why would anyone stay in farming? I want to make it clear that the people on this side of the table are not asking you that question. We just hope that you can stay in farming. I do not say that in a particularly partisan way; I say that in a heartfelt way. I want to draw that distinction because there are two fairly clear sides at this table.
Like Senator Eyton, I am interested in the relationship between supply and price. Like you, I am bewildered by it. It seems there are two forces. I am not saying ``market forces'' because that would be stretching it, but there are two forces. One is clearly the issue of competition amongst these major, multinational agriculture industries, or industrial companies; the other is international subsidies. Senator Gustafson makes the astute observation that in Europe and the United States, they have figured out how important food is; and what do they do? They subsidize their farmers. That is the logical conclusion of that observation. Certainly that is not being argued by this government today.
What could be done to break the monopoly of these multinationals? Is it as easy as strengthening the Competition Bureau, or are there other specific steps that can be taken?
Mr. Wells: I will start and then I will turn it over to Mr. Hoogenboom, because he can contribute on this. It is our contention that farmers' incomes have been deteriorating for a variety of reasons. You can say ``all of the above.'' It has been a case of being nibbled to death by ducks, because it is not one company that has decided, ``We will punish farmers and we will take every cent we can from them, plus one more,'' it is every player in the chain. They are not necessarily doing anything illegal; it is just that they are maximizing profits for their shareholders. They are doing what they are supposed to do as boards of directors, in most cases. They have help, as I said, in the form of patent protection and that kind of regulatory regime, but farmers have ended up being nibbled to death by ducks.
We say there is no magic bullet to turn that around. There is not one item you can put your finger on and say, for example, that the Farmer Rail Car Coalition will save farmers, because it is just a tiny piece of the equation. However, all these tiny pieces have been taken away from farmers over the years. Unless these pieces are returned to farmer control, we will not make any progress.
We would point to supply management as one of those systems where farmers have control over their product. They are able to sell it at a reasonable price that gets them back into the game, and I think that is what Mr. Hoogenboom would like to talk about.
Jack Hoogenboom, President, Local No. 1 — Stormont, Dundas, Glengarry, Prescott, Russell and Carleton Counties, National Farmers Union: I will speak directly to the issue of supply management and dairy farmers, as we do have an issue at the border. One of the components in making supply management work is effective border control. That runs counter to some of the discussions going on at WTO to reduce that.
To use an example of the most recent issue, regarding protein in the form of casein coming into the country where in the past it did not, this is displacing milk that our dairy farmers normally sell. We now have a choice. If the government is not prepared to take action against that, we either have to sell milk at the world price, which is obviously well below cost of production, or surrender the market. Neither one is good for our bottom lines. It has been a simmering issue. Going back a couple of years, you had the butter-oil issue and the butter-sugar blends. Again, leaks at the border put pressure on what farmers get for their milk. This is the situation we find ourselves in right now. We have been told to negotiate a deal with our processors, but the processors have been given the trump card. It is not an easy negotiation to go through, because it is a lose-lose situation for the dairy farmers.
Senator Mitchell: Like Senator Eyton, I am also from the city. My next question will reveal that quite clearly. I felt for the longest time that this idea of biofuels could have a real impact on rural development, as well as, perhaps, on environmental progress. In the first case, it would increase demand for farmers' supply. However, I am discouraged when I understand what you are saying, that there does not seem to be a relationship between low supply and higher prices. Maybe in 1976 it happened once, but it is not happening now. While that may still be a viable alternative or hold promise for environmental progress, does it really have promise for farmers?
Mr. Wells: That leads into an earlier comment about farmers needing to invest. Farmers should find some investment money. In fact, there have been calls for the federal government to somehow provide or underwrite the investment of farmers in these companies.
Would it mean anything to their bottom line? The answer to that is not known, but there is no evidence that this increased demand will lead to increased prices. If you were an investor and you had that money to spend, my question would be why would you not buy shares in fertilizer companies instead?
Whether it is ethanol production or biodiesel or food to feed the world, farmers will need nitrogen fertilizers and other fertilizers if they are to meet this demand. If you are looking at it from a dollar-and-cents point of view, why would you not buy shares in fertilizer companies?
At the National Farmers Union, we are making a distinction between food-based fuels and other cellulose-based or waste-product-based fuels, because there is a moral question about taking food out of the food supply system and putting it in the gas tanks of automobiles.
Senator Mitchell: I have one more question about the issue of the WTO and world negotiations to try to do away with trade barriers and subsidies of one kind or another. From the Canadian perspective, there are those who argue that if we only gave up the Canadian Wheat Board and supply management, that would lever us right into that negotiation. The whole world would open up, and the United States and Europe would capitulate. Of course, it is absurd, because the impact of our supply management and our Canadian Wheat Board on international agricultural markets is so miniscule. The Americans would say ``That is a mosquito, so who cares if you give it up? Well, we would like you to give it up so we can squeeze you and get more advantage,'' but it is not leverage in those negotiations at all, is it?
Mr. Wells: Those same people you talked about, who say we should kill supply management and the Canadian Wheat Board to get this market access, are the same people who have been saying if we could just destroy these subsidy programs in other countries, things would be wonderful.
The Government of Canada just completed computer simulations for the international community involved in the WTO, where they crunched the numbers on what would be the net effect if the United States, Europe and other countries reduced their internal domestic supports by the amount currently on the table in Geneva. There was an article today — I believe it appeared in the Ontario Farmer magazine — that says the net effect, according to this computer simulation, would be almost zero. Countries will move this money around. They will play a shell game with it — move it into different categories, apply it to different purposes — and the net benefits of the program that is on the table will be essentially zero.
Why would the Government of Canada destroy programs that work for farmers in light of this evidence that there is no benefit? As for this business about market access, as Ms. Ross said, market access is already here. I do not have a problem selling good-quality number 1 spring wheat outside Canada. We have market access.
Senator Gustafson: How much is number 1?
Mr. Wells: Well, access comes with quality, and you cannot expect to sell poor grain into high-quality markets.
The benefits of the world trade agreement have been vastly overrated. In fact, several months ago, before the WTO meetings in Hong Kong, the World Bank drastically lowered its expectations of the benefits of this world trade agreement. Economists in the United States, such as Tim Wise at Tufts University, are saying that the most optimistic outcome of the WTO could be a 4 per cent increase in commodity prices. For Canadian farmers, you are talking about 4 per cent on $4 wheat — 16 cents. Those benefits are tiny, but the loss of supply management and the Canadian Wheat Board would be huge. That is hundreds of millions of dollars per year to Canadian farmers.
At the same time, it is not that Canada will escape cuts in domestic programming. I happened to be at the meeting with the Minister of Agriculture a few weeks ago in Saskatchewan, and he talked about the wonderful benefits that would come if European and American subsidies were reduced. He did not mention anything about the cuts that Canada would have to undergo, and that Canadian farmers would be expected to take probably a 40 per cent cut in domestic programming.
Our question is where will that 40 per cent cut come from? Our farmers are trying to live on CAIS, crop insurance, cash advances, that kind of domestic support, yet they will not tell us what programs they will cut to make a 40 per cent cut at the WTO.
Senator Mercer: I do not have a moral issue with farmers turning food into fuel that goes into whatever. I come from a gas-producing province, Nova Scotia. I am in favour of it if the profit goes into the pockets of farmers.
The best business people in this country are farmers. They continue with a business that makes no money year after year. We owe a great debt to them.
I will correct one item regarding the profits of Cargill and Tyson. When Tyson shows a 236 per cent increase in profits in the last six months of 2004, and they have to put an asterisk in their annual report that points to the BSE recovery program, you know something is wrong with the industry.
You talked about the fact that in Western Canada, in particular, where farmers used to leave 50 per cent of the land unfarmed, now they are planting it all. Therefore, you said, there is no ability to double our production. Is there an ability to switch our production from products that are not profitable or marketable to something that may be more profitable? If we link it back to the conversation on ethanol, for example, can we produce more corn? Can we switch to switch grass, which does grow well in Saskatchewan and Alberta, I understand? Is there an ability to switch products?
If we are using all the land and not making any money, maybe what we are growing is the problem. Supply management, in my estimation, is a godsend for the farming community. We need to find a way to make that work for other farmers of other products, and also to secure our own food supply.
Mr. Wells: The ability to switch crops and change production is there. It is limited mainly by the climate and the growing season — the number of growing days or the heat. For instance, in Western Canada there are very few corn varieties that will produce even a forage crop.
In terms of ethanol production, in the West, the talk is around feed wheat. The Premier of Saskatchewan, this week and last week and for quite a while now, has been demanding that any federal mandate would state that 50 per cent of the feedstock for these plants would be grain from Western Canada.
The fear is that if there is no such mandate set, our ethanol industry would be built on U.S. corn, because each crop has its advantages and disadvantages in terms of making ethanol. Sugarcane, for instance, outperforms corn, but corn outperforms feed wheat, which is what we have in Western Canada.
There is some ability to switch back and forth, but in some cases it is limited, so I would leave that there, whether it is meaningful. Archer Daniels Midland is a huge player in the ethanol game in various countries around the world. I believe that I recently read in the newspaper that they have named a new president who came from Chevron, the oil company. There we have a food company looking in the same direction that you are talking about.
Senator Mercer: I was at a conference of Canadian parliamentarians and congressmen and senators from the United States a few weeks ago where the subject of ethanol came up. The senator I was speaking to talked about a couple of plants in his state where the profit was so high they were able to pay off the capital costs within a couple of years, which is phenomenal. As one of my colleagues around this table pointed out, it was also subsidized corn coming in the door. Still, if the profit is there we should look at this. I would hope that farmers would not get hung up on the moral issue of burning fossil fuel. Those of us living in cities will be doing it and you will be doing it on the farm. Perhaps we should regulate to put more ethanol in the gas that we sell.
Mr. Wells: If there is such a tremendous profit to be had from farmer-based ethanol plants, would it be long before Wall Street and Bay Street purchased those plants? That is an open question.
I would like to raise a point about the order of magnitude of the ethanol that can be produced. I have seen reports on the Internet and heard commentators on public radio stations that speak to replacing the gasoline in cars in the United States, for instance, with E85, 85 per cent ethanol. General Motors advertises its E85 vehicles in magazines. From the calculations and data that I have seen, if you want to replace gasoline in the cars in the United States, you would have to plant four and a half times the entire arable land base there and get record corn yields off those acres to do it. There are many websites wrapped in patriotic flags claiming, ``We will take back our nation one gallon at a time.'' It will not happen.
Senator Mercer: Brazil has regulated so that they are off oil and on to ethanol. That is why General Motors are building the cars to handle it.
Senator Gustafson: Has the NFU looked at what has happened in Europe in respect of the environment, rural development and agriculture, which they have under one caption? The United States is moving quickly on this. Someone will control the environment, and it will be either the oil companies or the farmers. Currently, I think we are losing the battle.
Mr. Wells: They used to call it ``multi-functionality'' in terms of getting money to farmers to be good stewards of the land and do the right things.
The Chairman: Senators, we are out of time. I thank the witnesses for appearing today.
The committee adjourned.