Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 4 - Evidence - Meeting of June 13, 2006
OTTAWA, Tuesday, June 13, 2006
The Standing Senate Committee on Agriculture and Forestry met this day at 6:04 p.m. to study the present state and future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chairman) in the chair.
[English]
The Chairman: Honourable senators, today we will continue our examination of agriculture issues. The last few years, as many in the industry will know, have seen the worst levels of Canadian farm incomes in Canada's history. Low commodity prices in the grains and oilseeds sector have been one of the causes of this current farm income crisis.
Today, will hear testimony from representatives of the Canadian Wheat Board, which has been a long-standing and significant part of our agricultural history. For our viewers, the Canadian Wheat Board is the single desk seller of wheat, durum and barley for producers in Western Canada. It sells between 22 million and 24 million tonnes of wheat and barley domestically and to 70 countries around the world. Because the CWB sells their products collectively, many farmers argue that the Canadian Wheat Board gives them real power in a market that usually lacks competition and leaves them with little to say on the price of their products. However, others would like to see a more flexible board to take advantage of opportunities in the open market or to start new generation cooperatives and invest in value-added ventures.
The government has indicated that it plans to reform the Canadian Wheat Board, which has been reformed many times and is still standing. The current discussions on a new World Trade Organization agreement on agriculture might also have consequences for the future of the board.
The representatives of the CWB with us today will speak to the outlook for grain prices and the future of grains and oilseeds production in Canada. We will hear from a friend of this committee, Mr. Ken Ritter, Chairman, from Kindersley, Saskatchewan, Mr. Adrian Measner, and Mr. Victor Jarjour.
Ken Ritter, Chair of the Board of Directors, Canadian Wheat Board: Thank you, Madam Chairman. I have a few introductory remarks, if that is in order. I am a farmer from Kindersley, Saskatchewan. It has been my pleasure to serve as a farmer-elected board member and as Chairman of the Canadian Wheat Board's board of directors since 1999. With me today are Adrian Measner, Chief Executive Officer and member of the board of directors, and Victor Jarjour, head of our trade policy section.
I wish to thank the committee for providing us with the opportunity to appear before it today. I know that the committee has a lot on its plate and it is reassuring to know that among the many concerns it must address, there is appreciation for the significant role that the CWB has to play in the future of the grain industry in Western Canada. In spite of the recent increase in commodity values, agriculture and grain production is in a state of crisis. Farmers are facing margins that stretch their reserves of equity, their resolve and their ingenuity.
Against this backdrop of economic hardship, what is the marketing system that will best serve farmers' needs in wheat and barley? There was a time when I, like the Conservative Party of Canada, would have answered: the dual market. In other words, let farmers sell either through the Canadian Wheat Board or directly into private trade. Put in place a voluntary Canadian Wheat Board, I would have said, because it will make the CWB more cost-efficient and will give farmers more choice. I would have said that eight years ago, but I would not say that now. I have changed my mind about the Canadian Wheat Board's role as a single desk seller for a variety of reasons.
First, I have seen evidence of higher returns on CWB sales compared to values bid by our competitors. At each board of directors' meeting, a binder is put at the directors' disposal. In that binder, records of the sales that the CWB has made are placed side by side with those of our chief rivals. This is valuable information. It enables me and the other farmer-elected directors to ascertain that the single desk is indeed being used to add value for Prairie grain producers. It is also information that is commercially sensitive, both in terms of our relationship with our valued customers and our many competitors. This is why the binder stays in the boardroom and why we do not broadcast its contents. Let me state categorically: Those records offer solid proof that the CWB is getting more for the grain it sells on behalf of Prairie farmers than what other sellers are getting. I do not know of many farmers who could afford to leave those dollars on the table, especially in today's farming environment. As a farmer, this is my bottom line. I want to know if I am getting more because of the Canadian Wheat Board or if it is working against me. The CWB has earned significant premiums for me and the other wheat and barley farmers on the Prairies, and I have understood that the major reason, apart from the courage and tenacity of the producers who grew the grain, is the single desk.
Second, I have seen evidence of another factor that is just as compelling as the first and that is consolidation in the grain industry. Everyone, from the grain companies to the railways to our competitors, is getting bigger and more powerful. In light of this, what should we do in Western Canada? Clearly, we have to ramp up and keep pace with them, or we will find ourselves shut out of markets, out-negotiated and stuck with a non-competitive cost structure. What tool, other than the single desk, do we have at our disposal to get this done? There is no such tool. Grain companies that at one time were farmer-owned and farmer-run have almost entirely disappeared from the Prairie landscape. Today's grain producers have more faith in the Canadian Wheat Board to act in their interest than they do in multinational grain companies.
Both of these advantages — the ability to attract premiums and the strength to go toe to toe with the world-class heavyweights in the grain industry — are predicated on the single desk. The notion that you can have a dual market with a strong, effective CWB is quite simply misguided; it cannot work. The moment the CWB is voluntary, the single desk disappears and with it the benefits I have just outlined. The true choice that farmers have is between the Canadian Wheat Board and an open market. Given those choices, the preference of farmers is overwhelmingly in favour of the CWB and the single desk.
Finally, I have seen how farmer-elected directors can push for changes to the single desk, which accommodates farmer choice and farmer freedom. The Producer Payment Options that we have put in place are major accomplishments in that they give the farmers who want it greater control over the pricing of their grain while maintaining the advantages of pooling and single-desk pricing for all the others.
I know the term ``dual market'' means different things to different people. I believe it arose from the days when the Canadian Wheat Board was government-controlled, secretive and lacked both accountability and choice, but those days are gone. Grain producers can now have both market power and greater control over their own marketing choices. However, the Canadian Wheat Board and farmers cannot have market power without a single desk, which in turn allows it to offer these exciting new choices.
These kinds of changes take time, innovation and education. However, they bring with them the best of both worlds — the opportunities of the open market and the risk management and premiums the Canadian Wheat Board has always provided.
The alternative is not a dual market; it is an open market where the CWB would be rendered ineffective and producers' only choice would be to sell to a handful of multinational grain companies which would then effectively control the marketing of all grain.
All of this is not to say that we are complacent at the CWB. As I have stated, we have undertaken many changes in order to make the organization more efficient, responsive and flexible for farmers. We have a business strategy now for even greater and more dramatic changes within the existing framework, to further enhance returns to farmers and to place the CWB completely under farmer control.
I am fully aware that the Conservative Party of Canada has pledged to make marketing through the CWB voluntary, and I can fully appreciate that the government now feels obliged to deliver on its election promises. However, on behalf of the many farmers in Western Canada who, like myself, have seen clear-cut evidence of the need for a single-desk approach to marketing wheat and barley, I call upon the government to recognize that this issue is one in which farmers should have the final say. It is our industry; it is our money and it is our future. It should be our decision. If there are to be significant structural changes to how they market their wheat and barley, those changes should be put to farmers in a plebiscite. This is an opinion held by the vast majority of Prairie grain producers. It is therefore the Canadian Wheat Board's position as well, and it is clearly the requirement outlined in the CWB Act.
The Chairman: Thank you very much, Mr. Ritter. Could you tell us about the voting process for the election of directors to the Canadian Wheat Board?
Mr. Ritter: There were ten districts established throughout the Prairie region that grow Wheat Board grains, and they include the provinces of Manitoba, Saskatchewan, Alberta and a small part of northeastern British Columbia. Each of the ten districts has five federal constituencies.
In those districts, anyone who is a producer as defined by the Canadian Wheat Board Act has the right to cast a ballot. All of the elections except one have been hotly contested. The individuals who run for election run as independents, that is, they are not members of any political party. They put their views and ideas before the electorate and the election is held by mail-in ballot. It is a preferential ballot, which means that you state your first, second and third choice, et cetera. In order to be elected, a person must receive over 50 per cent of the votes.
Senator Gustafson: My questions will be about your view of the WTO situation. One problem is that we have been promised that the Americans and Europeans will end their subsidies, and that is not happening. If prices are to increase in the global market, we will have to look at this area. If Canada is to find its place as an exporting nation, which we are in grains and oilseeds, we have no choice in the matter. We consume about 25 per cent of what we grow so 75 per cent must be exported.
You have indicated that the single-desk will result in the best price, and that may be true; however, we must get higher prices. We cannot continue like this unless the Government of Canada comes up with a program that will result in a level playing field.
I would like to hear your comments. Where do you think the trade talks will go? They are scheduled to be held in a month or so.
Mr. Ritter: I will answer the first part of your question and then let Mr. Jarjour speculate on where the trade talks might go, because he is more in tune with those nuances.
It is always important for an exporting nation to have a level playing field in order to create value from what they do, and that is the basic purpose of the World Trade Organization. Is it necessary for an exporting nation like us? It is absolutely necessary, but there is not a whole lot of money on the horizon even if a deal is reached.
As to how grain prices will rise, they will have to rise from worldwide demand. We are seeing a glimpse of that day. Several days ago I read an interesting article about U.S. corn production. The article said that they could be short on corn in the U.S. this year because of their huge ethanol production and various other things going on there.
I think there is hope for the grain industry. We will just have to leap over the next two or three years until the appropriate demand curve is put in place by the various uses that are being found for grain. I believe that we can find a better place for values for Western Canadian farmers than we have seen in the last while. There are some signs of that already occurring this year, like in the month of May, wheat in some of the markets have gone up about $1 a bushel so it is certainly an encouraging sign. Mr. Jarjour wants to talk a little bit about where the WTO talks are going.
Victor Jarjour, Chief Representative — Trade, Canadian Wheat Board: If an agreement is reached that meets the objectives that the member countries of the WTO themselves have set, and namely, substantial reductions in domestic support, real increases in market access, and the elimination of export subsidies, then over time there will be some benefit for farmers. However, the reality must be that these have to be real cuts. They cannot just be cuts in water or air, they have to be real cuts and obviously, the United States and the European Union are the targets of those cuts. We will know the outcome in about six weeks, because if there is to be success it has to happen by the end of July. That is as far as I will go on a prediction.
The Chairman: Then what happens, exactly where is the WTO right now in its meetings?
Mr. Jarjour: The negotiations have intensified since the end of April. Deadlines continue to be not met. There is very much a sense that unless an agreement is reached by the end of June, or July, the negotiations will probably go into abeyance for several years. The reason is the United States and their so-called ``fast track negotiating authority.'' This is a negotiating authority that the President receives that allows the administration to negotiate a trade deal and bring it back to Congress, where Congress can take it or leave it. Congress cannot suggest changes. That is what is normally meant by fast track authority. That authority expires at the end of July 2007.
While an agreement could be reached on modalities by the end of June or July this year, the negotiations are not over. Negotiations will continue until they reach a conclusion and then the countries will seek approval from their respective governments, parliaments or Congress.
Senator Mitchell: Thanks for making the effort to be here today. I know how intensely you advocate for your constituents, and it is always good to get a chance to talk to you about these issues.
One of the criticisms I have heard of the Canadian Wheat Board — and by no means am I saying that I accept this criticism — is that there is a great deal of niche product development in agriculture today, and that somehow the Canadian Wheat Board stands in the way of the marketing of these niche products. I have heard that the CWB stands in the way of marketing these niche products because the markets for them are not big enough or there is not enough volume in them.
Is that the case? Am I describing that issue properly and how would you answer that criticism?
Adrian Measner, Chief Executive Officer, Canadian Wheat Board: I do not agree with that statement. I realize you were not stating that you agree rather you were stating what other people have said. Our role is to do a marketing job and sometimes there are volume markets that buy a few million tonnes a year and sometimes there are small markets that buy a few thousand tonnes a year, and our goal is really to put a package together that maximizes revenue for farmers so we pursue whatever marketing opportunity is there.
We have markets for Navigator durum. It is one variety of durum that goes to a supplier in Poland and he produces his pasta from the navigator durum. He labels it as pasta produced from Canadian durum, he markets it around Europe and into a number of countries, even into the U.S. It is a niche market and it is one where we IP the durum right from the country through to the customer. He is very appreciative of that IP and he pays a premium for it.
We have another customer, Warbutons in the U.K., who actually comes to Canada and works with farmers in terms of how much fertilizer they put on the grain because he is looking for a certain protein level and he is looking for a certain variety. He selects the varieties he wants. We send that grain on to London. I have talked to this particular customer on numerous occasions, the owner of the milling operations, Warbutons, and he has talked about his expansion. First, the bread has been very popular, it is made mostly from Canadian wheat, it is quality bread and it is in demand in London. His growth is limited by his capital. He is building bakeries as fast as he can acquire the capital to do so. Our job is to market niche markets, quality markets, quantity markets, and we are doing that marketing.
Senator Mitchell: Are you an impediment in way to agribusinesses that want to develop new strains of products?
Mr. Measner: No, we are trying to facilitate that development. There has been some discussion about kernel visual distinguishability, which is part of the criteria that Canadian varieties have to meet before they are licensed. We submitted a proposal to our board a couple weeks ago at our last board meeting, which was approved, and we are in discussions with the Canadian Grain Commission on that and the possibility of creating a special class for feed wheats for the ethanol plants. We are trying to respond to any issues that may be restrictive and making sure the system moves forward, but at the same time that farmers' interests are protected as it moves forward.
Senator Mitchell: What is your role in marketing grains that will be used in ethanol and biofuels? Is kernel visual distinguishability an issue in that, or is it not? I am quite interested in that subject.
Mr. Measner: In terms of ethanol production, they can buy from the Canadian Wheat Board or they can buy from the open market. We do not have a role in that. Most of that will be serviced from the open domestic market, not from the Canadian Wheat Board, so we are not really involved in that side of it. If they were not able to secure a sufficient supply, we would be interested in talking to them but that is open to them. They are not restricted to buy through the Canadian Wheat Board.
Mr. Ritter: As I understand it, grains used in the production of ethanol are exempt from the Canadian Wheat Board.
Senator Mitchell: Is that something you think makes sense?
Mr. Ritter: It is used for an industrial purpose. Obviously, if the plant did not have sufficient feedstocks and we were able to source it, we would certainly appreciate that. We, as a board, have been supportive of the idea of ethanol development and value-added use of grain on the Prairies, and we fully support that in any way we possibly can.
Senator Callbeck: I have a question on bilateral agreements. The Honourable David Emerson was here the other day and we were talking about these agreements. As you know, the U.S. is pursuing these very aggressively with countries and putting us at a disadvantage. Is that a concern of the Canadian Wheat Board? If so, what countries are you particularly concerned you.
Mr. Ritter: It is a very big concern for the Canadian Wheat Board because in some ways these bilateral agreements trump the overall WTO agreement. Mr. Jarjour will outline the countries please.
Mr. Jarjour: We have been on this issue with the government since 2003, when the United States was negotiating a bilateral agreement with Morocco. We have a long history of pursuing and urging the government to increase its attention to pursuing bilateral agreements.
The main countries that are of interest to us are in North Africa, specifically Morocco and Algeria. In Latin America, where the United States is getting close to concluding some negotiations, particularly in the Andean region, we are interested in Ecuador, Peru and Colombia.
Mr. Ritter: We are also looking at other major world players such as Japan, China and India. Our CEO might add a comment or two because he has been to North Africa recently and has been speaking to our customers who are subject to some of these American bilateral agreements.
Mr. Measner: Maybe it would help to speak to the impact of these agreements. To Morocco, we normally sell 300,000 tonnes to 400,000 tonnes of durum, which is in excess of 10 per cent of our overall durum program. The U.S agreement with Morocco gives the U.S. a $28 advantage of a lower tariff on sales to Morocco. We have two choices: We can back away from the market and hand it to the U.S. or we can try to compete. We have not had to do either yet but the impact is coming. The Moroccan millers have stayed with us because they like Canadian quality. They had their first tender two weeks ago and bought 40,000 tonnes of U.S. durum. That is an example of how serious it is and that the transition has begun. Our biggest durum customer is Algeria, where the U.S. has begun discussions on a bilateral agreement. We have also had discussions with our Algerian customers, who are in a position to push for an optimum deal for their country. They want to buy Canadian durum so they want the Canadian government to complete the agreement before the Americans do it. Much pressure is necessary. We are pleased with the announcement that took place last week but we need to see that followed up by a tight action plan.
Senator Callbeck: My question is on the value-added, on which the committee completed its study in December 2003. During that time we heard from Prairie Pasta Producers, which is a new generation cooperative that buys from the CWB. Are there other new generation cooperatives that purchase from you and, if so, how successful are they?
Mr. Measner: Prairie Pasta was a proposal that has not moved forward with their plan. There are not other new generation co-ops involved in our business at this time.
Senator Callbeck: Prairie Pasta is not purchasing from you.
Mr. Measner: They did a study of the marketplace and reached the conclusion that it was not proper timing to pursue that particular venture.
Senator Callbeck: They had some concerns about the flexibility of the CWB.
Mr. Ritter: We can answer general questions about that subject. In our recent survey we asked farmers what is most important to them. They mentioned working with producers to create value-added processing in the Prairies. They want the CWB to do that. We think that our value-added policy is pretty fair in that it sets out a level playing field for anyone who wants to process grain, whether they are a farmer group, an industrial group or other. They all receive the same acquisition price for the grain. Farmers are looking at this issue as of primary importance to them. We are looking at reviewing our policies to see if there is anything the CWB can do to effectively create more value-added ownership by farmers.
Senator Callbeck: They mentioned the transportation costs they have to pay whether they use the CWB elevators or not. This increases the value-added cost of producing the value-added product.
Mr. Ritter: That transportation cost to the farmer is a bit of a myth. Perhaps Mr. Measner can explain how the transportation factor works in the value of grain at any point in North America.
Mr. Measner: We establish our prices at port position, where we establish initial prices or the price to the processor. They are backed off into the country by the cost of freight because grain is more costly at port position than it is in the country. We often hear that people who deliver into a processing plant believe that feel they have to pay the freight to get to port position. In reality, it reflects the different value of grain at port position versus the value in the country. It is not a fact that they have to pay the freight but rather it is a fact of reflecting those different values in the market place.
Senator Callbeck: My understanding was that even if they did not use your elevators and processed their own grain, they still had to pay a transportation cost to the CWB but that cost is factored into it.
Mr. Measner: The issue was the requirement that they would still sell the grain to the Canadian Wheat Board and receive the initial price and the further payments if they were not able to sell it directly to the processing plant. That was the issue of most concern to the group.
Senator Callbeck: That transportation cost is part of that.
Mr. Measner: Yes.
Senator Peterson: When you sell your wheat to China, I would presume that China would view that as dealing with Canada on a nation-to-nation basis, which gives them a degree of comfort. If there was a dual board and I was a producer, I would think that market avenue would be closed to me because China would likely not deal with an individual producer. Where do individual producers sell their product? Are they limited to Louis Dreyfus Corp., Cargill Inc., Archer Daniels Midland, et cetera?
Mr. Measner: We have good relations with COFCO in China that imports the wheat. That relationship has been established over many years and Canada sold grain to China before diplomatic relations were established. China remembers that relationship and many Chinese missions raise the point when they are in Canada. The relationship with the Canadian Wheat Board and with Canada is strong and important. It will pay dividends as we go forward because the demand in China is growing extensively.
If the Canadian Wheat Board did not exist, crops, including wheat, would be marketed through the multinational companies, which you highlighted. A fairly dominant marketplace exists with four or five companies controlling the bulk of that international environment. Multinational companies would be marketing the grain just as they market other grains not marketed by the CWB.
It is an important point to consider when we talk about the Canadian Wheat Board. We are a Canadian company that works for Canadian farmers and markets Canadian products. Without the CWB, that would be lost.
Senator Peterson: The independent companies would set their own prices. For example, Cargill Inc. would state what it is prepared to pay a farmer for his product.
Mr. Measner: That is correct.
Senator Peterson: One of the irritants is this idea of specialty crops when you are trying to do the value-added. We talked about Prairie Pasta Producers and why they cannot make direct delivery a part of their equity. Does contract selling occur with malting barley or is direct selling permitted?
Mr. Measner: It is the same as it is for wheat; it would go through the Canadian Wheat Board to the malting plants.
Senator Peterson: Is there a possibility that because it is exempt from ethanol, the same thing could happen with to malting barley. Do you see that as part of the first chink in the armour?
Mr. Measner: As Mr. Ritter highlighted, we are looking at all of our value-added policies because we want to ensure that they best reflect the needs of our farmers. Perhaps there are ways that could be changed to facilitate the farmers' effort. We must keep in mind that there needs to be a level playing field because we want a strong, viable value-added industry, and that is a good story for farmers. It is finding that balance. We will look at that particular area that you talked about in the review.
Senator Peterson: Essentially, you are saying that producers are your customers and you are doing the best you can for them.
Senator Meighen: I know you sell to approximately 70 countries around the world. We have talked about the bilateral agreements. In that respect, is it only the Americans that are engaging in this practice or are there other countries engaging in bilateral agreements?
Mr. Jarjour: Certainly, the United States is the most aggressive in pursuing bilateral agreements and has the largest number of negotiations under way. Australia is also negotiating and seeking negotiations with a few countries.
Senator Meighen: If we had a chart here, would the chart show sales going up, going down or staying flat over the last 10 to 15 years.
Mr. Ritter: Grain sales have been relatively flat, if I recall.
Senator Meighen: I realize to some extent it is a function of production but, in your view, what would be the greatest help to you in increasing sales — aside from bilateral agreements?
Mr. Measner: Right know, as Mr. Ritter highlighted in his earlier comments, demand has not kept pace with supplies for the most part, if you go back over the last 10 years. However, we are seeing some changes. If you look at the last three or four years in terms of the world demand versus supply, demand has outstripped supply in all but one year. As we look forward, we see tremendous ethanol growth in the U.S, to the point that it probably will double from what it was two years ago in about a three-year time period. Many acres will go to ethanol production that normally go into food or other feed production. We see some positive development on that side.
There are three things I would highlight that could change this market and we think they will all work to make that change. One is the increased ethanol demand, which has taken grain out of food production, so it lowers overall supplies. The second is the re-emergence of the Chinese market, and we forecast that market will increase in imports. China was our largest customer in the last two years, but will not be our largest customer this year, given our quality, but China is a significant player now. The third factor that is just coming on stream is the Indian market. This year, India is importing 3 million tonnes of wheat; and over the next five to 10 years, we see growth on that side. With increased demand for ethanol and increased demand from those two countries, we are looking for a bit rosier picture as we go forward. Unfortunately, we have to get there. We are still a few years away from that.
Senator Meighen: I think your answer indicates that there is not too much that can be done from a strict marketing perspective. If you had a larger marketing budget, for example, it would not make a heck of a difference, is that right?
Mr. Measner: I will never turn down a larger marketing budget.
Senator Meighen: Does that budget come from your customers?
Mr. Measner: The budget comes from my board.
We are doing an effective job on the marketing side. There is always a cost-benefit relationship that you have to adhere to and I think that is happening. For the most part, we are marketing all of the wheat that is signed up on most years, and all of the malt and barley that is signed up for — all the feed barley. Durum has been the one we have struggled with. There is a limited export market on the durum side and Canada is around 50 per cent of that export market, so we have a large part of that export market.
We have undertaken a strategy that maximizes the amount of sales we can do at a reasonable price — we have tried not to drive that price down to feed values. If we had tried to market all the durum that farmers have grown over the last couple of years, we would have pushed that price down. Therefore, we have not marketed all the durum but that has been more a strategy, given the overall demand in the international market.
I would certainly take an increased budget but I am not sure it will change that issue you are talking about.
Mr. Ritter: If I might add a small issue that has become a large one, the real wild card in a lot of grain prices is the Canadian dollar. We, like every industry in this country, have faced this rapid rise in the dollar. It is 40-some per cent over three or four years; the simple reality is that grain prices are in the ninetieth percentile of all-time highs in U.S. currencies. These are times with reasonably good prices.
We have to look forward to the reality that we have a strong dollar. It is likely to remain strong from all evidence, so we are going to have to find the high-value markets to market our high-quality grain into. We cannot compete in the low-value markets with Ukraine and other suppliers that can produce cheaply with a devalued currency.
Senator Meighen: Were the Ukraines of this world much less of a threat when our dollar was 70 cents?
Mr. Ritter: At that time, The Ukraine was not much of an exporter at all, but that will change and it will become a competitor.
Senator Mitchell: What is your impression of what the government is saying it is proposing to do with respect to electing the remaining five board members — the dual marketing initiative — or doing away with the Canadian Wheat Board's mandate altogether? Are you getting specific input, or any consultations?
Mr. Ritter: Certainly, the government has made it clear that they ran on a platform, which included the issue of dual marketing. However, our organization is of the view that the issue of dual marketing is not a real choice. The choice is between a single desk seller and an open market.
Our view has always been this is a fundamental issue for Prairie producers; let them decide. I come from the same area where many of these MPs were elected. I think I know the voters. The voters did not vote on the Canadian Wheat Board issue in the last federal election, so they should be given an opportunity to have a direct say as to what occurs with their organization.
Senator Mitchell: It is not as though the government is on the verge of taking an initiative in this respect. They seem to be delaying on that. They are not actually moving, are they?
Mr. Ritter: There are no overt issues or things that have been made public that would lead in that direction. Our Minister Strahl has indicated that it is evolution rather than revolution.
Senator Mitchell: Maybe revolution after the next election, depending on how that turned out.
The question of ethanol markets, is it an arbitrary distinction because it is a non-food?
Mr. Ritter: Right, it is not for human consumption. It does not come under the act.
Senator Mitchell: Do you see that as a problem for you? Does it split your markets and create the kind of competition that dual marketing might create, or is it just something you do not want to touch?
Mr. Ritter: The ethanol industry is not a problem for us at all. Any time there is extra value created for Prairie farmers, we are in favour of it. It is just that simple. We see an opportunity here and we will do whatever we can to support the ethanol industry. As our CEO indicated, we have put forward a proposal to have an industrial kind of wheat that is easily distinguishable from our high-quality, human consumption wheat and we are fully supportive of this kind of initiative. We are saying that we can both succeed.
Mr. Measner: In terms of supplying an ethanol plant, they will source at the lowest price possible because they want to make their business profitable. We do not see that we are value-adding for farmers if they are just going to compete to lower the price. We have told the plants that if they want to look at the long term with a reasonable pricing relationship, we are prepared to do that, but I do not see much value in competing and pushing the price down. We will be very reserved on that side.
Senator Gustafson: There is no question that one of our major problems is transportation. We are a long way from open water and transportation is very expensive. In Weyburn, Saskatchewan, for $10,000 worth of number 3 durum we get a cheque for $5,000 after the freight and handling charges of $5,000.
I was the odd man out in the House of Commons defending the Crow Rate during the debates on its abolition. Since its abolition, we have not really made any money in farming. That cost us $1 a bushel, and it was a big factor. At the other end, 15 years ago we were pumping huge amounts of grain directly into ships going to China and Russia. It was a matter of getting enough wheat to meet the market demands.
Are container cars a big part of transportation and if so, how do they affect our markets?
Mr. Ritter: You hit the nail on the head, Senator Gustafson. We were all snookered with the loss of the Crow Rate. We were led to believe that there would be huge opportunities everywhere. Most of those opportunities did not materialize and there were a lot of dollars lost from farmers' pockets to fly-by-night ventures. Farmers are dubious when changes occur, once bitten, twice shy.
The Canadian Wheat Board has been doing two things to address the situation. As a single desk we are the only player that can get the railways to compete with each other. We can actually get the two major railways to give us competitive rates on movements into the U.S. or on East Coast shipments. We are able to do that because of our single-desk strength.
Second, we have introduced a policy whereby rail cars are allocated to elevators where farmers make the decision to sign their contracts. In effect, the rail cars follow the farmer's decision. The farmer decides which elevator he wants to use based on what kind of deal he can get from the elevator operator for moving his grain through it. This is a competitive feature that we believe is beneficial to farmers even though, with all these things in place, freight and handling are still a big proportion of the cost of marketing grain to the world.
Mr. Measner: A very small percentage of grain is exported in containers. Over the last couple of years ocean freight rates rose given the demand in China. During that period, we were able to ship some containers of malting barley to China more cheaply than we could ship it in bulk form. That was a unique situation. There were surplus containers going back empty and there were facilities at the other end that could unload them. We took advantage of that situation and we shipped close to 100,000 tonnes of malted barley in containers in each of those two years. However, that was unique to those particular years.
Looking forward, we see demand increasing on the container side because there is more and more customer focus on food safety and identity preserving to ensure a safe product. We are looking forward to growth on that side.
It would be very useful to get some of those container facilities on the Prairies because the only place we can get a container loaded is at port position. Hopefully this is an opportunity for farmers.
Senator Gustafson: If you follow the profitability margin of the grain companies, you will see that they are doing pretty well. The markets of the Weyburn Inland Terminal and the Saskatchewan Wheat Pool jumped considerably. The big American companies such as ConAgra are building terminals all along the forty-ninth parallel. The grain companies seem to operate with out restrictions or regulations. They seem to be able to charge whatever the market can bear.
Mr. Measner: That is true. There used to be maximum tariffs under the Canada Grain Act, policed by the Grain Commission, which restricted what they could charge. Those tariffs were removed quite a number of years ago and now grain companies can charge whatever the competition will bear. We want more farmer companies, if possible, competing against the large companies and offering extra competition to try to keep those rates in check. We have tried to develop policies that allow that to happen in order to allow farmer inland terminals to be successful on the Prairies. Weyburn and other terminals have done fairly well in the last years. Their business plans are focused around board grains. One thing that must be considered when thinking about creating a dual market or doing away with the Canadian Wheat Board is that those farmer-owned facilities are successful because of the Canadian Wheat Board. It would be a much different world without the Canadian Wheat Board and the success of those operations would change considerably.
We also see very focused terminal ownership at Vancouver, Prince Rupert and Thunder Bay. We were pleased with the recent decision of the Competition Bureau to force the sale of one of the Agricore United terminals at Vancouver. We intervened on that issue because we believe there is not enough competition on that side. A handful of companies are able to control the rates for the grain that goes through there. We are looking for independent owners, hopefully farmers, to buy that terminal. We are looking for extra competition, independent owners that are away from the larger companies.
Senator Gustafson: Does any grain go out through the Hudson Bay route any longer?
Mr. Measner: Yes. We are the main supplier of that grain. That is another good point because without the Canadian Wheat Board, there would not be a terminal at Churchill. It is nice to have a Prairie port. We market from 300,000 tonnes to 400,000 tonnes a year through Churchill. Our target this year is about 400,000 tonnes. We have made some sales out of Churchill even though the port is not open until August.
Senator Gustafson: Where does the grain go to from there?
Mr. Measner: Some of it goes to Europe and some to Latin American, but most of it goes to Africa.
Senator Callbeck: I have a supplementary question to my previous question on value-added. You said that the proposal of the Prairie Pasta Producers for a new generation cooperative did not go ahead. Do you deal with any new generation cooperatives?
Mr. Measner: I do not believe there are any in that category.
Senator Callbeck: Do you believe that there are any factors or concerns that you can address that would pave the way to some new generation cooperatives springing up for value-added products? If so, what are those concerns?
Mr. Measner: We are reconsidering all of our policies. We are not far enough into that process to have made concrete decisions, but we are going to focus on that item. We have indicated to the board that we will come back in September with the results that of review.
The issue is broader than the CWB, and as we talk about the future of agriculture and as we talk about the future in Western Canada, we need to address farmer ownership on many fronts because there is limited farmer ownership. It does not matter if it is processing of board grains or non-board grains, and it does not matter if it is primary handling or terminal handling, there is very little ownership. We have ITAC facilities, we have producer car shippers and short line railways that are all focused around board grains, but outside of that very little farmer ownership. We all need to think about ways that we can supplement that farmer ownership. We have some ideas that we will be having further discussion with the board and hopefully announcing in the near future, which are focused around that farmer side, getting more farmer ownership on all aspects, such as processing and handling because the environment has changed. It is not a healthy environment if you look at what it might look like five or 10 years around the road and it is not healthy if you look at the absence of the Canadian Wheat Board.
Senator Peterson: I read the other day that Brazil, which is arguably one of the lowest cost producers, will start implementing subsidies. What impact would that have on the system? Is Brazil a major player?
Mr. Ritter: I read a similar article where the farmers were protesting and occupying government buildings and so forth. The issue, as I understand it, with Brazil is that they too in many areas have great distances to haul their grain and they generally do it by truck. They find that the Brazilian currency is rising rapidly as well, and suddenly they find that they are losing money in what was once a lucrative business for them. Accordingly, they are calling on their government to provide some minimum supports. Brazil is not a big subsidy country so I do not believe we are concerned about that at all.
Senator Peterson: The Canadian Federation of Agriculture made a presentation to us recently and indicated that there is a 57-day supply of grains. That supply has dropped and is dropping. That drop must eventually influence prices. When do you start using that in your promotional literature to get people to start buying before it does become an issue?
Mr. Ritter: I will let Mr. Measner speculate on the second part of your question, but I will try the first part. We live in a just-in-time world today, so as long as there is no major disruption, as we saw last summer in fuel with Hurricane Katrina, it seems like no one wants to take this risk into consideration. However, once the disruption occurs, things happen rather quickly.
Mr. Measner, what is the kind of number you would speculate would cause alarm?
Mr. Measner: Ten or 15 years ago, that number would have caused alarm and I am sure that is what CFA said. There was a time when people would be talking about starvation and what to do if we were down to those low stocks. However, the world has changed with the movement to just-in-time inventory. Countries are much more comfortable that they have access to supplies and do not really get too concerned at those supply levels. I agree that the number is low and it will not have to go much lower before people will start reacting to it and getting concerned. It is not quite there yet, but I do not think it has to go much lower because, if you think about it, that is not a lot of supply in the world. That is at the end of the crop year, the end of the production cycle. It is not a lot.
Senator Peterson: They were wondering the same thing. It is down to a 57-day supply and dropping. Why is nothing happening to the price structure?
Mr. Measner: Mr. Ritter indicated that from a U.S. dollar perspective futures markets are at historically high levels in that 95 per cent quartile. There has been some reaction to it but not enough with the Canadian dollar and so forth to have a big impact. We can only hope that a few more things happen and that it continues to grow.
Senator Peterson: Have any dual marketers sought election to your board and if so, how successful were they?
Mr. Ritter: There have been a number of them. Actually, when I ran in my first election, I was successful; I was elected. Three others have been elected on that platform, two, after they saw the reality of their position, were of the view that a single desk marketing agency is the best thing for Western Canadian farmers. I will explain this a bit because there is a big myth here that is constantly perpetuated. I feel strongly that in a single desk you can get exactly the freedoms that you say you want. You can get the pricing choices. We are now working on delivery choices. The very things you are demanding, the core essence of what dual marketing means, you can get it through the Canadian Wheat Board. Why would you be so foolish as to give up market power for some mythical being?
Senator Peterson: How long will this transformation take?
Mr. Ritter: I am not going to speak for others but for me it took a year or two to see all the facts, to see how we were treated by transportation providers, elevator companies, saw the prices that we received from markets, and saw that it made sense for farmers to have this organization on their side.
Senator Peterson: Five years ago, particularly in Saskatchewan, the farmers were hauling grain down to Scobey and Plentywood because they were getting an additional $2 a bushel. I believe that was due to supply and demand. The farmers wondered why they were not doing this all of the time. Within a week, some local farmers were wondering who owned all of the trucks on the driveways and they had the borders shut pretty fast.
Mr. Ritter: We have even found a way to address that further. We now have a pricing option called the ``daily price contract'' whereby a farmer can get U.S. values for his grain.
Senator Callbeck: In 2006 the Canadian Wheat Board's annual producer survey, 45 per cent of producers support a single-desk marketing system, 47 per cent favour a dual marketing system, which farmers could choose between CWB and open market, and 7 per cent opt for a fully open market. Have those percentages changed much in the last 10 years or have they been consistent?
Mr. Ritter: Senator, those changes fluctuate quite a bit. You must remember this is a survey. We also have direct elections for directors where people cast their ballot for one person or another who stands for one issue or another. If I remember correctly, those numbers have not moved very much over the last decade, but this is a broad-based survey containing many elements. The main question is do you support the Canadian Wheat Board? Nearly three quarters of the farmers say they do support the CWB.
The Chairman: One issue that we have not discussed is the sometimes seemingly endless challenges from the United States as to the validity of your very existence. How many times has the United States tried to challenge you through the trade agreement or any other kind of legal process? If I am not mistaken, you have won every one of them.
Mr. Ritter: They have challenged us a dozen times or more. The simple answer to your question is that we have won all of them in the final result. We are now in a state whereby we can sell wheat and barley into the U.S. market. Why they continue to challenge us is the important point. They have strong political pressure on them by groups in the northern tier states to constantly launch these trade challenges, because, like all Americans, they believe they do everything better than anyone else. Lo and behold, their own millers seem to want to buy from us even when they have to pay some premiums and they probably cannot understand why. The simple answer is that our system, our grading, our quality, our elevators, the efficiencies of our railways and certainly our ability as an organization do a good job of maintaining high quality. The strongest element is the quality grain that Western Canadian farmers grow.
Mr. Jarjour: The exact number of challenges and studies undertaken is 14, but we have been spending a fair bit of time in the United States meeting with farm groups in the main wheat-producing regions to develop a relationship with them to understand why these challenges keep popping up.
Mr. Ritter has hit it on the head. They have told us very clearly that the Canadian system, in their view, is better at delivering quality product to end users. They cannot have a system like ours in the United States, so the solution from their perspective is to get rid of the Canadian system. That is the fundamental rationale for challenging us, either bilaterally or in the World Trade Organization.
The Chairman: To some people, it is incomprehensible how these challenges continue to go on and on. I have difficulty understanding why we have a constant tug-of-war among Canadian producers as to whether the Canadian Wheat Board is useful to them. They often say they could do better on their own. In Canada, in what way would the freedom not to go through the Canadian Wheat Board enhance the opportunity of farmers to sell their own grain on the international market?
Mr. Ritter: Many of these issues go back to the Prairie political roots. Some farmers believe that the CWB, although the Conservative government at the time originated it, I believe in 1935, ended up being viewed by some as an organization that was promoted by the Liberal Party and the New Democratic Party. This is a very unfortunate assumption in my judgment. We as an organization do not look at ourselves as belonging to anyone other than Prairie farmers. We saw how the rural polls went in Western Canada in the last election. You would have to ask the question: How on earth would anyone who supported a single desk ever be elected to the board of directors of the Canadian Wheat Board? The simple fact of the matter is, most Conservative voters vote for single desk selling at the CWB as well. In my mind, there have always been a few agitators out there — as Bobby Kennedy said, 20 per cent of the people are against everything all the time — who keep perpetuating these myths and doomsday scenarios and so forth, and it goes round and round.
The second thing that brought about a lot of concern is the U.S. Export Enhancement Program, which occurred a dozen or so years ago. The effect of that program was to raise the prices of grain inside the U.S. and lower the price everywhere else in the world. Most farmers did not understand the effects of that policy. It was an aberration as to how their prices were structured. You do not see that now. As I said before, prices within Canada and the U.S. in our judgment are very close to each other. Often our prices are higher. If you want the U.S. price, you have the ability to get it on your own farm through one of our pricing options.
That is how the whole issue keeps being perpetuated. All I would ask is that everyone look at the new Canadian Wheat Board. We are not rooted in those myths. We are looking to the future, where the world is going, and how we can add value and how we can be a business, a partner with every farmer out there.
Senator Gustafson: In terms of support for the single desk, it seems that much of it is regional. Alberta, for instance, gives the CWB strong support because it is ideal for its farmers. A lot of grain is fed up and they do not have as long a distance to freight it. There seems to be more support for dual marketing right along the U.S. border than there is in Northern Saskatchewan and parts of Northern Manitoba. I welcome your comments on that statement. With the North American Free Trade Agreement, I am of the view that eventually we will have a North American common market, probably in different areas.
As farmers, we get the best price for grain. I remember when the United States had bins in every little town and they stored the grain in the bins. Canada did that to an extent, but not as much as the Americans. They were doing exactly what the fertilizer companies are doing now. They set their price; they hold it. The machine companies do it. They ask their price and they get their price.
We are price-takers. We take what we get. Maybe we have to go back to the old biblical principle of storing the grain from the seven good years for the seven lean years. I farmed during that era. We were definitely in an era where it was said we have to move everything; keep everything going; keep the grain rolling.
Mr. Ritter: Mr. Measner will comment on the provincial numbers but I will start out this way.
Senator, the world has changed a great deal from those days. I am not much younger than you are, but nevertheless I remember how good the times were, relatively speaking. However, it was a very different world then; we had the Cold War. Everyone knew where they were lined up. Everyone's customers were lined up. There was a general view that everyone had to work together. We had international wheat agreements, many types of deals whereby there were sureties in place. Times were pretty good.
Today, it is a different world and it is getting more different all the time. I have just bought a book by Gwyn Dyer, where he talks of the multipolar world. We are no longer in a state where we have the West and the Soviet Bloc. We now have China, India and Brazil as emerging giants. The United States and the European Union are still huge players on the world scene.
Some of the things we could have done then — such as storing grain and keeping it off the market for long periods of time, and just may not be there for us any more. At that time, there was the Federal Reserve program and farmers were paid for the grain so the government was storing it.
In our own marketing needs, we are looking at small ways of doing some of the things you talk about to ensure that our highest paid customers are always assured of supply, but as an overall statement, I do not know if the world is the same today as it was in those heady days of the 1960s and 1970s.
Mr. Measner, will you talk about provincial support?
Mr. Measner: We asked that question in our survey. There are some differences but not as many as you might think. We asked the following question: All things considered, do you support or oppose the Canadian Wheat Board? Seventy-six per cent across the Prairies strongly supported or somewhat supported, so 76 per cent support it. We broke it down on a provincial basis: in Manitoba, it is 81 per cent; in Saskatchewan, 78 per cent; and, in Alberta, 69 per cent. It is lower in Alberta, but I still think that is a pretty good number. There is a lot of press from Alberta, but with respect to whether the farmers support the Canadian Wheat Board, 69 per cent do. Certainly, we are pleased with those numbers.
The Chairman: Any political party would think that was a pretty good number.
Senator Peterson: Do you have any foreign exchange controls on your buying and selling on behalf of your producers? Do you try to forward-buy American dollars in a sales period to protect the return to your producers?
Mr. Measner: We have established what we call a ``hedging program'' that hedges a certain amount of the foreign exchange as the year progresses. We are not trying to outguess the market because I think that is dangerous territory, and, certainly, you can be right but you can be very wrong. However, we do have a regular hedging program that hedges our foreign exchange exposure on the pool accounts, so it is hedged on a regular basis as the pool year progresses. It starts as early as April and works its way through the year.
The Chairman: Thank you very much. I do not think we could have this kind of a study without having the Canadian Wheat Board here to offer comments. Every time you come, you make a real contribution to the discussion, and, from time to time, we have new members on the committee who need to hear the history and the background of the Canadian Wheat Board. We need to be informed of the importance of the Canadian Wheat Board when times change and put that information in perspective vis-à-vis the WTO. All the best and we look forward to seeing you again.
Mr. Ritter: Thank you very much.
The Chairman: Honourable senators, before you snap your file folders shut and leave, we have to go in camera to give our researchers some guidance as to how we would put out an interim report on the hearings that we have been having, so I will need all the senators who are present to stay present.
The committee continued in camera.