Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 11 - Evidence - Meeting of November 21, 2006
OTTAWA, Tuesday, November 21, 2006
The Standing Senate Committee on Agriculture and Forestry met this day at 7:45 p.m. to examine and report on rural poverty in Canada
Senator Joyce Fairbairn (Chairman) in the chair.
[English]
The Chairman: Honourable senators, good evening. With us tonight are Professors David Freshwater and Donald Reid. Mr. Freshwater is an agriculture economist at the University of Kentucky who has written extensively on agricultural policy and rural economic development issues in Canada and the United States. Mr. Reid is a professor at the School of Environmental Design and Rural Development at the University of Guelph. Mr. Reid's research has focused on the impact of tourism in rural areas, but more recently his research work has shifted to the study of rural poverty.
Gentlemen, we welcome you and apologize for being late. We have to ask everybody to speak clearly and quickly because we will have to rush out the door at 8:25 p.m. because there is another vote in the wind.
Donald Reid, Professor, School of Environmental Design and Rural Development, University of Guelph, as an individual: Thank you for the privilege of appearing before you to talk about this very important subject.
Much of my work, as the chair has suggested, started with tourism development. For 12 years, I worked for the then Ontario Ministry of Culture and Tourism Development before moving on to the University of Guelph some 20 years ago.
My interest was to determine the effects of tourism development on community solidarity and individual poverty reduction in rural areas. I was at that for some time, and I am sure you will all agree that tourism was going to be the saviour of rural areas having difficulty with resource extraction and the demise of their economies. The fact of the matter is, that is not the case. It has not been a magic bullet. In some ways, it has been a frustrating experience.
I turned my attention to issues of poverty, trying to determine how Canadian society might reframe the question so we can get at it once and for all. I will be pessimistic and say I am not sure we have done a very good job at it, particularly for poverty that is at the low end of the continuum. That is the opposite side of the working poor in the country. We have a group of individuals at the other end of that poll who have not worked for some time, who scrape by daily, monthly and annually and have been in a dilemma for the long term.
I started with trying to define rural poverty and that, too, I found to be somewhat of a frustrating experience. I have come to the conclusion that individuals evaluate their station within the social order in which they live, and whether or not they command sufficient resources to meet the minimum requirements of life, based on their society's set of social standards and values. Poverty is a contested concept and not an absolute variable from my point of view. It is society defined and society driven.
I have made a few summary notes on a PowerPoint presentation because time is even more limited than we originally thought. I will whip through them. At some stage, if we get into conversation, we will try to flesh a few of them out.
First, I want to say that poverty, in my view, is not just an economic condition. There are sociological and psychological elements to poverty that create social exclusion. I have begun to talk about poverty in terms of social exclusion because poverty is not only an income issue but also one of development much beyond that, particularly for the one side of the continuum that I mentioned earlier. If we are to truly deal with this question of poverty, we must expand beyond the income question.
As my paper suggests, I have been involved through the graces of the Ontario Ministry of Agriculture, Food and Rural Affairs with the Sustainable Rural Communities, SRC, program. Two colleagues — one from Brock University and one from the University of Waterloo — and I have been engaged in a three-year study with people who are at that end of the continuum. The kind of individual and social dilemmas that these people find themselves in has amazed me. The amount of depression is astronomical and the lack of social skills is demonstrable.
Another conclusion I reached is that the classical economic approach, which has been the framework for addressing the problem since the end of World War II, has not worked in my view. I am sure my colleague will want to correct my definition but I say cut taxes so that resources can be transferred to the private sector which, hopefully, will create more jobs and, therefore, reduce our unemployment rate. As the saying goes, ``a rising tide lifts all boats.'' I hate to be the bearer of bad news but this rising tide has not lifted all boats. Therefore, there must be other approaches.
The other observation I want to make is that poverty, at least in the area I come from, has both a horizontal and vertical component — horizontal in a sense that it is still class based to a certain extent, but vertical in a sense that some industries are doing very well. Right beside them are industries or sectors doing terribly so we can see that it is no longer simply a geographical problem. In Northern Ontario we have a booming mining sector; however, once you step past that and get into the pulp and paper sector, you find that the economy has crashed. Two businesses operate side by side geographically but only one is doing well. In many ways, the skills are non-transferable. Thus, poverty has a horizontal and vertical dimension to it and, in rural areas, is extremely invisible. I am sure that senators have heard before that it is a result of the geographic dimension. In many cases, poverty is responsible for out-migration.
The other face I see in rural poverty in Canada is our consideration of the poor as a single entity, as if they are a homogeneous population but they are not, in either condition or need. The poor population is very diverse so we need to take a multi-pronged approach when dealing with it.
The other myth shocking to me, which has been exploded, is that it is not remedied as a simple matter of hard work. Increased productivity no longer depends on labour but on technological innovation. As a consequence, many of the primary industries are downsizing their labour component and increasing their technological component in order to remain competitive worldwide.
What are some of the considerations for change? I would argue strenuously that social policy needs to be divorced from labour or agricultural policy. Many of the questions facing the agricultural community have a global component to them and need to be resolved inside an agricultural policy field. As you will see later in my notes, if the agricultural policy fails, then social policy will have to deal with the aftermath. Let us try not to deal with it in the first instance and go at it from an agricultural policy point of view instead.
A number of people, including Milton Friedman and the Macdonald Commission, suggested a guaranteed annual income at one time. The latest organization to suggest such a thing was a study group at St. Michael's College in Toronto. They did not use the phrase ``guaranteed annual income'' but they did use the phrase ``income supplement.'' Different words can be used to mean the same thing.
I would suggest that instruments such as a guaranteed annual income should be considered as an instrument of poverty alleviation, along with things in the system now like workfare and welfare. We need to get the goals and the means of achieving them straight because I am not so sure we have done that.
I often listen to our politicians talk about getting people off the welfare rolls as if that is the same thing as reducing poverty. I would suggest it is not the same as reducing poverty. You can take someone off the welfare roll by putting them on a bus and shipping them to Alberta if they live in Toronto. That is not the same thing as dealing with poverty. What are the goals and the means of achieving them? I am not sure we have had them correct in the past.
The next section of my presentation speaks to delivery, which we always have to worry about. We deal in the first case with need and then we must deal with delivery on that need. If we are to make a mark in rural areas because poverty is so invisible, we must fortify the institutions in the countryside to deal with it. Here, I am talking about church-based organizations and women's institutes. They have their shortcomings but they could be a big player in the system.
The last thing I want to talk about is near and dear to my heart. When you talk about guaranteed incomes, questions arise such as, ``What will people do with themselves?'' A colleague of mine, Robert Stebbins, has partially answered that question. He talked about something called ``serious leisure,'' which he sees as a bridge between the idleness factor and full-blown work. I have provided you with the criteria that he suggests connotes serious leisure: it occasionally necessitates the need to persevere; it often fills the role of a career; it may sometimes demand significant personal effort based on special knowledge; it may provide some durable benefit to the individual or society; it may possess a unique ethos where participants operate in their own social worlds; and its participants strongly identify with their chosen pursuit.
We have moved beyond the notion of non-worker leisure as being a frivolous concept because Mr. Stebbins has been able to identify for us some of the psychological and social impact that would lead to the kind of self-worth and dignity that we all want for people who find themselves at the low end of our society's economic scale.
Because of the evening's time constraint, Madam Chairman, I will give up the microphone so that we might discuss some of these ideas in due course.
The Chairman: Mr. Freshwater, do you want to have a word?
David Freshwater, Professor and Director of Graduate Studies for Agricultural Economics, University of Kentucky, as an individual: Thank you for the opportunity to appear this evening. My comments today will be coloured by my spending the last 20 years of my life in the United States. In essence, I will talk about two things — rural labour markets, particularly local labour markets, and the difficulty of coming up with rural policy that works based on the last 30 years of my life trying to accomplish that and not being particularly successful.
One way to think about poverty is that it results from either unemployment or from employment that generates inadequate income. I fully recognize Mr. Reid's concept but I am an economist so I will stick to my knitting to the best of my ability.
We must think about both the demand and supply of labour. I would like to go quickly through some things that have changed conditions in rural areas.
I will start with the demand for labour. Clearly, the two big sources of employment in rural areas in the past have been the natural resource industries and manufacturing. Both have gone through incredible contractions in the last while. In particular, in manufacturing we have seen the loss of low-wage, low-skill jobs through offshoring which has pulled the plug on many small manufacturing plants in rural areas.
In the natural resource industries, there has been a wholesale substitution of capital for labour, so there are fewer workers producing the same amount of output. Once again, there has been a huge loss of employment opportunities for people with less than high school or high school educations who 40 years ago probably could have earned a nice income but are now struggling, looking for something else to do.
The other end of that stick is to look at where the growth has been in the national economy. We have gone from a manufacturing economy to a service-based economy. To some extent it is the knowledge economy. There is a broad consensus that the knowledge economy is really an urban economy. Most of those jobs in information technology, IT, occur in a relatively small number of large urban centres like the Kanata area in Ottawa or Toronto, but not necessarily in urban places like Saskatoon or other cities in the Prairies or the Maritimes. Therefore, you have a small number of larger urban centres that are generating the bulk of economic activity in that sector.
That has had an implication for rural places — their traditional economic base has withered away. The growth in the general economy is taking place somewhere else, so what do these people do? One answer is they pick up and move, but their skill set is not particularly useful if they move to an urban centre, and most of them understand that. To a great extent, I think they are making rational choices by not relocating.
I would point out that it is not all gloom and doom. The auto industry is a particularly interesting example. We hear continually that the auto industry is in grave danger. Well, part of the auto industry is in grave danger. The Big Three have shed jobs all over North America and are continuing to shed jobs. That is because their market share has disappeared and has been taken up by companies from Japan, Korea and some European firms.
The interesting thing in the United States is that employment in the auto industry has been roughly constant over the last 15 years. The Big Three have shed jobs because they have lost market share; the transplants have increased market share and jobs.
What has happened? The auto industry in the United States has moved from the Midwestern states of Michigan, Ohio and Illinois to the southern states of Kentucky, Tennessee and Mississippi. Not only have they have moved from the Midwestern to the southern states, they have moved from urban centres like Detroit, Cleveland, Flint and Lansing to smaller towns such as Georgetown in Kentucky and Princeton in Indiana. That phenomenon has also happened in Ontario. St. Catharines has haemorrhaged jobs and Alliston has boomed. That is really a relocation of a major industry from an urban core to a smaller urban centre and has provided a relatively large amount of manufacturing employment in the process for people who live in rural areas at relatively good wages.
There is a tendency to think that manufacturing is over in North America. It is not necessarily over, it is just reorienting itself. The Japanese car firms are an interesting way to think about it because, as their sales expanded, they decided they needed a manufacturing presence. They chose to locate in smaller places, away from where the auto industry had traditionally been. There is an opportunity for other firms to do that.
Manufacturing is booming in China, increasing in India and Brazil. At some point in time they will want to relocate in North America for at least some portion of their production. I suspect they will probably do what the Japanese and Koreans have done and find places in rural areas. There will be opportunities for income and employment, but it will be different than in the past.
I have a colleague who said the arrival of Toyota was the best thing that happened in Kentucky. Toyota would not hire anybody who had not finished high school. Suddenly, all those kids who were used to dropping out in the ninth grade and working in the coal mines or the textile industry had to get through high school because, without that diploma, Toyota would not take their application. Toyota paid far better than the mines or the textile factories and was a much nicer place to work.
There is an opportunity for upscaling but it is a generational transition. Part of the problem we face is what to do with the 30- to 40-year-olds who have less than high school education, have few opportunities and are lousy candidates for retraining. Everything we know about job retraining programs suggests that the longer you are out of school, the harder it is for you to uptake those skills. Employers are more willing to invest in younger workers and not so willing to invest in 40-year-olds. For an individual who is 40, the payback on that investment is not great either. They are reluctant to spend three years of their life acquiring a skill that may not get them far at the end of the day.
One of the strategies must be establishing how to do what I think Mr. Reid was referring to, and that is to get from here to there. It is a generational transition. We need a strategy for young people, one for older people, and they must be different strategies. One may be a transition that we can get rid of after we are successful in educating younger people, but we definitely can not abandon that significant portion of the rural population which is older and has low skills. To do that condemns them to poverty.
As demographics change, we will need all the workers we can get in North America in the next 10 to 15 years, particularly in rural areas because immigrants tend not to want to go to rural parts of the country. The local labour force is the labour force you must live with, and it is important to upscale that force.
There is a lot more material in my testimony on labour markets, but I would like to switch to the second point on national policy.
If you deal with rural poverty, you must deal with it in the larger context of rural development. Poverty is an aspect of rural development, and the way we resolve that is by an effective rural development policy. That is a difficult process. It is something Canada has struggled with, the U.S. has struggled with, the EU has struggled with, and there are a few indications that some approaches work. However, for the most part, the things that have been tried have not been particularly successful. I have half a dozen reasons why that has not happened.
We have tended not to make very big steps. Mr. Reid was talking about a fairly large change in our policies. I encourage you to think about large changes rather than incremental changes. If what you have done has not been effective, changing it a little will likely not be effective. Path dependency is an issue.
Myopia has been a problem with all of these things. You are focusing on rural poverty now, but the political shelf life for items of interest is very short. Resolving rural poverty will be a long-term effort. You must think about how to maintain that effort when the focus of politics shifts to something else, as it inevitably will, and there is pressure to relocate funds to whatever is the current political issue of the day.
We have fairly poor knowledge of rural areas, and that knowledge gets worse and worse as rural areas become a smaller part of the national economy in the United States. We do not really understand what is going on in those local economies. If we do not understand that, how can we presume we will make them work better? There is an information base that is sadly lacking in many cases.
We have a tendency to look for the silver bullet, the single thing that will make things better. In reality, we should know all of these places are different. Because they are all different, they will need a policy that works for them but not necessarily for somebody else.
That is hard for a national government to deal with. How do you have 2,000 rural policies? You can not. You have to find a rural policy that is manageable administratively, but flexible enough for people to get something out of it at a local level.
There is a classic example within Canada and that is Community Futures. If your committee has not had anyone talk to you about the benefits of Community Futures, you should because it is one of a handful of successful rural development policies in the industrialized countries.
My last point is that we have tended to ask more of rural people than they are capable of delivering. There is a belief about rural people that they are independent, they have a high degree of community, they are willing to cooperate and bring about change. That is true but they have very limited resources. What we ask them to do when things are downloaded from national and provincial governments to rural areas, in many ways, is more than they can manage.
It is important that political decisions recognize that, as those burdens are transferred down, the capacity to deal with them may not be there. Therefore, there is a model within Canada of tripartite negotiations that has been used in the past between urban centres, provinces and the national government. I am suggesting that you think seriously about how to adopt that tripartite model and apply it in rural places. By doing that, you may have a chance to address rural poverty.
The Chairman: Thank you very much. Colleagues, I have word from the front. The Fisheries Committee is taking off at the moment and coming back. I am wondering whether you still have the patience and the thrill of seeing us through this vote and letting us come back.
Mr. Freshwater: I have a plane at noon tomorrow. My time is your time.
The Chairman: Colleagues, would that be okay with you? We will take off and have our people entertain you while we are gone.
If we leave now, we can do the voting and come back and carry on.
The committee suspended.
The committee resumed.
The Chairman: Senators, we have heard from both of our guests and we are just about to start the questioning.
Senator Mitchell: I have a number of quick questions. Mr. Reid, you raised the idea of a guaranteed annual income, which is quite compelling. Are you saying it would just have rural application or would it have general application?
Mr. Reid: Not being a politician but having some sensitivity to politicians, my guess is that it would have to extend beyond rural. I do not see it as the single approach. I do not want to throw the baby out with the bathwater. Some of the other things we do already should be there, but there is a role for a guaranteed annual income — at least in the beginning — with a certain segment of the population that has experienced this poverty for some time and the prospect of re-entering the labour force is not great.
Senator Mitchell: Are biofuels a solution or do they really do anything?
Mr. Reid: Everything helps but I am not sure it is a magic bullet. I would treat this question in the same way as I would treat a question about tourism, which I have been around the mill on for five or six years. That was going to be the magic bullet for resource communities that were struggling, and I am thinking of the East Coast in particular but there are others as well. Even in Northern Ontario, this was going to be the saviour of communities that were having problems with pulp and paper. I am to the point where I do not think there is a magic bullet. There is not a single solution. We have had experience with single-industry towns left, right and centre and it seems cyclical.
Senator Mitchell: Given the emergence of environmental issues — which seem to be more pervasive, people seem to be more sensitive to them, and a lot of work has been done by people like yourself on rural poverty — has any thought been given to adaptation to environmental dislocation or dislocation because of environmental change?
Mr. Freshwater: To a certain extent, the concern with the environment is part of the problem for many rural communities. The classic example in the United States was the West Coast forest and the spotted owl. One thing which has happened is you have a more suburban population that is disconnected from rural areas. They see the amenity value of a rural place as being the primary reason for dealing with rural areas rather than seeing that the people who live in those rural areas have to earn a living.
Increasingly, we will have policies that are desirable from a national perspective but which impose huge burdens on rural residents, because you are taking away their livelihood unless there is some alternative way to carry on what they are doing. Perhaps we should do that but, at the same time, if we do that, we should compensate the losers because there is a huge gain for society.
Senator Mitchell: Maybe take it out of everyone's hands, if there is sustained drought or no water flows, which are not unrelated.
Mr. Reid: I do not think it is a secret that we are moving away from family farms and into factory farming. Some difficulties are just now being thought about, which are environmental. There is concern in Ontario that, when you check out the local rivers and streams, the antibiotic count is higher than what one would expect. It may not be part of the solution but it could also be part of the problem.
Senator Gustafson: Today I read in the paper that American production is 20 per cent higher than Canadian. We are not as productive. What is the reason for that?
Mr. Freshwater: Some of it I think is scale. The American economy is so much larger that you have the opportunity to run plants up to a larger unit volume output and, with higher volume output, you get scale economies.
Part of the difference, I think, is the United States is a harsher economy. Canada protects people to a greater extent than the U.S. does in terms of worker standards. There is a lot more pressure in the United States, and that pressure leads to higher output, but there is a social cost.
Senator Gustafson: That leads me to the next question. If you were to implement a guaranteed income, would you create a welfare state?
Mr. Freshwater: I have an indirect way of dealing with that. I think there are ways to do it. However, in both Canada and the United States, if you ask people who they are, one of the ways they tell you who they are is by what they do. Your occupation defines you in an important way. One reason people who are unemployed are excluded from society is because they are unable to answer that fundamental question — what do you do? Giving people income is a dangerous thing. It may be better to figure out a way to subsidize wages, use something like an earned income tax credit.
This sounds trite but I do not think there are bad jobs. I think there are jobs that are not particularly nice, but one of the best ways to get a good job is to have a job. That employment record is crucial. If you start people down a path where they have no employment record, then it is hard to get off that path. My sense is you would be better moving to something that is subsidized employment or created social employment, but you want to give them the ability to answer the question ``what do you do'' in a positive way.
Senator Gustafson: That leads me to the next question. It is very difficult to get labour that will do manual work even though it pays big money. A plumber today gets big money, and a carpenter today gets big money. Try to hire one. Try to hire a farm labourer. You can not get one. Have we become a spoiled society? Everyone wants a white collar job.
Mr. Reid: Perhaps I can offer an alternative view. I would rely on an old management theory called the XY theory. Managers have two ways of motivating their employees, or leaders motivate the people they are leading in two ways. One sees the individual as somebody that needs a stick approach — they can not be trusted, you have to watch over them and give them rules. The other approach is an inherent faith that human beings will act appropriately if given the chance to do so.
I fall on the latter side. I think what we are trying to do here with the guaranteed income is provide the space for people who find it difficult to get into the work environment to, in fact, make a contribution to themselves and to the society in which they live. If you think of this from an environmental policy perspective, at some stage in our history we will have to move away from this accumulation notion as the measurement for success and move more into an accomplishment mode.
I am not as concerned as you about the welfare society because I have a fundamental faith that people who do in fact have some of their economic needs met will be of great benefit to society and to themselves. It is trying to make a different space for them to do so. It comes down to a fundamental philosophy and how we look at human beings.
Senator Gustafson: There is a major change in society. I was in the construction business, farming and moving buildings, all hard work. When I was a young fellow, the last thing one wanted to do was work for the government because one could make a lot more money. However, today, if one is in the government, one has it made, whether it is SaskPower or SaskWater or whatever. One has a guaranteed pension, earning $30 an hour. The small entrepreneur has got his back up against the wall. They were the producers at the time that built the North American economy but that has changed.
Mr. Reid: It certainly has.
Senator Gustafson: If you want a man today, you have to get him out of bed, buy him a package of cigarettes and get him going. I am serious. If you do not believe me, talk to people who are in the business.
Senator Segal: I want to thank our two witnesses for the thoughtful contributions they have made to our discussions and I apologize for the delays in the meeting, which are beyond everyone's control. Our witnesses have been remarkably good sports about it and I appreciate that.
I want to push back a little bit on two of the propositions that have been advanced because I do not quite see how they connect, first with Mr. Reid, and then I want to test one of the propositions in Mr. Freshwater's paper.
Mr. Reid, you say in your paper that we should not be trying to deal with agricultural problems with social policy but, rather, with agricultural policy.
Let me put the proposition to you that the failure of our ability to sustain some kind of social opportunity on the farm has been tied to these commodity cycle-based policies which, by definition, can never meet the peaks and valleys as effectively as they show up in people's lives. Hence, we are left with circumstances where farmers may be in their fourth or fifth year, if they are in grains and oilseeds, with no net profit with which to operate the shop.
Second, we do not seem to have a problem strategically with other industries. We are not troubled about huge amounts of money for aerospace, defence and the auto industry. They have a special kind of unemployment insurance such that they are maintained at a very high level so the workforce is available to be called back after layoffs and peaks and valleys.
However, somehow when we get to folks on the farm, we have a huge problem. My colleague worries about creating a welfare state. The Minister of Agriculture brought in the Canadian Farm Families Options Program, which said that anyone who did not make $25,000 could apply to be brought over that limit — a federal program oversubscribed. Many people did not gross $25,000 in terms of their operation.
I want to push back and ask about when you embrace the idea of a guaranteed annual income or a basic income floor — which I am attracted to — it strikes me as a social response to a rural income problem. All the evidence we have seen to date, and certainly your own paper, suggests that the rural income problem is not just about farm income. It is about exactly what Dr. Freshwater referenced — namely, that the lumber and mining industries are not as labour- intensive; they are more capital-intensive.
So the old cycle of an honest day's work for an honest day's pay does not bear in rural Canada any more, and it is certainly not there on the farm unless we are into supply management, which I do not oppose, but it is a different frame of reference in some way. Is supply management not a decision by society to sustain a certain level of return, financed by all of us as consumers? I am not opposed to it; I think it is a great thing. We say we want our dairy farmers across Canada, Eastern Ontario, Frontenac County especially, to be doing okay, because we think having the capacity to generate milk is an important strategic capacity in our society and we are prepared to finance that.
If you are making the case that we have to solve the problem with agricultural policy and not social policy, but you are also making the case that we look at a basic income floor, help me reconcile how a government or a parliament gets there from here.
While you are reflecting on that, I want to ask Mr. Freshwater about the path-dependency reference, which I was delighted to see, because I think we often forget that it is much easier to move the tractor back and forth in the same rut than it is to pick a new furrow to start and we do that a lot in our politics. It is a natural process.
What is the radical suggestion, Mr. Freshwater, that you would recommend? Understanding the area as well as you do, and having covered the constraints in your paper as thoughtfully as you did, what is the radical suggestion that will break us out of the old furrow and get us into one that is not quite so deep where there is still some sunlight and some prospects for success?
I will take your answers as you choose to give them.
Mr. Reid: I am probably older than Mr. Freshwater so, if I let him go first, I may not remember my answer.
I may have overstated keeping the policies separate. First, let me say that I think dealing with the agricultural situation has to be much more complex than dealing with General Motors, from the worker's perspective. I have a son- in-law who works at General Motors in Oshawa, so I know the cycle of which you speak.
One thing that farms often are confronted with is a cash-flow problem. On the other hand, people say they are asset rich. I am okay with including farmers in a guaranteed annual income if, in fact, accounting can be done to determine that it is now a social problem and not a farm problem.
The only thing I was suggesting here is that much of the difficulty our farmers are in — and this is really not my area — is an international problem; it is a global problem. It is a subsidies issue, and not everyone is playing by the same rules. We have had the experience with the border closing down with disease and so on. To me, those are agricultural problems and not social issues.
I think the main things have to be dealt with inside an agricultural policy. If that fails, then it is an open question with regard to social policy picking up where agricultural policy has failed. I have used that line in the paper as well.
We need to keep the policies separate so that we know exactly what we are dealing with — the goals are clear and the path to those goals is clear. To muddle them, we do ourselves a disservice.
Senator Segal: You are allowed to give the youth perspective now.
Mr. Freshwater: Thank you. It has been a long time.
If I were to make the big leap — and I appreciate the difficulty in how big this leap would be — the one thing that just about everyone involved in rural development agrees upon is that effective rural development is locally based; it comes from the community. For a national government, in the Canadian context, that is tricky because local government is provincial. The Constitution is between the provinces and the national government. The provinces determine all the rules for local government.
The main thing you could do would be to try to figure out how to work with the provinces effectively and make it about something like rural development, which is a big issue, but it may not be a killer issue like so many of the other federal-provincial things are.
This is something where you have to go to them and say, ``Look, you make the rules for the local communities but we need the rules to allow these local communities to have some control over their evolution.''
Senator Segal: It is not the Agricultural and Rural Development Act, ARDA, or the Department of Regional Economic Expansion, DREE, or any of those old things. It is some process for the local communities having the fiscal freedom to make their own decisions.
Mr. Freshwater: It is a Community Futures model which Canada was able to do because, at the time of implementation, the Department of Employment and Immigration still had local offices. It was a labour force development project, which was the leverage that the federal government had to get in there and do it. Since that has happened, it no longer has that leverage.
The only way you can do effective rural development is to sit down with the provinces and say, ``You have the mandate. We know this is a problem. We will help you do this but you have to be the leaders in this process.'' That is a humbling thing for a national government but it is the same issue in the United States. The U.S. Constitution is silent on local government.
It is the same thing in Europe. The European Union bargains with nation states. It can not do anything at a local level but, in every case, the people who do rural development have managed to implement things like the EU Leader + initiative, and the Enterprise Community program in the United States that are locally based and driven. There are EU, U.S. government and Canadian government programs that we know work, but we can not get to the next step until you find a way for national governments to bargain within that federal set of relations. That is a huge thing and it is way out of the rut.
The Chairman: There are parts of Canada where Community Futures still are very attractive ways to go.
Senator Mahovlich: You mentioned earlier that St. Michael's College came up with this idea of a guaranteed annual income. Where did that come from?
Mr. Reid: The most recent thing is a report. There are a few landmarks in the last 25 years. It was actually St. Christopher House in Toronto, not St. Michael's. It is a report of the Task Force on Modernizing Income Security for Working-Age Adults called ``Time for a Fair Deal.''
What is interesting about this report is that, while they have not used the word guaranteed annual income, they have talked about an income supplement basically as a tax rebate.
Senator Mahovlich: I was reading in the paper that General Motors is sending 330,000 cars that they will sell next year. Are they manufacturing those in the States and sending them to China?
Mr. Freshwater: They are manufacturing them in China. GM has formed partnerships with at least two, and perhaps three, Chinese auto manufacturing companies.
Senator Mahovlich: Would Chrysler do the same?
Mr. Freshwater: Daimler has; I do not know whether Chrysler and Ford have or not. The Chinese bought Rover in England and moved all the machinery there. They are now getting ready to ship Rovers back into England. It is the Japanese phenomenon again.
We have done okay out with the Japanese when you stop and think about it. There are just as many jobs. They do not pay as well nor do they have the same level of benefits as Ford and GM, but they pay a lot better than almost anything else in rural areas.
Senator Mahovlich: If they go over with the labour force that China has, we will lose our labour force.
Mr. Freshwater: We can never compete with Chinese labour. We can not drive our wages down.
Senator Mahovlich: All our cars will be coming from China.
Mr. Freshwater: No. Just as the Japanese started by producing in Japan and selling cars here, I suspect the Chinese, once they establish a big enough market, will build their own assembly plants here, just as the Japanese did.
Already, somewhere in South Carolina, a Chinese company is making washers and dryers; they have a washer and dryer assembly plant in South Carolina. In Kentucky, we have a company that came in from Brazil and manufactures truck air filters.
Look at Brazil, India and China. China is putting up rockets. The principal competition for the Canadair regional jet is from Brazil. We like to think of them as low wage and low skill economies, but I read today that India cranks out more engineers than North America and the European Union combined in any year. You have these three large countries that are peers already in terms of their capacities.
What we have to figure out is how do we deal with them, not as developing countries but as our equals. We have a big rich market and they are going to want to participate in it. Where will they locate? We should encourage them to locate in rural areas because that is where we need the employment opportunities.
Senator Gustafson: Can I interject? In Lampman, Saskatchewan, they are bringing their pump jacks to pump the oil right from China. They bring them over and they paint them and put them in.
Senator Tkachuk: I said, ``How many people work in your company?'' and the fellow said, ``Six hundred, all well- paying jobs.''
Senator Gustafson: They do all the servicing for the oil industry there. Just to make the point — this thing is so diverse now and the question is where do we go in the future?
Senator Mercer: I apologize for missing your earlier presentation. You will be hard pressed to find anybody on this committee who is further to the left than I am. I have no problem with subsidies. I have no problem with government participating in the process. I have no problem with government levelling the playing field. I really believe in the old adage that high tides float all ships. We just need to make sure we keep the tides as high as possible. I do not have any difficulty with the term ``welfare state,'' like some others do.
Mr. Reid, you indicated that you did not think biofuels were the answer to rural poverty. I do not think they are the answer to rural poverty. However, I discovered one thing when we were in Charleston, South Carolina, in the spring with the Canada-United States Inter-Parliamentary Group. We had a long discussion about biofuels and the success in certain states in the United States. One of my colleagues in the U.S. Senate commented that it was only good when it was producer-owned biofuel plants.
I come from Nova Scotia, the home of Moses Coady, where we invented some of this co-op stuff and people getting together and helping each other. I would like to hear your thoughts on producer-owned biofuel production plants and how you see that having an effect on the rural economy. I think if the rural economy is going well, we can address the issue of rural poverty quicker.
Mr. Reid: I think that you have probably addressed your question to the wrong person sitting on the panel, given that I am not an economist. I wonder if Mr. Freshwater wants to handle that one?
Mr. Freshwater: I will broaden your question because I think co-ops are probably one of the more sensible ways that rural people can aggregate their limited resources to accomplish things.
That has been the history of agriculture in Canada and the United States from the 1930s on up.
Biofuels are tricky because it is an incredibly capital-intensive process. In essence, when farmers do it, they are putting more of their eggs in one basket. They are growing the corn, processing it and, if anything goes wrong, it comes back and bites them quickly.
Right now, it looks really good because in Iowa they are recovering capital costs in two years. The number of plants going in is incredible, but people are now starting to wonder how long this wonderful two-year capital-cost recovery cycle can last. It probably can not because we will produce more biofuels.
Senator Mercer: What if governments legislate, as the Brazilians have, a higher percentage of required biofuels in the gas we buy at the pump? I talked to people in the industry earlier this evening about the 5-per-cent level in this country. I think 5 per cent is too low.
Mr. Freshwater: It is already legislated in the United States that a certain percentage of renewable fuels must be within the mix. They are building up to it.
The consensus is you can not do it with corn and you must do it with cellulose. The problem is, as you push the cellulose technology, once it gets going, it will be inherently cheaper than corn-based ethanol because you are using a cheaper feed stock. It will be a little more expensive to do it because there is one more step in the process. You must convert the cellulose to a starch, then to a sugar, instead of going straight from a starch to a sugar.
The money is going into switchgrass, willow, corn stover, waste products. The guys in corn plants will be all right for now but, down the road, the feed stock will be too expensive.
I do not think that is your real issue. Your real issue is locally owned businesses owned co-operatively, and we have paid too little attention to that recently.
I teach economics. The only economics you see are the economics of a for-profit firm. I am hard pressed to find textbooks that even mention cooperatives as an alternative way to organize production.
Senator Mercer: We have to go through what we went through in the 1930s to get back to the cooperative movement and re-energize that. I agree with you. If we build the biofuels industry on corn, any time we build it on one thing we are at risk. You talk about switchgrass and willow, and there are other very useful products in this process.
I talked about the cooperative but, if it is producer owned, is it generating an income that is raising the level of income in the rural community to the extent it is making a significant difference in what our study is about — rural poverty?
Mr. Freshwater: I will be the two-handed economist here.
Senator Mercer: You usually are.
Mr. Freshwater: Certainly, if it is locally owned, the profits stay in the community. The other side of that is, if it is externally owned, that is where the capital comes from. You may need external ownership to get the capital in the community to build the thing. You are trading off do the profits stay here against do we have enough resources within the community to build the thing to get it started. In some places they do; in other places they do not.
I do not want to say you should go down a path of saying we can only rely on locally based businesses because one of the advantages of a firm from outside is it brings a lot of capital and marketing expertise, as well as connections, to the table that the community may not have. The community benefits from that but, in the process, it must give up some of the returns from the firm. That could be a fair trade. It is up to the community how that will work.
Senator Mercer: My last question is with respect to the discussion of factory farms as opposed to family farms. There is a romantic attachment in the United States and Canada to the family farm. We love the concept and are familiar with the family farm, and some of us around this table live on the family farm. I am not one of those but it is a fascinating history of North America.
I am talking about Canadians specifically. Has the failure to buy into the concept and buy into the economics of factory farms put us back a number of years in terms of the development of our agricultural industry? Have we spent so much time trying to save the family farm that we have missed the opportunity to develop better factory farms that help rural and all Canadians?
Mr. Freshwater: I think not. If you look at dairy farms in Ontario and Quebec, they are at least as modern, productive and advanced as the farms in Wisconsin. If you look in the Prairies, farmers in Saskatchewan have diversified into specialty crops to a far greater extent than farmers in Montana and North Dakota have. They are just starting to do that now.
I think Canadian farmers, by and large, are at the same level or maybe a little bit advanced in many things compared to American producers, although probably not in fruits and vegetables. I do not think there are any differences. The poultry industry is probably about the same on both sides of the border.
I do not think the difference is in the efficiency in a technical sense. The difference between Canada and the United States is, in some cases, Americans have been more effective in marketing because they have not had institutions like the Wheat Board or the marketing boards that have done the marketing for them.
Kentucky is an interesting example because the big crop there was tobacco. Tobacco was marketed through the Burley Tobacco Growers Cooperative Association to which you had to belong and you had a quota. You basically took the tobacco to the warehouse, they sold it, you got whatever the price was, and it was a blended price. Canadian farmers would be familiar with that kind of process.
Since the quotas have gone away in Kentucky, we are finding that farmers are good in production but have very rudimentary marketing skills. That is causing problems because they only think about how to produce the stuff without thinking about who to sell it to. It should be the other way around — what do people want to buy and, then, how do I produce it?
Senator Mercer: Thank God for the Wheat Board.
Mr. Reid: I know this is not a particularly safe thing to say to this committee, given that we are looking at rural poverty. One of the first things to talk about is creating more income and more jobs. I always worry a bit about the clash between policies. If we bring up factory farms, we do not know yet because we do not have a great deal of experience with it, but there could be a clash between income policy, economics and environmental policy.
That brings me to your earlier point. I have been tainted a bit by my foray into tourism, and that was going to do great things for communities. It has done good things but has not lived up to the expectations. Maybe the expectations were too high.
The other issue builds on Mr. Freshwater's point — that is, we should look around and pay farmers to do things that society or the public needs.
Earlier tonight, we were having a private conversation about how it would be interesting to see how much land has been taken out of production and what it has been left to. It seems to make sense to not subsidize farmers to protect them and help them grow things we really do not need, but perhaps subsidize farms for doing a service to society such as growing trees, for example.
It seems to me we have settled for old solutions and have not looked for where we will be in 10 or 15 years as a society. What will society need then? What is the role of rural development in getting us there?
That is the kind of thinking process we need to take with some of the issues we are raising.
Senator Tkachuk: I will approach this issue differently. I am not sure about this but I think Africa could probably feed most of the world if we let them into our markets. Subsides and our marketing boards are keeping them out of our markets. They are not allowing their agriculture production to mature. Poor prices are the result of too much production. Looking at failures and at ways to pay people to grow things no one is buying makes no sense to me whatsoever. In Europe, they are guaranteeing $8 per bushel and producing grain that is providing cheap food for the urban areas. They are giving the rest away. That is not good economics or good farm practices. They load up their land with fertilizer and chemicals to ramp up the number of bushels of grain they grow from 30 per acre, which is normal, to 150 per acre. Those are unheard of amounts. That can not be good for ground water, soil or the environment.
I have travelled this country, as many of us have. We may have poverty in rural areas, but we have poverty in cities too. I do not think the numbers are much different. Rural areas are great places to live. Part of our culture is to get people to move to the cities, but many people are moving back to farms and rural areas. They like it and they pay dearly for it.
The wine industry is growing grapes. They have value added. There are little wineries that are succeeding. Grape growing is succeeding.
The Vietnamese and people from Hong Kong came to Vancouver and, through sweat and hard work, have built fantastic mushroom farms right in Vancouver. People should tour them to see what hard work they do. They are making a very good living growing mushrooms.
There are cranberries, truck farmers and orchards. Our beef industry is great, although we have to protect people from the calamities. Our pork farmers and honey farmers are doing very well. Agriculture is not a total disaster. We have a problem with grains and oilseeds, although it is mostly with grains. We have too much grain. It does not pay to pay people to stay on the farm. I do not care how we do that because the economics do not work.
What was intriguing is this piece on tourism. It is interesting. I think there is tremendous opportunity for tourism in rural Canada. We must keep working at it. The market will look after itself. We provide places to go and interesting things to do.
We have to work on successes. That is what I like. We have not heard enough about where and why we are successful in those areas. How can we adapt those successes for agriculture in Canada so that we do not have to rely on handouts and subsidies, which just screw up the market and people stay in a business that no one wants to support? That is what subsidies are all about. That is why I am not big on this guaranteed annual income. I do not understand that stuff.
Why are those areas successful? How can we market new products that allow farmers to make a living?
Mr. Freshwater: The wine industry in Southern Ontario is successful. I grew up there. When I grew up there, it was all Concord grapes and they got hammered. It was bad stuff, but I was not old enough then to drink it.
The interesting thing was that the government helped the industry adapt. They tore out the old grapes and put in new grapes. They went to more locally based wineries.
You are right that what we need, not just in Canada but in the United States and other countries, are more success stories. There was something I did in Saskatchewan about five years ago called ACRE, the Action Committee on the Rural Economy. The Saskatchewan government put it together. They essentially went around and found small towns that had been successful. They produced a book that was about all of these Saskatchewan success stories. That did two things. It reinforced in those communities that they had been successful and they were recognized for it. It also gave other places an example, not that they should do what each of these towns had done, but if you come up with your own strategy, you can be successful.
My argument is that what we really need is a locally based development process. By doing that, then the people in the community are the ones who commit to it. The senator from Nova Scotia said it is locally based and driven. People are willing to invest their resources because it is theirs.
One of the things I tell people in communities I visit is that, if they are not prepared to invest in their community, why should anybody else? If you do not think enough of this place to put your resources into it, how can you expect somebody from the outside to put money into it?
You must empower them. Make them commit to their own development because they are the ones who will have the greatest benefit from it.
You also must give them some success stories. You have to show them that it is not a myth that places in rural areas can succeed, and that people can make themselves more prosperous and build their community into something vibrant.
Senator Tkachuk: I will follow that up with a good example from our province. In the 1980s, the Progressive Conservative government passed legislation to allow pubs to brew their own beer. Of course, like all governments, we wanted to limit it. We grow malt and barley. My argument was — and I lost it — why not let anybody who wants to, brew his own beer and sell it in the marketplace? We are the home of malt and barley. We make the best malt and barley in the world. We ended up with one brew pub over there and another over there. We had the beer lobby, the hotel lobby and all these people who hated competition. We lost all that business. Now British Columbia and Alberta have all the pubs and we do not. They are brewing beer and they have little breweries going. We lost the micro-brewery industry through bad economics and policy.
What this committee should be concentrating on is helping to identify those areas in which we can do really well. I think rural Canada has a great future. I am very positive about rural Canada. I am not a negative person. I am very positive. It is a great place to live.
Mr. Reid: Senator, I basically agree with you that there are many untapped resources. I also agree with Mr. Freshwater that with some hard work, if it is locally driven, many good things can be accomplished. There is no doubt about it.
However, my experience suggests that no matter how well we do for many reasons that are not economic, some people can not be a part of that. Somehow, we can not let them get lost in the mix.
Senator Tkachuk: I do not disagree.
Senator Mercer: If we can truly get into jobs, I would recommend that we go on a pub crawl, as they say, to see how we can fix this problem.
The Chairman: There are other kinds of rural communities, such as the ones in southwestern Alberta, that are not fuelled by pubs. In some cases, they are fuelled by theological history that has kept many towns in southwestern Alberta very vibrant.
Senator Oliver: I have one question with three parts for Mr. Freshwater. I regret missing your presentation paper but I have read it. I would like to add to what Senator Segal said and thank both of you for hanging on during our delay in the chamber.
My question is about demographics and economics in rural Canada — who is in rural Canada and how can we break the cycle of poverty in rural Canada? You have said in your paper that rural Canada has a high level of out- migration. You said that it is age-cohort specific: teens and people to age 30 are leaving. That leaves the adults who often do not have a lot of skills. You also said that rural places have few resources in an organizational sense. You paint a picture of people leaving for urban Canada; those left are old and there are not many great organizations left. You ask yourself those questions in the paper about what can be done and your answer suggested locally based development.
How do you bring back those highly skilled people who have gone to the urban areas and keep them there? How do you make rural areas work better and effectively when you get them back? What labour adjustments are required in those rural areas now? Once you answer that, then I will be able to understand what you mean by locally based development.
Mr. Freshwater: I will only give you part of the answer because, if I could give you the full answer, I would be famous. In essence, your three questions are the rural development problem.
To start with an anecdote, I went to a small college in Kentucky that has very clever kids. We were talking about rural development and they said that one reason they leave is because they have a miserable time in high school.
Senator Oliver: Were they bullied?
Mr. Freshwater: No, there was simply nothing for them to do. People told them to be quiet and do what they are supposed to do. It was not an environment that told the kids they could contribute to the community.
Because these bright kids did not have a strong positive experience through their high school years, they left and did not want to come back because they did not see the community as the kind of place where they wanted to live as adults. It starts in the school system by trying to get people to attach to their communities. If and when they go away, they will think more about coming back. Clearly, it has to do with whether there are opportunities.
If you go off, start a business and are thinking about relocating in your home community, one of the things you will look at is whether the community can support your business. If it can not support the business, no matter how much you would like to go back, you probably will not go back. A piece of that will be whether the labour force is in place that is needed to operate the business. One of my arguments in the paper is that yes, we have lots of labour in rural areas but, in many cases, we are missing pieces in the skill set. Until we figure out a better way to do job training in rural areas in a different way than we do job training in urban areas, we will continue to have missing pieces in the skill set. If you want to run a job training program that requires 40 people before offering the program, and there are only 25 people in the community, then no one receives skills training. However, if you offer that program four years in a row and create 100 people with those skills, then you have more than satisfied the demand. There is not enough work for those people so it becomes a matching of places on an annual basis, recognizing that you might not be able to run a training program for a particular skill more frequently than every fifth year. We must be more creative in how we operate the job training issues.
Senator Oliver: You could also be training more of the seniors who stay in the communities.
Mr. Freshwater: Yes, if people want to do that, it is wonderful. But it is tricky doing job training for older people and I am not sure we have good models. You have to train older people differently than younger people because they have been away from school for an extended period of time. You need to have a flexible approach to the delivery of training. One of the essential elements in rural places is trying to figure out what skills are missing, what skills are complementary to the things people are doing, and what kinds of activities make sense in that community. It is called ``active labour market policies,'' in an academic sense. It is more than simply putting people on employment insurance, EI, and asking them to go through the motions. Rather, you have to encourage people to take the training so they can realize their potential for an opportunity to get a job in a particular area when employers are looking for that skill set.
Once again, you need to figure out what is going on locally so that you can create an opportunity for people to stay. By creating that opportunity to stay, you might encourage people to come back. Some of that is marketing but a big part has to do with trying to develop a vision for what a community can be, and then getting the majority of the community to buy into it.
Senator Oliver: Can you think of any community that you have been to or read about that meets your philosophy and your concept of development?
Mr. Freshwater: Yes, but I do not know whether they are still doing it. When I was in Manitoba, I found Carman, Morden and Winkler were very good at that. I recall a couple of places in Kentucky as well. Success stories of such places do exist just about anywhere. The fascinating thing about small towns is that, when you arrive, immediately you know whether they are successful just by looking around. It has less to do with the inherent resources of that community than how people have chosen to use their resources. That is a learnable trait.
It may not be everybody in the community but, if you can get a critical mass of people to think about being progressive, the community becomes progressive.
Mr. Reid: We have had a couple of graduate students who looked at the out-migration of youth and tried to make sense of it. When you stop to think of it — and I will use myself as an example — I left my home town. There was opportunity there. My dad was a merchant on the main street and I could have taken over the business. But there was a world out there that I wanted to explore. Also, if you are in your small hometown, I am still little Donny Reid who grew up around the corner. I am sure we all suffer from those past mistakes.
Some of these students have started to ask questions like, ``What would be the conditions under which people from the cities, who did not grow up in this particular area but saw it as an opportunity for them to come out and start a life, could be attracted here?'' It is not a question of how do we get our kids to come back as much as it is, how we attract new and young people and have a flow-through in this community to make it vibrant? There are two discussions. One is everyone likes to see their kids come back, but the other one is how do we get people to move in?
This is a different concept, but Elliot Lake, Ontario, has done some interesting things in creating a seniors community and selling their mining stocks, Dennison Mines and the other one. They have turned a mining town into almost Sun City North. Some new thinking about approaching the problem and sometimes turning it on its head is fruitful.
The Chairman: We have one person looking for round two and that is Senator Gustafson.
Senator Gustafson: You used the term `marketing.' One of the problems agriculture has is we are price takers. General Motors tells you what they want for a truck, International Combine tells you what they want and John Deere tells you what they want. But farmers take what they get. That has been a problem.
The Americans are way better marketers than we are. They sold our cattle for a hundred years and those cattle are still going south. We must be better marketers. That is all there is to it. My thinking is that is not happening.
Mr. Freshwater: I am not sure that I fully agree with you because we can find examples with mustard, pulses and all the specialty crops. The people who produce those are good marketers. They saw an opportunity to sell that and they created those markets.
Senator Gustafson: I grow canola. For three or four years, we did well. Right now, though, we are not doing so well because canola dropped back from about $12 at a high to $6 dollars. Flax dropped back; mustard you can not sell. There are problems there.
Mr. Freshwater: I will grant you that farmers tend not to respond quickly enough to changes in markets, but I do not think you can necessarily conclude that Americans are inherently better in that than Canadians. To some extent, the Canadian marketing system, just like the tobacco system, has made it easier for Canadians not to acquire those skills. I do not think that means they can not. Anybody who can manage a farm can probably figure out how to market their products if they want to put in the effort and see that they should put the effort into it.
Senator Gustafson: We are competing against a country that puts $70 billion into subsidies in agriculture. We are competing against the Europeans that put more into it.
Mr. Freshwater: I would argue with you that people who get subsidies get lazy. People who do not get subsidies have to think —
Senator Gustafson: My American neighbours work hard but —
Mr. Freshwater: The argument is why can the Americans not grow durum? They will not grow it because they do not make as much money growing durum as they do growing wheat which has a higher yield per acre. They get paid on yield per acre and not on wheat quality, although there is a market for durum wheat. They then whine because the Canadian durum comes into the U.S. They could figure on the durum but it is not in their interest to grow it.
Senator Gustafson: We are in a global market and Canada has never come to grips with that problem; America has. That is the big difference. It is not that the world does not need the product. The world needs the product. There is less grain today per capita than ever in the history of grain production. However, you can not compete against those forces. They are 300 million; we are 30 million. If Canada put in $7 billion, we would be in wonderful shape. If that kind of capital is injected, a lot of it comes back. They buy cars, trucks and combines.
The Chairman: Gentlemen, thank you. This has been a good evening and you have been good sports waiting. Thank you for being so patient.
The committee adjourned.