Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 1 - Evidence - Meeting of November 29, 2007
OTTAWA, Thursday, November 29, 2007
The Standing Senate Committee on Agriculture and Forestry met this day at 8:03 a.m. to examine and report upon rural poverty in Canada.
Senator Joyce Fairbairn (Chair) in the chair.
[English]
The Chair: Good morning, honourable senators and witnesses.
In May of 2006, this committee was authorized to examine and report on rural poverty in Canada. Since that time, the committee has released an interim report providing an overview of rural poverty and rural decline. The committee has travelled to every province, visited 17 rural communities, talked to over 250 individuals and organizations across the country, and we are truly touched by the wonderful and diverse group of Canadians who have shared their knowledge, their passion and their concerns with us. We are humbled by their generosity, and how they have welcomed us with open arms into their communities and, sometimes, even into their homes.
The committee is in the final stages of its study. It is therefore important to hear from key people in organizations to ensure a fulsome understanding of the issues affecting rural Canadians. To that end, we are happy to hear from the marketing agencies of the supply management sectors in Canada. The goal of supply management is to ensure a stable supply of dairy, poultry and eggs for Canadian consumers and the agri-food industry at a reasonable price.
I am happy to say today that supply management stands out as a mechanism that helps provide stable incomes to farmers.
We have with us this morning Gyslain Loyer, the Chair of the Canadian Hatching Egg Producers; Wayne Kroeker, Vice-Chair of the Canadian Turkey Marketing Agency; Jacques Laforge, Chair of the Dairy Farmers of Canada; Mike Dungate, General Manager of the Chicken Farmers of Canada; and Laurent Souligny, Chair of the Canadian Egg Marketing Agency.
We have two hours today to cover a wide array of issues, so I would invite honourable senators members to keep their questions as brief and vigorous as possible, to allow our witnesses to respond fully. That will allow everyone to contribute to this very important meeting this morning.
Welcome to all. Who would like to start?
Laurent Souligny, Chair, Canadian Egg Marketing Agency: I will. Thank you, Madam Chair and honourable members. On behalf of the Canadian dairy, egg and poultry farmers, I wish to thank you for inviting us here today to speak about the very critical issue of rural poverty in Canada.
Our business represents the interests of farmers across Canada who produce and market according to national supply management. Farmers of our five commodities have chosen to operate under this uniquely Canadian system, which matches production to Canadian consumers' demand while allowing farmers to receive a fair price from the marketplace without relying on taxpayers' money.
Supply management operates under federal and provincial legislative authorities. Production allocations are established and producers pay a fee for their production to permit cooperative marketing by national agencies and provincial boards.
Because we produce according to demand, costly surpluses are avoided and our farmers make their income from the marketplace and not through government subsidies.
It is with great interest that we have followed the dedicated efforts of this Senate committee on the examination of rural poverty. The issue of rural poverty is a critical matter and we commend the committee for tackling this issue. We trust that our appearance today will contribute to your ongoing effort towards a final report.
Today, we are pleased to share the perspective of the supply management side of the agriculture industry on rural poverty. It is important to contribute toward addressing the problem and identifying the role governments should play in addressing the challenge. Our message today is clear: Consistent and strong support by the government for supply management at the World Trade Organization negotiation table is a critical piece to addressing the present and future economic state of rural Canada.
If supply management were eliminated from Canada, the impact on the rural economies would be severe and profound. Supply management is a key business risk-management program, consisting of three pillars: production discipline, producer pricing and import control. It is recognized as a business risk-management program by the federal and provincial Ministers of Agriculture because it helps dairy, poultry and egg farmers manage market risk without taxpayers' money.
The continued support of supply management is an essential component of any government strategy aimed at addressing rural poverty. In fact, we believe that supply management is a model that can be used to address rural poverty around the world. Canada continues to be a leader on this front.
A strong agriculture industry is critical to strong rural communities, and strong rural communities support the social and economic needs of a significant portion of Canada's population. Together, the dairy, poultry and egg industries contribute a net $12.3 billion to the GDP, generate $7 billion in farm cash receipts, sustain more than $39 billion of economic activity and employ more than 214,000 people throughout the country. The majority of this activity is within rural Canada, making supply management an economic backbone to rural communities.
Our farmers, their employees and their suppliers financially support local communities with activities ranging from grabbing a sandwich at the local restaurant to buying supplies at the local hardware store. We support our communities socially by enrolling our children in hockey teams at local arenas or sitting on local boards for hospitals or schools. Many of the feed mills for our animals and the processing facilities for our products are also located in rural Canada. As rural populations decline, an ever-smaller tax base exists to support the necessary rural structure. Supply management remains a stalwart within the rural tax base. This, in turn, makes rural Canada a better place to live and visit.
The positive benefits of supply management are felt from gate to plate. We are a success story in Canadian agriculture; we are a success story in rural Canada.
Supply-managed farmers receive a fair market price for the food they produce and thus do not rely on government subsidies or taxpayers' dollars to make a living. This stability allows producers to invest in industry improvements such as genetics, food safety, research and long-term quality animal care that, in turn, helps secure the future of our industries and of rural Canada.
Processors are assured of the quantity and quality of food they will receive on an annual basis, allowing them to accurately plan business, activity and growth.
Supply management also delivers on the demand from Canadian consumers for fresh, quality, local products throughout the year at reasonable prices. An overwhelming number of Canadians appreciates the role that supply management plays in our economy. In a recent poll by Léger Marketing, 83 per cent of respondents agreed that ensuring a stable income for farmers through supply management is a better approach to farming than using taxpayers' dollar to pay for farm subsidies. Furthermore, 85 per cent agree that the government must support supply management during WTO negotiations.
As you have no doubt, carefully considering the sustainability of rural Canada is a key component to any long-term strategy on rural poverty. This committee must ensure that the solutions they propose today to address rural poverty are sustainable for the long-term viability of rural economies. Supply management is a production and marketing system that allows farmers to make a fair income from the marketplace and is a model for rural sustainability. Supply- managed farmers can count on a consistent price for their products, allowing them to feel secure in making investments and improving the sustainability of their operation on an ongoing basis.
[Translation]
Gyslain Loyer, Chair, Canadian Hatching Egg Producers: Madam Chair, we understand that you have consistently heard from many witnesses during your study that one of the challenges to the future economic viability of rural Canada is the high level of migration of youth out of our rural regions. In non-supply-managed commodities, youth have watched their parents endure the ongoing financial struggles to make ends meet on the farm while often holding down a second off-farm job and this is not always an attractive future for the next generation.
Economic opportunity is necessary to attract and keep young people in rural areas. Supply management operations offer strong and financially secure opportunities for the next generation and youth have watched their parents successfully contribute to the rural community. Many of our farmers are young. As an example, in the chicken industry, 34 per cent are between the ages of 30 and 44.
In a 2003 survey by Ipsos Reid, 75 per cent of supply-managed producers said they woulde encourage young people to farm and 63 per cent said they expected their children to continue to run their operation.In contrast, only 59 per cent of non-supply management producers said they would encourage young people to farm and 46 per cent said they expected their children to take over their operations. Yet, without the certainty that the government will successfully defend the supply managed model at the WTO tables, we may be nurturing a young generation who is hesitant to invest their future in agriculture and thus in the future of rural Canada.
Both urban and rural Canadians agree that national food security should be a priority. In the Leger poll referenced earlier, 98 per cent of Canadians agree that it is important to have access to a stable supply of safe made-in-Canada food. And, 98 per cent want to preserve strong farming communities in our country. Supply management helps to deliver on these desires.
The domestic market is the primary market for all of Canadian agriculture with the bulk of revenue from Canada's agriculture and agri-food production — about 71 per cent — coming from the domestic market. This demonstrates that Canadian agriculture is already very focused on meeting the needs of Canada first. And when it comes to supply management, the vast majority of our dairy, egg and poultry demand in Canada is supplied by Canadian production.
I would like to take a few minutes as we conclude to clarify what steps we believe are necessary to defend this critical contribution of the supply-managed industry. It is essential that any agreement negotiated at the WTO allow for the flexibility to maintain supply management and its three pillars in Canada: production discipline, producer pricing and import control. These three pillars are equally important and weakening one, compromises the entire system.
To maintain supply management, Canada must negotiate a text that will result in no economic losses to our sectors. Should our sectors lose, rural Canada will lose. Domestic and international policies must be consistent in supporting the maintenance of our supply management programs. We need to have supply management defended Internationally by ensuring trade deals provide the tools and mechanisms to allow our continued operation. We also need to have strong policies here at home that recognize the importance of supply management in mitigating business risks.The supply-managed systems which are based on the three pillars outlined above are like the three-legged milking stool — removing one leg destroys the entire stool. We are confident that having heard our presentation, you will agree with us that the survival of the supply management model is a component to rural stability that cannot and must not be negotiated away.
In closing, I would like once again to thank the committee members for inviting our organizations to present to you our perspective on the issue of rural poverty. The recommendations we have today are critical. We respectfully request the committee to include within their final report a strong acknowledgement that the economic stability and vitality of rural communities is inextricably linked to a strong system of supply management. We also renew our request that the Canadian government preserve the three pillars of supply management in their entirety at the WTO negotiation tables.
Thank you for your interest in our presentation today. We look forward to the final report from the committee on this study.
[English]
The Chair: Thank you very much. I should like to welcome Don Boudria, who is sitting in the back. Mr. Boudria is a long time member of Parliament in the House of Commons; without him, I know that we would not have been able to have this meeting. We thank our friend very much.
Senator Callbeck: Thank you all for coming here this morning and for your presentation.
Certainly you have made a great case for supply management, and I agree. I think it gives the producer a price that is based on production. As well, the consumer gets a safe, high-quality product.
Growing up in a rural area in Prince Edward Island, certainly I know many farmers who have benefited from supply management. I believe it makes a great contribution to rural Canada. During our visits around the country, where the committee held various hearings, we heard from people who have been supportive of supply management. As I say, I am one of those people.
We have also heard people say that supply management has evolved over the years into a system that favours large corporate farms and caters to big processors. I want to give you the opportunity to speak to that. I do not believe that is true, but the criticism is out there; I should like to hear your comments on it.
Jacques Laforge, Chair, Dairy Farmers of Canada: Senator Callbeck, that question merits a lot of attention. If you look at farm production versus processing, different groups of producers have made different choices. Getting involved in co-ops and so on might look like integration, but those choices are made from a business standpoint.
If I look at dairy specifically, there are about 14,500 to 15,000 producers in Canada who collectively sell their milk. There has been a fairly strong rationalization on the processing side. Three major companies are processing 75 to 80 per cent of the milk, but these are no different. That kind of rationalization is no different than that of any other agricultural industry. It speaks to the financial pressure of trying to keep everyone's cost of production down to economies of scale. That is basically how we view it.
We have a large co-op in Quebec that is owned by the majority of producers there. It is very successful, but it is very separate from the production side. All farmers in Quebec belong to their federation and sell milk to Agropur as much as Saputo Foods or Krafts or the Parmalats. That is the structure.
Mr. Souligny: If I look at the egg industry, yes, there are bigger farms in some places. However, if I look at Ontario, which has close to 40 per cent of the production, the average producer has about 20,000 layers. That is not a big farm.
In the Western provinces, the numbers are even lower than that. Over the years, we have lost a few producers, but overall it does address the reason the system was put in place in the first place.
I do not think that bigger companies are getting much bigger; it is just that there are regulations in place so that we can maintain the number of farmers we have.
Mike Dungate, General Manager, Chicken Farmers of Canada: In the chicken industry, not just at a farming level but also at a processing level, it is very much a privately owned industry. There are entrepreneurs who have developed their companies to that point, and that still dominates both at a production and processing level. There are a couple of cooperatives. Frankly, only two processing companies are significant corporate entities, in the sense of being publicly traded companies.
We have had 2,800 farmers across the country for about the last 10 years, and we have not seen a decline at all. We have seen the production and the size of those farms all increase, because we have driven the consumption of chicken up by more than 50 per cent over the last decade. Therefore, everyone has grown. However, there has not been a disproportionate amalgamation and consolidation in the industry; it is just growth, which is positive for the whole economy.
Senator Callbeck: I also wanted to ask about organic farming. Are you encouraging this and, if so, in what ways? Approximately what percentage of total production are sectors of organic farming?
Mr. Souligny: In terms of the organic production of eggs, our mandate at CEMA is to supply our customers with whatever product they would like. For example, it could be free range, free run, organic, Omega-3 eggs.
Yes, we have seen growth, but not out-of-control growth. We are managing fairly well. Where we see the most organic production is in B.C., where there is demand for organic production. We are addressing that through CEMA.
Senator Callbeck: Why is there more demand in British Columbia than in other provinces?
Mr. Souligny: That is something I cannot answer. I do not know.
Mr. Laforge: They are different.
Mr. Souligny: The weather could be a factor. As you know, organic chickens have to have access to the outside. In Ontario, free-range chickens would not be happy on a day in mid-January. That is one explanation for why you would see more organic production in a place like B.C.
Senator Callbeck: Roughly, what percentage would be organic?
Mr. Souligny: In Canada, about 3 to 5 per cent. It is not a big percentage.
Senator Callbeck: B.C. would be what percentage?
Mr. Souligny: It would be around 10 per cent.
Senator Callbeck: That much difference?
Mr. Souligny: Yes.
Senator Peterson: Thank you, presenters. In your presentation, you pointed out a number of times the importance of the federal government supporting supply management at WTO. Do you have any indications that this is wavering, or are you just making a statement?
Mr. Laforge: The WTO is a pretty large group. I think all political parties in Canada have made it clear that they support supply management.
Our concern is defending it with the right strategy and approach, and with the intensity of a negotiation like this, you have to be on your toes to ensure that all the elements needed for supply management — the three pillars Mr. Souligny referred to — are clearly understood and are defended. That is where we sometimes look at the strategy. Each government has its own strategy, which cannot be shared publicly because it is in negotiation with other countries. Those are the areas in which we want to ensure that maximum effort is given in the defence of these three pillars.
Senator Peterson: You talked about the cost of production, which is an integral part of the whole operation, as you are aware. In Western Canada, the cereal farmers, hog producers and the livestock producers are suffering quite badly. Would you agree that a cost-of-production template is something that could possibly be used in the agriculture industry across the country?
Mr. Laforge: ``Cost of production'' is a big word. Quite often, it is a guide for farmers to get a decent return. We need some level of efficiency to allow all farmers in Canada to get their cost of production. In supply management, there is a level of efficiency in the formula to determine those things. To say we should all receive our cost of production is a fair comment. To receive a fair return, supply management has to discipline production. That is one of the key elements where, from one commodity to the next, there is a difference of opinion. We are not trying to impose supply management on anyone that does not want it. Supply management was created by a majority support of farmers in that commodity. That is how the government established it.
Regarding grain farmers in Canada, I do not think supply management would fit for grain farmers because grain is an export-oriented commodity. Most grains are an internationally trading commodity. The commodity has value somewhere. In some other commodities, a different tool may be needed. We are not about to tell other commodities what they should or should not do. It is their choice to decide the direction they want to take.
Senator Peterson: How is supply management distributed across the country? What percentage is in different areas?
Mr. Laforge: There is a large variation from poultry to dairy. For dairy, the two largest provinces are Ontario and Quebec, producing about 68 to 70 per cent of the milk. Then the Western provinces, B.C. and Alberta, are next in line. All the others are fairly equal in size. There is variation, and the processing capacity follows the same nature.
Mr. Souligny: In eggs, it is Ontario and Quebec — Ontario with 38 per cent and Quebec with about 18 per cent. Manitoba, Alberta and B.C. have about the same amount of birds, as well as the Atlantic provinces. We also have the Northwest Territories in the egg industry. There is production up there that is under supply management. They have an allocation of about 125,000 layers.
Most of the production is in Ontario and Quebec. The good part of supply management is that it does not matter what percentage you have in your province, you are all treated the same, equally.
Senator Gustafson: We are quickly moving into a global economy. Canada's trade, even just with the United States, is close to $1.5 billion a day. That trade adds to the quality of life in Canada and to the strength of our country, as we have even seen in the dollar in the last few days.
How does supply management strengthen that area, or does it? There are two areas to look at. If Senator Mahovlich wants to get into the chicken or milk business and buy a quota, what will that quota cost him? Will it be impossible for him to get into the business unless he is born into it? What is the quota on one dairy cow, for instance?
Mr. Laforge: You are asking a fairly specific question, and we could probably talk about the different angles for four hours.
Senator Gustafson: We may as well talk about the real issues.
Mr. Laforge: Do not worry; I will not avoid your question. You are talking about trading, which is a minuscule amount between farmers. In dairy, if you cannot meet your production in a particular year because of a breeding problem, say, the calving of your cows is later, there is a system in which farmers can exchange quotas among themselves, and that is what we refer to as ``value.'' Anywhere from 4 to 5 per cent of the total quota would be traded in one year. On a per cow basis, the total quota would be about $22,000 to $25,000 per cow of value. However, if you milk 100 cows, you are only trading two cows, because you cannot meet the production and someone else is buying the two cows, if you want to put it in a cow perspective.
As to the question of how to get into farming, whether it is supply management or not does not matter. It is a high- cost, intensive way to get in.
If a person has not been born into farming — let me give you this example. If none of my own kids is interested in the farm, and I want to sell the farm, I would set up a share corporate structure, where, if one of my employees is interested in taking it over, he gradually starts buying shares. It might take a period of 15 years before it is transferred and so on. That is the kind of thing you see in dairy now.
As far as the value of quota, believe me, everyone in farming would like to get it for nothing. However, because of the stability, it has accumulated value. When a dairy farmer has no one to take over his or her farm and is selling his quota, that is a fair amount of money. Usually, the farmer sells his quota, but his land and building have lost value, unless he is close to the city, for real estate, which would be the case for any business.
The perspective of the value of a kilogram of butter fat of quota is not fully understood. When you look what is happening in the dairy industry, we have created some tools in the last few years to stop the quota from escalating in value, to make it more affordable for those who are staying in. It is one part of the system that receives criticism. We are aware of it, and we are trying to address it so that it understood as clearly as possible.
Senator Gustafson: If you look at it in terms of rural poverty, and that is what we are talking about here today, the numbers will get less and less as they incorporate, as you say. It just automatically has to happen.
There is no way that someone who is in a rural area, who wants to go into chickens or cows or whatever, can get into it. You might say that is true of the grain industry as well because the costs are so high, but it really does pose a problem.
It used to be that an individual could have a few hens and sell some eggs in the store. Right now, I understand that that is against the law. You can tell me whether it is or is not.
Mr. Souligny: In the egg industry, we do have about 1 million birds that are unregulated. By that, I mean that people are allowed to keep 100 laying hens. One of the reasons they cannot sell directly to retailers is because those eggs must be graded.
We want to ensure that whenever we put eggs on the shelf they are the best eggs available in the province. It is for quality-control reasons more than anything else that producers cannot sell eggs to retailers directly. We do not prevent them from selling them at the farm gate. However, at the store, we cannot accept that a portion of our producers will put at risk the majority of producers.
When you look at the cost of getting into the business, I happen to have a cash crop in addition to my egg-laying operation. There are high costs association with getting into the business of cash crops these days. It does not matter where you are. The cost of land, the cost of machinery, the cost of seeds, fuel, et cetera, has gone up drastically.
There is a cost. It does not matter whether it is supply-managed commodities or not. It is expensive to get into farming today. If you do not have, as Mr. Laforge said, an employee who is prepared to get into the business, or some family members, it is hard.
There are some provinces that are working on putting in place a policy for new entrants, to help them get started in the business. We are working on that. We realize that it is difficult for some young people who would like to get into the business, and we are looking at this.
Senator Gustafson: The term ``family farm'' is really not valid today. The family farm is either gone or going. Whether we are talking about the grain industry or the marketing industry, the same thing applies. All you have to do is look at the numbers over the last 10 years.
However, it does not help rural poverty, the fact that there are less and less people involved in the profit end of agriculture. That brings us again to the global challenge. Where are we at?
The global challenge is a very important issue that Canada must address. I was in Seattle during the WTO convention. You remember the stir that that caused at the time. Since then, not much has happened in the WTO, at least as far as I have seen. It seems to be stalled. My guess is that, one of these days, something will hit the fan. I wonder if Canada is ready for that.
Mr. Dungate: You asked the question at the start, how we are doing in exporting. We certainly are an exporting nation in terms of agriculture, but I think we need to put that into perspective.
Globally, 10 per cent of agriculture production is exported. Canada exports 30 per cent. We are a significant trader. However, that still means that 70 per cent of our market is here at home. Even though we are three times the average globally, our market is still here for all commodities. We need to understand that. Where is our best market? Our best market is here. That is where we have the best advantage, because we can produce it fresh, locally, no matter what the product is.
We do compete globally, and those pressures are driving consolidation. We have been able, in our industries, to reduce the rate of that consolidation. We still have production of chicken in every province — commercial production, across the country.
I would argue that, if we did not have the system we have now, it would be highly concentrated, and probably in two or three provinces, and that is about it. The farms would be large, because we would be taking on the U.S. head on, the largest producer of chicken in the world.
I think we do meet it. We are becoming more efficient, as Mr. Laforge says, in our operations every year, because we know that we still have to provide for and compete in the marketplace. Chicken must compete with beef and pork for consumer dollars. If we price it out of that, people will select a different protein. We are doing our job in terms of that. We are trying to become more efficient and we are becoming more efficient.
Senator Gustafson: What would you recommend this committee to do in regard to solving rural poverty? It has been easy to identify the problem. It will not be that easy to solve the problem.
Mr. Laforge: You probably have two choices, if I look at the line of questioning. You must ensure that the production base of the rural area stays there and that the farmers who are doing it — regardless of whether they are small or big — get some kind of balanced return for the work they put into this.
When the farming community in an area gets much more intensive and rationalized — in my case, I have a dairy farm in a potato-production area; I used to grow potatoes also, so I am able to see the same thing in potatoes as in dairy from a rationalization standpoint — what we notice is that, every time a farm gets bigger, there are more families involved. These are either families inside or families close to those farms that are working with the farmer. If the return is better, or there is a stable return for the farmer, you see the total farming community improving.
If the standard of living goes up in a rural area where agriculture is strong, the standard of living goes up for everyone because it is prosperous. You see jobs. The level of education that people have is secondary, because there are jobs there and people are better off.
That is the dynamics of the two. If you wipe out agriculture in one area — and you have seen that in forestry too — it is a disaster for everyone.
Senator Baker: Are the quotas, referenced earlier, considered to be property in the hands of the holder for purposes of the Bankruptcy Act? In other words, is it sometimes treated like real estate, you have a broker who can sell it, or when someone is broke and someone declares bankruptcy, is it considered to be property? If someone walks into a bank and says, ``I want a loan,'' and the bank says, ``Okay, you have property,'' can that property be assigned to the bank as security?
Mr. Laforge: I cannot answer for poultry, but in the case of dairy, from one province to the next, much of the time it is the marketing board or the dairy farmer association that legally owns the quota, but the farmer has the right to produce it. In some other provinces, the farmer owns the quota. There is a mishmash there; that has been tested a number of times.
In dealing with the banking system to expand or to make a major investment, I do not know of a bank or a financial institution that has looked at quota as having full market asset value. Some banks go up to 50 or 60 per cent of the asset value, but they know it is volatile. We are talking about a piece of paper. The bank wants to ensure that a farmer has a decent land base. For example, if dairy consumption went up by 10 per cent, the quota value would drop because everyone is satisfied they have a drought. In a shrinking industry, the value climbs up, but it is volatile.
You mentioned something in your question about whether someone can speculate or become a broker of quotas. That might have happened in the past for the short term, but, in the last few years, most provinces have been careful to design this for farmers as a trade tool for balancing their production. In the last two or three years, we have put in policies with major provinces to assure ourselves that you cannot get into those kinds of speculation just because of the value. Dairy quota in the last year and a half or two years has dropped for two reasons — those very policies, and because there has been growth. We have about a 4 or 5 per cent growth in consumption just in the last six to nine months.
The point is: Quota is volatile.
Senator Baker: I am just wondering, though, whether it is considered to be property under the law. The quota is assigned by a body and it is only as good as the extent of that assignment. My question is this: Upon bankruptcy or another similar circumstance, would the governing body assigning that quota facilitate the transfer of that quota to someone else, thereby giving it value in the holder of the farmer in the first place?
Mr. Laforge: The answer to that would be no. In dairy supply management, I do not think we have seen any bankruptcies. Before the situation gets to that level, the farmer makes a conscious decision to sell whatever he has as an asset base. Perhaps I am not answering you directly, but you will not find a dairy farmer that has gone bankrupt in Canada. A dairy farmer would decide to liquidate his assets and pay off his bills before that would happen. You could argue that that is because he holds a quota and it has value.
Senator Baker: However, could this occur should the situation of bankruptcy arise? This is what is in my mind when Senator Gustafson started asking the question regarding the quota.
Could the person or bank who has a lien on the property, on the farm, say to the farmer, when he or she goes in for a loan or a loan extension, we would like you to assign your quota to us, as security for this loan?
Mr. Laforge: In dairy, the ownership is either through the provincial board or the farmer himself.
Senator Baker: Yes, but it has value as property. This is the problem.
Mr. Laforge: Let us say a farmer decided that he is going bankrupt. He is not selling anything; he is going bankrupt. This quota would automatically revert to the board.
Senator Baker: It cannot be transferred to an existing farmer?
Mr. Laforge: No. It reverts to the board. At the end of the year or period, you have to issue quotas based on markets. That quota would be issued to all the other farmers in the system.
Senator Baker: Therefore, it has value.
Mr. Laforge: No. It would be issued; no one would buy it. We balance production; we give quotas out to farmers when consumption goes up and we take it away when it goes down. In the case you are describing, that is what would happen.
If the farmer decides to go bankrupt, he does not offer his quota for sale. The farm would close the day the milk is not shipped. He does not have anything left in the quota, and the board, or that provincial board in that province, takes back the quota and starts balancing based on whether a quota cut or increase is needed in the next month due to consumption. If that quota is not issued anywhere and production levels stay the same, you have to issue that quota. You would distribute that quota amongst the existing farmers.
Senator Baker: I am sorry for going on so long.
Mr. Laforge: I hope that answers your question.
Senator Baker: To be honest with you, it does not, but I appreciate your answer.
However, your opening remarks implied to me that unless some person had a quota, it would be of little value to have the physical property of the farm if the person did not have something to do on the farm. That automatically raises the issue that the possession of a quota is of value to the farmer, and therefore the banks. Banks, given how they operate, would perhaps seek security as to the ownership of that portion of the quota and compel the farmer either to have an assignment to a corporate body or the banks would somehow get their fingers into that property upon transfer or sale.
Mr. Laforge: I cannot speak for the other commodities, but in dairy, I guarantee you that banking institutions cannot get their finger on the quota. They can get their finger on the cash flow of the farm, but the quota is not a tradable item in this context. If a multinational or large company starts buying this farm —
Senator Baker: Behind the scenes, perhaps.
Mr. Laforge: If they buy the farm and the quota is there, that would be a unit of production. However, a banking system cannot start possessing quotas. I must be careful when I say cannot, but we have not seen it — let us put it that way.
Senator St. Germain: To follow on Senator Gustafson and Senator Baker's line of questioning, I am surprised that you do not know what your colleagues are doing here, Mr. Laforge. I have been a chicken farmer; therefore, I know the system. You can assign quota. Perhaps the bank does not get the right to own the quota, but a farmer can assign the quota, because farmers borrow against it. Every farmer borrows against quota. Perhaps the banks cannot own quota, but they can put a farmer in the position of having to sell it. Historically, there has always been a market for it because there is more demand than there is quota.
You said that grain and other commodities are different because they export. Your commodities are now starting to export quite aggressively into the world market. Chickens are going to China. I do not know about eggs.
In answering Senator Gustafson's question, I do not understand what you meant when you said the difference lies in it being a world-traded commodity. Your commodities are becoming traded worldwide, too, which puts pressure on whichever government is there. You are correct in saying that there is not a government that has not taken a position on your side.
However, could you please explain what you mean when you responded to Senator Gustafson's question?
Mr. Laforge: First, I make a differentiation between the dairy, poultry and egg marketing agencies because we are under a supply management system, but we operate the systems quite differently. In the case of dairy, we now export about 2 per cent, which is considered to be subsidized because a New Zealand and U.S. panel challenged us in 1999- 2000. We lost because the domestic price versus the export price was considered to be subsidized. From now until 2013, if this WTO agreement is signed, export subsidies would have to disappear, so Canada would not export any dairy, which is quite different. That is the first point.
The supply-management system works well if you are able to control it through domestic policies to get a fair return for producers. As soon as there are increasingly larger portions for export, you cannot dictate to the rest of the world that you will recover the cost of production; you will take market price.
For example, the grain industry is exporting 40 per cent to 50 per cent of its production. It is hard to recover the cost of production on the portion exported because you cannot tell everyone else that they must fit under our rules. That is why it is a commodity decision. All these factors must be taken into consideration in supply management.
Looking at hog production, about 25 years ago, that industry also considered supply management. A decision could have been made at that point to produce only for the domestic market and establish a supply-management system. However, the producers did not take that decision. Once an industry is dependent on export, supply management will not work unless other countries also adapt to the system.
For example, within NAFTA, let us say the United States said, ``We will not subsidize any more, and our farmers have to stay in business, so we will have some kind of supply management.'' That exists somewhat with the dairy industry. They do not want to call it supply management, but they are putting various tools in place to manage their herds and production levels so there is no surplus. That is pretty close to supply management.
If the rest of the world wants to change, supply management becomes more possible.
Senator Gustafson: The government is the guarantor of the quotas. If supply management were to be changed, the government would have to buy producers' shares and, in that sense, they have become the guarantor. Please comment.
Mr. Laforge: We are not interested in that. If the government bought our quota, it would create a deficit position, and it would be a bad sign for all the other commodities. The marketing agency wants discipline of production, which is not what every farmer wants. Some farmers want to be left alone to ``do their thing.'' A collective decision was made to control production — the responsibility of government is to control imports, not stop them, but control them. Within that, we plan production and get a decent return for what we produce.
Senator Mahovlich: When negotiating with the WTO, I am sure other countries have their own systems. China always drums to its own drummer. How do we overcome this? Has the WTO tried to solve some of these problems? Do the Americans have their own system? I am sure that different states within the United States have different rules.
Mr. Laforge: Regarding the WTO right now, the key element, from a Canadian perspective, on supply management is in relation to sensitive products. Canada is negotiating to have an appropriate, sensitive tariff line to accommodate supply management, which does not exist now. Other countries want to use the same thing because they need to protect some of their commodities. This is needed to protect domestic production. It is not correct to say that countries have supply management systems because they want to protect sensitive products generally. Rather, they want to use a sensitive tariff line to capture the domestic production that they want to protect.
Europe has a quota system. It is not a supply management system as we have in Canada, but there is production control, with a budget attached to provide money to their farmers.
Senator Mahovlich: Right. France is known for that also.
Mr. Laforge: Yes.
Senator Mahovlich: This is what we have to deal with.
Mr. Laforge: I do not think we want to go to that kind of system because when the European Union budget disappears or is decreased these farmers do not have very much to look forward to at that point.
Senator Mahovlich: Climate change has been a problem. Have the chicken farmers and the dairy producers adapted, or are you adapting to the problem of climate warming?
Mr. Laforge: In the case of dairy, looking at responsibility for gas emissions, reductions have been made through the efficiency in production per cow. About 25 years ago, 1.5 times more cows were needed than today for the same milk production. Production then was about 6,000 litres per cow; today it is about 9,000 litres.
There is also research being done with manure storage and feed formulation to reduce it even further. Farmers are interested in doing this if there is to be carbon trading and so on. Farmers should be recognized for what has been done.
Mr. Souligny: Looking at eggs, for instance, we spend a lot of time discussing the environment. With regard to the spreading of manure and things like that, we are working an all these issues.
We have not seen a big difference yet with climate change.
Senator Mahovlich: I have a question that is off the wall, but I have been going up north for the past 50 years. Recently, we are seeing large groups of wild turkeys. It is quite a phenomenon. How do you explain that? Have they escaped from the farms?
Mr. Souligny: I think what you are talking about is a game bird. I live in Eastern Ontario, and years ago we never used to see wild turkeys.
Senator Mahovlich: I never saw any.
Mr. Souligny: Today, we have quite a few of them. They were brought into the area by the Ministry of Natural Resources. That is how we got wild turkeys in Eastern Ontario. We do have quite a few today, and hunters like them. In some places, they could be a nuisance.
Senator Mahovlich: In someone's backyard up in Muskoka, I saw 30 or 40 wild turkeys.
Senator St. Germain: Gentlemen, thank you for attending here this morning. We are studying rural poverty. At one time, I had a reasonable understanding of the business you gentlemen are in. I cannot see much help for rural poverty in your industries, simply because your industry is rationalizing; in a lot of areas, the farms are getting bigger. I live on a former dairy farm; there is only one dairy farm left around me. This is along the U.S. border near White Rock.
There are not really new entrants, and automation minimizes job opportunities. At one time in the chicken industry in Mr. Dungate's area, which I was involved in, there was a program for growth — new entrants, as you described it. However, it was done with such reluctance. Let us face it: There will always be enough to fill man's need but never enough to fill man's greed. You people are assigned with protecting the status quo.
How do you see your industries improving the plight of the poor in our rural areas? That is really what we are studying. To me, that is the question.
I have been away from your business for a long time, and I am not casting aspersions. I did very well when I was in the business. My understanding is that it has evolved to what it is as a result of greed on the part of producers and feed companies that vertically integrated and destroyed the farmers. In British Columbia, that is why we have this problem.
However, now the pendulum has swung the other way. How do we swing it back to help the rural poor?
Mr. Dungate: Part of the challenge in British Columbia and the Fraser Valley is this: Is the Fraser Valley rural anymore? The encroachment of Vancouver development has caused a concentration in that area. It becomes a challenge when farmland has a greater value to put houses on it than something else.
I would argue it from that perspective. You are asking what we can do to contribute to addressing rural poverty. You want to try to retain strengths in rural Canada. We are a strong component of rural Canada. There is profit in our business, so people reinvest and build communities. What will happen if we lose agriculture from rural communities? Look at what is happening in the pork industry right now. If we lose agriculture from rural Canada, a lot of the synergy that is there will be lost.
For example, they talked about moving chicken production off Vancouver Island, because the processing plants closed there. However, if chicken production left, you would lose the rest of agriculture. For example, the feed mill would no longer be sustainable without chicken production. We now have a smaller processing plant on Vancouver Island.
We have also been innovative in British Columbia. There was a bunch of organic or specialty bird production. That has been brought in through what we call a permit system. As long as they continue at the level they are at and just pay the levies on what they are marketing, in 12 years — if they stay in business — that will become quota for those people. They do not have to take what they are doing, make a capital investment to get in; they get to have the stability of the marketing system, get in at a little bit. If they want to expand, they can purchase quota on the side to augment what they have, but that permit production will be grandfathered after 12 years.
Those are the types of things we can do to ensure that we continue to remain viable as an industry and allow others to stay in rural Canada.
I am not sure what we can do to address the problems that are happening in other sectors. I think there are things you need to think about to keep others in rural Canada. We have provided you with a population chart, where rural Canada is very underrepresented, in comparison to the Canadian population, in the group 20 to 44 years old.
As we have addressed, the average age of farmers is creeping up above age 55, and many of those farmers are telling their children to get out of the business. This will not happen today, but what will happen in half a generation when we expect those people to be leaders and investors in rural Canada? It is not just an issue today that you have to address, but what will come.
Mr. Laforge: I also would like to reply to that, from a dairy perspective. What I am hearing is that because of the way you look at quota value we seem to be rich and not doing very much to sustain everything around us.
When we buy quota, we buy it to be able to produce additional milk — either the production per cow goes up or you want to milk a few more cows. It is a business decision. Every farm I know has sons or daughters who want to take it over. When you buy a quota to produce more milk, it is not to speculate.
There is an old saying, if a dairy farmer lives poor, he will die rich; there is not much sense is dying rich because he will never sell that; he keeps producing it. If there is no one to take over the farm, because they are not interested, say, then it is a different issue. The asset he has goes down to practically zero. The cash flow is generated by the milk.
For all the reasons that Mr. Dungate described, a lot of the dairy farmers specifically in British Columbia have left. They have sold their total farm and have moved to Saskatchewan because of the land value and the encroachment of the city, and so on. In British Columbia, more than anywhere else in Canada, farmers are moving from one province to the next because of the lower cost of land. We are starting to see that in Alberta as well.
About three weeks ago, I was in Regina to their annual meeting. There, you see one third local dairy farmers, one third Hutterite colonies, and the rest are all people who moved from British Columbia.
Senator St. Germain: For the record, you have global quotas in Canada. You cannot take quota from Alberta to Saskatchewan.
Mr. Laforge: That is right.
Senator St. Germain: They are moving, but they are not moving with their quotas. They are strictly moving geographical location. They have to buy out someone in Saskatchewan to stay in the business.
Mr. Laforge: That is right.
Senator St. Germain: It is a complex business and it has offered certain protections that are important to the economy. However, if there is a solution to poverty, it would be to get more people in the business.
You have kids who grew up where I grew up, with nothing. I was one of them. I got lucky in land development and that is how I ended up with a chicken farm. Otherwise, I would never have a hope in heck.
In British Columbia, to be fair, there was a growth program, where they had a lottery. People put their names in and ended up being chicken farmers and got a 5,000-bird quota. I wonder how much of that takes place in the other commodities. That is the only way, basically, that some of these people would ever be able to get into the business.
A chicken quota is selling for $60 a bird in British Columbia right now. That is straight quota without a farm. That is not something that poverty can deal with in any way, shape or form.
The object is not to tear you people down. You have worked your way up over the years. It is to try to bring other people up to a level that removes them from the poverty level. I think I have said enough.
The Chair: Is there anything else, colleagues?
This has been a very lively session. We are happy you were able to be here. You brought a great deal of information for us, but also a sense that, like so many other parts of our agriculture and forestry industries, there is a lot of pressure. We wish you well. Thank you very much for appearing here this morning.
Senator Gustafson: I have one thing to say, in all fairness. My observation, particularly of the dairy industry, is that it is not an easy life. Those cows have to be milked at whatever time — you can tell me, but it is probably early in the morning and seven days a week. I think that must be recognized as well. We probably did not do a good job of recognizing that, but I wanted to say that.
Mr. Souligny: I have one last word. There was a question asked about how can supply management improve rural poverty? Supply management, in the last few years — and, hopefully they will be able to maintain that — is keeping family members involved in our production, whether it be eggs, dairy or chickens.
At the same time, in the area of agriculture area today, people are getting their hired men involved in the business, giving them shares. Eventually, these people will take over the farm — if the farmer does not have any children to give the farm to.
This is what is happening in our area — I do not know if it is happening anywhere else. However, if you have the proper income, you will get the support that the people in rural Canada need. As I mentioned in my opening remarks, as producers and as rural people, we do sit on some of the hospital boards and school boards. I think we are quite involved. I think that in rural Canada, supply management really works well. That is what I mean to say.
The Chair: Thank you very much again. We wish you and all those you represent the very best.
The committee continued in camera.
The committee resumed in public.
The Chair: We will discuss the budget now.
Jessica Richardson, Clerk of the Committee: Perhaps we could start with the legislation budget. We do not expect to get any legislation; however, I have prepared a very small budget.
The Chair: All agreed?
Hon. Senators: Agreed.
Ms. Richardson: The next budget is on the present state and future of agriculture and forestry in Canada. The committee has already started holding hearings on this subject, due to the income crisis in the meat industry. The budget is for 15 working meals, and again it is under $10,000.
The Chair: Is it agreed?
Hon. Senators: Agreed.
Ms. Richardson: The last budget relates to the rural poverty in Canada study. The budget includes the work to be done in Ottawa and the trip up North. There were some changes made to the figures from the previous budget on this trip, based on planning that occurred over the summer. I had missed budgeting for some items and wanted to ensure that we account for a hangar and de-icing costs. I shall possibly explore the idea of planning the trip with another committee that anticipates a similar trip, in an effort to share costs between the two committees.
Senator Segal: Are these maximum numbers?
Ms. Richardson: Yes. I am hoping to come well below this budget, but I have to plan for the worst-case scenario.
Senator Mahovlich: What other committee did you say?
Ms. Richardson: I do not know if it will be possible with regard to timing, but the Committee on Rules, Procedures and the Rights of Parliament is considering travelling to the same places up North, to examine the use of third languages in their legislatures.
Now that we discussed dates, I shall contact the clerk of that committee to see if that works with their dates. Perhaps we can travel together, to save money and be more efficient.
Senator Gustafson: What will be the total number of people travelling?
Ms. Richardson: Currently, we know that only four members are available; I shall have to re-poll members now that an exact week has been chosen.
The Chair: What about Senator Mercer?
Ms. Richardson: His office indicated that he would travel.
The Chair: He is eager to get back.
Ms. Richardson: I do not know precisely how many will be travelling at this time. I always endeavour to be frugal with the funds. We need a motion on this budget.
Senator Peterson: I move the motion.
Senator Segal: I should like to record an abstention on the budget.
The Chair: All those in favour of the travel budget?
Some Hon. Senators: Agreed.
The Chair: I thank you for everything we have been doing on this issue.
The committee adjourned.