Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 9 - Evidence - Meeting of April 10, 2008
OTTAWA, Thursday, April 10, 2008
The Standing Senate Committee on Agriculture and Forestry met this day at 8:06 a.m. to study the present state and future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chair) in the chair.
[English]
The Chair: I would like to welcome you to another session of the Standing Senate Committee on Agriculture and Forestry. Today our committee continues to look into the issue of farm input prices in Canada.
Canadian farmers have been facing significant input price increases in recent years. For example, Statistics Canada's farm input price index shows that fertilizer and fuel prices have increased on an average by 7.6 per cent and 13.9 per cent annually, between 2002 and 2006.
Although grain prices have been on the rise since last year, higher input prices have had a direct impact on farmers' profitability. In addition to the reasons behind these higher input prices, the committee will be paying particular attention to input prices in Canada relative to those prevailing in the United States.
With us this morning, we are pleased to have Paul Wideman, President of W-S Feed & Supplies Ltd. and Director on the executive committee of the Animal Nutrition Association of Canada. Also joining us from the Canadian Animal Health Institute are Jean Szkotnicki, President, and Bill Maxwell who is the chair.
We are delighted to have you here. Welcome.
Paul Wideman, President of W-S Feed & Supplies Ltd. and Director on the Executive committee, Animal Nutrition Association of Canada: My name is Paul Wideman. I sit on the Board of Directors of the Animal Nutrition Association of Canada, also known as ANAC. I am the President of W-S Feed & Supply Ltd., a family-based feed operation in Conestogo in the Waterloo region of Ontario.
ANAC is the national trade association of the Canadian feed industry representing companies that manufacture commercial livestock and poultry feed as well as the suppliers of feed-related goods and services. ANAC appreciates this opportunity to speak to the committee about the critical issue of rising input costs and their impact both on farmers and on other agricultural stakeholders whose livelihood is linked to that of farmers.
The feed industry is certainly one of these stakeholders — agricultural producers are both our suppliers and our customers. It is important to bear in mind that Canadian livestock and poultry producers represent our entire customer base. When they face serious challenges in their businesses, we face serious challenges in ours.
The major commodities used to make feed are corn and soy. Higher prices for these inputs have also driven up the cost of other protein and energy-driven ingredients that are used in feed. Statistics Canada recently reported that, between September 2006 and September 2007, barley prices in Western Canada rose 60 per cent and corn prices in Ontario increased over 50 per cent. Since September, prices have continued to escalate. Corn cost $170 a tonne in Ontario on Labour Day weekend and now costs in excess of $200 a metric tonne. Soybean meal complex has risen to $430 today from $313 in September.
Manufacturers are also paying considerably more for micro-ingredients — those ingredients, vitamins and trace minerals that add nutritional value to feed. Many of these products are made using fossil fuel production and have surged in cost because of rising oil prices.
Therefore, we are an industry paying more for inputs but we are, of course, also a provider of inputs. Our feed is a major input for producers. In fact, it is the largest single cost of animal production. For example, 75 per cent of the cost of raising a hog is the cost to feed a hog.
Our industry operates with extremely tight margins and our commodity inputs make up at least 85 per cent of the total cost of making our product. We have to pass on our higher costs to our customers. We have tried to delay passing on some of our costs. For example, when fuel surcharges first started showing up in the industry, many feed companies, hoping it was a short-term trend, did not pass on the extra cost to farmers right away. However, these surcharges have become so prevalent in the transportation industry that we now have to pass on these costs quite quickly as well.
Some might ask: Why is the feed industry hurting if it can pass on higher costs? This comes back to the point that the health of our business is inextricably linked to the health of our customers' operations. Rising input costs are causing some farmers to get out of the business. Our customer base is shrinking. In Southern Ontario, a number of multisite feed operations have had to close down mills. The situation is even more serious in Western Canada. ANAC estimates that at least 5 per cent of facilities have either shut down or are in the process of closing their doors. We do not believe we have seen the worst of this because some companies are holding off on closing facilities in the hope that the situation turns around in a few months. We see little sign of that happening.
As you are well aware, the exchange rate is also having a detrimental impact on livestock producers. The last time we had expensive feed in Canada, in the mid-1990s, producers could cope better with higher input costs because the lower dollar meant good prices for our meat exports.
The exchange rate has affected us, as well. A lot of feed mills located close to the border across Canada used to sell a significant amount of feed to the Northern U.S. Those sales have essentially stopped now because of the dollar being at par. This is another factor in the closure of feed mills.
As we all recognize, the solutions to rising input costs are complex. I would like to briefly address a couple of areas where ANAC believes improvements can be made.
There are a number of new technologies and products available around the world that can lower the cost of feed. However, regulations in Canada discourage the use of many novel and alternative ingredients because the process of getting new products approved is complex and time-consuming. ANAC recommends amending regulations governing feed ingredients to ensure that the market can more easily get access to new types of lower-cost ingredients.
Overall, the regulatory regime for the manufacture of feed is out of date. This regime does not allow the feed industry to respond quickly to crisis situations such as the current high ingredient costs. There are a number of lower- cost ingredients that could, in theory, be imported from the U.S. However, they are either not approved or would get held up at the border.
Feed is also more expensive in Canada because we have additional food safety requirements included for Bovine Spongiform Encephalopathy (BSE). The feed industry understands the importance of these safeguards and ANAC worked closely with the federal government to establish mechanisms for implementing the BSE safety measures. However, complying with these regulations costs more money. At the same time, our producers are competing with imported meat products produced under less stringent rules. We do not have a level playing field.
ANAC would like to see reforms to reduce the cost of compliance while assuring the same high safety standards. We recommend the government provide producers with funding to offset the incremental costs associated with the enhanced BSE regulations.
Before closing, I would like to comment on Canada's biofuels strategy. The feed industry believes strongly that relying on corn as the foundation of our strategy was short-sighted. We should focus on biofuels from materials that do not have a direct impact on the food chain, such as wood waste or other by-products of methane production. The U.S. is moving in that direction in its latest energy bill, exploring fuels from other biomass sources to alleviate the pressure that has been put on the corn industry.
Thank you for your attention and I look forward to answering your questions.
Jean Szkotnicki, President, Canadian Animal Health Institute: I would like to thank you for inviting the Canadian Animal Health Institute to appear before you today to speak on the matter of rising agricultural input costs. I am president of the institute. Joining me is Bill Maxwell, the chair of our board of directors and the business head of Boehringer Ingelheim Vetmedica, the animal health division of the corporation.
We are a unique trade association. We represent both the innovative and the generic manufacturers and distributors of animal pharmaceuticals, biologics, feed additives and pesticides used in agriculture and veterinary medicine in this country.
We are a small industry. The animal health industry in Canada represents only 2 per cent of the global animal health sector. That being said, the CAHI's membership represents 95 per cent of all companion and food animal medication sales in the country, or around $510 million worth of sales. Our members and association work closely with Canada's agricultural producers and, as Mr. Wideman says, when they hurt, we hurt. We also work with the veterinary profession.
As you are aware, there is a significant difference between the animal and crop sectors of agriculture. While the crop sector is enjoying a revival and increasing margins coming from innovative uses for plant products, particularly in the energy sector, the animal sector is suffering its worst markets in some time. Increased input costs in the animal sector are caused primarily by rising energy and animal costs. The feed problem is driven by the diversion of grains, like corn, to the energy sector, as discussed by Mr. Wideman.
Let me turn specifically now to the input factors related to the animal health industry. The total of all veterinary services and goods amounts to 1.9 per cent of input costs, or $700 million. This has remained steady over the past number of years. By contrast, machinery fuel now accounts for 5.8 per cent of costs, or $2.1 billion. This has increased by over a half billion dollars in the four-year period from 2002 to 2006. In the same way, the increase in the cost of natural gas has increased the cost of nitrogen fertilizer.
Medicating input supplies represent a small proportion of the total cost of livestock and poultry production, as documented by Agriculture and Agri-Food Canada's farm net operating expenses for 2006. I will point out that veterinary costs in case are animal health products plus the cost of breeding and genetic costs. Therefore, it is not just the veterinary costs; it is a scope. Our products lie within that 1.9 per cent.
They were $700 million, or 1.9 per cent of overall expenses, which is dwarfed by the costs of energy, feed and other inputs. We think it is fair for this committee to examine all aspects of input and look at the value Canadian farmers receive for their money.
The animal health industry provides a disproportionately large benefit for the social and economic fabric of this country, relative to its cost. The return to our farmers from the products my members sell and veterinarians prescribe include healthier herds with less loss, better weights and more cost-efficient herd management.
In broad terms, our members provide critical input for Canada's meat and livestock industries, promote and improve human and animal health and well-being, make essential contributions to food safety, contribute to a sustainable and competitive agriculture, support global trade and economic development and contribute to a Canadian economy based on innovation and knowledge.
Most important, we would like to stress that our products are critical to animal and food safety, international market access and to Canadian producers' competitive production capabilities. We provide Canadian producers a very tangible return on their investment. When we look at the cost of input, we believe Canada can do better for its farmers. In the area of accessibility to new animal medications, Canadian producers are at a terrible disadvantage compared to our trading competitors, and this hurts Canadian producers' competitive position.
Currently, an animal drug reaches our producers, on average, about three years later than it reaches producers in other countries with whom they compete. The system has become so bad that in some cases, innovative products that could assist our producers are not even introduced in Canada. This extends as well to generic products that can have the effect of imposing price discipline to innovative products.
Interestingly, while an innovative animal health product might be more expensive per unit than an older product, it does not make the animal more expensive to raise but actually makes a more competitive animal through improved rate of gain and/or yield. Thus, the availability of new technologies assists producers by providing the cost benefit of a healthier, more cost-effective animal.
Given how impactful animal health products are on farmers' profitability, the possibilities abound if more expeditious access to the latest animal health products were possible. Currently, Canada ranks dead last amongst our major regulatory competitors. We are providing, as an exhibit for the committee, a survey conducted by in 2006 by the International Federation for Animal Health entitled, Benchmarking the Competitiveness of the Canadian Animal Health Industry. This survey was conducted in five regions of the world: the EU, the U.S., Australia, Japan and Canada. Canadian business and regulatory heads were surveyed by a U.K-based firm that conducted similar surveys in the other regions. Results of the survey were reported in 2007, with 94 per cent of the companies surveyed in Canada reporting that the regulatory framework was the greatest obstacle to successful new product development. This was greater than that reported for the U.S. or for Australia. The Veterinary Drugs Directorate took approximately six years longer than either Australia or the EU to carry out a mandatory risk assessment for an innovative companion animal or food animal drug and over three years for a generic companion animal or food animal product. Furthermore, the IFAH benchmarking survey report found that unlike other developed countries surveyed, Canadian law permitted the importation and use of non-Canadian-licensed product. Canada permits animal owners to import products for their own use, and active pharmaceutical ingredients or bulk chemicals are permitted for use by health professionals. This market was estimates to have a value of $100 million, which is 30 per cent to 40 per cent of the sale of Canadian-licensed product. Poor regulatory performance and the permitted use of non-Canadian-licensed animal health products have been a disincentive to investment in new animal health technologies in this country.
There is a major contradiction in Canada's approach to animal health products. Let me be clear: There is not a legitimate safety issue involved in regulatory delays. The products that get approved in Canada are generally the same as those approved in other developed countries, just years later. On first blush, the notion of own-use import and active pharmaceutical ingredients appears to offer potential cost savings for producers. However, they enter Canada without the safety and efficacy scrutiny of Canada's regulatory authorities. These products often come from unknown or questionable sources, so producers live the competitive dilemma of not having access to safe Canadian-licensed products, while imported food is often from production systems that utilize products not yet licensed in Canada. At the same time, Canadian regulatory loopholes allow access to non-Canadian-licensed products through own-use import and use of active pharmaceutical ingredients. Producers are then left to worry whether the use of these products is putting their sector and the Canadian public at risk — their sector largely because of trade and safety concerns.
While in the last year we have seen a significant positive change at Health Canada in the Veterinary Drug Directorate, progress has been dependent mainly upon one public servant. Positive change to aid Canada's producers should be an issue of governance, leadership and a bias to action within our regulatory programs. The animal health industry delivers benefits well above its costs. While relatively insignificant at less than 2 per cent of input costs, the animal health industry is vital. Simply put, $700 million protects a $32.3 billion meat, dairy and poultry industry, of which red meat exports are $3.8 billion. It protects our competitive reputation, animal well-being and the consuming public. We suggest to this committee that this is money well spent.
Thank you for this opportunity to represent our industry.
The Chair: Mr. Maxwell, do you have comments before we go to senators'' questions?
Bill Maxwell, Chair, Board of Directors, Canadian Animal Health Institute: There is no question that the animal production industry in Canada, the United States and probably globally is in trouble. I have read recently about what is happening in Europe, Korea, Japan, the United States, Canada and Mexico and all of them are in serious trouble as far as their producers are concerned. We see that herds are being downsized to reflect the realities of the market. Those realities, as Mr. Wideman pointed out, include high feed costs that are one of the most important and critical costs to production. These costs are out of alignment with the price that the final product, meat, is sold for to the consuming public.
The Chair: Senators, we will begin questions.
Senator Mercer: The statistics and the points of view that you have brought to us are rather startling. Let us say that we are able to amend the regulations governing the feed ingredients and that we are also able to provide producers with funding to offset the incremental costs associated with the enhanced BSE regulations. I understand those to be your two recommendations. How much would the prices go down for farmers?
Mr. Wideman: That is a good question. I will comment first on the second part — the added costs of the BSE regulations and the enhanced feed ban regulations that came in July 2007. The cattle processing industry estimates that you have about $10-$15 per live head of cattle added costs going through the processing plant. They will not take that out of their pockets so you get a reduced purchasing price for the Canadian cattle producer of about that amount of money per head of cattle.
You can imagine if you are a cattle processing company and you have opportunities to process cattle north of the border or south of the border, and you know there is a $15 bill on every live cattle beast north of the border, either you will underbid Canadian cattle live price or you will move south and kill your cattle there. As you are aware, you can take a live cattle beast from Canada; process it in the United States, avoiding the regulatory costs of the enhanced feed ban; put the carcass on the truck after processing; and drive it north to Loblaws or any other grocery chain to sell the meat. Why would you process the cattle north of the border when it means an added $15 bill per cattle beast to do so with the enhanced feed ban regulatory costs?
Senator Mercer: For U.S. farmers, who is paying the enhanced feed costs?
Mr. Wideman: They do not have enhanced feed ban regulations in the U.S.
Senator Mercer: One could say that the American consumer is exposed to a product less safe than the Canadian product?
Mr. Wideman: A big part of the enhanced feed ban task force, and what we did in Canada, was to put another layer of food safety on top of an existing system of food safety. We understand that and it is good. The problem is the inherent costs that it adds.
Senator Mercer: It is a bit of a Catch-22 situation. We add the regulations so that our product is safer and gain better access to the U.S. market, which does not have the same regulations.
Mr. Wideman: That is correct.
Senator Mercer: We are our own worst enemy.
Mr. Wideman: You are right; it is a Catch-22. Regulatory regimes need to recognize that when tackling a problem — which is usually what you are doing with regulations, you are trying to address an issue that has been perceived by the public or by an industry — if in the enhancement of those regulations you add such a burdensome cost to the process, you can win the battle and lose the war.
That is an example of what we are dealing with here. We won the battle of enhanced food safety. Unfortunately, we raised the bar in Canada and everyone else in the world did not. They are quite happy their food safety regime is meeting what their consumers want. You have this two-tiered system of regulatory food safety, which puts the Canadian cattle producer at a disadvantage.
Senator Mercer: You may not be person to answer this question, but what would happen if we scaled back our regulations to the same as our major competitors?
Mr. Wideman: I sat, on behalf of ANAC, on the enhanced food safety ban task force, and a lot of what went on there was good work. Was there a sense of duplication of some of the things; were there a lot of surprises that came up that we did not think of? Yes, there is always that in regulation. When you move to enhance a level, you can really enhance a cost system; and nobody, when entering into it, understood how much the costs would be. I think the industry was surprised by how much those additional costs are.
Notwithstanding the BSE situation, I would suggest that elevated regulatory regimes inevitably add a cost burden to any system. We can use the BSE as an example, but you must be careful not to regulate a country right out of its competitive capabilities. I am afraid, that we are in danger of heading down that road very quickly in this country.
We do not consume as much product as we produce. We are a net exporting country in those industries that are not supply managed — for example, pork and beef. We need to be very competitive. If not, where will we go with our product?
Senator Mercer: That leads me to a question to the Canadian Animal Health Institute with respect to your presentation. Inadvertently, you have given us an idea that we should be talking to the Veterinary Drugs Directorate, because they took probably six years longer than either Australia or the EU to carry out the mandatory risk assessment. I would really like to know the name of that one public servant who did a good job. Many public servants do a good job, but you singled out one — perhaps we should be talking to her.
In your presentation, you said currently an animal drug reaches our producers on average about three years later than it reaches producers in other countries they compete with. Is that exclusively to do with government regulations and the need for approval?
Ms. Szkotnicki: Canada has a long-standing backlog in its regulatory performance. This has been going on now for over 15 years. In early 2000, Mr. Maxwell's company, Boehringer Ingelheim, could have a submission for a new animal drug; submitted to the Veterinary Drugs Directorate and sit there for four years until it was picked up to be reviewed by a reviewer. We have this lag of a backlog.
When I said one public servant has made a difference, indeed she has. We have seen major changes in the Veterinary Drugs Directorate in delivery of its review services. The one goal she went into the organization with was to eliminate the backlog. We now project that the backlog in the review performance will be eliminated by the end of this year or soon after.
That will make a difference, but what that has meant is it sends a signal. These products are developed for international markets by companies, and it has sent a signal of ``do not worry about Canada, they are so far behind; we are not getting the submission ready for Canada.'' We are having to build that trust again within the companies that Canada will be open for business and able to be competitive with other international regulatory agencies.
Senator Mercer: It is a typical Canadian problem that we are the nice guys in the world. We are one of the few people who try to play by the rules. Other people help set the rules and say it is a good idea, but they do not play by them. We can name some people close by, but I will not.
Is it just personnel?
Ms. Szkotnicki: It is not a capacity issue, if that is what you are asking. We had a tremendous morale issue in that agency for a number of years. I think that it is the dwarf child, or the lost child relative to the human pharmaceutical sector within Health Canada. It may not have had some of the attention and resources put to it, but right now it is not a capacity issue.
When I look at the International Federation for Animal Health survey, one of the comparisons that I asked the U.K. firm to look at was the United States, because that is our largest trading partner, but recognize that the United States is 11 times larger than Canada. As a tax base for a food and drug administration, that is much larger than the tax base we have to support Health Canada.
Australia is a 30 million-people country and it has an export orientation. I thought it was a very good comparison with Canada. They are lean and robust in the program they deliver. Their innovative products are in the marketplace at the same time as other countries; as well, their generic products are available sooner.
If they can do it, we should be able to do it. I do not think anyone in the world is saying Australia is compromising safety.
Senator Mercer: You have painted a pretty dark picture, but also indicated that there has been a change. Has this change happened because of this woman you referred to, this unnamed public servant? Is she new to the process, or has there been some new energy put into her mandate? I am curious.
Ms. Szkotnicki: It is a little bit of both. She is new in the sense she came from the human health sector, the Therapeutic Products Directorate; indeed, now we are concerned about sustained improvement in the regulatory review process because she was so good she was promoted within Health Canada. She is exactly the person I would promote, if I was managing Health Canada. However, now we are concerned because of this leadership void and bias for action not existing in the Veterinary Drugs Directorate, and the fact that we may slip back in our performance because she is gone.
Senator Mercer: While you told me it was not a personnel problem, it was a capacity problem, you just said it is a personnel problem, not a capacity one. I think we have found one problem, Chair. We will have to follow that little line somewhere.
Senator Mahovlich: You mentioned Australia. How competitive are Argentina and South America in beef? They were always exporters of beef. Do they have regulations that compare to ours?
Mr. Wideman: On the animal health side, I will let Ms. Szkotnicki and Mr. Maxwell answer that. I do not know enough about Brazil on that side.
Mr. Maxwell: From a regulatory perspective, they tend to adopt products quickly. The big issue South America has been facing is foot and mouth disease. That has eliminated them from a lot of potential markets but they are getting their act together. If you look Argentina and Brazil, particularly at Brazil when it comes to pigs, Brazil is becoming a major competitor in the world marketplace.
They have the ability to adopt technologies quickly. They obviously meet the sanitary requirements for Europe and Japan. There is a very high level of regulation to get products into those markets and they are able to do it. They are becoming a major competitor to us, but they do not have the regulatory burden we have in Canada.
Senator Mahovlich: Do they have the same problem with feed that we do? I hear that Brazil has cut down all their forests and are growing corn.
Mr. Maxwell: That is a very good question. I just read an article indicating that is not what is happening. The forests are being cut down for timber, not to grow crops. The land on which those forests were located is not suitable for agriculture, per se.
Brazil has sugar cane and that takes the pressure off soy beans. Brazil is becoming one of the largest producers of soy beans in the world and they are successful at it. However, they are using sugar cane to produce ethanol to produce energy, not food crops.
Mr. Wideman: Brazil's regulatory regime around feed production for animal livestock would be different than what we experience. As mentioned, because they export, they are meeting all the food safety requirements those countries have. The EU especially has requirements far in excess of what we have here for our own consumers of meat products. Otherwise, Brazil would not be able to export their products into the EU from a food safety standpoint.
It demonstrates that you can have a high level of food safety confidence with a low level of regulatory oversight cost. On a scale, you want a balance between regulatory costs and food safety issues that present themselves to the consumer. I think what has happened in this country is we have tipped the scale such that every time we ratchet up the regulations, we do not necessarily get an equal return in added food safety confidence.
Regulation also spins off from underlying acts embedded within our laws. For example, the Feeds Act has not been looked at since before I was born. We have an act sitting there spinning out regulations that are not in keeping with the times and the competitive nature of the global industry.
As ANAC, we would argue that rather than continuing to put Band-Aid solutions on regulations coming from something like the Feeds Act, how about looking at what is wrong with the act and start at the foundation. Now, we are continuing to build a wobbly house on a poor foundation.
Senator Mahovlich: What year was the Feeds Act introduced?
Mr. Wideman: It came in during the 1930s and was reviewed sometime in the 1960s.
Senator Mahovlich: It has not been looked at since?
Mr. Wideman: No.
Mr. Maxwell: In support of what Mr. Wideman is saying, we are regulated under the Food and Drugs Act which was implemented in 1953. The issue we have is the act was designed for people, not for animals. We have this regulatory burden destined for human health with a veterinary component; we are just an afterthought.
We are not an after thought. We are very different. We are dealing with regulations developed in the 1950s. In our situation, looking at food safety and drug residue in meats, it is based on a risk assessment developed in the 1950s.
The Europeans are more food safety conscious and have different risk assessment tools than we do. They have different residue withdrawal times that do not permit our products to come to the marketplace. Therefore, my products are marketed in Europe. We import the cheese and some of the other food items that come from these products. However, in Canada, my product has been in the government for over 10 years. We withdrew it because we cannot get a withdrawal time on meat and milk since we are dealing with 1950s regulations.
The challenge for our industries is looking at some of these acts and bringing them into the next millennium.
Mr. Wideman: The reason for that is these people are science-driven organizations. The feed industry is also science based, so much of the regulation we are asked to enforce are science driven concepts. Can you imagine if you were still trying to solve the same problems of the world with 1950s science instead of accepting that we have improved over the last 50 years? It is ludicrous to think the same thing should not apply.
We have a regulatory regime that asks us to have zero residues saying that the only safe measurable residue is zero. Zero in the 1950s was parts per thousand compared to today's measurements in parts per trillion. What we are saying is we need to get with the year 2008. Yet we cannot get there until we go into the Feeds Act and begin to dig deeper.
Senator Mahovlich: I know that Europe and, in particular England, is in big trouble in producing feed and wheat. Are we able to produce more wheat and more corn? I would think we are.
Mr. Wideman: It depends on who you would have sitting at this table. It is an interesting debate about how much crop can be produced for the different requirements around the world. I am not educated enough to tell you that if we took all of Canada's arable land and we did this or that with it, that we would produce enough to supply the ethanol industry, the livestock industry and all the others that require those products.
At some point, our technology to continue to produce more per acre will be taxed to the limit. In other words, we cannot keep assuming that today we can grow corn at X number of bushels per acre and in five years with technology we will be able to double or triple that output. The last time I checked, they are not making more arable land. The amount of land we have suitable for farming in North America is not growing. If anything, it is shrinking.
Technology must continue to increase the productivity of that land if we want to aspire to the belief that we can just keep using more and more of our grain-based crops for non-grain-based production. We know we can produce more. Land comes out of production when the price is low. If farmers are not receiving the right price for their grain, they will not grow grain on their land. Higher prices bring more of that arable land that is marginal back into productivity.
To continue to think we can support ethanol production with that land when it should be going to other uses is the real debate in this whole thing. The U.S. has the same dilemma as we do. How much should go to fuel and how much should go to food? Have we balanced that? Is it too much one way or the other? I do not have the answers.
Canada is a net exporter of fossil fuels. A policy supporting ethanol production makes sense to me for the U.S. who is a net importer of fossil fuels to become less dependent on imports. When we are a net exporter, what is the gain for us?
Senator Gustafson: I think we are overregulated. You have been telling us where some of that regulation is precisely. Who should we be calling before this committee to deal with this problem?
Mr. Wideman: I think CFIA controls what rolls out of the Feeds Act. I do not know enough about how government operates to know who you need to speak to begin the process of reviewing the Feeds Act.
Tell us who that is and we will engage them in conversation. We want to be proactive as an organization to solve the problem once and solve it correctly rather than have this archaic document that has no flexibility. That is what we are asking for.
We will not get it right as an industry and what we are dealing with here today will not be what we are dealing with five or ten years from now. We need an act that allows regular review and flexibility so that as industries change globally, the Canadian industry is allowed to respond to that. If the act is stationary, and you have no flexibility or review process, guess what, you are stuck in this system. I do not know if CFIA or Parliament needs to undertake looking at the Feeds Act. In whatever way we start that, we are open to suggestions about how to begin that process.
Senator Gustafson: I will give you an example of what is happening. I was talking to a farmer less than a month ago. They are now treating for warbles and they put the dust on the back of the cattle, with which you are certainly familiar.
His herd would be under 100 cows. For a small herd like that, if he went to the States and bought the dust, he could get it for $80. If he bought it in Canada, it would have been over $300. There is something wrong there.
Mr. Wideman: Right.
Senator Gustafson: Something is seriously wrong there. All of this impacts the industry. That is just one small example. Every farmer that has any system at all knows that he dusts his cattle in the spring to make sure they do not lose their hair or lose weight and so on.
Ms. Szkotnicki: I was at an international conference with representatives from our vet biologics section in CFIA — they do the review of our vaccines — and with a representative of Health Canada's Veterinary Drugs Directorate. It was an international conference in London with representatives of governments and industry around the world.
It became apparent in the discussions that our industry, as an animal health industry, is globalized. Boehringer Ingelheim is developing products for the world to meet different market needs, but generally the same market need. While we have become globalized, our regulatory programs have stayed the same and we are using 1950's technology.
We have to compete. It is not like human health where you have the emotional factors in dealing with human diseases. We are providing inputs to producers that have to be competitive in that global marketplace.
In answer to your question, I think we need to be looking at having our regulations harmonized on an international basis. We cannot be insular any longer in our approaches to regulation. In modernizing regulation, we have to look at what are best practices in other countries. Are the practices they use equivalent to what we want to do in our review? Can we exploit what other countries are doing? Do we need to re-review all the same materials? Should we not be working better with some of the other countries that we can have confidence with?
The Canadian Food Inspection Agency, from our standpoint, administers many programs for veterinary drugs but Health Canada sets the standard. I would bring both those organizations in and ask: how do we modernize our regulatory programs so they are competitive with the rest of the world, recognizing that we are an agricultural exporting country and need to have competitive regulations?
That is a broad answer for your question. That would help to minimize those kinds of price differentials that you identified.
Senator Gustafson: Yesterday, we had the fertilizer and chemical people before us. It indicates one thing: We have not given the priority to agriculture in this country that we should have. We are lagging way behind.
Ms. Szkotnicki: We are.
Senator Gustafson: That brings me to the next subject: Biofuels. I had the good fortune to attend the Governor's Conference in Washington about a month and a half ago. The U.S. has built 139 plants. That is almost a plant every two days in the last year. There simply is not enough corn or soy bean crop to go around.
We are into a new global situation, especially with feed. Your real problem in the cattle industry is the feed. This is the big one that is costing you the dollar and keeping you from competing. The conversion rate is one to eight. In other words, eight pounds of feed creating one pound of beef.
I am wondering if our environmental approach is having an impact on the beef industry, to some extent. I certainly do not see feed costs going down. They might even go up in this year. Your numbers here do not really indicate the last six months,.
Mr. Wideman: The biofuels question is an interesting one. Canada could basically now stick with the ethanol plants that we have. Since the corn price is driven from the Chicago Board of Trade price, as long as the Americans continue to build ethanol plants, the Canadian farmer will benefit from the higher price. As long as corn is necessary in the U.S. and is traded on the Chicago Board of Trade price, as it goes up, so will the Canadian corn farmer's price for his commodity.
There really is no need for Canada to continue to build any more ethanol plants, especially if it is costing Canadian taxpayers subsidization dollars to do so.
Is there value in creating other types of ethanol production from other biomass we have talked about? We have all kinds of forestry material we could produce ethanol from. The Canadian corn farmer and the Canadian crop producer will continue to benefit from the U.S.'s policy. Let the U.S. policy drive the world grain prices and let the Canadian farmer benefit from it.
We need to make sure we are not a net exporter of corn. We will not be regardless of how many corn acres we think we can plant. We do no have that many arable acres. We grow far more livestock that requires the corn. I do not know the recent data but, up until 2006, Canada was a net importer of corn. We needed to buy U.S. corn to feed all of our livestock.
What suddenly makes us think we will become a net exporter of corn now that we have ethanol requirements?
Senator Gustafson: The global situation is moving so fast that we are not really able to keep up with the changes. The Canadian Wheat Board sent out to all farmers an information letter that they will ship a lot more grain through Thunder Bay. That tells me there will not be as much grain going south as there has been. That will be a major global change. The supplies of feed in the world are as low as ever.
Mr. Wideman: The carry-over supplies, yes.
Senator Gustafson: The best that we are getting — and this came from the American conference, as well — is that it may take four or five years for this thing to play catch-up at all. Yet, at the same time, China and India want a better diet; they want the beef.
Mr. Wideman: That is correct.
Senator Gustafson: It appears that, once you get over the hump, beef could be a very costly item, if everyone does not go broke in the mean time.
Mr. Wideman: As other economies continue to have more buying power — if you listen to most of the experts — the first thing that improves is diet; diet moves from grain to meat consumption. That is where the global market on meat production is going.
There are a lot of positives for the Canadian meat industry: Canada could be a real leader in the continued growth of the export of meat production. Why? We only have 30 million people.
If we have arable land to grow livestock and we can sell meat to the export market, we should be one of the world leaders going forward in the next 20 years, changing grain into meat, selling high-value meat to countries who can now afford to buy our high-value products. That will be difficult to do if we are competing against Brazil and a number of other countries who are already very good at selling that meat at a lower cost because of the regulatory balance we talked about earlier. If we want to be a player in the future, we had better make sure that our costs are in line. When you become an exporter, you become a competitor in the global marketplace. We need to be competitive.
Senator Gustafson: Will the Canadian government or the powers that be look into some kind of a sustaining situation for our producers and look forward as to what will happen? Obviously it will happen.
We just had news of a Hutterite colony in the hog business that had to shut down three big hog barns. This is happening right across the country. You do not just get back into the business once you have finished. Some of these farmers will never get back into it.
Mr. Wideman: That is correct.
Senator Gustafson: Do you have any numbers on that?
Mr. Wideman: We do not know how many total hog farms have left because the number changes on a daily basis. Last week, an announcement came out of Saskatchewan that a large integrated hog operation is basically in receivership. That is only on the heels of a number of others.
The numbers of people entering into receivership is changing so quickly that whatever number I would come up with would not be accurate tomorrow because someone else will be bankrupt by then.
Senator Gustafson: A lot of the small producers — you never hear about them, but they really do add to the productivity of the whole situation.
Mr. Wideman: Yes.
Mr. Maxwell: I would like to add a comment. What we are seeing in agriculture today, particularly in the livestock sector but certainly on the crop side, is a seismic change in our industry. I have been around a long time. I have seen cattle and hog cycles at different stages. The two worst I have ever seen were in 1974 when the cattle industry crashed because of overproduction and in 1998 when the same thing happened on the hog side in the United States. Canada missed that down cycle quite a bit because we had a cheap dollar at that time and we were able to compete.
In the United States in 1998 to 2000, the whole swine industry changed almost overnight, within two years. We in Canada laughed because we did not think the Americans could change that quickly. They did, in a two-year period.
What happened in that time was what we called the in-and-outers, people who grew crops, would have these A- frames on pastures in Iowa, and when the times were good, when the price of corn was cheap, they would have hogs. When hogs became too cheap, they would grow corn and sell their corn. All of them literally disappeared overnight.
In Canada we are seeing the same thing. There are many producers, let us say in Alberta, that we call the four by four by 44; four weeks in the spring, four weeks in the fall and 44 weeks in the oil industry. These people have been losing money on the cattle side. They work in the oil industry in the wintertime, and then they come home, plant their crops, work in the summertime and come home in the fall and harvest. They go back into the oil industry in the winter again, and the wives look after the cattle. If they continue to lose money, they exit the industry all together. We are seeing a lot of what I call marginal producers exiting the industry. We are seeing a major shakeout there.
If you look at the demographics of farming and the age of producers in Canada, we have a whole generation that is approaching the age of 60 who are still on the land but their children are no longer there. They are looking at the high price of land and the lack of returns on livestock, and they are exiting the business. We are seeing a major change.
When all is said and done, and as difficult as the period is happening to these families, the industry will be much better for the fact that we go through these evolutionary processes. The changes we are seeing today are absolutely, in my opinion, seismic. It is unreal.
On a brighter note, I think that we are just at the bottom of what I call the cycle. What happened on this particular cycle is that we had both the cattle and the hogs going to the tank at the same time. That has never happened together. Usually it happens in off years; when one is down, the other one is up. I am speaking about my industry because I sell food to animal producers. When they both go into the tank, business is extremely difficult right now for our industry, from a sales perspective, because these producers do not have the money to buy the inputs to remain competitive.
We are trying to tell them that they should be buying our inputs because it will cut their losses. That message does not resonate well. You buy my product; you lose less money. It does not work.
Senator Gustafson: With respect to biofuels, the Americans are trying to move — at least this is the word in the conference — to a more roughage type of feed, but they claim it will take seven years for the transition of plants and getting the product. Seven years is quite a long time to wait for an industry to improve.
Mr. Wideman: I have heard before that the reason corn jumped to the top of the pile for ethanol technology was that it was the easiest source of quick science. We had the science to turn corn into ethanol. The science will catch up with these other products but, yes, seven years is a long time for the cycle.
You had asked a question earlier about what we should do to enhance Canada's competitive nature. I think that one of the things we should do as a country, certainly as a government is this: in business they teach you that if you are ignorant of your competition, you will have a hard time competing. In other words, do not underestimate your competitors.
Here is a thought: When we talk about the people who are leading the world in the export of meat, if we see ourselves in that demographic as net meat exporters, would it not be worthwhile to investigate what the leaders of that segment are doing? If you want to become the next big retailer, I would suggest you would probably go and find out how Wal-Mart became successful.
Why do we not start looking at what Brazil and Australia are doing? Rather than sit back and think it looks like a weak system, if they are leading the pack, it cannot be very weak. There are probably sports analogies we could use to describe that, but I would suggest we want to learn very quickly about the weak points of our competition, see what they do well, mimic what they do well and enhance what they do not so well and let us get busy doing so. If we are staring seven years of high grain prices in the face, we better find cheaper ways to make our product with high-cost ingredients.
Senator Gustafson: Last year in particular, this committee recommended that Canada should have a farm bill. The Americans always monitor what is coming down the pipe. In the last couple of years, when the grain prices were so low, they had a subsidy in there to deal with that. They do not really call it a subsidy, and it is not a subsidy. We are producing cheap food for Canadian consumers.
Mr. Wideman: Yes, we are.
Senator Gustafson: The word ``subsidy'' should not even be in the farmer's vocabulary. What is happening is that governments have just become lax at even knowing or taking to the Canadian public the reality of what is happening. It is hard to find a young farm boy that will go back onto the farm. I think we need a farm bill that would help alleviate the situation and make us aware of what is happening in the global economy.
The Chair: I think Senator Gustafson and I, who have been on this committee it seems forever, have been talking about a farm bill for quite a while. It seems to just go through the air.
However, there seems to be a real response from the industry, from the people on the ground who say that is what they would want. I guess we will keep ploughing away to try to get that to happen.
Senator Gustafson: Our biggest problem is that we do not know what is happening and what the Americans are doing. We do not know what the European Common Market is doing.
We should be monitoring this situation, or we have now been thrust into a global economy and we are not ready for it.
Senator Mercer: They threw us in the pool without any swimming lessons.
Ms. Szkotnicki: One of the reasons we did the benchmarking survey was to look at the Canadian regulations around animal health products relative to other regions we compete with. That was one of the interests of our international organization, to look at those and to look at best practices, to try to further that discussion so that countries start looking at best practices and how we might harmonize.
Senator Hubley: I go back to your presentation, Mr. Wideman. I would say that, overall, the regulatory regime for the manufacture of feed is out of date. You go on to say that there are a number of low cost ingredients that could, in theory, be imported from the U.S. Would you clear up for me what ingredients mean? Is it pharmaceuticals, organic material?
Mr. Wideman: There is a whole group of what are called ``novel feed ingredients'' that are coming into the marketplace. For example, there are enzymes and probiotics. There are natural products that would enhance the animal's ability to get value out of the materials they are eating. It is not unlike being lactose intolerant and having an enzyme you can take to diminish that effect.
There is a whole segment that is missing out of our regulatory capabilities even to look at those products. Here is a quick example of some of the lack of logic that goes into it. You can consume this very same ingredient in a cup of yogurt this morning, but because it is not an approved feed ingredient for livestock, we cannot feed it to cattle or pigs. There is something inherently wrong with that. We will not even begin to talk about some of the other nonsensical things that come across our plate.
There is also a delay. You can submit that product for review, but if they cannot find the category that it belongs to because the category does not exist in the Feeds Act, they say that it kind of sounds like the same thing that a medication would do, so it gets bumped over to Health Canada. It is a drug; so now you need a DIN number and eight and a half semi-truckloads of science to prove that the product is safe. However, the supplier of the product will say it is not a medication, but you are claiming it does things like a medication. Well, okay, but then tell us what we need to do. Well, there is no category. Then it goes onto the ``nobody wants to address it pile.'' It gets dusty in the corner and the frustration just builds.
We have Canadian companies creating world leading products, and the other frustration is a lot of this science comes from our tax-based university system. You have professors at the University of Guelph who are creating world- class leading innovative products that cannot be used in this country, but they are sold to our competitors, and the very vegetables and fruits come right back into our country and you eat them. There is something inherently wrong with this.
We as the feed industry are saying we have to come up with a better system that allows us to begin to use the very products our competitors are using. You are buying the same pork chop at the grocery store because it is USDA labelled, yet we are not able to grow it in Canada with that same thing. That is the group of products we are talking about: probiotics, enzymes, all-natural new. The industry changes faster than the government's ability to catch up. That is the problem with the regulatory regime. We need a regulatory regime that is ahead of the scientific curve, not six and a half years behind saying, ``Oh, you mean we need to change our science now?'' No, the science will change on its own. Science will go where it will to go. The government needs to make sure it is able to keep up with the scientific changes that are coming.
Senator Hubley: That was worth repeating.
Ms. Szkotnicki: If we are in an innovation and knowledge-based Canada, and we say we are, we have Canadian discovery, but we are number 22 in the world even to be able to use our Canadian discovery. That is pretty sad. That goes to what Mr. Wideman said about the enzymes and the probiotics. We have a bacteriophage community here in Ottawa, but we do not know how to get them approved. We cannot get them in the feed. They cannot be approved as a drug or a vaccine, and other countries are saying let us talk about how to regulate this technology and ensure safety and efficacy, so there is enabling regulation. Companies are having the discussion. We cannot have the discussion here.
Therefore, we will be number 22 in the world to have our own discovery, which is discovery that has had roots from our tax-based universities and research-based facilities. It is a sad dilemma.
Senator Hubley: I agree. I would like to pick up on the crisis that we have had. You had mentioned we do not usually have a pork and beef crisis at the same time, but I come from Prince Edward Island, and we are in the midst of both a pork and beef crisis.
A young farmer that lives very close to where I live in Kensington came to the microphone to plead with governments to intervene and talked about the importance of the farming industry to Canada. He was very candid, and he said, ``I am a young man, I have a young wife, I have a family and I want to be a farmer, but do you want me to be a farmer?'' It was very poignant. I must say he sort of stopped everyone in their tracks with what he was saying.
The one thing that came out of that is that even as a small community, we realize that if we do not buy Island product, our farmers will not be successful. We can say that for Canada, and we have had the experience of the crisis within the beef industry in the West.
For a time, we did buy Canadian beef. That comes out in a crisis. I am wondering what we should be doing as an agricultural committee and as a government. How can we convince Canadians who demand safety? Of anyone in the world, we take pride that our beef is the best in the world, but it gets lost in the stores because I do not know if it is identified. However, I learned more about the hazards of eating imported beef in this last crisis than I did in a long time, and that was the countries that you have mentioned.
Is education a major part of the solution to this problem?
Mr. Wideman: You are almost describing the concept of what the U.S. is talking about, namely, country of origin labelling, where you know as a consumer where the steak or the pork chop you are consuming was produced. That is a loaded question. Being able to know that if we have a higher regulatory regime, then, yes, as a consumer you would want to know that the steak you are eating is a Canadian steak, versus a U.S. produced steak.
There are many other political issues that go with that. It's difficult to argue when you are a net exporter of pork and beef that putting a country of origin label on things is an artificial trade barrier. If we are a net exporter, do we want every other country to treat our pork and beef the same way?
That is a loaded question.
On the point of your first question, the Canadian public should thank themselves every day that farmers are farming because of lifestyle choices, not good business practices choices. In my experience in speaking to my front line customers, when I sit at their breakfast table and talk about where their operation is going, I hear, ``Paul, we will not continue if this does not make business sense.''
You might think it is about time that more of them are looking at that. However, the fear I have is that, if every farmer in this country started to look at it as strictly a return on investment that every other business owner looks at, we would be in trouble. These people have huge asset investments. They are on expensive land. They have incredibly expensive, asset-based equipment. From a cash flow standpoint, almost all of them are operating in a negative situation. Who in business does that for a long period of time? Only those who do it because they love doing it. If they suddenly all decide they will not do this any more, I would suggest we are in serious trouble.
I heard once that, if you compare Third World economies to First World economies, one of the major differences is that First World economies are able to feed themselves and others. Third World economies struggle to feed themselves.
How quickly would Canada become a Third World country if we did not have the farming community growing food for us?
The Chair: That is very interesting. We have just finished a nearly-two-year study on rural poverty. The words you and the senator have been saying were heard as we went across Canada. I can remember, in the little town of Picture Butte, a couple of very fine, young farmers were speaking with us. They would be saying exactly what we have been talking about today: How can you keep on going?
This is a huge issue in our country. Senator Gustafson, you wanted to have another word?
Senator Gustafson: I was going to voice what you have just said on rural poverty. We have become an urban society. That is what has happened. At the same time, because of the strength of the country, rural Canada has been able to produce the food and keep things going along. I am not laying blame to one government or another government. It is just a fact, this has happened. We said there just will not be a rural economy. We are now finding out that there has to be.
I think we have just seen the tip of the iceberg.
Mr. Maxwell: Can I comment on regulatory issues?
The success of Canada has been built on the fact that we are a well-educated public. When you become well- educated and you have young people graduating from these universities, we have a lot of the ability for innovation. In a global economy, innovation is critical to success.
However, we have regulations that are stifling innovation. By the way, we have not have covered off crop innovation. Our regulatory system in Canada is also stifling crop innovation. The Americans have improved their yield per acre for different seed grains by 10 to 15 per cent in the last five years. We have done zero.
It is not only the feed industry, it is not only the animal health industry, it is also crops. It also involves the Pest Management Regulatory Agency, though I think they are more responsive. The regulations have been somewhat more favourable and we are starting to see changes there.
The regulations in this country are killing us. We are doing it to ourselves.
Senator Gustafson: Are you appearing before the House of Commons committee?
Mr. Maxwell: No.
Senator Gustafson: You should be.
Mr. Wideman: We did already.
Senator Mercer: Your comments are well made. I only want to underscore them. We are a well-educated society, but we also are well-educated in industry and agriculture. One of the things we have overlooked in this country is the fact that farmers, particularly young farmers, are extremely well educated in this country. We have some very good agriculture schools, universities and colleges across the country. One of them is in my province of Nova Scotia.
We do not recognize that; I do not think consumers recognize or appreciate that. I think it is important that we remind the Canadian public that these people are the best entrepreneurs in the country. Who else is going to go back year after year and do this for little or no profit? They still do it with a smile on their face, cannot wait to get up at five o'clock in the morning to get out there and they work until ten o'clock at night.
I wanted to make a comment about the concern about leaving the impression that during the BSE crisis, when Canadians did up their consumption of beef, that we were really eating all Canadian beef. Much of the meat, particularly the hamburger that was being consumed, was being imported. That always amazed me.
I get very concerned about the country of origin labelling given we are an exporting country. We had that discussion when we visited Washington a number of years ago. As senator Gustafson and Senator Fairbairn know, this country of origin thing looks very attractive to those of us who are ultra-nationalists such as me. However, when you get drilled down to who we want to sell our products to, this is not such a good thing. If Canada and the U.S. do it, the guy going into the market in Charlotte, North Carolina, who sees Grade-A American beef or Canadian beef will buy the U.S. beef. We know that. That is not a game we want to get into.
Senator Gustafson: Our farm is near the border. We have had an opportunity to monitor what happens on both sides. The American people always add up for the heartland. Whether you are a senator from Los Angeles, New York or Seattle, they all fight for the heartland. We do not have that dedication in Canada. We need that kind of dedication. Without it, things will not change.
Ms. Szkotnicki: We need the nationalism to buy Canadian and support the Canadian production systems and further processing.
The Chair: Thank you very much. This has been a very important meeting for us. If I remember correctly, next week we will be having a session with people from government. Do keep on going and keep us posted. These are issues that never end, as Senator Gustafson and I know, after all the years we have been here. The frustration is that some of the things that we are talking about today — like a farm bill and that kind of thing — are always pushed aside. The time may have come that it is no longer the thing to do.
Thank you. We wish you the best in everything you are trying to do. We will continue to fight here.
The committee adjourned.