Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 10 - Evidence - Meeting of April 15, 2008
OTTAWA, Tuesday, April 15, 2008
The Standing Senate Committee on Agriculture and Forestry met this day at 7:04 p.m. to study the present state and future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chair) in the chair.
[English]
The Chair: Good evening, senators and our witnesses. Tonight we are continuing our study into the issue of farm input prices in Canada. This evening we have with us, from the Canadian Federation of Agriculture, Mr. Ron Bonnett, Vice-President, and from the Grain Growers of Canada are Leo Meyer, Director and Richard Phillips, Executive Director. Thank you for taking the time to be with us this evening.
We have two hours with our witnesses to cover a wide range of issues. I would encourage my colleagues to keep their questions short in order to give our witnesses an opportunity to respond fully and for everyone to have a chance to participate in tonight's discussion. We look forward to what you have to say and to contribute to our efforts here on the committee.
Ron Bonnett, Vice-President, Canadian Federation of Agriculture: My name is Ron Bonnett. I am a beefcow calf producer from Sault Ste. Marie, Ontario.
At this time, it is good that your committee is going through the review of input costs. On listening to the radio or television now, people are hearing reports about the rising prices of food, which give the impression that farmers will be walking to the banks with bagloads of money. However, that is not quite the story out there. While there has been a huge recovery in grain prices, some other sectors are not seeing the same type of price recovery that there has been in the grain market. On the flipside, there have been huge changes in the input side. As with any business, farming is not only about what you get for your product but also what it costs to produce it.
In looking at the situation with input prices, the first thing to find out is exactly what the situation is. Second is to look at the challenges, and finally, to have discussion on the ideas about what governments can do to assist us in what we are going through.
I will talk about grains and oilseeds first. My colleagues will likely talk more about this as well. There has been a remarkable recovery over the last year or so in grain prices. That is driven by a number of things. Some people like to jump on the bandwagon and say it is strictly about ethanol production. However, there have been increases in demand in other countries, and drought situations in different parts of the world. All of those factors have come together to push prices higher.
At the same time, there has been a huge shift in the input costs. Fuel and fertilizer alone make up a large portion of the investment for a farmer in the grains and oilseeds sector. I have heard that figures as high as 46 per cent of the cost of growing the grain crop is tied up in fuel and fertilizer.
The increases we have seen have been dramatic over the last number of years since 2004. Depending on the type of fertilizer used, there has been anywhere from a 17 per cent to a 33 per cent increase in price. I ordered fertilizer in January and paid $700 a tonne, and now it is over $900 a tonne. That is a $200 per tonne increase over a few months. It is being driven by a number of factors. A huge world demand for fertilizers, high prices for natural gas and high prices for manufacturing and transportation are all entering into that cost.
Fuel prices are the other major input cost. I think everyone who visits the gas pump knows what is happening with fuel prices today. It is the same at the farm level.
One figure I pulled out earlier today when I was thinking about making this presentation was the impact of a small change. An increase of one cent per litre in farm fuel prices in Canada results in $27 million in increased input costs; a 10 cent increase is $270 million. If fertilizer prices were to go up by 1 cent per kilogram, which is about $10 per tonne, a $20 per tonne increase results in $500 million to $600 million in increased costs as well. Some farm programs are half a billion dollars. A small shift in the prices of fuel or fertilizers can take away everything given by a program.
With respect to grains and oilseeds, I should also mention the input prices of herbicides. Everyone is likely aware that there are huge differences in prices between what we pay in Canada and what our competitors in the United States pay for some products. Quite a bit of work has been done on trying to put programs in place to give farmers access to equivalent herbicides at a reasonable price. That is working with some limited success. In my opinion, there is a lot of room for growth there.
I will now switch over into livestock, because this is where the price situation has turned the other way. With the increase in the price of grains and oilseeds, livestock prices have gone into the tank. Two factors contribute to this: One is the high cost in feed and the change in the Canadian dollar. Both have had a huge impact on livestock. It seems unfortunate when we get one sector starting to do well, we have another sector that ends up bearing the brunt of it. We just do not have prices recovering at the retail level to address that shortfall.
With input costs on livestock, there is the issue of feed prices but there is also the issue of things such as veterinary drugs. Again, in this area, products that you buy in Canada, you can buy for half the price in the United States. A lot of that is related to different approval mechanisms in Canada and additional costs for having those drugs approved.
With the increase in fuel prices, trucking is becoming a bigger issue in the livestock sector. One thing under the radar is the cost of complying with regulations. In Canada, I think we pride ourselves on having good regulations on everything from the environment to even meat processing. However, if those regulations incur additional costs to Canadian producers than those sustained by American producers, then it makes us uncompetitive.
One of the bigger issues that the horticultural sector faces, along with herbicide and fertilizer cost, is the cost of labour. While I understand the need to try and raise the rates of wages for low-income Canadians, I sometimes wonder if it would be better to look at other tools rather than just putting that burden on agricultural producers. I can remember years ago, when I was on a municipal council, it used to be frustrating that someone could have a minimum wage job but that person would have to quit and go on social assistance in order to get drug and medical coverage for their kids. On minimum wage they would not get that. Putting some of those tools in place might mean that we would not need to look at raising the minimum wage and putting that burden on small business owners or farmers.
Those are some of the issues we are facing. One of the challenges is to look at as many solutions as possible that can derive from the marketplace. Looking for funding to solve all the problems will not be the only answer. The safety net programs have been designed to work as well as they possibly can, but we still need to look at market solutions.
One of the other challenges is that there is very little public understanding of some of the issues farmers are facing. There seems to be a disconnect between what consumers pay for a product, where they buy that product or where that product is manufactured, and what that decision means to farmers at the local level. Something as simple as making a decision to buy a Canadian product and increasing the demand for that product could create an increase in the income that farmers receive.
My final point is: What can governments do to assist? Regarding the fuel price, one thing that we have been requesting for some time now is the removal of the excise tax on fuel for farm use. It is only a few cents, but a few cents can make a huge difference when it is all added up. Governments can continue and even enhance some of the cash advance programs in place for people who are planting crops. As you can see, with the increase in fuel and fertilizer prices, it will be more and more difficult for farmers to raise the capital to put those crops in place. One of the things you must understand is that, in conjunction with that, and even though some cashcrop operations such as grains and oilseeds production appear now to be having good years, they are still carrying losses from five to seven years ago. They do not necessarily have the equity they used to have to go out and raise the capital. It is important to make sure that programs are in place in order that they can raise that capital and have cash advance programs.
We still believe that there is a need to look at refining some of the safety net programs. We need to examine such programs in each province in order to see if there are specific items that need to be addressed within those provinces and, perhaps, fine tune some of the program delivery.
The whole issue of the impact of regulation needs to be examined to ensure that our costs of production are no higher than those of our competitors. In Ontario, we had a packing plant close last week. One of the reasons for closure of the plant is a $39 cost difference in processing cattle. That stems strictly from regulation.
The gaining of access to pesticides, herbicides and veterinary drugs needs to be addressed. I know there have been starts made with owner-use imports and the Grower Requested Own Use Program. However, I think the ultimate answer would be harmonization of approvals of the regulatory framework, especially with respect to herbicides, pesticides and veterinary drugs in North America.
One of the other things we also must look at is the issue of government investment in research: into plants, for example, that can do a better job of capturing nitrogen from the air rather than having to buy from the fertilizer company. The area of investment in research has to be examined.
Another area that would benefit from some examination is what governments can do with respect to the issue of promoting the purchase of Canadian products. There are two aspects: one is labelling issues, so that there is a clear understanding from consumers of what is Canadian; the other aspect is marketing, and how we can market Canadian products so that, when consumers buy, they can make a conscious choice with the understanding of what it is that they are buying, and knowing that, by choosing Canadian, they can actually make a difference in what farmers make.
That covers my initial comments.
Richard Phillips, Executive Director, Grain Growers of Canada: Good evening senators. We would like to thank you on behalf of Grain Growers of Canada to speak to you today on farm inputs and effects on Canada's grains and oilseeds producers.
I will be sharing my time with Mr. Leo Meyer, who is President of the Alberta Oat, Rye and Triticale Association and sits on the Grain Growers of Canada board of directors. In addition to my role as the Executive Director of the Grain Growers of Canada, I own farmlands in Saskatchewan and grow a wide variety of crops. My father and I have 500 head of cattle.
The Grain Growers of Canada is an umbrella organization made up of nine farm organizations representing a wide variety of commodities. We serve as a national voice for grains and oilseed producers and are solely devoted to representing their interests in policy issues such as safety nets, farm income, trade policy, food and crop research, grain marketing and grain transportation. There are member associations in British Columbia and all the way across the country, including the Maritimes.
In our presentation, we will touch on four input costs. Then we will give proposed ideas or solutions to chew over in the discussion period afterwards.
First, fertilizer is the one cost that has most people's attention. There is a growing global demand for fertilizer and only so many countries that will export it. Canadian farmers must compete for fertilizer in that global market. In the last five years, global demand for nitrogen has gone up by 14 per cent, phosphate by 13 per cent and potash by 10 per cent. India alone, in 2005, imported 2 million tonnes of urea. In three years, that has gone up to 7 million tonnes this year. Brazil is looking at another 25 per cent increase over the next couple of years.
Part of what is pushing up the price is the huge demand in the market for fertilizers. As was mentioned, there is the cost of inputs: The cost of natural gas and transportation, for example. There are other input factors driving that as well.
One other demand source is the United States. There has been a switch over to corn acres, and corn takes a lot of fertilizer to service the ethanol market. We have seen a 10 million-acre increase in corn in the last couple of years, which has absorbed a great deal of fertilizer as well.
The second issue is grain transportation. We would like to thank the senators because we lobbied long and hard, along with other farmers organizations, to get Bill C-8 through. We had a promise that that would also start a level of service review on the railways within 30 days after the bill was passed. We did a lot of work lobbying in the House and among some of your fellow senators, and we would like to thank you for the expedient passage of Bill C-8 when it got to the Senate and through committee to Royal Assent.
The other program that was mentioned here is the grower requested own use, or GROU program. It allows producers to cross the line into the United States and bring forward comparable products or nearly identical products. If the price is lower, you can bring them in and provide them here in Canada. Before the GROU program, there was the OUI, own use imports program. That program was working, but it was coming to a standstill as to where it was going. Many groups — the Canadian Food Inspection Agency, or CFIA, ourselves and other farm organizations — worked closely with PMRA, the Pest Management Regulatory Agency, to improve that program. We have not yet had a full year under our belts but that situation is improving, and we hope it will work out to allow us access to cheaper American products.
The other program that is getting under way is a NAFTA labelling program, so that identical products are labelled in the same way on both sides of the border and are transited across in order to get that price recovery.
The fourth area we would like to touch on is machinery costs, which are very high for most farmers. There have been improvements in fuel efficiencies in the new engines that are now available. There are also a lot of improvements in the ability of farmers to put their inputs on exactly where they are needed to be applied through the global positioning system, and the newer machines have a far greater accuracy. Anything that can be done to get farmers to upgrade into more fuel-efficient and accurate machinery will help reduce our input costs.
To talk about actual solutions on these ideas, I will go back to fertilizer. Both Mr. Meyer and I pre-bought our fertilizer last fall. I understand Mr. Bonnett bought his in January. Within the fertilizer industry, there are highs and lows of supply; when there is an abundance of supply, the fertilizer companies will lower prices.
How can we assist farmers to buy during the price drops? We talked about the cash advance program. We think what could be considered would be to move the cash advance program up earlier in the year to take advantage of the lower fertilizer prices in the fall. Maybe it could be tied to input purchases only, but that is an example that could be explored further to allow farms to take advantage of that price reduction. Perhaps there could be a tax incentive to invest in safe on-farm fertilizer storage — be that hopper-bottom bins or for their liquids. Those are a couple of options that could be explored so that farmers could load up on their fertilizer supplies for the coming year when lower prices are available in November, or whenever.
One cost that will be pushed onto farmers when it materializes is the cost of bio-security. Right now, we have Environment Canada and the Homeland Security people wanting to go around to all the fertilizer and chemical dealerships saying that there could be a risk of someone coming in and stealing fertilizer and using it for terrorism, so the dealers have to upgrade their facilities. When this happened at Canadian port positions, the Government of Canada stepped in and put money in the pot — I think it was 50 cents for each dollar — to help the ports upgrade their facilities. Yet when they make all the farm supply outfits upgrade their facilities, the suppliers must pay 100 per cent of the cost of the upgrade. I guarantee that every dollar they spend as fertilizer dealers will be added on to the fertilizer price that farmers must pay. If that issue is of greater public concern, then perhaps the greater public should chip in to pay for some of these costs.
On the GROU program, for the importing and the harmonization of regulations between us and the U.S., what is probably needed are more resources in PMRA and CFIA to have more scientists on staff, which would allow quicker turnover in assessing new products coming to market and confirming that products we want to import are identical. More resources are needed in both organizations to help them move more quickly.
On the machinery issue, an increase in the investment tax credit for farmers or in the capital cost allowance would be beneficial. In other words, instead of writing off new machinery at 30 per cent per year, if the rate was increased to 50 per cent for the first couple of years, as some of the senators who farm know — if there was an increased capital cost allowance, people would quickly move to upgrade their machinery.
Those are just a couple of ideas. We look forward to your questions and solutions. First, however, Mr. Meyer wants to share, from his personal perspective, what these fertilizer price increases have meant, along with other input costs.
Leo Meyer, Director, Grain Growers of Canada: Thank you for giving me the opportunity to speak to you this evening. I think it is extremely timely, Madam Chair, for this committee right now to be discussing this important issue for farmers all across Canada. On this particular issue, there is really no border between the different areas of Canada. It is as significant in Eastern Canada as it is in the West, except perhaps in the matter of degree. For those Canadian farmers who deal with larger acres, those increases affect our operations more severely.
I would like to point out that I do not necessarily come with the perspective that I simply look at input costs and agriculture at the production end. I think what has happened — and we have all witnessed this in the very recent past period of time — is that our whole economy is changing. Things are changing around the globe so dramatically that it is hard for most of us to realize what will be next, and what is around the corner. With that, of course, money and speculation are flowing into our sector the like of which we have not seen before. We do not forget that that is now a very significant factor in increasing the cost of some of the things and tools we need to work with and the inputs that we use. The capitalization in those processes of creating the inputs is now much greater than it was even two or three years ago.
On February 5, Mr. Phillips and I made a presentation to the House of Commons Standing Committee on Agriculture. At that time, there was a recommendation by JP Morgan in May of 2007, when the share price of Potash Corporation of Saskatchewan was $60 to $70, that that share price could rise to $225. We are just about there now. The share price is at $200, more or less, today. That is a capital cost increase to produce the same product, which needs to be paid for. Do not forget that. What is also happening now, not just on the input but also on the food side, is that we have speculative elements that are driving prices higher, which we have never seen before. You now have a product such as potash which, for 20 years, we picked up in Saskatchewan, in our own back yard, at $150 to $180 a tonne, going now to $500, $600 or $700 a tonne, purely on speculation. That is an increased cost from the capital perspective, but also from the inventory control perspective. Therefore, there is an incentive for those entities to make the products more expensive in order to have greater returns for their shareholders that we have not seen before.
We see the same thing on the other side, when it comes to food. We have funds coming in and using our price discovery mechanisms to make it quite impossible for some participants in the market to do so because it becomes too risky. That leads me to the point of the bigger issue, which is risk.
This business now of food has become extremely risky. We have a difficult time managing some of the risks that we need to mitigate, and that is showing up in many ways. One of the issues we have is when a product is needed, or even if there is an anticipation of a product being needed, there is immediately an influx of capital toward that product. Therefore, that product shoots up in price. It might not even need to happen, but already the anticipation of a shortage will create capital to flow toward that type of product. Currently, we see it happening with chemicals, with fertilizer, and we will see it happening with seed. We will see a huge emphasis on seed corporations to develop new, better- yielding varieties with new traits to withstand drought because the world demands it. We no longer have the luxury of having too much of anything.
As I said initially, I raise this issue because this phenomenon has become apparent over the past 15 months to 2 years. In the past 2 months, everything is becoming scarce. The moment there is an issue, a hype ensues that creates the flow of capital to that area, thereby making it expensive on both the input and product sides.
As Mr. Phillips said, farmers do not always have the luxury of buying the products when they are at their cheapest because they might not have the cash flow. It is important to realize that although it might be best to buy fertilizer in November and December, most farmers have not even sold their crop by then and might not have the cash flow available to make that purchase. We discussed that at the last presentation we made to the House of Commons Standing Committee on Agriculture. Perhaps only 12 per cent to 15 per cent of farmers have the ability to purchase at the ideal time. The rest of them must go to the marketplace when they need fertilizer.
As Mr. Phillips pointed out, one of the solutions to that would be to look at the cash advance program. However, we appreciate that the Government of Canada made the changes to increase the availability under the cash advance program for farmers. As a farmer, such a change is much appreciated because it has helped the majority of farmers when no banks would help then.
Make no mistake that fuel and transportation are extremely important in the increasing cost factor. When you invest in Canada, everything is far away and needs to be transported. Often, we move our product over 500-1,000 kilometres to reach the delivery point, so you can imagine the costs involved. We pay hundreds of dollars in fuel costs before we can deliver one load of our product to the delivery point, to market. Perhaps transportation and rail service and costs would be a topic for another day. In our area, there are always issues with that. We have a significant transportation issue in Western Canada, specifically in the north.
I look forward to answering your questions. As I have tried to indicate, we farmers are not looking at this situation in a much different way than anyone else. We are trying to figure out what is happening, although it is a difficult to adjust to these changes without realizing or knowing where the world is moving on the issue. Is the new bio-economy real? When we realized two or three years ago that we grain farmers had too much grain throughout the world, we came to your committee and discussed government support, because prices were too low. The changes we have seen are significant but they are difficult to figure out for all participants.
We appreciate your committee looking into these issues. Many farmers look forward to hearing what the government has to say on a direction for new programs and for agriculture and food in the future.
The Chair: I thank all three of you. This is a difficult issue. It is an easy one to pass by, given everything else that is happening in the world today. We will move to questions from senators.
Senator Gustafson: You presented a very good analysis of the agricultural situation. It is difficult to know where to begin because there are so many questions.
Do you think this situation will force farmers back to summer fallow? In the Prairies nowadays we have pretty well continuous cropping, but with the high cost of fertilizers, farmers are saying simply that they will take what they can get. It might only be half, but they will sow it and take what they can get.
Mr. Bonnett: Fuel costs being as high as they are leads me to doubt the possibility of going back to summer fallow, in particular out West with some of the weather patterns of dry conditions. Going back to summer fallow, you would lose the soil conservation benefits that you have had. I would doubt very much that you would see farmers doing that.
Mr. Phillips: You might see some people this spring considering crops that do not require as much fertilizer, such as legumes. You might see some shifts in the cropping patterns. Increasingly, we are seeing farmers sowing peas. There are ways for farmers to decrease their costs.
Mr. Bonnett: There will be a great deal of research on how a farmer can reduce the use of fertilizer. In Ontario, much of the wheat grown in winter, which is the first out in the spring, is planted with red clover, not for red clover itself but for the nitrogen that it fixes into the crop. You will see much more research to find ways to breed plants with enhanced nitrogen content. As well, you will see work on the management side to see how we can capture and store as many of those nutrients as possible.
Senator Gustafson: In the last three or four years in our area, there has been a lot of contract farming whereby a smaller farmer with 8-12 quarters of land will rent it to someone who farms 120 quarters. This is just snowballing in southern Saskatchewan. One thing is sure: The farmers who have leased their land to the big operators will never be individual farmers again because they have no machinery left. They simply take a cash price.
I have one neighbour who leased five quarters of land for five years at no cost just to keep the farm looked after. He did that just last year. This year, the price is jumping significantly on contracts. These big farms are getting bigger all the time.
Mr. Bonnett: You mentioned about farms getting bigger, which is a trend. Going back to Mr. Meyer's comment, with the current capital costs and input costs, risk is becoming a bigger and bigger factor. To run those large farms, you are looking at investors to back it up. I am not sure that they will continue to absorb that kind of risk. We might want to consider going back to some of the things that we used to do in the past. I had a grandfather who had a thrashing machine and he thrashed the crop for a whole township. I can see things like co-ops or limited partnerships coming together. Smaller producers will get together and act as a larger unit, but they would still have individual farms. I am not prepared to back off and say everything will just get bigger and that it will be controlled by a few corporations. I think the flaw in that is the risk associated with it. If we really want to have smaller producers on the land, we must look at co-op investment and tools for putting business management structures together. Farmers can act on that larger scale but still maintain an operation as an individual. Some of that is starting to happen.
Mr. Meyer: On your first question, I think that would be unrealistic because there is so much demand on those crops now. You would be irresponsible not to react to it to a certain degree. A lot of people will try to put crops in, and while they are in the process of doing that, they will find runaway costs.
I farm around 12,000 acres of crops. You pointed out how things have changed in respect of the leasing of land. Only two or three years ago in Saskatchewan, you could take on more land easily because no one wanted it.
Coming back to the point, the fact is that people in the middle of seeding this year will find out that they are running out of money. My question is: What will happen then? I agree with you that there is an issue there. For example, when the cash advance program was developed, I do not think we allowed for the scenarios now unfolding. We never dreamed of it; no one envisioned this. We hoped for better things, but no one in his right mind would have imagined that wheat prices would triple in one year.
That things would happen the way they did, and that the world would have major business newspaper headlining the concerns of agriculture on their front pages was unimaginable. They talked about oil and gas, but in every paper, it is now about food.
That is what I want to point out. Let us begin to shift the way in which we think about food and agriculture. It is now very important for every jurisdiction. It is even in trade negotiations because people are scared of running out of food.
Crop rotation practices have changed. For us to summer fallow some of the land now would be by accident, or a hailstorm mid-season that destroyed the crop. You have no more choice; you must seed a full crop each year.
Mr. Bonnett: I want to pick up on your point about the mainstream newspapers talking about food. I am concerned about what we will do about the high cost of food. Frankly, as a farmer, I am tired of apologizing for producing food below the cost of production. It is time that there was a readjustment in the consumer's mind that food should be really cheap. Nothing is cheap. There is a cost to producing it. Farmers have been bearing the cost of low feed grain prices on their backs. The debt load of the Canadian farmer has gone through the roof. We cannot continue in that vein.
The solution is not to look at driving the price of food down. We must ensure that we have viable, profitable farms and create a shift in the consumer's mind that there is a cost to having a sustainable food supply. I think we must all recognize that.
Senator Gustafson: What bothers me is what I am hearing from the leaders of Great Britain and Europe saying that we must control food costs. That is the end of farming, if we start down that road.
I have a question about machinery costs. A lot of bigger farmers are leasing their machinery from the equipment companies. They are being carried by the equipment companies. A year and a half ago, a John Deere combine with two headers cost $250,000 and is now $400,000. These equipment costs are controlling the way in which agriculture will go. If you are farming 12,000 acres, and there are a lot of farmers in that range, you need to have good machinery to harvest that crop.
Mr. Meyer: Thank you for that observation. From a prudent management perspective, for a farm like ours we need four to five combines. If you think we could afford to purchase four or five combines, that would be a misconception. People who have purchased are paying dearly for it because it is hard to depreciate a $450,000 combine.
Although those machines have dramatic capacity, there are options for a farmer to use the equipment a bit longer. He can also repair the equipment and maintain it well. He could have one or two additional, smaller machines at a much lower price than one of those huge machines, because they still break down. You can have a $450,000 combine and a problem with the wheel bearing. The combine might sit there for a week because you may need a German part, and it is not here.
Mr. Bonnett: This is an issue, not only with combines.
Mr. Meyer: Machinery costs are an area where you can apply proper business management. If you do that, there is some room to manoeuvre. Wiser operators would do that. Going out and buying new machinery right now is questionable.
I should point out that there is no more equipment available; it is sold out. You do not have a choice to go and buy a combine right now. With the changes in the world, the available supply was needed overnight.
You pointed out that farming operations are getting bigger. I am not a friend of mega-operations. I have similar concerns to those of Mr. Bonnett. There may be the odd one operating successfully, but over time you must find your appropriate size as you grow with an operation.
If there is a family with the management capability, for instance, then that offers a tremendous chance to build up and even diversify the farm, including livestock and whatever, not only grain. However, to go out and build those huge operations, they will not be sustainable. They are too risky. You cannot mitigate because the unknowns are too great. Every so often, one of the think tanks comes up with an idea on how to run farms differently, but in the end farms of that size quite often still fail.
Senator Gustafson: The ones that have been successful with their machinery are some near the forty-ninth parallel. We have many farmers who take half a dozen combines and go south to do custom-combining. After they seed their crop, they do that for several months all through the American plains, and then they return to combine their own farm. That is how they handle their costs of operation. These are big operations. They have been very successful.
Farming is quite different in different areas, even in Saskatchewan. This process I spoke of has not happened yet in some areas. It may be due to having better land. The more expensive land, for instance, in the Regina plains, does not change hands that much. The lighter lands do, though.
Mr. Phillips: I thought you were going to say the good land at Tisdale.
Senator St. Germain: Thank you, gentlemen, for appearing before us. It is always nice to be with the ``sons of the soil,'' as my colleague, Senator Gustafson, refers to farmers.
My question is regarding the risk. You are going into a big risk operation. You are making big money now; triple the price of wheat.
I took my flying training in Moose Jaw. I flew over the country, south and west of the Old Wives Lake, which had to be a desert at one time. We are reacting to the Al Gores of this world, and in an irresponsible manner. As a result of that, we have put grain farmers at high risk. The whole thing could change tomorrow morning.
The Germans, I believe, have said that 10 per cent of their diesel has to be biofuels. Now they are rethinking this situation. It is a knee-jerk reaction to a situation that I think we must be concerned about. We cannot cut off our nose to spite our face, and I think this is what we have done.
Mr. Meyer, you have 12,000 acres and my friend has about the same. You do not consider yourselves mega- operators. In the Lower Mainland of British Columbia, where I happen to be from, that is ``mega,'' believe me. I am talking of the whole Lower Mainland, pretty well.
How do you mitigate the risk? You have other risks: Drought, hail, et cetera. You go in with these huge input costs and the acquisition of equipment and you are basically sitting there, a victim of the futures commodity markets and the stock exchanges around the world. We must be concerned. We, as legislators, end up dealing with the problems. This is something like the banks and sub-prime loans. The last thing we should do is bail out these banks. This is horrible. Would they bail out you, Mr. Meyer, or me, if I went broke on the little bit of a cattle operation that I have left? They would not. They would walk away. They would say, ``To heck with you; you are on your own.''
I am concerned about this situation. Two or three years ago, I was talking to my colleague Senator Gustafson. We were talking about things like this; about how prices will possibly escalate because of the ethanol and biofuels situation that we are facing. Do you have a reaction to that, or do you think I am full of hot air?
Mr. Meyer: We have not made the money yet. We have not received most payments. As you know, we have a wheat board and, talking about wheat, we have not received the full payment. We do not know what the payment will be. At this point, we probably have seen only 30 per cent of those high prices yet received to the farmer. The rest is still in the system. As you know, wheat went as high as $25. At the end of February or early March, it rose in one day by $4.75 a bushel, which is more than it was worth over a 10-year average.
What you are talking about, Senator St. Germain, is the reckless scenario we now have in those speculative markets. In fact, we now have those who need risk management to secure their operations, whether it be the grain companies or the farmers. Those people who need to mitigate that risk are leaving that very place because they cannot stand the risk anymore. Risk management has now become too risky. We are in an age now where actual risk management is becoming a risk. You cannot do it anymore. You are not big enough; it does not matter who you are. You do not have the money to speculate. You want to mitigate the risk.
That itself, Senator St. Germain, is an issue that we must begin to discuss: What kind of markets are we beginning to operate in? The markets are out of whack. We no longer have functioning markets. I think it was Mr. Bush who said, a few weeks ago, that we need to have a probe into the marketplace, because the markets are no longer working properly. We have huge swings. We do not have healthy appreciations or depreciations. We either have rallies like crazy or we have collapses. Either it is a nightmare or you do not know how high the sky wants to go. That is unsustainable. I absolutely agree with you. Our operations are hundreds of thousands of dollars a day. That is their size. It is mind-boggling. No program or bank is geared towards that.
The Chair said at the beginning that I should stay crisp and brief. That is very much to the point. I was hoping that someone would ask that question, because it is now a significant issue.
Mr. Phillips: There are a couple of risks. One is the weather-related risks that are beyond our control. We have our case programs and crop insurance programs for that. However, one of the weaknesses that we have seen in the crop insurance programs, certainly on the canola side, is that the yield increases, year over year, are moving steadily. However, we have a 10-year averaging in every province for what the yield is. Regardless of what we are producing in terms of a 40-bushel crop, we cannot move our averages up. Perhaps there should be some technology factor that says, ``If you will grow these varieties that yield eight per cent higher, we will bump your crop insurance, rather than one- tenth of that each year until you can bring up your averages to cover the crops you are growing.'' That is a weakness in the crop insurance programs in terms of not keeping up with where we are in terms of our production.
If you can manage those risks on your costs and on the income side, how do you lock in the prices? That is almost impossible because of the wild speculation. Even the guy who wants to lock in with you cannot afford the margin calls. The grain companies cannot afford to take the risk of tying in canola with you because the price is so speculative. I do not know what the solution is.
Mr. Bonnett: You have touched on an important point: The market risk. We have the Ontario Wheat Producers Marketing Board that did have a pool. However, they have pulled out because they cannot absorb the risk. One of the concerns a number of growers have in this province is still the number of small elevators. They are worried that they will get caught in this situation if they start forward-contracting for grains. If they are left holding the bag on that grain, the elevators could come down.
The whole issue of what tools will be out there for marketing is something that must to be addressed immediately. What is so shocking about this situation is how fast it has turned around. We came through a period of ten years where there was huge stability. The prices were in the tank, but at least there was stability. Now there is volatility on both sides: On the input and on the sale side. If you are looking at budgeting with these high input costs, you must have some kind of budget on the other side where you have a reasonable assurance of the price you will get. That assurance is not there right now.
Senator St. Germain: I have one more question for Mr. Bonnett. I happen to have been in the cattle business, and I still am in a small way. There is a bit of self-interest in this question.
My main industry was the housing industry. This situation reminds me of that industry, with its peaks and valleys. One day you are a millionaire and the next day you are grovelling at the bank, trying to keep your business alive. I was there through the 1980s before I came to this place.
My question relates to cattle. I used to be in the seed potato business. If you were one potato short, the price went through the ceiling; and if you had one extra potato, the price was in the tank. From your perspective, why is it that the price of cattle is not moving? I think prices to the consumer are rising. Is it because of the nature of cattle — that you have to ship when you have to ship? It is not like grain where you can hold on. With these huge input costs, basically prices have not changed.
I was at an auction on Friday, when I was out on the coast, and the prices of cattle are in the tank, for some odd reason. They are claiming that it is the input costs. Do you have an explanation? What is your perspective?
Mr. Bonnett: Number one is the change in the Canadian dollar versus the U.S. dollar. Approximately 60 per cent of the hogs and cattle we raise go into the United States, so as soon as you get that 30 or 40 per cent shift in the value of the dollar over a short period of time, it has tremendous impact. That hit at the same time that grain prices started to rise.
Why has the price not recovered now? I think we are seeing cattle going through the system now; from some of the numbers I have seen, it looks like the cattle market is starting to open up. People are dumping cows. They are deciding that they can plough that ground or sow some wheat or canola and make a lot more money. You do not have a normal flow of cattle coming to the market; people are dumping cattle.
There also has been a tendency over the last year or so to ay that while there are low markets, I will put a few extra pounds on them and see what I can do. The whole thing is compounding.
In the long run, this situation will work itself through the system. What is the old saying? The cure for high prices is high prices, and the cure for low prices is low prices. It will adjust, but I think there will be fewer cattle producers in Canada by the time we are through with this situation, and the same with the hog producers. There will be a bit of weeding out in the system because it gets back to the cost of feeding and the risk. Once those people get out of the cattle business, I doubt they will get back in because of the capital costs to get started again.
I think what we are dealing with right now is a combination of the high dollar, high feed costs, and the fact that some people are exiting the industry, which is putting a surge on the market.
Mr. Phillips: We are looking at buying another 500 head of cattle, because if you are coming into the industry now, some of the pain has been suffered and absorbed. When we look at the numbers, and we are feeding dried distillers' grains from an ethanol plant, we can pencil out money today on feeding cattle right now. It is not a lot but there is some money in there. It is the guys who had those cattle before who took the big hit.
Mr. Bonnett: How are you going to pay a cow-calf producer more than he already is?
Mr. Phillips: We will consider that. However, Mr. Bonnett actually touched on a point that will apply to this wild speculation in the grain market. Some of it will solve itself; within 12 to 24 months, you will see grain production around the world increase to where some of the shortage concerns will disappear. It will take a little time, but things will level out. Perhaps the prices will come down. We have a new, higher base so we will not be here as farmers, looking for aid or programs to help us as much. There will be a higher base, but until we can ramp up that production — it takes time to grow crops in the world — we will probably see some of this speculation. However, it will sort itself out.
Mr. Meyer: I fully agree with Mr. Bonnett and Mr. Phillips. In fact, as I was travelling here today, I was reading about the cull program on hogs — 12 to 15 per cent of the breeding herds of hogs are being culled. That is probably the beginning of the hog rally. That has already begun. We are already into 80 cents for future months, while we are still into the 50s in the near future. We have cut back hog production and hog placements so severely that the impact of that will be dramatic. I think you will see similar things happening with cattle, but it might be a bit more prolonged. In two or three years, cattle will be excellent; hogs, too, will be excellent within a year because the world is running into a shortage of hogs.
Senator St. Germain: I hope you can accelerate it for us old guys.
Senator Peterson: I want to go back to the rail freight rate gouging issue. You say Bill C-8 was a step in the right direction; but in addition to the high rates that you were charged, there is a difficulty with the substandard service — particularly on premium crops, where you cannot guarantee delivery so you are losing the customers and the advantage. How do you plan on dealing with that issue?
Mr. Phillips: The recent announcement by Transport Canada was for the full level of service review. The Grain Growers of Canada are part of the Canadian Rail Shippers Coalition. We have done a lot of work on this aspect. There will be a review on the level of service. What has been confusing for some people in the media is that some people are calling for a costing review and some are calling for a level of service review. We are looking at both these two options.
Are we paying too much for freight? Sure; but we said what is more important? If we try to lower that a couple of dollars at a time, what does that matter if you cannot get the cars or you cannot get the trains to ship it?
Throughout the year, just like in fertilizer prices, there is a cost to us; but on the other side, there are premium price spikes. Therefore, there are opportunities for Canadian shippers. Whether they are small shippers, like the small pulse companies in Tisdale, Macoun or Weyburn, or whether they are large grain companies, there are always premium prices to sell into market. However, companies are not bidding on those premium sales, which would flow dollars back to farmers, because they cannot be sure that they can get the cars and the power to get their products to port on time. That is a huge concern.
We have focused on what is the level of service problems and are there additional tools that shippers need. Right now, if you are a pulse grower or shipper or a grain company, you make a deal with the railways; they say ``We will have the cars there Friday afternoon or Friday night,'' so you have all your staff on overtime, and the cars never come. The contracts are so one-sided that there is no recourse for you; you suck it up and you absorb all the costs. That is the way it is; the railways have all the power.
Out of the level of service review, we would hope that there would be some sort of contracts that if they deliver the cars, we will load them in eight hours, but they have to take them away then and get them to port in so many days. Right now, it is really one-sided in favour of the railways, and that is a situation they are happy to have.
We think the level of service review will get at some of those key issues. We need to get the cars in a predictable way so that we can hit those premium markets, plus avoid the demurrage charges. If you are a pulse shipper and you have agreed to have so many tonnes of peas in port, if there is a ship there, someone has to pay for that ship to sit there. We feel the first thing that needs to be done as quickly as possible is to have a good level of service, and to get at the root causes of why we are not getting the cars and the engines to service that agricultural need. Then, thereafter, we can start into the costing review of what is a fair return for the railways on that function.
We have already put in our choice of names of who we think should be on the panel that will undertake that review. We are having a bit of a scrap with Transport Canada. They suggested earlier on that perhaps there were so many complaints about rail service that they would not have time to hear them all. Therefore, why not submit all the complaints into Transport Canada? The bureaucrats would filter through them, get a sampling and then present them. We told them that that would not be very popular in the country. People want to have their day in court and be heard on this issue as to what the service is costing individual shippers out there.
Mr. Bonnett: One good thing about having two organizations making presentations today is that while we agree with a lot of what has been said on the service review, we think you must also look at the costing side at the same time. This is the one place where there might be a bit of a difference between CFA and the Grain Growers of Canada. We think the review could be done in a parallel fashion.
There was discussion last week in the House of Commons Standing Committee on Agriculture about addressing costing because that is part of the issue, too. I understand from talking to some of the Western growers that 10 years ago you had elevators that were very close to where you were producing that grain. You did not have the cost of putting it in a truck and shipping it very far. Now, all of a sudden, the level of service and the cost of transporting that grain by rail is from a location quite a bit farther from your farm than what it was originally. That has off-loaded much of the cost to the farmer of transporting that grain, as opposed to having it included in the cost of shipping. We agree that there must be a review of the service and the availability of the cars, but tied to that is the fact that the level of service is different from what it was a few years ago. The whole issue of costing should be looked at, in tandem with the service review.
Mr. Meyer: In respect of what Mr. Bonnett is saying, we need to add further to that. I appreciate what you are saying. You cannot be under the impression that grain shipping is beginning at the point of the elevators. Today, grain shipping is different. We farm near the Peace River, which is four or five hours away from the elevator. If you farm up north, you travel with the grain and you must transport it to Edmonton. It is a huge area. That cost is totally absorbed by the farmer.
It is difficult for farmers to understand — and might be a slightly different perspective on what we are discussing — why they cannot ship the product when the world is in short supply. It is very hard for someone to have a so-called high-priced product and they cannot ship it. They see the value of the product and would like to get it to market, but cannot do that. In the past, a great deal of wheat in this country has not been shipped because there was no ability to do so.
Mr. Bonnett: This almost becomes an input cost issue as well. With the shifting of the transportation responsibility to farmers, railways have deteriorated dramatically in parts of Saskatchewan since they moved farther away from the collection points. That cost is transferred to the local taxpayers and becomes another input cost. It is not an up-front issue because grain transportation by rail might be at a set figure, but it is not calculated in terms of that tax burden for not only the maintenance of the roads but also the trucks. It becomes a complex factor, and the whole issue of costing and service has to be looked at together.
Senator Peterson: Your charts on anhydrous ammonia in Manitoba and Saskatchewan indicate $864 per ton, and in North Dakota it is $624 per ton. Why is there such a difference in those figures?
Mr. Meyer: One place is in Canada and the other is in the United States.
Senator Peterson: Yes, but there is free trade.
Mr. Meyer: It is unbelievable, as we discussed last time, that the price difference on some of those products is so significant. For example, we can buy potash cheaper in the United States than we can buy it in Saskatchewan.
Mr. Phillips: I do not know the solution to that in terms of how you can order someone to sell something for a different price in another country. A farmer can go to the U.S, buy the product and bring it back. Anhydrous ammonia is a little trickier to do but for all of the dry products, the border is open. The price discovery mechanism would be your distance for freight costs.
Senator St. Germain: Is this because of long-term contracts?
Mr. Meyer: That is part of it.
Senator Peterson: You mentioned the hog industry and that you hope it will rebound. Currently, we have a program whereby we are paying breeders to eliminate their breeding stock. Piglets are being euthanized because there is no market for them and we are importing them from the United States. Why is the market in turmoil? The second largest hog producer in Saskatchewan has declared bankruptcy.
Mr. Meyer: We are very much in a transition period between changing markets given transportation costs, input costs for feeding, local oversupplies and certain local markets disappearing. Some producers have to go further to sell their product. Things are changing also with the change in the value of the dollar. Some processing entities who absorbed those hogs in the past have moved from 0.8 to 1.05 or par arrangements in currency exchanges. That makes a 20 per cent to 30 per cent difference. The hog industry is a prime example, just as the lumber industry is where we are. It is literally at a stand-still and is absolutely in transition. It is not only difficult to explain but also difficult to look at the killing of these animals in such a way.
I firmly believe that the hog industry will turn around. It is so sad to see what has happened. I know that is not a sophisticated answer, and I might disappoint you in that.
Senator Peterson: It is regrettable that so many good operations are going under.
Mr. Bonnett: One of our members is the Canadian Pork Council. I am not sure that they are quite as convinced that it will turn around as quickly, mainly because the feed issue will be with us for some time. As long as the feed costs are so high, it will be difficult. The value of the Canadian dollar has to shift. There will be some adjustment in the industry. I would like to believe that it will turn around in a year. I will owe you a beer if it does turn around.
Mr. Meyer: Do not forget that in the United States there is an extremely advanced biofuels industry with a significant availability of dry, distilled grain. Where that comes into the picture, it makes feeding more competitive. We do not have that industry in Canada. Some of us argued two or three years ago that because Canada does not participate in the biofuels business, we will have to pay for it in the feed industry.
Senator Mahovlich: We had small farms up where I am from. My dad had a dairy farm for awhile. You mentioned regulations earlier. When I buy a steak at Loblaw's, do I know where it is from — Canada or the United States? Where do the large corporations like Loblaw's, for example, get their meat?
Mr. Phillips: Much of the meat is Canadian, but the point that CFA would make is that there needs to be a clear way to brand and label the meat so that consumers know that it is a Canadian product, not just packaged in Canada after it was imported. There has been a big push for that to be done, and it would be an excellent concept for this committee to embrace. In Manitoba, for example, there is the Peak of the Market brand. If you see that brand on a product, then you know it is a Manitoba product. The Province of Ontario has such a program as well. When I go to Loblaw's, it is difficult to find the labels. When I look at something, I wonder where it comes from. It is hard to know. We need to find a way to label the product so that consumers know that they are buying something produced in Canada.
Mr. Bonnett: I want to emphasize that we are calling for a voluntary labelling program. If you get into mandatory labelling, then there will be a whole other series of issues. Currently in the United States, they are talking about going ahead with mandatory country-of-origin labelling. That sounds good on the surface but there is so much trade back and forth between the two countries that all of a sudden they will begin to discount Canadian product into the U.S. That will mean segregating the products, thereby creating added costs. We have no problem if they want to market American beef and have traceability, verification and marketing protocols in place to market it. That would be the same thing that we would do with our beef or pork.
It should be a marketing initiative. Labels should describe what the product is, but they should not be so detailed that you are demanding that the country of origin be identified. We want a voluntary program to identify the product. There is a difference between legislation requiring what is on the label and something that gives clear identity of what the product is. We are asking for clarity in labelling and then marketing the product. Canadians produce everything from horticultural and grain crops to beef and pork that we can market as Canadian products and reap the benefits. However, it is difficult for the consumer to tell right now.
I do not know how many of you saw Marketplace on CBC, where Wendy Mesley was going through the ``Product of Canada'' labelling system. All that meant was that 51 per cent of the cost of that product was incurred in Canada. It may only be the box. It is important to make sure that consumers are aware of what they are buying. When you survey consumers, they say they want to buy Canadian products, but they cannot make that choice right now.
Mr. Meyer: Further to that, from the Alberta perspective, we are seeing that feedlot interests have moved a significant percentage of overall feeding capacity into the United States. Therefore, Canadian feeder cattle are feeding in the U.S. and Canadian feedlots are sometimes importing corn through the same interests into Alberta rather than feeding Alberta grain. They say U.S. corn has been more competitive in most of those instances than Canadian grain.
When you are asking about where the product is from, that question is important: Is it whether the animal is being fed Canadian grain? Is it where the animal is standing? Is it who owns it? Or is it where it is being processed? We have a mix of situations that are totally different, and quite often they are arranged to bypass some trade arrangements.
Senator Mahovlich: Does each country have its own regulations or does the World Trade Organization control what is injected into that cow? I know the Canadian public wants to know what they are eating and what is injected into the animal.
Mr. Bonnett: I would note that the only time cattle are injected with something is to cure a health problem. I mentioned in my presentation that one of the challenges we face is the lack of understanding among consumers in general about what it is that farmers do, and how they do it. There are three levels of regulation in this country: municipal or local, provincial and federal. Many times you will have three levels of government trying to regulate the same thing. That can create inequities, not only within a province but between provinces.
A good example would be environmental rules where those in Ontario are different from Quebec or Alberta. Those types of things create artificial barriers amongst producers in the country. It would be good to harmonize those regulations within the country.
You talked about buying local products. If local slaughterhouses in Ontario are provincially inspected, livestock butchered at those slaughterhouses can be sold in the province of Ontario but not in any other province. This is another layer of regulation that creates inequities and takes competitiveness out of the system. How can we harmonize those interprovincial, municipal and federal regulations?
The next step, then, is the testing of products, whether it be a herbicide to spray on a grain crop or a drug used in livestock. If it goes through rigorous testing in the United States, there should be a system where some of those test results can be replicated in Canada to avoid having to go through a completely separate testing for that product.
It comes back to the issue of harmonization. Every time you add a layer, it adds cost to the system. Part of the reason we are paying more for animal health products and herbicides in Canada is that we have a separate regulatory system. Our market is not as big as the United States market. If you want to market a herbicide or a drug, it is easier to do that in a market of 350 million people. However, in a market of 35 million people, the relative cost to do similar testing is higher.
We are not saying downgrade the regulations; we are saying harmonize. Ensure high standards, but have it accepted in both the United States and Canada, because that is where most of our market is anyway. That would weed out some of the artificial things that give us difficulty in competing.
Senator Peterson: With respect to the country-of-origin labelling, if the Americans bring that in, will it not slam the border shut? Basically it is another word for tariffs or protecting local industries. For example, on the feeder cattle, they will not want to track that, will they?
Mr. Bonnett: They will do it. There will be products entering and they will have to use labelling that will identify the other countries.
One of the discussions I am starting to hear about in the beef and hog sectors is that if they start doing country-of- origin labelling, maybe we should start marketing how superior our livestock are. Perhaps use it as an advantage. Initially, there will be a kickback and the price in Canada will drop because that is a big market. We are exporting 60 per cent of what we produce. However, if they actually allocate the funding and implement that policy in the way it is now, I think the only way to deal with that situation is to start building up the marketing and display the fact that we have traceability and food safety systems that stand up against any place in the world.
Senator Gustafson: Our farmers mostly are located along the U.S. border. There is a tremendous difference between how farming is viewed in the U.S. and how it is viewed in Canada. In Canada, what we hear from the general public is that the farmers are crying again. In the U.S., it does not matter whether you come from Los Angeles, New York, Seattle or Chicago, they all fight for the heartland. It is an absolutely different attitude in this regard.
This committee has recommended a couple of times that we should develop a Canadian farm bill that would look at a 10-year period and say ``Here is where we are going.'' We have had so many different farm programs that most farmers do not even understand them any more. They just take it to the accountant and say ``Fill it out'' and hope for the best. We are now into a new global economy, and I do not think we are ready for it yet. That is one question.
I would also like your comments on market choice.
Senator Peterson: You said you would not.
Senator Gustafson: First, please respond on the Canadian farm bill.
Mr. Bonnett: On a Canadian farm bill, you are likely aware that the Canadian Federation of Agriculture has been floating a document called ``The Canadian farm bill'' around for several years. That is an initial draft of a concept that we have put together as a vision of where agriculture will be in the future. There are three components to that farm bill. One is the age-old safety net discussion. We will have that forever; as long as we have a business as risky as farming, we will have a discussion about crop insurance, case programs and everything else because we have to deal with that risk. That component should be kept in one corner where we will have that ongoing discussion.
Another area where there has been a lot of work done is on strategic development for agriculture. Where will agriculture be in five, ten and 15 years on? Even taking something simple like biofuels — will it be fuelled on ethanol, biodiesel or cellulosic ethanol, or something like that? We need to be looking far enough ahead so that we can get to ``where the puck will be,'' so to speak. What are the things that are demanded by consumers? I think there will be an energy component of agriculture production in the future. However, I am not convinced that we have it right as to where it will be. We need to have that vision.
Functional foods is another critical area. Right now, there are a number of foods out there. If we can get more people incorporating them into their diet, they could be getting their drugs through their diet rather than going to a drug company. We must communicate better with people. People are starting to demand that. How do we position and market our foods so that that aspect is captured?
The other thing on strategic development is finding how to link the farmer closer to the end buyer in the chain. Over the last 50 years, the farmer has become further removed from that food purchaser.
I had the chance to look at some of the issues in Japan. On the label on certain types of food in Japan, you see a website where you can see the farmer who actually produced that food. They are going back to making that linkage and charging a premium price for that priduct because that capability is there.
We must step back, take a look at where we think things will be and put a discussion document in place. In fairness, this latest round of Agriculture Policy Framework 2 is a lot better than the first one. The first one was a first crack at looking five years out. We got sucked into a vacuum talking about safety nets for five years because we were in that big hole. If we can maintain some of the prices that we are recovering here on grains and oilseeds, and if some of the livestock prices come around in the next year, it might give us some breathing room to take the opportunity to look at a formal Canadian farm bill in the future. Strategically, we need to look at what society will want and how we can line up our farmers, researchers and universities so we are positioning ourselves to take advantage of those markets.
Mr. Meyer: Further to that, I believe that we were trying to work on a farm bill when we got into the APF. APF is supposed to be our farm bill, I think. I wonder what Agriculture Policy Framework 1 really did. I am glad we are reviewing the process more comprehensively for APF 2.
In respect of trying to have a plan for ten or 15 years, we would not have the biofuel situation if we made that plan five years ago. That is one of the problems with a five or ten-year plan. Perhaps, in further incorporating a vision for this industry, it would be useful to emphasize the importance of agriculture, a view that has been lacking in Canada. For me as an immigrant, for instance, I always wondered why there was not more concern about agriculture.
Senator Gustafson, you alluded to urban areas in the United States. The same can be said about Europe. To a large degree, Europeans are just as concerned about food — if not more concerned — than the people you mentioned in the United States. It is clear that those people realized that without the country, without the people working the land and feeding the animals and whatnot, nothing will happen.
For some reason, this country has been extremely blessed. I think that has a lot to do with the plenitude. There was always too much. There is always cheap food. Food was too cheap here; there was too much, and it was too cheap. All of a sudden, that is changing. When wheat seems to go higher, there is outrage. There is no outrage at the fact that today. crude oil is at $113 a barrel. There is no outrage; they call it a new record high. That is it. Tomorrow they will fill up again.
I would like to make a point in that direction, though I do not want to take away from what Mr. Bonnett is saying. I think what is happening now is making people start thinking about food, and the price of food. We might soon have a different environment in which to create something more successful for Canada in the food business now and into the future than we have in the past.
Mr. Bonnett: You mentioned the political differences in the United States and there were some comments about support for the rural communities and agriculture. I talked to a congressman from Texas one time and he said, ``We have the best form of democracy money can buy.'' He had a point, in a way, because their system of representation gives a lot more weight to rural communities. I think that is a dynamic you can see in their policy.
Senator Gustafson: Their senators have to fight for the heartland.
Senator St. Germain: Maybe there is something to that American system.
Senator Gustafson: My second question is regarding market choice.
Mr. Bonnett: By market choice, do you mean truth in labelling and those sorts of things?
Senator Gustafson: No. When I sell my grain, do I have a choice who I sell it to?
Mr. Phillips: We will make some brief, non-inflammatory comments. Some of this is more personal than the Grain Growers of Canada. I have worked on both sides of this issue. I was on the board for United Grain Growers when we pushed for market choice, for Reg Alcock, cabinet minister and Minister responsible for the Canadian Wheat Board. I have worked on both sides of this issue.
I think things are changing. There is a bill on barley before the House. The Canadian Wheat Board's comments were telling when the results of that so-called plebiscite were released. It was telling that the Wheat Board said, ``That mirrors our internal polling: 60 per cent of the people want choice.'' That was the first comment from Ken Ritter. I can say. from having worked in Mr. Alcock's office and having looked at the internal surveys, that there is a mood for change.
The challenge is: How can you, or can you, maintain a strong Canadian Wheat Board for all the people who want to do it while setting up some pressure relief valve for those who do not want to use it? I do not think that discussion has ever really taken place, or that point been explored. The Canadian Wheat Board says it cannot be done. The question has never been asked of the Canadian Wheat Board: What tools would you need? If you had to compete in the open market, what tools would you need to force the grain companies to handle grain if people come in to the elevator? If I come in with my barley and say, ``I want to sell to the Wheat Board'' and the grain company says, ``The Wheat Board bin is full, but you can sell it to my account,'' we need an understanding of what tools they would need to compete. Then we could know whether it is real or not. We have never really had that discussion. It is so polarized, unfortunately, that we have not found a forum to have that frank discussions and make more informed decisions on whether open marketing would work on barley or wheat.
Senator Gustafson: It worked in Ontario. They had a wheat board.
Mr. Phillips: For the record, our organization's view would differ from that of the CFA in that we would support market choice. However, we want to find a way that the Canadian Wheat Board would still be a viable competitor for the grain. That is critical because half the farmers want to deal with it. That said, there is a big group that does not.
Mr. Bonnett: I should clarify on CFA's position. We have had a struggle with this. One of the things we all recognize is that people are very emotionally attached with regard to what side of the issue they are on. The core point we wanted to make in this discussion is ensuring that farmers understand the ramifications, regardless of the decision made.
I have read some of the history books about the history of grains in Western Canada and the struggles farmers went through to put pools in place. That evolved. Co-ops formed and collapsed. The core point, I think, has to be that if there are change being made, farmers need to have a good understanding of what the core change is. The problem that we see with the issue right now is that people are so polarized that sometimes the rhetoric is getting in the way of having a clear discussion on what is needed, and how do you position yourselves to get that.
Mr. Meyer talked earlier about the risk with volatile markets. I do not know whether we have the structures right now to deal with those volatile markets, but I know that an individual producer will not be able to deal with that on their own. There will have to be tools in place. The core thing is to have a discussion on what type of marketing choice you want, but make sure there is clarity in what is going on. That is a big problem.
Mr. Meyer: I want to briefly make a comment, since this is a major issue for us. We produce thousands of tonnes of those grains — wheat and barley. Make sure to listen in on the discussion of those who produce the barley and wheat.
In respect of barley and wheat, there are two different issues. In barley, we have the Canadian Wheat Board selling probably 16 per cent of the barley. The rest is open market already. That 16 per cent controls the whole market of barley, plus the whole market of feed grain — end of story. There is no other way to describe this situation; such a small portion of market engagement is controlling the rest of the market. It is also curtailing the process end.
On the wheat side, I very much agree with some comments that have been made by Mr. Phillips and Mr. Bonnett. I also want to mention that the board is reacting also to what is unfolding before our eyes. The board is changing, as Mr. Phillips said, and they are coming out with new programs. They came out with a new program the other day, the daily price contract, which will allow farmers to contract their tonnage at the beginning of a crop year and use the daily price, which is hedged on the market. That allows a large entity like the board to do that kind of hedging, which I could not afford to do anymore. I cannot afford to hedge my grain because I cannot afford the margin calls. When you have 60 to 90 cents fluctuatios — in fact, one day we had a $1.20 price fluctuation — you can figure out, over a contract of 5,000 bushels, how much money that is. You cannot take the risk.
If you produce 200,000 or 300,000 bushels and you had a $1.20 move in one day, that is a $250,000 margin movement and you have to put that up if you are a risk manager. Not many of us can do that. There is no bank out there that allows farmers to mitigate that kind of risk because the system is not yet ready to deal with that type of situation.
On the Canadian Wheat Board marketing question, I think it has now received a new momentum because of what is happening before our eyes. I would not go much further than that at this time, but I personally support the choice of having the right to sell as I see fit. That includes the Canadian Wheat Board, which can be an option with some of the new tools. There are now new people involved who are giving us that opportunity.
Senator Gustafson: If you follow the terminals that have been built along the 49th parallel, you have all the big world players there. You have Archer Daniels Midland, which is the biggest company in the world, handling grain. The Wheat Board sells most of their grain to companies like that. We have ConAgra; the Weyburn terminal is a small one compared to these other big companies that are right across the province.
The idea that you would not be able to market your grain is not there, be realistic, because that is where the Wheat Board markets their grain. There would be competition between these companies. Look at the Saskatchewan Wheat Pool — they have a new name that I cannot pronounce. They have gone that route now. There is no question there will be change, but it is certainly important to take a look at that.
Mr. Phillips: My fear is in the way the Wheat Board is playing its cards; it is an all or nothing game and they are refusing to move on malt barley in any way, shape or form. My concern, with all due respect to the current Conservative government, is that if they come back with a majority after the next election, I think there are people in that government who would simply gut the Wheat Board. It would be gone, and it would happen in a fashion that would make the whole thing unsustainable.
If I had a critique for the Wheat Board, it would be that I would like to see them take some more progressive steps now and saying ``What can we do to meet you a little bit so we do not throw the baby out with the bath water,'' which is what I see might be coming down the road. We will encourage them to be more proactive and meet people part way without losing the strength that they have.
Senator Gustafson: There is no question that it is a big Canadian question. Farmers in the Maritimes, who have nothing to do with growing grain in the West and marketing it, have an opinion on the Wheat Board. It has become a political football.
Mr. Bonnett: It gets back to a core question, which is whether you want farmers, through their organizations, engaged in the marketplace. Will we just scrap this and not have farmers engaged in the marketplace through their organization anymore? That might not be in the long-term interest.
A good example of that is that we had a company here in Ontario that just decided to declare bankruptcy — Tincor Foods. During the BSE crisis, they worked for farmers; I put money into that as well. No one was buying culled cows. They came into the marketplace. Because of the fact that they got engaged in the marketplace, all of a sudden the buyers that were buying those cattle had to up the prices because there was more competition in the marketplace. The farmers got involved and came into the marketplace. Over the four years they were in business, the calculation was that we made an extra $50 million on the sale of cattle.
Now market conditions have changed and the company is going bankrupt. I would not want to think — when there are times that farmers engage, through their organizations, in the marketplace — that it is not good for farmers. I worry that the rhetoric will take over and people will not make a decision on what is basically the best for me — not necessarily this year, but out into the future.
The Chair: This has been an outstanding evening and, as always, when we are talking about agriculture, it is a troubling time all across the country. I am very glad that you came here tonight. All of us appreciated it very much. You have opened eyes and offered some new ideas.
Mr. Phillips: May we each have a one-minute closing comment?
We threw out some suggestions to you, such as how we could pre-purchase inputs during low prices as one option. We noted that the bio-security costs will be pushed on to farmers by having all of the fertilizer and chemical dealerships in the country having to upgrade on bio-security issues. We also talked about better funding for PMRA and CFIA.
A lot of what has been said today goes back to a philosophy we have at the Grain Growers of Canada. We do not believe that the government owes farmers a living, but we need the policy environment that lets us operate and make a living. If you can move on the policies that will help support us in that way, we are prepared to take risks ourselves as well.
Mr. Meyer: Further to that, I would like to add that government has to have an interest. We see that around the globe today. Just open the major daily newspapers. Farming is a unique business because of its importance for everyone. Everyone is engaged in agriculture, wheat. We eat two or three times a day. That makes you involved in agriculture. This is not just an industry in which you can or cannot chose to participate. You are a participant.
In respect of what is happening in these times, I think we have entered a new bio-economy. We are in dramatic shifts around the globe. The new bio-economy is not just about biofuels; it is about a new awareness of what is happening in the world. There is a change in attitude and a change in events all happening at one and the same time. There is a shift in various things at a time when it is difficult to find stability, which we discovered tonight. Two hours is not nearly enough time to discuss this situation. Perhaps four or even five hours would be better. The fact is that you cannot turn the wheel back. The new environment is here and this bio-economy will offer opportunities, but it requires additional responsibility and an ability on our part to participate in a new way, as we have learned in the past. Not all of the answers are available yet, so we need to look into the issues and work on them.
Mr. Bonnett: I thank the committee for giving us the opportunity to be heard because many of these issues require in-depth discussions. When you read the newspapers and listen to the radio, you hear a lot of talk about what is happening in agriculture. As I said at the outset of the meeting this evening, if you take a snapshot of only one sector of agriculture, you will not get the whole picture. One sector might be good and another sector might be bad. The whole issue of input costs has not been considered, but this committee is doing admirable work in trying to focus on that subject.
One of the core messages we wish to leave with senators is the fact that we have tools that the government can use to assist farmers, such as policies, regulations and farm programs. It is fine to raise awareness of the issues, but regardless of the price of input costs or the selling price of the products, the bottom line has to be that farmers need an opportunity to make a profit. If they do not make a profit, they will be not be able to sustain those farms. If they do not sustain those farms, then many more than just the farmers will suffer. The whole rural community will suffer. This committee can help deliver that message.
The Chair: Thank you very much. We are getting close to the end of our study so it was important that you appeared to engage in this discussion.
The committee adjourned.