Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 10 - Evidence - Meeting of April 17, 2008
OTTAWA, Thursday, April 17, 2008
The Standing Senate Committee on Agriculture and Forestry met this day at 9:01 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: Good morning honourable senators and all who are tuned in to the webcast of the Standing Senate Committee on Agriculture and Forestry. Today, we continue our study on 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 average between 7.6 per cent and 13.9 per cent annually from 2002 to 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, our committee will be paying particular attention to input prices in Canada relative to those prevailing in the United States.
With us this morning, from Agriculture and Agri-Food Canada, are Andrew Marsland, Assistant Deputy Minister, Strategic Policy Branch and Jan Dyer, Director General, Research and Analysis.
Andrew Marsland, Assistant Deputy Minister, Strategic Policy Branch, Agriculture and Agri-Food Canada: Thank you, Madam Chair and honourable senators. It is our pleasure to be here today to speak to the committee on this important and timely issue facing the agriculture and agri-food industry. A number of factors have affected Canadian farmers over the last few years and the increases in input prices are an important component of that picture. Obviously, they impact on the margins of operators. We are here to share with you what we know about the changes in the industry and we are pleased to assist the committee in its examination of this issue.
There are a number of factors driving the recent increases in input prices in agriculture. Some are related to markets and many are related to pressures from outside the sector, such as oil prices and changes to the regulatory environment in agriculture. I will begin by describing some of these factors and then I will talk about what the government is doing to alleviate some of the pressures.
The pressure on incomes from input expenses is playing out differently in different parts of the sector. Overall, despite the increase in farm input expenses, cash income is expected to increase by 18 per cent in 2008 from 2007. This is largely because of the increase in prices of grains and oilseed but, of course, high grain prices mean high feed costs for livestock producers, who are facing intense pressure. Recent increased global demand and tighter supply of major farm inputs, such as fuel, feed and fertilizer, have put pressure on the profit margins of many farm operators. The department forecasts that farm input costs will increase by 8 per cent in 2008 to $34.1 billion. This increase is expected to be largely a result of increases in fertilizer and fuel expenses.
While fuel, fertilizer and pesticides are important inputs for crop farmers, feed for livestock farmers is the major expense. In fact, fertilizer is a major input cost for many Canadian farm operators. In 2007, Canadian farmers spent $3.2 billion on fertilizer, which is a 20 per cent increase over 2006. Average prices paid for fertilizer in Canada increased by about 20 per cent in 2007, which translates to an increase of about $509 million. The department forecasts that fertilizer prices will increase by approximately 20 per cent in 2008. Overall, fertilizer expenses represent approximately 8.6 per cent of total operating expenses.
Fertilizer is a particularly important expense for crop farms. In the case of grains and oilseeds, it accounts for approximately 16.8 per cent of total expenses. Fertilizer is also a significant expense for other crop farms, such potato and vegetable farms. Demand is strong for fertilizer, not only in Canada but also in global markets. We expect that tight market conditions will continue to persist in 2008. Strong world demand, coupled with limited fertilizer supplies is expected to lead to a supply/demand situation where prices are driven higher in 2008.
World demand for fertilizer is driven by demand for increased production of grains and oilseeds. Demand for grains is the result of many factors: increased demand for food from countries with growing populations, such as China and India; tight supplies of grains, which has resulted in some speculation on grain markets; and the need for cereals, in particular corn, for biofuel production.
Fertilizer prices are determined in the global market, where there are few, if any, trade barriers. Canada is a major producer of nitrogen and potash in particular. According to the Canadian Fertilizer Institute, in 2005 and 2006 Canada's exports represented 52 per cent of production for nitrogen and 7 per cent for phosphates and 97 per cent for potash. As one of the world's largest producers, Canada exports almost all of its potash and a significant portion of its nitrogen production. In terms of value, most of our trade is with the United States. Since 2005, net exports of fertilizers to the U.S. have amounted to over $1 billion per year.
Another important cost for producers is fuel. According to the latest statistics, fuel expenses for Canadian farmers accounted for $2.1 billion, representing 6.7 per cent of operating expenses. Fuel expenses increased 34 per cent from 2004 to 2007. Fuel is particularly important for crop farms and greenhouse operations. Crude oil prices have increased significantly in recent years from an average of $41U.S. per barrel in 2004 to the current price of approximately $110 per barrel. I heard on the radio this morning that in Asian markets, it reached as high as $115 per barrel last night. Although there is some uncertainty regarding the future price of crude oil, most forecasts expect that crude oil prices to remain high in 2008. Natural gas prices have fluctuated in recent years, although prices have increased in last few months to reflect increasing demands. Diesel prices are projected to increase 14 per cent in 2008 from 2007, and gasoline expenses are expected to increase by 12 per cent this year. If crude oil prices remain at the current level, these price increases could be even greater.
In 2007, Canadian farmers spent $1.8 billion on pesticides, representing an increase of 5 per cent from 2006. We are forecasting pesticide prices will increase by 3.5 per cent this year. Pesticide prices are particularly important for crop farms. Most prices are expected to increase between 2 per cent and 3 per cent this year.
In terms of feed, expenses of $5.1 billion represented 15 per cent of agricultural expenses in 2007. In the case of hog farms, feed accounts for almost 36 per cent of operating expenses. Clearly, increases in feed costs have put significant pressure on the margins of livestock farmers, in particular when combined with cyclical factors and the appreciation of the Canadian dollar. With the continued strength in commodity prices, feed costs are expected to remain high.
We are aware that regulations aimed at protecting the health and safety of consumers and the environment, while ensuring a smooth-functioning marketplace, can have an impact on the availability of inputs and their cost, such as veterinary drugs and pesticides.
During each phase of our consultation process for Growing Forward the next framework for agriculture policy at the federal and provincial levels; participants consistently voiced the need for regulatory improvements. While participants agree that Canada needs strong regulations to protect consumers and safeguard international markets, stakeholders identified speed and responsiveness as areas that need improvement to ensure a level playing field and encourage innovation.
Stakeholders cited the need to address regulatory approval of veterinary drugs in Canada. They feel the backlog of submissions for regulatory approval limits their ability to utilize new products and places them at a competitive disadvantage compared to the U.S. This sentiment was also echoed by stakeholders with regard to the approval of minor use of pesticides in Canada.
In recognition of the importance of the role of regulations, our new policy framework — Growing Forward — has initiatives to address some of these issues. We are working with Health Canada to create a more transparent and efficient regulatory submission process for veterinary drugs with the goal of eliminating submission backlogs. The ultimate objective is to help the competitiveness of the sector by improving the availability of newer, more effective drugs and reducing the cost of this input for livestock producers.
In terms of improving the availability of reduced-risk pesticides, in recent years great strides have been made in the regulation of pesticides. The Pest Management Centre and Pest Management Regulatory Agency have worked together to ensure priority areas are addressed; that Canada works cooperatively with international partners to prevent trade barriers and improve the competitiveness by increasing the availability of newer, reduced-risk products.
This work will continue in order to generate field trials and laboratory data required to support regulatory submissions for the registration of new minor use pesticides as well as ensure an efficient regulatory review process.
The government has also recognized the need to assist producers with the increases in input expenses through key changes to our suite of business risk management programs. As part of Budget 2007, the government announced a $400 million cost-of-production benefit to help with the high production costs over the last four years which has now paid out close to $390 million to producers. The cost of production program will provide an additional $100 million in annual supports, and these context payments will be made where the costs of production exceed the prices received by farmers for their commodities. Details of this program are still under discussion, but the program will be needs-based and will not necessarily pay out every year. It is a function of indexes for costs and prices.
The government has announced an additional $600 million to kick-start AgriInvest accounts, which is now being deposited into the accounts. Recent changes to the Advance Payments Program will ensure that particularly Canadian livestock producers can access up to $400,000 in repayable emergency advances. This could provide up to $3.3 billion in advance payments. The amendments provide easier access to immediate cash flow by removing the requirements for livestock producers to use a Business Risk Management program as security for a cash advance.
Together with the existing suite of Businesses Risk Management programs, this will help producers manage through disaster situations, drought, and protect operating margins against large or small losses that could result from increases in input costs or revenue declines.
To conclude, farm organizations and many producers have raised the issue of recent substantial increases in fertilizer prices. We recognize the value of timely and transparent information for producers. In order to help the industry, twice a year the department publishes fertilizer prices collected through our surveys in Manitoba and Ontario. These price indicators coincide with seeding and post-harvest application dates. To further support the industry, we are considering publishing more of the data we collect.
We regularly conduct surveys and prepare analytical reports on the topic. In fact, long-term statistical analysis has confirmed that average fertilizer prices in the Canada-U.S. border area were not statistically different from major products during the period 1993 to 2006. Price differences do occur at any point in time. In 2007, a comparison of our survey data of fertilizer price indicators shows that prices in Manitoba and Ontario were higher than in nearby states, with the exception of urea and phosphate in Ontario. Although barriers between Canada and the U.S. are minimal, local market conditions, transportation costs and exchange rates can cause considerable variability in fertilizer prices between regions. Prices do get out of line from time to time, particularly when the market is as volatile as it is currently.
As mentioned, data from 1993 to 2006 does not suggest any ongoing price differences that persist. The Competition Bureau, which has responsibility for issues of competition, was asked by Keystone Agricultural Producers to look into the issue in 2007, and in October, Keystone made public in a press release that they were notified there was not enough information to warrant launching an investigation. That being said, the department is now conducting an in-depth analysis of issues identified by the industry. We would hope to be in a better position to add to the information available after the study is complete.
We look forward to receiving the results of your study and together with our own analysis on the structure and competitiveness of the industry, we will be better able to understand the underlying issues relating to the current situation.
Senator Gustafson: I thank the witnesses for appearing this morning, especially Ms. Dyer, who comes from my home country, the Estevan area. She tells me she has been here for 20 years. Welcome this morning.
I read some very serious information in The Toronto Star. I will quote: ``A rapidly escalating global food crisis has reached emergency proportions and threatens to wipe out seven years of progress in the fight against poverty. . . .''
I am sure you have all been reading the articles that involve global food shortages and so on. How many biofuel plants are in that area? What direction is Agriculture and Agri-Food Canada taking in regard to the local and world situation?
Mr. Marsland: Thank you for that question, senator. I will begin and I am sure Ms. Dyer will supplement my answer. I do not have the number of plants, but the capacity we have is somewhere in the region of 700 million litres of biofuels. As you know, the government recently announced the implementation of minimum content levels for renewable fuels: 5 per cent for ethanol, 5 per cent for gasoline and 2 per cent for biodiesel by 2010-2012.
Underlying your question is what impact does this have on world food prices. As I mentioned in my opening remarks, there are a number of factors at play in terms of driving world food prices: increased demand, low stocks-to- use ratio and the implication of biofuel policies. We have looked at what effect our policies would have on prices. We are such a small player and the prices of commodities, as you know, are set on the world stage. The prices of corn, wheat and grains, et cetera, are established in world markets, particularly the U.S. Our analysis shows that what Canada does in this area has very little impact on prices.
Jan Dyer, Director General, Research and Analysis, Agriculture and Agri-Food Canada: We have looked at the increase in prices due to Canadian biofuel policy, and Mr. Marsland is right; the Canadian biofuel initiative is modest by what is going on in Europe and the United States.
We expect that we will put approximately 1 million tonnes of grain into ethanol production in Canada. That will have minimal to no impact on world prices. However, in terms of global biofuel policy, our estimates are that U.S. and EU biofuel policy will put the price of corn up by about 23 per cent and the price of wheat up by about 8 per cent. These are fairly hefty chunks for one particular policy, but a lot of it is driven by stocks-to-use ratio right now.
Many countries in the last few years have abandoned their public stock holding behaviour. China and other countries always held fairly high public stocks, but they have been divesting themselves of those stocks in the last few years. Therefore, stocks are very low, and any changes in the market mean that there is much more price volatility. Because of that, we are also seeing a fair amount of speculation in commodity markets which is making prices rise fairly sharply when there is a change in the market situation. There are many factors at play. Biofuel is certainly a significant one, but not Canada's biofuel policy.
Senator Gustafson: The U. S. policies in this regard will probably put Canada in a good position for higher grain prices. However, in the long term, there certainly must be serious consideration given to where we go into the future in this regard.
Most of your figures are up to the year 2006. In the year 2007 and even the year 2008, costs have escalated unbelievably. For fertilizer, last spring our farmers paid around $300 a tonne. I am told that this spring it will be around $700, more than double. It is the same with fuel costs.
The farmer that has the higher prices will probably fare quite well. However, a farmer that does not have the high grain prices to put a crop in and has drought conditions at the same time will be in trouble. That farmer has the high prices to put the crop in but cannot do so. Are you looking at specific areas of the country in that regard?
Ms. Dyer: Our current suite of Business Risk Management programs work on an individual basis. The margin- based programs calculate what is happening on an individual's farm. With the AgriStability program, it does not matter if your prices go down or your expenses go up, the change in the margin triggers the program.
In addition, we have added the AgriInvest program, which is adjusted net sales contribution that farmers can put in a savings account type of instrument. On top of that, we have added $600 million for a kick-start, so we have dumped money into those accounts to be available to people right off the bat. We have added a cost-of-production, formula- based payment to those accounts as well. As Mr. Marsland said, we have already put in about $390 million into those accounts and plan to have a program that will put up to $100 million annually into those accounts so that farmers can access that to cover some of the losses.
We have those suites and the changes we have made to AMPA will enable people to get advanced payments at seeding time. They will be able to get cash and pay out later. We have increased the cash advance level to $400,000 per participant, interest free. The participants can access that much money right away if they need it to do seeding.
Senator Gustafson: It seems to me that our farmers are confused about the programs. We have had so many different programs that I find they really do not understand the programs. Even the accountants are having serious trouble, and they work with them every day. My recommendation is that we need to simplify these programs so that, in just one or two lines, the farmers understand exactly what they are dealing with.
Mr. Marsland: The challenge, senator, is the balance between simplicity and responsiveness. We went through a long period of consultation over the last 18 months or so with producers to revise those programs to try to achieve that balance. Clearly, it is a challenge to us to communicate with producers. We are trying to inform them about what is available and how it can respond to different circumstances. We aim to put in place a suite of programs that is stable, predictable and bankable. We have spent a long time talking to producers and producer organizations to try to achieve that balance, but the job is never done.
Senator Gustafson: It appears to me that the banks are moving away from supporting the farmers. In other words, they are tightening up. I do not know whether it is a result of what is happening in the U.S. economy, but it is becoming more difficult for farmers to get financing.
Senator Mahovlich: I thank our guests for appearing before us. What does all this input cost, and what will it do to labour? For example, I am a pensioner at times, and I guess the fellows who designed my pension plan did not think about corn going up 23 per cent. The cost of living for me will rise. I am thinking of the labourers working on the farms. They will start complaining in a few years.
Mr. Marsland: There are two aspects to that issue. What is the impact of these rising commodity prices on food prices in Canada? To date, it has not been that great, and the reason for that is related to exchange rates, perhaps due to competition in the retail sector. The latest Statistics Canada information shows very modest increases in the price of food in Canada, if at all, and in other countries it is different because those factors are not in play. It is a concern for many countries. In Canada, we have not seen food price increases at all really, because of the exchange rate. That is one benefit of the higher Canadian dollar.
The second point goes to the availability of labour and the cost of labour for producers, and that is a challenge. It depends on the region, of course. We all know that the labour market in Alberta is very tight indeed. The government has improved the temporary farm workers program that for some parts of the sector it is important to bring in seasonal workers. I think it will continue to be challenging as the labour market remains tight.
Senator Mahovlich: The United States is making it more difficult for labour to enter the United States, especially on the Mexican border side, and this will cause a rise in cost in agriculture. What effect will that have on Canada?
Ms. Dyer: We have had a difficult time getting a handle on the labour market implications for agriculture. We have some idea in terms of labour availability but we do not yet have a good idea of labour shortages on the price of food or inputs. We are trying to sketch out what we would do in a detailed study of input costs.
So far we have been focusing on fertilizer, but we have been trying to figure out how we could get more information on the labour side. We are trying to figure that out, but so far, we have only some ideas about what is happening concerning the availability. We do not know how those costs are translating into prices, yet, but we keep working on it.
Senator Mercer: I was intrigued by a couple of your statistics in your opening statement. You told us that cash income is expected to increase by 18 per cent and that farm input costs will increase by 8 per cent in 2008. The simple math that I learned in school in Halifax is if income is up 18 per cent and input cost is up by 8 per cent, it looks like a net gain of 10 per cent. I do not want to simplify it too much, but 18per cent minus 8 per cent equals 10 per cent.
Will the farmers actually end up making more money and have more cash in their pockets at the end of this year?
Mr. Marsland: Your question points out the problem with aggregate statistics. As you know, we have a varied agricultural sector and implications are very different for different parts of the sector. For the livestock sector, it has become a challenge. About 36 per cent of the costs for hog producers relate to feed costs. This is a situation where you have an attenuated trough in the cycle. Pork production is a cyclical business; it is like a radio wave. Every four years the cycle goes up and down.
What we have seen in recent years, however, is that cycle has become more intense in that the troughs are much deeper and they seem to be lasting longer this time around. You have low prices, but you also have very high input costs for feed, driven by those high commodity prices. For livestock producers, it is a different picture.
For grains producers, in parts of it, yes, prices are going up higher than input costs. The prices are not going up as high as they would have if the dollar was not as strong, because the prices are priced in the U.S. market. It very much depends on the sector.
Those are aggregate statistics. That is what we see from looking at the overall revenues and the overall cost increases, but it plays out very differently in different parts of the sector.
Senator Mercer: In your analysis of the statistics, have you looked specifically at the pork industry? The government just announced a program to get a bunch of people out of producing pork because of the situation. They have had food riots in Haiti and there is a market in Cuba where pork is a prime product for consumption.
Have you examined the export side? Are we not developing the new markets that we need? We can produce this product and people are starving all over the world. There will be food riots elsewhere. Instead of getting out of production, I think we should be finding a better way of distribution.
Mr. Marsland: We have spent a lot of time with the Canadian Pork Council and with producers looking at the situation. We have worked with the pork industry on a broad strategy to look at addressing their issues. That includes looking at the cash flow issues, which are very difficult — the improvements to the AMPA legislation and the advance payment system, which gets cash out quickly to them to help them through this. We looked at the production side and the problems that producers are facing just getting out of the industry where they cannot make money. The program is intended to help them stop producing hogs where there is no market for it. We also looked at the regulatory framework — the costs in place in Canada right across the value chain — to help them become more efficient and competitive.
Finally, we looked at the export markets, as you identified. We are looking at how we can help them find new world markets through financial support to the industry in terms of market development. We are also looking at technical trade barriers and other areas to open up markets for them. It is a complicated picture for the hog sector and very much a continental market for them. As I mentioned, they are facing a difficult situation with the pressure from prices, input costs and the dollar.
Senator Mercer: I am concerned that we have made this too complicated. Some solutions are quite simple. We heard from the veterinary medicine people about 10 days ago. They said that one employee at the division, who was involved in helping to approve veterinary drugs for use in Canada, made such a significant difference that it was like someone turned a light on in the room.
It seems to me that if one employee could do that, then the answer is pretty simple. She has since been promoted, which is good news for her but bad news because the void is still there. It is a management issue of getting these things approved that we desperately need. We lag behind in veterinary drugs as well as fertilizers.
In your last response, you talked about the program for hog farmers. In your presentation, you say the cost of production program will provide an additional $100 million in industry support, with reference to Minister Flaherty's budget. Then you go on to say that details of the program are still under discussion.
I have been down this road too many times with too many different government programs — not just from Agriculture and Agri-Food Canada but also from Atlantic Canada Opportunities Agency and other government departments. I have seen politicians on both sides of the aisle run off to make announcements that the government is going to spend all this money; and six months later, you talk to the person trying to help and there is no mechanism in place to apply for the money, let alone for the money to flow.
What is taking so long for this $100 million in annual support? Why is it taking so long to work out the details of the program? These people need the money now.
Ms. Dyer: There are two parts to the cost of production program. One has already been paid, which comes to approximately $400 million. What is under discussion is how they will calculate the method of payment for the $100 million a year. There is a bit of discussion on how it will be triggered. Right now, they are looking at a ratio between the index of product prices and the index of input prices. They have a couple of technicalities to work out on that side. Once they settle on that with the provinces and the people with whom we are discussing the mechanism, it will flow very quickly.
The $400 million was put into the AgriInvest account and people with AgriInvest accounts will have it put into their account right away. We could calculate that for everyone who has an AgriStability account and everyone who has AgriInvest account. We can put that into their accounts immediately.
There should not be any delay once the mechanism is decided upon and it gets cabinet approval. That is what we are waiting for. We pretty much know how it will work and it will be very easy to put into the accounts once it is settled.
Senator Mercer: You said it needs cabinet approval. Has it had Treasury Board approval?
Ms. Dyer: The mechanism itself has not. The amount of money has, but not the mechanism.
Senator Mercer: In other words, it is there somewhere, but it has not been approved by Treasury Board or by cabinet. From the farmers' point of view — those who may be watching us on television — he or she is scratching his or her head and thinking that will be some time. Neither Treasury Board approval nor cabinet approvals happen overnight.
Mr. Marsland: I should clarify that this amount triggers depending on the ratio. Input costs get out of whack when there is an imbalance in prices then it triggers; if that does not happen then it does not trigger.
Senator Mercer: My final question concerns Senator Gustafson's question on biofuels and our 700 million litres capacity, which is a lot. Senator Gustafson has been on this committee a long time and I have been on it long enough to remember when we did not have a biofuel capacity. Now, we have a huge capacity. We are into a situation whereby we are chasing the biofuel dollar, which will drive up the price of corn, wheat, et cetera. I believe that you said corn was expected to go up 23 per cent and wheat to go up 8 per cent.
My concern, in global terms, is as follows: Given the potential for food riots in some countries, if we have a major catastrophe somewhere in the world, such as crop failure in Ukraine or a major natural disaster that wipes out crops in China, Canada is the natural place for the world to turn to for food. We have been doing that for a long time and the agricultural community is proud that it has been able to respond. However, if we were to put all our eggs into the biofuel basket, what would we do if such a catastrophe occurred? If we were to move away from that traditional crop- growing base to focus on production for biofuels and the world came knocking at our door to ask for food, what would we say?
Mr. Marsland: First, it is important to go back to the points that we made earlier on the effect of Canadian biofuel production on the price of these commodities, which our analysis shows is minimal. Second, meeting those targets for minimum levels of renewable fuel content in gasoline and diesel would represent, according to our analysis, less than 5 per cent of our arable land resource. While it is an important part of the market, meeting that target is not a huge part of our agriculture resources. Third, a great deal of investment is supported by government programming on the next generation of renewable fuels and looking at using alternative feed stocks, such as straw and other cellulosic materials. There is a movement to new technology that is supported by those minimum levels in terms of defining the Canadian market.
I am not sure that I am answering your question about the global implications and what would happen in such a circumstance.
Senator Mercer: I am not sure anyone could answer that today.
Senator Gustafson: They tell us that the world supply of grain is 1 per cent of the global food supply. Germany has said that it will have 10 per cent ethanol and other countries are moving in that direction. We know that the United States has 139 biofuel plants that must be fed. If you take the fact that we have such a shortage of food in the world today and add the legislated commitments to supply, then you will find that we have a major global problem on our hands.
As Senator Mercer said, Canada is probably the first place that they will turn to. While it is most important to feed the hungry, at the same time, the Canadian farmer cannot bear the cost of that alone. We need some kind of nation agricultural program in which all Canadian producers participate.
Mr. Marsland: We have been involved in discussions with the sector and with the provinces. You know that agriculture is a shared jurisdiction. We have been in those discussions for the past 18 months on the next five-year framework for agriculture policy. Those discussions have taken place in five phases with the sector. Much of the constructive engagement on the future has been focussed on how to define an agricultural framework that supports a competitive and innovative sector; that contributes to society's priorities, whether the environment, food safety or health; and a framework that is proactive in managing risk. That is the kind of discussion we need. Do we have all the answers to those questions yet? I do not think we have. Are we making progress in concert with industry in the process? We are making progress in terms of laying out a comprehensive suite of policy and programs to support the future.
Senator Gustafson: Countries like Russia, for instance, have closed the door to any exports of food.
Senator Callbeck: Mr. Marsland, in your opening remarks you talked about input costs. You gave figures for 2008 and said that you expected those input costs to rise. Do you prepare forecasts beyond the current year? What about five years down the road?
Mr. Marsland: We do forecasts but we are still public servants. We try to be as accurate as possible but they are forecasts. Perhaps Ms. Dyer can describe our medium-term outlook. We completed some work on that recently. I am not sure she can describe that in two minutes but she will try.
Senator Callbeck: Generally, are we looking at increases in input costs similar to those we are seeing now?
Mr. Marsland: Any forecast is sensitive to the assumptions you put in it. You have to make an assumption on the price of oil and that has been difficult to do recently. We see that commodity prices will remain high in the foreseeable future and not necessarily at the current levels. There will continue to be some challenges in the livestock industry.
Ms. Dyer: We forecast to 10 years. Recently, we published our forecast to 2016. The scenarios include: Grain prices will remain high and could trend up even higher than our initial forecast, at least until 2016, which means that feed costs will be high for livestock producers, oil prices will still stay high, or go even higher than they have been. We conducted our forecast in December, and at that time, forecasted oil prices at $80 per barrel; of course, now we know now that oil will likely stay at about $100 per barrel or more.
Our trend for the medium-term forecast is for input prices to continue to trend up as long as the oil prices are high and our current policies are in place. We do not expect anything to come down over the next 10 years. Of course, things can happen. We do not project what will happen with OPEC or if a new technology will come on stream that will loosen oil reserves. We do not have any of that in our forecast but if things stay pretty much the same for the next 10 years, we expect the trend that we are seeing today to continue.
Senator Callbeck: What about the trend for pesticides? Those increases seem to lag behind the increases of other input costs. I think it was 3.5 per cent. Someone suggested that it had a lot to do with the competition in pesticides.
Ms. Dyer: Yes, we do see that trend with pesticides and with fertilizer, with all inputs into crop prices. When crop prices go up, there is usually a lag of one or two years and then input prices start to follow them. We saw that in the 1970s when we had price spikes for wheat. As soon as those prices went up, input prices went along with them. That is what we are seeing now.
Senator Callbeck: Are you projecting that pesticides will start to have heftier increases?
Ms. Dyer: We are forecasting that there will be increases in all inputs — fertilizer, fuel and pesticides. We do expect some of that to work its way into the forecast. They will be trending upward as well.
I do not have the exact figures on pesticides but we would expect all input prices to begin to trend upwards because the more demand there is for crops, the higher demand there is for all inputs into growing crops. To some extent, it is insensitive to the changes in its price because you need a certain amount of it to grow crops. It expands with the amount of acreage put into crops.
Senator Callbeck: I wanted to ask about veterinary drugs. You mentioned that you are working with Health Canada toward a new process so that drugs will become available quicker and they will not be as costly.
When do you predict that the farmers might see the results of this process?
Mr. Marsland: My understanding is that Health Canada expects the backlog in approvals and reviews to be dealt with by early 2009. We are supporting them with resources to do that. As Senator Mercer pointed out, sometimes it is a question of having the right resources. There is a broad understanding of the need to deal with that situation.
Senator Callbeck: How long will it take to get a drug approved?
Mr. Marsland: I do not know the average time. I suspect it depends on the type of drug and the type of review.
Senator Callbeck: I want to ask about the Canadian Food Inspection Agency. That is a Crown corporation that reports to the minister. What impact does the Agriculture and Agri-Food Canada have on the policies of that agency?
Mr. Marsland: Overall, in Canada, in terms of food safety, the standards and policies are set by the Minister of Health and Health Canada and applied by the Canadian Food Inspection Agency.
It depends on the issue. If it is a trade issue, we work very closely, as this committee knows. We have appeared before you on the question of BSE on a number of occasions and we work very closely with the Canadian Food Inspection Agency in terms of reopening markets.
I am not sure, senator, that I can give a general answer to that kind of general question. It depends very much on the circumstance. If it is a question of human health and safety, the lead, of course, is Health Canada and it is implemented by the Canadian Food Inspection Agency.
In terms of enabling those policies, there is a role for the department. An example might be in terms of the specified risk material, the enhanced feed ban, which I know you have discussed. The Canadian Food Inspection Agency implemented the enhanced regulations on feed in response to the BSE situation. We work very closely with them in terms of supporting the sector and implement them through joint federal-provincial programming to help with the transition and implementation. That is an example of how we work together.
Senator Peterson: One of the challenges of this committee is to try to ensure that producers get a fair price for their product so that they remain viable. The presentation you gave us this morning documented the costs of fuel, fertilizer and equipment, which we seem to be able to do little or nothing about; it is there, it is unfortunate, we have to deal with it. Should we not focus on things that maybe we can do something about? Do you have any numbers on regulatory affairs and what they cost producers? Is there overlap or duplication? Do you have any numbers on transportation costs and the impact on producers?
Mr. Marsland: When we had the rounds of consultation on the Growing Forward policy framework, producers and others in the sector identified regulation as a key issue. Regulation is critically important to protect consumers and our international reputation for trade reasons, but it must be efficient, transparent and predictable. There is much more emphasis in the Growing Forward framework on the issue of regulation than there had been in the agricultural policy framework.
In the framework through the implementation of the Pest Management Centre in 2003, working with Pest Management Regulatory Agency, we saw a great deal of improvement in the speed in which pesticides were approved for use in Canada, respecting the overall policy intent of the regulations in terms of protection. We saw a lot of improvement and I think that was recognized by the sector. Building on that, we are looking at areas such as veterinary drugs and even broader, in terms of health claims. You can improve the system of recognition of health claims that can be an important marketing tool for producers in terms of selling pulses or other products where you can link the product with a health claim.
In terms of transportation, Bill C-8 recently passed and the Minister of Transport announced a level of service review in respect of rail transportation. That was launched with draft terms of reference a week or two ago. That is an important factor, too.
It is a question of looking at each of the components that affect the competitiveness of the sector and addressing each one in turn. It requires a thorough analysis of what we are doing with the sector and moving forward on those areas they identify as the highest priority.
Senator Peterson: We do know there is a bottleneck on both regulatory issues and transportation issues. There are farmers who cannot get rail cars. It is not timely. It is the came thing with pulse crops. They put them in a container that goes to Montreal. Someone there says that they cannot send this outside of the country, but a ship is sitting there. We have all these documented problems. Who is looking into them? Where would we go to deal with things like that? They seem to be pretty basic. We cannot do anything about fertilizer costs. We have given up on them, unfortunately. However, this is something we could do.
Mr. Marsland: As I indicated, the Minister of Transport announced a week or two ago the level of service review and looking at that issues in respect of rail transportation. I know they are engaged in that review announced by the minister.
Senator Peterson: I hope so.
The issue of the food shortage is coming up now more and more. I wish to get your take on it.
Countries could not afford to buy the grain when it was $3 a bushel. Now it is $18 a bushel. They do not have money. How do we deal with that? What can the producer do? You cannot look to the producer to solve the problem. He would like to do so, but he needs a fair return for his product. How will that play out or where?
Mr. Marsland: I do not have the answer for that question. Clearly, it is a serious issue that is attracting a lot global attention.
One thing we are looking at through our analysis is whether this is a spike in commodity prices. Will it adjust quickly? According to our forecast, commodity prices will remain at a comparatively high level compared to recent years. Will they sustain at current prices? Will they come down? That is part of the analysis we are doing.
Senator Peterson: I think they are just where they should be. Senator Gustafson has informed us about the prices and a few years ago, they were the same as in the 1960s. Since then, all of the input costs had increased tremendously. I would not advise looking at the price of the commodity coming down to solve the issue.
Ms. Dyer: We have been trying to emphasise what we think will happen to prices and price volatility over the next while as we see some of these changes in the world market. We are trying to figure out how some other countries' responses will affect the volatility of prices so that we can pass that important information on to producers. We think we are headed into a prolonged period of uncertainty and much more volatility than we have seen in the past. We have already seen that in the hog sector where hog prices are very volatile.
As countries become more concerned with what is happening to their food supplies, they are starting to place measures to protect themselves in terms of their own food self-sufficiency. I am sure you have read that China has imposed export taxes on food and that Russia has put price measures in place with Venezuela following suit. That tends to disrupt the market signals and prices go up and down. Our primary goal is to figure out what that means for Canadian farmers in terms of the programs and how they respond. We will get more information out about what is happening to the price of product but also the price of inputs, which tends to move, as Senator Callbeck said, in a little bit of a lag period. After you see grain prices spike, input prices follow. We are trying to figure out how to put more information into the Canadian marketplace so that farmers are able to deal with that volatility better than we may have done in the last few years, and also to see how our programs are responding to that kind of volatility.
In terms of solving the global situation, I think we expect to see more political instability than we have seen in the past, and there are probably discussions going on at levels in terms of our food aid contributions et cetera. Our primary role at Agriculture and Agri-food Canada is to try to translate some of that information back to producers so that we can manage through the next period of uncertainty.
Senator Gustafson: We are looking at the possibility of a new era in the global economy. I believe that Canadians are very generous people. How much grain do farmers donate through the Canadian Foodgrains Bank? As NGOs go, this is probably one of the better programs. Three years ago, the little town of Lampman asked for two hopper cars of donated grains; they received twelve cars of grain. I remember a German immigrant to Canada said that during the war years while he was living in Germany he had lived on rutabagas. He said he would gladly give a truckload of grain to help hungry people around the world.
Perhaps we have taken food for granted for too long. We seem to be reading the results of that attitude in the newspapers every day. We are aware of the food shortages in Haiti. Have you any idea of the amount of grain that farmers donate through the Canadian Foodgrains Bank?
Mr. Marsland: No, I do not have those numbers, but we can certainly try to find them and provide them to the committee.
Senator Gustafson: That program is a result of the starvation suffered by the Mennonites in 1925. It is a very good program.
How many farmers do we have in Canada?
Ms. Dyer: We have 229,373 census farms. Those are census farms, and a ``census farm'' is defined by anyone who intends to produce agricultural products of any kind.
Senator Gustafson: There must be many hobby farms.
Ms. Dyer: Yes. There are probably 75,000 less if you count producers who had revenue greater than $10,000 a year.
Senator Gustafson: How many people work for Agriculture and Agri-Food Canada?
Mr. Marsland: Including our research scientists across the country somewhere in the region of 6,300.
Senator Gustafson: As we look at the global economy, what should this committee be doing? Should we be looking at Europe? I think this committee is one of the best for calling witnesses in and getting at issues quickly. Sometimes our recommendations are not taken too seriously, but sometimes they are.
Mr. Marsland: Clearly one of the things that people look at in terms of the future is the shape of world demand. We have looked at the rapid growth of the middle class in countries such as China and India. That rapid growth because of an increase in income has resulted in a change of diet from a predominately vegetable-based diet to a more meat-based diet. This change in diet has a multi-layer effect, which in turn, changes the shape of demand. Then you see other trends in terms of different eating habits and changing demographics in other countries. What will world market look like in 10 years and so on? We look at that information and try to understand it because it has important implications for the sector and informs our decisions about which markets to go after and business plans and so on. That is a question that many people look at in terms of the increase in population, increase in wealth and the changing demands of consumers.
Senator Gustafson: Many people come to Canada from different countries. In fact, I had a visit with some German farmers who were trying to buy canola, and they were trying to buy it in advance for the next five years and get farmers to commit to that purchase. I suggested to them that they would not get farmers to commit five years down the road. However, it does speak to the global economy, whether it is canola or wheat. There is demand. Then there is the fact that there is so much going into biofuels. Our contribution to the year 2010 is minimal compared to what is happening in countries like Germany and the European common market. This takes a lot of food out of the food chain.
Senator Mercer: I will combine my work on Standing Senate Committee on Agriculture and Forestry with my work on the Standing Senate Committee on Transport and Communications. Senator Peterson brought up the problem of getting our products to market — not to market in Canada but elsewhere in the world.
You made reference to the study the Minister of Transport has announced. It is very important, and those of us on the Transport Committee are watching closely and hopefully will be somewhat involved in that. The issue of Saskatchewan pulse products, in particular, being shipped to the Far East or to south Asia is a real problem.
I have met with an exporter in Montreal who buys products in Saskatchewan and ships them through the Port of Vancouver. The situation is very bad, from his point of view, and this is important from an agricultural point of view. He orders 12 containers, but he only needs 6. He orders 12 because he knows he will not get 12; he actually needs 6 and gets 4. He has taken a gamble and bought those good-quality products grown by some of the best farmers in the world. When it comes to shipping, by the time it gets to Vancouver, they have to repackage it because of the inadequate transportation issues — we have a tax on empty containers moving around this country, which is crazy. Then the product sits on the dock in Vancouver for a couple of days before it can get on a ship to go to India, Pakistan or China, but mainly India. The quality of the product in the container deteriorates every day; so by the time the product gets to India, the product that the exporter in Montreal bought from the farmer in Saskatchewan to sell to someone in India to eat is only good for one thing, animal feed. He gets the price at the other end and everyone gets hurt.
I think Agriculture and Agri-Food Canada needs to spend a fair amount of time concentrating on and getting involved in this study because it is a critical thing for producers. I use pulse as an example; it is an easy one to talk about because of how quickly the product can deteriorate.
Senator Gustafson talked about the instability in the world food market, and you have referred to a number of countries that have closed down, limited exports or taxed exports of products from their own countries. I do not look at this instability as a bad thing; I look at it as an opportunity.
I think we have to really look at this, and I go back to hogs. We are spending $50 million to get people out of hog production when we are producers of high-quality hogs and there are people around the world who need food. I think we have to blend all of our products into marketing. We are great producers but I am not sure that we are great salespeople. We need to find a better way to market our products and some way to measure that process.
It would be nice to know, from the statistical point of view, how many problems we have. How many products do not get to market on time and why does that happen? How many products, when they do get to market, are not at the quality that was promised by the farmer, or the man or woman in between who is the exporter?
Do we have statistics on that problem? It is becoming a real problem because at the end of line, the person buying the pulse products from my friend in Montreal is now saying the quality of lentils, peas, et cetera from Saskatchewan are not what they used to be, or certainly not what they were when they came off the field.
Mr. Marsland: You raise a number of important and complicated issues. In terms of transportation, we talked about the level of service review, which is very important. More generally, we have seen a real globalization in agriculture and agricultural trade. We have always exported grains, but that kind of globalization has become much more intense across the whole sector.
The pulse industry, as you noted, has identified particular problems in getting to market. Part of that problem is related to the vastness of our country — the distance from market and the challenges we face because of that distance. To some extent, I think the problems due to the explosion in trade, particularly to Asia — not just in agricultural, but other commodities — over the past decade or so. We have talked about it and we will be, as you suggested, very much involved with the sector as the review moves forward. Other issues need to be looked at — the availability of containers and so on — to help the pulse sector get to market.
There are tremendous opportunities out there. To be fair to the pork industry — and I am not here to defend them necessarily — they have seen a dramatic increase in production and exports over the past 15 years. I do not have the numbers, but in many years, they were the first or second largest producer of pork in the world. They did so by accessing markets, not just one or two, but a market for every single product around the world. That is quite a remarkable story.
The issue they are facing is can they produce hogs for a profit in Canada in the North American market? Quite clearly, they have seen losses of $40, $50 or even higher per hog and that is difficult for them to sustain. In that kind of cyclical adjustment, you will always see adjustments for people who feel they cannot make money in that business and want to get out. That is really what the program was about, complemented by the program on advance payments to help those with cash flow issues who feel they can survive the storm.
Some years ago, we set up with a number of subsectors — pork being one, beef another — a mechanism called a value chain round table, led by industry, where we brought together representatives from the entire value chain, from producers to import suppliers, to input suppliers, to exporters, retailers, et cetera. The objective was to get at the points you raised — looking toward the medium- and long-term markets, figuring out where the markets are — along with the strengths and weaknesses and what needs to take place. That has been a powerful tool. When the committee had many hearings through the BSE crisis, I think you heard that value chain round table was critical in terms of managing that crisis.
It is really a question of that kind of strategic thinking in the sector, to look beyond the short term to the medium term and see what has to be done to find those markets. As a sector, we export 43 per cent of our production, a significant amount. We rely on those world markets, so we have to be good marketers and we have to be strategic in our approaches.
There are no easy answers to those complex issues you raise; it requires sustained and long-term thinking on the part of the sector.
Senator Mercer: I know Minister Ritz is on his way to Cuba in the next couple of weeks. I hope he has hogs on his agenda because Cubans are large consumers of pork and there is an opportunity there. I would rather see us find a way to sell our pork at a profit than see us getting people to get out of the business.
Mr. Marsland: He is leaving on the weekend. He is taking some industry representatives with him. As you identify, Cuba has been a good market for a number of products. It has been more of a challenge in recent years as the U.S. has recommenced exports of agricultural products.
Senator Mercer: Shipping is a real issue. If you stop in Cuba, you have to wait for six months before you can stop in a U.S. port. You will not find many shippers who are willing to sail by the biggest consumer market in the world.
Mr. Marsland: The pork industry has been active in that market.
Senator Gustafson: Probably the best years we have ever had in grain producing were the years when Americans were building bins and storing grain. This is as old as Joseph in the Old Testament: Save grain in the good years for the bad years. The point is that Canada missed it. We can do something that only one other country in the world, which is Russia, can do. That is, once grain goes through cold temperature, it will keep forever. We had an example of that this year. We had grain beetles. Nearly ever farmer had a load of grain sent back. After the extreme cold weather, those bugs were dead. That grain was cold and stayed cold right through the summer.
I understand the government is thinking about a program of binning grain on the farms and putting up some money toward bins and so on, which is a great idea. Senator Peterson talked about transportation. There are slow times in transportation, but there are other times when it could be moved it if it was in a place where they could get at it.
We know that Russia loses a great part of its crop because it does not have proper storage. This is something we have missed. Canadian producers, government and the departments are looking into it. I would like to see something like that happen. Those American bins are all standing there empty now and gone to pieces. I think it is something worth looking at.
Mr. Marsland: I am not aware of that program, Senator Gustafson.
Senator Gustafson: They had that program. I am getting a little long in the tooth.
Mr. Marsland: I am not aware of a new program to promote that.
Senator Gustafson: There is talk about it.
The Chair: You can pass that along.
Senator Mercer: The statistics these people brought to us are very useful and probably raise more questions than answers. That is also good. I want to thank them for that as they have stimulated a fair amount of debate.
The Chair: I would add to what Senator Gustafson said about giving us some information on the food grains operation. I know that in southwestern Alberta, where I come from, there is, as Senator Gustafson has said, the farmers have made an amazing effort, farmers who have their own family backgrounds from other countries. It is an outstanding program. Governments should be very proud of it.
Thank you so much for coming. We look forward to any of your thoughts from the discussions we have had today. If anything comes to mind, do not hesitate to get in touch.
Mr. Marsland: Thank you very much, Madam Chair. If there is any information or analysis that the committee needs as it completes its report, we will be happy to try to help.
The Chair: Thank you very much.
The committee adjourned.