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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 7 - Evidence - Meeting of December 6, 2011


OTTAWA, Tuesday, December 6, 2011

The Standing Senate Committee on Agriculture and Forestry met this day at 2:03 p.m. to give consideration to Bill C-18, An Act to reorganize the Canadian Wheat Board and to make consequential and related amendments to certain Acts.

Senator Percy Mockler (Chair) in the chair.

[Translation]

The Chair: Honourable senators, I see a quorum.

[English]

I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry.

[Translation]

I am Senator Percy Mockler from New Brunswick, chair of the committee.

[English]

At this time, I would ask honourable senators to identify themselves.

Senator Mercer: My name is Senator Mercer from Nova Scotia.

Senator Peterson: I am Senator Peterson from Saskatchewan.

[Translation]

Senator Robichaud: I am Senator Fernand Robichaud from Saint-Louis-de-Kent, New Brunswick.

[English]

Senator Fairbairn: I am Senator Fairbairn from Lethbridge, Alberta.

Senator Plett: I am Senator Plett from Manitoba.

Senator Stratton: My name is Senator Stratton and I am from Manitoba.

Senator Eaton: I am Senator Eaton from Toronto.

Senator Duffy: I am Senator Duffy from Prince Edward Island.

[Translation]

Senator Rivard: I am Senator Michel Rivard from Les Laurentides, Quebec.

[English]

The Chair: Today, we will begin the study of Bill C-18, An Act to reorganize the Canadian Wheat Board and to make consequential and related amendments to certain Acts.

[Translation]

To begin this study, today, we welcome the Honourable Gerry Ritz, Member of Parliament and Minister of Agriculture and Agri-Food and Minister for the Canadian Wheat Board.

[English]

Also present is John Knubley, Deputy Minister, Agriculture and Agri-Food Canada. Thank you both for accepting our invitation to appear.

I would now invite the minister to make his presentation, which will be followed by a question and answer session.

Hon. Gerry Ritz, P.C., M.P., Minister of Agriculture and Agri-Food and Minister for the Canadian Wheat Board: I am pleased to be here with my deputy minister, Mr. Knubley, to participate in today's discussion. As you have no doubt heard me say, time and time again, our government continues to help farmers earn their living from the marketplace, not the mailbox. Simply, we have been working with industry to create the environment where farmers can succeed. Our cattle, swine, canola and special crops industries have been competing and succeeding on the world stage. Sadly, this has not been the case for our Western wheat and barley farmers here in Canada. The Canadian Wheat Board monopoly, born in a different time to meet different needs, has cast a chill on Western Canada and the entire grain sector there.

The fact is today's entrepreneurial farmers have proven over and over that they can and will help drive our economy if they have control over their farm and ultimately over their bottom line. For the grain industry this means: a choice in when they sell their crop, a choice in who they sell their crop to and a choice at what price they sell their crop for. Since day one, the Harper government has made it very clear that marketing freedom has been a cornerstone of our platform. Just like farmers who make an agreement on a handshake, we made a handshake with farmers of Western Canada on May 2 when they sent us back to Ottawa with a strong majority mandate.

Not only does Parliament have the right to enact, amend or repeal any piece of legislation, our government has the responsibility to deliver on the promises we made. Our government will never allow one group of farmers to suppress the rights of another group. No expensive survey or petition can decide how farmers market their grain. Every farmer must have the right to choose what they do with their own crop and with the Marketing Freedom for Grain Farmers Bill, we are delivering. Marketing freedom is what Canadian grain farmers demand and deserve.

For farmers who wish to continue selling through the Canadian Wheat Board, they will have the freedom to do so. Let me be clear, our government will provide the board with the necessary tools and opportunities to be successful. Ultimately, however, it will be up to farmers to decide for themselves whether marketing through the board is best for them and their bottom line. Farmers who have long wished to sell their crop on the open market but could not for fear of going to jail will have the freedom to do just that.

Our government's focus is the economy in which agriculture plays a vital role. Not only will an open market give farmers the marketing freedom they want and deserve, but will attract new investment, encourage innovation and create jobs.

I was in Alberta recently with the Rahr Malting Company to announce a $6 million private investment that will more than triple their storage capacity for malt barley. They estimate that 20 construction jobs will be created by that project.

The Prime Minister and I were in Regina early this fall to celebrate the announcement of a new pasta plant that will buy locally produced durum from farmers in the area. This plant will create 60 local jobs and 150 jobs during the construction phase; good news for Regina. Both farmers and Alliance Grain Traders are looking forward to the day without the single desk so they can deal directly with each other without any buyback or heavy administration to get in the way. Rahr made it clear they would never have been able to make their investment if not for the government's plan to remove the strangle hold of the single desk. The opportunity for further growth is evident by these initial announcements.

After all, just the promise of marketing freedom is already attracting investments like these and creating value-added jobs. Why make anyone wait? As soon as the legislation receives Royal Assent, farmers and grain companies would be allowed to begin forward contracting for delivery after the beginning of the next crop year; August 1, 2012. Farmers in the entire value chain need clarity and certainty as they begin to plan their coming crop year. The sooner they have this marketing freedom, the better. As part of our comprehensive plan designed to give farmers and the value chain market certainty, farmers will continue to have the option to sell through the Canadian Wheat Board. The governance of the board will be adjusted to enable stronger collaboration going forward and to ensure the board is focused on providing new opportunities to farmers.

Beginning August 1, 2012, farmers, grain companies and the newly invigorated Canadian Wheat Board can buy and sell any grain. In other words, farmers would no longer be forced to sell through the board. The government would assist the board with transition costs for up to five years so that farmers are not unfairly burdened by them.

Under this interim legislation, the Canadian Wheat Board will continue to offer pooling which would have government backed initial payment and borrowing guarantees. A temporary check-off would be established at point of sale to support ongoing research and market development.

The interim Canadian Wheat Board would be required to develop a business plan to capitalize itself and operate as a private entity.

The board of directors would need to submit such a plan and the Wheat Board would need to become a private entity within those five transition years.

It would be a business corporation, a producer co-op or a not-for-profit corporation; the business model is for the board and farmers to decide.

As you can see, the government has developed a plan that gives the Canadian Wheat Board every opportunity to succeed as a voluntary marketing alternative for producers. This approach will give the entire value chain time to adjust to the open market and, in doing so, will increase stability for Western Canadian farmers during this period of transition.

Our government is also taking unprecedented action to support the community and Port of Churchill throughout this transition. The government will provide an economic incentive of up to $5 million per year during the five-year transition period to support shipment of grain, including oilseeds, pulses and other special crops through the port. Working with the port owner, Transport Canada will invest more than $4 million over the next three years to repair existing port assets and support the safe docking of vessels.

Western Economic Diversification will also extend the deadlines associated with the project they have so that the port can make full use of that funding. These initiatives are above and beyond the $38 million our government has already committed to Churchill. Evident by our comprehensive plan, our government is working with the entire value chain and taking every precaution to make sure the transition to an open market is as smooth as possible.

As you can see, this act is far more than just clauses and subsections. It is about giving Western wheat and barley farmers the same rights, privileges and opportunities enjoyed by farmers of other commodities, or in other parts of Canada. It is about giving Western farmers the right to do what they want with the crop they paid to plant, spent months to grow and worked tirelessly to harvest.

Our government trusts farmers. Regardless of where they live or what crop they grow, they will make their marketing choices based on what is best for their own bottom line. We seek to put farmers back in the driver's seat so they can continue to help drive our economy.

Exciting new opportunities lie ahead for farmers throughout Western Canada. This legislation is an important step forward and I hope this committee will give it their full support.

Thank you, Mr. Chair, and I look forward to your questions.

[Translation]

The Chair: We will now begin our round of questions.

[English]

Senator Plett: Minister, I am indeed thrilled — as are you — that this measure is going ahead.

Let me further congratulate you, minister, on the efforts you have made to help with prostate cancer, being in the top 20 in Canada in raising money. Indeed, our country has done us proud by being the top country in the world.

You answered the question I had on the Port of Churchill, and I thank you for that. It is a big concern for me, being from Manitoba, and I am thrilled the government is making moves in that regard. Possibly you could elaborate a bit more on what we will do for my province and the port.

I will lump my questions together. Minister, in last May's general election, the Conservatives won all but five seats in the designated areas. I would like to point out that three of the seats we did not win encompass mainly urban settings. That is an overwhelming majority.

The Conservative Party campaigned on the promise of marketing freedom for the last three elections, and the promise of marketing freedom was also included in the last Speech from the Throne. Could you tell us how this legislation will help boost the Canadian economy and how an open market will help benefit all Western Canadian farmers?

Mr. Ritz: I will start by reiterating our support for Churchill. As I said, it started a couple of budgets ago. Some $30-plus million was allocated to the Port of Churchill, some of which they have not spent yet. Some was for railway upgrading. As you know, there are some problems with the permafrost and some bridges up there. Having said that, Omnitrack, the owner of the port and the railway, will make the decisions necessary to spend those monies. They are there for them.

Also, we are continuing to incent product to be moved up through Churchill. What the incentive does is allow farmers to hold that product for a longer period of time to get it up there during that window of opportunity to ensure they have product on hand to load the boats that will ship from there.

This is going beyond the Canadian Wheat Board grains, which are all that were incented before. This will now incent anything. I know a couple of boatloads of peas went out of there last year. We are looking for more of that type of product going in to the Mediterranean or Eastern Europe; it is an ideal location to ship from.

On the election, you rightly point out that we campaigned on this proposal a number of times. I have been involved in campaigning since 1993 and it has been in every campaign. We have never been shy about talking about moving to a dual market. We feel this is something Western Canadian farmers are growing impatient for. Certainly, we have seen that as we have moved the legislation through. They have come to accept the idea that the same world class standards they have put in place for canola, pulses and their livestock industries can also be used on the grains — wheat, durum and barley.

As you talk about opening up the market, I have announced just a couple of pieces that have come forward, including raw malting — expanding their capacity. That allows them to buy directly from the combine. It gives the farmer his money faster, and also gets 1.2 million tonnes of barley into storage to maintain the quality of the barley used to make malt. As it is handled less, it maintains its ability to germinate better. Those types of announcements, along with the pasta facility in Regina, are tremendous and just the beginning of the sea change to add value to those products in Western Canada.

We have seen it with others. We were always told by the Wheat Board it had to be done at point of sale; it could not be done at point of production. However, canola and livestock processing have certainly put the lie to that.

Senator Peterson: We hear a lot of statements that you will not dismantle the Wheat Board, but rather turn it into a voluntary board. Since Bill C-18 envisions you appointing all the directors and the president, effectively you will be controlling the board.

My question is, how much money will you be allocating for operations and financial stability? Will you be providing regulatory access to inland and port terminals? Will you provide regulatory access to the railways for short line and producer car allocations? Have you determined what the risk premium on initial payments will be?

Mr. Ritz: A lot of those things will be worked out by the board and by farmers themselves, Senator Peterson. This is an interim board only. It is coming back to be backstopped by Agriculture Canada — the minister of the day, whoever that may be — because taxpayers' money is on the line. It is the right thing to do. It is what is called for by Treasury Board guidelines, the Auditor General, et cetera.

When it comes to regulated access, the working group was put together, chaired by my deputy minister. We asked the Wheat Board to co-chair that in moving forward; they refused. Therefore, that working group continued on with their work. They came back with advice to the minister saying, do not over-regulate. Let the market do its job and see how that works.

At the same time, we are moving forward with a crop logistics group from Ag Canada that will review rail freight, which dovetails into what is happening at the culmination of the single desk. We are looking at short line rail and producer cars.

However, as you should know, producer cars have never been a vehicle of the Canadian Wheat Board. They have always been guaranteed under the Canada Grain Act and administered by the Grain Commission itself. That will continue; as farmers ask for and demand producer cars, they will still be available. We are looking at what percentage would be the ideal amount to ensure those cars are available from the fleet of cars overall. Those questions will be put through our crop logistics working group and answers will be found.

Senator Peterson: Without the rail and producer car access, you are pitting the individual farmers against the railways and the grain companies, correct?

Mr. Ritz: It is no different than what they do now with canola and special crops. Regardless of the size of the farm, regardless of whether it is a producer car or not, farmers have been able to move to market, move to port, canola, special crops and livestock, for that matter.

Senator Peterson: It is my understanding that the Canadian Wheat Board directors in March 2011 requested an increase in the contingency fund from $60 million to $100 million. It took your government until this fall to approve that, and then you increased it from $100 million to $200 million. Did the board of directors request this increase?

Mr. Ritz: As you rightly point out, they did request the initial increase from $60 million to $100 million, which we did. As you know, the Treasury Board process takes some time. There is a little thing called a general election there that slowed things down, took some days out of the work schedule.

Raising it to $200 million was done at my request. As you say, it takes a long time to do that. It is just easier to go to a larger increment. I can assure you that the contingency fund holds nowhere near that particular amount.

Senator Peterson: However, I believe it could. Is it set up to backstop financial challenges that could come forward, because it is the farmers' money, right?

Mr. Ritz: The reality is that the contingency funds have never been farmers' money. They have never been turned back into the pools. This is the money the Wheat Board uses to promote itself, develop new venues and so on. The producer pool accounts are a separate entity altogether. I can assure you that this contingency money, whatever the amount is today, is safely secured in the Canadian Wheat Board's own vault.

Senator Peterson: You keep saying that you want to give Western farmers the same marketing opportunity that farmers in the rest of Canada enjoy. Should you not clarify that the farmers of Eastern Canada made their own choice to exit from the Canadian Wheat Board? Should you not give Western farmers the same choice to express their opinion?

Mr. Ritz: Ontario farmers were never under the Canadian Wheat Board. They had their own wheat board. They chose to move away from that. The difference between the Canadian Wheat and the Ontario wheat board is that there was no federal legislation requiring the Ontario board to do certain things, so farmers moved away from that.

Western Canadian farmers will have that same ability to vote how they see fit after the legislation is lifted. That is what we are seeking to do with Bill C-18. They will be able to put together a completely different marketing entity in Western Canada, similar to what Ontario does, if they choose to continue to use that model.

Senator Eaton: When I grew up, Canada was known as the bread basket of the world. What has the Wheat Board done to discourage research? I am thinking of the great strides that canola and pulses have made. What has a monopoly done to discourage competitiveness and research in wheat?

Mr. Ritz: There is a check-off that goes towards research by the Western Grains Research Foundation. Lately, with the Wheat Board moving away from feed barleys and feed wheats, we have lost that ability to do that check-off. They have also been very much predicated on Kernel Visual Distinguishability, KVD, which is just looking at it and saying "That is wheat, number one red." There are a lot of tests that are better than that now. We actually gave the direction to move away from KVD two or three years ago. Until that time, you could not develop new varieties of wheat that looked like Red Spring in Western Canada. Brian Fowler, a researcher at the University of Saskatchewan, developed six or seven new wheat varieties, and he had to grow them in North Dakota and Montana. He could not do it in Canada simply because of the Wheat Board's intransigence on KVD. We will continue a check-off for research. We will recapture the feed grains that the Wheat Board lost. It will be done at point of sale, and those monies will be administered, in the interim, by Agriculture Canada. We are certainly looking for someone else to take that over. All of the money will then be used to ensure that the Western Grains Research Foundation can work. We will also be able to top up the Canadian International Grains Institute, CIGI, and the Canadian Malting Barley Technical Centre with some of those research dollars.

Farmers themselves are now talking about a higher level of check-off that will allow them to drive new varieties as well. That is good news. It means the industry itself will leverage the money that will be used in the check-off to develop the products they want.

Senator Eaton: In other words, you are saying that the Wheat Board has been very restrictive as to what kind of wheat farmers can grow.

Mr. Ritz: It has come to light now that they have been holding back two or three new varieties that are of a feed wheat variety but are still millable and are in demand around the world. They have yields of between 85 and 100 bushels an acre. Farmers need the ability to grow these new varieties and to feed into those markets.

The other problem we have had, for the last little while, is tremendous slippage in the amount of product the Wheat Board handles. Farmers have moved away from wheat. They have voted with their air seeders and have grown far more canola and special crops. They have moved away from wheat, durum and barley. What we have seen with that slippage is 25 per cent less product on the world stage from great Canadian producers. We actually need that back in our rotations. You can run into a lot of trouble when you start to grow canola crops back to back in the same ground. You need a good cleaning crop in there, like a wheat or barley. The same is true with pulses. One of the reasons that Murad Al-Katib of Alliance Grain Traders is talking about a pasta plant is because he markets lentils and peas around the world, and the best rotation crop to follow that is durum because of the nitrogen that is set from the peas and lentils. He knows he has a natural market. He also has a natural buying avenue with farmers that already supply him with lentils and peas. They have already developed contracts on the durum side.

[Translation]

Senator Robichaud: Thank you for being here, Mr. Minister and Mr. Deputy Minister. I admit that your party has never tried to hide its intention to make changes to the Canadian Wheat Board. I believe the party made this intention clear in several election platforms. However, I clearly remember that you said that you would not make any changes without consulting western Canadian farmers. If I were a farmer or producer from western Canada, I would have trusted the words of the Minister. That being said, I am wondering, Mr. Minister, who made the decision not to consult the farmers. It must not have been your decision, because you said that you would consult them. Did someone else make that decision?

[English]

Mr. Ritz: What I said, senator, is that I would not move arbitrarily, and I did not. I had the support of three of the four provinces covered under the Wheat Board area, with the exception of Manitoba. The other three provinces, Saskatchewan, Alberta and the northern part — the Peace River area — of British Columbia produce 80-85 per cent of the Canadian Wheat Board commodity. It is very important to have them on the same side. At the same time, I had every grain, barley and durum producer group, with the exception of the NFU, in that same area, supporting exactly what we are doing. We have not moved arbitrarily. We have consulted broadly with them, using the working group that Deputy Minister Knubley chaired.

Senator Robichaud: If you were so sure of getting the support of all of the farmers out there, why not organize a plebiscite? It would have just made your work easier, would it not? Then we would not be here arguing with you that you should have.

Mr. Ritz: It is your right to argue, senator. A plebiscite is not required when fundamentally changing legislation. A plebiscite is required under the Canadian Wheat Board Act when you are adding or subtracting a commodity. We are not doing that; we are fundamentally changing the act.

Senator Robichaud: You are changing the act, but the present act also says that before any changes are made, you have to consult.

Mr. Ritz: There is a court case in Winnipeg being heard today on that exact matter, but there is nothing in the Canadian Wheat Board Act that says the government of the day has to consult on changing legislation. What a government of the day has to consult on is whether you will remove or add another commodity.

Senator Robichaud: That is what you are doing in a way, is it not? You can interpret it your way, but I can see where the farmers are upset that you did not consult them.

Mr. Ritz: The vast majority of farmers are with us on this. As I said, we have the Grain Growers of Canada, the Western Canadian Wheat Growers Association and the Western Canadian Barley Growers Association all supporting us. We also have the livestock groups supporting us because they recognize the validity of a free and open market.

Senator Robichaud: If I look at all the letters and emails and the farmers who came to Ottawa a couple of weeks ago, by their own means, I would not say there is such unanimous support for what you are proposing

Mr. Ritz: I guess we can count and see whose pile is bigger, but, at the end of the day, we had 65 to 70 farmers in the gallery cheering when we passed the bill in the House of Commons. I have seen other farmers coming here in dribs and drabs. I saw a Winnipeg actor pulling a stunt in the gallery of the House of Commons. That does not mean he was a farmer.

Senator Robichaud: I met a lot of people who were farmers.

Mr. Ritz: Good for you.

Senator Robichaud: Well, it is not good for you that you did not listen to them.

Senator Tkachuk: Minister Ritz, congratulations on Bill C-18 and the changes that we are making to the Wheat Board Act, which will allow farmers to operate outside and inside the Wheat Board if they wish.

Part of the problem is that there has been a lot of discussion about whether the Wheat Board will continue to exist. I believe it will, that a lot of farmers will be supportive of the Wheat Board and it will carry on. However, farmers will also have the ability to go outside the Canadian Wheat Board.

There has been some negative talk, saying the Wheat Board would not survive in an open market because it does not own any of its infrastructure and will not be able to compete with other grain handling companies. Can you explain how the Wheat Board will be able to survive even without port and grain handling facility access guarantees?

Mr. Ritz: The Wheat Board has a tremendous Rolodex on the desks of their marketers. They tell us they are involved in 71 or more countries around the world. That is not going to stop. Those markets are still there for them to explore and take advantage of. At the same time, they claim they have some of the best market analysts and marketers, and they will still be able to do their great job.

The Wheat Board will maintain the same address it has had for a number of years now in Winnipeg. When it comes to assets, in some ways having no assets makes them more flexible and able to make use of others out there. Since the Wheat Board was developed 70 years ago — seven decades ago — we now have farmer-owned terminals in Western Canada. There are 10 or more that operate strong marketing positions. They have their own export terminal in Thunder Bay. Other groups like Mission Terminal have no assets on the prairie either, but have assets at both Thunder Bay and Vancouver ports. They use producer cars. Mission Terminal now has access to almost 50 per cent of the producer cars and that is what they are using as their bricks and mortar. They are ramping up their logistics capability to do more. This is good news for short line rail and producer cars. The Wheat Board can take advantage of those types of ideas, they can work with the farmer-owned inland terminals on logistics, and they can make deals with some of the major players, which is exactly what they have been doing for years. The Wheat Board has moved logistically and bought less than 50 per cent of the product. The rest has been dealt directly with Cargill, Viterra, ADM, and all the other big players of the world; just a paper transfer. They already have logistical deals with these major players.

There is that ability for groups like Murad Al-Katib and Alliance Grain Traders, who are international — he is on five different continents — to act as bricks and mortar. He can buy durum from them as well as directly from producers. There are a lot of bricks and mortar out there which are underutilized that the Wheat Board can take advantage of and develop partnerships with.

Senator Tkachuk: We have heard some concern from producers that not enough is being done to enhance Canada's freight rail system. A working group has recommended the need for action on the Rail Freight Service Review. Could you explain to this committee what the government's plan is in proceeding with the rail service review and how it will affect transition to an open market?

Mr. Ritz: The rail review is being handled under Transport Canada and Minister Denis Lebel has announced Jim Dinning as a facilitator. He is well known in Western Canada as someone who is great at orchestrating working arrangements between industry and governments. At the same time, at Agriculture Canada we have created a crop logistics working group, co-chaired by Mr. Knubley and Gordon Bacon of the Canadian Special Crops Association to look at all of the logistics pertaining simply to agriculture. We wanted to ensure that agriculture was seen through its own lens, not caught up in the mining, logging, potash and other sectors. At the end of the day, they will put together a report that will be handed over to Mr. Dinning, to be rolled into part of that great rail review.

Senator Mercer: Minister, I want to go back to something you said earlier that I did take a bit of exception to. "Dribs and drabs of farmers are opposing C-18." Those were your words.

I have met with hundreds of people in this process and my colleagues have met with hundreds of people. I do not think "dribs and drabs" is a good description. You can say how many people are supporting it from your side, but I think you have to show a little more respect for those who are opposing it.

I want to talk about the Port of Churchill for a moment. We know about the difficulties with rail going over the tundra. How much money has been set aside for a rail bed upgrades and long-term rail bed maintenance?

Mr. Ritz: I am not sure of the breakdown. I am trying to remember which budget allocated some $30 million to the Port of Churchill. Some $14 million went to the airport and the balance went to the port and the railway. As I understand it — in talking to an OmniTRAX representative, whom I met with last week in Winnipeg — they have not spent the rail money yet. They are still assessing the best way to go about doing that. We discussed other options for Churchill in becoming more of a pull port than a push. The difference between the two is they need far more storage. As you understand rightly, it is permafrost and that is not a problem during January, February and March when a lot of crop could be moved up there over that railway without too much being put into upgrades. However, they need two and three times the amount of storage to serve the industry when they have that six- to eight-week opportunity to load.

They are still drafting a plan. We have come forward with $5 million to incent shipping from there, which is the status quo. Transport Canada has also assigned another $4 million to the Port of Churchill in order to strengthen the facilities that are less than adequate at the moment. When some of the boats come in, they are not as secure as they should be. I can get you the exact number of dollars. There was $20 million to the Hudson Bay railway line.

Senator Mercer: I think you have talked about the need to upgrade infrastructure with respect to storage of product going to Churchill. That could eat up that $5 million you referred to pretty fast. In the rail industry — particularly in a tough part of the world like northern Manitoba — that $20 million disappears fairly quickly.

The second part of my previous question was the long-term maintenance of the railroad because fixing it today is one thing. If, in two years' time, nature does some damage to it and the owners are not willing to make the investment, the Port of Churchill will be in grave economic danger.

Mr. Ritz: The same people own the railway and the port, so it is not in their best interest to let the rail or port slide. What they have to ascertain is the future of Churchill. There are a number of efficiencies that have to be made. Certainly the mining sector is opening up in Northern Canada and Churchill could be a window to that opportunity. I have talked to the Mayor of Churchill, Mike Spence. He sees some of the challenges as opportunities in order to streamline some of what they are doing to try and capture other sectors moving product through Churchill. One of great interest is potash. With the growing demand for potash around the world — and Saskatchewan is sitting on a good chunk of the world's resources — some of it could be moved through Churchill.

Senator Mercer: You indicated that the board of the Canadian Wheat Board would not meet with you. Now we heard from directors that they have invited you many times and in fact as recent as October of this year. Which statement is correct?

Mr. Ritz: I stand by what I have said, senator. I have tried to meet with the board on several occasions. I was always told it was not a good time. They were not willing to receive me. They had some concerns they wanted to work out before they met with me. The last one was in October, as you said. It was well known that I was planning a trip to Europe and Russia. The invitation came about the same time I was boarding the plane. I quickly pinned my parliamentary secretary on this issue to take my place at the meeting and they refused to allow him to be at the meeting.

I have met with the chairman and directors at times, and I continue to be amenable to any discussions they want to bring forward.

[Translation]

Senator Rivard: The opposition and the media have tried on numerous occasions to make a link between the removal of the single desk and supply management. We must remember, Mr. Minister, that the Conservative Party was the only party to include a commitment to support supply management in its election platform. Could you show that there is no link between the removal of the single desk and supply management?

[English]

Mr. Ritz: I have had a number of dairy farmers and poultry farmers assure me the single desk of the Canadian Wheat Board and the supply management system across Canada are as similar as apples and walnuts. That is how they describe it and I tend to agree with that.

The single desk only applies to the designated area — Manitoba, Saskatchewan, Alberta and the Peace River area of British Columbia. Supply management, of course, is widely accepted nationally, coast to coast to coast. It is well respected by the farmers that are involved in it, well respected by processors that are moving to Canada — two in the last short time — looking at Canada to develop dairy value-added products simply because of the quality and consistency of supply of our top quality SM products.

There is no reason in the world to think that one is similar to the other at all. We have been very succinct in our support for one and our ability to move forward with changes to the other. We continue to support supply management in all of the trade discussions that we have, because we see it as a valuable entity — a valuable part of our overall agricultural strategy when we look at food security and sustainability.

A good solid bottom line in the supply managed sector has allowed us to develop world class genetics, to develop bio-security on farms, as well as through the whole system — "gate to plate," as we call it. It is a shining example to the rest of the world. When farmers have a good solid bottom line, they will develop world-class industries, and they have done that here in Canada.

Senator Mahovlich: I was told by many farmers that eventually Churchill will close; they will close the track and they will close the trains down. For the farmers across Western Canada, it is more difficult for a farmer farther north than say for farmers along the border to deal with the large American corporations. This would be a problem for them, having to send all their wheat down to the borders.

You are giving $30 million to Churchill right now, but eventually we will run into trouble, because the government is running into deficits here of $60 billion or $40 billion. Eventually they will say we have to close Churchill down. What will happen to all those farmers when that happens?

Mr. Ritz: Churchill is not ours to close down, senator; it belongs to an American developer called OmniTRAX. Two per cent of the Wheat Board's grain supply was moved through Churchill, so it is not a tremendous number. We are hoping to maintain that number and to see them diversify into other products, such as potash.

I do not think you will see a run on the American market. Certainly, there is value added that is built up; there are five durum processing plants to make pasta in North Dakota and Montana, right south of us, because it was not able to be done on the Canadian side of the border due to this ridiculous buy-back, freight elevation tidewater line in the sand that the Canadian Wheat Board drew.

For example, as a farmer I grew a lot of durum. I would have a bin of 5,000 bushels of durum, and if I wanted to make pasta out of it at my own expense, I had to phone the Canadian Wheat Board in Winnipeg and say I want to do this. They would say okay, here is the price that we will sell it to you for. They are going to give me $8 a bushel for it. They say I have to pay $15 to buy it back from them because that is the pool price that day, so I am out $7 a bushel.

Now I have to pay freight and elevation to either Vancouver or Thunder Bay at my expense and it has not left my farm; it is still sitting in my bin. After I have paid all that overhead, I can finally take it, make pasta out of it and try to market it. It is ridiculous. No other business could or would operate that way.

That is one of the reasons that we have all these pasta plants sitting on the American side of the line, not in Canada. Now we finally have an announcement that we will build one in Regina. That is a fantastic opportunity for farmers to value add. Value add will go out of the country with a lot different transportation cost than something going out as raw material. We need to do more of that.

Senator Mahovlich: I was told by a farmer that the reason Japan buys our wheat is quality, which is because of the Wheat Board. The Wheat Board controls the quality of our wheat.

Mr. Ritz: No, he is absolutely wrong.

Senator Mahovlich: This is what I was told by a farmer.

Senator Mercer: He is interrupting the question.

Mr. Ritz: The Wheat Board controls the quality of the wheat, according to the question. That is not true. Farmers are the ones that grow the crop. It all comes down to the type of soil they are working with, the amount of weather problems they have had that year — the right amount of rain and ingredients going in, such as fertilizers, additives and so on. At the end of the day, it is the Canadian Grain Commission that blends and makes sure the quality that Japan is ordering is there as it goes offshore. The Wheat Board has no role in any of that.

Senator Mahovlich: They make sure everything is perfect before it is sold to Japan because Japan wants the quality.

Mr. Ritz: They do, but it is the Canadian Grain Commission that ensures that quality, not the Canadian Wheat Board.

Senator Duffy: Minister, Prince Edward Island is not a big grain exporter, but we do have some of the best farmers anywhere in Canada. They use all of the latest technology, from GPS to computers, right on their tractors and on their machinery. When I hear all of this going on for the last few months, I hear the sound of a sector — or some people in that sector — who appear to be afraid of change. It is like people in the news business back in the old days who were afraid to go to computers — "Oh my heavens, I have used the typewriter all these years." I see a few of them sitting in the back row over here.

Is the message that Canadians are to take from this that Western Canadian farmers are not smart enough, good enough, advanced enough to compete with the world?

Mr. Ritz: There are people who would like to have you believe that, Senator Duffy, but you rightly point out that Western Canadian farmers were the bread basket of the world; we can be again. Right now, we are not. Our marketing share has declined to the point where even the Wheat Board is a price taker, not a price setter, as it once was in the heyday.

The CWB's own surveys leading up to June of last year — just before they did that stunt with the plebiscite — showed 56 per cent of actual producers, the guys on the ground doing the job, wanted change, wanted something different than what they were getting under the single desk. They ignored that.

What they did was come up with a trumped-up plebiscite and list that went back as far as five years to capture people that had not learned how to push a computer button yet, to say "Please save the single desk."

That is not good enough for Western Canadian farmers. They are world class in every respect. They are running equipment and growing commodities that have become world class, and they demand the right to be able to do this with their wheat, durum and barley and we will deliver that for them.

Senator Duffy: Other persons, both in the House of Commons and here in the Senate, are saying you are trying to rush it; you are going too fast. Why is it important that we get this done in a reasonable period of time?

Mr. Ritz: Senator Duffy, there are people that have been working on this for decades, including my family. We need clarity and certainty. The new entity, the reinvigorated Wheat Board, needs time to get their feet on the ground and make sure they have the ability to contract and hedge product so they have product to work with come next year.

The eight directors that are left are running a scorched earth policy. They want to leave nothing behind so they can point to it and say, see, it did not survive. That is not good enough. It needs to be there for farmers to make that ultimate decision and have the right to decide whether they want it as a not-for-profit, a cooperative or a shareholder structure — however they want to do it. However, farmers need the ability to make that decision and we will guarantee that it will be there for them.

Senator Plett: There are some people who really do make lemonade out of lemons, and I believe OmniTRAX is one of those companies. I believe the Farmers of North America is another organization like that.

We have heard Bob Friesen, past president of the Farmers of North America, say that he believes in going where the puck is going to be. He has said that we know this is going to happen, so we will do something about it; we will be where the puck will be. I have personally met with OmniTRAX; their head office in Canada is in Winnipeg. Indeed, I think I have as large a concern about the Port of Churchill as any member opposite does; it is my province and my port.

They have said they are prepared to work with this and they are going to go into other avenues. My point is, here are a couple of organizations that are severely impacted by what is happening, that are saying we are going to do something about it; we are going to get ready for it.

What has the Canadian Wheat Board done, knowing full well that this will happen? It has not been a question of whether this will happen, but when. What has the Wheat Board done to work towards that transition period? Have they even started something in that regard?

Mr. Ritz: We had hoped that they could co-chair the working group with John Knubley. They refused. They said that they would not take part in anything that detracted from the single desk. They have been looking backward, while we and most farmers have been looking ahead and mapping the way forward.

I cannot speak to who they met with or how they have designed their program. I know they have tried to throw a wrench in the gears at every opportunity. That is unfortunate because it does not serve farmers. It does not serve the staff of the Canadian Wheat Board well either. These folks need to know where their livelihood will be. There have been a few who have stepped out and gone to work in the private grain trade. They have the right and the responsibility to their family to do that. When I met with the Wheat Board, I said, "There are only two things you have to understand. The status quo is not an option. The changeover will happen August 1 of 2012." I was as succinct as I could possibly be to help them get their hearts and minds around the fact that change is coming and that there is a timeframe. Of course, the clock is ticking. We have seen any number of excuses and reasons to Shanghai, short change and slow this thing down. We will not be deterred. Farmers in Western Canada will not be deterred. My emails are not lighting up, other than with the same people for the fifteenth time. We can talk numbers all you want about who is in favour and who is not, but we also make the argument that, on May 2, Western Canadian farmers and Canadian people sent us back with a strong majority to get these types of issues looked after once and for all. We need stability, certainty and clarity in Western Canada, in the grain trade. We will deliver that with Royal Assent.

Senator Peterson: Minister, when you talk about the Canadian Wheat Board now, you use words such as "them" and "they." However, probably 10 days from now when you steamroll this bill through, the Canadian Wheat Board will be you. You will be in charge, appointing the directors and the president. You will have to answer all these questions that I posed in my first question to you. When might farmers expect answers to all those questions, since you will be in charge and devising the plan and the vision.

Mr. Ritz: I am the Minister for the Canadian Wheat Board now, so nothing changes in that regard. Having said that, there are clauses in the Canadian Wheat Board where the wheat board act is directed by the minister of the day, and it is "taken in the best interests of", and so on. I could point those out for you, if you like. At the end of the day, we will be assessing what the Wheat Board comes forward with, at the direction of farmers who want to make use of this new entity. I will not be prescriptive. I want to ensure that this survives, but it is their plan. They bring it to me, not the other way around. This is not top-down or dictatorial.

Senator Peterson: The farmers will have no say in any of this. They are not on the board or part of the organization. Yet, you will go to them and say, "Tell us what to do?"

Mr. Ritz: I have no idea what the make-up of the board will be. We have five appointed members who will oversee the transition to the new entity. At that point, the board will be made up at their discretion, in the best interests of western Canadian farmers. I will not dictate that.

Senator Peterson: This transition board of five people will decide what the new governance structure will be? Is that what you are telling me?

Mr. Ritz: In consultation with farmers and industry, but not with me.

Senator Peterson: Farmers will not have any say in this until they get answers to some of these questions. I do not see how they can give you much direction.

Mr. Ritz: Not every farmer belongs to the Canola Council of Canada, but they all have a say in how it operates. The same type of parallel could be in place for this new entity, the dual market Canadian Wheat Board.

Senator Peterson: You have a lot of groups who are supporting you, and that is fair. However, it would appear, in talking about farmers alone, that there are more farmers opposed to this than in favour. The minority are dictating to the majority how things will go.

Mr. Ritz: I do not see it that way, senator. I do not think any minority or majority for that matter should dictate what my bottom line can and should be with product that is mine. At the end of the day, it is a rights issue that underlines all of this. There has been a paradigm shift in the last three to five years, in Western Canada, as to the best way to move forward. As I said, the Wheat Board is down 25 per cent, overall, in the amount of product they are handling, simply because farmers have already walked away. They fill their air seeders with other commodities that are newer and better and that give them a return on their bottom line.

Senator Peterson: Is the grain commission going to carry on within your new structure?

Mr. Ritz: Absolutely. It is a standalone entity, the same as the Canadian International Grains Institute. The Malting Barley Technical Group continues on, as does the Western Grains Research Foundation. They are not part and parcel of the Canadian Wheat Board. They are separate entities.

Senator Peterson: They will be testing grain from the line companies? Is that what they will be doing?

Mr. Ritz: The grain commission will still be in charge of testing. Even now, there is some private sector testing done that the Canadian Grain Commission oversees.

Senator Eaton: Minister, once the Wheat Board has been opened up to allow competition and choice, do you feel that you will have to look at modernization? Do they need modernization of things like the Canada Grain Act or the Canadian Grain Commission? Will they match the Wheat Board in modernity, or will you have to move them along a bit too?

Mr. Ritz: For the last three years, we have been trying to put through a bill on the grain commission to make some of the changes required there. They have had their rates frozen for years, and there is a concern that we are falling behind in our ability to do what we need to do, simply because of a funding shortfall. Having said that, the government of the day has always picked that up and ensured that they are whole, and we will continue to do that. However, there are always changes. These are acts that are 40 or 50 years old. They need to be modernized to ensure that they still serve the people they intended to serve.

Senator Fairbairn: Just one thought, as you know, we think a lot of you, and you are always getting different responses because of things that happen in different parts of Canada, in different ways and with different people. A few times, simply because of where I come from, in the Southwestern Alberta, it seems that you have been giving up a number of people, with the farm operations now being run by women. You hear about it across the West. I am wondering, are you lifting up that trend, and perhaps creating other opportunities?

Mr. Ritz: I fully believe that a lot of the women involved in agriculture are lifting me up. They bring bright new ideas and different ways of looking at things. Joanne Booth comes to mind. She heads the Canola council and does a tremendous job. I have had the tremendous opportunity to travel with Joanne in foreign markets and so on, and she does a tremendous job of ensuring that Canadian canola growers are well represented and well versed. She is always well versed on the issues herself.

There is a tremendous amount of women, as you say, coming forward to take directorship and chairmanship roles in a lot of the agricultural entities. I certainly welcome that. They are doing a tremendous job on behalf of Canadian farmers. The diversity we have in this country is second to none. We are one of only five or so entities in the world that have the ability to do more with less. Bio-security, bio-technology, innovation and so on will all lead to the foodstuffs of tomorrow, and women certainly play a huge role in that. We welcome it.

Senator Fairbairn: This is certainly an issue in Southwestern Alberta; keep it going.

Senator Tkachuk: I have a short follow-up on the plebiscite question, which has had some discussion. The ballot question itself, from my understanding — perhaps you can clarify, minister — never had the option of a Wheat Board along with an open market.

Mr. Ritz: No.

Senator Tkachuk: The option was no board or full board, right? In other words, total monopoly market or a market without the Wheat Board in it at all.

Mr. Ritz: The question was crafted in such a way that it was almost negative option billing. It was: Do you agree that the great work of the Canadian Wheat Board should continue? I do not know the exact words of it; I guess we could find it. I had dozens of ballots sent to my office, as did the Prime Minister and my parliamentary secretary, saying "This is ridiculous; I will not take part in this charade."

StatsCan says there are 23,000 grain operators in Western Canada. There are 50,000, give or take, permit books — lots of times you will have more than one — and over 66,000 ballots go out. How do you explain the numbers? As I said, they went back up to five years.

Senator Duffy: The new math.

Mr. Ritz: Thank you, Senator Duffy. I had not figured that part out.

A lot of ballots went out. It came to light that a number of people had passed away in five years, but they were still getting a ballot. When I asked that question rhetorically in the media, namely, how could this be, Allen Oberg, the chair, said, "Well, the executor will fill out the ballot." The executor may not be an actual producer involved in the grain trade. That is not the type of answer we want. I want to know from actual producers what they want. That is what we seek to find by working with the commodity groups.

[Translation]

Senator Robichaud: Senator Tkachuk focused on the issue of the plebiscite, namely, who should or should not vote. You responded because it was within your mandate to conduct a plebiscite. You had the authority to give the order to conduct a plebiscite. Had you done so, the issue would have been clear and people would have had the opportunity to express their opinions. I have difficulty understanding why you did not respect the existing legislation. I understand that you have a different interpretation of it, but many people disagree with your interpretation.

[English]

Mr. Ritz: That is what the court case in Winnipeg is striving to find, senator. At the end of the day, every legal opinion that we sought and received, as well as what we were told by the internal legislative committee of the Wheat Board — and the law firm they hired told them — was that there was slim to no chance of this succeeding as a court hearing.

Senator Robichaud: That is what you are hoping for.

Mr. Ritz: At the end of the day, I want farmers served. Are they served best in these court challenges that they are paying for at the same time that the Wheat Board is scooping farmers' money out of the pool accounts to fund all of this and their advertising campaign in Union Station in Toronto? Farmers are taking them to court to recoup the couple million dollars that the Wheat Board has spent on their own ideological crusade.

At the end of the day, as I understand the legislation and the direction that I received from legal authorities on it, there is no plebiscite required to change legislation. That is what we are doing.

Senator Robichaud: I hope they shed light on that matter. I have another question. It says:

[Translation]

It is said that, as soon as this bill becomes law, the elected directors will be removed from office and that new directors will be appointed by the Governor-in-Council or, in other words, the minister.

Why did you not keep a certain number of elected directors to represent farmers?

[English]

Mr. Ritz: As I said, I do not want to be prescriptive. The new legislation is an interim piece of legislation that allows the appointed directors who have continuity and knowledge of the way the Wheat Board operates to maintain that continuity and ensure that farmers are well served during that transition period.

I have given no direction as to the makeup of the board after August 1, 2012. That will be decided by industry, by farmers taking part in the new, reinvigorated Canadian Wheat Board, the open market, as well as the appointed directors and the administrators of the Wheat Board itself. They will sit down and decide what type of board they will require.

Senator Robichaud: Why not keep a few elected administrators rather than having them all appointed?

Mr. Ritz: Under the law, the elected directors are creatures of the Canadian Wheat Board Act as we know it now. When that act ceases to exist, they cease to exist. None of them wanted to stay and take part in the new entity. They have all said that publicly.

Senator Robichaud: Will you consult them again to see if some of them want to stay?

Mr. Ritz: I am always open to discussion. It is not my job to hire new directors. Certainly I will advise them, if they want to continue to play a role, to send their resume in to the five appointed directors who will be operating in that capacity.

[Translation]

Senator Rivard: You could consider the application of a director whose term is ending, if he so desires? From what I understand, he would not be automatically excluded.

Mr. Ritz: Yes.

Senator Rivard: Could you remind us of the Canadian Wheat Board's total assets?

[English]

Mr. Ritz: All the monies the Wheat Board generates now, with the exception of the monies that go into the contingency fund, such as the hedge fund, their futures fund, and so on, is the property of the farmers who have taken part in that pooling. At the end of the day, it is disbursed back to the farmers. Part of the concern farmers have is that they receive an initial price, which is 60 per cent of what the market may bear; they then receive interim prices throughout that year to bring that value up in that pool. They will get their final payment sometimes 18 months later. Farming, like any business, relies on cash flow. No one will survive on 60 per cent up front and then driblets of monies with the final payment 18 months later. We all have cash and we also need to control the timing of our sales so that we are not forced to sell our canola because the Wheat Board has not moved durum that year. There are a lot of different things that come into play. It is not just price. It is about the timing of the sale and who you sell to. You do it in the best interests of your bottom line as a farm business in Western Canada.

The Chair: Since we have other witnesses, minister, on behalf of the committee, I sincerely thank you and your deputy minister.

[Translation]

We have Mr. Knubley, Deputy Minister at Agriculture and Agri-Food Canada.

[English]

Joining Mr. Knubley is Greg Meredith, Assistant Deputy Minister, Strategic Policy Branch, Agriculture and Agri-Food Canada. I invite Mr. Knubley to make the presentation, followed by questions.

[Translation]

Mr. Knubley, you have the floor.

[English]

John Knubley, Deputy Minister, Agriculture and Agri-Food Canada: The minister has spoken to the overall rationale of Bill C-18 and addressed some of the issues. I would like to speak to the bill itself and to the phased approach that relates to the dual marketing system that will be implemented.

[Translation]

I would like to focus briefly on the phased approach of the bill.

[English]

We designed the bill to take a phased approach in a way that gives the Wheat Board sufficient time to prepare a business plan to become a new viable entity in the grain marketing system. Certainty and predictability is a recurring theme we heard. We will talk about this later when we come back in terms of the working group that I chaired. Something the minister himself mentioned is certainty and predictability, as it is something everyone in the grain industry has asked for. Therefore, the bill itself is designed to address that.

When the bill becomes law, the governance of the board will change and all market players will be able to make forward contracts for sales to be executed after August 1, 2012.

An amendment has also been added to allow for forward contracts for all grains, not just wheat and barley.

Then, as of August 1, 2012, the market is opened, the Canadian Wheat Board Act is repealed, and the single desk is eliminated. This is what we call the transition period where an interim voluntary Wheat Board is created with a government financial guarantee for up to five years. The transition period is for five years.

As I mentioned, its scope will be expanded to all crops across Canada.

[Translation]

Its scope will be expanded to all crops across Canada.

[English]

Within four years, the Wheat Board will submit a plan to privatize, whether as a public for-profit company or a cooperative. At the latest, the Wheat Board will become a private entity in five years and the interim Wheat Board provisions will then end. They are grandfathered into the bill, if you like.

That is the basic frame of the bill and I am happy to discuss this with you in more detail. Basically, this legislation — along with the complementary adjustments to the Canada Grain Act and the implementation of the recommendations of the Rail Freight Service Review — will secure and protect a strong grain marketing system for Canadian farmers in the future.

[Translation]

Mr. Chair, this legislation, along with complementary adjustments to the Canada Grain Act that I just mentioned, will secure and protect a strong grain marketing system for Canadian farmers in the future.

[English]

The government is presenting an act that provides predictability and certainty to the entire grain value chain, creates new business opportunities in the multibillion dollar wheat and barley business for farmers and other stakeholders — I think that is $5 billion at this point in time — and meets the market choice demands of the majority of farmers by supporting a transition plan for a voluntary Canadian Wheat Board as part of a dual marketing system.

Senator Plett: I asked the minister with regard to the Wheat Board getting ready for this and preparing for the inevitable. I was not assured with anything very positive, which concerns me.

Minister Ritz indeed asked the Canadian Wheat Board directors for a transition plan some months ago, and they claim they sent it to the minister in June. However, the minister has told us he received it in September or October. Could you tell us whether you have in fact received a transition plan? If so, when did you receive it? How detailed is it, other than they are still reviewing some legal avenues as we heard today? Are they accepting the fact that this will, in all likelihood, go ahead and are they moving forward with it?

Mr. Knubley: Minister Ritz met with staff of the Wheat Board in Winnipeg on May 31, which included Mr. Oberg, the Chair of the board. He indicated at that time, as you described, his expectations of how he would like to move forward.

This led to a series of letters being sent by Mr. Oberg, two to the minister and one to myself on July 22. The first letter addressed issues related to the windup of the Wheat Board itself. The second letter to the minister addressed issues related to the new entity that could be created under a dual marketing system. The third letter, which was to me, concerned the issue of the participation of Mr. White, the president of the Wheat Board, in terms of this working group that I chaired where Mr. Oberg denied the opportunity of Mr. White to do that.

In terms of what was proposed, and I would describe them as early proposals, in terms of the windup costs, basically the assumption was that the Wheat Board would be wound up by August 1, 2012. Of course, that is not the intention and is not reflected in the bill itself. The order of magnitude was in the $500 million range in terms of those windup costs.

In terms of the new entity — perhaps I will detail these more later — there were six expectations or criteria that were to be met in order for any further discussions, if you like, with respect to the Wheat Board.

Subsequent to that exchange of letters, Minister Ritz replied and asked for more information and more work. We did receive on October 3 more details around some of these initiatives, but the bottom line is that, because we did not respond specifically to the six criteria related to the design of the new entity, officials were not permitted to work closely with us in terms of how to move forward.

Senator Plett: We still have a ways to go.

Mr. Knubley: We have a lot of work to do in terms of addressing how you would assess the windup costs. We will engage an outside auditing firm to help us in that regard and to work with the new board in that respect.

Senator Plett: In respect of the time, I will wait for a second round, if there is one.

Senator Peterson: I want to be clear: From the time of Royal Assent, which will be in 10 or 12 days, until August 1, does everything continue on as it is now with the board in terms of guaranteed payments, guaranteed access and the whole bit? Does it keep going?

Mr. Knubley: I think you need to distinguish between two crop years. In terms of the crop year coming, the existing board will be in place. In terms of August 1, 2012, there will be a new system in place and the monopoly removed. Between now and August 1, the existing operations of the Wheat Board continue in relation to the last crop year and the marketing of that crop.

In fact, there is a three-month period — perhaps Mr. Meredith can help explain this — beyond August to September for the marketing of this last year's crop where the Wheat Board continues to carry on doing what it is doing and what it has been doing.

In the case of Churchill, for example, the Wheat Board will continue to be permitted to send whatever crops it decides through the Port of Churchill, if it so desires.

Greg Meredith, Assistant Deputy Minister, Strategic Policy Branch, Agriculture and Agri-Food Canada: The only major changes that take place with respect to the board as a result of Royal Assent will be that the governance changes, as the minister described to you previously. The single desk continues for the current crop year but, for the crop year coming, the 2011-12 crop year, as the deputy minister just mentioned, the new act allows everyone in the sector to trade every grain, forward trading and contracting forward up until August 1 when delivery can actually take place.

What the deputy alluded to in terms of the current crop year is the facility within the act for the board to maintain the single desk and ensure that all the pooled proceeds are dealt with just as if the single desk is still maintained. That applies only to this current crop year.

Senator Peterson: The financial guarantee is still there. What is the risk right now?

Mr. Meredith: Could you be more clear?

Senator Peterson: Under the single desk system now, the Department of Agriculture and the Department of Finance require the Canadian Wheat Board to discount by 25 to 35 per cent, with a single desk. With a voluntary board, I would imagine it would be much higher, maybe 50 or 60 or 70 per cent. I am wondering what it is today. Is it 20, 30 or 35 per cent?

Mr. Meredith: It would depend on the crop year.

Senator Peterson: I am talking about the one going up to August, 2012. It is in place right now.

Mr. Meredith: I think it was 65 per cent with at least one interim, senator, but I would have to get back to you with the details.

On a go-forward basis, the new entity has the same guarantees for initial payments and for borrowing that the current board has. There would not be any change in those facilities backstopping the board's operations.

Senator Peterson: That is why the initial payment now is in the 60 to 65 per cent range, because they have to allow for the risk premium. The minister stated you cannot operate on a 60 per cent initial payment. Will that change? Will it go to 100 per cent?

Mr. Knubley: The idea is that we carry on on an interim basis for a transition period of five years, where the Wheat Board, although no longer in a monopoly situation, carries on with the same guarantees from the government in terms of its operations.

Senator Peterson: Farmers will have to know that.

You talked about this $5 billion in renewed opportunities. Are there any studies on that and background or reports that would verify that claim, where it will all happen?

Mr. Knubley: There have been many studies on this subject matter, as I am sure you know. At the Commons committee, I tabled a list of the studies that have been most recently released, which support the movement to marketing freedom. These studies include the C.D. Howe Institute, for example, which has done two studies, one in 2008 on the topic of the economics of a single desk, and one in 2011 called "Pulling the Plug on Monopoly Power." There have been two studies from the George Morris Centre, which is a think tank in Guelph, as I am sure you know — in 2002, a study entitled "Benefits and Costs of a Voluntary Wheat Board," and in 2011, just released about three weeks ago, a study entitled "The Move to a Voluntary Canadian Wheat Board: What Should Be Expected." In addition, there was a study commissioned by Informa Economics in 2008 called "An Open Market for CWB Grain."

Basically, the results of all of these studies show that the presumed monopoly price advantage for the Wheat Board is no longer in place because of the changes in the world market and the decline in wheat and barley trade. In comparison to other wheat sales, farmers in the United States, for example, there is no price advantage as a result of the Wheat Board. The studies also raise questions about the administrative costs with the Wheat Board and the administered system that is in place.

Senator Peterson: Just to clarify that, all these reports support an open market system?

Mr. Knubley: They did.

Senator Peterson: There are no others that showed the contrary?

Mr. Knubley: There are many other studies, but —

Senator Peterson: But not that you recommend.

Mr. Knubley: I was asked to indicate the studies that support that, and I have done so.

Senator Duffy: I wonder if we could get some clarity on the question on how these two systems will work. Mr. Meredith told us that, for the current crop year, it is business as usual for farmers. They will operate in the same way. At the end of the crop year, whatever is left in storage or in bins, the Wheat Board will continue to sell on the world market for three months until they clear that up. Then I assume you will have some kind of publicity campaign or lots of materials for producers so they will understand exactly how it will work as the new crop year begins in August.

Mr. Knubley: Yes. In terms of the current crop year, you have it absolutely right. That is exactly what will happen. In terms of the new crop year —

Senator Duffy: I am concerned about the folks at home. The people who are now in the grain production business do not have to worry about it this year. It is just the way it has always has been for the last 50 or 60 years. At the start of the new crop year, before that happens, they will get lots of information about all of the options available to them.

Mr. Knubley: I will come to the particular farmer information requirements and what we have done there. However, in terms of the next crop year, one of the challenges — which relates to the point I made and the minister made in terms of predictability and certainty — is that in order to move ahead with a new open market as of August 1, 2012, you need to forward contract as of January. The bill provides for the ability to forward contract. The previous Wheat Board act specifically did not allow for forward contracting.

As of January, the Wheat Board and others will be able to engage in discussions with farmers around forward contracts for wheat for the crop year after August 1, 2012.

Senator Duffy: The way we do with potatoes in P.E.I.

Mr. Knubley: Yes, and just the way it is done for non-Wheat Board crops such as pulses and lentils, for example, where we have seen a growth in activity.

On the information side, we have been working with provinces to get information out. We ourselves have provided fact sheets; we have a website that people can come to. We are looking for every occasion, once the legislation is passed, to find ways to get information out to farmers as to what is exactly happening.

Senator Duffy: This bill anticipates a potential wind-up in five years. Is it possible that would happen sooner than five years?

Mr. Knubley: Yes, five years is an outer limit. The minister can encourage the Wheat Board to come forward earlier, if he so desires; and if the Wheat Board desires to move to a private entity in, say, three years, that is provided for in the act itself.

Senator Mercer: I want to continue on with Senator Duffy's last question. There is a provision in the act that the minister could ask for a plan that comes up earlier, although the act does dictate a five-year term where they must come up with a plan. They will have to come up with a plan in four years, I guess, and it has to be commercialized within five years.

If I understand it, if a minister — not particularly this minister, but any minister who is responsible — decided that he or she wanted to speed this process up, he or she could put unreasonable demands on the new management of the dual desk Canadian Wheat Board and give them a poison pill that they have to produce this commercialization plan within two and a half years or three years, all of which seems impractical if you consider the changes that will happen. The fact that you have not been able to meet with the officials of the Wheat Board on an ongoing basis, as you say you have wanted to, appears to be a bit of a problem.

It appears to me that even if we bought the argument of the government that they are not dismantling the Canadian Wheat Board, what they are doing is building in such measures that it may be impossible for a new Wheat Board to survive under the conditions that have been described in the act.

Mr. Knubley: Really what we are trying to do with the provisions of the bill is to allow for every opportunity for the Wheat Board to establish itself as a viable entity in the new open market. The transition period of five years is designed specifically from that perspective. This notion that the entity itself could go private earlier or become a cooperative earlier is really to provide flexibility to the Wheat Board to do that, not to provide a poison pill, as suggested.

What we have heard in our consultations with Ian White and others in terms of the Wheat Board is that there may be some strong reason why they would want to go earlier rather than later to establish themselves as a private entity, rather than remain in this interim position.

Senator Mercer: I want to clarify some confusion about the date. On August 1, 2012, assuming that everything proceeds as the government would like, the crop year we are talking about is the crop that would be in the ground that we will be harvesting after August 1, 2012.

Mr. Knubley: That is correct.

Senator Mercer: It is that crop year.

Mr. Knubley: That is correct.

Senator Mercer: I understood when Senator Duffy talked about potatoes, but someone had used —

Mr. Knubley: Part of the issue, and maybe it is confusing, is that forward contracting can start in January with respect to that crop. Part of the issue here is to establish cash prices that are clear for the farmer as early as possible.

Senator Mercer: I understand it, but I think your colleague used the 2012-13 crop year, which threw me.

Mr. Knubley: I think it was me that probably mixed it up. I think my colleague was clear.

Senator Mercer: I want to ensure that I understand it, and hopefully the viewers also understand it.

There is going to be a cost to this transition, period. There was a report from KPMG that this may cost $500 million. Is that an accurate figure?

Mr. Knubley: There was a letter from Mr. Oberg presenting the potential wind-up costs, which attached a report from KPMG on wind-up costs. The figure was up to $500 million.

Part of the issue is that they assumed that the entity would be wound up completely by August 1, 2012. Of course, that is not what is actually happening as proposed under the bill. There will be this transition period of five years, where we will continue to guarantee the activity of the Wheat Board.

The transition costs will need to be re-examined in light of the way it will actually work. Is that clear?

Senator Mercer: Yes, thank you.

Senator Tkachuk: It seems to me that the argument by the board of the directors of the Wheat Board has been not to retain the Wheat Board, which no one is contemplating taking away, but to maintain the right to force all wheat growers to sell through them. There has been a lot of information thrown out that has often been incorrect — advertising campaigns by the Wheat Board.

One of them is they have talked about the contingency fund. I am not sure what a contingency fund of the Wheat Board is, but perhaps you could explain that to us. The Wheat Board has mentioned the $200 million that Mr. Oberg has claimed that has been in it. What is the contingency fund exactly and how much money is in there?

Mr. Knubley: The contingency fund is set out in the Wheat Board contingency fund regulations; the maximum amount that we currently allow is $200 million, as you have just identified. That has been raised in November, and prior to that — I think earlier in the fall — to $100 million from $60 million. This is basically the retained earnings of the operations of the Wheat Board itself. If you were looking at it as a private entity, you would see it as the retained earnings. This is the profit earned on —

Senator Tkachuk: Over the number of years.

Mr. Knubley: Well, particularly in this fiscal year, related to what is called "producer payment options." These are fixed-price contracts, basic price contracts, what they call flex pro and early payment options. It is basically the interest used from the hedging around these particular tools that are used to forward contract. It is the interest in terms of the operations of the activity.

Senator Tkachuk: The money will be used to ensure that the Wheat Board services the farmers who wish to remain with it?

Mr. Knubley: That is correct. It is a fund that could be used to raise funds, for example.

[Translation]

Senator Robichaud: I see in your presentation that there is a preliminary period, a transition period, a transition date and an interim period.

You are saying that, in the preliminary period, elected directors will be removed from office, as the minister said earlier, until the interim period, which will go from August 1, 2012 to 2017. All administration will be done by elected directors. Is that correct?

Mr. Knubley: Not exactly. The minister has the power to change the directors.

Senator Robichaud: Yes.

Mr. Knubley: The elected directors will therefore be removed from office once the bill is passed.

Senator Robichaud: Yes.

Mr. Knubley: And, in January, only directors who were not elected will remain.

Senator Robichaud: Appointed directors.

Mr. Knubley: There will be five directors remaining. Then, the situation will be discussed with the board of directors.

Senator Robichaud: That will be the five remaining directors.

[English]

Mr. Knubley: The five directors can be changed at any point in time.

Senator Robichaud: By whom?

Mr. Knubley: By the minister, after the passage of the bill. They can be changed right now, as a matter of fact, under the current act.

Senator Robichaud: Those who were appointed but not the elected ones?

Mr. Knubley: That is correct.

[Translation]

It is not very complicated. We need people who are well positioned to invent a new entity.

Senator Robichaud: I do not have a problem with that.

[English]

Mr. Knubley: The issue for the president of the Wheat Board, whoever that may be, and it might be Ian White, for example, will be to have the right board of directors for him to move forward and invent this new entity. We are expecting, as I think the minister reflected in his discussions, that at some point the existing five will be reviewed from this perspective in terms of whether they would be particularly well situated to help define a new entity.

[Translation]

Senator Robichaud: Why not have elected directors?

[English]

Mr. Knubley: The simple answer is that the existing elected members have not been predisposed to be open to the development of this new entity. Their focus has not been how to change to the new marketing system but rather whether it should change. Their proposals, for example, as I described earlier in terms of the letters that came on July 28, are such that there are six conditions under which the new entity will be created, and if we meet all those conditions the existing Wheat Board will be recreated.

Senator Robichaud: If I am a member of the board and I decide not to sell through the board, can I remain as an administrator?

Mr. Knubley: As the minister said, there is always opportunity for the existing elected members to offer their interest in participating in the new board.

Senator Robichaud: That was not my question. If I am a member of the board who has been appointed by the minister, and I am a wheat producer, and I decide not to sell through the board, that would not be in the best interests of the board, would it? As I read the bill, the administrators are there to promote the best interests of the board or whatever might be left after the bill goes through.

Mr. Knubley: Maybe I am not understanding your question. The existing members of the board will be given the task of designing the new entity that will participate in an open market. I am sure the new board, with the president, who might be Ian White, will have a discussion about the operations and governance of the board, as any board would. The basic issue is what they need to do to be a strong and viable entity in the new system.

Senator Tkachuk: The board will form a new entity. It may be a co-op, a mutual group or a public company. If it is a public company, shareholders will vote for the board. If it is a co-op, members of the co-op will vote for the board. That is the way it would normally work. I want it to be clear that this will become a new entity, and the new shareholders, the new co-op members or the new holders of the assets of the Wheat Board will elect the members to the board. Is that correct?

Mr. Knubley: Correct.

Senator Tkachuk: They could all be farmers.

Mr. Knubley: They could be.

Senator Ogilvie: I interpreted Senator Robichaud's question to be with regard to the legal responsibility of directors in carrying out their functions in the best interests of a corporation. If I understood correctly, he wanted to know whether, if a member of the board who is also a farmer who produces wheat sells his or her wheat outside of the Wheat Board while remaining a member of the board, that would constitute a breach of the responsibility of a director.

My understanding is that that is not an issue relative to the individual's role on the board unless, in so doing, the member of the board did something that was contrary to the best interests of the board. Is that correct?

Mr. Knubley: That is correct. There are existing governance rules of the Wheat Board now. I presume the new board would review those governance regulations, including any issue along the lines you just described.

Senator Ogilvie: Thank you.

Mr. Chair, I think this is a remarkably straightforward issue in terms of the principles that are involved. My attention was caught by reports in the press that a number of people have claimed that they may be pursuing legal action against the federal government with regard to this issue. These include some currently elected directors of the Wheat Board and some who are members of Friends of the Canadian Wheat Board. This appears to centre around section 47.1 of the existing act.

Can you gentlemen give us your views on the likelihood of a successful legal challenge of the wording there? I can see why some might think that would give rise to an opportunity, but can you give us your opinion on whether such a challenge is likely to succeed?

Mr. Knubley: As you likely know, there are two cases already before the courts. The Friends of the Canadian Wheat Board and the Wheat Board itself have each brought applications —

Senator Robichaud: On a point of order, I once asked a question about a farmer who is being held in Lebanon, and the chair cut me off, saying that as this was before the courts we should not comment on it. I believe that the question by the honourable senator is on a matter that is before the courts.

The Chair: The chair will recognize the point of order and I will ask the deputy minister not to answer.

Senator Ogilvie: That was the thing I was interested in. The rest I understand.

Senator Mahovlich: Will this be a savings or an additional expense to the federal government after the five-year period?

Mr. Knubley: We are anticipating that there will be costs and, as the minister has indicated publicly, the government will consider those transition costs as we move forward.

Senator Mahovlich: Do you think it is the right time, in light of the trouble around the world and with Europe right now? We do not sell to China. China has its own wheat.

Mr. Knubley: I am not sure I can comment on the troubles in the world at the moment, but what I do see as Deputy Minister of Agriculture is a grain sector that has very high prices and real opportunities in terms of its trade.

Senator Mahovlich: With the United States right now, farmers will have to deal with large, multinational grain-trading companies along the border. We are seeing "buy American" signs all over the place. Before the Americans buy wheat from a little farmer out West, they will make sure they have bought all the wheat from their own farmers and it will be very difficult. Will our farmers be vulnerable to large, multinational grain-trading companies?

Mr. Knubley: We will talk about this later when the working group comes forward, but we have said that we are sensitive and want to observe and monitor any anti-competitive behaviour in the market.

However, we see lots of opportunity in the current grain trade. As was mentioned earlier by Senator Eaton, Canada is known as the bread basket of the world. In the last 10, 15 years we have seen relatively strong growth in our trade related to canola and pulses, and we have seen a relative decline in area of wheat and barley. Again, I believe the overall assessment is there is huge opportunity in moving forward in the next few years in an open market system.

Senator Plett: I have a point of order.

The Chair: Would you state your point of order, Senator Plett, please?

Senator Plett: With the utmost of respect to the chair — and I will not belabour this and I will accept his ruling — I want to state for the record that I believe Senator Ogilvie's question spoke about the risk and how 47.1 of the Canadian Wheat Board Act does not apply. The minister had already spoken about that. I think it is on the record that the minister has said that this does not apply. I have spoken on the record about how this does not apply. I would believe that if the deputy minister wanted to answer that question there is nothing preventing him from doing so. He is not asking to form an opinion on whether the judge will rule in favour of something or not. He is simply stating what he believes section 47.1 means.

The Chair: Thank you. I have recognized the point of order. Are there any other senators on the point of order?

Senator Ogilvie: I appreciate my colleague's efforts here. I am prepared, in the next round, to rephrase the question such that it does not cross into the issue of the jurisdiction of the court.

The Chair: Thank you, Senator Ogilvie, for your comment. On the point of order, I will recognize Senator Robichaud.

[Translation]

Senator Robichaud: To come back to your decision, Mr. Chair, I understood that Senator Ogilvie was asking the witness about the possible impact of a court decision. At the time, I thought that the matter was before the courts and that we could not discuss it.

The Chair: Thank you, Senator Robichaud. Given that the point of order was raised by Senator Plett, Senator Ogilvie's follow-up comment allowed him to ask a similar but reformulated question. I will also allow Senator Robichaud's comment on this point.

[English]

I will recognize that it was a point of order by Senator Plett and that we will continue the line of questioning.

Senator Eaton: I want to pick up on Senator Duffy's questions to you about communication. I have seen and heard ads that have been very misleading about this bill. I think there is one ad that uses a steamroller, where the word "choice" is not mentioned.

I would hope that Canadian agriculture would have a complete communications package because it is important to educate Canadians that there is choice. If I were a farmer in Western Canada who had just been subjected to a wheat board that seems to have spent a lot of money fighting this bill, I would like to have the real facts put out before me.

Is there such a plan in place, or do you have intentions of putting forward a so-called marketing communications plan?

Mr. Knubley: Yes, we do. The working group report that we are about to speak to in a few moments has a recommendation that the government should put a great deal of emphasis on farmer information needs. Our discussions were very clear on this and included discussions with farmers who came to the working group.

Senator Eaton: Perhaps you could send your communications plan to our colleagues across the way.

Mr. Knubley: Yes, we can do that.

Senator Eaton: They might better understand. I am glad to hear of it. Thank you.

[Translation]

Senator Rivard: Thank you, Mr. Chair. With regard to the transition measures, clauses 31 and 32 pertain to the grading of grain. Please pardon my ignorance, but since Quebec is not affected by this, could you explain to me how grain is graded?

Mr. Knubley: In general, grading does not have any impact on the new legislation. Clauses 31 and 32 are provisions that are already included in the existing legislation, so there is no change.

Senator Rivard: I am trying to understand why it is included in the bill if there is no change.

Mr. Knubley: It is simply to repeat the legislation.

Senator Rivard: It is called consistency.

Mr. Knubley: Yes. It is a matter of consistency.

[English]

Senator Peterson: I would like a clarification on the contingency funds. That is money earned by farmers for the benefit of farmers, so can you confirm that it could not be used for other matters like severance payments?

Mr. Knubley: Let me clarify. The contingency fund is currently a risk management tool and it is basically equivalent to retained earnings. They are existing risk management tools that the Wheat Board uses which lead to profits from their hedging around these tools. That money is interest, strictly speaking, and not related to the farmers' funding of the pool, et cetera.

I want to be very clear on that. In terms of its future use, again, I think the future use of the contingency fund will be at the discretion of the new board. Again, I believe I mentioned earlier they could choose to use that contingency fund to help them move forward in the future towards creating a new entity and to use it as a backstop for borrowing.

Senator Peterson: Or other matters.

Mr. Knubley: Yes.

Senator Peterson: In the past, it has been returned to farmers, has it not?

Mr. Knubley: No. It stays within the corporation, as retained earnings do. Correct me if I am wrong, but I believe the earnings are reinvested in the corporation and used for their corporate business plan. Typically we reallocate it.

When their annual fiscal report comes out, the contingency fund dollars will be identified.

Senator Peterson: You said on January 1 you can start forward selling. Would you be forward selling at the posted price? Say the posted price is $5 per bushel. Would you contract in at that, or will there be some discount to that price?

Mr. Knubley: I am not an expert in forward contracting; I am a deputy minister. I think the issue is it is basically a market price and is set as a negotiation with the forward contractor. There is a contract and you negotiate that contract. The price is basically set against the world price.

Senator Plett: We will have Mr. Knubley sitting with us again in the following hour. In light of time — we are at 4 o'clock — I will forego any further questions at this point.

Senator Mercer: In the document we have here — the first steps for the Canadian Wheat Board transition — in the preliminary period under the impact of legislative change, the last bullet says, "board of directors appear for voluntary marketing, including downsizing of the organization as needed."

Do we have an estimate as to how many people will be losing their jobs?

Mr. Knubley: We do not have any solid estimate at this point in time. We do expect — and this is consistent with discussions with current President Mr. Ian White — that the entity would normally be smaller. Until the new board establishes the business plan — whether it is a cooperative or goes to an IPO — it is hard to know exactly what size it will be.

Senator Mercer: In all likelihood, however, some people in Winnipeg will lose their jobs?

Mr. Knubley: Yes. The expectation is that it will be smaller.

Senator Mercer: It appears in other testimony to date that there is no intention of providing regulatory access to railways for short line and producer car users. If they ask the railways and the railways simply say no, what will the options be for the producers?

Mr. Knubley: This issue was discussed in some detail in the working group and it is addressed in the report, as the minister mentioned. The working group recommended that there not be a regulation in this regard, but that there be monitoring of the situation for anti-competitive behaviour.

What we have done most recently is create a crop logistics working group that will create a specific subcommittee on this issue and looking at some of the issues at play.

Senator Mercer: This could be a crisis situation right away. If, for some reason, the railways simply said no from the get-go you would have a huge problem.

Mr. Knubley: The Canada Transportation Act does not actually allow them to say no right off the get-go and there are constraints through the Canada Transportation Act itself.

The working group assessment was there would be lots of opportunity for discussions of appropriate contracting. Part of the issue here is that we have already seen this kind of activity without any challenges with non-Wheat Board grains. In fact, there has been growth in these areas. A fact that struck me as I was preparing for the presentation today is that in 2009-10, 63 per cent of the grains sold on the market were done so in an open market for canola and pulses, and 37 per cent were done under the administrator's system of the Wheat Board.

Most farmers already use the kinds of tools we are talking about today.

Senator Plett: I have a supplementary question to what Senator Mercer said about people possibly losing their jobs. Of course, we have heard so much about the plebiscite and that 62 per cent of Canadian farmers still want to keep the Canadian Wheat Board. That is a pretty large part of market share to start a new entity. If that is in fact the case and the plebiscite is accurate, I suspect there will be a lot of jobs to go around just in that. I am not sure whether our witness has the capability of in fact deciding — or even having an opinion — on whether there will be jobs lost or not.

If he does, then I would ask him this question: Considering where we are going — and we will be selling wheat on the open market — would he not also agree there would be opportunities for a lot of marketers out there and people now working for the Canadian Wheat Board might be able to get a job as a marketer for one of the grain companies?

Mr. Knubley: I will say two things. First, in terms of discussions with the Wheat Board officials, indications are that the new entity — depending on the business plan — would be somewhat smaller than the existing entity; yet to be defined by exactly how much.

Second, as you pointed out, the expectation is that there is a very robust grain trade and there are a lot of opportunities for the existing employees of the Wheat Board — if they were terminated — to find other opportunities in the grain trade.

The Chair: On behalf of the committee, Mr. Knubley and Mr. Meredith, thank you for appearing today.

Honourable senators, the committee will now hear from our third panel, consisting of members of the working group on marketing freedom.

[Translation]

Honourable senators, the committee is meeting again to hear from a third panel made up of members of a working group on marketing freedom. We have the honour of welcoming Mr. Knubley, Deputy Minister, Agriculture and Agri-Food Canada.

[English]

We also have Greg Meredith, Assistant Deputy Minister, Strategic Policy Branch, Agriculture and Agri-Food Canada. They are joined on the third panel with Murdoch MacKay, Commissioner of the Canadian Grain Commission; Richard Phillips, Executive Director, Grain Growers of Canada; and Gordon Bacon, Chief Executive Officer from Pulse Canada.

Thank you for the pens from Pulse Canada.

On behalf of the committee, thank you for accepting our invitation to appear on Bill C-18. I invite the witnesses to make their presentations. I have been informed the deputy minister will start.

Mr. Knubley: I am speaking not just as Deputy Minister of Agriculture and Agri-Food but also as the chair of this working group, which consisted of about eight members, experts in the grain sector.

I would like to focus briefly on the work, mandate, principles and findings of this working group, which I chaired throughout the summer.

[Translation]

I would like to focus briefly on the work, mandate, principles, and findings of the working group that I chaired through the summer.

[English]

The mandate of the committee is set out in the working group report itself, which I believe has been distributed to you. I would like to stress that the mandate was very much focused on how we would move to a new open market system and from a systemic perspective, how the system would change as we move to this new way of operating from a dual marketing system but also an open market.

In terms of principles, the working group after its meetings over the summer identified six principles to provide a framework for assessing the transition to a new voluntary marketing system.

The first principle I have already mentioned, as has the minister, and it is one we heard as a working group at every meeting, and it was related to predictability and certainty. We heard again and again from farmers and stakeholders who met with us that they had a desire for a smooth transition with a clear understanding of how implementation will occur and when.

There were three other principles that we identified that articulate the growth opportunities relating to improved efficiencies, more innovation and value-added.

Finally, two principles focused on the need for an integrated supply chain where commercial arrangements are based on transparent and timely data and which emphasize the importance of improving service to domestic and export markets. I think we discussed at some length how at the end of the day this is all about improving the export sales abroad and improving the system of grain and transportation handling to support that.

In terms of findings, the working group agreed that overall we should give a competitive system a chance to work, one that includes a voluntary pooling wheat board; in other words, a dual marketing system.

A recurring theme of the working group, which supported our optimism about the changes, was the recognition that many farmers already use an open market approach in terms of its non-Wheat Board grain. I mentioned this fact earlier; in 2009-10, 63 per cent of all grains were traded openly while 27 per cent were Wheat Board grains in the administered system. I am not sure that adds; it must be 37 per cent Wheat Board grains.

Most farmers already use an open market approach in terms of the way they operate.

There are eight recommendations in all identified in the report. I will not go into each, but I will list them. They concern access to elevators, rail and ports; access to producer cars and shortlines; funding of market development and research; rail logistics; price transparency in future contracting; the advance payments program; the information needs of farmers, which we discussed earlier; and finally, the Wheat Board itself.

In conclusion, in the report itself, four keys to successful transition are identified. I will highlight those quickly. First, in terms of developing a new system and putting it in place, the achievement of efficiencies are a priority. The working group anticipated that effective implementation will improve how the grain handling and transportation system works based on these efficiencies.

Second is transparent and timely data in order to establish the types of contracts and contracting that you want. We need this transparent and timely data among all who are players in the supply chain.

Third is being willing to adapt to change. Overall, the working group recognized, as I think was mentioned earlier, this is all about change and being open to moving towards a new system.

Last, this issue of ensuring ongoing information for farmers was seen to be a key to success so that predictability and certainty would be guaranteed.

Working group recommendations, in conclusion, are consistent with the new bill in a number of areas.

[Translation]

The recommendations of your working group are consistent with the new bill.

[English]

There is a phased approach providing for certainty and predictability in the bill. There is an open market approach with monitoring, as we discussed. There is a research levy for the research organizations that were funded previously by the Wheat Board and tools to facilitate a new business model.

I look forward to your questions.

[Translation]

The Chair: Thank you very much for your presentation, Mr. Deputy Minister.

[English]

Senator Ogilvie: I note that the title of your group report is, as you described, based on a working group on marketing freedom. In the Canadian Wheat Board act, section 47.1 appears to place some limitations on the actions of the minister. Could you explain how Bill C-18 relieves that apparent restriction such that the findings of your working group on marketing freedom can get on the ground?

Mr. Knubley: Section 47.1 applies to adding or removing a grain from certain provisions of the CWB Act; and Bill C-18 is about repealing the entire act. The legal advice that we received tells us that section 47.1 does not apply to Bill C-18.

Senator Ogilvie: That was the answer I was hoping for.

Senator Peterson: Following up on the working group report, you said that with the disruption of the current practice and shifts of market power among players, there will be a change applied. Who will benefit from increased market power? Who will lose market power?

Mr. Knubley: Again, we had discussions and it is reflected in the report, particularly the first two recommendations on the access issues. One is with respect to access to inland terminals and ports and the other is with respect to access to producer car and short-line rail. We had a number of discussions about the power issues at play. Where we landed in the end was that the new system should be given an opportunity to work, and we should monitor the anti-competitive behavior as we move forward.

Senator Peterson: The first recommendation, on page 24, states clearly, " no action be taken by the government in terms of addressing anti-competitive behavior unless it is systemic." Page 3 of the report states, " the government should not intervene unless there are actual market failures." What do "systemic" and "actual market failures" mean?

Mr. Knubley: In terms of systemic, the issue is anti-competitive behavior for the system as a whole as opposed to one individual company dealing with one individual farmer. It is a set of practices happening and affecting the entire system.

What was the second part of your question?

Senator Peterson: The second part was what "actual market failures" means. Would you wait until they are almost failures?

Mr. Knubley: Again, we are anticipating constant monitoring, as the Government of Canada, of what is happening in the market. We will be looking to the players in the system to identify any challenges that arise. We will be using some of the working groups, which we described, around the rail review as well as the recently created Crop Logistics Working Group to continue to examine these issues.

Senator Peterson: Would the new board perform all of this oversight? When the bill is passed there will be a new board. Will they oversee these issues? Who monitors? Do we wait until it happens?

Mr. Knubley: To be clear, we are looking at the new board to focus on its business plan in the context of the open market and how they would operate in the open market.

Senator Peterson: They would establish good governance procedures and this sort of thing?

Mr. Knubley: Yes. Correct.

Senator Plett: I have two questions. One will be directed at the panel, but I am not sure who will answer. Following that, I will ask a question to Mr. Bacon.

Being from the prairies, I have concerns about things that happen in my province, such as the Port of Churchill, and certainly about short-line rail.

I would like someone on the committee to explain how short-line rail works and what the anticipated positive outcomes of this legislation in marketing freedom might bring to the industry. Short-line rail is a concern in Manitoba. Please enlighten me.

Mr. Knubley: I would suggest that Mr. MacKay address this issue.

Murdoch MacKay, Commissioner, Canadian Grain Commission: A short-line railway is basically an organization or a group of people that come together to meet with one of the major railways, CN or CP, who are trying to get out of operating a railway branch line. That rail would be up for sale. They would meet and negotiate the condition of the rail line, the maintenance of it and how much it would cost. They would talk about how much the line had been used, et cetera, in the past. They would negotiate freight rates and any types of incentives with the railways prior to negotiating and agreeing to any type of agreement with them. If they were happy with their negotiations and the freight rate they could negotiate with CN or CP, then they would close the deal by signing on the dotted line and purchase that short line from the railway.

That is how a short-line railway would evolve. If there are any grain elevators on that line, they would work with them on their requirements for moving grain to the port. If there are producer car loading facilities, they would work with them. Of course, if any other type of product needs to be moved from that line, they would work with them in moving their product.

If they request the cars from CN or CP, those cars would be dropped off at a junction and the short line would pick up the cars and drop them off at the elevator point, the producer car-loading point or other point where the product would be loaded. They would take it back to the junction and CN or CP would take it to the destination. That is how it would work.

Senator Plett: There is no real reason to believe that this would not benefit producers and farmers. There is no reason to believe there would be anything negative about this. Of course, we will hear from CN and CP later in these hearings. Could you tell me what the feeling is about the positive or negative outcome of what we are doing?

Mr. MacKay: Much of the product moved on these short-line railways is related to producer cars and loading sites. Producer car shippers and administrators have some concern about change. In the grain world that we have today, the Canadian Wheat Board is one of the biggest producer car administrators. Most of the producer car shippers utilize the Canadian Wheat Board as the administrator.

In the new world, I believe that the Canadian Wheat Board will need to originate grain. This is one of the best ways for them to originate grain for their sales that they want to make globally. I believe that the new Canadian Wheat Board will continue to operate and utilize producer cars going forward. In fact, you might even see some other grain companies looking at working with the producer car shippers because they will need volume and grain.

I think that in the new world, with the opportunity to move more grain and with producer cars being able to originate it, there will be an opportunity for the short-lines and producer car shippers to be either in the same position or better going forward.

Senator Plett: Thank you very much, Mr. MacKay. I have a question for Mr. Bacon, from Pulse Canada. Using my province as an example, we used to be a large producer of wheat, and I think we have slipped back over the years. It is ironic; it is the home of the Canadian Wheat Board. We seem to be really sliding in our production of wheat. In the pulse and the canola sectors, we have gone in the other direction. These sectors have been a huge success story over the past decade.

Both of these crops have never been under the yoke of a government-mandated monopoly, and I believe they have thrived and are continuing to do so. Seeded acreages have skyrocketed. Value-added processing in Manitoba has ballooned. Most importantly, I believe the farmers' bottom line has improved.

Do you think that if the cereal grain industry follows what we have been doing with pulses and canola, they will have the same opportunities and go in the same direction to become the same success story?

Gordon Bacon, Chief Executive Officer, Pulse Canada: Thank you, senator. I think you have said a key phrase in your answer and that is "the farmers' bottom line." I think farmers will choose the crop that enhances their bottom line, taking into account rotational considerations. Not too many years ago, Manitoba was the biggest edible bean producing province. Then that shifted into soybeans and, more recently, into canola. When you have predictability in marketing systems and the ability to undertake risk management, farmers will have all the tools at their disposal to make planting decisions, with their bottom line in effect.

There has been a lot of speculation about whether wheat acres and barley acres would increase or decrease. I work in the pulse industry; of course, I am working very hard to ensure that acres of pulses increase. The canola industry is doing the same. All of us are focusing on trying to keep costs down for farmers and to look at a system that will provide them with the highest return, the best bottom line. There are a lot of international market forces at play. What we have seen in the pulse industry, which I am most familiar with, is that when markets like India become concerned about whether they will have adequate supply, they will start bidding up the price. When freedom-to-market legislation is in place, we will have a very dynamic marketplace within Canadian agriculture that can respond to the dynamic market forces that exist around the world.

[Translation]

Senator Robichaud: In your report, you spoke about access to elevators, rails and ports. In the part about access to elevators, you said, and I quote:

A range of possibilities for the regulation were discussed, including. . . provid[ing] reasonable access to others;

In this trade, there are stakeholders of a certain size that could normally defend themselves quite easily, and there are other smaller stakeholders. You said:

. . . . access measures such as Australia has adopted, where to obtain accreditation to export wheat the terminal owners have to undertake to provide reasonable access to others;

Could you tell me a little bit about this?

Mr. Knubley: The situation in Australia?

Senator Robichaud: I mean the fact that, in Australia, after they eliminated their wheat board, they adopted access measures for small stakeholders because the larger stakeholders wanted to simply eliminate them. Is there a risk that the same thing could happen here?

Mr. Knubley: I do not believe so. We discussed the situation in Australia related to the regulation and we decided, as a working group, that it was best to avoid regulations like the one implemented in Australia and give the market a chance to see the effects of a new, open market.

We carefully reviewed this regulation and decided, in the end, that it was not necessary for Canada. I will ask Murdoch MacKay or someone else to elaborate on that.

[English]

Mr. MacKay: In Australia, it is much different than in Canada. If you go to various areas in Australia, like New South Wales or Southwest Australia, the majority of the infrastructure is owned by one company. They already had access to the country elevator, the measures were for access to the terminal elevators that they had in that area. The problem in Australia was congestion. People had access to the country elevators, but then there were sales. The sales programs were in one area, in one time frame. You ended up with congestion at the port terminal. In Canada, we have numerous companies that own country elevator facilities that will originate the grain. The new Wheat Board will have an opportunity to make agreements with country elevator operators to take their grain in on their behalf.

As for terminals, you have Prince Rupert, which is owned by a consortium. The new Wheat Board and other companies that do not have access to terminal elevators can negotiate with that consortium to put their grain through. You have the five terminals on the west coast, which are owned by five different companies. They can negotiate an opportunity to put their grain through. In Thunder Bay, you have the same, about five elevators there. Then, along the St. Lawrence, you have the transfer elevators that are operated by different companies.

The difference is that you have more competition owning the infrastructure and more opportunities for the new Canadian Wheat Board and other smaller entities that do not have access to terminal elevators or transfer elevators to negotiate for those facilities in order to get their grain through there. Those deals and agreements have been in place for many years now. The existing Wheat Board has agreements with all those terminal elevator companies or the transfer elevator companies. The new Canadian Wheat Board can negotiate new agreements with them, as well as with the other companies that do not have agreements. Their agreements will just carry on. It is a much different situation.

Senator Robichaud: Surely with the new situation, and the current Wheat Board not being there, there will be a rush for concentration among the big players in there. It is natural, is it not? The smaller operators could be left out. Is there any chance of that happening?

Mr. Bacon: I think looking at some other crops is an interesting model. You have all of the major grain companies involved in the pulse trade, but you also have operations varying in size from small, family-owned operations, with single plants, to family operations that have expanded and now have multiple locations. Some private companies have now gone public in terms of their trading. There is room for a wide range of players with a wide range of assets, and we have proof of that in pulses and in canola as well. I would agree that there is certainly great competition and that big players have gotten big by being successful. However, we have also seen many new entrants into the grain trade in Canada.

I think that the model would suggest there is room for people who can provide value back to growers and properly serve international markets, whether they are large or small companies.

Mr. MacKay: The majority of smaller companies, like the Inland Terminal Elevator Association — that group which is producer-owned facilities of which there are 10 — I would say all of those companies have good arrangements with the larger companies to utilize their terminal elevators in Thunder Bay, Vancouver, et cetera, to move their grain.

The larger companies need grain. The important thing to remember is they need the grain to create revenue in order to pay off their expenses, et cetera. To go and say no to someone, I do not want to handle your grain, is turning down revenue, which is what they need. In this industry, I believe there is a competition and there is a need for the larger companies, the terminal elevators and the country elevators to increase their handle in order to be profitable.

Richard Phillips, Executive Director, Grain Growers of Canada: We did hear from a number of producer groups that were quite concerned about this as well. One aspect of what is in the recommendations is that we start to measure and monitor things a lot closer — not quarterly reports or semi-annual reports, but we need to monitor much sooner, so that if we see problems arise, we can act more quickly than has been the case in the past.

Senator Robichaud: You are preparing for that in a way.

Mr. Phillips: Yes.

Senator Tkachuk: We have heard from some producers that they are a little afraid that they will not be able to use producer cars to ship their grain if they want to. The minister has been clear that the Wheat Board monopoly has no bearing on access to producer cars. Could you explain exactly how the producer car system works and how they will be protected during the transition period to an open market?

Mr. Knubley: I will let Mr. MacKay answer. He led the subcommittee on this issue and he also works at Canadian Grain Commission, which is relevant here.

Mr. MacKay: That is an excellent question. Just so you are aware, in the crop logistics working group, which has been formed, I am the chair of the subcommittee for a producer car, short-line railway committee.

Senator Tkachuk: We have the right guy then.

Mr. MacKay: I can tell you what we are going to do as a committee. On the committee, we have a producer car shipper, a short-line railroad operator, someone from the Barley Commission, someone from KAP and another producer from Saskatchewan. We will go through the whole process, starting from the time that a producer applies for a producer car.

He would send his application in to the Canadian Grain Commission and apply for a producer car. He would either say he will administer it himself, or he would advise who the producer car administrator is and who will be administering it.

We, the Canadian Grain Commission and our staff, would then work with the railway and say, I have a producer car application for this. They would then work with the railway for when they could get a car — what weekend it could be spotted at the location that this producer car wants to load it. Then they would work together.

The form would go back to the producer car shipper. He would have it and they would advise the week the car was going there, what he was to be loading in it, because he has requested that, and the car information. The railway would then advise the producer car when he would spot that car.

Our process is to go through all of that. We will deal with talking to the Canadian Grain Commission staff; we will talk to the producer car administrator going forward on any issues they see; we will talk to both railways and how their process will work in the new world; we will see if there are any problems flaws or whatever, and we will figure out the solution to it.

Do not forget that also in our committee, we have the service level agreements that are being negotiated. Hopefully, the short-line railway operators and the producer car shippers will be working on those types of agreements also with the railways for guaranteeing the spotting of cars, et cetera. That will be part of the process.

Then we will get to the access. Access to terminal elevators for producer car shippers is another concern, and we will ensure if there is access. As I mentioned earlier, you have the CWB probably going to be involved in it. They will negotiate agreements with larger companies of terminal operators.

Some of the producer car administrators already have deals with some of the terminal operators, so they will have access. We will go through that process to ensure people have access. If they do not, how can we get access for them?

Last but not least is payment to the producer and how that will work. It should work the same way it works today.

That is the process; that is what our subcommittee will do, and if we find some issues, we will ensure we get the solutions.

Senator Duffy: On the question of the availability of producer car shippers, I remember when we had the Crow rate and the railways did not want to provide cars to haul grain at the price they were getting under that legislated figure. Since we have removed the Crow rate — and that was again another hullabaloo, as were branch lines and inland terminals — what has been the response of the railways and the market in terms of providing producers with cars and getting their product to market?

Mr. MacKay: I believe if you talk to producers and producer car shippers, they will tell you they have had some difficulty. There have been occasions where they have had some difficulty getting cars spotted. However, I will make a judgment; I believe it is no different than the current concerns that the pulse shippers have or the major grain companies or even smaller companies have with getting good service from the railroads.

Senator Duffy: Is it not much improved from what it was 30 and 40 years ago, when there was no competition in the marketplace?

Mr. MacKay: I would say yes, because producer car usage has gone up; we are doing 13,000 producer car shippers a year. In the last four or five years, that has been the average.

Senator Mercer: It is funny Senator Duffy would ask that question, because it actually frames the basis of mine. I am a member of the Standing Senate Committee on Transport and Communications. Senator Tkachuk will remember that when he was a member of that committee, we did a major study on containerization. One of the major issues we encountered was the availability of containers in the right place at the right time.

We continue to ship out of this country a bunch of empty containers. It is particularly a problem, we discovered, with our friends in the pulse industry, because we had product sitting on the dock in Vancouver, in particular, for days, waiting for everything to match up so they could load.

I think this congestion is an ongoing concern. The reason we are selling more pulse products, more soy beans, et cetera, I think is because farmers are smart; they saw a marketing opportunity and could switch to pulse, soy and canola, et cetera. It was not that they did not want to grow grain, they just saw another opportunity. That is why farmers are the smartest people in business, I guess — and fishermen.

If there is still this problem for not just grain products, but pulse and others, how will this act help fix that? I do not see that solution to the transportation side of this. We will still have grain and pulse products and all the other products that we are trying to get to market, and how do we get them there as quickly and in as good condition as possible?

Mr. Knubley: The working group spent a good deal of time talking about rail logistics, how the new system we are moving toward would change and what challenges there would be. I will ask Mr. Bacon to speak to that.

However, the work the government is doing with respect to the rail service review is complementary to this act, all with the intent of improving the rail logistics system for grain handling and other purposes.

The intent is that removing the administered system run by the Wheat Board and moving to a completely open system should simplify the transportation logistics network.

Mr. Bacon: That is a very good question. You are absolutely right that we have had ongoing challenges in transportation over the years, and not only for pulse and special crops. I would like to cite Port of Vancouver officials who said that they had never seen so many vessels waiting for so long as they did last winter. We have challenges in the system. While the act change does not address that, as the deputy minister and the minister said, we have set up other structures, including the development of a crop logistics working group. You heard Mr. MacKay talking about being the chair of one of the subcommittees there. We have two other subcommittees. Mr. Phillips referred to the one that is looking at enhanced public sector reporting in terms of how well the system is performing. Today there is a meeting of Mr. Dinning's committee to facilitate discussion around service level agreements. Pulse Canada is part of that group in Montreal. We have a subcommittee on the crop logistics working groups where we are bringing together the shippers of agricultural forest products to look at that.

We need to look at a complex suite of things to get a higher level of efficiency. I heard the minister speak about the Canada Grain Act perhaps needing to be updated. We have issues around transportation.

The bottom line that we are all striving for is a way to drive cost out of the system and improve the reputation of Canada as a reliable supplier. The changes that the industry and the government have to consider go beyond only those that will be brought about with Bill C-18.

Senator Mercer: You should also look closely at the Port of Halifax where there is no waiting. We are open for business and ready to do business with you right now. The port has developed a new technique for loading containers, which particularly applies to pulse products and grain when shipped by container.

Mr. Knubley: I was in Nova Scotia for five years and worked on the Halifax and Atlantic Gateway. I would be very pleased to talk about that at length. You are on the right track.

Senator Mercer: Someone said earlier that the farmer will do better in this new system because the open market will drive the price of grain up. I do not grow grain, but I do eat bread. How will the Canadian consumer react as the price of bread goes up because of the move away from the single-desk to an open market?

Mr. Knubley: Studies have shown that the price is not driven by the administered system of the Wheat Board. The price is the world market price. Under the new system we want to operate in that open market and capture all opportunities of exporting abroad and serving customers abroad, be they in Japan or the United States.

Senator Tkachuk: Maybe we could have a marketing board for bread.

Senator Robichaud: Would you go for that?

Mr. Phillips: There is 7 to 10 cents worth of wheat in a loaf of bread. Even if the price of wheat went up $2 or $3 a bushel, it would not raise the price of bread very much over all.

Senator Eaton: The Canadian Wheat Board has claimed that they achieve price premiums and get higher returns for farmers. Why have farmers in the rest of Canada — Quebec, Ontario and the Maritimes — not clamoured to join the Canadian Wheat Board?

Mr. Phillips: There was a monopoly in Ontario for a number of years, and there was a lot of pressure from farmers to be able to deal directly with the millers. They allowed a certain tonnage out, which was oversubscribed, so they allowed a larger tonnage out, and that was also oversubscribed. They then simply went to the open market because they could see that there was a demand from the farmer to deal directly with the millers. Since that time, wheat acreage in Ontario has increased quite a bit and we do not see a clamouring to go back to the old system.

Senator Eaton: The Chairman of the Canadian Wheat Board has said that there would be a shift in focus to quantity from quality with marketing freedom. Is that a myth or a fact?

Mr. MacKay: I would say that that is a myth. The Canadian Wheat Board is not responsible for quality; the Canadian Grain Commission is. We are the ones who grade the grain. We set the grade.

I just came back from Japan. One of the first things that the Japanese customers asked the millers and bakers was what would happen to the Grain Commission when the Canadian Wheat Board changes. The answer is nothing. They are happy. We will still be there.

Senator Eaton: Mr. Phillips, I asked Minister Ritz about this, but you would be more cognizant of it because it is your field. With the opening up of the Wheat Board to provide choice, will there be new varieties of grain? Also, do you foresee greater acreage of wheat and barley?

Mr. Phillips: Farmers will grow what makes money for them. If there is more competition for the grain, or if we can make direct contracts with either malting or milling companies and it puts money on their bottom line, we will grow those. Canola and pulse also have acres, so for wheat to grow, something else would have to shrink.

Senator Eaton: Is it not healthier to rotate wheat with pulses and canola?

Mr. Phillips: Yes. As Mr. Bacon said, we will grow what makes us money, but we do have to be mindful of rotation or we will have disease problems. If we grow canola and then a pulse, we will be looking for wheat, barley or oats in the off year as a cereal grain to break the disease cycle.

Senator Eaton: Are you looking to new varieties?

Mr. Phillips: In the last two to three months, quite a number of companies that are now thinking of investing in Canada, in wheat research especially, have approached the Grain Growers of Canada. That is due in part to the changes here and also due in part to the world suddenly realizing that we have 7 billion people. We are currently seeing a lot of interest in wheat research, so we are working with all the grain organizations in Western Canada to ensure that we have an environment in Canada that will bring all that research in and put new varieties out for the farmers. That is something we are working on, and I know the Senate is doing a study. Hopefully we will determine what tools we need to ensure that money comes to Canada rather than going to Argentina, Australia or elsewhere.

Senator Mahovlich: I am concerned about Churchill. On an airplane the other day I sat beside a lady who is in the forestry business. As I am a member of the Agriculture Committee, we had a lot to discuss.

I learned that her parents came from Portugal and her father is retired in the Azores. He was a welder who worked on the railway in Churchill 40 years ago.

He is retired now, but he lived in Winnipeg and so did she. I told her, "We are going to close Churchill." She was so upset and was not going to tell her father because he was so proud of building that railway. I was told if the Wheat Board folds, Churchill will fold.

The Chair: The question has been posed now, Senator Mahovlich.

Senator Mahovlich: I am glad that will not happen.

The Chair: Mr. Phillips wanted to comment.

Mr. Phillips: I have farm land in the Churchill catchment area. I actually met with the board of directors on the Port of Churchill association and we went through a lot of this.

The one challenge that Churchill has is the shipping season does not start until July. My land is actually in Northeastern Saskatchewan and normally the Wheat Board takes grain from our area to Churchill. One challenge is we have to store it. From the time we harvest in September or October, we have to keep it on our farm until the following July before moving it up to the Port of Churchill. That is one of the challenges.

Senator Mahovlich: Churchill closes all winter?

Mr. Phillips: Yes.

Senator Mahovlich: It is better off to go to Halifax, then.

Mr. Phillips: Churchill has some challenges, but we offered them some suggestions. For example, we are doing a Canada-EU trade deal, which is sensitive on genetically modified food. We suggested to them, "Maybe you could become the GM-free port." Perhaps there are some other angles for Churchill besides trying to compete for a commodity that we hold on our farms for 10 months. They have to look outside the box and see what they can do as well.

Mr. MacKay: Senator Mahovlich, OmniTRAX is the owner and operator of that port.

Senator Mahovlich: Is that an American company?

Mr. MacKay: Yes, it is. They are the owner and operator, and they have a working agreement with the existing Canadian Wheat Board. The Wheat Board put the majority of grain through that port this year, which was wheat and durum.

Other companies have put grain through there, such as canola, peas and flax. There is an opportunity to move the grain through there as long as it is economically viable. The government has provided $5 million for the next five years. On average, they put 500,000 tonnes through the Port of Churchill and a shipper putting grain through there — and let us say another 500,000 — that is $10 a tonne that the shipper will get to put grain through that facility. It was economically viable for the last three to five years to put 500,000 tonnes through there. Now they can get another $10 per tonne thanks to the government. I do not see how the Port of Churchill will close down.

Senator Mahovlich: However, the government will stop the donation after five years?

Mr. MacKay: All I am saying is it was economically viable even before the government did it.

Mr. Knubley: The five years is seen as a transition period to allow the Port of Churchill and other operators to adjust.

Senator Eaton: Mr. Phillips, you talk about storing grain, which is a big problem for Churchill. Could Churchill not store the grain for you? Could it not have silos so you could ship it up? Or is it the fact that you would not get paid for a whole year?

Mr. Phillips: They will take grain up there, but normally to ship any volume of grain, you have to keep turning the terminal over and over again. The terminal can empty into one boat, but you have to have more grain continually coming. All that grain — other than the first storage bit — farmers have to hold on to for quite a while. It is not impossible if there is enough value in it, whether it is $10 or $20 per tonne savings. If there is a premium, and if the grain company says, "Keep your wheat on your farm, we will give you extra storage for it, and pay you a better price later," then I will do the math. If it makes sense for my farm, that is what I will do.

Senator Plett: I have two short questions on that, one is on the storage. I have also met with OmniTRAX. They not only own the Port of Churchill, but also the rail line. They have spent millions of dollars and the owner of OmniTRAX has not done that in order to lose money. One of their problems is storage. Mr. Phillips, I would like you to at least comment on that. They have told me they are seriously considering, first, increasing their storage capacity and, second, increasing their parking facility so they can bring more ships in. Could you make a brief comment on that? Then if the deputy minister could comment on whether he would not agree that our Prime Minister and government have made the development of the North a key platform, and Churchill is the North. I am not sure why we would want to do anything to jeopardize the North when we are spending all that money. Could you comment on that, please? I am asking a question, sir.

Senator Robichaud: You are making a statement. It was not a supplementary.

Mr. Phillips: A lot of other stuff goes up to Churchill besides grain. There is a passenger line full of tourists that go up there; train after train.

In fairness to Churchill — whatever they can do to diversify beyond grain — what is holding them back from doubling their tourism? Why can we not have double the trains going up the line? There are other economic activities they can look at.

I suspect with more storage, they would be better off. As a farmer, if there is a chance to ship my grain in the fall and go to storage at Churchill — rather than me deciding to ship it and send it to someone in Vancouver — storage would help them.

Mr. MacKay: They can place two large vessels at that dock today in Churchill.

Senator Mahovlich: I have a comment and a question. I was just down to Rio with the Standing Senate Committee on Foreign Affairs and International Trade. We had a witness who has been to Churchill. This fellow was the Minister of Agriculture, I believe. I thought, "I have never been to Churchill but he has." They import wheat from Canada, I believe. I was very surprised.

Mr. Knubley: For a period of two months, actually shipping through to Brazil is an efficient route.

Senator Mahovlich: Through Churchill?

Mr. Knubley: Through Churchill.

Senator Mahovlich: I have never been there. I guess they do not have a hockey team.

I know Minister Ritz was shortchanged by the Wheat Board years ago. He showed me that he was very upset by it. Now we are going to have an open market. The open market in Chicago will set the price for the wheat now. It will not be the Wheat Board who will be setting the price. Is that right?

Mr. Knubley: ICE, which operates in Winnipeg, will be offering future contracts.

Senator Mahovlich: In Winnipeg?

Mr. Knubley: Yes, in Winnipeg. There will be opportunity as well, although the details are yet to be established for Minneapolis and Chicago.

Senator Mahovlich: For Canadian wheat?

Mr. Knubley: Yes.

Senator Duffy: In listening to the testimony we have heard this afternoon, it seems to me there is a lot of confusion, misunderstanding and fear — on the part of some people — that cherished institutions and communities will be adversely affected.

Mr. Knubley, earlier on you used the phrase "management of change." As we wrap up this part of our hearings today, what can you tell Canadians about the change that is coming? As I mentioned earlier, I have been through the Crow rate, inland terminals, Otto Lang, two four-letter words, and all of these other issues related to agriculture, and there has always been a sense of crisis and people have always been worried about it. In the end, here we are and the agricultural economy it seems to me is stronger than ever and we have come through. To those worried about individual communities and all of this change, what would you say as a non-partisan public servant who is an expert who has looked at this?

Mr. Knubley: I would say that we have done our best in terms of designing the legislation to establish predictable and clear phases of change, and that was our intent when we designed the legislation. It will now be our job to get out and talk to farmers and others to explain what these phases are and how they will work and then to work with them to make sure it does.

The Chair: Thank you.

[Translation]

Before we finish, Senator Rivard has a comment.

Senator Rivard: A few weeks ago, Mr. Bacon appeared before us and gave us a book of good legume recipes in English.

Since the back cover of the book indicated that Agriculture Canada had contributed, I asked if the book was also available in French. Mr. Bacon told me that it was, and in the days that followed, I received a French copy, which was also a high quality publication containing appetizing recipes.

So, Mr. Bacon, today I just wanted to say thank you.

[English]

The Chair: With that, we thank you all for accepting our invitation to share your information with us, as well as your comments.

Honourable senators, our last two witnesses are ready to share their information with us.

[Translation]

On behalf of the committee, I would like to thank Mr. Jim Chatenay and Mr. John Turcato.

[English]

I invite Mr. Chatenay, to be followed by Mr. Turcato, to make their presentations.

[Translation]

Jim Chatenay, as an individual: Hello everyone. I am very pleased to make a presentation about the Canadian Wheat Board.

[English]

I would like to tell everyone here today that there is a lot of myth about the Canadian Wheat Board. I was used as kind of a measuring stick because in 1998 I took on the responsibility to run for the Canadian Wheat Board as an elected director candidate. The first thing I did was ask what I would run on. I felt I would try something because I did not like the monopoly much. My opening statements were, "If you like the Canadian Wheat Board monopoly, please do not vote for me," and by golly, I won.

I will take you on a little trip down Portage and Main, right into the Wheat Board building. I want you to understand how this works. I do not have a black suit or wear a cape or anything, but they looked at me like I could be trouble. I was only representing the people who put me there. The Canadian Wheat Board did not phone me and say, "Mr. Chatenay, please come and do your thing for us; we think you have talent."

I decided I should do a bit of talking. They asked me to turn in my expenses because all my fellow candidates spent the maximum amount of money to try and get elected to the first Canadian Wheat Board that the former minister, Ralph Goodale, organized as a shared governance structure. The limit was $15,000. I spent $260 because the radio station said, "Jim, we have to have something from you. You are elected now." I gave them the figure of $260.

I can remember what my great grandfather, who was president of Switzerland, passed down to the family. Each generation got a bit of wisdom. He said, "If you ever run for politics, you shouldn't have to vote for freedom," which the Wheat Board does. They vote to keep the monopoly. You should not have to buy your way. I was in for two years now, so I decided to see how it would go.

Those were very interesting years. However, the two years went by quickly because there was orientation and I had to sign a code of conduct thing, which means I had to swear allegiance to the monopoly. What will I do here? They went around the boardroom and when it came my turn to sign I would not sign. They said that anyone who does not sign would be excused by four o'clock the next day. I took that chance and I was still there.

I should back up. I said, "Mr. Chairman, what I should do, then, is maybe leave now," so I flew home and then I received a letter. From that day on I was going to be the detractor. I was going to be the renegade. I was not going to be the team player. They wondered what to do with this guy. I was polite. I did what I could to try to participate and improve things.

Then I decided that they were trying very hard to change the system. I ran again and there was a four-year term this time. I ran again and this time I spent zero money running. At this point there is a trend going on in Western Canada. Mr. Chatenay does not spend any money and he wins by the biggest majority ever. Hey, this is neat stuff. You can see the measuring stick.

My fellow directors should have been paying attention to this trend. What is going on here? I was dealing with younger farmers and bigger farmers across Western Canada. I was getting phone calls and I was saying, "For heaven's sakes, leave me alone; talk to your director. I am from Red Deer." Instead, they said, "We want to talk to you."

The four years went by and I watched the measuring stick. The next time I said, "Well, I better finish this off here." It is like baseball. Three terms and you are out. Holy cats, this time I win by acclamation. This thing is right out of control, folks. What is happening? The reason for all this turmoil is they were really trying to change the Wheat Board, but you have to understand that it is a closed loop. You have to play within that loop. If you step outside, you do time.

On my second term, in 2002, I went to prison because I had to pay a debt off. In 1996 I crossed the border without the Wheat Board's blessing. I was a director at the time. That was not in 1996 but in 2002. I crossed the border and guess what? I got sentenced to a $4,000 fine or 64 days in jail for donating one bushel of wheat to a 4-H club. All I wanted to do was make a protest that things have to change.

The biggest myth of all is that there is no premium. If there is one, it is so small that the administration fees gobble up everything that the so-called premiums are supposed to deliver. For example, when I went there in 1998, we had administration fees of around $25 million annually for selling about 30 million tonnes of wheat. When I left in 2008, after my full terms, three terms and you are out, we were selling 12 million tonnes and the administration fees were $84 million. There is something wrong here.

The fees were so high because they were trying to mimic the open market with producer payment options. They were trying their best to convince people that this is wonderful. All my constituents across Western Canada were telling me, "Jim, this isn't working." That is why we are here today.

It was an exciting ride because my thinking is you have to actually open it up. I can tell you about three different examples. When I was there one time the U.S. ran out of wheat. They ran out of durum. They sold early and the Wheat Board stepped in. I said, "Oh, good, we can capitalize on this." Durum was 32 bucks a bushel.

Senator Duffy: What did they pay?

Mr. Chatenay: Around $6 a year later. We were not allowed to ship. We had $32 per bushel for durum and $23 per bushel for hard red. I said to the fellows in the boardroom, "Let's make an exception," so I talked to the vice-president of marketing and told him how excited I was. "These guys to the south are running out of grain. We can sell." I asked the vice-president, "How much wheat is coming into the system?" He said, "A million tonnes," and I asked, "How much of that is going into the U.S. at $32 a bushel?" He said, "None of it, Jim, you know the system."

They failed to take those markets and all they had to do is allow an exemption, a low-cost export licence, and this Wheat Board would still be going fine. However, they have goofed on every front and thank God for Stephen Harper and his government.

Senator Robichaud: That sounded like a paid political announcement.

Mr. Chatenay: No, it was not paid. I am here on my own time.

The Chair: We have listened to Mr. Chatenay. We have another witness, please. Mr. John Turcato.

John Turcato, as an individual: Honourable senators, I would like to take the opportunity to thank everyone for giving me the opportunity to speak today. You will excuse me if I am a little nervous. I am not used to speaking in front of a crowd.

Back in 1996 I was involved in a peaceful demonstration, with a group known as Farmers for Justice. This took place at the Coutts border crossing in Alberta. There were many types of shipments, from those carrying 10-pound bags or, like Mr. Chatenay, with one bushel of barley, to commercial shipments like my own. I exported 900 bushels of barley to Conrad, Montana.

This demonstration was brought about to bring attention to what I call geographic discrimination of Western Canadian farmers that has been going on for the last 68 years. I call this geographic discrimination because of the fact that fewer than 300 kilometres from my home, in Taber, Alberta, you can go into southern B.C., where the Wheat Board designated area ends at the Alberta border, and sell your wheat freely and not go to prison.

Upon this demonstration, even before we crossed into the U.S., customs officers approached us and told us we could face charges upon our return. Immediately upon my return to Canada I was photographed, videotaped and interrogated like nothing I had ever experienced before.

After this we started many appearances at various levels of court. Then, in May of 2002, seven years after the demonstration, we were called into a Lethbridge courtroom one more time. At this time we were told that if we did not pay by October 31 we would go to jail. This is when the real challenge would face us all, including Mr. Chatenay. Do we pay or do we go to jail? On October 31, I and 12 brave men said goodbye to our families. Over the next 35 days I would be met with some challenges.

For my wife Gina, these were very difficult days as she was concerned with my safety while trying to keep up with a busy schedule of three boys in hockey and a seven-year-old daughter in dance. Thanks to the overwhelming support of friends, family and the community, we were able to get through this all. Many have said that I chose to go to jail, that I could have just paid my fine. For me, there was no choice. To me, paying was admitting guilt. I am guilty of nothing.

I still see Canada as the best place in the world to live, but every democratic society has its challenges. The monopoly supporters say Bill C-18 is undemocratic, but I take issue with their definition of democracy. The reason I say that is I have planted, harvested and marketed barley for the last 35 years, yet I was not eligible to vote in the plebiscite on barley. This is not democracy. This is what I would like to refer to as "selective democracy."

The whole idea of the vote on freedom is not right. I believe that if there is one farmer left in Western Canada who wishes to sell his wheat outside of the government-imposed monopoly, he should have that right without question. It is time to free Western Canadian farmers from this monopoly and put an end to this injustice.

Senator Plett: Thank you, gentlemen, for coming here, on your own time. You are certainly not being paid to come here, and I appreciate your taking the time to come here to express your views and feelings.

We heard earlier today from the Honourable Senator Peterson that we are 10 to 12 days away from Royal Assent. I quietly shouted for joy that he agrees that we will get Royal Assent in 10 to 12 days. That is wonderful.

Considering that, when we receive Royal Assent, would you consider what you have done on behalf of not only yourselves but of every Western Canadian farmer out there, and indeed, every farmer in Canada, that the price you paid, after all this fight, was worth it?

Mr. Chatenay: Absolutely. Any government that can put farmers in jail in one part of the country and not in the other for doing exactly the same thing — selling their grain — really bothers me.

As far as the rest of it goes, I know the Wheat Board will survive. I have good friends at Portage and Main in the Wheat Board building. I was there for ten years. I talked to different people. We have wonderful people in there, but they lack direction. The Wheat Board directors, they supply that direction. Unfortunately, they are stuck because I proved to you what goes on. I am the measuring stick, and you do not win by acclamation if you are the detractor, the non-team player, no support, et cetera. Yes, it was well worth it for the future. There is a bright future.

Mr. Turcato: Very well worth it. There is no question that the 35 days in jail is a small price to pay for the freedom of Western Canadian farmers. I am a third generation farmer. My grandfather spoke out against the Wheat Board. My father has. It is archaic and needs to go.

Senator Plett: Mr. Chatenay, in your comments, you made reference to Mr. Goodale, who was the minister at the time this happened. As you know, federal legislation has forced farmers like yourself to sell their own private property to the Canadian Wheat Board — your private property that you should be able to sell to anyone. Having a government-mandated monopoly has never had to earn farmers' business like other grain companies or commodities.

As you suggested, Mr. Turcato, Canada is a free and democratic country, but the Canadian Wheat Board's monopoly suppresses Western farmers' fundamental right to sell their property. The Liberal government imprisoned you and other law-abiding farmers for selling their own wheat. Why do you think the Liberals want to criminalize the sale of wheat and barley farmers in Western Canada?

Secondly, has Mr. Goodale apologized to you for throwing you in jail for selling your own property?

Mr. Turcato: There has never been any apology. I am not sure why they want to keep their hand on this monopoly. I think their own leader stated at one time, in Russia somewhere — this is not an exact quote — that monopolies are not worthy of a great nation or a great people. This was in Russia, shortly after the fall of the Soviet Union, and it was Prime Minister Chrétien at the time.

Mr. Chatenay: I enjoy talking to Mr. Goodale because I am 5 foot 7, and I can look down on him. It is kind of fun.

I have here something that kept me going through the rough times at the Wheat Board, being the renegade, non-team player, and this is what John F. Kennedy, the 35th President of the United States said:

A nation that is afraid to let its people judge the truth and falsehood in the open market is a nation that is afraid of its people.

Senator Duffy: Mr. Chatenay and Mr. Turcato, you are true Canadian heroes. I think, to be fair to our friends on the other side, the Wheat Board was invented at a time when the world was quite a different place, and I am sure the government of the day thought it was doing the right thing. As we have all learned over the years, change is always difficult, and perhaps even more so in government.

Mr. Chatenay, could you tell us a little bit about how the marketing side has changed and what the Internet, computers and all these modern technologies give individual farmers, who not only have to be good farmers but also excellent business people? How has that changed to empower individual farmers in a way that the technology did not exist to empower them 70 years ago?

Mr. Chatenay: That is quite true, Senator Duffy. Whenever I have trouble with my laptop, I phone the help line, but I quit doing that because they said, "Have you got a granddaughter around? Is she five? She can help you out."

How true it is what you just said. I get calls from young farmers. They are very sharp people. They manage their crops; they have weeds; they have crop insurance. They do everything right until it hits that grain drain and all of a sudden, they lose control. It is the most frustrating thing.

I was at the Wheat Board for 10 years as an elected director. We hired David Hurley to do our producer survey. He used to like talking to me because he says, "You know something? You have something going here. These guys are sharp, they are bigger, and they are younger." Then I tried to introduce a weighted ballot — heaven forbid the guys that produce the grain should have the most say. Oh, no, we cannot have that.

The demise of the monopoly, it has outlived its usefulness. It is time to move on. The war is over. Now we have bright, young farmers that can figure out the market in a few seconds and make their own decisions, and I think they are quite capable of that. They do that with canola and other commodities. I have all the faith in our young people.

The older folks give me a rough time. When I have accountability meetings, they are on my case non-stop. They do not like change because it takes a bit of gambling and a lot of money, sometimes, to change, but it is always for the better. Otherwise, we would still have our thrashing machines and darned combines. They are wrecking the family farm.

The Chair: Honourable senators, we have the deputy chair of the committee, Senator Robichaud.

[Translation]

Senator Robichaud: I would like to thank both of you for coming to speak to us about your experiences. Mr. Chatenay, you said that you knew that you were breaking the law, that you did it knowingly and that you wanted to make a point. I find your actions and those of Mr. Turcato commendable. You understand that, here, we have to listen to everyone who wants to express their opinion and that there are farmers who believe that the Canadian Wheat Board is beneficial. I would like to thank you for what you said. We will certainly take your words into account.

Mr. Chatenay: The Canadian Wheat Board will be maintained but I can almost guarantee that it would be better without the monopoly; I have seen the progress over the past 10 years. We made some mistakes as an organization or institution in that we should have listened and said, "Okay. You now have the right to sell a little bit of your grain yourselves." That would have taken off some of the pressure but the police were strict. That is where errors were made.

Senator Robichaud: I would like to commend you on your French because I am sure that it is not easy to maintain your language in Alberta.

Mr. Chatenay: I am practically the only person in Alberta who speaks French.

Senator Robichaud: No. There is also the Deputy Leader of the Opposition, Senator Tardif.

Senator Eaton: For shame, Senator Robichaud.

Senator Robichaud: I am telling him that he is not alone. I am congratulating him on keeping his language. Bravo, Mr. Chatenay!

Mr. Chatenay: Thank you.

The Chair: I cannot let this go, Mr. Chatenay. The Official Language Commissioner recently said that there was one other person in Alberta who speaks French extremely well and is perfectly bilingual, and that is Prime Minister Stephen Harper.

Senator Eaton: Yes, but Senator Tardif, who is Senator Robichaud's leader in the Senate, speaks French very well.

I would like to ask Mr. Turcato a question.

[English]

Why are you not allowed to vote as a barley farmer?

Mr. Turcato: I do not sell my barley to the Canadian Wheat Board, so they do not give me a ballot.

Senator Eaton: How have you been able to sell it?

Mr. Turcato: I am able to sell it in the feed market. They are very poor at selling barley. The feed market kicks their butts every day. They cannot compete in an open market, not with their business model of a monopoly. It does not work.

Senator Eaton: What is the feed market?

Mr. Turcato: In Southern Alberta, we have one of the largest feedlot sectors in North America.

Senator Eaton: You are selling to feedlots.

Mr. Turcato: Yes. It is more money than malt barley.

Senator Eaton: How do you expect your business to change?

Mr. Turcato: It will change immensely. We will have control over our own destiny.

Senator Eaton: Will you be selling to feed markets?

Mr. Turcato: We will be growing more milling wheat. It will change the West. It already has changed it. There was an announcement for a new pasta plant in Regina.

Senator Eaton: Will you grow more wheat now?

Mr. Turcato: Yes, I think we will. In the short-term, the price might go down.

Senator Eaton: Until it sort of adjusts.

Mr. Turcato: Yes. It might be down but we will be able to find a market to lock into.

Senator Eaton: You could change your market every year.

Mr. Turcato: That is right.

Mr. Chatenay: I have a supplementary in response to your question.

[Translation]

I am having a bit of trouble with that sentence but I will try.

[English]

There is $84 million in administration fees plus a bunch of other things, producer payment options, staff to look after that and increased policing and inspections out there every day trying to keep everyone in order.

Senator Eaton: Policing and farming do not go together.

Mr. Chatenay: That is true. You will be able to eliminate what I call that "extra expense," and we will have a head start of $84 million. They will have to earn our business. Do not get me wrong, the CWB has lots to offer, and I like the people there, who are well known in the world. The amazing thing is that most big grain companies do the marketing, and the CWB comes along and stamps it. They are called "credited exporters." Much of the time, the CWB gets way more credit than it deserves. The big grain companies know what is going on. I hope that is helpful.

Senator Eaton: Farmers will be able to go directly to the big grain exporters.

Mr. Chatenay: They will go to the best market instead of having just one price. If I were selling cattle, the last thing I would want is one buyer at an auction mart.

Senator Eaton: That is true.

Senator Mahovlich: I do not understand. They had a vote, and 62 per cent of the farmers wanted the Canadian Wheat Board to stay the way it is.

Mr. Turcato: I already spoke to that. I did not get a ballot. I have been growing barley for 35 years, and I did not get a ballot. If that is democracy, I do not like democracy. If only some people can vote, that is not democracy.

Senator Mahovlich: It sounds like the National Hockey League back when I played.

[Translation]

Senator Robichaud: Mr. Chatenay, you spoke about figures and you speak both official languages. You could have applied for the position of Auditor General of Canada.

Mr. Chatenay: Yes. What figure did you like? The 84 million?

[English]

Senator Plett: I have one question for the gentlemen in reference to what Senator Mahovlich said about 62 per cent. Mr. Turcato, you did not get a ballot, similar to many other farmers. What would your opinion be if 99 per cent of the people wanted to keep a monopoly and 1 per cent wanted to sell their grain on the open market? What should that 1 per cent be able to do?

Mr. Turcato: In a free and democratic society, that 1 per cent should be allowed to do whatever they want with what they produce.

Mr. Chatenay: Absolutely.

The Chair: Honourable senators, on Wednesday, December 7, we will meet at 11:30 a.m. and conclude at 3:30 p.m.

(The committee adjourned.)