Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 8 - Evidence - Meeting of December 8, 2011 (morning meeting)
OTTAWA, Thursday, December 8, 2011
The Standing Senate Committee on Agriculture and Forestry, to which was referred Bill C-18, An Act to reorganize the Canadian Wheat Board and to make consequential and related amendments to certain Acts, met this day at 10:03 a.m. to give consideration to the bill.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry.
My name is Percy Mockler, a senator from New Brunswick and the chair of the committee. I want to welcome, on behalf of the Standing Senate Committee on Agriculture and Forestry, the witnesses this morning.
Before we ask you to make your presentations I will have senators introduce themselves.
Senator Mercer: I am Senator Terry Mercer from Nova Scotia.
Senator Peterson: Senator Bob Peterson from Saskatchewan.
[Translation]
Senator Robichaud: Fernand Robichaud, Saint-Louis-de-Kent, New Brunswick.
[English]
Senator Fairbairn: Joyce Fairbairn, Lethbridge, Alberta.
Senator Mahovlich: Frank Mahovlich, Toronto, Ontario.
Senator Munson: Senator Jim Munson, Ontario.
Senator Plett: Senator Don Plett, Manitoba.
Senator Tkachuk: David Tkachuk, Saskatchewan.
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
Senator Eaton: Nicole Eaton, Toronto.
Senator Duffy: Mike Duffy, Prince Edward Island.
[Translation]
Senator Rivard: Michel Rivard, Les Laurentides, Quebec.
The Chair: Thank you, honourable senators.
[English]
Today we will continue the study of Bill C-18, An Act to reorganize the Canadian Wheat Board and to make consequential and related amendments to certain Acts.
For our first panel, honourable senators, we welcome today Mr. Allen Oberg, Chair, Board of Directors, Canadian Wheat Board. We also welcome Stewart Wells, Director of the Canadian Wheat Board. Mr. Larry Hill, Former Chair of the Board of Directors, Canadian Wheat Board, is also with us. Welcome also to Ian McCreary, Former Director, Canadian Wheat Board.
I wish to thank you all for accepting our invitation and I invite you to make your presentations.
Allen Oberg, Chair, Board of Directors, Canadian Wheat Board: Good morning, and thank you for the opportunity to address this committee.
The bill you are considering is of the utmost importance to the farmers of Western Canada. It will affect our farms and families for generations to come. The problem is that farmers have not been consulted about it or asked if they want it. Instead, this government has gone to great lengths to ensure that farmers are excluded from this decision.
Just yesterday, we saw a glaring example of that. The Federal Court of Canada issued a ruling that Minister Ritz broke the law when he denied farmers a vote before taking steps to dismantle the Canadian Wheat Board single desk. The court ruled that Bill C-18 was brought before Parliament in an illegal manner. We therefore ask today that you reject this bill, suspend these hearings and request that a producer vote be held to decide this issue.
The Chair: Have you finished with your presentation?
Mr. Oberg: No, not yet.
The Chair: I recognize Senator Peterson.
Senator Peterson: In view of what Mr. Oberg has said, and following up on the statement I made yesterday that we are faced with a court order saying that we cannot proceed, my concern, as a committee member, carrying on the deliberations, is that I am in contempt of court. I would like your assurance that that is not the case.
The Chair: Thank you for your comments, Senator Peterson.
[Translation]
Senator Robichaud: I share your concerns. According to a court ruling, we have not complied with the law as far as this bill goes. I would also like confirmation that we are not in contempt of court and are not doing anything illegal.
[English]
Senator Plett: Our instructions clearly come from the Senate. They do not come from a court. We need to follow the Rules of the Senate. If there are to be changes made to the mandate of this committee, they need to be made through the Senate.
We have a mandate. This is pursuant to a motion passed in the Senate pursuant to rule 38 in relation to Bill C-18, An Act to reorganize the Canadian Wheat Board and to make consequential and related amendments to certain Acts. I will read from the motion:
3. the committee to which the bill is referred be instructed to report the bill no later than Presentation of Reports from Standing or Special Committees during Routine Proceedings on Tuesday, December 13, 2011;
4. if the committee recommends amendments to the bill, the report shall be taken into consideration later the same day, notwithstanding rule 58(1)(g) and;
5. in the absence of a report of the committee on the bill during Presentation of Reports from Standing or Special Committees on Tuesday, December 13, 2011, the bill be deemed reported without amendment;
Mr. Chair, it is our absolute obligation to follow the mandate that has been given to us by the chamber. With respect to members opposite, if they have an issue to raise as far as the legality and constitutionality of this — and if they in any way want to change the mandate — it needs to be done through the chamber and is not allowed to be done here.
My strong encouragement is that we proceed. The witnesses have come a long way. They were obviously all in Winnipeg yesterday. They have come in here to be heard and I think we need to, without any further delay, hear the witnesses.
Senator Mercer: My concerns are about a couple of things, including the reputation of all of us at this table. We are all honourable people. We came here and were called to this place by various prime ministers to serve the people of Canada. We are to do so honourably and obey the law.
My concern is that with the ruling yesterday we may individually we may find ourselves in contempt. However, more importantly as a member of the Senate, we may find this committee and indeed the Senate in contempt of the court.
If Canadians cannot be protected by rulings from the court, who can they be protected by? In the case of a piece of legislation that has been introduced illegally, the word illegal is not bandied around lightly. It is important. We are all subject to our own moral standards. I have a reputation to protect, as does everyone around this table. We should be very cautious about proceeding any further after the ruling of the federal court yesterday in Winnipeg.
Senator Mahovlich: The government is not above the law. I was taught that from a very young age. Here we have a case where they are above the law. If this is the case, Adolf Hitler would still be here. Thank you.
The Chair: I know that when we use the word Adolf Hitler that is not what Canada is all about.
Senator Mahovlich: The point I am crossing is the government is not above the law, whether it is the Senate or the House of Commons.
The Chair: Senator Mahovlich, I thank you.
Senator Mahovlich: We have to be careful here.
The Chair: Senator Mahovlich, you have made the point. I would like to refrain. This is Canada. It is the best country in the world, and I will not accept that we use it deliberately with Adolf Hitler.
Senator Mahovlich: I am pointing out the aggressiveness of this. We have to respect the law.
Senator Tkachuk: Parliament has a right. The ruling did not have any argument with the fact that Parliament has a right to not only introduce this bill, but to consider the bill and pass it.
We should continue on, Mr. Chair, and continue on with the witnesses. There was nothing that the judge said yesterday that should impede or hinder us from considering this legislation and dealing with it in a fair and reasonable way, which is what we have been trying to do the last few days. We only have a couple more days left. We have witnesses here; and a whole day of witnesses. We should go about our business as soon as possible.
Senator Eaton: I would like to agree with Senator Plett. We have been given a mandate by the Senate. We worked very hard with our fellow colleagues across the chamber to come up with a list of witnesses that was agreeable to us all.
As a Canadian senator, I believe we are the chamber of sober second thought. I would like to hear what these gentlemen have to say. I hope they came today in good faith, not to obstruct the process, but to educate us. We have other witnesses for the remainder of the day and I would hope we could get on with it.
Senator Duffy: I think it is very important for Canadians — those watching at home — to understand what happened in Winnipeg yesterday in the court. Mr. Oberg and some of his friends went to court. They did not ask the court to give an injunction to prevent the Senate from doing this. They did not challenge the Senate and Parliament's right. In fact, in his judgment the judge says whatever happens in Winnipeg today does not affect the right of Parliament to pass laws.
Mr. Oberg — who suggests now that he should not continue testifying — did not ask the court, nor did his friends, ask the court for an injunction or ask them to in any way find the legal procedure that is under way in Parliament to be illegal. I find it amazing that our friends opposite are actually asking this committee to do something that Mr. Oberg and the Wheat Board did not ask the court. If people read it, the court specifically says in the ruling that nothing in the ruling — and whatever the court had to say about the Minister of Agriculture — in any way affected the ability, the right of Parliament to change, amend or pass this new law; which we are doing.
To wrap up my point, Mr. Chairman, why should our friends opposite seek to do something here that the Wheat Board did not seek to do in front of the court? The court said in a pre-emptive way, had they asked us to provide an injunction, we would not have done so. I think it is much ado about nothing, frankly.
Senator Ogilvie: First, just as a comment, I think it is unfortunate that we are taking time away from hearing from those who are vigorously opposed to this bill, and to be able to get their comments on the record. I would like to hear from them.
Second, I agree with my colleagues; there is nothing in the court's ruling that limits the free speech of Canadians to discuss this ruling, the bill or any aspect of it. It deals with that particular judge's view of the ultimate legality of the law. It did not take away any right from any Canadian, let alone members of the Senate of Canada, to discuss this bill.
I would urge you, Mr. Chair, to rule that the discussion continue, and that we hear from these witnesses who have apparently very articulate arguments that we should consider in ultimately making recommendations on this bill.
The Chair: We will continue on the second round with Senator Plett, followed by Senator Mahovlich.
Senator Plett: To continue on with what my colleague, Senator Duffy, very rightfully pointed out, I will read from the judgment on page 6, number 9:
The Applicants make it clear that their Applications are no threat to the Sovereignty of Parliament to pass legislation.
Mr. Chair, we have now spent a good portion of our hour debating this. I would strongly encourage and suggest that we possibly suspend for a few minutes at the call of the Chair to quickly consider the request that has been made, and then we move forward with this and not debate this any longer.
If a motion is required, I would move that; but I would suggest that we suspend, the Chair make a decision, and we move on.
The Chair: I will consider all arguments. Thank you, Senator Plett.
Senator Mahovlich: I picked up the paper this morning and it is in black and white — the law has been broken. Never in the history of the Senate has it done anything illegal. I do not think there is anything recorded here that the Senate has done anything illegal, and I would hate to be involved in something illegal at this particular time.
[Translation]
Senator Robichaud: Mr. Chair, I do not think that anyone here today is questioning Parliament's authority and duty to study, amend and pass bills. That is not the issue. The issue is whether this bill followed due procedure in terms of proposing amendments pursuant to the Canada Wheat Board Act. The judge did rule that the minister did not follow that procedure. In fact, that was our argument: we do have the right to make amendments, but we must do so in compliance with the law. We must comply with the law. That is what we are wondering about this morning.
The Chair: Are there any further comments?
I received comments from honourable senators, in the first and second rounds.
[English]
The Chair, I believe, has given reasonable time to listen to all in a first round and also in a second round, and I have consulted with the clerk of the committee. I will ask for a brief recess to consult with the necessary procedural authorities and we will come back in committee in 60 minutes.
(The committee suspended.)
[Translation]
(The committee resumed.)
The Chair: Honourable senators, after consulting the clerk and parliamentary procedures, I must inform you of the chair's decision.
Honourable senators, regarding whether the committee may or may not continue its study of Bill C-18, as chair, I want to draw your attention to the following fact. Bill C-18 was unanimously referred to the committee by the Senate.
Therefore, the committee was given a clear and specific mandate to study Bill C-18, pursuant to rules 86(1)(n) and 90 of the Rules of the Senate.
Pursuant to rule 98, the committee to which a bill has been referred shall report the bill to the Senate.
In addition, I want to remind the honourable senators that, on November 30, 2011, the Senate adopted a motion to the effect that, in the absence of a report of the committee on the bill during presentation of reports from standing or special committees on Tuesday, December 13, 2011, the bill be deemed reported without amendment.
[English]
Honourable senators, in respect of Bill C-18, an Act to reorganize the Canadian Wheat Board and to make consequential and related amendments to certain acts, some honourable senators have argued that this committee could be in contempt of court. To this, as chair of the committee I would say that, with the exception of the Constitution Acts, no ruling of any court can impede Parliament. I repeat: With the exception of the Constitution Acts, no ruling of any court can impede Parliament's ability to consider legislation.
I draw honourable senators' attention to Peter Hogg's Constitutional Law of Canada, Fifth Edition, Volume 1, which states, at page 352:
Not only may the Parliament or a Legislature, acting within its allotted sphere of competence, make any law it chooses, it may repeal any of its earlier laws. Even if the Parliament or Legislature purported to provide that a particular law was not to be repealed or altered, this provision would not be effective to prevent a future Parliament or Legislature from repealing or amending the "protected" law.
Honourable senators, to suggest that section 47.1 prohibits us from deliberating on the bill before us would accord that section constitutional standing; and that is simply not a valid argument. However, arguments regarding the meaning and powers of section 47.1 of the Canadian Wheat Board Act are irrelevant in determining whether or not the bill is properly before us. We have been instructed by the Senate of Canada to examine and report on this bill. Unless or until the Senate orders otherwise, we have an obligation to proceed with our examination.
Bill C-18 was unanimously referred to the committee by the Senate. I repeat: Bill C-18 was unanimously referred to the committee by the Senate. That decision may be found in the Journals of the Senate at page 694. As a result of an order of the Senate on November 29, we are obliged to report the bill on December 13. The decision may be found at page 487 of the Journals of the Senate.
If we do not proceed with our examination, honourable senators, the same order dictates that the bill will be deemed reported back on December 13. This committee cannot overturn that decision. On this, honourable senators, I call the witnesses.
Senator Peterson: Will committee members be getting a copy of this?
The Chair: I will ask the clerk to provide a copy of what I have shared with you.
When we suspended, Mr. Oberg had the floor.
Mr. Oberg, do you want to continue?
Mr. Oberg: Yes, thank you, Mr. Chair.
With regard to Bill C-18, the minister stated yesterday that he intends to press ahead, regardless of this court decision. He stated that he would never reconsider his actions and that the judge's declaration would have no affect on his determination to move forward. This is a reprehensible position, which I ask this committee to firmly reject. The rule of law is not the only thing that this government has disregarded: Results of a fair plebiscite held by the Canadian Wheat Board on this issue have been ignored and belittled; basic democratic rights have been denied; and now the opinion of the Federal Court is being disrespected.
We appeal to you as senators and as Canadian citizens to ensure that this government acts in accordance with the laws of the land and the orders of the courts. We ask you to ensure that the government immediately ceases any action that would strip away the single desk without a farmer vote. This bill cannot and should not be passed. As representatives to Canada's upper house of Parliament, you must halt this proposed legislation. On behalf of farmers who have made their views clear, we as the Canadian Wheat Board's board of directors having worked diligently right up to the eleventh hour to have farmer's views prevail and their interests protected. As farmers ourselves and as their elected representatives, we can do no other; you should do no other.
Farmers are the stakeholders we must all be concerned about here, first and foremost, as you consider a bill that will tear apart a 75-year-old marketing organization. You must not allow their views to be ignored and their interests trampled. We have seen enough of that already. Farmers, who have protested over losing their democratic rights, have been branded as backward holdouts. Producers who tried to explain the value of the single desk system have been painted as incompetent grain marketers. We as farmer-elected representatives have been maligned as irrational diehards clinging to an outdated concept. Our views have not been taken seriously by this government, and we have not been able to convince Minister Ritz to engage at any level beyond rhetoric and ideology.
We acknowledge and respect that Parliament is supreme, but as yesterday's court ruling suggests, the process that guides it must reflect the principles that this great country has long embraced: democracy, due process and careful consideration of the interests of its people, not just those of large corporations and the dictates of a particular ideology. As senators, you understand the importance of upholding these principles. I ask that you disallow the passage of proposed legislation that flies in the face of Canadian values, the common good and the opinion of the courts.
Farmers have fought very hard over the decades to build a system that could serve their own interests against predatory grain companies and giant railways. My own father and grandfather devoted their lives to the prairie cooperative movement that resulted in the creation of the prairie pools and the Canadian Wheat Board itself. It was a long and hard fight. Over the last decade, we have lost the pools as the power of agri-business giants grew. The last vestige of farmer power and ownership has been concentrated in the structure of the Canadian Wheat Board on purpose and by government as a way to benefit Western Canadian farmers to help ensure our power and profitability in the face of agri- business consolidation and the virtual monopoly of the railways. Now, the Canadian Wheat Board too is on the verge of destruction, not over the span of decades or years and not after careful consideration, and extensive consultation among stakeholders. No. This is occurring in a single fell swoop over a matter of weeks with no proper analysis, no debate and no discussion.
I could accept this despite my own personal convictions if it were farmers themselves who had decided to end the single desk, but this is not the case. Farmers have approved none of this. Most are well aware that the path will only diminish their own power and profits and hand them back to the corporate world of agri-business. Farmers do not want this to occur. If you do not believe the results of the CWB plebiscite, then hold your own, and you will hear the same message. Farmers do not want this; it is not in their interests; and it must be stopped.
What is the hurry? Why must this bill be passed now against the wishes of farmers and the rulings of the Federal Court before the end of this session? Ask yourselves that question. There is no reasonable answer. The only rationale is political, and that is simply not acceptable. It is even more galling when you consider the enormous impact this change will create for farmers, the grain industry and the Canadian export sector worth over $5 billion a year. As these ramifications start to become apparent, it is we, the farmer-elected directors of the CWB, who are being blamed, slandered and maligned, when we, in fact, are the ones trying to do the right thing, advised and instructed by the farmers who have elected us and whose interests we are committed to upholding.
Today, we appeal to you to join us. We need to put farmers first.
Stewart Wells, Director, Canadian Wheat Board: Thank you for the invitation to be here today.
I will start by making a pitch directly to the committee, especially to the Conservative members. Do your Minister of Agriculture and your Prime Minister a favour and recommend that this bill be frozen in time and not receive Royal Assent by December 15, which is the schedule that it is more or less on. After listening to the ruling from the chair just now which was based on the Rules of the Senate, it seems to me that the committee could recommend to the full Senate that the reporting date of December 13 could be changed, if the full Senate so decided. That is what I would do.
The Minister of Agriculture and the Prime Minister need time to think about this court ruling and understand what it means within the context. You would be doing them a favour if you made the recommendation that this bill be frozen where it is and not proceed to Royal Assent.
In the time I have, I will comment on some of the testimony that you heard earlier, specifically on Tuesday from the Minister of Agriculture. Since May 2, there has been a lot of rhetoric and many things said about the Wheat Board and about individuals like myself who have been elected by our peers in Western Canada to represent them on the board of directors. I want to respond directly to some of the testimony of Minister of Agriculture Ritz.
On Tuesday, Minister Ritz made the following statement to this committee:
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.
This statement is absolutely untrue. There is no other way to put it; it is just absolutely untrue. I have been a member of the board since January of 2011, for about 11 months. In my time there, there have been two invitations to the minister to meet with the board of directors. I know for a fact from my time on the board that this statement is untrue.
There are letters on file from before I was a board member that invited the minister personally to meet with the board of directors of the Canadian Wheat Board. For the minister to say that the board was not willing to receive him has no grounds or justification whatsoever. I do not understand how a minister of the Crown can make these kinds of statements and not be called to account for them.
In the same testimony from December 6, in responding to a question by Senator Peterson on what is called the contingency fund, which is part of the financial operations of the Canadian Wheat Board, the minister said:
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.
This statement is again absolutely untrue. The question becomes: Does the minister not understand the operations of the Wheat Board, or is he trying to deliberately mislead the committee and, by extension, the people of Canada? The statement is just not true.
On the Canadian Wheat Board website there are publicly available press releases. There you will see an accounting of the contingency fund and what has happened with that money over the years. You will see that contingency fund money has been put into the pools from time to time. For him to say that the Wheat Board has used contingency fund money to promote itself is again absolutely untrue. To say that it has been used to develop new ventures is absolutely untrue. The uses of the contingency fund are defined in the current act, the one the minister is trying to destroy.
If the minister is successful in destroying the current act, he will have the power to use that contingency fund money for anything he wants to use it for. There is much discussion going on right now about what he intends to do with the contingency fund money, which will be under his direct control through the five board members he will appoint.
Minister Ritz's statements made on December 6 with regard to the contingency fund are untrue.
Mr. Ritz made a statement in response to a question from Senator Duffy. He is talking about the eight directors that are left, of which I would be one. He says:
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.
Again, this statement is absolutely untrue. I have been a board member, as I said, since January. Since then, we have made investments on behalf of farmers. We have invested in lakers that would be used to haul farmers' grain through the Great Lakes, which everyone agreed was a tremendous long-term investment on behalf of farmers. In the same time frame we have received a report from two economists who teach in the United States, one at Berkeley and one at the University of Florida, who say the actions of the board have put more than $100 million extra into the pockets of farmers just from barley marketing alone, and barley marketing has always been considered the weak sister of the grains the board markets. That study says it has earned more than $100 million each year.
Since the election on May 2, when the minister started using rhetoric about changing the Canadian Wheat Board, the Wheat Board has held seven public meetings to consult with real farmers in Western Canada. More than 2,200 farmers showed up at these meetings to discuss the issue. None of this can be defined as a scorched earth policy. Although some would say that the board cannot keep up with technology, it held an electronic Town Hall meeting with over 17,000 producers on the line at the same time, all able to ask questions.
You can understand that I am a bit agitated about how the minister is trying to portray directors whom farmers have elected, directors whose responsibilities will be extinguished with the new act, if you allow this bill to pass. Farmers will have no representation whatsoever on this board, yet the minister is making accusations about a scorched earth policy.
I will stop there because I cannot go through every page of the minister's testimony, but on almost every page there is a statement like this that is patently untrue. I will go back to the original request that I made, especially of the Conservative senators, to do your Minister of Agriculture and your Prime Minister a favour by freezing this bill.
The Chair: Thank you. If you would like to send any documents to the committee, please feel free to do so.
Larry Hill, Former Chair, Board of Directors, Canadian Wheat Board: Thank you for the opportunity to present my views on Bill C-18 to the committee.
I was first elected as a director of the Canadian Wheat Board in 1998. As a newly elected board, we recognized almost immediately that losing the single desk was a distinct possibility. This could have happened as a result of a World Trade Organization deal reached in the Doha round. The United States and the European Union, our competitors in the world grain trade, continually pushed to have it removed because they thought it gave our grain an unfair advantage on the world stage. Another possibility was the election of a Conservative majority government.
With that in mind, the board of directors of the CWB commissioned several studies by reputable consultants to see how the CWB could operate without the single desk. Many options were considered, and the studies concluded that in an open market as provided for in Bill C-18, the CWB could not add significant value to farmers' grain and would not survive.
There is no value proposition for a CWB that is a grain company without facilities or just another broker. You only have to look at the number of mergers and acquisitions in 2011 for evidence of grain companies buying up their competition. This is the nature of the world's grain industry, but here we are.
Bill C-18 removes the single desk, not by some WTO deal where it is traded for the benefit of Canadians, but by simple political action. We will be handing our competitors in the world's grain trade what they have been trying to accomplish for years.
The largest issue I have with the bill is that producers who have been denied a vote on a clear plan have been told the CWB will be there for them. This has been a dishonest representation of the facts. No viable plan has been presented.
Without any transition compensation and no win at a trade deal, producers who expect the CWB to be there for them are going to be very disappointed. Farmers will see the directors they elected dismissed. They will not trust the minister's appointed directors. There is no believable oversight of the appointed board of directors to complete the current crop year.
In my opinion, as it stands, this bill is simply not ready for passage.
Ian McCreary, Former Director, Canadian Wheat Board: Thank you for the opportunity to express to you my concerns on Bill C-18. As senators, your role is a house of sober second thought, and in my years of watching politics in Canada, never has there been a bill which so needed sober second thought.
I believe that this bill has many shortcomings, both in process and in substance. The courts have ruled on the question of process. On the marketing side, the Canadian Wheat Board has developed a capacity to price to market and increase value to farmers of $400 million to $600 million per year.
If the committee wishes, I am happy to answer questions on international marketing, as I served as marketing manager for the Canadian Wheat Board for a period time after university before returning to farm full time. However, I would like to speak in this brief period to the transportation and handling issues which I believe will be caused if there is a decision to go forward with Bill C-18.
I was elected as a director when the Canadian Wheat Board was first turned over to farmers in 1998. At the time, transport policy was in flux and the board needed to develop a new, more commercial approach to grain handling and transportation. The rate cap was being replaced by the revenue cap. Grain companies were abandoning many communities in Western Canada. Without action, the system would have centralized quickly and grain flows would have been determined by the grain companies with West Coast port handling facilities.
We developed a farmer coalition and acted on farmers' behalf. A new car awards approach was developed to contracting which put farmers in the driver's seat. We provided rail cars to producer-owned terminals, producer car shippers and grain companies, based on where farmers wanted to deliver their grain.
A new direction was struck. The dominant market, which determined grain flows, became the market interface between service providers and farmers, rather than the market among the major players.
The results have been rewarding. Producer car use has risen to 6 per cent of total exports. The West Coast grain handling system has gone over a decade with no serious hiccups. The Port of Churchill has been used to the economic advantage of farmers. Inland terminals, with and without port facilities, have competed for farmers handling and succeeded or failed based on service to farmers rather than on economies of scale.
Bill C-18 takes us back more than a decade. The sections of the Canadian Wheat Board Act which allowed commercial success have been removed. There is no plan in place to replace the Freight Adjustment Factor, which was integral to the success of prioritizing the West Coast business. The board's ability to order rail cars has been removed from the act. There is no plan in place to create transparent pricing in port position to give producer cars and other small shippers some opportunity for price discovery and the opportunity to trade their grain in the manner that they currently do business.
Honourable senators, the bill has a title about marketing freedom, but if passed, it will have the effect of reducing commercial opportunities to farmers. It is my hope that the Senate takes its responsibility seriously and does not pass a bill which has already been ruled, on the process side, to be outside the bounds of the law, and has many fundamental impacts on what I call the ancillary implications on the grain handling and transportation system, which have not been given due diligence in the process.
Thank you for your time. I look forward to your questions.
The Chair: Thank you very much for your presentations. I would like to remind senators that we have a time frame to respect the other panelists, so we have approximately 20 minutes left. Senator Plett, please go ahead.
Senator Plett: Thank you, witnesses. Hopefully you could all change your flight times back home in light of our delays.
I have a few questions. I will start off with Mr. Oberg, if I could. I will quickly read again part of the judge's ruling here, where he said:
The Applicants make it clear that their Applications are no threat to the Sovereignty of Parliament to pass legislation.
Justice Karen Sharlow commented on section 47.1:
This does not stop Parliament from enacting any legislation it sees fit.
A few other justices talk about the sovereignty of Parliament. I will not bother reading it.
Mr. Oberg, if you were hoping to win this case and to get a ruling in favour, why would you not have asked for an injunction? The judge very clearly has not set down an injunction and has not in any way, in my opinion, prevented Parliament or indeed the Senate from continuing to move forward?
Mr. Oberg: First, injunctions can be difficult to obtain. Our premise was that the minister needed to follow what was laid out in the act. He has two pre-conditions to meet: first, to consult with the board of directors; and second, more importantly, to conduct a plebiscite among all producers on this issue before making changes to the Canadian Wheat Board's mandate.
It is important to note here that the minister knew that this would be challenged in the courts, because the application had already been made by the Friends of the CWB back in June. Despite that knowledge, he chose to introduce that legislation on October 18 and, as the judge ruled yesterday, broke that law.
Now I guess the ball really is in the government's court. They can continue to defy that declaratory order and move ahead, if they would like to do that. However, I find it strange that a government that prides itself on law and order and respect for the law would want to proceed in that manner.
Senator Plett: Thank you. Indeed an injunction, I agree, would have been difficult to obtain because I do not think the justice would have felt that the supremacy of Parliament is not the ultimate being.
It is my understanding, Mr. Oberg — and I think you rightfully said it was your intent to continue to do this — that you refused to be part of a working group and have refused to cooperate with the government. In fact, in The Western Producer of September 1, 2011, you stated:
We will spend millions of dollars of farmers' money to fight this to the death and above all maintain the status quo.
Why would you not have cooperated with the government and accepted an invitation to be part of a working group? You knew the government was going to continue with this. Why did you delay submitting the Wheat Board's transition plan until after the working group released its report? Why are you so determined to prevent marketing freedom for farmers in Western Canada?
Mr. Oberg: I will address your first question first with regard to our participation in the working group. Originally the offer was that our CEO, Mr. Ian White, would co-chair that committee. We did not think that was appropriate, given the composition of the committee did not include any general farm groups, anyone from the producer car shippers, or any farmers. Our next offer was to offer a staff person to become a permanent resource at the committee. That was declined by the committee. It was obvious that they wanted us to be a permanent member of that committee, so that whatever the committee decided, we would be a part it. Given the composition of the committee, we did not think it was appropriate. That is what happened.
In your next question, you talked about the transition plan. During the month of July, the CWB held a planning session. We engaged the firm KPMG to look at and review some of the work we had done previously on different governance models for the Canadian Wheat Board. Each and every time we had done that, we came to the same conclusion that the single desk model returned by far the most value to farmers. During this time, we tried to engage with the minister to have discussions as to whether there would be some alternatives that we could look at; but it was to no avail. In the end, we published the six elements that we thought would be necessary for a new grain company to survive in an open market environment as advice to the government. Unfortunately, only two of those elements were adopted by the government: government guarantees for borrowings on five years and the guarantees on initial and adjustment payments. I am sorry, what was your third question?
Senator Plett: Why are you so determined to prevent marketing freedom for farmers in Western Canada? I believe there are many who want marketing freedom. Before you answer that, let me go into my last question, if I may.
Much has been said by members opposite, by friends of the Wheat Board, by farmers who came to visit us and so on about the plebiscite that was held and the percentages of it. I believe it was the Western Canadian Wheat Growers Association who said in their comment that there were 68,000 ballots sent out when there are only about 20,000 commercial producers.
My question is: If a plebiscite were held based on the number of acres farmed or bushels farmed, do you think the plebiscite results would have been different than they were?
Mr. Oberg: Allow me to respond to your suggestion that we have stood in the way of marketing freedom. That has never been our position. All along, our position has been that producers themselves need to decide this issue and have the same freedoms afforded to them as producers in Ontario and producers in Quebec have afforded to them. In Ontario, producers decided they wanted an open system; and in Quebec, producers decided they would have a single desk marketing structure for wheat. That has always been our position, and that is the position we have pushed the minister on many occasions to take. Let farmers decide. As I said as chair, the board would support either position. Whatever the majority of farmers decide, that is what we would support.
In response to your question on the results of voting if farmers could vote by number of tonnes or number of acres, I am not sure. Even though organizations like the Western Canadian Wheat Growers Association purport that it is a very fair system of voting, I find it somewhat ironic that for their own structures they have never adopted that system. At a WWGA meeting, it is still one member one vote. It is one member in a municipal or provincial election. The small land owner and the large land owner each receive one vote. It was on that basis that our plebiscite was structured. It was very inclusive: 68,000 ballots were sent out and 57 per cent of farmers responded.
Senator Plett: In your case, it was one member many votes, in some cases.
The Chair: Mr. Wells, do you have a comment?
Mr. Wells: I want to comment on the same questions that were asked in good faith about the CWB working with the Minister the Agriculture over the past six months. Mr. Oberg alluded to the letter that the CWB Board of Directors sent to the minister. It is important that the timing of the letter be on the public record. The board sent a letter to the minister on July 22 responding to his request. We included the six points that Mr. Oberg alluded to. I have copies of this letter here; and I am willing to share that letter with the committee if honourable senators would like. The end of the letter, which was signed by Mr. Oberg, says:
We are prepared to meet at your convenience to clarify any matters. We look forward to your response regarding government's potential support for the above six elements.
At the board table, we were hopeful that the minister would respond within 36 to 48 hours. We were expecting a quick turnaround time on this very detailed letter we had sent to the minister. He did not respond until August 17 — almost a month later. In that response, he spent one line to dismiss this three-page letter. His one line states:
Further, while we welcome all ideas for the new CWB, the regulatory powers that you suggest for a voluntary entity appear inconsistent with an open and competitive grain market.
That is how he responded. We sent a further letter after this asking for more of a discussion about this, but when the government will not engage in a discussion and absolutely write off our willingness to participate in a fulsome two-way discussion with just one sentence, I do not think that is very respectful on the part of the government. I think it fit into their plan to go to the public and to the media and say, "The Wheat Board will not work with us; the Wheat Board will not cooperate with us."
The Chair: The chair will consider the request of the senator to table the document with the clerk. On this, the last comment will be Mr. McCreary.
Mr. McCreary: By way of clarity, I finished my term on the board in December 2008. Mr. Ken Ritter, who just passed away, and I finished at the same time. Even at that time, we had done some of our studies on the same questions. We had put the idea of an open North American market with an offshore single desk as one option that would have created what some of the rhetoric of what the government is saying is a viable Wheat Board, but at the same time a price discovery that was more transparent. That option has been on the table with the government since Mr. Ritter put it on the table at one of his last meetings before he left the office. There has been some dialogue that dates back some time. It is important that the Senate committee is aware that there are alternatives; and they have been put on the table.
Senator Peterson: Thank you, gentlemen, for your presentations.
Mr. McCreary, could you explain how you achieve price premiums on Canadian Wheat Board grain under the single desk and what you think would happen with a voluntary board in an open market?
Mr. McCreary: Thank you for that question. I will endeavour to explain the way it works.
The single-desk system is built on the process of developing a brand for Canadian grain that is different and distinct from other grains of the world. That brand has a different value in different markets. Therefore, you essentially price according to the customer's willingness to pay for the value of that brand. Since on any given day that grain can be priced differently to different customers, you achieve premiums over and above comparable American values.
Once we were an elected board, one of the performance measures was the capacity of our management to be benchmarked against competing "wheats" on the same day, and their capacity to get premiums for those values.
In a multiple-seller environment, ultimately the law of one price prevails in economics. If there is a premium market, a customer who has historically been willing to pay more for a Canadian grain than a second customer, all potential marketers will chase that one. They do not pay more because they want to; they pay more because in this system there has only been one place to get Canadian grain of that brand. In a multiple-seller environment, supply and demand will ultimately prevail. The premium paid for Canadian grain would be the willingness of the lowest customer premium, because ultimately marketers compete against each other for those premiums and willingness to sell.
Frankly, customers are extremely sophisticated and that has become the case. As producers, for example, we produce a high-quality, number one lentil, yet we have been consistently paid for number two or better lentils at the farm gate. It is similar for peas. We produce a high-quality set of peas. I have been told it grades number one and throughout the year marketing opportunities exist for number two or better peas. The reason is that in the absence of a single-desk system there is not the value created by discriminating market to market to make differentiation or discrimination through the handling system worth dividing it up into multiple bins in those pieces. You need to have the high-premium customer mixed in with the medium-premium customer in order to have enough absolute premium customers to make it worthwhile in the cost of segregation in a marketing system.
That is ultimately the centre of it. We called it "pricing to market." In market by market you look at essentially trying to determine willingness to pay.
Senator Peterson: Mr. Oberg, what type of price transparency would exist in an open market and what type of risk premiums would be involved?
Mr. Oberg: The open market system is based on the fact that there is always someone who needs to sell. There are the exchanges that farmers do watch, but it is important to remember that those are just values that customers and borrowers use for risk protection. They are not the actual values that are traded.
To suggest that in an open market system you will have more price transparency I think is false. When farmers look at a cash ticket, a cheque in an open system, they see one price. The deductions are all involved in this magical thing called "basis." In the Canadian Wheat Board system, it is the most transparent of all. You see deductions for elevation and handling. You see freight deductions. It is all listed on that cash ticket.
There will actually be less transparency if we move to an open system rather than the Canadian Wheat Board structure.
Senator Tkachuk: Mr. Oberg, who do you consider to be the shareholder of the Canadian Wheat Board? Who owns it?
Mr. Oberg: From a technical sense, if you ask the question from a legal perspective, the answer would be the federal government. However, if you define ownership as to who pays the bills and who has paid for things like the hopper cars, the payments that were made on lake vessels we have invested in, which has all been farmers, my definition is that farmers own the Canadian Wheat Board. All the wealth that has been created in that organization has been created by virtue of farmers.
Senator Tkachuk: The Canadian government, the people of Canada, are the owners of the Canadian Wheat Board. What fiduciary responsibilities does the board have towards the owners, the shareholder? I just want to know what you think it is.
Mr. Oberg: Our fiduciary responsibilities, I guess, are to always act in the best interests of the corporation and to protect its most single valuable asset, which is the single desk. As an elected board member, elected by farmers, I not only have a fiduciary obligation to the corporation, but also as an elected person back to the people who chose me and put me there.
Really, what is being contemplated in this bill is a government takeover of a producer organization.
Senator Tkachuk: Is that what this bill actually does? It gives you an opportunity to put what you consider in theory a fact, by giving you the opportunity to create a pool, a shareholder company, where the real owners are the farmers because they are not now. The owners of the Canadian Wheat Board are the people of Canada and you, sir, and all the board members, have a fiduciary responsibility to the shareholder and the people of Canada because you are a member of the board of directors of that corporation. The farmers are your customers.
Mr. Oberg: If this legislation passes and does receive Royal Assent, there will be no farmer involvement in the organization as well, at all. It will be, in essence, a government-run organization. As I stated before, all the hard assets that are in there and that the farmers have paid for will become government property. Frankly, on behalf of farmers, I think that is wrong.
Senator Tkachuk: Let us put it another way. You are disagreeing with the facts but you are sticking to the theory. Even your own plebiscite, which did not include the dual-marketing system, included either you are in or you are out. You had a 60-40 polarity. In order to make the 60 per cent work you need the 40 per cent, who do not want to belong. Is that what you are telling us here?
You are saying it cannot work, but I am hearing you say that to make the 60 per cent work you need to force the 40 per cent, who do not want to belong, to belong.
Mr. Oberg: That is essentially right. That is how single-desk systems work. When you only have one seller, of course you need participation from all farmers. We have always maintained that that needs to be democratically decided by a majority of farmers, just as they did in Ontario and Quebec, as I stated earlier.
Senator Tkachuk: The Government of Canada, which owns the Wheat Board, really has no right to change the Wheat Board. The 40 per cent who do not agree with the Wheat Board have to be compelled to make the 60 per cent work. The board of directors has no fiduciary responsibilities to the shareholders and the people of Canada but only to their customers. That is a long bowl that you are stretching.
Mr. Oberg: The Canadian Wheat Board is a shared governance corporation and it became that in 1998. The control of the organization was given back to farmers under Bill C-4. One of the safeguards put in was section 47.1 of the act, which said any major changes to the mandate to the Canadian Wheat Board needed to come to a producer vote. That is really what is at issue here.
Senator Tkachuk: That would not be my definition or most people's definition of how a board of directors should act. If I were a member of a board, it would be appalling to me that I would not act on behalf of the shareholder and not have a fiduciary responsibility to the shareholder and the people of Canada, who own the company.
I am done, Mr. Chairman.
Mr. Wells: I have a quick comment on this last question.
These are interesting questions about who owns the assets of the Canadian Wheat Board. In light of its unique structure under the act we are in now, that is an interesting question. Even if you ask Conservative MPs, you will get two different answers about who owns the assets of the Canadian Wheat Board.
For instance, when a Conservative MP is complaining that the Canadian Wheat Board launched a legal action in order to try to hold a government that calls itself a law and order government to the laws of Canada, that MP will say the Wheat Board should not be spending that money because it is farmers' money that the board is spending. When another MP is answering a question about the contingency fund, and he is in fact the Minister of Agriculture who wants to expropriate the contingency fund from farmers, that MP will say that is not farmers' money, that it belongs to the Canadian Wheat Board, that it belongs to the act and that it belongs to the government. Even the Conservative members of Parliament are conflicted about who are the owners of that money.
In moving from the bill we are acting under now to Bill C-18, that conflict becomes even worse because the new bill is constructed in such a way that it creates a Crown corporation. The act we are under now is not a Crown corporation. It is a shared governance corporation. The new act is a Crown corporation in every respect, except for one sentence, which says this is not a Crown corporation. It only reports to the minister. The conflicts that were raised are made worse under this new bill than they were under the old one.
Senator Eaton: Mr. Oberg, my colleague was talking about fiduciary responsibility. Do you not have a particular interest in seeing the Wheat Board continue in its status quo position to protect your brother, who is probably the biggest short line owner in northern Alberta? Is it not to your family's benefit not to open it up to market forces?
Mr. Oberg: I certainly do not — you are suggesting I have a conflict of interest? Is that what you are suggesting?
Senator Eaton: Yes, your family.
Mr. Oberg: No. All producer car shippers will be at risk and in trouble if the changes are made to the Canadian Wheat Board.
Senator Eaton: In trouble, or will they just have to compete on the open market?
Mr. Oberg: They will have difficulty obtaining terminal access and the economics, the savings of loading a producer car — $1,000 to $1,200 a car — will disappear.
Senator Eaton: You have every interest in maintaining —
The Chair: The chair will recognize that you have answered the question, Mr. Oberg.
[Translation]
Senator Robichaud: I find it strange that there is support for the argument whereby, at a given time, 40 per cent are not willing to participate, but they must submit to the 60 per cent. Is that not exactly what happened during the general election? I find that your arguments do not always make sense.
As for the new board, all the directors will be appointed by the government once the bill has received Royal Assent. Will farmers have anything to say about those appointments?
[English]
Mr. Oberg: My understanding is that the appointments on the new board would be made by the minister. In fact, it would be the first time in over 30 years where there is no producer involvement in the Canadian Wheat Board at all. Prior to the establishment of the board of directors back in 1998, there was always an advisory committee of producers. That began in the early 1980s. As I said before, this is a government takeover of a producer-controlled organization. It is as simple as that.
Senator Robichaud: Did I understand correctly that if a plebiscite were held, the authority in this case to hold a plebiscite would be with the minister?
Mr. Oberg: That is right.
Senator Robichaud: You would abide by the results of the plebiscite.
Mr. Oberg: I have said that many times. At the seven meetings I spoke at with farmers across the Prairies, I was very clear about that. Whatever the majority of farmers decided, that is where we would take our lead from, and we would support whatever decision they made. I pushed the minister many times to do just the same.
The Chair: Honourable senators, thank you.
Looking at the time, on behalf of the Standing Senate Committee on Agriculture and Forestry — Mr. Wells, did you want to make another comment?
Mr. Wells: A very short one.
The Chair: You are welcome, sir.
Mr. Wells: Thank you, Mr. Chair. You have been very generous.
I would like to go on record as saying that I find the previous question from Senator Eaton insulting to the farmers of Western Canada. To think that the chair of the board of directors — farmers are on this board because the government recognized that the farmers are the ones closest to the ground and realize their own financial situation, and to insinuate what was insinuated in that question is an insult to all farmers in Western Canada.
The Chair: On this, senators, on behalf of the committee, I sincerely thank the witnesses for being here. You have given us additional information.
Honourable senators, we will now hear from our second panel of witnesses. Thank you for accepting our invitation to appear. We appreciate it.
[Translation]
Appearing before us today is Earl Geddes, Executive Director of the Canadian International Grains Institute.
[English]
We also have Mr. Cliff Bell, General Manager, Westlock Terminals, which is a member of the Inland Terminal Association of Canada.
On behalf of the committee, we thank you for being here to share your information with us. I now invite the witnesses to make their presentations, followed by questions from senators.
I am informed by the clerk that Mr. Bell will make his presentation first, to be followed by Mr. Geddes.
Mr. Bell, the floor is yours.
Cliff Bell, General Manager, Westlock Terminals, Inland Terminal Association of Canada: Thank you, Mr. Chair and honourable senators. As you said, my name is Cliff Bell, Westlock Terminals, but I am also representing the Inland Terminal Association of Canada, which has 10 members with grain handling facilities and a number of other commercial interests in Saskatchewan and Alberta. The members are: Lethbridge Inland Terminal; Providence Grain Solutions; Westlock Terminals; CMI Terminal; Gardiner Dam Terminal; Great Sandhills Terminal; Prairie West Terminal; North West Terminal; South West Terminal; and Weyburn Inland Terminal.
To be an ITAC member, at least 50 per cent ownership must be farmers; together, ITAC members account for roughly 20 per cent of the grain currently controlled by the Canadian Wheat Board. ITAC facilities provide competition in the marketplace and provide farmers with delivery and marketing choices.
ITAC does not take a position on whether or not CWB's single desk should be eliminated. However, in light of the federal government's stated intention to remove the marketing monopoly on October 21, 2012, ITAC has some definite opinions on the measures required to ensure an effective and competitive grain handling system. The first one is how the transition will occur.
Federal officials have told ITAC members that wheat, durum and export barley will be eligible for contracting prior to August 1, 2012, as long as the actual execution of the sale does not occur until after that date. End users are already looking to fulfill their 2012-13 supply, so it is important that all players have the ability to meet the needs of the customers.
We understand from the federal officials that the August 1, 2012 date is definitive, but we worry about some possible delays to the legislation — more so with the announcement yesterday — and how that may affect contracts made in good faith with both producers and the end use customers. We believe it is essential that the federal government commits to financially backstop any contract liability if the legislation is delayed.
The other point we would like to make is rail service review. The Canadian Wheat Board has worked for improved rail service and has significant market power in railway negotiations. With changes to the Wheat Board mandate, that voice will be diminished or lost. However, proper rail service remains absolutely vital for us to do business.
We trust that the government's progress toward creating rail service agreements will continue, and that appropriate measures will be in place to allow smaller industry participants access to required rail service in order to continue to provide a competitive option for farmers at a fair price.
One of the big things the Inland Terminal Association of Canada is concerned about is the financing of purchases. We understand there may be work proceeding on a financing option to help with the purchase of wheat, durum and export barley from producers. This will be an important component for the transition.
Without appropriate financing, the ability of some terminals to purchase grain may be constrained, and they may have to operate on smaller volumes. That would reduce competition in the market place.
As you all know, the price of grain varies substantially from year to year. The money that we need to operate to cash flow that business varies year to year as well. If that was all dumped onto the individual elevators, it would have a significant impact.
The other issue is port terminal access. This is a big one for the independents. There are a few of the ITAC members that are co-owners of Alliance Grain, which was formed by the Competition Bureau deeming the old UGG elevator in Vancouver had to be disposed of. It was bought by Alliance Grain. There are a couple of ITAC members that are co- owners there, but, for the most part, CMI and Gardiner Dam terminal has a minority owner and South West Terminal has a similar relationship with Cargill. Other ITAC members have no ownership in any port facilities, and they also do not have any export marketing capabilities.
To continue to provide effective competition in the market place, ITAC members need guaranteed access to port terminals. For example, the Port of Vancouver would be controlled for the most part by three multinationals. We wonder here if the Competition Bureau has a duty to investigate this situation. For much of the Western Canadian grain, Vancouver is the preferred port.
With respect to the Canadian Grain Commission, we feel they must change to facilitate the upcoming commercial realities. Grain should go to its highest value commercial use and official grades should not be an impediment to doing business. A review of the current licensing process for new varieties will be important to ensure that in a competitive continental market, farmers have access to high yielding varieties and are able to grow the varieties required by specific customers, especially those in the U.S.
The current focus of our variety registration process on maintaining a minimum quality standard for Canadian grain may have been appropriate with a single-desk seller, but in the future Canadian marketers and end-use buyers will be contractually bound to supply grain of agreed-upon quality factors, irrespective of the idealized Canadian standards.
Under the current system, growers will be expected to deliver grain of every grade and protein level to the facility of their choice and there is an obligation to provide a certificate of grade on each delivery. In an open market, the producer and the buyer may agree to a composite sample of a large number of truckload deliveries to comply with contract specifications. In addition, the producer's right of re-inspection by the CGC may become cumbersome, as the standards set by the Western Standards Committee and the CGC may not be relevant to the specific sale. It is expected that producers will be contracting for sales by virtue of various quality factors, not by the standards set by a body. Growers will have to adapt to this new reality and changes may also be required with the CGC regulations and procedures.
The last point I would like to make, honourable senators, is that uncertainty is bad for business. Through this, everything in the Western grain industry is on hold and up in the air. No one knows what is going on, no one knows what is happening and no one can plan for the future. We believe there is a need to act quickly to provide some answers to the many questions associated with the transition. I want to note that any time that there has been a major change in the agriculture industry — and, I have been in agriculture for 30 years — there seems to be some consolidation. These farmer-owned grain terminals were born and they continue to thrive because farmers wanted service, competition, local assets, ownership and a voice in how the grain industry develops. I ask you to please give them that voice.
Earl Geddes, Executive Director, Canadian International Grains Institute: Good afternoon, honourable senators. It is a real pleasure for me to be here today to meet with you and to talk about the role that the Canadian International Grains Institute plays in maintaining Canada's brand image for the best quality wheat in the world. That is an important function of what CIGI and the grain industry in Western Canada does, as well as the industry in Ontario. It is truly an honour and a pleasure for me to be here today.
I have a short opening statement that I have circulated to everyone, which I will go through quickly.
The Canadian International Grains Institute was created in 1972, through a memorandum of agreement between the Government of Canada, the Canadian Grain Commission and the Canadian Wheat Board. Over the past 40 years, the Canadian Wheat Board has been CIGI's largest and most significant industry partner. We focused largely on wheat, durum and barley through that period of time; oats for a period of time.
The global knowledge that CIGI has developed over the last 40 years has largely been based on exposure to customers of the Canadian Wheat Board and participants that the Canadian Wheat Board has brought to CIGI for technical training. CIGI has had over 34,000 participants in the past 40 years and approximately 70 per cent of those have been directed to CIGI by the Canadian Wheat Board. We have a very substantial relationship over the past 40 years.
The CWB has accounted for about 70 per cent of CIGI's program and capital funding over the past 10 years so that we can keep it in a relevant time frame. As of April 1, 2012, the Canadian Wheat Board has indicated that it will no longer be providing stable and predictable funding to CIGI, for obvious reasons.
CIGI has been very deliberate with its interventions on Bill C-18, with government representatives, both elected and non-elected officials. Our representation has been to encourage the Government of Canada to ensure CIGI remains in a position to maintain its currency of knowledge of what is going on in the global market place, maintain customer contact on behalf of the farmers in Western Canada and maintain the best wheat in the world brand during any transition created by the passing of Bill C-18.
Bill C-18 has provisions to replace the funding that the CWB currently provides to the Western Grains Research Foundation, the Canadian Malting Barley Technical Centre and CIGI by implementing a producer check-off to raise an equivalent amount of funds for a variety of research and development as well as providing a full range of market development activities currently undertaken by the CWB in collaboration with CIGI and CMBTC. This is not a new expense for farmers but, rather, a transfer of process from the CWB to a producer check-off mechanism. The cost to farmers in this activity dictated by Bill C-18 remains the same.
CIGI has been taking many steps to prepare for the changed business environment in order to serve farmers and the grain industry effectively in this new marketing situation.
From CIGI's perspective, there are some obvious challenges with the change. I want to walk quickly through five of them that we have identified here. First, there is the likely drift to a lower quality wheat product being exported from Canada as happened in Australia.
The point I would like to raise here is that Wheat Quality Australia, a brand new organization in that country, has recently been created to address the fact that customers of Australian wheat have lost confidence in Australian wheat, and we do not want the same thing to happen in Canada. We want to ensure we maintain that as part of the role of CIGI.
Second, customer concerns about the direction that Canada's wheat industry is headed must be addressed. Part of that concern is will we still have access to the technical support, training and after-sales service that we have been become accustomed to and that is a big part of the Canadian brand image.
Third, the loss of the CWB as a vehicle that ensures a current knowledge of what is going on in the globe wheat, durum and barley industry needs to be addressed to replace this knowledge gap. Part of our activities in this area are to develop research and training agreements with international customers of Western Canadian grains so that we can maintain that knowledge flow on behalf of the industry.
Fourth, with the absence of the CWB's global marketing role, there is a concern regarding the creation of a new wheat industry oversight body from a timing and structure standpoint. Obviously, there will need to be a new governance direction for the wheat, barley and durum industry in Western Canada. We are excited about what that might look like, but it needs to happen. We cannot wait for a long time. We have a five-year window within Bill C-18 to allow that to happen. There is concern in that regard. We would like to be involved in that process.
The outstanding question posed by these and other issues is the following: Can Canada maintain its reputation for delivering the best wheat in the world? The reason we see that as a significant issue and a question to be addressed is that many commodities coming from Canada, not just agricultural commodities, rely on that brand image. When you go into China and many other parts of the world, they say, "Oh, yes, you guys have the best wheat in the world." Maple syrup and salmon are second and third on that list. Therefore, it is important that we have the ability to do that.
Through the funding provisions in Bill C-18, CIGI will be undertaking efforts to address these gaps and issues as we go forward.
Thank you. I look forward to your questions and comments.
The Chair: Thank you very much. I would dare concur with certain comments I have heard that Canada is the best country in the world.
Senator Plett: Thank you, gentlemen. Sorry about the delay in starting this panel, but we certainly appreciate your patience and for being with us today.
I have two questions, one for Mr. Bell and one for Mr. Geddes.
Mr. Bell, as you said, ITAC works with a number of different pools. Of course, in Canada, and certainly in Western Canada, there are a lot of co-ops and a lot of pools, whether it is wheat or other products, and they do well. You mentioned a number of pools. I did not recognize all of them, but I did recognize North West Terminal. I understand they are one of the largest pools in Saskatchewan. Am I correct?
Mr. Bell: Yes, they are. North West Terminal is a grain terminal and an ethanol facility as well. They are one of the larger grain terminals, yes.
Senator Plett: It was founded by farmers and is basically a voluntary organization that farmers can belong to?
Mr. Bell: That is right, yes.
Senator Plett: As such, a farmer who sells 100 tonnes of wheat, barley or other product, from what I understand in talking to one of the founders, would basically sell the wheat or whatever product for the same price per tonne as someone who brought them about a tenth of that. They would get the same price per tonne, typically?
Mr. Bell: I guess it would depend on the situation there. They would have the opportunity to sell that grain. North West, as with all the terminals, is an agent for the Canadian Wheat Board. They post a pooled price, a fixed price and also a non-board price. A farmer with 100 tonnes of wheat would have the option to sell into North West's ethanol facility as a non-board entity, or they may be able to sell it export for a fixed price through the board or at a pooled price through the board.
Senator Plett: The point I am trying to get at, sir, is that someone with 100 tonnes would see the posted price for his wheat or whatever he wanted to sell for ethanol, and the person who had 10 tonnes would see the same posting and be able to do the same thing.
Mr. Bell: They would have the same opportunity, yes, given it was at the exact same time.
Senator Plett: Absolutely. The point I am trying to make is that a big farmer is not treated specially versus a small farmer.
Mr. Bell: Not unless there is a quality issue or something like that. If the export commitments or demands are for a specific variety and protein, that would dictate who got movement.
Senator Plett: That would be apples and oranges, then.
Mr. Bell: Yes.
Senator Plett: As you have said, they sell products, and whether it is something that the Wheat Board would have the monopoly on or whether they would sell peas or lentils, would they take any type of crop?
Mr. Bell: No, depending on whether they had a sale for that product. Most inland terminals are specialized. Down south they will handle durum, wheat, barley and canola. Up north in Westlock, we handle all types of grains. It just depends if you have an outlet for that. We are not particularly big in oats or peas because we just do not have an outlet for them.
Senator Plett: My last question for Mr. Bell is whether North West Terminal or any of these other pools would have every reason to continue to operate even in a dual market system.
Mr. Bell: Yes, they would.
Senator Plett: Mr. Geddes, your organization, under your direction, has done great research and market promotion for nearly 40 years, and you need to be congratulated and commended for that.
The opposition in the other place and supporters of the monopoly have made a great deal of fuss about what I would consider a bit of an unfounded argument that CIGI and its work would cease to exist without the Canadian Wheat Board monopoly. Would the Canadian International Grains Institute be able to continue to operate, and operate successfully, once the monopoly is gone?
Mr. Geddes: First, CIGI has done wonderful things for 40 years. I have been there for two and a half years giving direction, and we have had some fun doing that.
In a new environment, with the guidance of my board of directors, two of whom are from the Canadian Wheat Board, we established a sustainability plan two years ago. That plan looked at the eventual removal of either the Government of Canada funding from CIGI or the Canadian Wheat Board's funding from CIGI, and we have been charging ahead fairly deliberately at that for the last two years.
I can say that August 1, 2012, CIGI will remain intact with the support of customers from all over the world and with the grain industry from all over the world. Our business model will be different, but our intent to provide public good to Canada's grain industry will not change. That is still very much part of our strategic direction from our current board of directors and what I would expect from a new board of directors once there is a new wheat industry council in place.
Senator Plett: Out of curiosity, the two members from the Canadian Wheat Board — of course, the Wheat Board has been somewhat divided on this — would they be supporters of the dual market or would they be supporters of the single desk?
Mr. Geddes: The directorship at CIGI changes from time to time and the Canadian Wheat Board indicates who they wish to have in those two positions. One has always been an official, a staff person, and the other one a director. Most recently it was Henry Voss who would likely have been on the open market side. Currently it is Bill Toews who is keeping the Wheat Board intact as it is.
What I can say, though, is that in all cases, the governance from the directors from the CWB has been exemplary. It has been about CIGI, not about the Canadian Wheat Board. That debate never enters into our board meetings because it effectively has no reason to be there.
Senator Peterson: Thank you, gentlemen, for your presentations.
Mr. Bell, government officials indicated a couple of days ago that beginning January 1, 2012, you can begin futures trading for the 2012-13 crop year. Would you begin to do that without government guarantees?
Mr. Bell: I guess we would look at the situation and probably go ahead. It would depend on the customer or end- user, if any of them came forward to us. We would be a little hesitant right now. As we are a small cooperative, we would be a little hesitant, unless we had some assurances from someone.
Senator Peterson: You have known about this bill for some time. I imagine you have talked to your financial institutions. How do they feel about this environment you are in?
Mr. Bell: Many of the financial institutions have stepped up and many of them are willing to talk with the ITAC committee. We belong to another group, GNP Grain Source, which is a body of independent terminals as well. We have had some discussion with them, and they want to get to know what our needs are, but nothing has been decided thus far.
Senator Peterson: They are not too uneasy. I imagine they would be a little nervous.
Mr. Bell: Yes.
Senator Peterson: One of the things you mentioned was guaranteed access to the port terminals. The working group has not indicated they will recommend that at all. If that is the case, how much more difficult does it become for you to operate?
Mr. Bell: It makes it very difficult for us. The Port of Vancouver is the preferred port for Western Canadian grain. We cannot go to Thunder Bay or Churchill; it is cost prohibitive. The rail does not always run north and south either. It makes a huge difference for us. We basically get shut out of Vancouver. Like you say, some of the terminals have an alliance with Alliance Grain Terminal. They may have an opportunity there, but with no exporting arm and no terminal on the West Coast, we would be subject to having handling agreements with some of the other industry players. The concern there is it would be at an inflated cost.
Senator Peterson: I would presume those industry players would be competitors of yours.
Mr. Bell: They would be.
Senator Peterson: They would not be too amenable to be helpful to you. They might come calling with a special deal for you in their favour.
Mr. Bell: That is exactly the concern, yes.
Senator Peterson: Mr. Geddes, if we go to the open market system, how much difficulty will you have in maintaining the level of quality of the grain we export to customers who rely on what you have been doing to date?
Mr. Geddes: It is a great question. We believe that with some common approach to how we deal with quality of wheat in Western Canada, we can maintain a high level of quality. Mr. Bell indicated that he sees there being some shifting there in the marketplace, and he is absolutely correct.
Customers will demand what they believe to be high-quality wheat from Canada. In almost every country in the world except Canada, Canadian wheat is used as an ingredient to blend with wheat from other origin. They will indicate to Canada what that quality looks like and as long as we can meet that quality, we can maintain the brand.
The concern we have would be that you would get some marketing efforts that happen similar to Australia. Many people came into the market, started marketing Australian wheat, misrepresented it or did not deliver the quality that Australia was used to. It created great havoc in terms of their customer acceptance of Australian wheat. As an industry, they are coming back through Wheat Quality Australia to rebuild that confidence and I am sure they will be successful in doing that. They have good wheat. In Canada, we know of that experience and there are discussions going on. How do we avoid losing Canada's brand image for the wheat quality it has? It will have to be an industry approach. No one player will be able to do it all.
Senator Peterson: I would suggest it will be a very fragmented market and you will have a lot of players who will not necessarily deal with quality; they will deal with quantity — the volume sellers. You will have a lot of difficulty sourcing enough grain to get the quality you want for your customers.
Mr. Geddes: That is absolutely true. There will be a very competitive marketplace. There will be new market entrants that have not been selling Canadian wheat as Canadian wheat in the marketplace. They will want to niche out a part of the market for themselves as individual sellers — whether it is the Inland Terminal Association of Canada, Richardson, Viterra or Cargill — and they will want to do that partially using the value of Canadian wheat, and the brand image its has get into the market niches. I believe that will be an important part of their marketing strategies. If not, they will find themselves not in some of the higher value markets, which Canadian wheat is positioned into.
Senator Eaton: Following on the Canadian brand — which I think is a very interested thing — is it not true that unlike Australia, where their wheat board did the grading, you do the grading in Canada, or that you have until now and will continue to do so?
Mr. Geddes: Canada's system is quite different than Australia's. In Canada we have had a marketer, the Canadian Wheat Board, which we still have until it changes. We have had the Canadian Grain Commission that is a government organization responsible for monitoring and managing the quality of Canadian grain. Then you have the CIGI who is the market the development element that uses the marketer, does market development, technical product development, customer care and identification work. It is not CIGI specifically that does that quality work; it is the Canadian Grain Commission. As near as I know, the Canadian Grain Commission does not have changes proposed to it at this point in time, so we should be able to maintain that.
Senator Eaton: Following on Senator Peterson's question — if he feels that more farmers, because they are going to sell more, will go more into quantity instead of quality — would you not say there is a possibility that there could be a premium offered for very high-quality wheat? Buyers who demand that will pay a premium, so more farmers will see it is a good thing to grow?
Mr. Geddes: Again, that is an excellent question and very true. There will be changes in the production in Western Canada in terms of wheat because of the change in the marketing structure. When you no longer have one entity selling the whole pile of grain, people will want to get into the market with their products and niches, so likely more variety specific marketing activities. Some of those varieties may be targeted into marketplaces that do not demand the functional quality of Canadian western red spring wheat. As that occurs, they will find themselves in competition with wheat from Ukraine, Kazakhstan — the Black Sea area — which is much closer to most of the markets than Western Canada is. In today's marketplace, there is a premium for Canadian wheat in many parts of the world. Part of the premium is market access. That is an important factor. We compete in Southeast Asia where we are 40 days sailing, competing with seven days in a boat from Australia. The costs are not the same. You compete at values not necessarily higher than Australian wheat, but you are able to do it because they need the quality of Canadian wheat to blend. While there is not always a premium in price for a grower, there is a market access piece that is very important and I believe our industry will understand that very quickly.
Senator Eaton: I think you said that you want to be sure you will get the funding to keep on. I think the bill assures you funding for the next five years.
Mr. Geddes: It does. The bill is quite clear in how that has happened. The point I wanted to make for you as a body taking "sober second thought" of the bill is that we are not increasing a cost on growers. We are maintaining an activity on their behalf, using a similar revenue stream that comes through a check-off rather than directly from the CWB.
Senator Eaton: Mr. Bell, I am sorry, but not being a Westerner, I do not understand what an inland terminal does. If I am a farmer and I have 100,000 tonnes of wheat, could you take me through the various steps?
Mr. Bell: Most of the inland terminals were born when some of the consolidation of the grain industry happened 10 to 15 years ago. Many of these terminals were started up by farmers as small, local cooperatives.
Senator Eaton: They were places to store their grain?
Mr. Bell: They are large, concrete and wooden grain terminals that buy grain off the farmers, so we store it and receive it.
Senator Eaton: You buy grain, but does not the grain owned by the farmer go to the Wheat Board?
Mr. Bell: Right now, as it sits, the moment I buy that tonne of grain from a farmer, the Wheat Board gives me that money in the form of prepayment of inventory. I do not have the cash flow that one tonne of grain, so I store it and the board pays me storage on that. When the board wants to move to forward to port, they call that forward and we ship it to port.
In conjunction with this, these inland terminals handle also non-board grain. We can buy that grain and can sell it to whoever we want, whether it is domestic use in the Fraser Valley or to the crushers. We can buy that grain, store it and ship it out to whoever we want.
Senator Eaton: Non-board grain meaning feedlot grain?
Mr. Bell: That is right, barley and wheat. There are two different pricing situations and two different handling situations.
Senator Eaton: The CWB has always dealt with the port situation?
Mr. Bell: That is correct.
Senator Eaton: Once it left your terminal it was no longer your concern. Will Cargill or Viterra not simply buy the grain directly from you now, as a storage facility, and take it to port?
Mr. Bell: Yes, they may. As we said before, the concern is that we also compete with the Cargills and Viterras of the world in the country for buying that grain.
For example, I am in Westlock. There is a Cargill in the ATL facility Edmonton, which is about 40 miles away. Viterra has a facility in Acheson on the west side of Edmonton, and JRI has one at Morinville, which is about half an hour away. We are also competitors of these multinationals in buying this grain in the country.
Senator Eaton: They also have terminals?
Mr. Bell: That is right. They will not likely give us a sweetheart deal to put into the Port of Vancouver. They will probably gouge us and squeeze us out in the country.
Senator Eaton: Will it not be determined by the marketplace to the farmer directly? If I am a farmer and Viterra offers me a better deal than you, perhaps I will go with Viterra. Will it not come down to the marketplace?
Mr. Bell: That is right. They will decide where the better deal is. If we are $10 to $15 in the ditch on pricing, we will not have a competitive advantage to compete with Cargill.
Senator Eaton: Or it could be the other way around.
Mr. Bell: Not if we do not have a terminal. We have no marketing ability abroad either, while they do.
In Westlock we handle 200,000 tonnes of grain a year. Fifty per cent of that is export grain and 50 per cent is domestic grain. We do a little bit of both, but the fear is that we suddenly have to find out how to sell the export grain on the world stage, how to get it on the boat and how to cash flow it. We are one of the lucky ones in that we do have that non-board market, but many of the terminals deal strictly with export grain. They do not have a feedlot. The ones in northern Saskatchewan may not be close to a feedlot or have that local market.
Senator Duffy: Mr. Bell, congratulations on you and your colleagues building a very successful business across the Prairies. I remember when inland terminals were developed. I think Otto Lang was the minister responsible for the Wheat Board then. There was a lot weeping and gnashing of teeth and many people were worried about the abandonment of rail lines. The message is very clear. People were worried and fearful, but they adapted and succeeded, and your business is now worth more than ever, is it not?
Mr. Bell: That is correct.
Senator Duffy: I believe in the ingenuity and capability of Western Canadian producers and the people who handle their grain for them. History shows that it works and that Otto was right.
The Chair: There was no question.
Senator Duffy: Do you agree?
The Chair: That said, honourable senators, we will move to Senator Robichaud to be followed by Senator Mahovlich.
Senator Robichaud: I think Senator Duffy meant that the Canadian Wheat Board worked very well, which allowed you to do your business.
Mr. Bell, you indicated that railway service is very important for you to continue your business. You also said there would have to be appropriate measures put in place. What kind of measures would you like to see?
Mr. Bell: We would like to see rail service agreements put in place, along with the cost of that. Currently, if I ship a car from Westlock to Vancouver through the Wheat Board, it costs $2,600. If I ship that same car to Abbotsford, which is very close, it costs over $4,000. The fear is that that low-end price may creep up on our rail service, especially if we do not have a big negotiating stick.
There is a process that is going through right now for us to get rail service at a cost that will not be prohibitive. We are pretty much captive to rail service to get the product to port. Trucking is not competitive from where we are.
Senator Robichaud: Mr. Geddes, you are quite concerned about the quality of Canadian wheat. It has been said many times that it is the producers who produce quality wheat and the Canadian Grain Commission assures that we maintain a certain quality. You are also a player in providing quality.
Tell me where something can go wrong. I know that you mix grain. If the quality of grain from Canada is not maintained, we will be big losers, will we not?
Mr. Geddes: Canada's wheat brand is based on our entire system today. The Canadian Wheat Board, with CIGI, has helped to create that brand of the best wheat in the world. That brand is based on, first, a variety registration system that is more rigorous than exists in most countries of the world, which is backed up by the Canadian Food Inspection Agency, which manages the variety registration system, which is backed up but the Canadian Grain Commission that manages the quality flow through the system.
None of that is directly impacted by Bill C-18. The impact is that we will now have multiple exporters that will no longer have access to the entire pool of wheat to meet customers' needs. The quality risk will be with what goes in a vessel. If exporters start to just sell wheat as wheat, customers will find that they are no longer getting what they used to from Canada. Why would they pay more for Canadian wheat than U.S. or Russian wheat in the marketplace?
With Bill C-18, on August 1, 2012 the other tenets will still be intact. As long as we do not mess those up, there is a good chance that we can maintain our quality image and our brand image globally. The risk is that the market structure has changed. The commitment to quality shipments may be different than it has been in the past. CIGI certainly has a role to play in that. We are talking to the current exporters about the global wheat system and why Canada's wheat has a premium pull into certain marketplaces so that they understand the rationale for maintaining a high quality profile for Canadian wheat.
We are doing what we can. When we asked the Government of Canada to continue our funding over a transitional period, we said that we would commit to help the industry maintain that quality profile.
Senator Mahovlich: Mr. Geddes, you list five concerns here. It looks to me as though, if things start to crumble, we will have to form another Canadian Wheat Board. We may give it a different name, perhaps the "Canadian Board of Wheat" or something, but someone will have to look after this.
Japan buys our wheat because it is the best in the world. Are they aware of what is happening here? Japan is one of our largest customers. I am sure they know the Canadian Wheat Board very well.
Mr. Geddes: On the first issue, if we are not able as an industry to manage some of these concerns, whether quality, customer care or market knowledge, clearly growers in Western Canada will be put at a disadvantage to what they currently experience in the global marketplace.
The likelihood of us creating another CWB as a marketing agency does not stand well in terms of what I understand about international trade agreements. The industry will need a council of some type to provide guidance on those issues, whether it is similar to the Canola Council of Canada. What it will look like, we are not sure, but we would like to provide some views on that.
On the second issue of how customers look at Canadian wheat and why they pay premiums, Japan is a perfect example. The Japanese Food Agency, which tenders around the world and buys about 1 million tonnes of Canadian wheat each year, and pays very well for it, does so because of two things: One, the cargoes of wheat they receive from one seller are consistent year after year, although they may have to pay more than they might otherwise, but so be it. Their concern is real. In a year like 2010, they relied on the entire Canadian crop to give them the 1 million tonnes of 1CWS130 that they want to have in their bins to share with the millers in Japan. They have expressed that concern to the Canadian Wheat Board. We have had discussions at the Canadian International Grains Institute about how to help manage that in a multiple seller environment. That same issue is very real for many customers around the world. When they come to Winnipeg to see the Canadian grain industry and talk about what they are to do now, including the CWB, they stop at CIGI and ask: Will you be there to backstop us on the technical side? We tell them that it is our commitment to be there in this interim period.
Senator Plett: I asked Mr. Geddes earlier about his opinion on whether his organization would continue to thrive under the new system; and he answered in the affirmative.
Mr. Geddes, is it true that you worked for the Canadian Wheat Board for quite a while before you came to CIGI? If so, you would have the expertise on both sides of this issue when you answered your question.
Mr. Geddes: Certainly, I have harvested 32 crops. I worked at the Canadian Wheat Board for 15 years and have been at CIGI for the last two and a half years. I have some knowledge of how the industry works. The one piece I know is that in this kind of transition, and we have talked about it in different ways, farmers generally are the ones who pay the bill. We want to ensure that the things that farmers have created with their dollars over the last 75 years and 40 years at CIGI do not get thrown out while we are doing other pieces of legislative change.
Senator Plett: Thank you.
The Chair: Honourable senators, I thank the witnesses very much for sharing their expertise and knowledge with us.
(The committee adjourned.)