Proceedings of the Standing Senate Committee on
National Finance
Issue 31 - Evidence - December 4, 2012
OTTAWA, Tuesday, December 4, 2012
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to study supplementary estimates (B) for the fiscal year ending March 21, 2013.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: This morning, we are continuing our study of supplementary estimates (B) for the fiscal year ending March 21, 2013.
[English]
This morning we are pleased to welcome officials from the Department of Finance Canada. We welcome Sherry Harrison, Assistant Deputy Minister, Corporate Services Branch; and Douglas Nevison, Director, Economic and Fiscal Policy Branch.
From the Department of National Defence, we welcome Major-General Robert Bertrand, Acting Chief Financial Officer; Major-General Ian C. Poulter, Chief of Program; Karen Cahill, Director General, Strategic Finance and Financial Arrangements; and Rear-Admiral Patrick Finn, Chief of Staff, Materiel Group.
Thank you very much for being here. We will begin with the Department of Finance Canada. We are dealing with the supplementary estimates. When you give your remarks, if you say why you need the funds in this Supplementary Estimates (B), please refer to the supplementary estimates to help illustrate your comments. That is always helpful to us because then we can follow what you are saying.
We will begin with Finance and then move to the National Defence. I would ask each department to please provide our committee with as close to a good understanding as we can have in relation to the supplementary estimates, because we will be dealing with the supply bill that will be coming along next week, I expect, in relation to this matter.
[Translation]
Sherry Harrison, Assistant Deputy Minister, Corporate Services Branch, Department of Canada: Good morning Mr. Chair. My name is Sherry Harrison and I am the Assistant Deputy Minister responsible for Corporate Services at the Department of Finance. With me today are officials to assist in responding to your questions on the 2012-2013 Supplementary Estimates (B) for the Department of Finance. These supplementary estimates reflect an increase in departmental spending of $239 million.
It is important to note that $230 million relates to statutory items that have already been approved by Parliament through enabling legislation. These statutory items are displayed in the Supplementary Estimates (B) for information purposes and will not be included in the appropriation bill.
[English]
Within the statutory forecasts, the contributing factors to the $230-million increase are as follows: a $1.166-billion decrease in interest in unmatured debt to reflect revisions of forecasted interest rates by private sector economists; a $28-million decrease in other interest costs due to the downward revision in the average long-term bond rate; a $13.5- million decrease in additional fiscal equalization to Nova Scotia; a $2.9-million decrease in Youth Allowances Recovery payments from Quebec; a $22.3-million decrease in recoveries of Alternative Payments for Standing Programs; a $733-million increase in payments to the Province of Quebec regarding sales tax harmonization; and $679.7 million in additional fiscal equalization payments Total Transfer Protection to provinces related to the equalization program.
New funding requirements for vote 1 operating of $1.1 million consist of re-profiles from the last fiscal year, including the Crown site of the 90 Elgin Street Redevelopment Project for $179,000; maintaining the strength of Canada's financial system, $588,000; Proceeds of Crime (Money Laundering) and Terrorist Financing Act litigation with the legal profession, $200,000; and the Toronto Waterfront Revitalization Initiative, $179,000. These new requirements are entirely offset by funding available within vote 1 due to savings identified as part of the Budget 2012 spending review.
The new funding requirements of $9.9 million in vote 1 grants and contributions are in support of the Toronto Waterfront Revitalization Initiative. A total of $1.4 million available within vote 1 is being transferred to this vote to offset these funding requirements, resulting in a net increase of $8.6 million in vote 5. The $1.4 million consists of a $1.2-million re-profile of the tax policy GST technical issues funding to next year, as well as $191,000 for savings identified as part of the Budget 2012 spending review.
[Translation]
We would be pleased to address questions that the committee may have on these supplementary estimates.
[English]
The Chair: Before we go to National Defence, I would like you to go to Supplementary Estimates (B) and point out these numbers for us and show us how we follow your piece of paper comments.
Ms. Harrison: Certainly. If we go to page 56 of the English text, you will see the voted appropriations at the top of the page. Vote 1 is the operating costs of the department, and vote 5 is the grants and contributions.
You will see down the left the four funding requests with a total of $1.136 million in operating costs, as well as $9.9 million for the grants and contributions, for a total request of $11.1 million. Those new requests are offset by funding that is available within the operating budget due to Budget 2012 spending. Following down further, you will see under vote 1 that $1.136 is available within the vote, so the net requirement that we are asking of new funding is zero, because the requests are offset by savings identified within the vote.
For the grants and contributions, you will see that $1.4 million is available. There is a footnote at the bottom of the page that explains where that funding is coming from — it is coming from vote 1. Part of it is related to the spending review and part of it is related to the re-profile of the GST item that I referred to in my notes.
You will see below that the statutory appropriations that I walked through in my opening remarks. These are statutory appropriations. The authority for those payments is through statutory legislation, and they are not part of the appropriation bill.
The bold item of $8.583 million is our net requirements in these estimates on a voted basis, and it is all related to our grants and contributions.
Is that helpful, Mr. Chair?
The Chair: Yes, it is. That number is about a third of the way down and is the total right-hand column of vote 1 and vote 5, is it not?
Ms. Harrison: That is correct. You will see the first column vote 1 nets out to zero because of the offset. Therefore, our total requirements in the supplementary estimates are strictly required for the grants and contributions vote 5 in a net amount of $8.58 million.
The Chair: Okay. Usually before we get into questions, we ask why these are in these supplementary estimates and why they were not in the Main Estimates that we dealt with back in the spring.
Ms. Harrison: Related to the timing of the re-profile of the Toronto Waterfront Revitalization Initiative, we start closing the Main Estimates back in about January of the fiscal year due to the production of the estimates. The re- profilings request, both on the operating and the grants and contributions, were identified after those dates, so we brought them in through the supplementary estimates process.
The Chair: Thank you. There will be senators who will have questions. I will have the Department of National Defence give their presentation first.
Major-General Robert Bertrand, Acting Chief Financial Officer, National Defence: Turning to the estimates before you, I would like to walk you through our estimates and give you pointed reference to page number so you can follow the numbers I will present.
The bottom line up front — the net change resulting from these supplementary estimates — is an overall decrease in our spending authority of approximately $15.7 million. You will find that number at the bottom of page 104 of the English version and at the bottom of page 74 of the French version. At the bottom right hand corner is the $15.7- million reduction.
Moving on, this reduction in spending authority results from an increase of $146.8 million in our operating expenditures, which is offset by a decrease of $162.5 million in our capital expenditures. Those two numbers are reflected on page 102 of the English version and on page 71 of the French version, halfway down, under 5b and 10a on the right hand side. In the middle, you will see $146.8 million and a reduction in capital of $162 million.
Moving on to page 104 of the English version and page 74 of the French version, these supplementary estimates include new spending authority requests to provide Defence with the required resources to deliver on pressing operational needs of today and in the longer term. New authorities being sought include a $205.6-million reimbursement of the Pension Act offset under the Canadian Forces Service Income Security Insurance Plan payment, pursuant to a court ruling; $59.5 million for the acquisition and long-term support of the Tactical Armoured Patrol Vehicles; $31.3 million for further science and technology investments in the areas of public safety and security; $36.5 million for the implementation of Phase 1 for the Force Mobility Enhancement project; $22 million for the definition phase of the Canadian Surface Combatant project; and $7.2 million definition funding for the Fixed-Wing Search and Rescue Aircraft Replacement project. Finally, we have one line for reinvestment of royalties from intellectual property.
While the supplementary estimates contain new spending authority requests in the amount of $370.7 million, the requests can be fully absorbed by funds available as a result of Budget 2012 spending review savings and the re- profiling of planned capital expenditures to future years through internal reallocations. Those numbers are reflected in the middle of page 104, where you can see the funds available and, under Total Voted Appropriations, that no new funding is required. The funds are available as a result of Budget 2012, which came out after the Main Estimates and froze spending of departmental appropriations that were approved in the Main Estimates. We had a capital re-profile as a result of changes in payments and contract schedules for our capital program in the order of $280 million, which was not reflected in the Main Estimates. Again, there is no requirement for additional budget appropriations through these supplementary estimates. DND has sought to manage carefully its resources to balance the requirements of the CF with the need to protect Canada's fiscal health.
Please note that we do not have any officials from the Communications Security Establishment and the Military Police Complaints Commission here with us today, but we will take questions on notice for those two organizations. We would be pleased to hear the committee's thoughts and to answer any questions you may have.
The Chair: You said that you do not have officials from the Military Police Complaints Commission and the Communications Security Establishment here today. They fall under DND's broad umbrella but have a separate operating budget. Is that correct?
Maj.-Gen. Bertrand: Exactly. They do separate Main Estimates and supplementary estimates.
The Chair: Thank you, gentlemen.
Senator Finley: I have a couple of clarifying questions, if I may.
A substantial chunk of money is set aside for HST harmonization in Quebec. What is the state of that process? Are we well enough into it where this will become an ongoing event or will we continue to see further large chunks of money to make it happen?
Ms. Harrison: In March of this year, the Province of Quebec and the government entered into a comprehensive integrated tax coordination agreement whereby Quebec agrees to make a number of changes to their sales tax in order to harmonize it with the Goods and Services Tax. That reflects the $733 million in the supplementary estimates as part of the total payments scheduled of $2.2 billion to Quebec.
I could ask a colleague, who is here today, to speak to the details of the Quebec agreement.
Senator Finley: Is this a one-off type of deal or an ongoing event? You said that $733 million is a consequence of signing the agreement or introducing this. Does that mean that this will stop or continue?
Ms. Harrison: There will be two payments; one this fiscal year and another next year for the balance of the agreement.
Senator Finley: How much roughly would that be?
Ms. Harrison: It will be $1.46 billion. The total agreement is $2.2 billion. Ms. Lise Potvin may have something to add.
The Chair: Ms. Potvin has joined us, Senator Finley. She may be able to help you with Quebec and perhaps British Columbia.
Lise Potvin, Director, Sales Tax Division, Department of Finance Canada: There are two payments to Quebec, one in January 2013 and the other on January 1, 2014, as a result of their signing the agreement that commits them to harmonize their sales tax with the GST going forward.
Senator Finley: Have there been any surprises in this process — anything that was unscheduled or unforeseen?
Ms. Potvin: To date, everything is fine. Quebec tabled their harmonization legislation, I believe, two weeks ago. The agreement has been signed, so everything is correct.
Senator Finley: Fiscally, there are no surprises in terms of numbers over what was anticipated.
New Speaker: The numbers are set out in the agreement. The amounts being paid are per the agreement.
Senator Finley: Okay. Both Finance and National Defence have couched their requirements under the sups and have relied heavily on budget savings from the 2012 review or 2011. Have these budget savings been pocketed already or will we save that money in the future? What is the status in each department of the projected budgeted savings?
Maj.-Gen. Bertrand: For National Defence, the first-year budget savings has been frozen. That is partially the $90 million you see here.
Senator Finley: When you say ``frozen,'' what do you mean that?
Maj.-Gen. Bertrand: Funds were appropriated and the spending authorities were frozen — the $218 million. Those spending authorities are not available to us. About $90 million of that funding was used here so we would not have to appropriate new funds. We have three-year targets for Budget 2012 reductions. That funding will be reflected in next year's Main Estimates.
Senator Finley: Thank you. What about Finance?
Ms. Harrison: Finance is on track for our savings. The Department of Finance, as one of its statutory accounts, has the purchase of domestic coinage. The reductions are related to things such as eliminating the penny. Those are well on track. We have some operating savings that we are using in the supplementary estimates to offset our requirements, and those are fully on track on the operating side.
Senator Finley: All is good with the budget.
Ms. Harrison: Yes.
Senator Finley: I have one last question, if I may, to National Defence.
You mentioned, but I did not catch the whole gist of what you were saying, that there were substantive changes in savings, presumably in the administration of contracts and schedules. You mentioned that toward the end of your presentation. Could you amplify what you meant by telling us what manner of savings they are to give the committee a flavour for this?
Maj.-Gen. Bertrand: The department has a rather large capital program, and there is funding set aside for each project. During the course of the year, twice a year, we do reviews on our spending against contract and contract deliverables. If required, funds can be moved forward if the projects are in need of more funding, or funding can be re- profiled to future years if there is slippage in deliverables or performance. The re-profiles that are done for us by the Department of Finance ensure that funding is available in future years to the department for those projects.
Senator Finley: These are not necessarily hard savings; they are just delayed savings. Is that right?
Maj.-Gen. Bertrand: Exactly. These are funds being re-profiled to future years to a large extent. Since the funds have been appropriated in-year, they are still available as an offset against any in-year requirements.
Senator Finley: Although you have the money, theoretically this is in future savings, but you are applying it now to something else?
Maj.-Gen. Bertrand: Correct. The funding for these projects was in our Main Estimates and has been appropriated. Since we will not be using it this year, government policy is to use those sources of funds to offset any current-year requirements, so there is no requirement to appropriate new funds.
Senator Finley: Thank you.
The Chair: I wonder if you could help us further. There are various capital projects that you decide you will not go ahead with this year, even though Parliament has approved them in the Main Estimates. You have those funds available, as you have just explained to Senator Finley, for other items, and the policy is to ask for that. You come to us in the supplementary estimates and ask to use some of that money that had been allocated for capital projects to be used for other purposes. Is that right?
Maj.-Gen. Bertrand: That is correct.
The Chair: We are with you so far. What happens to the capital project? We approved it with some money and you are now using that money for something else, with our approval. What happens to the approval of the capital project and the funding for that? Will you have to come back in the Main Estimates next year and ask for money for it?
Maj.-Gen. Bertrand: There is no change to the approval of the capital project. The only change is one in the cash phasing of the expenditures for the capital project. This submission for the re-profile is submitted through the Treasury Board for approval and forms part of our supplementary estimates to the extent that we use those funds to offset current-year requirements.
The Chair: Can we expect to have you back here next spring asking for funds for those capital projects that have already been approved but you used the money for something else?
Maj.-Gen. Bertrand: We will not be appearing in supplementary estimates asking for that funding; it will be going through Finance and become part of a re-profile that is approved and reserved in the fiscal framework for those projects for future years.
The Chair: However, the money was used for something else through a re-profiling, right?
Maj.-Gen. Bertrand: Right.
The Chair: What I am asking is do you have to come and ask again? You have used the money but will have more money later on. How do you get approval for those capital projects?
Maj.-Gen. Bertrand: The Treasury Board submission laid out the amount of money for each project that was required in future years. That is approved by Treasury Board. The source of the funds was used here. That funding is reserved for those projects in future years, as per the Treasury Board submission. We will not appear here asking for more money for these projects.
The Chair: Thank you.
Senator Callbeck: Thank you all for appearing this morning. I have a few questions for the Department of Finance.
Ms. Harrison, in the brief that you presented to us, there is a decrease in interest of $1.1 billion. You say that reflects the forecasted interest rates by private sector economists. How much are they projecting that interest rates will go down, what percentage?
Ms. Harrison: I will ask my colleague Mr. Nevison to respond to that.
Douglas Nevison, Director, Economic and Fiscal Policy Branch, Department of Finance Canada: The interest rates that are used in Supplementary Estimates (B) were provided in the Budget 2012 forecast. That was based on a March survey of private sector economists.
In that survey, to give you an example, long-term rates, 10-year bond rates came down to an average of 2.2 per cent versus 2.7 per cent, which was in the previous update, so 50 basis points. Short-term rates came down 30 basis points.
Senator Callbeck: There is another figure here, a $22.3-million decrease in recovery of alternative payments for standing programs. Could you please explain what that is?
Ms. Harrison: The alternative payments for standing programs represents recovery from Quebec of additional tax points above and beyond the tax transfer point under the Canada Health Transfer and the Canada Social Transfer. In the 1960s, Quebec was the only province that took up on the federal government's offer to receive part of its federal program contributions in the form of tax abatement.
The figure that we had in the Main Estimates for this amount was a forecast, and we have updated that forecast in the supplementary estimates. The next forecast will take place later this fiscal year and will be reflected in final supplementary estimates.
The recoveries for these programs are based solely on personal income tax data. That is why we are adjusting the numbers as we get the data refreshed.
Senator Callbeck: This refers only to Quebec, then, does it?
Ms. Harrison: That is my understanding, yes.
Senator Callbeck: There is another figure on page 57 in the English version. There are additional fiscal equalization payments of $679 million. Earlier in the document you say those payments went to Quebec, Nova Scotia, New Brunswick and Manitoba. Nova Scotia was to get $13 million, but then at the bottom, I see Nova Scotia will lose $13 million.
Ms. Harrison: The total transfer payments were announced in December 2009 and were extended to the last fiscal year and the current fiscal year as announced by the Minister of Finance in Victoria, British Columbia, last December. They are calculated to prevent declines in the major transfers between 2011-12 and 2012-13. That is done by comparison of the equalization, CHT, CST and total transfer payments in 2011-12.
I can have a colleague come down to walk you through the various transfer payments between provinces.
Senator Callbeck: No, it just looked to me like Nova Scotia had been included in that amount of $679 million. According to the documentation here, they were to get $13 million, and then it is taken away from them.
Ms. Harrison: Perhaps I can have a colleague come down and speak to the various transfer payments to the provinces.
Chantal Maheu, General Director, Federal-Provincial Relations and Social Policy Branch, Department of Finance Canada: Senator Callbeck, you are correct that under the Total Transfer Protection payment, the government provided payment to the provinces that saw a decline in their major transfers in 2012-13, and Nova Scotia was a recipient of that for $13 million. However, Nova Scotia also received an amount under the additional fiscal equalization. I am looking at page 53. If you look there, they were forecast to get $325 million. That payment is part of a commitment of the federal government to ensure that Nova Scotia does not receive less in equalization payments from the changes that were made in 2007 than they would have received under the previous formula.
That $325 million filled in the difference between the current equalization formula and the one that existed prior to 2007. Because Nova Scotia received $13.5 million under the Total Transfer Protection payment, it reduced the gap between the two formulas. That amount was deducted from the additional payment they were to receive under the accord.
Senator Callbeck: I am not sure I follow this $325 million. Would you go over that again, please?
Ms. Maheu: Yes. In 2007, the government changed the formula for equalization and committed at the same time to Nova Scotia that they would not receive less equalization under the new formula than they would have received under the previous formula. That amount, $325 million, was our forecast of that difference between the two.
Senator Callbeck: That is fine. That was on page 57.
On page 56, under vote 5, there is the $1.4 million, which you have already talked about. It says there is no new money needed here because of the spending review. There was $191,981 that came from that review. Can you tell us what that was or give us a breakdown on that, please?
Ms. Harrison: Yes. As part of the Budget 2012 Spending Review, the department has undertaken some reductions to its operating costs, mainly around reorganizing internal services in the current fiscal year. I have generated savings in that I have consolidated some of the admin support, for example, in one of my groups. I have also done some other restructuring in corporate services. As a result of the staff savings that had been forecast and included in the Main Estimates, that money is now available to offset new requirements. The operating costs are entirely related to staff reductions.
Senator Callbeck: That $191,981 is all staff reductions?
Ms. Harrison: Yes, and there is a further reduction. You will see on page 4 of the vote 1, $1.136 million dollars. That is also part of the same spending reduction, senator. The combined reduction, part of it is going to vote 5 as a reduction of costs of $200,000, and the balance is a reduction to the vote 1 operating cost. The total reduction is the sum of those two numbers, about $1.4 million.
Senator Callbeck: This has been brought up with regard to Quebec, $733 million for harmonizing. When a province says, ``Yes, we will harmonize,'' is there a formula that decides what each province will get so that it is fair across the board?
Ms. Harrison: The terms for receiving the transitional assistance and the schedule of payments are set out in an annex to the agreement. I would like to have my colleagues come back to speak to the details of how that is established.
Ms. Potvin: The payments are all determined in the same way since Ontario has harmonized, so the payments to Ontario and British Columbia, which are now being repaid. Quebec and Prince Edward Island are based on 1.5 points of GST, the value of that in the province.
Senator Callbeck: Everyone is treated the same way right across the board.
Ms. Potvin: Yes.
Senator Callbeck: My other question is on national finance, and Senator Finley has already asked it.
[Translation]
Senator Bellemare: I would like to ask a question in the same vein as that asked by Senator Finley. In your remarks, Ms. Harrison, you said you are financing a large portion of the increase through a $1.2 billion decrease in interest, therefore in the payment on the debt. This decrease is not based on real decreases in the interest rate, but on forecasts. We balance the expenditures that are sometimes permanent relative to the revisions. Here you are talking about a decrease and that is fine, but we could just as well have seen an increase in the interest rates. Is this common practice? Are the supplementary estimates often balanced through variations in the interest on the debt? What was the nature of the sensitivity?
I also understand, from the answer you gave to Senator Callbeck's question, that the $1.2 billion amount corresponds to a change of 0.5 p. cent in the anticipated interest rates; is that correct?
[English]
Mr. Nevison: I would add that for 2012, again there is a time lag between the projections that we are using in the supplementary estimates. For example, as I mentioned, for this Supplementary Estimates (B), the projection was done in March of 2012. Subsequently, we have seen interest rates evolve. We are almost done 2012 as a calendar year, and interest rates have come in lower than that projection. In a sense, I think that projection is fairly clear. As we move towards Supplementary Estimates (C), you will see another downward revision in public debt charges as a result of what has happened in the economic environment and interest rates.
[Translation]
Senator Bellemare: You could therefore easily have written that it was not a decrease in the forecasts but a decrease in the costs of the interest. You could have said that the decrease reflects the forecasts, rather than stating that is was a real decrease in the interest rate, could you not?
[English]
Mr. Nevison: In the event, yes, you are right. The actual events have seen interest rates drop even further. However, again, the timing lags that go into production of supplementary estimates are based on a particular forecast at a point in time. Again, these estimates are based on a March forecast. We have subsequent forecasts by private sector economists for our updated economic and fiscal projections. That was released in November. Again, those interest rate projections — not only for 2012 but for the entire forecast period — have come down quite significantly.
[Translation]
Senator Bellemare: My second question deals with the $679 million in additional equalization payments. Are they permanent transfers or is this a single payment for this year?
[English]
Ms. Harrison: These are payments for the declines in transfers between 2011-12 and 2012-13, and those were announced by the Minister of Finance in December of 2011. These are just for this period of time.
Senator Bellemare: They are non-recurrent, then. Okay.
Senator L. Smith: Just a simple question for Ms. Harrison. Proceeds of crime, vote 1, $200,000. Could you explain the expenditure or the monies required on that?
Ms. Harrison: This funding will be used to support the department's ongoing litigation with the Federation of Law Societies of Canada to defend the constitutionality of the legislation. The legislation covers a wide variety of financial transactions and intermediaries, including lawyers, accountants, real estate agents and casinos. This legislation has been the subject of a constitutional challenge by the legal profession since 2001. The funding we are bringing forward from last year into this year is to deal with the outstanding legal issues.
Senator L. Smith: It is ongoing, and basically the legal profession does not want to be covered by FINTRAC, is that correct, in terms of being required to submit transactions?
Ms. Harrison: There is an issue with the legal profession as to how they see their role under this legislation vis-à-vis the government's position, and there has been ongoing legislation.
Senator L. Smith: It is just the legal profession; it is not necessarily real estate agents and other folks? You had mentioned other groups.
Ms. Harrison: My understanding is that the litigation in this particular case is with the Federation of Law Societies of Canada.
Senator L. Smith: Thank you.
Senator Gerstein: I will pick up on the question by my colleague, Senator Smith. Three members of the Banking Committee, which is currently reviewing the proceeds of crime act, are on this committee. This litigation has been taking place since 2001 and we have the number of $200,000 today. Could you indicate to the committee or provide the committee with how much has been spent on this since 2001? What was the budget for this year? What do you anticipate it may entail in its totality?
Ms. Harrison: My understanding is that the current profile for the issue around the constitutionality of the legislation is $1.7 million over about four fiscal years.
Senator Gerstein: Is that to go or since it was raised in 2001?
Ms. Harrison: Yes, that is my understanding. This is the funding profile that was approved.
Senator Gerstein: What has been spent? Can you get that information and provide it to the committee?
Ms. Harrison: Yes, I can.
The Chair: Is there someone who would like to have a seat at the table now?
Ms. Harrison: My colleague, Mr. Rudin, may have that information.
Jeremy Rudin, Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance Canada: As you were discussing, litigation with the law societies has been ongoing for some time. There was a period in which it was suspended while government sought to negotiate an agreement with the law societies. When that failed the litigation was re-initiated, and for the period of the re-initiation of the legislation, $1.7 million was set aside. The $200 million that we seek to re-profile into the current year —
Senator Gerstein: Do you mean $200,000?
Mr. Rudin: Yes, thank you, senator. The remaining $0.2 million of the $1.7 million is what has yet to be expended, and it is for litigation activities this year.
Senator Gerstein: Is the $1.7 million over a period of four years? Was that when it was re-established as a suit?
Mr. Rudin: It reaches back to 2009-10.
The Chair: We did not quite hear the prompting from Ms. Harrison to Mr. Rudin.
Ms. Harrison: The expenditure of $1.7 million was started in 2009-10.
The Chair: Thank you.
Senator Hervieux-Payette: For how many years will we go with that? Where are we in terms of the legal process? Even though we are proposing new legislation, if we have not solved that it means it is blocking some evolution with the legislation.
The Chair: The second member of the Banking Committee giving free advice here. We are pleased you came to the Finance Committee to find out what is going on.
Mr. Rudin: A hearing took place in May of 2011 before the British Columbia Supreme Court. The court found in favour of the Federation of Law Societies of Canada. The government appealed this decision. This was heard by the British Columbia Court of Appeal in October 2012. That is the state of the matter. We are awaiting the British Columbia Court of Appeal's decision, and I cannot predict whether that will be the last step or not.
Senator Gerstein: Mr. Rudin, can you provide this committee with the amount spent on this legal issue since 2001? How much was spent in 2001 until it was suspended; when was the $1.7 million approved; how much has been spent and where are we today?
Mr. Rudin: I will see if I have a colleague whose memory goes back to 2001, and if not I will undertake to provide that information to the committee.
Senator Gerstein: You can provide it in writing.
Mr. Rudin: If that suits you, Mr. Chair, that is what we will do.
The Chair: Please keep in mind that we will probably have to deal with this within the week, so the sooner you could get us the information the better. Thank you.
Senator Gerstein: My second question is to General Bertrand. I would like to pursue the issue raised by Senator Finley and Senator Day. I must say the concept of funding current operations by reducing capital expenditures is somewhat interesting, if not questionable and incomprehensible, particularly when you make the statement that you will not be asking for additional money for approved capital projects in the future. Could you expand a little? I cannot understand what you are saying at all. How can you take money from capital, use it for current operations, still have the capital project in place and suggest that you will not have to refill the bucket at some point?
Maj.-Gen. Bertrand: Thank you for the question. When projects are approved they have an approved project budget and they have an approved project cash phasing for the project. Major Crown projects go for Treasury Board approval. If we miss them in Main Estimates, those projects subsequently appear in supplementary estimates for approval.
Twice a year the department does a cash forecast for its capital program. We submit the results of that cash forecast to the Treasury Board for review and approval. This is for approved projects only. With the approval of the board, the funds are reserved for those projects in the years requested in the future.
Senator Gerstein: From where are they reserved?
Maj.-Gen. Bertrand: Future funds within the fiscal framework, and the funds that are not used in-year are available for reallocation. You see those funds being used in-year to offset a current year requirement. Those funds have been appropriated, they are not required in-year, and they are being reused in-year to fund a current year requirement. Funding is protected for those projects in the future.
Senator Gerstein: I do not understand this at all. Could you take me through some numbers?
The Chair: That was exactly my question. I am glad you are asking this.
Senator Gerstein: You have been approved $100 million to acquire something. Because of the delivery or whatever, you have only taken $50 million and you have spent $50 million. Now, in effect, you are saying you have $50 million still in your pocket and will use that to fund other things, which you do. You come around and the following year the $50 million is now on the table. Where do you get the money to pay for it?
Maj.-Gen. Bertrand: Current year funds unused, as I said, remain available for in-year. They are unused because of changes to the capital contracts — deliverables. Any number of reasons could cause a project not to spend in-year.
Senator Finley: Could you give an example of what could cause that? You are saying some reasons. Give me some examples of reasons that would cause $50 million or $100 million to be unused.
Maj.-Gen. Bertrand: My colleague from the Materiel Group will give several reasons.
Rear-Admiral Patrick Finn, Chief of Staff, Materiel Group, National Defence: As General Bertrand has said, there are many reasons. As we cash phase each individual project, we will lay it out in different phases. They typically go through a definition phase. We are working with industry to define what will actually be provided. Requests for proposals will be issued. Once we get into contract, we will go through the implementation.
In each one of those phases, we make a number of financial predictions. In some cases we are buying things offshore and we have to deal with exchange rates. We will establish contingency in each contract to determine if there are issues or opportunities. It could be, as you have indicated, that there is a delay in establishing the contract. It could be a delay in delivery as they go through the design phase that pushes some of the work out into future fiscal years. Although we go forward for approvals with initial cash phasing, as each project individually goes forward there are any number of times that we have to come back and revisit the project. At times it could be things are actually delivered earlier once an assembly line gets up and going, so we may actually be re-profiling money and advancing it to try to make earlier payments.
However, each project by itself progresses at its own rate. As indicated, twice a year we come together to look at all the projects in total to look at the net effect in our overall capital program.
Senator Gerstein: With respect, I understand everything you have said so far. What I do not understand is that if you did not spend the money and have then taken that money and spent it on something else, how do you get the money to fulfill the final obligation when the deliverables come forward, without coming back and asking for more money?
Maj.-Gen. Bertrand: It is a tricky concept to understand.
Senator Gerstein: I should say so.
Maj.-Gen. Bertrand: The funds are appropriated in-year for the project. If the project does not require those funds in-year, they are used as a source of funds for other requirements, as you have seen in these supplementary estimates. The Treasury Board submission that goes through for approval for the re-profile re-profiles the requirement and reserves it. Let us take that $50 million example you used: If we need it next year, it will be appropriated for next year.
The project did not need the $50 million; it was being used for something else in-year.
Senator Finley: However, the taxpayer —
Maj.-Gen. Bertrand: It does not come back to the taxpayer. They are different funding requirements in future years, and that particular bookkeeping is done by Finance.
The Chair: We are concerned about something, and it is pretty obvious, I think, but let me put it on the record. We as parliamentarians felt that we voted appropriations, and we felt that we had, in that way, a control over what the government was spending in any year. You are now telling us that there are funds that you can draw on for other years that you do not need parliamentary approval for in that particular year. That is what you are telling us.
Maj.-Gen. Bertrand: The Main Estimates provide your appropriations for the year with the subsequent supplementary estimates providing updates for actions and approvals that have happened after the Main Estimates. Next year's Main Estimates will be the opportunity for Parliament to approve the department's funding requirements in all three votes — votes 1, 5 and 10. The vote 5 in next year's estimates will contemplate the full capital program for the department for that year.
Therefore, the Main Estimates that were voted on this year covered the 2012-13 fiscal year.
Senator L. Smith: What comes to mind from a business perspective is that there seems to be a shifting of priorities and plans. Therefore, what is going on with the planning process with the shifting priorities if you suddenly go from one project to another?
In business, you usually have a strategic plan and you go forward with A, B and C. It would seem that you probably have A, B and C, but there could suddenly be a D, E and F, and you have a pot of money you can play with. That begs the question: Is this reflected in the planning process within your group?
Maj.-Gen. Bertrand: Certainly we have an extensive capital program, and the projects are managed individually by project managers, subject to a certain amount of governance, whether by senior review boards and/or departmental oversight. That piece is reviewed. On a cash side, it culminates twice a year in the cash forecasts, which I explained to you.
It is hard to establish a cash forecast for a project when there are so many variables that could affect deliverables, as Rear-Admiral Finn said. Any number of reasons could cause a change to the cash requirements for the project.
The project itself, with the re-profile, remains on budget and within its approved funding. It is just that the cash phasing of that funding will change from year to year.
The Chair: I will have to call an end to this discussion. Could we all review the transcript of this particular discussion? General Bertrand, could you provide us with an explanation of this process in writing? Then, if we need to, we will ask you to come back after that. However, we are under a time constraint. I have three senators who have expressed an interest in discussing what I presume to be other matters than this one. Therefore, if you could do that and provide us that in writing, it would be appreciated. We have five minutes left and another panel will then be stepping forward.
I would suggest that I will take the questions from all senators first, so we can get the questions on the record. Then, if you can answer those questions quickly, that would be fine. If not, you will provide us with a written answer to those questions, as well.
Senator McInnis: Thank you for coming. Senator Callbeck handled well the matter of equalization. My question is one of clarification with respect to the capital money for funding — the definition phase of the Canadian Surface Combatant Project as well as the fixed-wing search and rescue aircraft. What do you mean? Are you defining the requirements? Is this a request for proposals? What do you mean by ``definition''?
Rear-Admiral Finn: Each of the major Crown projects goes through a number of phases. We basically have a two- gate process to Treasury Board. The definition phase means we have gone and sought approval to enter into the phase by which we are providing more detail, engaging industry, refining budget. We are doing all that work under vote 5. Once we have gone through it, we will return to Treasury Board for approval to actually implement.
Therefore, the ``definition phase'' is what we call it, and that is where we are defining time, schedule and costs for each of the projects.
Senator McInnis: It just appeared to be a great deal of money — $30 million.
Rear-Admiral Finn: Some of these are. For example, the Canadian Surface Combatant Project will be north of $20 billion in implementation.
Senator McInnis: I know. Thank you.
Senator Buth: I am not sure this will be a quick answer. Both Finance and National Defence are using reductions that you have calculated through the Budget 2012 process to offset your requests in Supplementary Estimates (B). Where are you actually reporting what your reductions are; where could we see what your reductions are?
Second, do you have additional funds that you will use to offset requests in Supplementary Estimates (C)?
Maj.-Gen. Bertrand: National Defence will be reporting its Budget 2012 reductions in the quarterly financial reports. Quarterly financial reports are reported on a cash basis, and there is a Budget 2012 implementation section in each quarterly financial report.
Senator Buth: Is it clear, essentially, that they are Budget 2012 reductions?
Maj.-Gen. Bertrand: Yes, it is.
Senator Buth: Thank you very much.
Ms. Harrison: It is the same answer for us, as well.
[Translation]
Senator Chaput: Could you send us that information in writing? For the Department of National Defence, it is at page 74, in the French version, and page 104 in the English version. This concerns transfers. The eighth transfer we are discussing here involves five different departments and concerns the search and rescue prevention and coordination initiatives across Canada.
With these transfers, how many regions are involved in this initiative? How many initiatives are there across Canada? How much do the regions receive per initiative and how often?
[English]
Maj.-Gen. Bertrand: I will take that as notice. I do not have the information by region. I only have it by department.
The Chair: Thank you. That would be very helpful. As soon as you can get us that information, send it to the clerk and it will be circulated to everyone.
[Translation]
Senator Chaput: Is this a new initiative, and if not, has it been going on for several years?
MGen Bertrand: It has been several years, and there are different amounts per year per department. That can change from year to year.
[English]
The Chair: To Finance and National Defence, thank you for being here, and we thank your teams here for backing you up. We appreciate your doing that because we were able to handle most of the questions that way. We look forward to the answers to those questions you took under advisement for us.
[Translation]
The Chair: Honourable senators, we are continuing our study on the Supplementary Estimates (B) for the fiscal year ending March 31, 2013.
[English]
In our second session this morning, we welcome officials from Agriculture and Agri-Food Canada: Mr. Greg Meredith, Assistant Deputy Minister, Strategic Policy Branch; Mr. Pierre Corriveau, Assistant Deputy Minister, Corporate Management; and Ms. Rita Moritz, Assistant Deputy Minister, Programs Branch. We are also pleased to welcome officials from the Canadian Food Inspection Agency: Mr. Peter Everson, Vice President, Corporate Management; Mr. Paul Mayers, Associate Vice President, Policy and Programs; and Ms. Barbara A. Jordan, Associate Vice President, Operations.
Mr. Meredith, I believe you have some opening remarks on behalf of Agriculture and Agri-Food Canada. We will begin with you and then move to Mr. Everson, who will speak on behalf of the Canadian Food Inspection Agency. You have the floor, sir.
[Translation]
Greg Meredith, Assistant Deputy Minister, Strategic Policy Branch, Agriculture and Agrifood Canada: Honourable senators, it is an honour to appear before you again today.
[English]
I will be discussing the supplementary estimates today, and I would like to talk to you a little about our new strategic framework agreement for agriculture and agri-food, Growing Forward, between the provinces and the federal government.
The sector is doing extremely well, as you know. We are optimistic about the future of the sector based on current performance.
[Translation]
I am optimistic about the potential of agriculture in 2013. Despite the difficulties experienced by pork producers, commodity prices in many areas are strong and are expected to remain above historical levels over the next decade.
[English]
Producers are seeing these price increases reflected in rising net worth, which grew 5 per cent on average last year and about 30 per cent since 2007. Producers are also seeing a rise in their incomes. In 2012, farm cash receipts are up a projected 12 per cent to approximately $150 billion. Realized net income — cash in producers' pockets — is also up by 53 per cent since 2010 to a record $5.7 billion.
[Translation]
Moving forward, the government will work with industry to help position the sector as a strong player in global trade, while continuing to address issues affecting our competitiveness with emerging markets.
[English]
We have also been involved in a number of legislative initiatives designed to increase efficiency and promote profit for the sector. The Safe Food for Canadians Act, which is led by my colleagues, will help to strengthen the food system and continue to provide safe food for consumers. That was recently passed, as you know. The Marketing Freedom for Grain Farmers Act, which removed the single desk from the Canadian Wheat Board, has re-energized the Western Canadian grain sector, which is doing extremely well this year. Proposed changes to the Canada Grain Act, which are in Bill C-45, will allow for the modernization of our grain handling system and remove several inefficiencies from the system for the benefit of producers and shippers alike.
[Translation]
Federal, provincial and territorial ministers announced details of Canada's policy framework for agriculture, Growing Forward 2, on September 14 at the ministerial meeting in Whitehorse.
[English]
That framework will invest more in innovation, competitiveness and market development activities to help producers meet the rapidly rising global demand for food. Growing Forward 2: 2013-2018 will invest more than $3 billion over five years in cost share programming that will be delivered by the provinces.
[Translation]
As with Growing Forward, provinces will have the flexibility to tailor cost-shared programs to suit local needs and objectives. We look forward to announcing with our provincial partners the new initiatives that will take effect once negotiations are finalized.
[English]
That should happen in the next month or so.
Growing Forward 2 will also see a transformation in the way that we deliver income support to farmers. Business risk management programming will move from a reactive posture to facilitate more market-based profitability for the sector. Risk management programs will continue to help farmers in a comprehensive way when disasters or catastrophes strike, as a result of either the market or natural disaster. Canada's exports of agriculture are a driver of growth in the sector and reached a record $44 billion in 2011.
[Translation]
Trade will be an essential component of growth in agriculture in coming years, as new free trade agreements are negotiated and new opportunities present themselves to Canadian businesses.
[English]
It is true that most of the growth that we foresee for the sector will be driven globally. Domestic markets will grow very slowly. As you know, the government has completed a number of free trade agreements with several countries. As you will also know, we are involved currently in several negotiations.
In terms of the supplementary estimates, we received increased funding this year of roughly $215 million. The majority of that money is to assist the Canadian Wheat Board in its transition to a private grain marketing organization. Also, approximately $41 million in funding will be divided between Growing Forward programming and the control of diseases in the hog industry, which has been re-profiled from previous years.
[Translation]
In summary, the agriculture portfolio is well positioned to assist the sector moving forward to capitalize on new opportunities through support under GF2 and other initiatives, while preparing the sector for the challenges that lie ahead.
[English]
Thank you for your time. My colleagues and I look forward to your questions.
The Chair: Thank you. Is there anything in the estimates themselves that you wish to draw to our attention, Mr. Meredith?
Mr. Meredith: No, Mr. Chair, not beyond what I have already done.
I should mention one thing that happened just before we came to committee. You will know that we have had a long-standing dispute with the United States on what we call COOL, country-of-origin labelling. We won the initial case. The United States appealed, and we understand that the WTO issued a judgment just this morning in Canada's favour asking the United States to comply within 10 months. That is a very positive outcome for our sector.
The Chair: Does this have to do with the North American Free Trade Agreement country-of-origin issue?
Mr. Meredith: It was more of a WTO issue, but it was with the United States with regard to access for our beef and pork industries.
The Chair: Thank you. It is good to have breaking news here at our meeting this morning. We will now go to Mr. Everson.
Peter Everson, Vice President, Corporate Management, Canadian Food Inspection Agency: Thank you. The Canadian Food Inspection Agency is committed to ensuring that Canada's food safety program is world-class. The recently enacted Safe Food for Canadians Act will improve food safety oversight to better protect consumers, streamline and strengthen legislative authorities and enhance international market opportunities for Canada.
[Translation]
The Safe Food for Canadians Act provides us with the necessary foundation to provide an even more science- focused, risk-based approach for all of the food commodities we regulate. New and enhanced regulations that are provided for in the act will allow us to apply inspection, compliance and enforcement in a more uniform way.
[English]
The public expects us to be continually improving, and Parliament moved this bill forward quickly to ensure that Canada's food safety system remains one of the best.
Legislation and regulation are the foundations that will allow the agency to modernize its inspection model. As we move from eight different approaches to inspection based on food commodity, we will have a common approach for all of them while maintaining specific commodity knowledge and expertise. Our legislation and regulations have their basis in sound science; therefore, the actions and decisions we take are also necessarily science-based. All of these activities are complementary and interlinked. All of them must move forward in tandem.
[Translation]
The agency continues to evolve to meet the challenges of a complex and ever changing food safety landscape, thanks in large measure to its highly-skilled and adaptive workforce that is supported by effective training and improved tools.
[English]
To assist in the agency's front-line efforts in food safety, Budget 2012 made an additional investment of $51 million over the next two years to sustain these measures. Prior to that, there were additional investments made in the agency in Budget 2011. Those additional investments come with a responsibility. It is our responsibility to be prudent about spending and making programs and operations as effective and efficient as they can be.
Investments in Canada's food safety system help to modernize the CFIA's food inspection system, update its program and regulatory frameworks and strengthen its relationship with Canadians, industry and international food safety stakeholders.
As I mentioned improved tools earlier in my remarks, one of the transfers you will see in Supplementary Estimates (B) is one of $276,000 from the Department of National Defence under the auspices of the Canadian Safety and Security Program. The scope of this program is to deliver science and technology solutions, support and advice to respond to the Government of Canada's public safety and security goals.
Specifically, we will use these funds to ensure the CFIA food microbiology laboratories are able to work to the same standard for the detection and characterization of food pathogens. Scientific tools will need to be purchased by the CFIA in order to accomplish this, and this purchase meets the criteria set forth in DND's program.
[Translation]
Additionally, you will notice that there is a transfer from the agency to the Public Service Commission for the public service resourcing system.
[English]
This system is the national recruitment system in the public service behind the federal government's primary job portal of jobs.gc.ca, which is used by organizations to post jobs open to the public. Fees paid by the CFIA and all organizations are determined on their relative size, and it is simply more cost-effective for us to participate in this portal than build one on our own.
These are but a couple of examples on how the agency benefits from and contributes to government-wide overarching programs and policies, and such participation strengthens our ability to meet our commitments for safe food, healthy animals and the protection of Canada's plant life.
The Chair: Mr. Everson, could you explain at page 35 the transfer to the Public Service Commission? We have had representatives from the Public Service Commission before us on a number of occasions, and we understand the work they do. However, had you overpaid them? Why is this in brackets? Had you overpaid them and will be getting some money back?
Mr. Everson: No, it is a transfer to the Public Service Commission for services they are providing in the context of that job portal.
Almost all federal organizations participate in the job portal, and you are effectively assessed a fee based on the number of employees you have. It allows you to advertise your jobs across Canada.
Alternatively, we would have to develop our own portal. This is much more cost-effective.
The Chair: The fact that it is in brackets means it is going from your agency?
Mr. Everson: From us to them.
The Chair: It reduces the amount in your agency by that amount?
Mr. Everson: Correct.
The Chair: You had received this amount in Main Estimates presumably earlier on, and now you are saying it is better to send it somewhere else to do that job?
Mr. Everson: Yes. Effectively, we are buying a service.
The Chair: I understand.
[Translation]
Senator Hervieux-Payette: My questions relate to agriculture and inspection. You talked about a $3 billion amount to fund research. I cannot find that in your figures, of course. Is the program that you will soon be announcing following up on the study carried out by the provinces in collaboration with industry which published a report — under the chairmanship of Mr. Lussier — that recommended investing more in the area of research?
What are the federal and provincial portions? On what basis did you negotiate? Did you say that the provinces paid half? Is the private sector going to invest in research and development to develop the agrifood sector? Because the study was carried out between the three parties: the provinces, the federal government and the private sector.
Pierre Corriveau, Assistant Deputy Minister, Corporate Management, Agriculture and Agrifood Canada: The strategic framework, Growing Forward 2, will be implemented in 2013-2014. It is for the coming year and that is why you will not find these funds in the current forecasts. My colleague will describe how the negotiations occurred with the parties.
[English]
Mr. Meredith: The $3 billion is shared federally and provincially. The federal portion is 60 per cent; the provinces put in 40 per cent.
On a project-by-project basis, when we are doing research and development, we try to emphasize partnerships with industry, with universities and with the provinces so that we are not duplicating and we are concentrating resources in a fashion that actually produces good results. The proportion that industry puts in depends on the project and in part depends on the capacity of the particular organizations involved to pay.
We do have specific streams in our programming that encourage companies to do research with us directly, one-on- one. We also encourage many companies and other science performers to gather in clusters that would be focused on a given commodity group like beef or dairy, for example. Those clusters concentrate their resources on the kinds of priority projects they want to accomplish.
Senator Hervieux-Payette: What is the time frame for the $3 billion?
Mr. Meredith: Five years.
Senator Hervieux-Payette: Thank you. Maybe you could provide something more concrete and day to day that is happening in Quebec, particularly with regard to pork. We seem to be going from one crisis to another.
Do you think this will stabilize? I get the impression that we subsidize the pork that is being eaten by Japanese people. Where are we going with this production?
Mr. Meredith: That is a very good question. Your observation is exactly right in that the sector is having some difficulties right now. For those not deeply involved in agriculture, what is happening is the price of feed, which is the majority of the cost of raising hogs, has gone up rather dramatically as a result of significant drought in the United States. The result of that is that pork producers are struggling to keep positive margins, in other words, to profit.
At the same time that feed prices are going up, what the pork producers do to manage their costs is sell more hogs into the market. That tends to have a depressing effect on price, so the pork producers are getting squeezed a bit on both ends.
The minister, as a result of that situation, established what he called the Hog Industry Task Team, which was chaired by myself and my colleague Mr. Jean-Guy Vincent, who is a pork producer from Quebec but also chair of the Canadian Pork Council.
We had a number of producers and people from the supply chain, the slaughterhouse and meat packer business, and we worked through a number of angles about how to assist pork producers using existing programming. The minister also met with bankers, and separately with credit unions and with Farm Credit Canada, to try to encourage them to work one on one with producers to get them over this hump.
I think it is fair to say that most of us around that table believe this is a short-term problem. It is driven primarily by high feed costs, which we think will moderate once some of the harvests from Latin America come in and once we have the harvest forecast for next year.
We think it is a short-term issue. We think our pork producers are, by and large, very efficient. There is some restructuring happening in the industry, both in Manitoba and in Saskatchewan, with major pork producers being acquired by other operations. We do think it is short term and we do think the industry will bounce back.
Senator Hervieux-Payette: Is there some credit here that covers for the millions of dollars that you have to give them not to close down their shops? We hear about big figures in the Quebec newspapers, what is being given. I know it is being given by the provinces, but I suppose the feds are also helping the industry to cope with that problem.
Mr. Meredith: There is a major program in Quebec called ASRA, Programme d'assurance stabilisation des revenus agricoles. It is providing significant support to pork producers. It is not repayable. The support we are providing comes from programs that are already established and that are statutory in nature, which means they have access to the fiscal framework, and they are demand-driven. They are not repayable. They are for income stabilization and support.
Senator Hervieux-Payette: There is nothing in the supplementary estimates to cover these costs?
[Translation]
Mr. Corriveau: One clarification: most of the funding for the support programs was already included in our main estimates in the springtime. The only point you will perhaps see, on V6, is a carry-forward from the last year of $6.1 million to support the hog producers who are facing problems with pig diseases. There is a $6.1 million figure on page 35 in the English version, and on page 56 in the French.
Senator Hervieux-Payette: I have a short question for Mr. Everson. First, regarding the departmental requirements on packaging, there is no standardization. The same product may be presented in a 150-gram container, or another in a 100-gram container; you cannot make comparisons — I am thinking of cereals because there are more or less 50 kinds of cereal boxes — when you want do to an analysis to see what the price and food values are.
Are you making any plans to ensure that there is standardization, regardless of the products, because the quantities are not always the same?
Second, have we seen any repercussions because of the problem at XL Foods? Have the additional costs been paid in an attempt to solve the issues with this processing plant?
[English]
Mr. Meredith: I will ask Mr. Mayers to respond to those questions.
Paul Mayers, Associate Vice President, Policy and Programs, Canadian Food Inspection Agency: Thank you very much. In terms of the first question, there is only very limited regulatory standardization in terms of the size of consumer containers. In that regard, Budget 2012 reflected that the CFIA would remove those regulatory requirements that constrained the container sizes for certain commodities.
For the majority of commodities, as you have noted, there is no container size regulatory requirement, and so the issue of comparison at point of purchase has been one that the retail sector has addressed largely by unit pricing. Many retailers present unit pricing to allow consumers the opportunity to compare products presented in different packaging sizes. However, that is not a regulatory requirement except in very specific circumstances. In those cases, Budget 2012 did indicate the intent to remove those regulatory requirements on container sizes.
As it relates to XL Foods and the management of that particular situation — and my colleague might wish to speak to that further — the agency's response to that is within our normal operational response, and so there is not a supplementary estimates line specific to our costs in relation to responding to the XL situation. Certainly, there were enhancements in terms of our activities, including placing additional staff in the facility, and so there are some additional costs associated. However, those come out of our normal operating line. Perhaps Mr. Everson wants to expand on that.
Mr. Everson: Just to expand on that point, it is met through an internal reallocation, recognizing that a food safety response is really normal business, although it is much larger in scale and size.
Senator Hervieux-Payette: My deduction is that you always have a cushion, and when there is some special event, it is already in the budget. Wherever it is happening, you have the budget, but it is not assigned before the start of the year?
Mr. Everson: I think that is a fair characterization. We have maybe 250 different food safety recalls — Class I, II and III — each year. Some of them require a large response; some require no response at all. The expectation is that we will accommodate that within our budget.
Senator Hervieux-Payette: In the usual overall budget, would you say the contingency would be about 5 per cent for every activity you are conducting in your own department?
Mr. Everson: Probably not as large as 5 per cent. Normally we establish in the order of about $10 million at the beginning of the year for contingencies; and then, as the year unfolds, we get a sense of how much we will need and unfold it as the year goes along.
Senator Buth: I have questions for both CFIA and the department. I will start with the department.
In terms of the grant payments for the Canadian Wheat Board transition cost program, Mr. Meredith, you made some comments regarding how things have changed in terms of removing the monopoly of the Wheat Board. Can you make some further comments around what the department has seen since the monopoly has been removed? Can you give me more details of what the transition costs actually are?
Mr. Meredith: I will start with the latter part of your question, senator, if that is all right.
The $180-plus million is part of the government's commitment to assist the board to transition to a private organization. The principle behind that was that any costs that were associated with the policy decision to remove the single desk should not be borne by producers. There are really only one or two sources of funds for the Wheat Board, and one of the main sources of funds would have been the pools, that is, the money earned for farmers. The government did not want to dip into those pools to pay. That was the principle underlying the need for transition costs.
The costs take the form of obligations that the board had to employees, for example, for pensions, and obligations that they had to suppliers, long-term suppliers who were under contract. There were affreightment deals that the board had entered into, which were three to five years, which they had to negotiate their way out of. They had other capital borrowings, because their main source of self-financing was borrowing, with the government guarantee, which we had to take care off; otherwise, the pools would have borne those costs. Largely, that is the nature of the kinds of costs the board was facing.
In terms of the Western grain sector, for those not deeply involved in agriculture, the single desk was basically a monopoly for the sale, export of wheat, barley and durum in the Western provinces and Peace River region of B.C. There was substantial business in the area of 20 million to 25 million tonnes of grain a year. There was a great deal of concern when we removed the single desk that farmers would suffer. We have seen quite the opposite. Prices are very strong in grains in general, but in wheat, durum, canola and barley they are very strong.
We have seen increased freight velocity, that is moving trains to port positions with grain is faster, more efficient now that the transparency is very clear, from inland terminals right to the port. We have seen traffic through Thunder Bay increase in what we called board grains before, by some 19 per cent over last year and 15 per cent over the five-year average.
Port Metro Vancouver and Rupert are seeing about the same volumes as last year moving to export position. The Port of Churchill was a major concern for many because the board was one of the main users of the port. The concern was that the port utilization would go down. It is a little bit down but the government put in a program to support rail freight through the Port of Churchill, and it is doing about 430,000 tonnes, which is about its five-year average for that short season in which it operates. In general, we have seen a real re-energizing of the Western grain sector.
Finally, on producer cars, these are rail cars that producers can load themselves and that saves them money, makes them money, puts cash in their pockets. There was a concern that the Wheat Board's absence would mean that producer cars would not be picked up and shipped by railways. That is not happening. The number of producer cars ordered and delivered is about the same as last year.
All in all, the sector really is re-energized, and we expect that that will continue.
Senator Buth: In terms of transition costs, is this the entire amount that will be needed for the transition, or do you expect there will be additional funds in years to come?
Mr. Meredith: There will be additional funds as obligations come. Overall the government budgeted up to $349 billion for the board and, again, the nature of those costs is as I described earlier.
Senator Buth: You mentioned the support for Churchill supplementing, or support for the shippers essentially. Was that support for Churchill included in the Main Estimates?
Mr. Meredith: It came in supplementary estimates.
Senator Buth: Has that already been allocated? Have we seen that already?
Mr. Meredith: Yes. I do not know how much has actually been paid out, but almost all of the annual allocation of $5 million was utilized this year. Close to the full amount was utilized.
Senator Buth: Thank you.
Regarding CFIA, can you provide a bit more detail about the $276,000 transfer from Defence? It is for the Canadian Safety and Security Program. What is that program for and why do we need laboratories that will detect food pathogens?
Mr. Everson: DND's program is meant to support governmental and non-governmental partners to purchase technology and attain expertise to support security and safety objectives of the Government of Canada. In our particular context, we are buying seven very sophisticated scientific instruments for the characterization of food-borne pathogens in our microbiology labs. For us the important thing is seven identical machines of high speed that will allow us to do our own work. However, in the event of a national emergency we could support other partners who needed that type of detection service.
Senator Buth: You are talking about food-borne pathogens in what?
Mr. Mayers: In any food matrix is the intent. In a national emergency context this can then allow us to more rapidly respond to the unintentional contamination of food or the intentional contamination of food. In either case, the technology allows us to enhance our diagnostic capacity to more rapidly identify and characterize the pathogens we are dealing with to understand the scope of the problem and take mitigating steps to protect Canadians.
Senator Buth: Thank you very much. It was that link to intentional that I was not getting.
Senator L. Smith: To follow up on Senator Buth's question, Mr. Meredith, in the monies planned for the transition for the Wheat Board, if the board itself fails to survive, are there any other costs that would be involved for the government? Second, would there be any assets that the government would pick up and be able to liquidate to cover some of the costs incurred to transition the Wheat Board?
Mr. Meredith: In relation to the nature of the board's obligations on transition from the single desk to a more independent company, those costs would have been borne by the government had the board gone out of business then. Our legislation was designed to keep the board alive. Had the board or had the government decided that it could no longer operate, we would have incurred those costs, again, because they are contractual or legal obligations either to employees or to prior employees or to other companies that had been suppliers to the board.
In effect, unless we authorized additional purchase of assets, the board does not own very much that is not encumbered with debt, largely because it could not finance itself from earnings from the pool, it could only finance itself from borrowings. The board would often secure those borrowings with hard assets. For example, they own hopper cars, which are encumbered with debt; they own their building, which is largely encumbered with debt; they had a computer system that was built with borrowed money, which was decommissioned and not useful in the current environment. The government would have faced those costs regardless.
There is the potential, of course, for the board to borrow money using the government guarantee and go under, thereby losing the money. My colleagues, many who were behind me at your previous discussion, make us pretty diligent in ensuring that that does not happen. I could say with a fair degree of assurance that in the current situation we would not incur any further obligations on behalf of the government.
Senator L. Smith: Do you have any other contingencies over and above the $350 million that you have planned? I believe that was the number.
Mr. Meredith: The number was up to $349 million. We would have to go back to cabinet to get a policy decision if additional funds were required.
Senator L. Smith: Is there no surplus?
Mr. Meredith: There is not, other than the fiscal framework.
Senator Buth: Mr. Meredith, on page 35 of the estimates there is contributions to minimize the occurrence and extent of risk incidence. Can you explain what that is and who those payments are going to?
Mr. Corriveau: I will start with the financial aspect of the issue. As part of our Growing Forward agreement we can re-profile 25 per cent from one year to another. This is part of our Growing Forward agreement with the provinces, so every year you will see a similar number that comes back in Supplementary Estimates (B). This is based on public accounts as of March 31 of last year. Those monies are then basically reused in the current year for various programs. My colleague, Ms. Moritz, can explain the purpose.
Rita Moritz, Assistant Deputy Minister, Programs Branch, Agriculture and Agri-Food Canada: In this instance we have, as Mr. Meredith mentioned earlier, cost-shared programs with the provinces. The provinces have some flexibility in deciding what those cost-shared programs would be, depending on their regional differences or what important aspects are playing out in the sector in that region. However, the programs do have to fit into the framework. For growing forward there were a series of themes so that we will have national outcomes across those themes. One of the themes is to minimize the occurrence and extent of risk. That re-profile would include programs that support the development and implementation of biosecurity systems, for example, or traceability systems. For some it would be commodities. This really is an instance where the money was not spent but carried forward to be spent on those types of programs in this fiscal year.
Senator Buth: When talking about risk, you are not talking about business risk here.
Ms. Moritz: No, we are not talking about business risk. We are talking about risk to commodities and looking at biosecurity, so disease risk and traceability to be able to respond.
Senator Buth: Can you walk us through 25 per cent re-profiling, to go back to that?
Mr. Corriveau: As part of the federal-provincial agreement, every year at the end of the fiscal year, March 31, our colleagues here in the program will canvas all the provinces to look at the amount of money that they have spent on the various programs that were agreed to. In financial jargon, it is called a ``late re-profile'' because we have to close the books and finish the fiscal year to know exactly what amount needs to be redone. We normally inform the Department of Finance sometime in the summer, and that is why this number comes back in Supplementary Estimates (B).
A number of those things are to ensure that we maximize the resources provided out of the GF framework and that the money is not being lost. Sometimes there is also implementation. That is a macro number; obviously, this number is broken down by various programs and divided by 10 provinces and two territories. It is an amalgamation of information received from all the parties.
Senator Buth: Thank you.
[Translation]
Senator Chaput: I have a very brief question for the Canadian Food Inspection Agency.
I do not see anything here, but I would like to know, in reviewing the estimates of the federal budget, if you were obliged to let some members of your staff go in order to achieve any savings?
[English]
Mr. Everson: Yes, the CFIA did participate in the 2012 savings exercise and put forward proposals, many of which were accepted, to reduce our overall expenditure. The dominant theme of that was to focus on administrative savings of all sorts. We then looked at a number of programming areas and decided whether they were well aligned with our mandate. Finally, we made sure not to make reductions in front-line food safety.
[Translation]
Senator Chaput: Can you give me some examples of what you had to eliminate or cut back on, whether they are examples of programs or positions? And how much have you achieved in savings?
[English]
Mr. Everson: To begin with, about 50 per cent of our savings were administrative in nature. A concrete example is that we share an office building in town with our colleagues here and we merged the security contract, a modest savings, certainly, but it adds up over time.
Another way we saved money of an administrative nature was to reduce the number of executives in the agency by about 12 per cent, and by reducing the number of executives, of course, you have a knock-on effect of reducing the number of support staff in turn.
Another area in which we sought savings, again, with our colleagues in AAFC, was to merge the low-risk staffing HR management system co-located in Moncton that we both were running. Again, they are modest savings, but they add up over time.
Finally, perhaps the most innovative administrative savings is that we now share the same chief information officer, so we are beginning to bring together our information technology investments with the idea of benefitting from their scale of economy, certainly on our side.
Much or all of this is posted on our website. One of the program changes that we undertook was to amalgamate physical space. Where we had smaller inspection stations, we decided to bring those together, again, saving the rental costs for Public Works as well as savings for administrative things.
We had already entered into an agreement to return provincial meat inspection to the provinces, and that saved us about $4 million.
Finally, we have changed our approach to certain animal diseases and plant pests, and my colleagues will be happy to expand on any of those points.
Senator Chaput: You said that you returned meat inspection services to the provinces. What does that mean?
Barbara A. Jordan, Associate Vice President, Operations, Canadian Food Inspection Agency: Thank you for the question. We have long had provincial meat inspection services and federal inspection services in Canada. The federal jurisdiction kicks in where food products are crossing provincial borders or international borders. When food products are within a province and are not transported out of the province, the provinces have responsibility for inspecting those facilities.
I think it is important to point out that all food, whether within the provincial inspection system or in the federal inspection system, is subject to the food safety requirements in the Food and Drugs Act.
In three provinces, British Columbia, Saskatchewan and Manitoba, the federal government has been providing inspection services on behalf of those three provinces in the provincially regulated plants. That is the area, where, because we have no mandate in that area, we have entered into an arrangement with those three provinces to transfer the provision of those services back into provincial hands, so it will now be consistent with the way the food inspection system is run in all of the other provinces. That will come into effect in 2014.
Senator Chaput: When you talk about facility inspections and food inspections, I guess they are treated differently by different inspectors, or is it all the one inspection? You have the facility and then you have the food.
Ms. Jordan: When we undertake our food inspection activity, it is often conducted in food production establishments. There are also activities in laboratories, et cetera, related to food inspection where we do the testing and look at test results, but the majority of the inspection activity is conducted in food production facilities.
Senator Chaput: Do you still have in place as many food inspectors as you had before, in spite of the fact that you had to do some economies?
Ms. Jordan: None of the savings proposals that are under way at CFIA will have an impact on food safety. Our numbers of inspectors have been going up, and I have the numbers if you wish to hear them. They have increased slightly from last year to this year. Where we are transferring the responsibility for provincial inspection back to the provinces, about 61 federal inspectors are involved in that activity, but that activity will be picked up by the provinces.
Senator McInnis: I have a question for Mr. Meredith. Over the last two decades, it was quite prevalent that farms were dying off; they were closing up, predicated on whether the parents could get their children to take them on. When I listen to you this morning, and I am delighted with this, you almost sound gleeful as you are reading your script, not just on the successful victory over the United States but over the fact of $44 billion in sales.
With respect to farming, in the East there is talk now that, heaven forbid, lentils and pulse are replacing potatoes in some areas, and of course through the Port of Halifax lentils and pulse are shipped all the way by container to India where there appear to be some tremendous markets.
Am I correct in assuming, and I have heard this as well in recent times, that there is a revitalization in farming, particularly in the East?
Mr. Meredith: I would say yes, you are. The observation you are making about the replacement of potatoes with pulse is a very positive thing from a farmer perspective. Potatoes are a very high-value crop, and in the past, in terms of rotation, and as you know, being an easterner, you do have to rotate potato fields or you could incur disease, it is valuable for them to have a high-value crop as a rotation crop.
Canada is one of the world's — if not the world's — leading pulse exporters. Eastern provinces are contributing to that. I would say also that you are starting to see canola adapted to the eastern soil and environment conditions; again, it is a very high-value crop as a rotation now, so that is quite valuable.
Overall, what we are seeing globally is the entrance of millions of new populations into the middle classes, which is resulting in changing diets and more disposable income for food. There is a tremendous global demand in countries like India and China, and Southeast Asia in general, and Canada is one of the five or six countries in the world that is a net exporter of food. We are taking advantage of that; producers are taking advantage of that capacity very well.
I should add one precision to your question. You said we had $44 billion in sales. That was exports alone. Domestic sales are about 60 per cent of what we produce in some commodities. The sector is doing very well and net worth is up, incomes are up, and opportunities globally are very positive.
Senator McInnis: Markets in Canada you said earlier have pretty much reached their ceiling.
Mr. Meredith: The issue there is growth. Like most Western countries, population growth is very limited. We are already mostly middle class; our diets will not change much, so the opportunity for growth is population growth, whereas in the rest of the world you see numbers that are extraordinarily high in terms of population growth and in terms of entrants into the middle class where disposable incomes really drive food choice.
Senator Callbeck: It is great to hear you being optimistic about agriculture as it is the main industry in my province. I want to ask about the Growing Forward initiative that will be ending in March. In the supplementaries we have, another $27 million is going toward that.
What will be the total amount that will be spent in that program by the end of March?
Mr. Meredith: Over the life of that agreement on a cost-shared basis, that is, between the federal government and provincial and territorial governments, about $1.3 billion will be spent. That is why you will hear the minister say that the cost-shared arrangement for Growing Forward 2 has 50 per cent more money in it than in the original agreement, which, given the restraint environment that we are all operating in, is a vote of confidence in the sector and the return on investment that governments make.
Senator Callbeck: Is the $1.3 billion divided the same way as the new program, 60-40?
Mr. Meredith: Yes.
Senator Callbeck: How is that money divided among the provinces?
Mr. Meredith: We have an agreed formula that we negotiated with provinces some time ago. It is called the Quebec formula, because it was negotiated there. It is a reflection of the proportion of that province's primary production as a percentage of the whole of primary production in Canada. A province that has 10 per cent of the production in Canada will get 10 per cent of the federal envelope.
Senator Callbeck: Is this new program to substitute for the old program? Is the mandate the same?
Mr. Meredith: Broadly speaking, yes. The focus for Growing Forward 2 is much more sharply on innovation. We have invested a lot more money in innovation, market development and market access — those are a top priority of the minister — and in competitiveness programming. There is a little more focus there, but generally speaking, most of the programming that would have been eligible under Growing Forward will continue to be eligible in Growing Forward 2.
We have added some additional flexibilities for provinces in the area of environmental programming and in the area of on-farm water infrastructure, so that is a bit different. We have also asked that provinces invest at least 25 per cent of their expenditures in innovation activities, including research and development and commercialization of new products.
Senator Callbeck: You have mentioned that the provinces can tailor this to their local needs, but there are some stipulations.
Mr. Meredith: Yes. A great deal of the negotiation that went on between governments to establish the new framework was devoted to focusing on the outcomes that I mentioned: innovation, competitiveness, market development and access.
We asked provinces, based on their knowledge of the kinds of agronomics and the challenges they have in their provinces, to strive to meet those outcomes. How they do it is something that we try to leave as much as possible to them.
I do not know whether Ms. Moritz would like to add to that.
Ms. Moritz: There is ongoing governance, and it is a joint governance between the province and the federal government. In Growing Forward, the first framework, there was a series of themes, as I mentioned earlier, and there is governance in place where the provinces can bring proposals for programming. It is then decided in a joint way whether that programming does fit the funding in that thematic area as well as the intent so that we end up with national outcomes that are meant to move this sector forward in a number of these areas.
Senator Callbeck: Ms. Jordan, someone talked about saving money by having the federal government do the provincial inspection in three provinces — British Columbia, Saskatchewan and Manitoba. Would those provinces not pay the federal government for that function?
Ms. Jordan: Yes. There has been a financial arrangement over time. I would add that those three provinces were not paying full cost for the services. We tried, when we put forward saving proposals, to orient our focus and the focus of the activities of the agency on the agency's mandate, a very important part of which is food safety in the federal realm. That is what we are trying to achieve, to focus on areas that are strictly within the federal mandate.
Senator Callbeck: Would they have been paying roughly half the cost? How much will you save here?
Mr. Everson: I would like to write back to the committee on the details of that.
The Chair: That would be fine, if you could do that.
Senator Finley: Having covered such heady topics as pork and Wheat Boards, my questions are somewhat picayune type of questions.
On page 35 of the English version, about halfway down, you have total gross transfer payments of 216 and some- odd million dollars. Then it says ``less funds available within the vote.'' Where do those funds come from? What are they not getting spent on?
Mr. Corriveau: That is similar to the answer that my colleague gave you previously. These were funds basically associated with Budget 2012.
They were funds that were voted on in the Main Estimates, but we could not, at the time of Main Estimates' production, put the 2012 decision in the Main Estimates. This is basically a reduction, savings that we are applying against the total request.
Senator Finley: But you must have asked for them.
Mr. Corriveau: Yes, in the Main Estimates.
Senator Finley: With a reason for them.
Mr. Corriveau: Yes.
Senator Finley: Was the reason to diminish or to lessen the impact of the total gross transfer program?
Mr. Corriveau: The reasons were programs eliminated in Budget 2012. One of those programs, for example, would be the rural and co-op program that ended as part of Budget 2012.
Senator Finley: I will have to come back to that; I will have to think about it. It also came up in prior testimony from another department, the same phrase, essentially.
I would like to know how you handle, from a financial perspective, the reinvestment of royalties from intellectual property. It is not a substantial amount of money; it is about $6 million, if I read it correctly.
Mr. Corriveau: Perhaps, I can give you a quick response on the financial aspect of it and not on the subject matter.
Throughout the year, we receive royalties for the work that our research and science people are doing via wheat development or a new canola. The revenue from that is deposited in the Consolidated Fund; the department does not have re-spending authority. At the end of the year, when we do our public account, we total up the revenues we gain out of those royalties. Basically, we are seeking the authority right now to re-spend those revenues entirely in the science branch for further development in the science area. Basically we are asking for the authority for the money that we collected in the last fiscal year to be spent in the current year.
Senator Finley: The money does not come to you. You create the money by a technological or whatever advance.
Mr. Corriveau: By research, yes.
Senator Finley: It goes into general revenue and comes back to you, which is why it shows up as an item on this.
Mr. Corriveau: Correct.
Senator Finley: Do you budget for that, as such? Do you have targets?
Mr. Corriveau: Yes. We estimate at the beginning of the year when we give the various branches their budgets. The gross amount is fairly stable every year, so we assume that this money will be coming forward during the year.
Senator Finley: Okay, thank you.
The Chair: At the top of page 84, we have a figure that we talked about before — funding for the Wheat Board transition. That is about $184 million. Then over at page 35, on the first half of the page, about halfway down, is contribution payments to the Canadian Wheat Board Transition Cost Program, $1.5 million. Are they two different programs?
Mr. Corriveau: No, they are not. On the top of page 35, if you have $182.7 million with the $1.5 million, that will total the $184.2 million. One part was a grant, and the difference is a contribution.
The Chair: I see; grants and contributions again. One you are watching a little more closely than the other in terms of programming.
Mr. Corriveau: Correct.
The Chair: Mr. Meredith, before we close here, when Senator Buth asked you a question about the state of the industry for wheat sales, you indicated that the international price is very good. I was wondering whether you wanted us to draw the conclusion that that was a happy coincidence that helps in the transition for the Wheat Board or that the international pricing is higher because we did away with the Wheat Board. What conclusion did you wish us to draw from that comment?
Mr. Meredith: I would love to be in a position to claim that the removal of the single desk drives wheat prices globally, but it would not be true. It was a happy coincidence.
The Chair: Thank you very much. Colleagues, that concludes this particular session. On your behalf, thanks to Agriculture and Agri-Food Canada and CFIA for the good work that you are doing. Keep that up. We will probably see you here again in due course.
(The committee adjourned.)