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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 23 - Evidence - Meeting of January 29, 2015


OTTAWA, Thursday, January 29, 2015

The Standing Senate Committee on Agriculture and Forestry met this day at 8:04 a.m. to continue its study on Bill C-18, An Act to amend certain Acts relating to agriculture and agri-food.

Senator Percy Mockler (Chair) in the chair.

[Translation]

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

[English]

My name is Percy Mockler. I am a senator from New Brunswick and chair of the committee. At this time, I would like to ask all senators to introduce themselves, starting on my left, please.

[Translation]

Senator Dagenais: Senator Jean-Guy Dagenais from Quebec.

[English]

Senator Moore: Good morning. Wilfred Moore from Nova Scotia.

Senator Tardif: Good morning. Claudette Tardif from Alberta.

Senator Plett: I'm Don Plett, and I'm from Manitoba.

[Translation]

Senator Rivard: Michel Rivard from the province of Quebec.

[English]

Senator Oh: Good morning. Senator Oh, Ontario.

Senator Enverga: Tobias Enverga a senator from Ontario.

Senator Unger: Betty Unger, Alberta.

Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.

The Chair: Thank you, senators.

Witnesses, thank you for accepting our invitation to share with the committee your comments and opinions as we continue our study of Bill C-18, An Act to amend certain Acts relating to agriculture and agri-food. This bill is designed to modernize and strengthen federal agriculture legislation, support innovation in the Canadian agriculture industry and enhance global market opportunities.

For our first panel today, we welcome Ms. Patty Townsend, Chief Executive Officer of the Canadian Seed Trade Association, and from CropLife Canada, Mr. Dennis Prouse, Vice President, Government Affairs. From Winnipeg, by video conference, from the Canadian Federation of Agriculture, we have Mr. Humphrey Banack, Vice-President. Thank you for accepting our invitation.

I would now invite the witnesses to make their presentations. I would remind them that, as per the instructions from the clerk that they were given previously, presentations should not exceed more than five minutes in length. Following your presentation, questions will be directed to each of you from the senators.

I have been informed by the clerk that the first presenter will be Mr. Banack, to be followed by Ms. Townsend and Mr. Prouse.

Mr. Banack, you have the floor.

Humphrey Banack, Vice-President, Canadian Federation of Agriculture: Good morning, and thank you, Mr. Chairman and members of the committee.

I am pleased to be here on behalf of the Canadian Federation of Agriculture to speak with you today about Bill C-18, the proposed "Agricultural Growth Act." My name is Humphrey Banack. I am a grains and oilseeds producer from central Alberta and Vice-President of the Canadian Federation of Agriculture.

Through its member organizations, the CFA represents more than 200,000 farm families across Canada and promotes the interests of Canadian agriculture and agri-food producers to ensure the continued development of a viable and vibrant agriculture and agri-food industry in Canada. We believe that Bill C-18 will contribute to a more vibrant agriculture industry in Canada by modernizing a number of pieces of agricultural legislation. We will identify a few key points we believe should be addressed. Due to time constraints, I will focus my comments primarily on changes to the plant breeders' rights and the Advance Payments Program, but I am open to questions on any part of the bill.

Despite signing on to UPOV 1991, Canada has remained one of the few developed countries in the world not to ratify it through legislation. This has limited investment in Canadian varietal development and prevented Canadian producers across a wide range of sectors from accessing the most up-to-date and innovative products. The issue boils down to making sure Canadian farmers are competitive and we aren't falling behind other countries.

We believe the legislation strikes a good balance between giving plant breeders the ability to receive a return on their investments for their R&D, while preserving the ability for farmers to save, store and condition seed for their own use.

Although a number of concerns have been raised as to the effects UPOV 91 will have on the diversity of plant breeders in Canada, international evidence suggests that the implementation of UPOV 91 will result in an increase in the diversity of Canadian breeders.

I would also like to point to the fact that 45 per cent of all agricultural varieties currently protected under the PBR were developed at public institutions. I must note our continued concerns with the recent shift away from public funding for basic development, as it may very well reduce the presence of new, publicly funded varieties and reduce competition from public entities.

However, plant breeders' rights provide a platform for exciting new developments between producers and public institutions. In fact, with draft UPOV legislation now progressing through the house, we've already heard of a new research centre and partnerships between Canadian companies and international breeders, and we continue to hear of groups exploring producer-led breeding initiatives in Canada. However, we believe increased funding for producer-public partnerships in this vein is needed in the future.

We see updated plant breeders' rights as a necessary step for the long-term competitiveness of Canadian agriculture. I would like to comment on two specific components of the changes to the Plant Breeders' Rights Act: end-point royalties and farmers' privilege.

As already stated, Bill C-18 does not actually introduce end-point royalties into Canada. Instead, it creates a legislative framework from which EPR models can be developed through regulations. Our primary concern is that producers must have a significant role in future regulatory processes through robust consultation to ensure that any such royalties are reasonable and supported by industry.

Similarly, we do not believe that the term "farmers' privilege" is problematic, as long as the legislative text behind it provides the necessary protections. In this vein, we were pleased to see the minister and standing committee recommend an amendment that would clarify the privilege to include farmers storing seed for future propagation.

With the wide range of products affected by this legislation, we recognize the need for regulatory authority to amend the privilege where there is industry consensus that it is desirable. This is an important point that we would like to see more directly addressed.

Any regulations amending the farmers' privilege or developing end-point royalties will require considerable consultation, and we believe this process should require consultation with the Plant Breeders' Rights Advisory Committee identified in the legislation. This advisory committee has mandatory producer representation, and we believe consultation will ensure industry support for any amendments.

I would like to shift my comments now to the changes to the Advance Payments Program. Canadian Federation of Agriculture members were pleased to see the changes in Bill C-18, as they reduce the red tape associated with getting an advance, broaden the access to the program for new products and new forms of security, and provide producers with greater flexibility to market their products.

The ability to repay advances without proof of sale is an important amendment that will allow producers to market their products when it meets their needs rather than those of the program. We were pleased to see the government recently extend a stay of default to producers affected by the transportation difficulties of 2013-14. These changes will provide much-needed flexibility around repayment deadlines for those unable or unwilling to move their product in the future.

Similarly, multi-year agreements will reduce a lot of unnecessary paperwork for producers and administrators that had to fill out the same form year after year. Coupled with the amendments allowing single administrators to offer advances on multiple commodities, this will streamline access for producers.

While producers will benefit from these amendments, we believe any administrator expansion into new regions should require the approval of affected producers via their producer groups.

One of the benefits provided by smaller administrators in many regions is that they operate as service providers with an in-depth knowledge of local regulations and the dynamics of the sectors that they are advancing to. We must ensure that streamlining the program doesn't result in reduced participation.

Regulations should require administrators to consult with producers before any such expansion and impose guidelines to ensure that these administrators are familiar with the relevant regulations in a particular province, such as the collective marketing regulations in Quebec, which can have a number of implications for program delivery.

Although we appreciate the wide range of improvements this bill makes to the Advance Payments Program, our members are disappointed to see that the maximum advance limits were not updated. The limits were last increased in 2006, but since that time the cost of farm inputs has risen dramatically and farms selling $800,000 or more are increasingly common, such as the one I run at home. For example, my fertilizer, rail freight, land costs and crop protections all now individually exceed $100,000; and my annual operating costs are closer to $800,000 or $900,000 per year. Although a relatively small percentage of all farmers, these farms represent a significant amount of Canadian production.

For producers already receiving advances near $400,000, transportation challenges and banks' reluctance to increase farm debt illustrate the benefit of an increase to the limit come seeding time. An increase to the interest-free and interest-bearing limits that recognizes the increase in farm input prices is needed to ensure the program maintains its utility moving forward.

On behalf of the Canadian Federation of Agriculture, thank you for the opportunity to meet with you today. I will be pleased to answer any questions following the other presentations.

The Chair: Thank you. We will proceed with Ms. Patty Townsend.

Patty Townsend, Chief Executive Officer, Canadian Seed Trade Association: Thank you, Mr. Chairman and honourable senators. I think we are going to hear a little repetition today. I note that both the Canadian Federation of Agriculture and the Canadian Seed Trade Association are members of a group called Partners in Innovation, which I know you'll be hearing from next week. We are among the 20 organizations that have formed this informal coalition to support the proposed amendments to the Plant Breeders' Rights Act. I'm happy to be here to bring the perspective of the Canadian Seed Trade Association on Bill C-18. We have provided a detailed submission in both official languages, so I'm just going to touch on a couple of highlights.

The Canadian Seed Trade Association brings together 130 member companies that are involved in all aspects of seed: plant breeding, trait and variety development, production, processing, packaging, marketing, sales and trade. Our members work with 50 different crop kinds and range from small single-grower retailers to multinational companies, and from distributors and packagers of organic vegetable and herb seeds to the giants of biotechnology. Our members have very diverse interests, but they have all come together in support of our mission, which is to foster seed industry innovation and trade.

In 2012, CSTA's private sector company members invested just under $110 million in plant breeding research and variety development in Canada. That's more than 6 per cent of their combined domestic sales and a 90 per cent increase from that investment level in 2007. Our members have signaled their intent to continue to increase investment in areas where they have traditionally invested — corn, canola and soybeans — where intellectual property protection tools are a lot stronger, but also in crops like cereals, where the private sector investment level has been traditionally quite low. This is a direct result of optimism, and that optimism was created in part by the introduction of Bill C-18.

The proposed amendments in the bill to the Seeds Act and to the Feeds and Fertilizers Act would allow for the use of foreign data in approval systems that could result in more timely approvals of innovation for farmers and consumers, while still protecting the health and safety of humans, livestock and the environment. Seed is a highly regulated commodity. Our sector is directly impacted by over 12 pieces of legislation and their associated regulations.

We welcome the proposal in Bill C-18 for incorporation by reference. That would allow some things, for example the list of crop kinds subject to variety registration, to be moved out of legislation and be referred to in regulation. That would help to make the industry more efficient because we would be able to deliver varieties in a more efficient manner, but it wouldn't preclude the requirement to provide the rationale in the industry consensus for that kind of change. It could also prevent some disconnects between the existing regulations: for example, the Weed Seeds Order in Canada's regulated pest list, where potentially invasive species are currently regulated by one and not the other.

While many of the elements of Bill C-18 can benefit the seed sector, the one that we need most and for which we have worked the longest is the section that will amend Canada's plant breeders' rights legislation. This part of Bill C-18 is already having a positive impact. Bringing our legislation into compliance with the most recent convention of the International Union for the Protection of New Plant Varieties will give plant breeders and variety developers the confidence to invest in Canada. When Bayer CropScience Canada, one of our members, turned sod on its new cereal breeding facility in Saskatchewan, representatives at the sod-turning made it clear that this would not have happened without the promise of Bill C-18.

It will also give international plant breeders the confidence to send their new, superior varieties to Canada. Just over a year ago, we received letters from the European Seed Association making it clear that they would not send their varieties to Canada because they couldn't protect them in the same way that they can be protected in other countries. After Bill C-18 was announced, a number of our member companies announced significant agreements with European-based plant breeding companies to bring new varieties to Canada.

I've been talking in the last little while to a lot of farmers and farm groups on this issue. I'd like to end my time with you by addressing two of the misconceptions that still seem to be out there about the amendments.

First, as Mr. Banack said, these proposed amendments will not take away the ability of farmers to save grain they produce on their farms, clean it, store it and use it as seed on their farms. Whatever you call it, the farmers' exception to the plant breeder's right is entrenched in this proposed legislation and would require a legislative amendment to change.

Second, as Mr. Banack said, the implementation of this legislation will not immediately give plant breeders the ability to collect royalties on delivered grain, a so-called "end-point royalty." Just like now, breeders are only able to collect their royalties on the propagating material, the seed. Under the harvested material provisions of the bill, if the breeder can prove in civil law that the seed was acquired illegally, a breach of the plant breeder's right, then the breeder could seek compensation through civil law on the harvested material, but the compensation could include much more than the royalty.

I look forward to any questions.

The Chair: We will move on to Mr. Dennis Prouse.

Dennis Prouse, Vice President, Government Affairs, CropLife Canada: Thank you for inviting me here today. It's my pleasure to offer some remarks with regard to Bill C-18, the proposed "Agricultural Growth Act" on behalf of our members and to answer questions honourable senators may have.

CropLife Canada is the trade association representing manufacturers, developers and distributors of plant sciences technologies, including pest control products and plant biotechnology for use in agriculture, urban and public health settings. We strive to ensure that the benefits of plant science innovation can be enjoyed by both farmers and consumers. We promote sustainable agricultural practices, and we're committed to protecting human health and the environment.

We also work very closely with a number of stakeholder groups, two of whom you just heard from. We're very proud of the fact that all of Canada's major farmer-based grower groups are members of our GrowCanada partnership.

Like your previous two speakers, we're strongly supportive of Bill C-18. We hope that the Senate will pass it promptly. We're particularly pleased about the potential to amend the current Plant Breeders' Rights Act, a key plank of the bill. We're also very encouraged by the portions of the bill that relate to providing the Canadian Food Inspection Agency with the authority to consider foreign reviews, data and analysis during approval or registration of new products in Canada. Both of these elements have, after all, been a long time coming. Canada is still operating under the version of the Plant Breeders' Rights Act that was passed in 1990. That act, however, only conforms to UPOV 78, not the updates to the UPOV convention that took place in 1991. Further to Mr. Banack's point, only New Zealand and Norway join us on the list of developed countries that have not conformed to UPOV 91.

Our lack of conformity to UPOV 91, as Ms. Townsend pointed out, has had consequences. It acts as a disincentive to bring to Canada plant varieties that have been developed elsewhere. An associated issue is that it builds in an incentive to invest outside Canada.

As we've pointed out in this committee before, agricultural innovation is going to take place, and it is taking place globally right now. As technical barriers continue to fall and as the cost of data continues to decline, that pace of innovation will increase. The question then becomes: Will Canada provide the environment that encourages this innovation to take place in our country? Bill C-18 takes a long overdue step to correct this issue.

Encouraging the development of new varieties of plants is not just a corporate issue. It has direct benefits for Canadian farmers who use innovation to both increase yields and improve sustainability. Only a modern legislative framework for intellectual property protection, one that brings us into alignment with our global trading partners, can encourage the kind of investment that leads to innovation.

As Ms. Townsend pointed out, the introduction of Bill C-18 even before it became law already had a positive impact on the environment for investment and innovation. I'll spare repeating the points that Patty made, but suffice to say that we're highly supportive of that as well, and we're encouraged to see it.

When that doesn't take place, let's be clear as to the consequences. Those benefits, such as increased yield or improved disease resistance, go to farmers that are global competitors of ours. I think that is the key issue that needs to be understood.

It's also worth noting, Mr. Chair, that universities, government departments and smaller independent breeders, of which there are an increasing number, also benefit from compliance with UPOV 91. Almost half the Canadian plant breeders' rights applications come from public institutions, and royalties continue to accrue to them. There also is the issue of farmer-saved seed, as the previous two speakers addressed. It's important to note that the current version of the legislation actually doesn't address farmer-saved seed in any way. It's silent on that issue. Bill C-18 explicitly addresses it, as you've heard previously.

Those are the plant breeders' rights issues. Obviously you've heard from a number of important witnesses on this.

One of the less-discussed elements of Bill C-18 that we believe deserves attention is the portion that provides CFIA with the authority to consider foreign reviews, data and analysis during approval or registration of new products in Canada.

A really key challenge moving forward for CFIA is their ability to streamline and modernize the approvals process. We know that the number of approvals for consideration by CFIA will continue to rise. This is good news. It clearly demonstrates modernization and confidence in Canada.

The challenge will come in ensuring that approvals and registrations are considered in a timely and predictable manner. Canada needs to work with other nations that adhere to global standards on science-based regulation. There's absolutely no need for Canada to collect a second set of data, perform yet another review, and conduct yet another analysis when they have already been performed by an agent whose standards meet ours. It is needless waste and duplication that can and should be eliminated. By explicitly granting this authority to CFIA, Canadian consumers will be far better served and Canada will continues to become an attractive place to invest and do business due to a predictable, timely, science-based regulatory system. You'll hear the phrase "science-based" from us an awful lot. It's a common sense step forward that we support fully.

To conclude, Mr. Chair, as one of the leading agricultural producers and exporters in the world, we believe it is critical that Canada modernize its legislative framework to encourage investment and innovation. To do otherwise would be a tremendous disservice to Canadian farmers, consumers and our economy as a whole.

The potential for Canadian agriculture is immense. There's a growing world population that is anxious for quality Canadian agriculture and agri-food exports, and we have the land, the climate and the people to fill that need. There has never been a better time to be part of agriculture in Canada. To realize that potential, however, we have to constantly move forward and modernize and keep pace with our global competitors. Bill C-18 is an important step in that process.

Thank you, Mr. Chair.

The Chair: Thank you, Mr. Prouse.

The first question will go to Senator Tardif, to be followed by the sponsor of the bill, Senator Plett.

Senator Tardif: Thank you for your presentations this morning.

From your presentations, it's clear that generally you support the bill, and I would say probably very strongly, but you have not addressed any concerns that you may have with the bill. I know that you represent a number of organizations. Can you share with us some of the concerns that you have heard? I'm sure that there are some concerns out there.

Ms. Townsend: I'll start because I think that my answer is pretty brief.

We don't have any concerns with the bill. This government has been very good at consulting and has included us all the way along in the development of the things that were very important to us. We feel that we had a tremendous amount of input on behalf of our members on the development of the wording around the plant breeders' rights amendments and in the areas of accepting and considering foreign data. For the parts of the bill that affect us, the seed sector, we only see positives.

Mr. Prouse: Further to Patty's point, the pace of positive change in innovation in the last three years has been stronger than it was in decades before that. There have been a tremendous number of steps forward. The only concerns I hear from stakeholders are the weekly calls with a great deal of concern that this isn't going to get passed on time. That's the only concern I hear.

Senator Tardif: Mr. Banack?

Mr. Banack: We're very supportive of the plant breeders' rights things.

With regard to the Advance Payments Program portion of this bill, we used to get cash advances previous to sales we have on our farms. The ability to access cash and operating capital has always been a challenge, and the changes here are very much appreciated and supported. We have to make sure that we meet those needs and we continue to ask for a bigger advance amount. That would be our biggest concern, that the cash advances should be expanded to a higher level to meet the cash needs of my farm and the farms of all our members.

Senator Tardif: Mr. Banack, you expressed in your presentation the fact that there's a concern about the reduced public funding, that there may be a shift away from public funding of research, and this could reduce the competition. Would you care to address and elaborate on that?

Mr. Banack: We have seen a reduction in public funding from the mid-1990s until today. It has fallen dramatically, dollar for dollar, the matched dollars today that we have available to us as public breeders. We believe that the public breeding system has a lot of innovative and important things to do to make innovative products that are specific to the Canadian agricultural system.

The ability to bring in international technologies is absolutely great. It provides us with those tools, but there are things we have to do to make our products different. For us to access international markets, we have to find niche markets, and we operate in a different climate from a lot of the world. It's important to have that expanded public breeding from where we are today to make sure we at least don't drop any more than we absolutely have. We've seen breeding centres and research centres across Canada closed over the last number of years, and they continue to close, and we're very concerned with those losses.

Senator Tardif: Is there any concern that the government, through Governor-in-Council, can pass regulations that would amend the privileges that are currently exempt in what's being proposed in the Plant Breeders' Rights Act?

Mr. Banack: Yes, I guess the orders-in-council are a challenge to us because we believe that it has to be run by the industry, or at least to have industry consultation, to make any changes. We believe that hopefully through government lobbying and working with the government we can make sure the orders-in-council reflect the needs of our producers.

Senator Tardif: I would ask you the same about incorporation by reference. You know that by incorporation by reference, it's not necessarily published in the Canada Gazette and that there would be no public discussion in Parliament. Is that a concern to you?

Mr. Banack: Yes, any time things are done without consultation with our members and without that full public scrutiny, it does become a concern to us. But, as I said before, hopefully through the consultation process that has been set up by the committee here on plant breeders' rights, I believe we can have some input into it and we can be there. It is a concern, and we will be watching closely as it moves forward.

Senator Tardif: Thank you.

The Chair: Ms. Townsend, you indicated you had some comments.

Ms. Townsend: I wanted to add a couple of comments on regulatory changes and incorporation by reference.

There is a process that's very clearly spelled out for changes in regulation. We've been through it a number of times, most recently on some changes to variety registration, and we're still working on the Weed Seeds Order, which is currently in regulation.

It took us three years to make changes to variety registration because of the amount of consultation and consensus that needed to be proven before those regulatory changes could be made, even without and before the gazette process.

The Weed Seeds Order and the invasive species act regulations that I talked about in my presentation, right now they are not in sync. There are pests that are regulated under the regulated pest list that are not included on the Weed Seeds Order, which is what we operate under to ensure that we don't have noxious weed seeds in our seed. They are out of sync right now because it's taken us four years to effect those regulatory changes to the Weed Seeds Order to bring it into compliance with the regulated pest lists.

Incorporation by reference just moves those out of regulation and removes that gazette process, but it does not remove the process to demonstrate rationale, to do an economic impact assessment and to demonstrate consensus before a change is made.

Senator Plett: Thank you to all three witnesses.

Mr. Prouse, you said your biggest concern was that you hope this bill will be passed on time. We will do our level best to make sure that concern will be put aside as well.

Mr. Prouse: Thank you, senator.

Senator Plett: It is difficult to ask questions of three witnesses who have been so positive about this legislation and don't have anything bad to say. I appreciate that.

I want to read a short paragraph from a Canadian Seed Trade Association background paper. It is really good reading.

Canada signed the convention in 1992, signalling its intention to ratify the convention. Legislation was introduced in the House of Commons in 1997, but it was not passed.

As a result, as we've heard today, Canada is one of only three developed countries of UPOV whose legislation does not comply with the most recent convention.

Understanding that there will always be things we can improve on, I don't think it matters what kind of legislation we pass. If we don't pass legislation until we get it all right, we will always remain behind and we will always be one of the two or three developed countries who have not signed on.

Mr. Banack, I do want to touch a little more on the advance payment. In my previous life I was a small businessman, not farming but working with farmers all of my life. Cash on hand has always been an issue for farmers ever since I can remember, and I don't think any amount of public funding is ever going to entirely solve that.

I think most of us around the table may be aware of this, but there could be people watching on television that aren't, so I would like you to explain to me what the cash advance in this legislation has done to improve what you could possibly do in your operation.

Mr. Banack: The cash advance is a very important part of our operation. We're a low margin industry. The margins we get are much less than many of the other industries in Canada that are part of the GDP. Part of that comes down to the fact that we have cash flows and bills to pay for input costs that are six or seven months old and are starting to draw interest, which we have to get paid off quickly after harvest. The Cash Advance Program allows us to draw from our advance in two stages, either a spring cash advance after the crop is seeded off our crop insurance numbers or a post-harvest advance after we're finished harvesting and the crop is in the bin. This allows us to access capital, manage our accounts and take advantage of market signals.

In our instance, we always see market prices fall in the fall as farmers try to move product into the system to pay bills, and supply demand drives those prices down at that time. The advance is very important in that sector.

On the changes to the bill, each year I want a cash advance, I have to go to my bank and my input supplier so they can sign off that they understand I'm getting an advance. The changes to this bill will give me a five-year window where we'll have a signed agreement. That will be good for five years so when I take this cash advance, it will be an easier and a more simple process than approaching my bank and input supplier. They sign off easily and it's not issue with them because they realize the cash advance helps my cash flow as a business and provides them security and payment. That is one of the biggest things I see here.

As I said before, for some of our operations, and mine in particular, the $100,000 cash advance is much welcomed, but to be truthful, it should be expanded to a larger number so that it better fits the needs of our operations.

My operation alone does pretty close to $1 million in sales over the year. The $100,000 is an important part. My input costs run close to $600,000 or $700,000. It takes a lot of commercial backing to put the money in place to grow that crop.

Senator Plett: Further to what Senator Tardif asked on whether you had concerns about some things being changed by a Governor-in-Council order, if the cash advances are too small, then possibly a Governor-in-Council order increasing the cash advance down the road might be a positive thing.

Mr. Banack: Yes. The order-in-council is always an important part. As Patty noted, the processes we have now can be very onerous and we don't want to stay to that system. We would like to have a much more clean system, but we want to make sure that the orders-in-council do reflect what producers need.

Senator Plett: Ms. Townsend or Mr. Prouse, in layman's terms, could you touch a little more on farmers' privilege, what that does as far as plant breeders' rights are concerned, that farmers aren't going to be penalized for reseeding with seed that they had last year.

Ms. Townsend: I'll start out first. I kind of know it by heart.

First of all, as Dennis said, the current Plant Breeders' Rights Act doesn't have anything in it about a farmer's privilege, right or exception. The UPOV language actually calls it an exception to plant breeders' rights. It doesn't say anything, so essentially you can do it because it doesn't say you can't.

This new bill entrenches it into the legislation in proposed section 5.2. It spells out the breeders' right, which gives the breeder the authority. So they have to grant authority to do a number of things, including producing, reproducing, stocking, importing, exporting, making repeated use of sale and advertising for sale, propagating material or seed. Proposed section 5.2 gives an exception to farmers. It allows farmers an exception to most of the plant breeders' rights, the producing, reproducing, stocking or storing and conditioning of grain of protected varieties for use on their own farms. It spells it out.

Incidentally, that language, "farmers' privilege," is actually in the margins for reference and is not part of the legislation itself. It really doesn't have an impact on the fact that it's actually entrenched in the legislation.

Mr. Prouse: Contrary to myth — and some of the opponents of Bill C-18 have tried to claim this is creating new precedence — all it is doing is entrenching the right to save seed, confirming our original signature to UPOV 91. It is simply reinforcing what had already been agreed to. So there are no new frontiers here in Bill C-18. To hear some NGOs talk, you would think there is something terribly new here, but there isn't.

Ms. Townsend: The UPOV convention does not require the provision of a farmer's exception. The UPOV convention makes it optional. Some countries in Europe do not allow for farmers to save the grain from protected varieties to use as seed on their own farms, but Canada has made that decision. That's a practice our farmers need, and that's why it is now spelled out in the legislation.

Senator Plett: And typically many farmers would save about 10 per cent of last year's crop for reseeding next year.

Ms. Townsend: It depends on the farmer and the crop. We're seeing more and more farmers because, as Dennis said, the pace of technology has become so much greater. Farmers want to access that new product, so they are buying new seed every year.

Senator Moore: Thank you for being here. I'm new to this committee and this topic, and I find the phrase "farmers' privilege" to be interesting. Could you explain in lay terms what that means? I don't know what it means. "Privilege" always makes me wonder what that includes.

Ms. Townsend: It's funny because when this legislation was being developed, we had a lot of discussions about what you would call it. I know that some organizations would rather have called it a farmer's "right," and there are some organizations that like "privilege." From my perspective, you could call it Bob and it wouldn't matter because that terminology is not part of the legislation. It was just to put in a reference point so you could find that piece of the legislation that explains the exception given to farmers to use the product that they produce — protected varieties of seed — on their own farms. Without being facetious — and maybe it sounded facetious — it doesn't matter what you call it. The fact is that it's entrenched in legislation and it is an exception to plant breeders' rights.

Senator Moore: So is somebody granting this privilege? Does a farmer have to look to somebody to get approval?

Ms. Townsend: No. The legislation grants the privilege. That means that if you produce a variety and protect it with plant breeders' rights. and I buy seed of that variety, then I am perfectly within my —

Senator Moore: You're the farmer?

Ms. Townsend: I'm the farmer; you're the seed company. You've developed a variety. You've made the investment to develop that variety and have chosen to protect it by plant breeders' rights. "Chosen" is an important term because you are not required to protect your varieties by plant breeders' rights or by any other intellectual property protection tool. You protect that and I buy it. I can actually grow grain from that seed, save that grain, clean it, store it and use it as seed on my farm for years to come if I choose to do so. You don't have to apply to anyone. It's there in the legislation, which means that you as a breeder can't come back to me and tell me that I'm doing something that is contrary to your right.

Senator Moore: Wasn't that always the case?

Ms. Townsend: It was always the case. It was just never in legislation before. It was just the legislation didn't say you couldn't do it, so it was allowed.

Senator Moore: What's on the other side of that, that we have to put it in legislation? To me, it just seemed to be part of the farm practice.

Ms. Townsend: I think there was concern that by changing the legislation, somehow this exception to plant breeders' rights would be lost. Putting it into the legislation ensures that it won't be lost.

Senator Moore: Looking down the road, is this going to give the plant breeders any authority or power of persuasion over the farmers?

The Chair: Ms. Townsend, before you go to that follow-up question, I noticed that Mr. Banack wanted to comment on that question.

Mr. Banack: Thank you.

As a grain producer in Canada, UPOV 91 is changing where the developer of the seed will get their funding from. Today, when I buy certified seed across Canada, and we do buy some certified seed every year to propagate to use on our farm, we're paying a user royalty on the seed as we buy it. Plant breeders' rights say UPOV 91 will change it to an end-point royalty, and that's where the farmer-saved seed comes in. As I deliver that seed, I have to declare a variety name, and that royalty will then be attached to the developer of that variety.

Patty is shaking her head, indicating that that won't be the way it is.

Senator Moore: Could you explain that again?

Ms. Townsend: I'm sorry, but that's not the case, Humphrey. There is confusion, and that's part of the problem. It's going to take me a few seconds to explain this.

While this legislation was being discussed, there were processes going on. People recognized that there was a need to generate additional funds for investment in plant breeding and research, so there were a lot of processes going on across Canada to try to figure out how to do that. Unfortunately, it was happening at the same time this legislation was being discussed.

There is nothing in this legislation or in UPOV 91 that allows a breeder to collect a royalty on anything but the propagating material or the seed. The only time that there could be compensation would be if that seed was acquired illegally and the breeder was not able to collect their royalty on the seed. If they can prove in civil law that they were not able to collect the royalty on the seed or the propagating material, then they can be compensated on the harvested material.

UPOV 91 does not change where the breeder is allowed to get their compensation. If that was ever going to happen, the only thing this bill does is give the minister the right to make regulations to change that should the industry and the minister and the government at the time decide that's what they want to do. It's very clear in UPOV language and in the legislation that the only place where the breeder can collect the royalty is on the propagating material.

Senator Moore: Chair, maybe Mr. Banack could explain his side.

The Chair: Mr. Banack, would you have any comments to add?

Mr. Banack: Like I said, right now we do use certified seed on our farm every year. We buy a fair amount of certified cereal seed. All our canola seed is certified because it's a small amount. This applies in large part to us in our cereals in Western Canada because we use a lot more volume of seed for our productivity. Farmers' privilege comes in at the point in time in that farmer-saved seed is a big part of what we do on our farms; farmers' privilege is an important part of that.

However, the royalty system works. We're very accepting of that because we've realized that developing new varieties does take dollars, and we have to be able to support that through the use of those seeds. We believe we do that through a commercial system. We on our farm don't go out and seed one variety from corner to corner. We will use different varieties to develop which one is the best for us, and that's the one we will continue to support through those royalties.

The Chair: Thank you.

Senator Moore: I'm not sure that Ms. Townsend's response satisfied your concern.

Mr. Banack: Yes, it does. We believe that end-point royalties are applicable if the government chooses to go there, and that's where UPOV 91 goes to. Our farmers recognize the ability and that need for us to pay a royalty on our seed and on the stuff that we propagate and use on our farm. In the canola industry, we've seen huge advances because we have gone to using a lot more certified seed. Without the ability to collect royalties on propagated product, it gets very difficult for companies to develop that seed and put it into the Canadian system.

Senator Moore: I understand intellectual property and the value of it and the value of research to enhance the product and productivity of seeds, but you said you'd have to pay again. When you buy seeds, is it marked on the bag? How do you know what your rights or obligations are?

Mr. Banack: The rights and obligations are spelled out through the act. When I buy certified seed now, with today's rules part of that cost does go back to plant royalties and back to the plant breeder. Those will be laid out in future legislation and by orders as to exactly where that royalty will be collected.

Senator Moore: How do you get that information?

Mr. Banack: I guess through the seed growers, through the Canadian Seed Trade Association and their members. When I'm purchasing the seed, I will be notified of exactly where that royalty is being paid.

Senator Moore: Earlier in your remarks, you said that you would have to pay a royalty again on —

Mr. Banack: Not again.

Senator Moore: What did you say?

Mr. Banack: One-time royalties.

Senator Moore: You're concerned that the Governor-in-Council could change it. You said something that triggered Ms. Townsend's response, and I don't know what that was and if you're now satisfied.

Mr. Banack: I think Ms. Townsend's response was that end-point royalties would be there for sure. End-point royalties will be a decision, I believe, by the breeder as to where they want to collect the royalties. As long as it's collected once, our concerns are met.

Ms. Townsend: First of all, UPOV 91 doesn't set up end-point royalties either. That is an individual decision of the member country, whether or not they want to put in a system of end-point royalties or some other kind of a system. There are systems around the world where they actually charge a portion of the royalty on farm-saved seed. There are all kinds of examples out there, but there is nothing in this legislation that establishes that. The breeder is only allowed to collect the royalty on the propagating material when they sell the seed.

The other thing is that for a lot of companies where it's more of an integrated system, where they do the plant breeding and research and variety development and the marketing of the seed, it's all part of their margin. Because they're developing it and they're getting the compensation for it, they don't charge themselves a royalty. It becomes part of a margin.

Where it becomes more complicated is if you're licensing varieties from someone else. For example, when Agriculture Canada develops a variety and they licence it off to one of our member companies to multiply and distribute, our member companies pay Agriculture Canada a royalty, and that information is publicly available.

Senator Ogilvie: Perhaps you'll allow me to follow up with an end-point question. Perhaps we'll clarify one issue that has been part of the great public debate where farmers have been expressing upset that they're not allowed to collect their own seed, reuse it and so on. You have explained that they will have that right now.

The final question with regard to the royalty issue is: When farmers collect seed that they've grown from their own crops, cleans it, stores it and uses it the next year, are they be subject to any further royalty payment?

Ms. Townsend: Absolutely not.

Senator Ogilvie: I was clear on that, but that was the issue of concern to the general public in the past. Thank you.

Mr. Prouse, I agree completely with the principle of your general statement on eliminating duplication of testing in terms of getting approvals that can slow down the process, and if something has been tested thoroughly in another jurisdiction, why go through all of that testing all over again for the same end point. This occurs in other product areas, such as pharmaceuticals.

Historically, there are good reasons for that, and there are nationalistic reasons for doing that. The latter probably are not necessarily productive as a reason for requiring additional testing. So I fully support the idea that we shouldn't duplicate testing when testing occurs in jurisdictions where we have complete confidence that their standards meet our requirements. Historically, it was easy for us to do that. Certain countries were reliable overall, and today we probably have certain countries in mind that we know are still reliable. We cannot be absolutely certain of that, however, in terms of the actual application of testing within those countries.

So in order to support the idea that we would accept approval decisions from other countries, what would you see as a mechanism that would allow our authority to do either random or deliberate checks on the materials produced in those areas to ensure that they meet our standards, without the necessity of going through the entire approval process?

Mr. Prouse: The data is what it is.

Senator Ogilvie: Is the producer of the data reliable? That's the question.

Mr. Prouse: Typically, they are being tested and the data are gathered by the applicant. That process in and of itself becomes controversial to some. No doubt you've heard that it's all corporate research. To turn that around, why should the taxpayer pay for the supporting work for somebody who wants to move forward with their own application? Typically, you're seeing presented the bulk of the work done by the applicant. They're accepting the same set of data, and that's our point: The testing has been done. Frankly, we have confidence in the professional nature of the leadership of an organization like the CFIA and their ability to designate the countries whose science-based regulatory scheme they accept.

It's a real battle to find a coalition of the willing, if you will, out there around the world of nations who believes in and supports science-based regulation and rules-based trade. As you alluded to, a number of nations use the regulatory system as a non-tariff trade barrier. This is what we're trying to eliminate. This is partially a trade issue and partially an issue of facilitating innovation in Canada. We think there is a tremendous opportunity here to make Canada a very attractive place to do innovation by having a more streamlined regulatory system. There is great opportunity.

Ms. Townsend: I want to add a little to what Dennis is saying. In our case in the seed sector, where we're developing new varieties, we have to go through certain processes. For example, if it's a novel food, we have to go through the novel assessments and the determination of safety for humans, livestock and the environment. In the case of variety registration, we have to ensure that it actually is a new variety and will be better than or equal to what is already out there. There are numerous international processes. For example, between Canada, the U.S. and Mexico, we have cooperation where we examine each other's data. Sometimes we generate the data together.

Another point I want to make is that in this world of biotech and other advanced technologies, quite often the same company generates the data in different countries based on the individual country's rules, but it is actually the same company. Accepting the data generated in a different country doesn't mean that it's being generated differently as they're doing the same testing. I was told at the International Seed Federation that about 80 per cent of the packages generated for approvals in different countries are the same across most countries.

Senator Ogilvie: In your area, you have a very quick testing system. If the first crop doesn't meet the promise, you know what has happened.

I'll leave it there. Thank you very much for your answers.

Senator Enverga: Thank you for the presentations.

The key objective of the bill is to encourage investment in Canadian research that will increase crop yield, improve crop resistance to pests and disease and meet the global trade demands that you mentioned. You're all positive about the bill. Could you quantify or maybe rate the lost opportunities? UPOV 91 has been around for a while. Have we lost any opportunities? If we delay further, how many more will we lose?

Ms. Townsend: Specifically to UPOV 91, there are some really good cases. We have a couple of small- or medium-sized companies that went overseas, spent all the money in investment, met with a number of international plant breeders and made arrangements to bring their varieties to test in Canada, only to have them call back about a week later and say, "Oh, we didn't realize you weren't UPOV 91 compliant, so we will not send our variety to you." So a number of our Ontario companies missed out on some new varieties.

An agreement was made, just after Bill C-18 was tabled, between one of our members and a very large European breeder to bring new varieties into Canada that are now being put on the market, so they lost that.

The potato industry has had a difficult time and is falling behind. They can't get some of the blight-resistant and virus-resistant varieties being developed in Europe because the Europeans will not send them until we're UPOV 91 compliant.

Mr. Prouse: Further to that, as a little demonstration of why the climate of innovation matters, two years ago we saw a member company move the bulk of its research division out of Germany and over to Raleigh, North Carolina, to the research triangle. Why? They were frustrated with the European regulatory environment and saw a better opportunity; so 300 key vital research jobs left Europe and went to the United States.

Every day these global companies are making decisions about where to invest globally. Where do we want that innovation to take place? Further to my opening remarks, that innovation is taking place every day. Those investment decisions are being made every day, and it's vital that Canada makes itself as attractive as possible so that the research takes place in Canada as opposed to elsewhere. Agriculture innovation is moving forward and continuing to take steps. We can either be at the forefront of it or we can fall behind. Those are the policy choices we make.

[Translation]

Senator Dagenais: I have a brief question for Mr. Banack. I would like to hear your comments on the problems that farmers are having with traditional financial institutions and on the average debt burden of farmers.

[English]

Mr. Banack: The average debt burden of producers in Canada, Canadian farm debt, is well over $70 billion today and climbing steadily, as with the rise of our value of products and value of our inputs and capital assets.

The debt burden of farmers, especially young farmers in this country, is huge, and that's where the Advance Payments Program is so critical. They may be at 70 or 80 per cent debt-to-equity ratios. That's very important for them. They have to have those cash flows, and cash flows are important to manage those debts.

The more established farms in Canada sometimes don't take advantage of the Advance Payments Program. We have a very low participation rate in the Advance Payments Program; probably only 20 or 25 per cent of the farmers in Canada use them, but for the ones that need them, especially young farmers, it's very important to that cash flow and the high debt rates that they're running.

Senator Tardif: I have a comment and a quick question in regard to farmers' privilege. In the international areas where plant breeders' rights have been implemented up to UPOV 91, there have been different ways of managing the farmers' privilege. Some have outright farmers' privilege; some have no farmers' privilege; and others, like what Canada is proposing, have a modified version. The modified version means that it's able to be modified by regulations later, so I would bring up this idea of changes being possible through regulations.

To get back to the question of end-point royalties, I asked a question to the minister when he appeared before the committee in December about the possibility of plant breeders collecting revenue on harvested grain, not only on the seeds sold. The minister indicated in his response that that would only be if that differential was made in the contract up front, and it would all have to be worked out in a commercial agreement.

Mr. Banack, is that of concern to you, that the onus will now be on the farmer to negotiate a good contract with the seed companies as to when the royalty will be collected?

Mr. Banack: I guess to negotiate when it will be collected will be something that the seed developer will propose to farmers. We farmers have that ability right through; that will not be the only seed that's available to us. So through commercial arrangements we have with other things, we believe that it will be fair.

Those negotiations can be done on a fair basis because right now I can look at 15 or 20 different varieties to seed on my farm for hard red spring wheat. Out of those 15 or 20 varieties, I have the ability to negotiate to the best that I can on either one of them, and I believe that can continue to happen in the future, as long as we're not stuck to one or two varieties. If there are choices out there, we should be able to come to those fair negotiations.

Senator Tardif: I'll leave it at that, chair.

The Chair: Witnesses, we have appreciated your presence and sharing your opinions with us.

I will now ask the second panel to come forward.

Witnesses, thank you very much for accepting our invitation to be here and sharing your opinions, recommendations and ideas. We have with us, from the Canadian Cattlemen's Association, Mr. Ryder Lee, Manager of Federal Provincial Relations; and by video conference, the president, Mr. Dave Solverson.

Thank you, Mr. Solverson, for being present by video conference.

We also have with us, from the Canadian Canola Growers Association, Ms. Jan Dyer, Director of Government Relations; and from the University of Saskatchewan, Dr. Richard S. Grey, Professor, Bioresource Policy, Business and Economics.

I am informed by the clerk that the first presenter will be Mr. Solverson, to be followed by Ms. Dyer and then Professor Gray. I have also been informed that instructions were given not to exceed five minutes in length, to permit senators to ask questions on Bill C-18.

Mr. Solverson, please make your presentation.

Dave Solverson, President, Canadian Cattlemen's Association: Thank you, Mr. Chairman. Hello from Calgary, ladies and gentlemen.

As mentioned, I am Dave Solverson. I'm President of the Canadian Cattlemen's Association, and with you in Ottawa is Ryder Lee, one of our key staff people in Ottawa.

I am a cow-calf producer from Camrose, Alberta, and also a backgrounder and cattle feeder. We have an operation that's a bit different in that we take all our calves right through to finish. This has given me a good understanding of the challenges at each step of production. Along with my partners, I am also involved in some grain production and have been exposed to the ups and downs of that side of farming in Canada.

Bill C-18 covers a wide array of acts. Some of the changes are of obvious interest to livestock producers, for instance the updates to the cash advance program. Some are not as obvious, and I will comment on both.

The changes to the Plant Breeders' Rights Act are positive. Canadian cattle producers depend on innovation and improvements in feed grain and forages. We believe that the update to UPOV 91 will assist in seeing investment in seed development in Canada. The protections this act confers are not just for companies but are also for institutions like universities or governments that develop new varieties. Two of our major competitors, the United States and Australia, have adopted UPOV 91 and we hope to keep pace with them.

There are overarching changes to several acts that bear comment. First is the ability to incorporate by reference. The second is to allow for using documents that are not Canadian. The third is to allow the minister to consider information that is available from a review or evaluation conducted by the government of a foreign state.

We have often found the regulatory change process to be time consuming or to be duplicative of other jurisdictions that have rigorous approval processes. We see these changes as positive for innovation and for the regulatory processes in general. There are requirements set out for transparency and accessibility, and really the test will be when these things are done. Enabling them in this legislation is a good first step, and we will be involved as the authorities granted by these changes are first tested.

Skipping down to the Administrative Monetary Penalties Act, we do have some concern with how this is implemented, more than with the authority granted in the proposed bill. The proposal is to have new levels of minor, $5,000, serious at $15,000 and very serious $25,000 penalty amounts. One reading could be that any violation should get at least a $5,000 fine. It is not clear that there will be a continuum within minor, serious and very serious. The current CFIA modernization consultation discusses compliance and risk-based enforcement that would lead us to believe that a minor offence of little risk to human or animal health would not yield a $5,000 penalty. This is down to implementation and is not something we have a suggestion for the committee to amend, but we did want to register this concern.

We do a lot of work like supporting certified livestock transporters and communications about pre-transport decision making. When bad outcomes happen, we support enforcement that will deter.

With the cash advance program that you have heard about from Alberta breeders, feeders and others, the CCA supports the legislative changes in Bill C-18. The positive change of granting the authority to add breeding stock and changing some of the dates will match it up with beef production better than in the past. We also support giving administrators more ability to handle the different kinds of business setups that exist in farming today.

We will continue to work with AAFC on this file. They have done a good job of consulting on the APP part of Bill C-18. As regulations are drafted to put into force the authorities granted in the act, we will participate.

One of the things we will keep investigating is the ability to add the Western Livestock Price Insurance Program to the list of programs that producers can use as security for the Advance Payments Program. We would like to see price insurance become a national program.

Thank you for inviting us to appear today. I appreciate the opportunity and regret that I am not there in Ottawa to talk to you in person.

To close, the changes in this act are positive and should improve government operations in the policy areas it covers. That follows other improvements we are seeing in market access, which we have loudly supported.

Our major concern right now relates back to our competitiveness in the areas of this act and market access. Labour shortages on farms and especially at processing plants are hampering our ability to take full advantage of positive changes that we have seen to date and expect in the near future. We are going to need more Canadian workers to meet the new needs of markets such as China and the European Union. If we cannot get more willing and able workers on farms and plants from Canada and from abroad, we will continue to lose out on opportunities the marketplace is presenting and on improvements that legislation like Bill C-18 enables. This is already happening today.

Thank you.

The Chair: Thank you, Mr. Solverson. I just wanted to say to you that the climate here in Ottawa is cool. I have to tell you that when this committee was in Washington, D.C., this week, we did talk about COOL.

Mr. Solverson: That's great.

The Chair: That said, we will now move to Ms. Dyer.

Jan Dyer, Director of Government Relations, Canadian Canola Growers Association: Thank you, Mr. Chairman and members of the Senate committee. Thank you for inviting me here today to speak about Bill C-18, the proposed "Agricultural Growth Act." Specifically, I'm going to focus on the proposed changes to the Agricultural Marketing Programs Act and how they will impact the cash advance program.

The Canadian Canola Growers Association, CCGA, represents 43,000 canola growers. We are governed by a board of farmer directors representing all provinces from Ontario west to B.C. We are also the largest administrator of the Advance Payments Program in Canada. We offer 20 different crops in Manitoba, Saskatchewan, Alberta and B.C.

A number of amendments contained in Bill C-18 are expected to foster innovation in agriculture and provide more responsive government decision making. In particular, we applaud the government for proposing the changes the Plant Breeders' Rights Act to bring it in line with UPOV 91, the international standard adopted by Canada's major competitors, while providing an exemption for farmers to save seed to use on their farm.

Implementing UPOV 91 has been a long-standing goal for many within the agriculture community as it builds up Canada as a place to invest and enhances farmers' access to innovative and new seed varieties.

When it comes to the proposed changes to the Agricultural Marketing Programs Act, AMPA, farmers will benefit from a more valuable and responsive Advance Payments Program. The provisions allowing administrators to advance on any commodity and to offer multi-year advance applications, as well as the expansion of producer eligibility, are examples where farmers really stand to benefit from the bill.

The APP is an important and unique risk management tool, providing farmers cash flow when they need it and the flexibility to sell their grain when market conditions are favourable. Additionally, the program provides interest-free and competitive financial rates, adding another tool for farmers when they're managing their operations.

We know first-hand the importance of the program, particularly for new farmers just getting established and farmers in need of flexible marketing and financing options. The proposed changes will improve program accessibility and streamline the program administration.

The challenges with grain logistics experienced last crop year highlighted the importance of this program. The cash flow crunch resulting from the extensive delays in selling opportunities led to a substantial increase in demand for the program last year. The total of money advanced to farmers was significantly more than the previous year. In the programs that the CCGA administered, we advanced almost $1.6 billion to farmers during the grain logistics problems last year. That was 50 per cent more than the year before. The funds were advanced to more than 12,500 farmers compared to just under 10,000 in the previous year. So we think the program really filled a gap that was needed last year when we had grain marketing problems.

By accessing financing under the program last year, farmers were able to secure the necessary funds to purchase seed and crop inputs last winter. The program provided a much-needed financial bridge until grain movements picked up in the spring and farmers received payment for their crops.

CCGA is supportive of the proposed changes to AMPA and looks forward to rolling them out to farmers this crop year.

What we're encouraging the committee to do is to consider and fully support Bill C-18, and we really hope the bill is passed quickly. For us, timing is really important. Normally new program applications in any given year start on March 1. Farmers like to get their applications March 1 and have them filled out so they can get their advances April 1. In order for farmers to take advantage of as many opportunities as possible for this program this year, we hope that the bill has timely passage. For this growing season, we hope that farmers will be able to access as many of the new program benefits as possible with timely passage.

We thank you for the opportunity to speak to you today and look forward to answering any questions you might have.

The Chair: Thank you, Ms. Dyer.

The chair will now recognize Professor Gray.

Richard S. Gray, Professor, Bioresource Policy, Business and Economics, University of Saskatchewan: Thank you, Mr. Chairman. It is my pleasure to address this committee with respect to Bill C-18. Thank you very much for this opportunity.

My name is Richard Gray. I'm a professor of agricultural economics from the University of Saskatchewan. I am also engaged in a family farm at Indian Head, Saskatchewan.

For much of the past 12 years my research has focused on the economics of agricultural innovation. From 2003 to 2013, I led the Canadian Agricultural Innovation Regulation Network. I have been able to spend time studying agricultural research funding systems in the U.K., France and Australia, which are all signatories to UPOV 91. I will draw on some of that research in my brief comments to you today.

There are many changes to legislation embodied in Bill C-18. However, I will confine my remarks to the strengthening of the plant breeders' rights contained in proposed sections 5 and 5.1 of Bill C-18. As I see it, the provisions of the bill significantly extend the rights of the breeder and create the foundation for annual royalty payments for the use of varieties.

Proposed section 5 expands the rights of the breeder from seed propagation to conditioning to sale to export to import and to the storage of feed. Proposed section 5.1 extends these rights of the breeder for seed to any harvested material derived from the unauthorized use of seeds. These provisions of the bill will allow a breeder to enforce a "bag licence agreements" that could easily include provisions to pay an end-point royalty on the sale of harvested material.

For example, when a farmer purchases registered seed, he or she may be required to sign a contract as part of a seed purchase agreement. The contract can forbid the sale of seed and can specify that the farmer pay a royalty to the breeder, say $1 per tonne, at the time that the variety or the harvest is sold. If the farmer changes his mind and decides to make a sale of a product without royalty payment, the breeder can use the provisions of proposed sections 5 and 5.1 to enforce the contract. In addition, they can pursue the grain marketers selling grain where the royalties due have not been paid. This is almost exactly how end-point royalties were introduced and enforced in Western Australia in 1994.

To be clear, although the farmer may retain the right to reuse seed, he or she may be required to also agree to pay an end-point royalty as part of a seed bag licence agreement. These are terms of a private contract.

The provisions of proposed section 5 and 5.1, which are part of the UPOV 91 framework, are somewhat controversial. However, I'm very much in favour of this change for two reasons. First of all, these rights provide a mechanism for public and private breeders to earn additional revenue from breeding activities. Given the lack of public support for public research and the high returns to research, the bill will provide much-needed plant breeding resources.

Second, Bill C-18 maintains the very important aspect of UPOV 91 that gives other breeders the right to use registered varieties in their own breeding programs. This mandated sharing ensures that firms wishing to use plant breeders' rights to protect the sale of their varieties have to share their genetics with anyone wishing to develop new varieties. This explicitly prevents the use of plant breeders' rights to monopolize plant breeding genetics.

While I speak in favour of these provisions, I would go further and add a note of caution and a suggestion to enhance the utility of Bill C-18.

First of all, do not expect that Bill C-18 will create a cascade of private research investment into wheat, barley or similar open pollinated crops. Australia introduced end-point royalties in 1994. Because new varieties had to compete with existing royalty-free varieties, the royalty rates increased very slowly over time. It was 16 years before end-point royalties got high enough to fully fund a breeding program. Fortunately, Australia retained both public and producer support for breeding during this long period of transition.

The United Kingdom was not so fortunate. The U.K. government pulled entirely out of public wheat breeding in 1987. Because of the limited ability to raise royalty income, the underfunded private research breeding system quickly went into a tailspin and took 15 years to recover. If Bill C-18 is enacted, I expect it will take years before royalties get high enough to support a private wheat breeding industry.

The second important lesson comes from France. In France, all farmers pay a 0.7 euros per tonne levy on the sale of their wheat. This uniform levy rate is negotiated between farm groups and the seed industry. After the levy is paid, 85 per cent goes directly back to the breeders as a royalty based on their share of varieties being sold, and 15 per cent goes to support public breeding.

This royalty system, which could be used in Canada, has four significant advantages.

First, it's very simple to collect and administer because the same deduction is made for each variety. Farmers also have no incentive to misrepresent the varieties that they are selling.

Second, this royalty structure, which uniformly applies to all wheat varieties, generates immediate additional revenue for both existing and new wheat breeders. Unlike the case in Australia, it does not take 16 years to get to commercial levels. If we are serious about ramping up wheat breeding in Canada, this is the shot in the arm that's needed.

Third, as long as the uniform royalty rates are negotiated with farm organizations, there is no danger of royalty rates eventually reaching the astronomical levels that we see in hybrid corn and canola.

Finally, some recent research of K. Bolek, a PhD research student of mine, has shown that uniform royalty rates promote earlier adoption of new varieties. This makes farmers better off. We estimate that using uniform end-point royalties in Australia would increase the average wheat yield by about 1 per cent, which is enough gain to pay for all the royalties being paid. If varieties are priced the same, farmers will adopt the best varieties sooner.

To sum up, Mr. Chair, Canada becoming compliant with UPOV 91 is long overdue. However, to address the underlying issues in breeding, we need to go one step further and work toward the implementation of negotiated, uniform end-point royalties.

This concludes my remarks. I look forward to any questions the committee may have.

The Chair: Professor Gray, thank you very much for your presentation.

Now we will start with the question session. The chair will recognize Senator Tardif to be followed by the sponsor of the bill, Senator Plett.

Senator Tardif: Thank you very much for being with us today.

Professor Gray, I'd like to ask a question of you, and if others want to jump in, they can. We've heard a lot about end-point royalties, and the last panel seemed to indicate that there was no possibility of end-point royalties being collected. From your reading of the bill, is it your understanding that harvested material could be subject to end-point royalties, and this would depend on the contract signed between the farmer and the seed companies? Do you see that as possibly being harmful to the farmers, as well as to research for innovation?

Mr. Gray: First of all, I do think it's a real possibility. Under the current legislation, you can still have a contract for the sale of seed, but if someone else gets a hold of that seed, you don't have a contract with those individuals. This bill extends the right of the breeder to basically have control over any unauthorized use of the seed, wherever it is in the supply chain. So even if a neighbour, for example, grows the seed, the breeder could have control over the unauthorized use of that harvested material. It makes the contracts in a seed bag licence, where you actually have to pay a royalty, more enforceable. That could easily be put into a contract, as far as I read the legislation. It's a private contract negotiated between farmers and the seed company. That's exactly how they did it in Australia. That's how they implemented it. I do see that as a possibility.

I think that's a positive thing. If we're going to have to incentives or resources for plant breeding, it's important that we have a way of paying for breeding, and a reasonable way to pay for those is to actually pay in proportion to the use of a variety or the use of a crop that's grown. I think it's a reasonable way to set up a system for collecting revenue that can be used to fund research, and I see it as a possibility and I see it as a positive possibility.

Senator Tardif: Only seeds that are registered can be saved by farmers. Do you see it as a possibility that seed companies could start deregistering their seeds in order to keep collecting the royalties or to prevent farmers from going elsewhere and limit competition?

Mr. Gray: My understanding is that if a company deregistered their seed, they in fact it would be out of the market and wouldn't get any revenue from that.

Senator Tardif: Then it would be in the public domain, but there might be an incentive for fewer seeds, or fewer choices, I guess, for the farmer.

Mr. Gray: That is certainly correct and a possibility, but I would also say that varieties do get out-of-date at times. They're subject to disease. There are other issues with them. I think it's important to have some ability for a seller or breeder to say they don't want that on the market any more. That's there, but I don't see it as a big issue.

Senator Tardif: I want to ask a question to Mr. Solverson from the Canadian Cattlemen's Association. You indicated that the Administrative Monetary Penalties Act could be of concern. Do you believe that farmers would truly understand the difference between a minor, a serious and a very serious offence?

Mr. Solverson: No, I don't think we have a real, true understanding as to the differences.

Senator Tardif: That's a concern that you have.

Mr. Solverson: Yes.

Senator Tardif: How do you feel about the amounts? Do you feel they're fair?

Mr. Solverson: We're supportive of monetary penalties for abuse. For instance, I mentioned in livestock transportation that there has been the odd case in the past where animals have been transported and they shouldn't have been. We are supportive of strong deterrence for that kind of thing. For instance, on any other animal cruelty thing, we believe a strong deterrence through fines is better than regulating the whole industry because of the bad acts of one or two, so we are supportive of a strong monetary deterrence.

Senator Tardif: But you're concerned about how the administration of the penalty may be put out.

Mr. Solverson: Yes. We're just a little unclear as to what would be considered minor, what would be considered serious and very serious.

Ryder Lee, Manager of Federal Provincial Relations, Canadian Cattlemen's Association: It reaches beyond transport to other things. The food inspection agencies reach into things such as traceability, where you have a producer that might have had cattle that cannot keep an ear tag in. If that gets found, then that's considered against what the traceability rules say. When you show up at an auction mart, everybody is supposed to have a tag. If one fell out, you're technically offside. The choice is between a warning and a minor offence. If you go by the letter and the minor offence says $5,000, that's a little out of match with the risk to the food safety system. That's an implementation thing.

As far as the amounts that are in the act and the permission given to the agency, that's fine. We support where these things should be amped up or moved up as the seriousness moves up to be a deterrent, as it says, and not just a cost to business, but when things are low risk, then —

Senator Tardif: Thank you.

Senator Plett: To all our witnesses, thank you for taking the time. I've got one question for each witness, chair, and I'll try to be brief.

Mr. Solverson and Mr. Lee, you probably answered my question when you answered Senator Tardif's, but I just want to be clear. Your concern with monetary penalties is that it's not quite clear how they will work as opposed to you thinking there's anything wrong with the monetary penalties.

Mr. Solverson: Yes, I agree with that assessment. Ryder pointed out a great example where something as simple as an ear tag falling out could end up being a very high fine, so we're just concerned about the implementation. We're not concerned about the act itself.

Senator Plett: Thank you. Mr. Lee nodded when I asked the question. It was an up and down nod, so I take that as a yes. Thank you.

Professor Gray, I'm not sure I understood you correctly. I want to read something to you, and you tell me whether this is what you were referring to when you talked about the U.K. I know you talked about end-point royalties, but I think it all comes together with plant breeders' rights.

I have a document here from the Canadian Seed Grain Association. You mentioned the United Kingdom, so that's why I want to read from it. PBRs were granted in the United Kingdom in 1964. In 1987, 23 years later, the British Plant Breeding Society reported its review on the benefits of said plant breeders' rights. The report said:

Improved varieties of grass and clover have contributed to a greater cost effectiveness of milk and meat production. For cereal productivity, official statistics have shown that of the increased wheat yields since 1964, at least 60 per cent was due to the use of new varieties, for barley the figure was 30 per cent and for oats 25 per cent. These improvements have benefited the national economy as the UK changed from net importer of cereals — only 60 per cent self sufficient in 1964 — to net exporter — more than 10 million tonnes sold abroad in 1987.

Were you referring to plant breeders' rights being negative for the U.K.?

Mr. Gray: To go back to that period of time, up until 1987, the public plant breeding at the Plant Breeding Institute of Cambridge University was publicly funded, and it was a dominant breeder. They had about 80 per cent market share of all the wheat varieties out there, and there was a remarkable increase in variety yields over time.

When the government sold off the plant breeding institute to the private sector, there was not enough money for private research, and basically it ended up being fragmented. There wasn't enough royalty revenue coming in to support a completely private industry. That's basically when the progress stopped, and it didn't really kick in again until about 2005. If you look at U.K. yields, you can see that they just went flat as a pancake.

Senator Plett: Until 2005, and they started to come up again.

Mr. Gray: And they started to come up again.

Senator Plett: Thank you, sir, for that clarification.

Ms. Dyer, you talked about being the biggest administrator of the Advance Payments Program. I just want you to clarify something for me. We are bringing in legislation that enhances the Advance Payments Program, and yet you are already the largest administrator of the Program. So we already have an Advance Payments Program. Can you simply tell me where this one makes it better?

Ms. Dyer: The legislation will give farmers a lot more choice in terms of the administrator that they use. We're the largest administrator, but that doesn't mean we're a huge organization that administers these programs. There's also another large administrator in Ontario.

Right now in Manitoba, for example, if somebody wants an advance on wheat, canola or corn, they can come to us for wheat and canola, but they have to go to the Manitoba corn growers for that advance.

Senator Plett: Will this change that?

Ms. Dyer: Yes, it will allow the farmers to decide. The farmer could decide that he likes the Manitoba corn growers' administrative approach and he can take all his business there, or take all his business here or keep on doing it the way he wants.

Senator Plett: And get advances for all of the crops?

Ms. Dyer: Yes. It makes it more flexible for the farmers. They don't have to go to different administrators. They don't have to go back to the banks a couple of times. That's one place where the flexibility improves.

There are a number of things in the legislation itself. It makes it much clearer that legal entities where there is more than one partner in the business can get advances, and those rules are clear now. It allows for multi-year agreements. As the previous witness on the first panel said, right now you have to get a whole new advance agreement every year.

So now if you're a regular client and you come back to us every year, you can get a multi-year advance. You can do that one time every five years, and we'll just keep renewing your advance. There is a whole lot less paperwork for the farmers and more flexibility in how they pay back and the crops they can get.

Now they have some choice about the administrator that they can go to, for example, if they like the way one group does it in terms of how they do their online applications or how they process it. They just have a lot more choice in where they can go.

Senator Moore: I want to thank the witnesses for being here. I want to ask Professor Gray about end-point royalties.

In your research, when those types of arrangements are put in place, are they made known to the farmer who buys the seeds at the time he purchases them and does he sign a contract?

Mr. Gray: Yes, he signs a contract. I talked to the person who implemented it in Western Australia, and they more or less had taken what Microsoft uses for software: If you open this bag, then you're agreeing to this licence agreement, so read it very carefully; by opening this bag of seed, you're agreeing to the terms of this agreement.

Very much so the farmers are aware, and it's specified on public websites and other places. In each variety, for example, the Wyalkatchem wheat variety in Australia, they pay a royalty of $3.50 a tonne on the harvested materials. It is known to producers months before the seed is available that that's going to be the price on that variety. That does not change. Once they open that bag, for the life of the variety, the royalty stays at $3.50 a tonne. It doesn't change the next year; they can't change it. All the terms of the contract have to be specified at the time of the initial purchase.

Senator Moore: So they're tied into that for the life of the seed.

Mr. Gray: The farmers are agreeing to handle a seed in a particular way and harvest the material. Obviously, they could quit growing the variety, in which case they could sign up for another agreement, but it ties the terms of the contract to that initial licence.

Senator Moore: What happens if the harvest isn't in the quantity that the farmer was hoping for and thought the seed was going to produce?

Mr. Gray: That's one of the big advantages of an end-point royalty. The farmers actually pay in proportion per tonne of material that they're selling. So if they grow 100 tonnes, they will pay the import royalty on 100 tonnes; if they grow 1,000 tonnes, they will pay on that. If they have a crop failure that year, they'll not be paying much royalty or none if it's a complete failure. If it's a big crop, they'll pay more total royalty that year, but they have more revenue to do it with. It's a bit of insurance for the growers that they pay the most royalties in the year when they have big crops.

Senator Moore: So if a crop isn't as large as they had hoped for, not through any negligence of the farmer, is there any kind of compensation or reimbursement from the seed seller?

Mr. Gray: No. Again, the varieties are well tested, et cetera, when they go out there, but there's no warranty on them, if you like, that it's going to rain this year.

The only thing I would say is that if it doesn't perform well, the breeder is going to get less royalty because it didn't produce as much product. If it performs well, the breeder will get more royalty because it grows well. The incentives are lined up for good varieties.

Senator Moore: In as much as the end-point royalty comes from the farmers, do they acquire any interest in the intellectual property resulting from those research dollars, or do they get a reduction? What do they get out of this?

Mr. Gray: It depends basically on the breeding system and how that's organized. In Australia, for example, there's another fund where farmers pay a check-off or a levy called a grain research development corporation, so it's more or less owned by farmers. That corporation is a shareholder in the breeding firms. So when the breeding firms make money, it comes back.

Senator Moore: To the farmers.

Mr. Gray: Yes.

Senator Moore: Good.

Senator Tardif: That's not here.

Senator Moore: Is that anticipated to be part of the program in Canada?

Mr. Gray: At this time, there are a number of producer check-offs. For example, Saskatchewan Pulse Growers and the Saskatchewan Wheat Development Commission all fund breeding programs. The ownership of the varieties does not reside with those groups but it could. It's a question of whether they want to stake that claim and say they actually want an ownership. If the Saskatchewan Wheat Development Commission funded a variety and they said that they want to own that variety, they could get the royalties back.

Senator Moore: But it's not anticipated.

Mr. Gray: It's an option for them, and I think the wheat industry particularly but also a lot of industries are trying to figure out how they will manage going forward. Those are some of the options they're looking at.

Senator Enverga: Thank you for your presentations.

My question concerns plant breeders' rights. This is being administered by the CFIA's Plant Breeders' Rights Office. It provides legal protection to plant breeders for new plant varieties. This bill further strengthens plant breeders' rights. It incorporates farmers' privileges into statue law, explicitly permitting farmers to use seeds from the crops they grow. How will this strengthen protections to benefit your sector? Will it help you at all?

Mr. Gray: A lot of research has been done looking at the rate of return to investments in crop breeding activities, and a benefit-cost ratio of 20:1 is not uncommon. For every dollar spent, you get about $20 back in benefits. This mechanism will give some additional revenue to breeders that can be reinvested in breeding and will come back to producers in the form of higher yields. So the fact that it's expanding or broadening the resource base available to breeders will be positive as they invest more in research.

Ms. Dyer: The canola sector is different from some of the open pollinated crops. About 90 per cent of canola is actually hybrid seed, so we already have a value-capture system when we purchase seed.

For us, it's more about ensuring that there's investment in Canada, ensuring that we have the legislative framework in Canada so that seed breeding companies, for example, will come and invest in Canada and so there is always a source of research and new technology coming to Canada. That is the important benefit for us, and we see this regulatory framework as key to making sure that we have companies that will invest here and that we have ongoing technology.

[Translation]

Senator Dagenais: I would like to thank our guests. My question is for Ms. Dyer.

The bill will change the advance payments programs, and it will also clarify the definition of eligible farmers. Moreover, it will update the eligibility criteria for payment programs and definitely reduce paperwork.

What impact will these changes have on canola farmers, for example?

[English]

Ms. Dyer: I think our first panelist said it best. There are not a huge number of people in the agriculture industry who use the Advance Payments Program, but the ones who do use it really need it. They tend to be young farmers. They tend to be people who don't have an established credit rating or who really need cash flow assistance. So I think Humphrey Banack, from the first panel, said that maybe 20 per cent of the industry uses the advances. I'm not sure of the exact percentage, but this program is really important to a segment of producers who don't access large amounts of commercial credit. They use it for cash flow.

Last year is a perfect example where people just couldn't sell their grain. Because of the transportation situation, elevators were not accepting grain for delivery, so people were stuck. They had bills to pay and they couldn't sell their grain. They needed the advance to be able to pay their bills and get inputs for the next year.

For individuals who use the program even in regular years, that's how they use the program. They'll take an advance instead of having to sell grain at any market price in order to pay their bills. They can time the marketing of their grain to maximize their profit, maintain their cash flow and buy seeding inputs for the next year.

So the changes in this program are really aimed at making it way more flexible for that group of people to use this program, to continue to take advantage of the interest free part, to take advantage of the low rates that you wouldn't get at a commercial bank for small volumes of credit, and to have an expanded rate of the numbers of people who can use the program. As I said, farm businesses are a lot more diverse than they used to be. There are a lot more multi-party arrangements in terms of legal entities for farmers. It's not just one farmer any more, farming just for himself. The rules are going to make it a lot more flexible so that those kinds of operations can access the program better.

It's all aimed at making the program more accessible and more useful to farmers. So I can see that it will be much more utilized in future. It's a much more relevant program. Even this year, we've had many more people apply to the program and welcome some of the advances that we know are coming. As I said, for the people who do use this program, the maximum flexibility that you can have in the program is very much appreciated.

The Chair: Mr. Solverson, do you have any comments?

Mr. Solverson: I'd like to comment briefly on the Advance Payments Program. I think the changes made will work very well in our industry and work closely with the producers who are using price insurance now.

In the past, farmers and ranchers have sold their animals at the same time every year. Being able to insure their cattle through the Western Livestock Price Insurance Program has given them confidence to keep their cattle, retain ownership longer and add value to them. But that sometimes has put them in a position where they have had cash-flow problems. To be able to take advantage of the Advance Payments Program will work very well together with that.

I'd also like to comment that the CCA is very supportive of the changes to plant breeders' rights. The limited research on feed grains has quickly put us in a uncompetitive position with the U.S. The corn yields have gone from 100 to 200 bushels an acre, mostly from research, whereas our feed grains in Canada have flatlined. We see these changes as a very positive opportunity to attract some private research.

Senator Tardif: Professor Gray, you indicated that we should be cautious about expectations with regard to the expansion of research in areas like wheat and barley, based on the research that you found in the United Kingdom and perhaps in Australia, that it took a while for private funding to kick in. We've seen that government funding for public research has diminished in recent years. If private funding doesn't kick in, where can we be assured that the necessary research will be done to promote these new seed varieties?

Mr. Gray: My express word of caution — and you phrase it pretty well — was that we have seen the number of lines, say wheat lines, that are being tested and have gone down over time, and if we don't make for that up with private research or producer-funded research in some way, we're going to see what Mr. Solverson referred to as the flatlining of barley yields over time. Wheat yields haven't been spectacular either. There is a real danger that we could make a situation that's not great a lot worse if we actually withdraw more from public research before the private research is able to generate enough revenue. So I think you need the revenue model first. You have to actually see the private investment before the government should be making any moves to actually make room for the private sector. You actually need to see that revenue or that investment there.

Senator Tardif: Or keep up the money for the public research.

Mr. Gray: Absolutely, yes.

Senator Tardif: And keep those positions in Agri-Food Canada doing some of the research we need.

Mr. Gray: Certainly, yes.

Senator Plett: I would like Professor Gray, Ms. Dyer and Mr. Solverson, if he wishes, to answer this question. Mr. Solverson just said that corn yields have gone from 100 bushels to 200 bushels as a result of research, innovation and doing a better job. Would you not agree that Canada is at the top of innovation, if you will, with farmers and business people who want to improve their own products? Do you not agree that our businesses and our farmers in Canada will make every effort to keep up with the United States, that given the opportunity and given some protections, as this bill provides, we have every reason to believe that private investment and producer investment will be there?

Mr. Gray: Again, I would come back with a point of caution on that for some sectors.

In the case of hybrid canola, they have had a model in place for a number of years. It has actually generated a lot of revenue, and they have actually made those investments, similar to corn.

One of the things that happened in canola when hybrids came along was that they got a 35 per cent kick in yield, which meant that the new varieties were way better than the free varieties out there. That created an ability to charge a lot more for it. There's no 35 per cent increase in wheat yields out there. That's going to be slow and incremental. As long as the gains are slow and incremental, there won't be big royalty payments or big revenue streams for wheat any time soon.

Eventually, perhaps 16 years from now, as those rates come up we'll get to the point where a company can expect to make reasonable returns in wheat. But as long as there are all these free varieties out there, and they're pretty good varieties, we'll not see anyone come in and make a fortune growing wheat.

The Chair: Ms. Dyer, do you wish to comment?

Ms. Dyer: I think Richard has captured it very well. Canola growers, in terms of the spirit of entrepreneurship, are very forward thinking in technology.

Richard made a good point: We have to be careful about how we implement it and not let go of all our public research because we need that. Canola growers are also wheat growers, so we have to be conscious of how we implement it. There are lessons to be learned about how this gets implemented, where some countries have done better than others. That goes back to how we implement this legislation after the fact and other policies that will help us get there faster for all commodities.

The Chair: Mr. Solverson, do you have a comment, after which I'll conclude with a comment?

Mr. Solverson: To Professor Gray's cautionary note, I agree. My grandfather had a saying. He said, "The best time to plant a tree is 20 years ago, and the next best is today." If we get started today on a new form of research, it can only help us.

The Chair: Your father was a wise man.

We are sensitive to this issue, as are members of the Canadian Cattlemen's Association. Members of the Standing Senate Committee on Agriculture and Forestry were in Washington, D.C., this week. We arrived home at 11 o'clock last night. Our delegation zigzagged from one office to another with congressmen, congresswomen and senators. We brought to their attention the issue we have over country-of-origin labelling, COOL. Mr. Solverson, we will continue to follow this issue very closely.

(The committee adjourned.)