Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 28 - Evidence - Meeting of May 12, 2015
OTTAWA, Tuesday, May 12, 2015
The Standing Senate Committee on Agriculture and Forestry met this day at
5:19 p.m. to study international market access priorities for the Canadian
Agricultural and Agri-Food sector.
Senator Claudette Tardif (Deputy Chair) in the chair.
The Deputy Chair: I welcome you to this meeting of the Standing Senate
Committee on Agriculture and Forestry. I am Senator Claudette Tardif, from
Alberta, deputy chair of the committee. I would like to start by asking the
senators to introduce themselves, starting on my left.
Senator Moore: I'm Wilfred Moore, a senator from Nova Scotia.
Senator Maltais: Ghislain Maltais from Quebec.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
Senator Ogilvie: Kelvin Ogilvie from Nova Scotia.
The Deputy Chair: For our first witnesses we welcome, from the
Canadian Bankers Association, Alex Ciappara, Director, Economic Analysis,
Canadian Bankers Association; Gwen Paddock, National Director, Agriculture and
Resources Industries, Royal Bank of Canada; Peter Brown, Director, Agriculture,
Scotiabank; Craig Bremner, Vice-president, Agriculture Services, TD Canada
Trust; Darryl Worsley, National Director, Agriculture, CIBC; and Chris Costain,
Vice-President, Commercial Agriculture, BMO Commercial Banking.
What an impressive group. Thank you for accepting our invitation to appear
here this evening. I understand that Mr. Ciappara will be making the
presentation. After your presentation, we will have questions from the senators.
Alex Ciappara, Director, Economic Analysis, Canadian Bankers Association:
Thank you very much for the opportunity to be here today to provide the banking
industry's input into the committee's study of international market access
priorities for the Canadian agricultural and agri-food sector.
The Canadian Bankers Association represents 60 domestic banks, foreign bank
subsidiaries and foreign bank branches operating in Canada and their 280,000
employees. With me today are representatives from Canada's five largest banks,
who bring a variety of agricultural expertise with their own distinctive ties to
the farming community.
I would like to briefly highlight the significant role and long history of
the banking industry in Canadian agriculture.
Banks understand the importance of supporting the sector and work hard to
establish and maintain strong business relationships with their clients
throughout the agricultural value chain. Banks help farmers during every phase
of their development, from young farmers at the beginning of their careers to
farmers who wish to expand domestically and internationally, and those who are
thinking about retirement and are in need of succession planning. This support
extends beyond the farm gate to include other elements of the integrated
agricultural value chain, such as food and beverage processors, input and
service suppliers, and wholesalers.
At every stage, banks play an important role in assisting agricultural
clients to adapt and change as markets grow, both in Canada and abroad.
The federal government has made international trade and investment a
priority. Banks provide international trade-specific products and services as
well as guidance and advice to agricultural clients so that they can take
advantage of the opportunities that emerge in international markets. Banks offer
customized global banking and cash management solutions, such as foreign
currency accounts and exchange services. Banks also provide a host of exporting
and importing products and services, including letters of credit, to minimize
the risk of nonpayment and non-delivery of goods, which are some of the primary
risks that the agricultural sector is exposed to when trading internationally.
Banks also have a strong working relationship with EDC, Export Development
Canada, to leverage their products and services to help clients succeed
Of course, access to credit is an important element in supporting farmers.
Banks compete with each other to provide almost $28 billion in financing to
farms across Canada through operating, term and mortgage loans. This accounts
for about 36 per cent of the total agricultural lending market. This is in
addition to the everyday products and services that agricultural clients have
come to expect from banks, such as deposit and operating accounts, insurance,
investments and financial advice.
For farmers, banks also work with the government to provide programs such as
the AgriInvest Account, the Canadian Agricultural Loans Act program and the
Advance Payments Program, all government programs.
Our bankers understand that the agricultural sector, more than others in the
economy, endures fluctuations in business conditions. The banking industry has a
tremendous amount of experience helping clients through various challenges, from
floods and droughts to BSE and avian influenza. When farmers experienced
difficulties in moving grain through the transportation system last year, banks
proactively reached out to producers to understand individual farmer needs and,
when necessary, assisted farmers with financing solutions such as advice around
increasing operating lines of credit and accessing the federal government's
Advance Payments Program.
Banks work with farmers on a case-by-case basis, assessing individual needs
such as their cash flow requirements and capacity, business prospects and
expansion plans to develop appropriate next steps.
In closing, I want to emphasize the importance of the agricultural and
agri-food sector to the banking industry and our commitment to continue to
strengthen relationships with farmers and other agricultural value chain clients
in order to help them take advantage of opportunities both domestically and
Thank you once again for your invitation to be here today. We would be
pleased to answer your questions.
The Deputy Chair: We will begin the questions with Senator Maltais.
Senator Maltais: Your conclusion is a bit funny, because without
agriculture, there would not be any sales. You would not eat, which explains
your interest for agriculture. That is important.
Based on what you have said, there are two factors at work in the
agricultural world. There is farming itself — modernization, equipment,
expansion — made possible by farm credit loans. The other factor is encouraging
international trade. That is what all the banks in democratic countries like
Europe, Korea and the United States for example, are doing.
How will you work with the agricultural wholesalers and buyers to export
products? Do Canadian banks have competitive rates, letters of credit and credit
lines for exporters, compared to banks in Europe or the United States?
Mr. Ciappara: Thank you very much for that question. I will take it
first and let my members jump in.
We are very competitive. As you know, during the financial crisis, Canadian
banks came through with flying colours. Canadian banks are ranked number one in
the world as the most sound banking system. That foundation enabled Canadian
banks to perform not just through the financial crisis but after the financial
crisis. It is that solid base that enabled them to help their clients through
the financial crisis and afterwards.
Yes, I would say we are very competitive when it comes to comparisons with
our international peers.
I will turn it over to my members to maybe elaborate on that answer.
Peter Brown, Director, Agriculture, Scotiabank, Canadian Bankers
Association: It is a very competitive market out there, both here
domestically and around the world. Scotiabank, as you know, is quite an
international bank. We have operations in about 55 countries. We have a large
international department and other departments that deal with letters of credit,
foreign exchange, trade finance, all of the issues around that, and we are not
by far the only provider of those in the marketplace. We have to be competitive
to continue to exist and provide those services for our clients.
Senator Maltais: Since we are talking about it, Scotiabank is the only
Canadian bank in Cuba, is that not right?
Mr. Brown: I don't think our presence in Cuba is one where we are
providing a lot of services. We may have some connections there, but I am not
sure that we have a lot of operations there; we do in a lot of the other
Caribbean and Latin American countries.
Senator Maltais: You spoke of the financial crisis earlier. Are the
banks today in a position to guarantee that, given another recession like the
one in 2007-08, the Canadian government would not be compelled to do what the
American government did through the Farm Act? I am sure you are aware of that
American statute under which the government was forced to quickly intervene,
because the great majority of small and medium-sized farms were headed straight
Mr. Ciappara: The Canadian banks did perform throughout the financial
crisis. They were able to lend and support their clients throughout the crisis.
We were able to do that because they are run well. We provide loans on a
case-by-case basis. We look at every case individually and weigh the risks and
the benefits when it comes to making those loans.
I think Canadian banks would be well placed to support the farms throughout
another crisis because of the way they are run, particularly with the way they
are supervised and regulated.
Senator Maltais: I have got one last question, Madam Deputy Chair.
Given the free trade agreements that have been signed and are nearing
implementation — not to mention the ones that are still being negotiated —
Canadian businesses will increasingly be facing stiff foreign competition.
Agriculture's valued-added products come from secondary, tertiary and even
Will you support Canadian businesses that are diversifying by doing all that
other processing? That is where you will find Canada's best paying jobs. Should
you support entrepreneurs in the field, I think you would be doing a great
service not only to farmers, but also to Canadians in general. Is that a path
you might well take?
Mr. Ciappara: Not only would we support it, but we already do it. We
already provide financing, business services and products not just to food
producers but to processors as well. Yes, we fully support that.
Senator Maltais: Canada is under increasing pressure to produce more.
We are 35 million people spread across a huge land, and there are countries out
there that are starving. Canada is being pressured to make its farmland more
productive and profitable. That means more products to process, and those
processed products require capital.
I will be the first to agree should you tell me you will be supporting those
businesses. You will play a major role, not so much now, but rather in the 10 to
15 years ahead.
Senator Moore: Thank you, witnesses, for being here.
Mr. Ciappara, at the bottom of the first page of your comments you say the
banks compete with each other to provide almost $28 billion in financing to
farms across Canada. Is that an annual sum?
Mr. Ciappara: No, that is outstanding.
Senator Moore: What is the history? Is that up or down?
Mr. Ciappara: It has been growing for quite some time, actually.
Senator Moore: Can you give us a few numbers and recent dates?
Mr. Ciappara: Over the last year, in 2013 to 2014, I believe it grew
about 8 per cent or 9 per cent; this is the bank lending figure. The last I
checked, over the last 20 years, it has gone up practically every year. It has
climbed quite steadily. You must remember, too, that 36 per cent is split
between the banks at this table as well as others.
Senator Moore: I was going to ask you about that, so thank you for
answering that one.
What is the other 64 per cent? You say the $28 billion accounts for 36 per
cent of the agricultural financing market, so what happens to the other 64? What
is that made up of?
Mr. Ciappara: Yes, that is Farm Credit Canada; they have about a third
of the market. Credit unions and caisses populaires are about 16 per cent of the
market, and then finance companies and insurance companies and advance payments.
Senator Moore: Further to Senator Maltais' question — and we have had
some evidence about the processing side of the agricultural industry and the
importance of it — is there a number there that you can advise the committee
that the banks finance in the course of a year in terms of the processing side
of the industry?
Mr. Ciappara: I haven't seen any figures publicly in terms of the
processing side of the industry. Some of that is captured in those numbers and
some would be captured in other parts of the portfolio. No, I have not seen
those numbers with respect to the processing side, but I can tell you that any
processor that comes in with a good, solid business plan that is rigorous will
be able to get financing. It is a very competitive industry right now.
Senator Moore: Thank you.
Senator Dagenais: I would like to thank the witnesses for being here.
Mr. Worsley, I am happy to see you, because back in the day, I worked for the
Canadian Imperial Bank of Commerce. I had taken a course to become branch
manager. You see, banking leads to everything, even to the Senate. And that is
it for my little commercial break. I spent a few years at the CIBC in Montreal.
I was assigned to foreign currencies in the branch downtown. We were tasked with
paying for the grain arriving by boat. This goes back awhile.
To encourage competition in the sector, farmers obviously need the support of
our financial institutions. When you grant loans to exporters, among others, do
you have particular criteria to respect? I would like to know more about the
criteria you apply to Canadian exporters, among others. My question is for all
Gwen Paddock, National Director, Agriculture and Resources Industries,
Royal Bank of Canada, Canadian Bankers Association: In order to grant a loan
to an exporter, we would have similar criteria to what we would have for any of
our clients, and that is first and foremost a sound business plan, and then we
look at the working capital they have, the leverage in the balance sheet and
their ability to service debt. If you layer onto an exporter, then it's having
confidence that when they're exporting to other countries, they understand the
risks and have the appropriate risk mitigation factors in place.
Senator Dagenais: Do any of the other witnesses have something to add
about the criteria?
Darryl Worsley, National Director, Agriculture, CIBC, Canadian Bankers
Association: Senator, we also rely on partners like EDC. We look at the
factors that Ms. Paddock just mentioned but also work with partners such as EDC
to assist with managing some of the risks of going into international markets as
Senator Enverga: Thank you. Like the senator beside me, I used to work
for the bank, for 30 years, the Bank of Montreal and CIBC. It's nice meeting
bankers once in a while.
A while ago it was mentioned that you have been working with EDC, Export
Development Canada, and somehow way back then there was some concern that EDC
was duplicating the services of a bank. Can you comment on that? Is that
duplication still happening now?
Mr. Ciappara: I can say that the CBA meets with EDC regularly, and I
know our members work with EDC very regularly, and we don't hear any concerns
about EDC duplicating what the banks are doing. In fact, they are very
complementary in terms of the way they operate, the way they do their business.
It's part of their mandate. It's written in their mandate that they are
complementary to the banks. And I think on the ground, practically speaking, you
are seeing that complementarity at work through financing, insurance programs
and guarantee programs. There are a number of ways they provide complementarity
I remember seeing a figure in one of EDC's annual reports that something like
93 or 94 per cent of their financing transactions are with a private sector
Ms. Paddock: To add on to what Mr. Ciappara has commented on, we see
EDC very much as a partner. In recent months, they have actually reached out to
us and asked how they can specifically help support agriculture exports, so I
know it's very much on their radar as well.
Craig Bremner, Vice-President, Agriculture Services, TD Canada Trust,
Canadian Bankers Association: From a TD Bank perspective, I would add that
we see EDC as a valuable partner, certainly one that is instrumental in
increasing exports from Canada. We particularly value their export insurance
program, and as a bank, we intend to do more business with EDC to be able to
support the export business of Canadian farmers.
Mr. Brown: I just wanted to add that at Scotiabank we have a group
called our Global Transaction Banking group, and they have in fact set up what
they're calling an EDC centre of excellence. It allows them to speak to our
clients more about the products and services that EDC provides, so it really
does indicate a partnership that we have with them.
Senator Enverga: That's great to hear. It looks like you are working
well with EDC. However, are there any challenges? If you wanted to improve the
relationship, what could you do so that we can enhance our agricultural exports?
Are there any enhancements that you would recommend?
Mr. Brown: On the EDC front, I don't see any issues or problems. I
think it's working very well, and they are a great partner.
I think that our clients wanting to do business internationally need other
things. I've said this many times, practical and somewhat simple things,
on-the-ground assistance, making the right contacts in the country they are
trying to do business with, making sure they understand the regulatory
environment they're getting into and having safe contacts there that they can
trust. We have a number of examples where we've worked with our clients to help
them get that. I'll just mention one.
We have, for instance, a client that's into greenhouse equipment. They've
done very well in Canada, and they've sold into Mexico before but only
sporadically. They came to us saying they wanted to set up a sales network there
and hire a sales manager that could hire five or six others and put a network
across, but they were having difficulty finding someone they could trust and
someone who understands the different regulatory environments within the
different states. We were able to help that client do that. These are very
Mr. Bremner: I would add that being an exporter, whether in
agriculture or in any business, is difficult. You have to have very good
contacts in those export markets to be able to find customers that value what
We have just taken on a new customer that we are thrilled to be able to
support. It's a unique business. They are importing organic feed crops from
numerous countries, and they're actually bringing that to Canada, processing it
in Canada and exporting it to the U.S. market. It's a fascinating little
business we have taken on.
Senator Maltais: If it reassures you any, I never worked in the
banking sector. I did however ensure many of your receivables. The premiums were
paid on time, by the way; you were very good that way.
If there is a sector that is worse off than farming in Canada, it is what we
call the soft sector, in other words, fishing. As you know, fishermen depend on
the weather, the time of year, the Greenpeace folks — in short, a whole bunch of
uncontrollable factors. And yet, it is an exceptional business. Think of the
crab fishermen who sell 80 per cent of their catch to Japan for a premium price,
or the lobster guys who sell to the States and Europe, also at a premium. That
being said, it is an at-risk sector.
Do you apply the same criteria to a fisherman who buys a $250,000 or $300,000
boat and a young farmer who wants to buy a small, million-dollar farm?
Mr. Ciappara: Thank you very much for the question. I did not bring
the fisheries bankers with me, but I can tell you that banks do lend to the
fisheries industry. They provide financing to harvesters, processors and other
businesses attached to the fisheries sector, for vessel and capital purchases,
construction, refits, licences and quota acquisitions. Canadian banks do finance
the fisheries sector.
Financing for the fisheries sector has been growing. It increased 11 per cent
over the last five years. That's authorized loans, and the outstanding loans
have increased by 21 per cent over the last five years. It's a growing area for
the banking industry.
Frankly, banks making decisions on fisheries' loan proposals would be making
very much the same decisions, going through very much the same decision process
as they would with an agricultural producer. The business experience, how much
business experience they have, equity, their cash flow, the nature of the
clients — they would take all these variables into consideration to make that
determination, but Canadian banks do lend to the fisheries sector.
Senator Maltais: I will give you a concrete example. South Korea has
just opened its markets, worth some $10 million, to Canadian seal meat. Someone
finally figured out that seal was delicious. This affects the Magdalen Islands,
Newfoundland and Labrador, and northern Quebec. Seal is an inexhaustible
resource. Seal populations are 25 times bigger than we need them to be, and they
represent a threat to other species.
If, for example, other countries open their markets to seal, would you be
ready to join the adventure of processing seal, which we have in abundance?
Canada has just made available some $1.6 million to the seal hunters'
association so that they can market the product across the globe. The Canadian
government just made the announcement last Friday. Would this sector interest
you, given the value added and the fact that processing is done right here in
Canada? It's no Klondike, I agree, but it's a start. Would this type of business
or new enterprise interest you?
Be careful what you answer, because I suggested that the hunters listen to
Mr. Ciappara: I did quote the figure of $913 million in financing that
has been authorized by the banks for the fisheries sector, and I'm positive that
processing is somewhere included in there. They'll make a decision when a
processor, like any other business, comes to a bank with a solid business
proposal that takes into account all the variables that can affect its business.
The bank will sit down and take a serious look at that business proposal and be
in a position to finance it if that business plan is robust.
Senator Maltais: I'd like to finish by congratulating Canadian banks,
because they helped the Canadian population weather the global crisis. We
avoided the approach taken by the American and European systems. Canadians fared
well, and banks were one of the reasons for that. It is normal that they make
more money in the prosperous years. We do not see this reflected in our RRSPs,
I believe Canadian banks will have an even more important role to play, now
that markets have gone global. I say global, not merely international. Trust me
— people are knocking on Canada's doors. There is business to be done, money to
be made. I hope you will be joining in. I'm convinced you will. You're in the
business of doing business, not fishing for compliments, and I congratulate you
Senator Dagenais: I'd like to get back to financing. You know that the
Canadian government grants financial aid to farmers. Is that aid a form of
competition for banks, or does it play more of a complementary role?
Mr. Ciappara: In terms of financial support, there are a number of
ways that the government provides it to the farmers. We have the Canadian
Agricultural Loans Act Program, which we see as complementing what the banks do.
It's a loan guarantee program for young farmers. There is the Advance Payments
Program, which is part of the package of programs that our members provide to
farmers. There is also the AgriInvest Account program, which is delivered
through banks. It's a matching government contribution program. A farmer would
go into a bank, put their money into the account, and there would be a matching
contribution from the bank. We see that as being very complementary.
There is a financial institution, Farm Credit Canada, which we don't see
acting in a very complementary manner. It really depends on the program or the
institution you're talking about.
Senator Enverga: I know there are a lot of great banks. The big banks
are the best in the world so far.
Mr. Ciappara: We hope it continues that way.
Senator Enverga: However, there is global competition. How competitive
are our banks as compared to other banks around the world, especially with
servicing our agricultural exporters or servicing our free trade agreements? How
competitive are we?
Mr. Ciappara: There are a number of metrics. One of the primary things
you need to support exporters, agricultural or any other, is a banking system
that can lend during good times and bad. You saw during the financial crisis
that Canadian banks do not require one cent of capital injection from the
government, whereas other banks in other countries required billions of dollars
of capital injection.
The fact that we didn't need that government assistance of capital injection
meant that banks were always able to lend to exporters and other businesses.
Regarding competition and bringing it back to the level of competition, you
simply have to look at the world rankings and see where Canadian banks stand in
terms of safeness and soundness of the banking system. That soundness means
Canadian banks will be there through good times and bad.
Chris Costain, Vice-President, Commercial Agriculture, BMO Commercial
Banking, Canadian Bankers Association:
The Canadian banks are defending their market share and are standing up
against competition from outside interests in this economy as well.
Ms. Paddock: Just a final comment on that. When we think about
Canadian banks being competitive, when we think about competitive as to
providing financial products and services to agriculture, what we do often in
our institution is benchmark ourselves to some of the best-in-class world
providers, or providers of banking to agriculture throughout the world. Quite
often we find that we are on par as far as the menu of products and services we
offer our clients goes, so I would say we're very competitive.
Mr. Bremner: You have to keep in mind that banks have an obligation
and duty to protect their depositors' funds. As Alex mentioned, during the
financial crisis we not only did that but we also were able to increase our
lending capability through that and supported not only farmers but all
Mr. Ciappara: To build on that point, we looked at lending to small
and medium-sized enterprises, SMEs, not only in Canada but in the U.S. and the
U.K. as well. In the U.S. and the U.K., two jurisdictions that suffered probably
the most during the financial crisis, their lending to SMEs actually went down.
Lending to SMEs by Canadian banks increased during the financial crisis. That
is an example of how a solid banking system is able to support the businesses
and the economic activity of the country.
Senator Enverga: I know a lot of our witnesses from the agricultural
industry have complained about the lack of workers. Some of them want temporary
How do the banks stand? Do you need temporary workers, or are you fine with
all the staff that you have now?
Mr. Ciappara: In terms of our clients?
Senator Enverga: Labour. Are you well covered? Do you need workers,
too, just like our agricultural counterparts, temporary foreign workers?
Mr. Ciappara: I think the labour market for workers is very
competitive, frankly. We are always looking for highly skilled workers. We are
competing not just amongst each other but against the high-tech companies, other
manufacturers and knowledge-based industries. It is a competitive marketplace
for employees and for workers.
Mr. Bremner: The University of Guelph did a study a few years ago
where they said that for every graduating student in their agriculture program,
there were three jobs. We all hire people from that university, and other
players in the agricultural sector hire people from there. There is a real
demand for those young people graduating from schools like the University of
Guelph and McGill and other places like that. They get good jobs, and they join
the banks and other agricultural-oriented companies.
Senator Tkachuk: You talked a little bit about Export Development
Canada. Is Farm Credit Canada seen as a partner or as a competitor?
Mr. Ciappara: FCC is a unique institution in that, if you compare them
to, say, EDC and BDC, there is no complementary mandate in their mandate. They
are to compete. There are areas of the country where banks do work with FCC,
but, in terms of the overall mandate, it is not a complementary mandate.
Senator Tkachuk: So they are seen as a competitor?
Mr. Ciappara: Yes.
Senator Tkachuk: Do they have the same regulatory framework? I kind of
know the answer to the question, but I want you to talk about it. What are some
of the issues that arise because of that?
Mr. Ciappara: They don't have the same regulatory framework. They do
not have an OSFI overseeing them. The Office of the Superintendent of Financial
Institutions, OSFI, did go in a couple of years ago to take a look at their
books, but it is not as regular. It is not as frequent as the way OSFI comes in
and looks at the books of the Canadian banks.
Senator Tkachuk: If it did not exist, do you think that the banks
could step into their market, and do you think they should be exposed to the
same regulatory framework?
The Deputy Chair: Could you perhaps clarify for our listeners what
Mr. Ciappara: Sorry. OSFI is the Office of the Superintendent of
Senator Tkachuk: If they did not exist, do you think the banks could
take their market, fill the void, or, if they continue to exist, should they be
Mr. Ciappara: There is a role for FCC. I think there is debate as to
what that role is.
When you compare FCC to BDC and EDC, there is no regular mandate review with
FCC like you do with BDC and EDC. With BDC and EDC, there is a 10-year mandate
review. You don't have that with FCC, so there isn't that opportunity to have
those sorts of debates on the questions that you are asking, senator. There
isn't that opportunity with FCC.
In terms of banks, banks are willing lenders. We are willing and able
lenders, as I have mentioned before. We were able to lend throughout the
financial crisis. That is the worst of the worst, and we were able to lend in
good times as well. I am sure we would be able to provide more finance to the
market if the opportunity was there, but, again, I think there is a wider
question there. A mandate review, something like BDC and EDC have, would provide
the opportunity to have that sort of discussion.
The Deputy Chair: Senator Maltais, do you have a quick question to ask
about the farming sector?
Senator Maltais: Mr. Brown, you spoke of banks being involved in the
reforestation of Mexico. In a past life, when I was in another parliament in
Quebec City, we drafted a special bill. We debated the issue of reforesting the
Toluca desert on the Pacific Coast.
We've ratified a few treaties with countries like South America, and we're
currently negotiating others with other countries. Do you have ears to the
ground and a sustained presence in these countries, given that we are both
exporters and importers?
Mr. Brown: We are certainly open for business, and we are there. We
are in many of the Latin American countries. In Mexico, we have a large
presence, and, as it relates to agriculture, we have an agricultural director
there, with a team that he works with. We are in many of the Central American
countries. We have a focus on Mexico, Colombia, Chile and Peru, and we are one
of the largest lenders in the Caribbean. In fact, in Jamaica, we are the oldest
bank there. We have been there for over 100 years. We are very present. We have
a fairly large agricultural book in certain countries in Latin America.
The Deputy Chair: If I may, I'd like to ask a quick question: A number
of witnesses have underscored the importance of innovation and research projects
in order to help them to create new products and differentiate themselves on the
world market. Do you fund these types of technological-innovation projects, and
could you perhaps give an example?
Mr. Ciappara: We provide support for them through banking services and
banking products if they have a deposit or chequing accounts. We do provide
that. It depends where they are in terms of the financing side. It depends where
they are in their life cycle. If they are a mature company but looking to put in
place an innovative practice or innovative technology, they probably have the
cash flow that can support that sort of investment. It really depends on the
nature of the innovation and where they are in the life cycle.
Mr. Costain: Farmers are very innovative people. Having had the
pleasure of working with them for a number of years, we are challenged
constantly by our clients requesting support for projects like that, and we are
very pleased to provide financing for any innovations, be it feeding innovations
for livestock or certainly processing innovations, particularly in the
greenhouse sector, with exports, grading equipment and things like that.
The Deputy Chair: Seeing no further questions, on behalf of the
committee, I wish to thank you most sincerely for having accepted our invitation
to be here this evening. Thank you to the Canadian Bankers Association and all
of its members.
Honourable senators, the committee will now reconvene to hear our next
witness. We have the pleasure of having Mr. Bruce Muirhead, Associate
Vice-President, External Research, from the University of Waterloo.
Mr. Muirhead, thank you for accepting our invitation to appear. I would now
invite you to make your presentation. Senators will then ask you questions.
Bruce Muirhead, Associate Vice-President, External Research, University of
Waterloo: Thank you very much for inviting me this evening to have a
conversation with you about international market access priorities for Canadian
agriculture and agri-food. I note in your order of reference that you are tasked
with examining four issues. I will address my brief remarks to the final two of
these and less so to the first two, although I will address elements of them as
well. I am happy to answer any questions that may be raised on your study focus.
As you may know, and I assume this is why I was invited to appear, I research
and write on supply management, mostly dairy and eggs, in a context of competing
international systems comparing ours to those found in Australia, the U.K., New
Zealand and the U.S. Based on my extensive study of these countries'
agricultural regimes in supply-managed sectors, the Canadian way, it seems to
me, is the best in all of those sectors. I am trained as a historian, so,
unusual in an analysis of Canadian agriculture, my work provides historical
context to the growing debate about the sustainability and resilience that is
epitomized by supply management. Most of the Canadian literature has been the
work of social scientists, often writing to sway opinion, to offer policy
options or to critique current events.
Egg and dairy supply management in 2014 is as rational and as necessary as
when it was implemented in the early 1970s. Indeed, the case is more solid
presently, given the global volatility in agricultural prices and the
difficulties farmers outside the supply-managed sectors face in ensuring the
sustainability of their operations, despite the best intentions of all the
witnesses you had in the previous session. A significant volume of the
literature addresses the issue of power asymmetries between the producer and
others in the supply chain.
The Deputy Chair: Could I ask you to slow down a bit for our
Mr. Muirhead: I am sorry. Usually I speak in 50-minute sound bites for
classes; so I'm trying to cram 50 minutes into 5 minutes. It's hard.
They include processors, supermarkets and myriad people in the middle,
symbolized by the people who were here just before me. Supply management
effectively deals with the issue of power asymmetries. Farmers talk a lot about
this — how they cannot deal with supermarkets or processors one on one.
Simultaneously, global population is increasing, making the safe and secure
production of food a pressing necessity for Canadians, the great majority of
whom live in urban areas. Egg and dairy supply management, as well as that of
the other supply-managed sectors, ensures stable production at reasonable prices
As noted, I compare the Canadian industry to its international peers and its
impact, potential and actual, in international trade negotiations. Increasingly,
Canada is negotiating international agreements where supply management is
perceived to be a hindrance to a successful conclusion. To date, Ottawa has
successfully resisted those who have demanded its fundamental change in favour
of something that reflects so-called free market characteristics. I would say
there is no such thing as a free market in agriculture; but that is a whole
other conversation, perhaps.
It is important that our government continue to do so. My work speaks to this
as well as how completing systems are supported by governments around the world.
Every single dairy sector and most egg sectors are supported in some fashion by
the public sector, except Australia, which has difficulties unique to Australia,
despite a pervasive rhetoric in all international trade negotiations that would
suggest otherwise. The genius of the Canadian system lies in part in the fact
that its farmers are not subsidized by government, while still providing an
essential agricultural commodity at a reasonable price for consumers.
These issues are becoming more important as questions of the benefits of free
trade in agriculture are being increasingly replaced by new concerns emerging
from recent increases in food prices and food scarcity and as agricultural
issues become more pressing in the face of climate change. We see that in the
Doha Round, which began in 2001 and probably will never end.
Implicit in my work is the question of the ongoing validity of the
international political consensus around the neo-liberalization of agriculture.
While the WTO and the OECD assume certain things about desirable future
trajectories for global agriculture, both have traditionally weighed in
vociferously against supply management. First and foremost is the claim that
supply management creates rigidities and works against — in their words — the
reasonable allocation of resources as defined by them. Both present any decrease
in a country's domestic agricultural support, which should lead to greater
dependence on market signals alone — which no country does but that is what they
say — as a clear improvement in the sector's economic management.
That is a completely incorrect assumption. The critical interrogation of
resilience of industry structures in both historic and current moments of crisis
will help to inform the current debate about neo-liberalism and productivism in
agriculture as well as the obvious merits of supply management.
In conclusion, our Canadian system hits all the proper markers — food
security, food sovereignty, traceability and proper pricing for consumers, with
the result of smaller farms with less adverse environmental impact as well. Some
elements of the U.S. dairy system are now talking about supply management,
although I don't think the U.S. Congress will go for it. Certainly, dairy
farmers are interested, in particular now given the huge oversupply of dairy
around the world. It would be a shame for us to lose it or to compromise its
operation in such a context.
Thank you for inviting me. I look forward to your questions about
international trade or agriculture and all the great things that supply
management has done, if you agree.
The Deputy Chair: Thank you very much, Mr. Muirhead.
Senator Dagenais will ask the first question.
Senator Dagenais: Thank you, Mr. Muirhead, for your presentation. I
want to talk about the trade deal with the European Union. You know that the
agreement has been a source of great concern for milk processors, cheese
producers among others.
Some Quebec producers that I have met are very nervous. Around 16,000 tonnes
of cheese will make its way to Canada. That is an extra 32 per cent of cheese
the market has to accommodate. What, in your view, will be the impact of this
increase on the Canadian market and on the people who are part of the dairy
products supply chain?
Mr. Muirhead: I was a little bit perplexed with the reaction of the
Dairy Farmers of Canada, in particular, to the results of the CETA, the
Canada-European Union Comprehensive Economic and Trade Agreement, in large part
because it seemed like the government was working toward minimizing impact on
supply management but having to give up something.
In terms of the additional — it is fine cheese I guess, and then another
2,000 tonnes of some other kinds of cheese that is coming in under the CETA as
well. The market is growing. The fine cheese market in Canada is growing
dramatically. You have to give something in return for access to the European
market. We get beef access. In that context, maybe there is a bit of trade-off,
as you know, for beef or cheese. I don't think it will have much long-term
impact on Canadian cheese.
One of the criticisms that farmers have — and I have heard this a number of
times — is that they have created the market for fine cheese in Canada. We have
lots of artisanal cheese makers now, who make really great cheese. For example,
I have seen the TV ad about Oka cheese from Quebec, which is a great commercial.
That is the kind of thing that I think that farmers feel almost betrayed about:
that they create the market and the government trades away some access to
people. I can't see that it's going to have a long-term adverse impact. Also, in
that context, you have to give up something in order to get something in return.
I thought it was a pretty decent deal that they got.
Senator Dagenais: You spoke of supply management, and how fiercely its
advocates, among them the Union des producteurs agricoles du Québec, defend it.
I would also like to broach the subject of the Trans-Pacific Partnership
currently being negotiated. Canada certainly wishes to be a part of it, and if I
have understood correctly, we will have to show some flexibility on supply
management and display some openness to do so. What do you think?
Mr. Muirhead: I still believe that the TPP, the Trans-Pacific
Partnership, won't happen and that the Obama administration won't get trade
promotion authority at the end of the day in order to move ahead with it.
Without trade promotion authority on the American side, the agreement is dead no
matter how much effort has gone into negotiating it. That's my personal take on
it. Of course, everything could change tomorrow, and I could be completely wrong
in my analysis of that.
Looking at the numbers, and I have read a lot of stuff about who supports it
and who does not and for what reasons, I think that it won't happen. But, should
it happen, then it is not so much the Japanese but the Americans who are
certainly keen about getting rid of supply management. In fact the National Milk
Producers Federation in the U.S. is hugely critical and extremely aggressive in
its tactics with regard to Canadian milk. If we get rid of supply management in
that context and cave in to American demands on this, then we are almost signing
the death warrant of dairy farmers and the dairy industry in Canada.
They are cranking up and increasing milk production in the U.S. at a huge
rate, right across the board now. In fact, they talk a lot now about export
markets. They've cut into Australian dairy exports, for example. They have an
organization called Cooperatives Working Together, which is a private sector
organization and therefore outside the orbit of the World Trade Organization and
its rules and regulations. They heavily subsidize the exports of dairy products
to, for example, South Korea, where they have a free trade agreement and we have
signed one as well.
The Americans are intent upon increasing milk production and getting rid of
the surplus through exports. We all know that when the Americans decide that
they are going to do something, they really do it.
It seems to me, based on the history of this and also past practice, that we
will not have access. It will be the softwood lumber business all over again,
where we have our system here and they have their system there, and as I heard
Robert Reich say, where does the biggest gorilla in the room sit? Anywhere it
wants. The Americans set the rules for this. They will demand access to our
market for their dairy products in the same way that they will subsidize them
through Cooperatives Working Together or through other mechanisms that they
The producers' Margin Program that they run in the United States is heavily
subsidized. The state pays 62 per cent of the insurance premiums that every
farmer now takes out, in case the price of milk drops and the price of feed
increases. That is a public sector program that farmers access. They pay a
slight premium, but I would hope they would.
It would be a disaster if supply management — eggs and dairy — 40 or 50 per
cent of milk is consumed locally as well. If that happened, we would be flooded
with American milk and eggs, and I doubt there would be much we could do about
it. I think it would spell the end of the Canadian dairy industry and the
Canadian egg industry in a significant way. It would be awful.
Senator Enverga: A while ago you mentioned Australia and New Zealand.
Basically, they regulate their supply management productions. The regulation
requires a transition period to enable producers to adopt a free market. What do
you think of the Australian and New Zealand models with respect to regulating
supply management? What are the effects? How do they manage to do it?
Mr. Muirhead: Neither of them has managed it at all. The Australian
one is in a bad way; Australia's egg and dairy industry is in horrible shape.
The Australian industry in both eggs and dairy is undergoing significant
downward revisions now. Farmers are going out of business at a very quick rate.
Part of it is drought in south Queensland and northern New South Wales. Western
Australia had the hottest summer ever recorded. We had the coldest winter in
Waterloo, but they had the hottest summer in Western Australia. I don't know
what any of that means.
Australian agriculture is in absolute crisis in those sectors like eggs and
dairy. Also, Australian eggs are more expensive than Canadian eggs. Cadged eggs
are about a third again as expensive as we would expect to pay in supermarkets
here. I think Australia is in complete denial about what they intend to do. They
have reduced, by billions of litres, the amount of milk they produce. I have a
research trip planned to Australia where I am going to the Dairy Farmers of
Australia, and I've have made arrangements to talk to them about this. They used
to produce 11 billion litres of milk, and now they produce 8.5 billion to 9
billion litres of milk. The volumes are reducing, largely because they can't
compete and they have completely deregulated. No farmer is able to make money in
a completely deregulated market. There's that old expression: You can make a
small fortune in agriculture if you begin with a large one. I think that the
Australians are experiencing that now.
As far as New Zealand goes, I have rarely come across a more hypocritical
country when it comes to dairy and their obsession with deregulation and getting
government off the backs of producers. I hear Tim Groser and John Key talk all
the time about this aspect. New Zealand did deregulate, that is true — at least
they withdrew public support for the dairy sector. It is a single-desk supplier.
Fonterra is their major milk producer. It is a single-desk supplier. It now
controls, as they say, only 87 per cent of New Zealand production; it used to
control about 95 per cent, but there are other players that are entering the
As a result of the huge role that they play, they set the international price
for dairy. It seems to me that they are the beneficiaries of their not really
deregulated but single-desk supplier mechanism where they are allowed to
basically prosper at the expense of other countries.
Fonterra is great. If I was a New Zealand farmer, I would say, "Yes, this is
what we have to do," but it then relies on government giving them sort of a
single-desk supplier. The dairy export board was amalgamated into the two
cooperatives it established that made up Fonterra in 2001 and was a single-desk
supplier. It had sole authority to export dairy from New Zealand in the pre-2001
period. Pre-deregulation was established in 1961, and it operated on the same
principles as our Canadian Wheat Board did, the Australian Wheat Board as well,
which was a single-desk that basically set the price and became a major player.
They didn't deregulate. The industries in New Zealand that did really
deregulate, like wool and sheep meat, have gone into the tank. They are very
poor now. Everybody is switching to dairy in New Zealand, even in
environmentally suspect areas, because milk prices have traditionally been quite
— well, not this year or last year, but milk price haves been very high, and the
dividend payments that people have got through Fonterra, which is a massive
co-op as well, have been very high.
The other thing about Fonterra that I should mention is that you can't
produce for Fonterra unless you own shares in Fonterra. Shares now cost
approximately $5.25 a share. Farmers would have 1 million shares in Fonterra.
I spoke with New Zealanders about this. I can't see how their system is
different from our supply managed system. If you want to belong to Fonterra or
want to belong to the system, you have to pay. You have to buy a share, and you
can only produce for Fonterra up to the amount of shares you have in the co-op.
It's like comparing eggs to eggs or cheese to cheese. It's the same kind of
thing that Fonterra operates in. They have shares; we have quota. They pay about
the same amount per farm for shares that we would pay for quota.
Senator Oh: Mr. Muirhead, you are on top of the supply management
Mr. Muirhead: Fingers crossed.
Senator Oh: In how many countries is the government subsidizing dairy
products? This is a huge market. Even in Asia, they are far behind in
agriculture products. In how many countries is the government subsidizing
exports or, as you say, dumping? How many governments are doing that?
Mr. Muirhead: I couldn't say about governments generally. It has
changed a bit in the last couple of months, but in the European Union, for
example, they are still allowed to provide US$10 billion or US$9.6 billion worth
of export subsidies every year. They call them export credits, even though they
subsidize the export of dairy products around the world.
Internally, as I'm sure everybody knows, the Common Agricultural Policy has
been one of the most — if you are a large farmer, it has been one of the most
wonderful programs ever to have been implemented. It began in 1962, and at one
point, the Common Agricultural Policy took about half of the EU's entire budget,
about $50 billion annually. It's less now, and dairy is certainly less
subsidized now than in the past. I can't give you a number, but certainly the EU
is very conscious of maintaining dairy production and dairy exports from the
They got rid of the quota system as of April 1 this year, and a number of
countries have said they will double production over the next five to seven
years. For example, Germany wants to, and the Germans are huge dairy producers.
A couple of years ago, they produced about 30 million tonnes of dairy, which was
far more than they could use in Germany. They had to find some home for it.
The Irish, who have a tiny market, have said they want to double production
in a couple of years. Now that they have gotten rid of quotas in the European
Union, many countries will be back within a year or maybe two. They will
reimpose the quota system, because they will not be able to deal with the milk
that will be produced. Even now, countries are producing more dairy than they
did as of March 31.
That leads to the other issue, which I know you didn't ask about but sort of
follows on from that, and that is that if you don't have quotas, how will you
control production? This is what the Americans are now worried about.
Last year, Fonterra was paying $8.40 per kilogram of milk solids. This year
they are paying $4.70 because nobody is buying. There is a huge oversupply, and
the price of dairy has gone down.
This is a big problem for those countries and those producers.
Senator Moore: You mentioned that you are going to New Zealand and
Mr. Muirhead: Yes, both New Zealand and Australia.
Senator Moore: I take it you have been there in the past.
Mr. Muirhead: Yes.
Senator Moore: When you go there, what do they ask you about the
Canadian system? Are they critical, abrasive or complimentary? Our dairy
producers are surviving through our supply management system, so what do they
say to you about that?
Mr. Muirhead: That's a very difficult question to answer, because in
places like Australia, they have drunk the Kool-Aid about deregulation and
neo-liberalization, sort of liberalized the sector, and "we can benefit." They
still hold out hope that they will eventually make money.
They are critical of the Canadian system in that they think it's hidebound,
inefficient, unproductive and highly regulated. Everybody confuses that it's
regulated by government. Government does not play a role other than creating the
legislative framework for the supply management to happen, but they think
because it's controlled by government, it is inefficient and not particularly
In New Zealand, they think we are missing out on huge export opportunities.
That defeats me, because I think if we get into the export market, our cows are
among the most productive in the world. They produce 14,000 kilograms of milk
solids a year. In New Zealand, they produce 3,500 kilograms of milk solids. Our
cows are about three times as productive as their cows.
I think if you want us to get into the market, it is a finite market, and we
are going to impact your markets, maybe we ship to China. They have a free trade
agreement with China that they signed in 2008. Maybe we ship to China or South
Korea or Indonesia or Malaysia. I don't quite understand their approach to this,
because we would be a huge competitor of theirs, as the Americans are.
Senator Moore: Exactly.
Mr. Muirhead: You didn't ask about the U.S., but the American dairy
farmers that I have spoken with have said that they think our system is great.
And they wonder —
Senator Tkachuk: It's a monopoly.
Mr. Muirhead: Yes.
Senator Tkachuk: How do we facilitate trade in the supply management
market? We have our supply management system. I agree with you that most
agriculture products, if you scratch them, there is a government dollar there
somewhere, but at the same time, ours is right up front. We have a kind of
monopoly in the country.
How do we facilitate trade? I would like to buy French cheese. We make some
of the best cheese in the world. We should be able to sell it somewhere else
besides here. We need a solution to that within the systems we all have.
Mr. Muirhead: That is the $60,000 question, or whatever the current
equivalent is, maybe $6 trillion question.
I would say you either have supply management or you do not. It's like being
partially pregnant. You can't sort of do away with elements of supply management
and have the system persist. It seems to me that it's an all-or-nothing
proposition; you keep it or you don't keep it.
In terms of facilitating trade, once CETA gets through, we will be importing
more French cheese than we have in the past. I think there is maybe some intent
to negotiate further market share for other countries if the TPP ever comes to
pass. I don't know what's going to happen with that.
The supply-managed sectors are such tiny — in a sense, insignificant —
sectors of the Canadian economy. Dairy and eggs are like 0.0001 per cent of our
GDP — or even with the processing side.
They are tiny sectors. If we have this system that works well for us, does it
become a crisis for the Americans such that if we don't get rid of supply
management, our whole chance of signing onto the TPP — if it does go through —
is compromised? I don't understand that at all. The U.S. has global aspirations.
It's a huge deal for them. Why they're interested in whether they can ship a
million tonnes more milk to Canada is beyond me.
To facilitate trade, a greater percentage of our dairy market is open
compared to their dairy market. About 5 to 6 per cent of our market is open, and
about 3 per cent of their dairy market is open.
Facilitating trade is a critical thing, I agree, and Canada has to trade in
order to be prosperous, but I would say that with the supply-managed sectors,
you either have supply management or you don't. You can't whittle away at it
until it becomes nothing. As I say, it's an all-or-nothing proposition.
I realize that's a completely inadequate answer to your question, but it's a
fundamental one. Either we take a stand on that or we don't.
Then you have issues about manufacturers. Bombardier wants access to the
American market, or Malaysia or Vietnam. I understand there are tradeoffs that
every government has to make, but if we don't have supply management, then we
would need some other program in place that would not be as well placed or to
our advantage as supply management is now.
Senator Tkachuk: You talked about the Australian and the New Zealand
systems and the problems they are having. But to me, it's always about supply
and demand. Do they have a supply problem? Are they short of milk in Australia
or New Zealand? Do they not have butter, or can they just buy it somewhere?
Despite all the problems, can consumers buy products?
Mr. Muirhead: Yes.
Senator Tkachuk: So what is the problem?
Mr. Muirhead: Farmers are the problem in Australia, not so much in New
Zealand. If you want all parts of the supply chain to prosper, you have to help
farmers. We have seen in the pre-supply-managed era that processors, in
particular supermarkets, would take advantage of producers to the producers'
disadvantage. You need some sort of intermediary organization between the farmer
and the processor in order to level the playing field.
So, yes, you can.
I talked to the head of the Australian Egg Corporation Limited, and he told
me that Coles and Woolworths control 80 per cent of the supermarket market in
Australia. They have what are called "reverse options" with egg producers where
they actually get everybody together on a certain day to bid for the
supermarkets — what price their producers will sell their eggs for to Coles and
Woolworths for the coming year. He said they'll have everybody at a computer
terminal. They might have 100 or 300 farmers bidding at the same time, so
everybody can see what everybody else is bidding.
He said they also have Coles and Woolworths people interspersed at the
computers among the farmers, also bidding down the price of eggs. So egg farmers
in Australia do not make a lot of money. In fact, there is a court case going on
there now — and I don't know how it will turn out — about eggs being destroyed
because there was an oversupply and the price paid was far too low for farmers
to make a go of it.
It's that kind of thing that happens. Also in Australia, Coles and Woolworths
have prided themselves on a dollar-a-litre milk, which has driven dairy farmers
out of business. So it's really good for the consumer, but it's not good at all
for the farmer.
In Canada, everybody along the chain is looked at and, I think, given equal
weight; the producer isn't disadvantaged in terms of the relationship with the
Senator Tkachuk: They obviously have a competition problem at the
retail level. If there are only two companies that supply 80 per cent of the
market, they have a monopoly buying from people who are not part of that
monopoly. I suppose you would need to have that.
If we had an answer to that facilitating trade question, we'd both be rich.
Nobody seems to have that answer.
How do we facilitate competition and build efficiencies into what I think of
as a monopoly system we have here? I have family in the United States. I go down
there and buy milk, butter and yogurt. There is a huge variety of everything in
the stores, and there are many different stores. It tastes the same. It tastes
great, and it is a lot cheaper than it is here.
So how do we build efficiencies into that place that is a monopoly, because
that's what they are?
Mr. Muirhead: In the case of the U.S., I'm sure you know they
subsidize the system — both producers and also the processor side — quite
extensively. The USDA puts out numbers as to what it takes to produce a gallon
of milk in the U.S. It is very similar to what it takes us to produce the
equivalent amount in Canada.
The fact that they subsidize production — the latest farm bill that was
passed in February 2014 — the stats that have come about that — the numbers are
that it will provide $1 trillion worth of subsidies to agricultural producers
over the next 10 years, which is about $100 billion a year. I'm not saying all
of it goes to dairy or eggs, because it doesn't, but a good chunk of it does.
They haven't done away with lots of the issues that have been raised in
previous farm bills. They've gotten rid of milk marketing orders and that kind
of thing. But the dairy and egg industries are both still very singularly well
placed in Congress — particularly the dairy industry — in terms of getting
subsidies whenever anything happens.
I saw a good cartoon in The New York Times where they have the round
bales of hay. They were all baled in dollars. It suggests how the U.S. deals
with agricultural production.
I don't think you were talking about the U.S., but it seems to me that an
American government or producer has never met a subsidy they didn't like.
Senator Tkachuk: I'm sure of that.
Mr. Muirhead: So that's partially the reason why.
I don't think it's necessarily economies of scale; I actually think our
producers are very efficient. Our cows produce almost exactly the same amount in
terms of kilograms of milk solid that American cows produce. And our Canadian
cow genetics are exported around the world, because they are world leaders in
that area. As far as I know, American cow genetics are not.
Also, Americans use growth hormone for 20 per cent of cows they milk. One of
the reasons I read about the American population drinking less milk now than
they have in the past is because they are worried about growth hormone in milk.
It's only 20 per cent, so 80 per cent is growth-hormone-free, but I think the
public mixes up a couple of those concepts, too.
Senator Tkachuk: It's a marketing opportunity for non-growth hormone.
Mr. Muirhead: That's true. Monsanto might not like it, but. . . .
Senator Beyak: Thank you, Mr. Muirhead. This has been very
enlightening for me.
You mentioned earlier that the reaction of the Dairy Farmers of Canada
surprised you somewhat. It surprised me, as well. Could you elaborate on that?
Mr. Muirhead: Is it a total of 30 million more tonnes over time — I
cannot remember the precise number, but it was something like that — of cheese
being imported into Canada. I actually thought that when CETA was being
negotiated, the government was very reluctant to give up supply management and
reluctant to give any access to the Canadian market at all. But they have to
It is a relatively small percentage of a growing market. The European tonnage
is finite, so as the market grows, our cheese producers can produce more, and
the Europeans are stuck at whatever it is — 30,000 or 18,000 tonnes of fine
cheese, whatever it was.
I was, as I say, surprised at that, and I don't know, but I would guess that
the government was probably surprised by the reaction, too. I would have thought
that the government would say, "We've done a really good thing here; we've kept
them to 18,000 or 20,000 more tonnes. That's really good," and it didn't work
out that way. I don't know how that percolates through the Dairy Farmers of
Canada. Maybe they are so concerned about any tiny little wedge being put in the
supply managed system that they are on edge about anything.
It's not only dairy and eggs we are dealing with in these trade negotiations
but a whole series of other things. It would be a tragedy if we lost supply
management through inadvertence or international trade. I could be provocative
and say that we are drinking American growth hormone milk — I'm sure we wouldn't
be — but, anyway, it's that kind of thing.
Senator Dagenais: We talk a lot about supply management. Before I ask
you my last question, I would like to share with you a comment made to me by the
president of Rôtisseries Saint-Hubert. That is a restaurant chain that uses a
lot of chicken, because that is what it sells. He calls supply management a
cartel, because it is impossible to negotiate the price of poultry. That is his
I would like to come back to the Canada-European Union Comprehensive Economic
Trade Agreement, and those 16,000 tonnes of cheese, because a good many farmers,
in an area I know well, are worried. They told me they expect the government to
offer them compensation. I replied that to receive compensation, they have to
submit proof of harm. I asked them if they had a way to put a number to the
damages, and they answered no. So I told them that they will have to wait before
making any such demands.
In your view, if there were to be compensation, what would be the amount? For
the time being, we do not know what the damages will be.
Mr. Muirhead: I could say I have not the faintest idea about what the
damage might be. Again, we will have to wait in the fullness of time to see if
there is an adverse impact on cheese production in Canada. I travelled to the
Saguenay region a couple of years ago and camped for a few weeks, and I have to
say the cheese there is phenomenal. I can't imagine that those processors will
suffer adverse effects because we import Roquefort cheese or something like
that. There is this idea that we should buy Quebec or Ontario cheese, and our
cheeses are, as you said, world beaters in many of the categories in which they
compete. Who knows, maybe when French cheese begins coming in, it will
popularize the notion of eating Canadian cheese. I don't think there would be a
lot of disadvantage suffered by the producers in Quebec.
As far as the cartel goes, there are four companies in the U.S. that operate
chicken. There are Tyson, Hormel and two others, and they run something like an
indentured servitude operation; it is medieval. The producers take on long-term
debt, and the processors, the four big companies, reap the advantages. They take
on short-term contracts with those producers. It's almost, as I say, like an
indentured servant kind of relationship where the producer must sell to one of
the big companies or basically they go out of business. It's a huge amount of
debt incurred in setting up that sort of operation.
Doug Constance at Sam Houston State University in the U.S. has written a lot
about this, and it really is kind of a medieval relationship. This is the
necessity. This is why I think supply management is so good, because between the
chicken producers here, the processors and the consumers, an intermediate
organization works to level the playing field a bit. But I probably couldn't
come up with a different word for Saint-Hubert and its chickens.
Senator Enverga: Once again, with regard to supply management, it's
all about supply and demand. Sometimes supply goes up or the demand goes down
and vice versa. How does the agriculture industry adapt to this? Don't you need
something more like price management rather than supply management? Is it going
to be trade management, something like that, or do they need more government
control? How would you differentiate? They have the three pillars: production
management, import control and pricing policy. Which one has more importance in
regard to pricing and the industry as a whole?
Mr. Muirhead: I think matching domestic demand with domestic supply is
almost like a fine-tuned science. Supply management was introduced officially in
1971, but it was in Ontario before then. Over the last 44 years or so, it is
pretty much of a science, and while they do have some issues with respect to
oversupply sometimes, I think that generally speaking it's a pretty finely tuned
system, and the production side reflects domestic demand, so there is not
anything out of whack with the system.
Also, they now pool milk. The P5 — Ontario, Quebec and the three Maritime
provinces — pool supply, so there is some sharing of milk now across provincial
borders to even out the peaks and troughs of supply. I think they have worked it
out pretty well.
In terms of price, I don't know why lots of people have an issue with supply
management because the consumer pays the cost of production, unlike the U.S.,
where the consumer might not pay the cost of production. It's one of those
systems where it is whatever is negotiated. Maybe supermarkets use it as loss
leaders. But the producer is getting the cost of producing that litre of milk,
which I think is a good system, and somebody is going to be paying the freight
for eggs and dairy. Somebody is paying the freight for that, and it's not
I read a cabinet conclusion from the Diefenbaker government in 1960, where
they were on the hook to subsidize through legislation the dairy industry in
Canada to the tune of $60 million. The finance minister at the time is in
cabinet conclusions. They are talking in cabinet, and he's saying: "I don't know
where we're going to come up with the $60 million. We don't have $60 million to
support the dairy industry in Canada." That began the whole process.
In 1963, under the Ontario Conservative government at the time of John
Robarts, we get the 1963 advisory commission on dairy, and then we get the 1965
Milk Act. It all flows from the same place, which is that we cannot, as a small
country, afford to subsidize dairy production the same way they do in the U.S.
or the European Union after 1962. So we will have the consumer pay the full cost
of production, and stores can do whatever they want with it as loss leaders or
discount it somehow.
If you don't drink milk you don't pay — that's true — but everybody eats
cheese, of course.
Senator Enverga: Why can't we just price it for consumers who can
afford it, and maybe keep the extra ones somewhere and give it to the poor
countries? Would it be possible? It's more like pricing management and supply
management at the same time. I'm so outraged whenever I see producers dumping
produce in the sewers because they thought the price was too low. Is it possible
to do that? Is there a hybrid supply or pricing management we can adapt?
Mr. Muirhead: In Canada, our producers can't destroy milk. Generally
speaking, they don't do it because they do get the cost of production, whereas
with respect to the European Union, you can see photos online of dairy producers
spraying policemen with milk with hoses. They have riot police in Brussels to
fend off dairy producers. I think it is a weird idea or image, dairy producers
fighting riot police because prices are low, but they do that in the European
Union. They have not done it in the U.S. because of the subsidy programs, but in
the European Union that does happen.
In Canada, we don't want their kind of system. I think we price milk fairly
now, and it's based on the cost of milk production on the average farm in
Canada. It's not the lowest cost production and it's not the highest cost
production, but the average.
Actually, Canadian consumers benefit from the system, it seems to me. In New
Zealand, milk is about a third more expensive for consumers than it is now. Even
though milk prices have dropped dramatically over the last year in the world —
so in New Zealand, you would think consumers would get a break — last October,
milk prices in New Zealand rose by 6 per cent, at the same time that prices are
going through the floor.
Dairy farmer suicides in New Zealand are up. There were four in December, and
there have been sixteen over the last six months. That kind of thing, debt in
the New Zealand dairy sector, is huge. It is a horrible situation, because they
have expanded too much, too quickly, too far, and the prices collapsed. It's
like a commodity, so you go up and down. It is oil, iron ore, uranium; you name
it. Milk is the same, and it is the producer that ultimately pays the cost in
that kind of situation. Whereas in Canada we don't have the wild swings, but the
price that is published is fair, I think, for most people, and it is affordable
by most people in the country, it seems to me.
The Deputy Chair: On behalf of the committee, I want to thank you for
sharing your extensive knowledge with us. We can see why you are the holder of
the Chair in Public Policy at the University of Waterloo.
Mr. Muirhead: Thank you very much. It is a great pleasure. This is my
first time at a setting like this, and I feel privileged to be here to speak
with you and have a conversation. I have made a couple of mental notes about
things which I can incorporate.
The Deputy Chair: If there is any further information you would like
to send to the committee, you could do so and send it to our clerk.
Mr. Muirhead: Sure, I will do that.
The Deputy Chair: That is most appreciated. Thank you so much.
Mr. Muirhead: Thank you very much for inviting me.
(The committee adjourned.)