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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 5 - Evidence

Ottawa, Tuesday, June 4, 1996

The Standing Senate Committee on Agriculture and Forestry met this day at 4:00 p.m. to continue consideration of its order of reference to study the present state and future of agriculture in Canada, consideration of issues as raised by the Minister of Agriculture and Agri-Food.

Senator Leonard L. Gustafson (Chairman) in the Chair.


The Chairman: I will call the meeting to order.

I wish to take this opportunity to welcome the Minister of Agriculture, the Honourable Ralph Goodale. He has a presentation and then he will entertain questions.

Please proceed.

Mr. Ralph Goodale, Minister of Agriculture and Agri-Food Canada: It is a pleasure to provide today a progress report on agriculture and agri-food issues in Canada.

With me today are the following officials: Mr. Frank Claydon, senior assistant deputy minister; Mr. David Oulton, assistant deputy minister for policy; Dr. Art Olson, assistant deputy minister for food production and inspection; Dr. Brian Morrissey, assistant deputy minister for research; Mr. Dennis Kam, acting assistant deputy minister for corporate services; Madame Diane Vincent, sous-ministre adjointe, Direction generale des services l'industrie aux marchés; Mr. Mike Gifford, director general of trade policy; Mr. Howard Migie, director general of adaptation and grain policy; and Mr. Jamshed Merchant, director in Ottawa for the Prairie Farm Rehabilitation Administration.

When I arrived in this job in November of 1993, I found an agriculture and agri-food sector in this country that was confronting a grade deal of change.

On the first slide which appears in my presentation, I have tried to summarize some of the factors that have contributed to the forces of change with which farmers and others in the agri-food sector need to cope. World trade and globalization is obviously one of those factors. The need for greater efficiency, productivity and competitiveness in the face of world trade is another factor. Also important is the natural thirst that everyone in the agriculture and agri-food sector has for more diversification, more value-added economic development in addition to the production of basic commodities.

There is also the inexorable march of science and technology. One thing that perhaps not very many people in the country know is that Agriculture and Agri-Food Canada is one of the leading science departments of the Government of Canada and the agriculture and agri-food sector is very much a high-tech sector both in Canada and around the world.

The final factor that has been contributing to the need for change is the relentless pressure of the fiscal realities within which not only the Government of Canada but also every level of government is trying to cope.

After the first eight months in office, from November of 1993 to the fall of 1994, after many challenges, including the beginning of the implementation of the NAFTA, the final negotiations of the new GATT agreement, the U.S. challenge on Canadian wheat exports into the U.S. markets. After many conversations and consultations with the men and women who make up the agriculture and agri-food industry, I took the opportunity in September 1994 to outline a potential vision for the Canadian agriculture and agri-food sector. I presented that vision statement to a joint meeting of the House of Commons and Senate committees on Agriculture and Agri-Food.

The vision statement is printed on the slide that now appears before you. Essentially, it is built on the notion of sustainable growth responding to domestic and export markets, strengthening rural Canada, achieving financial security and achieving a safe and high quality food supply. The roots for that vision statement are found in the Red Book and its predecessor documents of 1993. The vision statement has been the driving force providing the context within which our policy decisions have been taken over the course of the last couple of years.

The next slide attempts to summarize in very brief form the various decisions that we have taken in the budget of 1995 and then, following that, the budget of 1996. In 1995, with the details contained in the budget, we essentially challenged the Canadian agriculture and agri-food sector to secure the future and to seize the opportunities that were presented in that budget. Even though the budget included a great deal of change, with each one of those changes there also came new opportunity.

We have seen in very graphic terms the agriculture and agri-food sector over the last year beginning very much to seize the new opportunities. For example, following the reform of the Western Grain Transportation System, we have seen many new investments occurring in that sector in Western Canada, by Cargill, among others. I will return to that theme a little later on in my presentation.

Also contained in the budget of 1995, with respect to research, was our Matching Investment Initiative. Because we had tested that initiative in advance, we thought it would be successful. The practical experience in the last year, now that the Matching Investment Initiative has been up and running for a full year, is that the take-up has been very quick. There have been over 500 cost-shared projects between government and the private sector, focusing on some very innovative and practical research in agriculture and agri-food R&D.

This year, in the budget of 1996, we have tried once again to move forward, consistent with the vision statement, building on the industry's success of the previous year. Our emphasis in budget 1996 was essentially getting government right. We are reforming the food inspection system in Canada to reduce overlap and duplication. We are also phasing out the dairy subsidy and are beginning the process of disposing of the federal government's hopper car fleet to allow industry more room and more authority to make decisions about the use of these cars in a more businesslike environment.

What I have given you is a thumbnail sketch of the budgets of 1995 and 1996. I should now like to review some of the results that have flowed from this effort over the last couple of years.

First, let us look at trade. This chart, Mr. Chairman, is exceedingly important because agriculture and agri-food are more trade dependent than most other sectors of the Canadian economy. The Canadian agri-food sector is more trade dependent than the agri-food sectors of most other countries. From the Canadian perspective, in dealing with agriculture and agri-food, we have to make trade successful.

In 1993, private-sector organizations in the agri-food sector came together to establish an export target. This chart indicates that in 1993, we were exporting about $13 billion worth of agriculture and agri-food products. When we were at that level, the sector came together to say that we must do much better, and they established a very ambitious target of $20 billion worth of agri-food exports by the year 2000. In other words, there was an industry consensus that from 1993, when we exported about $13 billion worth, over the following seven years, by the year 2000, the industry wanted its annual level of exports to be $20 billion. That is essentially a 50-per-cent increase and it was a very ambitious objective and goal.

As you can see by this chart, from 1993 through to 1995, we are well on our way to not only reaching that target, but also surpassing it. The final figures came in for 1995 a couple of weeks ago and we have reached the $17.5 billion level, up 13 per cent from 1994. That represents 6.6 per cent of Canada's total merchandise exports and is a full 30 per cent improvement over where we stood in 1993.

Quite frankly, Mr. Chairman, the target of $20 billion by the year 2000 is too modest. Historically, Canada has enjoyed a percentage of total global world food trade in the range of 3.5 per cent. In the last decade, we have slipped to about 3 per cent. The difference between 3 per cent of total global agri-food trade and 3.5 per cent, just .5 per cent, is major in terms of what it means in volume for Canada.

If we were to get back to 3.5 per cent by the year 2000, our agri-food exports would be $23 billion. Quite frankly, that is the goal I would like to see us shoot for and, if we can, surpass it, given the performance and the experience that we have had in the last three years.

The next slide shows the source of some of this growth. You can see by this chart that the United States is by far our largest market, accounting for about half of our total exports. Over the course of the last year, our exports into the U.S. market have increased by about 5 per cent.

While the numbers are not so large for some of the other countries, the percentage increases are very impressive. This chart shows that between 1994 and 1995, our exports to the European Union grew by 24 per cent; to Japan, they grew by 26 per cent; to Algeria, they grew by 29 per cent; and to China, our exports rebounded by what had been a low experience in 1993, 1994, and grew by 83 per cent.

Mr. Chairman, in addition to the fact that the United States is very big and is important to us, and that we are managing to grow at a somewhat faster rate in some of the smaller markets compared to the United States, this chart tells us that there remains a very serious imbalance in our marketing opportunities around the world. We perhaps have been too comfortable in focusing all of our efforts on that nearby American market. It is a cash market; it is familiar; it is relatively easy to deal with, at least most of the time; and it is a comfortable place for most Canadians to want to do business.

However, we need diversification in our markets. The more we can expand in Asia-Pacific, Latin America and Europe, the better it will be for the long-term health and success of the Canadian agriculture and agri-food trade sector.

Let me just say another word about innovation, Mr. Chairman, and this next chart is quite interesting. When we were making our initial budget decisions about the research department in Agriculture and Agri-Food Canada in 1994, you can see that we had a spending level of just under $280 million. Because of budget decisions that we have made as a government, and some of the longer-term budget decisions that were made by the previous administration, we have been required to reduce our spending on research over a period of four to five years in the order of $50 million. We have had to find savings of that amount, out of a total of $280 million, roughly speaking. We have achieved those savings by cutting down on what we consider to be unnecessary overhead, unnecessary infrastructure costs and lower priority research projects. We have closed or are in the process of closing eight of our smaller research centres that were considered to be of more local importance than national importance. By making those difficult choices and those spending reductions, we will save the $50 million over the period of time shown in this graph.

At the same time, we have done two other things that are exceedingly important. Once we have closed those eight smaller research centres -- incidentally, two in Quebec, two in Ontario and four in Western Canada-- we will be left with 18 major research facilities under the auspices of Agriculture and Agri-Food Canada across the country. We are in the process of converting those 18 centres into national centres of excellence, making sure the 18 centres are not only very good at what they do, but also that they have the scientific and the financial resources to be first class by international standards.

You can imagine what the specialties are, Mr. Chairman. One of those centres is located in Saskatoon, in your home province and mine. It will be focusing on canola and western oil seeds. Another one of those is in Fredericton, New Brunswick, and it will be concentrating on the potato industry; Summerland, B.C., on the tree fruit industry; facilities in Quebec, such as the research centre at St-Hyacinthe, concentrating on food systems, and so forth.

We have tried to select the specialties that would correspond with the geographic region in which the research centre is located. If members of the Senate are interested in the details of those centres, we would be happy to provide that.

Secondly, we have created this new instrument which I mentioned earlier, the Matching Investment Initiative. By this initiative, we are recirculating some of the money that we have had to save into matching investments in agriculture and agri-food research. The Government of Canada puts up a dollar and the private sector is invited to put up a dollar. We share the responsibility for establishing the priorities, we share the responsibility for doing the work and we share the responsibility for paying the bills.

The MII started rather modestly in 1995 with about $10 or $11 million. It was virtually fully subscribed almost instantly. You can see from this chart, where the green block indicates MII money and the yellow block indicates the matching of the MII money by private-sector money, that our Matching Investment Initiative money grows gradually over time. By 1999, effectively it will be at the level of about $36 million a year. We expect that to be fully matched by the private sector.

While we have had to save $50 million over that full period of time, at the same time, through the vehicle of the MII, by the year 2000, we, along with the private sector, will be reinvesting $72 million a year into targeted research aimed at the priorities of the Canadian agriculture and agri-food sector.

All that being said, Mr. Chairman, it is important to recognize that that is the icing on the cake, and I do not mean to minimize it -- the MII has been enormously successful. But do not forget the red line that underpins it all and that is the ongoing baseline research budget of Agriculture and Agri-Food Canada going into the fundamentals of our resources, like soil and water and all of the other things that have made the research facilities of Agriculture Canada world renowned.

Mr. Chairman, let me say just a word about safety nets. This chart is an attempt to show you what has happened with NISA, the Net Income Stabilization Account, over the years. I know that you will be very familiar with that program. The first bar, 1990, shows NISA at a very low level. At that time, it had only just begun. In 1991, it starts growing; and by 1993 and 1994, the results speak for themselves. I am pleased to tell you that if you were to extend that line to show 1995, NISA has just surpassed $1.2 billion in combined government and producer contributions and is projected to reach $1.9 billion by the end of calendar year 1996. Of course, that is money set aside with the proper incentives provided by government and by the safety net system to cushion the impact of any future downturns in farm income.

Mr. Chairman, the chart I am now referring to makes a very simple but important point. The bars at the top represent confidence and the bars at the bottom represent doubt. The red bar is Canada and the green bar is the United States. What that indicates is that Canadians tend to have a higher degree of confidence in the Canadian food inspection system than do their counterparts in the United States. I do not mean to take a backhanded shot at the United States, but simply want to say that Canadian food inspection and food safety standards are in fact among the very highest in the world. That is recognized not only by Canadian consumers, but also by our international customers, who know that when they buy from Canada, they buy the very best.

I will show you now what is happening to the budget of Agriculture and Agri-Food Canada in global terms. The pie chart on the left shows you our budget in 1994-95, Agriculture and Agri-Food Canada, plus the Western Grain Transportation Act -- the WGTA -- subsidy, which of course is directly relevant to a good portion of agriculture in Western Canada; $2.7 billion, 37 per cent of which was directed towards things that make the industry grow and 63 per cent of which was directed primarily toward passive subsidization.

If you look at the pie chart on the right, it has become smaller. It has gone down from $2.7 billion to $1.6 billion. The proportions have changed. Fifty-three per cent of our budget today is being directed toward things that make the industry grow, like research, trade, market development, and so forth, and only 47 per cent is directed toward passive subsidization. As difficult as it has been to make that transition, reducing the passive subsidization, putting the emphasis on growth, market development, trade and research, I believe very sincerely that the right trend is to concentrate on the growth aspect rather than the passive subsidization aspect. To put it another way, Mr. Chairman, the best defence is a very good offence, and we have tried to put the emphasis on that offensive strategy.

Please note the footnotes at the bottom, which help to explain the differences between those two charts. As I said earlier, the pie chart on the left does include the WGTA. In the government's financial statements, it is included in the budget of the Ministry of Transport; for the purposes of this presentation, I have added it in because I think it is relevant. On the left is Agriculture Canada, plus the WGTA from Transport Canada; on the right is Agriculture Canada spending exclusively.

However, please regard footnote number 2 at the bottom, which indicates that it does not include a whole series of adjustment payments that are being made in the period from 1994-95 on the left to 1998-99 on the right -- part of our adjustment measures as subsidization has been removed.

For example, the adjustment program to compensate for the ARFA and MRFA, the Atlantic and Maritime Freight Assistance Programs, which have been terminated, about $300 million is being invested there. Feed Freight Assistance Adjustment Plan, another $72.5 million being invested there. The WGTA, about $1.9 billion being invested there in adjustment measures. All of that occurs in the gap between the pie chart on the left and the pie chart on the right. So remember, there is a huge amount of investment occurring in the middle, well in excess of $2 billion worth.

I would like to take you through the highlights of a document called "Building For Success, The Year Ahead," which was released at the time of the 1996 budget. I believe the document has been made available today to members of the Senate. It outlines our major directions for the coming year.

Firstly, let us look at expanding trade and investment. As I said before, this is important because Canada is trade dependent and our agriculture and agri-food sector is more trade dependent than most other sectors of the Canadian economy. Trade and market development will continue to be a priority. We have been working hard to access new markets, through trade agreements such as the WTO and the NAFTA. We have also been actively moving to capitalize on new opportunities when they have been opened. Once we have achieved the legal right to the access, we need to exploit that right. We have been doing well in that regard.

For example, my 1995 South American trade mission led to the sale of about $1.2 million in embryos to Brazilian livestock breeders. During the Prime Minister's mission to Asia, the Canadian Wheat Board signed an agreement with the Bogasari Flour Mill of Indonesia, the largest flour mill in the world, a deal that could be worth up to $2 billion to the Canadian grains industry over the lifetime of that agreement with Indonesia.

We have also worked hard to support Canadian products through the agri-food trade service and we have actively defended Canadian interests when they have been challenged. For example, we have used our legal leverage with the WTO to improve Canadian access into Europe for wheat, canary seed, oats, pork and cheddar cheese. We have also restored access to Mexico for seed potatoes and to Puerto Rico for UHT milk. We have had considerable success in dealing with trade problems with the United States on wheat and on potatoes, and we have made progress on pork into Russia. In the coming years, we will continue to expand market access, whether it be to Israel or Chile, where active negotiations are presently under way. Our trade missions will also continue, Mr. Chairman.

As you may know, I have just recently returned from another of those missions to Asia. It was very much a "Team Canada" effort, involving other ministers, government officials at the provincial level, as well as a large contingent from the private sector. While there, we focused on access for transgenic Canadian canola into Asian markets and better access for Canadian pork. We also focused on that continued Canadian presence and promotion in the Asian marketplace, and the private-sector people who travelled with us on indicated that they thought it had been very useful and very successful.

I also look forward, Mr. Chairman, as promised in the Red Book, to announcing very shortly the Canadian Agri-Food Marketing Council, a joint venture between myself and trade minister Art Eggleton. The objective is to assemble a group of 20 or 25 private-sector representatives who can give the government solid ongoing and, if necessary, confidential advice on how best to invest our limited dollars for market development and trade promotion. We must ensure that we are getting the biggest bang for our buck, and I hope the council will be up and running during the course of this summer.

Turning now to science and technology. I will not dwell on this slide because I had the opportunity earlier to talk to you about the convergence of our centres of excellence and the Matching Investment Initiative. Quite frankly, where we had to make that saving of $50 million over three to four years, we have come up with some innovative ways to square the circle, so that at the end of day, even though we have had to make that saving and we have done it, we will end up with more, not less, agriculture and agri-food research and development getting accomplished in this country.

I would like to point out one new item on this slide, the investigation that we are currently conducting into a proposal for a science horizons program. That program will create scientific opportunities and employment opportunities for young Canadian scientists who want to get involved in agriculture and agri-food. It is a relatively small program, but one which I think could be very exciting for a lot of Canadian young people.

Turning to the next slide, Mr. Chairman, Maintaining a Safe Food Supply. I have already emphasized how important I believe this to be. Our inspection system is an absolute priority. Safety and quality are important not only to Canadians, but also to buyers of Canadian food around the world, one of the principal reasons we are so successful in our export markets. We have developed some unique approaches to ensure that our track record is maintained while we make the changes required by the fiscal realities we face.

We have taken essentially a three-pronged approach to this challenge of maintaining and improving our food inspection system, while at the same time saving money. First, cost avoidance. We try to find places in the system where we are now spending money that we do not need to spend, and avoid those costs. Secondly, cost reduction. Can we find ways to do what we are doing more economically, get the job done, but at a lower charge? And finally, cost recovery, in partnership with the private sector. Where our inspection system confers a private benefit, we are asking the private sector, which benefits from that, to pay a reasonable charge in return. Cost avoidance, cost reduction and cost recovery are part of our approach to changing the way we do business with respect to our food inspection system.

Another aspect, Mr. Chairman, is the introduction of new technology. Here I would mention the hazard analysis and critical control point system, commonly known as HACCP, new science, new technology in the food inspection business. We are in the process now of encouraging the implementation of HACCP as broadly as it can be implemented right across the food system in Canada. The use and the implementation of new technologies in food inspection is another part of our approach.

Finally, I would mention our concerted effort to avoid overlap and duplication. That was one of the driving forces behind the announcement in the last budget of the new federal food inspection system, where we are combining the activities of Agriculture Canada, Health Canada, and Fisheries and Oceans Canada in a new agency called the Federal Food Inspection Agency. The authority for setting standards and all that is involved in setting standards will be vested in Health Canada and it will be up to this new agency to do the on-the-spot inspection and quarantine work, reporting to Parliament through me as Minister of Agriculture and Agri-Food Canada. We believe, Mr. Chairman, that we have the ability over the next number of years to save as much as $44 million a year in existing costs in the system because of overlap and duplication between different government agencies.

Grain transportation. Why have we made the changes we have made, Mr. Chairman, to the WGTA and other aspects of our grain transportation system? We have made those changes for trade reasons, for efficiency reasons, innovation reasons, diversification reasons and fiscal reasons. We want to make sure, when the initial period of adjustment is over and when the adjustment funding has come to an end, that what we have after is a system that is moving grain as cheaply and as efficiently as possible, with the productivity gains fairly shared among producers, shippers and the railways.

When you remove a subsidy like the WGTA, there is an immediate and obvious down side. Freight rates go up. From the farmer's point of view, that is pretty simple and not very popular. Mr. Chairman, what we need to do to compensate for that higher freight rate is two things: First, we must make sure that efficiencies are achieved in the system so that it is cheaper and faster and that productivity gains are fairly shared amongst all the participants so the system is delivering the farmer's grain on time at the least possible cost. That is one thing which definitely has to be accomplished, because the farmer is picking up all of that cost now -- there is no subsidy left in the system. Part of the upside is a dramatic improvement in efficiency and the sharing of efficiency gains.

The other part of the upside is the diversification and the value-added growth that can occur in the prairie region once the built-in discrimination that was within the old WGTA structure is at long last removed. We are starting to see some of the new investments beginning to flow because the discriminatory freight structure has now been removed.

Cargill, for example, is building a new canola crushing plant at Clavet, Saskatchewan. Canadian Agri Corporation is building an agricultural processing complex at Ste. Agathe, Manitoba. Canamera Foods is upgrading its facilities at Altona, Manitoba, and Nipawin, Saskatchewan. McCain's is expanding a potato processing plant at Portage la Prairie. Schneider's is building a hog processing plant in Saint Boniface. Lakeside Feeders of Brooks, Alberta, and Cargill at High River, Alberta, are expanding their beef processing facilities. There is an expansion at Prairie Malt at Biggar and there are new investments in the business being made in Saskatchewan, at Moose Jaw, Saskatoon, Drake and Melfort. Some of those developments would have occurred anyway, but all of them are on a much more solid foundation because of the results of transportation reform.

Mr. Chairman, supply management. Our supply management sector is also a clear Canadian success and we as a government are committed to defending it against what we believe to be unfounded attacks. We are very confident in our legal position in the current NAFTA panel and we are working now with the industry looking beyond the NAFTA panel to develop a long-term dairy policy to provide for a predictable environment for the evolution of the supply-managed sector in the years to come. We will wait very anxiously to hear what the NAFTA panel has to say. We expect to hear in July or August of this summer.

I would like to turn to the issue of safety nets briefly, Mr. Chairman. We are continuing to move as quickly as we can toward a whole farm safety net system which provides improved security for producers as the agriculture and agri-food sector grows. The innovative approach to safety nets consists of a whole farm program based essentially around the NISA model, plus profit insurance, plus companion programs to meet specific provincial requirements. Our safety net plan has these three components: whole farm, plus crop insurance, plus companion programming that is province-specific.

We have reached the point now in our negotiations with the provinces of having common agreement and common understanding on all of the basic fundamentals. We are in the process of finally drafting the necessary bilateral agreements. I am hopeful that those agreements can be concluded and signed during the course of the summer of 1996 so that at long last the new safety net system can be up and running for the future.

As this slide also shows, Mr. Chairman, we are moving forward to implement our campaign commitment to reinstate the legislative provision with respect to interest free cash advances, as well as a new process dealing with farm debt, and we have modifications in the Farm Credit Corporation to propose for the future.

A brief word on the environment. That, too, is one of the building blocks of all activity in the agriculture and agri-food sector. We have, for over 60 years, at least in the prairies, provided a strong commitment to sustainable development through agencies like PFRA. The environmental farm planning activities, co-funded by the Government of Canada and the provincial government in Ontario, have provided a comprehensive vehicle for farmers to take charge of their farms and deal with key environmental challenges on the farm.

We have also partnered with the UPA and la Coopérative fédérée to put in place industry-led environmental programming in Quebec, known as, "Je prends soins de ma terre." We are also committed to producing, this year, a sustainable development strategy for the agriculture and agri-food department to outline the actions underlying our commitment to sustainable development, and these will be tabled before the House of Commons.

Adaptation and adjustment, Mr. Chairman. This is a complex area, but let me try to step through it as quickly as I can. Our overall approach is to transform, as I said earlier, passive subsidy support programs into new-style assistance to the agriculture and agri-food sector to facilitate growth, competitiveness and rural community development. With our adaptation programs, we are trying to ensure that we provide the sector with the tools they need to manage their own adaptation in the wake of subsidy reductions and other changing forces. We are also attempting to target assistance to where the need is the greatest. We cannot try to be all things to all people.

These adaptation programs are being developed and implemented in very close partnerships with producers and producer organizations across the country. The government's main activity with respect to adaptation includes a $326 million adjustment fund in support of changes to the Atlantic Region Freight Assistance Act and the Maritime Freight Rates Act. When the so-called ARFA and MRFA were terminated last year, this $326 million was made available essentially under the auspices of the Department of Transport. The Department of Transport entered into the appropriate agreements with the affected provinces for the transfer of that $326 million in adjustment funding.

There are also, Mr. Chairman, WGTA adjustment funds. There are payments of $1.6 billion to the owners of prairie farmland, of which we have now paid out about 90 per cent of the interim applications. The final payment is expected to occur in the latter part of the summer or the early part of the fall. In addition to that $1.6 billion in a government transfer from the Government of Canada to prairie farmland owners, there is also a $300 million WGTA adjustment fund which is targeted toward the specific needs of producers in eastern Saskatchewan and Manitoba resulting from changes in the Canadian Wheat Board's pooling system.

Also targeted from the $300 million is the alfalfa dehydration sector and the compressed hay sector, and then a broad category dealing with agricultural infrastructure, which does mean different things to different people across the prairies. However, the majority opinion is that agricultural infrastructure means roads, roads and more roads. That is obviously important, as grain transportation configurations will change in the wake of the elimination of the subsidy.

There is also, Mr. Chairman, the Feed Freight Assistance Adjustment Fund for those regions affected by the changes that we have made to the Feed Freight Assistance Program. The original phase-out proposal announced in the budget of 1995 would have seen about $62 million provided to the former users of the FFA, spread out over a 10-year period. The user groups that we got together to consult about this gave us a large amount of very vigorous advice.

They said, for example, that $62 million was not enough, and we managed to increase it to $72 million. They said that a 10-year period is far too long. We shortened it, Mr. Chairman, to what really amounts to three fiscal years from what was originally planned to be ten fiscal years. They were concerned about the tax implications. We have obtained a favourable tax ruling from Revenue Canada.

We have managed, I think, Mr. Chairman, to meet most of the original objections that were put forward by the FFA users, but in total we are providing an FFA adjustment fund of $72.7 million, the payments of which have begun at the end of the last fiscal year, 1995-96. The payments will continue through this fiscal year, 1996-97, and they will be concluded in the next fiscal year, 1997-98. As I say, this is very much in line with most of the recommendations from the advisory group on Feed Freight Assistance.

Finally, in our arsenal of adaptation measures -- I have mentioned the ARFA and the MRFA, the WGTA, the Feed Freight Assistance -- I would mention the Canadian Adaptation and Rural Development Fund. Unlike the other measures, we intend the Canadian Adaptation and Rural Development Fund to be an ongoing annual allocation of $60 million a year, indefinitely into the future, to support adaptation at the national level, through programs such as the Farm Safety Program, the National Farm Business Management Program, and so forth, and also to support local initiatives such as those undertaken by the Ontario Adaptation Council and by corresponding adaptation councils that are up and running in the Province of Quebec and, we hope, in other provinces.

On the broad issue of adaptation, I will be holding a conference in Winnipeg in the latter part of June to which I will be inviting a broad cross-section of representation from the Canadian agriculture and agri-food sector and asking them to give me their final input into what I hope will be a sensible, practical, industry-driven business plan for the future of Canadian agriculture and agri-food. I am looking forward to the useful input I know I will receive from farmers and farm organizations at that conference.

The next slide, Mr. Chairman, I will skip over very quickly. Your members may wish to raise this with me, but I simply flag it as an issue -- the Farm Credit Corporation. I believe very sincerely that we need to look at the mandate of the FCC and consider expanding that mandate. I am aware that there is a report of a Senate committee that takes a different view and I would be delighted at the right time to have the opportunity to discuss the outcome of that report with you.

Let me just give you a practical example of why I think we need to revisit the mandate. Consider this: Two brothers in a town like Sedley, in southern Saskatchewan; one is a farmer, the other runs the store on Main Street. They want to invest in a local seed cleaning facility. If they do that, they will provide a valuable agriculture service in the community; they will create a variety of local business spin-offs; they will create five local jobs, which is big time job creation in a town like Sedley, or Francis, or those in that area. All in all, it is a sound economic proposal that makes sense for agriculture and for the community.

Now, under the existing mandate of the FCC, FCC could make a loan to the brother who is a farmer, but not to the brother who is the storekeeper. I think we can do without that kind of silly distinction. It is that kind of creative change in the mandate of the FCC that we should look at.

There is a final slide, Mr. Chairman, that I will just take a minute to go through, because I do believe this is important. I have spent a fair bit of time, and I am sure some of you would say far too much time, this afternoon talking about how agriculture and agri-food benefits Canada. In closing, I would like to highlight how our sector, the agriculture and agri-food sector, benefits from a strong and united Canada. The advantages gained by virtue of membership in the federation takes many forms, but let me just give you a few examples.

Federal regulatory policies, such as supply management, enable producers to benefit through higher long-term, more stable returns from the marketplace. That is one very clear benefit that flows to agriculture from Canada. Privileged access to the entire Canadian market is another advantage. The Canadian domestic marketplace is worth $70 billion per year. Having privileged access to that market is a key benefit to producers in every province in this country. We need to look beyond interprovincial trade barriers and focus on the fact that over 90 per cent of agri-food products do flow freely across provincial boundaries in this country, in that $70 million-worth marketplace.

As an export-dependent nation, I cannot overstate the value of our international markets. Canada's longstanding international credibility and influence have enabled the agri-food industry in all parts of this country to secure expanding market access, negotiate favourable terms in international trade agreements and defend Canadian interests in an international forum. Canada's strong and united voice protected our supply management system at the GATT negotiations, and it is that same strong voice that continues to defend supply management in the face of the U.S. challenge.

Through the Canadian economic union, individual provinces enjoy significant economies of scale, notably the management of expenditures in trade, research, inspection and quarantine. The economies of scale have enabled individual research facilities to take advantage of centralized administrative cost and to shift human and financial resources as required.

Finally, in conjunction with economies of scale, the sharing of information among members of the federation has enabled all parts of the country to benefit from research conducted in other parts of the country. For example, much of the success leading to the cultivation of foddered corn in Quebec is due to research that was originally conducted in Ontario. It is because of the federation, the research that we share, the information that we share, the marketplace that we share, the trade resources that we share, the inspection and the quarantine standards that we maintain together, because all of that is together, Mr. Chairman, that all of us are much the better off. In the agriculture and agri-food sector I believe the evidence is clear: the synergy created by all of us, the federal government, the provinces, the territories, the private sector, all of us working together has been instrumental to our success and we are far stronger together for the future.

Senator Stratton: I am rather curious about the supply management system, particularly when your slide shows it as being an evolving supply management system and the current strategy is to defend our system and that NAFTA panel report in July or August, as you said, and that the next step would be to continue the defence of our supply management system. What I am sensing, because of the WTO and the NAFTA, is that the days of supply management are numbered in the long term, that particularly the U.S. will not stop chipping away no matter what the panel decides -- I do not think they believe in quitting, as we have seen since bringing in the Free Trade Agreement.

Do you actually believe that we can defend the system as it now stands, and if not, how do you see the system evolving as we get a phase-out? My understanding from talking to different people on the management boards is that there will be a phase-out to allow them to become more competitive. Is that the strategy?

Mr. Goodale: Senator, when we concluded the negotiations in Geneva in the fall of 1993, immediately upon my return to Canada, in fact the very night that the initial GATT agreement was initialled in Geneva, I convened a meeting here in Ottawa of all the provincial ministers of agriculture on an emergency basis to review what the GATT outcome and to determine instantly whether there continued to be the common will among all of the players -- the federal government, the provinces and the supply management agencies, the farm organizations and so forth -- to work very hard in defence of Canadian supply management.

I found very clearly that that will remained as strong as it ever had been. All of the provinces, all of the supply management agencies, all of the farm organizations, without exception, said that they wanted very vigorously to work together to maintain the Canadian supply management system. They recognized that the result of the GATT would produce some changes.

Under the old GATT, supply management was effectively sheltered by border controls. Under the new GATT, the border controls are replaced by comprehensive tariffication. The tariff equivalents that are established under comprehensive tariffication have been established at very strong levels. They will decline only by about 15 per cent over a period of six years. At the end of six years, they will remain at very strong levels, reduced only by a small amount. Market access, over time, will gradually increase, but not drastically.

Looking at all of that, what the provinces and the farm organizations said to me was that we can make this work. It is not quite the same as before; it is not precisely supply management under what used to be called Article XI of the old GATT. Nonetheless, we can make comprehensive tariffication work to Canada's advantage for the long term. And you can see how ingenious many of the sectors within supply management have become in the last couple of years as they have made the adjustment, partly to the changed international circumstances and partly to their own domestic needs and requirements.

In the chicken industry, for example, the Canadian Chicken Marketing Agency and all of the participants in the agency from the various provinces across the country have come up with a very unique way of estimating and managing demand in the chicken business. I think it is fair to say that it has some maturing to do, but it is a new approach, and thus far it is working. My contacts with the chicken industry indicate that they are enthusiastic about how they can make this new approach work.

In the dairy sector, various kinds of special pooling arrangements have now been made to allow those aspects of the Canadian dairy industry that need to compete with foreign inputs to have access to milk priced at the right level to make them competitive. A variety of new special pooling arrangements are in place within the Canadian dairy supply management sector to meet that competition and to maintain the advantages and the virtues of supply management that had become traditional.

The last 25 years of supply management, it appears to me, has served Canada pretty well. It has provided producers with stability and certainty, the sound foundation upon which to make their investments and to run their business operations. It has provided consumers with the safest and highest quality food supply in the world at some of the most economical prices in the world.

Senator Tkachuk: Are you saying that the supply management products are safer than the non-supply management products?

Mr. Goodale: No. I am saying that the system works well and that Canadians have a system which has served the national interest, both in economic and other terms. As we said at the time of the election and at the time of the GATT, and since, we need to work very hard to preserve that system in the Canadian national interest, and that is what we are doing in the battle before the NAFTA panel.

Senator Stratton: You are diminishing the targets 15 per cent?

Mr. Goodale: Over six years.

Senator Stratton: What is to prevent the U.S. from saying that is not good enough under NAFTA, that they want more? What is to prevent the consumer from buying a quart of milk for X in the States, or buying a dozen eggs in the States for X? You will have those two pressures continually being brought to bear.

Mr. Goodale: I fully expect the pressures to be there, senator, but quite frankly, that is not new. On the flip side of the coin, we need to be very vigorous in pointing out what we gain from supply management. For example, I am not sure that it is in the Canadian national interest to have a situation that might result in at least certain Canadian consumers being largely dependent upon totally foreign or off-shore sources of supply. That is the other extreme, and I am not sure that that is good for Canada either.

On the point about the constant pressure from the U.S., yes, that will always be there. However, let me show you what I consider to be some of the inconsistencies in the American position. They are very critical of supply management, but under the terms that we negotiated at the WTO, the level of tariff protection gradually comes down and the level of market access gradually goes up. The tariffs obviously do not come down fast enough and market access does not go up quick enough to suit the Americans, but at least the situation, from a trade policy view, viewed from the United States, is getting a little more open with slightly lower tariffs and slightly more market access. There is nothing that we have done on the Canadian side that has diminished American access to the Canadian market. In fact, it is slightly larger.

Now I will look at sugar, where American action since the GATT has cut Canadian access to the U.S. market for sugar and sugar containing products by 50 per cent. They have cut back Canadian access to their market. We have not done anything of the kind in terms of their access to our market. Before they become too critical of Canada, I think they should look in their own backyard.

The Chairman: Many of the grain producers in Canada, Mr. Minister, believe that they have been traded off to the marketing boards. Rightly or wrongly, they believe it. The Americans say, and I am sure you heard it, as did I, that if you open your borders to the chicken feather and milk industry, they will open the border to the grain industry. There is no question that the marketing boards have been very positive to the income of the dairies and the chicken producers in the feather industry.

On the other hand, they compare that to the Canadian Wheat Board, and are saying: "You get the same prices that the Americans could on a North American market, and we will be quite happy." Nobody knows that better than you, with the number of trucks that are running the border, envious of $8 wheat when they are getting $4 wheat. This pressure will intensify, may I suggest.

In being realistic, Mr. Minister, you cannot expect the Americans to move to a free trading position, which our government has endorsed and your government signed, brought in by our government, without looking at all of the products on a fair base, and so that pressure is bound to intensify in my opinion.

Mr. Goodale: Mr. Chairman, when you live next to such a huge, wealthy and powerful neighbour as the United States, you are living with something that is both a great advantage and a formidable challenge at the same time. We have, in any given year, $15 billion or $16 billion worth of agri-food trade back and forth across the Canada-U.S. boundary. It is roughly in balance. We buy about as much as we sell; they buy about as much as they sell. It is good, valuable, high quality trade and the vast majority of it moves without a problem.

There is 5 or 10 per cent, however, that is a source of constant hassle. What I think that means is that we have to be very vigilant at the border in terms of our trade arrangements, the marketing techniques and so forth, to make sure that the Canadian national interest is constantly protected.

You mentioned trade-offs, and I have been told by supply management organizations in Eastern Canada that they were worried that I would trade off supply management for a better deal on grain. I have been told by the grain interests in Canada that they were worried that I would trade off grain for a better deal on supply management. The fact of the matter is that each one of the issues that we have outstanding at any given time -- supply management, peanut butter, grain, some aspects having to do with vegetables and horticulture and so forth -- is a separate matter. Each is distinct and has to be dealt with separately and distinctly on its own merits. We cannot, in my judgment, engage in this kind of horse trading, where you trade off one group of producers against another, or one part of the country against the other.

I would be wary of those who say, "Fix up this little problem over here, and we will make sure that the border is open for you over there." They say, "Give up supply management and you will have great access for wheat," or, "Give up the wheat board and we will not trouble you on supply management," that kind of stuff. Quite frankly, I just do not believe it. In terms of the western situation, for example, we could abolish not only the WGTA, but also the wheat board, the grain commission safety nets and three provincial governments and the Americans would still find some reason to complain. It is not the marketing system that bothers them; it is the fact that any Canadian grain gets across the border to compete in their market.

The Chairman: Mr. Minister, in defence of the western grain farmer, if I may, the western grain farmer pays the input costs on chemicals coming in from the United States, the western grain farmer pays a big price on machinery coming in from the United States, and we are expected to do that on an international market that might be -- I would like to know, the wheat board is not telling us, how much below the Chicago mark.

Are we selling wheat at $3 a bushel internationally, at $2 a bushel internationally? What is the number? We are expected to compete. Quite frankly, may I suggest that what seems to be a boon in the grain market right now for farmers will not be so fancy when they find out what their freight rates are, how their input costs have gone up on fertilizer and chemicals and machinery. It is unreal. The bottom line may be pretty narrow, Mr. Minister.

Mr. Goodale: You have touched on an important point with respect to input costs. There is no question in the last number of months, that as grain prices have taken off in a very encouraging direction, at the same time input costs have risen dramatically.

Not long ago, I invited the House of Commons Standing Committee on Agriculture to conduct their own investigation into farm input costs. They have done some of that and have provided, at least, a preliminary report. Mr. Chairman, I would encourage the Senate committee to take a good hard look at this. If, for example, you look at the trend in fertilizer costs, pesticide costs, fuel costs, over the last 12 months, and if there is something in those trends which causes you suspicion that normal competitive market forces are not at work here, I think it would be well and good for the Senate to take a hard look at those factors to try to identify if there is anything wrong in the system that would demand some kind of change in government policy. That would be a very valid inquiry for members of Parliament, either in the house or the Senate, to undertake.

Senator Forrestall: I was struck by your concern about off-shore captivity, and my heart bleeds for you fellows all over Canada. When will you do something about the plight of Maritimers, who have been captive forever to Quebec, Ontario and the west? We still run massive deficits.

Mr. Goodale: Supply deficits, you mean, Senator Forrestall?

Senator Forrestall: Yes, supply deficits. We have to import; whether we import from the United States, Australia, the European Community, western Canada or Ontario is not too germane. What is important is the fact that the outflow of Maritime capital to pay that bill is debilitating and, indeed, economically crippling in any effort that we might make.

I wonder, because twice I heard you mention the Maritimes. I was going to spell it for you, so that your people in back of you would understand that it is still part of Canada, and Newfoundland as well. However, in a serious way, it remains a very serious problem for us. I know that in trying to cope with some of these other massive problems, it is difficult to remember that we have local domestic Canadian problems.

Mr. Goodale: Senator Forrestall, you have a good point. Remember that a big chunk of agriculture in the Atlantic region is under the auspices of Canadian supply management. We often think of supply management as being critically important to Quebec, particularly, and Ontario, secondarily. However, it is a big player in Atlantic Canadian agriculture, as well. Part of our spirited defence of supply management is very much directed towards the interests of Atlantic Canadians that depend on supply management.

We are in the process of trying to make some of the adjustments that I think were implied in your question in the wake of these subsidy changes, for example. We are looking very seriously, in conjunction with producer organizations and the private sector in Newfoundland, at the integration and improved efficiency of the Newfoundland livestock sector, using some of these adaptation and adjustment moneys that I talked about in the presentation, to make creative investments in the Newfoundland industry that will make it more competitive with the rest of Atlantic Canada and some of the enterprises on the mainland.

We are also looking at assisting in the construction of feed grain storage and delivery infrastructure. There are studies being done which tend to indicate that -- this investment in infrastructure in Atlantic Canada in at least two specific locations, Newfoundland and one other -- when we make this investment in feed grain infrastructure, it could go a long way toward making feed costs a lot more competitive in the Atlantic region. We are looking at some changes with respect to the regulatory regime that apply to maritime shipping in order to ensure that producers in Atlantic Canada have competitive access to off-shore supplies and so forth.

I think you are quite right to mention the special challenges that apply to agriculture in Atlantic Canada and to say that those things need special attention. And believe me, while they may not get the "word" volume that things like the WGTA get, they are getting careful attention by my department in conjunction with some other federal departments and the four Atlantic ministries of agriculture.

Senator Marchand: Mr. Minister, this is a rather parochial question, related to Kamloops; nevertheless, it is an important one. You do not need to answer immediately, if the information is not on your fingertips. It has caused some local concern; it is related to the future of the research station there.

We have a cattle population of some 500,000 during peak times, so it is quite an important industry. Kamloops has been a research station related to range, and it is very specialized. It started in 1936 with a gentleman by the name of Dr. Tisdale, who wrote some very important papers relating to range management; it played a special function in range management. In recent times, it has been going downhill, has been run out of other places, and so on, and it disappointed a lot of us. Some of us have worked there previously.

I would like to know what the plans are. You have a new building and I would like to know what kind of projects you will do there. There are very important beef stations, for instance, in other places in Alberta, extremely valuable research gets done, and some great range management research was done out of Kamloops, for instance, over many years. Maybe you can start to answer that.

Mr. Goodale: Senator, I know from long experience your keen interest in the research facility at Kamloops, and I know that goes back many years. We are in a position today to offer some information in response to your enquiry, particularly through Dr. Brian Morrissey, who is assistant deputy minister for research. I would ask Brian to try to provide as much detail as he can in terms of the future plan for the Kamloops research station. If there is anything further that you would like by way of additional information, we can try to provide that in writing after today's meeting.

Dr. Brian Morrissey, Assistant Deputy Minister for Research, Department of Agriculture and Agri-Food: Senator, when we looked at what changes had to take place in the 1995 budget, we looked at Kamloops, as we looked at every other station across the country. We felt, as you have outlined to us just a moment ago, that there was unique work being done in the beef system in Kamloops that we would have difficulty doing elsewhere; for example, work related to the west slope of the Rockies that we felt was still best positioned there. We asked ourselves how we could save money but still do the work that was required in that area.

What we tried to do was link the whole beef system in the Alberta area through the Lethbridge Research Station, through soils, crops, animals, meat science and on to the food table. We have peeled out some administrative positions in particular out of Kamloops and had the station administered as part of the whole beef system out through the Lethbridge office, but the future of Kamloops, insofar as anybody knows at this point in time, is assured. It will continue, and, as you have just mentioned, we are investing money in rebuilding the Kamloops property.

Senator Marchand: Will you have some people doing range research there, plant ecological research, like Dr. McLean -- well, he has retired few years ago. He was the more famous ones there. Some extremely important ecological monographs, for instance, came out of his work from there.

In more recent times, it has been more related to cattle, for instance. While that is important, it is not the important cattle station of Western Canada. There are other ones in Alberta that are the important. And Summerland is an important station related to the fruit industry. Will you do some range work out of Kamloops?

Dr. Morrissey: The primary work done in Kamloops, the work that will be specific to Kamloops, will be the west slope. In other words, the interaction between range land and forest land on the west slope, particularly the debate that has gone on in that region about whether or not cattle -- for example, in recently cut forests -- for the next 20 years can take advantage of that range land without damaging the trees.

As you probably know, Senator Marchand, we have the B.C. provincial forestry people at the Kamloops station with us. We are working jointly with them and preliminary results have shown that the cohabitation or double usage of land for both forestry and agriculture is not damaging the trees; that if stocking levels are kept to a proper level, they can help to keep competing grass and competing weeds down from trees.

Senator Rossiter: My question has to do with crop inspection. I just came across this pamphlet in the Reorganizing the Federal Food Inspection System folder. I did not have time to look at it before. I am from P.E.I. and we went through a series of bad years with the PVY-n virus in the potatoes. Could you give us a rundown on the plans for inspection services? I understand that there is a privatization in the offing, perhaps.

Mr. Goodale: Senator, joining me at the table is Dr. Art Olson, who is assistant deputy minister for our food production and inspection branch, and he will help me provide what I hope are satisfactory answers to your enquiries.

In our food inspection system, we have faced the same kind of need for change as has been faced right across the government. Some of it is fiscally driven, some of it is driven by other factors and forces, but there is a huge amount of change going on. As we deal with that change, when it comes to something like food inspection, we, both as a government and as a people, must be absolutely satisfied that the number one overriding priority, food safety, is in no way, shape or form compromised.

As I indicated in my presentation, Canadians, thankfully, have a higher degree of confidence in the Canadian food inspection system than do their American counterparts, or perhaps others around the world. It is a great confidence factor in terms of doing business internationally. It is that reputation for health and safety that we in Canada most definitely want not only to maintain, but also to improve upon, wherever we can.

Having established that as the number one priority, and recognizing the fiscal limitations under which we are operating, we have developed a five-part strategy which we think will allow us not only to maintain, but also to improve our system, while at the same time save money and do it better. The five parts of the strategy -- and I will just summarize them and then ask Dr. Olson to provide the detail -- are first, cost avoidance: Let us identify those things in the system that we do not need to do and if there is a cost that we can avoid then let us avoid it.

Second, cost reduction. Are we doing things in a way that is more expensive than it needs be? For example, can we synchronize the hours at which border inspections are required with the normal hours during which border inspectors work, and by that kind of administrative sense, save money by avoiding overtime? Where can we reduce costs? That is the second strategy.

Third, cost sharing. I suppose this is probably the issue of privatization that you referred to in your question. Where a private benefit is conferred by our inspection system, where people are, for example, able to get more out of the marketplace because their product has passed through a federal inspection system and therefore is regarded more favourably in the eyes of consumers, either domestically or internationally, where there is a private benefit conferred, we think it is reasonable for some of that cost to be recovered from the individual who benefits from the benefit.

We have gone through two years of negotiation with various private-sector organizations involved in the food business -- Dr. Olson could tell you the exact number of meetings, several hundred meetings -- and in some parts of the agri-food industry, there has been easy and ready acceptance of the principle of cost sharing. In other parts of the industry, it has been more controversial. We have tried to maintain equity among all of the different sectors of the agri-food industry in Canada. We have always been cognizant of international competitiveness. Hence, as we implement cost recovery measures in Canada, we are not putting ourselves out of sync or pricing ourselves out of the marketplace compared to what the Americans, the Australians or the Europeans are doing, and so forth.

The fourth part of the strategy is technology. Where can we introduce new technology that does a better job and saves money? I am sure Dr. Olson can describe some of that new technology. Where, historically, we have relied upon visual inspections when a scientific technique could actually get better results for lower cost, rather than just relying on a visual inspection; where you cannot, for example, detect microbial numbers by visual inspection, you can by scientific testing, and the product tested by the scientific technique may in fact be safer than the visually inspected product.

The fifth element is the avoidance of overlap and duplication. The pamphlet that you referred to is really getting to that issue. We are trying to avoid the overlap and the duplication between Agriculture Canada, Health Canada and Fisheries and Oceans Canada; we want to streamline the operations among those three departments, have inspection and quarantine under one single federal agency, rather than spread among three different federal departments. That will allow us not only to do our job better federally, but also to lay the groundwork for a truly national food inspection system; where the provinces and the municipalities can buy in, where we have one truly national Canadian food inspection system from one end of the country to the other, without intragovernmental or intergovernmental overlap and duplication.

In the first step that is described in this pamphlet that you have referred to, the establishment of the Federal Food Inspection Agency over the next year or so, we think, has the potential to save $33 million for Agriculture and Agri-Food Canada; in total, $44 million, when the savings from the other departments are added in.

Thus, the five elements in the strategy: cost avoidance; cost reduction; cost sharing; new technology; and the federal food inspection system, to avoid overlap and duplication. I have asked Dr. Olson if he could add further detail.

Dr. Art Olson, Assistant Deputy Minister, Food Production and Inspection Branch, Agriculture and Agri-Food Canada: I will use examples to help the process along. On cost avoidance, one of the questions that arose out of the rather extensive discussions that centred not only on PVY-n, but also a number of other plant diseases was: What are the international requirements? We found that, in many cases, we were testing all Canadian potatoes on a mandatory basis for diseases that in fact were required only by 5 per cent, or less, of our trading partners. That was an expenditure that really did not make an awful lot of sense.

For instance, Prince Edward Island is very concerned about a disease called bacterial ring rot. The United States is not at all concerned about that disease, in terms of the importation of seed potatoes into that country.

Cost reduction. The minister mentioned the issue of coordinating hours of work. One of the issues we are working on presently with Canada Customs is that of who does primary inspection. We want to be able to provide 24-hour service, but that is a huge cost in terms of that level of investment and staff resources. I think we will be able to work with Canada Customs in a framework that will allow us to use their services on a primary inspection basis and we will provide service centres across the country to support them on a 24-hour basis. That brings the cost of government down a significant amount, while still ensuring that we take appropriate and due care in terms of imported product coming into the country.

There is a side issue on that, and that is the question of competition of government with the private sector. Currently, about 70 laboratories are accredited across Canada to provide a variety of testing services to us, whether it be animal health, plant health, pesticide identification or what have you. In a number of the areas where we were carrying out extremely routine testing, there was in fact private-sector capability. What we have chosen to do is to let that private-sector capability grow. As long as we were there, it would not grow. Hence, what we have done in fact is encouraged a new business.

With respect to cost recovery, I will add two comments to the minister's statement. It has been more than 400 meetings, minister, over the last two years, a very extensive ongoing discussion. We have really taken the point of view that this was an opportunity to look at the programs in concert with our clientele, and the process has worked well. We have been very cognizant of cost recovery that would put us at a competitive disadvantage with our trading partners. We are very aware of what is happening in other countries.

In terms of technology -- if I can go back to bacterial ring rot disease. I can recall my father pumping out his potato storage with an irrigation pump. That was the way to get the diseased potatoes out of the potato storage. Part of the problem was that we were forced to use a visual test; you could not find the disease unless you saw it in the field. However, you sure found it in storage. The Province of Alberta and Dr. Morrissey's group collaborated some eight or ten years ago and came up with a very rapid, extremely sensitive test, which has meant that the disease is no longer the kind of concern it once was. In fact, I can recall some time ago somebody complaining that the test was too sensitive.

Finally, overlap and duplication. Two years ago, four agencies were conducting food inspection at the federal level: ourselves; Health Canada; Fisheries and Oceans; and Consumer and Corporate Affairs, then Industry Canada. A year ago, the responsibility for retail inspection moved to Agriculture and Agri-Food Canada. We are currently working with Health and with Fisheries to transfer the food inspection responsibility into the agency that is described in the document you have in front of you.

We are at the same time clarifying a set of roles and responsibilities. Health Canada will assume responsibility for food safety policy and standard setting. We have also asked that they audit us to ensure that we do the job properly. It is very closely tied to the quarantine function. Obviously, you cannot have safe food if you have diseases coming into your system. I hope it will resolve what has been a massive overlap and duplication. It provides us an opportunity to say to the provinces that if the federal government can do it, surely the rest of the country can as well.

Senator Rossiter: You say "food inspection." I presume you include crop inspection, as well, because this is when potatoes are first inspected. That is partly where the problem occurred in the PVY-n. Is that included in this comprehensive food inspection?

Dr. Olson: Very much so.

Senator Rossiter: I would like to know something about the costs.

Dr. Olson: I am not sure how to answer that without getting fairly detailed, but I would be glad to walk through the issue with you in considerable detail.

The Prince Edward Island Potato Board has set up a laboratory to do the testing that you are talking about. They are currently discussing with us the potential of them carrying out the actual field inspection. We have agreed to provide costing in terms of what it costs the existing federal system so that they can make a decision whether or not they want to carry out their own inspection. It is a very professional group of farmers, a very professionally run industry. We feel that we can satisfy our trading obligations through an accrediting process and give them the ability to carry out the kind of inspection they feel is appropriate.

Mr. Goodale: Mr. Chairman, you may remember that a few months ago, the Americans, at the Maine border, imposed extraordinary requirements for Canadian potatoes passing into their market. At that time, in cooperation with the potato industry, Dr. Olson's section of the department worked very closely with the Maritime potato industry to deal with those unreasonable American restrictions, and they were eventually removed. During the period of time that the Americans had their extraordinary inspection techniques in place, they may in fact have done the Canadian potato industry a backhanded favour. Prince Edward Island potatoes stood up very well against the new stringent techniques and probably extracted a premium in the marketplace because of the imposition of the American standards to keep out P.E.I. potatoes. The potatoes were so good that the islanders ended up getting a bit of a price premium because of the American tactic. So I think that speaks well of the island industry.

Senator Tkachuk: In the budget, you talked about selling the hopper cars. How many hopper cars do we have and what percentage of the total hopper car market does the federal government own?

Mr. Goodale: We have just under 13,000 cars. At the moment, they are apportioned roughly 50-50 between the two railways. In a heavy shipping year, such as 1994 and 1995 when we were fighting congestion and physical difficulties on the prairies and through the mountains, and a whole variety of other factors that created a backlog, the fleet, if I remember correctly, numbered about 29,000 cars.

Senator Tkachuk: We have 13,000 cars now?

Mr. Goodale: Thirteen thousand owned by the Government of Canada.

Senator Tkachuk: Is that about 50 per cent of the market?

Mr. Goodale: Rule of thumb, yes. The number varies, depending on how many are leased and how many are let go at any particular moment in time, but roughly speaking, yes.

Senator Tkachuk: Who are we selling them to? Has a decision been made on that?

Mr. Goodale: No decision has been made. We have indicated that we will entertain all reasonable propositions and that we would be particularly interested to see if producer friendly proposals, ones that make economic sense and end up giving producers a piece of the action, could be brought forward, but no decision has been made. The call will probably go out later on in the month of June, officially inviting the proposals to come in.

Senator Tkachuk: Is the Wheat Pool interested in buying?

Mr. Goodale: To my knowledge, they have not expressed interest. Remember that there are three different wheat pools on the prairies. Sometimes they act in concert and sometimes they do not. There may be more interest by a pool in one province than in another. Like all other serious bidders, potential bidders, I think the pool would wait to study the specific call for proposals before deciding whether or not to participate in the bidding process. That should become clear, I would think, before the end of June.

Senator Tkachuk: Do the railroads, CN and CP, want to buy them?

Mr. Goodale: Again, we have not issued the call, so no one can answer that question definitively. However, I think one could assume that if the terms and conditions were considered by the railways to be favourable, then yes, they would be interested in owning the fleet.

Senator Tkachuk: Would they then allocate the cars?

Mr. Goodale: We have proceeded with a set of proposals. They were developed by representatives of the grain industry, known as the SEOs group, the Senior Executive Officers Group, including representatives from the grain companies, the Wheat Board, the Grain Commission, farmer interests, and others. They have recommended the establishment of an industry-led policy group to establish car allocation policy. The Wheat Board, within that structure, would make its calls for grain to come forward on a zone basis; ultimately, it would be up to the railways to manage the day-to-day operations.

Senator Tkachuk: Are the farm groups, whether they are looking at buying the fleet or buying a portion of the fleet, looking to the government to finance that, or is it your policy that anybody who wants to buy the cars must come up with the cash?

Mr. Goodale: Essentially, buyers must find their own funding. One alternative that the farm organizations are looking at is arranging their financing, at least in part, perhaps in total, through the Farm Credit Corporation. The Farm Credit Corporation of course raises its funds on the commercial money market. Its mandate from the government is to operate in the black and, when possible, return a dividend, which of course it did, to the surprise of a lot of people, last year.

Senator Tkachuk: The management supply issue has always been a concern of mine. What would happen if you eliminated it, if there were no longer a monopoly on eggs, chickens and milk? Would we not have eggs, chicken and milk?

Mr. Goodale: I should perhaps provide you with copies of the description of the "what if scenario" prepared by some of the supply management agencies in Canada.

Senator Tkachuk: What do you think, minister? I know what they will think, because they have vested interest in believing that there would be chaos without it. But what would happen?

Mr. Goodale: I think you would see a significant contraction in the Canadian production.

Senator Tkachuk: Non-productive farmers?

Mr. Goodale: For example, in the dairy sector or in the chicken sector, part of what is written into the definition of supply management, to establish the terms and conditions of the program, is that it is based on the average efficient Canadian producer. It is not a lowest common denominator operation. If you wish to compare, take a look around up-state New York and see if that is what you want your chicken industry or your dairy industry to look like.

Senator Tkachuk: What are you saying?

Mr. Goodale: I am saying that it is pretty dismal by comparison.

Senator Tkachuk: Are you saying the products are not safer, minister, that the American products are less safe?

Mr. Goodale: I am saying that if you look at those dairy farms, look at the conditions under which the farmers operate, their standards of living and so forth, I think you will find that the average producer on the Canadian side is in a much better position than the average producer on the American side.

If you want to restrict your industry to the big mills, like Tyson, go right ahead, but I do not think that that is in the Canadian national interest.

Senator Tkachuk: Why do we not do it for beef?

Mr. Goodale: Commodities are different. I do not think you can prescribe a solution for one part of the industry that will necessarily automatically work for another part of the industry.

Senator Tkachuk: How is beef different from chickens? I am asking you a public policy question that I think is important to the debate. I am not talking about the United States. I am talking about what would happen if you got rid of the monopoly control of the supply management, which is what it is. If we got rid of it, we would still have chickens and eggs and dairy products, production would be efficient, as other agriculture products are efficiently produced without supply management, and I think the cost to the consumer would be less.

Why are we protecting them? I know all the politics of it, and if that is the only reason, then we should say that we want to subsidize them to keep their votes. I do not mind that. The world will not come crashing down without supply management; I do not think it is fair to the consumer.

Mr. Goodale: Look at the numbers, senator. I suppose you can have your approach, but it is not an approach that is shared by the vast majority of Canadian producers. While there are naturally -- and that is to be expected -- some complaints on the processor side, there are also some strong arguments in favour of a supply managed system on the side of processors. I think it is useful and valuable, in the national interest, to have a strong poultry and dairy sector, and supply management is part of what has provided the opportunity for that sector to thrive, for producer incomes to be at adequate levels. You may wish to have fewer producers or lower incomes for producers.

Senator Tkachuk: That is not what I wish, minister.

Mr. Goodale: That would be the necessary consequence of what you are suggesting. It is well and good to make one side of the argument, but I think there is another very compelling side.

Senator Tkachuk: Is it the responsibility of consumers to keep the incomes up?

Mr. Goodale: I think it is part of the consumer's responsibility to make fair returns. To take the flip side of the coin, it is not the producer's responsibility, either, to subsidize the consumer. I do not think anyone can make an argument that is sustainable over the long term that food costs in Canada are out of line. When you compare food costs in Canada to virtually every other industrialized nation, you will find it much less expensive in Canada.

The Chairman: May I bootleg some information on this subject? According to Statistics Canada, the average net income for the average farm producing grain was $22,000. The average net income for dairy producers was $79,000. Those are Statistic Canada's figures.

Now, our beef producers have lost probably 30 to 40 per cent of their income. Calves were selling at $1.30 a pound; it is now 75 cents a pound. The independent beef producer is saying that we will tough it through. We know what President Clinton did. He is freeing up some of the banked land for feed and different things. Is the minister suggesting any situation that would help the beef producer, the feed lot operator and people in general in the cattle industry?

This does not tie in directly, but it certainly ties in indirectly. On the one hand, we have a group of farm producers who have fared very well through the years. When I was the chairman of the task force on drought, I remember Mr. Mazankowski saying that the marketing boards had increased 8 per cent and the grain producers had lost half of their income.

Mr. Goodale: You make a point, Senator Gustafson, that I think partly responds to the argument made by Senator Tkachuk; that is, this is a diverse industry with a variety of circumstances, and it is not possible to draw direct comparisons across the sectors.

The grains industry, for example, operates largely on international markets; some of our crops are exported at a level of 80 or 85 per cent, in some years 90 per cent. One the other hand, by the very nature of the product, dairy and poultry is largely consumed domestically. There are some fundamental differences in the way the two sectors operate.

On your question about the situation in the livestock industry, with rising feed costs and diminishing returns in the market, over the last number of years we have tried very hard to get away from ad hoc programs, which, in the past, as you know, have proven to be extraordinarily expensive, amounting to in excess of $1 billion in a couple of years. We have tried to move toward the concept of the "whole farm" safety net, where, during the good years, producers make significant contributions to a fund that will take them through a bad year. The more "whole farm" we can make the safety nets, the less likely they are to be susceptible to trade actions and the more likely they are to be sustainable over the long term.

With respect to the beef industry, we have worked hard during this period of time to make sure we that have a sensible, sustainable import policy. I would like to put the figures on the record. In 1993, we imported about 125,000 tons of oceanic manufactured beef and veal, non-NAFTA beef and veal; in 1994, that figure dropped to 114,000 tons; in 1995, it dropped to 82,000 tons; and to this point in 1996, we are 20 per cent below last year. One aspect of good news from the cattle producer's point of view is that the lower prices are not being caused by off-shore imports, but by a North American over-supply situation.

Senator Anderson: I want to ask you about the U.S. farm bill and the impact that that will have on Canadian farm producers?

Mr. Goodale: Senator, there is both good news and uncertain news contained in the farm bill. The good news is that the Americans seem to be de-coupling their various forms of assistance from direct experience in production or marketing. In other words, farmers will be entitled, under the U.S. system, to certain levels of subsidization, no matter what they produce, no matter what they market. Even though that sounds like a kind of agriculture welfare system, it means that an element of trade distortion is taken out of the equation. There will be assistance provided to American producers, but it would appear to be, at least from what we can tell, less production distorting and less market distorting than it would have been in the past.

The other good news is that for about a year now, the United States has not used its export enhancement program in a way that we on the Canadian side would find offensive. We are concerned that the Americans are not moving toward general reduction in subsidization as fast as Canada, or for that matter, a number of other countries around the world. However, they have moved some distance, and so far, it appears to be in the right direction.

As I said earlier to Senator Gustafson and others, in dealing with the United States, I think that we have to be on the edge of our chairs at all times, monitor exactly what is going on and take nothing for granted. If we think they are off base, then quite frankly, we should not hesitate to take the appropriate measures under the NAFTA or the WTO, because they have to live by the same rules that we have to live by.

The Chairman: I was pleased to hear you say that you will defend the Farm Credit Corporation. I was upset to read in a Senate report that it would be put under the Business Development Bank. I hope, Mr. Minister, that you defend it to the end.

Safety nets. NISA has worked very well, as I have heard from farmers. The GRIP worked well in Manitoba and Alberta, and you did indicate that you would cooperate with the provinces. In a province like Saskatchewan, we end up on the deficit side, as far as farmers are concerned. How do you justify paying money into Alberta, who is very prosperous? I do not want to target Alberta, but it is a prime example. They can afford the matching programs and get thousands of dollars into the pockets of the farmers, while a farmer in Saskatchewan will end up with nothing. Is that what you mean by matching?

Mr. Goodale: No. If you look at the figures, add them together, in terms of the enhancements to NISA, the temporary crop sector program, the cash advances provisions, the new Saskatchewan Agri-Food Innovation Fund and various other technical measures that we put together in the interim package for Saskatchewan, it is in excess of $600 million. The good news is that markets and prices have been sufficiently good, and thus a fair bit of that money has not had to be used. Some of it, of course, has accumulated in NISA accounts, and that will be to the good in the long term. One of the things we have struggled with, and have achieved, I think, in wrestling our way through safety nets, the whole farm NISA-like component, the crop insurance component and the companion program components that are province-specific, is a very fair balance in terms of interprovincial equity.

The Chairman: The reality of what is happening out there, Mr. Minister, from what I gather from my neighbours, is that they are getting out of crop insurance.

Mr. Goodale: Let us wait and see what the experience is this year. It is going back up this year, so far. It will fluctuate from year to year. We, along with the provinces, have just conducted a review of crop insurance, in order to identify those deficiencies and to try to make it more viable for the long term. However, I agree with you that crop insurance has some way to go to re-establish its long-term credibility. We are working with the provinces to make that possible.

The committee adjourned.