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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 28 - Evidence

OTTAWA, Thursday, December 10, 1998

The Standing Senate Committee on Agriculture and Forestry met this day at 11:04 a.m. to study the present state and future of agriculture in Canada, consideration of the effect of international subsidies on farm income.

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


The Chairman: I want to thank Mr. Shauf for coming on such short notice. He grew up in the same area that I did. Please proceed, Mr. Shauf.

Mr. Marvin Shauf, Vice-President, Saskatchewan Wheat Pool: The Saskatchewan Wheat Pool is pleased to address the Standing Senate Committee on Agriculture and Forestry. Our organization and its producer members recognize the importance of future multinational and multilateral trade negotiations. We see today's hearings as a unique opportunity to help define Canadian's role in future talks.

The Saskatchewan Wheat Pool is a publicly traded cooperative comprised of 74,000 member-owners. We are Western Canada's largest grain handling company. We employ more than 3,000 people, and we handle over 30 per cent of the grains, oil seeds and special crops delivered to country elevators on the Prairies.

In addition to Saskatchewan Wheat Pool grain handling facilities in Saskatchewan and Manitoba, in our terminal elevators in Thunder Bay, Vancouver and a jointly owned facility at Prince Rupert, we are involved in a wide range of value-added and further processing initiatives.

Government data, as well as anecdotal information from our members, attest to the vulnerable financial situation facing many Saskatchewan farmers today. In 1998, Saskatchewan net farm income is predicted to drop by 70 per cent from the previous year. Agriculture Canada is predicting a further decrease in 1999. Not only is the agriculture sector dealing with the crisis, but the impacts are also being felt by rural communities and agribusiness across the province, and probably across Canada. As every month goes by, the impact of poor prices deepens in terms of the effect on individual family operations.

Earlier this year, the Saskatchewan Wheat Pool reduced the farm income strategy aimed at mitigating the quickly deteriorating financial situation. Our suggestions were broad-based and comprehensive, and dealt not only with cash flow problems, but also with long-term requirements to improve our international competitiveness and to enable producers to maximize returns from the marketplace.

Today's presentation focuses mainly on multilateral trade negotiations, and as such, represents one aspect of that strategy.

Saskatchewan Wheat Pool firmly believes the agri-food industry holds significant potential in terms of commodities and value-added exports. For the Canadian industry to realize its full potential, however, it must have access to markets around the world, the opportunity to compete internationally on a level playing field, and a firm commitment to a degree of domestic support that ensures a sustainable level of international competitiveness.

To that end, Saskatchewan Wheat Pool supports initiatives leading to international trade liberalization, provided that the arrangements enhance our agriculture trading opportunities. However, this support does not imply that the organization endorses the termination of any programs that assist Canadian agriculture, or that would reduce the level of autonomy the Canadian government has in assisting farmers.

Today's brief deals with the resumption of agriculture negotiations in the WTO agriculture agreements. These negotiations will deal with further commitments on market access, export competition and domestic support. The second section will deal with trade issues that are outside of the agriculture agreement, but which have the potential to significantly impact Canadian agriculture in the future.

First is market access. The Uruguay Round changed the way that the world addresses agriculture trade concerns. To achieve future gains, however, Canadian producers need additional and more secure access to international markets. Our goal should be further increases in minimum access commitments, reduction in tariff levels, and greater transparency in the administration of tariff rate quotas. This should relate not only to bulk grains and oil seeds, but also to consumer-ready goods and value-added products such as barley malt, canola oils and meal, flour, and also to livestock and meat products.

Today, Canadian producers cannot afford the lengthy delays of previous negotiation and implementation periods. They must see a substantive move early in the next process.

Second, export competition. Governments must eliminate export subsidy programs that distort world trade, depress prices, and erode producers' incomes. Canadian producers must be permitted to respond to market forces and opportunities without the distortions created by competition from heavily subsidized products. Grain receipts have fallen, primarily due to wheat cereal prices, which are arising from strengthening world supplies and weak demand. Overhanging the market and causing some of the depressed prices is the European Union's continued use of export subsidies.

There is also little optimism for significant improvements in the coming year. Although grain prices are difficult to predict, given unknown factors such as weather, the potential exists for a continued increase in production levels in both the United States and the European Union.

While Saskatchewan producers responded to market conditions this past year by diversifying crops and reducing wheat acreage, this did not occur globally. The U.S. and the E.U. provided large amounts of support to their producers, thereby distorting price signals, which led to continued overproduction.

The point must also be made that both the United States and the European Union argue that the WTO permits them to utilize unused subsidy provisions in subsequent years. With stocks increasing, the potential exists for an unrestrained subsidy war that would rival that of the late 1980s and early 1990s.

Given the current situation in farm income, resolving this issue in future negotiations may be too late for many Canadian farmers. While the Uruguay Round left both the United States and Europe with the capacity to heavily subsidize exports, Canadian grain producers today pay the full cost of transporting their own grain.

Those additional costs are being felt, and they are being reflected in the farm income numbers. As such, Canadian farmers cannot absorb another subsidy war that would leave the United States and European Union producers relatively unaffected.

The third issue, domestic support. As a major exporter, Canada should support further reductions on amber support levels, and should support the elimination of blue box programs, payments, and spending caps on decoupled income supports. It is important to recognize that even decoupled income supports, when provided in an excessive manner, influence production decisions, and therefore do distort trade.

Today, Canadian safety net funding is significantly less than levels permitted by the Uruguay Round, placing Canadian producers at a competitive disadvantage. Many in the industry are concerned about the ability of Canadian agriculture safety nets to deal with the potential combination of a crop failure and substantially lower prices. The long-term consequences of lost competitiveness cannot be ignored. As such, it is important for Canada to ensure secure and adequate funding for infrastructure expenditures, for research, and for safety nets. This should include a nationally available companion program to deal with extended and dramatic price declines or unusual weather patterns, which lead to subsequent years of crop loss.

Beyond the WTO agriculture negotiations, several other trade-related issues that arise from multilateral discussion will impact the sector. As a strong proponent of the complete elimination of export subsidies, Canada will face pressure to accept restrictions on the operation of state trading enterprises such as the Canadian Wheat Board.

Canada must vigorously resist being drawn into making such concessions. While it is recognized that STEs can distort the marketplace, especially on the import side, numerous investigations into the Canadian Wheat Board's operation have always shown that it trades fairly.

With an institution like the Canadian Wheat Board, which is such a key component in the Canadian marketplace, Canadian producers cannot afford to accept restrictions that would place them at a commercial disadvantage, nor can they afford to limit its ability to operate a price pooling system.

Countries should not be allowed to use sanitary or phytosanitary barriers to block access to their domestic markets. Further, developments arising from both the WTO's committee on trade and the environmental and international negotiations related to bio-safety protocol will impact Canadian agriculture. These issues must be addressed from the standpoint of ensuring an internationally competitive agri-food industry.

There will not be a single solution to the current farm income situation. Instead, several necessary improvements that will eventually remedy the problem must be considered. These include both immediate measures designed to address the most pressing necessities, as well as longer term solutions that will permit producers to maximize returns from the market, and provide them with the necessary tools to capitalize on opportunities.

Saskatchewan Wheat Pool's plan on farm income calls for an immediate freeze on all cost recovery initiatives, the development of a long-term national disaster program, and further reforms for agricultural trade such as those that we have outlined today.

By adopting clearer, universally applicable rules, the various trade agreements attempt to create a more predictable and stable trading environment. Future negotiations offer the potential of increased market access opportunities and a reduction of various trade barriers, making Canadian exports more competitive in the world market.

Saskatchewan Wheat Pool and its members rely on the economic opportunity generated by international trade, and as such, will continue to work for positive change.

The Chairman: The Senate committee will be travelling to Europe in late January and early February in order to deal with issues such as the trade subsidies. We feel that the subsidies are a very important part of what is now a major problem for Canada. The numbers we have are that our subsidies are around 10 per cent. The American subsidies are around 25 per cent, and, according to the report last night on television, they are about 40 per cent to 50 per cent in the European Union, with an additional $175 an acre.

That 40 per cent or 50 per cent is really an extreme subsidy. I was not aware, quite frankly, that the $175 an acre on grain and wheat land was in addition to the 40 per cent subsidy. Have you any comment on that, or do you have any different numbers?

Mr. Shauf: We have provided some numbers to you related to those subsidies. I am not sure if that information has been distributed or not, but we did distribute information relative to the subsidy numbers in the background information.

As we said, there are really three kinds of subsidies. There is the domestic support, which is decoupled. It still puts direct payments from government into producer's hands. To some degree, it removes the producer's responsibility to make his living out of the agriculture production. So the domestic support that is decoupled just provides money. Regardless of what you do on your farm, there is money coming from the government.

The second subsidy in Europe is the one that is coupled to production. It increases the value of the product that you are putting into the marketplace. The numbers that I have in that regard are $5.58 for a bushel of wheat and $4.46 for a bushel of barley. As you know, that would clean every bushel of barley out of Canada, and it would clean every bushel of wheat out of Canada. Those are not real prices, however. They are attached directly to the product, though, and they encourage producers to produce larger and larger quantities of that product, regardless of what the marketplace is indicating.

The third subsidy -- and probably the most damaging one from a Canadian point of view -- is the export subsidy. That is the subsidy that both damages price and distorts the marketplace in terms of who will be doing the marketing. As you are aware, Canadian offshore sales this year for barley are basically non-existent, and for wheat they are dramatically reduced. The reason for that is that Europe has been paying anywhere from $45 per tonne to $60 per tonne for wheat in export subsidies, and up to and including $108 per tonne for barley. For barley malt, they are paying up to $139 per tonne, which is the highest number that I have seen.

When somebody is paying you that much to buy their product, it is almost impossible to compete against that on a commercial basis. For both price and for quantity, then, Europe has taken away Canada's sales at this point. When you look at the price depression that this has caused, it is a significant piece of the farm income loss in Canada. When you look at the volume that Europe has taken away from Canada, in large part those are farm income issues related to grain.

For the other commodities, there are some similarities, but there are also some differences in what is causing problems in the other commodities.

The Chairman: As one of the largest grain companies in Western Canada, are you receiving any indication that the Europeans may be changing their direction, or thinking of doing so? That is a hypothetical question, but it is very important when it comes to how Canada moves to the next world trade discussions. This is because we have followed the rules, but others have not.

If that happens again, we will only dig ourselves into a deeper hole.

Mr. Shauf: They have not broken the rules in Europe. They interpreted them a little differently than Canada did, and they had some different reasons for doing that. In Canada, we have the same rules, but in terms of support, we wanted to reduce our expenditures for budget reasons. In Europe, they wanted to provide the support. Especially with regard to export subsidies, that is where the key difference is right now in Europe. Once the agreement was in place, Canada moved directly to reduce the subsidy levels. It appears to most people that that was done so that Canada would be more effective in balancing the budget.

The Europeans wanted to provide subsidies to their producers, so for the first couple of years they did so. They did not provide an export subsidy. As a matter of fact, for the first couple of years they used an export tax, and that discouraged exports. For the two years that they did not use an export subsidy, they are now claiming that they can roll those values ahead, and add them on to what they would normally have been using in this time period.

While Canada went down and has stayed consistently down, then, Europe is in fact increasing its export subsidy level. Europe has also adopted the Agenda 2000, which will begin to make some changes in their subsidies. In the year 2000, Europe must be at 36 per cent volume reduction, and 28 per cent in dollar value or currency value reduction. In the year 2000-2001, then, the agreements will begin to have some positive effect on exports around the world. Until that period of time, however, they do have the ability to continue with very heavy export subsidies.

Senator Robichaud: You say 2001?

Mr. Shauf: It was the year 2000 or 2001.

The Chairman: Let us turn to the U.S. situation, where we now have blockades. If one considers that they might be very successful in blocking cattle, wheat, durum, and canola, how serious would that be? Do you have numbers that tell us how much of our wheat moves into the United States, and how much goes to export markets other than the United States? What kind of an impact would this have on Canada?

Mr. Shauf: I do not have those numbers with me today, but we can provide them for you. The volumes that move into the United States are significant in wheat, durum, and canola. Cattle and livestock trade with the United States is significant, and it is important to Canada.

What would they impact be? Its size would vary by commodity. We will try to get some numbers for you that will clarify that a little bit more.

The problem that we have occurring here is that American producers are reacting to what they see moving into the United States. They see Canadian product coming across the border in trucks -- it is livestock, it is canola, and it is grain. They see that as being disruptive to their market. What they do not see is the product that is coming back into Canada. By and large, it is value-added, processed, and ready for consumers' plates, so it comes in cereal boxes and that kind of thing.

The disappointing part for me is there is no recognition of that by the United States government, in terms of providing information that would allow American producers to understand that trade is a mutually beneficial relationship. If we could get the processing jobs in Canada that they have within their own economy, it would be a win for Canada. The United States and some of the state governors would be far better off to provide some of that information to people, so that the people on the ground in the United States would understand the trading relationship in that manner.

The Chairman: That is a very good point, because we see truckload after truckload of processed goods coming into Canada. Why are we not making a bigger issue of this fact, and pointing that out to them? If we were to process those commodities in Canada, it would be a win-win situation -- especially in meats and so on -- and the Americans fail to recognize that. That is a big area, and one that we should be pointing out to the Americans.

Senator Whelan: Shaughnessy Cohen used to be the president of my riding association, and we have had an association there for at least 25 years. Some of us old characters continue to live on. We wonder why good characters like Shaughnessy leave this world. Her maiden name was Murray, so we Irish people believe that she has gone to the happy hunting grounds.

I wanted to see what the Saskatchewan Pool was doing, because I read all about you in the Western Producer. We are hooking up with those big private companies -- maybe not hooking up, but working together. I see the Manitoba Pool joining with the Alberta Pool, and Saskatchewan in the middle is sitting outside of the situation. That is what I observe in the papers. The new headquarters for this new organization for the Manitoba and Alberta Pools will be in Winnipeg. The Saskatchewan Pool is not part of that, however?

Mr. Shauf: That is correct.

Senator Whelan: Why not?

Mr. Shauf: That is a difficult question to answer. It is the same as a trading relationship. Any relationship must be mutually agreed to, and we could not find the place to agree.

Senator Whelan: I watch what is happening with big companies buying other big companies. For example, Cargill is buying Continental Grain. That will make it one of the biggest grain people in the world. Do you think Sask Pool can compete with that?

Mr. Shauf: "Compete" is a relative term. Cargill and Continental are the number one and number three companies in terms of size. When you put them together, whoever is number two falls quite a way back. We will continue to do what we feel we can do, and we will move into different areas. We will be around for a long time.

Senator Whelan: I hope so. When we held hearings out west, we heard that you were building facilities in the United States. Is that right?

Mr. Shauf: Yes, we have one facility in North Dakota. That will predominantly be a facility for moving oats into the United States. It is in partnership with General Mills.

Senator Whelan: You are in partnership with an American company?

Mr. Shauf: Yes.

Senator Whelan: From this, I gather that you are optimistic about this information on global trade and international trade. It will become the reality even after this terrible Asian flu. You are optimistic that this will progress, as some people are forecasting?

Mr. Shauf: Canada has a population of about 30 million people. We have a tremendous ability to produce food. We have a tremendous ability to produce out of a very clean environment that is respected internationally. At this point, what we need to do is to begin to put some of those processing jobs into our economy. We need to build on the value of the production that we produce.

We need to promote Canada on an international basis, because of the things that we have that people want internationally. They want clean, healthy food that is produced in an environment like ours. We have all of the right things from the point of view of food production. We need to promote that in the international marketplace, and we will do very well. However, in order to do that, we have some building to do in our economy.

Senator Whelan: When I was Minister of Agriculture, I used to carry samples of the different grains that the Wheat Board put out. If I went to Morocco, Algeria, or any place in the world where we were competing for grain, the millers said they would love to have grain like that. They would show me what they got from France and the United States. It had all kinds of junk in it, and it did not compare to ours at all.

Some of those millers were blending our Canadian wheat with their wheat to get a better variety and a better flour. I had a call yesterday from a guy who works for the Canadian Grain Commission. He points out that we will change our rules on grading grain to match, more or less, the United States. Are you aware of this?

Mr. Shauf: No, I am not.

Senator Whelan: I remember one of my first experiences visiting a big farm bureau elevator. By coincidence, it was called Ottawa Lake. It was within switching radius of Ohio and that big port where the Anderson elevators were. A man was moving along the bottom of all these elevators, and he had a pan like a gold panner. The manager said, "That man is worth his weight in gold." He was a grain blender. He blended dust and wheat and cracked grains. A good grain blender can take a number one and a number four and make it into a number two.

Now they use computers to sell their junk. You sort of favour this big international trade. Perhaps I misinterpreted your view. The Americans want to rule the food world, and they want to rule the food laws too. Grading laws have always been a source of agitation for them. Are you aware of that?

Mr. Shauf: That the United States wants to rule the food world?

Senator Whelan: Our grain grading laws were superior to theirs, and we were selling a superior grain. They want our laws to be brought down to their level, however. I would think that Sask Pool is one of the biggest grain traders.

One thing that we could always put forward when we were abroad was the fact that we had the best grading system in the world, and we did not sell junk. Are you aware of that?

Mr. Shauf: Canada has always had a reputation for quality. We have systems in place to protect that quality. We will probably always ensure that we have what customers want to buy, and how they want to buy it. Our grading system in the world is relatively unique compared to the way that the countries that we compete with grade.

Senator Whelan: You do not want that lowered, then?

Mr. Shauf: We need to maintain something unique in the world. Our ability to provide something that nobody else can provide is Canada's unique advantage in the world marketplace. Anybody can follow a business strategy. If you have something unique, however, you must maintain that.

The Chairman: The farmers -- and that included the Wheat Board -- were asking for protein grading. That made quite a change, and that may be what the senator was referring to.

Mr. Shauf: I am not sure what the issue may be around protein grading, because Canada used to have four protein splits on grading. If you go back a little further, Canada came in with four protein splits on grading, and prior to that we had two. It was either over 13.5 per cent and then under 13.5 per cent, and then there was a level of 14.5 per cent.

We have been moving towards splitting those protein segregations down a little tighter. That is appropriate, because producers that have protein need to be recognized for having that protein. We need to be able to put that together, in terms of what international and domestic customers want to buy with specific protein levels. It is a matter of serving both ends of the spectrum, and producers need to be paid accurately for what they have produced. It is also a matter of putting together the appropriate package for the consumer or the processor that wants to buy it.

In the United States, they bulk and co-mingle. Protein is not the only factor, but it is almost the only factor. They do not have a grading system like the one that we have here. We have protein within the grading system, and my understanding is that, in the United States, they do not have a grading system that goes along with protein segregation.

Senator Whelan: I paid a great deal of attention to the Canadian Grain Commission, because that was always under the jurisdiction of the Minister of Agriculture, even though the Wheat Board was not. I always disagreed with that. People thought that because you came from eastern Canada you did not know anything about wheat. People assumed that, because you came from Ontario, you did not know anything about wheat.

I always thought that the Grain Commission was one of the best things that we ever had. Of course, they graded grain for all of Ontario too, and for the rest of Canada.

At that time, we knew the protein content of all the regions of Western Canada. If the buyer wanted wheat, we could mix those wheats to get him the exact protein that that person needed to make that kind of bread -- whether it was in the Middle East, Asia, or anywhere else. That was our system at that time, and it was superior to what the Americans had.

Owing to the change in selling and producing grain, and to not having oats under the Grain Commission, they have a deficit this year of $12 million. They cannot operate this anymore, and they want to put it into the private sector. It would be a terrible thing to put that kind of inspection under the private sector. What do you think?

Mr. Shauf: I am not totally familiar with the discussions that are occurring. I know that an internal study in the Canadian Grain Commission is looking at the services they provide -- the cost of those services, and how they are provided. Whether or not they can be provided on a fee-for-service basis is an issue that I have not thought a great deal about.

Senator Whelan: My colleague here comes from southern Saskatchewan, and talks about processed products. When we were there, we also heard the Minister of Agriculture from Manitoba saying that they could convert that grain into meat, and that they would then be the hog processing capital of the world. Do you think that attitude still holds true? That is to say, is the best thing to do to put it into meat products, not knowing where you have a home for the perishable product? Is it still best to produce and produce, and to hope that someone will buy it from you?

Mr. Shauf: There is no doubt that some things have changed in the international economies. My understanding is that an improvement in hog prices is being forecast for not too far down the road.

We have been involved in gearing up hog production within Saskatchewan as well. A lot of that hog production was designed for Asian markets, and the demand is still there in the Asian markets. As a matter of fact, if you check, you will find that there is an increased volume of pork moving into Japan at this time.

Senator Whelan: At what price? We are practically giving it to them at the present time.

Mr. Shauf: The price is off somewhat. The premium is coming out of the marketplace there. If we accept that the Japanese economy will fix its problems and be a strong economy, the demand will be there at a decent price.

Senator Whelan: I have been dealing with the Japanese for a long time. When they wanted our canola and rapeseed, we had guaranteed them a product at a certain price, and we fulfilled our agreement with Japan. Japan then went and bought cheap rapeseed from France, and forgot us. Then they wanted to come back to us when the canola seed went up in price. They said, "We were your customer." I said, "Yes, you were our customer, but you were not an honourable customer. You went someplace else."

When you check the banking, I look at it as one of the most insecure systems to market to. Under the World Trade Organization, they did not bend a thing on fisheries, and they bent a little bit on agriculture. We are fed this malarkey about this new global system that we are entering into. I find this so phoney. In the global system, you must get rid of your subsidies. You are defending what the European community is doing.

In southern Italy, where they produce durum wheat, they receive subsidies of about $900 a hectare. If Canadians had that, we would have more wheat than we knew what to do with.

It is a non-perishable product. It is not a pig; it is not the cattle that a man last night told me he was producing at a loss of $200 a head. They are feeding 400 head every six weeks.

I have strong reservations about this garbage that we are fed about the world trade order, and about this new system. It is worse than before, because before they had to put the gold on the table -- they had to put the product on the table. Now they can press a button, and break any economy or little country. They can break the economy of Sask Pool, too.

I was President of a big co-op organization. I followed the Sask Pool very closely in my career, and I still do so. I am amazed at some of the things that we are doing. We seem to believe this malarkey about when we got rid of the Crow rate and the subsidies. The Americans have increased their subsidies, and you are saying that they are living within the rules. They raised it $7 billion just before the election. Living within what rules? American rules.

A gentleman who was one of their traders for years said, "We must have more free trade, we must get rid of our surplus product." He does not care about the Ontario farmer or the Saskatchewan farmer. He has to get rid of his surplus. What is the surplus meat product? It is the same thing that your provincial minister in Manitoba said, "We must get rid of that grain in that hog."

The witness from Sask Pool may want to contradict some of the things I said, Mr. Chairman.

Mr. Shauf: You said that I am sitting here defending subsidies. If I left the impression that I was defending subsidies, I was not very clear about what I said.

Senator Whelan: You were saying that they were living within their law or rules.

Mr. Shauf: I am not a technical person on this, so I can easily get in over my head when I start talking about specific issues within the agreement. My understanding of the agreement, however, is that the countries agreed to three sets of subsidy levels.

The United States had its own categorizations in what is called "blue box." That allowed them to do some specific things that they had to reduce over time. Green subsidy levels for domestic support are unlimited. There are no limits on those at all. Therefore, they can provide whatever dollar volumes they want to their producers. They are not related to anything other than the fact that you qualify for this payment because you are an agriculture producer.

Those are the programs through which the United States and the Europeans are providing huge dollar volumes to their producers, because they are unlimited. There is nothing within the WTO agreement that in any way limits what they can provide in green domestic support.

Ms Jennifer Higginson, Policy Analyst, Canadian Federation of Agriculture: One of the problems we see is that the amber agreement that was signed at the Uruguay Round called on all countries to reduce their amber support by 20 per cent. Canada reduced its amber support by 85 per cent, however.

When you look at the European Union, they are spending the amount that they are allowed to spend. They have reduced only 20 per cent, whereas Canada has reduced 85 per cent. When you look at it on a comparative basis, it looks very unequal. It is not because of the WTO rules. It was domestic policy decisions within Canada that reduced that support.

We are certainly not defending what the European Union is doing, because we would like to see amber support reduced much more than 20 per cent. That is something that we are asking for heading into the next round. That is why you see this happening, and that is why they are able to spend this amount of money.

Senator Whelan: The comment that we hear is that Canada was too tough. Other witnesses told us that in Manitoba, and we also heard it in Saskatchewan and Alberta. In Manitoba in particular, we heard that we were too strict on the Crow rates on the things that we cut, although we did not hear that so much in Alberta. We were told that, when you compare it to the United States, we moved too far.

We were given propaganda that told us that we must be rid of these subsidies, and yet you are saying that they do not have to get rid of them until the year 2001. I would hate to be running for election out west, and to have to speak to some farmer who has just lost his farm to the bank. He would say, "Why did you become so strict with us? Why did you not move more slowly? Why did you not move in with another $1 billion?" The Americans had $17 billion in their total program. We could have had $1.7 billion in the program for our Canadians.

As an old farmer, minister and co-operator, I have the utmost respect for Sask Pool. I always admired what Sask Pool was doing, even if it does not sound that way today. I fear what is happening when I see -- not the globalization -- but the "gobble-ization" of our system by a few people. It scares me.

We are moving towards a more controlled market -- not a freer market, but a market where supply is managed by a handful of people. That is not how we built our country.

Mr. Shauf: The United States had some huge subsidy levels, and they decreased subsidies in some areas and replaced them in other areas. Canada decreased its subsidy level. That was partially because of what we had agreed to do, but there was no requirement for Canada to do it at that time. Canada could have continued to subsidize up until the year 2000, as Europe is doing.

Canada reduced subsidy levels, and we are at about 15 per cent of what we could provide. Europe is at 85 per cent.

Ms Higginson: It is 60 per cent in amber, and 28 per cent in blue.

Mr. Shauf: So they are at 88 per cent. We would be required to be at 64 per cent by the year 2000. It shows that, while the rules apply to everybody fairly, Canada specifically reacted differently within that set of rules to meet other objectives. The primary objective was to balance our budget. That has left Canadian producers in a disadvantageous competitive position in the world markets.

With the Europeans subsidizing through export subsidies the way they are right now, they effectively put those commodities on sale in the world. They have some significant potential to really skew where food production happens. As a matter of fact, they have some potential at this point to skew whether or not food production happens within the specific commodities on which they have export subsidies. Nobody can produce them at those values and be able to compete against that.

Senator Taylor: You mentioned that you have 75,000 member-owners, and that you are publicly traded. I found that to be a little bit like the terms "square circle" or "pretty graveyard." That is to say, if you are publicly traded, how do you keep member owners from selling shares in the company? Do you have to be an owner before you buy shares?

Mr. Shauf: We have two classes of shares. One is a class A voting share. It has no ownership attached to it other than of the share value itself. It is a voting share, however, and to own it you must be a member.

Senator Taylor: It does not trade?

Mr. Shauf: It does not trade; it is a redeemable share. The second class shares are class B non-voting shares, which are publicly traded. We have no ability to stop our members from trading their shares.

Senator Taylor: Therefore, your company will always be run by member-owners.

Mr. Shauf: That is correct.

Senator Taylor: We should tell Senator Whelan that, because he thinks the Americans might be ready to take over the company.

You mention a 70 per cent drop of income in Saskatchewan. That is true. The Department of Agriculture says there is a 20 per cent drop in farm income in Manitoba. In Saskatchewan it is 70 per cent, and in P.E.I. it is 40 per cent. However, that still leaves the fact that the income seems to be up in Alberta, Ontario and Quebec.

I would not want to intimate that Ontario farmers are smarter, or that the ground is more fertile. The fact, however, is that there are more provinces where agriculture income is up than there are provinces where income is down. To me, that would indicate that your loss in income is very much commodity-oriented. In other words, if you grow the right product, you are doing all right, and if you do not grow the right product, you are losing money.

Do you have any graphs that show income per commodity? We all know that flour-milling wheat is down, but canola is not too bad, is it? I grow hay, and it is up. What do I tell my city friends that we ought to be doing? Farmers have a choice what they can plant. Nobody is telling them what to plant. In most of our provinces, farm income is up.

There are areas where the farmers all choose to raise wheat in spite of the fact that international subsidies are competing against them. They put the wheat in the ground anyhow. When the income is down, they want taxpayers to help them out. It is a free market economy. They chose to raise that grain, and it is definitely losing a lot. How do you answer that? Give me the answer, so that when I am back home splitting a coffee or a beer with the boys in my area, I can say that we must keep those Saskatchewan farmers alive.

Mr. Shauf: It is not just a Prairie issue. There are some significant agricultural income issues right across Canada. If you were to look at some of the provinces that you mentioned, you would find a predominance of supply managed commodities grown in those provinces.

Senator Taylor: Do not say that too loud, or we will kick off another meteor here.

Mr. Shauf: It is a reality. The supply managed commodities are more impacted by what happens within Canada. They look at the cost of production. There is definitely a relevance to where you find the predominance of supply management.

When you talk about what is grown and what is not grown relative to canola, it is true that canola prices are not that bad. When you look at Europe, Europe subsidizes the production of canola, but they are not using an export subsidy on canola. While they are stimulating the production of it, and increasing the volumes of it, they have not paid anybody to buy it from them. They have not trashed the price of canola.

Those are two issues at least, and there are probably more. When you are talking with your folks at home, I would say that there is the issue of supply management, which is more directly related to domestic markets than to export markets.

There is also the issue of where your markets are. Some of ours are in Asia, and I am not sure that very many people saw what was about to happen in the Asian economies. Actually, the former Soviet Union has had a significant impact on pork prices.

There is the ability to grow more acres of canola, but it is limited. Canola is a crop that you need to extend the rotation on so that you do not end up with huge disease problems. If you squeeze your rotation too tight and end up with huge disease problems, then you have two problems. One is a problem with no production -- by virtue of no production, you have no income. There are some agronomic reasons for people growing wheat, then, in order to be able to extend their rotation. There are some huge acreages in Western Canada, and there are some small volume, high value crops that people can diversify into. However, if too many people diversify higher value, small volume crops, you end up with too much volume, and no value.

Senator Taylor: I can see that, but I picked out canola as an example. I could as easily have picked birdseed. You have 75,000 owners.

Senator Whelan: You have lentils too.

Senator Taylor: As an organization, do you make an effort to inform your owners -- and therefore the growers in Saskatchewan, which is the only province that is down that badly -- about which grains and materials they could grow that are not subsidized around the world?

The Saskatchewan farmer reminds me of the guy that leads with his chin. Finding out that the U.S. subsidizes flour wheat exports and that Europe can subsidize that is sort of like finding out that banks charge interest. It is a fact. Do you make any effort to educate your member-owners, or to at least inform them that these are the types of things that are selling well and that we believe will sell well?

Mr. Shauf: We do that. The Canadian Wheat Board does that as well. They also put out information on what their price projections are for the next year. I will give you an example of a crop whose price falls into the tank when too many people produce it. This year, peas have been a really good example of that. Peas suffered significantly when too many people stampeded towards that crop as an alternative to growing wheat.

When you look at Canada's wheat acreage, Canada did make a significant detour from wheat production in the last year. The Europeans have actually increased their acreages in wheat, and I believe that acreage in the United States increased last year as well.

The other factor with wheat is that there were no crop failures in any of the significant wheat producing areas in the last year.

Senator Taylor: I just got back from Iran, and they had a bumper wheat crop. Iran was our biggest customer the year before last, and now that will be way down.

There is quite an increase in American beef coming up to Canada -- feeder cattle. Obviously, they are selling their grain in the export markets for a good price, so it seems logical to ship the cattle north. We have also reached a treaty to bring a lot more cattle in. Is it sneaky if a farmer, instead of selling his wheat competitively against the American exported subsidized price, takes the Yankee cows, feeds our wheat to them, and turns around and sells the beef back to the Americans? Is that a good way to get the money out?

Let us suppose that you are an Alberta farmer with a grainery full of wheat. If you try to sell it on the international market, you will realize a lot less on a bushel of wheat because the Americans are subsidizing their export market. You are caught out there with a low price. The Americans, however, are now increasing the amount of feeder cattle coming to Canada. Why feed your cattle good export-subsidized wheat? Perhaps it might be better to take your cow, ship it up to Canada, and feed it cheaper Canadian wheat. Is that an out?

Senator Whelan: You would then ship your cow back to the United States?

Senator Taylor: Exactly. Instead of selling your wheat, you feed it to the cow that you brought up from the United States, and turn around and sell the beef back to the Americans, because the beef market is not too bad.

Mr. Shauf: There is only one more wrinkle added into that -- the United States has its loan deficiency payment.

Senator Taylor: For beef, you mean?

Mr. Shauf: The loan deficiency payments for grain, which really allow the United States producers to ignore what the real market value of grain is within the United States and in Canada.

Senator Taylor: That means that wheat is moving out, is it not?

Mr. Shauf: Right now, American barley is coming into southern Alberta to those feedlots, because of the fact that the United States producer, regardless of what he sells that grain for, can still receive the loan deficiency payment in the United States. That loan deficiency payment brings him up to the value of the U.S. loan rate.

In terms of how it functions, it is almost like an export subsidy. The reason it does not qualify as an export subsidy is because it is also available in their domestic market. It does not qualify as an export subsidy, but from a Canadian point of view, it has the same impact. It allows people in the United States to move things into Canada at less than a market price, and to have the U.S. government make up the difference for what they received for it. Without a whole lot more explanation, that is the general principle of how it works.

Senator Taylor: The fact is that the American feeder markets' exports to Canada were increasing, and that some sharp Canadian farmers out there were taking advantage of the cheaper grain, feeding it to the livestock, and shipping the steaks back to the Yankees.

When we toured out west last year, I heard a few people knocking the wheat pool. That must not surprise you. One of the complaints they had was that you were so big and so oriented to large markets that you gave short shrift to people trying to develop niche markets, particularly organic farmers. The message they received at your elevator was to "buzz off" -- that you did not want to be monkeying around with a small producer. They seemed to think that you were more interested in the big boys.

Mr. Shauf: The perception that the Saskatchewan Wheat Pool is big is something that we have had in the province for a long time. Some people think that it is too big. However, when you talk about the Saskatchewan Wheat Pool relative to the issue that Senator Whelan talked about a few minutes ago, size is a relevant term, and it is always relevant to something. While the Saskatchewan Wheat Pool is big in the province of Saskatchewan, and a good size in the country of Canada, it is not big on a global basis.

Saskatchewan Wheat Pool has been very involved in organics for the last couple of years. We have designated a few elevators in the province specifically for organics.

Senator Taylor: That would not mean that a poor guy would have to haul his product 300 miles to get to the elevator?

Mr. Shauf: We will do a lot with regard to working with that producer to move it where it needs to be. Last spring, we also acquired a company that had a small mill, and we have converted it specifically for organics.

Senator Fairbairn: In your comments to us today, you have placed a great deal of importance on the negotiations that will begin in the World Trade Organization. Do you feel that you have adequate input into the government process leading up to those discussions, which will start next summer?

In a domestic sense, you have communicated very vigorously with the government in terms of the issue that we are dealing with now, which is the farm income crisis. However, this is a big negotiation. It is one that you clearly do not want to see go on and on for seven or eight years. The idea of having something done in a more compact time element is important to you. Are you just as vigorously connecting with the government on this international level? Do you feel that your access and your input are sufficient?

Mr. Shauf: We do put a lot of effort into communication. It is a big process, and Canada will not necessarily have its own way in these negotiations. Both the Saskatchewan Wheat Pool and the CFA have an ongoing dialogue about what we feel is important relative to what we, as producers, need to know in the next round. We will continue that. There have been a number of conferences, and government will continue to provide us with the opportunity to have input into upcoming trade priorities. The process is there, and includes a very public communication process, as well as private processes.

Senator Fairbairn: When Ms Higginson was here a week ago with Sally Rutherford, both of them gave us a clear indication that we should come to as general a consensus as possible going into these things. At a different level, this is exactly the same kind of issue that faces the government. I gather that quite a bit of work is being done on that, although it is an imperfect science. Are you satisfied that that is coming together within the federation?

Mr. Shauf: We put a lot of work into exactly that yesterday in the CFA trade committee. It will not be perfect, but I am quite comfortable that. We are much closer to an agreement within CFA as to what Canada's trade position needs to be relative to agriculture. There is a wide area of agreement. It is coming together.

Senator Fairbairn: Have you any comment on that, Ms Higginson, further to what you said last week?

Ms Higginson: Since our presentation, we have had another trade committee meeting. We have had a comprehensive, long and successful meeting looking at our position and members' positions moving into the next round. It certainly gave us a good base to move forward on this.

The Chairman: We would be pleased as a committee to receive recommendations pertaining to trade from both the Canadian Federation of Agriculture and the Saskatchewan Wheat Pool, if you have recommendations that we might carry with us. We would be pleased to receive them before January 9, 1999 or thereabouts. We would appreciate receiving that input from you.

Senator Robichaud: The committee is preparing to visit Europe. You are quite familiar with everything that is happening there. Surely there are weak links in the way they deal with the subsidies. Do governments all feel the same way? Surely, some are feeling more pressure to reduce than others are. Can you provide us with some information as to where we should be knocking, which doors we should spend more time at, and where we would have more chance of influencing them and making them understand just what impact those subsidies have on agriculture, especially in Canada?

Ms Higginson: I will talk about some of the major issues that we have brought up in regard to subsidization in the European Union. One of the major issues is their continued use of the blue box -- that is to say, the support programs. They are production limiting, but we would consider them to be trade distorting, although there are no reduction commitments on them.

In the Uruguay Round, they managed to fit that category into the last minute Blair House agreement. A lot of countries -- including that U.S., which also used blue box -- saw it as a transitional measure that would be phased out. From what we have seen in some of the cap reforms on the Agenda 2000, they are looking at it as a more permanent measure than what we would like to see. Certainly, any pressures in terms of eliminating the blue box would certainly be a message that we would want to push on the European Union moving into the next round of negotiations.

A number of countries are looking at joining the European Union, and the expansion of that union will certainly put a lot of pressure on the agricultural budgets in terms of the cap reform. If momentum is given to decreasing subsidization in the European Union, that should give some political tailwind to reducing subsidies within the European Union.

Mr. Shauf: The countries that may join the European Union -- and I do not recall right off the top of my head which ones they are -- will bring with them potentially large agricultural production, which will make it hugely expensive for them to subsidize.

Senator Robichaud: Should we encourage those countries to come in as soon as possible?

Mr. Shauf: Several things may happen. The European Union may decide that it cannot afford to subsidize everyone equally, and it may continue to subsidize the countries that they presently have at a different level than the new entrants. As Canadians, we need to understand what the potential for agricultural production may be if those other countries do come into the union, and how they may be treated.

I do not know what the Europeans will do. They have said that they need some time for a transition. In this agreement, they were given time to move through that transition. They have not dealt with the export subsidy however, because they have effectively increased it during that period of time. If they have something that is moving like this, and they must come down to an agreed-upon level, it seems to me they have a huge potential for impact in terms of what they do with all of the production that they accumulate every year. Their ability to put that on sale in the international marketplace will be decreased in the year 2000.

If there were a way of encouraging them to begin that transition period in the little bit of time that they have left, that would be an important thing for them to do relative to export subsidies, from a Canadian point of view.

Senator Robichaud: When the crunch comes in the year 2001, and it is time for them to reduce that subsidy, will there by any way for them to keep it on?

Mr. Shauf: There is a way that they can do it if they can have other countries agree to it.

Senator Robichaud: By other countries you mean non-European countries?

Mr. Shauf: Other countries in WTO, or other signatories. The closer they come to that date, and because they have not having achieved that level in both dollars and volumes, the more likely it is that there will be a renewed agreement for an extended transition period. If anyone could convince the Europeans to begin to move through that transition now relative to export subsidies, it would do both Canada and Canadian production a huge favour.

Senator Taylor: Last week the Germans and the French had a fight about what you are talking about. The new German government wants to cut agriculture, so for anyone who thinks the Europeans are a monolithic block, it is not so. Have you been following the German and the French subsidies for grain export, and the fact that the Germans want to cut it down to half?

Ms Higginson: We have heard a lot of different reports coming out of the discussions on the cap reform. I cannot talk specifically on it, but we certainly do follow it, yes.

Senator Robichaud: Where is the weak link? Should we not work with those people to help them make the others understand? When it comes to subsidies, governments all have budgets, and they all must tax. I am sure that some of them would prefer not to subsidize as much as they do. If you hear of anything, certainly it would be good information for us when we are over there to help make the point.

Ms Higginson: I have made a note of it, so we would certainly pass any information that we can gather between now and the time you leave on to you, in terms of where the best lobby strategy is when you are on your European visit.

Senator Rossiter: Since Canada did reduce its subsidies quickly, according to the Uruguay Round, are we now in a position where we cannot increase the level?

Mr. Shauf: No, my understanding is that we could, as long as we stayed within the agreed-to limits. Canada could provide subsidy dollars.

Senator Rossiter: That would be a decision on another level?

Mr. Shauf: Yes.

Senator Rossiter: The prices in the hog industry affect the people in my province, which is P.E.I. You seem to be optimistic, rather than pessimistic, about the hog industry. If things did improve in the hog industry, would it be because of the elimination, whether voluntary or not, of a great number of producers, thus resulting in less product? It seems that a lot of people will go under in the hog industry.

Mr. Shauf: The production levels that Canada was trying to achieve relative to where the demand was were erased to pick up market share, because there was huge demand.

The answer to that question will be based on how you perceive Asian economies and, in large part, how you think those economies will regain their health and ability to function in the marketplace. There is a lot of focus around the world on restoring health within those economies. At this point, I trust some of those initiatives to be successful enough to regain at least a healthy operating level.

Perhaps some of the premiums that were there will take some time to return. With agriculture, however, it seems as though sometimes we have these very optimistic times, and then we have these very dark times. It is never all black and all white. Sometimes when it is dark, we still must have enough optimism to realize that we need to be able to meet those markets when it becomes light. That will require some investment on Canada's part, to be able to keep producers functional, and to be able to meet those markets when the light returns.

The Chairman: I must leave the Chair for another meeting, and so I will leave Senator Whelan in the chair. I want to thank you for appearing today.

Senator Eugene Whelan (Deputy Chairman) in the Chair.

The Deputy Chairman: Both the Saskatchewan government and the Manitoba government withdrew the authority that the pork producers had for a price under the marketing board. As a supplier of feed, what are you about those pork producers who cannot afford to pay you for their feed?

Mr. Shauf: I do not know that I can answer that question specifically. I would imagine that it would be a different situation with each individual producer.

The Deputy Chairman: Whoever charges the fee will have a very difficult time right now.

Mr. Shauf: There will undoubtedly be some issues. There are some other issues around supplying inputs for grain. There are fertilizers, chemicals, and those kinds of things. That is not anything that is particularly unique to us, because agriculture is cyclical. We attempt in every way we can to work with the producers when they have trouble.

The Deputy Chairman: I hate to be facetious. When you say it is cyclical, I can mention a few commodities that we had to fight to have. You will talk about poultry and diary products and chicken under marketing boards. There is nothing. They have a formula that says that if their input costs go down, they must take less. It is a public formula that they have for eggs and turkeys, and it is the same for dairy.

When we look at the pork industry at the present time, the first six months of this year were pretty good. I have a pork producer in my neighbourhood who has 1,200 sows. He is losing $90,000 a month on his operation, and he has nine employees. If that same pork producer were to walk into a store, pick up 2 pounds of bacon and walk out, however, he would be charged with theft.

The packers receive a whole pig, and they just become richer. They are stealing the pigs, because they are paying whatever they feel like right now. That does not happen in the poultry industry. We do not have the cyclical thing in the dairy industry either. Here, people are producing a perishable product, and they are broke because of the economic flu, or whatever you want to call it. They are the victims of that.

When people like the auto workers are laid off, they receive about 90 per cent of their income. They are not productive, and they do not produce anything. They keep the money moving in their economies to buy their own supplies. I ask you to be very cautious when you say that agriculture is cyclical.

When I first became Minister of Agriculture, economists spoke to me when I had a bad year for beef. They said, "Mr. Minister, that is what happens. Every five years you have a bad year for beef." On the fifth bad year, they had no answers. They said, "we never saw anything like this before." I checked in history, and I did not have any answers either.

I have so many reservations about the World Trade Organization. Americans are still using the export enhancement programs that are supposed to be used for free markets.

There were 45 people on the House of Commons Agriculture Committee when I was its chair, and we were the first travelling committee in Canada. In Regina, I told them, "Your elevator system is obsolete. You should be changing it. You should be building modern cement and steel elevators like we are building in southwestern Ontario. You should be talking Lethbridge and Edmonton, the big government elevators."

The other day I saw in the Western Producer that you will close over 200 elevators in Saskatchewan. I do not pretend to be a messiah, but I smiled when I saw what kind of elevator you will replace the old ones with.

At the time, they more or less told me "you so-and-so, head back east and mind your own business." We had moved into grain production area. In southwestern Ontario, we had the most modern elevator system that existed in North America at that time; cement and steel, big hydraulic lifts, and that type of thing.

I become alarmed when I see $56 million for highways, and another abandoned railway line. I do not think you can build a transportation system for trucks in your province. You have abandoned too many lines to really service that area. The trucks get bigger, and I see it even where I live in southwestern Ontario.

Senator Robichaud: Is there a question in that, Mr. Chairman?

The Deputy Chairman: That is my sermon for now. It is too bad that we have not moved more quickly.

Mr. Shauf: We eventually followed a large part of your advice.

The Deputy Chairman: I never thought that I would live to see it.

Senator Taylor: I would like to hear your opinion on whether or not you think, in this international grain market, that true competition exists outside the subsidy. Is there a danger that grain prices, in this case in addition to the subsidies, are being manipulated by giant food cartels?

Mr. Shauf: That is a difficult question to answer. For anyone who has a huge piece of control within a market, the more the power base consolidates, the more risk there will be of that happening.

When you look at food production and food marketing, there is a lot of interest in it. There is a lot of power involved in food production and marketing. It is something on which the world places a relatively low importance, considering how important it is to people and economies. It should have a higher profile.

Senator Taylor: Would the Senate be serving taxpayers well if it were to investigate or look into the reality of competition in the global food market?

Mr. Shauf: The first issue in food is to ensure that we clean up the subsidies, and that we clean up access to the markets. We must at least provide an environment where the marketplace will work. When you look at the consolidation of power in any market, the same issues of risk and manipulation exist.

The Deputy Chairman: I will sum up by saying that whatever the Canadian Federation of Agriculture decides on trade, we would like to know what they are doing. If you do decide to present something to the government, and you do not like what the government does, it will be late to come back to us and say, "Look at what you did. We want you to straighten that out for us." We would like to know about these secret meetings that you are having, and what you are deciding.

We tried to receive all the minutes of the meetings that took place from the Uruguay Round. We could not receive any information because what they were doing was a big secret, although they were making big decisions on our behalf.

Thank you very much. It may not sound like it, but I am a great admirer of the Saskatchewan Wheat Pool and its philosophy.

Mr. Shauf: Thank you for giving me the opportunity to be here.

Senator Fairbairn: I wanted to make a comment on the future work of the committee. I move, seconded by Senator Robichaud:

That the Chairman, in consultation with the steering committee, be authorized to make final arrangements for the committee's fact-finding mission to Europe.

This motion is necessary to keep the process moving while we are not here.

The Deputy Chairman: Is it your pleasure, honourable senators, to adopt the motion?

Hon. Senators: Agreed.

The Deputy Chairman: Carried.

The committee adjourned.