Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 21 - Evidence - October 28 meeting


OTTAWA, Tuesday, October 28, 2003

The Standing Senate Committee on Agriculture and Forestry met this day at 5:43 a.m. to examine the issues related to the development and domestic and international marketing of value-added agricultural products.

Senator Donald H. Oliver (Chairman) in the Chair.

[Translation]

The Chairman: I call the meeting to order. This meeting of the Standing Senate Committee on Agriculture and Forestry is being held to examine the issues related to the development and domestic and international marketing of value-added agricultural products.

[English]

Honourable senators, in its report ``Canadian Farmers at Risk.'' the committee devoted a section to value-added products in agriculture. The committee recommended that the government develop a comprehensive strategy that encompasses tax incentives as well as direct federal government funding and expertise to enhance the development of value-added industries, including farmer-owner initiatives in rural Canada.

It is the belief of the committee that the adoption of value-added production and security and expanding trade exports has become vital to the survival of Canada's agricultural economy. Demand for value-added products has increased, as has the competition from other countries. If Canadian producers are to excel in this environment, they are required to innovate and adapt to advances in new technology and changing consumer demands.

Honourable senators, this evening we have invited officials from the Canadian Agri-Food Trade Alliance. Appearing before us this evening on behalf of CAFTA is its president, Mr. Menzies, and his executive director, Ms. Townsend.

Welcome and please proceed.

Mr. Ted Menzies, President, Canadian Agri-Food Trade Alliance: Honourable senators, it is great to be back. I know a number of the senators around the table. Some of us, in fact, have some history going back to the battles in Seattle, even. It not only feels better, it smells better than tear gas here tonight.

I wish to thank the committee for inviting CAFTA to meet with you this evening to discuss the value-added industry and international trade.

I apologize that we were unable to provide a translated formal submission. However, as you know, our invitation was issued with extremely short notice. I am sure that our executive director could provide that, if you so wish. Ms. Townsend spent much of her weekend putting this package together, on very short notice, so I wish to thank her for that.

I wish to first take some time to introduce my organization. CAFTA, or the Canadian Agri-Food Trade Alliance, is a coalition of organizations, associations and companies representing producers, processors, marketers and exporters of agriculture and food products. We represent the international trade policy interests of about 180,000 primary producers, mostly of grains, oilseeds and cattle, a large cross-section of the primary processing industry, including oilseed processors, maltsters and meat processors as well as further processors or consumer product manufacturers. We also represent marketers and exporters of both raw and processed products. CAFTA is the only trade policy advocacy group in Canada that represents the entire food supply chain.

Our members recognize the importance of the relationship between producers, processors and exporters. We work together to achieve the best results for the entire value chain.

I am a farmer. I produce grains, oilseeds and specialty crops on my farm in Southern Alberta. As a business person, I understand the value of access to markets, not only to bulk export markets for my wheat, barley, canola and specialty crops, but also to domestic processing markets that process my production and export it as a higher-valued product.

My wheat, for example, ends up in baked goods exported around the world. The canola produced on my farm ends up in oil and further-processed products like margarine in Asia and other markets. Coriander grown on my farm can end up in curries prepared in India, and the chickpeas that I grow are processed into hummus for the Middle East or for stews and dips for Mexico.

While much of my production is exported as bulk product, the domestic processing markets are often my best option for price and market security.

CAFTA was invited to meet with you today to talk about Canada's value-added sector and some of the impediments it faces in the international marketplace. In preparation for this presentation today, we surveyed our value-added members, asking them to provide us with information on the impediments they face as they work to increase Canada's exports of value-added products. In the time given to me, I will move briefly through a number of impediments faced by our members. While I will give you a 10,000-foot view of the issues, I strongly encourage you to hear directly from our members, to get more detailed information. I understand that one of our members will present to you next week. I encourage you to listen to all the specifics that our members can bring to you.

Increased wealth in a number of countries has changed consumer diet preferences. The demand for meat and meat products is growing, replacing some of the demand for bulk grains. As wealth increases, demand for even more highly processed products increase. Canada has recognized that in its export development strategies and has targeted the value-added sector as a growth industry, and value-added activities have increased in Canada. However, despite its success, the industry still faces significant impediments to its continued growth, ranging from the application of tariffs to the discretionary use of trade remedy measures to non-tariff barriers like labelling, packaging, and health and sanitary requirements. One of the most obvious barriers to increased trade is the application of tariffs by countries around the world. High and discriminatory tariffs, restrictive tariff rate quotas and tariff escalation are faced by almost all of our value-added members.

For example, Japan has bound a 38.5 per cent tariff on imports of beef. Its use of the World Trade Organization safeguard measure has increased this tariff to 50 per cent on frozen beef until March 31, 2004. Based on historical evidence, the complete removal of Japan's 38.5 per cent tariff would result in a new market for 550,000 tons of beef and beef products valued at $1.5 billion U.S. Canada could easily capture 10 per cent of that new market, returning $150 million U.S. and creating almost 2,000 new jobs for Canadians.

Similarly, if the 40.3 per cent tariff currently applied by Korea were removed, Canada could capture a new market value of $60 million U.S. and create almost another 1,000 new jobs.

Tariffs are also a significant impediment to growth of the canola processing industry in Canada. Korea applies a 47 per cent tariff on canola oil. The tariff in South Africa is 67 per cent, while in India it is 85 per cent. In most cases, these tariffs are prohibitive, keeping Canadian canola oil and other processed products out of the market.

There is an added impediment for canola oil in that tariffs are often lower for its direct competitor, that being soybean oil. In India, for example, while the canola oil tariff is 85 per cent, the tariff on soybean oil is only 45 per cent. If the canola oil tariff were the same as that of soybean oil, Canada could easily export another 200,000 tons of oil to India. That would require production of another 500,000 tons of seed. The return to producers and processors would be more than $200 million annually.

Canada has a competitive and efficient sugar refining industry that contributes to a healthy and competitive food and beverage processing sector. Yet, the Canadian sugar refining industry is hindered by the application of prohibitive tariffs. For example, the sugar tariff is 175 per cent in the European Union, 156 per cent in Mexico and 165 per cent in the United States. High tariffs and export subsidies keep Canadian refined sugar out of offshore markets. The very high tariff and skewed access commitments applied by the U.S. have limited access to that market for Canadian refined sugar to less than .1 per cent of the U.S. sugar market.

The practice of applying higher tariffs on more highly processed products also has a negative impact on Canada's value-added sector. While Korea applies a 40 per cent tariff on beef, it applies a 70 per cent tariff on beef jerky, which is a value-added product. In Japan, the bound tariff on beef is 38.5 per cent but the tariff on seasoned beef, such a prepared hamburger patties, is 50 per cent.

Tariff escalation is also a significant problem for the oilseed-processing sector. For example, Japan imports oilseeds free of tariff, but it applies a tariff of about 20 per cent on imports of refined soybean and canola oils. This tariff prohibits access for Canadian oilseed processors, preventing them from competing for a share of the 2.4-million-ton bulk vegetable oil market in Japan. Since Japan has no domestic oilseed production, this is a clear example of tariff escalation employed to protect value-added processing in Japan at the expense of more efficient and more competitive oilseed processing in Canada. Similarly, India applies a 35 per cent tariff on canola seed and an 85 per cent tariff on oil. Taiwan applies a 9 per cent tariff on seed and a 15 per cent tariff on oil.

The Canadian malting industry is also affected by tariff escalation. China applies a tariff on malting barley of 3 per cent, but the tariff on malt that is made from the malt barley is 10 per cent. There is also an additional 17 per cent value-added tax on imports of malt. Tariff escalation is practised to subsidize the domestic processing industry in these countries to the disadvantage of Canada's processing sector.

As the application of tariffs and tariff rate quotas are subject to the increased disciplines of trade agreements, the use of non-tariff barriers to trade increase. Canada's value-added sector continues to struggle with barriers created by regulations, protocols and other barriers in other countries. Trade remedy measures such as anti-dumping and countervailing duties have the potential to very seriously affect our agriculture and value-added sectors.

Canada's beef sector experienced the impact of this discretionary use of these measures when, in 1998, the U.S. undertook a countervail duty and anti-dumping investigation of live cattle exports to the United States. Over two years later, the United States International Trade Commission ruled that Canadian exports did not cause injury to the U.S. cattle industry. While it proved that the dispute settlement provisions of the NAFTA do work, it also demonstrated a need for more effective and timely dispute settlement provisions. This was a very costly victory — a cost of somewhere in the neighbourhood of $5.3 million to the industry.

In addition to the temporary losses resulting from the provisional duties, the industry incurred millions of dollars in legal bills defending against the U.S. challenge. This dispute also highlighted the need to place rules on who should bear the defence costs, to avert frivolous investigations. Currently, the United States is experiencing the negative impact of these actions as its beef industry suffers through repeated challenges from Mexico.

Restrictions and bans on imports based on consumer preference and perceptions without a solid base in internationally accepted science have had and continue to have a detrimental effect on Canada's value-added sector. For example, the United States is scheduled to implement mandatory country-of-origin labelling on beef in the fall of 2004. All beef that is not from cattle born, fed and processed in the United States will be required to be labelled. The integration of the North American cattle and beef markets will make tracking, tracing and identification extremely time- and resource-consuming and will substantially reduce the competitiveness of the Canadian industry.

The United States Bioterrorism Act and its accompanying regulations will have a tremendously negative effect on the Canadian value-added sector. The requirements to register facilities that ship food to the U.S. and to provide advance prior notice of each and every shipment to the U.S. will substantially increase costs and reduce the competitiveness of Canadian food processors and exports.

The European bans on beef from Canada because of the use of growth proponents is another example of unjustified protectionism. Canada's use of growth proponents has been successfully challenged at the WTO, yet the EU continues to maintain the ban.

Japan has also made known its intention to ban unspecified livestock feed additives from its markets. The beef industry is very concerned that this could result in bans on imports of beef from countries that use the products that will be banned in Japan. This is also the case of the EU ban on products of biotechnology. Canadian canola and its products have no access to the European Union market, and not because there is any scientific evidence that the product is not safe. Quite to the contrary, the ban is simply a form of protectionism.

China has recently begun requiring new more restrictive labelling on imports of beef and beef products than is required by other importers. It has given notice that the requirements will be expanded to include the requirement for all boxes to be printed in the Chinese language. These requirements impose very high costs, therefore reducing the efficiencies in all meat processing facilities.

In May 2001, China also approved new food regulations that applied to products of biotechnology. The regulations include measures for labelling, research production, marketing, transportation and imports. Exporters are still operating under an interim system that requires extensive documentation. The requirements have changed on several occasions without notice. CAFTA's canola and canola-product exporting members are concerned that China will use this system to manage imports.

Differences in regulations, labelling, nutrition and other standards and requirements between Canada and its trading partners add substantial costs to our value-added sector. Despite the fact that there is no scientific evidence or cause for health or safety concerns, the lack of mutual recognition of standards and regulations requires our value- added industries to comply with a number of different requirements in different markets. This not only increases costs, but also, in some cases, results in closed borders.

An example can be found in the canola industry in Canada and the U.S. because the two countries maintain different labelling requirements. Canadian manufacturers of canola oil and margarine must provide separate labels for markets in each country. This not only substantially increases costs for Canadian manufacturers, but also could provide confusing information to Canadian consumers who have access to U.S. products and advertising.

Another inconsistency in regulatory policy is occurring around the addition of vitamins and minerals to foods. Canadian and U.S. regulations do not allow the same levels of vitamins and minerals to be added to food products like cereals, beverages and margarine. This results in formulation differences. If a Canadian food manufacturer wishes to supply both countries, it has to shut down the line, clean it out, recalibrate the equipment, and then run the separate formulation, while maintaining separate inventories, including packaging and labelling. This causes a loss of economies of scale and decreases the food manufacturer's ability to compete.

Differences in grading, testing, quarantine and production methods between Canada and potential export markets also reduce the ability for the Canadian value-added sector to compete. Often, the Canadian industry is put at a disadvantage because of a lack of understanding or communication between negotiators and the sector. For example, when negotiating a trade agreement with China, Canadian negotiators agreed that employees working in meat- processing plants would not wear knit cotton gloves. This agreement was clearly made without a solid understanding of the meat-processing industry. The use of cotton knit gloves is still the standard in both Canada and the United States. While China has temporarily suspended the restriction, it is still on the books and is a threat to the Canadian beef-processing interests.

Another example can be found in the efforts to negotiate access for Canadian beef to Taiwan. Canada operated for eight years with a tariff disadvantage to the United States because negotiators did not have enough knowledge of grading and testing systems in Canada and the United States.

Both of these problems, and many more, could be avoided if negotiators worked more closely with the industry in Canada. The detailed knowledge and experience found in Canada's food-processing industry need to be incorporated into the negotiations of international agreements and protocols before and during the negotiation and in the implementation of the agreements and protocols.

Mr. Chairman and members of committee, I have only touched the surface of the issues facing our value-added members as they strive to grow and increase their participation in the international marketplace. I hope you will have the opportunity to meet with them separately to explore these and other issues in more detail. The difficulties and impediments I have raised here are just a few, but they clearly demonstrate the need for the development and enforcement of comprehensive rules to govern international trade on a global basis. This is why CAFTA was formed — to advocate a more open and fair trading environment, governed by clear rules that apply to all WTO countries.

I would be negligent in my duties as president if I did not make clear to you tonight the critical need for an ambitious outcome to the current international trade negotiations. CAFTA supports very strongly the mandate for agriculture to which all WTO member countries agreed when launching the Doha Round of negotiations. We need to achieve substantial increases in market access, substantial reductions in trade distorting domestic support, and the elimination of export subsidies, in addition to the development of clear and effective rules on trade remedies and disciplines on the use of non-tariff barriers to ensure that they are based in sound, internationally recognized science.

We were in Cancun for the fifth WTO ministerial meeting. While there was no final agreement in Cancun, we believe there was progress made in agriculture. For the first time since the negotiations began, countries moved off their initial positions on agriculture and actually began to negotiate. The proposed framework for agriculture negotiations put forward in Cancun was a step in the right direction. While not perfect, we believe it could serve as the basis for the development of an agreement that will take the next steps toward a more market-oriented, fair and liberalized trading environment.

We would certainly welcome questions.

The Chairman: Thank you for that most excellent presentation. You certainly raised a lot of questions and provided a lot of new information about barriers and obstacles that I was not aware of. As public policy-makers, one of the things we would like to be able to do is to propose solutions to many of the problems you raised. Your suggestion that we have to do some things internationally is something I am sure the various senators will ask you about.

Senator Wiebe: I would be remiss, before I begin, if I did not welcome a previous member of this committee who is with us tonight, former Senator Berntson. I had the privilege of serving in the provincial legislature of Saskatchewan with former Senator Berntson. This goes back many years, but I am sure the same arguments we raised then could be raised today.

I do not think anyone on this committee would disagree with your presentation. We all realize that many of the agriculture problems facing us are a result of a lack of meaningful negotiations within the World Trade Organization. It paints a bleak picture and does not really leave much hope. I say that because we have gone through these kinds of negotiations for a number of years, and while there was a glimmer of movement at Cancun, it will take a while, much longer than some of our Canadian producers will be able to survive to take advantage of some of those changes.

One of the areas that our committee seems to be concerned about is that of value added. We seem to be a country that pushes for value added only for the benefit of the country or the province and not for the benefit of the producer. The Americans are moving much faster in encouraging value added so that the benefits of value added go to the actual producer. The producer moves up the value chain. Whether we are talking about an ethanol plant or a flour mill, unless the producer has a stake in that plant or mill, there is no benefit of value added to him, because the price he gets for his grain will be determined by world markets, not necessarily the fact that he may be half a mile from the particular plant.

How do we overcome that problem in this country? How do we get the message out to producers? Maybe we should be directing it to governments, although I hate to have governments interfering all the time. Somewhere along the line, someone has to get the message out that we have to start investing in our future and our own value added.

Mr. Menzies: Thank you, Senator Wiebe. I do not share your gloomy prospects.

Senator Wiebe: Am I too pessimistic?

Mr. Menzies: I would not say that; perhaps I am just more optimistic. We need to keep it in perspective. Agriculture just entered into the negotiations. It was in the Uruguay Round that agriculture appeared on the radar screen. We have been dealing in industry trade negotiations for a long time. I am sure people in the steel and other industries would say that all is not completely well there either. Agriculture is such a motherhood issue — everyone's grandfather had a farm, everyone still has a connection. However, as time progresses the generations become more disconnected. It is difficult to get past the emotion of the issue, but we have made a move. This draft framework for agriculture text certainly did not bring us out of Cancun with an agreement, but it appears, after visiting with Minister Pettigrew yesterday, that it may be the point from which we should move forward.

For the first time, the wording in that text speaks to an end date to export subsidies. We have never heard that before. Perhaps I am too much of an optimist, but we have never had agreement before on an end date to export subsidies. It is a leap of faith that we are moving in that direction. There are other things in the text that are not perfect, but there are steps in the right direction, for example, getting European Trade Commissioner Lamy to admit that the EU's domestic policy hurts other countries. We have known that all along. We know that the U.S. Farm Bill hurts our Canadian grain producers to the tune of $1.8 billion per year. To get them to admit that is probably a step in the right direction.

To answer your question about how to get farmers involved, we have opportunities for them to become involved in new generation co-ops, which are starting up on the Prairies. The farmers are the owners. We have inland terminals where the farmers are actually the exporters. They have to partner with a terminal on the East Coast or on the West Coast but farmers are getting involved and having more control over their futures. If we cannot develop rules around trade, it will be tough for these farmers to realize these increased returns.

As I asked earlier, what happens to the wheat, to the barley and to the peas from my farm? I need these processors. There is too much rhetoric that the processors are ripping the farmers off. They too are struggling because of the tariffs that limit the opportunities for them. Malt is one of the best returns for my farm right now, and that is not because I do anything to it. I simply sell it to a maltster, who turns it into malt barley and exports it. There are opportunities for farmers.

The Chairman: Why is malt a best return for you?

Mr. Menzies: People like beer.

The Chairman: You get a good price for it, and it is not competitive because others are not growing it. Is that right?

Mr. Menzies: We grow the best malt and the best wheat.

Ms. Patty Townsend, Executive Director, Canadian Agri-Food Trade Alliance: The Canadian malting industry provides the highest return per acre for any cereal market in Canada. Canadian malt is highly respected around the world. Other markets cannot get enough of our Canadian malt, so they bid premium price to purchase the malting barley. Producers often form partnerships with processors. Whether they own the processing company, they still form partnerships. The best example of that is the canola crushing industry that forms partnerships with producers to get certain kinds of canola, production methods and qualities. They pay premiums for that.

There are partnerships between Canadian milling industries and wheat producers to get certain levels of protein in their wheat and certain levels of gluten strength that provides a more lucrative market for producers. They recognize the importance of the partnerships, even if they do not own the processing companies.

Senator Wiebe: I agree with your comments about the beer industry, but correct me if I am wrong on this: Is not part of the success of the beer industry the fact that we do consume a fair amount of it? There are some small tariffs on beer imported into Canada from other countries, as a protection to that domestic beer industry. That is just an aside. This is something we certainly have to deal with in the total global picture.

You mentioned the inland terminal. Yes, there are new-generation co-ops, which we learned about from the U.S., especially in the Midwest. Each of these organizations, like our new grain terminals, has to partner with an international company. They have to form those partnerships, as you said, so that they may find shelf space for the processed product that is sold right here in Canada. Even though I have one of the best mills in the country, I have no guarantee that I will have shelf space unless I hook up with a major player. Should government be looking at that? Is the availability for shelf space right in Canada?

Mr. Menzies: I do not think that Canada is the only country with that issue. Personally, I would not want to see governments get involved with that. Many of the impediments we talked about in our presentation are a result of government becoming involved in an attempt to protect the industry. We are looking at a more open trading system that could provide those benefits.

Senator Wiebe: I have one more question, which is difficult and you do not have to answer if you do not wish to. On the one hand, one of the biggest disadvantages from the general public's point of view of senators is that we are appointed rather than elected. On the other hand, however, one of our biggest advantages is that we are in a position to ask some pretty tough questions. Everything today, whether it is value added, in respect of agriculture, has to be big in order to survive. Should governments worldwide start treating agriculture like a business or like a way of life?

Mr. Menzies: Thank you for the tough question. I appreciate the opportunity to answer that.

I would disagree with your comment that you have to be big to survive. There are opportunities.

I know a guy in Prince Albert who grows carrots. It is a small operation that is doing quite well. A fellow in Alberta is doing well growing carrots. They are not big operations, and they are very labour intensive. Who would have ever thought you could produce carrots commercially in Prince Albert? He is pumping water out of the North Saskatchewan River.

There are opportunities for smaller operations, too, in the specialized niche markets. The organics, for example, are not big operations, but there are opportunities for them. There are opportunities in identity preserve.

I grow specialty canolas in an IP program. It does not have to be big acreage. I locked in at $10 a bushel for my canola if I delivered a specific quality of oil. There are opportunities.

Senator Wiebe: That did not look after the entire operation of your farm, though, did it?

Mr. Menzies: No, but it adds to the bottom line. Would you please repeat the second part of your question?

Senator Wiebe: Should all countries, Canada included, be looking at agriculture as a business or a way of life?

Mr. Menzies: A business. I have asked in several different forums why agriculture should be treated differently from any other industry around the world.

Senator Tkachuk: I am sure glad that we have all that free trade!

On page 2, it says, in part:

There is an added impediment for canola oil, in that tariffs are often lower...In India for example, while the canola oil tariff is 85%, the tariff on soybean oil is 45%.

Why is that?

Ms. Townsend: You would have to ask the Americans. When we were negotiating our trade agreements, we got an agreement between the U.S. and the European Union. Everyone else had to jump on board. It was called the Blair House Agreement.

The United States was able to negotiate on a country-by-country basis lower tariffs than Canada was able to negotiate, mostly because the United States soybean market is so much larger than the Canadian canola market. Canola, at the time the Uruguay Round was being implemented was still what we call a Cinderella crop and still growing. It just happened that the United States negotiated a better deal with India than we were able to.

This was due to the request offer process used in the last round to negotiate agreements, where countries would say that they want this and in turn you have to give us this.

We are hoping this will not be the case this time. We hope to have clear rules that will apply to everyone for all competing products. It really is keeping Canada's princess crop — canola — out of the Indian market, which is the largest market in the world for vegetable oil.

Senator Tkachuk: In the different countries you mentioned, such as Korea, India, et cetera, are most of the tariffs specifically aimed at us, or are we just caught up in other world affairs and, therefore, exposed to the problem because those countries are developing the tariffs for other countries and that product applies to us?

Ms. Townsend: They develop the tariffs for themselves. Tariffs are put in place to protect markets. Countries want to protect their markets.

The canola one is geared at us, but it is not because they want to get Canada. It is because canola was not as popular a crop at the time as soybeans were. It was easier for them to give on soybeans for the U.S. and harder for us to gain the equivalent access for canola of Canada.

Senator Tkachuk: I am a Catholic. I always think that converts are better Catholics.

No one has been a bigger convert on free trade than the Prime Minister of Canada. To his credit, he has gone around the world promoting trade and reduction of tariff barriers all over the world. The Government of Canada, because of the Prime Minister's aggressiveness, has talked about South America as a free trade area that we should explore. He has gone to Asia and done the same. We have the European Union block that has been a pain and will remain so. There are the emerging countries of India and South Africa — the continent of Africa.

In the processing business, we cannot solve all the problems. On what area of the world should we focus — and I do not mean to the exclusion of others? On which should we focus first?

Meanwhile, we may get lucky through some agreement in the WTO to solve the problem. Where should we start?

Mr. Menzies: You have to start big. I firmly believe that. One of the negative side effects coming out of Cancun is that the Americans are now quickly trying to do bilateral agreements. It appears to be to circumvent the WTO.

We have bilateral agreements in Canada. Some of them are working wonderfully, but it is to the detriment of those countries that are not participants in those agreements. If we get left out of bilateral agreements, then we are the odd person out and we do not have the opportunity to benefit.

The biggest concern is the developing countries that get left out. The European Union and the Americans look at the markets of developing countries. They are huge markets with tremendous potential. They want access, but they do not want to give access to developing countries to their markets.

If we start picking and choosing where you will look for gains, we could end up losing and a lot of the developing countries that really need rules will also lose.

Senator Tkachuk: The WTO should be our major focus on trade policy?

Mr. Menzies: CAFTA is focused on that. We are not focused on free trade of the Americas, NAFTA or anything like that.

We need to remember that WTO membership is voluntary. If they do not like it, they can walk away. They are not walking away. They all see benefits for the developed countries, as well as for the developing countries and the least developed countries. The opportunity is there.

We need to keep focused on the big picture, and we strongly encourage senators and members of Parliament to keep in mind that that is where the benefits to Canadians will come from, as well as those countries to which we send aid to help out.

Ms. Townsend: I should like to give you the example of the problems with regional agreements in our processed sugar industry. In the sugar industry, the use of export subsidies and market access barriers is probably the highest of any product in the world. Sugar faces 150 to 300 per cent tariffs around the world.

In addition, huge export subsidies are used to dump sugar on the international market, so the international price is extremely depressed. Canada, therefore, must rely on the United States. We cannot export anywhere but the U.S. because the international prices are low and the tariffs are high. Even though our industry is one of the most competitive in the world, we cannot export into those markets at the current international prices.

We are negotiating an agreement with the Central American countries. One of the members of the Central American country agreement will be Guatemala, which is one of the world's largest producers of sugar. They are also heavy export subsidy users of sugar.

Without some disciplines on a global basis on export subsidies and on market access, we cannot offset what will happen if we enter into an agreement where Guatemala is free to export into Canada. We cannot offset those exports into Canada with exports elsewhere because of the depressed international prices.

We need a global agreement that brings down export subsidies, that gets market access barriers down, so that we can accept those imports from Guatemala and offset those with exports in other areas of the world. It is a good example of why we need global agreements and why regional agreements sometimes are not always the best thing.

Senator Fairbairn: It is a delight to have you both here. I wish to begin by offering a very warm welcome to Eric Berntson. We became good friends back in 1993 when I had the honour of being the Leader of the Government in the Senate. Mr. Berntson was the deputy leader on the other side. Those were tough days. There was a Liberal minority, and we had to maintain very good relationships with our friends on the other side. Mr. Berntson was always a very straight dealer, and I appreciated it.

Senator Tkachuk: That is why we miss you there, Senator Fairbairn.

The Chairman: Maybe she is coming back.

Senator Tkachuk: I asked her that this afternoon.

Senator Fairbairn: Moving right along, this is a very good brief. It gives a terrific snapshot of where we are in this very difficult area. I should like to ask you about Cancun, and what we have been discussing in the latter part of your answers, because I was watching it. I wish I had been there; nevertheless, I was watching it like a hawk.

I had a real flashback from my time in Seattle. You will recall that when we were all indoors trying not to be tear- gassed there was not a lot to do. All the negotiations were taking place behind closed doors, in green rooms, or whatever they were called. I hung in for hours one day, sitting in the big conference room where all the representatives from the countries from around the world — all of the developing world — were able to get up and give a statement that would be seen back in their countries. I sat there for hours, listening carefully, and came out absolutely convinced that all the stuff that was going on behind the closed doors was missing the boat. Here were all these other countries, so many of them — and how angry they were becoming because they were locked out.

They had been asked to take part in the WTO and come forward — in some cases, at probably great expense to themselves — and there they were, with no one to talk to. They were very adamant — they almost walked out in Seattle, but of course it was such a curious meeting that there was no place to walk out to.

They did it again, as I understand, even in part, in Cancun, except in Cancun it seemed to have an influence. I was interested in that because of what you have been saying, that we focus almost sometimes exclusively on the major trading partners. It is tough — and everything you say in this brief shows how tough it is. However, there is also the rest of the world. I am wondering if you could talk about that a little bit, Mr. Menzies.

As well, you express at the end of your presentation that, in spite of all the difficulties that went on in that last round of meetings, you came out feeling more positive that progress had been made. I wonder if you could talk a little bit about that. Particularly, has there been a bit of a sea change in the attitude toward the big guys and their attitude toward the developing world, which wants so badly to be in? I wonder how long it will stay in the room if we do not respond more vigorously and generously with them.

Mr. Menzies: Obviously, you were paying attention, because there certainly was a mood change there. At the mini- ministerial in Montreal in July, there was a sense that no one had moved away from their initial negotiating position — none of the 146 countries, I think, at that time, had moved far off its initial position. That was what the to-and-froing was about in Geneva, at the ambassador level and the negotiator level; they were reaffirming their initial positions.

In Montreal, at the mini-ministerial, they realized that we could not go to Cancun with this or that we would be absolutely doomed to failure. It is unfortunate, but the two major players are the European Union and the Americans. They said, ``You two sit down and hash out a proposal and present it to us in Cancun, and we will see where it goes.''

There were probably some countries offended by that — frankly, I think Brazil had had enough. It is a developing country, albeit not developing in certain industries. Their soybean industry has very much moved out of a developing phase. They have had enough of being dictated to. I think your perception is right, that they want to be part of this negotiation — them and a number of the other countries.

Hence, the G21 that became the G22 that became the G23 that now has fallen back because of other bilateral issues since Cancun is now the G17. However, they are still saying the same thing, that you cannot force us to give access to our markets if you do not reciprocate and allow us the same opportunities. You cannot keep adding export subsidies and dumping into our countries. You cannot keep throwing money at cotton and dumping it on the African countries, thereby devastating the cotton industries of four countries, to the point where they do not even grow cotton any more, they process. I met with a cotton farmer from Kenya. He no longer even grows cotton, but his neighbours process the cotton that comes from the United States.

So yes, there was a certain push back. Where it will end up, I am not sure; but I think the Europeans were caught off guard, as were the Americans, which is why I think they are trying to form some of these bilateral agreements right now.

Canada has the opportunity to be a leader in this. The Cairns Group, which Canada is a part of, was looking at a very liberalized agenda and was pushing forward. However, Brazil and some of the other countries did not think they were pushing fast enough nor accomplishing what they wanted to. That is part of where this group came from. I think Canada has a great opportunity. We are looked up to in the WTO, not as one of the biggest trading nations, but as a leader in fair trade.

The Chairman: Even with supply management?

Mr. Menzies: We are small potatoes, but we are respected. Having said that, we still have an opportunity to be a leader. Whether you agree with where the G17 is going or not, it is a push back for those countries that are abusing it — through the U.S. Farm Bill, through their food aid, which is simply a dumping of excess product for them, for their distortions in world markets and for the disruptions they have caused in trade. You are right. What Canada does, we still have an opportunity to lead this and we have an opportunity to redefine our position.

It is a little fuzzy out there because some people think we have one foot on the gas and the other on the brake. We have an opportunity to redefine that position, get off our initial position, and move forward with a very aggressive position that will help us and those developing countries.

Ms. Townsend: I wanted to answer the question as to why we came out of it more optimistic than when we went into it in Cancun. If you were at home watching it, it probably sounded like a horrible failure and a collapse.

You have to remember that agriculture was being negotiated at the negotiator level, while these green room sessions with ministers were going on in other areas. Agriculture never got into the green room. It never got to the ministerial level for negotiation. However, during the negotiator sessions, countries actually started to move off their initial positions. For example, we started seeing movement from the European Union on some of their ludicrous domestic support programs. We saw the same from the United States.

Much of that was because of the push back from the Brazil-, India-, China-led G21. Even though it did not get into the green room, we ended up with a text that was proposed for agriculture that took us quite a way down the road toward being able to achieve that Doha mandate, which was elimination of export subsidies, substantial reductions in domestic support and substantial increases in market access.

It was because of the push back. It was much better than that which the European Union and the Americans had put forward, which was a mishmash of their position and the heck with everyone else. This new text provided negotiators with the opportunity to make some substantial progress. We were told by the people doing these negotiations that agriculture was a few hours away from getting some sort of an agreement at the negotiator's level to take to the ministers.

We are hoping to build on that momentum because it was the first time in four years that we got any movement on agriculture. That is why we were more optimistic than some other groups.

Senator Tkachuk: You said that some people believe we have one foot on the brake and the other on the gas. Is it possible that we do have one foot on the brake and the other on the gas?

Mr. Menzies: Yes, we do. That is the plain and simple answer. To put it bluntly, and Ms. Townsend will probably slap me for saying this, we are aggressively asking for market access to other countries' markets for export commodities. Our members represent 80 per cent of agri-food exports out of this country. That is a huge amount of production. In a number of his last presentations, Minister Pettigrew talks about Canada as a trade-dependent country. I do not think you will get anybody to argue that. He reminds everyone that he is the trade minister, so it is pretty relevant that we need to keep pushing for more trade liberalization.

Canada is asking for market access for our export commodities. However, in the next breath, we are saying, ``But you can't have access to our protected sector.''

That is the decision that a government has made. They need to deal with that. It is not for me to decide how they will deal with that.

We are constituents of this country. We are taxpayers in this country. We can bring huge benefits to this country, if we can expand our industries, if we can increase exports, if we can add value to what we are producing and export that.

Senator Tkachuk: We had a meeting at which some senator asked, ``What would happen if we got rid of the marketing boards?'' I do not know which product that was in reference to. The answer was, ``Oh, it would be the end.'' I think it was chickens or something. The only thing that ran through my mind was the wineries during the free trade debate, where they were running all over the country saying that it will be the end for them, that they will all go broke. If I were to compare the industry 20 years ago to today, the difference is like night and day.

Mr. Menzies: That was all over free trade, I believe. The wine industry is a shining example. New Zealand has gotten rid of protectionism. Any kiwi farmer will tell you that his land values are going up, not because the subsidies are being capitalized into the value of his land but because there are more farmers doing very well. They are an exporting nation. They have a smaller population than we do. They are exporting good prime lamb and apples. They have a booming tourist industry. They have diversified. They were presented the opportunity to prosper without subsidies, and they have blossomed.

Senator Fairbairn: Thank you for that update. To hear you describe it, there are great challenges for us. However, it would appear that there is some movement in that broader direction, which ought to be a place where Canada can do well.

On the last page of your presentation, you make a number of references to problems of understanding, of communicating between negotiators and the industry. At one point, we Canadians had a reputation for some pretty good and tough negotiators, some of whom are now retired. I am wondering whether this has to do with the quality of people as much as it has to do with the need for a different process between the government level of negotiation and the industry for which they, hopefully, are negotiating.

Is it the process rather than the people?

Mr. Menzies: Please do not get us wrong. We are not trying to be critical. We have an excellent group of primary negotiators. There are many other deals, many other negotiations, other than what is going on at the WTO.

Who would have guessed about the knit gloves? You are right, senator, it is a lack of communication.

We strongly encourage, and we have encouraged, our negotiators, as well as ministers, to include the industry in their discussions. We would like to be part of them. We think we have some very relevant information here, as well as the meat processors. Had their been one representative from a meat processor along when that deal was negotiated, it would have been simple to say, ``Just a minute. We have a misunderstanding here, and I am sure that is all it is.'' Do not get us wrong, we are not trying to be critical of the negotiators. It is a lack of communication. The industry would like to be part of this.

Senator Fairbairn: After what our domestic cattle industry experienced this past summer, a positive outcome, in my view, has been the very concentrated effort at constant communication at all the levels on this issue. It is one of the reasons we have kept people together, poised and ready to move forward, in spite of the horror of it all.

Again, it is not such a difficult thing to do. It is a question of will.

Ms. Townsend: To reinforce Mr. Menzies' comments, our international negotiation team at the WTO is the best in the world. They are an amazing team. The communication process is amazing at the international negotiation level.

Canadian organizations and Canadian industry were among the best, if not the best, informed in Cancun. We had the best briefing sessions. We were constantly in the room with the ministers and negotiators. We can find no fault with that process whatsoever.

The problem arises in the implementation of the framework agreements. For example, with respect to the agreement implemented with China, when China acceded to the WTO, there was so much detail and so many things like the cotton gloves and the Chinese language on boxes that if you do not have somebody intimately involved in the industry itself who has to accommodate those kind of things then you cannot possibly understand all the nuances and all the details.

If you were to ask Mr. Haney from the Canada Beef Export Federation about these things when he appears next week, he will echo these comments. It is not that they do not think negotiators are doing a good job. It is that they need somebody there who has the intimate knowledge of the sectors for which they are agreeing to these regulations and things.

Senator Gustafson: I should like to welcome Eric Berntson to our meeting. Eric Berntson probably got as much money for western farmers when he was in the provincial government as anybody I know. I happened to receive one of those phone calls. Thanks, Eric, for the farmers.

With regard to the subject of subsidies, for 24 years now, as an active farmer and a member of the House of Commons and the Senate, I have heard, ``Get the Americans and the Europeans off subsidies and our problems are over.''

As I look at it now, we are further away from that than we were 25 years ago. I have figures here before me. Riceland Foods, Inc., of Stuttgart, Arkansas, received $426,286,229. The name ``Riceland Foods'' tells me that it is probably in some kind of rice development.

Here, Producers Rice Mill, Inc., of the same city, received $217 million. We can go down the list, for a total of $114 billion worth of subsidies.

Just a year ago, there was an additional $90 billion that the Americans threw in for over a 10-year period that was additional to all of this.

Senator Tkachuk: Real money.

Senator Gustafson: When this committee was in Europe, we found out that the Europeans have done things quite differently. They are subsidizing heavily, as you know. They have united the environment, rural development and agriculture. They will not back away from that. They are too far into it. There may be lip service to this, but it is not happening.

I contend that in the new global economy that we are facing — with the exception of Brazil and countries that have very low input costs and are doing well, but that also affect us indirectly — we are in trouble. Our farmers are in trouble.

You mentioned that this year you got $10 a bushel for canola that was contracted. My neighbour got $10, and he got two bushels an acre, dried right out, and he is wondering how he will meet that bill. These are the things our farmers are facing. Certainly, there are areas where farmers have done well, if they have deep pockets. When you have $2.40 for durum wheat and you cannot deliver a bushel of it, it does not go far in paying the bills. We are in some serious trouble.

Let us go to the added value. Weyburn Inland Terminal Ltd., which has done better than any inland terminal in Western Canada, wanted to put up a pasta plant. I believe Senator Wiebe referred to it in our last meeting. Because of the way the Canadian Wheat Board handles things, they were unable to move in that direction.

We face some very serious problems that our government has to deal with in relation to a global economy. If we do not, there will be fallout there. In my opinion, this is very serious.

I have much more here.

When you are answering or commenting on it, you might want to give us your position on genetically modified wheat as well. These are the hard questions we face, but they are there.

Mr. Menzies: That is a tough question. If I can answer your last question first, CAFTA has stayed out of that debate on genetically modified crops. It is a very emotional and charged debate.

However, as we said in our brief, we are being kept out of the European market on something that is not science- based, whether it is growth proponents for livestock, genetically modified food, or a chemical that you and I spray on our wheat that cannot be used in the United States — and we do not have harmonization of those chemicals — that is not based on sound science.

I will not say more on the issue.

If we do not get some rules and move forward, you are right, those dollar figures that you are quoting are blatantly wrong. It is all politics, but it is the motherhood issue around agriculture. They seem to be able to take that kind of money from the taxpayers and give it to the farmers, in disproportionate measures. That does not make it any more right that they do it.

If our Canadian government and every other government of these 148 countries that are involved in the WTO get off their high horses and realize how that distorts markets for your neighbours, for my neighbours, for those farmers in Kenya, we can move that ahead, but it will take some aggressive movements by these governments. We can get to the point.

Certainly, each country wants to protect its environment, as does Canada, but we cannot cloak that in subsidies to those farms. There is a reason that some of those subsidies are so high. They farm the mailbox in the United States. They do not farm the land. They get offended when you say that, but they base their cropping plans on what the programs are. That is absolutely wrong.

Senator Gustafson: On that point, until we get a North American common market, a free trading market, nothing will change. There are impediments in Canada to that market, mainly the marketing boards, the chicken, milk and so on. They say their border is closed, yet they want free trade. It is not good for negotiations.

I will take it one step further. It is not good for western grain farmers.

Senator Wiebe: As a supplementary to that, Senator Gustafson talked about the tremendous supports that are being given to farms in the U.S. Ms. Townsend mentioned something about the ludicrous domestic support programs being paid out in Europe. Our world trade negotiations are important because they will eliminate the export subsidies. The group that we are meeting with next week, the Canadian Grain Growers Association, sent us a brief that we have looked at, and they tell us that removing the export subsidies would realize about a $27 a ton increase in spring wheat.

I want to go back to the question I first asked you about, agriculture as a business or a way of life. The Europeans and Americans are treating agriculture like a way of life. They are saying, ``Look, we are going to make sure those farmers stay on the land, so the only way to do it is to pay them these huge subsidies.''

If all of the subsidies were reduced to zilch tomorrow, the price of grain would not go up one red cent, because we still have the same land base and the same number of farmers on the land. We have very few subsidies in Canada, yet our farmers continue to seed spring wheat, continue to seed durum and go into chickpeas. My son-in-law was successful for four years with chickpeas; he made a killing. His neighbours found out he was making a killing, and now everybody is in chickpeas and no one is making a killing.

We are far too good at what we do. The problem is overproduction.

I asked a representative from the Wheat Board what the farmer in Europe will do if we do away with all of the subsidies, and he said, ``He will quit farming.'' That is true. However, with respect to what will happen to the land, whether it will go to weed, no, it will not. Someone else will buy the land; it will still be producing.

Europe and the U.S. have said, basically, ``Look, we will treat agriculture in this country as a way of life.''

Senator Tkachuk: That is not true.

Senator Wiebe: Yes, they have. We in Canada are halfway in between, whether it will be a way of life or a business. Both federal and provincial politicians in Canada, to calm the pressure, are saying to the farmers that everything will be fine, once we get rid of those terrible subsidies they are paying to the Europeans. That is putting false expectations in the minds of our farmers.

Taking export subsidies off will increase the price of grain, but unless we find other products to grow on that land, or other uses for that land, the price of grain will not change, barring some weather misfortune somewhere in the world.

Am I assessing that in the proper manner?

Mr. Menzies: I hate to disagree with you twice in the same hearing, but I must.

I look at the situation differently. The reason many of these countries are growing what they are in the volumes they are, and overusing pesticides, chemicals and whatever else, is that they are paid to produce that product.

In the United States, there was a huge soybean subsidy. Planting decisions were not based on what was the best return to the farm; those decisions were based on the best cheque that would appear in the mailbox. They were paid X- cents per bushel on soybeans one year; the enticement is there to grow more the next year, because you know you will get the same thing. The distortions in programs have created the overproduction.

We need to get some rules around this process — so that I can grow chickpeas because there is a market signal that tells me there is a return from the world price, to make it profitable for me to grow that. Otherwise, I will not grow chickpeas, durum wheat, malt barley or whatever it may be.

When you say these subsidies are treated like a way of life, what a way of life, vis-à-vis the numbers Senator Gustafson was giving us. How fair is that to the taxpayer? That is unsustainable; it will not continue. Those numbers, as they are available to Senator Gustafson, are available to every American taxpayer. They are finding it quite offensive. The system will not continue that way. Those subsidies have been capitalized into the value of land and the cost of production. They say they need so many dollars to produce a bushel of this or that.

Senator Wiebe: Since our farmers have been forced to survive, they have gone out and used the technology that our research station has developed. They are using as much fertilizer as Mother Nature will allow so that they can get more return per acre. The Europeans are following our example. They have moisture that is altogether different from ours. A farmer there will try to get as much as he possibly can out of that acre. We are doing the same thing here. We do not get the same kind of subsidies, yet we are pushing that soil as hard as we can. Our farmers have to do that because of the low price.

What will happen to grain prices once Poland or the southern Ukraine joins the European Union? Land there is cheap. They will sell the land in Great Britain and Germany and flood those areas. That is tremendously productive land.

We must start looking at some other way to make use of that land because we are awfully good at what we do. It goes back to the age-old concept that, if we treat farming like a way of life, that system will survive, but if we treat it like a business, while we will save the taxpayers money, there will not be many farmers in this country but a lot of land will still be farmed.

Mr. Menzies: Maybe we are getting talking too much about grain production, but grain farmers certainly are very efficient operators. However, I do not overuse fertilizer. I do not know if you know the price of fertilizer, but you do not want to waste it. We target fertilizer. We soil test and fertilize to the nutrient requirements of those soil tests.

Senator Wiebe: The Europeans do the same.

Mr. Menzies: We specifically place it between the seed rows, where it is most appropriately used.

Senator Wiebe: The Europeans do the same.

Mr. Menzies: There are environmentalists who will tell you about the run-off pools of chemicals and fertilizer over there that would argue against those comments. However, the efficiency that we have gained is because of the necessity to become efficient. We do not abuse those types of inputs, because of the cost. We will grow the most appropriate crop for the returns. We need to make our farm survive.

When you talk about these other countries coming into the European Union, there is a cap on that subsidy. It will lower the subsidy for the French farmer, who is accustomed to high subsidies. Since we have some rules — we are looking for more — but we have this cap in place so they cannot go above that. We need to continue to put rules around that, or the system could be even more abused than it is and you will see bigger numbers then.

Senator Gustafson: I wish to defend the farmers. The American Farm Bureau is the most powerful lobby in the United States. They will tell you that in Washington. Their system of government defends the heartland. They have two senators for each state and they defend the heartland. The American concept of agriculture is a different attitude from Canada's.

People are moving into the urban centres and we are told we have to get more money for Toronto, Montreal, and the other big centres. It is quite a different story in the United States.

Mr. Menzies: Are you arguing for an elected Senate?

Senator Gustafson: I will go for it.

Ms. Townsend: There are a couple of new things. Regarding domestic support, one of sleepers of this whole thing in the WTO is what we call the peace clause. The peace clause is a due restraint clause in the Uruguay Round Agreement on Agriculture that prevents countries from challenging the programs of other countries if those countries are acting under their WTO obligations.

In other words, if a country is providing export subsidies but is providing them to the limit that they are allowed by the Uruguay Round, or if it is providing domestic support but within the limits allowed by the Uruguay Round, whether or not they are distorting, no other country can challenge them because of the peace clause. The peace clause expires at the end of December of this year. It is an extremely important clause for the Americans and the Europeans because they know that they will be challenged on their domestic support programs. In fact, Brazil has a cotton challenge outstanding that they have tried three or four times. The Americans keep pushing them back, saying that they are operating within their obligations and that the peace clause protects them from being challenged. That will probably be the first one to be challenged when December 31 passes.

One ray of hope for us is that, because the Europeans and the Americans want so badly to have the peace clause extended, they will have to give something up in order to convince countries like Canada, Brazil and all the developing countries to allow them to extend the peace clause for even a month or two. We are expecting them to give us better offers on domestic support.

On the issue of subsidies, I want to bring in another comparison. If you compare the Pacific Northwest, the heartland of America, to Canada, you will see that the climates and soil conditions are pretty well the same. If you look at the crop mix, in the States you see corn and wheat and sometimes soybeans. They keep growing those products because they keep getting subsidies to grow them. In the same area in Canada, we have coriander, ginger, lentils and canary seed — an incredible mix of crops. That is because Canada has not had those kinds of subsidy programs, so they are looking for the niche markets. Canada will be the leader. The United States looks at us with envy. They know that if they lose the support programs, they will be toast, because they do not know how to grow those other crops.

Senator Hubley: We heard from a witness who held up Brazil as one of the countries that seemed to be doing many things right as far as their value-added industries are concerned, and I think New Zealand was brought up tonight. Could you comment on those countries and others that are very successful in marketing their value-added products?

Mr. Menzies: I wish I had an answer for you on Brazil. Perhaps Ms. Townsend has a better understanding, but my understanding of Brazil is that they are a very low-cost producer of a commodity, which is the reason they are scaring the daylights out of the United States.

The Chairman: Low cost because of subsidization?

Mr. Menzies: No, low cost because of low cost of inputs. They are buying farmland, for example, for in the neighbourhood of $200 to $300 an acre and clearing it. It is fairly easy to clear. Within 12 months, they have a 40- bushel-per-acre soybean crop. They get 80 inches of rain a year. They double crop — they get two crops a year. Cost of production is very low.

It is my understanding that they will continue to be a producer of bulk commodities. That is why Canada needs to add value to what we grow. Soybean growers in southern Ontario cannot compete with those kinds of prices, except for the fact that they do through identity preserving those soybeans, be they organic or a specific oil content or oil type, right through to the processor of tofu in Japan. We should be making tofu right here and sending it to Japan. We will survive in competition with those low-cost producers if we can add value to what we are growing. Maybe the Ukraine will be that low-cost producer, although I do not think so.

The increase in soybean acres is about 23 per cent. They are planting the soybean crop in Brazil right now, and they are looking at a 23 per cent increase in acres. We cannot compete with that, but we could add value to what we are producing, which they will not do, and that is where we have the opportunity.

Senator Hubley: In some cases, the barriers are staggering. It is hard to believe that tariffs could be that high on certain value-added products. One wonders how the farmer will even be interested in going in that direction, if that is the case.

Mr. Menzies: Once again, that is why CAFTA was formed. We did not have an organization of producers, processors and exporters who were raising these concerns. For some of you folks, this may be the first time you realize that Canadian industry faces these kinds of tariffs. We are here to provide that message to you, so that you can tell our negotiators to change that, to be aggressive in this round of negotiations. Let us remember that we committed in Doha to eliminate these distortions. If we do, our industries will survive. We as taxpayers and businesses in Canada will be able to prosper and contribute to this economy.

Senator Hubley: Can your organization target countries and create markets within countries for our value-added products? China, with its large population of consumers, has high tariffs, but are there other countries where the tariffs are not high that we could target for specific value-added products? Can you create those markets for our products?

Mr. Menzies: I wish I could. Our organization is strictly based on trade policy. Our members are doing a very good job of exploring these markets. Ted Haney of the Canadian Beef Export Federation will present to you next week. They are a glowing example of developing markets, partially because their backs are to the wall right now and they are looking for new markets because they have lost the American market.

There are opportunities out there, but the goal of our association is to raise the flag on how unfair some of these are for our exporters. In the classification of market promotion, our member companies and member associations are doing a very good job. The Soybean Growers Association of Ontario is doing a great job of market promotion. They know where the tariffs are and they look for a country that has a lower tariff.

The Chairman: You have told us a lot about international trade barriers and tariffs and so on. We are studying value added. Could you comment briefly on whether the majority of people who grow produce for export are experiencing interprovincial trade barriers? If so, could you comments on that?

I ask that because after we hear all the witnesses our committee will be making recommendations to the government, and your views would mean a lot to us. I should like to hear from you on what, if any, interprovincial barriers you have experienced and what issues you would like to see us study and perhaps make recommendations on.

Second, in your paper, you said that the difficulties of implementing are because of enforcement of comprehensive rules that govern international trade on a global basis and that detailed knowledge and experience found in the Canada food processing industry needs to be incorporated into the negotiations.

What can this Senate committee recommend along these lines? I understand why you say it, but what steps can we take as a committee, as public policy-makers, to move that forward? Do you understand my question? I have an international and a domestic question for you based upon us as a committee and what we as a committee can do to further this agenda.

Mr. Menzies: As far as interprovincial barriers, I am afraid I cannot shed much light on that. I was hoping Ms. Townsend could. She deals on a day-to-day basis with our member associations.

Ms. Townsend: You need to understand that CAFTA has a specific mandate, which is to achieve liberalized trade on an international basis. It is difficult for us to comment on domestic regulations and policies other than those that have an impact on our ability to export or have access to international markets.

The Chairman: If farmers want to add value to their product here for export, have you heard of any barriers where they are having difficulty adding value so they can sell a commodity at higher price internationally?

Ms. Townsend: Our processors have outlined a number of things that give them difficulties in adding value to producers' product. They encounter problems in terms of health and safety regulations, for example. Again, because we look more at creating market access opportunities internationally, and because there are only a few of us, it is very difficult to take that kind of comprehensive approach, so our organization has decided to take a very strong look at international trade barriers to try to look at opportunities internationally. We only have a certain number of mouths to feed in Canada, so we really have to look internationally to build, both for our value-added members and our producer members.

I will add to your second question. Our processing and value-added members are saying that one of the steps government could take when they move into the implementation process of an agreement — using the China agreement as an example again. Canada negotiated an agreement with China to allow China to accede to the WTO. When we negotiated the framework for that agreement, there was a lot of consultation and good discussion on that basic framework, but when it came to implementing the agreement and it got into the detail about, for example, whether the boxes should be a certain size or whether we had to have certain language requirements or whether our processors would wear knit cotton gloves, it fell apart, because there was not someone there with an intimate knowledge of what this meant for the industry when they were negotiating those sorts of agreements. Government could say, ``When we go to negotiate the details of an accession agreement or the details of any agreement, we will bring those who are experts in those sectors with us. We will always have someone in, say, the beef processing industry with us when we are negotiating access for beef and negotiating rules and regulations on beef. We will always have a canola crushing person or a canola processing person with us when we are talking about requirements for adding nutrients or vitamins or minerals or whatever when going into the United States or Europe, wherever.'' Integrated into the negotiation of the implementation of those agreements, they need to have the experts there — the people actually processing the product and actually getting it ready to export.

The Chairman: Is that not the case now? Are those types of experts not being taken along?

Ms. Townsend: It has not been the case in the past. With respect to beef in Taiwan, for example, there was not enough intimate knowledge of Canada's grading system and how it compared to the U.S. grading system to get us the same sort of access into the Taiwanese market that the Americans got because the negotiators in charge of implementing that agreement did not understand the nuances of grading systems and what they mean and the equivalence in grading systems between the U.S. and Canada.

The Chairman: That is very useful. Did you want to add anything, Mr. Menzies, to what this committee could recommend to help with the international barriers?

Mr. Menzies: No. There is not a lot more I can add, but many factors need to be considered, such as the differences in cultural diets and what is acceptable and what is not. In the processing industry, how was it processed? Is it acceptable to that country? Communication is the biggest part of it. Communication would go a long way to solving what have become issues now.

Senator Gustafson: As you know, a number of terminals have sprung up in the last five years in Canada, buying the raw product. There is Cargill and Archer Daniels Midland, ConAgra, and so on. These companies are heavy in the processing business. I sell my canola to a big processing plant in North Dakota. The reason they are there is to buy up the product. It is certainly not because there is a lot of money in the grain business. However, they are big processing companies. Archer Daniels Midland advertises in New York, ``We feed the world.'' How will we compete with the big players like Cargill, ConAgra, and so on? They are all there. They are the processors of the world. I agree we should try, certainly.

Mr. Menzies: We are all dealing with the world price of the processed product. Whether ADM or someone else processes that product, they are all dealing with the same end price. We should do whatever we can do to encourage that processing in Canada. Look at our oil industry. We used to have a Canadian oil industry, but unfortunately it is now an American-owned oil industry. One thing the government can do is to encourage the opportunities to add value rather than just exporting the raw products. We exported logs back in the 1970s. We sent all our logs out of this country. There are opportunities to do something with our wheat and barley, among other things, within this country that will mean jobs, dollars and spin-off business, and we are dealing with the same world price.

Senator Gustafson: Iowa Beef Processors bought out the biggest feedlots in Alberta. They own them. They are the biggest cattle company in the world.

Mr. Menzies: We need to be thankful that they are there this summer. I am getting a little off topic, but if there were not a couple of American companies processing beef we would have had a bigger disaster with BSE than we did.

Ms. Townsend: Cargill, for example, which is one of the biggest multinationals in the world, processes chicken in Alberta. They process beef in Alberta. They have located in Canada for reasons that obviously made economic sense to their business, and that is what we need to do. We need to continue to ensure that we provide both the physical environment and the regulatory environment necessary for them to locate in Canada. We produce different kinds of products than they do in other countries in the world that they want to process to get the niche market. We need to encourage not just Canadian processors but all processors to locate in Canada, because then we benefit. There may be regulations within Canada that are causing them to look elsewhere right now, and we need to get to the bottom of that — and some of our members can talk about that with you — to make the environment the kind of environment they need to locate in Canada.

Canada not only has a better physical environment vis-à-vis clean air and water, but also and ample supplies of land and water, better ways of disposing of waste, better technology and better research in a lot of cases. Companies will look to Canada to locate value-added processing if we can ensure that we can provide them with the kind of environment they need to do that.

Senator Wiebe: Before I ask my question, I will comment in terms of attracting processing to this country. In terms of grains, we seem to be doing an awfully good job. This surprised me.

One witness who appeared before us last week gave us certain statistics. It appears that, of the pasta manufactured in Canada, only 5 per cent is owned by Canadians. Of the breads that are manufactured and processed in Canada, Canadians own only 26 per cent. Should that concern us? That is an important question for the committee.

I think that led to Senator Gustafson's question which was: Should we be concerned about the fact that we are unable to attract Canadian investors? How do we encourage investment by Canadian producers in order to take advantage of value-added products?

The solution to counteract that investment in Brazil was to process that same product here. I agree with you that we should process it here. However, our farmer will receive exactly the same price for that product as Brazil is selling it for because Brazil will determine the world market price for that raw material.

Unless the producer owns part of the processing unit, he will gain no value-added. Value-added is good for the country in terms of jobs and taxes.

The Chairman: It is also good for the farmer. If the farmer is producing coriander and adding value, then it is good for the farmer.

Senator Wiebe: It is if he has a share in that processing plant. The world value of a product dictates the price that our producer receives for that product. It does not matter whether the product is chickpeas, coriander or whatever. Those of us in the central part of Canada should be thankful, in a way, that the mid-west producers did not go into coriander and chickpeas, because our price would have been devastated years ago.

We are concerned about processing, but we are much more concerned about the farmer. If we want to help him through this mess, we must develop ways for him to receive some benefit as a part owner of, or through the value- added process. I could discuss this until all hours of the night.

Mr. Menzies: We could too. Those are interesting comments, and I respect the fact that you are thinking of the farmers in this equation.

I chose to be a farmer, but I did not choose to be a processor and I did not choose to run a railroad to transport that product. Let us take a hardware store as an example. The owner has chosen to be a retailer of a product that someone else manufacturers — call him a middleman — but he has chosen that industry. A farmer cannot be everything. A farmer chooses to be the primary producer and perhaps he can access the world market.

I would throw this in: I have an advantage over Brazil, because water freight costs have tripled in the last three months. The farmer in Brazil will receive less money for his commodity because he depends on exports. However, that makes me more competitive despite the fact that our dollar is going up, which decreases my competitiveness. I have chosen to be a primary producer of that product, and if I can access the world price and it is not convoluted through subsidies from the European Union, the United States, Japan or China, then I can survive by producing that primary product and selling it to a processor, whether Japanese, American or British.

Senator Wiebe: To follow up on that, I do not know the size of your farm, and you do not have to tell me. My son- in-law and his brother farm 5,000 acres together. They have made the decision to direct seed and use all the modern technology. They are surviving, and they are good mangers. They also have a sizeable farm. It goes back to the question I asked earlier and you answered about carrot growers in northern Saskatchewan. For grain producers to survive in the current system, they have to be larger. That was demonstrated to us in Europe when we visited some farms there. They will continue to subsidize to keep this generation on the farms. However, each child that we talked to on those farms has no intention whatsoever of staying on the farm, despite the subsidies. What will happen? Neighbour will buy out neighbour and the farm will become larger and larger. That is the direction of agriculture. Perhaps it is the position that governments should take on all of this.

Farming is no longer a way of life. It must be treated as a business. My son-in-law treats farming as a business and not as a way of life.

If we do not pay subsidies like the Americans do, our farmers will have a very difficult time of it. That is the situation today and we are trying to find all kinds of solutions.

Farmers have to plug along because, as soon as the Europeans do away with subsidies, their prices will go up. Are we truly doing them a favour? Do we actually believe that is the in which direction agriculture will go? Eventually the subsidies will be eliminated and prices will go up.

Should we follow the example of New Zealand where a farmer could accept a one-shot payment and decide whether he wanted to stay in agriculture or whether he wanted to use that money to gracefully exit agriculture?

Those are tough decisions and tough questions but these are the kinds of questions that this committee is considering. Whether we agree with what we are saying now to come up with some answers will be determined when we write our report. We will have an opportunity to take all of this information and decide whether this the direction in which we should go.

We have to quit pussy-footing around the real situation and look at it the reality of how it is and how it will be.

That is my sermon for tonight. Thanks for listening. These are some of the concerns that the committee needs to address.

The biggest advantage of this chamber is that we do not have to worry about being re-elected. We can take a good hard look at the issues and make the tough decisions that are best for the producers, the processors and for the country over the long term.

The Chairman: On behalf of the committee, I thank you for coming. Your evidence has not been mainstream, but you have not been afraid to take a new approach to resolving these difficult problems. Your evidence has been different from some of the evidence of other witnesses who have appeared before us. That helps us to have a greater understanding of the problems and the ways that we might approach a possible resolution.

The committee adjourned.