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.
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.
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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,
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
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
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
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
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.